Final Results and Interim Man

RNS Number : 5681T

Oxford Instruments PLC

09 June 2009

 



Oxford Instruments plc

Announcement of Preliminary Results for the year to 31 March 2009 and Interim Management Statement

Third consecutive year of growth and margin improvement

Oxford Instruments plc, a leading provider of high technology tools and systems for industry and research, today announces its Preliminary Results for the year to 31 March 2009, also comprising its Interim Management Statement for the period 1 April 2009 to date.

• Order intake up 13% to £204.2 million (2008: £180.2 million) 

• Revenue up 17% to £206.5 million (2008: £176.5 million) 

• Growth helped by currency movements and acquisitions which contributed £33.7 million and £10.4 million respectively

• Adjusted profit before tax* up 17% to £11.1 million (2008: £9.5 million) 

• Adjusted EPS* increased to 14.8p (2008: 11.7p)

• Proposed final dividend held at 6p, giving a total dividend for the year of 8.4p

• Operating cash flow increased to £14.4 million (2008: £0.1 million outflow). Net debt of £28.3 million, supported by £50 million credit facilities extending to 2012

• Acquisitions, Technology and Devices International and Link Analytical AB now fully integrated, securing valuable new technologies and markets

• Measures introduced in the year to reduce the cost base will result in ongoing annual savings of c. £11 million

* Adjusted figures are stated before amortisation of acquired intangibles, reorganisation costs, impairments and marking to market of hedging derivatives

Nigel Keen, Chairman of Oxford Instruments plc, said:  

"In 2006 we announced a five year objective to double the size of the business and improve our margins significantly. Despite the difficulties in some of our end user markets, we have shown another full year of progress toward this objective. It is difficult to predict the impact and duration of the current economic downturn but we have taken extensive management action to ensure that we are well positioned to meet our targets as markets improve. Trading so far in the current year has been in line with our expectations. 

"Oxford Instruments celebrates 50 years of scientific excellence and innovation this year. Our business model has proven resilient to the current economic downturn as we have a broad spread of customers, applications and geographic markets. We are confident that we will be able to deliver long term profitable growth providing sustainable value for our shareholders".

Enquiries:
Oxford Instruments plc	Tel: [phone]
Jonathan Flint, Chief Executive
Kevin Boyd, Group Finance Director
Hogarth Partnership Limited	Tel: [phone]
Rachel Hirst
Ian Payne

Chairman's Statement

The Group continued to grow during the year with order intake up 13% to £204.2 million. Revenue rose by 17% to £206.5m and adjusted profit before tax increased by 17% to £11.1 million. This strong performance was delivered despite a marked softening in some of our markets during the second half of the year, and was helped significantly by currency movements.

Our strategy is to generate shareholder value by being a leading provider of tools and systems used by customers who need to observe and manipulate matter at the smallest scale. Our products offer high technology solutions to both the research and industrial sectors.

In 2006 we announced a five year objective to double the size of the business and improve our margins significantly. Despite the difficulties in some of our end user markets, we have shown another full year of progress toward this objective.  It is difficult to predict the impact and duration of the current economic downturn but we have taken extensive management action to ensure that we are well positioned to meet our targets as markets improve.

In the year we have taken steps to lower our cost base, resulting in a reduction in Group headcount of some 15%. The costs associated with these actions, which amount to £8.7 million, have been taken as an exceptional charge and the reorganisation will result in ongoing annual savings of c. £11 million. I would like to thank all our employees for their commitment and professionalism during this period of far-reaching change across the Group.

During the year, the Group has focused strongly on cash generation. Operating cash flow increased to £14.4 million (2008: £0.1 million outflow). Our net debt closed the year at £28.3 million (2008: £17.8 million). Of the increase in net debt, £10.3 million is as a result of changes in foreign exchange rates altering the sterling value of our cash and borrowings. We have a five year rolling debt facility of £50 million maturing in 2012 and a further £14.5 million of overdraft and other facilities. In January 2009 the drawings under our facility were switched to sterling to prevent currency movement from further eroding our borrowing headroom.  

We are recommending that the full year dividend be maintained at the current rate of 8.4 pence.

In the year we announced the retirement of Steve Parker from the Board of the Company. I would like to thank Steve for his contribution over the 9 years he was with us. On 1 April 2009 Jock Lennox joined the Board as a Non-Executive Director with a view to his succeeding Peter Morgan as Chairman of the Audit Committee. Having served as a Non-executive Director since 1999, Peter will retire from the Board at the forthcoming AGM. We wish him every good fortune for the future.

Trading so far in the current year has been in line with our expectations. Demand from our customers in research markets remains resilient. Our industrial markets have shown signs of stabilisation, although the level of demand remains below that of 12 months ago.

Oxford Instruments was formed in 1959 and this year celebrates 50 years of scientific excellence and innovation. Our business model has proven resilient to the current economic downturn as we have a broad spread of customers, applications and geographic markets. We are confident that we will be able to deliver long term profitable growth providing sustainable value for our shareholders.

Nigel Keen Chairman

9 June 2009

  Chief Executive's Statement

Operational Review

In 2006 we set out a plan to double the turnover of the Company and increase trading profit margins from 3% to 13% over five years starting from a base year of 2005/06. We are now reporting on the third year of this plan.

Our sales growth this year has been in line with our targets under the five year plan. This result was supported by currency movements (+19%) and acquisitions (+6%) offset by a decline in volumes in industrial markets (-8%). Despite these challenging times we have not needed to alter the pricing of our products and this underpinned a rise in gross margins from 41.5% to 43.9%. Trading profit margins increased from 6.0% to 6.3%. The Group's policy is to hedge its net forward foreign currency exposure on a rolling 12 month basis. As a result, in the financial year, the positive effect of currency movements on trading profit has been moderated. Excluding the effects of hedging, the trading profit margin was 10.4%.

