Final Results
Oxford Instruments PLC
03 June 2004
Oxford Instruments plc
Announcement of preliminary results for the year to 31 March 2004
Oxford Instruments plc ("Oxford Instruments" or "the Company"), the advanced
instrumentation business, today announced preliminary results for the year to 31
March 2004:
• Turnover of the continuing businesses close to last year at £182m (2003
£187m) despite the impact of currency movements;
• Continued improvement in gross margins, rising to 33% of sales (2003
32%) as a result of further reductions in product costs;
• Operating profit at £8.0m* increased 18% over prior year; total
operating profit after deducting goodwill amortisation, exceptional items
and terminated business was £5.7m (2003 £3.9m);
• Five-fold increase in profit before tax to £11.9m (2003 £2.4m),
including a net profit of £6.6m from the disposal of the investment in the
OMT joint venture;
• EPS rose 44% to 11.4p* (2003 7.9p); total EPS was 21.3p (2003 2.6p);
• Working capital reduced to 19% of sales (2003 23%), demonstrating
increased momentum in operational efficiency programmes;
• Successful sale of OMT shares contributed to cash generation of £17.4m
during the year;
• Recommended final dividend of 6.0p, making a total for the year of 8.4p
(2003 8.4p).
* for the continuing wholly-owned operations before exceptional items,
terminated business and goodwill amortisation
Andrew Mackintosh, Chief Executive of Oxford Instruments plc, said: "We will
continue to seek out differentiated positions in growing end-user markets. In
particular, we intend to strengthen our presence in the growing market for life
science instrumentation. Building on our sound operational platform, we are
confident that our world class technologies and strong market positions will
enable us to deliver improved returns for our shareholders."
Enquiries:
Oxford Instruments plc Tel: 01865 881437 Fax: 01865 884045
Andrew Mackintosh, Chief Executive
Martin Lamaison, Financial Director
Hogarth Partnership Limited Tel: 020 7357 9477 Fax: 020 7357 8533
Rachel Hirst/Andrew Jaques
For further copies of this Preliminary Results announcement please contact
Vinnetta Hutchings at the Company's registered office at Old Station Way,
Eynsham, Witney Oxon OX29 4TL (email: vinnetta.hutchings@oxinst.co.uk).
Chairman's Statement
Since our reorganisation, we have focussed on creating a strong operational
platform for each of the businesses as a base from which to drive the strategic
future of the Company.
In the past year we have made further substantial improvements in operating
performance, including returning our Medical business to profitability. We have
increased net cash by £17.4m during the year, including a reduction of working
capital of £9.0m. A range of actions has delivered higher margins and
profitability despite difficult trading conditions, compounded by the severe
adverse impact of currency movements and increased pension costs. These two
items impacted profits by £3.0m in the year.
Following the successful realisation of the value from our investment in Oxford
Magnet Technology (OMT), we have started to change the portfolio of products in
order to focus our technical strengths to address end user markets where we can
create value for our customers. Actions include the acquisition in October 2003
of VG Semicon and the recent trade announcement of an exclusive licence
agreement with GE Healthcare for the development of new tools for molecular
analysis.
Orders received during the year of £178m (2003 £186m) were in line with our
forecasts. Recently introduced products in the Medical and Analytical businesses
have generated an encouraging level of orders, while orders for the
Superconductivity business were down on last year, partly as a result of reduced
demand for high-field magnets. New orders from the semiconductor sector were
unchanged on the previous year, reinforcing our belief that business levels from
this sector have stabilised.
Despite lower orders, turnover of the continuing businesses of £182m (2003
£187m) was down only slightly on the previous year, even after the impact of
currency movements. At constant currency rates turnover in 2003/04 would have
been approximately £5m higher than reported. This result reflects continued
progress in reducing our order backlog and shortening our lead times to
customers. Along with other improvement programmes, the introduction of 'lean'
manufacturing techniques is contributing strongly to the more reliable and
responsive timing of customer deliveries.
Margins improved again, with gross profit for the continuing businesses
increasing to 33% from 32% of sales as a result of continued efforts to reduce
product costs. This was despite the weakening dollar, which increased pressure
on selling prices in many major markets during the second half of last year.
Operating profits of continuing wholly-owned operations before exceptional
items, terminated business and goodwill amortisation increased by 18% to £8.0m
(2003 £6.8m). Improved profit performance in the Medical and Analytical
businesses reduced the impact of a weaker result from the Superconductivity
business. Currency movements and increased pension costs had a major effect on
profits during the year and at 2002/03 exchange rates and pension charges
operating profit would have been £3.0m higher at £11.0m.
