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Oxford Instruments plc
Report and Financial Statements 2020

Our Purpose
Our core purpose is to support our customers in addressing
some of the world’s most pressing challenges, enabling agreener economy, increased connectivity, improved health,and leaps in scientific understanding.
We provide high technology products and services to theworld’s leading industrial companies and scientific researchcommunities, exploiting our world-class ability to image,analyse and manipulate materials down to the atomic
and molecular level.

Employee Pride

Respect

Reputation

in working for us andmaking a difference

being inclusive andvaluing our employees

for positive
contribution to society

Being
OxfordInstruments

FTSE 250 constituent

Accountability

Health and Safety

Trustfor our actions

ensuring everyone is safe

our people to deliverStrategic Report

Governance

Financial Statements

Company Information

Contents
How we make adifference
Leaps inscientificunderstanding

in this section

Strategic Report

We discuss the progress wehave made over the past year

Performance Highlights

2

Our Business4

pages 2 to 67

Find out more on page 8

Enabling agreener
economyInvestment Case

7

How We Make a Difference

8

Chair’s Statement

12

Chief Executive’s Review

14

Market Context

20

Business Model

22

Engaging with Stakeholders

24

Our Strategy

28

Key Performance Indicators

30

Operations Review

32

Finance Review

42

Risk Management

50

Viability Statement

55

Corporate Responsibility

56

in this section

Governance

Read about how we manage
our Company and maintainhigh standards

Company Leadership and Purpose

pages 68 to 116

69

Composition, Succession and Evaluation 80
Audit, Risk and Internal Control

83

Remuneration

90

Relations with Shareholders

112

Report of the Directors

114

Find out more on page 9

Improved
healthin this section

Financial Statements

See how we are performingin light of developments inthe past year

Directors’ Responsibilities

117

Independent Auditor’s Report

118

Consolidated Statement of Income

124

Consolidated Statement ofComprehensive Income

125

Consolidated Statementof Financial Position

126

pages 117 to 179

Find out more on page 10

Increased
connectivity

Find out more on page 11

Consolidated Statementof Changes in Equity

127

Consolidated Statement of Cash Flows128

Accounting Policies

130

Notes to the Financial Statements

136

Parent Company Statementof Financial Position

169

Parent Company Statementof Changes in Equity

170

Notes to the Parent Company
Financial Statements

171

in this section

Company Information

Find additional
information about us

Historical Financial Summary

180

Oxford Instruments Directory

182

Directors and Advisers

184

pages 180 to 184

Oxford Instruments plc Report and Financial Statements 20201

Performance Highlights
Positive progress with our Horizon strategy delivered
continued business improvements and good level ofgrowth in the first three quarters of the year.

Revenue1£317.4m

Adjusted2 operating profit1+1.1% £50.5m(2019: £314.0m)-0.7%(2019: £47.7m)

At constant currency

Adjusted2 profit before tax1

£49.5mProfit before tax1

+8.8% £38.8m(2019: £34.3m)

Adjusted2 basic earnings per share1

Dividend per share (full year)(2019: 14.4p)

Cash generated from operations1

Net cash(2019: £53.0m)+13.1%+12.7% —(2019: 62.3p)£62.3m-1.0%

At constant currency(2019: £45.5m)

70.2p

+5.9%

+17.5% £67.5m +£60.8m(2019: £6.7m)

1.

Continuing operations.

2.

Throughout this report we make reference to adjusted numbers. A full definition of adjusted numbers can be found in Note 1 to the Financial Statements. Where we makereference to constant currency numbers, these are prepared on a month-by-month basis using the translational and transactional exchange rates which prevailed in theprevious year rather than the actual exchange rates which prevailed in the year. Transactional exchange rates include the effect of our hedging programme.

2

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Financial highlights:

Operational highlights:• Good progress underpinned a strong financial
performance until the impact of covid-19 in Q4• Good progress with our Horizon strategy; tangible
benefits from our customer-centric, market-driven
approach and operational excellence programme• Trading disruption due to the pandemic equated toapproximately two weeks’ equivalent revenue
following deferred product shipments and installationsin the last quarter• Reported orders up 0.3% to £336.0m (2019: £335.1m), a
decrease of 1.3% at constant currency; book to bill ratioof 1.06• Order book of £175.0m (31 March 2019: £153.2m), up
14.2% (12.1% at constant currency), assisted by finishedgoods not shipped or installed at the year end• Reported revenue increased by 1.1% to £317.4m(a decline of 0.7% at constant currency)• Adjusted operating profit from continuing operations
up 5.9% at £50.5m (a decline of 1.0% at constantcurrency)• Adjusted operating margin of 15.9% (2019: 15.2%),
15.1% at constant currency• Net cash grew to £67.5m, aided by strong operating
cash flow (124% cash conversion) and proceeds frombusiness disposals. At the end of March, our revolving
credit facility remained undrawn, leaving approximately£105m of undrawn committed facilities. This represents
total headroom of approximately £200m• Following the uncertainty created by covid-19, theGroup suspended payment of the interim dividend of
4.1p per share. As a result of continued uncertainty, theBoard will defer a decision on payment of dividends
but will keep this under review as the year progresses
while we assess the impact of covid-19 on our markets
and trading performance

Oxford Instruments plc Report and Financial Statements 2020

• Business responded to the challenges of covid-19,
with the wellbeing of our employees paramount.
Manufacturing sites remained operational withproducts supporting the fight against covid-19 andessential industries• Cost-saving measures implemented to preserve thefinancial health of the business• Underlying growth across all of our customer
segments• Materials & Characterisation saw good underlying
demand for our products across the Semiconductor,
Advanced Materials and Energy & Environment
sectors, with covid-19 disruption particularly impacting
shipments into the Semiconductor segment• Research & Discovery had strong underlying revenue
growth supported by global initiatives related toquantum technologies and increased researchfunding. Refined commercial practices and gains
through operational excellence contributed to
improved profit and margin• In Service & Healthcare, the transformation of ourcustomer services approach drove strong order andrevenue growth with improved profitability• Further portfolio focus with disposal of US Healthcare
business and equity stake in Scienta Omicron• Alison Wood to join Board as independent
Non‑Executive Director in September 2020

3

Our BusinessOur core purpose is to support our customers inaddressing some of the world’s most pressing challenges.