We have responded to market pressures by continuing our programme of new product introductions and by offering improved levels of customer service. It is a testimony to our innovation skills that Oxford Instruments was named Best Technology Company 2008 at the PLC Awards, which recognise excellence amongst smaller companies quoted on the London Stock Exchange.

Environmental and safety issues for our customers continue to be a major sales driver. Research markets have held up well, supported by a number of government stimulus packages in countries around the world. Industrial markets however declined markedly in November 2008, particularly affecting the Industrial Analysis and Austin Scientific businesses. During the final quarter of the financial year, industrial demand appears to have stabilised, but to date we have not seen a return to growth. However we are now seeing the first sign of an increase in enquiries from the USA driven by the planned $21 billion investment in science by the Obama administration.

During the second half of the year, in recognition of the likely difficult trading conditions ahead, we instigated a wide-ranging restructuring of the business with the aim of shaping the Group to be effective in more difficult times and to position us well when markets recover. In January we announced a reduction in the number of employees by approximately 15% (228 staff) reducing operating costs by £11 million. In the current half-year, we plan to further reduce our staffing levels by approximately 30 at a cost of £0.4 million. This will further reduce our operating costs by £1.4 million in a full year. Although these changes affect most of our sites worldwide, we have been able to retain key skills and capabilities. Relocation of products and staff has enabled us to close two operating sites. These initiatives, together with a focus on cost control, have helped to protect earnings in the face of reduced sales volumes since November 2008. We will continue to monitor our markets and flex our capacity accordingly.

In the first half of the year we acquired Technology and Devices International (TDI), which brought expertise in fabrication of high brightness light emitting diodes (HBLEDs), and Link Analytical AB which secured access to the Scandinavian market for our analytical instrumentation products. In light of volatile market conditions and difficulties in making accurate valuations, we did not pursue other acquisition opportunities during the second half of the year. However, the acquisitions already made have integrated well, and net of disposals, contributed an additional £10.4 million to our turnover in the year. In April 2008, we sold our non-strategic minority shareholding in Oxford Diffraction Ltd to Varian Inc for a consideration of £3.8 million. In September we sold our non-core Molecular Beam Epitaxy business to Riber SA for a consideration of £0.3 million.

We currently report in two operating sectors, Analytical and Superconductivity. Starting from the current financial year we plan to change the reporting structure to bring it into line with revised operational arrangements within the Group. This will see the formation of 3 sectors:  Nano Technology, Industrial Products and Service. These sectors align more closely with the way in which we now manage the business and go to market. The businesses in each sector have underlying common attributes, which will aid the extraction of cost and revenue synergies and improve the clarity of our reporting. Our half year results for 2009/10 will be reported under this new structure.

  Analytical Businesses

Orders and revenues for the year were £129.5 million (2008: £115.8 million) and £134.7 million (2008: £115.7 million) respectively. Trading profit was £11.1 million* (2008: £11.0 million). Our Analytical businesses provide measurement and fabrication instruments for industrial and research companies. The business units are Industrial Analysis (including X-Ray Technology), NanoAnalysis and Plasma Technology.

Our Industrial Analysis business, which produces tools that enable our customers to analyse the chemical constituents of materials, suffered a decline during the year following a downturn in global industrial markets. Overall, our order intake was 26% down compared to the level we had expected at the beginning of the year. However, effects of the market downturn were mitigated by the introduction of two new products. The X-MET5100, the latest version of our best selling hand-held X-ray fluorescence analyser was launched in September 2008 and enhanced our market share. These instruments are used for a variety of environmental and quality control applications. Our new Foundry-Master Pro Optical Emission Spectrometer offers superior resolution performance for our customers in the steel industry. Despite reducing demand for steel products generally, this product sold well and has exceeded our expectations.

Our X-Ray Technology business produces small X-ray sources for the analytical instrumentation market. The X-ray sources produced by this business are now found in most Oxford Instruments industrial products. This control of a key technology gives the Group a capability unique amongst our competitors. Production levels were down on the previous year, affected by the broader downturn in industrial demand, but margins continue to be strong.

Our NanoAnalysis business is the leading provider of a range of detectors used in conjunction with electron microscopes to enable our customers to analyse chemical and structural properties of materials. This business continued to perform well despite a worldwide slowdown in the sales of electron microscopes. Revenues were assisted by the launch of our new X-MAX Energy Dispersive Spectrometer, using a novel large area silicon drift detector. X-MAX has a greater sensitivity than any other equivalent product on the market and this contributed to a very rapid uptake by our customers. Our Electron Backscatter Diffraction (EBSD) equipment is selling well, with volumes up significantly in the year. These systems, which are also used in conjunction with electron microscopes, enable the detailed crystal structure of materials to be analysed. This technique, which has traditionally been used on ferrous metals, is now finding wider applications. For example, EBSD is now being used to optimise the performance of next generation photovoltaic devices. These new products and applications have partially insulated Oxford Instruments from the wider reduction in sales of electron microscopes.

Plasma Technology provides a range of fabrication tools for compound semiconductor devices and other nano structures. The business performed well during the year with orders up 25% on the prior year, supported by strong demand for research tools for next generation photovoltaic devices and for the production of HBLEDs. Demand for photovoltaic research tools continues to be strong. There was some softening in demand for HBLEDs for lighting caused by the slow down in the construction industry. However, this was offset by increased demand from the electronics industry, where HBLEDs are increasingly used as a replacement for fluorescent sources in the displays of laptop computers and televisions.

Our acquisition of TDI Inc based in Maryland, USA has brought to the Group a unique technology for Hydride Vapour Phase Epitaxy (HVPE). This business is now managed as part of Plasma Technology and offers an opportunity to produce HBLEDs using a new and more efficient process. We have now industrialised this process and produced a tool to enable commercial fabrication of HBLEDs using HVPE. Demand for this product is expected to be strong. However, the recent downturn in semi-conductor investment means that early orders will be delayed.

