Oxford Instruments plc Report and Financial Statements 2018
Oxford Instruments plc Report and Financial Statements 2018 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 provide advanced nanotechnology solutions to a broad range of end markets.
We are proud to be recognised as the leaders in what we do and for the difference we make in the world.
01: Strategic Report 03: Financial Statements Inside this year’s Performance Highlights 01 Directors’ Responsibilities 85 Report and Financial Our Business 02 Independent Auditor’s Report 86 Statements Chairman’s Statement 06 Consolidated Statement of Income 91 Chief Executive’s Review 08 Consolidated Statement of Comprehensive Income 92 Business Model 12 Consolidated Statement Strategic Context 14 of Financial Position 93 Our Strategy 16 Consolidated Statement Key Performance Indicators 18 of Changes in Equity 94 Operations Review 20 Consolidated Statement of Cash Flows 96 Finance Review 28 Accounting Policies 98 Principal Risks 35 Notes to the Financial Statements 105 Viability Statement 38 Parent Company Statement of Financial Position 134 Corporate Responsibility 40 Parent Company Statement of Changes in Equity 135 02: Governance Notes to the Parent Company Financial Statements 136 Leadership 49 Effectiveness 55 Accountability 61 04: Company Information Remuneration 67 Historical Financial Summary 145 Relations with Shareholders 81 Directors and Advisers 147 Report of the Directors 83 Oxford Instruments Directory 148
Front cover image: Fully functioning gyroscope structure, 2mm Find out more about us across; created by a Plasma Technology system. www.oxinst.com 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 01 2.3% 34.3% 1
profit before tax before profit 2 Transitioned to a more commercially commercially to a more Transitioned to focused, market-driven Group range of industrial a broad address and academic markets; and Continued investment in R&D with focus on customer solutions. increased • • Strong financial performance across performance across financial Strong Materials & Characterisation driven by portfolio and customer leading product markets. applications focus in growing Good second half performance in by a & Discovery was offset Research order weaker first half. Constant currency book up 15.3%. in Service & growth and margin Profit to driven by services relating Healthcare Reduction in revenue our own products. decline in the sale of the anticipated from systems. imaging refurbished £42.3m Adjusted (2017: £31.5m) 13.3p (full year) Dividend per share (2017: 13.0p) • • •
1 35.7% 22.4% 1 Oxford Instruments plc Report and Financial Statements 2018
operating profit basic earnings per share 2 2 Strong growth in orders and order book and order in orders growth Strong our demonstrate early success from market application focus; management and leadership Increased the Group; capability across Net debt down significantly to £19.7 million following good operating after cash flow and disposals. Profit sale of Industrial Analysis tax from of of £45.9 million and net proceeds £71.2 million. by 2.3% Full year dividend increased to 13.3 pence. Profit before tax from continuing tax from before Profit operations of £34.2 million (2017: loss of £26.2 million). Good progress in the early implementation Good progress in particular: of our Horizon Strategy, • • • • • Net debt (2017: £109.3) Adjusted (2017: 41.5p) £19.7m Adjusted Operational Highlights: • 56.3p £46.5m (2017: £38.0m)
1 1.1%
1
1
Reported orders up 5.0% to £313.0 million Reported orders of (2017: £298.0 million), an increase 5.8% at constant currency. book of £134.0 million Reported order 2018, up 5.0% (10.4% as at 31 March Excluding US at constant currency). book up 18.4% on a order Healthcare, basis. constant currency year in line with previous Reported revenue at constant currency. continuing from Adjusted operating profit operations up 22.4% to £46.5 million (2017: £38.0 million), with a currency benefit of £10.6 million – margin increase of 300 basis points to 15.7%. continuing tax from before Adjusted profit operations up 34.3% to £42.3 million of (2017: £31.5 million), an increase 0.6% at constant currency. Continuing operations. to constant reference we make of adjusted numbers can be found in Note 1. Where to adjusted numbers. A full definition these Financial Statements we make reference Throughout year rather than the actual in the previous rates which prevailed on a month by month basis using the translational and transactional exchange prepared numbers these are currency of our hedging programme. exchange rates include the effect Transactional in the year. exchange rates which prevailed 1. 2. • • • • • Financial Highlights: £33.4m operations Cash generated from (2017: £34.5m) Profit/(loss) before tax before Profit/(loss) (2017: £(26.2m) £34.2m
£296.9m Revenue (2017: £300.2m) in the early implementation phase of the Horizon strategy. Horizon the of phase implementation early the in It has been a positive year for the Group, with good progress progress good with Group, the for year a positive been has It Highlights Performance Our Business A leading provider of high technology products and services.
Our business is structured around three sectors to support our customer and application focus:
Products and solutions that Materials & enable the fabrication and characterisation of materials Characterisation 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 page 20
Provides advanced Research & solutions that create unique environments and enable Discovery imaging and analytical measurements down to the molecular and sub-atomic level, predominantly used in scientific research and applied R&D.
Find out more on page 23
Provides customer service Service & and support for our own products and the service, Healthcare sale and rental of third-party healthcare imaging systems.
Find out more on page 25
02 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 03 Quantum Technology Quantum Technology Energy Advanced Materials & Research Fundamental Science Healthcare & Life Science Healthcare Semiconductor & Communications Environment 3 4 5 6 7 1 2 The exploration of the regime where where The exploration of the regime dominate and radically quantum effects possible.is what of book” “rule the change recycling, production, This includes greener substances in soil, detection of hazardous and food. and agriculture efficiencies and improved Where drivers, core sustainability remain and includes work in photovoltaics and batteries. customers lead the we help Where higher stronger, race to develop lighter, materials. affordable functioning and more customers develop we help Where applications, gaining breakthrough insights. unknown previously Where growth is driven by demand is driven by growth Where in disease detection for improvements and the understanding of fundamental mechanisms. security is a focus on speed, there Where and capacity. Our global end market segments: Our global end market 1 2 Oxford Instruments plc Report and Financial Statements 2018 1 2 7 73% 27% 51% 49% Academic 3 Academic Commercial Commercial 4 6 3 6 5 5 4 This segment is captured within total Group revenue. within total Group This segment is captured 22% of Group revenue 22% of Group End market segments revenue revenue 38% of Group End market segments revenue revenue 40% of Group 0% 3.6% 5.0% 11.7% 10.5% 64.8%
operating profit operating profit operating profit 2 2 2
Adjusted (2017: £12.0m) £12.6m £66.8m Revenue (2017: £69.3m) Highlights Adjusted (2017: £13.8m) (2017: £125.3m) £13.8m Revenue Highlights £112.1m (2017: £12.2m) £20.1m Adjusted (2017: £105.7m) £118.1m Revenue Highlights We enable the world’s leading industrial companies companies industrial leading world’s the enable We analyse image, to communities research scientific and and atomic the to down materials manipulate and level. molecular Our business is structured around three sectors to support our customer and application focus: support our customer and application around three sectors to Our business is structured Our Business continued A globally recognised brand with a reputation for world-class product performance, unprecedented ease of use and excellence in service and support.
Our locations
We have 28 offices around the world.
We employ 1,576 people worldwide.
Principal offices and development & manufacturing sites For a full list of our locations please visit our website: www.oxinst.com/service-and-support
04 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 05 Oxford Instruments plc Report and Financial Statements 2018 Through market intimacy, the Group has developed an in-depth the Group intimacy, market Through understanding of customer needs, helping customers to accelerate their manufacturing productivity their applied R&D, increase nearly half of Oxford Today, and make new scientific discoveries. organisations. Instruments’ customer base comprises commercial Global business range of a broad is positioned to address Instruments Oxford technologies markets and industrial sectors, with its key enabling digital increased economy, underpinning the shift to a greener and advances in materials, life science and healthcare. connectivity, portfolio, offering a global base and comprehensive This provides diversification of opportunity and risk. Attractive end markets supported by sustained commercial robust, Our end markets are and government investment. This, alongside a customer strong capabilities, provides application focus and excellent core and margin improvement. growth long-term drivers for future Focused investment investment on market segments where focuses The Group research innovation, world-leading nanotechnology drives product it can maintain for customers, where and long-term growth leadership positions. customer relationships Strong Brand and reputation for world-class brand with a reputation A globally recognised ease of use and excellence performance, unprecedented product value increased Instruments offers in service and support. Oxford opportunities in growth to existing customers, as well as creating application-specific solutions with new market segments, through and workflows, bespoke analytics, data interpretation improved associated support services. Investment case USA £89.5m Rest of world £8.3m Germany £24.8m Japan £34.9m Rest of Asia £35.8m Rest of Europe £35.9m China £49.6m Revenue from external Revenue from customers by destination We are driving growth and improved returns for the benefit of all stakeholders as stakeholders all of benefit the for returns improved and growth driving are We intimacy, market in businesses our across capabilities core defined clearly embed we and productinnovation development, customersupport, and operational excellence. Oxford Instruments is a leading provider of high technology products and services to to services and products technology high of provider a leading is Instruments Oxford image, to communities research scientific and companies industrial leading world’s the level. molecular and atomic the to down materials manipulate and analyse, Chairman’s Statement It has been a positive year with the Group delivering a performance in line with our expectations.
It has been a positive year with the Group the year and created new leadership roles The Group has delivering a performance in line with our to sharpen our commercial focus. We also expectations and making good progress successfully completed the sale of Industrial continued to with the Horizon strategy. Management has Analysis early in the second quarter of the focus on the core continued to steer our business towards financial year, marking a significant change a greater focus on market segments and to our portfolio. applications, designed to help our customers capabilities of its Against this backdrop of activity and advance their businesses through enhanced repositioning for long-term sustainable Horizon strategy R&D and productivity improvement. As a growth, the team maintained their focus result, we are already starting to see improved as we embed best on near-term performance. Adjusted trading in some of our businesses and we profit before tax was up 34.3% at expect progress to continue as the Horizon practice across the £42.3 million (2017: £31.5 million) strategy gains momentum. Group. driven by a strong performance from our The Group has continued to focus on the Materials & Characterisation sector and core capabilities of its Horizon strategy: supported by favourable currency effects. market intimacy, innovation and product Adjusted profit before tax increased by development, customer support, and 0.6% at constant currency. Profit before operational excellence as we embed best tax was £34.2 million (2017: loss of practice across the Group. We have also £26.2 million) and adjusted basic earnings strengthened our management with new per share on a continuing basis was up senior leaders joining the business during 35.7% to 56.3 pence (2017: 41.5 pence).
06 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 07 Effectiveness carried out its annual the Board This year, including evaluation exercise, effectiveness of its of the effectiveness review a specific principal Committees and members. on page 55 Find out more Risk management accountability for reviewing has The Board the adequacy and and approving including internal of controls, effectiveness financial, operational and compliance and risk management. controls on page 57 Find out more Remuneration the The Remuneration Policy promotes strategy and delivery of the Group’s of Directors seeks to align the interests and Shareholders. on page 67 Find out more Engagement our investors ensure continue to We and transparent regular receive communications. on page 81 Find out more Our governance principles Leadership for leadership The Chairman is responsible and ensuring its effectiveness of the Board on all aspects of its role. on page 49 Find out more Oxford Instruments plc Report and Financial Statements 2018 I would like to thank the Board and all I would like to thank the Board employees for their dedication and hard work during this time of change to reposition to deliver long-term Instruments Oxford value and sustainable growth profitable that benefits all our stakeholders. Alan Thomson Chairman 12 June 2018 operating cash flow and the proceeds Good operating cash flow and the proceeds the sale of Industrial Analysis led from reduction in net debt to to a significant £19.7 million (2017: £109.3 million). in net debt and Given the improvement our confidence that the Horizon strategy is beginning to deliver tangible benefits, raise the final to has proposed the Board dividend to 9.6 pence (2017: 9.3 pence), giving a full-year dividend of 13.3 pence of 2.3%. (2017: 13.0 pence), an increase sets out in his Chief As Ian Barkshire the management team is Review, Executive’s energised in changing the way we operate, implementing the key tenets of the Horizon This will help position the Group strategy. of high technology as a leading provider leading and services to the world’s products research industrial companies and scientific communities. the key tenets of the Horizon strategy. Horizon the of tenets key the changing the way we operate, implementing implementing operate, we way the changing The management team is energised in in energised is team management The Chief Executive’s Review We have made good progress in the year with the early implementation of the Horizon strategy, which was introduced in May 2017.
Horizon progress We have made good progress in migrating Summary We made good progress in the year with to a market and customer-centric approach, • Materials & Characterisation the early stages of the implementation of offering solutions rather than tools. This allows us to provide more value to our performed strongly in attractive the Horizon strategy, launched in May 2017, and we are starting to see tangible benefits. existing customers, as well as creating growth markets. We continue to invest in I am encouraged by how firmly embedded opportunities in new market segments new product development within the understanding of our strategy is and through application-specific solutions with the sector to improve and expand how positive engagement has been across improved workflows, bespoke analytics, data our range of products and solutions. the Group. interpretation and associated support services. • Research & Discovery had Through Horizon, we have progressed a For example, customers developing higher an improved second half number of areas in support of our new efficiency, power and longer life batteries performance, with recovery in strategy. We have transitioned to a more need to understand and control the detailed optical microscopy systems and commercially focused, market-driven Group chemical and electrical interactions at the like‑for‑like order growth in through significant portfolio management nano and even atomic scale. Because battery Andor. An underperformance in and have implemented a new sector materials are very reactive and operate within an active solution this has been extremely NanoScience and X-ray Technology structure to align our businesses with our chosen customer segments and applications. difficult to achieve. To solve this problem, depressed the sector’s result, Our three new reporting sectors are Materials we developed a sealed sample and imaging however we are addressing the & Characterisation, Research & Discovery, and cell for our CypherES atomic force microscope challenges through structural Service & Healthcare. that enables the direct measurement of these change and business simplification. electrochemistry processes at the nanoscale We are now positioned to address a broad These self-help actions, combined for battery materials operating under their range of markets and industrial sectors, with with positive end markets, support real-life conditions. our key enabling technologies underpinning improved financial performance. the shift to a greener economy, increased Within the automotive industry, incoming • In Service & Healthcare, OiService digital connectivity and advances in materials, parts are inspected to control and maintain continues to focus on increasing life science and healthcare. We do this by suitable levels of cleanliness and when after-market revenue by providing helping our customers to accelerate their contamination is present, stopping its re‑occurrence at source is critical to maintain a broader range of support services, applied R&D, increase their manufacturing productivity and make new scientific production. Here we developed a bespoke while OI Healthcare is making a discoveries. Today, nearly half of our customer workflow and data interpretation package strategic shift towards a higher base comprises commercial organisations. for our customer to measure the cleanliness proportion of service revenue, of parts and, importantly, identify the source which is driving greater visibility within the supply chain of any contaminating of revenue and improved returns. particles. This solution was built as an upgrade to our generic particle analysis solution. Importantly, these examples of a hardware and a software upgrade for existing product platforms can be delivered on short time frames relative to new instrument platforms to both expand our addressable markets and increase the value to our existing customers.
08 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 09 In customer support we have increased our In customer support we have increased and services and range of products breadth effectively. to support our customers more of technologies investing in a range are We including productivity, customer to improve monitoring. diagnostics and predictive remote Operational excellence is delivering improved customer satisfaction and operational and implementing We are logistical efficiencies. to our operations and are a lean approach belt” of training 50 “green in the process and functions. roles lean leaders in different have added a Head of Strategic Sourcing We programme procurement to drive our Group and exploit synergies efficiencies to improve our supply chain. across we have As part of our change programme down silos, establishing been breaking ‑business and functional working groups cross to extract best practice and better leverage our scale and deliver synergies. In the year we made £1.5 million of central and regional back office and central cost savings through overhead efficiencies, this partially offsetting and therefore from, contribution the previous stranded costs associated with, the divested Industrial Analysis business. In the year we have positioned the Group of high to become a leading provider and services to the technology products leading industrial companies and world’s communities to image, research scientific analyse and manipulate materials down to the atomic and molecular level. Our chosen and, combined robust end markets remain with our customer applications focus and strong capabilities, provide core improved and growth long‑term drivers for future margin improvement. Oxford Instruments plc Report and Financial Statements 2018 Innovation and Product Development In Market Intimacy we are changing the In Market Intimacy we are with our and communicate way we reach bringing to life effectively customers, more the innovative and value-adding solutions for their specific that we can provide applications. As part of our move from ‑selling, all our sales to solution product teams have undertaken bespoke training. have also invested in developing our digital We and marketing capabilities and new Group websites. e-commerce Development remain Innovation and Product strategy and as part of to our growth core Horizon we have established cross-sector a broader providing are which roadmaps, range of high-quality investment opportunities better aligned with our chosen markets. Market Intimacy Excellence Operational Customer Support Customer Find out more on page 16 Find out more Operational model Operational materials down to the atomic and molecular level. molecular and atomic the to down materials research communities to image, analyse andmanipulate the world’s leading industrial companies and scientific scientific and companies industrial leading world’s the provider of high technology products and services to to services and products technology high of provider We have positioned the Group to become a leading a leading become to Group the positioned have We We have transformed the leadership team at have transformed We an operational level, targeting individuals who have the specific capabilities and experience with needed to accelerate our progress external recruitment. Horizon, largely through our senior managers are 50% of Around within the last two years; new in their roles successful placements in the year include new leaders for our NanoScience and X-ray businesses and a new senior role, Technology to lead a sharper Director, Commercial Group our sales teams and focus across commercial global territories. changing the way we are Horizon Through embedding clearly we operate and we are our businesses capabilities across defined core Product Innovation and in Market Intimacy, Development, Customer Support, and Operational Excellence. Chief Executive’s Review continued Performance was underpinned by significant growth in the Materials & Characterisation sector and improved performance from Service & Healthcare.
Results On a geographical basis, underlying revenue The order book The following results exclude discontinued growth in Europe and Asia was offset by operations. reduced sales in North America, with Materials increased by 5.0% & Characterisation having strong growth The Group delivered a performance in line across all territories. to £134.0 million with expectations, supported by a currency (2017: £127.6 million) tailwind and strong second half trading. The order book, representing orders for This was underpinned by significant growth future delivery, increased by 5.0% to in the Materials & Characterisation sector £134.0 million (2017: £127.6 million), growth and improved performance from Service & of 10.4% at constant currency. Excluding Adjusted profit Healthcare, offset by weaker trading in the our US Healthcare business, the constant before tax increased Research & Discovery sector despite a positive currency order book is up 18.4%, with strong uplift in the second half of the year. growth across Materials & Characterisation, Research & Discovery, and the service of our by 34.3% to Reported orders for the Group were up 5.0% own products. £42.3 million (5.8% at constant currency) to £313.0 million (2017: £298.0 million). Excluding orders Currency effects drove adjusted operating (2017: £31.5 million) from our US Healthcare business, constant profit up 22.4% to £46.5 million currency orders were up 8.9% against the (2017: £38.0 million), a decline of 5.5% at previous period. We continue to see increased constant currency. Adjusted operating margin demand from commercial and academic rose to 15.7% for the Group (2017: 12.7%), customers engaged in applied R&D as well supported by the currency tailwind. as production and manufacturing of high Adjusted profit before tax increased by technology products and devices. This has 34.3% to £42.3 million (2017: £31.5 million), driven a strong performance within Materials with an increased contribution from Materials & Characterisation, with double-digit growth & Characterisation and Service & Healthcare across the US, Europe and Asia, as well as and a lower contribution from Research & increased demand for services relating to our Discovery. Adjusted profit before tax was up own products. Research & Discovery orders 0.6% at constant currency. Profit before tax of were broadly in line with the previous year, £34.2 million compared favourably to a loss of maintaining a similar geographical split. £26.2 million last year. Reported revenue was broadly in line Continuing adjusted basic earnings per with the previous year at £296.9 million share grew strongly by 35.7% to 56.3 pence (2017: £300.2 million), and level at constant (2017: 41.5 pence). currency supported by a strong second half performance, with good growth in Materials We delivered a significant reduction in & Characterisation and services related to our net debt in the period to £19.7 million own products. This was offset by reduced (2017: £109.3 million) due to ongoing volumes in Research & Discovery in line strengthening of the balance sheet with the phasing of orders, the delivery of throughout the year, resulting from good longer lead time items and lower revenues operating cash flow, proceeds from the sale associated with the sale of third-party systems of the Industrial Analysis business and the in OI Healthcare. sale of two properties.
10 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 11 People fundamental to our business are Our staff encouraged by how success and I have been the Horizon strategy they have engaged with continue with our business. We to improve capabilities of our our focus to enhance the existing the development of teams through in new talent. employees and investment our employees for I would like to thank all Instruments, their commitment to Oxford to help and for their ongoing enthusiasm our customers. Outlook attractive, Our chosen end markets remain and government supported by commercial book, order investment. Our growing customer application focus and drive for confidence operational efficiencies provide for the year ahead. in expect to see an improvement We basis after performance on a reported allowing for the impact of an anticipated headwind, based on current currency exchange rates. Ian Barkshire Chief Executive 12 June 2018 Oxford Instruments plc Report and Financial Statements 2018 provides customer provides Service & Healthcare our own products service and support for ‑party of third rental and the service, sale and imaging systems. Reported healthcare for the period of £65.6 million orders down 9.1% as (2017: £72.2 million) were due (7.8% at constant currency) reported within our US Healthcare orders to reduced for services business. Reported orders 3.7% to grew to our own products related Reported £39.0 million (2017: £37.6 million). million), of £66.8 million (2017: £69.3 revenue was due year, down 3.6% on the previous third-party to lower shipments of refurbished than medical imaging systems. This more of 6.9% growth revenue reported offset to to our own products for services related £38.8 million (2017: £36.3 million). Reported to £12.6 million rose adjusted operating profit of 5.0%, (2017: £12.0 million), an increase adjusted operating margin while reported 18.9% (2017: 17.3%). to increased R&D elements of our Horizon One of the core strategy is innovation and product invested £24.8 million development. We (2017: £25.8 million), with an increased emphasis on the solutions and technology value for our customers that will increase new capabilities, ease of use, through and application-specific enhanced productivity of monitor the proportion information. We products which originates from our revenue years (our vitality launched in the last three index). Our vitality index for the reported to 37% (2017: 30%), period increased recently successful uptake of the reflecting launched products. Sector performance to the individual sector performance: Turning products Materials & Characterisation fabrication and and solutions enable the and devices characterisation of materials predominantly down to the atomic scale, R&D applied supporting customers across and manufacture as well as the production and devices. of high technology products the half year, Building on a positive first and overall growth strong sector delivered performance with positive contributions and NanoAnalysis, Asylum Research from grew Reported orders Plasma Technology. in the period by 22.7% to £129.5 million (2017: £105.8 million). Reported revenue by 11.7% to £118.1 million grew adjusted (2017: £105.7 million), with reported to £20.1 million increasing operating profit adjusted (2017: £12.2 million) and reported for book margin up to 17.0%. The order by 36.8% to increased deliveries future £34.2 million (2017: £25.0 million), providing positive momentum. The sector is already a number of key initiatives benefiting from particularly the within the Horizon strategy, solutions that focus on customer-orientated application-specific to provide tailored are information recipes, workflows and process and analytics. advanced Discovery provides & Research unique environments solutions that create and enable imaging and analytical down to the molecular measurements and sub-atomic level, predominantly and applied research used in scientific of £118.2 million R&D. Reported orders in broadly (2017: £120.1 million) were with continued year, line with the previous solutions, an increased in quantum growth demand for our benchtop NMR products intake in the second in order and an increase products, half for our optical microscopy for scientific X-ray orders by lower offset of £112.1 million tubes. Reported revenue year was down 10.5% on the previous (2017: £125.3 million), due to the softer first half performance of our optical microscopy of higher proportion and the products longer lead time customised cryogenic The stronger and magnet system orders. in an increase resulted second half orders book of 11.7% to £59.0 million, in order (2017: £52.8 million). Reported adjusted year was in line with previous operating profit at £13.8 million (2017: £13.8 million) with adjusted margin of reported an improved 12.3% (2017: 11.0%). Business Model We are a globally recognised brand with a reputation for world‑class product performance, unprecedented ease of use and excellence in service and support.
Relationships and resources How we do it
Customer We are a leading provider of high technology Horizon strategy: This drives our direction, initiatives and operating model. relationships products and services to the world’s leading industrial companies and scientific research communities. We enable our customers to Market Innovation and image, analyse and manipulate materials down Intimacy Product Development to the atomic and molecular level. We have We develop an in-depth We will focus our R&D implemented a new sector structure to align our understanding of our investment on higher growth businesses with our chosen customer segments customers’ segments and segments, prioritising our efforts and applications. align our innovation and on the most valuable product Continuous We focus our investment on market segments product development development opportunities. where nanotechnology drives product initiatives to customers’ innovation strategic roadmaps. innovation, world-leading research and long‑term growth for our customers and where we can maintain leadership positions. We use the insights we get from our market intimacy to Our offering drive our development priorities and to ensure future higher returns on our innovation. Imaging, analysis and manipulation is critical from fundamental research into applied R&D and commercial markets; enabling commercial Our We have invested in building a new exploitation and fundamental discovery of nanotechnology. people management and leadership team across the business as well as defining and building on the core capabilities we need to succeed. Fundamental research This includes undertaking professional sales skills training, internal workshops on the Jobs to be Providing solutions to those wishing to explore new frontiers Done methodology and operational excellence at the nanoscale. lean training. We are developing a culture of Physical & Life Sciences accountability, empowering our employees to own the challenge and the solution. Innovation approach Product application insight Our The significant management we have infrastructure undertaken of our portfolio has delivered a more focused, synergistic Group. We are creating greater value by breaking down silos, establishing cross-business and cross-functional Applied R&D working groups to extract best practice and better leverage our scale and synergies. Providing solutions to enable the opportunities offered by nanotechnology to develop more advanced products. Supplier We recognise that relationships built on trust partnerships and respect with our business partners establish mutually beneficial relations. We perform regular inspections and audits and have strategic Market insight Product application insight 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. In support of this we have Commercial markets recruited a Head of Strategic Sourcing. Providing products to support today’s manufacturing challenges and create new opportunities. QA/QC
12 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 13 Our key enabling technologies provide theOur key enabling technologies provide a range of marketsbasis for innovation across and industrial sectors and help underpin the digital increased economy, shift to a greener advances in materials, life science, connectivity, manufacturing and healthcare. as to be widely recognised proud are We leaders in what we do and for the difference have highwe make in the world. We performance expectations and, by working our committed and skilled employees together, committed to are impact. We make a real the best people inbeing the company where our sector want to work. is integral to ourCorporate responsibility us ofongoing business success. It reminds the need to minimise our impact on the encourages us to pay attentionenvironment, to the needs of our customers, employees and investors, and to build engagement with local communities. The business is underpinned by sound financial management. By achieving sustainable and margin improvement, growth revenue to deliver business growth well placed we are returns over theand maximise shareholder long term. to become a the Group have positioned We of high technology products leading provider leading industrial and services to the world’s companies. Our chosenresearch and scientific and, combined robust end markets remain with our customer applications focus and strong capabilities, provide core improved and growth long-term drivers for future margin improvement. We provide advanced nanotechnology advanced provide We range of end markets,solutions to a broad and offerings supported by new product enablepersonalised customer support. We our customers to accelerate their R&D, and make new productivity increase scientific discoveries. Oxford Instruments plc Report and Financial Statements 2018 Thought leadership Rewarding careers Corporate responsibility Shareholder value Strong financials Creating value for customers through solutions What we deliver we What Operational Operational Excellence We target improvements target improvements We in cost, time and defects to delivery and become a more outcome-focused business. Customer Support
We build on the growing build on the growing We customer demand and offer a higher level and broader range of services and support. advances and benefits society. benefits and advances that enables a revolution in technology and industry industry and technology in a revolution enables nanoscale Our ability to image, understand and control matter at the the at matter control and understand image, to ability Our Strategic Context Our strategy of deploying nanotechnology for industry and research is unique and powerful.
We previously used growth in the convergence Our industrial research and corporate We will move up the value chain, providing of sciences to build our market position. customers are increasingly focused on our customers with solutions, information Convergence is now well established, and our exploiting nano‑enhanced properties in their and support to increase their capabilities customers are now focused on the application commercial applications and the development and productivity in line with their evolving of convergence and nanotechnology to of new advanced systems and devices. requirements. help address many of the world’s greatest To support our customers’ new requirements, We have called our new strategic focus challenges and help underpin the shift we will build our leadership in exploiting our Horizon. It is a transformational programme to a greener economy, increased digital expertise, skill and intellectual property to for the Group and will drive both our future connectivity, advances in materials, life image, analyse and manipulate materials, direction and our operational model, returning science, manufacturing and healthcare. structures and devices down to the molecular us to long-term sustainable growth with Within academic research, funding is and atomic scale. We will focus our improved margins. increasingly being targeted towards investment on those market segments where nanotechnology applications that are building nanotechnology drives long-term growth for on the initial foundations of convergence. our customers and where we can maintain or grow into leadership positions.
14 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 15 Oxford Instruments plc Report and Financial Statements 2018 where we can help customers lead the race to develop lighter, help customers lead the race to develop lighter, we can where materials. affordable higher functioning and more stronger, technologyQuantum the exotic quantum effects where is the exploitation of the regime dominate and radically change the “rule book” of what is possible. IT and communications is a focus on speed, security and capacity. there where materialsAdvanced Healthcare Healthcare in disease demand for improvements is driven by growth where mechanisms. detection and the understanding of fundamental Energy drivers remain core and sustainability efficiencies improved where and includes work in photovoltaics and batteries. term growth drivers where we can maintain maintain can we where drivers growth term ‑ are: Growth drivers long with markets key The or grow leading positions can maintain leadership positions. positions. leadership maintain can long-term growth for our customers and where we we where and customers our for growth long-term drives product innovation, world-leading research and and research world-leading innovation, product drives We focus on market segments where nanotechnology nanotechnology where segments market on focus We Our Strategy Horizon is a transformational programme for Oxford Instruments that will reposition the Group for long‑term sustainable growth with improved margins.
Our strategy Operational model
Through Horizon, we have transitioned to a more commercially focused, market-driven Group through significant portfolio management and have implemented a new sector structure to align our businesses with our chosen customer segments and applications. By aligning closely with our customers’ needs and through a better understanding of their challenges, we ensure we offer world-class produce performance, unprecedented ease of use and excellence in service and support that will add value to our customers’ capabilities and productivity.
We are now positioned to address a broad range of markets and Market industrial sectors, with our key enabling technologies underpinning the Intimacy shift to a greener economy, increased digital connectivity, and advances in materials, life science and healthcare.
Innovation Our Horizon strategy has the following key elements: Customer and Product Support • we will focus our investment on market segments where our Customer Development nanotechnology drives long-term growth for our customers and where we can maintain or develop leadership positions; • we will be a more commercially focused, market-driven Group by Operational Excellence maintaining our heritage in supporting fundamental research whilst increasing our focus on solutions for applied R&D and products that can support our commercial manufacturing and production customers; • we will drive the delivery of synergies and enhanced collaboration. For example, in R&D we will prioritise our high-impact projects and resource them from across the Group; • we will provide more value to our existing customers, as well as creating growth opportunities in new market segments through application-specific solutions with improved workflows, bespoke analytics, data interpretation and associated support services; and • we will transform our operational model to embed consistency and excellence across our businesses, measured by clearly defined core capabilities that will enhance our competitive advantage.
16 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 17 We target improvements in in target improvements We cost, time and defects to deliver a world-class experience for customers. Instruments’ Oxford Operational excellence will drive delivery us to become a more and outcome-focused business. during Progress the year Operational Excellence is customer delivering improved satisfaction and operational and We are logistical efficiencies. implementing a lean approach in the to our operations and are 50 “green of training process belt” lean leaders in different have We and functions. roles added a Head of Strategic our Group to drive Sourcing programme procurement efficiencies and to improve our exploit synergies across supply chain. Operational Excellence: Oxford Instruments plc Report and Financial Statements 2018 We build on the growing build on the growing We customer demand for a higher range of level and broader services and support to help meet their evolving commercial and strategic needs. Service will in differentiator become a core our markets. during Progress the year In Customer Support we have and our breadth increased and services range of products to support our customers more investing are We effectively. in a range of technologies to productivity, customer improve diagnostics including remote monitoring. and predictive Customer Support: the following areas: Progress during Progress the year Innovation and Product to core Development remain and as part strategy our growth of Horizon we have established which roadmaps, cross-sector range a broader providing are of high quality investment opportunities better aligned with our chosen markets. Innovation and Development: Product focus our R&D investment We segments, on higher growth on prioritising our efforts the most valuable product development opportunities. our new operating Importantly, model will enhance our ability to leverage the technical capabilities and synergies across the more ensure to the Group delivery of our chosen effective priority projects. In Market Intimacy we are In Market Intimacy we are and changing the way we reach customers, with our communicate bringing to life effectively more the innovative and value-adding solutions that we can provide for their specific applications. As part of our move from ‑selling, all to solution product our sales teams have undertaken have bespoke training. We also invested in developing our digital marketing capabilities and have launched e-commerce and new Group websites. Progress during Progress the year We develop an in-depth We understanding of our customer segments and tailor closely our solutions to more meet customer needs. Insights customer our stronger from will better inform relationships and align our innovation and development initiatives product to customers’ strategic roadmaps. Market Intimacy: across our businesses in clearly defined core capabilities capabilities core defined clearly embed will and Horizon will change the way by which we operate operate we which by way the change will Horizon 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 launched in the previous three years1 45 Why we measure 35 37 To measure the effectiveness 30 of our R&D programmes
2015 2016 2017 2018
Realising the Brand What we measure How we performed Net Promoter Score®2 60 58 Why we measure 52 55 To measure customer feedback
2015 2016 2017 2018
Adding Personal Value What we measure How we performed “Value add” = (adjusted operating profit + 1.48 1.51 employment costs)/employment costs 1.40 1.41 Why we measure To measure efficiency
2015 2016 2017 2018
1. To ensure this metric better reflects the performance of those business 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 numbers 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).
18 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 19 69 2018 17.0 15.7 35.7 (1.1) 2018 2018 2018 2018 90 8.9 1.2 2017 2017 11.1 12.7 2017 2017 2017
8.5 124 14.1 2016 (0.5) 2016 (4.3) 2016 2016 2016 Excellence Operational 74 6.8 13.3 12.9 2015 2015 2015 2015 2015 (24.7) How we performed % How we performed % How we performed % How we performed How we performed % How we performed %
Oxford Instruments plc Report and Financial Statements 2018 Customer Support Why we measure deliver ROCE in excess of our cost of capital To Why we measure cash conversion operating maintain a strong To cash flow ratio and high level of free Why we measure in EPS achieve long-term, consistent growth To Why we measure maintain underlying consistently To operating margins Why we measure through sustainable growth profitable, drive To strategy the implementation of our Innovation and Development Product 3 5 4 Market Intimacy Return on capital capital on Return (ROCE) employed Cash flow Adjusted earnings per growth (EPS) share Adjusted operating operating Adjusted margin and profit To deliver Shareholder returns through profitable, sustainable growth with strong cash conversion and efficient use of capital. conversion and efficient cash strong with sustainable growth profitable, through returns deliver Shareholder To growth Revenue Financial goal Financial Core capabilities: Core Operations Review
Materials & Characterisation
Building on a positive first half year, the sector delivered strong growth and overall performance.
1 £118.1m 11.7% 13.2% Revenue (2017: £105.7m)
£20.1m 64.8% 19.7%1 Adjusted2 operating profit (2017: £12.2m)
17.0% Adjusted2 operating margin (2017: 11.5%)
£17.3m Profit before tax (2017: (£14.0m))
1. For definition refer to note on page 1 of highlights. 2. Details of adjusting items can be found in Note 1 of these Financial Statements.
Growth Growth at constant currency A selection of our NanoAnalysis products in use.
20 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 21 We saw strong order, revenue and profit and profit revenue order, saw strong We microscopy for our scanning probe growth This has been largely supported products. uptake we have had for by the strong our market-leading Cypher portfolio and entry for our updated orders increased level platform, with advanced ease of use market‑leading performance at providing a value price point. CypherVRS™, the first atomic video-rate and only full‑featured generating strong (AFM), is microscope force of biological a diverse range across interest and physical science applications, where at the visualisation of dynamic processes new a molecular or atomic level provides and insights and information for research applied R&D. Examples include the imaging of viruses, molecular and cellular dynamics, and semiconductor etch processes. sample cell upgrade for Our electrochemistry high-resolution our CypherES™ AFM provides device operating conditions. imaging in real enables control The advanced environmental the development of those researching lithium‑ion batteries and emerging solid-state energy storage systems to better understand and characterise performance in real life conditions. customer our have strengthened We of a application focus with the release photovoltaics package for our MFP™ AFM. a convenient, high-performance This offers turnkey solution for materials scientists that reduce the efficiency, seeking to improve are manufacturing costs and lengthen solar cell lifetimes.
TM Oxford Instruments plc Report and Financial Statements 2018 range of large TM product range include range product TM Sales of our imaging and analysis products Sales of our imaging and analysis products microscopy and solutions used in electron in the with placements growth, had strong leading academic, semiconductor and world’s advanced manufacturing facilities, as well as customers laboratories, where top forensic seek rapid, automated solutions to their analysis challenges. The launch of Symmetry, was analyser, material structure our super-fast a key driver in both the advanced materials markets, enabling and environmental for our customers improvements productivity and in terms of the speed, high-resolution accuracy of analysis. of our Ultim The introduction area X-ray detectors has driven strong sales X-ray detectors has driven strong area within the semiconductor market by providing analysis and resolution unprecedented and devices. of semiconductor structures benefiting from A range of applications are including the enhanced capabilities we offer, analysis within devices fault finding and failure for the leading semiconductor manufacturers in precision and cleanliness control manufacturing. Other applications that are utilising our Ultim solar cells and batteries, where researchers are are researchers solar cells and batteries, where performance and storage working to improve density by better understanding their structure at a nanoscale. The sensitivity of the Ultim Extreme is providing new market opportunities is providing Extreme within the life science and pharmaceutical further insight it is providing markets where and understanding of disease processes and can aid the identification of counterfeit drugs. prescription Research and Plasma Technology. focused solutions is driving strong ‑focused solutions is driving strong This sector has a broad customer base This sector has a broad a wide range of applications for the across imaging and analysis of materials down to the atomic level and the fabrication of through semiconductor devices and structures our range of advanced etch and deposition and systems. Our market-leading processes performance combined with product customer value to increased by providing growth existing customers and the identification of into new markets and applications. and reach new capabilities, ease providing are We through of use and enhanced productivity processes, application‑specific workflows, analytics and information. Revenue in Materials range a broad & Characterisation comes from of end applications with about three-quarters the Semiconductor & Communications from customer and the Advanced Materials related customers segments. Industrial and commercial with the balance 49% of revenue, represent either academic or government funded. strong Materials & Characterisation delivered supported growth and profit revenue order, by the successful launch of new products, customer application focus, our increased dedicated to provide the tailoring of products within our end solutions and general growth a geographic perspective, markets. From Europe, was seen across growth strong the US and Asia. Asylum This sector is comprises of NanoAnalysis, NanoAnalysis, of comprises is sector This Operations Review continued Materials & Characterisation
In addition to the many varied research Growth has been supported by the applications for our advanced AFM systems, development of new process recipes aligned our entry-level portfolio is ideally positioned to these growing markets, including the to provide the simpler, routine measurements fabrication of sensors and MEMS, which are such as thin film roughness and uniformity used across a broad range of optical devices at nanometre and even sub-nanometre and communications systems to provide length scales that are inaccessible to other higher speeds; and the development of metrology tools. Our updated MFP Origin+™ advanced lasers used across a broad range has seen good growth across a broad range of photonics markets including Vertical Cavity of application areas due to its high level of Surface Emitting Lasers (VCSELs) for facial performance, ease of use and appropriate recognition applications. price point. Customers working in these markets value We had good growth from our semiconductor our expertise and development capabilities, processing systems that provide etch and large portfolio of processing recipes and deposition process solutions used across a our applications support to help them range of semiconductor, device and materials manufacture new devices repeatedly, with applications. We have leading expertise in the required quality for new and demanding the processing of compound semiconductors, applications. We have seen growth in both which are critical for enabling more compact applied R&D and the expanding specialist devices, higher speeds, larger capacity and production markets for the manufacture of higher energy efficiencies required to deliver commercial systems, with specialist production the functionality and demands for big data, now representing almost half the sales in IoT, AI, high speed communications and this market. autonomous vehicles.
1: Image of a live virus captured by the Cypher VRS. 2: An example of a compound semiconductor wafer.
22 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 23
A technician working on the Triton, A technician working on the Triton, a key part of our Quantum Technologies portfolio. a key part of our Quantum Technologies Oxford Instruments plc Report and Financial Statements 2018 1 1 9.7% 36.2% 0% 10.5% Growth at constant currency Growth operating margin operating profit 2 2
Growth
For definition refer to note on page 1 of highlights. For definition Details of adjusting items can be found in Note 1 of these Financial Statements. 1. 2. Profit before tax before Profit (2017: (£3.0m)) £4.1m Adjusted (2017: 11.0%) 12.3% Adjusted (2017: £13.8m) £13.8m Revenue (2017: £125.3m) £112.1m previous year. previous the on down previous was year; revenue broadly in line with the the with line in broadly Orders for the sector were were sector the for Orders Discovery Research & Research Operations Review continued Research & Discovery This sector includes Andor Technology, NanoScience & Magnetic Resonance, X-ray Technology and our minority share in ScientaOmicron.
This sector provides advanced solutions that Revenue and profitability in the sector were Andor had significantly higher order intake create unique environments and enable impacted by three particular product areas in the second half of the year, driven by new imaging and analytical measurements down that more than offset growth across the broad product launches and the broadening of our to the molecular and sub-atomic level, range of the portfolio. As previously reported, optical microscopy portfolio. Lower revenue used predominantly in fundamental and there was a softer financial performance from in the period, partly due to phasing of orders, applied research. We are able to build on our Andor optical microscopy systems in the has resulted in a significant increase in the our relationships with customers working first half of the year as we transitioned from order book for future deliveries. on breakthrough applications in research to third-party systems to our own portfolio; lower We continue to develop our range of gain insights and support future commercial revenues from NanoScience as they worked market‑leading scientific research cameras applications. We have strong brand through a high volume of complex specialised and have seen growth from application areas recognition and leading product performance systems at lower margins; and lower volumes requiring higher performance, faster collection with 73% of sales into research communities of our scientific X-ray tubes in X-ray Technology. and increased sensitivity. Our specialised and 23% into industrial customers Our NanoScience business is underperforming deep‑cooled, large area, high sensitivity predominately for use in applied R&D. relative to its potential and is in transition as cameras have provided good growth in In this sector, 40% of revenue comes from part of our Horizon programme. The quality astronomy, as researchers look for more customers working within Healthcare & Life and complexity of the order book negatively accurate and detailed information with better Science applications. Customers exploring new impacted performance in the year despite spectral performance to enable deep space semiconductor materials and devices make an improved second half performance. The imaging, solar astronomy and near-earth object a significant contribution, and an increasing current year is expected to be impacted by observation. Our world’s first super‑resolution share is coming from customers working in the remaining tail of complex systems within microscopy camera, iXon-SRFFTM, allows quantum technology applications and research. the order book. We have a new leadership customers to observe biological features Quantum Technology is a strong growth area team and self-help plan in place to increase at resolutions significantly smaller than the for the sector due to increased government the emphasis on margin, drive a stronger wavelength of light to reveal unprecedented and corporate funding for applications such as commercial focus and deliver organisational details in living cells, helping to build an quantum information processing and quantum efficiencies. understanding of the complex intracellular sensors. Research & Fundamental Science mechanisms that underlie a wide range of We had order growth for our customised high contributes 4% of revenue. disease states. This image enhancement, magnetic systems for national science facilities, which is only available on Andor cameras, Orders for the sector were broadly in line with building on our strong reputation in this sector. overcomes frustrations with the complexity of the previous year, with like-for-like growth We increased sales of our ultra-low temperature sample preparation and the added expense of in Andor and Magnetic Resonance offset by portfolio driven by the increasing demand for current super-resolution microscopes enabling lower orders from X-ray Technology, with systems and solutions to support quantum customers to achieve super-resolution capability NanoScience broadly in line with last year. research and quantum information processing. with a more affordable microscope and From a geographic perspective, orders from We are moving towards more standardised standard sample preparation techniques. Europe and the US were broadly in line with solutions designed specifically for this growing previous year, with increases from Rest of World market. Our combined cryogenic and magnetic offsetting slight declines in Asia. solutions grew in the year with the launch of a new range of measurement probes, providing more complete solutions for the measurement of 2D materials, such as graphene.
24 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 25 Internal cell structure showing the Internal cell structure additional clarity when captured with iXon SRRF. where Mining is one of the key areas demand for has been increased there the Geospec range of products. 1: 2:
TM Oxford Instruments plc Report and Financial Statements 2018 and the recently launched MQC+ and the recently TM year revenue. This was in part driven by This ‑on‑year revenue. We saw increased demand for our benchtop demand saw increased We Nuclear Magnetic Resonance solutions, essential information about which provide the identification and quantification of foods and chemicals for academic and quality and for industrial researchers Revenue and order assurance and control. has been driven by our enhanced growth Pulsar systems. In the second half of the year we in the energy generation and saw growth oil prices, storage sector following increasing capitalising on developments made across our application‑specific Geospec range of products. business continued to grow Our X-ray source market segments in the medical and research than expected but experienced greater headwinds in the material characterisation and in the industrial applications, leading to a drop year for of new products the delayed introduction in China. these markets and pricing pressures the created joint venture The ScientaOmicron largest player in the ultra-high vacuum surface in has a 47% share science field. The Group an The business delivered the joint venture. performance for the year, financial improved at of adjusted operating profit with our share £0.4 million against a loss of £0.8 million last After our year end, the business sold its year. division. UK-based ultra-high vacuum products This is in line with the strategy to focus on surface science products core providing and solutions. , TM provides the provides TM visualisation software due visualisation software TM is sold for use on our own and other TM We continue to benefit from our connections to continue to benefit from We of excellence many Quantum Imaging centres that have been established in support of this and well-funded market. Our rapidly growing single photon sensitive cameras saw growing investigating and researchers demand from required developing quantum optics, which are for communication systems and exotic imaging solutions, for example those that can look corners. smoke or around through platform, Dragonfly Our optical microscopy capability to quickly image large samples and seen in applications not detail previously reveal and cancer research such as neuroscience, received science. The product regenerative the recognising 100 award, an R&D Top and superior technology revolutionary also saw good growth performance. We our Imaris from to its ability to capture, process and visualise process to its ability to capture, by large data sets captured the extremely modern instrumentation, with data analysis becoming an increasing and interpretation solution. part and value of the overall product Imaris optical microscopy systems. optical microscopy saw strong growth in the second half of in the second growth saw strong a complementary the year as we introduced lower price point model to the portfolio, a much range to address enabling the product end market. Dragonfly broader Operations Review
Service & Healthcare
Increased profitability and margin in the sector was driven predominantly by increased demand for services relating to our own products.
