Oxford Instruments plc
Half Year Report September 2012www.oxford-instruments.com

We are a leading provider of hightechnology tools and systems for researchand industry. We design and manufacture
equipment that can analyse and manipulatematter at the atomic and molecular level

Summary of Half Year Results
2012
£m

2011
£m

Orders

169.8

174.8

Revenue

170.8

159.1

Adjusted operating profit

23.8

18.9

Adjusted profit before tax

23.1

18.7

Net cash

37.1

11.9

126.5

119.9

2012
Pence
per share

2011
Pence
per share

Adjusted basic earnings

33.9

28.2

Basic earnings (as re-presented*)

20.9

16.7

Shareholders’ equity

Proposed dividend

3.05

2.77

Net assets (as restated*)

224.4

217.1

2012
Number

2011
Number

1,906

1,896

Employees at half year end*for details of restatement and re-presentation of comparative information see note 1.

Business Reveiw
Half Year Statement
Financial statements
Condensed Consolidated Statement of Income
Condensed Consolidated Statement of Comprehensive Income
Condensed Consolidated Statement of Changes in Equity

04
06
07

Condensed Consolidated Statement of Financial Position

09

Condensed Consolidated Statement of Cash Flows

1001

Notes on the Half Year Financial Statements

12

Principal Risks and Uncertainties

18

Responsibility Statement of the Directors in respect of the Half Year Financial Statements

19

Independent Review Report by KPMG Audit Plc to Oxford Instruments plc

20

Half Year Statement

Introduction
The Group continued to make good
progress in the first half driven by new
product introductions and long term
structural global growth in demand for
Nanotech tools. Revenue grew by 7.4%
to £170.8 million (2011: £159.1 million),with constant currency organic growthof 5.8%. Adjusted profit before tax grewby 23.5% to £23.1 million (2011: £18.7
million). Our adjusted operating margin
continued to increase, rising to 13.9%
from 11.9% in the prior year.
Overall, demand for our products
remained strong, despite some softness
in the industrial sector as reported in
our AGM statement in September 2012.
We maintained pricing in the period,
supported by the strength of our brandand the quality of our technology.
Our organic growth continues to beunderpinned by our focused R&D
programme. In the half year, we increased
our R&D cash spend by 7% to £12.1
million, reflecting the opportunities we
see to increase market share through theintroduction of innovative new products.
Developed markets showed robustness
as customers used our equipment to workat the frontiers of science and improve theefficiency of high technology production
facilities. Growth in North America andEurope was 3% and 1% respectively.
Sales growth in Asia was strong at 23%
supported by a number of initiatives
including a branch office in Korea and theopening of our Indian subsidiary led by a
new senior Country Manager.
October 2012 marked the half way pointof our 14 Cubed growth plan to deliver an
average compound annual growth rate insales of 14% and a net return on sales of
14% by 2014. Progress to date is in linewith meeting these objectives.
The Directors declare an interim dividendof 3.05 pence, 10% higher than theBusiness Profile
Oxford Instruments plc
Half Year Report September 2012previous year, payable on 8 April 2013 toshareholders who are on the register on
8 March 2013.
Nanotechnology Tools Sector
2012
£m

2011
£m

Revenue

80.9

70.4

Operating profit

10.4

7.3

In our Nanotechnology Tools sector,
which represents 47% of Group revenue,
profits grew by 42% and operating profit
margins increased to 12.9% (2011: 10.4%).
The sector comprises four businesses:
NanoAnalysis, Plasma Technology,
NanoScience and Omicron NanoTechnology.
It produces high performance instruments
and systems for customers working inscientific research and with advanced
industrial processes. We have seen no
evidence of a reduction in research funding
from governments worldwide.
Sales of our new material characterisation
system comprising our latest generation
nanoanalysis detector hardware andmulti-tasking Aztec® software havebeen strong. A series of software
upgrades has firmly established thisproduct as the world’s leading material
characterisation system and sales haveexceeded expectations. Three new productintroductions in the first half have further
enhanced the position of NanoAnalysis astechnology leaders with the new X-MAX nseries of large area detectors setting a
new benchmark in the measurement
and quantification of materials at thenanoscale. The acquisition of Omniprobe
in June 2011 has broadened our
NanoAnalysis product range by offering
innovative nano-manipulation tools forsample preparation on electron and ion
beam microscopes. The launch of a new
nano-manipulation tool, Omniprobe400,
has supported Omniprobe’s growing
contribution to the Group.

01

Our Plasma Technology business produces
equipment for nanofabrication and has
performed well. We have seen good
growth in markets such as next generation
photovoltaics, power semiconductors
and MEMS (Micro Electrical Mechanical
Systems), sales of which have increased
following the launch of our PlasmaPro100
system. As previously reported, overcapacity in the HBLED market has
led to a softening in demand for our
HBLED fabrication tools over the last 18
months. However we maintain a strong
technological position in this market and
we are well placed to benefit when demand
begins to strengthen again.
Omicron NanoTechnology, which we
acquired in June 2011, offers customers
working at the cutting-edge of physics
research a broad range of sophisticated,
multi-technique systems. These include
Scanning Probe Microscopy (SPM), Electron
Spectroscopy and Ultra High Vacuum
solutions. Some weakness in orders in thesecond half of last year has now reversed
and order intake in the period has beenstrong, including the largest order Omicron
has ever taken. However, the long leadtimes associated with its complex products
mean that it will take another year tobring this business up to expected levels of
performance. In line with our integration
plan we have appointed a new Managing
Director to drive this growth. He replaces
the founder who, as planned, has retired.
Our NanoScience business is the world’s
leading supplier of cryogenic systems fornano-characterisation and measurement
at low temperatures and high magnetic
fields. Our Triton® dilution refrigerator
continues to be a market leading productfor this business. Six systems were recently
installed in the newly opened Centre
for Quantum Devices at the Niels Bohr
Institute in Copenhagen. The growth of theconsultancy business has continued with arange of contracts including one with fusion
technology specialists Tokamak Solutions.