Profit before tax, but after exceptional costs, terminated business, the result
of the termination of OMT and a much-reduced interest charge of £0.2m (2003
£1.6m), increased substantially to £11.9m (2003 £2.4m). Exceptional items
included redundancy costs of £1.1m, primarily associated with reorganisation of
the Medical business. A loss of £0.5m was incurred from the operation of a new
venture in the Superconductivity business prior to the external financing of
this activity and its relaunch as ARKeX in March 2004. A profit of £6.3m (net of
costs and operating losses) was made on the disposal of our investment in OMT,
the joint venture with Siemens.
The momentum in our operational improvement programmes is shown by the
significant reduction in working capital from 23% to 19% of sales, an
improvement of £9.0m. Inventory levels were reduced by £8.0m in the year, a
reduction of 20%. This follows a decrease in the previous year of £12.1m.
Closing net cash was £20.7m, an increase of £17.4m. Cash inflows from operations
(£17.8m) and the disposal of shares in OMT (£8.5m) were partially offset by
payments for capital expenditure (£2.2m), taxation (£2.4m), acquisitions (£0.2m)
and dividends to shareholders (£3.9m). The strong cash generation from
operations was achieved by improved profits, better working capital management
and careful control of expenditure on fixed assets.
The tax rate of continuing businesses was 34%, as a result of the mix of profits
generated in the USA and the UK. Total reported profits for the financial year
of £10.0m (2003 £1.2m) included after-tax profits of £4.8m (2003 £3.5m) from
continuing wholly-owned businesses, losses from exceptional items and terminated
business of £1.2m (2003 £1.7m) and profits of £6.4m from our interest in the OMT
joint venture.
Earnings per share from continuing wholly-owned businesses before exceptional
items, terminated business and goodwill amortisation were 11.4 pence (2003 7.9
pence). The Board has recommended a final dividend of 6.0 pence, making a total
dividend for the year of 8.4 pence, unchanged from last year.
The Company continues to account for pensions in accordance with SSAP 24. The
charge to profits calculated under this standard was £1.4m higher at £3.8m (2003
£2.4m), based on the 2003 actuarial valuation. This valuation also led to an
increase in contribution rates in the UK for both Company and employees during
the year.
Peter Hill left the Board on 31st May 2004 as he does not meet the criteria for
independence set out in the New Combined Code. This is because he and I have a
common directorship in another UK-listed public company. We would like to thank
Peter for his valuable contribution over the last five years.
Looking ahead, we have identified a number of value-enhancing options for the
business and have established a sound operational base from which to implement
them. We will continue to focus on improving profitability and returns across
our businesses by building on the momentum generated over recent years. We are
also assessing carefully the value that each of our businesses contributes to
the whole and how this will be optimised. The progress we have made towards our
goals is due to our talented workforce and I would like to thank all our
employees for their hard work in delivering a creditable improvement in
performance. By anticipating the evolving demands of our customers and meeting
these through innovative, cost-effective and rapid solutions we are confident in
our ability to generate long-term value for shareholders.
Chief Executive's Review
Improved performance
The Company has increased profits in a year when markets remained subdued,
pension costs increased significantly and adverse currency movements had a
severe impact. The translation and transaction effects of changes in currency
strength can be estimated, but the biggest impact on the business arising from a
weak US dollar is the effect on product volumes and margins in the market place.
Our operational focus has helped us to remain competitive and increase margins
despite the strength of sterling relative to the US dollar - the currency used
in our biggest markets.
Our work on supply chain management has entered a new phase over the past year,
with increasing volumes of our low-volume high-variety components being sourced
from lower-cost countries. We estimate that some £15m of our product cost
currently sourced locally can potentially be procured overseas at significantly
reduced cost. Volumes procured by these routes in the past year were less than
£5m.
We have continued to maintain a focus on improving our new product introduction
processes, concentrating in particular on the front end - translating customer
needs into innovative and cost-effective product specifications. We have
maintained our investment in R&D during the year at £13m (2003 £13m),
representing 7% of sales.
Our worldwide sales coverage is a key strength of the business. In the past
year, we have increased our support for our customers in China by opening a new
operations facility in Shanghai. While initially to be used for the rebuilding
of detectors, this will ultimately serve as a base for a range of assembly
activities for the local market. We have also opened a small office in Russia
and are already seeing the benefits of an increased local presence.
We have continued our strategy of streamlining our portfolio to simplify our
business and to exit non-core markets. We have been successful in obtaining
external financing to create 'ARKeX', a new business exploiting proprietary
technology under licence from Oxford Instruments which enables the search for
oil, gas and mineral deposits to be carried out from the air. We retain a 24%
stake in ARKeX and this adds to our small but important portfolio of spin-out
investments.
