Oxford Instruments plc Empowering Science and Industry Report andStatements Financial 2016 Oxford Instruments plc Report and Financial Statements 2016 Oxford Instruments plc is a leading provider of high technology tools and systems for industry and research. We use innovation to turn smart science into world‑class products that support research and industry to address the great challenges of the 21st Century. WHAT’S INSIDE Strategic Report Governance Financial Statements Company information We discuss developments and Read about how we manage See how we are performing Additional information the global issues that have had our Company and maintain in light of developments about us an impact on our business high standards in the past year page 1 page 40 page 79 page 137 Highlights 1 Board of Directors 41 Directors’ Responsibilities 80 Shareholder Information 137 Our Business 2 Corporate Governance 44 Independent Auditor’s Report 81 Oxford Instruments Directory 139 Where We Operate 3 Audit and Risk Accounting Policies 84 Directors and Advisers IBC Chairman’s Statement 4 Committee Report 51 Consolidated Statement Chief Executive’s Review 6 Nomination Committee Report 57 of Income 90 Key Performance Indicators 8 Remuneration Report 59 Consolidated Statement of Comprehensive Income 91 Strategic Context 9 Report of the Directors 76 Consolidated Statement Our Strategy 10 of Financial Position 92 Business Model 12 Consolidated Statement Operations Review 14 of Changes in Equity 93 Principal Risks and Uncertainties 22 Consolidated Statement Viability Statement 25 of Cash Flows 94 Financial Review 26 Notes to the Financial Statements 96 Corporate Responsibility 32 Parent Company Statement of Financial Position 123 Statement of Changes in Equity 124 Notes to the Parent Company Financial Statements 125 Historical Financial Summary 136 Front cover image: the Oxford Instruments logo etched onto a human hair using atomic force microscopy. Using this technique we are easily measuring features 100,000 times smaller than the diameter of a hair. StRateGIC RepoRt Highlights Strategic Report The Group delivered profit growth against a difficult macroeconomic backdrop. Revenue (£m) Continuing adjusted earnings per share1 (p) 2016 361.6 £361.6m 2016 49.2 49.2p Governance 2015 380.1 ‑4.9% 2015 48.4 +1.7% Adjusted profit before tax1 (£m) Dividend per share (p) 2016 37.0 £37.0m 2016 13.0 13.0p 2015 35.7 +3.6% 2015 13.0 Orders (£m) Highlights include: • adjusted profit before tax up 3.6%, in line with expectations; Financial Statements 2016 380.8 • reported revenue down 4.9%, and 5.7% at organic constant £380.8m currency1, driven by structural changes within the superconducting 2015 382.4 ‑0.4% wire market and completion of a service contract; • strong cash performance with operating cash flow up 27.5%; leverage maintained at 2.3 times; Our NanoTechnology Tools and Service sectors delivered steady • improved profit performance in NanoTechnology Tools and Service performance, whilst Industrial Products continued to face pressure sectors; decline in Industrial Products due to market softness; due to weakness in its end markets, in particular structural changes • early action on cost reduction delivered operational benefits of within the superconducting wire market. The Medical Imaging £9.4 million; and Resources, Inc (“MIR”) acquisition has progressed well and has made a considerable contribution to the increase in revenues, orders and • appointment of Ian Barkshire as Chief Executive in line with profit within the Service sector. We have placed our Omicron business succession plan, and Gavin Hill as Group Finance Director. into a joint venture with GDI’s Scientia Scientific AB, which is making Alan Thomson to assume Chairman role in September 2016. good progress towards profitability. Margins for the Group increased 1. Throughout these financial statements we make reference to adjusted numbers. These are Company Information in the year, supported by the successful delivery of our cost reduction presented as, in the opinion of the Directors, they present a clearer picture of the business performance. A full definition of adjusted numbers can be found in Note 1. Where we programme. make reference to organic numbers, these exclude the effect of acquisitions and disposals. Where we make reference to constant currency numbers, these are prepared using the Read more exchange rates which prevailed in the previous year rather than the actual exchange rates page 14 which prevailed in the year. Oxford Instruments plc Report and Financial Statements 2016 1 StRateGIC RepoRt Our business As one of the world’s first university spin‑out companies, we have been at the forefront of technological innovation for more than 55 years. Through our deep understanding of our customers we use our innovation to turn smart science into world class solutions and services that support research and industry to address the great challenges of the 21st Century. OuR busIness Is stRuCtuReD AROunD tHRee segments tHAt RefleCt OuR expeRtIse AnD busIness ObjeCtIves: nanotechnology Industrial service tools products Supplying