Final Results

RNS Number : 3285W

Oxford Instruments PLC

10 June 2008

 



10 June 2008

Oxford Instruments plc

Announcement of Preliminary Results for the year to 31 March 2008 and Interim Management Statement

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 2008:

• Turnover increased by 9.2% to £176.5 million (2007: £161.6 million) 

• On a constant currency basis, turnover growth was 11.6% and trading profit increased by 57.8%

• Adjusted profit before tax* rose by 26.7% to £9.5 million (2007: £7.5 million)

• Adjusted EPS** up 21.9% to 11.7 pence (2007: 9.6 pence)

• Recommended final dividend of 6.0 pence, making a total for the year of 8.4 pence, unchanged from last year

• Acquisitions of Worldwide Analytical Systems and VeriCold bring important technological and market synergies and are already contributing to growth

• Strategic repositioning of the Group towards future growth markets is now yielding tangible and positive results

* See note 2

**  See note 12

Nigel Keen, Chairman of Oxford Instruments plc, said: "We have continued to make good progress towards our plan to double the size of the business and to improve margins significantly. We have enjoyed a year that has combined strong organic growth with successful acquisitions which are already contributing to earnings and have given us access to important new technologies.  

"While it is still early in the current financial year, trading to date has been in line with the Board's expectations. Despite the challenging economic environment, our end markets remain resilient, driven by the demand for products that deliver environmental and safety benefits. These factors make us confident in our ability to deliver long term profitable growth".

Enquiries:    

Oxford Instruments plc                      Tel:  [phone]    

Jonathan Flint, Chief Executive

Kevin Boyd, Group Finance Director

Hogarth Partnership Limited            Tel:  [phone]    

Rachel Hirst

Andrew Jaques

Ian Payne

For further copies of this announcement, please contact Lynn Shepherd at the Company's registered office at Tubney Woods, Abingdon, Oxfordshire, OX13 5QX (email: [e-mail])

Chairman's Statement

The Group performed strongly throughout the year, with order intake up 10.6% to £180.2 million.  Revenues grew 9.2% to £176.5 million.  Adjusted profit before tax increased by £2.0 million to £9.5 million. This strong performance was delivered despite movements in foreign exchange rates which adversely impacted trading profit by £2.5 million.  

Our objective is to generate shareholder value by becoming a leading provider of tools and systems for use by customers who need to observe and manipulate matter at the smallest scale.  Our products deliver increased efficiency and productivity to our customers and as such have proven particularly attractive as industries seek to improve their competitiveness. Environmental and safety issues continue to be a major growth driver and demand for products serving these markets has been especially strong.  Our other core market of instruments for quality control, small scale production and R&D is also proving resilient in the current uncertain economic climate.

The year 2007/08 represents the second full year of our growth plan to double the size of the business and to improve margins significantly.  We have shown continuous organic growth throughout the course of the plan through an effective programme of new product introductions and a stronger commercial focus supported by continued investment in R&D.   

This year, we have added two important acquisitions, Worldwide Analytical Systems AG (WAS) and VeriCold Technologies GmbH (VeriCold), to the business. These businesses offer important technological and market synergies and are already contributing to earnings. Since the year end we have made two further acquisitions, Technology Devices International Inc (TDI) and LINK Analytical AB (LINK), which further support our growth plan.  We have financed all our acquisitions to date through borrowing. At the end of the year net debt was £17.8 million. In July 2007 we negotiated a five year committed revolving credit facility of £50 million to support our acquisition programme.

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

During the year the employees of Oxford Instruments have responded with vigour and enthusiasm to the challenges posed as we implement our growth strategy. I would like to thank them for their hard work and commitment.

While it is still early in the year, trading to date has been in line with the Board's expectations. Despite the challenging economic environment, our end markets remain resilient.  

These factors make us confident in our ability to deliver long term profitable growth.

Nigel Keen Chairman

10 June 2008

Chief Executive's Statement

Operational Review

Our target is to double the turnover of Oxford Instruments over five years, starting from 2006/07, by organic growth and acquisitions. We plan to achieve this by becoming a more customer focused business, increasingly concentrating on new products and markets, such as nanotechnology.  Our products more and more consist of complete systems sold direct to end-users.

Two years into our five year plan, revenues from continuing businesses have shown compound annual growth of 14.8% in line with the plan. In the same period, trading profit margins have improved from 3.0% to 6.0% despite adverse currency movements.  On a constant currency basis our compound annual growth over the last two years would have been 18.4% and the trading profit margin would have been 9.0%. Due to the currency hedges we have in place, we anticipate the net effect of currency to be marginally positive in the current year.