Superconductivity Businesses

Orders and revenues in the year were £74.7 million (2008: £64.4 million) and £71.8 million (2008: £60.8 million) respectively. Trading profits were £2.0 million* (2008: £2.0 million). Our Superconductivity businesses provide materials, tools and systems for industrial and government customers working at the frontiers of science. The businesses in Superconductivity are: NanoScience, Superconducting Wire, MRI Service, Austin Scientific and Molecular Biotools.

* Current year results include part of the costs of OII which were reported separately in 2008 (see note 2)

  Our NanoScience business provides equipment to customers researching in areas which require very high magnetic fields or very low temperatures. These techniques are required in a new generation of electronics which use quantum effects. The applications for these devices include miniature high speed cameras and ultra high density computer memory. The achievement of very low temperatures without the use of liquid helium is key to these new markets. Our pulse tube cooler technology obtained through last year's acquisition of VeriCold provides this capability. Progress in transferring this new technology from Germany to the UK has been good, and we are now able to deliver these products at highly competitive prices, with short lead times. We have increased production capacity to cope with the larger than expected demand for this type of product. Demand for our traditional "wet" products (which continue to use liquid helium) continues, albeit at a lower level than in recent years.

Our Superconducting Wire business produced record revenues in the year driven by our increasing market share with MRI scanner manufacturers. In addition, demand for our specialist high performance wire has been strong from research customers. We are in negotiation with a number of national agencies to provide a significant quantity of superconducting wire for the ITER programme which seeks to produce clean energy using thermonuclear fusion. Our wire has successfully passed the qualification requirements and it is expected that contracts will be awarded shortly. If we are successful we would expect some deliveries to be made in the current financial year with increasing volumes over the subsequent three years.

Our MRI Service business maintains MRI scanners throughout the United States and Japan. This business provides a steady revenue stream and we have been successful in winning a number of new service contracts.

Our Austin Scientific business produces, services and maintains high technology pumps and compressors for industrial and research customers. The downturn in demand, particularly in the semiconductor sector meant that this business suffered a decline in revenues of 6% in the year. Cost cutting measures and the introduction of new products have now returned profitability to previous levels despite this reduced turnover.

Our Molecular Biotools business produces instrumentation for research and industrial customers using advanced techniques. Our pharmaceutical research customers are now following more conservative spending plans. As a result, we have scaled back our research spend in this side of the business. We retain the capability to exploit fully the benefits of this market when the upturn comes. In light of the change of emphasis, this business will focus on the application of magnetic resonance techniques and has been renamed Magnetic Resonance.

Emerging Markets

Emerging markets continue to offer good opportunities for Oxford Instruments to grow its business more quickly than market average and we have put greater focus on developing our sales in China, India, Russia and Latin America.

We had another strong year in China with orders up by 17% despite difficult trading circumstances in industrial markets. Sales from our factory in Shanghai grew 80% and we had a healthy order backlog at year end. The factory also serves as the location for a growing team of software development experts.  Our office in Mumbai, India, had a reasonable year with growth in our NanoAnalysis business offsetting a decline in industrial sales particularly in the steel segment.  We saw an increase in the level of activity from research customers in Russia, however it is unclear whether this will be sustained at the same level looking ahead.   Our focus on the Latin American markets resulted in an increase of 17% in order volume with growth being particularly strong in the research segment.

Property

During the year we postponed the planned move of our Plasma Technology business to a new purpose built facility. We have re-negotiated the term of the option to sell our present Plasma Technology site, whilst preserving its beneficial commercial conditions. Postponing this move by two years has improved our cash position and reduced risk.

We closed our leased manufacturing and distribution site in Chicago. The activities previously undertaken in this facility have now successfully been moved to other sites in the USA and to our manufacturing plant in Shanghai. We also closed our operation in Hobro, Denmark and successfully transferred its expertise to our High Wycombe site.

People

This year has been particularly difficult for our employees as they have coped with the ramifications of the global market downturn. They have responded with professionalism and resilience and I would like to thank them for their contributions.

Outlook

Trading so far in the current year has been in line with our expectations. Demand from our customers in research markets remains resilient. Our industrial markets have shown signs of stabilisation, although the level of demand remains below that of 12 months ago.

We have now achieved three consecutive years of growth and margin improvement. Given the tough market conditions, we are unlikely to see growth in the current year. However, the activities undertaken to reduce costs and provide enhanced value and service to our customers, assisted by favourable currency conditions, are designed to support our continued drive for margin improvement. We are well positioned to benefit from a future strengthening of demand as soon as it occurs.

Jonathan Flint

Chief Executive

9 June 2009

  Financial Review

Trading Performance

Revenues for the year grew by 17.0% to £206.5 million (2008: £176.5 million) helped by acquisitions which, net of disposals, contributed £10.4 million (+6%) in the year and the effect of favourable foreign exchange rates which added £33.7 million (+19%).  On an organic constant currency basis, revenues fell by 8% primarily due to the downturn suffered by our Industrial Analysis business.

Gross margins improved from 41.5% to 43.9% aided by efficiency gains in a number of business units but particularly by a strong performance from the Analytical division's Plasma Technology business.

Trading profit increased by £2.5 million to £13.1 million (2008: £10.6 million), giving a 6.3% margin (2008: 6.0%). Of the growth in the year, operating efficiencies contributed £5.2 million, acquisitions added £0.4 million and favourable exchange rates a further £2.7 million. These gains were offset by £5.8 million resulting from the downturn in volume.  

Trading profit was impacted by a loss on the settlement of currency hedges of £8.3 million in the year. Had the Group not hedged its foreign exchange exposure, trading profit margins would have been 10.4%.