02

Half Year Statement continued

Business Profile
Oxford Instruments plc
Half Year Report September 2012

Industrial Products Sector
2012
£m

2011
£m

Revenue

61.5

64.7

Operating profit

7.6

6.6

In our Industrial Products sector, which
represents 36% of Group revenue, profits
grew by 15%. The businesses which makeup this sector are unchanged but havebeen regrouped into Industrial Analysis
and Industrial Components. This sector
supplies analytical systems for quality
control, environmental and compliancetesting and components for industry andresearch. The Industrial Analysis businesscomprises X-ray Fluorescence, OpticalEmission Spectroscopy and Magnetic
Resonance. Industrial Components
comprises Superconducting Wire,
Austin Scientific and X-Ray Technology.
Emerging markets, particularly India,
continue to offer an important growth
opportunity for Industrial Products, althoughin general visibility is lower than last year.
Prior year comparators include revenues froma product line we disposed of last year anda large one-off order in Austin Scientific.
Excluding these items, revenues increased.
Operating profit margins further improved to12.4% (2011: 10.2%).
In Industrial Analysis, new portable andhand-held analysers launched this half
have generated considerable interest fromboth new and existing customers, offering
an innovative user interface and improved
ergonomics in response to customer
feedback. Our bench top products havebenefited from strong demand. We havecontinued to build a strong position in
the rock core analysis market where ourmagnetic resonance analyser is a market
leader. Magnetic resonance is gaining
recognition as a crucial technique in helping
to understand recently discovered natural
resources such as oil in shale.

In Industrial Components, the increasing
demand for next generation, higher
magnetic field MRI scanners continues todrive growth in our Superconducting Wirebusiness where we have invested in new
facilities which will improve efficiency inthe core MRI business. Deliveries to theinternational ITER energy programme
remain on track with completion scheduled
for the end of the financial year. In our
X-Ray Technology business, important new
product innovations include the use of anovel X-ray source in a radiography system
to advance the treatment of breast cancer
and on the NASA Mars Rover. At Austin
Scientific, sales to a large semiconductor
manufacturer have reduced, as anticipated,following a large contract win last year.
Austin Scientific’s move to new premises
has been completed successfully.

In November 2011 we acquired Platinum
Medical Imaging, an established US
company providing high quality parts andservices for MRI (Magnetic ResonanceImaging) and CT (Computed Tomography)
medical imaging instruments. There is a
growing opportunity in the US market
following healthcare reforms which haveencouraged the transfer of medical imaging
facilities to more cost effective third
party service providers. The combinationof Platinum with Oxford Instruments’
MRI Service business in North America
significantly strengthens the Group’s
Service Sector by providing a broader rangeof services internationally. For example,
we have recently received regulatory
approval to provide refurbished CT and MR
equipment to companies in South Korea.

Service Sector

Orders in the period were £169.8 million(2011: £174.8 million) and the order bookfor future deliveries was £142.8 million at
the end of the period.

2012
£m

2011
£m

Revenue

29.3

24.9

Operating profit

5.8

5.0

Our Service business represents 17%of Group revenue and profits grew by
16%. It comprises activities in the UnitedStates and Japan servicing MRI machines,
together with the aftermarket revenues
associated with our Nanotechnology Tools
and Industrial Products sectors. Operating
profit margins remained strong at 19.8%(2011: 20.1%).
The aftermarket revenues associated with
our two manufacturing sectors are split
into three main revenue streams: service
contracts (where customers purchaseunlimited support for a fixed period);billable service (where customers are billed
for time and materials); and the sale ofspare parts and consumables. To support
these activities, we are also investing in
e-commerce, new training packages,
hardware and software upgrades andincreased personnel.

Financial Review

Revenues in the half year grew by 7.4%(£11.7 million) to £170.8 million. The
increase in revenues between the two
periods due to acquisitions and disposals
was £3.7 million. Adverse foreign currency
exchange rate movements reduced sales by£1.2 million giving organic volume growthof 5.8%.
The implementation of the Business
Improvement Plan, one of the threeelements of our 14 Cubed medium term
plan has helped grow gross margins acrossthe Group from 42.7% to 44.6%. Constantcurrency operating expenses, excluding
acquisitions, were held at the same level
as the prior year.
Adjusted operating profit increased by £4.9
million to £23.8 million, giving an adjusted
operating profit margin of 13.9% (2011:
11.9%). Net bank interest reduced by £0.2
million to a charge of £0.3 million, and net
interest on the pension fund changed fromHalf Year Statement continued

a credit of £0.3 million to a charge of£0.4 million due to the increased deficit at
the end of March 2012 and the reduced
rate of return from gilt related assets. As
a result adjusted profit before tax rose
£4.4 million to £23.1 million.
The ability to utilise brought forward tax
losses in the UK has kept the adjusted
tax rate low at 18% (2011: 20%) whichleads to adjusted earnings per share (EPS)of 33.9 pence, an increase of 5.7 pence.
Reported EPS rose by 4.2 pence to 20.9
pence. The difference is due to the items
detailed in note 2, primarily acquisition
costs, amortisation of acquired intangible
assets and the utilisation of the large
deferred tax asset that was excluded fromadjusted earnings in the prior year.
Earnings before interest, tax, depreciation
and amortisation (EBITDA) increased by
19.5% to £28.2 million. As expectedworking capital expanded in the period but
remains controlled at 7% of the previous
twelve months sales. Capital expenditure
increased to £4.2 million from £2.1 million
primarily due to increased investment in our
superconducting wire facility.
At the period end net cash was £37.1
million (31 March 2012: £35.1 million,
2011: £11.9 million). Cash inflow in the
period was £2.0 million (2011: £1.2 million
outflow). The Group has a committed£50 million revolving credit facility with aclub of banks, extendable to £70 million
by mutual consent, which expires in
December 2014.
As calculated under IAS19, the defined
benefit pension deficit has increasedby £5.7 million to £40.9 million since
31 March 2012. Since 31 March 2012assets have risen by 2.3% to £184.4
million while liabilities have increased by
4.6% to £225.3 million due mainly to the
reduction in corporate bond yields used to
discount liabilities.