We operate in a range of end markets, and so far in the current year, total worldwide demand for our products has generally remained robust, albeit with some geographical variation. Strong demand in Europe and Asia is balancing some softening in the USA.

Our acquisitions strategy is to purchase companies with products or intellectual property which are complementary to Oxford Instruments' existing technologies. These products are then distributed and supported through existing Oxford Instruments sales channels. This serves to improve the operational efficiency of the business as well as growing revenues. The WAS and VeriCold acquisitions made this year fit into this model and have delivered to plan. 

Analytical Businesses

Orders and revenue for the year were £115.8 million (2007: £106.7 million) and £115.7 million (2007: £100.7 million) respectively. Trading profit was £11.0 million (2007: £10.1million).

Our Analytical Businesses provide measurement and fabrication instruments for industrial and research customers. The business units are: Industrial Analysis, X-Ray Technology, NanoAnalysis and Plasma Technology.

Our Industrial Analysis business, which produces tools that enable our industrial customers to analyse materials, performed well and continues to do so despite the challenging economic environment. Further new product introductions will provide some protection in the event that we experience any future weakening in industrial demand. These new products include the X-MET5000, an update of our best selling X-MET range, which provides hand held x-ray fluorescence analysers for a broad range of applications including quality control, environmental monitoring and positive material identification. Concern during the year over lead contamination in toys provided an example of how environmental issues continue to act as drivers in this growing market. More recently, we have seen increased demand for X-Strata, our benchtop x-ray fluorescence analyser, following concerns over lead contamination in dental appliances.

In August 2007, we acquired WAS, giving us access to optical emission technology. This complements well our existing capability in x-ray fluorescence analysis and enables Oxford Instruments to offer a broad spectrum of analytical instrumentation to industrial and environmental markets such as metals recycling. WAS has been successfully integrated into the industrial analysis infrastructure and its performance is exceeding our acquisition plan targets.

Our X-Ray Technology business based in California produces small x-ray sources for the analytical instrumentation market. Sales here have reduced from the record high levels reached last year, due to the anticipated decline in sales relating to the Restriction of Hazardous Substances (RoHS) legislation. However, long term prospects for this business remain strong. 

Our NanoAnalysis business is the market-leading provider of a range of detectors for users of electron microscopes who need to understand chemical and structural properties of materials.  This business continued to perform well in the year.  For example,   Formula 1 motor racing teams are using our INCA microanalysis tools to support materials development and testing on the next generation of racing cars. A new segment of the electron microscopy market which is growing rapidly is the demand for low cost scanning electron microscopes which are small enough to sit on the benchtop. We are collaborating with leading suppliers on the production of their benchtop scanning electron microscopes which incorporate an Oxford Instruments detector system based on our silicon drift detector technology.

Plasma Technology provides a range of products for the manufacture of high performance semiconductors for specialist applications.  Investment in the first half of the year has started to pay dividends as margins improved and the order book reached record levels. Diversification away from our traditional semiconductor markets continues with the introduction of a tool for research into third generation photovoltaic technologies. These technologies would be used, for example, in high efficiency solar panels.

Post year end we acquired TDI, based in Maryland, USA. TDI has unique technology for Hydride Vapour Phase Epitaxy (HVPE) which offers opportunities to manufacture High Brightness Light Emitting Diodes (HBLED) more cheaply than is currently possible.  With the drive to more energy efficient lighting systems, the market for HBLED is expected to show strong growth. We are investing in producing a commercial HVPE manufacturing tool.  Following the completion of this development programme TDI is expected to contribute profit in financial year 2009/10.

Superconductivity Businesses

Orders and revenue for the year were £64.4 million (2007: £56.3 million) and £60.8 million (2007: £60.9 million) respectively. Trading profit was £2.0 million (2007: £1.6 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. 

Our NanoScience business provides superconducting magnets and cryogenic systems for research and academic customers. This business contains high levels of intellectual property but has displayed disappointing trading results in recent years. Following the introduction of a new management team and rationalisation of the product portfolio, the business has shown significant improvement this year. Our on-time delivery to customers has dramatically improved and the introduction of new products has proved successful. A number of new applications have emerged, including tools for the fabrication of quantum dots.  Quantum dots are nanoscale particles that can be tailored for use in security and anti-counterfeiting applications or life-science research into cellular imaging and diagnostics. Oxford Instruments' tools are used in their growth and analysis.