knowledgeable High technology tools technologically superior support services, training to characterise, analyse, tools and components and refurbishment of our manipulate and fabricate for industrial applications own products at the nanoscale the service, sale and rental of third party MRI and Ct machines Read more Read more Read more page 14 page 18 page 20 OuR glObAl mARKet Is COmpRIseD Of sIx AReAs: Research and academia life sciences metals/construction Our target market sector includes research A growing sector that includes the support We are supporting global industries into nanotechnology applications, new and service of MRI and CT imaging including metals, alloy manufacturing, materials, Quantum Information Processing equipment as well as new opportunities steel foundries and scrap recycling. and other developments. driven by the convergence of physical and biological sciences. environment semiconductors/It This includes greener production, recycling, This includes semiconductor electronics, energy detection of hazardous substances in soil, Micro Electro Mechanical Systems We have been involved in the and agriculture and food. (“MEMS”), compound semiconductor search for sustainable energy, solar materials, thin film and particle analysis. technologies, oil and gas exploration, and superconductor materials. 2 Oxford Instruments plc Report and Financial Statements 2016 Where We Operate Strategic Report We have offices in 16 countries and employ 2,077 people worldwide. As one of the world’s first university spin‑out companies, we have been at the forefront of technological innovation for more than 55 years. Governance Financial Statements Principal offices Revenue fROm exteRnAl CustOmeRs bY DestInAtIOn USA Rest of World UK Germany Rest of Europe £123.7m £12.4m £32.2m £22.3m £45.9m Company Information China Rest of Asia Japan £51.8m £38.4m £34.9m For a full list of our locations please visit our website: www.oxford‑instruments.com/offices Oxford Instruments plc Report and Financial Statements 2016 3 StRateGIC RepoRt Chairman’s statement Against a difficult macroeconomic backdrop we achieved profit growth on lower revenue. The Group delivered a profit performance in line with expectations. Against a difficult macroeconomic backdrop we achieved profit growth on lower revenue. Reported Group revenue was £361.6 million (2015: £380.1 million) with adjusted profit before tax rising to £37.0 million (2015: £35.7 million). Profit before tax increased to £13.1 million (2015: loss of £9.6 million). Our NanoTechnology Tools and Service sectors delivered steady performance, whilst Industrial Products continued to face pressure from weaknesses in its end markets. Good control of working capital led to strong cash conversion in the year. At the beginning of 2015, recognising the difficult trading environment, we instigated a wide ranging cost reduction programme across the Group to bring our cost base in line with trading and secure efficiencies that enhance our performance. This cost reduction programme has delivered the expected savings and enabled us to improve profitability despite the constrained market backdrop. DID YOu KnOW? Our systems produce highly efficient power semiconductors resulting in greater green energy potential 4 Oxford Instruments plc Report and Financial Statements 2016 Strategic Report We continued to actively manage the Group’s portfolio. In May We have previously announced a number of other changes to the 2015, we acquired Medical Imaging Resources, Inc (“MIR”), a US Board. I would like to thank Jennifer Allerton and Jock Lennox, who company specialising in the build, lease, sale and service of mobile will be standing down from the Board at the AGM this September. medical imaging laboratories. In the same month, we entered Jennifer has been a Board member since June 2013; Jock has been into a joint venture with GD Intressenter AB of Sweden (“GDI”) to a Board member since April 2009, and is Chairman of the Audit and create the world’s largest player in the highly specialised ultra high Risk Committee, and Senior Independent Director. vacuum surface science field. The joint venture comprises Oxford Mary Waldner will take over from Jock as Chairman of the Audit and Instruments’ Omicron NanoTechnology GmbH (“Omicron”) and Risk Committee when Jock steps down from this role on 16 June GDI’s Scienta Scientific AB (“Scienta”). It is making good progress 2016. Mary is CFO at Lloyd’s Register, a privately owned global towards profitability. engineering, technical and business services organisation. She has Given the modest growth in adjusted continuing earnings per share a broad range of experience across a variety of sectors having held of 1.7%, the Directors are proposing to maintain the final dividend senior financial positions with a number of major public and private at last year’s level. This would result in a final dividend of 9.3 pence companies including Ultra Electronics Holdings PLC and QinetiQ. (2015: 9.3 pence), bringing the total dividend for the year to Mary graduated from Oxford University with an MA in Physics and 13.0 pence (2015: 13.0 pence).