Business Profile
Oxford Instruments plc
Half Year Report September 2012

03

Going concern

Outlook

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

We have delivered a strong result in
the first half in line with our 14 Cubed
objectives. We have a broad spread ofgeographies and technologies, exposure tomarkets with long term structural growth,a strong pipeline of new products and afocus on improving efficiency. These factors
should help us to remain resilient against
a backdrop of sustained global economic
uncertainty. We are continuing our pursuitof acquisitions that have the potential toenhance shareholder value and add to ourrange of technical capabilities.

The diverse nature of the Group combinedwith its current financial strength provides asolid foundation for a sustainable business.
The Directors have reviewed the Group’s
forecasts and considered a number ofpotential scenarios relating to changes in
trading performance. The Directors believethat the Group will be able to operate
within its existing debt facility which
expires in December 2014. This review also
considered hedging arrangements in place.
As a consequence, the Directors believethat the Group is well placed to manage its
business risks successfully.
This Half Year Report has been preparedon a going concern basis, based on the
Directors’ opinion, after making reasonableenquiries, that the Group has adequate
resources to continue in operational
existence for the foreseeable future.
Principal Risks
The principle risks in the businessare considered the Principal Risks
and Uncertainties section of thisHalf Year Report.
PeopleA high technology business relies on the skills
and expertise of its people. We therefore
recognise the importance of ensuring
a sustainable business going forward
through an inclusive strategy of managing,developing and recruiting people who
support our company values and contributeto our growth. Our wholehearted thanks
go to all our people for their commitment,
energy and hard work.

The Board remains confident in thecontinued growth prospects of Oxford
Instruments and the Group’s ability todeliver shareholder value.

Jonathan Flint
Chief Executive
13 November 2012

04

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Condensed Consolidated Statementof Income – unaudited

Half Year to 30 September 2011
As restated and re-presented**

Half Year to 30 September 2012

Revenue

Notes

Adjusted*£m

Adjustingitems*
£m

Total
£m

Adjusted*£m

Adjustingitems*
£m

Total
£m

3

170.8

–

170.8

159.1

–

159.1

Cost of sales(94.6)(0.2)(94.8)(91.1)(1.0)(92.1)

Gross profit

76.2

(0.2)

76.0

68.0

(1.0)

67.0

Research and development(12.1)–(12.1)(12.6)–(12.6)

Selling and marketing4(25.1)–(25.1)(22.3)–(22.3)

Administration and shared services(16.3)(6.0)(22.3)(14.4)(5.0)(19.4)

–

–

–

–

–

–

Other operating income
Foreign exchange gain/(loss)

1.1

–

1.1

0.2

–

0.2

Operating profit

23.8

(6.2)

17.6

18.9

(6.0)

12.9

Expected return on pension scheme assets

4.8

–

4.8

5.4

–

5.4

Other financial income

0.2

–

0.2

–

0.4

0.4

Financial income

5.0

–

5.0

5.4

0.4

5.8

Interest charge on pension scheme liabilities

(5.2)

–

(5.2)

(5.1)

–

(5.1)

Other financial expenditure

(0.5)

–

(0.5)

(0.5)

–

(0.5)

Financial expenditure

(5.7)

–

(5.7)

(5.6)

–

(5.6)

Profit before income tax

3

23.1

(6.2)

16.9

18.7

(5.6)

13.1

Income tax expense

6

(4.1)

(1.1)

(5.2)

(3.8)

(0.4)

(4.2)

19.0

(7.3)

11.7

14.9

(6.0)

8.9

pence

pence

Profit for the period attributable to equity
shareholders of the parent

pence

pence

Earnings per share
Basic earnings per share

7

33.9

20.9

28.2

16.7

Diluted earnings per share

7

33.4

20.6

27.4

16.2

Dividends per share
Dividends paid

8

2.77

2.52

Dividends proposed

8

3.05

2.77

* Adjusting numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 2of this Half Year Report.
** See Note 1 of this Half Year Report for details of restatement and re-presentation of comparative information.

Condensed Consolidated Statementof Income – unaudited continued

Financial statements
Oxford Instruments plc
Half Year Report September 201205

Year to 31 March 2012

Revenue

Notes

Adjusted*£m

Adjustingitems*
£m

Total
£m

3

337.3

–

337.3

Cost of sales(188.3)(1.7)(190.0)Gross profit

149.0

(1.7)

147.3

(25.8)–(25.8)

Selling and marketing(48.7)–(48.7)

Administration and shared services(32.1)(12.7)(44.8)

–

7.0

7.0

Research and development

4

Other operating income
Foreign exchange gain/(loss)

(0.3)

–

(0.3)

Operating profit

42.1

(7.4)

34.7

Expected return on pension scheme assets

10.9

–

10.9

Other financial income

0.2

1.5

1.7

Financial income

11.1

1.5

12.6

Interest charge on pension scheme liabilities(10.2)–(10.2)

Other financial expenditure

(1.0)

–

(1.0)

Financial expenditure(11.2)–(11.2)

Profit before income tax

3

42.0

(5.9)

36.1

Income tax expense

6

(8.8)

(2.5)

(11.3)

33.2

(8.4)

24.8

Profit for the period attributable toequity shareholders of the parent

pence

pence

Earnings per share
Basic earnings per share

7

61.6

46.0

Diluted earnings per share

7

60.3

45.0

Dividends per share
Dividends paid

8

9.0

Dividends proposed

8

10.0

* Adjusting numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 2of this Half Year Report.