In August 2007 we acquired VeriCold, in Germany, which brings unique Pulse Tube cooler technology to the Group. When combined with existing capabilities within our NanoScience division, this enables us to produce products which can offer very low temperatures without the use of liquid helium. This provides a significant advantage in the eyes of our customers, as demonstrated by the encouraging level of orders for VeriCold equipment which is above our acquisition assumptions. The migration of production of Pulse Tube coolers into our Tubney Woods site in Oxford, UK, is underway. Our German site will continue as a centre of excellence for Pulse Tube technology.

Our Superconducting Wire business is a market-leading producer of wire for MRI (Magnetic Resonance Imaging) and other industries.  This business has previously been vulnerable to movements in the price of copper, a key component in the manufacture of superconducting wire. Following negotiation, the majority of future variations in the price of copper will now be carried by our customers. The previously reported effects of the Deficit Reduction Act in the US had reduced orders for MRI units. These effects are now abating with demand beginning to recover.  Our superconducting wire has received qualification for use in ITER, the international collaboration project seeking to develop a new source of carbon free energy. Initial sample orders have been received from the US, EU and China.

Our MRI Service business maintains MRI scanners throughout the United States and in Japan.  This business continues to benefit from long term contracts with existing large customers as well as attracting a range of new customers with smaller numbers of installed scanners.

Our Austin Scientific business produces, refurbishes and maintains high technology pumps and refrigerators for industrial and research customers.  New OEM customers have been won and the recent strong sales growth has continued. 

Molecular Biotools supplies novel magnetic resonance based analytical instrumentation to the life sciences and pharmaceutical communities. To complement its existing Dynamic Nuclear Polarisation instruments being used in life sciences research, the business will launch a new Magnetic Resonance Imaging (MRI) based instrument this year that will significantly enhance drug formulation studies and delivery mechanisms. Using the same technology base, the business is the global leader in the supply of Nuclear Magnetic Resonance (NMR) based instruments used for the analysis of rock cores in oil exploration. Industrial benchtop NMR tools are used across a wide range of quality assurance/quality control applications and the business has sold a number of instruments currently being used in the research and development of oil seeds and algae for environmentally friendly biofuels.

Emerging Markets

Emerging markets offer opportunities for Oxford Instruments as they develop their technological infrastructure and build up new industries.  Currently we are seeing continued growth in China with revenues up 32.4% year on year. Other technology oriented Asian countries are showing similar growth. We have seen a significant upturn in demand in Russia and Eastern Europe for products from NanoAnalysis and Plasma Technology.  We are beginning to see more enquiries from the Middle East and India. 

On 4 February 2008, Oxford Instruments was named 'Exporter of the Year' in China, as part of the KPMG 2008 UK Business Awards. This reflects our ongoing investment in China. In addition to sales and manufacturing organisations, we now have eight members of staff in China writing software for us. This has proved a highly effective method of rapidly developing software improvements for our products.

Property

In July we announced the completion of the sale of our vacant properties at Abingdon and Eynsham in the UK. These properties had become surplus to the operating requirements following our earlier restructuring of the business. The net proceeds from the sale were £7.7million compared to a book value of £7.0 million.

Work is underway on the facility for our new Plasma Technology site.  This will be built at Weston-super-Mare, approximately ten miles from our existing business unit site at Yatton. A large proportion of the funding for the development will come from the already contracted sale of our current property at Yatton.

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. The product introductions made so far have been successful. However there is the risk that future product introductions may not yield the sales forecast, especially when new markets are accessed.

Global financial market conditions may potentially have some impact on demand but the company remains well positioned, enjoying a broad spread of customers, applications and geographical markets. So far we have seen no material change in levels of order intake.

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 this cost directly onto customers. Steps have been taken in the current year to introduce hedging on key commodity 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.

Progress and material events since year end

Since the year end we have acquired the TDI business which we have described above. We also acquired Link Analytical, the Scandinavian distributor of our analytical equipment, for a consideration of £0.6 million, and disposed of our 23% shareholding in Oxford Diffraction to Varian Inc for a consideration of £3.5 million with an additional amount of up to £1.1 million conditional on the performance of Oxford Diffraction.  

Current trading and outlook

Trading in the period 1 April 2008 to date has been in line with the Board's expectations. Following a year of strong organic and acquisitive growth, we expect to continue to make progress against our five year plan to double the size of the business and improve EBIT margins by 10 percentage points. Our programme of ongoing operational improvements and valuable new product introductions underpins this growth plan.   

We are confident in the Group's future prospects and our ability to generate increasing and sustainable shareholder value.