Reported operating expenses increased by £15.0 million to £77.6 million (2008: £62.6 million). Of this increase, £8.2 million was the increase in the loss on the currency hedges described above (see note 4), £4.4 million came from the acquisitions and £6.0 million was the result of translating overseas expenses at a weaker sterling exchange rate. On a constant currency organic basis, operating expenses fell by £3.6m due to improved efficiencies and some early effects of the restructuring programmes described in the Operational Review.

Amortisation of acquired intangibles

Amortisation of acquired intangibles increased by £1.4 million to £4.3 million as a result of the acquisitions made in the last two years.

Reorganistion costs and impairment

These are described in note 5 and consist of the profit made on the disposal of the Group's holding in Oxford Diffraction Limited which had been previously held as an investment, the loss on the disposal of the Molecular Beam Epitaxy business and the costs of the restructuring programme discussed in the Chairman's Statement. This includes redundancies across the Group, the closure of our sites in Chicago and Denmark with operations being relocated to other Group locations and the curtailment of further research and development within the Group's Molecular Biotools business to reflect the significant reduction in Research and Development spend within the pharmaceutical industry

As we reported in our Interim Management Statement in February it is anticipated that the restructuring programme will result in annual savings of approximately £11 million.

In addition, as discussed in our Half Year Report we impaired the carrying value of our investment in ARKeX Limited, a high technology venture capital backed company based in Cambridge, England, which was spun out of the Group in 2004.

Financial income and expenditure

Within financial income and expenditure, total net interest payable decreased by £0.1 million to £1.3 million as interest rates fell. The interest charge on pension scheme liabilities exceeded the expected return on pension scheme assets by £0.7 million, a difference of £1.0 million over the prior year.

Currency hedging

The Group uses derivative products to hedge its exposure to fluctuations in foreign exchange rates. It is Group policy to have in place at the beginning of a financial year hedging instruments to cover 80% of its forecast transactional exposure for that period.

In common with a number of other companies, we have decided that the additional costs of meeting the extensive documentation requirements of IAS39 to apply hedge accounting to the foreign exchange hedges cannot be justified. Accordingly the Group does not use hedge accounting for these derivatives. Net movements on marking to market such derivatives at the balance sheet date are disclosed in the income statement as Financial Expenditure and excluded from our calculation of adjusted profit before tax (note 2).  

Commodity hedging

The Group also uses derivative products to hedge its exposure to fluctuations in the price of copper, a major component for the Superconducting Wire business. Given the small number of contracts involved we apply hedge accounting for these transactions and consequently the results of marking to market are excluded from the Income Statement.

Taxation

The underlying tax rate on the profit before tax for the continuing businesses before reorganisation costs and impairments, amortisation of acquired intangibles and marking to market of hedging derivatives was 35% (2008: 39%). The rate is higher than the main UK rate due to higher rates of tax paid in overseas jurisdictions, particularly the United States, Germany and Japan.

The Group has significant tax losses in the UK available to set off against future taxable profits from certain business streams. A deferred tax asset of £11.3 million (2008: £9.6 million) has been recognised against US tax losses and certain temporary differences. Of this, £4.0 million (2008: £5.9 million) relates to the deficit in the pension schemes. No deferred tax asset has been recognised against past UK tax losses. A deferred tax liability of £7.6 million has been recognised in respect of the intangible assets arising from acquisitions. This liability will unwind as the intangible assets are amortised.

Earnings

After a tax credit of £2.6 million (2008: charge £2.3 million) the reported net loss for the financial year was £6.7 million (2008: profit £2.7 million). With a weighted average number of shares of 48.8 million (2008: 48.7 million), the basic loss per share was 13.9 pence (2008: earnings 5.6 pence). 

Adjusted profit before tax (note 2), which we believe gives a better indication of the underlying performance of the business, grew by £1.6 million to £11.1 million which translates into an adjusted earnings per share of 14.8 pence (2008: 11.7 pence), an increase of 26%.

Dividends

The Group's proposed final dividend of 6.0p per share (2008: 6.0p), payable on 29 October 2009, gives a total dividend for the year of 8.4p per share (2008: 8.4p). Dividend cover for the underlying business before reorganisation costs and impairments, amortisation of acquired intangibles and marking to market of hedging derivatives was 1.8 times.

Investment in research and development (R&D)

The total cash spent on research and development in the year was £16.3 million (2008: £16.2 million). A reconciliation between the cash spent and the amounts charged to the Income Statement is given below:

	2009	2008
	£ million	£ million
Total cash spent on research and development during the year	16.3	16.2
Less: amount capitalised	(6.4)	(6.6)
Add: amortisation of amounts previously capitalised	3.4	1.9
Research and development charged to the income statement	13.3	11.5

The net book value of capitalised R&D at the end of the financial year was £17.7 million (2008: £14.4 million).

Balance sheet

Net operating assets, excluding goodwill, acquired intangibles and associated deferred tax, fell by £3.2 million to £71.7 million.

Net working capital (excluding derivative financial instruments) reduced by £1.9 million in the year compared with an increase of £10.9 million in the prior year.

Debtor days reduced from 59 days to 58 days while stock turns decreased from 3.0 to 2.9.  

Intangible assets rose by £10.9 million (2008: £25.9 million) primarily as a result of the R&D capitalisation outlined above and intangible assets resulting from the two acquisitions. A reconciliation is given below:

		Technology
		and customer
		related
	Development	acquired
	costs	intangibles	Goodwill	Total
	£ million	£ million	£ million	£ million
Brought forward	14.4	19.2	10.4	44.0
VeriCold and Metorex	-	-	1.9	1.9
TDI	-	3.6	-	3.6
Nordiska	-	0.9	0.2	1.1
Capitalised Development Costs	6.4	-	-	6.4
Disposals and impairments	(1.1)	-	(0.5)	(1.6)
Amortisation charge for the year	(3.4)	(4.3)	-	(7.7)
Effect of movement in foreign currency	1.4	3.9	1.9	7.2
Carried forward	17.7	23.3	13.9	54.9

Pensions

The Group has defined benefit pension schemes in the UK and the US. Both have been closed to new entrants since 2001. The total deficit, before tax, under IAS19 on these pension schemes decreased in the year by £6.8 million to £14.4 million. Assets of the schemes at 31 March 2009 were £125.1 million. The reduction in deficit is primarily due to an increase in the discount rate applied to liabilities, which is based on corporate bond yields.