1 £66.8m 3.6% 2.9% Revenue (2017: £69.3m)
£12.6m 5.0% 4.2%1 Adjusted2 operating profit (2017: £12.0m)
18.9% Adjusted2 operating margin (2017: 17.3%)
£10.6m Profit before tax (2017: (£0.2m))
1. For definition refer to note on page 1 of highlights.
2. Details of adjusting items can be found in Note 1 of these Financial Statements. MRI scanner inside a mobile Growth Growth at constant currency imaging unit from our Healthcare business.
26 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 27 Enhanced customer support offerings Enhanced customer support offerings remote include interconnectivity, diagnostics and online self-help. A look inside a mobile imaging unit. 1: 2: Oxford Instruments plc Report and Financial Statements 2018 Within OiService we continue to drive our enhanced customer support offerings, adapting to our customers’ needs, for example diagnostics and online self-help. with remote platforms to enable designing product are We service upgrades delivering either performance enhancements or application-specific value and builds solutions. This increases versatility for our customers as well as growth Our new e-commerce in aftermarket revenue. website makes it easier for customers to consumable items and find and purchase accessories and we have seen a corresponding revenue. in associated increase to our in service contracts related Growth has been optical imaging analysis software driven by the value customers place on having annual updates and access to our in-house Instruments the Oxford analysis experts. Across customer training extensive we provide Group their to increase designed programmes This year we also capability and productivity. held many very successful global application and application seminars with research scientists, most notably a new microscopy summer school run in collaboration with the Chinese Academy of Sciences. repairs, training and support services, and spare part sales. sector comprises the The Service & Healthcare maintenance service contracts, billable Group’s training and support services, and repairs, Instruments’ to Oxford part sales related spare under the OiService brand; own products of refurbished and the sale, service and rental MRI and CT machines under the third-party brand. OI Healthcare sector increased The Service & Healthcare and margin in the period, driven profitability demand for the by increased predominantly Revenue to our own products. services related our service offerings from growth and order than more were to our own products relating US OI Healthcare by a decline from offset business. This was due to a combination and the of the timing of sales prospects changes in the structural reported previously market by OEM providers. with made good progress, OI Healthcare in the second half of the year, orders increased in line with the implementation of our strategy of service to move to a higher proportion to the sale of refurbished contracts relative systems. Revenue was down in the year but changes in line with our structural through was in line with last year, profitability strategy, growth. platform for future a solid providing billable maintenance servicemaintenance contracts, This sector comprises the Group’s Group’s the comprises sector This Finance Review Adjusted profit before tax from continuing operations grew by 34.4% to £42.3 million.
During the financial year the Group disposed Adjusting items include amortisation of Summary of its Industrial Analysis business and this has acquired intangibles of £10.9 million and a net • Reported revenue in line with been treated as a discontinued operation gain of £1.7 million for business reorganisation in the Financial Statements. Accordingly, items. Our share of an impairment in our previous year at constant currency. the numbers detailed in the Finance Review equity accounted associate was £2.0 million • Adjusted profit before tax from refer to continuing operations and exclude and the movement in the mark-to-market continuing operations up 34.3% the results of Industrial Analysis in both the valuation of currency hedges for future years to £42.3 million. current and prior periods. gave rise to a gain of £3.1 million. • Net debt down significantly to Reported orders increased by 5.0% to Adjusted profit before tax from continuing £19.7 million following good £313.0 million (2017: £298.0 million), an operations of £42.3 million (2017: operating cash flow and disposals. increase of 5.8% at constant currency. At £31.5 million) represents a margin of 14.2% the end of the period the Group’s order book (2017: 10.5%). After adjusting items, • Full year dividend increased by for future deliveries stood at £134.0 million the Group recorded a profit before tax of 2.3% to 13.3 pence. (2017: £127.6 million), growth of 5.0% on a £34.2 million from continuing operations reported basis and 10.4% at constant currency. (2017: loss of £26.2 million). Reported revenue declined by 1.1% to Continuing adjusted basic earnings per £296.9 million (2017: £300.2 million). share grew by 35.7% to 56.3 pence 1.1% Revenue, excluding currency effects, was (2017: 41.5 pence). Continuing basic earnings broadly in line with last year, with the per share was 34.3 pence (2017: loss of £296.9m movement in average currency exchange rates 44.7 pence). Revenue over the last year reducing reported revenue Cash generated from operations fell by £3.1 million. (2017: £300.2m) by £1.1 million to £33.4 million Adjusted operating profit from continuing (2017: £34.5 million), representing 68.8% operations increased by 22.4% to £46.5 million (2017: 90.3%) cash conversion. Cash (2017: £38.0 million). Adjusted operating conversion is defined as: cash generated from 4.1% profit from continuing operations, excluding operations before business reorganisation currency effects, declined by 5.5%. Adjusted items and pension scheme payments, less £150.9m operating margin from continuing operations capitalised development expenditure and Gross profit increased by 300 basis points to 15.7% capital expenditure/adjusted operating profit. (2017: 12.7%). Net debt decreased from £109.3 million to (2017: £157.3m) £19.7 million, representing a net debt to Adjusted profit before tax from continuing EBITDA ratio (for banking covenant purposes) operations grew by 34.3% to £42.3 million of 0.3 times; our banking covenant is set at (2017: £31.5 million). A pre-tax adjusted profit 3.0 times. of £0.5 million from the Industrial Analysis 22.4% business for the three months of ownership, Adjusted operating profit is stated before £46.5m prior to its sale on 3 July 2017, is included impairment and amortisation of goodwill and in discontinued operations. For the twelve acquired intangibles, business reorganisation Adjusted operating profit months to 31 March 2017, the Industrial items, the mark-to-market valuation of (2017: £38.0m) Analysis and Superconducting Wire unexpired currency hedges, and other businesses delivered an adjusted profit before adjusting items, as set out in Note 1 to tax of £5.6 million. Including discontinued the Financial Statements. operations, the Group achieved reported adjusted profit before tax of £42.8 million (2017: £37.1 million).
28 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
29 £m Change 41.5p +35.7% 41.4p +35.5% 13.0p +2.3% 38.0 +22.4% 31.5 +34.3% 300.2 (1.1%) 157.3 (4.1%) Year ended Year 31 March 2017 31 March — (36.7) — (8.0) £m 0.5 (0.8) 1.7 (1.7) 3.1 1.2 0.9 (12.0) (4.2) (6.5) 23.9% 24.8% 56.3p 56.1p 13.3p 46.5 42.3 34.2 (26.2) 19.6 (25.5) (14.6) 0.7 114.5p (35.6)p 114.1p (35.6)p 296.9 150.9 (105.8) (106.5) Year ended Year 31 March 2018 31 March
(10.9) (12.5) (2.0) —
Oxford Instruments plc Report and Financial Statements 2018
hedges
1 items tax operations profit currency currency tax of before before expenses share costs before before operating profit per continuing reorganisation reorganisation exchange profit finance from from
The adjusted effective tax rate is calculated excluding impairment of non-current assets, amortisation on acquired intangibles, business reorganisation items, the mark-to-market of financial intangibles, business reorganisation assets, amortisation on acquired tax rate is calculated excluding impairment of non-current The adjusted effective derivatives, and other adjusting items.
Continuing adjusted earnings per share – basic Continuing adjusted earnings per share – basic Earnings per share – diluted Earnings per share Continuing adjusted earnings per share – diluted Continuing adjusted earnings per share Dividend
1. Gross Gross Revenue Income Statement Income Statement is summarised below. The Group’s Foreign Foreign Administrative of associate of profit/(loss) Share Impairment of goodwill and intangibles Impairment of investment of associate Business by associate of impairment recognised Share Mark-to-market Profit/(loss) Adjusted Net Adjusted intangibles Amortisation of acquired Tax Tax Profit/(loss) for the period from continuing operations the period from for Profit/(loss) tax rate Adjusted effective Finance Review continued
Income Statement continued Revenue Orders, at constant currency, increased by 22.8% for Materials & Characterisation, with good growth across all business units, and was broadly flat for Research & Discovery. A decline of 7.8% in Service & Healthcare as we reduce the level of sales of refurbished imaging systems in the US Healthcare business, offset order growth of 3.7% in service of our own products. Total reported orders grew by 5.0% (5.8% at constant currency). Excluding orders from US Healthcare, reported and constant currency orders grew by 8.3% and 8.9% respectively. Reported revenue of £296.9 million (2017: £300.2 million) decreased by 1.1%. Materials & Characterisation grew by 11.7%. Research & Discovery and Service & Healthcare declined by 10.5% and 3.6% respectively. Excluding currency effects, revenue grew by 13.2% for Materials & Characterisation with growth across all constituent businesses. Lower optical microscopy sales and an increase in the proportion of customised magnetic and cryogenic systems with longer production lead times, resulted in a constant currency decline of 9.7% in Research & Discovery revenue. Growth in revenue from service of our own products was offset by an anticipated decline in US Healthcare revenue from selling fewer refurbished imaging systems, leading to a constant currency revenue decline of 2.9% in Service & Healthcare. On a geographical basis, at constant currency, revenue grew by 4.3% in Europe, 1.2% in Asia and 8.3% for the Rest of World. Constant currency revenue declined by 5.3% in North America but was in line with last year when excluding revenue from OI Healthcare. The order book, at constant currency, increased by 42.4% for Materials & Characterisation and 15.2% for Research & Discovery, with a decline of 10.8% in Service & Healthcare. Total reported order book grew by 5.0% (10.4% at constant currency). Excluding the order book from US Healthcare, reported and constant currency order book growth was 14.0% and 18.4% respectively. Materials & Research & Service & £ million Characterisation Discovery Healthcare Total1 Revenue: 2016/17 105.7 125.3 69.3 300.2 Underlying movement 13.9 (12.1) (2.0) (0.2) Foreign exchange (1.5) (1.1) (0.5) (3.1) Revenue: 2017/18 118.1 112.1 66.8 296.9
Revenue growth: reported +11.7% (10.5%) (3.6%) (1.1%) Revenue growth: constant currency +13.2% (9.7%) (2.9%) (0.1%) 1. Excluding inter-sector revenue.
Gross profit Gross profit fell by 4.1% to £150.9 million (2017: £157.3 million), representing a gross profit margin of 50.8%, a decrease of 160 basis points over last year.
Operating profit Adjusted operating profit increased by 22.4% to £46.5 million (2017: £38.0 million), representing an adjusted operating profit margin of 15.7%, an increase of 300 basis points against last year. Materials & Characterisation margin rose by 550 basis points to 17.0% (2017: 11.5%). Research & Discovery adjusted operating margin increased by 130 basis points to 12.3% (2017: 11.0%). Service & Healthcare margin increased by 160 basis points to 18.9% (2017: 17.3%). Our share of the ScientaOmicron joint venture showed a profit of £0.5 million for the year, an improvement of £1.3 million against the comparative period. After restructuring costs and impairments, our share of the ScientaOmicron joint venture was a loss of £1.9 million. Currency effects (including the impact of transactional currency hedging) have increased reported adjusted operating profit by £10.6 million when compared to blended hedged exchange rates for the comparative period. Blended hedged exchange rates for the US Dollar, Euro and Japanese Yen against Sterling are all at stronger rates than last year. At constant currency, the adjusted operating profit margin was 12.0%, a decline of 70 basis points. Materials & Research & Service & £ million Characterisation Discovery Healthcare Total Adjusted operating profit: 2016/17 12.2 13.8 12.0 38.0 Underlying movement 2.4 (5.0) 0.5 (2.1) Foreign exchange 5.5 5.0 0.1 10.6 Adjusted operating profit: 2017/18 20.1 13.8 12.6 46.5
Margin: 2016/17 11.5% 11.0% 17.3% 12.7% Margin: 2017/18 17.0% 12.3% 18.9% 15.7%
30 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 31 Dividend the policy is to increase The Group’s dividend each year in line with the in underlying earnings. Given increase in net debt and the reduction the strong the Horizon positive impact from to has proposed the Board strategy, the final dividend to 9.6 pence increase in (2017:‑9.3 pence). This results a total dividend of 13.3 pence (2017: 13.0 pence). The final dividend will approval, be paid, subject to Shareholder on on 19 October 2018 to Shareholders September 2018. as at 14 the register Earnings per share earningsContinuing adjusted basic per by 35.7% to 56.3 pence increased share (2017: 41.5 pence); adjusted basic to by 13.5% increased earnings per share Continuing 55.6 pence (2017: 49.0 pence). were adjusted diluted earnings per share adjusted 56.1 pence (2017: 41.4 pence); pence 55.4 were diluted earnings per share (2017: 48.9 pence). have shares Undiluted weighted average 0.1 million to 57.2 million. by increased exchange Foreign faces transactional and translationalThe Group against the most notably exposure, currency full For the and Japanese Yen. Euro US Dollar, was revenue 16% of Group approximately year, denominated in Sterling, 52% in US Dollars, and 2% in 11% in Japanese Yen 19% in Euros, arise on exposures Translational other currencies. the consolidation of overseas company results arise where exposures into Sterling. Transactional transactions of sale or purchase the currency in which the functional currency from differs its local accounts. each company prepares a hedging programme maintains The Group using against its net transactional exposure of expected currency internal projections trading transactions expected to arise over 12 to 24 months. a period extending from had currency the Group 2018 As at 31 March hedges in place extending up to twelve months forward. we expect For the 2018/19 financial year, of headwind to operating profit a currency £3 million, based on current approximately exchange rates. Oxford Instruments plc Report and Financial Statements 2018 The mark-to-market gain in respect of in respect The mark-to-market gain was derivative financial instruments gain). £3.1 million (2017: £1.2 million a net fair a movement from This reflects net asset position on value liability to a small hedging future derivatives that are currency for the exposures transactional currency year end. to the previous compared Group asset is The un‑crystallised balance sheet the value of Sterling at attributable to a rise in against a blended rate the balance sheet date and Japanese Yen Euro achieved on US Dollar, over the contracts that will mature forward next twelve months. Tax continuing The adjusted tax charge from operations of £10.1 million (2017: £7.8 million) tax rate of 23.9% an effective represents tax liability (2017: 24.8%). The current of £2.9 million in respect includes a provision of which of a historical financing structure, in this financial £2.0 million was provided tax rate from The statutory effective year. continuing operations is 42.7% owing to a tax assets arising from in deferred reduction a lowering of the US tax rate. The Group’s adjusted net finance costs fell by The Group’s £2.3 million to £4.2 million (2017: £6.5 million) with net finance charges falling by £1.8 million to £3.6 million and pension financing charges falling by £0.5 million to £0.6 million. tax before Profit tax increased before Continuing adjusted profit by 34.3% to £42.3 million (2017: £31.5 million), The continuing up 0.6% at constant currency. by tax margin increased before adjusted profit 370 basis points to 14.2% (2017: 10.5%). of £34.2 million tax before Continuing profit (2017: loss of £26.2 million) is after the mark-to-market movement on derivative financial instruments, amortisation of acquired intangibles and other adjusting items. Net finance costs Adjusting items of intangibles Amortisation of acquired to intangible assets £10.9 million relates on acquisitions, being the recognised customer relationships value of technology, and brands. a net gain items were Business reorganisation main three of £1.7 million. This comprised net gain of £3.3 million items, the first being a Wire the sale of the Superconducting from in New retained facility that we initially business, US, following the sale of the Jersey, in property and the disposal of a freehold Second, costs of £0.5 million Germany. Healthcare within our US incurred were business to successfully defend a legal claim we to a prior acquisition. Lastly, relating of £1.1 million costs restructuring incurred and our to US Healthcare primarily relating joint venture. ScientaOmicron associate During the year our ScientaOmicron to the sale an impairment relating recognised of share of one of its subsidiaries. The Group’s this impairment was £2.0 million. to hedge derivative products uses The Group to fluctuations in its short-term exposure policy to exchange rates. It is Group foreign have in place at the beginning of the financial year hedging instruments to cover 80% of its for that year. transactional exposure forecast decided that the additional has The Group costs of meeting the extensive documentation hedge of IAS 39 to apply requirements exchange hedges accounting to these foreign does the Group cannot be justified. Accordingly, not use hedge 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 Finance Review continued
Cash flow The Group cash flow is summarised below. Year ended Year ended 31 March 2018 31 March 2017 £m £m Adjusted operating profit 46.5 38.0 Depreciation and amortisation 9.1 8.9 Adjusted EBITDA 55.6 46.9 Working capital movement (13.2) (4.4) Purchase of rental assets held for subsequent sale (0.7) (1.0) Loss on disposal of property, plant and equipment 0.3 0.5 Equity settled share schemes 1.1 0.5 Share of (profit)/loss from associate (0.5) 0.8 Business reorganisation items (1.3) (1.9) Pension scheme payments above charge to operating profit (7.9) (6.9) Cash generated from operations 33.4 34.5 Interest (2.1) (5.0) Tax (3.8) (2.1) Capitalised development expenditure (5.8) (5.9) Expenditure on tangible and intangible assets (4.8) (3.1) Proceeds from sale of property, plant and equipment 9.3 — Increase in investment in associate (2.1) — Acquisition of subsidiaries, net of cash acquired — (9.8) Proceeds from sale of subsidiary undertaking 71.2 12.2 Decrease in long-term receivables 0.9 — Dividends paid (7.4) (7.4) Proceeds from issue of share capital 0.2 — Decrease in borrowings (96.8) (12.8) Net (decrease)/increase in cash and cash equivalents from continuing operations (7.8) 0.6 Note: Adjusted EBITDA is earnings before interest, tax, depreciation, intangible amortisation, mark-to-market of financial derivatives and other non-cash adjusting items.
Cash generated from operations and cryogenic systems, as well as an Interest Cash generated from operations increase in demonstration stock to support Net interest paid was £2.1 million fell by £1.1 million to £33.4 million new launches of imaging and analysis (2017: £5.0 million). The difference from (2017: £34.5 million), representing products used in electron microscopy. last year is due to lower financing costs 68.8% (2017: 90.3%) cash conversion. The movement in receivables consists arising from a lower level of average net Cash conversion is defined as: cash of an increase of £8.6 million due to debt compared to the comparative period generated from operations before good sales growth across our Materials following the receipt of proceeds from the business reorganisation items and pension & Characterisation sector along with a sale of Industrial Analysis part way through scheme payments, less capitalised higher proportion of sales made towards the period, and the settlement of £1.0 million development expenditure and capital the end of the year compared to the of interest payments made just after the year expenditure/adjusted operating profit. previous period. In addition, we also end close. shipped a higher proportion of customised The working capital outflow of magnets and cryogenic systems that Tax £13.2 million reflects an increase in were invoiced but not paid at the end Tax paid was £3.8 million (2017: inventories of £4.5 million, an increase of the year. Furthermore, an increase of £2.1 million), the comparative period in receivables of £14.4 million, a £2.3 million relates to foreign currency benefiting from tax deductions on decrease in payables of £2.8 million forward contracts relating to the previous allowable adjusting items and utilisation and an increase in customer deposits of year but settled in this financial year, and of brought forward tax losses. £2.9 million. The increase in inventories £3.5 million relating to the settlement of reflects an increase in work in progress foreign currency swaps that are hedging and components to support our planned overseas cash balances. production schedule in the first quarter of 2018/19 for our customised magnets
32 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 33 £m 2.1 3.8 5.8 4.8 7.4 0.4 (9.3) 19.7 (33.4) (71.2) 109.3 Year ended Year 2017 31 March
£m £m 5.8 5.9 0.1 0.2 (0.1) (0.1) (4.4) (4.5) 24.8 25.8 23.4 24.3 Year ended Year 2018 31 March
Oxford Instruments plc Report and Financial Statements 2018
assets assets assets fixed
expenditure fixed intangible operations as as from from R&D-related R&D-related debt of development net paid capitalised capitalised in items generated
Tax Capitalised on tangible and intangible assets Capital expenditure plant and equipment sale of property, from Proceeds Other 2018 Net debt as at 31 March Total cash spent on R&D during the year cash spent Total as a discontinued business on a development project within our X-ray Technology impaired were During the year intangible assets of £1.8 million which has experienced delays and of a development project £1.4 million in respect of the sale of Industrial Analysis. In addition, we impaired result cost overruns. Interest sale of subsidiary undertaking from Proceeds Dividends Amounts of R&D costs capitalised as intangibles Amortisation and impairment Amounts Cash Net debt as at 31 March 2017 Net debt as at 31 March Net debt decreased in the period from £109.3 million to £19.7 million. Cash generated from operations was £33.4 million. Disposal proceeds operations was £33.4 million. Disposal proceeds £109.3 million to £19.7 million. Cash generated from in the period from Net debt decreased of £5.8 million and tangible and invested in capitalised development costs Group to the sale of Industrial Analysis. The of £71.2 million relate intangible assets of £4.8 million. Movement Net debt and funding Net debt Depreciation Depreciation Transition to IFRS 9 Financial Instruments will take effect from 1 April 2018, with the half-year results for September 2018 being IFRS 9 compliant for September 1 April 2018, with the half-year results from will take effect to IFRS 9 Financial Instruments Transition restate to requirement is no 2019. There with IFRS 9 being for the year ended 31 March and the first Annual Report published in accordance cash flows. hedging future that are derivatives of mark-to-market valuation of currency respect comparatives. The main impact is likely to be in with to reserves accounting and so be booked directly exchange contracts might qualify for hedge foreign forward The gain or loss on unrealised is ongoing to assess Work as adjusting items. treated gains or losses are Currently, to the Income Statement on maturity. the gain or loss recycled hedges will qualify for hedge accounting. the extent to which the Group’s which means that approach, retrospective Customers using the modified Contracts with will also be adopting IFRS 15 Revenue from The Group for September 2018 being earningsthe half-year results on 1 April 2018, with in retained the cumulative impact on adoption will be recognised 2019. Comparatives year ended 31 March with IFRS 15 being for the published in accordance IFRS 15 compliant, and the first Annual Report on complex recognition the revenue will be within our NanoScience business where that the main differences anticipate We will not be restated. completion of installation. being primarily on transfer of legal title to from customised magnetic and cryogenic systems will be deferred and vehicle leases which respect of property The main impact will be in be adopting IFRS 16 Leases in the 2018/19 financial year. will The Group is set out in the accounting policies accounted for as operating leases. Further detail on the impact of these new accounting standards currently are of the Financial Statements. Disposals discontinued operations. within recorded has been of £45.9 million on 3 July 2017. A post-tax profit The sale of Industrial Analysis was completed New accounting standards The Shareholders of ScientaOmicron agreed to a capital injection to strengthen the balance sheet of the joint venture and ensure future liquidity in future and ensure of the joint venture the balance sheet to a capital injection to strengthen agreed of ScientaOmicron The Shareholders £2.1 million and was paid in September 2017. was Our share support of the business strategy. Investment in associate the Income Statement R&D expense charged to Investment in Research and Development (R&D) and Investment in Research between (2017: £25.8 million, 8.6% of sales). A reconciliation £24.8 million, equivalent to 8.4% of sales cash spend on R&D in the year was Total given below: the Income Statement and the cash spent is the amounts charged to Finance Review continued
Net debt and funding continued Prior to the year end, the trustees of the UK This review also considered hedging Funding defined benefit scheme, in consultation with arrangements in place. The Directors believe The Group has in place an unsecured the Company, reduced its exposure to on-risk that the Group is well placed to manage its multi‑currency revolving facility agreement assets (a portfolio of market-focused asset business risks successfully. classes, the majority being equities) with a which is committed until February 2020. The Financial Statements have been prepared corresponding increase in its liability driven The facility has been entered into with on a going concern basis, based on the investments, with the objective of steering a group of three banks and comprises a Directors’ opinion, after making reasonable a more stable journey to being fully funded. Sterling-denominated multi-currency facility of enquiries, that the Group has adequate The pension fund’s gross exposure to on-risk £100.0 million and a US Dollar-denominated resources to continue in operational existence assets has fallen from 85% to 45%; the multi-currency facility of $37.0 million. for the foreseeable future. majority of transactions required to make this In the year, the Group repaid £5.0 million of change were completed in February 2018. its bilateral private placement note, leaving Forward-looking statements As a result, the level of risk inherent in the This document contains certain an outstanding note of £39.5 million, which investment strategy is now significantly lower forward‑looking statements. The matures in 2021. In September 2017, the than previously, in addition to a substantial forward‑looking statements reflect the Group repaid the balance of its amortising reduction in funding level volatility. knowledge and information available to the fixed rate loan from the European Investment Company during the preparation and up to Bank. The Group has uncommitted facilities of Going concern the publication of this document. By their £20.6 million. The Group’s business activities, together very nature, these statements depend upon with the factors likely to affect its future Debt covenants are net debt to EBITDA less circumstances and relate to events that may development, performance and position, than 3.0 times and EBITDA to interest greater occur in the future, thereby involving a degree are set out in the Performance, Strategy and than 4.0 times. As at 31 March 2018 net debt of uncertainty. Therefore, nothing in this Operations sections. The financial position of to EBITDA was at 0.3 times and EBITDA to document should be construed as a profit the Group, its cash flows, liquidity position interest was 14.3 times. forecast by the Company. and borrowing facilities are described in this Pensions Finance Review. The Group has defined benefit pension The diverse nature of the Group, combined schemes in the UK and the US. Both have Gavin Hill with its financial strength, provides a solid been closed to new entrants since 2001 and Group Finance Director foundation for a sustainable business. closed to future accrual from 2010. The Directors have reviewed the Group’s 12 June 2018 At 31 March 2018, the net liability arising forecasts and flexed them to incorporate a from our defined benefit scheme obligations number of potential scenarios relating to was £15.3 million (31 March 2017: changes in trading performance. The Directors £25.1 million), a fall of £9.8 million. The believe that the Group will be able to operate reduction in the deficit was primarily due within its existing debt facilities. to the contributions paid in the period and the actuarial gains on the scheme’s liabilities arising from a change in the accounting assumptions at 31 March 2018. Total scheme assets at 31 March 2018 were £289.5 million (31 March 2017: £287.9 million) while liabilities were £304.8 million (31 March 2017: £313.0 million).
34 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 35 Understanding customer needs/ Understanding customer expectations and targeted development new product to maintain and programme positioning. product strengthen in product Stage gate process development to challenge business case commercial and mitigate technical risks. Operational practices sales-production around matching and inventory management to mitigate stock obsolescence risks. differentiation Product advantages to promote Instruments of Oxford equipment and solutions. Strategic marketing with OEMs to sell performance of the combined system. OEM the Broadening customer base. marketing to end users. Direct Mitigation Mitigation • • • • • • • Oxford Instruments plc Report and Financial Statements 2018 “Voice of the Customer” of the Customer” “Voice and market approach product intimacy to direct development activities. to Formal NPI processes prioritise investment and to manage R&D expenditure. lifecycle management. Product Customer intimacy to match performance to product customer needs. Positioning of Oxford Instruments brand and to end users. marketing directly level systems sold by OEMs, and thus the Group does not control its control does not ‑level systems sold by OEMs, and thus the Group Control mechanisms Control Control mechanisms Control • • • • • Additional NPI expenditure. Adverse impact on the Group’s brand and reputation. Loss of key customers/routes to market. New competitors. Reduction in sales volumes or pricing and lower profitability. Loss of market share or Loss of market share negative pricing pressure in lower turnover and resulting profitability. reduced Possible impact Possible impact • • • • • • Consolidation by OEMs in key markets. Failure of the advanced Failure the technologies applied by commercially to produce Group viable products. • In some instances, the Group’s products are components of higher are products Context: In some instances, the Group’s Risk Specific risk 2: Routes to market route to market. route • Risk The Group provides high technology equipment, systems and services to its customers. high technology equipment, provides Context: The Group Specific risk 1: Technical risk Specific risk 1: Risks Principal Principal Risks continued
Specific risk 3: Economic environment Context: Government expenditure may become constrained in key markets.
Risk Possible impact Control mechanisms Mitigation • Reduction in research funding • Lower sales and profitability. • Market intimacy and • Increased focus on customers in key markets such as the US, diversification strategy. that are not reliant on China and the EU (including government funding. the UK).
Specific risk 4: Political risk Context: The Group operates in global markets and can be required to secure export licences from governments.
Risk Possible impact Control mechanisms Mitigation • Changes in the geopolitical • Lower exports adversely • Contract review and protection • Broad global customer base; landscape or a global trade affecting turnover. against breach in the event that contractual protection. war resulting in a complete • Increases to input costs and export licence is withheld. embargo on trade with specific lower gross margins. nations or punitive tariffs.
Specific risk 5: Brexit-related risks Context: The UK will leave the EU.
Risk Possible impact Control mechanisms Mitigation • Lower participation in • Lower sales and profitability. • Customer intimacy and • Market diversification. EU‑funded research projects • Salary inflation. monitoring of funded projects. • Long‑term pricing agreements post Brexit. • Loss of key skills, and/or • Strategic supply chain review. for key suppliers and strategic • Potential short-term hiatus increased recruitment, • Product pricing reviews. sourcing review. in UK research funding. and/or salary costs. • Skills and capabilities reviews. • Pricing strategy. • Barriers to existing free • Supply chain disruption. • Brexit Committee. • Renewal of UK work permit movement of goods and • Lower net pricing on UK scheme to facilitate employment services in the EU. exports to EU and cost of non‑UK/EU nationals. • Tariffs on exports to EU increases on products sourced • Application for Authorised countries from the UK and from the EU. Economic Operator status to vice versa. facilitate movement of goods • UK becomes less attractive to with EU 27. EU nationals as a place to work.
Specific risk 6: 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.
36 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 37 The Group has closed its defined The Group benefit pension schemes in the accrual. UK and US to future a funding has The Group the plan in place to reduce pension deficit over the short to medium term. Regular review, monitoring and Regular review, testing of key security measures to assess adequacy of protection against known threats. to protect Citadel approach key data. User education. plans in BCPs Detailed response arising downtime can reduce incidents and facilitate from or relocation the restoration of production. contracts sales Standard include clauses for limitation liquidated of liability, damages and the exclusion of consequential losses. Succession management plans. Succession management paths. career Technical to UK work permit scheme facilitate employment of non‑UK/EU nationals in place. Mitigation Mitigation Mitigation Mitigation • • • • • • • • • • Oxford Instruments plc Report and Financial Statements 2018 Regular review of Regular review pension strategy. Liability hedging programme to to mitigate exposure rates movements in interest and inflation. IT security policy and and associated standards systems. protection Internal IT governance to maintain those systems and protection our incident response. training. Employee awareness Business Continuity Plans (BCPs) exist for all manufacturing sites. Contractual clauses to limit financial consequences of delayed delivery. HR people strategy for retention retention HR people strategy for with of staff and recruitment key skills. Control mechanisms Control mechanisms Control Control mechanisms Control mechanisms Control • • • • • • • • Increase in net debt as Increase contributions additional Group become payable to fund the deficit. in the annual levy paid Increase Fund. to the Pension Protection Reduction in net assets. Loss of business-critical data. Financial and damage. reputational in Inability to fulfil orders the short term, resulting in sales in a reduction and profitability. Additional, non-recurring overhead costs. Disruption to business as usual operations. Adverse impact on NPI. Operational disruption. Lower sales and profitability. Possible impact Possible impact Possible impact Possible impact • • • • • • • • • • • The reported pension deficit pension The reported is sensitive to movements in actuarial assumptions and returns on investments. Sustained disruption to a major arising from production incident at a site. Cyber attack on the Group’s Cyber attack on the Group’s IT infrastructure. of viruses or malware Spread incidents “Zero-day” through or phishing attacks. Insider threat. Key employees leave and Key employees leave and are replacements effective on a timely basis. not recruited Risk • Specific risk 10: Pensions deficit is sensitive to changes in the actuarial assumptions. calculated pension Context: The Group’s • Business units’ production facilities are typically located at a single site. facilities are Context: Business units’ production Risk Specific risk 9: Operational risk Risk • • • Specific risk 8: IT risk rely on IT availability. financial and other systems Context: Elements of production, Risk • Specific risk 7: People skills. employees have business-critical Context: A number of the Group’s Principal Risks continued
Specific risk 11: 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 of • Reduced profitability. • Procurement “make or • Strategic procurement Sterling against key currencies buy” strategy. in US Dollars, Euros and Yen. such as the US Dollar, Japanese • Review of revenue and costs Yen and the Euro. (Short-term by currency. exposure to volatility is managed by hedging programme.)
Specific risk 12: Legal/compliance risk Context: The Group operates in a complex technological environment and competitors may seek to protect their position through intellectual property rights.
Risk Possible impact Control mechanisms Mitigation • Infringement of a third party’s • Potential loss of future revenue. • Formal “Freedom to Operate” • Confirmation of “Freedom intellectual property. • Future royalty payments. assessment to identify to Operate” during new potential IP issues during product development stage • Payment of damages. product development. gate process.
Viability Statement
Provision C.2.2 of the UK Corporate at March 2018, net debt was £19.7 million. Some of the specific risks identified could Governance Code 2016 requires that the The Group plans to renew its credit facilities have multiple financial consequences on the Directors perform an assessment of the and the Directors consider that continuing to financial baseline used in the assessment. Group’s viability over a period longer than the operate within a gearing ratio of 3:1 should Further, several risks would result in similar twelve months required for the going concern enable the Group to refinance its revolving financial consequences. As a result, the statement. Consistent with the previous two credit facilities, if necessary. financial impact of risks having similar years, this assessment covers a three-year consequences has been aggregated and period. The Directors consider that three Methodology and the potential impact has been quantified by years remains an appropriate time frame for sensitivities applied reference to the following four consequences: assessing the Group’s longer‑term viability, The viability assessment quantifies the 1. reduction in revenue; because the medium-term strategic financial potential financial impact of the principal 2. increased cost of sales; plan (SFP) provides appropriate visibility of key risks and uncertainties which are faced 3. additional overhead costs; and areas such as product development and capital by the Group, should they materialise, to 4. reduction in net profitability arising from expenditure requirements over this period. This ascertain the Group’s ability to withstand adverse movements in exchange rates. year’s assessment, therefore, covers the period adverse events and continue in business. from 1 April 2018 to 31 March 2021 (the The key risks and uncertainties which are “Viability Assessment Period”). considered in the assessment are disclosed on the preceding pages 35 to 38 of the Annual Key criteria applied Report. In addition to quantifying the potential in the assessment financial impact of the adverse events, the Using the same criteria as previous viability assessment also applies estimates assessments, the Board considers that the of certain mitigating actions that could be Group’s viability can reasonably be assured taken to offset the impact of downside risks. if it is able to obtain sufficient debt finance The starting point for the assessment is the to meet its liabilities as they fall due. In this detailed budget for 2018/19, together with regard it considers that it should be possible the SFP for 2019/20 and 2020/21. These to obtain bank finance at three times leverage financial budgets and plans include profit and (i.e. net debt to EBITDA1). It should be noted loss data and cash flow movements, and form that the Group’s revolving credit facility falls the baseline to consider the Group’s viability due for renewal in February 2020 and that over the three-year period.
1. For the purpose of this viability assessment, EBITDA = Adjusted EBITDA (as defined on page 105).
38 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 39 ‑term Lower net profit Higher overheads Based on the outcome of the assessment has a reasonable performed, the Board will be able to expectation that the Group continue in operation and meet its liabilities years. as they fall due over the next three This is based on the assumption that operating within the gearing parameter identified will to obtain external funding, enable the Group credit revolving when the current if required, in February 2020. facility falls due for renewal This assessment supports not only the viability statement above, but also the statement on going concern, set out below. Going concern statement and factors business activities The Group’s its likely to affect considered that are set are performance and position in the future out in the Strategic Report on pages 1 to 47. The Finance Review on pages 28 to 34 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 2021. On this basis, the viability up to 31 March is a reasonable conclude that there Directors will continue in expectation that the Group future operational existence for the foreseeable no material uncertainties are and that there that may cast significant doubt over its ability to continue as a going concern. continue to prepare Directors the As a result, the Financial Statements under the going concern basis. Potential direct financial consequences Potential direct Higher cost of sales Oxford Instruments plc Report and Financial Statements 2018 Lower turnover sensitivities at an individual business unit level. sensitivities at an individual business unit level. has been taken for all of the This approach sensitivities that have been applied. to prime costs is The potential for increases significant risk, as evaluated, by most the third in the viability assessment value. This sensitivity quantifies the potential downside risk to an increase prime costs that might arise from of new or increased to input costs as a result inflationary pressures. or other tariffs The final category of downside risk considered in overheads. to possible increases relates the timing difficult to predict It is inherently and quantum of the potential financial the risks identified. consequences arising from quantified by using these risks were Therefore, a fixed contingency against EBITDA and net debt for each year in the Viability Assessment Period. In total, the downside included in 3.2% of total the assessment represents overheads in the baseline model. Over the Viability Assessment Period as a whole, the impact of the downside risks to the in a decrease modelled resulted 47%. baseline EBITDA of roughly Outcome The outcome of the assessment, by quantifying the financial impact of downside risks, and taking into account mitigating the impact of those actions available to reduce in the Group result risks on net debt only, staying within the parameters described above (i.e. the ratio of net debt to EBITDA is lower than 3:1 in each year of the Viability Assessment Period). Legal/compliance risk Adverse movements in long-term foreign currency rates currency Adverse movements in long-term foreign Pensions Operational risk IT risk People Supply chain risk Brexit-related risks Brexit-related Political risk Description Economic environment Routes to market Technical risk Technical Risk ID 12 11 10 9 8 7 6 5 4 3 2 The most significant risk in value terms relates The most significant risk in value terms adverse to the potential impact arising from movements in exchange rates (risk 11). As described on page 38, long-term adverse (US key currencies movements in three would be and Japanese Yen) Euro Dollar, because of profitability detrimental to Group Sterling cost base. predominantly the Group’s The risk of short-term adverse movements in exchange rates is mitigated by the Group’s the financial As a result, hedging programme. consequences of adverse movements in exchange rates is estimated in years two and Viability only of the Assessment Period. three It should be noted that in this assessment, the impact has been quantified in terms of to estimated reference by net profitability, if this risk However, exposure. net currency impact in the reported to materialise, were complex – foreign Sterling would be more prime costs turnover, denominated currency in absolute, and overheads would all reduce Sterling terms and the net impact would be unfavourable in terms of net profitability. in sales volumes, The impact of a reduction including the consequential impact on prime costs and contribution margins was quantified as the second most significant risk in value terms. While the impact of the loss of a key customer or market in an individual business for the specific business unit might be severe level by unit, the risk is mitigated at a Group operating in diverse geographic markets and of the customer base diversification through the potential within those markets. As a result, modelled in aggregate, risk was revenue level, rather than by applying at a Group 1 The potential direct financial consequences evaluated of the different risks are summarised below: risks are evaluated of the different financial consequences The potential direct Corporate Responsibility Corporate responsibility is integral to our ongoing business success.
Our values:
Inclusive: We listen and engage with customers, colleagues, Shareholders and partners for mutual success
Trusted: We build long‑term relationships based on integrity, trust and respect
Innovative and progressive: We bring skill, experience and openness to new ideas to address the needs of the 21st Century
Wholehearted: We approach what we do with passion, with care and with pace
40 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 41 Santa Barbara employees taking part in Instruments running challenge. the Oxford Annual intra-company football match. Chinese team working together in the office. 1: 2: 3: Oxford Instruments plc Report and Financial Statements 2018 Our employees Instruments, our employees At Oxford to our business success. fundamental are continually invest in our people, We developing the capabilities that we will need are to succeed over the longer term. We the committed to being the company where strive best in our sector want to work. We that will attract, the opportunities to offer talented employees, motivate and retain enabling them to give their best. to be Our people vision is to be proud leaders in what we do and as the recognised we make in the world. for the difference attract and enable the Our aim is to retain, an inclusive best people to perform, creating is difference where and culture, environment for what recognised valued and people are they deliver and bring to the team. Our ability to enable industrial companies to image, communities research and scientific analyse and manipulate materials at the nanoscale is instrumental in the advancement that we take seriously. a role of society, we have on mindful of the impact are We we bring the resources the world through such as our people, our into the Company, and the products supplier relationships, safe and we send out, ensuring they are sound. environmentally our corporate encouraged to take are We seriously by the fact our key responsibility the basis providing enabling technologies are a range of markets and for innovation across helping underpin industrial sectors, and are increased economy, the shift to a greener in materials, advances digital connectivity, life science, manufacturing and healthcare. the development, engagement and wellbeing of our employees; sustaining and developing an inclusive workplace; health and safety and environmental monitoring; and the ethics of how we do business, including human rights and business malpractice. establishing and maintaining stakeholder long‑term, effective relationships; our people an excellent offering employment experience and sense of belonging; strengthening our business through diversity and inclusion; and operating in an ethical, sustainable and environmentally responsible manner. The key areas in which we focus our The key areas are: efforts • • • • Instruments is committed to Oxford the following guiding principles of corporate responsibility: • • • • and our working environments. impact we have on the world, our employees, our communities communities our employees, our world, the on have we impact Our commitment to corporate responsibility is to recognise the the recognise to is responsibility corporate to commitment Our Corporate Responsibility continued We have introduced a range of global initiatives to help create a sense of belonging.
Our employees continued Developing capability We offer Industrial Post-Doctoral placements Our workplace We regularly undertake capability reviews, to high‑calibre researchers, providing them the As an international organisation, our recognising the importance of ensuring we opportunity to experience a role in industry. employees are located across the world, have the skills we need to help us deliver In many cases these individuals have decided frequently based in satellite offices that are long-term sustainable growth. We have been to join us on a permanent basis, helping to remote from the main business sites. In this working hard to address capability gaps across ensure that our technical skill base remains at context it is important that we work hard to the Group by both bringing in the capabilities the cutting edge. help people feel part of a global team, and we need for the future, and investing in the Our values are deeply ingrained in Oxford we have been upgrading many of our office talented people we have, reaching beyond our Instruments and we endeavour to embody spaces to enhance the Oxford Instruments management capabilities. We have made a them in all we do. We are now looking at experience. We have also introduced a range significant investment in our sales, marketing, how we can further help people understand of global initiatives to help create a sense of innovation and operational excellence teams the behaviours we need in support of the belonging and ensure people feel part of a across the Group. We are undertaking Miller transformation we are making through our global team. Activities have included a global Heiman training for our sales teams, with Horizon strategy. We have taken time to photo competition and a running challenge, 249 people participating, and have identified create the environment for change and now whereby our employees were challenged to 60 people as operational excellence champions we are empowering our employees to make run a combined distance of 10,000 miles. who are undergoing training in support of this. the decisions that will drive change. We want This challenge also aligns with our increasing We continue to underpin our capability everyone to feel that they own the challenge focus on the wellbeing of our employees. development through the various leadership and the solution, encouraging a sense of We are rolling out health checks across all development programmes we run. responsibility for solving problems and getting our sites, and encouraging a good work‑life Our flagship Management Development better results. balance through our additional holiday Programme, (MDP), covers many of the skills purchase scheme, which 27% of our UK needed to be a successful manager in Oxford Our local communities employees have taken up, this is increasing Instruments. We have built on this further with We believe the work we do and enable others to each year. our Early Careers and Maximising Potential do is important, both benefiting and advancing society. To ensure this continues, we are This year we successfully launched Gem, our programmes that focus on introducing high committed to helping the generations coming cloud-based information system. This gives potential candidates to the business and help up through education to choose STEM subjects, employees much more control over their them to succeed within the Group. and to look at how we can support them to personal profiles, providing full visibility of the To further support our technologists and make the move to a career in STEM areas. organisation, making tasks such as booking engineers to deliver innovative products and holidays or undertaking annual appraisals solutions that continually meet and exceed our much easier. We have further built on the customers’ expectations, we have introduced sense of being part of a global team by a Technical Development Programme. This running a number of cross-business projects. programme integrates with our technical This has allowed us to use the strengths that career ladder, offering technical employees a exist in one part of the business to support clear career path within Oxford Instruments, the rapid expansion of that capability in other without the need to take on people parts of the business. Recent successes include management roles. This enables us to attract product and software development projects. and retain the best engineers and scientists.
42 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 43 Volunteers helping a local Riding for Volunteers the Disabled school with repairs. Shoe boxes filled with Christmas gifts in need. for children 1: 2: This year we published our gender pay gap This is available on our website at report. and www.oxinst.com/gender-pay-review internally with employees ahead was shared they were of external publication to ensure it of it and fully understood it before aware was released. Ethics our code of conduct, have been refreshing We updating our policies on how we do business have and what we expect of others. We document for helpful more a clearer, created for transparency more stakeholders, providing expected of them. our employees about what’s This will help give them confidence that they actions in various situations. taking the right are Oxford Instruments plc Report and Financial Statements 2018 Our working environment Diversity and inclusion that we have a high Our objective is to ensure to that enables us diverse workforce capability, better understand our customers and markets; range of perspectives and with a broad experiences that maximise our capability to innovate, make the right decisions and exceed to retain, our customers’ expectations. In order attract and enable the best people to perform, an inclusive environment we need to create is valued and difference where and culture, for what they bring to recognised people are the team and what they deliver. we have work in this area of our As a result in the number of women seen an increase and we have more in high impact roles balanced shortlists. Our drive is to ensure the right behaviours encouraging we are we need for success. Our managers receive our MDP. unconscious bias training through In addition, we have enhanced our leave and retain flexible working schemes to attract and a diverse workforce. Many of our businesses have close links with helping bring STEM to schools in their area, while all our UK sites life in the classroom, also run school work experience programmes. continue to work with a range of Centres We students the to offer for Doctoral Training opportunity to build on their educational experiencelearning with practical, project-based and have also launched industrial postdocs, fixed term contracts to allow which are postdocs to experience working in industry. encourage our sites to continue to We support their local communities through charity and community activities. This year, mornings charity coffee as well as regular and bake sales, we have held Christmas jumper competitions and filled nearly 100 shoe boxes with Christmas gifts for children. establishing further ways to support are We of our communities, and this year a group our employees gave up their time to help paint fences at a local Riding for the Disabled and school, which was very much appreciated for the school. difference made a real Corporate Responsibility continued Each business has an energy champion at a local level who is responsible for monitoring energy use, waste streams, recycling and emissions to air, water and land.