Jonathan Flint Chief Executive

10 June 2008

Financial Review

Trading Performance

Revenues for the year grew by 9.2% to £176.5 million (2007: £161.6 million) helped by acquisitions which contributed £6.9 million in the year. As in the previous year, fluctuations in exchange rates adversely affected revenues, this time by £3.9 million (2007: £7.4 million).  On a constant currency basis, revenues grew by 11.6%.

Total operating expenses increased by £3.8 million to £62.1 million (2007: £58.3 million). Operating expenses benefited by approximately £0.8 million from the translation of our overseas operations' expenses at weaker exchange rates, but suffered a movement of £0.9 million due to the effects of foreign exchange hedging in the two years. Of the total underlying increase of £3.7 million, approximately £2.5 million came from the two acquisitions in the year leaving a like for like increase of £1.2 million or 2.1%. This low level of increase was in part due to the benefits arising from the renegotiation of the Group's UK defined benefit pension scheme which took effect from September 2007.

Trading profit increased by £2.3 million to £10.6 million (2007: £8.3 million). On a constant currency basis, trading profit was £13.1 million. Adjusted profit before tax (note 2) was £9.5 million (2007: £7.5 million).

Other Operating Income

As reported in our Half Year Financial Statements, the Group disposed of two properties in the year which were surplus to requirements. This resulted in a profit of £0.7 million and a cash inflow of £7.7 million. 

Amortisation of acquired intangibles

Amortisation of acquired intangibles increased by £1.8 million due to the acquisitions made in the year.

Financial income and expenditure

Within financial income and expenditure total net interest payable increased to £1.4 million (2007: £0.1 million) as the Group increased borrowing to fund acquisitions. The expected return on pension scheme assets exceeded the interest charge on pension scheme liabilities by £0.3 million 

(2007: - £0.7 million).

Mark to market gains and losses

The Group uses derivative products to hedge its exposure to fluctuations in foreign exchange rates and the price of copper. 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 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 in Financial Income (note 9) and excluded in our calculation of adjusted profit.

Taxation

The underlying tax rate on the profit before tax for the continuing businesses before other operating income, restructuring and non-recurring costs, amortisation of acquired intangibles and marking to market of hedging derivatives was 39% (2007: 38%). The key factors influencing the rate of tax are high tax rates in overseas jurisdictions such as the USA, Germany and Japan coupled with the inability to offset losses arising in one jurisdiction against profits arising in another. The tax rate rose in the year due to a change in the mix of taxable profits in the jurisdictions in which we pay tax and the exhaustion of brought forward tax losses in our subsidiary in Finland.

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 £9.6 million (2007: £11.6 million) has been recognised against timing differences and unused capital allowances, of this £5.9 million (2007: £9.4 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 £5.7 million has been recognised in respect of the intangible asset arising on the acquisition of Worldwide Analytical Systems AG and VeriCold Technologies GmbH. This liability will unwind as the intangibles are amortised.

Earnings

After a total tax charge of £2.3 million (2007: £2.8 million) the net profit for the financial year was £2.7 million (2007: loss £1.5 million).

With a weighted average number of shares of 48.7 million (2007: 48.2 million), the basic earnings per share was 5.6 pence (2007: loss 3.2 pence). After adjusting for other operating income, amortisation of acquired intangibles and marking to market of hedging derivatives the earnings per share of the underlying business was 11.7 pence (2007: 9.6 pence).

Dividends

The Group's proposed final dividend of 6.0p per share (2007: 6.0p), payable on 23 October 2008, gives a total dividend for the year of 8.4p per share (2007: 8.4p). Dividend cover for the underlying business before other operating income, non-recurring, amortisation of acquired intangibles and marking to market of hedging derivatives was 1.4 times.

Investment in research and development (R&D)

The total cash spent on research and development in the year was £16.2 million, up £0.3 million on the prior year. This was made up as follows:

	2008	2007
	£ million	£ million
Total cash spent on research and development during the year	16.2	16.2
Less: amount capitalised	(6.6)	(5.6)
Add: amortisation of amounts previously capitalised	1.9	1.5
Research and development charged to the income statement	11.5	12.1

The net book value of capitalised R&D at the end of the financial year was £14.4 million (2007: £9.4 million).

Balance sheet

Net operating assets (segment assets, see note 3), excluding acquired intangibles, increased by £10.1 million to £68.8 million. Following an increase of £0.1 million in the prior year, net working capital increased by £7.9 million due to the inclusion of the acquisitions, a particularly strong fourth quarter resulting in a high level of year end debtors and the building of buffer stock to facilitate new product introductions.  