06

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Condensed Consolidated Statementof Comprehensive Income – unaudited

Half year to
30 September
2012£mHalf year to
30 September
2011
as re-presented*£mYear to31 March
2012
£m

11.7

8.9

24.8

Foreign exchange translation differences

(2.6)

0.5

(2.6)

Actuarial loss in respect of post retirement benefits(7.7)(20.4)(28.6)

Profit for the period
Other comprehensive (expense)/income

Net loss on effective portion of changes in fair value of cash
flow hedges, net of amounts recycled

–

(1.2)

(0.4)

Tax on items recognised directly in other comprehensive income

1.6

5.5

7.2

Total other comprehensive (expense)/income(8.7)(15.6)(24.4)

Total comprehensive income/(expense) for the period
attributable to equity shareholders of the parent

3.0

(6.7)

0.4

* See note 1 for details of re-presentation of comparative information.

Condensed Consolidated Statementof Changes in Equity – unaudited

Financial statements
Oxford Instruments plc
Half Year Report September 2012

07

Other
reserves£m

Foreignexchangetranslation
reserve£m

Retainedearnings
£m

Total
£m

60.2

0.1

0.6

63.4

127.1

–

–

–

–

11.7

11.7

–

–

–

(2.6)

(6.1)

(8.7)

–

–

–

(2.6)

5.6

3.0

–C
 redit in respect of employee service costs
settled by award of share options

–

–

–

–

0.6

0.6

– Tax credit in respect of share options

–

–

–

–

1.3

1.3

– Proceeds from shares issued

–

0.1

–

–

–

0.1

– Dividends paid and accrued

–

–

–

–

(5.6)

(5.6)

–

0.1

–

–

(3.7)

(3.6)

2.8

60.3

0.1

(2.0)

65.3

126.5

Share
capital£m

SharePremium
Account£m

Otherreserves£m

Foreignexchangetranslation
reserve£m

Retained
Earnings
asrestated*
£m

Total
as
restated*
£m

2.5

22.5

0.4

3.2

64.9

93.5

– Profit for the period (as re-presented*)

–

–

–

–

8.9

8.9

– Other comprehensive income

–

–

(0.8)

0.5

(15.3)(15.6)

–

–

(0.8)

0.5

(6.4)

(6.7)

Share
capital£mSharepremium
account£m

2.8– Profit for the period– Other comprehensive income

Balance at 1 April 2012
Total comprehensive income/(expense) attributable
to equity shareholders of the parent

Transactions recorded directly in equity:

Total contributions by and distributions
to equity shareholders
Balance at 30 September 2012

Balance at 1 April 2011
Total comprehensive income/(expense) attributable
to equity shareholders of the parent

Transactions recorded directly in equity:– Credit in respect of employee service costs
settled by award of share options– Proceeds from shares issued

–

–

–

–

0.3

0.3

0.3

37.3

–

–

–

37.6

–

–

–

(4.8)

(4.8)

– Dividends paid and accrued (as restated*)–

Total contributions by and distributions
to equity shareholders

0.3

37.3

–

–

(4.5)

33.1

Balance at 30 September 2011

2.8

59.8

(0.4)

3.7

54.0

119.9

* See note 1 for details of restatement of comparative information.

08

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Condensed Consolidated Statementof Changes in Equity – unaudited continued

Balance at 1 April 2011

Sharecapital£m

SharePremium
Account
£m

2.5

22.5

Other
reserves£m

Foreignexchangetranslation
reserve£m

Retainedearnings
£m

Total
£m

0.4

3.2

64.9

93.5

Total comprehensive income/(expense) attributable
to equity shareholders of the parent– Profit for the period

–

–

–

–

24.8

24.8

– Other comprehensive income

–

–

(0.3)

(2.6)

(21.5)(24.4)

–

–

(0.3)

(2.6)

3.3

0.4

–C
 redit in respect of employee service costs
settled by award of share options

–

–

–

–

1.0

1.0

– Tax charge in respect of share options

–

–

–

–

(1.0)

(1.0)

0.3

37.7

–

–

–

38.0

–

–

–

–

(4.8)

(4.8)

Total contributions by and distributions
to equity shareholders

0.3

37.7

–

–

(4.8)

33.2

Balance at 31 March 2012

2.8

60.2

0.1

0.6

63.4

127.1

Transactions recorded directly in equity:– Proceeds from shares issued– Dividends paid

Condensed Consolidated Statementof Financial Position – unaudited

Financial statements
Oxford Instruments plc
Half Year Report September 2012

09

As at
30 September
2012
£m

As at
30 September
2011£m
as restated andre-presented*

As at
31 March
2012
£m

29.9
70.8
21.0
121.7

28.0
75.5
21.0
124.5

28.2
78.1
19.3
125.6

60.9
64.2
1.0
2.2
37.9
166.2

64.5
67.0
1.4
2.1
19.5
154.5

59.3
61.0
1.3
2.4
35.1
159.1

287.9

279.0

284.7

2.8
60.3
0.1
(2.0)
65.3
126.5

2.8
59.8
(0.4)
3.7
54.0
119.9

2.8
60.2
0.1
0.6
63.4
127.1

0.7
3.8
40.9
7.2
52.6

7.0
0.7
29.7
9.5
46.9

–
2.8
35.2
7.0
45.0

0.1
–
91.4
3.5
4.0
0.4
9.4
108.8

0.1
0.5
94.9
3.4
3.5
2.6
7.2
112.2

–
–
96.4
6.0
–
1.2
9.0
112.6

Total liabilities

161.4

159.1

157.6

Total liabilities and equity

287.9

279.0

284.7

AssetsNon-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current income tax recoverable
Derivative financial instruments
Cash and cash equivalents

Total assets
EquityCapital and reserves attributable to the Company’s equity shareholders
Share capital
Share premium
Other reserves
Translation reserve
Retained earnings
Liabilities
Non-current liabilities
Bank loans
Other payables
Retirement benefit obligations
Deferred tax liabilities
Current liabilities
Bank loans
Bank overdrafts
Trade and other payables
Current income tax payables
Accrued dividend
Derivative financial instruments
Provisions*See note 1 for details of restatement and re-presentation of comparative information.