Analytical
Turnover for the year was £59m (2003 £62m), with second half turnover including
£2.1m from the VG Semicon business acquired in October 2003. Asia continues to
be the primary driver of growth in the market for our Analytical products.
Operating profits before exceptional items and goodwill amortisation improved to
£3.7m (2003 £2.9m) following the cost reduction programmes instigated in the
previous year and including a £0.5m contribution from VG Semicon, which exceeded
its early financial forecasts.
The segment of our business which serves the semiconductor industry accounted
for approximately 20% of sales. This segment remained profitable in the year,
with product cost reduction initiatives helping to offset significant price
reductions in a quiet market. A brief rise in order and enquiry levels from the
semiconductor segment at the end of 2003 has not been sustained, but under new
management we are making selective investments in order to ensure that we
benefit from an eventual market upturn.
In other industrial markets, our 'Twin-X' product platform, which was launched
in February 2003 for a range of quality control applications requiring chemical
analysis, exceeded internal forecasts during the year. Sales in the UK and the
USA were particularly strong and the product platform is establishing itself as
a market leader. The growing reputation of 'Twin-X' has also boosted sales of
the older products in the portfolio. In the last quarter we have responded to
impending changes in the laws controlling the sulphur content of petrol and
diesel by launching an innovative new version of 'Twin-X' aimed at this
legislation-driven market.
Sales in France of our 'Horizon' hand-held spectrometer continue to be affected
by issues relating to the securing of the necessary government approvals for
this technology. Although customer reaction to our product is enthusiastic, we
are not expecting a rapid resumption of activity in this segment. However we are
confident in the product concept and are therefore investing in other variants
of 'Horizon' in order to take the product into new markets.
Sales of our microanalysis product line were stable during the year. We continue
to improve the attractiveness of this market-leading product with software
upgrades. For example, we launched during the year an improved version of a
dedicated package that allows police and forensic customers to detect and
analyse the microscopic particles that are emitted when a gun is fired.
Sales of low-power X-ray tubes increased 35% over the past year. We have
established ourselves as a leading independent supplier of products in this
small, but technically important market. Technology relationships with NASA and
other partners will underpin our continued strength in this segment going
forward.
Medical
Turnover for the year of £35m (2003 £36m) was ahead of our forecasts. The
business has returned to profitability, with a profit before exceptional items
and goodwill amortisation of £0.1m (2003 £1.3m loss) in the year.
Following on from our strategic review, we have taken a number of actions aimed
at releasing value from the business. We have further reduced the volume of
non-core third party products being sold through our overseas sales channels.
Turnover has therefore dropped, but gross margins have improved significantly -
helped by growth in overseas sourcing - and overheads are lower.
Our operational improvement programmes have been particularly successful, with
nearly £5m cash being generated from the business during the year as stock
reduction and outsourcing programmes took effect.
In the last quarter we implemented the second phase of a simplification of the
organisational structure in the UK and overseas into discrete product groups.
When complete over the next few months this will reduce headcount by 21, or 7%.
We are now starting to deliver product direct to customers in northern Europe
from our UK factory, enabled by internal improvements and an extension of our IT
system to those countries.
We have been responding to customer demands for new products with a series of
upgrades designed to improve our competitiveness. We have increased sales of our
Synergy EMG (electromyography) product, our FM800 labour and delivery monitor
and our EMG needles accessories during the year following the introduction of
new variants requested by the market.
While the operating performance of the business is improving, we continue to
review our strategic options to ensure that we generate an acceptable return for
our shareholders from the business.
Superconductivity
Despite lower orders during the year, turnover for the year of £89m (2003 £89m)
was stable as product lead times were further reduced. Operating profit before
exceptional items, terminated business and goodwill amortisation was £4.2m (2003
£5.2m). Although profits of £3.1m in the second half were ahead of the previous
year (2003 £2.6m), this was not enough to make up for a poor first half.
We have made excellent technical progress with the 'Discovery' magnet, used for
new drug discovery research. Three systems are being used by customers, while
following successful testing in the factory two more systems are being delivered
to customer sites. The high price of these complex systems is currently limiting
the size of the market and we are presently looking at a number of alternative
sales channels and business models for 'Discovery' and related products. The
temporary problems reported earlier in the year with other high-field magnets
have now been resolved.