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	9.4	0.5	8.2	18.1
VeriCold		6.4	0.3	6.7
WAS		12.3	0.7	13.0
HKL			0.4	0.4
Capitalised Development Costs	6.6			6.6
Amortisation charge for the year	(1.9)	(2.9)		(4.8)
Effect of movement in foreign currency	0.3	2.9	0.8	4.0
Carried forward	14.4	19.2	10.4	44.0

Assets held for sale in the prior year represented two properties in Oxfordshire which were surplus to requirements and were disposed of in the year generating the 'Other Operating Income' discussed above. 

Pensions

The Group has two defined benefit pension schemes, one in the UK and a smaller one in the US. Both have been closed to new entrants since 2001. The total deficit, before tax, under IAS19 on these pension schemes decreased by £9.6 million to £21.2 million. Assets of the schemes at 31 March 2008 were £139.8 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.

In September the Group negotiated an increase in pension contributions from employees and a reduction of the level of benefit offered on future accrual. 

Cash

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by £3.4 million to £16.6 million.  The significant changes from the prior year comprised an increase in working capital of £11.2 million (2007: £2.0 million), interest payments on the increased level of debt of £1.7 million (2007: £0.3 million), £12.7 million spent on acquisitions (2007: £0.3 million) and a non-recurring inflow from the sale of property of £7.7 million compared with an outflow of £2.9 million due to restructuring in the prior year.

Net debt at the year end was £17.8 million.  In July 2007 we negotiated new banking facilities, putting in place a committed 5 year £50 million revolving credit facility to fund the expansion of the Group.   

Employees

The number of employees at 31 March 2008 was 1,545, an increase of 230 over the prior year. Of this increase 84 were new employees who joined the Group as a result of the acquisitions made in the year.

Currency hedging

As mentioned above, the Group seeks to hedge its foreign currency risk. It is Group policy to have in place at the beginning of the year hedging instruments to cover 80% of its forecast transactional exposure for that period.

Share price

The closing mid-market price of the ordinary shares at the end of the financial year was £1.85, compared with £2.47 at the beginning of the year. The highest and lowest prices recorded in the financial year were £3.09 and £1.66 respectively.

Key Performance Indicators

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

	2008	2007
Revenue growth
As reported	+9.2%	+9.6%
At constant currencies, continuing businesses	+11.6%	+26.1%
Return on sales
Trading profit as a percentage of revenue	6.0%	5.1%
R&D
R&D cash spend as a percentage of revenue	9.2%	10.0%

Going concern

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 this statement, there has been no significant change in the financial position of the Group since year end.

Kevin Boyd Group Finance Director

10 June 2008

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.

  Group Income Statement year ended 31 March 2008

		2008	2007
	Notes	£m	£m
Revenue	3	176.5	161.6
Cost of sales		(103.8)	(95.0)
Gross profit		72.7	66.6
Trading expenses excluding cost of goods sold	4	(62.1)	(58.3)
Trading profit	3	10.6	8.3
Other operating income	6	0.7	-
Amortisation of acquired intangibles	7	(2.9)	(1.1)
Restructuring and other non-recurring costs	8	-	(5.2)
Operating profit		8.4	2.0
Financial income	9	9.6	8.5
Financial expenditure	10	(13.0)	(9.2)
Profit before income tax		5.0	1.3
Income tax expense	11	(2.3)	(2.8)
Profit/(loss) for the year attributable to equity shareholders of the parent		2.7	(1.5)
		pence	pence
Earnings per share
Basic earnings per share	12	5.6	(3.2)
Diluted earnings per share	12	5.5	(3.2)
Dividends per share
Dividends paid	13	8.4	8.4
Dividends proposed	13	8.4	8.4
Total dividends		£m	£m
Dividends paid		4.1	4.0
Dividends proposed		4.1	4.0

			£m	£m
	Adjusted profit before tax	2	9.5	7.5
			pence	pence
	Adjusted earnings per share
	Basic earnings per share	12	11.7	9.6
	Diluted earnings per share	12	11.7	9.5

  Group Statement of Recognised Income and Expense  year ended 31 March 2008

		2008	2007
	Note	£m	£m
Foreign exchange translation differences		3.1	(1.7)
Actuarial gain in respect of post retirement benefits		7.1	22.1
Taxation effect in respect of post retirement benefits		(2.6)	(6.7)
Recycling of fair value movements of available for sale equity securities		-	0.2
Net profit recognised directly in equity		7.6	13.9
Profit/(loss) for the year		2.7	(1.5)
Total recognised income for the year attributable to equity shareholders of the parent		10.3	12.4