10

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Condensed Consolidated Statementof Cash Flows – unaudited

Profit for the period
Adjustments for:
Income tax expense
Net financial expense/(income)
Other operating income
Reversal of acquisition related fair value adjustments
Acquisition related costs
Amortisation of acquired intangibles
Depreciation of property, plant and equipment
Amortisation and impairment of capitalised development costs
Earnings before interest, tax, depreciation and amortisation
Loss on disposal of plant, property and equipment
Cost of equity settled employee share schemes
Acquisition related costs paid
Cash payments to the pension scheme
more than the charge to operating profit
Operating cash flows before movements in working capital
Increase in inventories
Increase in receivables(Decrease)/increase in payables and provisions
Increase/(decrease) in customer deposits
Cash generated by operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sale of product line and subsidiary
Interest received
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Capitalised development expenditure
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Repayment of borrowings
Increase in borrowings
Dividends paid
Net cash (used in)/from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of the period

Half year toHalf year to
30 September 30 September 2011£m
2012
as re-presented*
£m
11.7
8.9

Year to31 March
2012
£m
24.8

5.2
0.7
–
0.2
0.6
5.4
2.3
2.1
28.2
–
0.6
–

4.2
(0.2)
–
1.0
0.7
4.3
2.3
2.4
23.6
–
0.3
(0.5)

11.3
(1.4)
(7.0)
1.7
1.5
11.2
4.8
5.2
52.1
0.5
1.0
(1.0)

(2.4)
26.4
(2.2)
(4.7)
(4.6)
0.4
15.3
(0.5)
(5.8)
9.0

(2.1)
21.3
(4.8)
(7.9)
(2.8)
4.9
10.7
(1.2)
(3.4)
6.1

(4.5)
48.1
(0.2)
(1.7)
5.7
(1.4)
50.5
(1.1)
(7.8)
41.6

–
1.0
0.2
(0.2)
(4.2)
(1.8)
(5.0)

–
–
–
(40.7)(2.1)(0.9)(43.7)

0.1
7.3–(51.6)(5.6)(2.4)(52.2)

0.1
–
0.8
(1.6)
(0.7)
3.3
35.1
(0.5)
37.9

37.6
(6.0)
2.5
(1.3)
32.8
(4.8)
23.7
0.1
19.0

38.0
(13.1)
2.5
(4.8)
22.6
12.0
23.7
(0.6)
35.1

Condensed Consolidated Statementof Cash Flows – unaudited continued

Financial statements
Oxford Instruments plc
Half Year Report September 201211

Reconciliation of changes in cash and cash equivalents to movement in net cash
Half year to
30 September
2012£mHalf year to
30 September
2011£mYear to31 March2012£mIncrease/(decrease) in cash and cash equivalents

3.3

(4.8)

12.0

Effect of foreign exchange rate changes on cash and cash equivalents

(0.5)

0.1

(0.6)

2.8

(4.7)

11.4

Cash outflow from decrease in debt

–

6.0

13.1

Cash inflow from increase in debt

(0.8)

(2.5)

(2.5)

Movement in net cash in the period

2.0

(1.2)

22.0

Net cash at start of the period

35.1

13.1

13.1

Net cash at the end of the period

37.1

11.9

35.1

*See note 1 for details of re-presentation of comparative information.

121

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Notes on the Half Year Financial Statements– unaudited

BASIS OF PREPARATION OF ACCOUNTS
Oxford Instruments plc (the Company) is a company incorporated in England and Wales. The condensed consolidated half year financial
statements consolidate the results of the Company and its subsidiaries (together referred to as the Group). They have been prepared
and approved by the Directors in accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim Financial Reporting
as adopted by the EU. They do not include all of the information required for full annual financial statements, and should be read in
conjunction with the consolidated financial statements of the Group for the year ended 31 March 2012.
As required by the Disclosure and Transparency Rules of the Financial Services Authority, the half year financial information
has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group’s consolidated
financial statements for the year ended 31 March 2012, except as noted below. Additional information has
been included in the Condensed Consolidated Statement of Income in the form of an adjusting items column which in the opinion of
the Directors enables the performance of the business to be more clearly seen.
The financial information contained herein is unaudited and does not constitute statutory accounts as defined by Section
435 of the Companies Act 2006. The comparative figures for the financial year ended 31 March 2012 are not the company’s statutory
accounts for that financial year. Those accounts have been reported on by the company’s auditors and delivered to
the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters towhich the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The condensed consolidated half year 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 theforeseeable future.
In its Financial Statements to 31 March 2012 the Group reclassified certain engineering costs incurred in relation to one-off special
customer orders. Such costs are now treated as research and development costs, rather than costs of sales. This is considered to
be a treatment consistent with the Group’s Industry peers. The effect on the Consolidated Income Statement for the half year to
30 September 2011 was to reduce costs of sales by £1.5m and increase research and development costs by the same amount, see note 4.
As required by IFRS3 the accounts as at 30 September 2011 have been re-presented in respect of the finalisation of the acquisition
accounting which was provisional at the time the 30 September 2011 accounts were published. Furthermore
the Group has noted that the final dividend for the year to 31 March 2011 should have been recorded as a liability at 30 September
2011 since it was approved by shareholders on 13 September 2011. Accordingly, the accounts at that datehave been restated to include an amount of £3.5 million as a current liability. Equity at that date has been reduced by thesame amount. There was no impact on the consolidated statement of financial position at 31 March 2011 or 2012.
The principal exchange rates used to translate the Group’s overseas results were as follows:Year to31 March
2012