Overall, following major investments in technology development over the past 4
years, we have again made material improvements in both our magnet quality and
our installation processes this year, improving the predictability of our
installation of these complex products by a further 40%, to a level which we
believe leads the industry. Over the past year we have started to see the
benefits of this investment coming through in many areas of the business. While
the manufacturing efficiency of existing products is improving - also reducing
product cost and lead times - we are in turn able to accelerate the launch of
new and differentiated products. For example, in recent months we have announced
both magnets and low-temperature equipment which do not need refilling with
liquid helium, thereby reducing running costs and increasing ease of use for the
customer.
The intellectual property we create through this investment can also be valuable
to other companies. In the past year we have received royalty income for our
intellectual property and will continue to pursue such opportunities in future.
Following a long period of technical collaboration, we have recently announced
an agreement with GE Healthcare which gives us exclusive rights to develop
certain applications of a novel magnet-based sample preparation technique in the
life sciences market. This ground-breaking technology is attracting a great deal
of interest in the research community because it holds out the promise of
increasing significantly the sensitivity of existing measurements. Under the
terms of the agreement, Oxford Instruments will be responsible for the
instrumentation development, while GE Healthcare will supply the proprietary
reagents which are central to the technique.
Since the year end we have restructured our magnet business into three
market-facing product groups to enable more focus on this opportunity and the
others in the business while controlling costs. As a result of this change
headcount will fall by approximately 30 or 4% over the coming months.
A significant proportion of the output of the magnet business currently goes to
OEM customers, whose performance is therefore important to us. Our new supply
relationship with Thermo Electron is growing ahead of expectations. However,
business has been slower in the past year in the traditional market for NMR
spectrometers - equipment which uses superconducting magnets. As a result Varian
- one of our major customers - has recently implemented a significant inventory
reduction programme. This will hold back magnet shipment volumes in the first
half of 2004/05.
Our US-based superconducting wire business has had a challenging year, as the
growth in wire volume has not been enough to compensate for lower prices. Local
profits were consequently slightly lower than the previous year. Volumes of wire
delivered to OMT were down in the first half of the year as previously reported,
while in the last quarter margins of one specific product for OMT were affected
by quality problems in our supply base. Shipments of material to the customer
have continued during this period, while margins should start to recover over
the next few months now that the cause has been identified.
We are currently processing evaluation quantities of novel wire product for the
new 'ITER' programme (a $5bn multinational project designed to generate clean
energy from fusion reactions). The programme has widespread government support
and when the final site decision is taken it is expected that this project will
generate very significant additional requirements for superconducting wire over
the next few years.
Our US-based MRI magnet field service business received a supplier award from
Siemens Medical Systems (SMS) for a third year in a row. Following the end of
the OMT joint venture, we continue to work closely with SMS to add value to
their customer offerings in the USA.
Prospects
The year has started encouragingly, with very early results being ahead of last
year. While we anticipate that volumes in the Superconductivity business will be
lower in the first half, both the Superconductivity business and the Medical
business will be operating from a lower cost base in the second half of the year
as a result of actions already taken. This will help us to make further overall
progress during the year. We are confident that our world class technologies and
strong market positions will enable us to deliver improved returns for
shareholders.
Group Profit and Loss Account
Year ended 31 March 2004
Continuing operations 2004
Exceptional
Before items and
exceptional terminated Interest in
items business joint venture
Notes £ million £ million £ million £ million
------------------ ------ --------- --------- --------- ---------
Turnover
Group and share of
joint venture 182.3 - 10.8 193.1
turnover
Less share of
joint 3 - - (10.8) (10.8)
venture turnover
------ --------- --------- --------- --------- --------- ---------
Group turnover
(including
acquisition 2,7 182.3 - - 182.3
of £2.1 million)
Cost of sales (121.8) - - (121.8)
------------------ ------ --------- --------- --------- ---------