The latest triennial actuarial valuation of the UK scheme was carried out as at 31 March 2006 and resulted in an actuarial deficit of £17.7 million. A long-term plan for recovering the deficit over 10 years was agreed between the Company and the Pension Trustee, which involves annual payments of £2.1 million for the five years to March 2011, rising to £3.2 million for the subsequent five years. A new actuarial valuation is now underway which will be completed by June 2010 at the latest.

Cash

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by £3.7 million to £20.3 million. Working capital in the year reduced by £1.4 million compared with an increase of £11.2 million in the prior year. This led to operating cash flow of £14.4 million, an increase of £14.5 million on the prior year. Other elements of cash flow that varied significantly compared with the prior year were the amount spent on acquisitions of £4.4 million (2008: £12.7 million) and the amount received from the sale of investments of £3.1 million (2008: nil).

At the last reporting date, September 2008, the majority of the Group's debt was denominated in US dollars and Euros as it had been borrowed to fund acquisitions of assets denominated in those currencies and thus provided a balance sheet hedge. In addition, the US dollar and Euro are the Group's main trading currencies. The significant weakening of sterling in the last quarter of calendar 2008 greatly increased the Group's borrowings when expressed in sterling and correspondingly reduced the Group's borrowing capacity. To mitigate the risk of a further decline in sterling, the Group switched its borrowings into sterling in January 2009. The increase in net debt due to the movement of exchange rates was £10.3 million in the year.

Net debt at the year end was £28.3 million. The Group has a committed £50 million revolving credit facility that expires in July 2012 and overdraft and other facilities of £14.5 million. 

Employees

The number of employees at 31 March 2009 was 1,449, a decrease of 96 over the prior year due to the effects of the restructuring programme. An additional 132 will have left by the end of the first quarter of the current year.

Share price

The closing mid-market price of the ordinary shares at the end of the financial year was £1.10, compared with £1.85 at the beginning of the year. The highest and lowest prices recorded in the financial year were £2.51 and £1.07 respectively.

Key Performance Indicators

The following key performance indicators show how we have progressed against our priorities:

	2009	2008
Revenue growth
As reported	+17.0%	+9.2%
At constant currencies, continuing businesses	-2.1%	+11.6%
Return on sales
Trading profit as a percentage of revenue	6.3%	6.0%
R&D
R&D cash spend as a percentage of revenue	7.8%	9.2%

Risks to be managed

Oxford Instruments provides high technology equipment and systems. There is necessarily some technical risk associated with developing advanced technologies. This risk has reduced in recent years as the business has moved away from large scale single customer development programmes towards more commercially orientated products.

Our business plan requires the introduction of new products to gain market share to support our growth. There is the risk that future product introductions may not yield the sales forecast, especially in industries where investment has been cut back in the light of current economic conditions.

Global financial market conditions impact on demand but we remain well positioned, enjoying a broad spread of customers, applications and geographical markets.

A significant proportion of Oxford Instruments' profit is made in foreign currencies and we will therefore continue to have exposure to exchange fluctuations going forward. We aim to mitigate this risk by natural hedges where possible and the use of forward contracts. We also rely on the purchase of a number of commodity materials and, when prices rise, we cannot always pass on this cost directly to customers. Hedging has been introduced on copper purchases.

Finally, our calculated pension deficit is sensitive to changes in the actuarial assumptions that may have an appreciable effect on the reported pension deficit.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Statement. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in this Financial Review.

The relatively diverse nature of the Group together with its current financial strength provides a solid foundation. The Directors have reviewed the Group's forecasts and flexed them to incorporate a number of potential scenarios relating to changes in trading performance and believe that the Group will be able to operate within its existing debt facility which expires in July 2012. This review also considered hedging arrangements in place. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the uncertain economic outlook.

The Financial Statements have been prepared on a going concern basis, based on the Directors' opinion, after making reasonable enquiries, that the Group has adequate resources to continue in operational existence for the foreseeable future.

Save as described in the preceding statements, there have been no material events or significant changes in the financial position of the Group since year end.

Kevin Boyd 

Group Finance Director

9 June 2009

This Preliminary Results announcement and Interim Management Statement contains certain forward-looking statements which have been made by the Directors in good faith using information available up until the date they approved the Statement.  Forward-looking statements should be regarded with caution as by their nature such statements involve risk and uncertainties relating to events and circumstances that may occur in the future.  Actual results may differ from those expressed in such statements, depending on the outcome of these uncertain future events.

For further copies of this Preliminary Results announcement and Interim Management Statement, please contact Lynn Shepherd at the Group's registered office at Tubney Woods, Abingdon, Oxon OX13 5QX (email: [e-mail]).