  Group Balance Sheet  as at 31 March 2008

		2008	2007
		£m	£m
Assets
Non-current assets
Property, plant and equipment		22.4	21.5
Intangible assets		44.0	18.1
Available for sale equity securities		0.6	0.6
Deferred tax assets		9.6	11.6
		76.6	51.8
Current assets
Inventories		34.9	25.6
Trade and other receivables		53.5	45.1
Current income tax recoverable		0.7	0.5
Derivative financial instruments		0.6	0.5
Cash and cash equivalents		7.9	3.9
Held for sale assets		-	7.0
		97.6	82.6
Total assets		174.2	134.4
Equity
Capital and reserves attributable to the Company's equity shareholders
Share capital		2.5	2.5
Share premium		21.2	20.9
Other reserves		0.1	0.1
Translation reserve		2.3	(0.8)
Retained earnings		36.4	33.1
		62.5	55.8
Liabilities
Non-current liabilities
Bank loans		24.9	-
Other payables		2.4	0.2
Retirement benefit obligations		21.2	30.8
Deferred tax liabilities		6.1	-
		54.6	31.0
Current liabilities
Bank loans		0.1	1.0
Bank overdrafts		0.7	1.1
Trade and other payables		46.2	40.2
Current income tax payables		2.7	1.8
Derivative financial instruments		3.3	0.2
Provisions		4.1	3.3
		57.1	47.6
Total liabilities		111.7	78.6
Total liabilities and equity		174.2	134.4

The financial statements were approved by the Board of Directors on 10 June 2008 and signed on its behalf by:

Jonathan Flint            Kevin Boyd

Director                         Director

  Group Statement of Cash Flows  year ended 31 March 2008

	2008	2007
	£m	£m
Profit/(loss) for the year	2.7	(1.5)
Adjustments for:
Income tax expense	2.3	2.8
Net financial expense	3.4	0.7
Restructuring and non-recurring costs	-	5.2
Amortisation of acquired tangibles	2.9	1.1
Other operating income	(0.7)	-
Depreciation of property, plant and equipment	4.1	3.4
Amortisation of capitalised development costs	1.9	1.5
Earnings before interest, tax, depreciation and amortisation	16.6	13.2
Loss on disposal of property, plant and equipment	-	0.2
Cost of equity settled employee share schemes	0.2	0.2
Restructurings costs paid	-	(2.9)
Cash payments to the pension scheme more than the charge to the income statement	(2.1)	(0.7)
Operating cash flows before movements in working capital	14.7	10.0
(Increase)/decrease in inventories	(6.9)	0.6
Increase in receivables	(6.9)	(2.3)
Increase in payables	2.3	-
Increase/(decrease) in provisions	0.3	(0.3)
Cash generated from operations	3.5	8.0
Interest paid	(1.7)	(0.3)
Income taxes paid	(1.9)	(2.5)
Net cash from operating activities	(0.1)	5.2
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	-	0.1
Proceeds from sale of held for sale assets	7.7	-
Proceeds from sale of available for sale equity securities	-	0.3
Interest received	0.3	0.2
Acquisition of subsidiaries, net of cash acquired	(12.7)	(0.3)
Acquisition of property, plant and equipment	(3.8)	(4.4)
Capitalised development expenditure	(6.6)	(5.6)
Net cash used in investing activities	(15.1)	(9.7)
Cash flows from financing activities
Proceeds from issue of share capital	0.3	0.8
Repayment of borrowings	(1.0)	(1.9)
Increase in borrowings	24.2	-
Dividends paid	(4.1)	(4.0)
Net cash from financing activities	19.4	(5.1)
Net increase/(decrease) in cash and cash equivalents	4.2	(9.6)
Cash and cash equivalents at beginning of the year	2.8	12.7
Effect of exchange rate fluctuations on cash held	0.2	(0.3)
Cash and cash equivalents at end of the year	7.2	2.8

  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 2007 Annual Report and Accounts.