Gross profit/ 60.5 - - 60.5
(loss)
Net operating 4 (53.2) (1.6) - (54.8)
expenses
------------------ ------ --------- --------- --------- ---------
Group operating
profit/(loss)
before 2 8.0 (1.6) - 6.4
goodwill
amortisation
Goodwill (0.7) - - (0.7)
amortisation
------ --------- --------- --------- --------- --------- --------
Group operating
profit/(loss)
(including
acquisition
profit of £0.5 2 7.3 (1.6) - 5.7
million)
Share of operating
(loss)/profit of
joint 3 - - (0.2) (0.2)
venture
------ --------- --------- --------- --------- -------- ---------
Total operating
profit/(loss)
Group and share of
joint venture 7.3 (1.6) (0.2) 5.5
Loss on disposal - - - -
of discontinued
business
Profit on disposal
of
investment before 3 - - 6.8 6.8
goodwill
Goodwill
previously
written off 3 - - (0.2) (0.2)
against
reserves
------------------
Profit/(loss)
before 7.3 (1.6) 6.4 12.1
interest and tax
Total net interest
payable 6 (0.1) - (0.1) (0.2)
------------------ ------ --------- --------- --------- ---------
Profit/(loss) on
ordinary
activities 7.2 (1.6) 6.3 11.9
before tax
Tax on profit/
(loss) (2.4) 0.4 0.1 (1.9)
on ordinary
activities
----------------------------------------------------------------------------------
Profit/(loss) for
the
financial year
attributable to 4.8 (1.2) 6.4 10.0
shareholders
----------------------------------------------------------------------------------
Dividends 8 (3.9)
------------------ ------ --------- --------- --------- ---------
Retained profit
for 6.1
the financial year
----------------------------------------------------------------------------------
pence pence pence pence
------------------ ------ --------- --------- --------- ---------
Earnings per share 9
Basic earnings per
share before
goodwill 11.4 (2.4) 13.7 22.7
amortisation
Basic and diluted
earnings per share 10.0 (2.4) 13.7 21.3
------------------ ------ --------- --------- --------- ---------
Group Profit and Loss Account
Year ended 31 March 2003
Continuing operations Discontinued 2003
Before Sub- operations
exceptional Exceptional Interest in total
items items joint venture
Notes £ million £ million £ million £ million £ million £ million
---------------- ------ ------- -------- -------- ------ -------- ------
Turnover
Group and
share of joint
venture
turnover 186.6 - 44.1 230.7 0.7 231.4
Less share of
joint venture
turnover 3 - - (44.1) (44.1) - (44.1)
---------------- ------ ------- -------- -------- ------ -------- ------
Group turnover 2 186.6 - - 186.6 0.7 187.3
Cost of sales (126.7) (0.4) - (127.1) (0.6) (127.7)
---------------- ------ ------- -------- -------- ------ -------- ------
Gross
profit/(loss) 59.9 (0.4) - 59.5 0.1 59.6
Net operating
expenses 4 (53.2) (1.7) - (54.9) (0.8) (55.7)
---------------- ------ ------- -------- -------- ------ -------- ------
Group
operating
profit/(loss)
before
goodwill
amortisation 2 6.8 (2.1) - 4.7 (0.5) 4.2
Goodwill
amortisation (0.1) - - (0.1) (0.2) (0.3)
---------------- ------ ------- -------- -------- ------ -------- ------
Group
operating
profit/(loss) 2 6.7 (2.1) - 4.6 (0.7) 3.9
Share of
operating
(loss)/profit
of joint
venture 3 - - 1.6 1.6 - 1.6
---------------- ------ ------- -------- -------- ------ -------- ------
Total operating
profit/(loss)
Group and
share of joint
venture 6.7 (2.1) 1.6 6.2 (0.7) 5.5
Loss on
disposal of
discontinued
business 7 - - - - (1.5) (1.5)
Profit on - - - - - -
disposal of
investment
before
goodwill
Goodwill - - - - - -
previously
written off
against
reserves
-----------------------------------------------------------------------------------------------------------
Profit/(loss)
before
interest and
tax 6.7 (2.1) 1.6 6.2 (2.2) 4.0
Total net
interest
payable 6 (1.1) - (0.4) (1.5) (0.1) (1.6)
---------------- ------ ------- -------- -------- ------ -------- ------
Profit/(loss)
on ordinary
activities
before tax 5.6 (2.1) 1.2 4.7 (2.3) 2.4
Tax on
profit/(loss)
on ordinary
activities (2.1) 0.4 (0.3) (2.0) 0.8 (1.2)
---------------- ------ ------- -------- -------- ------ -------- ------
Profit/(loss)
for the
financial year
attributable
to
shareholders 3.5 (1.7) 0.9 2.7 (1.5) 1.2
---------------- ------ ------- -------- -------- ------ --------
Dividends 8 (3.9)
---------------- ------ ------- -------- -------- ------ -------- ------
Retained loss
for the
financial year (2.7)
---------------- ------ ------- -------- -------- ------ -------- ------
pence pence pence pence pence pence
---------------- ------ ------- -------- -------- ------ -------- ------
Earnings pershare 9
Basic earnings
per share
before
goodwill
amortisation 7.9 (3.7) 2.0 6.2 (3.0) 3.2
Basic and
diluted
earnings per
share 7.5 (3.7) 2.0 5.8 (3.2) 2.6
---------------- ------ ------- -------- -------- ------ -------- ------
Group Statement of Total Recognised Gains and Losses
Year ended 31 March 2004
2004 2003
£ million £ million
------------------------------------ -------- --------
Profit for the financial year 10.0 1.2
Exchange differences on foreign currency net
investments of the Group (2.8) (3.3)
------------------------------------ -------- --------
Total recognised gains and losses relating to the