Our working environment Health and safety continued Health and safety within Oxford Instruments Global accident figures Human rights and modern slavery has been managed for several years by remain at a low level We continue to review our policies and Charles Holroyd, Group Business Development The total number of accidents recorded systems supporting human rights. Our policy Director. However, going forward, Richard worldwide during 2017/18 was reduced is guided by the United Nations Guiding Pollard, Managing Director of Plasma to 52 from 57 in 2016/17. Accidents Principles on Business and Human Rights. Technology, will assume responsibility for have been reduced by 76% over the Our Human Rights Policy states our intent to health and safety at the Group level, assisted previous six years. This demonstrates our be inclusive, supportive and safe, covering by the Group Health, Safety and Environment commitment to the health and safety matters including forced labour, child labour, Manager Dave Wales, who is responsible of our employees – which we take very discrimination and the right to form or join a for ensuring that day-to-day activities are seriously and work hard, as a team, to trade union and to bargain collectively. carried out safely. All manufacturing sites are effect improvements. Our sites continue audited annually by the Group Health, Safety to operate safely, with the majority of We expect every employee to adhere to the and Environment Manager or by members of accidents recorded being very minor cuts spirit of our Policy and it is fully supported his auditing team. The large federal offices and bruises. The number of accidents by our Board. All members of the Group’s are audited every two years and the smaller per employee increased slightly to Executive Committee take responsibility for offices every three years. 0.033 during 2017/18 from 0.030 the ensuring its implementation within their part previous year. of the Group. We also extend our expectations Three of our largest sites are certified to on human rights to those we work to: our ISO 14001, ISO 9001 and OHSAS 18001 Globally, three reportable accidents partners, contractors and suppliers. management system standards. These occurred during 2017/18, the same level sites are subjected to twice-yearly external 2016/17. For reporting purposes, global We are committed to preventing acts of auditing from their nominated certification reportable accidents were normalised modern slavery and human trafficking from body. During 2017/18 all the sites certified to using the UK definition of over seven days’ occurring within our business and supply chain ISO 14001 achieved certification to the new absence from work. We continue to focus and put in place effective systems and controls ISO 14001‑2015 management system standard. on making our sites safer places to work. in order to do so. We have reviewed, and The seven-year picture in the graph below improved, our supplier due diligence and audit shows a continuing positive trend. procedures. We have a zero-tolerance approach The number of to all forms of modern slavery, including Annual accident figures servitude, forced, bonded and compulsory accidents has labour and human trafficking and we expect 2017/18 52 our suppliers to adopt the same approach. remained low at 52 – 8.9% down on the 2016/17 57 previous year 2015/16 74 2014/15 71
2013/14 109
2012/13 162
2011/12 217
44 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 45 2017 2016 2015 2014 Oxford Instruments consumed 12.86 GWh Oxford of energy globally in 2017/18. The Company’s of energy efficiency was measure compared 44.7 MWh/£million revenue in the to 58.75 MWh/£million revenue year. previous Oxford Instruments is a full participant in Instruments Oxford the UK Carbon Reduction Commitment Energy Efficiency Scheme (CRC). The carbon allowances to Company purchases energy generation cover its emissions from and burning hot water. gas for heating and For the 2017/18 financial year 3,211 carbon to meet UK carbon required allowances were allowances in hand 819 were emissions. There 2,392 will be purchased and the remaining in September. in July and will be surrendered The carbon allowances for 2018/19 will to take advance in order in be purchased advantage of discounted prices. Legal compliance – Carbon Reduction Commitment Energy Efficiency Scheme (CRC) 2013 2012 Oxford Instruments plc Report and Financial Statements 2018 2011 Electric (GWh) Gas (GWh) 2010 e). This reflects continued efforts to use continued efforts e). This reflects 2 8 6 4 2 0 12 14 16 18 10 20 Energy consumption energy more efficiently and also business energy more disposals. Our overall environmental priority is for our Our overall environmental the world to minimise their operations around footprint. Each business has environmental an Energy Champion at a local level who is for monitoring energy use, waste responsible water to air, and emissions recycling streams, and land. They also continuously look for their environmental innovative ways to reduce initiatives include the removal footprint. Current of single use plastics, the installation of electric car charging points and energy reduction. Energy consumption continue to monitor our global energy We use and implement energy-saving techniques During the beneficial. they prove where calendar year 2017 we saw a significant footprint to carbon in the Group reduction 7,161 tonnes of carbon dioxide equivalent (tCO Sustainability – Protecting Sustainability – Protecting the environment Tubney staff taking part in a staff Tubney Christmas jumper charity event. on a charity walk Belfast staff Hospice. for Northern Ireland with go green The team at Yatton work. further environmental 1: 2: 3: Corporate Responsibility continued The global carbon footprint continued to reduce – falling to 7,161 tCO2e during 2017 from 9,604 tCO2e the previous year.
Waste outputs Legal compliance – Carbon reporting We aim to minimise our waste outputs and Environmental Directives As part of the UK Companies Act 2006 ensure that as little as possible goes to landfill. The Group complies with all environmental (Strategic Report and Directors’ Report) Several of our sites are now “zero waste to legislation in countries where it operates. Regulations 2013, Oxford Instruments has landfill”, where waste is recycled either directly This includes European Directives such as the a mandatory duty to report greenhouse e.g. cardboard, metals, wood, paper and food, following: gas emissions as tonnes of carbon dioxide or indirectly for non-recyclable general waste, equivalent (tCO e). The Company’s measure of • Waste Electronic and Electrical Equipment 2 which is sent to waste sites where it can be carbon emissions is tonnes of carbon dioxide (WEEE) Directive – compliance achieved used to produce energy. equivalent (tCO e) per £million of revenue. by membership of B2B Compliance – 2 This year the global carbon emissions figure is an authorised compliance body. 15.60 tCO2e/£million revenue. Air travel • Restriction on use of certain Hazardous Oxford Instruments measures the energy Substances (RoHS) regulations – all Greenhouse gas (GHG) emissions equivalent of employee air travel for its products that were within scope and were Oxford Instruments is a global business UK and US operations. Air travel for the sold into Europe since July 2017 complied. with operations in many parts of the 2017 calendar year totalled 13.67 million Some of our products are outside of world. Emissions from 17 Company sites kilometres, a 5.3% reduction on the the RoHS scope or are covered by an are monitored and are reported as to the previous year’s total of 14.4 million exemption. right. Some small sales offices where energy kilometres. This equated to a carbon • Registration, Evaluation, Authorisation consumption is less than 0.01% of the Group’s total energy consumption are omitted. footprint of 2,130 tCO2e based on 80% of Chemicals (REACh) Directive. All sites long haul and 20% short haul flights. are working towards compliance via their The recorded use of hydro-fluorocarbons is supply chains. below 5kg and has therefore been excluded. Air travel (million km) Emissions from purchased electricity, fuel for heating or process purposes (gas and oil) 2017 13.67 and fugitive emissions from process gases are reported in tonnes of carbon dioxide
2016 14.40 equivalent (tCO2e).
2015 16.90
2014 20.14
2013 21.90
2012 23.00
1: STEM work in California with 2011 21.00 local school children.
2010 15.50
2009 8.20
46 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information e) 47 2 Total 82.7 160.8 (tCO 3,130.3 1,513.3 4,886.9 0 0 0 0 0 e) 2 (tCO UK 58% Americas 22% Asia 14% 6% Europe Fugitive emissions e) per £million of revenue. e) per £million of revenue. 2 0 0 e) 2 6.5 356.8 363.3 (tCO Geographical spread Geographical spread of employees Secondary fuel e) 2 22% 14% 14% 15% 22% 76.2 160.8 (tCO 2,773.3 1,513.3 4,523.6 Oxford Instruments plc Report and Financial Statements 2018 Purchased electricity Purchased 78% 86% 86% 85% 78% Region UK North America Europe Asia Total e 2 = 15.60 tCO £million revenue Carbon Revenue emissions Employees Managers Management Board PLC Board Global Oxford Instruments Gender With of carbon dioxide equivalent of 4,886.9 tonnes, this gives an intensity ratio for the year at £313.23 million and the total emissions revenues as follows: Intensity ratio (tCO is tonnes of carbon dioxide equivalent gas reporting ratio for greenhouse intensity declared The Company’s Ian Barkshire Chief Executive 12 June 2018 Signed on behalf of the Board 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.
We have used the key themes of the Code to articulate the Board’s activities during the year:
Leadership Relations with See pages 49 to 54 of the Corporate Governance Report. Shareholders Effectiveness See page 81. See pages 55 to 58 of the Corporate Governance Report and Nomination Committee Report on page 59 to 60. Report of the Directors See pages 83 to 85. Accountability See the Audit and Risk Committee Report on pages 61 to 66, risk management disclosures on pages 66 and Financial Statements on pages 91 to 97. Remuneration See the Remuneration Report on pages 67 to 80.
48 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 49 During the year, we asked ICSA Board Evaluation we asked ICSA Board During the year, to carry out a full evaluation of the performance achieved a “very Overall, the Board of the Board. details on the findings of the More good” result. outlined below. evaluation are pleased to welcome Steve In July 2017, we were as Senior Independent Blair onto our Board operational experience in our His broad Director. a sectors and sound technical understanding are valuable addition to the Board. to attend the AGM I encourage all Shareholders Head which will be held at the Company’s Tuesday on Woods, Oxfordshire Tubney Office in an 11 September 2018. This event provides to meet the opportunity for Shareholders Executive and Non-Executive Directors. Alan Thomson Chairman 12 June 2018 Oxford Instruments plc Report and Financial Statements 2018 The main Group-wide governance The main Group-wide Instruments the Oxford documents are Code of Business Conduct and Ethics together with the policies which sit within our statement on Corporate Responsibility. These can be found on our website at . The ethics www.oxinst.com/investors ‑functional is managed by a cross programme 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 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-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 to driving the committed remains The Board long-term objectives, overseeing Group’s competent operations to ensure the Group’s and prudent management and continuous leadership development and succession to governance is set planning. The approach and the Management Board by the Board is effectively approach that the ensures Instruments’ Oxford implemented across the world. businesses around operated during the year. year. the during operated provides an insight into how the Board Board the how into insight an provides The Corporate Governance Statement Statement Governance Corporate The Chairman’s introduction Chairman’s Leadership Leadership continued Board of Directors
Alan Thomson (71) Ian Barkshire (52) Gavin Hill (50) Stephen Blair (58) 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 June 2016 November 2015 May 2016 July 2017 Appointed Chairman Appointed Chief Executive September 2016 May 2016
Background Background Background Background Holds a Masters degree from Holds a BSc and DPhil in physics Holds a BA in economics and Holds an engineering degree from University of Glasgow and is qualified from the University of York, is a agricultural economics from the University of Sheffield. Extensive as a Chartered Accountant with the Chartered Physicist and a Member the University of Exeter. He is a experience in established and Institute of Chartered Accountants of the Institute of Physics. Ian has Chartered Accountant and an high‑growth emerging markets, of Scotland. worked for Oxford Instruments since Associate Member of the Association strategic planning and portfolio 1997 in a number of senior leadership of Corporate Treasurers. development. roles including NanoCharacterisation Divisional Head, Group Technical Director and Chief Operating Officer.
External appointments Previous experience Previous experience Previous experience Chairman: Senior Principal Scientist: Group Finance Director: Chief Executive: Hays plc GEC Marconi Materials Technology Synergy Health plc e2v Research Fellow: Director, Corporate Finance: Business Group Director: Previous experience University of York Serco Group plc Spectris plc Chairman: Bodycote plc Senior finance positions: Polypipe Group plc Syngenta AG and AstraZeneca plc Senior Independent Director: Johnson Matthey plc Non‑Executive Director: Laporte plc Chief Financial Officer: Smiths Group plc
Board diversity Key to Committees
Gender diversity Tenure Audit and Risk
Male 86% 1-2 years 14% Nomination
Female 14% 3-4 years 72% Remuneration
5-6 years 14% Chairman of Committee
50 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 51 Oxford Instruments plc Report and Financial Statements 2018 Professor Professor Friend (65) Sir Richard Independent Non-Executive Director 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 Sciences Research Council 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. Thomas Geitner (63) Independent Non-Executive Director 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 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 & Cie GmbH Duisburg Appointed to the Board February 2016 Mary Waldner (48) Mary Waldner Independent Non-Executive Director Background Holds an MA in physics from the University of Oxford and is a Fellow of the Chartered Institute of Management Accountants. She started her career at Coopers & Management Consultancy Lybrand Services and then went on to hold senior financial positions in a number of major businesses. External appointments Chief Financial Officer: Register Lloyd’s Previous experience Group Finance Director: Ultra Electronics plc Group Finance: Director, QinetiQ plc Leadership continued Corporate Governance Report
Board priorities during the year Strategic • Annual strategy day to consider progress and provide challenge on the Horizon strategy and next steps. • Completed the disposal of the Industrial Analysis business to Hitachi High Technology and the strategic reorganisation of the business under the new operating segments. • Reviewed, challenged and approved the strategic direction of the Group’s medium-term plan. Operations • Received regular operational updates through the Management Board. • Site visits to Group manufacturing sites. Leadership and people • Completed the refresh of the Company’s Board of Directors. • 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 2017/18 financial plan and considered and approved the 2018/19 financial plan. • Reviewed and approved the financial elements of the Group’s medium-term plan. • Monitored the progress of Project Connect (the new ERP system) and the first phase of implementation. • 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 • Appointment and induction of the new Senior Independent Director. • Discussed the outcome of the 2017/18 external Board evaluation and agreed opportunities for improvement. • Reviewed feedback from institutional Shareholders. • Meetings of the Non-Executive Directors without management being present.
Compliance Preservation of value The Board has delegated Group responsibility The Board endorses the main and supporting The basis on which the Group generates and for the management of health, safety and the principles and the provisions set out in the preserves value over the longer term and the environment to Ian Barkshire and he reports to 2016 UK Corporate Governance Code strategy for delivering the objectives of the the Board on these matters at each meeting. (“the Governance Code”) and considers that, Group are to be found in the Strategic Report. Board members’ length of service throughout the period under review, the Group has complied with the provisions recommended Board of Directors and Thomas Geitner 5 years in the Governance Code save for provision management structure Richard Friend 4 years A.4.1. Stephen Blair was designated as Senior Board of Directors Ian Barkshire 2 years The Board as at the date of this report Independent Director from the date of his Mary Waldner 2 years comprises the Chairman, four Non-Executive appointment as independent Non-Executive Gavin Hill 2 years Director on 1 July 2017. Directors and two Executive Directors. The Alan Thomson 2 years Directors’ biographies and details of length of Taken together with the reports of the service are shown on pages 50 and 51. All the Stephen Blair 1 year Nomination Committee, Audit and Risk Directors have written letters of appointment Committee, the Report on Remuneration that have been approved by the Board and Management Board and Corporate Responsibility, this Statement which are available for inspection at the The Board delegates management of the explains how Oxford Instruments has applied Company’s Annual General Meeting. business to the Chief Executive. To assist the principles of good corporate governance in this, the Chief Executive has created a as set out in the Governance Code. The Chairman is responsible for leadership Management Board that consists of the of the Board and ensuring its effectiveness Resolutions for the election of all Directors Executive Directors, senior managers with on all aspects of its role. The division of will be put to Shareholders at the Company’s Group-wide functional responsibilities and responsibilities between the role of the forthcoming AGM. Once passed, this will heads of the principal businesses of the Chairman and the Chief Executive has been continue to deliver a Board which meets Group’s activities. set out in writing and agreed by the Board. the requirements of Provision B.1.2 of the The Management Board meets monthly either Governance Code. The Board is responsible to Shareholders physically or by video or telephone conference for good corporate governance, setting and focuses on Group-wide performance, the Group’s strategic objectives, values strategy and risk management. and standards, and ensuring the necessary resources are in place to achieve the objectives.
52 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 53 Oxford Instruments plc Report and Financial Statements 2018 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 Group meetings are Board also The Board locations during the year. to discuss theheld one meeting specifically during the year. strategic direction Company’s 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 a decision by the Board Any matter requiring paper will be supported by a pre-circulated aspects of the proposal analysing all relevant a course of action. and 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 meet without The Non-Executive Directors at least annually, the Executive Directors with the Chairman leading these meetings. also meet The Non‑Executive Directors annually without the Chairman in attendance. chairs The Senior Independent Director these meetings. and the Company The Company Secretary responsible for office are Secretary’s and procedures implementing Board on corporate for advising the Board governance matters. 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 this decision‑making framework in which it verifies Further, strategy is implemented. and human that the necessary financial to meet strategic aims, in place are resources against key financial monitors performance and non‑financial indicators, oversees the 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 the File, which Reference Board and documented policies and procedures and delegated authorities sets out the roles and the the Board applying to the Directors, Reference Committees. The Board Board annually as part of the File is reviewed undertaken by annual governance review the Chairman. 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 other commitments, litigation and regulatory and share remuneration proceedings, incentive plans. 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 Leadership continued Corporate Governance Report
Board balance and independence The Governance Code requires the Board Alan is Chairman of the Nomination Thomas Geitner was appointed to the to be of sufficient size that the balance of Committee and a member of the Board as an independent Non-Executive skills and experience is appropriate for the Remuneration Committee. Director on 15 January 2013. He is a requirements of the business and that there graduate of the Technische Universität Steve Blair was Chief Executive of Teledyne is a balance of Executive and Non-Executive München and holds an INSEAD MBA. e2v Limited (previously e2v technologies plc), Directors such that no individual or small a manufacturer of sensors, radio frequency Thomas has extensive international group of individuals can dominate the Board’s generators and semiconductors and a listed experience in the technology and engineering decision making. The Board is committed to company until its acquisition by Teledyne sectors, having spent more than 30 years promoting diversity and inclusiveness of all Technologies in March 2017. Previously he in businesses operating across the globe. kinds, both on the Board and throughout the was Business Group Director for Spectris plc. Having worked in a number of global Group. The Board recognises that diversity, He has broad operational experience and a companies he understands the importance which should be construed in its broadest breadth of experience covering established of remuneration connecting with strategy to sense and includes gender, religious and and high-growth emerging markets, strategic appropriately incentivise the executive team. ethnic diversity, background and age, is planning and portfolio development. The Board believes that his skills, experience an important factor in Board and, indeed, and knowledge make Thomas well suited to in operational effectiveness. The way in Steve is Senior Independent Director and Chairman the Remuneration Committee. which the Board manages diversity within also a member of the Audit and Risk, the Board is reported on more fully in the Remuneration and Nomination Committees. Thomas is Chairman of the Remuneration Committee and also a member of the Audit Nomination Committee Report on page 59 Richard Friend was appointed to the and Risk and Nomination Committees. and diversity is more generally reported on Board as an independent Non-Executive page 43 in the Corporate Responsibility Director on 1 September 2014. Richard is Mary Waldner was appointed to the Board Report. The composition of the Board and a Fellow of the Royal Society and Fellow of as an independent Non-Executive Director the combination of diverse backgrounds and the Royal Academy of Engineering. He is on 4 February 2016. She is Chief Financial expertise of the Non-Executive Directors meet also Cavendish Professor of Physics and a Officer at Lloyd’s Register. She has a Masters these principles. Fellow of St. John’s College at the University degree in physics from Oxford University Alan Thomson, Chairman, was appointed to of Cambridge. and is a Fellow of the Chartered Institute of Management Accountants. the Board as an independent Non-Executive His research encompasses the physics, Director on 1 June 2016 and appointed materials science and engineering of Mary has a broad range of experience in Chairman on 13 September 2016. He has a semiconductor devices made with high technology companies that operate Masters degree from Glasgow University and carbon‑based semiconductors. His research internationally and has worked in a number is a Member and past President of the Institute advances have shown that these materials of senior financial roles within major public of Chartered Accountants of Scotland. He is have significant applications in LEDs, solar limited companies, including as Group Chairman of Hays plc. Previously, he was cells, lasers and electronics. He was knighted Finance Director of Ultra Electronics plc. Chairman of Bodycote plc and Polypipe Group for services to physics in the Queen’s Birthday The Board believes that Mary’s background plc and a Non-Executive Director of Laporte Honours List in 2003. He has also been gives her the various insights needed to make plc, Alstom SA and of Johnson Matthey plc. directly involved in the commercialisation her a well qualified Chairman of the Audit Earlier in his career, he worked on a variety of technology through several spin-out and Risk Committee. of audits for Arthur Andersen and Price companies from the University of Cambridge. Mary is Chairman of the Audit and Risk Waterhouse, followed by senior management Richard is a member of the Audit and Risk, Committee and also a member of the positions with Rockwell International plc, Remuneration and Nomination Committees. Remuneration and Nomination Committees. Raychem Ltd and Courtaulds plc and was Group Finance Director of Rugby Group plc and then Smiths Group plc.
Independence of Term of appointment of Composition of the Board Non-Executive Directors Non‑Executive Directors In the opinion of the Board, Alan Thomson, Each Non-Executive Director was appointed Stephen Blair, Richard Friend, Thomas Geitner for an initial term of three years. In line with and Mary Waldner are independent. provision B.7.1 of the Governance Code, the Board has determined that all Directors of the The Board considers that they are each 67% Board are to be subject to annual re-election by independent in character and judgement and Shareholders and, accordingly, the appropriate do not have relationships which are likely to resolutions will be put to Shareholders at the affect their judgement. This opinion is based Company’s forthcoming AGM. on current participation and performance on both the Board and Board Committees, Independent (4) including consideration of the length of Non-independent (2) service at Oxford Instruments plc.
54 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 55 Very Good Very 91-100 Excellent Key: 0-19 Poor 20-39 Average 40-54 Fair 55-70 Good 71-90 80 80 80 78 75 73 70 It further concluded that the leadership It further concluded that appointed in shown by the Chairman, a about September 2016, has brought to the culture significant, positive change the business and and behaviours pervading team, built a strong that the Chairman has both executive and non-executive. concluded that its focus should The Board the Horizon strategy, on progressing remain work its strong that it should continue on risk management and, now that the and management membership of the Board its succession team has stabilised, to refresh in the evaluation are planning. Actions from of being implemented. the process evaluation, In addition to the external Board the Chairman has assessed the performance member by conducting of each Board individual interviews and has confirmed with the Nomination Committee that all continue to perform effectively Directors and demonstrate commitment to their The Chief Executive, Ian Barkshire, roles. was appraised by the Chairman and the and the Group Non‑Executive Directors Gavin Hill, was appraised Finance Director, by the Chairman, Non-Executive Directors and the Chief Executive in May 2018. Led by Steve Blair, the Senior Independent Director, carried out an the Non-Executive Directors performance evaluation of the Chairman’s satisfied and concluded that they were commitment and with the Chairman’s performance. Oxford Instruments plc Report and Financial Statements 2018 Board Role and Responsibilities Oversight Meetings Board Support for the Board Board Composition Together Working Achievements and Outcome In light of the provisions of Section B.6.2 of of Section In light of the provisions the Governance Code which expects that an externally facilitated evaluation of the Board ICSA Board be carried out at least triennially, of the Evaluation, which is independent the carried out a full evaluation of Group, of the Company. performance of the Board met Shepheard, Mr Geoffrey The evaluator, basis on an individual with each Director seven aspects of to obtain their views on performance and observed a the Board’s The evaluation full meeting of the Board. questions to cover the included relevant activities of each Committee of the Board. that pre-defined The evaluator ensured constituent elements of each topic were discussions and a qualitative in the covered was assigned by each Director. score then of the evaluation were All the results a meeting at the Board by considered the where attended by Mr Shepheard, discussed the recommendations. Directors Overall, the conclusion of the evaluation was performing was that the Board the reviewed, that were well in all areas and effective were Committees of the Board has adopted high governance that the Board evaluation The throughout. standards comprising a confirmed that the Board, fairly new team, of whom only two had than two years at the start of served more the evaluation, is working well together good challenge and support and providing to the Executive Directors. Board evaluation Board Board development and evaluation development Board development Board an undertake On appointment, Directors which is designed to induction process understanding of thedevelop knowledge and visits to various businesses through Group’s operating sites, discussion of relevant Group demonstrations, well as product as technology, management and familiarisation briefings from of the Group. with investor perceptions briefing papersThis induction is supported by by the Company Secretary. prepared The operating businesses’ senior management to teams and functional leaders present Non-Executive basis. on a regular the Board meet individual encouraged to are Directors members of the senior management team and have done so during the year under review. Non-Executive Directors the year, Throughout 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. exists for Directors also advice and a procedure advice at the to take independent professional expense. No such advice was sought Group’s removal The appointment and during the year. matters for the are of the Company Secretary as a whole. Board Corporate Governance Report Governance Corporate Effectiveness Effectiveness continued Corporate Governance Report
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 2018:
Audit and Risk Remuneration Nomination Board Committee Committee Committee Number of meetings held 9 4 4 2 Alan Thomson 9 41 4 2 Ian Barkshire 9 41 31 21 Gavin Hill 9 41 21 11 Richard Friend 9 4 4 2 Thomas Geitner 9 4 4 2 Mary Waldner 9 4 4 2 Steve Blair2 5 3 2 1 1. Attended by invitation. 2. Steve Blair was appointed to the Board and Committees on 1 July 2017. He has attended all Board and Committee meetings since his appointment. 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 Committees: Audit and Risk, Nomination, the independent Non-Executive Directors and all the independent Non-Executive Directors Remuneration and Administration. the Chairman of the Board. Thomas Geitner and its Chairman is Mary Waldner. Other is the Chairman of the Committee. The Board members of the Board, senior management Membership of Board Committees, considers that Thomas, with his experience of and the external auditor are invited to attend which is set out on pages 50 and 51, is working at senior levels in global companies, all or part of any meetings. The Board has determined by the Board and is reviewed including high technology companies, has determined that Mary, with her background regularly. The written terms of reference of an appropriate blend of skills to make a in financial management, is the designated the Board Committees are reviewed annually successful Chairman of the Remuneration financial expert. 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 61 to 66. 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. The Nomination Committee is responsible the Chairman. No Director is involved in the At each of its meetings, the Board receives a for assisting the Board in the formal process that sets his/her own remuneration. summary outlining all matters decided by the selection and appointment of Directors The Chief Executive is invited to attend Administration Committee since the previous and considers succession planning for the all or part of Remuneration Committee Board Meeting. Board. The Nomination Committee reviews meetings as deemed appropriate, for example succession plans annually. when consideration is being given to the performance of other Executive Directors and on significant Group-wide changes in salary structure and terms and conditions affecting other employees at senior executive level.
56 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 57 there is a formal schedule of matters is a formal there for decision; other Board to the reserved delegates than these matters, the Board the to the Chief Executive and reviews the delegation of authorities throughout management structure; structure management the Group’s is headed up by the Management comprises the Its membership Board. senior managers with Executive Directors, ‑wide functional responsibilities Group and the heads of the principal businesses activities. Day-to-day of the Group’s the management of the for responsibility to the Management is delegated Group is based on The responsibility Board. 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 The internal control framework includes The internal control oversight and risk central direction, activities within the management of the key This framework includes a financial Group. a five-year which comprises planning process annual budget planning model and a detailed All Group approval. which is subject to Board monthly reported are businesses’ results to budget and and include variance analysis Management also prepare the prior year. monthly reforecasts. activities include policies and Control and authorisation for appropriate procedures of transactions, the application of approval reviews and standards reporting financial of significant judgements and financial and performance. Financial, regulatory and risk procedures operational controls, by reviewed are the Group activities across assurance function. the Group’s 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 framework during the period covered this Report and Financial Statements. The key components designed to provide within the Group internal control effective include the following: • • Oxford Instruments plc Report and Financial Statements 2018 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 and performance, solvency model, future of all major risks identified, Details liquidity. adopted, are and the mitigating actions and by the Board to and reviewed reported on a quarterly the Audit and Risk Committee set out on pages 35 basis. The principal risks risks an overview of the major to 38 provide All by the Group. and uncertainties faced process a standard operating businesses follow reporting. All risks for risk identification and assessed in terms of probability identified are scores and potential impact. The resultant used to classify and prioritise risks and all are reported in the Group’s significant risks are mitigation For those risks where risk register. the businesses also report possible, actions are basis on the action being taken. On a regular and updates its risk 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 in writing to the Chief Executive, at which a discussion on the adequacy of is time there the mitigating actions taken. and the Audit and In addition, the Board Risk Committee consider risks to the Group’s not addressed strategic objectives which are businesses and develop within the Group’s actions to manage and mitigate appropriate possible. these risks where Internal control accountability for reviewing has The Board the adequacy and effectiveness and approving of internal operated by the Group. controls This covers financial, operational and 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. Internal audit and assurance internal audit function assesses The Group’s of the the adequacy and effectiveness management of significant risk areas of operational oversight and provides line and assurance front management’s activities. Further details of the scope of internal set out in the Audit audit activities are and Risk Committee Report on pages 61 to 66. Risk management is an ongoing Within there the Group for identifying, evaluating embedded process and managing the significant risks faced by management of this Day-to-day the Group. to delegated by the Board has been process Details of the process the Executive Directors. Audit and Risk Committee set out in the are has Report on pages 61 to 66. This process the financial year been in place throughout of the Annual and up to the date of approval Report and Financial Statements. It is regularly and accords of Directors Board by the reviewed with the principles of the Governance Code. 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 meet informally The Non-Executive Directors 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 are announcements 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 and the website itself carries additional Group products, information on the Group’s services and markets. 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 of to the disclosure Governance Code relating and votes, the separation of resolutions proxy Chairmen. Thethe attendance of Committee and arranges for the Annual Report Group to be papers related Financial Statements and Shareholders where posted on its website and, to paper copies, posted have elected to receive working so as to allow at least 20 Shareholders days for consideration prior to the AGM. The next AGM will be held on 11 September 2018 at the Group’s Oxfordshire. Woods, offices in Tubney Effectiveness continued Corporate Governance Report
Internal control continued • the Board receives regular updates • financial executives within Group on pensions, corporate responsibility, businesses report to their own operational business ethics and health and safety and head but there is also a well-established the Audit and Risk Committee receives and acknowledged functional reporting regular updates on treasury, tax, insurance relationship through to the Group and litigation; Finance Director; • 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 delegation of authority structure in its 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; and Group management structure and result • with respect to the UK pension scheme, in a Group financial budget which is the Group nominates half of the trustee considered and approved by the Board; directors of the corporate trustee to the • the businesses prepare monthly pension scheme, involves as appropriate management accounts which compare its own independent actuary to review the actual operating result with both the actuarial assumptions, agrees the budget and the prior year. The businesses investment policy with the trustee, also prepare rolling reforecasts for orders, works with the trustee on its investment turnover, operating profit and cash. sub-committee to deal with day-to-day Both are reviewed by the Board at each investment matters, ensures there is an of its scheduled meetings; independent actuarial valuation every three years and agrees funding levels to provide • the Board approves all acquisition adequate funding to meet the benefit and divestment proposals and there payments of the members as they fall due. are established procedures for the planning, approval and monitoring of capital expenditure; • for all major investments, the performance Susan Johnson-Brett of at least the first twelve months against Company Secretary the original proposal is reviewed by 12 June 2018 the Board; • an internal audit is carried out through a system of regular reviews of the financial and non-financial internal controls at each site. This is further reported on in the Audit and Risk Committee Report on pages 61 to 66. These reviews are coordinated by the Group Internal Audit and Risk Manager;
58 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 59 each appointment process begins each appointment process with an evaluation of the balance of skills, knowledge, experience and diversity existing on the Board a series of that is drawn up through meetings between the Committee Chairman and Directors; that diversity, recognises the Board sense construed in its broadest and religious and including gender, age, personality ethnic diversity, is an important and background, and operational factor in Board effectiveness; in drawing up long and shortlists of potential candidates, the Committee skills, considers not only relevant experience and knowledge but also diversity; the Committee actively considers making a diversity before to appoint to recommendation the Board; − − − − − − − − the Committee takes external advice and will appropriate when considered firms who only engage executive search Code have signed up to the Voluntary Firms of Conduct for Executive Search on gender diversity and best practice; • the Committee considers succession and the top level planning for the Board of senior management; annual performance appraisal of the Chief Executive; and terms the Committee’s of annual review of reference. • • • Oxford Instruments plc Report and Financial Statements 2018 candidates who will will who candidates recommendations for appointments recommendations by the Board seek to strengthen selecting the best candidate based on merit and against objective criteria, including time available and the commitment that will be of the potential Director; required − there is a formal, rigorous and rigorous is a formal, there for the procedure transparent to the appointment of new Directors for responsibility the prime Board, which is delegated to the Committee; the purpose of the Committee’s is to identify the most selection process suitably qualified complement and balance the current skills, knowledge and experience of the Board; − 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 appointments of new Directors the Board; • • The Nomination Committee comprises all under the the Non-Executive Directors, chairmanship of the Chairman of the Board. The composition of the Committee is UK Corporate compliant with the therefore Governance Code 2016 (“Governance Code”). Full details of the Committee’s set out in its terms of are responsibilities on our website which can be found reference, at www.oxinst.com/investors-content/ , and advisers-and-company-secretary by the Governance include all matters required of the Code. The main responsibilities summarised below: Committee are • The Nomination Committee Alan Thomson Chairman of the Nomination Committee 12 June 2018 Dear Shareholder, the Nomination I am pleased to introduce for 2017/18. The Committee report key objective is to support the Committee’s responsibilities to ensure in fulfilling its Board and transparent is a formal, rigorous there for the appointment of new Directors process that effective and to ensure to the Board in place are succession planning processes the Group. across I took over as Chairman of the Committee in September 2016, undertook and the Board of the composition of the Board a review and determined with the Committee that the the appointment of would benefit from Board who could a further Non-Executive Director also potentially serve as Senior Independent With the help of the Zygos Director. and Partnership, we undertook such a search candidates. met with a number of interested This culminated in the appointment of and Stephen Blair as Non‑Executive Director on 1 July 2017. Senior Independent Director 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 its responsibilities. to support the Board in fulfilling fulfilling in Board the support to The Committee’s key objective is is objective key Committee’s The Nomination Committee Report Effectiveness Effectiveness continued Nomination Committee Report
Principal activities of the • Following these meetings, the Succession planning Committee during the year Committee considered each • The Group HR Director and the Chief Constitution of the Board Director’s feedback and made a final Executive presented the work that had • The Committee undertook a search for, and recommendation to the Board on been carried out within the business on appointed, a Non-Executive Director who the appointment of an independent succession planning, talent management, had the right experience to act as Senior Non-Executive Director who also and leadership, including at Management Independent Director. had the experience necessary to be Board and Executive Director level. an appropriately qualified Senior This comprised a number of steps. • The Committee discussed Board diversity independent Director. and succession planning for Directors. • The Committee evaluated the balance • Following successful completion of of skills, knowledge, experience and the search, on 1 July 2017 Stephen Performance review of Executive diversity on the Board and used the Blair was appointed to the Board as an Directors output of this evaluation to identify the independent Non-Executive Director • The Committee also carried out its annual skills it would like introduced to the and Senior Independent Director. review of the performance of: Board. The Committee, with the help of • the Chief Executive; executive search consultants, the Zygos • All Directors of the Board are put forward Partnership, drew up a description of for re-appointment by Shareholders each • with the help of the Chief Executive, the role and desired capabilities for year at the AGM and this includes those the Group Finance Director; and appointed during the year. The Committee, candidates and, taking into account • excluding the Chairman, reviewed taking into account the performance and both diversity within, and the balance the performance of the Chairman. of skills on, the Board, developed a value that each Director brings to the shortlist of qualifying candidates. Board, has considered whether each of Other the Non-Executive and Executive Director • Annual review of the Nomination • Candidates met with the Chairman appointments should be renewed for Committee’s terms of reference. and Chief Executive and the proposed a further year and has confirmed that candidate met several Directors this is indeed the case. Accordingly, a individually. resolution to re-appoint each Director will be put to Shareholders at the Company’s forthcoming AGM.
Attendance at meetings year ended 31 March 2018
Nomination Committee Date of appointment to Committee Number of meetings held 2 Number of meetings attended: Alan Thomson (Chairman) 2 1 June 2016 Stephen Blair1 1 1 July 2017 Richard Friend 2 1 September 2014 Thomas Geitner 2 15 January 2013 Mary Waldner 2 4 February 2016 Number of meetings in attendance: Ian Barkshire 2 Gavin Hill 1 1. Steve Blair was appointed to the Board on 1 July 2017. He has attended all Committee meetings since his appointment.
60 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 61 the composition of the Audit and Risk Committee; and role a summary of the Committee’s responsibilities; a summary of key activities by meeting over the course of the year; comments on the matters the Committee’s that it considers to be of significance to the Financial Statements; relating and auditor the external audit process independence; and the work of internalthe audit and and of internal controls effectiveness risk management. The remainder of this report comprises a of this report The remainder number of sections, which include: • • • • • • In the I will be at the AGM in September. meantime, if you have any questions or comments I should be delighted to hear you. from Mary Waldner Audit and Risk Committee Chairman 12 June 2018 Oxford Instruments plc Report and Financial Statements 2018 IT disaster recovery plans; IT disaster recovery leadership and succession plans; risks; and Brexit-related the methodology used for risk reporting and how risk management is embedded in operating business units. the Group’s management of cyber security management the Group’s and associated risks; review and discussion of the Group risk and discussion of the Group review at each meeting of the Committee; register matters; and tax of treasury review of significant litigation; bi-annual review viability statement, of the Group’s review including the methodology used in the and the underlying assumptions forecasts used in its preparation; principal areas consideration of the Group’s of financial risk and associated mitigation; of internal of the effectiveness audit; review of the assessment of the effectiveness external audit process; of the statement issued at the review Annual General Meeting; and of the Financial Statements and review any significant accounting judgements in their compilation. used that were (The significant accounting judgements 2018 Financial Statements to the relating 64.) set out on page are • • • • In addition to its recurring activities, the In addition to its recurring Committee has focused on a number of that have been identified in specific risk areas over the course of the risk register the Group to Key matters that have been brought year. the Audit and Risk Committee for its review and discussion have included: • In the last twelve months, the principal areas In the last twelve months, the principal areas activities have included: of recurring • • • • • • • • • term performance of the Group. ‑ Dear Shareholder, Dear Shareholder, the focus and During the last financial year, composition of the Audit and Risk Committee has has continued to evolve as the Group its corporate governance sought to strengthen and management of key risk areas. of responsibility prime areas The Committee’s The the same as in the prior year. are to the of assurance relating provision and oversight environment financial control including of other key functional areas New and security, Information Technology to core Innovation and HR remain Product the As part of its remit, role. the Committee’s Committee actively monitors the integrity of the Financial Statements, considers key material to the of subjectivity that are areas and assesses the application results Group’s of significant financial judgements. It also of internal on audit considers the effectiveness an annual basis and has ongoing responsibility for overseeing the external relationship, audit of including monitoring the provision non‑audit services as part of its review of auditor independence. During the year the Committee has changed changes elements within its focus to reflect focus while retaining in the risk environment such as governance elements and on core the In keeping with this approach, control. internal audit function has continued to within the Group controls key financial review risk-based audit work. and has also delivered a number In addition, internal audit delivered specific of pieces of ad hoc work, to address identified by the emerging risks that were with and agreed Director Finance Group will the Committee. This overall approach continue in 2018/19 although the balance will specific risk areas. continue to move towards long which are of particular importance to the the to importance particular of are which range of financial and non-financialareas The Committee’s oversight covers a covers oversight Committee’s The Audit and Risk Committee Report Accountability Accountability continued Audit and Risk Committee Report
Composition Role and responsibilities • It also monitors and assesses the external In July 2017, membership of the Committee Full details of the Committee’s auditor’s independence and objectivity, increased to four, with Steve Blair joining the responsibilities are set out in its terms of is responsible for the Group’s non-audit existing members of Mary Waldner, Sir Richard reference, which can be found on our services policy and reviews the level of Friend and Thomas Geitner. Mary has acted as website at www.oxinst.com/investors- non‑audit services provided. Chairman throughout the year. content/advisers-and-company-secretary. • The Committee makes recommendations The main responsibilities of the Committee In keeping with the FRC’s Guidance on Audit to the Board for the appointment or are summarised below: Committees, the Audit and Risk Committee’s re‑appointment of the external auditor. terms of reference require that at least one Financial reporting Internal controls and risk management member of the Committee has recent and • The Audit and Risk Committee undertakes • Monitors the adequacy and effectiveness relevant financial experience. Mary Waldner a review of the Financial Statements of the internal control environment. is the current Chief Financial Officer of and associated results announcements. • Performs a review of risk management Lloyd’s Register and has previously held As part of this review it advises the Board processes and the output of risk reporting. senior financial roles at a number of quoted whether the Annual Report and Financial companies. On this basis, the Board considers Statements, taken as a whole, are fair, Internal audit that Mary fulfils the requirement to have balanced and understandable and provide • Annual consideration of the resources recent and relevant financial experience and sufficient information for Shareholders required for an effective internal is also independent. Sir Richard Friend, Steve to assess the Company’s performance, audit function. Blair and Thomas Geitner bring sector-specific business model, strategy and risks. • Approval of internal audit’s annual audit experience to the Committee. • The review of the Financial Statements programme and review of financial and The Committee obtains reports, information also includes a review of significant non-financial internal audit reports. and explanations from non-members at its financial reporting judgements (which meetings to help it to fulfil its remit. Typically, are considered further below), together Business malpractice the Committee will obtain input from with the accounting policies used in • Reviews the adequacy and security of the members of the Board, both external and their compilation and compliance with Group’s whistle-blowing arrangements internal audit, and subject matter experts in accounting standards. It also considers and the provision of proportionate and areas such as data security, data protection, whether all material matters such as independent investigation of any matters pensions, treasury and tax. At each meeting contingent liabilities have been taken raised through those channels. attended by the external auditor, the into account and treated appropriately. • Reviews the Group’s procedures for Committee has the opportunity to speak with • The Committee also monitors detecting fraud and its processes and the external auditor without the presence of compliance with relevant statutory controls to prevent bribery. the executive management. The Company and listing requirements. Secretary acts as secretary to the Committee. Reporting External audit • Produces a report on its activities, • The Committee maintains oversight of in accordance with the UK Corporate the relationship with the Company’s Governance Code. external auditor. • Reports to the Board on any matter it • As part of this remit, the Committee has considers requires action or improvement. regular meetings with KPMG to consider • Advises the Board on Directors’ key matters such as audit planning, audit responsibilities relating to the risk areas and reporting. Financial Statements. • The Committee reviews and approves the The Committee periodically reviews its annual audit plan, reviews audit findings terms of reference and its effectiveness and is responsible for evaluating the and recommends to the Board any changes effectiveness of the external audit process. required as a result of its review.
62 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information • • • • • • • • 63 June 2018 • • • • • • • • • • • • • 2018 January • • • • • • • 2017 November • • • • 2017 September • • • • • • • • • • June 2017 Oxford Instruments plc Report and Financial Statements 2018 end announcements, interim ‑end announcements, interim Agenda item policies of accounting the draft Financial Statements, appropriateness Review the integrity of management and KPMG) from received and going concern assumption (reports March 2018 31 March of the financial year ended and Risk Committee in respect Activities of the Audit to and designed of reference its terms of activities developed from programme and structured largely to a recurring The Committee has worked below: discussed at each meeting is set out in the table A summary of the items year. the financial responsibilities throughout fulfil its and year the half-year for approval Review and recommend statements and the Report and Financial Statements management and AGM reporting issues and judgements Review of significant financial Review viability statement of the externalaudit process Assess the effectiveness the externalConsider the independence and objectivity of auditor letters Review internal management representation the internal audit plan Review and agree Review the output of the internal audit work of the Audit and Risk Committee Review the effectiveness in 2018/19) (taking effect Update on changes to accounting standards Review of cyber security Update on litigation of the internal audit function Evaluate the effectiveness framework Review the internal control Review the risk management processes risk register Review the Group Review of whistle-blowing arrangements of bribery and corruption for detecting fraud and the prevention Review systems and controls of insurance Annual review to non-audit services of policy relating and approval Annual review arrangements of treasury Annual review of tax Annual review are of particular importance to the long-term areas which oversight covers a range of financial and non-financial The Committee’s Innovation (NPI), and support functions such as IT and HR. New Product Key non-financial elements include performance of the Group. whilst skills and succession plans have been priorities of continued focus in IT, areas are and data protection disaster recovery Cyber security, audits. and environmental to operational, health and safety, relating of reports reviews within HR. The Committee also undertakes regular faced. assurance for the key risk areas appropriate provides The Committee considers that focus on these areas that the Committee advise it on whether the Annual Report, requested with the 2016 UK Corporate Governance Code, the Board In accordance position and to assess the Group’s the information necessary for Shareholders and understandable and provides balanced taken as a whole, is fair, of the draft Financial Statements that was undertaken in May and This work formed part of the review performance, business model and strategy. June 2018. Accountability continued Audit and Risk Committee Report
Significant matters related to UK defined benefit pension scheme Tax provisions the Financial Statements Under the terms of IAS 19, the Group is In managing its tax position, the Group had The Committee reviews all significant required to value its pension deficit as the previously used certain structures which are issues concerning the Financial Statements. difference between the net present value currently subject to review by tax authorities. The principal areas of significant accounting of the pension scheme’s assets and liabilities Until such matters are resolved, there is judgement considered in relation to the as at 31 March 2018. inherent uncertainty relating to the overall tax liability. Consequently, management 2018 Financial Statements were: IAS 19 also requires the Group to appoint an is required to take a view as to whether external actuary to give advice as to suitable Revenue recognition any provisions are required to mitigate the assumptions and to calculate the value of As set out in more detail in the Group’s estimated exposure. Inter alia, this requires the liabilities at the balance sheet date. The accounting policies, the application of the exercise of judgement to consider the Group has appointed Aon Hewitt (the pension judgement is required in determining whether most likely outcome and the quantum of scheme‘s actuary) to perform bi‑annual risks and rewards of ownership have passed to any provisions that may be required as a valuations on its behalf for accounting purposes. the customer in order to establish appropriate result. The Committee has considered papers revenue cut-off. The Group applies prescriptive For the year-end accounts, Aon Hewitt presented on the issues and the methodology rules relating to revenue recognition. recommended assumptions on a consistent used to evaluate provisions at 31 March 2018 The Committee has received reports relating basis with those adopted at the previous and has concluded that the approach is to year-end revenue cut-off and no significant year end. Market conditions did not move consistent with prior years. errors were reported. significantly during the year and as a result the actual assumptions used were largely Adjusted profit and EPS Provisions for intellectual the same as at 31 March 2017 apart from a As explained in Note 1 to the Financial property claims small reduction in the inflation rate. Mortality Statements, the Group applies adjustments The Group faces potential exposure to assumptions were also updated to use the latest to the statutory definition of profit and EPS third‑party claims in relation to potential CMI 2017 tables. The valuation of the scheme to present adjusted profitability and earnings, intellectual property infringement. The Audit assets was provided by PSolve (the scheme’s as the Board believes they present a clearer and Risk Committee obtains updates on these investment manager) in accordance with market picture of the financial performance of the matters twice a year and obtains information practice for valuing investment assets. Group. In the year ended 31 March 2018, and explanations from management on adjustments to operating profit totalled During the year, the Company and the trustee material matters. Management has presented £8.1 million. The principal adjusting item was agreed to implement a pension increase its analysis of potential exposure to these risks the charge of £10.9 million relating to the exchange (PIE) option at retirement. For the and has also discussed the level of provisions amortisation of acquired intangible assets. purpose of preparing the IAS 19 disclosures, recognised in the Financial Statements with the Other adjustments to operating results include Aon Hewitt assumed that 30% of members Committee and with KPMG. The Committee the profit of £3.3 million from the disposal would take this option. Aon Hewitt typically has verified that the methodology used to of land and buildings, the mark-to-market sees take-up rates in the range of 20%-40% estimate potential exposure in this area has gain of £3.1 million relating to currency in other companies which have implemented been calculated in a manner consistent with hedging contracts, the Group’s proportion a PIE option. As a result of adopting this the prior year. It also recognises that the final (£2.0 million) of the impairment charge assumption, the reported deficit reduced by outcome of each specific case is likely to recognised by SSAB and restructuring costs of £0.9 million. In line with IAS 19, this has been vary from the amount provided but does not £1.6 million. The Committee has considered credited to the Income Statement. consider that adjustments to the provisions a paper from management setting out these carried are required. As set out in Note 25 to the Financial adjustments. The conclusion from its review Statements, the reported deficit for the of the paper was that the Group’s definitions UK scheme reduced by £9.0 million to have been consistently applied year-on-year. £12.5 million. This was largely due to the The nature of these adjustments requires deficit recovery contributions of £7.1 million appropriate judgement to be exercised. made by the Group. Further, the slightly lower The Committee is satisfied with the process inflation assumption and the PIE credit, as set adopted and the disclosure in the Financial out above, contributed to the reduction in the Statements. UK scheme’s reported deficit.