Our business is structured around three sectors to support our customer and application focus:

Materials &Characterisation
Products and solutions that enable thefabrication and characterisation of materials
and devices down to the atomic scale,predominantly supporting customers acrossapplied R&D as well as the production andmanufacture of high technology products
and devices.
Find out more on pages 32 to 35

Research &Discovery
Provides advanced solutions that create
unique environments and enable imaging
and analytical measurements down to themolecular and atomic level, predominantly
used in scientific research and applied R&D.
Find out more on pages 36 to 39

Service &Healthcare
Provides customer service and support
for our own products.
Find out more on pages 40 to 41

4

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Our key enabling technologies, products and services
facilitate a greener economy, increased connectivity,
improved health and leaps in scientific understanding.
Global end market segments

Revenue

Materials & Characterisation£137.6m

End market segment revenue
43.3% of Group revenue-0.2%(2019: £137.9m)

45%Adjusted2 operating profit

Academic£21.0m55%
Commercial-0.9%

Healthcare & Lifescience
Where growth is driven by demandfor improvements in disease detection
and the understanding of fundamental
mechanisms.

	Semiconductor &Communications
Where there is a focus on speed,energy efficiency and capacity.

Quantum Technology(2019: £21.2m)

Revenue

Research & Discovery£126.0m

End market segment revenue
39.7% of Group revenue+0.6%

Growth is being driven in quantum
communications, computing andsensors, where quantum effects
radically change the “rule book” ofwhat is possible.

Energy & Environment(2019: £125.2m)

65%

Adjusted2 operating profit

Academic£14.5m35%

Where improved efficiencies andsustainability remain core and includes
work in greener production, batteries,
recycling, agriculture and food.

Commercial

Advanced Materials+12.4%

Where we help customers lead therace to develop lighter, stronger, higher
functioning and more affordable
materials.

(2019: £12.9m)

Revenue

Service & Healthcare£53.8m

17.0% of Group revenue	Research &Fundamental Science
Where we help customers develop
breakthrough applications, gaining
previously unknown insights.

+5.7%(2019: £50.9m)

Adjusted2 operating profit£15.0m+10.3%

This segment is captured within total Group revenue.

(2019: £13.6m)

Oxford Instruments plc Report and Financial Statements 2020

5

Our Business continued
We are proud to be a globally
recognised premium brand witha reputation for innovation andproduct excellence.

1,585

Principal offices and development& manufacturing sites

24

people employedworldwide

offices aroundthe world

For a full list of our locations please visit
our website:www.oxinst.com/service-and-support

Revenue from external customers by destination

6

Rest of World

GermanyJapan

Rest of Asia

Rest of Europe China

USA

UK

£12.4m£26.7m£38.5m£28.4m£44.8m

£83.5m

£13.4m

£69.7mOxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Investment Case
CONFIDENCE IN STRATEGY
Horizon is delivering tangible financial benefits as we continue to transform theorganisation into a customer-centric, applications focused business. This includes
how we are organised internally, our core capabilities and how we work with andsupport our customers and other stakeholders. We believe there are further gains
that the strategy will deliver as we continue to identify additional opportunities todrive growth and improve the efficiency and productivity of the business.

STRONG FINANCIAL POSITION
Our focus on Horizon has helped deliver improved profitability and strong cash
collection and this has been supported by continued progress in commercial
practices across the Group and gains from our operational excellence programme.
We have a strong balance sheet and have implemented a number of cash
preservation initiatives that will provide additional resilience through the current
covid-19 disruption. Our business model focuses on generating sustainable
revenue growth and improved profitability and will continue to deliverconsiderable long‑term benefits.

RESILIENT GROUP
We are committed to adapting our business through the current global disruption
and to build on our market leadership, for example by investing in our digitalplatforms to offer customers ongoing support at this time. We continue to break downfunctional silos, leveraging skill across the Group to build cross-business capabilities.
Our inspired and engaged workforce has embraced the current challenge head-on
to help strengthen our agility and position us to capitalise on the growth opportunities
that arise and respond quickly to the changing market situation.

ESG FOCUS
We take our role in the world seriously and recognise that how we do businessis as important as what we do. Internally, we work to minimise the environmental
footprint of our products and services, while investing in our employees to keepthem safe and help them develop their career. Externally, we focus on delivering on
our purpose to support our customers to address some of the world’s most pressing
challenges, enabling a greener economy, increased connectivity, improved healthand leaps in scientific understanding.

MARKET ACCESSThe Group focuses on attractive market segments where our key enabling
technologies drive long-term growth for customers and where we can maintainleadership positions. Our access to diverse end markets alongside a responsive
and targeted portfolio that supports all stages of the technology cycle allows us
to present an integrated offering that has the potential to create significant barriers
to entry for competitors. We are confident that our end markets are resilient andshould not be weakened in the long term by covid-19 headwinds.

Oxford Instruments plc Report and Financial Statements 20207

How We Make a Difference

LEAPS IN SCIENTIFICUNDERSTANDING
The sun is our closest star, it wasborn about 4.6 billion years ago
and you could fit about 1 million
earths inside it. Humankind has
always been fascinated by thesun, using it to tell the time,
chart the seasons and create
calendars. The drive for deeper
understanding of the universearound us and the impact it
has on us is driving increased
interest in solar astronomy.
Mass ejections from the sun
can cause huge amounts of8damage to satellites, GPSelectricity networks andcommunication infrastructures.
The ability to understand more
about the sun and being able
to prepare for a solar storm inadvance are paramount tosafeguarding these vital services.
Our highly sensitive scientificcameras are playing an essential
role in ground-based solar
imaging, revealing the surface ofthe sun in unprecedented detail.

This is helping solar physicists
make giant leaps forward in theirunderstanding of the magnetic
dynamics that drive space
weather, which can wreak
havoc on earth, ultimately
helping predict and prepare
for future events.
Find out more on page 39

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

How We Make a Difference

ENABLING A GREENER
ECONOMYAs we all become more mindful
about the impact we are havingon the environment, carmanufacturers are facing a
range of technical challenges
in order to reduce the negative
impact vehicles can have. This isleading to an increase in global
standards that are mandating
the need for better fuel efficiency,
new low‑carbon fuels andbatteries that last longer. It isalso creating further reliance onelectronics and sensors in orderto support the continued growthof autonomous vehicles.