The principal exchange rates to sterling used were:

Average translation
rates	2008	2007		Year end rates	2008	2007
US Dollar	2.01	1.89		US Dollar	1.99	1.96
Euro	1.42	1.47		Euro	1.25	1.47
Yen	228	221		Yen	198	232

2    Reconciliation between profit and adjusted profit

	2008	2007
	£m	£m
Profit before income tax	5.0	1.3
Other operating income	(0.7)	-
Amortisation of acquired intangibles	2.9	1.1
Restructuring and non-recurring costs (note 8)	-	5.2
Financial instruments (see below)	2.3	(0.1)
Adjusted profit before income tax	9.5	7.5

Under IAS 39, derivative financial instruments are recognised initially at fair value - this includes the fixed forward and option based foreign exchange contracts the Group has entered into in order to manage its exposure to foreign exchange rate movements. Subsequent to initial recognition, derivative financial instruments are measured at fair value. 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 its 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. These are the primary basis of our 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 2008 

	Analytical	Superconductivity	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
Other operating income			0.7
Amortisation of acquired intangibles			(2.9)
Operating profit			8.4
Net financial expense			(3.4)
Income tax expense			(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 existing products and develop new ones is undertaken within both the Analytical and Superconductivity business segments. In addition, Oxford Instruments Innovation (OII) carried out initial investigations into new product lines that would not normally be undertaken by the operating businesses.  In the second half of the year the decision was taken to disband OII and distribute its employees and assets among the two segments.  Trading profit is shown both before and after OII costs so as to give a more meaningful indication of the performance of the business segments. To aid comparability, the OII costs for the current year include the costs of those personnel who were transferred.

Year to 31 March 2007 

	Analytical	Superconductivity	Total
	£m	£m	£m
Revenue	100.7	60.9	161.6
Trading profit before costs of OII	10.1	1.6	11.7
Costs of OII			(3.4)
Trading profit			8.3
Amortisation of acquired intangibles			(1.1)
Restructuring and non-recurring costs			(5.2)
Operating profit			2.0
Net financial expense			(0.7)
Income tax expense			(2.8)
Loss for the year			(1.5)
Segment assets	64.0	46.8	110.8
Unallocated assets			23.6
Total assets			134.4
Segment liabilities	26.4	17.0	43.4
Unallocated liabilities			35.2
Total liabilities			78.6

4    Trading expenses excluding cost of goods sold

	2008	2007
	£m	£m
Selling and marketing costs	29.5	26.7
Administration and shared services	21.0	20.3
Foreign exchange loss/(gain)	0.1	(0.8)
Research and development (note 5)	11.5	12.1
	62.1	58.3

5    RESEARCH AND DEVELOPMENT

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

			2008
	Analytical	Superconductivity	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

			2007
	Analytical	Superconductivity	Total
	£m	£m	£m
Total cash spent on research and development during the year	10.6	5.6	16.2
Less: amount capitalised	(5.3)	(0.3)	(5.6)
Add: amortisation of amounts previously capitalised	1.4	0.1	1.5
Research and development charged to income statement	6.7	5.4	12.1

6    Other operating income 

	2008	2007
	£m	£m
Profit on disposal of held for sale assets	0.7	-

Other operating income comprises the profit on disposal of held for sale freehold properties in Abingdon and Eynsham, UK.

7    Amortisation of acquired intangibles

	2008	2007
	£m	£m
Amortisation of acquired intangibles	2.9	0.2
Adjustment to carrying value of goodwill as required by IAS12	-	0.9
	2.9	1.1

The adjustment to the carrying value of goodwill in the prior year arose due to the utilisation of tax losses which were not recognised as a deferred tax asset at the time of acquisition. IAS 12 requires that when such losses are utilised subsequent to acquisition the carrying value of goodwill is reduced so that it reflects the carrying value that would have arisen had a deferred tax asset been recognised at the time of acquisition.

8    RESTRUcturing and non-recurring costs 

Restructuring and non-recurring costs for the year ended 31 March 2007 comprise £1.7m in respect of the settlement of an onerous contract, £2.9m in respect of the exit from the high field magnet business, £0.3m in respect of the disposal of the Group's interest in Oxford BioSignals Ltd and £0.3m in respect of costs associated with the exit from the held for sale factory which became surplus to requirements following the restructuring of the UK magnet business in 2006.