64 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 65 Over the course of the last two financial years, Over the course of the all of audit has covered the financial controls operational business units and the Group’s and the United Federal Offices in Germany includes two States. The plan in 2018/19 including China. further Federal Offices, new financial In February 2018, the Group’s Magnetic Resonance system, CSI, went live in business unit to adopt – the first operational internalthe new system. The 2018/19 audit of the implementation plan includes a review of CSI in Magnetic Resonance, focused on the and controls. underlying processes The overall internal audit strategy is broadly consistent with the prior year and it sees a risk-based continuing evolution to a more In 2018/19, the amount audit programme. of time scheduled for risk-based elements exceeds the number of hours planned for reviews. financial controls routine the The Audit and Risk Committee approved internal its meeting audit plan for 2018/19 at in January 2018. Amongst other things, the whether the balance Committee considered and scope of the plan was sufficient to address the audit strategy and fulfil the Committee’s Relevant criteria in considering requirements. the plan included the levels of risk, other audit findings. assurance activities and previous The Committee monitors the activities of both financial and non-financial internal audit work, to the most that focus is directed to ensure of internal The direction auditsuitable areas. fromwork considers the specific risks identified and also takes intothe risk management process account corporate governance requirements. The Chairman of the Audit and Risk Internal Audit and Committee and the Group meetings during Risk Manager have regular reporting The latter has a direct the year. line to the Chairman of the Audit and Risk dialogue with the Committee and has regular of potential to discuss areas external auditor, risk and audit focus. All financial internal to the Audit and provided are audit reports Risk Committee and the external auditor on a timely basis once finalised, in addition to the unit/Federal Office and the business relevant Director. Finance Group Oxford Instruments plc Report and Financial Statements 2018 The Committee assesses the effectiveness of the effectiveness The Committee assesses This is informed via the external audit process. a number of key stakeholders feedback from through Instruments and also within Oxford KPMG at both the half year and from reports of the process year end. The effectiveness will be 2018 for the year ended 31 March at its next evaluated by the Committee September 2018. meeting, scheduled for as auditor KPMG was re-appointed Under in 2014. following a tender process the rules for audit tendering and rotation shall implemented in June 2016, the Group KPMG as auditor to replace be required 2022 year end. In the for the 31 March meantime, the Committee shall monitor the of KPMG on an annual basis re-appointment when it and will arrange for a tender process to do so. considers it is appropriate Internal audit The Audit and Risk Committee seeks design and assurance over the effective the internal from operation of internal controls audit function. The Committee approves which annual programme internal audit’s includes audits that consider the effectiveness Internalof internal audit financial controls. audits on a performs financial controls operational business across basis rotational units and the principal Federal Offices. includes a number In addition, the programme of risk-based audit topics which tend to focus on the operational business units. Auditor independence In evaluating auditor independence, the Committee obtains confirmation of any and KPMG between the Group relationships that may have an impact on its independence. confirmation that KPMG is It also receives the Group. independent from The Committee has a formal policy governing the engagement of the external auditor to non-audit services. This aims to further provide the objectivity and independence of safeguard the external the risk auditor and to mitigate independence of the external auditor firm’s Under the terms of becoming compromised. engagements all non-audit related this policy, by the formal approval over £50,000 require Committee in advance. Note 4 (page 109) to the Financial Statements sets out the amount with fees together of audit fees for the year, for non-audit services. In the year ended fees paid to KPMG were 2018, audit 31 March £39,000. £395,000 and non‑audit fees were a non-audit to audit fee ratio This represents of 0.1:1. External auditor The Committee monitors the performance, objectivity and independence of the external the appointment It also recommends auditor. of the external auditor to or re-appointment for the has responsibility It also the Board. fees. of audit approval its audit presented KPMG, the external auditor, strategy and planning memorandum to the Audit and Risk Committee at its meeting in the audit covered January 2018. Its proposals scope and planned materiality methodology, for its audit of the Financial Statements for the 2018 and set out the year ended 31 March of audit risk identified by KPMG principal areas audit them. KPMG’s and how it would address strategy was informed by a number of factors including meetings with various stakeholders, such as the Chairman of the Audit and Risk and Committee, the Chairman of the Board Following its Finance Director. also the Group audit KPMG’s the Committee approved review, strategy and planning memorandum. Misstatements Group from reports The Committee received of not aware were management that they or immaterial any material misstatements been made with the misstatements that had of presentation aim of achieving a specific a report The Committee also received results. the external of unadjusted auditor from Following discussion with audit differences. the Committee management and the auditor, the conclusion that the unadjusted reached not identified by KPMG were differences material to the Financial Statements and in the required no adjustment was therefore the Committee Financial Statements. Further, was satisfied that the auditor had fulfilled its level duties diligently and with an appropriate scepticism. of professional of management reports Based on its review and information and explanations received the Committee concluded the auditor, from to its satisfaction that the critical judgements the in preparing and key estimates required Financial Statements had been appropriately both in terms of quantum and addressed, the information disclosed. The Committee had been was also satisfied that there suitable challenge to, and scrutiny of, the key assumptions adopted in determining the in the value of assets and liabilities reported Financial Statements. Accountability continued Audit and Risk Committee Report
Risk management and Whistle-blowing internal control The Group’s Business Malpractice Policy The operation of an effective risk management provides a reporting mechanism that can system plays an important role in achieving be used by all employees to raise a concern, strategic plans and objectives. The regular and covering any relevant area to the Group such timely identification of material risks to specific as fraud, bribery and corruption, damage to business units and the Group as a whole is the environment, criminal activity or danger a pre-requisite for risk mitigation activities. to health and safety. This protected disclosure In this context, the Group risk register is a policy is communicated to all employees and key element of risk management activities provides assurances that reports made in which combines the results from a bottom‑up good faith will be taken seriously, treated in approach, at business unit level, with an confidence and that no action will be taken assessment of Group‑level risks to provide a against the employee raising the concern. holistic view of key risks across the Group. Employees can raise concerns through various reporting channels which include an During 2017/18, the Audit and Risk independent third-party provider. The Group Committee reviewed the Group’s risk register operates a formal process for dealing with at every meeting and also reviewed the reports which involves the Group Compliance mechanism for risk reporting. Following the Team and Group Human Resources Director. introduction of the new reporting segments, Third parties such as suppliers or customers risks reported in the Group risk register have can also make reports relating to the Group been grouped by segment since December via the independent reporting channel. 2017. In addition, the focus on longer-term, strategic risks has been strengthened by the The Business Malpractice Policy is subject introduction of discussions between the risk to an annual review by the Committee. management function and business unit The Head of Internal Audit and Risk senior management as part of the strategic Management maintains a log of all matters financial planning process. reported through the independent reporting channel which documents actions arising and The Audit and Risk Committee’s evaluation how they were resolved. All reports received of the effectiveness of the internal control during the year ended 31 March 2018 had environment is based on both internal been resolved at the year end. No findings assurance reports across multiple areas of from the reports were considered to be activity including operations, finance, NPI serious. and IT, and on external audit reports. The Committee reviewed the system of internal Summary financial control on behalf of the Board and The Committee has concluded that, as a result satisfied itself that the Group is meeting the of its work during the year, it has acted in required standards both for the year ended accordance with its terms of reference and 31 March 2018 and up to the date of approval fulfilled its responsibilities. I will be available of this Report and Financial Statements. at the AGM to answer any questions. No concerns were raised with the Committee in the year about possible improprieties in matters of financial reporting. Mary Waldner Audit and Risk Committee Chairman 12 June 2018
66 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 67 Total 791 1 1 595 Other — — LTIP Remuneration performance scenarios for 2018/19 The chart illustrates how the composition Finance and Group of the Chief Executive’s different could vary at remuneration Director’s levels of performance under the Company’s Remuneration Policy. bonus Annual 27% 53 268 41 209 27% Oxford Instruments plc Report and Financial Statements 2018 Pension 40% 619k 41% 242k £1, payable Maximum £1, payable Maximum 51 18 Benefits 33% 32% LTIPs LTIPs Bonus Fixed pay Base salary 27% 28%
188k On 27% On target £1, £906k 28% target 46% 44% £’000 £’000 £’000 £’000 £’000 £’000 £’000
margin and growth businesses. 100% £542k target Below 100% £401k target Below
Chief Executive Group Finance Director Group Total remuneration payable remuneration Total
Gavin Hill Gavin 326 Barkshire 418 Ian
Executive Directors’ remuneration at a glance at a remuneration Executive Directors’ payable for 2017/18 remuneration Total can be found on pages 69 and 70. Notes to these figures higher profitability of the Group to develop develop to Group the of profitability Our strategy focuses on improving the the improving on focuses strategy Our Remuneration Report Remuneration Remuneration Remuneration continued Remuneration Report
Dear Shareholder, Review of Remuneration Policy The strategic targets will remain focused Since the launch of Horizon, progress has Shareholders must approve our Directors’ on continuing the strategic transformation been made in a number of areas in support of Remuneration Policy at least every three to deliver long-term growth. Appropriately the new strategy. The Group has transitioned years. Our current Policy was approved in stretching sliding scales will be set for each to be a more commercially focused, 2017 and re‑approval is therefore required financial measure, with full disclosure of market‑driven business. Good progress has at our 2020 AGM. targets and performance against them also been made in restructuring the portfolio being made in next year’s Annual Report on The Remuneration Committee reviewed the and in building a new management and Remuneration. The bonus is payable fully current Policy in light of our business strategy leadership team with the specific capabilities in cash, recognising that the balance of the and concluded that no fundamental changes and experience needed to accelerate Horizon. annual bonus and share-based PSP is weighted are required. Accordingly, the current Policy Against this background of strategic activity, 60% in favour of the latter. meets the needs of the business. During the the Group delivered financial performance in year we will consider carefully the impact of PSP awards will be based 50% on a ROCE line with expectations. the proposed changes to the UK Corporate target range and 50% on an earnings per Corporate performance Governance Code and proposed new share target range. EPS will ensure a continued focus on growing profitability and the and annual bonus payments secondary legislation on our remuneration policy for executives, the policy more widely continued use of ROCE, which was introduced for 2017/18 throughout the Group and the enhanced last year, provides a close link to the business The annual bonus for 2017/18 was disclosure requirements. strategy over the next few years to support determined by a combination of cash, sales and incentivise management to make the and profit targets, and non-financial strategic Implementation of Policy changes needed to our business portfolio by targets. As in previous years, the Committee for 2018/19 ensuring that there is efficient redeployment set stretching performance targets which Executive Directors of our capital into higher margin and growth were clearly linked to the strategy and Effective from 1 July 2018, the Executive businesses. The Committee has considered financial performance of the Group. Group Directors’ salaries will be increased by 2.5%, carefully the target ranges for both measures financial performance, on which 75% of in line with general workforce increases. and has increased these compared to those set bonus was based, has been broadly in line Annual bonus maximum and the PSP award for last year’s awards. with expectations. Organic sales were slightly level remain unchanged at 100% and 150% above the threshold target and adjusted of salary respectively. Non-Executive Directors’ fees profit before tax slightly above on target. Following a Board review, the Non‑Executive The cash conversion threshold was not met. As explained in more detail in our Strategy Directors’ and Chairman’s fees will be In relation to the strategic targets set for section on pages 16 and 17, our strategy increased by 2.5% from 1 July 2018. 25% of the bonus, the Committee carefully focuses on improving the profitability of the The additional fees for the role of Senior reviewed performance against the objectives Group, its capital efficiency and the business Independent Director and chairing the and scored the Chief Executive (CEO) and portfolio to develop higher margin and growth Remuneration and Audit and Risk Committees Group Finance Director (GFD) at 96%, noting businesses. To this end, the performance remain at £7,500. the strong performance of the Executive measures for the annual bonus and PSP Directors in driving the strategic repositioning reflect these objectives. Conclusion of the Group and the outstanding operational Small changes are being made to the I hope you will be supportive of the delivery. Full details of the annual bonus weighting of the performance measures for annual advisory vote to approve the outturn of 63.74% of salary (against a target the 2018/19 annual bonus. The measures Annual Report on Remuneration, which level of 75% of salary) for both the CEO and weightings will be profit before tax sets out the remuneration outcomes and GFD are set out in the Annual Report (30% of salary at target/42.5% maximum), for the year under review and how the on Remuneration. revenue growth (15%/21.25%), cash flow policy will be implemented for the year ahead. This resolution will be brought to As both executives are relatively new to role, (15%/21.25%) and strategic objectives (15% maximum). This represents a shift Shareholders at our AGM to be held on there were no Performance Share Plan (PSP) 11 September 2018. awards, with performance periods ending in weighting from non-financial strategic during the year under review. objectives (-10%) to financial objectives If you have any queries in the meantime, I will (+10%), recognising that whilst last year was be pleased to engage with you either at the The Committee is comfortable that there focused on anchoring the new strategy in the AGM or beforehand. has been a robust link between reward and business and setting the framework for future Yours sincerely performance for the year under review. growth, the benefits of these changes are now expected to start to flow through to improved financial performance and growth. Thomas Geitner Chairman of the Remuneration Committee 12 June 2018
68 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 69 75% of salary at year end payable at target performance. 100% of salary at year end payable for maximum performance. 0% of Bonuses start to be earned from performance. salary for achieving threshold 14% of base salary. The value of benefits varies from year The value of benefits varies from to year depending on the cost to the Company and is not subject to a specific and monitored cap. Benefit costs are a small element and represent controlled costs. of total remuneration There is no minimum or maximum is no minimum or maximum There annual increase. the average than Higher increases may be for the workforce percentage an for example, where appropriate, the where individual changes role, changes, where complexity of the Group an individual is materially below market comparators or is appointed on a below market salary with the expectation that with experience his/her salary will increase and performance. • • • • • • • Maximum opportunity In determining the remuneration of the of In determining the remuneration also the Committee Executive Directors, in pay general trends takes into account the as a whole. the Group and conditions across the that ensure The Committee seeks to form the basis for underlying principles which consistent with pay are decisions on Directors’ of those on which pay decisions for the rest not are taken. Employees are the workforce However, consulted on executive pay. currently the Committee will keep this under review. The Committee considers feedback from AGM, together at each received Shareholders additional meetings, with any feedback from of Executive Director as part of any review In addition, the Committee remuneration. where with Shareholders engages proactively any material changes to the remuneration proposed. policy are Oxford Instruments plc Report and Financial Statements 2018 life assurance; private medical insurance; car allowance); driver, company car benefit (car, and/or necessary to overnight hotel accommodation where enable the executive to carry out his duties efficiently at the Head Office and other Company sites. reliance on such data. ‑reliance Performance targets based on the key performance indicators and strategic objectives of the business. At least 70% of the bonus is based on financial metrics and the balance on non‑financial strategic metrics. apply for misstatement, error Clawback provisions or misconduct. Company contributions to a money purchase pension Company contributions to a money purchase scheme; or HMRC annual or lifetime Salary supplement where exceeded. allowances are Currently include, but are not limited to, the cost of: not limited include, but are Currently • • • • may be subject to amendment The benefits provided time to time by the Committee within this Policy. from Relocation costs and other incidental expenses may be as necessary and reasonable. provided not part of pensionable earnings. Benefits are Reviewed annually with any increase usually effective 1 July. usually effective Reviewed annually with any increase account of experience, performance and Takes performance of the as well as the responsibilities the Group within the complexity of the role Company, for employees generally. and salary increases to market data for comparable positions Set with regard in similar companies in terms of size, internationality, including within and complexity, business model, structure the industry. The Committee considers carefully the carefully The Committee considers structure of the incentive motivational effects and that it is effective to ensure in order negative does not have any unintentionally as governance,impact on matters such generally, or social issues. More environmental that the overall the Committee ensures Remuneration Policy does not encourage risk taking. inappropriate The Committee reviews the Executive The Committee reviews taking packages periodically, Directors’ account of the level of remuneration paid for comparable positions in similar companies. Comparative pay data is used the potential for an recognising carefully, caused by ratchet in remuneration upward over Other matters taken into consideration in determining policy • • • • • • • • • Operation • • • Drives and rewards the Drives and rewards successful achievement of annual targets set at the start of the year. To provide a market-competitive provide To retirement. benefit for Provided on a Provided market‑competitive basis, and follows aids retention for structure reward all employees. To provide a competitive and a competitive provide To level of basic appropriate retain and recruit fixed pay to superior talent and avoid excessive risk taking that might otherwise result on an over-reliance from variable remuneration. Reflects the experience, performance and responsibilities of the individual. • • • • • Purpose and link to strategy Annual bonus Pension Benefits Base salary Remuneration Policy Element of pay Policy overview delivery the promotes Policy Remuneration The strategy and seeks to align the of the Group’s The and Shareholders. of Directors interests the link between reviews Committee regularly to ensure and strategy its incentive structures appropriate packages are that remuneration the high calibre to attract, motivate and retain needed to deliver the executives that are strategy. Group’s executives fairly The Company seeks to reward performance based on Group and responsibly and their individual contribution. The Company has a strategy aimed at delivering significant, balanced and sustainable and it is important long‑term growth that the for motivation and retention this. of the executives reflects remuneration PART A: Directors’ Remuneration Policy Remuneration A: Directors’ PART in a The Policy was approved Directors. Remuneration Policy for its Report sets out the Group’s This part of the Remuneration date and, unless changed with that from took effect AGM on 12 September 2017. The Policy vote at our binding Shareholder until September 2020. will stay in place prior agreement, Shareholders’ Remuneration continued Remuneration Report
Remuneration Policy continued
Element of pay Purpose and link to strategy Operation Maximum opportunity
Long‑term • To incentivise the executives • Annual awards under the 2014 Performance Share Plan • The maximum normal award limit incentives and reward them for meeting of performance shares (or nil‑cost options) with vesting is 150% of salary. This limit may be stretching targets in the long subject to achievement of performance targets. Both the exceeded in exceptional circumstances term which accrue substantial vesting and performance period will be over a minimum e.g. recruitment, up to the limit in the value to and align the Directors’ of three years. PSP rules of 250% of base salary. interests with Shareholders’. • The Committee will set targets each year based on • Dividend equivalents may accrue on the • Facilitates share ownership long‑term financial performance and/or a stock market PSP awards over the vesting period and to provide further alignment based metric. for awards granted from 2018 to the end with Shareholders. • 25% of the awards will vest at threshold performance of the post vesting holding period and under each performance condition. be paid out either as cash or as shares on vesting or at the end of the holding • Clawback may be applied for misstatement, error period as appropriate and in respect of or misconduct. the number of shares that have vested. • For PSP awards granted from 2017/18, vested awards must be held for a further two years before sale of the shares (other than to pay tax). All-employee • To encourage employee share • The Company may from time to time operate • The schemes are subject to the limits share schemes participation. tax‑approved share schemes (such as the HMRC-approved set by tax authorities. Share Incentive Plan (SIP)) for which Executive Directors could be eligible. • The SIP is open to all UK permanent staff employed for at least six months. Shareholding • To further align Executive • The Committee has established shareholding guidelines • Not applicable. guideline Directors’ interests with which encourage the Executive Directors to build and Shareholders’. retain a holding of Company shares equivalent to 150% of base salary. • Until the guideline is met in full, Executive Directors are expected to retain or acquire shares equivalent to the value of 50% of the net amount realised from exercise/ vesting of share awards as appropriate after allowing for tax payable. Non-Executive • To remunerate the Chairman • Reviewed annually. • There is no prescribed maximum Director fees and Non-Executive Directors. • Determined and reviewed taking into account time or maximum annual increase. commitment, experience, knowledge and responsibilities of the role as well as market data for similar roles in other companies of a similar size and/or business to Oxford Instruments. • Out-of-pocket expenses including travel may be reimbursed by the Company in accordance with the Company’s expenses policy including tax thereon “grossed up” as appropriate.
Differences in the Remuneration Policy of the Executive Directors and the general employees There are no material differences in the structure of remuneration arrangements for the Executive Directors and senior management population, aside from quantum and participation levels in incentive schemes, which reflect the fact that a greater emphasis is placed on performance-related pay for Executive Directors and the most senior individuals in the management team. Outside the senior management team, the Company aims to provide remuneration structures for employees which reflect market norms. Choice of performance measures and approach to setting targets The Committee selects financial and strategic measures for the annual bonus that are key performance indicators for the business over the short term. For the long‑term incentives, the Committee will select a combination of measures that provide a good focus on the outcomes of the Company strategy together with sustainable improvements in long‑term profitability. The Committee sets appropriate and demanding targets for variable pay in the context of the Company’s trading environment and strategic objectives. The targets for the annual bonus plan will be set each year with reference to the Company’s budget and business and strategic plan. The Committee will review the performance conditions and targets for awards under the PSP each year prior to awards being made, taking account of the Company’s internal financial planning, market forecasts and the business environment.
70 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 71 d at grant, 41% 27% 32% £1,242 Maximum Oxford Instruments plc Report and Financial Statements 2018 28% 28% 44% £906 Target 41% 27% 32% £1,204 Maximum Group Finance Director (GFD) pay £401 Fixed 28% 28% 44% 100% £876 Target Group Finance Director (GFD) £384 100% Below target 27% 33% 40% £1,619 Maximum 41% 27% 32% £1,542 Maximum 27% 27% 46% Target £1,188 28% 28% 44% Target £1,122 Chief Executive (CEO) Chief Executive (CEO) pay Fixed £542 LTIPs Annualbonus Fixed pay £492 100% target LTIPs Annualbonus Fixed pay 100% Below 0 0 select the participants in the plans; select the participants in grants and/or payments; determine the timing of of grants and/or payments; determine the quantum vesting based on the assessment of performance; determine the extent of plans; in the case of the share-based the extent of vesting relevant, determine “good leaver” status and, where plans in the event of a change of control; the extent of vesting in the case of share-based determine relevant, where events, variation of capital and (e.g. rights issues, corporate restructuring in certain circumstances adjustments required making the appropriate special dividends); and year. to year from plans share discretionary and plan bonus annual for targets setting and measures, performance of weighting of review annual the 200 200 600 600 800 400 800 400 No share price appreciation has been assumed for the PSP awards and for simplicity SIP awards, as well as dividend equivalents, are excluded. as well as dividend equivalents, are and for simplicity SIP awards, has been assumed for the PSP awards price appreciation No share i.e. 100% and 150% of salary respectively. Fixed pay comprises salary levels as at 1 July 2018, pension contribution of 14% and the value of benefits received in 2017/18. Fixed pay comprises salary levels as at 1 July 2018, pension contribution of 14% and the value of benefits i.e. 75% of salary. The on-target level of bonus is 75% of the maximum opportunity, at grant, i.e. 75% of salary. The on-target level of vesting under the annual PSP is taken to be 50% of the face value of the award the PSP awar The maximum level of bonus and vesting under the PSP is 100% of the bonus opportunity and 100% of the face value of £’000 1,600 1,600 1,200 1,200 1,000 1,000 1,400 1,400 1,800 £’000 Remuneration scenarios Remuneration scenarios 5. Assumptions for charts above: 1. 2. 3. 4. Remuneration scenarios for Executive Directors Remuneration scenarios for Executive performance scenarios for the financial under different potentially payable to Executive Directors The charts below show the level of remuneration year 2018/19 (see notes for assumptions): Legacy arrangements or former into with current to the Company to honour any commitments entered authority is given Remuneration Policy, this Directors’ In approving by Shareholders disclosed to and approved that have been awards) share of past exercise (such as the payment of a pension or the vesting or Directors as they arise. will be set out in the Annual Report on Remuneration Details of any payments to former Directors reports. remuneration in previous Discretions retained by the Committee in operating its incentive plans by the Committee in operating retained Discretions the formula‑driven outturnThe Committee may adjust condition in the event that the Committee for an annual bonus or PSP performance such use of experience. Any or overall shareholder in light of wider Company performance would be inappropriate considers that the quantum Annual Report on Remuneration in Part B. would be detailed in the discretion relevant. rules where with HMRC rules and in accordance to their respective incentive plans according various the Group’s The Committee operates These include the following: discretions. the Committee may apply certain operational the efficient administration of these plans, ensure To • • • • • • • • awards and alter weightings for existing annual bonus plan and share-based measures set different The Committee may adjust the targets and/or conditions would not without alteration achieve consider that the performance to reasonably only if an event occurs which causes the Committee difficult to satisfy than the original conditions. Any changes, and the rationale for those no less are its original purpose and the varied conditions made. they are of the year in which on Remuneration in respect changes, will be set out clearly in the Annual Report Remuneration continued Remuneration Report
Recruitment and promotion policy for Executive Directors In setting total remuneration levels and in considering quantum for each element of the package for a new Executive Director, the Committee takes into account the skills and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual. The Company seeks to align the remuneration package with the Remuneration Policy approved by Shareholders, including the maximum plan limit for the long‑term incentives and an annual bonus entitlement in line with that of the other Executive Directors. Salary is provided at such a level as required to secure the most appropriate candidate. For new appointments base salary and total remuneration may be set initially at below normal market rates on the basis that it may be increased once expertise and performance has been proven and sustained. Specific variable remuneration performance targets can be introduced for an individual where necessary for the first year of appointment if it is appropriate to do so to reflect the individual’s responsibilities and the point in the year in which he or she joined the Board. Flexibility is retained to offer additional cash and/or share-based payments on appointment in respect of deferred remuneration or benefit arrangements forfeited on leaving a previous employer. The Committee would look to replicate the arrangements being forfeited as closely as possible and, in doing so, will take account of relevant factors including the nature of the deferred remuneration, performance conditions, attributed expected value and the time over which they would have vested or been paid. Such awards may be made under the terms of the PSP or as permitted under the Listing Rules. For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue. For external and internal appointments, the Committee may agree that the Company will meet certain relocation, legal and any other incidental expenses as appropriate. 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 performance 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, Executive Directors do not hold any outside directorships.
72 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 73 2017 2014 2016 2016 None None None None July Notice period June Six months 1 1 February 4 September 15 January 2013 1 Date of appointment to Committee 2014 2016 2017 2017 July 1 5 May 2016 March March February 13 2 4 4 4 4 4 4 September 1 Date of last appointment
Remuneration Committee Oxford Instruments plc Report and Financial Statements 2018
held attended: meetings meetings
1 of of Geitner Friend Friend Blair Waldner Waldner Thomson considering and determining the Remuneration Policy for the Executive Directors; of packages of each Executive Director considering and determining the various elements and total remuneration policy, within this agreed the Company; plans for executives as well as the overall total payments made and performance targets for all performance-related the design approving under such plans; and remuneration; and considering these in terms of the Executive Directors’ the Group across trends noting remuneration and reviewing terms and termination payments to Executive Directors. recruitment determining the policy for pension arrangements, service agreements, Steve Blair has attended all meetings since his appointment to the Committee. Steve Blair has attended all meetings since his appointment to 1. The Remuneration Committee (unaudited) packages for Executive Directors the remuneration to the Board for recommending is responsible The Remuneration Committee (the “Committee”) are The Chairman and the Executive Directors executive management. the Group’s incentive strategy for and has oversight of the bonus and share exception of the Chairman, and the Remuneration Committee, with the of the Non‑Executive Directors, for determining the remuneration responsible of the Chairman. for determining the remuneration is responsible Committee includes: of the The role • • • • • Thomas Geitner, comprise all the independent Non-Executive Directors: and currently appointed by the Board The members of the Committee are Alan Thomson. Thomas Geitner is the Chairman of the Committee. and the Chairman of the Board, Friend, Mary Waldner; Richard Steve Blair, and the Committee on 1 July 2017. who joined the Board the year except for Steve Blair, All members served throughout For example, invited to attend Committee meetings as deemed appropriate. and other executives are HR Director The Chief Executive, the Group and to discuss the of other Executive Directors the Chief Executive is able to make a significant contribution when considering the performance when is present no Executive Director employees. However, and terms and conditions affecting policy and structure remuneration wider Group the Committee is determining his or her remuneration. ) website: www.oxinst.com/investors published on the Company’s (which are written terms of reference The Committee acts within its agreed remuneration. Governance of the 2016 UK Corporate Code regarding and complied with the provisions evaluation process. at least once a year as part of the Board The performance of the Committee is reviewed reference. terms of During the year the Committee fulfilled its duties, as laid down in the Committee’s continues with this appointment consultant during the year and independent remuneration (KFHG) was the Committee’s Korn Ferry Hay Group by the Committee. as required advice on all aspects of executive remuneration in 2018/19. KFHG is appointed by the Committee to provide no other services to the Company. KFGH provides Richard Richard Alan Mary Number Number Steve Blair Thomas Geitner, Chairman Thomas Geitner, Attendance at meetings year ended 31 March 2018 31 March Attendance at meetings year ended PART B: Annual Report on Remuneration B: Annual Report on Remuneration PART indicated. been audited where report has The financial information in this part of the Alan Thomson Non-Executive Directors Non-Executive Directors remuneration approved with the the fee arrangement would be in accordance a new Chairman or Non-Executive Director, For the appointment of policy in place at the time. years with of appointment for an initial period of three appointed under letters service contracts but are do not have Non-Executive Directors at the next AGM. Their terminating for periods of one year, now renewed are appointments Director Non-Executive subsequent reviews. fees and expenses. payable on termination, other than accrued without notice and with no compensation appointment can be terminated Richard Thomas Mary Steve Remuneration continued Remuneration Report
The Remuneration Committee (unaudited) continued KFHG is a signatory to the Remuneration Consultants’ Code of Conduct and has confirmed to the Committee that it adheres to the Code. During the year, KFHG met with the Committee Chairman to discuss remuneration matters which are of particular relevance to the Company and how best it can work with the Committee to meet the Company’s needs. Fees are charged predominately on a “time‑spent” basis. The total fees paid for the advice provided to the Committee during the year to KFHG were £47,261. 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 Benefits2 Pension3 bonus4 awards5 Other6 Total Executive £’000 £’000 £’000 £’000 £’000 £’000 £’000 Ian Barkshire 2018 418 51 53 268 — 1 791 2017 398 20 49 231 — — 698 Gavin Hill1 2018 326 18 41 209 — 1 595 2017 287 15 37 182 — — 521 Total 2018 744 69 94 477 — 2 1,386 2017 685 35 86 413 — — 1,219 1. Gavin Hill was appointed to the Board as an Executive Director on 9 May 2016. 2. “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. Provision of a driver accounted for £29,667 of the total benefits for Ian Barkshire. 3. 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 is paid net of employer’s national insurance contributions. 4. “Annual bonus” represents the full annual bonus, payable in cash, payable for the year to 31 March 2018 and paid in July 2018 payroll. 5. “Long‑term incentive awards” are those awards where the vesting is determined by performance periods ending in the year under report. No awards vested as a result of performance periods ending in the year reported. 6. The Company operates a Share Incentive Plan (SIP) which is open to all UK permanent staff employed for at least six months. “Other” includes the value of matching SIP shares attributable to the year. In 2017/18 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 purchased for Ian Barkshire and Gavin Hill.
Long-term Annual incentive Fees Benefits Pension bonus awards Total Non-Executive £’000 £’000 £’000 £’000 £’000 £’000 Alan Thomson1 2018 168 — — — — 168 2017 104 — — — — 104 Steve Blair2 2018 41 — — — — 41 2017 — — — — — — Richard Friend 2018 47 — — — — 47 2017 44 — — — — 44 Thomas Geitner 2018 54 — — — — 54 2017 52 — — — — 52 Mary Waldner 2018 54 — — — — 54 2017 50 — — — — 50 Total 2018 364 — — — — 364 2017 250 — — — — 250 1. Alan Thomson was appointed Non-Executive Director on 1 June 2016 and Chairman of the Board on 13 September 2016. 2. Steve Blair was appointed Non-Executive Director and Senior Independent Director on 1 July 2017.
External appointments (unaudited) The Board encourages Executive Directors to accept appropriate external commercial 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. There were no such appointments during the year.
74 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 75 0% 96% 3.4% 96% 87.6% Payout % maximum of 8 out of 10 40 out of 40 23 out of 25 25 out of 25 76 Actual 68.5% page See Maximum On target Targets Oxford Instruments plc Report and Financial Statements 2018 Threshold 296.9 10% 296.7 301.2 305.6 42.3 45% 37.2 41.3 43.3 — 25% — — Horizon strategy developed and approved by the Board. Horizon strategy developed and approved opportunities and margin improvement Strategic financial plan with growth by Board. approved clearly defined and actions taken to implement the business. capabilities defined and capability gaps assessed across Core into the business business capabilities brought Key leadership and core the year. throughout Industrial Analysis transaction completed in full. in full. plan put in place and delivered Transition Communications with investor community developed. New investors secured. £m £m CEO/GFD £m £m Maximum • • • • • • • • Achievements towards objectives/performance objectives/performance Achievements towards 7.5% CEO/GFD On target 100% 40% 25% 25% 10% Weighting Weighting 33.75% Percentage of salary payable of salary Percentage 0% 80% 85% 0% 15% 20% 75% 0% 0% — CEO/GFD Threshold
objectives Total Total Build and develop critical people capabilities. Complete Industrial Analysis disposal successfully with suitable transition arrangements for the next twelve months. with investment community Build currency investors. and potential and current CEO objectives and weighting of Develop Horizon strategy to define areas and sustainable growth. margin improvement Organic sales conversion Organic Cash Strategic impact of the disposal of the Industrial lower than those set for the year 2016/17 to take account of the financial The organic sales for 2017/18 are taking into account years to be equally challenging to those set in previous considered set were Analysis business in July 2017. The target ranges the changes to the business. review in its The Committee them is set out below. Performance against of the year. set at the start The non-financial strategic objectives were that, when and agreed growth the Horizon strategic objectives, laying the foundations for future noted the exceptional performance in achieving out of the total 25% of salary available was appropriate. a bonus of 24% taking into account all the circumstances, Adjusted PBT Adjusted Measure
Details of annual bonus earnedDetails of annual in year (audited) has transitioned to be The Group in support of the new strategy. made in a number of areas has been progress Since the launch of Horizon, a new the portfolio and in building has also been made in restructuring Good progress focused, market-driven business. commercially a more of strategic this background experience needed to accelerate Horizon. Against team with the specific capabilities and management and leadership performance in line with expectations. a stable delivered Group the activity, clearly linked to the strategy and financial which are performance targets for the annual bonus set stretching years, the Committee As in previous metric and paid out 3.4% of the performance of the organic sales was slightly above threshold revenue Reported performance of the Group. performance Adjusted PBT was £1 million above the “on-target” for payment. performance did not meet the threshold maximum payable. Cash targets to take account of the An adjustment was made to the organic sales of the maximum payable for this element. target and paid out 87.6% Analysis business. disposal of the Industrial Remuneration continued Remuneration Report
Details of annual bonus earned in year (audited) continued
GFD objectives and weighting Weighting Achievements towards objectives/performance Complete Industrial Analysis disposal 30% • Industrial Analysis transaction completed in full. successfully with suitable transition • Transition plan put in place and delivered in full. arrangements for the next twelve months. 30 out of 30 Deliver a central and Federal overhead cost 20% • £2 million savings identify and implemented. base commensurate with the post Industrial • Federal and central teams restructured. Analysis Oxford Instruments. 20 out of 20 Manage and proactively drive the ongoing 20% • Implementation completed in two planned locations. implementation of Connect and deliver • Rollout plan agreed, communicated and resourced going forward. efficiencies across the Group. 20 out of 20 Build on leadership profile and networks 15% • Strong leadership profile established across the Company. within Oxford Instruments and externally. • Communications with investor community developed. 14 out of 15 Develop, implement and deliver on the 15% • Plan agreed and significant changes made to the leadership team and Healthcare business plan. structure of the business. • Business did not deliver the financial targets. 12 out of 15 Total 100% 96%
The on-target and maximum bonus potentials for the Executive Directors, as well as the amounts actually payable for the year ended 31 March 2018, are set out below. Actual bonus Actual bonus On‑target Maximum payable for payable for bonus bonus 2017/18 2017/18 (% of salary) (% of salary) (% of salary)1 (£’000) Ian Barkshire 75% 100% 63.74% £268 Gavin Hill 75% 100% 63.74% £209 1. Bonus is calculated on salary as at 31 March 2018. Long-Term Incentive Plans (audited) There are no Performance Share Plan (PSP) awards held by Executive Directors with performance periods ending in 2017/18.
Performance Share Plan awards made in the year and outstanding share incentive awards (audited) Awards made under the PSP on 25 September 2017 were as follows: Total number of Percentage Share price on day shares granted of salary before award date Vesting date Ian Barkshire 65,630 150% £9.605 25 September 2020 Gavin Hill 51,223 150% £9.605 25 September 2020
The awards are subject to two performance conditions measured over a three-year period commencing 1 April 2017. 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. 50% of the award will vest as set out below based on EPS measured over a three-year performance period starting 1 April 2017: 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 10% per annum over three years 25% – 100% Maximum 10% per annum and above over three years 100%
76 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 77 0% Latest 25% exercise were were 100% 1 25% – 100% ) – 3 Earliest exercise % of award that will vest that % of award grant Date of 13%
on date £9.87 14/12/11 14/12/14 13/12/21 £7.34 21/06/16 21/06/19 20/06/26 £9.58 25/09/17 25/09/20 24/09/27 £7.34 21/06/16 21/06/19 20/06/26 £9.58 25/09/17 25/09/20 24/09/27 of grant of £10.31 15/06/15 15/06/18 14/06/25 Less than 13% Share price Share Nil Nil Nil Nil price Exercise £9.90 in the final year of the performance period – Between 13% and 15.5% 5 £10.28 15.5% per annum and above 15.5% per annum and TSR v FTSE 250 (excluding financial companies ROCE 50% of award 13% (25% vesting) to 15.5% (100% vesting) median (25% vesting) to upper quartile (100% vesting) median (25% vesting) to upper quartile (100% for the final year of the performance period for the final year of the performance 1 — — Oxford Instruments plc Report and Financial Statements 2018 2017 March ROCE 37,549 15,000 83,390 65,085 Lapsed Exercised Movements during the year
Granted 65,630 51,223 2018 50% of award EPS growth – 7% p.a. (25% vesting) EPS growth to 12% p.a. (100% vesting) p.a. (25% vesting) – 4% EPS growth to 10% p.a. (100% vesting) Award only to Ian Barkshire, prior to being appointed an Executive Director, of market value options granted without of market value options prior to being appointed an Executive Director, only to Ian Barkshire, Award level at that time. policy for below Executive Director performance conditions consistent with the Company’s March 37,549 15,000 83,390 65,630 51,223
4 PSP 65,085 1 2 ESOS 2 ‑year performance period commencing 1 April 2016. Three estate investment services. real real estate investment trusts and Sectors excluded – banks, equity investment instruments, financial services, life insurance, non-life insurance, performance period commencing 1 April 2017. Three-year related costs and changes in the intangibles, acquisition less amortisation of acquired EBIT is adjusted operating profit Capital Employed where ROCE is calculated as EBIT/Average assets, goodwill, intangible assets, investments in mark‑to‑market values of financial instruments and Capital Employed is the sum of net working capital and net book value of fixed associates and excluding cash. ESOS options granted on 15 June 2015 were only awarded to employees below the level of Executive Director. to employees below the level of Executive Director. only awarded ESOS options granted on 15 June 2015 were 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. granted to him as an employee of the Company prior to his appointment to the Board. on 10 November 2015. His ESOS options were to the Board was appointed Ian Barkshire Dividend equivalents are payable on PSP shares vesting, for the period to vesting in respect of the actual number of shares vesting. of the actual number of shares vesting, for the period to vesting in respect on PSP shares payable Dividend equivalents are 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 related costs and changes intangibles, acquisition less amortisation of acquired adjusted operating profit EBIT is Employed where Capital ROCE is calculated as EBIT/Average assets, investments in associates and net book value of fixed assets, goodwill, intangible and Capital Employed is the sum of net working capital mark‑to‑market values of financial instruments and excluding cash. 25 September 2017 21 June 2016 15 June 2015 PSP ESOS Name Scheme ESOS PSP PSP Gavin Hill PSP as follows: Dilution limits (unaudited) should not exceed an schemes for employee share the issuance of new shares that overall dilution through provide plans share The Company’s shares. a ten‑year period. The SIP scheme only uses market purchased capital over issued share amount equivalent to 10% of the Company’s within that the Company remains schemes to ensure under these share The Committee monitors the position prior to the making of any award within the 10% limit. position remains headroom the Company’s this limit. As at the date of this report, Achievement of performance conditions (unaudited) using the measured EPS and ROCE performance conditions are The calculation of the TSR performance conditions is independently measured. then verified by the Remuneration Committee. All performance conditions are audited accounts of the Company. 2. 3. 4. 5. 1. 2. £11.38 (2017: £6.18 – £8.20). 2018 was £7.41 (2017: £8.20) and the range during the year was £6.76 – at 31 March The market price of the shares described below: are Performance conditions for outstanding awards 1. Between threshold and maximum Between threshold Maximum Ian Barkshire As at 31 March 2018, the outstanding options for Ian Barkshire and Gavin Hill under the Executive Share Option Scheme (ESOS) and the PSP Share and Gavin Hill under the Executive options for Ian Barkshire 2018, the outstanding As at 31 March 1. Below threshold Threshold 50% of the award will vest as set out below based on return of capital employed (ROCE) being measured for the final year of the three-year for the final year of the three-year (ROCE) being measured of capital employed below based on return will vest as set out 50% of the award 1 April 2017: performance period starting Performance level Remuneration continued Remuneration Report
Shareholding requirements (audited) The Executive Directors are required to build and retain a shareholding in the Company equivalent in value to 150% of basic salary. Until the requirement is met, the Executive Directors are expected to retain or purchase shares equivalent to the value of 50% of the net amount realised on exercise of long-term incentive awards after allowing for tax payable. Executive Directors’ shareholdings as at 31 March 2018 are shown in the table below.
Percentage of Subject to salary held in Guideline ESOS options performance Legally shares under share met as at vested but conditions under the owned holding guideline1 31 March 2018 unexercised PSP and ESOS unvested Ian Barkshire2 11,892 21% No 15,000 186,569 Gavin Hill 5,500 12% No — 116,308 1. Shares valued using the market price of the shares on 31 March 2018: £7.41. 2. Ian Barkshire was appointed to the Board on 10 November 2015. For the share option award granted to him in June 2015, the shareholding requirement is to retain shares on vesting as set out above but over 50% of salary. All awards after the date of his appointment will be subject to the requirement as detailed above.
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 12.12% to cover employer’s national insurance costs. During the year, the Company contributed £9,973 (2017: £7,478) into the Company’s Group Personal Pension Plan in respect of Ian Barkshire and £9,950 (2017: £9,167) 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 2018 was £599,835 (2017: £579,101). Payments to past Directors and for loss of office (audited) Nigel Keen, who ceased to be the Chairman of the Board on 13 September 2016, acted as Chairman of the Trustee of the Oxford Instruments Pension Scheme until 1 September 2017. Imperialise Limited is paid fees for Nigel Keen’s services together with a sum equivalent to the employer’s national insurance contributions on those fees. He received fees of £10,417 (plus the equivalent of employer’s national insurance contributions thereon) in the year to 31 March 2018. There were no payments to Directors for loss of office. Performance graph and CEO’s remuneration (unaudited) The graph below shows for the nine years ended 31 March 2018 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 350 E & EE 1,500 FTSE Techmark FTSE SmallCap
1,000
500
0 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 This graph shows the value, by 31 March 2018, 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.