The automotive industry isunder constant pressure to design
vehicles that will meetthe marketplace demands on
cost reduction, improved fueleconomy, enhanced safety,
effective emission control,
recyclability and life cycle
consideration. Car designers
and material scientists work todevelop advanced materials
with the properties that are
required to meet these demands.

Oxford Instruments plc Report and Financial Statements 2020

They use our imaging andanalysis solutions on electron
microscopes to see tiny details
about the composition andstructure of the materials tounderstand more about how
they will perform and meet theobjective of building safer,environmentally friendly cars.
Find out more on page 35

9How We Make a Difference

IMPROVEDHEALTHWith thousands of known
species, viruses have always
been present and endemic within
the human population. Spanish
Flu in 1918, Asian Flu in 1957
and Swine Flu in 2009 arerecent examples of pandemics,
and today coronavirus is making
headlines. As we are regularly
exposed to cold and flu viruses,
our bodies are constantly fighting
these invaders, keeping them atbay and minimising the impact on
our health.

However, some new viruses
which seem to suddenly appear
can have devastating effects.
Genetic evidence shows thatviruses slowly evolve and mutate,
which then allows them to infectnew hosts, resulting in epidemics.
Researchers study viruses inorder to better understandtheir genetic makeup, how theymutate and how they reproduce.
They then use this understanding
to develop diagnostic tests,
treatments and vaccines.

Our atomic force microscopes(AFMs) and scientific cameras
play an important role inadvancing the knowledge of
those in this field. Our AFMs canimage the virus and measurechanges in response to possible
treatments, while our cameras
are being used in genesequencing to identify themutation, as well as indiagnostic analysers andresearch laboratories, helping
scientists with their search fortreatments and vaccines.
Find out more on page 38

10

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

How We Make a Difference

INCREASEDCONNECTIVITY
Today, data plays a vital role inevery decision-making process.
We rely on being connected
online to keep in touch with ourfriends and family, to work
remotely, for entertainment,
shopping and learning. We are
creating more data than everbefore and with the introductionof advances such as 5G and theinternet of things the demand willcontinue to grow, putting strain
on the data centres that gather,store and distribute the data. As
a result, there is increasing needfor data centres to meet thedemands on speed andbandwidth as we wantinstantaneous information at
our fingertips. These data centres
must run 24/7 and, in doing so,need to be environmentallyfriendly. The solution has been touse gallium nitride (GaN) in power
conversion chips to create faster,energy efficient devices; whilst
indium phosphide (InP) andgallium arsenide (GaAs) arebeing used in fibre optic systems
to help increase the speed andbandwidth of data processing.
Our etch and deposition solutions

Oxford Instruments plc Report and Financial Statements 2020are being used to help produce
compound semiconductors
such as GaN, InP and GaAs.
Our leading expertise in theprocessing of these materials
enables our customers to develop
more compact devices, fasterprocessing speeds, increased
bandwidth and improved
efficiency that is required tosupport the growing demands
being placed on communication
infrastructure.
Find out more on page 34

11

Chair’s Statement
Horizon has enabled the Group to makeprogress and has equipped us to react
quickly to the present covid-19 situation.

Oxford Instruments is a leading
technology company that uses its
expertise and capabilities to help theworld’s leading industrial manufacturers
and scientific research institutions
address many of the world’s mostpressing challenges. Our purpose isto support our customers throughthe provision of our key enabling
technologies to develop improved
healthcare, enhanced connectivity,
a greener economy and leaps infundamental science.

Neil Carson
Non-Executive Chair

In light of the recent challenges related
to the coronavirus pandemic, impacting
both people’s health and the global
economy, our core purpose remains
as important and relevant as ever.
Throughout the disruption, the Board andexecutive team have made it our priority
to protect the health and wellbeing of ouremployees, support our customers andother stakeholders, and secure thelong-term future of the business.

The Horizon strategy has enabled theGroup to make progress and has
equipped us to react quickly to thepresent covid-19 situation. The strategy
continues to provide the foundation for
long-term sustainable growth and margin
improvement, with our attractive end
markets providing opportunities for
growth. I am encouraged that, prior to
the impact of covid-19, the Groupdelivered good improvements inunderlying profitability in the year, withgrowth in orders and revenue, through theongoing success of our customer-centric,
market‑driven approach and operational
excellence programme. At the tail end of
the year, we successfully disposed of two
non-core businesses, which, along withthe benefits of our Horizon programme,
have contributed to a strong balance
sheet, providing resilience and focus tonavigate the challenging global
economic situation.

Our governance principles
Board leadership andCompany purpose

Composition, succession
and evaluation

Audit, risk and internal control

The Board is committed to conducting
business responsibly and maintaining
high standards of corporate
governance.

The Committee will continue to focus on
ensuring that the present and futurecomposition of the Board is appropriate
for the delivery of the strategy.

The past year has seen improvementsin the Group’s policies and procedures
for managing international traderisks relating to export controls
and sanctions.

Find out more on pages 69 to 79

Find out more on pages 80 to 82

Find out more on pages 83 to 89

Division of responsibilities

Remuneration

The division of responsibilities
between the role of the Chair andthe Chief Executive has been agreed
by the Board.

We have adjusted our remuneration
approach for the present circumstances
on a consistent Company-wide basis.
Find out more on pages 90 to 111

Find out more on pages 73 and 77

12

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

The Board has undertaken a programme ofbroader engagement with employees
across the Group.

I have been pleased at how quickly theGroup developed and implemented aphased response to the covid-19 situationand that, despite the disruption, we still
delivered some growth in sales and profits.
Throughout the year, the Board has
undertaken a programme of broader
engagement with employees across theGroup. This has included site visits, withpresentations from management teams,
and Board-led focus groups withrepresentative cohorts from across theGroup. This process has provided direct
input and feedback from employees tothe Board. What impresses me about
Oxford Instruments is the depth ofscientific and technological capability
across our management teams andemployees, coupled now with a strong
culture of commercial acumen acrossthe Group.

Given the unprecedented uncertainty
regarding the short-term macroeconomic
situation, the Board has taken a number ofcash management measures to protect
the business and job security of ouremployees. This has included a temporary
reduction in salary of 20% for the executive
team and equivalent reduction in fees tothe Board members; and the Group has
suspended the payment of the interim
dividend of 4.1p, which was due to be paid
on 14 April 2020. The Board will defer adecision on payment of dividends while
we assess the level of disruption on ourmarkets and business caused by covid-19.
Planning has centred around running ouroperations in a safe and supportive
manner, as well as facilitating efficient
home working arrangements, allowing
our employees to work flexibly as weseek to satisfy customer requirements
and continue the good progress we havemade over the last few years.