Half year to
30 September
2012

Half year to
30 September
2011

US Dollar

1.61

1.56

1.60

Euro

1.26

1.16

1.20

Yen

126

120

131

US Dollar

Euro

Yen

Quarter 1

1.58

1.23

127

Quarter 2

1.59

1.26

125

Period end rates

Average translation rates
Half year to 30 September 2012

Year to 31 March 2012
Quarter 1

1.63

1.13

132

Quarter 2

1.60

1.14

125

Quarter 3

1.57

1.17

121

Quarter 4

1.58

1.19

125

Notes on the Half Year Financial Statements– unaudited continued

2

Financial statements
Oxford Instruments plc
Half Year Report September 2012

13

NON-GAAP MEASURESThe Directors present the following non-GAAP measure as they believe it gives a better indication of the underlying performance ofthe business.

Reconciliation between profit before income tax and adjusted profit
Half year to
30 September
2012£mHalf year to
30 September
2011£m
as re-presented*

Year to31 March2012£mProfit before income tax

16.9

13.1

36.1

Reversal of acquisition related fair value adjustments to inventory

0.2

1.0

1.7

–

–

(7.0)

Acquisition related costs

0.6

0.7

1.5

Amortisation of acquired intangibles

5.4

4.3

11.2

–

(0.4)

(1.5)

Adjusted profit before income tax

23.1

18.7

42.0

Share of taxation

(4.1)

(3.8)

(8.8)

Adjusted profit

19.0

14.9

33.2

Gain on disposal of product line

Mark to market gain in respect of derivative financial instruments*See note 1 for details of re-presentation of comparative information.

Adjusted profit before tax excludes the reversal of acquisition related fair value adjustments to inventory to provide an adjusted
profit measure that will include results from acquired businesses on a consistent basis over time to assist comparison of performance.
Acquisition related costs comprise professional fees incurred in relation to mergers and acquisitions activity and any consideration
which, under IFRS3 (revised), falls to be treated as a post acquisition employment expense.
On 20 October 2011 the Group disposed of a product line for a consideration of £8.1m. £1.0m of the consideration was deferred and wasreceived during the current period. The product line was part of the Industrial Products segment. The profit on disposal was £7.0m.
On 21 March 2012 the Group transferred its ownership of Technologies and Devices Inc (TDI) to Ostendo, a privately owned company
based in California. The Group has received 650,000 shares of Ostendo common stock plus $0.7m in cash of which $0.2m wasreceived in October 2012. The Group considers the fair value of the shares to be nil. The profit on disposal was nil.
Under IAS 39, all derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, they are alsomeasured at fair value. In respect of instruments used to hedge foreign exchange risk and interest rate risk the Group does not takeadvantage of the hedge accounting rules provided for in IAS 39 since that standard requires certain stringent criteria to be met in orderto hedge account, which, in the particular circumstances of the Group, are considered by the Board not to bring any significant economic
benefit. Accordingly, the Group accounts for these derivative financial instruments at fair value through profit or loss. To the extent that
instruments are hedges of future transactions, adjusted profit for the year is stated before changes in the valuation of these instruments
so that the underlying performance of the Group can more clearly be seen.
In calculating the share of tax attributable to adjusted profit before tax in the year ended 31 March 2011 a one-off recognition ofdeferred tax assets relating to the Group’s UK businesses of £11.3m was excluded. At that time the Group announced its intention to
exclude the reversal of this deferred tax from the calculation of the share of tax attributable to adjusted profit before tax in the years
in which it reverses. In the year ended 31 March 2012 deferred tax of £4.6m was reversed. In the current period deferred tax of £3.2m
has reversed and consequently been excluded from the tax attributable to adjusted profit before tax.

14

3

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Notes on the Half Year Financial Statements– unaudited continued

SEGMENT INFORMATIONThe Group has seven operating segments. These operating segments have been combined into three aggregated operating segments
to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer,
methods of sale and distribution and the regulatory environment in which they operate. Each of these three aggregated operating
segments is a reportable segment.
The Group’s internal management structure and financial reporting systems differentiate the three aggregated operating segments on
the basis of the economic characteristics discussed below.

•

T he Nanotechnology Tools segment contains a group of businesses supplying similar products, characterised by a highdegree of customisation and high unit prices. These are the Group’s highest technology products serving researchcustomers in both the public and private sectors.

•T he Industrial Products segment contains a group of businesses supplying high technology products and components
manufactured in medium volume for industrial customers.

•

The Service segment contains the Group’s service business as well as service revenues from other parts of the Group.

Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonablebasis. Inter-segment pricing is determined on an arm’s length basis. The operating results of each are regularly reviewed by the Chief
Operating Decision Maker, which is deemed to be the Board of Directors. Discrete financial information is available for each segment
and used by the Board of Directors for decisions on resource allocation and to assess performance. No asset information is presented
below as this information is not allocated to operating segments in reporting to the Group’s Board of Directors.