78 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
79 791 2018 N/A N/A marked 5,533 19,533 as abstain % change % change Votes Votes
1 2 IRB N/A N/A 2017 620 1.3 30.8% 1.9 (10.5%) 7.4 1.4% 0.0 0% 1.1 2017 41.4 1.2% 0.02 114.3 (15.5%) 2016/17 31 March % against Year ended Year
1 DJF 64 Average employee Average 0% 0% 0% 56.3% 63.7% 2017 1.7 1.7 7.5 0.0 2018 % for 96.6 41.9 98.9 99.98 2017/18 31 March Year ended Year 0% 0% 743
5.0% 8,393 % change 548,614 0% 0% 579 Votes against Votes 7.5% 38.6%
Votes 1 20.0 155.0% Oxford Instruments plc Report and Financial Statements 2018 230.6 16.2% 2016/17 discretionary 3,070,455 3,070,455 51.0 267.9 417.7 397.9 2017/18 Votes for Votes 45,921,808 46,473,029
15.0% 100% 69.1% 100% 100% 50% 100%
100%
(£m) (£m)
1 (£m)
3
buybacks 4 (%) 100% 100% 100% 100% vesting 2
The employee costs, restated to take out the employee costs in respect of the Industrial Analysis and Superconducting Wire businesses which were sold in July 2017 and November 2016 Wire businesses which were of the Industrial Analysis and Superconducting to take out the employee costs in respect The employee costs, restated change: -1%. 2017: £92.9 million; percentage year ended 31 March 2018: £92.0 million; year ended 31 March are: respectively, Average employee includes all UK employees in service on 1 April 2016 and 31 March 2018 but excludes those who were on maternity or long‑term sick leave. 2018 but excludes those who were employee includes all UK employees in service on 1 April 2016 and 31 March Average The cost of this benefit for 2017/18 was £29,667. with a driver. In August 2017, the CEO was provided and has approved 2018 (to be paid in July 2018) 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 been subsequently included. The CEO remuneration for 2016/17 is that for Ian Barkshire (who was paid a salary of £300,000 p.a. to 11 May 2016 when he was appointed CEO and for the remainder of that year at when he was appointed CEO and for the remainder (who was paid a salary of £300,000 p.a. to 11 May 2016 for 2016/17 is that for Ian Barkshire The CEO remuneration £410,000 p.a.). 2016/17 financial year: remuneration shown separately for Jonathan Flint (DJF) who was CEO from 1 April to 11 May 2016 and Ian Barkshire (IRB) who was CEO from 12 May 2016 to (IRB) who was CEO from 11 May 2016 and Ian Barkshire 1 April to Jonathan Flint (DJF) who was CEO from remuneration shown separately for 2016/17 financial year: 2017. 31 March last granted ESOS options in June 2014. were Executive Directors
March 2011 2012 2013 2014 2015 2016 31 ending Year (%) vesting SELTIS/PSP Bonus Dividends Share Resolution
Remuneration Policy the Directors’ approve To Statement of Shareholder voting (unaudited) Statement of Shareholder Shareholders: the following votes from on Remuneration received Remuneration Policy and Annual Report AGM, the Directors’ At last year’s 1. Annual bonus outcome (%) outcome bonus Annual ESOS Benefits Employee costs on Remuneration the Annual Report approve To 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. Salary 1. CEO £’000 Percentage change in the remuneration of the Chief Executive (unaudited) change in the remuneration Percentage taxable benefits and annual bonus earned between 2016/17 and salary, change in each of the CEO’s The table below shows the percentage (on a per capita basis). to that for the average UK‑based employee of the Group 2017/18, compared 1. 2. Total remuneration (£’000) 2,348 1,179 3,464 2,596 remuneration Total The total remuneration of the CEO over the last nine years is shown in the table below. The annual bonus payout and PSP vesting level as a The annual bonus payout and below. over the last nine years is shown in the table of the CEO The total remuneration is also shown. of the maximum opportunity percentage Remuneration continued Remuneration Report
How the policy will be applied in 2018/19 (unaudited) Base salaries In line with the general workforce, the Executive Directors will receive salary increases of 2.5% for 2018/19 effective from 1 July 2018. The CEO’s salary as a result of the increase will be £430,750 and the GFD’s £336,200.
Benefits and pension These will be made in accordance with the approved Policy. Benefits will be in line with those received in 2017/18.
Annual bonus The maximum opportunity under the annual bonus plan for 2018/19 will be 100% of base salary for both the CEO and GFD. 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 Organic sales (£m) 15% 21.25% Profit (£m) 30% 42.5% Cash generation (£m) 15% 21.25% Strategic objectives Up to 15.00%
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 key talent, corporate finance opportunities and operational efficiencies. For the GFD these objectives focus on the implementation of Connect, active management of working capital and growth in the Healthcare division. 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 2018/19 financial year The 2018/19 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 ranges for both measures have been increased from those 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 – 16% in the final year of the performance period three financial years commencing with the 2018/19 financial year. (2020/21 financial year) (25% vesting) to 20% (100% vesting).
Non-Executive Directors’ fees The Committee and the Board, as appropriate, have reviewed the fees for the Chairman and Non-Executive Directors. In line with the general workforce, the basic fees for the Non-Executive Directors and Chairman will increase by 2.5% for 2018/19, effective from 1 July 2018.
2017/181 2018/191 % increase Board Chairman £169,125 £173,350 2.5% Additional fee for Deputy Chairman £5,000 £5,000 0% Basic fee £47,500 £48,700 2.5% Additional fee for Senior Independent Director £7,500 £7,500 0% Additional fee for Committee Chairman £7,500 £7,500 0% 1. The fees shown for 2017/18 and 2018/19 are the annual rates as at 1 July 2017 and 1 July 2018 respectively.
Approval This report was approved by the Committee on 12 June 2018 and has been approved subsequently by the Board for submission to Shareholders at the Annual General Meeting to be held on 11 September 2018.
Thomas Geitner Chairman of the Remuneration Committee 12 June 2018
80 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 81 If you are receiving more 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 intention you might consider merging them Please contact Link Asset into one single entry. Services, who will be pleased to carry out your instructions. Dividend bank mandates be paid directly If you wish dividends to society account and into a bank or building to your Shareholder notification to be sent please contact the Company’s address, register for a given above Registrar at the address Overseas holders can dividend mandate form. into payment directly also choose to receive can be sent a draft in their bank account, or on international Further details local currency. Link Asset available from payments are Services at the contact details below. 664 0385 (calls cost 12 pence +44 (0)871 Tel: 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 in England and Wales). www.signalshares.com Website: accounts register Duplicate share Oxford Instruments plc Report and Financial Statements 2018 You may view your shareholding and dividend your shareholding may view You direct your dividends to receive register history, your elect to re-invest to your bank account or address a change of dividends and register register . To online at www.signalshares.com need your Investor to use this facility you will be found on your share Code (IVC), which can statement certificate, dividend confirmation card. or proxy Administrative enquiries concerning Instruments plc, in Oxford shareholdings certificate, dividend such as the loss of a share should be payments, or a change of address in the first instance, to the Registrar, directed, Beckenham 34 Link Asset Service, The Registry, Road, Beckenham, Kent BR3 4TU. 664 0300 (calls cost 12 pence +44 (0)871 Tel: 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 in England and Wales). Email: [email protected] www.signalshares.com Website: to Oxford should refer Correspondence Instruments plc and state clearly the registered Please of the Shareholder. name and address of any change notify the Registrar promptly of address. Administrative enquiries Administrative enquiries concerning shareholdings Ordinary shares shares Ordinary quoted ex-dividend date for Record interim dividend Dividend reinvestment (DRIP) last date for election Financial year end Payment of interim dividend Announcement of results preliminary Announcement of final dividend Publication of Annual Report Annual General Meeting shares Ordinary quoted ex-dividend date for final dividend Record DRIP date Payment of final dividend Announcement of half‑year results shares Ordinary quoted ex-dividend DRIP last date for election date for Record interim dividend Financial year end Find out more online Find out more www.oxinst.com/investors Investor publications up-to‑date provides website The Group information on corporate and investor news, as well as a wide range of additional supporting documentation. Annual and Interim The Company’s to download from available Reports are recordings the website, alongside recent presentations. of the city results Financial calendar 22 February 2018 23 February 2018 2018 12 March 2018 31 March 6 April 2018 12 June 2018 12 June 2018 July 2018 11 September 2018 13 September 2018 14 September 2018 28 September 2018 19 October 2018 13 November 2018 2019 March 2019 March 2019 March 2019 31 March Shareholders Relations with Relations with Shareholders continued
Shareholder communications Link Share Dealing Services For further information on this service, Unless you have elected to continue to receive A quick and easy share dealing service to or to buy and sell shares, please contact Shareholder communications by post, you will either sell or buy shares in many leading UK www.linksharedeal.com (online dealing) be notified by post or, where you have given companies is provided by Link Share Dealing or +44 (0)371 664 0445 (telephone dealing). us an email address for electronic notification, Services. An online and telephone facility is Calls are charged at the standard geographic by email that Shareholder communications available, providing our Shareholders with rate and will vary by provider. Calls outside are available for viewing on the Company’s an easy-to-access and simple-to-use service. the United Kingdom will be charged at the website at www.oxinst.com/investors. There’s no need to pre-register and there are applicable international rate. Lines are open The Company reserves the right to distribute no complicated forms to fill in. The online between 09:00 – 17:30, Monday to Friday any communication in hard copy if it deems and telephone dealing service allows you to excluding public holidays in England and this necessary. trade “real time” at a known price which Wales). Full terms, conditions and risks apply will be given to you at the time you give your and are available on request or by visiting Shareholder enquiries instruction. To deal online or by telephone www.linksharedeal.com. Shareholders who have questions relating to all you need is your surname, Investor Code This is not a recommendation to buy or sell the Group’s business or who wish to have (IVC) reference number, full postcode, your shares. Remember the price of shares can additional copies of the Report and Financial date of birth and National Client Identifier. go down as well as up, and you are not Statements should apply to: Your Investor Code can be found on a recent guaranteed to get back the amount that Company Secretary share certificate, statement or tax voucher. you originally invested. Oxford Instruments plc, Tubney Woods, Should you not be able to locate your IVC Abingdon, Oxfordshire OX13 5QX number, please contact Link Asset Services Tel: 01865 393200 Fax: 01865 393442 on +44 (0)871 664 0300 (calls cost 12 pence Email: [email protected] per minute plus your phone company’s access Website: www.oxinst.com charge. Calls outside the United Kingdom will be charged at the applicable international Company registration rate. Lines are open between 09:00 – 17:30, Registered office: Tubney Woods, Abingdon Monday to Friday excluding public holidays Oxfordshire OX13 5QX in England and Wales). Please have the Registered in England number: 775598 appropriate documents to hand when you log Website: www.oxinst.com on or call, as this information will be needed before you can buy or sell shares. Oxford Instruments has an extensive website which gives details of all its products and services, contact information, vacancies and latest news announcements. An interactive investor relations section gives information on recent trading reports, share price data and forthcoming events.
Analysis of Shareholders as at 31 March 2018
Size of shareholding Number of holders % of total Total holding % of total Up to 5,000 shares 1,943 87.60 1,162,372 2.03 5,001 to 50,000 shares 155 6.99 2,657,360 4.63 50,001 to 200,000 shares 35 1.58 2,557,872 4.46 Over 200,000 shares 85 3.83 50,998,000 88.88 Total 2,218 100 57,375,604 100
82 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 83 In the year to 31 March 2018 no Director 2018 no Director In the year to 31 March of in any contract had a material interest Company or any of its significance with the have end, there subsidiaries. Since the year above shareholdings been no changes to the and Gavin Hill, for Ian Barkshire apart from Share Instruments who each joined the Oxford year end and the Incentive Plan shortly before their each increased since the year end have shares. beneficial holding by 251 Share capital Share The Company only has one class of share of shares capital which comprises ordinary forming part of the 5 pence each. All shares the same rights capital have share ordinary no unusual are and carry one vote each. There The on the transfer of a share. restrictions full rights and obligations attaching to the as well as the shares, ordinary Company’s set out in the are powers of the Directors, Articles of Association, a copy of Company’s website. which is available on the Company’s Companies These can also be obtained from House or by writing to the Company Secretary. 2018 the issued During the year to 31 March by 0.1% with increased capital was share shares the issue of 59,688 ordinary of (2017: 17,005) following the exercise option share options under the Company’s 2018, the issued schemes. At 31 March the Company was therefore capital of share of 5 pence each. shares 57,375,604 ordinary equity In connection with the Company’s trust incentive plans, a separately administered at 31 March shares held 183,145 ordinary 0.3% of the total issued 2018 (representing in the Company). No shares capital of share by the Company acquired the Company were during the year (2017: nil). Details of the options outstanding as at capital and share set out in Notes 23 and 2018 are 31 March the Financial Statements. to 12 respectively Insurance cover and Insurance cover and indemnities Directors’ has For a number of years, the Group insurance to cover its Directors purchased and Officers against their costs in defending taken themselves in legal proceedings against them in that capacity and in respect the unsuccessful from of damages resulting In addition, to defence of any proceedings. the Group the extent permitted by UK law, and Officers for indemnifies its Directors such proceedings. liabilities arising from Neither the insurance nor the indemnity the cover for situations where provides has acted fraudulently or dishonestly. Director
Shares 31 March 31 March Oxford Instruments plc Report and Financial Statements 2018 — — — — — — 2018 2017 Shares 5,500 — 5,000 — 1,000 — 11,982 5,982 31 March
Directors’ interests Directors’ in the of the Directors The beneficial interests in fully paid up capital, all share Company’s shown below. 2018, are at 31 March shares options for the Executive Details of share shown in the Remuneration are Directors Report on pages 67 to 78. Directors’ conflicts of interest Directors’ The Companies Act 2006 allows Directors of public companies to authorise conflicts where and potential conflicts of interest, with no interest Only Directors appropriate. in the matter under consideration may decision and in participate in the relevant doing so they must act in a way which they consider in good faith will be most likely to success. A conflicts the Company’s promote policy has been drawn up, which is reviewed of conflicts and and a register annually, potential conflicts is maintained. Directors at the date Biographies of all the Directors including the Non-Executive of this report, appear on pages 50 and 51. During Directors, was on 1 July 2017, Stephen Blair the year, and Senior appointed Non-Executive Director of the Company. Independent Director The Executive Directors report to the Board on to the Board report The Executive Directors and in the externalchanges in the business the risks which which may affect environment also faces. The Executive Directors the Group with monthly financial the Board provide indicators are information. Key performance periodically. reviewed a number of risks and uncertainties are There Oxford on the effect which may have a material described in These are Instruments Group. 35 to 38. Principal Risks on pages Ian Barkshire Stephen Blair Friend Richard Thomas Geitner Gavin Hill Alan Thomson Mary Waldner in the was beneficially interested No Director company at any time of any subsidiary shares during the year. Risks and uncertainties and appropriate proper exercises The Board corporate governance for the Group. systems effective are that there It ensures in place to manage of internal controls and the Group’s interests Shareholders’ assets, including the assessment and the management of the risks to which the exposed, and to monitor businesses are and manage the compliance with all the the Group’s that affect legal requirements such worldwide business activities. However, designed to manage rather than systems are to achieve business eliminate the risk of failure only reasonable objectives and can provide and not absolute assurance against material misstatement or loss. The results for the year are shown in the for the year are The results Consolidated Statement of Income on a final recommend page 91. The Directors share, dividend of 9.6 pence per ordinary which together with the interim dividend of a total makes share 3.7 pence per ordinary for the year share of 13.3 pence per ordinary (2017: 13.0 pence). Subject to Shareholder dividend will be paid on the final approval, registered 19 October 2018 to Shareholders at close of business on 14 September 2018. Results and dividends Principal activity and Principal activity business reviews holding companyThe Company is the ultimate (“the of subsidiary undertakings of a group development, engaged in the research, Group”) sale and service of high rental, manufacture, The Companytechnology tools and systems. a true and to set out in this report is required during fair view of the business of the Group 2018, the financial year ended 31 March at the end of the the position of the Group financial year and a description of the principal The risks and uncertainties facing the Group. requirements information which fulfils these includes an Operations and Finance Review on pages 20 to 34 and Corporate Responsibility incorporated in on pages 40 to 47, which are The operations, the by reference. this report and Development the Research strategic review, of the prospects activities and likely future on in the Strategic Report reviewed are Group pages 1 to 47. The Directors present their Report and the present The Directors plc Instruments Oxford Financial Statements of 2018. for the year ended 31 March the Directorsthe Report of Report of Report of the Directors continued
Share capital continued Charitable donations Financial risk management At this year’s Annual General Meeting, the During the year, the Group made charitable Details of the Group’s financial risk Directors propose to renew the authorities donations of £5,068 (2017: £8,585). There management objectives and policies, granted to them at last year’s AGM to: have been no political donations during including the exposure to price, credit and the year. liquidity risk are set out in Note 21 to the • allot ordinary shares up to an aggregate Financial Statements. nominal value of one-third of the Fixed assets Company’s issued share capital and, where Whilst the market value of some fixed assets Diversity and inclusion full pre-emption rights are applied, up to may differ from book value, the Directors The Board recognises that its employees an aggregate nominal value of two-thirds believe that the differences are not material. are fundamental to the Group’s success. of the Company’s issued share capital; The Group’s aim is to ensure there are equal • allot ordinary shares up to an aggregate Disclosure of information opportunities for all employees and that there nominal value of 10% of the Company’s to auditor is an inclusive culture where differences are issued share capital without first offering Pursuant to Section 418(2) of the Companies valued and people are given the environment them to existing Shareholders; and Act 2006, the Directors who held office at in which they can do their best work. • buy back up to 10% of the Company’s the date of approval of this Directors’ Report Corporate Responsibility on pages 40 to 47 issued share capital. confirm that, so far as they are each aware, further describes how diversity and inclusion is there is no relevant audit information of which managed within Oxford Instruments. Shareholders will be requested to renew these the Company’s auditor is unaware; and each authorities at the AGM, details of which are Director has taken all the steps that he or she Greenhouse gas emissions set out in the Notice of the Meeting. might reasonably have been expected to have To meet the requirements of the Companies Act 2006 (Strategic and Directors’ Report) Substantial shareholdings taken as a Director to make himself or herself aware of any relevant audit information and to Regulations 2013, CO2 emissions are reported The following are beneficial interests of 3% establish that the Company’s auditor is aware on as part of our reporting on greenhouse gas or more (where the holding is direct), or of of that information. emissions in Corporate Responsibility on pages 5% or more (where the holding is indirect), 45 to 46. which have been notified to the Directors of Annual General Meeting the Company, in accordance with Chapter 5 The Notice of the Annual General Meeting Material events of the Disclosure and Transparency Rules, of to be held on 11 September 2018 is set out There were no material events since the year the Company’s issued ordinary share capital, in a letter to Shareholders together with end to report. the only class of voting capital, at 6 June 2018: explanatory notes relating to the resolutions. By order of the Board Direct/ Shares % of A resolution to re-appoint KPMG LLP as indirect ‘000 total auditor and to authorise the Directors to set Ameriprise Indirect/ their remuneration will be proposed at the Financial direct 8,080,361 14.1 Susan Johnson-Brett Annual General Meeting. Standard Life Company Secretary Aberdeen plc Indirect 3,715,599 6.5 Change of control arrangements 12 June 2018 Sir MF and There are a number of agreements that take Lady KA Wood Direct 3,105,530 5.4 effect, alter or terminate upon a change of Baillie Gifford control of the Company following a takeover, & Co Indirect 2,917,516 5.1 such as banking agreements and Company share plans. On a change of control, the Payment of suppliers Company’s committed credit facilities may The Group does not follow a standard be cancelled by lenders by giving not less payment practice but agrees terms and than three days’ notice. It is also possible that conditions for its business transactions with pension plan funding arrangements would each of its suppliers. Payment is then made need to be changed following a change of in accordance with these terms. At 31 March control if that resulted in a weakening of the 2018 trade creditors of the Company and the employer covenant. Group’s UK subsidiaries were equivalent to Corporate governance 45 days (2017: 11) and 67 days (2017: 64) of The Board reviews its work on corporate purchases respectively, based on the amounts governance in the Corporate Governance invoiced by suppliers during the year and the Report on pages 52 to 58. amounts owed to trade creditors at the end of the year.
84 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 85 Gavin Hill Finance Director Group the Financial Statements, prepared in prepared the Financial Statements, of with the applicable set accordance give a true and accounting standards, liabilities, financial fair view of the assets, Company or loss of the position and profit in the and the undertakings included a whole; and consolidation taken as Report the Strategic Report/Directors’ of the development include a fair review and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Responsibility statement of the Responsibility statement of the annual in respect Directors report financial confirm that to the best of our knowledge: We • • consider the Report and Financial We Statements, taken as a whole, is fair, balanced and understandable and provides to the information necessary for Shareholders position and performance, assess the Group’s business model and strategy. Signed on behalf of the Board Ian Barkshire Chief Executive 12 June 2018 Oxford Instruments plc Report and Financial Statements 2018 The Directors are responsible for keeping responsible are The Directors that are adequate accounting records explain the Parent sufficient to show and transactions and disclose Company’s the accuracy at any time with reasonable Company Parent financial position of the Financial that its and enable them to ensure the Companies Statements comply with responsibility Act 2006. They have general reasonably are for taking such steps as of the assets open to them to safeguard and detect fraud and to prevent the Group and other irregularities. the Under applicable law and regulations, for preparing also responsible are Directors Report, a Strategic Report, Directors’ Remuneration Report and Corporate Governance with Statement that comply that law and those regulations. for the responsible are The Directors maintenance and integrity of the corporate and financial information included on the website. Legislation in the UK Company’s and dissemination governing the preparation from of financial statements may differ legislation in other jurisdictions. select suitable accounting policies and then apply them consistently; make judgements and estimates that are and prudent; reasonable Financial Statements, for the Group state whether they have been prepared with IFRSs as adopted by in accordance the EU; Company Financial for the Parent Statements, state whether applicable UK have been followed, Accounting Standards subject to any material departures disclosed and explained in the Parent Company Financial Statements; Company’s and Parent assess the Group ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and use the going concern basis of accounting unless they either intend to liquidate the Company or to cease or the Parent Group alternative operations, or have no realistic but to do so. The Directors are responsible for preparing for preparing responsible are The Directors and Parent the Group the Annual Report and in accordance Company Financial Statements regulations. with applicable law and to the Directors Company law requires Financial Company Parent and Group prepare Under that year. Statements for each financial the Group to prepare required law they are with IFRSs accordance Financial Statements in applicable law and as adopted by the EU and Company the Parent have elected to prepare with UK Financial Statements in accordance including FRS 101 Accounting Standards, Framework. Reduced Disclosure must not the Directors Under company law, the Financial Statements unless they approve satisfied that they give a true and fair view are and Parent of the Group of the state of affairs or loss for that Company and of their profit and each of the Group period. In preparing Company Financial Statements, the Parent to: required are Directors • • • • • • in relation to the Report to relation in Statements and Financial Directors’ Responsibilities Responsibilities Directors’ Independent Auditor’s Report to the members of Oxford Instruments plc
1. Our opinion is unmodified Overview We have audited the financial statements of Oxford Instruments plc (“the Company”) for the year ended 31 March 2018 which comprise Materiality: £1.5m (2017: £1.1m) group financial the Consolidated Statement of Income, Consolidated statement of 4.8% (2017: 5.0%) of group profit before tax from statements as a continuing operations adjusted for restructuring costs, Comprehensive Income, Consolidated Statement of Financial Position, whole net profit on disposal of buildings, share of impairment Consolidated Statement of Changes in Equity, Consolidated Statement recognised by associate and mark to market gains in of Cash Flows, Company Balance Sheet, Company Statement of respect of derivative financial instruments of £31.4 million Changes in Equity and the related notes, including the accounting Coverage 91% (2017: 92%) of group profit before tax from policies set out on pages 98 to 104. continuing operations
In our opinion: Risks of material misstatement vs 2017
• the financial statements give a true and fair view of the state of the Recurring risks Revenue recognition in the NanoScience and Plasma tu Group’s and of the parent Company’s affairs as at 31 March 2018 business units and of the Group’s profit for the year then ended; Completeness and accuracy of provisions in respect tu • the Group financial statements have been properly prepared in of intellectual property claims accordance with International Financial Reporting Standards as Parent company: valuation of investments held by tu adopted by the European Union; the parent company • the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including 2. Key audit matters: our assessment of risks of FRS 101 Reduced Disclosure Framework; and material misstatement • the financial statements have been prepared in accordance with the Key audit matters are those matters that, in our professional requirements of the Companies Act 2006 and, as regards the Group judgement, were of most significance in the audit of the financial financial statements, Article 4 of the IAS Regulation. statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including Basis for opinion those which had the greatest effect on: the overall audit strategy; the We conducted our audit in accordance with International Standards on allocation of resources in the audit; and directing the efforts of the Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are engagement team. We summarise below the key audit matters, in described below. We believe that the audit evidence we have obtained decreasing order of audit significance, in arriving at our audit opinion is a sufficient and appropriate basis for our opinion. Our audit opinion above, together with our key audit procedures to address those matters is consistent with our report to the audit committee. and, as required for public interest entities, our results from those We were appointed as auditor by the Company before 1984. procedures. These matters were addressed, and our results are based The period of total uninterrupted engagement is for more than the on procedures undertaken, in the context of, and solely for the purpose 35 financial years ended 31 March 2018. We have fulfilled our ethical of, our audit of the financial statements as a whole, and in forming our responsibilities under, and we remain independent of the Group in opinion thereon, and consequently are incidental to that opinion, and accordance with, UK ethical requirements including the FRC Ethical we do not provide a separate opinion on these matters. Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
86 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 87 Oxford Instruments plc Report and Financial Statements 2018 Our procedures included: Our procedures of detail: Comparing the carrying amount of 100% of investments with the Tests whether their net assets, being subsidiaries’ draft balance sheet to identify relevant in excess of their amount, were of their minimum recoverable an approximation carrying amount and assessing whether those subsidiaries have historically been profit-making. Assessing subsidiary audits: Assessing the work performed by the subsidiary of that work, audit team for a sample of subsidiaries and considering the results and net assets. on those subsidiaries’ profits exceeded the carrying amount Our sector experience: For the investments where the net asset value, performing our own assessment of the key assumptions used cash flows, long-term growth amount such as forecast to estimate recoverable to historical performance of rates and the discount rate applied with reference rates similar lines of business and externally derived data including, industry growth rates. and market interest Our results investment in of the assessment of the recoverability found the group’s We subsidiaries to be acceptable (2017: acceptable). Our procedures included: Our procedures of details Tests the year transactions around on a sample basis, whether specific revenue Testing, whether the period by assessing in the appropriate end had been recognised of products, to, nature of ownership had passed, with reference significant rewards of complexity associated contracts and the relative the terms of sale within the installation. product notes issued after the year end should of credit Considering whether a sample not by obtaining in the period and challenging those that were revenue reduce made. evidence to support any adjustments and accrued income against contractual end deferred Assessing a sample of year whether revenue to determine of risks and rewards terms and evidence of transfer period. in the correct for this sample has been recognised Our results in the Plasma and NanoScience business units to recognised found the revenue We be acceptable (2017: acceptable). procedures: Omitted exposure internal legal counsel and business Personnel interviews: Enquiring with Group’s intellectual property unrecorded new and previously unit managers regarding claims and the likelihood of the claims. and litigation register Compliance data scrutiny: Inspecting the Group’s other parties, including legal advisers, for and between the group correspondence these claims. for is required a provision claims and assessing whether unrecorded Subjective estimate procedures: of the key assumptions Our sector experience: Challenging the reasonableness of intellectual rates payable in respect such as potential royalty made by the Group, against our own claims and likelihood of an outflow of resources property and understanding expectations based on our historical knowledge, experience with competitors. of correspondence and our review external legal advisers in respect Enquiry of lawyers: Enquiring with the Group’s the likelihood of an outflow of resources of open matters of litigation regarding rates applied in of assumptions used, including the royalty and the appropriateness calculating a provision. discussion of claims with Personnel interviews: Evaluating assumptions through business unit managers. internal legal counsel and relevant Group’s the regarding disclosures Assessing whether the Group’s Assessing transparency: the risks identified. reflect range of possible outcomes appropriately Our results for potential infringements of a competitors found the level of provisions We acceptable). to be acceptable (2017: intellectual property Our response Low risk/high value: company’s The carrying amount of the parent 92% (2017: 82%) investments in subsidiaries represents is not Their recoverability total assets. of the company’s at a high risk of significant misstatement or subject to due to their materiality significant judgement. However, company financial in the context of the parent that had to be the area statements, this is considered company audit. on our overall parent effect the greatest Omitted exposure: designs and builds customised, high The Group incorporating specific complex technology products, As such there and intellectual property. design features infringes the intellectual property is a risk that the Group parties. belonging to third for provision in a material unrecorded This could result parties. third to be paid to compensation required 2017/2018 sales: on sales before is recognised revenue is a risk that There of ownership have the significant risks and rewards and NanoScience passed, particularly in the Plasma business units. judgement of the products, Given the complex nature in determining whether the risks and is required passed by assessing a number of factors, have rewards met and whether shipping terms have been notably, element of the sale. the complexity of any installation in is recognised risk that, revenue is a As such there period. the incorrect due to the seasonality of the business, Furthermore, is of these businesses revenue a significant proportion risk of in an increased resulting in March recognised period. in the incorrect being recognised revenue our audit is Consequently this is one of the key areas focused on. Subjective estimate: for intellectual required The estimation of any provision based on the subjective claims is inherently property wide range of potential outcomes due to differing rates. settlement methods and royalty The risk tu tu Completeness and accuracy of in respect provisions of intellectual claims property (£3.2 million, 2017: £3.2 million) Risk vs 2017 of Valuation investments held by company the parent (£320.9 million; 2017: £320.5 million) Refer to page 64 (Audit and Risk committee report), page 98 (accounting policy) and page 131 (financial disclosures) Refer to page 64 (Audit and Risk committee report), page 102 (accounting policy) and pages 107 to 109 (financial disclosures Revenue recognition Revenue recognition (Revenue: £296.9 million (2017: £300.2 million)) Risk vs 2017 We continue to perform procedures over the recoverability of acquired intangible assets. However, following the impairments recognised in the following the impairments recognised intangible assets. However, of acquired over the recoverability perform procedures continue to We the year performance, we have not assessed this as one of current and Asylum businesses and improved to the Healthcare prior year in relation report this year. it is not separately identified in our year audit and, therefore, most significant risks in our current Independent Auditor’s Report continued to the members of Oxford Instruments plc only
3. Our application of materiality and The remaining 6% (2017: 7%) of total group revenue, 9% (2017: 8%) an overview of the scope of our audit of total profits and losses that made up group profit before tax from Materiality for the group financial statements as a whole was set at continuing operations and 8% (2017: 10%) of total group assets is £1.5m (2017: £1.1m), determined with reference to a benchmark of represented by 55 (2017: 50) reporting components, none of which profit before tax from continuing operations normalised to exclude individually represented more than 2% (2017: 2%) of any of total restructuring costs, net profit on disposal of buildings, share of group revenue, group profit before tax or total group assets. For these impairment recognised by associate and mark to market gains in residual components, we performed analysis at an aggregated group respect of derivative financial instruments as disclosed in note 1. level to re-examine our assessment that there were no significant risks Total profits and losses that made up normalised Group profit before of material misstatement within these. tax from continuing operations is calculated as £31.4m (2017: £22.2m) The Group team visited 6 (2017: 6) component locations in the UK, of which materiality represents 4.8% (2017: 5.0%). USA and Sweden (2017: UK, USA, Sweden and Germany) to confirm Materiality for the parent company financial statements as a whole was appropriate execution of the audit strategy & plan and inspect their set at £1.0m (2017: £0.8m), determined with reference to a benchmark findings. Video and telephone conference meetings were also held of company total assets, of which it represents 0.3% (2017: 0.2%). with these component auditors and all others that were not physically visited. At these visits and meetings, the findings reported to the Group We agreed to report to the Audit and Risk Committee any corrected team were discussed in more detail, and any further work required by or uncorrected identified misstatements exceeding £75,000, in the Group team was then performed by the component auditor. addition to other identified misstatements that warranted reporting on qualitative grounds. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and Of the group’s 72 (2017: 70) reporting components, we subjected the information to be reported back. The Group team approved 14 (2017: 16) to full scope audits for group purposes and 3 the component materialities, which ranged from £0.1m to £1.0m (2017: 4) to specified risk-focused audit procedures. The latter were (2017: £0.6m to £0.8m), having regard to the mix of size and risk not individually financially significant enough to require a full scope profile of the Group across the components. The work on 8 of the audit for group purposes, but did present specific individual risks 17 components (2017: 12 of the 24 components) was performed by that needed to be addressed. component auditors and the rest, including the audit of the parent The group team performed procedures on the items excluded from company, was performed by the Group team. normalised group profit before tax. The components within the scope of our work accounted for the percentages indicated opposite.
Profit before tax from continuing operations adjusted for restructuring costs, net profit on disposal of buildings, share of impairment recognised by associate and mark to market gains in respect Group Materiality of derivative financial instruments £1.5m (2017: £1.1m) of £31.4m (2017: £22.2m) £1,500,000 Whole financial statements materiality (2017: £1.1m)
£1,000,000 Range of materiality at 17 components £0.1m to £1.0m (2017: £0.6m to £0.8m)
Profit before tax from continuing operations1 £75,000 Misstatements reported Group materiality to the audit committee (2017: £55,000) 1. Adjusted for restructuring costs, net profit on disposal of buildings, share of impairment recognised by associate and mark to market gains in respect of derivative financial instruments.
88 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 89 Oxford Instruments plc Report and Financial Statements 2018 the directors’ confirmation within the viability statement on page 38 the directors’ assessment of the principal risks that they have carried out a robust its business including those that would threaten facing the Group, performance, solvency and liquidity; model, future describing these risks and explaining the Principal Risks disclosures being managed and mitigated; and how they are they explanation in the viability statement of how the directors’ over what period of the Group, have assessed the prospects be that period to they have done so and why they considered their statement as to whether they have a and appropriate, will be able to continue in that the Group expectation reasonable operation and meet its liabilities as they fall due over the period of drawing attention disclosures their assessment, including any related to any necessary qualifications or assumptions. we have not identified material misstatements in the strategic report in the strategic we have not identified material misstatements report; and the directors’ the for reports in our opinion the information given in those statements; and financial year is consistent with the financial with in accordance have been prepared in our opinion those reports the Companies Act 2006. Directors’ remuneration report remuneration Directors’ Remuneration Report to be In our opinion the part of the Directors’ with the Companies in accordance prepared audited has been properly Act 2006. viability of principal risks and longer-term Disclosures during our financial statements Based on the knowledge we acquired attention to in audit, we have nothing material to add or draw to: relation • • • the viability to review required Under the Listing Rules we are in this respect. have nothing to report statement. We 5. We have nothing to report on the to report have nothing 5. We Annual Report other information in the in for the other information presented responsible are The directors with the financial statements. Our opinion the Annual Report together does not cover the other information and, on the financial statements except as explicitly opinion or, an audit we do not express accordingly, of assurance conclusion thereon. any form stated below, and, in doing so, the other information is to read Our responsibility work, the based on our financial statements audit consider whether, or inconsistent with the is materially misstated information therein our audit knowledge. Based solely on that work financial statements or in the other information. we have not identified material misstatements report and directors’ Strategic report Based solely on our work on the other information: • • • 84 80 11 8 92% (2017: 89%) 9 8 Group total assets 88 78 68 81 8 9 91% 94% (2017: 92%) (2017: 93%) 12 3 24 16 Full scope for group audit purposes 2018 Specified risk-focused audit procedures 2018 Full scope for group audit purposes 2017 Specified procedures audit 2017 risk-focused components Residual we have anything material to add or draw attention to in statement on page 39 of the financial to the directors’ relation statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt use of that basis for a period of and Company’s over the Group of the financial the date of approval at least twelve months from statements; or page 39 statement under the Listing Rules set out on if the related is materially inconsistent with our audit knowledge. Total profits and losses that made profits and losses that made Total up group profit before tax from continuing operations Group revenue 4. We have nothing to report on going concern on have nothing to report 4. We to you if: to report required are We • • in these respects. to report have nothing We Independent Auditor’s Report continued to the members of Oxford Instruments plc only
5. We have nothing to report on the other Auditor’s responsibilities information in the Annual Report continued Our objectives are to obtain reasonable assurance about whether the Corporate governance disclosures financial statements as a whole are free from material misstatement, We are required to report to you if: whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high • we have identified material inconsistencies between the knowledge level of assurance, but does not guarantee that an audit conducted in we acquired during our financial statements audit and the directors’ accordance with ISAs (UK) will always detect a material misstatement statement that they consider that the annual report and financial when it exists. Misstatements can arise from fraud, other irregularities statements taken as a whole is fair, balanced and understandable or error and are considered material if, individually or in aggregate, and provides the information necessary for shareholders to assess the they could reasonably be expected to influence the economic decisions Group’s position and performance, business model and strategy; or of users taken on the basis of the financial statements. • the section of the annual report describing the work of the Audit A fuller description of our responsibilities is provided on the FRC’s Committee does not appropriately address matters communicated website at www.frc.org.uk/auditorsresponsibilities. by us to the Audit Committee. We are required to report to you if the Corporate Governance Irregularities – ability to detect Statement does not properly disclose a departure from the eleven We identified areas of laws and regulations that could reasonably be provisions of the UK Corporate Governance Code specified by the expected to have a material effect on the financial statements from our Listing Rules for our review. sector experience and through discussion with the directors and other management (as required by auditing standards). We have nothing to report in these respects. We had regard to laws and regulations in areas that directly affect the 6. We have nothing to report on the other matters financial statements including financial reporting (including related on which we are required to report by exception company legislation) and taxation legislation. We considered the Under the Companies Act 2006, we are required to report to you if, extent of compliance with those laws and regulations as part of our in our opinion: procedures on the related financial statement items. • adequate accounting records have not been kept by the parent We communicated identified laws and regulations throughout our team Company, or returns adequate for our audit have not been received and remained alert to any indications of non-compliance throughout from branches not visited by us; or the audit. • the parent Company financial statements and the part of the As with any audit, there remained a higher risk of non-detection of Directors’ Remuneration Report to be audited are not in agreement non-compliance with relevant laws and regulations (irregularities), with the accounting records and returns; or as these may involve collusion, forgery, intentional omissions, • certain disclosures of directors’ remuneration specified by law are misrepresentations, or the override of internal controls. not made; or 8. The purpose of our audit work and • we have not received all the information and explanations we to whom we owe our responsibilities require for our audit. This report is made solely to the Company’s members, as a body, in We have nothing to report in these respects. accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the 7. Respective responsibilities Company’s members those matters we are required to state to them Directors’ responsibilities in an auditor’s report and for no other purpose. To the fullest extent As explained more fully in their statement set out on page 85, permitted by law, we do not accept or assume responsibility to anyone the directors are responsible for: the preparation of the financial other than the Company and the Company’s members, as a body, for statements including being satisfied that they give a true and fair our audit work, for this report, or for the opinions we have formed. view; for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, Greg Watts (Senior Statutory Auditor) as applicable, matters related to going concern; and using the going for and on behalf of KPMG LLP, Statutory Auditor concern basis of accounting unless they either intend to liquidate the Chartered Accountants Group or the parent Company or to cease operations, or have no One Snowhill realistic alternative but to do so. Snow Hill Queensway Birmingham B4 6GH 12 June 2018
90 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— 91 0.7 (9.2) (1.1) 13.0 13.0 (24.3) (54.1) (78.4) 157.3 300.2 (142.9) Total Total 1 — — 0.2 — 0.2 — — — — 1.2 (10.8) 8.5 (0.7) (8.4) (57.5) (19.5) (49.6) (57.7) (26.2) (49.2) (25.5) (48.3) (20.3) Adjusting items 1 (5.6) (0.2) (5.8) (6.7) (0.2) (6.9) 38.0 31.5 23.7 28.0 41.5 (44.7) 49.0 (35.6) 41.4 (44.7) 48.9 (35.6) £m £m £m 5.2 45.9 4.3 0.9 13.0 13.3 Adjusted Total 1 (23.6) — (23.4) (54.1) — (53.9) — 0.3 0.2 — 0.3 0.2 — (0.6) (1.1) 157.3 — 150.9 — (3.9) — (4.5) 300.2 — 296.9 (142.9) — (146.0) (8.1) 38.4 (2.4) (1.9) (0.8) (8.1) 34.2 (4.5) (14.6) (7.8) Oxford Instruments plc Report and Financial Statements 2018 2017 2018 items 1 — — 3.3 3.3 — £m £m £m 0.9 3.1 4.0 (12.0) 0.3 0.3 0.5 (0.6) (3.9) (4.5) (0.4) 46.3 (0.7) 80.2 7.5 9.1 (0.7) 80.0 7.5 9.1 46.5 42.3 32.2 (12.6) 19.6 31.8 33.7 65.5 56.3 34.3 55.6 114.5 56.1 34.1 55.4 114.1 pence pence pence pence (23.4) (53.9) (40.6) (28.8) (28.5) (12.1) (10.1) 150.9 296.9 (146.0) Adjusted
8 5 6 9 7 2 2 25 13 14 14 Notes
Adjusting
paid proposed exchange services
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. stated to give a better understanding of the underlying business Adjusted numbers are
Foreign Foreign Operating profit/(loss) Other financial income Financial income charge on pension scheme net liabilities Interest Research and Development Research Selling and marketing Administration and shared net of tax of associate, of profit/(loss) Share Other operating income Other financial expenditure Financial expenditure income tax before Profit/(loss) continuing operations from Income tax (expense)/credit profit Gross for the year from Profit/(loss) continuing operations operations after tax discontinued from (Loss)/profit for the year attributable Profit/(loss) of the parent to equity Shareholders operations discontinued From for the year profit/(loss) From Diluted earnings per share operations continuing From operations discontinued From for the year profit/(loss) From Dividends per share Dividends Dividends 1. in the Income Statement to include the change in fair value derivatives in operating amended the presentation the Group year, During the current to be consistent with this change and, as a re-presented Prior year comparatives have been expenses rather than financial income or expenditure. after tax in either period. is no impact on profit exchange line. There has now been included on the foreign £1.2 million result, The attached notes form part of the Financial Statements. Earnings per share Basic earnings per share continuing operations From
Cost of sales Revenue 3
year ended year March 2018 31 Consolidated Statement of Income Income of Statement Consolidated Consolidated Statement of Comprehensive Income year ended 31 March 2018
2018 2017 Notes £m £m Profit/(loss) for the year 65.5 (20.3) Other comprehensive income/(expense): Items that may be reclassified subsequently to profit or loss Gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled — 0.1 Foreign exchange translation differences (8.8) 18.8 Net cumulative foreign exchange gain on disposal of subsidiaries recycled to the Income Statement (4.8) (5.7) Items that will not be reclassified subsequently to profit or loss Remeasurement gain in respect of post-retirement benefits 25 2.2 4.4 Tax on items that will not be reclassified to profit or loss 13 (0.9) (0.9) Total other comprehensive (expense)/income (12.3) 16.7 Total comprehensive income/(expense) for the year attributable to equity Shareholders of the parent 53.2 (3.6)
92 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
93 £m £m 1.4 3.6 4.1 3.9 2.5 4.2 2.4 0.6 2.9 2.9 0.2 0.2 9.2 22.8 1.0 6.9 1.7 — 6.1 5.6 6.2 6.5 0.4 5.0 2018 2017 22.8 32.5 13.4 26.0 45.9 53.9 73.3 81.1 20.7 27.2 61.7 61.5 39.4 129.6 15.3 25.1 62.5 160.3 85.5 93.0 10.0 9.8 158.7 181.0 200.4 247.0 144.8 167.0 345.2 414.0 105.6 45.1 179.6 132.5 103.1 121.2 165.6 281.5 345.2 414.0 6 15 16 19 17 18 19 22 23 24 25 24 26 27 17 22 27 Notes Oxford Instruments plc Report and Financial Statements 2018 Gavin Hill
775598 recoverable payables equipment instruments instruments obligations receivables payables tax tax overdrafts overdrafts and equivalents associate assets liabilities in benefit and and reserve receivables assets other other financial financial
cash plant earnings tax tax income income reserves capital premium and and and loans loans
Assets assets Non-current Property,
as at 31 March 2018 as at 31 Consolidated Statement of Financial Position Position Financial of Statement Consolidated Intangible Deferred Investment Long-term assets Current Inventories Trade Trade Current Current assets Total Equity equity Shareholders attributable to the Company’s Capital and reserves Share Derivative Cash Share Share Other Translation Retained Trade Liabilities liabilities Non-current Bank Retirement Provisions Deferred liabilities Current Bank Current Derivative Provisions Ian Barkshire Ian Barkshire liabilities Total liabilities and equity Total on its behalf by: on 12 June 2018 and signed of Directors by the Board approved The Financial Statements were Director Director Company number: Consolidated Statement of Changes in Equity
Foreign Share exchange Share premium Other translation Retained capital account reserves reserve earnings Total Year ended 31 March 2018 £m £m £m £m £m £m Balance at 1 April 2017 2.9 61.5 0.2 22.8 45.1 132.5 Total comprehensive income/(expense): Profit for the year — — — — 65.5 65.5 Other comprehensive income: – Foreign exchange translation differences — — — (8.8) — (8.8) – Net foreign exchange gain on disposal of subsidiaries recycled to the Income Statement — — — (4.8) — (4.8) – Remeasurement gain in respect of post-retirement benefits — — — — 2.2 2.2 – Tax on items recognised directly in other comprehensive income — — — — (0.9) (0.9) Total comprehensive income/(expense) attributable to equity Shareholders of the parent — — — (13.6) 66.8 53.2 Transactions with owners recorded directly in equity: – Proceeds from issue of shares — 0.2 — — — 0.2 – Charge in respect of employee service costs settled by award of share options — — — — 1.1 1.1 – Dividends paid — — — — (7.4) (7.4) Total transactions with owners recorded directly in equity — 0.2 — — (6.3) (6.1) Balance at 31 March 2018 2.9 61.7 0.2 9.2 105.6 179.6
94 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
95 0.1 4.4 0.5 Total Total (5.7) (3.6) (0.9) (7.4) (6.9) 18.8 (20.3) 143.0 132.5 — — — 4.4 0.5 (0.9) (6.9) (7.4) 68.8 (20.3) (16.8) earnings Retained — — (5.7) 18.8 13.1 reserve Foreign exchange translation — — — 0.1 0.2 22.8 45.1 0.1 Other reserves
— — — — Share 9.7 61.5 0.1 Oxford Instruments plc Report and Financial Statements 2018 account premium — — — — 2.9 61.5 Share capital
income — — — — — — — — benefits £m £m £m £m £m £m 2017 year — — — — paid — — — — March March the 31 comprehensive comprehensive for ended
Net foreign exchange loss on disposal of exchange loss on disposal Net foreign Income Statement subsidiaries taken to the Loss on effective portion of changes in fair value of Loss on effective cash flow hedges, net of amounts recycled Remeasurement gain in respect of gain in respect Remeasurement post-retirement Tax on items recognised directly in directly on items recognised Tax other Charge in respect of employee service costs settled Charge in respect options of share by award Dividends
Year Year 2.9 Balance at 1 April 2016 income/(expense): comprehensive Total Profit – Other comprehensive income: Other comprehensive exchange translation differences – Foreign – – – — — income/(expense) attributable comprehensive Total of the parent to equity Shareholders in equity: directly with owners recorded Transactions – with owners transactions Total in equity directly recorded — — — — 2017 Balance at 31 March – and then cancelled during the repurchased the nominal value of shares which represents reserve, comprise the capital redemption Other reserves portion of changes in value of commodity contracts. of the effective in respect 1999, and the hedging reserve year ended 31 March the translation of the Group’s arising since 1 April 2004 from exchange differences comprises all foreign exchange translation reserve The foreign subsidiaries into Sterling. net investments in foreign retained within is included in an employee benefit trust. The cost of these shares holds 183,145 (2017: 183,145) of its own shares The Group the trust during the year. held by earnings. was no movement in the shares There Consolidated Statement of Cash Flows year ended 31 March 2018
2018 2017 £m £m Profit/(loss) for the year 65.5 (20.3) Profit for the year from discontinued operations (Note 7) (45.9) (5.2) Profit/(loss) for the year from continuing operations 19.6 (25.5) Adjustments for: Income tax expense/(credit) 14.6 (0.7) Net financial expense 4.2 6.7 Fair value movement on financial derivatives (3.1) (1.2) Acquisition related costs — 0.3 Restructuring costs 1.2 0.4 Restructuring costs – relating to associate 0.4 0.4 One-off impairment of capitalised development costs — 0.7 Loss on disposal of subsidiary — 0.4 Net profit on disposal of buildings (3.3) — Share of impairment recognised by associate 2.0 — Impairment of investment in associate — 8.0 Amortisation and impairment of acquired intangibles 10.9 46.3 Impairment of capitalised intangible software costs — 2.2 Depreciation of property, plant and equipment 4.7 5.1 Amortisation and impairment of capitalised development costs 4.4 3.8 Adjusted earnings before interest, tax, depreciation and amortisation 55.6 46.9 Loss on disposal of property, plant and equipment 0.3 0.5 Cost of equity settled employee share schemes 1.1 0.5 Share of (profit)/loss from associate (0.5) 0.8 Restructuring costs paid (1.3) (1.1) Foreign currency loss on intra-Group dividends — (0.8) Cash payments to the pension scheme more than the charge to operating profit (7.9) (6.9) Operating cash flows before movements in working capital 47.3 39.9 Increase in inventories (4.5) (1.7) Increase in receivables (14.4) (1.1) Increase/(decrease) in payables and provisions 2.8 (2.5) Increase in customer deposits 2.9 0.9 Purchase of rental assets held for subsequent sale (0.7) (1.0) Cash generated from continuing operations 33.4 34.5 Interest paid (2.1) (5.0) Income taxes paid (3.8) (2.1) Net cash from operating activities – continuing operations 27.5 27.4 Net cash from operating activities – discontinued operations 3.0 6.1 Net cash flow from operating activities 30.5 33.5
96 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
97 — (9.8) — (2.5) £m £m £m £m 9.3 — 0.9 — 0.2 — 2018 2017 2018 2017 (4.8) 4.2 (1.0) 1.9 (5.8) 6.1 (1.0) — (0.4) — (4.3) (3.0) (0.5) (0.1) (5.8) (5.9) (2.1) — (4.8) 4.2 (1.0) 1.9 (7.4) (7.4) 96.8 12.8 89.6 18.9 71.2 12.2 68.7 (6.6) 68.7 (9.1) 26.5 20.4 20.7 26.5 (19.7) (109.3) (96.8) (12.8) (109.3) (128.2) (104.0) (20.2)
Oxford Instruments plc Report and Financial Statements 2018
fees
expenditure associate assets issuance in receivables prepaid prepaid intangible of long-term borrowings of development investment paid in in interest in
Effect of foreign exchange rate changes on cash and cash equivalents exchange of foreign Effect in debt decrease Cash outflow from Accrued Amortisation Movement in net debt in the year Net debt at start of the year Net debt at the end of the year and cash equivalents in cash (Decrease)/increase Reconciliation of changes in cash and cash equivalents to movement in net debt Reconciliation of changes in cash and investing activities Cash flows from plant and equipment sale of property, from Proceeds net of cash acquired Acquisition of subsidiaries, plant and equipment Acquisition of property, Acquisition of businesses Net cash flow on disposal Capitalised Increase Decrease in) investing activities – continuing operations Net cash generated from/(used operations Net cash used in investing activities – discontinued in) investing activities Net cash generated from/(used financing activities Cash flows from capital issue of share from Proceeds Decrease Cash and cash equivalents at beginning of the year Cash and cash equivalents at beginning of the of exchange rate fluctuations on cash held Effect Cash and cash equivalents at end of the year Net (decrease)/increase in cash and cash equivalents in cash Net (decrease)/increase Dividends Net cash used in financing activities Accounting Policies
Oxford Instruments plc (the “Company”) is (a) New accounting standards Measurement of defined a company incorporated and domiciled in The following standards and interpretations benefit scheme liabilities the UK. are applicable to the Group and have been The Group recognises and measures costs The Group Financial Statements have been adopted as they are mandatory for the year relating to defined benefit pension schemes prepared and approved by the Directors ended 31 March 2018: in accordance with IAS 19 (Revised) Employee Benefits. In applying IAS 19 (Revised) the costs in accordance with International Financial • Amendments to IAS 7 Cash Flow are assessed in accordance with the advice of Reporting Standards as adopted by the EU Statements; and (“Adopted IFRS”). The Company has elected independent qualified actuaries. This requires • Amendments to IAS 12 Income Taxes. to prepare its Parent Company Financial certain estimates and assumptions in Statements in accordance with FRS 101; (b) Significant estimates relation to future changes in salaries and inflation, as well as mortality rates, expected these are presented on pages 134 to 144. and judgements returns on plan assets and the selection of The preparation of Financial Statements The accounting policies set out below suitable discount rates. The factors affecting requires management to make judgements, have, unless otherwise stated, been applied these assumptions are influenced by wider estimates and assumptions that affect the consistently to all periods presented in these macro‑economic factors that are largely application of accounting policies and the Group Financial Statements. outside of the Group’s control. A sensitivity reported amounts of assets, liabilities, income The Financial Statements have been prepared analysis is set out in Note 25. and expenses. Actual results may differ from on a going concern basis based on the these estimates. Provisions for IP-related claims Directors’ opinion, after making reasonable Provisions for IP-related claims are recognised enquiries, that the Group has adequate Significant judgements in the period when it becomes probable resources to continue in operational existence Revenue recognition that there will be a future outflow of for the foreseeable future. Revenue is recognised when, in the opinion of funds resulting from past expectations or the Group, the significant risks and rewards The Group’s business activities, together events which can be reasonably estimated. of ownership have transferred to the buyer. with the factors likely to affect its future The timing of recognition requires the The complex technical nature of the Group’s development, performance and position, application of judgement to existing facts and products, particularly in the Materials & are set out in the Strategy section on pages circumstances which can be subject to change. Characterisation and Research & Discovery 16 to 17. The financial position of the Group, Amounts provided represent the Group’s segments, means that the application its cash flows, liquidity position and borrowing best estimate of exposure based on currently of judgement is required in determining facilities are described in the Finance Review available information. on pages 28 to 34. whether those risks and rewards have passed by assessing a number of factors, notably Key assumptions surrounding estimation The relatively diverse nature of the Group whether shipping terms have been met and uncertainty relate to estimating potential together with its current financial strength the complexity of any installation element of royalty or profit sharing rates surrounding provides a solid foundation. The Directors the sale. any product-related intellectual property have reviewed the Group’s forecasts and claims (see Note 27). flexed them to incorporate a number of Significant estimates potential scenarios relating to changes in Revisions to accounting estimates are Taxation trading performance and believe that the recognised in the period in which the estimate Significant estimation is required in Group will be able to operate within its is revised if the revision affects only that period determining the provision for taxes as the tax existing debt facilities which expire between or in the period of the revision and future treatment is often by its nature complex, and February 2020 and March 2021. This review periods if the revision affects both current and cannot be finally determined until a formal also considered hedging arrangements in future periods. The key areas where estimates resolution has been reached with the relevant place. As a consequence, the Directors believe have been used and assumptions applied are tax authority, which may take several years that the Group is well placed to manage its as follows. to conclude. Amounts provided are accrued business risks successfully. Further information based on management’s interpretation of can be found in the Viability Statement on country-specific tax laws and the likelihood page 38. of settlement. Where necessary, management will seek external professional advice. Actual The Financial Statements were authorised for liabilities could differ from the amount issuance on 12 June 2018. provided, which could have a consequent adverse impact on the results and net position of the Group. Further detail is provided in Note 13.