We are well positioned to navigate theevolving situation and, despite the current
challenges, we remain fully committed toour current strategy, which provides many
opportunities in the future.
I am pleased that Alison Wood will
join the Board in September 2020 as
an independent Non-Executive Director.
She brings with her a wealth of executive
and non-executive board experienceand an understanding of engineering,
technology and industrial markets.
She has previously held business andstrategic development leadership roles
in BAE Systems plc and National Grid.
I would like to thank the Board and all
our employees for their contribution
throughout the year and for their agility
and resilience in recent months as we
manage through this unprecedented
situation.

Neil Carson
Non-Executive Chair
9 June 2020

Oxford Instruments plc Report and Financial Statements 202013

Chief Executive’s Review
The progress over the past few years has
significantly improved the performance andcapabilities of the Group.

Introduction
I have been pleased with theperformance of the Group in the year,with positive progress in our Horizon
strategy delivering continued business
improvements and a good level of growthin sales and profits in the first threequarters of the year. The sudden impact
of covid-19 in the fourth quarter subdued
financial performance, resulting in
marginal growth for the year.

Ian Barkshire
Chief Executive

We delivered order, revenue, profit andmargin growth, with a constant currency
performance broadly in line with theprevious year. Good underlying growth inorders and revenue before the impact ofcovid-19 were underpinned by our chosen
end markets and their attractive,
fundamental growth drivers, combinedwith our relentless drive to enhance ourmarket intimacy through a customercentric approach.

The success of recently launched
products and our customer support
initiatives further strengthened ourmarket-leading product portfolio in theyear. Improved profitability and strong
cash collection were supported byrefined commercial practices acrossthe Group and gains from our operational
excellence programme. In line with ourstrategy, in the second half of the year wedivested the US OI Healthcare businessand our share in the Scienta Omicron joint
venture, further enhancing our focus on
attractive markets and margin expansion.
The extensive disruption caused by theoutbreak of covid-19 in the fourth quarter
led to a number of orders being delayedand customers being unable to receive
shipments and proceed with installations.
The resulting impact in Q4 was equivalent
to approximately two weeks of revenue,
offsetting much of the progress we had
made in the preceding three quarters.

Summary

Materials & Characterisation

Research & Discovery

Service & Healthcare

The sector saw good underlying
demand for our products across the
Semiconductor, Advanced Materials
and Energy & Environment sectors,
with covid-19 disruption particularly
impacting shipments into the
Semiconductor segment.

Delivered strong underlying revenue
growth supported by global initiatives
related to quantum technologies andincreased research funding. Refinedcommercial practices and gains
throughout operational excellence
contributed to improved profit andmargin.

In the year we launched our customer
services transformation programme,
which includes how we are organised
internally, our core capabilities andhow we work with and support ourcustomers. This has driven growthand improved profitability fromservices related to our own products.

.

14

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Strategic Report

Governance

Financial Statements

Company Information

We have developed and implemented aphased approach to prioritise the health andwellbeing of our employees.

I have been impressed by the commitment
and agility of our employees, which hasenabled us to maintain business continuity
and support for our customers through thisdifficult period. The progress over the
past few years has significantly improved
the performance and capabilities of theGroup; the procedures, disciplines andinfrastructure that are now in placeprovide the foundation and resilience
to successfully navigate the current
challenges.
As a global provider of products andsolutions to the world’s leading industrial
companies and scientific researchcommunities, we recognise our
responsibility and role in the advancementof society, helping to create a moresustainable future. This is reflected inour core purpose, which is to support
our customers in addressing some of
the world’s most pressing challenges,
enabling improved health, increased
connectivity, a greener economy andleaps in scientific understanding.

Covid-19
In light of the emerging covid-19
situation I established a dedicatedcovid-19 leadership team to direct our
rapid and agile response to the changing
business conditions. We developed andimplemented a phased approach toprioritise the health and wellbeing of ouremployees and to support our customers
through maintaining business continuity
where possible and appropriate.
This approach is in line with longer-termgoals of creating positive futures for all
our stakeholders.
To manage through the uncertainty
and potential disruption, we developeda three-phased approach, which wethen implemented in line with the local
situation and Government guidelines foreach business and territory in which we
operate.
•Phase one included preparations
across the Group to enable business
continuity in light of further potential

business disruption and immediate
actions to minimise our immediate
exposure and that of our employees tocoronavirus. This included ensuring all
employees who could work off-site
had secure remote working enabled
and in place, developing working
practices in our manufacturing sites
to enable the implementation of social
distancing guidelines, and proactively
engaging with our supply chain.
In addition, we minimised international
and inter-site travel, and postponedlarge gatherings.
•

Phase two was triggered in response
to significant regional outbreaks.
This included the implementation ofsocial distancing guidelines within
our facilities; in some sites this required
implementing shifts, an extended
working week and home working for
all employees who could do so.
We introduced remote communications
to keep in touch with and support ourteams working from home as well as toremain in contact with our customers.

•

Phase three implemented support forour customers and mechanisms tomaintain business continuity as best
as possible if it became necessary totemporarily close a site.

Our early actions and approach enabled
us to maintain business continuity andprogress our strategic new productdevelopments throughout the peak of the
disruption. With ongoing global businessdisruption likely, at the start of the newfinancial year we developed phase four,
our “Global Recovery” phase. This includes
the preparation and implementation ofadapted business practices andcapabilities, recognising ongoing businessthrough the recovery phase will require,and benefit from, new approaches.
In response to the uncertainty regarding
the timing and shape of global economic
recovery, we have taken a number ofmeasures to protect the financial healthof the business through the short andmedium term. I, along with the Group

Oxford Instruments plc Report and Financial Statements 2020

Finance Director, have taken a 20%
reduction in salary, with an equivalent
reduction in fees to the Board with effectfrom April, initially for a three-month
period, which we will review throughout
the year. In addition, we have taken anumber of other measures, including thedelay of the normal annual pay review
from July until the second half of the year
for all but our lowest paid employees
and a deferral in the payment of
performance-related bonus schemes
related to the 2019/20 year. We have
implemented a number of cost
containment measures including afreeze on all non-time-critical recruitment
and capex spend and we are utilisingavailable Government business support
and job protection schemes whereappropriate. In light of this, the Board took
the decision to prudently suspend thepayment of the interim dividend that wasdue in April 2020. As a result of continued
uncertainty, the Board will defer adecision on payment of dividends until
we have assessed the level of disruption
caused by covid-19 on our markets andthe consequent impact on the business.
We had a short period of closure at twoof our sites in the US in order to comply
with Government directives. However,
all of our manufacturing sites are now
open, albeit at a slightly reduced
capacity to enable safe working
environments, with plans to increase
capacity through the implementationof our phase four response.
I am extremely proud of the role that
Oxford Instruments has played in thefight against the coronavirus, with anumber of our products and key enabling
technologies being directly involved in theidentification and gene sequencing of thevirus, diagnostic testing and thedevelopment of treatments and vaccines.
Many of our other products provide
capabilities and support across a wide
range of essential services including
power generation, connectivity and the
supply of food.