Half year to 30 September 2012
Nanotechnology
Tools
£m

Industrial
Products£m

Service
£m

Total
£m

External revenue

80.7

60.9

29.2

170.8

Inter-segment revenue

0.2

0.6

0.1

Total segment revenue

80.9

61.5

29.3

Segment operating profit

10.4

7.6

5.8

23.8

Nanotechnology
Tools
£m

Industrial
Products£m

Service
£m

Total
£m
159.1

Half year to 30 September 2011

External revenue

70.0

64.2

24.9

Inter-segment revenue

0.4

0.5

–

Total segment revenue

70.4

64.7

24.9

Segment operating profit

7.3

6.6

5.0

18.9

Notes on the Half Year Financial Statements– unaudited continued

3

Financial statements
Oxford Instruments plc
Half Year Report September 201215

SEGMENT INFORMATION continued
Year to 31 March 2012
Nanotechnology
Tools
£m

Industrial
Products£m

Service
£m

Total
£m
337.3

153.3

128.0

56.0

Inter-segment revenue

0.6

1.1

0.3

Total segment revenue

153.9

129.1

56.3

Segment operating profit

17.3

13.8

11.0

External revenue

42.1

Reconciliation of reportable segment profit

Operating profit for reportable segments

Half year to
30 September
2012£mHalf year to
30 September
2011£m
as re-presented*

Year to31 March
2012
£m

23.8

18.9

42.1

–

–

7.0

Reversal of acquisition related fair value adjustments to inventory

(0.2)

(1.0)

(1.7)

Acquisition related costs

(0.6)

(0.7)

(1.5)

Amortisation of acquired intangibles

(5.4)

(4.3)

(11.2)

Other operating income

Financial income

5.0

5.8

12.6

Financial expenditure

(5.7)

(5.6)

(11.2)

Profit before income tax

16.9

13.1

36.1

Half year to
30 September
2012£mHalf year to
30 September
2011
as restated*£mYear to31 March2012
as restated*£m

Research and development expense charged to theconsolidated statement of income

12.1

12.6

25.8

* See note 1 for details of re-presentation of comparative information.

4

RESEARCH AND DEVELOPMENT
Total research and development spend by the Group is as follows:

Less: depreciation of R&D related fixed assets

(0.1)

(0.1)

(0.2)

Add: amounts capitalised as fixed assets

0.4

0.3

0.9

Less: amortisation and impairment of R&D costs
previously capitalised as intangibles

(2.1)

(2.4)

(5.2)

Add: amounts capitalised as intangible assets

1.8

0.9

2.4

Total cash spent on research and development during the period

12.1

11.3

23.7

* S ee Note 1 for details of the change in presentation in respect of Research and Development expenditure. In addition the Group has discovered thatcertain depreciation and capital expenditures were double counted in the calculation of cash spent in the prior year on research and development. Thishas been corrected in the above table resulting in an increase in the reported cash spent on research and development by £0.3 million in the half year
to 30 September 2011 and £1.0 million in the year to 31 March 2012.

16

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Notes on the Half Year Financial Statements– unaudited continued

5 	ACQUISITIONS
Platinum Medical Imaging LLC
On 3 November 2011 the Group acquired 100% of the share capital of Platinum Medical Imaging LLC for an initial cash considerationof £11.0m.
Further contingent consideration is payable each year until the third anniversary of the acquisition dependent on post acquisition
earnings. The amount of this consideration could be between zero and £19.4m. The fair value of the amount
likely to be paid is £2.6m and is based on management forecasts of future profitability.
Platinum Medical Imaging LLC is an established US company providing high quality parts and services for MRI (Magnetic ResonanceImaging) and CT (Computed Tomography) medical imaging instruments. It operates from sites in Florida and California from which thebusiness sells parts, carries out service and maintenance and performs system rebuilds.
The book and fair value of the assets and liabilities acquired is given in the table below. The business has been acquired forthe purpose of integrating into the Service segment.
Book value£m

Adjustments£m

Fair Value£m

Intangible fixed assets

–

12.5

12.5

Tangible fixed assets

0.5

(0.2)

0.3

Inventories

0.9

0.8

1.7

Trade and other receivables

0.6

(0.3)

0.3

Trade and other payables

(0.4)

(0.4)

(0.8)

Customer deposits

(0.4)

(0.3)

(0.7)

Deferred tax

–

(0.2)

(0.2)

Overdraft

(0.1)

–

(0.1)

Net assets acquired

1.1

11.9

13.0

Goodwill

0.6

Total consideration

13.6

Overdraft acquired

0.1

Contingent consideration(2.6)

Net cash outflow relating to the acquisition

11.1

The goodwill arising is tax deductible in full and is considered to represent the value of the acquired work force and expected synergies
arising from the integration with the Group’s existing service business.
The book value of receivables given in the table above represents the gross contractual amounts receivable. The fair value adjustment
to receivables represents the best estimate at the acquisition date of the cash flows not expected to be collected.

6 	TAXATION
The total effective tax rate on profits for the half year is 31% (2011: 32%). The weighted average tax rate in respect of adjusted profit
before tax (see note 2) for the half year is 18% (2011: 20%).
The Group estimates that its full year weighted average tax rate in respect of adjusted profit before tax will be 18% (2011: 20%).

Notes on the Half Year Financial Statements– unaudited continued

Financial statements
Oxford Instruments plc
Half Year Report September 201217

7	EARNINGS PER SHAREa) Basic
The calculation of basic earnings per share is based on the profit or loss for the period after taxation and a weighted average numberof ordinary shares outstanding during the period, excluding shares held by the Employee Share Ownership Trust, as follows:
Half year to
30 September
2012
SharesmillionHalf year to
30 September
2011
SharesmillionYear to31 March
2012
SharesmillionWeighted average number of shares outstanding

56.2

53.0

54.2

Less: weighted average number of shares held by Employee
Share Ownership Trust

(0.2)

(0.4)

(0.2)

Weighted average number of shares usedin calculationof earnings per share

56.0

52.6

54.0

b) Diluted
The following table shows the effect of share options on the calculation of both adjusted and unadjusted diluted basic earnings per share.
Half year to
30 September
2012
SharesmillionHalf year to
30 September
2011
SharesmillionYear to31 March
2012
SharesmillionNumber of ordinary shares per basic earnings per share calculations