financial year 7.2 (2.1)
------------------------------------ -------- --------
Group Balance Sheet
As at 31 March 2004
2004 2003
Notes £ million £ million
-------------------------------- ------ -------- --------
Fixed assets
Intangible assets 2.6 2.7
Tangible assets 32.6 35.6
Investments
Share of gross assets of joint venture - 20.1
Share of gross liabilities of joint venture - (18.3)
-------------------------------- ------ -------- --------
Net investment in joint venture 3 - 1.8
Other investments 2.4 2.3
-------------------------------- ------ -------- --------
Total investments 2.4 4.1
-------------------------------- ------ -------- --------
Total fixed assets 37.6 42.4
-------------------------------- ------ -------- --------
Current assets
Stocks 28.5 36.5
Debtors 58.9 61.1
Cash at bank and in hand 23.2 6.4
-------------------------------- ------ -------- --------
110.6 104.0
-------------------------------- ------ -------- --------
Creditors: amounts falling due within one year
Bank loans and overdrafts (2.5) (3.1)
Other creditors (47.5) (48.8)
-------------------------------- ------ -------- --------
(50.0) (51.9)
-------------------------------- ------ -------- --------
Net current assets 60.6 52.1
-------------------------------- ------ -------- --------
Total assets less current liabilities 98.2 94.5
Provisions for liabilities and charges (5.3) (5.3)
-------------------------------- ------ -------- --------
Net assets employed 92.9 89.2
-------------------------------- ------ -------- --------
Capital and reserves
Called up share capital 2.4 2.4
Share premium account 19.0 18.8
Other reserves 16.0 16.0
Profit and loss account 55.5 52.0
-------------------------------- ------ -------- --------
Equity shareholders' funds 10 92.9 89.2
-------------------------------- ------ -------- --------
Group Cash Flow Statement
Year ended 31 March 2004
2004 2003
Notes £ million £ million
-------------------------------- ------ -------- --------
Net cash inflow from operating activities 11 17.8 14.9
Dividend from joint venture - 2.5
Returns on investments and servicing of
finance 11 (0.1) (1.2)
Taxation (2.4) (2.0)
Capital expenditure and financial investment 11 (2.2) (2.8)
Acquisitions and disposals 3,7 8.3 (0.4)
Equity dividends paid (3.9) (3.9)
-------------------------------- ------ -------- --------
Cash inflow before management of liquid
resources and financing 17.5 7.1
Management of liquid resources 11 (14.8) (5.8)
Financing 11 0.2 -
-------------------------------- ------ -------- --------
Increase in cash in the year 2.9 1.3
-------------------------------- ------ -------- --------
Reconciliation of Net Cash Flow to Movement in Net Funds
Year ended 31 March 2004
2004 2003
Note £ million £ million
-------------------------------- ------ -------- --------
Increase in cash in the year 2.9 1.3
Change in liquid resources 14.8 5.8
Translation difference (0.3) 0.2
-------------------------------- ------ -------- --------
Movement in net funds in the year 17.4 7.3
Opening net funds/(debt) 3.3 (4.0)
-------------------------------- ------ -------- --------
Closing net funds 12 20.7 3.3
-------------------------------- ------ -------- --------
Notes on the Preliminary Financial Statements
1. Basis of presentation of accounts
The Group profit and loss account and balance sheet for the years ended 31 March
2004 and 31 March 2003 have been prepared on a basis consistent with the
accounting policies disclosed in the Group's Annual Report and Accounts 2003.
The principal exchange rates used to translate the Group's overseas results and
transactions were as follows:
Year to 31 March 2004 Year to 31 March 2003
Average Year end Average contract Average Year end Average contract
rate rate rate rate rate rate
----------- -------- -------- -------- -------- -------- --------
US Dollar 1.69 1.84 1.63 1.54 1.58 1.50
Yen 191 191 183 188 187 176
Euro 1.45 1.50 1.49 1.56 1.45 1.59
----------- -------- -------- -------- -------- -------- --------
2. Results by business
The results for continuing wholly-owned operations before exceptional items and
terminated business analysed by business were as follows:
Turnover Operating profit/(loss)
2004 2003 2004 2003
£ million £ million £ million £ million
------------------------ -------- -------- -------- --------
Analytical 58.5 61.6 3.7 2.9
Medical 34.7 36.3 0.1 (1.3)
Superconductivity 89.1 88.7 4.2 5.2
------------------------ -------- -------- -------- --------
182.3 186.6 8.0 6.8
-------- --------
Goodwill amortisation (0.7) (0.1)
-------- --------
7.3 6.7
-------- --------
3. Investment in Oxford Magnet Technology
On 4 December 2003 the Group sold its 49% interest in Oxford Magnet Technology
(OMT) to Siemens plc. The proceeds on disposal were £8.5m giving rise to a
profit on disposal of £6.8m, before goodwill of £0.2m previously written off
against reserves. In addition a further £0.6m was received in respect of related
technology. Software licence income of £0.4m was recognised on the date of the
transaction, with the remaining £0.2m for associated support and maintenance
being recognised over the support period.