15

Chief Executive’s Review continued
Horizon update

Market Intimacy

We have continued to make good
progress with the implementation of our
Horizon strategy, which is delivering
tangible financial benefits to the Group.
With the key tenets of our Market
Intimacy, Operational Excellence,
Innovation and Product Development
initiatives well embedded across theGroup, and positive early progress fromthe transformation of our Customer
Support services, we continue to identify
further opportunities to drive growth andimprove the efficiency and productivity ofthe business through further developmentof Horizon initiatives.

In the year we continued to strengthen
our market intimacy, which has further
enhanced our understanding of ourcustomers’ world and their strategic
priorities, identifying additional
opportunities for growth. By further
improving our market segmentation by
end application, we are better placed to
identify new customers and optimise thefull value our products can bring. In theyear we have further invested in thedevelopment of our marketing
communications and customer website
to strengthen our reach and engagementwith customers.

Through Horizon we continue to transformthe organisation into a customer-centric,
market-driven business. This includes
how we are organised internally, ourcore capabilities and how we work withand support our customers and otherstakeholders. In the year we havedeveloped the Oxford Instruments
Business System, which has formalised
the processes and procedures for
conducting business within the Group.
This ensures that all of our employees
have visibility and awareness of thebest practice improvements arising from
Horizon whatever their role, meaning that
we benefit from a unified culture andbreak down functional silos.

Our enhanced digital presence andmarket intimacy approach are proving
particularly valuable during the current
covid-19 disruption when our customers
and sales teams are unable to travel andtradeshows around the world have beencancelled. In particular, our broad rangeof additional training and tailorededucational and sales materials for
specific applications, which have bothsupported our customers and driven
increased traffic to our website, leading to
improved webinar attendance andincreased lead generation.

Innovation and ProductDevelopment
By exploiting our enhanced market
insights, we are developing richer productroadmaps and increasing the impact ofrecently launched products. As a key
element of Horizon, we are increasing our
new product focus and tailored solutions
on higher growth opportunities that
support specific customer applications.
For instance, recent innovations are
helping to improve the efficiency of powerdevices, develop stronger, lighter, higher
performing materials and advance theunderstanding of viruses to aid thecreation of vaccines.
In the year we have increased thedeployment of our technical capabilities
across business units and collaboration
with external partners to accelerate thedelivery of our priority projects.
The infrastructure and collaborative
procedures that we have put in placeprovide our teams with the ability to work
securely across geographies and fromremote locations including their homes.
These have enabled us to maintain our
product development activities
throughout the covid-19 disruption. We
also made good progress in increasing
the identification and generation ofvaluable intellectual property to protect
our investments and create significant
barriers to entry.

le
op
Pe

16

Customer

Operational
ExcellenceInnovation
and ProductDevelopment

Ca
pa
bi
lit
ie
s

Customer
SupportMarketIntimacy

s
ie
lit
bi
pa
Ca

Pe
op
le

Operational model

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Customer Support
In the year we launched and made goodinitial progress with our customer services
transformation programme. In line with our
product strategy, we have taken amarket-centric approach to our services
and support activities. This has involved
generating tailored service support
packages and products that are specific to
the type of customer and their end
application. This has enabled us toenhance the value that we bring to ourcustomers by helping them improve theircapabilities and increase their productivity.
Throughout the programme we havestarted to leverage our scale and exploit
the synergies across our global customer
support teams by utilising cross-businesscapabilities to deliver quicker response
times and increased local support.
Through the development of our own
teams and targeted recruitment we areproviding a broader and higher quality of
support products and services to better
meet the future needs of our target
markets and application segments.
In addition, to enable the delivery ofquicker response times, reduce theamount of travel and drive efficiencies
for our teams and customers, we haveinvested in technology enabling theprovision of increased levels of support
remotely, including the virtual presenceof an expert in customer laboratories.
Whilst early in this programme, our new
approach to supporting our customers
has increased the demand for, andfinancial returns from, our customer
support activities in the year.

Operational Excellence
We have continued our improvement
programme, which focuses on strategic
procurement, operational efficiency andlogistics, delivering tangible gains in theyear. Within procurement, we aretransforming our supply chain, building
long-term partnerships with fewer
suppliers, leading to shorter lead times,
reduced working capital and better
leveraging our purchasing scale.
With fewer suppliers, we are better
placed to drive the responsible sourcingof materials and to operate under thehighest ethical standards. Ouroperational efficiency and logistics
activities have delivered improved
working practices and quality withincreased throughput and reduced
lead times.

Financial Statements

Whilst we have made good progress inthe year, there remains significant
opportunities for further operational
improvements.

People Capabilities
Our ability to achieve our strategic goals
and deliver ongoing growth is determinedprimarily by the capability of our people.
At the centre of the Horizon strategy, we
have focused on developing a stronger
core leadership team and increasing thecapabilities across the business. In theyear, whilst we have continued to bring intalent and capabilities to enhance our
performance in specific areas of thebusiness, we have also initiated key
internal training programmes aimed atdeveloping the careers and capabilitiesof our existing employees across each of
our business functions.