Number of pages: 22

  Group Income Statement year ended 31 March 2009

		2009	2008
			*As restated
	Notes	£m	£m
Revenue	3	206.5	176.5
Cost of sales		(115.8)	(103.3)
Gross profit		90.7	73.2
Trading expenses excluding cost of sales	4	(77.6)	(62.6)
Trading profit		13.1	10.6
Reorganisation costs and impairment	6	(6.8)	0.7
Amortisation of acquired intangibles		(4.3)	(2.9)
Operating profit		2.0	8.4
Bank interest receivable		0.2	0.3
Expected return on pension scheme assets		9.6	9.3
Financial income		9.8	9.6
Interest payable on bank loans and overdrafts		(1.5)	(1.7)
Interest charge on pension scheme liabilities		(10.3)	(9.0)
Mark to market loss in respect of derivative financial instruments	2	(9.3)	(2.3)
Financial expenditure		(21.1)	(13.0)

(Loss)/profit before income tax		(9.3)	5.0
Income tax credit/(expense)	7	2.6	(2.3)
(Loss)/profit for the year attributable to equity shareholders of the parent		(6.7)	2.7
		pence	pence
Earnings per share
Basic (loss)/earnings per share	8	(13.9)	5.6
Diluted (loss)/earnings per share	8	(13.9)	5.5

Dividends per share
Dividends paid	9	8.4	8.4
Dividends proposed	9	8.4	8.4

* See note 1

	Adjusted profit before tax is calculated as follows:
			£m	£m
	(Loss)/profit before income tax		(9.3)	5.0
	Reorganisation costs and impairment		6.8	(0.7)
	Amortisation of acquired intangibles		4.3	2.9
	Mark to market loss in respect of derivative financial instruments		9.3	2.3
	Adjusted profit before tax	2	11.1	9.5
			pence	pence
	Adjusted earnings per share
	Basic earnings per share	8	14.8	11.7
	Diluted earnings per share	8	14.8	11.7

  Group Statement of Recognised Income and Expense  year ended 31 March 2009

		2009	2008
	Note	£m	£m
Foreign exchange translation differences		5.6	3.1
Actuarial gain in respect of post retirement benefits		6.4	7.1
Net loss on effective portion of changes in fair value of cash flow hedges, net of amounts recycled		(0.6)	-
Tax on items recognised directly in equity	7	(1.6)	(2.6)
Net profit recognised directly in equity		9.8	7.6
(Loss)/profit for the year		(6.7)	2.7
Total recognised income for the year attributable to equity shareholders of the parent		3.1	10.3

  Group Balance Sheet  as at 31 March 2009

		2009	2008
		£m	£m
Assets
Non-current assets
Property, plant and equipment		23.5	22.4
Intangible assets		54.9	44.0
Available for sale equity securities		-	0.6
Deferred tax assets		11.3	9.6
		89.7	76.6
Current assets
Inventories		39.9	34.9
Trade and other receivables		57.6	53.5
Current income tax recoverable		0.6	0.7
Derivative financial instruments		0.2	0.6
Cash and cash equivalents		13.3	7.9
		111.6	97.6
Total assets		201.3	174.2
Equity
Capital and reserves attributable to the Company's equity shareholders
Share capital		2.5	2.5
Share premium		21.3	21.2
Other reserves		(0.3)	0.1
Translation reserve		7.9	2.3
Retained earnings		30.5	36.4
		61.9	62.5
Liabilities
Non-current liabilities
Bank loans		31.8	24.9
Other payables		1.0	2.4
Retirement benefit obligations		14.4	21.2
Deferred tax liabilities		7.6	6.1
		54.8	54.6
Current liabilities
Bank loans		0.1	0.1
Bank overdrafts		9.7	0.7
Trade and other payables		53.3	46.2
Current income tax payables		1.8	2.7
Derivative financial instruments		12.4	3.3
Provisions		7.3	4.1
		84.6	57.1
Total liabilities		139.4	111.7
Total liabilities and equity		201.3	174.2

The financial statements were approved by the Board of Directors on 9 June 2009 and signed on its behalf by:

Jonathan Flint	Kevin Boyd
Director	Director

  Group Statement of Cash Flows  year ended 31 March 2009

	2009	2008
	£m	£m
(Loss)/profit for the year	(6.7)	2.7
Adjustments for:
Income tax (credit)/expense	(2.6)	2.3
Net financial expense	11.3	3.4
Reorganisation costs and impairment	6.8	(0.7)
Amortisation of acquired tangibles	4.3	2.9
Depreciation of property, plant and equipment	3.8	4.1
Amortisation of capitalised development costs	3.4	1.9
Earnings before interest, tax, depreciation and amortisation	20.3	16.6
Cost of equity settled employee share schemes	0.3	0.2
Restructuring costs paid	(2.5)	-
Cash payments to the pension scheme more than the charge to the income statement	(1.9)	(2.1)
Operating cash flows before movements in working capital	16.2	14.7
Increase in inventories	(0.2)	(6.9)
Decrease/(increase) in receivables	3.6	(6.9)
(Decrease)/increase in payables and provisions	(2.0)	2.6
Cash generated from operations	17.6	3.5
Interest paid	(1.5)	(1.7)
Income taxes paid	(1.7)	(1.9)
Net cash from operating activities	14.4	(0.1)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	0.2	-
Proceeds from sale of held for sale assets	-	7.7
Proceeds from sale of available for sale equity securities	3.1	-
Proceeds from disposal of product line	0.3	-
Interest received	0.2	0.3
Acquisition of subsidiaries, net of cash acquired	(4.4)	(12.7)
Acquisition of property, plant and equipment	(3.6)	(3.8)
Capitalised development expenditure	(6.4)	(6.6)
Net cash used in investing activities	(10.6)	(15.1)
Cash flows from financing activities
Proceeds from issue of share capital	0.1	0.3
Repayment of borrowings	(2.6)	(1.0)
Increase in borrowings	-	24.2
Dividends paid	(4.1)	(4.1)
Net cash from financing activities	(6.6)	19.4
Net (decrease)/increase in cash and cash equivalents	(2.8)	4.2
Cash and cash equivalents at beginning of the year	7.2	2.8
Effect of exchange rate fluctuations on cash held	(0.8)	0.2
Cash and cash equivalents at end of the year	3.6	7.2

  Notes on the Financial Statements

1    BASIS OF PRESENTATION OF ACCOUNTS

This preliminary statement has been prepared under the same accounting policies as those used to prepare the 2009 Annual Report and Accounts.