The results of OMT were equity accounted in accordance with FRS 9 for the three
months ended 30 June 2003, up to which date it was considered joint control
existed, and from this date, when it was considered that joint control ceased,
until the date of disposal the investment was accounted for as a minority
investment in accordance with FRS 2.
4. Net operating expenses, exceptional items and terminated business
Net operating expenses for continuing businesses before exceptional items and
terminated business comprise:
2004 2003
£ million £ million
------------------------------- ----------- -----------
Distribution costs 28.9 30.9
Research and development costs 12.5 12.7
Administrative expenses 11.1 9.5
Goodwill amortisation 0.7 0.1
------------------------------- ----------- -----------
Net operating expenses 53.2 53.2
------------------------------- ----------- -----------
Exceptional items for the year ended 31 March 2004 relate to continuing
operations. They comprise redundancy costs of £1.1m incurred as the Medical
business reduced its overseas cost base during the year. The terminated business
reflects the costs of £0.5m of the Cambridge-based operations of
Superconductivity prior to the spin out of ARKeX Limited, an independent and
separately financed exploration gravity gradiometer business.
Exceptional items for the year ended 31 March 2003 relate to continuing
operations. They comprise redundancy costs of £1.7m across all businesses and
£0.4m costs incurred by Medical on the termination of its distribution agreement
of its loss making sleep product line.
5. Pensions costs
The employer's annual costs in connection with the two largest defined benefit
pension schemes in the UK and USA under SSAP 24 are set out below and compared
with the estimated annual expense under FRS 17 and the cash contributions made
during the year:
2004 2003
£ million £ million
--------------------------------- ---------- ----------
SSAP 24 expense 3.8 2.4
FRS 17 net expense 4.1 3.2
Actual net cash contributions 2.8 3.0
--------------------------------- ---------- ----------
The assets and liabilities of the UK and USA schemes at 31 March 2004 under FRS
17 were:
2004 2003
£ million £ million
--------------------------------- ---------- ----------
Assets 91.5 72.5
Present value of scheme liabilities (128.7) (106.0)
--------------------------------- ---------- ----------
Deficit in the schemes (37.2) (33.5)
Related deferred tax asset 11.4 10.3
--------------------------------- ---------- ----------
Net pension liability (25.8) (23.2)
--------------------------------- ---------- ----------
6. Total net interest payable
2004 2003
£ million £ million
--------------------------------- ---------- ----------
Interest receivable on deposits at short call 0.2 -
Interest payable and similar charges on bank loans and
overdrafts (0.3) (1.2)
--------------------------------- ---------- ----------
Group net interest payable (0.1) (1.2)
Share of joint venture net interest payable (0.1) (0.4)
--------------------------------- ---------- ----------
Total net interest payable (0.2) (1.6)
--------------------------------- ---------- ----------
The interest payable and similar charges on bank loans and overdrafts includes a
£0.2m (2003 £0.6m) charge arising from US dollar: Sterling swap arrangements
that were in place during the year. This is the cost of managing cash and
borrowings between the UK and USA and arises from the interest rate differential
between Sterling and US dollar. This expense ceased during the year following
the restructuring of the financing of the USA operations.
7. Acquisitions and disposals
In October 2003 the Group acquired the business and assets of VG Semicon, a
leading supplier of molecular beam epitaxy equipment used in the mass production
of electronic devices for the latest generation of mobile and cellular phones. A
cash consideration of US$0.3m (£0.2m) was paid with a further agreed
consideration of US$0.2m payable in the next two years.
In March 2004, as part of the transfer of the exploration gravity gradiometer
business to ARKeX Limited (ARKeX), an investment of £0.2m was made in ARKeX
which resulted in the Group holding 24% of the ordinary share capital of ARKeX.
In the prior year ended 31 March 2003, the Group disposed of its On-Line Process
Systems business. The results of this business are shown as discontinued in the
year ended 31 March 2003.