Results
Reported revenue of £317.4m grew by
1.1% (2019: £314.0m), a decline of 0.7% atconstant currency. Covid-19 related issues
in the fourth quarter of the year impacted
our ability to complete planned productshipments and installations. In theabsence of this disruption, the Groupwould have delivered good growth.
As a direct consequence, reported
revenue was broadly flat for the Materials& Characterisation and Research &Discovery sectors, declining by 1.9% and1.1% respectively at constant currency.
The Service & Healthcare sector
delivered good revenue growth of 5.7%
(3.7% at constant currency), supported
by our initiative to offer a broader portfolio
and higher value of service offerings to
our customers, which led to strong
increased demand for services related
to our own products.
From an end market perspective, we
saw strong revenue growth across ourEnergy & Environment and Research& Fundamental Science segments, with
underlying growth in the Quantum
Technology, Semiconductor, Advanced
Materials and Lifescience segments being
more than offset by delayed shipments inthe fourth quarter. The previously reported
weakness across silicon semiconductor,
electronics and automotive production
continued through the second half,
impacting full-year orders and revenues
into these customers.
From a geographical perspective,
constant currency revenue growth of
4.7% and 3.0% across Europe and North

Oxford Instruments plc Report and Financial Statements 2020

Company Information

America respectively were modestly
impacted by coronavirus-related delays.
In Asia, disruption to shipments andinstallations into China and South East
Asia significantly impacted revenue,
resulting in a constant currency declineof 6.5%. Without this disruption, China
and the region would have continued todeliver growth in the year.
Our customer-centric approach supported
underlying growth from both commercial
and academic customers, with theproportion of revenue broadly in line withthe previous year, with 52% from academic
or Government-funded customers and
48% from commercial customers.
Reduced revenue due to covid-19
adversely impacted both adjusted
operating profit and margin. This morethan offset the gains in underlying
increased profitability in the year
achieved through improved commercial
practices and our operational excellence
programme. Adjusted operating profit
increased 5.9% to £50.5m (2019: £47.7m)
supported by a currency tailwind,
representing a marginal decline of 1.0% atconstant currency. Adjusted operational
margin for the Group increased to 15.9%(2019: 15.2%), representing 15.1% atconstant currency. Adjusted profit before
tax increased by 8.8% to £49.5m (2019:£45.5m). Continuing adjusted basic
earnings per share grew by 12.7% to70.2p (2019: 62.3p).
Order intake was also impacted
throughout the fourth quarter,
predominantly across China and partsof South East Asia, but to a lesser extent
compared to revenue. This resulted inreported orders of £336.0m, slightly
ahead of the previous year (2019:£335.1m) and representing a decline atconstant currency of 1.3%. Despite thisdisruption, increased customer demandfor our products resulted in constantcurrency growth in the Materials &Characterisation and Service &Healthcare sectors of 0.1% and4.7% respectively, with Research &Fundamental Science declining by 5.1%.
Excluding the large order for the Instituteof Physics – Chinese Academy of
Sciences in the comparative period,
orders for the Group have shown good
constant currency growth with modest
growth within the Research &Fundamental Science sector. Orders grewin Europe with modest constant currency
declines in North America and Asia.

17

Chief Executive’s Review continued
Results continued
The book-to-bill ratio in the period
remained positive at 1.06, with the order
book, representing orders for futuredelivery, up 14.2% to £175.0m (2019:£153.2m), growth of 12.1% at constantcurrency. Strong growth across theMaterials & Characterisation andResearch & Discovery sectors was
supported by revenue not recognised in
the year owing to delayed shipments
and installations due to the impact ofcovid-19. Strong growth in the Service &Healthcare sector was predominantly
due to increased demand for services
related to our own products.
Operational and commercial
improvements within the year supported
good cash collection which, combinedwith the disposal proceeds fromOI Healthcare and our minority shareof Scienta Omicron, resulted in asignificantly improved net cash positionof £67.5m (2019: £6.7m) at the year end.

Sector performance
Turning to the individual sector
performance:
Materials & Characterisation products
and solutions enable the fabrication andcharacterisation of materials and devices
down to the atomic scale, predominantly
supporting customers across applied
R&D as well as the production andmanufacture of high technology products
and devices.
Building on a positive first half we saw
continued underlying demand for our
products across the Semiconductor,
Advanced Materials and Energy &Environment sectors. The continued
global drive for higher efficiency powerdevices, improved connectivity and fastercommunications supported strong order
growth for our compound semiconductor
solutions. This offset the continued
weakness and reduced demand for ourimaging solutions into silicon
semiconductor and electronics customers
across the Semiconductor &Communications segment. Underlying
revenue growth in the Advanced
Materials and Energy & Environment
segments was supported by the diverse
range of end applications and broadcustomer base seeking to develop andmanufacture stronger, lighter and higher
performing materials.

18

In the period, delayed revenues and orders
due to coronavirus disruption particularly
impacted the Semiconductor andAdvanced Materials sectors for customers
in Asia and Europe. Increased demandand positive funding environments acrossEurope and North America supported
good order and revenue growth toacademic and Government-fundedcustomers in the period.
Reported orders grew by 1.5% in the
period to £146.1m (2019: £144.0m) up
0.1% at constant currency, with reported
revenue of £137.6m broadly in line withthe previous year (2019: £137.9m) anddown 1.9% at constant currency. Reported
adjusted operating profit was £21.0m(2019: £21.2m), down 7.1% at constantcurrency. Adjusted operating margin of
15.3% (2019: 15.4%), representing 14.6% atconstant currency, was held back bydelayed shipments. The order book for
future deliveries grew 23.5% in the period
to £50.9m (2019: £41.2m).
Research & Discovery provides
advanced solutions that create uniqueenvironments and enable imaging andanalytical measurements down to themolecular and subatomic level,
predominantly used in scientificresearch and applied R&D.
Continued progress in the second halfof the year with increased demand for
products across the sector was offset bycovid-19 related delays to the shipment
and installation of a number of large
value systems, resulting in revenue
broadly in line with the previous year.
Orders were impacted to a lesser extent
with good underlying growth whenexcluding the large order to the Instituteof Physics – Chinese Academy of
Sciences, which will be delivered over the
next few years. Underlying pre-covid-19
order and revenue growth has been
supported by increased global initiatives
related to Quantum Technology andincreased academic interest andassociated international funding into
Research & Fundamental Science, driving
demand across our portfolio of scientificinstruments, cryogenics and highmagnetic field platforms.