During the year, the Directors reviewed the classification of costs relating to the running of its sales offices in Germany, America and Japan, and given the current circumstances and operating structure of the Group, considered that these costs are better reflected as sales and marketing costs, rather than administrative costs. Consequently the previously published figures for the year to 31 March 2008 have been restated in this document. The effect has been to increase sales and marketing costs and reduce administration and shared services by £2.2m for the year to 31 March 2008.

The Directors also reviewed the classification of outward freight costs and considered that these were better reflected as sales and marketing costs, rather than cost of sales. Consequently the previously published figures for the year to 31 March 2008 have been restated in this document. The effect has been to increase sales and marketing costs and reduce cost of sales by £0.5m for the year to 31 March 2008.

The principal exchange rates to sterling used were:

Year end rates

	2009	2008
US Dollar	1.43	1.99
Euro	1.08	1.25
Yen	142	198

Average translation rates 2009

	US Dollar	Euro	Yen
Quarter 1 2009	1.98	1.27	206
Quarter 2 2009	1.89	1.26	203
Quarter 3 2009	1.60	1.20	157
Quarter 4 2009	1.44	1.09	136

Average translation rates 2008

	US Dollar	Euro	Yen
Quarter 1 to Quarter 4 2008	2.01	1.42	228

2    Reconciliation between profit and adjusted profit

	2009	2008
	£m	£m
(Loss)/profit before income tax	(9.3)	5.0
Reorganisation costs and impairment	6.8	(0.7)
Amortisation of acquired intangibles	4.3	2.9
Mark to market loss in respect of derivative financial instruments	9.3	2.3
Adjusted profit before income tax	11.1	9.5
Share of taxation	(3.9)	(3.7)
Adjusted profit	7.2	5.8

Adjusted earnings per share	pence	pence
Basic	14.8	11.7
Diluted	14.8	11.7

Adjusted figures are stated before other operating income, amortisation of acquired intangibles, reorganisation costs and impairment and unrealised changes in the fair value of financial instruments (see over). 

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 as trading instruments with the profit or loss on remeasurement to fair value being taken immediately to the income statement. Adjusted profit for the year is stated before changes in the valuation of these instruments so that the underlying performance of the Group can more clearly be seen.

3    Segment information

Information is presented in the consolidated financial statements in respect of the Group's two business segments being the primary basis of the Group's segmental reporting. Our Analytical business provides measurement and fabrication instruments for industrial and commercial customers. Our Superconductivity business provides materials, tools and systems for industrial and government customers working at the frontiers of science.

Segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis.

Year to 31 March 2009

			2009
	Analytical	Super-conductivity	Total
	£m	£m	£m
Revenue	134.7	71.8	206.5
Trading profit before costs of OII	11.1	2.0	13.1
Costs of OII			-
Trading profit			13.1
Reorganisation costs and impairment			(6.8)
Amortisation of acquired intangibles			(4.3)
Operating profit			2.0
Net financial expense			(11.3)
Income tax credit			2.6
Loss for the year			(6.7)
Segment assets	112.8	63.3	176.1
Unallocated assets			25.2
Total assets			201.3
Segment liabilities	47.5	26.8	74.3
Unallocated liabilities			65.1
Total liabilities			139.4

Year to 31 March 2008

			2008
	Analytical	Super-conductivity	Total
	£m	£m	£m
Revenue	115.7	60.8	176.5
Trading profit before costs of OII	11.0	2.0	13.0
Costs of OII			(2.4)
Trading profit			10.6
Reorganisation costs and impairment			0.7
Amortisation of acquired intangibles			(2.9)
Operating profit			8.4
Net financial expense			(3.4)
Income tax credit			(2.3)
Profit for the year			2.7
Segment assets	99.7	55.7	155.4
Unallocated assets			18.8
Total assets			174.2
Segment liabilities	38.7	18.3	57.0
Unallocated liabilities			54.7
Total liabilities			111.7

Research and development to enhance and develop existing products is undertaken within both the Analytical and Superconductivity business segments. In addition, until closure during the second half of the Group's 2008 year, Oxford Instruments Innovation (OII) carried out initial investigations into new product lines that would not normally be undertaken by the operating businesses. Trading profit in the prior year is shown both before and after OII costs. In the current year the activities formerly undertaken by OII are now undertaken by business units.

4    Trading expenses excluding cost of sales

	2009	2008
		As restated*
	£m	£m
Selling and marketing costs	36.4	32.2
Administration and shared services	19.6	18.8
Research and development (note 5)	13.3	11.5
Foreign exchange loss	8.3	0.1
	77.6	62.6

* See Note 1

The foreign exchange loss represents the loss arising on foreign exchange hedging instruments which matured during the year.

  5    RESEARCH AND DEVELOPMENT

The total research and development spend by the Group is as follows:

			2009
	Analytical	Super-conductivity	Total
	£m	£m	£m
Total cash spent on research and development during the year	11.7	4.6	16.3
Less: amount capitalised	(5.1)	(1.3)	(6.4)
Add: amortisation of amounts previously capitalised	3.2	0.2	3.4
Research and development charged to income statement	9.8	3.5	13.3

			2008
	Analytical	Super-conductivity	Total
	£m	£m	£m
Total cash spent on research and development during the year	10.7	5.5	16.2
Less: amount capitalised	(5.5)	(1.1)	(6.6)
Add: amortisation of amounts previously capitalised	1.8	0.1	1.9
Research and development charged to income statement	7.0	4.5	11.5

6    reorganisation costs and impairment 

	2009	2008
	£m	£m
Profit on disposal of held for sale assets	-	0.7
Profit on disposal of Oxford Diffraction Ltd	3.4	-
Loss on disposal of MBE product line	(1.0)	-
Restructuring costs	(8.7)	-
	(6.3)	0.7
Impairment of carrying value of ARKeX Ltd	(0.5)	-
	(6.8)	0.7

The profit on disposal of held for sale assets in the prior year arose on the disposal of previously held for sale freehold properties in Abingdon and Eynsham, UK.