8. Dividends per share
Dividends per share are as follows:
2004 2003
pence pence
-------------------------------- ---------- -----------
Interim dividend 2.4 2.4
Proposed final dividend 6.0 6.0
-------------------------------- ---------- -----------
8.4 8.4
--------------------------------------------------------------------------------
The record date for the final dividend of 6.0p per share in respect of the year
ended 31 March 2004 will be 1 October 2004, and subject to approval of
shareholders at the Annual General Meeting on 21 September 2004, payment will be
made on 29 October 2004.
9. Earnings per share
Basic and diluted earnings per share have been calculated on the weighted
average of 46.9 million shares (2003 46.8 million shares) and 47.1 million
shares (2003 47.1 million shares) in issue during the year, respectively.
10. Reconciliation of movements in equity shareholders' funds
2004 2003
£ million £ million
--------------------------------- ---------- ----------
Profit for the financial year 10.0 1.2
Dividends paid and proposed (3.9) (3.9)
--------------------------------- ---------- ----------
Retained profit/(loss) for the financial year 6.1 (2.7)
Exchange differences on foreign currency net
investments (2.8) (3.3)
Goodwill written back to the profit and loss account 0.2 -
New share capital subscribed 0.2 -
--------------------------------- ---------- ----------
Net increase/(reduction) in equity shareholders' funds 3.7 (6.0)
Opening equity shareholders' funds 89.2 95.2
--------------------------------- ---------- ----------
Closing equity shareholders' funds 92.9 89.2
--------------------------------- ---------- ----------
11. Net cashflow from operating activities and cash flows netted in the cashflow
statement
2004 2003
£ million £ million
--------------------------------- ---------- ----------
Group operating profit 5.7 3.9
Depreciation charges 4.9 5.7
Amortisation of goodwill 0.7 0.3
Net (profit)/loss on disposal of fixed assets (0.1) 0.1
Change in stocks 6.9 10.9
Change in debtors 1.2 5.4
Change in creditors (1.4) (10.7)
Change in provisions (0.1) (0.7)
--------------------------------- ---------- ----------
Net cash inflow from operating activities 17.8 14.9
--------------------------------- ---------- ----------
Interest received 0.2 -
Interest paid (0.3) (1.2)
--------------------------------- ---------- ----------
Net cash outflow from returns on investments and servicing
of finance (0.1) (1.2)
-----------------------------------------------------
Purchase of fixed assets (2.4) (3.0)
Sale of fixed assets 0.5 0.3
Investments acquired (0.3) (0.1)
--------------------------------- ---------- ----------
Net cash outflow for capital expenditure and financial
investment (2.2) (2.8)
--------------------------------- ---------- ----------
Increase in term deposits (14.0) -
Decrease in term loans (0.8) (5.8)
--------------------------------- ---------- ----------
Net cash outflow from management of liquid resources (14.8) (5.8)
--------------------------------- ---------- ----------
Issue of ordinary shares including share premium 0.2 -
--------------------------------- ---------- ----------
Net cash inflow from financing 0.2 -
--------------------------------- ---------- ----------
12. Movement in net funds
At Exchange Cash At
31 March rate movement 31 March
2004 effect in year 2003
£ million £ million £ million £ million
--------------------- --------- --------- --------- ---------
Cash at bank and in hand 9.2 (0.6) 3.4 6.4
Bank overdrafts (0.9) - (0.5) (0.4)
--------------------- --------- --------- --------- ---------
Net cash 8.3 (0.6) 2.9 6.0
Cash on short-term deposit 14.0 - 14.0 -
Debt due within one year (1.6) 0.3 0.8 (2.7)
--------------------- --------- --------- --------- ---------
Net funds 20.7 (0.3) 17.7 3.3
--------------------- --------- --------- --------- ---------
13. Report and Accounts
The financial information set out in this preliminary results announcement does
not constitute the Company's statutory accounts for the years ended 31 March
2004 or 31 March 2003 but is derived from those accounts. This announcement was
approved by the Board of Directors on 3 June 2004. Statutory accounts for 2002/
2003 have been delivered to the Registrar of Companies, whereas those for 2003/
2004 will be delivered following the Company's Annual General Meeting on 21
September 2004. The auditors have reported on those accounts; their report was
unqualified and did not contain statements under section 237(2) or (3) of the
Companies Act 1985.
The Company is registered in England Number 775598.
14. The Annual General Meeting
The Annual General Meeting will be held on Tuesday, 21 September 2004 at 2.30pm
at the offices of Oxford Instruments plc, Old Station Way, Eynsham, Witney,
Oxon, OX29 4TL.
This information is provided by RNS
The company news service from the London Stock Exchange
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