The Healthcare & Lifescience segment
was broadly in line with the previous year,with strong growth across the productportfolio being offset by a decline inrevenue related to our optical microscopy
portfolio in the period due to increased
competitor activity and a strong
comparator. Within the Energy &Environment segment, growth withinfood applications was more than offset
by a decline of sales into oil exploration.
From a geographical perspective, we had
good growth in North America withdelayed revenue into China offsetting
growth in Asia, with Europe having amarginal decline relative to the previous
year. The sector had good growth tocommercial customers with delayed
revenue more than offsetting goodunderlying growth to academic
customers in the period.
The impact of coronavirus tempered
growth towards a marginal increase inreported revenue to £126.0m (2019:£125.2m), representing a decline of 1.1%
at constant currency. Reported orders
declined in the period by 3.4% to £133.5m(2019: £138.2m), with underlying in-yearincreased demand being offset by thesubstantial order in the previous year into
China. Improved commercial practices
and gains through our operational
excellence programme contributed to
improved profitability in the period with
reported operating profit growth of 12.4%
to £14.5m (2019: £12.9m), representing a
growth of 2.3% at constant currency.
Reported operating margin increased to
11.5% (2019: 10.3%) corresponding to
10.7%, an increase of 40 basis points
at constant currency. Delayed shipmentsin the year contributed to the order bookfor future deliveries increasing to £99.0m(2019: £91.1m), representing growth of
8.6%. In the second half of the year wesold our minority shareholding in Scienta
Omicron to existing Shareholders.
Service & Healthcare provides customer
services and support for our own
products and the service of third-party
MRI scanners in Japan. In the second halfof the year we divested our OI Healthcare
business in the US. This has been treatedas a discontinued business. Our businessto support and service MRI systems within
Japan continues to perform well andremains a core part of the Group.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

GovernanceIn the year, we initiated thetransformation of our customer services
approach in line with our Horizon strategy.
This has involved both changing the way
in which we provide support to ourcustomers as well as providing abroader portfolio with increased
customer segment tailored content.
Whilst we are early in this transformation,
the programme has already driven strong
growth in demand from customers forservices related to our own products andincreased efficiencies, driving profit
growth and improved margins.
Reported orders increased by 6.6% to£56.4m (2019: £52.9m), growth of 4.7% atconstant currency, with reported revenue
increasing 5.7% to £53.8m (2019: £50.9m),
growth of 3.7% at constant currency.
Reported adjusted operating profit
increased 10.3% to £15.0m (2019: £13.6m),
a rise of 5.1% at constant currency, with
reported operating margin up 120 basis
points to 27.9% (2019: 26.7%).

R&D
Our enhanced customer-centric,
market‑driven approach is identifying
increasingly attractive development
opportunities, enriching our IP portfolio
and driving our investment decisions
across the Group. In the year we invested£26.8m in R&D (2019: £24.8m),
representing 8.4% of sales, with
distribution reflecting our focus ondeveloping products and tailoredsolutions that support specific customer
applications within our growth markets.
We monitor the proportion of revenue
which originates from products launchedin the last three years (our vitality index).
In the period, our vitality index was 39%(2019: 37%) representing a continued
healthy pipeline and performance of
newly launched products.

Financial Statements

PeopleWe have diverse and engaged
employees who have demonstrated
their commitment and passion tocontinue to improve our businessand provide enhanced support for ourcustomers. This has been particularly
demonstrated through their actions andagility throughout the unprecedented
disruption caused by the coronavirus.
I would like to thank all our employees
for their commitment during thesechallenging times and their innovative
approaches to ensure our customers
continue to receive a world-classexperience from Oxford Instruments.

Summary and outlook
We have made good progress in the yearwith the implementation of our Horizon
strategy, which combined with our strong
balance sheet continues to provide thefoundation for long-term sustainablegrowth and margin improvement. We
have positioned the Group to be a leading
provider of high technology products andservices to the world’s leading industrial
customers and scientific researchcommunities to image, analyse andmanipulate materials down to the atomic
and molecular level. This allows us to live
up to our purpose of facilitating a greener
economy, increased connectivity,
improved health and leaps in scientificunderstanding.

Company Information

We have an active pipeline of sales
opportunities, reinforced by our digitalmarketing and online sales presence; but
activity levels within academic institutions
remain low due to continued customer
site closures.
It will take some time to understand theimpact and longevity of this disruption,
and we will continue to take measures
to adapt and protect our businessthroughout this period. Once we haveattained an improved level of visibility,
we will be in a position to provide
guidance on the current year’s expectedfinancial outcomes.
Our strategy is to operate in attractive
markets with long-term fundamental
growth drivers and to focus on segments
where we can maintain leadership
positions. With the increasing demandfor electric vehicles and digitalcommunications infrastructure, and theneed for improved energy‑efficientdevices, medicines and diagnostic tools,
we are confident that our end markets areresilient and should not be weakened in
the long term by covid-19 headwinds.

Ian Barkshire
Chief Executive
9 June 2020

The coronavirus has continued to impact
trading in the first two months of the year,with cumulative orders 3% below a weakcomparator period, and with growth in
Asia of 19% offsetting a reduction in
Europe and North America of 23% and 7%
respectively. A strong uplift in orders forour compound semiconductor processsolutions has offset a reduction in orders
for our higher margin scientific cameras
and optical microscopy products, whichhave been severely impacted bydisruption across academic customers.
Group revenue is 3% above last year,
assisted by delivery of shipments thatwere held over from the year end due
to covid-19.

Oxford Instruments plc Report and Financial Statements 202019

Market Context
We are well positioned to address a broad and diverse
range of attractive markets and industrial sectors.

MARKET DRIVERSSEMICONDUCTORSWith the rise of the data economy, there iseven more demand for compact devices,
better energy efficiency, faster access todata and improved connectivity. These
are all essential to meet the needs of IOT,
AI, autonomous vehicles and high speed
5G networks. It is also vital for those thatare producing these new and demanding
solutions that they can do so repeatably
and to the required quality.

Market drivers•••

Increased demand for more efficientand faster power devices to support agreen economy, e.g. enabling greater
electric vehicle range and fastercharging times.
Increased investment supporting thedrive for improved connectivity, with
the need to develop capacity andbandwidth within data centres.
Reduction in the production ofmainstream silicon semiconductor
devices and related electronics withthe market being in a low phase of thevolume cycle. Anticipated to improvein the coming year.

Our response•

Our etch and deposition processsolutions are used across a range ofsemiconductor, device and materials
applications.

•

Our leading expertise in theprocessing of compound
semiconductors is helping deliver
the speed, capacity and energy
efficiencies demanded.

•20

We have further optimised our image
and analysis solutions to support thedevelopment and yield managementof the next generation of smaller
silicon semiconductor devices.