56.0

52.6

54.0

Effect of shares under option

1.0

1.6

1.1

Number of ordinary shares per diluted earnings
per share calculations

57.0

54.2

55.1

Half year to
30 September
2012
pence

Half year to
30 September
2011
pence

Year to31 March
2012
pence

2.772

2.52

2.52

–

–

6.48

2.772

2.52

9.00

8	DIVIDENDS PER SHARE
The following dividends per share were paid by the Group:

Previous period interim dividend
Previous period final dividend

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

Interim dividend
Final dividend

Half year to
30 September
2012
pence

Half year to
30 September
2011
pence

Year to31 March
2012
pence

3.05

2.77

2.772

–

–

7.228

3.05

2.77

10.000The final dividend for the year to 31 March 2012 was approved by shareholders at the Annual General Meeting held on 11 September
2012. Accordingly it is no longer at the discretion of the company and has been included as a liability as at 30 September 2012. It was
paid on 25 October 2012.
The interim dividend for the year to 31 March 2013 of 3.05 pence was approved by the Board on 13 November 2012, 10% higher thanthe previous year and has not been included as a liability as at 30 September 2012. The interim dividend will be paid on 8 April 2013 toshareholders on the register at the close of business on 8 March 2013.

18

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Principal Risks and Uncertainties

The Group has in place a risk management structure and internal controls which are designed to identify, manage and mitigate risk.
In common with all businesses, Oxford Instruments faces a number of risks and uncertainties which could have a material impact on theGroup’s long term performance.
On pages 22 and 23 of its 2012 Annual Report and Accounts (a copy of which is available at www.oxford-instruments.com), the Company
set out what the Directors regarded as being the principal risks and uncertainties facing the Group’s long term performance and these are
reproduced in the table below. Many of these risks are inherent to Oxford Instruments as a global business and they remain valid as regards
their potential impact during the remainder of the second half of the year.
Specific Risk

Context

Risk

Possible Impact

Technical Risk

The Group provides hightechnology equipment andsystems to its customers.

Failure of the advanced technologies
applied by the Group to produce
commercial products, capable of being
manufactured and sold profitably.

• Lower profitability
and financial returns.

Economic
Environment

The recent global recession andprevailing economic downturn haveresulted in cuts to both government
and private sector spending.

Demand for the Group’s products
may be lower than anticipated.

• Lower profitability
and financial returns.

Acquisitions

Part of the growth of Oxford
Instruments’ plans is to come fromacquisitions which provide the Group
with complementary technologies.

Appropriate acquisition targets may
not be available in the necessary
timescale. Alternatively, once
acquired, targets may fail toprovide the planned value.

• Lower profitability
and financial returns.

Foreignexchangevolatility

A significant proportion of the Group’s
profit is made in foreign currencies.

The Group’s profit levels are exposed
to fluctuations in exchange rates.

• Lower profitability
and financial returns.

Outsourcing

The Group’s strategic plan includes
the outsourcing of a significantly higher
proportion of the costs of its products
to benefit from economies of scaleand natural currency hedges.

Failures in the supply chain
impacting sales.

• Disruption to customers.

Raw material
volatility

The Group relies on the purchase of asignificant amount of copper for the
production of its superconducting wire.

If these price rises can not be passed
on to customers as copper prices rise,profitability falls.

• Lower profitability.

Pensions

The Group’s calculated pension
deficit is sensitive to changes in
the actuarial assumptions.

Movements in the actuarial assumptions
may have an appreciable effect on thereported pension deficit.

• Additional cash required by
the Group to fund the deficit.

A number of the Group’s
employees are business critical.
The Group’s growth plan requires
people and structure capable ofmanaging the increasing size andcomplexity of the business.

One critical or a number of key
employees in an associated work
area leave the Group.

• Performance does notmeet expectations.

People• N egative impact on
the Group’s reputation.

• Management focus taken awayfrom the core business in orderto manage integration issues.

• N egative impact on theGroup’s reputation.

• Occasional disruption
to production.

• Reduction in net assets.

• Disruption to customers.
• Lower profitability andfinancial returns.

The impact of the economic and end market environments in which the Group’s businesses operate are considered in the Half Year
Statement of this Half Year Report, together with an indication if management is aware of any likely change in this situation.

Responsibility Statement of
the Directors in respect of theHalf Year Financial Statements

Financial statements
Oxford Instruments plc
Half Year Report September 201219

We confirm that to the best of our knowledge:•

the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU;•

the interim management report includes a fair review of the information required by:(a)	DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the firstsix months of the financial year and their impact on the condensed set of financial statements; and a descriptionof the principal risks and uncertainties for the remaining six months of the year; and(b)	DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six monthsof the current financial year and that have materially affected the financial position or performance of the entity during that
period; and any changes in the related party transactions described in the last annual report that could do so.

Jonathan Flint		Kevin Boyd
Chief Executive 		Group Finance Director
13 November 2012

20

Financial statements
Oxford Instruments plc
Half Year Report September 2012

Independent Review Report
by KPMG Audit Plc to
Oxford Instruments plc

Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial reportfor the six months ended 30 September 2012 which comprises the Condensed Consolidated Statement of Income, the Condensed
Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated
Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and the related explanatory notes. We have read theother information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting therequirements of the Disclosure and Transparency Rules (“the DTR”) of the UK’s Financial Services Authority (“the UK FSA”). Our review has
been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, forthis report, or for the conclusions we have reached.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the
EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearlyfinancial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use
in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statementsin the half-yearly financial report for the six months ended 30 September 2012 is not prepared, in all material respects, inaccordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

S Haydn-Jonesfor and on behalf of KPMG Audit Plc
Chartered Accountants
One Snowhill, Snow Hill Queensway
Birmingham, B4 6GH
13 November 2012

For more information please email: info.oiplc@oxinst.com

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