The Group disposed of its 22% holding in Oxford Diffraction Ltd on 4 April 2008. Consideration after professional costs was £3.7m of which £0.6m is held as a receivable as at 31 March 2009. The carrying value at the time of disposal was £0.3m resulting in a non-recurring profit of £3.4m.

On 22 September 2008 the Group disposed of the Molecular Beam Epitaxy (MBE) product line to Riber SA for a cash consideration of £0.3m. The carrying value of the MBE assets at that time was £1.2m which comprised goodwill of £0.6m and inventories of £0.6m and after accounting for £0.1m of additional costs, the resulting loss on disposal was £1.0m.

Restructuring costs comprise rationalisation of activities at sites in Oxfordshire and High Wycombe UK, Chicago US, Espoo Finland, Uedem and Ismaning Germany and Hobro Denmark. Costs comprise redundancy and related charges of £5.5m, inventory impairments of £1.8m, capitalised research and development write offs of £1.0m and fixed asset impairments of £0.4m.

During the period the Group recognised an impairment charge of £0.5m against the cost of its investment in and loans to ARKeX Ltd.

  7    income tax expense

Recognised in the income statement

	2009	2008
	£m	£m
Current tax expense
Current year	1.0	2.9
Adjustment in respect of prior years	(0.3)	0.2
	0.7	3.1
Deferred tax expense
Origination and reversal of temporary differences	(4.4)	(0.8)
Write off of deferred tax previously recognised	0.8	-
Adjustment in respect of prior years	0.3	-
	(3.3)	(0.8)
Total tax (income)/expense	(2.6)	2.3
Reconciliation of effective tax rate
(Loss)/profit before income tax	(9.3)	5.0
Income tax using the UK corporation tax rate of 28% (2008: 30%)	(2.6)	1.5
Effect of:
Tax rates in foreign jurisdictions	(0.6)	0.2
Non-tax deductible expenses	0.3	0.2
Profit on disposal of held for sale assets	(0.8)	(0.2)
Tax incentives not recognised in the income statement	-	(0.1)
Temporary differences not recognised for deferred tax	0.2	0.2
Effect of current tax losses not utilised	0.7	0.7
Effect of previous tax losses now utilised	(0.6)	(0.4)
Write off of deferred tax previously recognised	0.8	-
Under provided in prior years	-	0.2
Total tax (income)/expense	(2.6)	2.3
Taxation recognised directly in equity
Current tax - relating to employee benefits	-	0.6
Deferred tax - relating to employee benefits	(1.8)	(3.2)
Deferred tax - relating to cash flow hedges	0.2	-
	(1.6)	(2.6)

On 1 April 2008 the current tax rate in the UK changed from 30% to 28%.

8    EARNINGS per share 

The calculation of basic earnings per share is based on a weighted average number of ordinary shares outstanding during the year, excluding shares held by the Employee Share Ownership Trust, as follows:

	2009	2008
	Shares	Shares
	million	million
Weighted average number of shares outstanding	49.4	49.3
Less shares held by Employee Share Ownership Trust	(0.6)	(0.6)
Weighted average number of shares used in calculation of earnings per share	48.8	48.7

The following table shows the effect of share options on the calculation of diluted earnings per share: 

	2009	2008
	Shares	Shares
	million	million
Weighted average number of ordinary shares per basic earnings per share calculations	48.8	48.7
Effect of shares under option	0.2	0.3
Weighted average number of ordinary shares per diluted earnings per share calculations	49.0	49.0

In the current year in respect of unadjusted earnings per share the effect of shares under option was antidilutive and so has been excluded from the calculation.

9    dividends per share  

The following dividends per share were paid by the Group:

	2009	2008
	pence	pence
Previous year interim dividend	2.4	2.4
Previous year final dividend	6.0	6.0
	8.4	8.4

The following dividends per share were proposed by the Group in respect of each accounting year presented:

	2009	2008
	pence	pence
Interim dividend	2.4	2.4
Final dividend	6.0	6.0
	8.4	8.4

The final proposed dividend of 6.0 pence per share (2008: 6.0 pence) will not be provided for until authorised by shareholders at the forthcoming Annual General Meeting.  Interim dividends of 2.4 pence per share (2008: 2.4 pence) are provided for when the dividend is paid.

  10    Reconciliation of Cash and Cash equivalents to net BORROWING

	2009	2008
	£m	£m
(Decrease)/increase in cash and cash equivalents	(2.8)	4.2
Effect of foreign exchange rate changes on cash and cash equivalents	(0.8)	0.2
	(3.6)	4.4
Cash outflow from decrease in debt	2.6	1.0
Cash inflow from increase in debt	-	(24.2)
Borrowings acquired on acquisition	-	(0.8)
Effect of foreign exchange rate changes on borrowings	(9.5)	-
Movement in net borrowing in the year	(10.5)	(19.6)
Net (borrowing)/cash at start of the year	(17.8)	1.8
Net borrowing at the end of the year	(28.3)	(17.8)
Analysed as:
Cash and cash equivalents (per Balance Sheet)	13.3	7.9
Bank overdrafts	(9.7)	(0.7)
Cash and cash equivalents (per Statement of cash flows)	3.6	7.2
Borrowings	(31.9)	(25.0)
Net borrowing at the end of the year	(28.3)	(17.8)

11    Report and Accounts

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2009 or 2008. Statutory accounts for 2008 have been delivered to the registrar of companies, and those for the year ended 31 March 2009 will be delivered in due course. The auditors have reported on those accounts; their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.

The Company is registered in England Number 775598.

12    The Annual General Meeting

The Annual General Meeting will be held on Tuesday, 15 September 2009 at 2.30 pm at Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13 5QX.

 

END

 

 

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