98 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 99 Changes in the fair value of the derivative Changes in the fair value as cash flow hedging instruments designated in equity to the extent recognised hedges are the extent that To that the hedge is effective. fair value changes in the hedge is ineffective, in the Consolidated Statement recognised are instrument of Income. If the hedging for hedge no longer meets the criteria or is sold, terminated accounting, expires is then hedge accounting or exercised, The cumulative discontinued prospectively. in equity recognised gain or loss previously transaction until the forecast there remains occurs. When the hedged item is a recognised in non‑financial asset, the amount to the carrying amount of equity is transferred In other cases the asset when it is recognised. in equity is transferred the amount recognised to the Consolidated Statement of Income in the same period that the hedged item affects or loss. profit rate swaps is based The fair value of interest tested quotes. Those quotes are on broker by discounting estimated for reasonableness cash flows based on the terms and future maturity of each contract and using market rates for a similar instrument at the interest date. measurement exchange contracts The fair value of forward is their market price at the Consolidated Statement of Financial Position date, being price. The value of the forward the present to fair value gain or loss on remeasurement contracts is recognised exchange of forward immediately in the Consolidated Statement of Income. consideration is Contingent purchase value at the date of at fair measured acquisition and subsequently carried at fair in the value, with movements recognised Income Statement. recognised are borrowings Interest-bearing initially at fair value less attributable transaction costs. Subsequent to initial are borrowings interest-bearing recognition, stated at amortised cost with any difference value being between cost and redemption or loss over the period of in profit recognised basis. interest on an effective the borrowing Oxford Instruments plc Report and Financial Statements 2018 The assets and liabilities of foreign operations, of foreign The assets and liabilities fair value adjustments including goodwill and into translated are arising on consolidation, ruling at the end of Sterling at exchange rates and period. Income statements the reporting translated operations are cash flows of foreign monthly exchange into Sterling at average exchange foreign rates which approximate transaction. Foreign rates at the date of the arising on retranslation exchange differences the Statement of through recognised are Income. Comprehensive (e) Financial instruments recognised Financial assets and liabilities are Consolidated Statement of in the Group’s becomes Financial Position when the Group of the a party to the contractual provisions instrument. Derivative financial instruments of to its exposure used to hedge are the Group and commodity currency rate, foreign interest operational, pricing risks arising from financing and investment activities. The hold or issue derivative does not Group financial instruments for trading purposes. at initially recognised All derivatives are fair value; attributable transaction costs or loss as incurred. in profit recognised are rate swaps, Derivatives comprising interest contracts and options and exchange foreign classified as “fair contracts are metal futures and loss” under IAS 39, profit value through unless designated as hedges. Subsequent to measured derivatives are initial recognition, at fair value and gains or losses on the recognised settlement of such derivatives are such derivatives in operating expenses. Where any exposure, year’s to the following relate the change in from gains or losses resulting as an adjusting item recognised fair value are in operating expenses. (d) Foreign currency (d) Foreign transactions in foreign An individual entity’s the foreign translated at are currencies exchange rate ruling at the date of the transaction. Monetary assets and liabilities at the currencies denominated in foreign at the foreign translated date are reporting exchange rate ruling at that date. Foreign on translation arising 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 translated using the exchange rate at the are date of the transaction. (c) Basis of preparation (c) Basis of preparation and consolidation in presented are The Financial Statements £0.1m and to the nearest Sterling, rounded historical cost basis except on the prepared are under the heading as described on page 99 “Financial instruments”. the Financial Statements include The Group and its Instruments plc accounts of Oxford to eliminate subsidiary companies adjusted 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 its investment with the investee and has from its through those returns the ability to affect power over the investee. In assessing control, currently potential voting rights that are taken into or convertible are exercisable of subsidiary companies account. The results included in the consolidated Financial 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. those entities in which the Associates are of the shares than 20% holds more Group and voting rights and has significant influence, over the financial and but not control, operating policies. financial information includes the The Group of the total comprehensive share Group’s income of the associate on an equity the date that significant accounted basis, from influence commences until the date that significant influence ceases. When the of losses exceeds its interest share Group’s carrying amount is in associate, the Group’s of further and recognition to £nil reduced losses is discontinued except to the extent that legal or constructive has incurred the Group obligations or made payments on behalf of an associate. Accounting Policies continued
(f) Property, plant and equipment Goodwill arising on acquisitions is stated at (h) Trade and other receivables Property, plant and equipment is stated at cost less any accumulated impairment losses Trade and other receivables are initially historical cost less provisions for impairment and allocated to cash generating units that are recognised at fair value and subsequently (see accounting policy l) and depreciation anticipated to benefit from the combination. stated at their amortised cost less appropriate which, with the exception of freehold land It is not amortised but is tested annually for allowances for amounts which are expected to which is not depreciated and rental assets impairment (see accounting policy l), or more be non-recoverable. (see below), is provided on a straight-line frequently when there is an indicator that the basis over each asset’s estimated economic unit may be impaired. (i) Inventories life. Depreciation is provided based on Inventories are stated at the lower of cost and (ii) Development costs historical cost less estimated residual value. net realisable value. Cost includes materials, Research and Development costs are charged The principal estimated economic lives used direct labour, an attributable proportion to the Consolidated Statement of Income in for this purpose are: of production overheads based on normal the year in which they are incurred unless operating capacity and all other expenditure • Freehold buildings, long development expenditure is applied to a incurred in acquiring the inventories and leasehold land and buildings 50 years plan or design for the production of new bringing them to their existing location and • Leasehold improvements Period or substantially improved products, in which condition. Net realisable value is the estimated (less than 50 years’ duration) of lease case they are capitalised. The criteria for selling price in the ordinary course of business, capitalisation include demonstration of • Furniture and fittings 10 years less the estimated costs of completion and the technical feasibility of completing a selling expenses. • Machinery and new intangible asset that will be available Provision is made for obsolete, slow-moving other equipment 5 to 10 years for sale and that the asset will generate and defective stock where appropriate in light • Computer equipment 4 years probable future economic benefits. Where of recent usage, expected future requirements, • Vehicles 4 years expenditure meets the criteria, development new product introduction plans and likely costs are capitalised and amortised through Fixed assets held for rental as part of the realisable values. the Consolidated Statement of Income over Group’s service business are depreciated using their useful economic lives. the reducing balance method at a rate of 3% (j) Cash and cash equivalents per month. (iii) Acquired intangible assets Cash and cash equivalents are carried in the Statement of Financial Position at Proceeds on disposal of rental assets which An intangible asset acquired with a subsidiary amortised cost. have been refurbished by the Group are undertaking is recognised as an intangible recorded as revenue with associated costs asset if it is separable from the acquired Cash and cash equivalents comprise cash recorded in cost of sales. Otherwise gains and business or arises from contractual or balances and call deposits and are carried losses on disposal of an item of property, plant legal rights, is expected to generate future at amortised cost. Bank overdrafts that are and equipment are determined by comparing economic benefits and its fair value can be repayable on demand and form an integral the proceeds from disposal with the carrying reliably measured. The asset is amortised part of the Group’s cash management are amount of property, plant and equipment and through the Consolidated Statement of included as a component of cash and cash are recognised in the Income Statement. Income over it useful economic life. equivalents for the purpose of the Statement of Cash Flows. (g) Intangible assets (iv) Amortisation (i) Goodwill Amortisation of intangible assets is charged to (k) Non-current assets the Consolidated Statement of Income on a All business combinations are accounted for held for sale systematic basis in proportion to the use of the by applying the acquisition method. Goodwill A non-current asset is classified as held for assets over their estimated useful economic represents amounts arising on acquisition of sale if its carrying amount will be recovered lives as follows: subsidiaries. In respect of business acquisitions principally through sale rather than through that have occurred since 31 March 2004, • Capitalised continuing use, it is available for immediate goodwill represents the difference between development costs 3 to 5 years sale and sale is highly probable within one year. the cost of the acquisition and the fair value of • Technology related Immediately before classification as held for the assets, liabilities and contingent liabilities acquired intangibles 5 to 12 years sale, the measurement of the assets is brought acquired. In respect of acquisitions prior to this • Customer related 6 months to up to date in accordance with applicable IFRS. date, goodwill is included on the basis of its acquired intangibles 15 years Then, on initial classification as held for sale, deemed cost, which represents the amount non-current assets are recognised at the lower • Development costs recorded under previous GAAP. of their carrying amount and fair value less acquired intangibles 10 years The Group expenses transaction costs costs to sell. • Software 10 years associated with its acquisitions and Impairment losses on initial classification as movements in liabilities relating to contingent held for sale are included in the Consolidated consideration within the Income Statement in Statement of Income, even when the asset conformity with IFRS 3. has previously been revalued. The same applies to gains and losses on subsequent remeasurement.
100 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 101 (o) Trade and other payables (o) Trade initially and other payables are Trade fair value and subsequently at their recognised stated at amortised cost. (p) Government grants at governments recognised are Grants from is a reasonable there their fair value where assurance that the grant will be received will comply with all attached and the Group conditions. to costs are Government grants relating in the Income and recognised deferred Statement over the period necessary to match intended to them with the costs they are to compensate. Government relating grants included plant and equipment are property, to credited liabilities and are in other current the Income Statement on a straight-line basis over the expected useful economic lives of the assets. related (n) Provisions in the Consolidated is recognised A provision Position when the Statement of Financial legal or constructive has a present Group and it is of a past event obligation as a result benefits that an outflow of economic probable to settle the obligation. will be required related for warranty and product A provision when the underlying liability is recognised for restructuring sold. A provision are products has approved when the Group is recognised plan and a detailed and formal restructuring has either commenced or the restructuring A provision has been announced publicly. when contracts is recognised for onerous the expected benefits to be derived by the lower than the a contract are from Group unavoidable cost of meeting its obligations for a claim under the contract. A provision or dispute is made when it is considered that an adverse outcome will probable occur and the amount of the loss can be estimated. reasonably the represent Contractual and other provisions best estimate of the cost of settling Directors’ taking Directors, the where obligations future advice received, into account professional likely than not that such assess that it is more may be successful. proceedings are is material, provisions If the effect determined by discounting the expected reflects rate that flows at a pre-tax cash future market assessments of the time value current the risks appropriate, of money and, where specific to the liabilities. Oxford Instruments plc Report and Financial Statements 2018 (iii) Share-based (iii) Share-based payment transactions option The fair value of equity settled share at grant date and measured is programmes charged to the Consolidated Statement increase of Income, with a corresponding on a straight-line basis over the in equity, 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 granted. the options were as an expense is The amount recognised the actual number of share adjusted to reflect is forfeiture options that vest, except where only due to market performance conditions not being met. The Group operates a number of defined operates a number of defined The Group contribution plans benefit and defined contributions to be made to which require funds. independent trustee-administered plans (i) Defined contribution to defined Obligations for contributions as recognised are contribution pension plans Statement of an expense in the Consolidated Income as incurred. (ii) Defined benefit plans of net obligation in respect The Group’s defined benefit pension plans is calculated separately for each plan by estimating the and benefit that current amount of future past employees have earned in return for their service in prior periods. That benefit is value and discounted to determine its present the fair value of any plan assets is deducted. The calculation is performed by a qualified method. unit credit actuary using the projected All actuarial gains and losses in calculating the in the recognised net obligation are Group’s Consolidated Statement of Comprehensive Income in the year. The charge to the Consolidated Statement service cost. the current of Income reflects expense or income is calculated The interest on the net defined benefit liability by applying the discount rate to the net defined and is included within benefit liability, or financial income financial expenditure in the Consolidated Statement of Income respectively. (m) Employee benefits (l) Impairment of (l) Impairment of assets non‑current tested for assets are All non-current or circumstances impairment whenever events value may be indicate that their carrying goodwill is subject Additionally, impaired. to an annual impairment review. testing assets For the purposes of impairment together into the smallest group grouped are cash flows from of assets that generates of largely independent 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 assessment of the market 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 amount, but only to the extent 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. Accounting Policies continued
(q) Interest-bearing borrowings (s) Income tax (t) Lease payments Interest-bearing borrowings are recognised Income tax on the profit or loss for the year Payments made under operating leases are initially at fair value less attributable comprises current and deferred tax. Income recognised in profit or loss on a straight‑line transaction costs. Subsequent to initial tax is recognised in profit or loss except to basis over the term of the lease. Lease recognition, interest-bearing borrowings are the extent that it relates to items recognised incentives received are recognised in the stated at amortised cost with any difference directly in equity, in which case it is recognised Income Statement as an integral part of between cost and redemption value being in equity. the total lease expense. recognised in the Income Statement over Current tax is the expected tax payable on the period of the borrowings on an effective (u) Segment reporting the taxable income for the year, using tax interest basis. An operating segment is a distinguishable rates enacted or substantively enacted at the component of the Group that engages in (r) Revenue reporting date, and any adjustment to tax business activities from which it may earn Revenue is recognised in the Consolidated payable in respect of previous years. revenues and incur expenses, including Statement of Income when the significant Deferred tax is recognised in respect of any revenues and expenses that relate risks and rewards of ownership have temporary differences between the carrying to transactions with any of the Group’s transferred to the buyer. This is generally amounts of assets and liabilities for financial other components. Operating components considered to be on dispatch for products reporting purposes and the amounts used for are combined into aggregated operating that have a low level of customisation, taxation purposes. The following temporary segments to the extent that they have are manufactured on a routine basis and differences are not provided for: the initial similar economic characteristics. Aggregated typically have no installation requirement. recognition of goodwill; the initial recognition operating segments’ operating results are In the Materials & Characterisation and of assets or liabilities that affect neither reviewed regularly by the Group’s Board of Research & Discovery segments, products accounting nor taxable profit; and differences Directors to make decisions about resources can be bespoke and customer contracts relating to investments in subsidiaries to the to be allocated to the segment and to more complex. As such, there are a number extent that they will probably not reverse in assess its performance, for which discrete of conditions which must be satisfied before the future. financial information is available. Segment revenue can be recognised. These can results that are reported to the Board include The amount of deferred tax provided is based include: legal; contractual ownership; passing items directly attributable to a segment as on the expected manner of realisation or internal quality control testing; dispatch from well as those that can be allocated on a settlement of the carrying amount of assets manufacturing sites; installation at customer reasonable basis. and liabilities, using tax rates enacted or sites; customer inspection both before and substantively enacted at the Statement of A reportable segment is an aggregated after installation; and/or, ultimately, customer Financial Position date. operating segment in respect of which acceptance. Given these conditions, a greater revenue or profit exceeds 10% of the Group degree of consideration is given as to whether A deferred tax asset is recognised only to the total. Discrete financial information is disclosed the terms of sale have been met and whether extent that it is probable that future taxable for each reportable segment. revenue can be recognised for each product. profits will be available against which the asset In the Service & Healthcare segment, revenue can be utilised. Deferred tax assets are reduced (v) Dividends for maintenance and support is recognised on to the extent that it is no longer probable that Interim and final dividends are recognised a pro-rata basis over the length of the contract the related tax benefit will be realised. as a liability when they are no longer at the period. Revenue relating to the rental of Additional income taxes that arise from discretion of the Company. machinery is recognised on a straight-line basis the distribution of dividends are recognised over the life of the lease. Where the Service at the same time as the liability to pay the (w) New standards and & Healthcare segment makes asset sales, related dividend. interpretations not yet adopted similar considerations as those set out for the The following standards and interpretations Materials & Characterisation and Research & are applicable to the Group but have not been Discovery segments are applied. For contracts adopted as they are not yet effective for the which combine the sale of goods and year ended 31 March 2018: provision of services, the contracts revenue is IFRS 9 Financial Instruments allocated across the individual components in Transition to IFRS 9 for the Group will take line with their relative value. Revenue excludes effect from 1 April 2018 with the half-year value added tax and similar sales-based taxes results for September 2018 being IFRS 9 and is stated before commission payable compliant, and the first Annual Report to agents. published in accordance with IFRS 9 being for the year ended 31 March 2019. There is no requirement to restate comparatives.
102 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 103 Management carried out a comprehensive a comprehensive Management carried out included scoping impact assessment which to identify different revenues the Group’s and performing sample streams revenue appropriate to determine the contract reviews under IFRS 15. treatment recognition revenue the across a consistent approach ensure To was supported centrally the exercise Group, to transition and setting the approach through tools and guidance. the appropriate providing a single performance Revenue is derived from the sale of goods or obligation which is either of services. the provision the sale of from Under IFRS 15, revenue to be not required the goods are goods, where when installed, will continue to be recognised legal title transfers to the customer on delivery. When the sale of goods is combined with depends recognition installation, revenue of the installation. Simple upon the nature those which the customer installations are as a separate obligation within the perceives overall contract to deliver goods, whereas those for which complex installations are the installation is an integral part of the delivery of the goods. Revenue will be for simple installations separately recognised the delivery of goods, and only when from For complex the installation has occurred. on the recognition installations, revenue until delivery of the goods will be deferred installation is complete. of services, the provision Revenue from including ongoing support, servicing and maintenance, will continue to be recognised in line with the delivery of the service. For contracts which combine sale of goods services, the contract’s of and provision to be allocated across will continue revenue the individual components in line with and accounted for as value the relative described above. Oxford Instruments plc Report and Financial Statements 2018 The new hedge accounting rules will align The new hedge accounting instruments the accounting for hedging risk closely with the Group’s more is still The Group management practices. it will be able assessing to what extent that derivative to hedge account such used to financial instruments currently rate exchange and interest hedge foreign at fair value through risk, and recorded or loss and in adjusting items, profit at fair value through will be recorded to income. Due other comprehensive volatility in the fair value of the inherent rate derivative and interest currency foreign contracts, it is not possible to reliably estimate the impact of the new hedge of results accounting rules on the future fully applied had the Group If the Group. 1 April 2017, hedge accounting from for the year profit the impact on reported 2018 would have been a ended 31 March of £3.1m, with a corresponding decrease £3.1m. of reserves in other increase • IFRS 15 Revenue from IFRS 15 Revenue from Contracts with Customers has adopted IFRS 15 Revenue The Group Contracts with Customers using the from which means approach, retrospective modified that the cumulative impact on adoption will earnings as of in retained be recognised for 1 April 2018 with the half-year results September 2018 being IFRS 15 compliant, and the first Annual Report published in with IFRS 15 being for the year accordance 2019. Comparatives will ended 31 March a single, IFRS 15 provides not be restated. principles-based, five-step model to be applied to all sales contracts, based on the transfer of of goods and services to customers, control the separate model for goods and it replaces and services of IAS 18 Revenue. The Group reviewed the classification the classification reviewed The Group of each of its financial and measurement instruments. Although the classification under IFRS 9, of instruments is altered in any changes to the this does not result the from apart approach measurement which is impairment of trade receivables, below. addressed The new impairment model for financial of the recognition assets requires based on expected impairment provisions losses rather than only incurred credit losses as is the case under IAS 39. credit will apply the simplified The Group as per to its trade receivables approach the scope exception in IFRS 9 in which all will loss allowances for trade receivables and at initial recognition be measured its life at an amount equal throughout losses. This is to lifetime expected credit of the Group’s consistent with the nature as they do not include trade receivables a significant financing component. Based on the assessments undertaken to date, does not expect a material the Group movement in the loss allowance for trade receivables. IFRS 9 addresses the classification, the classification, IFRS 9 addresses of financial and derecognition measurement a new impairment instruments, introduces and new rules for model for financial assets Financial IAS 39 hedge accounting. It replaces comprehensive Instruments guidance and to IFRS 7 Financial updates have been made 32 Financial and IAS Instruments: Disclosure Instruments: Presentation. performed by the The impact assessment of the classification included a review Group of financial instruments; and measurement the impairment of financial assets and the in the hedging policy which resulted Group following conclusions: • • Accounting Policies continued
(w) New standards and interpretations not yet adopted continued IFRS 15 Revenue from Contracts with Customers continued The overall impact on transition on 1 April 2018 for the Group is expected to be as follows: Decrease in Increase in retained deferred earnings income Segment £m £m Materials & Characterisation 0.1 0.8 Research & Discovery 8.8 21.0 Service & Healthcare — — Group 8.9 21.8
If the Group had applied IFRS 15 from 1 April 2017, the impact on reported revenue for the year ended 31 March 2018 would have been a decrease of £7.8m.
IFRS 16 Leases The impact of IFRS 16 will be to recognise The table below summarises the effect that Transition to IFRS 16 for the Group will take a lease liability and a corresponding asset IFRS 15 and IFRS 16 would have had on the effect from 1 April 2018 with the half-year in the Statement of Financial Position for Group Statement of Income if they had been results for September 2018 being IFRS 16 leases currently classified as operating leases. applied for the year to 31 March 2018: compliant, with the first Annual Report The most significant impact will be that the published in accordance with IFRS 16 being Group’s land, building and car leases will be for the year ended 31 March 2019. IFRS 16 recognised on the balance sheet. The overall provides a single model for lessees which impact on the Group Statement of Financial recognises a right of use asset and lease Position on transition on 1 April 2018 is liability for all leases which are longer than expected to be the recognition of a lease one year or which are not classified as liability and corresponding asset to the value low value. of £11.2m.
Operating Revenue profit £m £m As reported in the Group Statement of Income 296.9 35.3 Effect of IFRS 15 Revenue from Contracts with Customers (7.8) (3.6) Effect of IFRS 16 Leases — (0.2) 289.1 31.5
104 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— — 0.3 0.4 0.4 0.4 1.7 8.0 0.7 2.2 105 (1.2) 33.8 12.5 31.5 before before educed income tax 2017 — 0.2 (19.5) (26.2) (loss)/profit — 0.3 — 0.4 — — 33.8 — 8.0 — 0.7 — 2.2 1.2 0.4 0.4 0.4 2.0 — (3.3) — (1.7) 1.5 (3.1) (1.2) 34.2 10.9 12.5 42.3 38.0 32.2 23.7 (10.1) (7.8) 23.9% 24.8% income tax
2018 — — — — — — — £m £m £m £m 1.2 0.4 2.0 (3.3) (1.7) (3.1) 38.4 10.9 46.5 profit Operating Operating before
Oxford Instruments plc Report and Financial Statements 2018
Profit (Loss)/profit
items rate costs tax costs related related effective effective reorganisation reorganisation taxation of
Acquisition Statutory measure from continuing operations continuing from Statutory measure Reconciliation between profit before income tax and adjusted profit from continuing operations from continuing income tax and adjusted profit before profit Reconciliation between 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, assets to adjusted and equipment and amortisation of intangible plant of property, by adding back depreciation Adjusted EBITDA is calculated Note 2. Adjusted Calculation of adjusted EPS can be found in in the Consolidated Statement of Cash Flows. and can be found operating profit of cash tax. Definitions before profit tax by adjusted before of tax attributable to adjusted profit the share tax rate is calculated by dividing effective set out in the KPI section. on capital employed are conversion and return Restructuring to associate Restructuring costs – relating Loss on disposal of subsidiary on disposal of buildings Net profit of contingent consideration Unwind of discount in respect accruals and acquisition related Business intangibles Impairment of acquired Impairment of investment in associate by associate of impairment recognised Share Impairment of capitalised development costs costs Impairment of capitalised software intangibles Amortisation of acquired of derivative financial instruments Mark-to-market gain in respect Share year ended year March 2018 31 Notes to the Financial Statements Statements Financial the to Notes operations continuing from Adjusted measure Acquisition related costs comprise professional fees incurred in relation to mergers and acquisitions activity and any consideration which, under to mergers and acquisitions activity and any consideration which, under in relation fees incurred costs comprise professional Acquisition related as a post-acquisition employment expense. falls to be treated IFRS 3 (revised), to a defend a legal claim relating business and include £0.5m to successfully to our US Healthcare Restructuring costs of £1.2m primarily relate prior acquisition. in 2016. business to the disposal of its Omicron £0.4m relating settled various claims totalling During the prior year the Group plant held under property, following the disposal of two buildings previously during the year, on disposal of £3.3m a net profit recorded The Group balance sheet position is shown in Note 16. of the disposal on the Group’s and equipment. The effect The Group’s subsidiary. to the disposal of its Vacgen an impairment relating equity accounted associate recognised During the year the Group’s was £2.0m. of this impairment share and the unwind of discounts in intangible assets and goodwill of acquired excludes the non-cash amortisation and impairment Adjusted profit of capitalised development costs would not normally to business combinations. Impairments in respect consideration relating of contingent respect completely cancelled as was may be; for example, in the prior year a project they items although in certain circumstances as adjusting be treated plan. part of a wider restructuring the year the tax rate in the United States r Adjusting items include the income tax on each of the items described above. In addition, during of taxation the calculation of share excluded from tax asset by £5.4m. This has been the deferred this has reduced As a result, 35% to 21%. from tax. before attributable to adjusted profit Adjusted Adjusted profit for the year from continuing operations for the year from Adjusted profit Notes to the Financial Statements continued year ended 31 March 2018
1 Non-GAAP measures continued Reconciliation between profit before income tax and adjusted profit from continuing operations continued During the prior year the Group recognised the following impairments: • £8.0m relating to its equity accounted associate investment. See Note 6 for further details. • £0.7m concerning capitalised development costs that related to a specific internal systems project that was stopped as the Group focused and directed resources so as to accelerate key projects. • £2.2m relating to capitalised software costs, following a reassessment of the future value expected to be derived from internally developed software. The Group reports ineffectiveness of its hedging as an adjusting item. In the prior year this included losses on certain contracts relating to the hedging of the Japanese Yen which were not required for ordinary trading and which were re-allocated for use against the remittance of net income of the Group’s Japan operations. Additionally, under IAS 39, 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 IAS 39 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. 2 Earnings per share Basic and diluted EPS from continuing operations are based on the result for the year from continuing operations, as reported in the Group Income Statement. Basic and diluted EPS from total operations are based on the result for the year attributable to equity Shareholders of the parent. Adjusted and diluted adjusted EPS are based on adjusted profit for the year from continuing operations. The profit measures noted above are divided by the weighted average number of ordinary shares outstanding during the year, excluding shares held by the Employee Share Ownership Trust. The table below reconciles these different profit measures. Continuing Discontinued 2018 Continuing Discontinued 2017 operations operations total operations operations total £m £m £m £m £m £m Profit/(loss) for the year attributable to equity Shareholders of the parent 19.6 45.9 65.5 (25.5) 5.2 (20.3) Adjusting items: Non-recurring and acquisition related items (1.7) 1.7 Impairment of acquired intangibles — 33.8 Impairment of investment in associate — 8.0 Share of impairment recognised by associate 2.0 — Impairment of capitalised development costs — 0.7 Impairment of capitalised software costs — 2.2 Amortisation of acquired intangibles 10.9 12.5 Mark-to-market gain in respect of derivative financial instruments (3.1) (1.2) Income tax charge/(credit) 4.5 (8.5) Adjusted profit for the year from continuing operations 32.2 23.7
The weighted average number of shares used in the calculation excludes shares held by the Employee Share Ownership Trust, as follows: 2018 2017 Shares Shares million million Weighted average number of shares outstanding 57.4 57.3 Less shares held by Employee Share Ownership Trust (0.2) (0.2) Weighted average number of shares used in calculation of basic earnings per share 57.2 57.1
The following table shows the effect of share options on the calculation of diluted earnings per share: 2018 2017 Shares Shares million million Weighted average number of ordinary shares per basic earnings per share calculations 57.2 57.1 Effect of shares under option 0.2 0.1 Weighted average number of ordinary shares per diluted earnings per share calculations 57.4 57.2
106 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
£m 107 Total Total Total Total 38.0 296.9 300.2
& — — £m 69.3 66.8 66.8 69.3 12.0 Service Service & Healthcare & £m 0.1 13.8 125.2 125.3 Discovery Discovery Healthcare Research Research Research & Research & — 0.1 — £m £m £m £m £m 20.1 13.8 12.6 46.5 12.2 105.7 118.1 112.0 118.1 112.1 105.7 Materials Materials & Characterisation Characterisation
Oxford Instruments plc Report and Financial Statements 2018
revenue revenue revenue revenue revenue revenue segment segment segment pricing is determined on an arm’s length basis. The operating results of each are regularly reviewed by the Chief Operating Decision reviewed regularly of each are length basis. The operating results ‑segment pricing is determined on an arm’s
the Materials & Characterisation segment comprises a group of businesses focusing on applied R&D and commercial customers, enabling the and commercial of businesses focusing on applied R&D a group the Materials & Characterisation segment comprises devices down to the atomic scale; fabrication and characterisation of materials and and enable unique environments advanced solutions that create of businesses providing & Discovery segment comprises a group the Research and used in fundamental research; are down to the molecular and atomic level which measurements of third-party service, sale and rental and the products for the Group’s customer service and support segment provides the Service & Healthcare systems. imaging healthcare Year to 31 March 2018 to 31 March Year Results from continuing operations continuing Results from continuing operations (re-presented) Results from 2017 to 31 March Year External
External Inter-segment Total Inter-segment Total a) Analysis by business Maker, which is deemed to be the Board of Directors. Discrete financial information is available for each segment and used by the Board of used by the Board financial information is available for each segment and Discrete of Directors. which is deemed to be the Board Maker, not below as this information is is presented allocation and to assess performance. No asset information for decisions on resource Directors of Directors. Board Group’s to the in reporting presented 3 Segment information operating segments to the aggregated into three These operating segments have been combined has ten operating segments. The Group methods of sale and services, type and class of customer, and products to economic characteristics, with relevance extent that they have similar segment. is a reportable operating segments aggregated which they operate. Each of these three in environment distribution and the regulatory a under reports now of the Horizon strategy in 2017, the Group of the Industrial Analysis business and the introduction Following the disposal as follows: are operating segments The aggregated segment structure. revised • • • operating aggregated the three been amended to differentiate reporting systems have and financial internal management structure The Group’s due to the change in the discussed above. Prior year comparatives have been re-presented segments on the basis of the economic characteristics segment structure. Group’s basis. as well as those which can be allocated on a reasonable attributable to a segment include items directly Reportable segment results Inter For the purposes of calculating diluted and diluted adjusted EPS, the weighted average number of ordinary shares is adjusted to include the is adjusted to include shares weighted average number of ordinary diluted and diluted adjusted EPS, the For the purposes of calculating expected to vest, shares dilutive ordinary would be issued on the conversion of all potentially that shares of ordinary weighted average number their conversion to ordinary as dilutive when only treated are shares ordinary payment plans. Potential share-based to the Company’s relating loss per share. EPS, or increase would decrease shares continuing operations from Segment adjusted operating profit continuing operations from Segment adjusted operating profit & Discovery segment. reported within the Research associate is the Group’s after tax of £0.5m (2017: £0.8m) from The adjusted profit Revenue in the Service the sale of products. & Discovery segments represents Revenue in the Materials & Characterisation and Research to service income, with the exception of leasing of mobile MRIs of £6.1m (2017: £9.0m) and equipment sales of segment relates & Healthcare £3.3m (2017: £5.6m). Notes to the Financial Statements continued year ended 31 March 2018
3 Segment information continued a) Analysis by business continued Reconciliation of reportable segment profit Materials & Research & Service & Unallocated Characterisation Discovery Healthcare Group items Total Year to 31 March 2018 £m £m £m £m £m Adjusted profit for reportable segments from continuing operations 20.1 13.8 12.6 — 46.5 Restructuring costs (0.3) — (0.9) — (1.2) Restructuring costs – relating to associate — (0.4) — — (0.4) Net profit on disposal of buildings — — — 3.3 3.3 Share of impairment recognised by associate — (2.0) — — (2.0) Amortisation of acquired intangibles (2.5) (7.3) (1.1) — (10.9) Fair value movement on financial derivatives — — — 3.1 3.1 Financial income — — — 0.3 0.3 Financial expenditure — — — (4.5) (4.5) Profit before income tax on continuing operations 17.3 4.1 10.6 2.2 34.2
Materials & Research & Service & Unallocated Characterisation Discovery Healthcare Group items Total Year to 31 March 2017 (re-presented) £m £m £m £m £m Adjusted profit for reportable segments from continuing operations 12.2 13.8 12.0 — 38.0 Acquisition related costs — (0.3) — — (0.3) Restructuring costs — — (0.4) — (0.4) Restructuring costs – relating to associate — (0.4) — — (0.4) Impairment of capitalised development costs (0.7) — — — (0.7) Loss on disposal of subsidiary — (0.4) — — (0.4) Impairment of investment in associate — (8.0) — — (8.0) Impairment of capitalised software costs — — — (2.2) (2.2) Amortisation of acquired intangibles (2.9) (7.7) (1.9) — (12.5) Impairment of acquired intangibles (22.6) — (11.2) — (33.8) Fair value movement on financial derivatives — — — 1.2 1.2 Financial income — — — 0.2 0.2 Financial expenditure — — — (6.9) (6.9) Loss before income tax from continuing operations (14.0) (3.0) (1.5) (7.7) (26.2)
Depreciation, capital expenditure, amortisation and impairment of intangibles and capitalised development costs arise in the following segments: 2018 2017 (re-presented)
Capital Capital Depreciation expenditure Depreciation expenditure £m £m £m £m Materials & Characterisation 1.5 2.8 1.6 1.7 Research & Discovery 0.8 0.8 1.0 0.7 Service & Healthcare 1.8 1.0 1.9 1.4 Unallocated Group items 0.6 0.9 0.6 0.3 Total 4.7 5.5 5.1 4.1
2018 2017 (re-presented)
Amortisation Capitalised Amortisation Capitalised and development and development impairment costs impairment costs £m £m £m £m Materials & Characterisation 5.8 4.8 28.1 5.0 Research & Discovery 8.4 1.0 17.5 0.9 Service & Healthcare 1.1 — 13.2 — Unallocated Group items — — 2.2 — Total 15.3 5.8 61.0 5.9
108 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
0.2 109 Total Total (0.1) (4.5) 24.3 £m — — 90 — 0.1 £m £m £m 14 25 25 27 8.3 8.6 3.3 10.4 0.5 0.6 0.2 0.5 9.6 15.4 1.7 2.5 2018 2017 2018 2017 2018 2017 140 140 255 281 (1.9) 434 563 £’000 £’000 89.5 97.1 35.9 35.4 35.8 32.6 18.1 15.3 34.9 33.9 49.6 53.6 24.8 23.7 11.3 10.3 296.9 300.2 160.4 181.2 187.0 221.0 Discovery Research & Research
Materials &
Characterisation Total 24.8 13.7 12.1 25.8
— (0.1) (0.1) 11.0 Oxford Instruments plc Report and Financial Statements 2018 Research & Research
— 0.1 0.1 0.1 0.1 £m £m £m £m £m £m 4.8 1.0 5.8 5.0 0.9 5.9 (0.1) (3.2) (1.2) (4.4) (2.6) 13.8 Materials & Characterisation Discovery 12.3 11.1 23.4 11.3 13.0
Statements services services Financial compliance these related related Europe Asia World Europe Asia World
of of of of of of of
Audit Taxation Taxation
– R&D expense charged to the Consolidated Statement of Income Amounts received by the auditor and its associates in respect of: by the auditor and its associates in respect Amounts received – Audit of Financial Statements of subsidiaries pursuant to legislation – 2017 2018 fixed assets of R&D related Less: depreciation Less: amortisation and impairment of R&D costs as intangibles capitalised previously 5 Research and Development (R&D) 5 Research is as follows: as part of continuing operations The total R&D spend by the Group Audit 4 Auditor’s remuneration 4 Auditor’s cash spent on R&D during the year Total UK Rest Rest UK tax) assets (excluding deferred Non-current Add: amounts capitalised as fixed assets Add: amounts capitalised as intangible assets USA Revenue from continuing operations from external customers by destination from continuing operations Revenue from b) Geographical analysis the world. and make sales to customers in countries across a number of geographical locations located across segments are reportable The Group’s than 5% more that represent or regions tax) for individual countries assets (excluding deferred and non-current revenue The analysis below shows of revenue. – Services related to corporate finance transactions – Services related fees paid to the auditor and its associates Total Japan China Germany Rest Total Germany USA Japan China Rest Rest Rest Total Notes to the Financial Statements continued year ended 31 March 2018
6 Investment in associate During the 2015/16 financial year, the Group entered into a strategic alliance with GD Intressenter AB of Sweden (GDI) to create the world’s largest company in the highly specialised ultra-high vacuum surface science field. The alliance comprised Oxford Instruments’ Omicron Nanotechnology GmbH (“Omicron”) and associated subsidiaries and GDI’s Scienta Scientific AB (“Scienta”) and associated subsidiaries. Scienta Scientific AB is registered and has its principal place of business in Sweden. In consideration for new shares in Scienta, Oxford Instruments transferred all of its shares in the capital of Omicron to Scienta. Oxford Instruments holds a 47% interest in the ordinary share capital of Scienta and GDI holds 53%. The investment has been accounted for as an associate taking into account the following factors: • the Group holds substantial, but minority, voting rights (47%). All other rights are controlled by a single shareholder; • the Group has a minority number of Non-Executive Board seats (two of five), with the remaining seats held by representatives of GDI; and • whilst the Group has certain veto rights in respect of certain decisions, it cannot unilaterally direct the activities of the Scienta Group. During the current year the Group invested a further £2.1m in its equity accounted associate. During the prior year the Group recognised an impairment charge of £8.0m in respect of its investment in Scienta and settled various claims totalling £0.4m relating to the disposal of its Omicron business in 2015/16. The Group’s share of loss in its equity accounted associate for the year was £1.9m (2017: £1.2m). The Group did not receive any dividends from the associate in either period. 2018 2017 £m £m Carrying value at 1 April 2017 3.9 13.1 Addition 2.1 — Share of loss of associate (net of tax) (1.9) (1.2) Impairment charge — (8.0) Dividends received — — Carrying value at 31 March 2018 4.1 3.9
During the prior year, the Group recognised an impairment charge of £8.0m relating to its investment in ScientaOmicron due to the associate’s financial performance for the year ended 31 December 2016 and lower projected cash flows. This resulted in a reassessment of ScientaOmicron’s expected future business performance and the actions and time required to improve profitability and operational efficiency. The £8.0m impairment was reported in the results of the Research & Discovery segment. As at 31 March 2017, the estimate of the recoverable amount of the Group’s investment in ScientaOmicron, being its value in use, was calculated as £3.9m. The pre-tax discount rate used to arrive at this estimate was 15.5%. No further impairment is considered to be required as at 31 March 2018. Summary financial information for the equity accounted associate is as follows: 2018 2017 £m £m Non-current assets 2.3 3.5 Current assets 23.7 25.0 Total assets 26.0 28.5 Current liabilities (12.1) (21.7) Non-current liabilities (9.2) (3.6) Total liabilities (21.3) (25.3) Net assets 4.7 3.2
Income 51.0 50.8 Expenses (55.0) (53.3) Loss for the year (4.0) (2.5) Group’s share of net assets 2.2 1.5 Group’s share of loss (1.9) (1.2)
According to the terms of the transaction, no dividend could be paid by the associate until 27 May 2017. Following that date, any dividend paid must be agreed by both Oxford Instruments plc and GD Intressenter AB, up to a maximum of 50% of the previous year’s profit after tax. At the date of signing these Financial Statements no dividend has been declared or paid.