9    financial income  

	2008	2007
	£m	£m
Bank interest receivable	0.3	0.2
Expected return on pension scheme assets	9.3	8.2
Mark to market gain in respect of derivative financial instruments	-	0.1
	9.6	8.5

10    financial expenditure 

	2008	2007
	£m	£m
Interest payable and similar charges on bank loans and overdrafts	1.7	0.3
Interest charge on pension scheme liabilities	9.0	8.9
Mark to market loss in respect of derivative financial instruments	2.3	-
	13.0	9.2

11    Income tax expense  

Recognised in the income statement

	2008	2007
	£m	£m
Current tax expense
Current year	2.9	2.4
Adjustment for prior years	0.2	-
	3.1	2.4
Deferred tax expense
Origination and reversal of temporary differences	(0.8)	0.6
Adjustment in respect of prior years	-	(0.2)
	(0.8)	0.4
Total tax expense	2.3	2.8
Reconciliation of effective tax rate
Profit before income tax	5.0	1.3
Income tax using the UK corporation tax rate (30%)	1.5	0.4
Effect of:
Tax rates in foreign jurisdictions	0.2	0.4
Amortisation of intangible assets	0.1	0.3
Non-tax deductible expenses	0.1	0.2
Profit on disposal of held for sale assets	(0.2)	-
Tax incentives not recognised in the income statement	(0.1)	(0.2)
Temporary differences not recognised for deferred tax	0.2	0.2
Effect of current tax losses not utilised	0.7	2.6
Effect of previous tax losses now utilised	(0.4)	(0.9)
Under/(over) provided in prior years	0.2	(0.2)
Total tax expense	2.3	2.8
Taxation recognised directly in equity
Current tax relating to employee benefits	0.6	-
Deferred tax relating to employee benefits	(3.2)	(6.7)
	(2.6)	(6.7)

  12    EARNINGS PER SHARE  

a)    Basic

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

	2008	2007
	£m	£m
Profit/(loss) for the year	2.7	(1.5)
	Shares	Shares
	million	million
Weighted average number of shares outstanding	49.3	48.9
Less shares held by Employee Share Ownership Trust	0.6	0.7
Weighted average number of shares used in calculation of earnings per share	48.7	48.2

b)    Diluted

The following table shows the effect of share options on the calculation of diluted basic earnings per share.  However, in the prior year that effect was antidilutive and so was excluded from the calculation of diluted basic earnings per share. This effect has been included in the calculation of diluted adjusted earnings per share for both years - see (c) below.

	2008	2007
	Shares	Shares
	million	million
Number of ordinary shares per basic earnings per share calculations	48.7	48.2
Effect of shares under option	0.3	0.3
Number of ordinary shares per diluted earnings per share calculations	49.0	48.5

c)    Adjusted

The earnings per share before other operating income, amortisation of acquired intangibles, restructuring and non-recurring costs, and mark to market gains or losses in respect of certain derivatives are as follows:

	2008	2007
	pence	pence
Basic	11.7	9.6
Diluted	11.7	9.5

A reconciliation of the profit for the years used to calculate basic earnings per share to the adjusted profit used to calculate the adjusted earnings per share shown above is set out below:

	2008	2007
	£m	£m
Adjusted profit before income tax (note 2)	9.5	7.5
Taxation	(3.7)	(2.8)
Adjusted profit	5.8	4.7

13    dividends per share  

The following dividends per share were paid by the Group:

	2008	2007
	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:

	2008	2007
	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 (2007: 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 (2007: 2.4 pence) are provided for when the dividend is paid.

Subject to the approval of the shareholders at the Annual General Meeting on 23 September 2008, the proposed final dividend will be paid on 23 October 2008 to shareholders registered at the close of business on 26 September 2008. The ordinary shares will be quoted ex-dividend on 24 September 2008. The latest date for exercising the DRIP Dividend alternative is 29 September 2008. The dividends payable on the shares held in trust have been waived.

14    Reconciliation of Cash and Cash equivalents to net cash 

	2008	2007
	£m	£m
Increase/(decrease) in cash and cash equivalents	4.2	(9.6)
Effect of foreign exchange rate changes on cash and cash equivalents	0.2	(0.3)
	4.4	(9.9)
Cash outflow from decrease in debt	1.0	1.9
Cash inflow from increase in debt	(24.2)	-
Borrowings acquired on acquisition	(0.8)	-
Movement in net cash in the year	(19.6)	(8.0)
Net cash at start of the year	1.8	9.8
Net (borrowing)/cash at the end of the year	(17.8)	1.8
Analysed as:
Cash and cash equivalents (per Balance Sheet)	7.9	3.9
Bank overdrafts	(0.7)	(1.1)
Cash and cash equivalents (per Statement of cash flows)	7.2	2.8
Borrowings	(25.0)	(1.0)
Net (borrowing)/cash at end of the year	(17.8)	1.8

15    Report and Accounts

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2008 or 2007. Statutory accounts for 2007 have been delivered to the registrar of companies, and those for the year ended 31 March 2008 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.

16    The Annual General Meeting

The Annual General Meeting will be held on Tuesday, 23 September 2008 at 2.30 pm at Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13 5QX.

 

END

 

 

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