110 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
111 — (1.0) — 1.0 £m £m 8.6 6.6 0.8 0.1 4.8 5.7 2018 2017 (0.1) — (4.7) — (4.3) — (2.4) (3.1) (9.8) (6.5) (6.0) (0.3) (0.4) — (6.0) (0.3) (5.6) (0.5) (2.1) (0.2) (2.3) 0.9 82.8 14.0 82.8 13.0 71.2 12.2 50.1 3.2 47.8 4.1 (11.5) (12.6) (29.8) (15.8) (23.8) (15.5) Analysis Wire Superconducting Industrial Superconducting
Oxford Instruments plc Report and Financial Statements 2018
cash in disposal
on satisfied
assets equipment assets receivables payables provision provision equivalents and of receivable received, received, of expenses other other cash intangible plant consideration consideration inflow intangible and and and disposed cash balances
Other Property, Discontinued operations 2017 Industrial Analysis business was classified as a discontinued operation; and in the year to 31 March 2018 the Group’s In the year to 31 March major classes of business on the basis considered Wire business was classified as a discontinued operation. They were Superconducting the Group’s Strategic Report. to in the Group operating segments and referred previously that they were Industrial Analysis business as a Group’s the classification of the to reflect The 2017 Financial Statements have been re-presented discontinued operation. Acquired Acquired Goodwill Effect of disposal on the financial position of the Group of disposal on the Effect 7 Disposal of subsidiary and discontinued operations 7 Disposal of subsidiary 2016, the Group consideration of £82.8m. On 17 November of its Industrial Analysis business for a final disposed On 3 July 2017, the Group Wire business for a final consideration of £14.0m. disposed of its Superconducting Inventory Trade Cash Trade Provisions Tax Net assets divested Consideration Deferred Cash Transaction Consideration Net cash and cash equivalents) Carrying value of net assets disposed of (excluding Deferred translation reserve from transferred translation differences Currency Gain on disposal on gain on disposal (charge)/credit Tax Gain on disposal net of tax in the Income Statement under lease contracts. These have been recognised to onerous on disposal primarily relate of provisions The recognition discontinued operations. Recognition Notes to the Financial Statements continued year ended 31 March 2018
7 Disposal of subsidiary and discontinued operations continued Discontinued operations continued Results of discontinued operations – year to 31 March 2018 Industrial Analysis £m Revenue 16.8 Expenses (16.3) Adjusted profit before tax 0.5 Income tax charge (0.9) Adjusted profit after tax (0.4) Adjusting items: Amortisation of acquired intangibles (0.1) On-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 50.1 Tax on gain on disposal (2.3) Profit from discontinued operations after tax 45.9
Results of discontinued operations – year to 31 March 2017 Industrial Superconducting Austin Analysis Wire Scientific Total £m £m £m £m Revenue 48.3 22.2 — 70.5 Expenses (43.8) (20.9) (0.2) (64.9) Adjusted profit/(loss) before tax 4.5 1.3 (0.2) 5.6 Income tax charge (0.9) (0.4) — (1.3) Adjusted profit/(loss) after tax 3.6 0.9 (0.2) 4.3 Adjusting items: Amortisation and impairment of acquired intangibles (2.4) — — (2.4) Acquisition related costs (1.2) — — (1.2) Restructuring costs (0.2) — — (0.2) Income tax on adjusting items 0.6 — — 0.6 Profit/(loss) after tax 0.4 0.9 (0.2) 1.1 Gain on disposal — 3.2 — 3.2 Tax on gain on disposal — 0.9 — 0.9 Profit/(loss) from discontinued operations after tax 0.4 5.0 (0.2) 5.2
Earnings per share from discontinued operations 2018 2017 pence pence Adjusted basic (loss)/earnings per share (0.7) 7.5 Adjusted diluted (loss)/earnings per share (0.7) 7.5 Total basic earnings per share 80.2 9.1 Total diluted earnings per share 80.0 9.1
Cash flows from discontinued operations 2018 2017 £m £m Net cash generated from operating activities 3.0 6.1 Net cash generated from/(used in) investing activities 71.2 (9.7) Net cash used in financing activities — —
112 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
113 — 0.2 £m £m £m £m £m £m 3.9 5.6 0.6 1.1 4.5 6.9 9.7 10.8 3.3 4.3 1.1 0.5 0.3 0.2 0.3 0.2 2018 2017 2018 2017 2018 2017 2018 2017 592 797 431 488 375 410 244 279 82.5 98.7 96.6 114.3 1,642 1,974 Number Number
Oxford Instruments plc Report and Financial Statements 2018
services employees of shared shared and costs Development number salaries marketing and payable receivable and security and average
Medium-Term Incentive Plan Scheme (MTIP) Medium-Term £nil. Options have a prices are made annually to certain senior managers. The exercise Incentive Plan are under the Medium-Term Options awarded years. life of ten years and a vesting period of three Options awarded under the Executive Share Option Scheme are made annually to certain senior managers. The exercise prices are determined prices are made annually to certain senior managers. The exercise Option Scheme are under the Executive Share Options awarded the date of grant. Options have a life of ten years and a vesting period of price on the day before to the mid-market closing share according years. three Executive Share Option Scheme (ESO) Executive Share All-employee Share Incentive Plan (SIP) All-employee Share Participating employees make a cash SIP. HM Revenue and Customs-approved eligible to participate in the Group’s All UK employees are contribution. Independent trustees employee’s contributes a further amount equal to 20% of the contribution to the plan each month. The Group vest on the completion by the participating in the market on behalf of the employees. The matching shares matching shares then purchase after five years’ service. the plan tax-free from years’ service and can be withdrawn employee of a further three 12 Share option schemes 12 Share option schemes: share three operates The Group Production 11 Employees year was as follows: and temporary employees) during the (including Directors Group The average number of people employed by the Sales Research Administration Total 10 Personnel costs Wages Interest 9 Financial expenditure Interest Interest 8 Financial income Interest charge on pension scheme net liabilities charge on pension scheme net Interest contingent consideration Unwind of discount on Social plans Contributions to defined contribution pension options of employee share Charge in respect 67 to 80 of this Report and Financial Statements. disclosed in the Remuneration Report on pages emoluments are Directors’ to discontinued operations. relating Included in the total above is £4.6m (2017: £21.4m)
Notes to the Financial Statements continued year ended 31 March 2018
12 Share option schemes continued Senior Executive Long-Term Incentive Scheme (SELTIS) Options awarded under the Senior Executive Long-Term Incentive Scheme are made annually to certain senior managers. The exercise prices are £nil. Options have a life of seven years and a vesting period of three years. The Executive Share Option Scheme, Medium-Term Incentive Plan Scheme and Senior Executive Long-Term Incentive Scheme are subject to performance conditions which can be found in the Remuneration Report on pages 67 to 80.
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). Administrative expenses include a charge of £1.1m (2017: £0.5m) 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. Half of the ESO options issued before 2009, half of the PSP options and all SELTIS 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 2018 and 2017, the fair value per option granted and the assumptions used in the calculation are as follows: Medium-Term Performance Executive Performance Executive Incentive Plan Share Plan Share Option Share Plan Share Option Scheme Scheme Scheme Scheme Scheme September September November June June 2017 2017 2016 2016 2016 Fair value at measurement date £3.38 £2.96 £2.02 £4.92 £2.54 Share price at grant date £9.59 £9.59 £6.23 £7.38 £7.38 Exercise price £nil £nil £6.23 £nil £7.38 Expected volatility 41.8% 48.6% 41.8% 36.9% 42.7% Expected option life (expressed as weighted average life used in the modelling) 6 years 3 years 6 years 3 years 6 years Expected dividend yield 1.4% 1.4% 2.1% 1.8% 1.8% Risk-free interest rate 0.9% 0.9% 0.7% 0.5% 0.9%
114 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— — — 115 0.0% 0.3% 1.8% 0.0% 6,000 8,339 of shares 15,500 15,500 11,000 82,675 36,000 of options 148,475 148,475 169,650 536,362 163,321 1,013,347 Number 2017 average Number £9.25 1,798,046 £7.91 1,177,322 £7.88 293,164 £3.69 347,796 £6.40 (574,883) £3.55 (17,005) £12.92 (376,632) exercise price exercise Period when exercisable
07/01/14 – 06/01/18 25/09/20 – 24/09/27 21/06/19 – 20/06/26 25/09/20 – 24/09/27 28/08/10 – 27/09/17 14/12/14 – 13/12/21 15/06/18 – 14/06/25 29/11/19 – 28/11/26 16/12/11 – 15/12/18 17/12/12 – 16/12/19 07/01/14 – 06/01/21 21/06/19 – 20/06/26 Number of options
2018 2017 2018 price £nil £nil £nil £nil £nil 233,395 £7.91 1,177,322 £7.69 1,217,155 £8.87 186,376 £9.35 (21,600) £4.37 (59,688) £9.49 (112,274) £2.32 £9.90 £6.27 £1.35 £2.04 £7.05 £7.38 average £10.28 Weighted Weighted exercise price exercise
— — — Oxford Instruments plc Report and Financial Statements 2018 0.0% 0.5% 1.5% 0.2% 7,500 3,500 Number Exercise 35,126 36,000 of shares 116,542 116,542 265,328 148,475 116,853 835,285 140,250 454,588 158,321
year year year year the the the the 2017 2017 2007 2016 2011 2008 2009 during during during 2011 2011 during 2016 2015 2016
The number and weighted average exercise prices of those options are as follows: prices of those options are The number and weighted average exercise Total options subsisting on existing ordinary shares held in trust shares on existing ordinary options subsisting Total capital of issued share Percentage Options subsisting at the year end on existing ordinary shares held in trust: shares ordinary Options subsisting at the year end on existing Incentive Scheme Senior Executive Long-Term January Percentage of issued share capital of issued share Percentage Medium-Term Incentive Plan Medium-Term September shares on existing ordinary options subsisting Total capital of issued share Percentage Plan Performance Share June shares on existing ordinary options subsisting Total Outstanding at the beginning of the period
Percentage of issued share capital of issued share Percentage September Granted Outstanding at the year end year end at the Exercisable of the options was £10.17 (2017: £7.75). price at the time of exercise The weighted average share Options subsisting at the year end on unissued ordinary shares: year end on unissued ordinary Options subsisting at the Option Schemes Executive Share September The options existing at the year end were as follows: the year end were The options existing at Forfeited Exercised Lapsed January December June June November shares on existing ordinary options subsisting Total December December Notes to the Financial Statements continued year ended 31 March 2018
13 Income tax expense Recognised in the Consolidated Statement of Income 2018 2017 £m £m Current tax expense Current year 7.3 6.2 Adjustment in respect of prior years (1.7) (2.2) 5.6 4.0 Deferred tax expense Origination and reversal of temporary differences 7.3 (5.6) Adjustment in respect of prior years 1.7 0.9 9.0 (4.7) Total tax expense/(credit) 14.6 (0.7) Reconciliation of effective tax rate Profit/(loss) before income tax 34.2 (26.2) Income tax using the weighted average statutory tax rate of 22% (2017: 22%) 7.5 (5.8) Effect of: Tax rates other than the weighted average statutory rate 0.3 (0.5) Change in rate at which deferred tax recognised 5.3 (0.2) Transaction costs, deferred consideration and impairments not deductible for tax 1.2 5.6 Non-taxable income and expenses — 1.4 Tax incentives not recognised in the Consolidated Statement of Income (0.7) (0.4) Current period losses not available for carry forward 0.4 — Movement in unrecognised deferred tax 0.6 0.6 Adjustment in respect of prior years — (1.4) Total tax expense/(credit) 14.6 (0.7) Taxation charge recognised in other comprehensive income Deferred tax – relating to employee benefits 0.9 0.9 0.9 0.9 Taxation charge recognised directly in equity Deferred tax – relating to share options — —
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 2018 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, deferred tax assets were reduced by £5.4m. The Group currently expects that on an ongoing basis the effective tax rate will be reduced by between 1% and 2% because of this rate reduction. The current tax liability payable includes a provision of £3.4m for uncertain tax positions. The liability includes an amount of £2.9m in respect of the Group’s financing structure. The range of possible outcomes is between £nil and £5.1m. It is possible that if the outcome is different to that estimated by management there could be a material effect on the Financial Statements in the next twelve months. In October 2017, the EU Commission opened a formal State Aid investigation into an exemption within the UK’s current Controlled Foreign Company (CFC) regime (introduced in 2013) for certain finance income. The investigation is ongoing, but if the Commission ultimately concludes that the provisions do constitute State Aid then they would require the UK to recover any such aid from affected parties. The Group has claimed the benefit of this exemption, and therefore may be adversely affected by the outcome of the investigation. If the Commission were to conclude that the finance exemption with the UK’s CFC regime constitutes State Aid and no other exemptions were available to the Group then, as at 31 March 2018, an additional liability of £1.7m in respect of tax and £0.1m in respect of interest would arise unless such a decision could be 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.
116 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
4.6 5.0 6.1 4.7 5.4 2.9 117 Total Total (7.1) (0.6) 92.1 91.3 56.9 58.8 91.3 58.8 35.2 32.5 (10.8) (23.9) (15.1) — 7.9 47.0 2.4 0.5 0.2 9.9 69.8 7.6 0.5 0.1 8.1 8.1 2.5 2.0 22.8 3.7 3.7 9.3 9.3 3.7 3.7 9.6 9.3 2018 2017 2018 2017 (0.1) (0.1) (1.0) 10.0 10.6 10.6 13.0 13.0 13.3 13.0 pence pence pence pence fittings Fixtures and Fixtures 3.8 3.7 4.9 2.1 (7.0) (1.0) 0.1 (1.4) 15.7 56.9 53.7 53.7 41.2 41.2 41.2 12.5 (10.7) Plant and equipment — (0.6) — — 4.7 34.4 0.3 1.5 0.1 4.5 0.4 8.1 0.7 0.7 9.5 9.5 0.5 3.8 0.4 9.9 10.9 (0.5) (0.5) (1.4) (0.1) (2.0) (4.8) (9.6) (0.7) 17.1 25.2 27.0 27.0 14.6 45.3 17.5 (12.0) (10.9) buildings Land and
Oxford Instruments plc Report and Financial Statements 2018
£m £m £m £m
dividend dividend interim final other other – 2016 – year year dividend dividend April
1
Transfer to intangibles Transfer exchange rates in foreign of movements Effect 2018 Balance at 31 March Carrying amounts At Additions Disposals 2017 Balance at 31 March Balance at 1 April 2017 Additions Disposals exchange rates of movements in foreign Effect 2018 Balance at 31 March and impairment losses Depreciation Balance at 1 April 2016 for the year charge Depreciation Disposals 2017 Balance at 31 March Balance at 1 April 2017 charge for the year Depreciation Disposals and 1 April 2017 2017 At 31 March 2018 At 31 March included £0.9m (2017: £0.3m) of assets under construction and 2018, the net book value of plant and equipment At 31 March £3.2m (2017: £4.6m) of assets subject to operating leases. to discontinued operations. £1.0m) relating charge for the year is £nil (2017: Included in the depreciation Cost Balance at 1 April 2016 15 Property, plant and equipment 15 Property, exchange rates of movements in foreign Effect exchange rates in foreign of movements Effect 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 9.6 pence per share for at the year end and was paid on 6 April 2018. The final proposed The interim dividend was not provided at the by the Shareholders at the year end and will be paid on 19 October 2018 subject to authorisation (2017: 9.3 pence) was not provided forthcoming Annual General Meeting. 14 Dividends per share 14 Dividends per the Group: paid by were per share The following dividends Notes to the Financial Statements continued year ended 31 March 2018
16 Intangible assets Customer Technology Development Development related 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 111.2 51.4 112.0 1.8 56.8 2.1 335.3 Additions – internally generated — — — — 7.8 0.1 7.9 Effect of movements in foreign exchange rates 3.3 5.2 6.5 — 1.7 — 16.7 Balance at 31 March 2017 114.5 56.6 118.5 1.8 66.3 2.2 359.9 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 Amortisation and impairment losses Balance at 1 April 2016 1.1 29.8 44.1 0.4 39.1 — 114.5 Amortisation charge for the year — 3.6 10.0 0.2 4.8 — 18.6 Impairment charge for the year 28.8 5.0 1.1 — 0.7 2.2 37.8 Effect of movements in foreign exchange rates 0.1 3.5 3.0 — 1.4 — 8.0 Balance at 31 March 2017 30.0 41.9 58.2 0.6 46.0 2.2 178.9 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
Carrying amounts At 1 April 2016 110.1 21.6 67.9 1.4 17.7 2.1 220.8 At 31 March 2017 and 1 April 2017 84.5 14.7 60.3 1.2 20.3 — 181.0 At 31 March 2018 80.3 11.3 49.9 1.1 15.1 1.0 158.7
The following intangible assets are considered material by the Directors as they represent 91% (2017: 88%) of total acquired intangible assets: 2018 2017
Remaining Amortisation amortisation period period £m Years Years £m Trademarks – Andor 8.7 15.0 10.8 9.7 Technology, know-how and patents – Andor: – Product related 33.1 12.0 7.8 37.6 – Software related 6.0 10.0 5.8 7.7 Technology, know-how and patents – Asylum 9.1 12.0 6.7 11.7
118 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
119 — 4.2 £m £m 6.8 6.7 2.3 2.3 2018 2017 10.0 9.9 61.2 61.4 80.3 84.5 Oxford Instruments plc Report and Financial Statements 2018
Resonance Analysis
£1.4m in respect of a development project which has experienced delays and cost overruns; and which has experienced delays of a development project £1.4m in respect of the sale of the Industrial Analysis division. result that was discontinued as a of a development project £1.8m in respect of the goodwill of the Asylum CGU; £22.6m in respect CGU; of the goodwill of the OI Healthcare £6.2m in respect on the acquisition of MIR in 2015; which arose of customer relationships £5.0m in respect development; of bespoke software £2.2m in respect and intangible which was superseded by a new product; acquired of a technology related £1.1m in respect so as to accelerate resources to focus and direct to allow the Group which was stopped in order of a development project £0.7m in respect key projects.
Materials & Characterisation NanoAnalysis Research & Discovery Research Andor NanoScience Magnetic Other Industrial 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 are used together with 3% per CGU, by the management of each prepared five-year cash flow forecasts, (except as noted below) Board-approved businesses. for the Group’s to be at or below long-term market trends considered for the subsequent 20 years. These rates are annum growth assets as follows: of intangible made impairments in respect During the year the Group • • original development timetable with costs in the Materials & Characterisation segment fell significantly behind the During the year an R&D project those early costs of no value and had brought some of the early work on the project management felt that being ahead of budget. On review, plan put in place. The remainder was undertaken and a remediation as an intangible asset. A review £1.4m have consequently been derecognised value. to have commercial is still considered of the project of the sale of the Industrial that was discontinued as a result project to an entire costs relate The £1.8m impairment of capitalised development & Development segment. held in the Research costs were capitalised development Analysis division. The impaired of intangible assets as follows: made impairments in respect During the prior year the Group • • • • • • below expectations. Asylum CGU deteriorated, with the business performing During the prior year the financial performance of the Group’s of the overall scanning in a contraction markets, resulting Performance was impacted by a slowdown in academic funding in US and European for the business and its financial projections revised launches. The Group market, compounded by delays in new product microscopy probe environment. in light of the trading planned launch dates for new products with business operating profit business also deteriorated in the US during the prior year, Healthcare The financial performance of the Group’s to systems compared refurbished imaging levels. Performance was impacted by a lower level of sales of its previous falling significantly from which is expected to continue. This was driven by both a particularly high level of activity during 2015/16 but also a change in years, previous for the business, its financial projections has revised The Group manufacturers. licensing policy by one of the large original equipment software and operational efficiency. profitability improve to consistent with a new strategy and the actions and time required held in the to each are intangible assets relating business operations and the goodwill and acquired CGUs are The Asylum and OI Healthcare amounts 2018, the estimates of the recoverable As at 31 March segments respectively. Materials & Characterisation and Service & Healthcare The discount rates used in calculated as £16.0m and £9.0m respectively. CGUs, being their value in use, were of the Asylum and OI Healthcare relating balance held by the Group At the year end, the Goodwill 13.2% for Asylum and 15.5% for OI Healthcare. arriving at these estimates were to be any indicators of impairment and therefore did not consider there CGUs was £nil (2017: £nil). The Group to the Asylum and OI Healthcare 2018. no further impairment testing was performed as at 31 March 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. Notes to the Financial Statements continued year ended 31 March 2018
16 Intangible assets continued In the prior year in respect of the impairment tests for Asylum and OI Healthcare, specific forecasts were prepared for the purpose of the impairment test taking into account the latest available information regarding business and market conditions. The £2.2m impairment of software costs in the prior year represented inefficient capitalised costs relating to the Group’s new ERP system and was reported as part of unallocated central costs in the segmental disclosure. The £1.1m impairment of technology related acquired intangible assets in the prior year represented the write down of intellectual property obtained as part of a previous acquisition that had since been superseded by a new product. The asset belonged to the now disposed of Industrial Analysis business. The £0.7m impairment of capitalised development costs arose in the prior year as a result of the termination of a specific project that was stopped in order to focus and direct resources so as to accelerate key projects. The impaired capitalised development costs were held in the Materials & Characterisation segment.
Key assumptions The key assumptions are those regarding discount rates and growth rates. The growth rates are based on industry growth factors. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The pre-tax weighted average costs of capital used for Materials & Characterisation and Research & Discovery in impairment testing are 14.1% (2017: 13.2%-13.6%) and 14.1%-14.9% (2017: 12.4%-13.4%) respectively in line with the risk associated with each of the business segments. The 2017 pre-tax weighted average cost of capital used for the Service & Healthcare impairment testing was 15.5%. No 2018 impairment testing has been performed because the Service & Healthcare segment does not hold any goodwill. Management has estimated these discount rates by reference to past experience and an industry average weighted cost of capital as adjusted for appropriate risk factors reflecting current economic circumstances and the risk profiles of each CGU.
Sensitivity analysis The Group’s estimate of impairments are most sensitive to changes in the discount rate and forecast growth rate. Sensitivity analysis has been carried out by reference to both of these assumptions. This demonstrated that a 359 basis point increase in the discount rate would be required in order to eliminate current headroom of £37.7m and result in an impairment in the Andor business. Similarly, a reduction in the growth rate to nil would be required in order to result in an impairment in the Andor business. 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 2016 0.6 3.3 8.6 (8.1) 4.1 4.8 13.3 Reclassification Recognised in income 0.4 (0.7) (1.0) 7.1 0.6 (0.8) 5.6 Recognised in other comprehensive income — — (0.9) — — — (0.9) Recognised directly in equity — — — — — — — Acquisitions — — — — — — — Disposals — — — — — — — Foreign exchange (0.1) 0.4 0.4 0.9 0.3 0.5 2.4 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
120 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— £m 121 Net — £m £m £m £m £m £m £m 7.3 20.4 7.3 20.4 3.5 9.8 3.7 2.9 2.3 2.4 5.9 5.2 2018 2017 2018 2017 2018 2017 (1.4) (2.4) 12.6 1.7 17.1 19.5 16.1 11.5 14.8 14.5 14.0 19.9 45.9 53.9 62.8 73.0 61.4 70.6 73.3 81.1
£m £m 5.3 7.4 (6.1) (5.6) (11.4) (13.0)
Oxford Instruments plc Report and Financial Statements 2018
Liabilities Assets £m £m 2017 2018 2017 2018 2018 2017 (5.3) (7.4) 18.7 33.4 13.4 26.0
differences consumables and temporary receivables income goods progress receivables assets/(liabilities) in receivables materials assets/(liabilities) trade losses
19 Trade and other receivables 19 Trade Trade Raw 18 Inventories Tax Tax Work Deductible
Gross Gross
Offset Net following items: of the respect in recognised tax assets have not been Deferred
Certain deferred tax assets and liabilities have been offset as follows: have been offset tax assets and liabilities Certain deferred tax assets have not been recognised Deferred tax legislation. under current do not expire The tax losses and the deductible temporary differences can subsidiaries concerned will be available in the against which the Group taxable profits that future of these items as it is not probable in respect tax losses. forward utilise the brought of £74.6m (2017: £25.7m) of undistributed earnings of overseas subsidiaries since the in respect tax liability has been recognised No deferred so that the timing of remittances considers that it is able to control In other cases the Group majority of such distributions would not be taxable. future. any tax is not expected to arise in the foreseeable Finished makes the Group course of business, as an expense was £128.7m (2017: £125.6m). In the ordinary The amount of inventory recognised Inventory is stated after charging impairments of £0.4m in for slow-moving, excess and obsolete inventory as appropriate. impairment provisions included impairments. Impairments are to previous relating £0.2m) was reversed £nil (2017: year, period (2017: £0.4m). In the current the current profit. within gross £nil). value is £0.6m (2017: Inventory carried at net realisable for impairment of receivables Less provision Net Prepayments 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 £1.2m (2017: £nil) due from Other receivables Notes to the Financial Statements continued year ended 31 March 2018
19 Trade and other receivables continued The maximum exposure to credit risk for trade and other receivables by geographic region was: 2018 2017 £m £m UK 8.5 9.0 China 14.0 11.4 Japan 9.6 11.7 USA 14.9 18.6 Germany 3.5 1.8 Rest of Europe 12.1 16.3 Rest of Asia 6.1 10.3 Rest of World 2.3 2.7 Total 71.0 81.8
The ageing of financial assets comprising net trade receivables and other receivables at the reporting date was: 2018 2017 £m £m Current (not overdue) 46.9 61.1 Less than 31 days overdue 12.6 9.8 More than 30 days but less than 91 days overdue 7.2 6.5 More than 90 days overdue 4.3 4.4 71.0 81.8
In both periods presented the entire provision against trade receivables relates to balances more than 90 days overdue. The movement in the allowance for impairment of trade receivables during the year was as follows: 2018 2017 £m £m Balance at start of year 2.4 2.0 (Decrease)/increase in allowance (1.0) 0.4 Balance at end of year 1.4 2.4
Valuation allowances are used to record provisions for credit losses. The valuation allowance is reduced and the asset impaired when the customer is in liquidation. Long-term receivables of £1.4m (2017: £3.6m) relate to amounts due from the Group’s associated undertaking. 20 Cash and cash equivalents 2018 2017 £m £m Cash balances 20.7 27.2 Bank overdraft — (0.7) Cash and cash equivalents in the Consolidated Statement of Cash Flows 20.7 26.5
All cash and cash equivalents are available for use by the Group. 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, interest rates and certain commodity prices. In common with a number of other companies, the Group has decided that the additional costs of meeting the extensive documentation requirements of IAS 39 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.
122 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
123 £m £m 1.4 3.6 8.2 7.6 2.4 0.6 2018 2017 61.4 70.6 20.7 27.2 94.1 109.6 Oxford Instruments plc Report and Financial Statements 2018
contracts equivalents receivables cash exchange receivables receivables and
Long-term Trade Exposure to credit risk to credit Exposure 2018 was risk at 31 March to credit The maximum exposure exposure. the maximum credit represents The carrying amount of financial assets £94.1m (2017: £109.6m). Credit risk Credit assets such as cash risk on financial is exposed to credit its obligations. The Group risk arises because a counterparty may fail to perform Credit receivables risk is primarily attributable to its trade credit receivables. The Group’s and other balances, derivative financial instruments, trade for doubtful allowances net of appropriate in the Consolidated Statement of Financial Position are and cash balances. The amounts recognised Trade economic environment. their assessment of the current management based on prior experience and estimated by the Group’s receivables, companies. in the operating procedures and approval limits and control subject to credit are receivables risk on its trade of credit is not exposed to material concentrations Due to its large geographic base and number of customers, the Group risk associated with cash balances and derivative financial instruments is managed by transacting with financial institutions Credit receivables. out guidelines for which categories of institutions may be used and policy sets a Board-approved ratings. In particular, with high quality credit risk associated credit the Group’s Accordingly, the maximum amount which may be invested with each institution within a particular category. by the carrying represented risk is to credit maximum exposure The Group’s risk. credit has no significant concentration of is limited. The Group Group Consolidated Statement of Financial Position. amount of each financial asset, including derivative financial instruments, in the 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 to approach Group’s The due. fall they as obligations financial its meet to able be not will Group the that risk the represents risk Liquidity when due, under both normal and stressed as far as possible, that it will always have sufficient liquidity to meet its liabilities this risk is to ensure, manages this risk by maintaining The Group reputation. or risking damage to the Group’s conditions, without incurring unacceptable losses set out in Note 24. 2018 are 31 March as at lenders. The facilities committed to the Group high quality adequate committed lines of funding from Liquidity risk Interest rate risk Interest cash flow also the interest and at fixed rates of interest borrowing from rate price risk that results rate risk comprises both the interest Interest short and medium-term floating rate debt of revolving policy is to use a mixture at variable rates. The Group’s borrowing from risk that results reduce debt levels as appropriate. provides flexibility to The short and medium-term floating rate debt fixed rate debt. underpinned by longer-term financing structure. stability and cost certainty to the Group’s fixed rate debt provides The longer-term Foreign currency risk currency Foreign functional currencies other than the respective in currencies undertaken transactions are sale or purchase risk arises both where currency Foreign currency reporting consolidated into the Group’s companies are of overseas the results and where exposures) companies (transactional of Group local functional in a variety of different their results the world which record has operations around The Group exposures). of Sterling (translational currency. that transact in a foreign it invariably has some customers or suppliers does not have operations, the Group In countries where currencies. but the Group’s currencies a number of different exchange rates between currency exposed to the changes in foreign is therefore The Group hedge of forward a rolling maintains the Group uncertainty, reduce To and the Japanese Yen. the Euro to the US Dollar, relate primary exposures 25% is sold on over the following twelve months. The remaining expected to arise to 75% (2017: 75%) of the exposure contracts equivalent of 2018 amount to £0.4m (2017: £5.0m) as at 31 March as a liability contracts recognised value of outstanding currency the spot market. The fair to £2.4m (2017: £0.6m). as an asset amount and those recognised in However, Consolidated Statement of Income immediately. recognised in the of derivative financial instruments are Movements in the fair value to hedges the elements of these movements that relate performance year-on-year meaningful comparison of the Group’s to facilitate a more order as an adjusting item in the calculation of adjusted earnings (Note 1). treated sales are of future in respect and net assets of overseas both to the Consolidated Statement of Income risks can relate currency foreign to translational exposures The Group’s Statements of Income that arises on consolidation of the Consolidated policy is not to hedge the translational exposure subsidiaries. The Group’s of overseas subsidiaries. Other Cash Forward is discussed in Note 19. risk for trade receivables to credit The maximum exposure not past due date. and similar taxes which are of VAT include £2.9m (2017: £2.8m) in respect Other receivables Notes to the Financial Statements continued year ended 31 March 2018
21 Financial risk management continued Capital management 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 debt position at the year end. Total capital at the end of the current year totalled £199.3m (2017: £241.8m). The Board’s long-term objective is to have an efficient capital structure by maintaining a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. This is monitored by reference to the ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) and the Board has set itself internal limits, which are well inside any covenants the Group has with lenders. The Group maintains the right to purchase its own shares in the market; the timing of these purchases would depend on market prices. Buy and sell decisions are made on a specific transaction basis by the Board. Each year the Board carefully considers the appropriate level of dividend payments. In doing this, the Board looks to increase dividends in line with underlying earnings, although the Board will also take into account other considerations in their decision making process. The Board 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 sustained earnings growth. As set out in the Chief Executive’s Statement, the Group will actively manage its portfolio of businesses and products, selecting those markets with long-term growth drivers where we can maintain or grow leading positions. We will focus on those markets where nanotechnology has the potential to address some of the world’s most complex and pressing challenges and where we can deliver unique solutions and service excellence. In line with the objective of maintaining a balance between borrowings and equity, the Group would seek to finance organic growth (e.g. through investment in Research and Development) and smaller “bolt-on” acquisitions from operating cash flow, thus maintaining balance sheet efficiency. Larger acquisitions would be financed either by equity or a mixture of equity and debt so as to ensure the Group has a manageable ratio of net debt to EBITDA. The Board encourages employees to hold shares in the Company. As well as various share option plans (full details of which are given in Note 12), from April 2008 all UK employees have been offered the opportunity to take part in a Share Incentive Plan (SIP). Under this plan, employees are able to invest up to £1,500 each tax year in shares in the Company. The Company awards one additional free share (a matching share) for every five shares bought by each employee. There were no changes to the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. 22 Financial instruments Fair values of financial assets and liabilities The fair values of financial assets and liabilities together with the carrying amounts shown in the Consolidated Statement of Financial Position are as follows: 2018 2017
Fair Carrying Fair Carrying Fair value amount value amount value hierarchy £m £m £m £m Assets carried at amortised cost Long-term receivables 1.4 1.4 3.6 3.6 Trade receivables 61.4 61.4 70.6 70.6 Other receivables 8.2 8.2 7.6 7.6 Cash and cash equivalents 20.7 20.7 27.2 27.2 Assets carried at fair value Derivative financial instruments: – Foreign currency contracts 2 2.4 2.4 0.6 0.6
Liabilities carried at fair value Derivative financial instruments: – Foreign currency contracts 2 (0.4) (0.4) (5.0) (5.0) Liabilities carried at amortised cost Trade and other payables (58.1) (58.1) (66.7) (66.7) Bank overdraft — — (0.7) (0.7) Borrowings (40.4) (40.4) (135.8) (135.8)
124 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
to — — — — — — 125 years one 130.8 130.8 five years five Due Due one to — (70.3) £m £m 6.8 1.0 39.5 5.0 0.7 2.6 3.6 year 2018 2017 66.7 79.2 20.7 27.2 within (40.4) (66.2) amount amount one year Carrying Carrying one Due Due within 5.0 0.7 66.7 flows 137.6 210.0 cash flows cash Contractual Contractual — — — 0.4 0.4 0.4 5.0 0.7 40.4 40.5 98.9 99.0 59.5 39.5 66.7 58.1 58.1 58.1 amount 135.8 208.2 Carrying amount Carrying
Oxford Instruments plc Report and Financial Statements 2018
contracts contracts payables payables other other assets liabilities assets liabilities 2018 £m £m £m £m exchange exchange 2017 £m £m £m £m and and overdraft overdraft
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 1: quoted prices (unadjusted) in active markets (i.e. as prices) either directly or liability, observable for the asset within Level 1 that are Level 2: inputs other than quoted prices included prices); and derived from (i.e. or indirectly not based on observable market data. Level 3: inputs for the asset or liability that are March March March March
31
31 Foreign Foreign Bank Borrowings Foreign Bank Borrowings financial instruments was: interest-bearing of the Group’s rate profile date the interest At the reporting Fixed rate instruments Financial Financial Variable rate instruments Variable Financial
Trade Trade
Financial Trade Maturity of financial liabilities The table above gives details of the valuation method used in arriving at the fair value of financial instruments. The different levels have been method used in arriving at the fair value of financial instruments. The different The table above gives details of the valuation identified as follows: • • • have been no transfers between levels during the year. There Fair value hierarchy Fair value hierarchy Trade and other receivables/payables Trade the fair value. All other amount is deemed to reflect the carrying less than one year, life of with a remaining For receivables/payables as these are other payables above excluded from are their fair value. Advances received discounted to determine are receivables/payables be financial liabilities. to not considered Derivative financial instruments are marked-to-market using market prices. are Derivative financial instruments rate borrowings Fixed and floating the cash flows using contracted principal and interest the future is estimated by discounting and floating rate borrowings The fair value of fixed date. at the reporting market rate of interest The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the in estimating the fair values of financial instruments the major methods and assumptions used The following summarises above table. instruments Derivative financial Notes to the Financial Statements continued year ended 31 March 2018
22 Financial instruments continued Sensitivity analysis The Group has estimated the impact on the Consolidated Statement of Income and on equity of the following changes in market conditions at the balance sheet date: • one percentage point increase in interest rates; • ten percentage point weakening in the value of Sterling against all currencies; and • ten percentage point strengthening in the value of Sterling against all currencies. The sensitivities above represent the Directors’ view of reasonably possible changes in each risk variable, not worst case scenarios or stress tests. The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur at the year end and are applied to the risk exposures at that date. Accordingly, they show the impact on the balance sheet of an instantaneous shock. The calculations include all hedges in place at the year end. Actual results in the future may differ materially from these estimates due to commercial actions taken to mitigate any potential losses from such rate movements, to the interaction of more than one sensitivity occurring and to further developments in global financial markets. As such, this table should not be considered as a projection of likely future gains and losses. 1% 10% 10% increase in weakening strengthening interest rates in Sterling1 in Sterling2 £m £m £m At 31 March 2018 Impact on Consolidated Statement of Income — (9.1) 9.1 Impact on equity — 1.8 (1.8) At 31 March 2017 Impact on Consolidated Statement of Income — (5.4) 5.4 Impact on equity — 6.5 (6.4) 1. Of the effect on the Consolidated Statement of Income, £6.1m (2017: £6.1m) would have been recognised on the “mark-to-market” line (Note 1). 2. Of the effect on the Consolidated Statement of Income, £6.1m (2017: £6.1m) would have been recognised on the “mark-to-market” line (Note 1).
23 Called up share capital Issued and fully paid ordinary shares: 2018 2017 Number Number of shares of shares At the beginning of the year 57,315,916 57,298,911 Issued for cash 59,688 17,005 At the end of the year 57,375,604 57,315,916
2018 2017
Number Number of shares £m of shares £m Allotted, called up and fully paid Ordinary shares of 5p each 57,375,604 2.9 57,315,916 2.9
Number Aggregate Consideration of shares nominal value per share New issues of ordinary shares of 5p each during the year Exercise of executive share options 29,502 £1,475 £1.35-£10.28 Exercise of executive share options – share appreciation rights 30,186 £1,509 £nil-£10.28
The total consideration received from exercise of share options in the year was £0.2m (2017: £nil).
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.
126 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— 1.0 9.4 127 Total Total Total Total 42.3 40.4 (14.2) (96.8) 135.8 313.0 274.5 (287.9)
£m — — 6.2 — 15.6 — 0.4 — 0.7 — 69.6 £m £m £m USA USA 3.6 25.1 1.0 — 1.0 6.9 8.5 9.0 9.0 313.0 Loan 2018 2017 2018 2017 (5.4) (0.6) (0.2) (5.0) Notes 39.4 44.4 39.4 129.6 44.4 40.4
or or of of UK UK EIB — 1.0 — — 1.0 1.0 date date Loan 21.8 date date Earlier Earlier demand maturity maturity On March 2021 March 2021 March repricing repricing repricing repricing
— — rate rate 0.2 0.2 69.6 facility (69.8) (22.0) Effective Effective 4.36% 4.36% Revolving interest interest interest interest credit credit
— (0.9) — 2.8 15.3 21.5 9.0 313.0 266.0 7.4 304.8 304.0 7.4 304.8 304.0 USA Total USA Total (4.6) (289.5) (282.5) (1.1) (11.8) (13.6) (0.9) (0.9) Oxford Instruments plc Report and Financial Statements 2018
— UK UK £m £m £m £m £m £m £m £m £m £m £m £m 8.1 0.3 8.4 9.1 0.3 (0.9) (3.1) 0.1 (3.0) 42.5 12.5 (10.7) 304.0 297.4 297.4 (284.9)
£m £m £m £m
unsecured – facility credit credit paid accrued overdrafts
Current Non-current
Recognised liability for defined benefit obligations made during the year) financing activities (repayments Cash flows from Other changes: Interest Fair value of plan assets Past service cost Benefit obligation at the beginning of the year Loan Notes – unsecured Loan Notes – unsecured £126.4m £126.4m, comprising the undrawn portion of the Group’s 2018 were undrawn committed facilities available at 31 March The Group’s on 28 February 2020. This facility expires facility. credit revolving £20.6m. 2018 were uncommitted facilities at 31 March The Group’s payment during April 2018. due for accrued interest represents 2018 Loan Notes balance as at 31 March The £1.0m (2017: £nil) current balances is shown below. borrowings of the Group’s A reconciliation issuance fees Amortisation of prepaid 2018 Balance at 31 March 2017 2018 benefit obligation on defined Interest Benefits Reconciliation of the opening and closing balances of the present value of the defined benefit obligation Reconciliation of the opening and closing balances of the present funded obligations value of Present 2017 2018 25 Retirement benefit obligations 25 Retirement and death in service benefit to members. retirement offer pensions in USA; both operates defined benefit plans in the UK and the The Group and their length of service. Both schemes have been closed to new members retirement final salary at related to members’ Pension benefits are accrual since 2010. since 2001 and closed to future Financial Position are: in the Consolidated Statement of The amounts recognised Balance at 1 April 2017
Investment Bank Loan – unsecured European Investment Bank Loan – unsecured European (gain)/loss on obligation Remeasurement Revolving
Bank Exchange rate adjustment Benefit obligation at the end of the year 24 Borrowings Notes to the Financial Statements continued year ended 31 March 2018
25 Retirement benefit obligations continued Reconciliation of the opening and closing balances of the fair value of plan assets 2018 2017
UK USA Total UK USA Total £m £m £m £m £m £m Fair value of plan assets at the beginning of the year 282.5 5.4 287.9 235.0 4.5 239.5 Interest on plan assets 7.6 0.2 7.8 8.1 0.2 8.3 Contributions by employers 7.1 0.5 7.6 6.9 0.6 7.5 Benefits paid (10.7) (1.1) (11.8) (13.6) (0.6) (14.2) Administrative expenses (0.5) (0.1) (0.6) (0.5) (0.1) (0.6) Actual return on assets excluding interest income (1.1) 0.3 (0.8) 46.6 0.1 46.7 Exchange rate adjustment — (0.6) (0.6) — 0.7 0.7 Fair value of plan assets at the end of the year 284.9 4.6 289.5 282.5 5.4 287.9
Expense recognised in the Consolidated Statement of Income 2018 2017 £m £m Total – defined benefit expense 0.6 1.1 Contributions to defined contribution schemes 3.3 4.3 3.9 5.4
The Group has agreed a basis for deficit recovery payments with the trustees of the UK pension scheme. The annual deficit recovery payment to the UK scheme was £7.1m (2017: £6.9m) for the financial year, payable through to and including 2021. For the years up to and including 2018, the payment will rise by the higher of inflation and growth in dividend per share; thereafter, the payment will increase in line with inflation. The weighted average durations of the UK and US defined benefit obligations at 31 March 2018 were 18 years and 16 years respectively (2017: 19 years and 16 years). Prior to the year end, 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 has fallen 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 £7.8m to defined benefit plans in the next financial year. The pension costs are recorded in the following lines of the Consolidated Statement of Income: 2018 2017 £m £m Cost of sales 0.8 1.1 Selling and marketing costs 0.7 1.0 Administration and shared services 0.8 1.1 Research and Development 1.0 1.1 Financial expenditure 0.6 1.1 3.9 5.4
Remeasurement gains and losses shown in the Consolidated Statement of Comprehensive Income 2018 2017 £m £m Actual return on assets excluding interest income (0.8) 46.7 Experience (loss)/gain on scheme obligations (2.8) 3.7 Changes in assumptions underlying the present value of scheme obligations: – Financial 4.0 (51.6) – Demographic 1.8 5.6
Cumulative actuarial losses reported in the Consolidated Statement of Comprehensive Income since 1 April 2004, the transition date to IFRS, are £29.3m (2017: £31.5m cumulative actuarial losses).
128 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
at % 129 As 2017 March March 2.5% 3.1% 2.1% 316.7 Value at Value 31 March 31 March 31 (+one year) Life expectancy — 46.6 — 5.8 £m £m 6.0 3.7 2.1 12.6 5.8 5.8 2.5 — 3.7 23.0 2018 2017 2018 2017 years years 90.8 107.9 24.1 14.8 26.6 15.3 23.9 24.0 25.7 25.7 22.5 22.6 24.1 24.2 123.3 47.0 Value at Value 31 March (+0.1% p.a.) Inflation rate future improvement in line with in line improvement future (289.5) (289.5) (289.5) (-0.1% p.a.) 93% of S2PA tables (96% for females) tables (96% 93% of S2PA CMI 2016 with 1.25% long-term trend CMI 2016 with 1.25% long-term trend Discount rate
% £m £m £m £m 2018 As at 20.2 27.2 15.3 20.8 2.7% 2.7% 2.5% 3.0% 2.0% 309.7 304.8 310.3 (289.5) 31 March Balance at 2018 31 March
Oxford Instruments plc Report and Financial Statements 2018
future improvement in line with in line improvement future 93% of S2PA tables (96% for females) tables 93% of S2PA CMI 2017 with 1.25% long-term trend
Bonds fund
Market funds income loan males females funds (“CPI”) males females fixed – – Emerging overlay – – global and return rate hedge inflation funds and
of
The mortality assumptions imply the following expected future lifetime from age 65: lifetime from expected future The mortality assumptions imply the following
Deficit rate. The sensitivities have in the discount rate, inflation rate and mortality benefit liabilities is most sensitive to changes The valuation of defined the liability calculations in full using the alternativebeen calculated by running has In each case, only the indicated assumption assumptions. on RPI inflation, such as CPI inflation based are the impact on the assumptions that stated. For the inflation sensitivity, changed by the amount has been included. and the inflation-linked pension increases, in pensions in payment (“3LPI”) Rate of increase in pensions in payment (“5LPI”) Rate of increase Corporate Gilts Property Commodities Insurance‑linked Credit Equities
Pre-retirement and post-retirement Mortality – pre Rate Fair value of plan assets Discount A full actuarial valuation of the UK plan was carried out as at 31 March 2015 and has been updated to 31 March 2018 by a qualified independent to 31 March 2015 and has been updated out as at 31 March A full actuarial valuation of the UK plan was carried nominal terms): (in by the actuary for the purposes of IAS 19 were The major assumptions used actuary. Defined benefit scheme – UK of funded obligations Value Sensitivity analysis pension assumptions: of Financial Position to changes in the significant the sensitivity of the Consolidated Statement The table below shows Hedge Absolute Liability Cash 284.9 282.5 – males and females Pre-retirement Post-retirement Post-retirement Post-retirement Post-retirement may not a range of possible actuarial assumptions, which, due to the timescales covered, from The assumptions have been chosen by the Directors be borne out in practice. The assets in the plan were: Notes to the Financial Statements continued year ended 31 March 2018
25 Retirement benefit obligations continued Defined benefit scheme – UK continued Where assets have no observable market price a valuation will be provided by the fund manager. The scheme’s investment manager will accept that valuation if it is within the expected range of performance. Otherwise, the investment manager will query the valuation with the fund manager. Complex financial instruments are valued by the scheme’s investment manager who uses financial models which take as their input the characteristics of the instrument and observable market data such as swap rates. The UK pension scheme implements a liability hedge strategy which is designed to protect the scheme’s funding level from changes in gilt yields and inflation expectations. The liability hedge strategy consists of a portfolio of gilts, gilt derivatives, interest rate and inflation swaps. At 31 March 2018, the liability hedge strategy fully covered the scheme’s liabilities from changes in gilt yields and inflation expectations. However, this is not a precise match for the IAS 19 defined benefit obligation, which is based on corporate bond yields rather than gilt yields.
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 2018 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 31 March 2018 2017 % % Discount rate 3.95% 4.00% Rate of increase to pensions in payment 0.00% 0.00% Rate of inflation 2.00% 2.00% Mortality – pre and post-retirement RP-2014 with projection RP-2014 with projection Scale MP-2017 (fully generational), Scale MP-2016 (fully generational), male and female male and female
The assets in the plan were: Value at Value at 31 March 31 March 2018 2017 £m £m Equities 2.0 2.4 Bonds 2.3 3.0 Other 0.3 — 4.6 5.4
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 67 to 80. 26 Trade and other payables
2018 2017 £m £m Trade payables 25.0 32.0 Customer deposits 15.0 13.2 Social security and other taxes 2.9 2.5 Accrued expenses and deferred income 38.1 40.6 Other creditors 4.5 4.7 85.5 93.0
130 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
9.8 5.8 1.7 131 Total Total (1.5) 11.7 10.0
£m — — — £m £m £m 0.9 1.6 2.9 2.2 0.2 0.3 3.1 2.5 2.9 3.8 6.6 9.5 2.1 1.7 2.7 2018 2017 2018 2017 (0.2) (0.9) (0.4) (1.2) (0.3) (0.3) Other 10.4 14.9 — — — — 3.2 3.2 claims IP-related — — 4.5 3.2 1.9 0.7 4.4 4.1 3.2 4.1 (0.7) (0.8) (0.8) (0.7) Warranties
Oxford Instruments plc Report and Financial Statements 2018
£m £m £m £m
years years five five and and year year years years one one one one five five
of operating as an expense in the Consolidated Statement of Income in respect 2018, £3.8m was recognised During the year ended 31 March leases (2017: £4.5m). Between Over on typically short-term agreements. imaging equipment available for rent to medical acts as lessor relate Operating leases under which the Group payment arrangements. no material contingent rent are There Between Over Within Leases under which the Group acts as lessee Leases under which the Group payable as follows: are total minimum operating lease rentals Non-cancellable future Within Non-cancellable future total minimum operating lease rentals are receivable as follows: receivable are total minimum operating lease rentals Non-cancellable future Other provisions relate to various obligations including obligations in respect of onerous leases, onerous contracts and dilapidation provisions. contracts and dilapidation provisions. leases, onerous of onerous respect to various obligations including obligations in relate Other provisions 28 Operating leases acts as lessor Leases under which the Group Other provisions Intellectual Property related claims related Intellectual Property Provisions by other parties. brought to defend itself against proceedings to take legal or other actions The Company has on occasion been required based on past experience of similar items and other known factors, taking into made for the expected costs associated with such matters, are of utilisation of these provisions best estimate of the likely outcome. The timing the Directors’ and represent advice received, account professional Contractual and and negotiations. of various court proceedings the complexity of issues and the outcome uncertain, reflecting is frequently assessment of the likely the Directors’ obligations and reflect best estimate of the cost of settling future the Directors’ represent other provisions by other which have been, or might be, brought is made for proceedings no provision However, settlement method, which may change over time. likely than not that assess that it is more advice received, professional taking into account companies unless the Directors, parties against Group utilised within a twelve-month period. likely to be are expectation is that the other provisions may be successful. The Group’s such proceedings on could be a material effect and £3.1m. As such, there the range of possible outcomes is between £nil where for £2m is one provision There estimate. management’s from should the outcome be different the Financial Statements in the next twelve months 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 2017 27 Provisions for other liabilities and charges 27 Provisions of disposal of subsidiary Effect made during the year Provisions used during the year Provisions during the year released Provisions exchange of movement in foreign Effect 2018 Balance at 31 March than one year Amounts falling due after more one year Amounts falling due before Notes to the Financial Statements continued year ended 31 March 2018
28 Operating leases continued Leases under which the Group acts as lessee continued The majority of operating leases under which the Group is a lessee relate to properties occupied by the Group in the course of its business. There are no material contingent rent payment arrangements, purchase options or escalation clauses. It is expected that most leases could be renewed on the existing or similar terms. The leases do not impose any material restrictions in respect of dividends, additional debt requirements or further leasing. 29 Capital commitments During the year ended 31 March 2018, the Group entered into contracts to purchase property, plant and equipment which are expected to be settled in the following financial year for £nil (2017: £nil). 30 Contingencies In an international group of companies, a variety of legal claims arise from time to time. The Board, having taken legal advice, is of the opinion that any ongoing actions and investigations will not have a material impact on the Group’s financial position. 31 Related parties Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the current year, members of the Group’s Management Board have taken on new responsibilities following the introduction of the Horizon strategy. As a result of this, Management Board members are now considered to be key management personnel and their remuneration is included in the table below. The remuneration of key management personnel is as follows: 2018 2017 £m £m Short-term employee benefits 3.4 1.7 Post-employment benefit 0.2 0.1 Share-based payment charge/(credit) 0.4 (0.2) Total 4.0 1.6
Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year. The prior year share-based payment credit of £0.2m arose due to the reversal of the share option charge relating to options previously issued to Jonathan Flint. During the year, the Company paid £nil (2017: £0.1m) to Imperialise Limited, a company for which Nigel Keen (former Chairman) is a Director. The payment was for his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2017: £nil). During the year, the Group supplied services and materials to, and purchased services and materials from, its associate on an arm’s length basis. It had the following transactions with its associate during the year: Revenue Purchases Receivables Payables 2018 £m £m £m £m ScientaOmicron GmbH 0.6 — 3.0 —
Revenue Purchases Receivables Payables 2017 £m £m £m £m ScientaOmicron GmbH 0.1 — 3.6 —
32 Subsequent events The interim dividend of 3.7 pence per share (total cost £2.1m) was paid after the year end. In addition, on 12 June 2018, the Directors proposed a final dividend of 9.6 pence per ordinary share (total cost £5.5m). The total amount of £5.5m has not been provided for and there are no income tax consequences.
132 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information Yen Yen 133 142 143 144 146 143 146 150 149 151 153 151 159 159 150 138 134 132 130 134 142 144 142 149 140 Euro Euro 149 139 2018 2017 1.27 1.30 1.27 1.21 1.18 1.16 1.13 1.14 1.17 1.17 1.18 1.18 1.40 1.25 1.14 1.17 Dollar 1.27 1.18 1.29 1.17 1.29 1.14 1.31 1.13 1.30 1.10 1.31 1.11 1.33 1.13 1.32 1.13 1.34 1.12 1.39 1.13 1.41 1.14 1.40 1.14 1.45 1.46 1.41 1.35 1.32 1.31 1.26 1.23 1.24 1.25 1.25 1.25 Dollar US US Oxford Instruments plc Report and Financial Statements 2018
2018 2017 rates rates translation rates translation Dollar ‑end Average Average April May June July August September October November December January February March May June July August September October November December January February March Average Average April US Euro Yen 33 Exchange rates 33 Exchange rates rates to Sterling used were: The principal exchange Year Parent Company Statement of Financial Position as at 31 March 2018
2018 2017 Notes £m £m Assets Non-current assets Intangible assets d 1.0 — Tangible assets c 0.6 1.2 Investments in subsidiary undertakings e 320.9 320.5 Debtors f 1.4 3.6 Deferred tax assets h 1.5 1.7 325.4 327.0 Current assets Debtors f 19.5 62.5 Current income tax recoverable 0.3 0.6 Cash at bank and in hand 3.6 2.5 23.4 65.6 Total assets 348.8 392.6 Equity Capital and reserves attributable to the Company’s equity Shareholders Share capital 2.9 2.9 Share premium account 61.7 61.5 Capital redemption reserve 0.1 0.1 Other reserves 7.6 7.6 Profit and loss account 99.7 114.3 172.0 186.4 Liabilities Non-current liabilities Long-term loans 39.4 129.6 Retirement benefit obligations 2.9 4.9 Provisions for liabilities h 0.4 0.4 42.7 134.9 Current liabilities Bank loans and overdrafts 32.8 22.1 Other creditors g 101.3 49.2 134.1 71.3 Total liabilities 176.8 206.2 Total liabilities and equity 348.8 392.6
The Financial Statements were approved by the Board of Directors on 12 June 2018 and signed on its behalf by:
Ian Barkshire Gavin Hill Director Director Company number: 775598
134 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— 0.2 0.3 0.2 0.7 0.4 1.7 0.4 135 Total Total (6.7) (5.0) (7.4) (8.7) (8.3) (7.4) 198.3 186.4 172.0
1.7 0.2 0.3 0.4 0.7 0.4 (5.0) (6.7) (7.4) Profit Profit (8.7) (8.3) (7.4) 99.7 126.2 114.3 and loss — — — — 7.6 7.6 7.6 Other account reserves — — — — 0.1 0.1 0.1 reserve Capital redemption — — — — — 0.2 — — Share 61.5 61.7 61.5 Oxford Instruments plc Report and Financial Statements 2018 premium — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 2.9 2.9 2.9 Share capital account
— — — — — £m £m £m £m £m £m
issued shares shares year — — — — paid — — — — paid from from the for
Total comprehensive income for the year comprehensive Total Loss income: Other comprehensive net of tax liability, of defined benefit Remeasurement Proceeds Balance at 31 March 2016 Balance at 31 March to employees options awarded Share to employees of subsidiaries options awarded Share Dividends income: Other comprehensive of tax net of defined benefit liability, Remeasurement income for the year comprehensive Total issued shares from Proceeds employees to options awarded Share employees of subsidiaries to options awarded Share Dividends 2018 Balance at 31 March Financial Statements. included in Note 23 to the Group are capital Details of issued, authorised and allotted share included as a Note to the Consolidated Statement of Changes in Equity. held by the Company are shares Details of treasury Financial Statements. included in Note 12 to the Group are option schemes share Details of the Group’s Group Financial Statements. to the are included in Note 25 benefit pension scheme defined Details of the Group’s Financial Statements. Group included in Note 14 to the Details of dividends paid are 1987. as part of acquisitions made in the year to 31 March issued on shares to premium relates Other reserves year ended year March 2018 31 Parent Company Statement of Changes in Equity Equity in Changes of Statement Company Parent Balance at 31 March 2017 Balance at 31 March Loss for the year Notes to the Parent Company Financial Statements year ended 31 March 2018
(a) Accounting policies Measurement convention Non-derivative financial instruments Oxford Instruments plc is a company The Financial Statements are prepared on the Non-derivative financial instruments comprise incorporated and domiciled in the UK. historical cost basis except that the following trade and other debtors, cash and cash assets and liabilities are stated at their fair equivalents, loans and borrowings, and trade These Financial Statements were prepared in value: derivative financial instruments. and other creditors. accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101). Going concern Trade and other debtors The amendments to FRS 101 (2013/14 Cycle) The Financial Statements have been prepared Trade and other debtors are recognised initially issued in July 2015 and effective immediately on a going concern basis, based on the at fair value. Subsequent to initial recognition have been applied. Directors’ opinion, after making reasonable they are measured at amortised cost using In preparing these Financial Statements, enquiries, that the Company has adequate the effective interest method, less any the Company applies the recognition, resources to continue in operational existence impairment losses. measurement and disclosure requirements of for the foreseeable future. Trade and other creditors International Financial Reporting Standards Taxation Trade and other creditors are recognised as adopted by the EU (“Adopted IFRS”), but Income tax on the profit or loss for the year initially at fair value. Subsequent to initial makes amendments where necessary in order comprises current and deferred tax. Income recognition they are measured at amortised to comply with Companies Act 2006 and has tax is recognised in profit or loss except to cost using the effective interest method. set out below where advantage of the FRS the extent that it relates to items recognised 101 disclosure exemptions has been taken. directly in equity, in which case it is recognised Cash and cash equivalents In these Financial Statements, the Company in equity. Cash and cash equivalents comprise cash has applied the exemptions available balances and call deposits. Current tax is the expected tax payable on under FRS 101 in respect of the following the taxable income for the year, using tax Interest-bearing borrowings disclosures: rates enacted or substantively enacted at the Interest-bearing borrowings are recognised • a Cash Flow Statement and related notes; reporting date, and any adjustment to tax initially at fair value less attributable • comparative period reconciliations for share payable in respect of previous years. transaction costs. Subsequent to initial recognition, interest-bearing borrowings are capital, tangible fixed assets, intangible Deferred tax is recognised in respect of stated at amortised cost using the effective assets and investment properties; temporary differences between the carrying interest method, less any impairment losses. • disclosures in respect of transactions with amounts of assets and liabilities for financial Details of the Group’s interest-bearing wholly owned subsidiaries; reporting purposes and the amounts used for borrowings are included in Note 24 to taxation purposes. The following temporary • disclosures in respect of capital the Group Financial Statements. management; differences are not provided for: the initial recognition of goodwill; the initial recognition Intra-Group lending • the effects of new but not yet effective of assets or liabilities that affect neither The Company has lent funds to and from its IFRS; and accounting nor taxable profit; and differences UK subsidiaries on interest-free terms. These • disclosures in respect of the compensation relating to investments in subsidiaries to the amounts are repayable on demand. They are of key management personnel. extent that they will probably not reverse in stated at cost less any impairment losses. As the consolidated Financial Statements of the future. Derivative financial instruments Oxford Instruments plc include the equivalent The amount of deferred tax provided is The Company’s accounting policies for disclosures, the Company has also taken the based on the expected manner of realisation financial instruments are the same as the exemptions under FRS 101 available in respect or settlement of the carrying amount of Group’s accounting policies under IFRS, of the following disclosures: assets and liabilities, using tax rates enacted namely IAS 32 Financial Instruments: or substantively enacted at the Balance • IFRS 2 Share-based Payments in respect of Presentation, IAS 39 Financial Instruments: Sheet date. Group settled share-based payments; and Recognition and Measurement and IFRS 7 • certain disclosures required by IFRS 13 Fair A deferred tax asset is recognised only to the Financial Instruments: Disclosures. These Value Measurement and the disclosures extent that it is probable that future taxable policies are set out in accounting policy required by IFRS 7 Financial Instrument profits will be available against which the asset “(e) Financial instruments” in the Group Disclosures. can be utilised. Deferred tax assets are reduced accounting policies, on page 99. to the extent that it is no longer probable that The accounting policies set out below the related tax benefit will be realised. have, unless otherwise stated, been applied consistently to all periods presented in these Additional income taxes that arise from Financial Statements. the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
136 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 137 Defined benefit plans is a post-employment A defined benefit plan a defined contribution benefit plan other than in respect net obligation plan. The Company’s plans is calculated of defined benefit pension benefit of future by estimating the amount that employees have earned in return for periods; and prior their service in the current to determine that benefit is discounted of any value, and the fair value its present The deducted. are plan assets (at bid price) on the net interest Company determines the net defined benefit liability/(asset) for the period by applying the discount rate used to defined benefit obligation at the the measure beginning of the annual period to the net defined benefit liability/(asset). The discount rate is the yield at the reporting rating date on bonds that have a credit of at least AA that have maturity dates the terms of the Company’s approximating denominated in the obligations and that are expected in which the benefits are currency to be paid. defined benefit arising from Remeasurements plans comprise actuarial gains and losses, the and return on plan assets (excluding interest) excluding of the asset ceiling (if any, the effect them The Company recognises interest). income immediately in other comprehensive to defined and all other expenses related benefit plans in employee benefit expenses or loss. in profit The calculation of the defined benefit obligations is performed by a qualified actuary method. unit credit using the projected in a benefit to When the calculation results asset is limited the recognised the Company, value of benefits available in to the present the plan from refunds the form of any future contributions and future in or reductions of any takes into account the adverse effect minimum funding requirements. The Company is the sponsoring employer of benefit pension plan. defined a Group-wide The net defined benefit cost of the plans is charged to participating entities on the basis of scheme membership of the proportion attributable to each legal entity at the The contributions payable by date. reporting determined using the participating entities are which has been in place for ratio an agreed ten years. approximately Oxford Instruments plc Report and Financial Statements 2018 Employee benefits Defined contribution plans A defined contribution plan is a post‑employment benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are and loss expense in the profit as an recognised account in the periods during which services by employees. rendered are Non-financial assets the Company’s The carrying amounts of tax than deferred non-financial assets, other date to at each reporting reviewed assets, are of is any indication determine whether there indication exists, then impairment. If any such amount is estimated. recoverable the asset’s cash amount of an asset or The recoverable value of its generating unit is the greater less costs to sell. In in use and its fair value the estimated future assessing value in use, discounted to their present cash flows are discount rate that reflects value using a pre-tax market assessments of the time value current of money and the risks specific to the asset. For the purpose of impairment testing, assets grouped that cannot be tested individually are of assets together into the smallest group continuing that generates cash inflows from largely independent of the cash use that are of assets inflows of other assets or groups (the “cash generating unit” or “CGU”). if the An impairment loss is recognised carrying amount of an asset or its CGU amount. exceeds its estimated recoverable or in profit recognised Impairment losses are in respect loss. Impairment losses recognised reduce the allocated first to of CGUs are carrying amount of any goodwill allocated the carrying to the units, and then to reduce amounts of the other assets in the unit basis. of units) on a pro-rata (group in prior periods Impairment losses recognised date for any assessed at each reporting are or no indications that the loss has decreased longer exists. An impairment loss is reversed has been a change in the estimates if there amount. used to determine the recoverable only to the An impairment loss is reversed carrying amount does extent that the asset’s not exceed the carrying amount that would or have been determined, net of depreciation amortisation, if no impairment loss had been recognised. 4 years 4 years 10 years Computer software Computer equipment Motor vehicles The Company assesses at each Balance Sheet is any objective whether there date reporting of evidence that a financial asset, or group A financial asset, financial assets, is impaired. assets, is deemed to of financial or group is objective if, and only if, there be impaired of one evidence of impairment as a result after the that have occurred events or more of the asset (an incurred initial recognition “loss event”) and that loss event has an cash flows of impact on the estimated future of financial assets the financial asset or group estimated. that can be reliably Impairment excluding deferred Impairment excluding deferred tax assets Financial assets (including trade and other debtors) Intangible assets represents internally Intangible assets represents Amortisation is developed software. and loss account on a charged to the profit straight‑line basis over the estimated useful lives of intangible assets unless such lives are amortised indefinite. Intangible assets are for use. available the date they are from as follows: The estimated useful lives are • Intangible assets Tangible fixed assets Tangible stated at cost less fixed assets are Tangible and accumulated accumulated depreciation impairment losses. assets parts of an item of tangible fixed Where accounted useful lives, they are have different tangible fixed assets. for as separate items of and is charged to the profit Depreciation basis over the loss account on a straight-line each part of an item estimated useful lives of The estimated useful of tangible fixed assets. as follows: lives are • • methods, useful lives and Depreciation at each balance reviewed values are residual sheet date. Notes to the Parent Company Financial Statements continued year ended 31 March 2018
(a) Accounting policies continued Where the Company grants options over Foreign currencies Employee benefits continued its own shares to the employees of its The Company enters into forward exchange Short-term benefits subsidiaries it recognises, in its individual contracts and options to mitigate the currency Short-term employee benefit obligations are Financial Statements, an increase in the cost exposures that arise on sales and purchases measured on an undiscounted basis and are of investment in its subsidiaries equivalent denominated in foreign currencies. Transactions expensed as the related service is provided. to the equity settled share-based payment in foreign currencies are converted into Sterling A liability is recognised for the amount charge recognised in its consolidated Financial at the rate ruling on the date of the transaction. expected to be paid under short-term cash Statements with the corresponding credit Monetary assets and liabilities denominated in bonus or profit-sharing plans if the Company being recognised directly in equity. Amounts foreign currencies are translated at the rates has a present legal or constructive obligation recharged to the subsidiary are recognised ruling at the Balance Sheet date or at the to pay this amount as a result of past service as a reduction in the cost of investment in appropriate forward contract rates. Exchange provided by the employee and the obligation subsidiary. If the amount recharged exceeds profits and losses arising from the above are can be estimated reliably. the increase in the cost of investment the dealt with in the profit and loss account. excess is recognised as a dividend. Termination benefits Own shares held by Employee Termination benefits are recognised as an Own shares held by ESOP trust Benefit Trust (EBT) expense when the Company is demonstrably Transactions of the Company-sponsored Transactions of the Group-sponsored EBT are committed, without realistic possibility of ESOP trust are treated as being those of the included in the Group Financial Statements. withdrawal, to a formal detailed plan to either Company and are therefore reflected in the In particular, the trust’s purchase of shares in terminate employment before the normal Company Financial Statements. In particular, the Company are debited directly to equity. retirement date, or to provide termination the trust’s purchases and sales of shares Investments benefits as a result of an offer made to in the Company are debited and credited Investments in subsidiaries are stated at cost, encourage voluntary redundancy. Termination directly to equity. less any provision for impairment, where benefits for voluntary redundancies are Provisions appropriate. recognised as an expense if the Company has A provision is recognised in the Balance Sheet made an offer of voluntary redundancy, it is when the Company has a present legal or Dividends on shares presented probably that the offer will be accepted, and constructive obligation as a result of a past within Shareholders’ funds the number of acceptances can be estimated event, that can be reliably measured and it is Dividends unpaid at the Balance Sheet date reliably. If benefits are payable more than probable that an outflow of economic benefits are only recognised as a liability at that date twelve months after the reporting date, then will be required to settle the obligation. to the extent that they are appropriately they are discounted to their present value. Provisions are determined by discounting authorised and are no longer at the discretion Share-based payment transactions the expected future cash flows at a pre-tax of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes The grant date fair value of share-based rate that reflects risks specific to the liability. to the Financial Statements. payments awards granted to employees is The timing of the recognition requires the recognised as an employee expense, with application of judgement to existing facts and Financial guarantee contracts a corresponding increase in equity, over circumstances which can be subject to change. Where the Company enters into financial the period in which the employees become Amounts provided represent the Group’s guarantee contracts to guarantee the unconditionally entitled to the awards. best estimate of exposure based on currently indebtedness of other companies within its The fair value of the awards granted is available information. Group, the Company considers these to be measured using an option valuation model, Leases insurance arrangements and accounts for taking into account the terms and conditions Payments (excluding costs for services and them as such. In this respect, the Company upon which the awards were granted. The insurance) made under operating leases are treats the guarantee contract as a contingent amount recognised as an expense is adjusted recognised in the profit and loss account on a liability until such time as it becomes probable to reflect the actual number of awards for straight-line basis over the term of the lease. that the Company will be required to make which the related service and non-market Lease incentives received are recognised in the a payment under the guarantee. vesting conditions are expected to be met, profit and loss account as an integral part of such that the amount ultimately recognised the total lease expense. as an expense is based on the number of awards that do meet the related service and non‑market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
138 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
£m 5.9 0.3 0.3 2.0 1.4 1.2 0.6 139 Total Total (3.6) (0.6) (3.6) £m £m £m 5.9 0.3 0.6 0.6 0.1 0.1 4.6 5.7 3.9 5.0 2.0 4.7 4.7 0.3 1.4 1.2 0.6 2018 2017 (3.6) (3.6) (0.6) Computer equipment Oxford Instruments plc Report and Financial Statements 2018
2018 assets 2017 March March costs costs 2018 2017 April 31 salaries year intangible 1 at to at for and March March pension security March March
31 31
Cost Balance (c) Tangible fixed assets (c) Tangible Wages Wages
(b) Loss for the year £1.7m). Income in the year was £0.4m (2017: Comprehensive year was £8.7m (2017: loss of £6.7m). Other loss for the financial The Company’s or loss. to profit be reclassified The expense will not subsequently (2017: £140,000) for the statutory audit. comprised £140,000 remuneration The auditor’s these individuals were during the year was 47 (2017: 51). 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 Disposals Transfer Transfer Other included in Note 12 to the option schemes are share of £0.2m). Details of the Group’s payment charge was £0.7m (2017: charge The share-based Financial Statements. Group found in the Remuneration Report on pages 67 to 80. can be Full details of the emoluments paid to Directors Social Depreciation Balance at 1 April 2017 Charge Disposals Balance at 31 March 2018 Balance at 31 March Balance Net book value At At Notes to the Parent Company Financial Statements continued year ended 31 March 2018
(d) Intangible assets Software £m Cost Balance at 1 April 2017 2.2 Additions 0.5 Transfer from tangible fixed assets 0.6 Balance at 31 March 2018 3.3 Depreciation and impairment losses Balance at 1 April 2017 2.2 Charge for year 0.1 Balance at 31 March 2018 2.3
Net book value At 31 March 2017 — At 31 March 2018 1.0
(e) Investments Investments in subsidiary undertakings £m Cost or valuation Balance at 1 April 2017 339.2 Expense in respect of share options transferred to subsidiary undertakings 0.4 Balance at 31 March 2018 339.6 Impairment Balance at 1 April 2017 and 31 March 2018 18.7
Net book value At 31 March 2017 320.5 At 31 March 2018 320.9
140 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
of UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK 141 USA USA USA USA USA USA USA Japan China Ireland Finland Canada Sweden Country Germany Germany Guernsey incorporation Switzerland address Registered office office Badenerstrasse 682, 8048, Zürich Borsigstrasse 15a, 65205, Wiesbaden Borsigstrasse 15a, 65205, Wiesbaden 360 El Pueblo Road, Scotts Valley, CA 95066 360 El Pueblo Road, Scotts Valley, Tubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Abingdon, Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Tubney Woods, Abingdon, Oxon, OX13 5QX Woods, Tubney Arenavägen 41, 10th Floor, 121 77 Johanneshov 10th Floor, 41, Arenavägen 6310 Hollister Avenue, Santa Barbara, CA 93117 6310 Hollister Avenue, Oxford Instruments plc Report and Financial Statements 2018 300 Baker Avenue, Suite 150, Concord MA 01742 Suite 150, Concord 300 Baker Avenue, 300 Baker Avenue, Suite 150, Concord MA 01742 Suite 150, Concord 300 Baker Avenue, 300 Baker Avenue, Suite 150, Concord MA 01742 Suite 150, Concord 300 Baker Avenue, Technopolis Innopoli 1, Tekniikantie12, Espoo, 02150 Innopoli 1, Tekniikantie12, Technopolis 425 Sullivan Avenue, Suite 3, South Windsor, CT 06074 Suite 3, South Windsor, 425 Sullivan Avenue, 425 Sullivan Avenue, Suite 3, South Windsor, CT 06074 Suite 3, South Windsor, 425 Sullivan Avenue, Frances House, Sir William Place, St Peter Port, GY1 4HQ Floor 1, Building 60, 461 Hongcao Road, Xuhui District, Shanghai 7 Millennium Way, Springvale Business Park, Belfast, NI, BT12 7AL 7 Millennium Way, 2nd Floor, 1-2 Victoria Buildings, Haddington Road, Dublin 4, D04 XN32 2nd Floor, IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo, 140-0002 IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo, 199 Bay Street, Suite 5300, Commerce Court West, Toronto ON M5L 1B9 Toronto Court West, Suite 5300, Commerce 199 Bay Street,
1
Subsidiaries Limited Tools NanoTechnology The following is a full list of the subsidiaries and associates and their country of registration as at 31 March 2018. This information is provided in is provided 2018. This information as at 31 March country of registration of the subsidiaries and associates and their The following is a full list Companies Act 2006. with Section 409 of the accordance Company or a subsidiary of the Company. wholly owned by either the entities listed below are Unless otherwise stated, Oxford Instruments Holdings GmbH Oxford Oxford Instruments GmbH Oxford Ab Instruments Nordiska Oxford Instruments Analytical Limited Oxford Oxford Instruments Overseas Holdings 2008 Limited Oxford Oxford Instruments Superconductivity Limited Instruments Superconductivity Oxford Oxford Instruments UK 2013 Limited Oxford Instruments Innovation Limited Oxford Oxford Instruments Funding (Ireland) Unlimited Instruments Funding (Ireland) Oxford (in members’ voluntary liquidation) Instruments NanoScience Limited Oxford Oxford Magnet Technology Limited Technology Magnet Oxford Oxford Instruments Industrial Analysis Limited Instruments Oxford Oxford Instruments Industrial Products Holdings Limited Industrial Products Instruments Oxford Oxford Instruments Industrial Products Limited Industrial Products Instruments Oxford RMG Technology Limited RMG Technology Oxford Instruments NanoAnalysis Limited Instruments Oxford Oxford Instruments NanoTechnology Tools Holdings Limited Tools NanoTechnology Instruments Oxford Andor Technology Limited Andor Technology Andor U.S. Holdings, Inc Bitplane AG Bitplane Inc Spectral Applied Research Inc Oxford Instruments Molecular Biotools Limited Instruments Oxford Resonance Instruments Limited Oxford Instruments NanoTechnology Tools Limited Tools NanoTechnology Instruments Oxford Link Analytical Limited Oxbridge Instruments Limited Oxford Instruments AFM Limited Instruments Oxford Oxford Instruments Plasma Technology Limited Plasma Technology Instruments Oxford Plasma Technology (UK) Limited Plasma Technology Oxford Instruments Overseas Holdings Limited Oxford Oxford Instruments Technology (Shanghai) Co. Limited Instruments Technology Oxford Oy Instruments Technologies Oxford Oxford Instruments Holdings 2013 Inc Oxford Oxford Instruments America Inc Oxford Oxford Instruments Service LLC Oxford Oxford Instruments Asylum Research Inc Instruments Asylum Research Oxford UK Limited Asylum Research Oxford Instruments KK Instruments Overseas Marketing Limited Oxford Oxford Instruments X-Ray Technology Inc Instruments X-Ray Technology Oxford Oxford Instruments Holdings Europe Limited Instruments Holdings Europe Oxford Oxford Instruments Guernsey Limited Oxford Notes to the Parent Company Financial Statements continued year ended 31 March 2018
(e) Investments continued Registered Country of office address incorporation Subsidiaries continued Oxford Instruments Funding Ltd Frances House, Sir William Place, St Peter Port, GY1 4HQ Guernsey2 Oxford Instruments Private Limited Messrs Tan Rajah & Cheah, 80 Raffles Place, #58-01 UOB Plaza 1, Singapore, 048624 Singapore Oxford Instruments India Private Limited Unit No.11, Marwah’s Complex, Krishanlal Marwah Marg, Andheri East, Mumbai, Maharashtra, 400 072 India Oxford Instruments SAS 77 ZA de Montvoisin, 91400 Gometz la Ville France Oxford Instruments Synchrotron Research Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Oxford Semicon Limited Tubney Woods, Abingdon, Oxon, OX13 5QX UK Associates Scienta Scientific AB3 Vallongata 1, 752 28, Uppsala Sweden ScientaOmicron GmbH3 Limburger Strasse 75, 65232 Taunusstein Germany Omicron Nanotechnology Japan, Inc.3 No. 20 Shimokawa Building, 5-30-15, Ota-ku, Tokyo Japan Omicron Nanotechnology Limited3 St James House, Kensington Square, London W8 5HD UK Omicron UHV Technik Limited3 St James House, Kensington Square, London W8 5HD UK ScientaOmicron Inc.3 240 Saint Paul St, Suite 301, Denver CO 80238 USA Societe Omicron Nanotechnology EURL3 Le Plan d’Aigues, RN 7, 1370 St. Cannat France VACGEN Limited3,4 St James House, Kensington Square, London W8 5HD UK 1. Voluntary strike off 23 April 2018. 2. UK tax resident. 3. Year end is 31 December. The Group has a 47% shareholding in these entities. 4. Disposed of 20 April 2018. Equity owned by the Company represents issued ordinary share capital. All subsidiaries are consolidated in the Group accounts. (f) Debtors 2018 2017 £m £m Amounts falling due after one year: Amounts owed by associate undertakings 1.4 3.6 Amounts falling due within one year: Amounts owed by subsidiary undertakings 15.2 57.5 Amounts owed by associate undertakings 1.2 — Other debtors 2.8 4.7 Prepayments and accrued income 0.3 0.3 20.9 66.1
(g) Other creditors 2018 2017 £m £m Trade creditors 0.4 0.1 Amounts owed to subsidiary undertakings 95.4 38.6 Tax, social security and sales related taxes 1.6 1.2 Other financial liabilities 1.4 6.7 Accruals and deferred income 2.5 2.6 101.3 49.2
142 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information
— — — 0.4 0.4 143 provision Restructuring — — — £m £m £m £m £m £m Recognised 1.5 1.7 1.7 1.9 0.6 0.6 0.5 1.0 0.5 1.0 0.9 1.1 1.5 1.7 2018 2017 2018 2017 2018 2017 (0.1) 0.2 (0.1) (0.4)
Oxford Instruments plc Report and Financial Statements 2018
debit year
year the the 2018 income 2017 during during March March (debit)/credit March April April 31 31 1 1 loss made used at at at at comprehensive comprehensive and losses losses
The Company makes contributions to a stakeholder pension scheme. The pension costs charge for the year represents contributions payable by for the year represents The Company makes contributions to a stakeholder pension scheme. The pension costs charge no outstanding contributions at the end of the financial year were the Company to the scheme. These amounted to £0.1m (2017: £0.1m). There (2017: £nil). Stakeholder pension scheme The amounts of deferred tax assets are as follows: tax assets are The amounts of deferred (i) Pension commitments Defined benefit scheme offers a defined benefit scheme, which Instruments Pension Scheme (“the Scheme”), The Company and its employees contribute to the Oxford and their length retirement related to members’ final salary at are and death in service benefit to members. Pension benefits pensions in retirement of service. Instruments Since this date, new employees have been invited to join the Oxford 1 April 2001. The Scheme was closed to new members from accrual. Stakeholder Plan, a defined contribution scheme. The Scheme is also closed to future are charged directly policy for charging net defined benefit costs to participating entities states that member costs Instruments Group The Oxford no longer The costs of scheme members that are to a participating company if that member is also an employee of said participating company. allocated on the basis of the participating company’s company are affiliated with a Group employees of any participating company or directly also employees of participating companies. that are of the total scheme members scheme members as a percentage as that for charging net defined benefit costs. The policy for determining contributions to be paid by participating companies is the same Financial Statements. the Group actuarial valuation and its funding can be found in Note 25 to Details of the scheme, its most recent £1.6m (2017: £0.4m). Instruments Pension Scheme were The contributions paid by the Company to the Oxford Tax Tax
Profit Profit Other Balance capital allowances over corresponding Excess of depreciation Tax Balance Deferred tax asset Deferred Provisions Provisions Balance (h) Provisions for liabilities (h) Provisions Balance Provisions substantively enacted on 2 July 2013. Further 1 April 2015) was from 21% to 20% (effective in the UK corporation tax rate from A reduction substantively enacted on 26 October 2015, and an 1 April 2020) were from 1 April 2017) and to 18% (effective from (effective to 19% reductions future the Company’s 1 April 2020) was substantively enacted on 6 September 2016. This will reduce from to 17% (effective additional reduction 2018 has been calculated based on those rates. tax liability at 31 March The UK deferred accordingly. tax charge current Provisions Employee benefits – pension and share schemes Employee benefits – pension and share reversal of the which the future from will be suitable taxable profits tax assets only to the extent that there deferred The Company recognises can be deducted. underlying timing differences of the following items: in respect assets have not been recognised tax Deferred Notes to the Parent Company Financial Statements continued year ended 31 March 2018
(j) Guarantees The Company has given a guarantee to the pension scheme in respect of the liability of its UK subsidiaries to the pension scheme. The guarantee is for the excess of 105% of the liabilities of the scheme, calculated on the basis of Section 179 of the Pensions Act 2004, over the assets of the scheme. The Company and its UK subsidiaries have entered into a cross-guarantee for £10.0m (2017: £10.0m) in respect of overdraft facilities of which £nil (2017: £nil) was drawn at the year end. (k) Commitments At 31 March 2018, capital commitments contracted were £nil (2017: £nil) and authorised were £nil (2017: £nil). (l) Subsequent events See Note 33 to the Group Financial Statements for details of dividends paid or declared after the Balance Sheet date. (m) Related party transactions The Company has a related party relationship with its Directors and Executive Officers and with its wholly owned subsidiary companies. Transactions with key management personnel are disclosed in the Remuneration Report on pages 67 to 80. There were no other significant transactions with key management personnel in either the current or preceding year other than the following: During the year the Company paid £nil (2017: £0.1m) to Imperialise Limited, a company for whom Nigel Keen, former Chairman, is a Director. The payment was for his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2017: £nil).
144 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information — — — — — — — — — £m 4.1 1.4 3.6 3.3 3.1 145 (1.2) (0.4) (2.0) (4.2) 22.8 45.9 73.9 20.7 46.5 38.4 34.2 19.6 (11.7) (10.9) (84.1) (15.3) (40.4) (19.7) (14.6) 158.7 226.3 179.6 — — — — 3.9 3.6 1.2 (0.7) (9.8) (0.4) (0.4) (0.4) (8.0) (2.9) 18.1 38.0 (98.0) (19.5) (26.2) (33.8) (12.5) (25.5) 276.7 132.5 — — — — — 3.4 4.9 7.5 (1.4) (1.0) (0.9) (2.9) (1.3) (2.7) 13.1 13.9 38.0 18.9 10.5 (12.1) (12.7) 318.3 143.0 (108.2) — — — — — — — — — — (0.2) (6.8) (8.7) (4.8) (3.4) (6.7) 14.6 36.4 (16.1) (11.6) (17.1) 314.0 125.5 (126.5) — — — — — — — — — — — 4.1 (3.5) (9.7) (3.7) (2.5) (0.3) (7.8) (2.2) (0.1) (4.1) (8.2) (8.4) (6.7) 40.2 20.1 16.0 12.9 (46.3) (53.5) (35.0) (25.1) (12.6) Oxford Instruments plc Report and Financial Statements 2018 320.5 140.2 (112.8) (156.9) (144.0) (148.6) (135.8) (124.3) (118.9) (128.2) (109.3)
37.0 29.2 30.4 31.5 42.3 1
£m £m £m £m 2017 2018 2014 2015 2016 — — — — income associate costs in receivables operating overdrafts
Investment Property, plant and equipment and 32.5 34.4 33.1 35.2 plant receivables assets 86.2 90.7 79.0 81.7 Consolidated Statement of Financial Position Property, other Intangible Long-term and tax current and Deferred 181.0 247.9 231.3 220.8 Inventories Trade and other payables Trade Net assets excluding net cash 68.3 70.8 61.1 53.9 attributable Net assets employed/capital and reserves equity holders to the Company’s obligations benefit Retirement equivalents 32.6 25.1 21.8 27.2 cash and Cash borrowings Bank debt Bank Net other items and Provisions operations continuing 300.2 296.9 282.4 270.3 249.2 from of Income Consolidated Statement costs Revenue continuing operations from Adjusted operating profit Other related deemed no longer payable Contingent consideration value adjustments fair related Reversal of acquisition Acquisition undertakings Loss on disposal of subsidiary – further amount deemed payable Contingent consideration Restructuring to associate Restructuring costs – relating Settlement loss on US pension scheme Impairment of investment in associate costs Impairment of internally generated intangible assets intangibles Impairment of acquired (expense)/credit (3.1) 4.9 (2.9) 0.7 intangibles Amortisation of acquired financing continuing operations from Operating profit/(loss) tax Net continuing operations from taxation before Profit/(loss) Income continuing operations for the year from Profit/(loss) continuing operations from tax before Adjusted profit as at 31 March 2018 as at 31 Historical Summary Financial Fair value movement on financial derivatives Historical Financial Summary continued as at 31 March 2018
2014 2015 2016 2017 2018 £m £m £m £m £m Cash flow Net cash from operating activities 11.2 17.9 34.4 27.4 27.5 Net cash (used in)/generated from investing activities (175.0) (11.7) (35.2) (6.6) 67.8 Net cash from/(used in) financing activities 151.3 (19.8) (6.0) (20.2) (103.1) Net (decrease)/increase in cash equivalents from continuing operations (12.5) (13.6) (6.8) 0.6 (7.8)
pence pence pence pence pence Per ordinary share Earnings – continuing 22.6 (11.7) 13.1 (44.7) 34.3 Adjusted earnings2 54.8 41.2 41.0 41.5 56.3 Dividends 12.4 13.0 13.0 13.0 13.3 Employees Average number of employees 2,050 2,420 2,077 1,974 1,642 1. Comparative figures have been restated to account for the disposal of the Group’s Industrial Analysis business. 2. 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 Group Financial Statements.
146 Oxford Instruments plc Report and Financial Statements 2018 01: Strategic Report 02: Governance 03: Financial Statements 04: Company Information 147 Oxford Instruments plc Report and Financial Statements 2018 US Counsel Wilmer Hale LLP KPMG LLP Principal Bankers HSBC Bank plc Santander plc plc The Royal Bank of Scotland Stockbroker JPMorgan Cazenove UK Solicitors Laytons Solicitors LLP Ashurst LLP Auditor
1 1 1 Stephen Blair was appointed to the Audit and Risk, Nomination and Remuneration Committees on 1 July 2017. Richard Friend Richard Thomas Geitner 1. Administration Any two Directors Thomas Geitner, Chairman Thomas Geitner, Stephen Blair Friend Richard Mary Waldner Alan Thomson Remuneration Alan Thomson, Chairman Stephen Blair Friend Richard Thomas Geitner Mary Waldner Nomination Board Committees Board Audit and Risk Chairman Mary Waldner, Stephen Blair Company Secretary ACIS Susan Johnson-Brett Honorary President DL OBE FRS Hon FREng Sir Martin Wood Directors and Advisers Advisers and Directors Oxford Instruments Directory
Company/address Country Telephone Fax Email Oxford Instruments Head Office Tubney Woods, Abingdon, UK +44 (0)1865 393200 +44 (0)1865 393333 [email protected] Oxfordshire OX13 5QX, UK Materials & Characterisation Oxford Instruments NanoAnalysis Halifax Road, High Wycombe, Systems for materials UK +44 (0)1494 442255 +44 (0)1494 524129 [email protected] Buckinghamshire HP12 3SE, UK analysis at the nanoscale Arenavägen 41, 10th floor, Systems for materials Sweden +46 8 5448 1550 +46 8 5448 1558 [email protected] 121 7 Johanneshov, Sweden analysis at the nanoscale Asylum Research 6310 Hollister Ave, Systems for materials USA +1 (805) 696 6466 +1 (805) 696 6444 [email protected] Santa Barbara, CA 93117 USA analysis at the nanoscale Borsigstraße 15A, 65205 Wiesbaden, Germany Germany .+4961229370 +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 UK +44 (0)1934 837000 +44 (0)1934 837001 [email protected] Bristol BS49 4AP, UK fabrication Research & Discovery Andor/Bitplane/Spectral 7 Millennium Way, Scientific imaging cameras, UK +44 (0)28 9023 7126 +44 (0)28 9031 0792 [email protected] Springvale Business Park, spectroscopy solutions Belfast, BT12 7AL UK and microscopy systems Badenerstrasse 682, Switzerland +41 44 430 11 00 +41 44 430 11 01 [email protected] CH-8048 Zürich 2 East Beaver Creek Road, Canada +1 (905) 326 5040 +1 (905) 326 5041 [email protected] Building 2, Richmond Hill, ON Canada L3B 2N3 Oxford Instruments NanoScience & Magnetic Resonance Tubney Woods, Abingdon, Advanced tools for UK +44 (0)1865 393200 +44 (0)1865 393333 [email protected] Oxfordshire OX13 5QX, UK applied research [email protected] Oxford X-Ray Technology 360 El Pueblo Road, X-ray tubes and detectors USA +1 (831) 439 9729 +1 (831) 439 6051 [email protected] Scotts Valley, CA 95066, USA Service & Healthcare OiService CT & MR 1027 SW 30th Avenue, USA +1 (954) 596 4945 +1 (954) 596 4946 [email protected] Deerfield Beach, FL 33442, USA 64 Union Way, Vacaville, USA +1 (707) 469 1320 +1 (707) 469 1318 [email protected] CA 95687, USA 120 Enterprise Drive, Ann Arbor, USA +1 (888) 323 1316 +1 (734) 822 1011 [email protected] MI, 48103, USA [email protected]
148 Oxford Instruments plc Report and Financial Statements 2018 Company/address Country Telephone Fax Email Regional Sales and Service Offices Oxford Instruments/Canada/ Latin America 300 Baker Avenue, Suite 150, USA +1 (978) 369 9933 +1 (978) 369 8287 [email protected] Concord, MA 01742, USA Oxford Instruments Technology, China Floor 1, Building 60, No. 461, Hongcao Road, Xuhui District, Shanghai, 200233 China 400 678 0609 +86 21 6127 3828 [email protected] Building B2 West, No. 11 West Third Ring North Road, Haidian District, Beijing, 100085 China 400 678 0609 +86 10 5884 7901 [email protected] Room 3312, Building B3, Hanxi East Road, NanCun Town, Panyu District, Guangdong Province, 511446, Guangzhou China 400 678 0609 +86 20 8478 7349 [email protected] Room 2201B, Central Plaza 1, No. 8 Shuncheng Street, Jinjiang District, Chengdu, Sichuan Province, 610024 China 400 678 0609 +86 28 8620 1871 [email protected] Oxford Instruments Czech Republic Velvarska 13, CZ-160 00 Praha, Czech +420 233 343 264 +420 234 311 724 [email protected] Czech Republic Republic Oxford Instruments France 77 ZA de Montvoisin, France +33 1 69 85 25 25 +33 1 69 41 46 80 [email protected] 91400 Gometz la Ville, France Oxford Instruments Germany Borsistrasse 15a, 65205 Wiesbaden, Germany +49 6122 9370 +49 6122 937100 [email protected] Germany Oxford Instruments India 11, Marwah’s Complex, Krishanlal Marwah Marg, India +91 224 4253 5100 +91 224 4253 5110 [email protected] Andheri East, Mumbai 400072, India Oxford Instruments Japan IS Building 3-32-42, Higashi-Shinagawa, Japan +81 (0)3 6732 8961 +81 (0)3 6732 8937 [email protected] Shinagawa-ku Tokyo 140-0002, Japan Shin Osaka Sun R Building 10th Floor, 5-8-3 Nishi-Nakajima, Yodogawa, Osaka, 532-0011, Japan Japan [email protected] Oxford Instruments Korea No. 8-S 26, 8F., 10 Chungmin-ro, Republic +82 2 2008 4500 +82 2 2008 4555 [email protected] Songpa-gu, Seoul 138-962 Korea (Republic of) of Korea Oxford Instruments Russia Denisovskiy per. 26, Moscow 105005, Russia +7 (095) 933 51 23 +7 (095) 933 51 24 [email protected] Russian Federation Oxford Instruments Singapore 10 Ubi Crescent, #04-81 Ubi TechPark Lobby E, Singapore +65 6337 6848 +65 6337 6286 [email protected] Singapore 408564, Republic of Singapore Oxford Instruments Taiwan 2F-1, No. 27, Kuang-Hsin Road,Hsin-Chu Taiwan +886 3 5788696 +886 3 5789993 [email protected] Taiwan 300, Taiwan, R.O.C.
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