ADVANCED
MATERIALS

ENERGY &ENVIRONMENT

The demand for lighter, stronger, higher
functioning materials is present in a wide
range of markets, from those designingsafer cars, developing more efficientbattery storage to those creating newmaterials for medical implants. Being able
to accurately measure the compositionand structure of materials down to thenanoscale is helping develop the next
generation of materials.

Ever increasing environmental demands
are being placed on energy generation,
which is leading to diversification of energy
sources towards building a low carbon
economy. With the growing population
there is more focus on sustainable foodproduction, increasing requirements forfood safety and the characterisation offood composition. Another key area in thismarket is the need for accurate andtraceable testing within forensic
investigations.

Market drivers•••

Need to develop, control andrepeatably manufacture newmaterials, whilst continuing with the
QC and QA of existing products.
Increasing awareness of environmental
impact, driving need for improved fuelconsumption in cars and reduction inraw material usage in manufacturing.
Reduction in steel production in linewith reduced global demand inconstruction and automotive markets
as well as move toward higher
performing materials and super alloys.

Market drivers•

Drive for improved battery technology
and more efficient and effective
alternative energy sources, such as
wind and solar.

•

Increasing importance being placedon accurate and rapid forensic testing.

•Lower pricing and a reduced demandfor oil have decreased the activity in
oil exploration and extraction.

Our response•

Our imaging and analysis solutions
are helping improve the performanceand storage capability of batteries
and solar cells by helping researchers
understand their structure at thenanoscale.

•Our benchtop analysers are playing
an increasing role in the quality
control and assurance undertaken
within the food industry, helping
establish nutritional values and theoil and fat content.

•

Our specialist GSR software is usedin the leading forensic laboratories
around the world as it offers accurate
and validated results.

Our response••

Our advanced solutions are enabling
the mechanical properties, performanceand reliability of advanced materials tobe determined through the design andprecise control of the composition
micro‑structure and thin films coatings,
faster and more accurately.
Our ability to measure a range ofcritical properties is helping
manufacturers assess theperformance and quality of theirprocesses; for example, by detecting
nanoscale impurities which candegrade performance they are able
to avoid catastrophic failures.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

We are focusing on those areas where our key enabling
technologies are driving long-term success for ourcustomers and where we can achieve and maintainleadership positions.

HEALTHCARE &LIFESCIENCEQUANTUMTECHNOLOGY

The continued drive to improve the healthand wellbeing of society is resulting in aneed for further understanding of how the
body works, how it fights diseases, howthese diseases spread and how they
respond to treatment. To do this, moreaccurate and sensitive solutions are neededin order to develop that vital understandingof health at a cellular and molecular level.

Quantum technologies offer the potential
for vast increases in computation speed,
new paradigms for secure informationtransfer and unprecedented sensor
sensitivities applicable across a broad
range of applications. A number ofquantum imaging centres of excellence
have been established around the world.

Market drivers••

The quest to find a cure forlife‑threatening illnesses is driving
further research into the pathology of
disease states to aid understanding
about their origins and progression.
This is creating a demand for advanced
and personalised treatment plans.
Current drive to understand thecovid-19 virus in order to create moreaccurate tests, treatments andpossible vaccines.

Our response•

Our advanced imaging and analysis
solutions, including our scientificcameras, microscopy systems andAFMs, are helping to reveal subcellular detail, while allowing
observation of real-time interactions
to help understand our immune
response to foreign organisms.

•

Our cameras are being used in genesequencing, helping researchers
learn more about the genetic makeup
of covid-19. They are also being usedin analysers testing for the virus, andin work to develop a vaccine.

•

Through our MRI service team inJapan, we continue to ensure thesevital systems are running efficiently
and effectively.

Market drivers•

Quantum is making progress fromfundamental science to appliedresearch, targeting commercial
applications with end market drivers
including quantum computing, securecommunications, advanced sensors
and imaging.

•

Increased Government and corporate
funding.

•

Increasing interest in looking at how
to utilise quantum sensors for medical
imaging and industrial applications.

RESEARCH &FUNDAMENTALSCIENCEThe fundamental shifts in technology andcapability are driving increased research
and applied development as we continue
to understand the world around us. This is
helping make advances in new material
and device development as well as
fundamental research in the physicalsciences, including astrophysics.

Market drivers•

Increasing academic interest is driving
international funding for research into
superconductivity and magnetism.

•

Increased investment in astronomy
driven by the exploration of theuniverse, the tracking of space debris
and the monitoring of solar activity.

Our response•

Our scientific platforms create
extreme and unique environmentsthat allow researchers to makeground-breaking discoveries of newmaterials and novel phenomena,
furthering our understanding of thestructure, properties and performanceof these materials.

•

Our dedicated scientific cameras are
helping astronomers see more detailthan ever before, allowing them todiscover new exoplanets, safely
operate satellites around spacedebris and help predict interruptions
caused by solar flares.

Our response••

Our cryogenics, advanced fabrication,
imaging and characterisation
solutions are all critical to theadvancement of this field, and provide
the fundamental capabilities andplatforms to enable both the researchand development of viable
commercial applications.
Our single photon sensitive cameras
are helping researchers investigate
and develop quantum optics, which
are required for communication
systems and imaging solutions.

Oxford Instruments plc Report and Financial Statements 202021

Business Model
We recognise our responsibility and role in theadvancement of society, helping to create a moresustainable future.

Driven by

Impacted by

How we add value

Our purpose

Our people

Our core activities

Our core purpose is to support ourcustomers in addressing some of theworld’s most pressing challenges,
enabling a greener economy, increased
connectivity, improved health and leaps inscientific understanding.
Our strategy enables us to provide morevalue to our existing customers andexpand into new attractive markets andapplications areas, focusing on thosesegments where we can achieve andmaintain leadership positions.
Our solutions are being used by customers
to find cures for cancer, advance space
exploration and develop the next
generation of electronics, advanced
materials and quantum technologies.

Empowering our employees to own thechallenge and solution.
Read more on pages 24 and 25.

Fundamental
research

Our customers

Providing solutions to those exploring
new frontiers down to the nano andmolecular level.

Aligning our business with our chosencustomer segments and applications.

Read more on pages 20 and 21.

Read more on pages 26 and 27.

Our shareholders
Delivering business growth and maximum
Shareholder returns over the long term.

Applied R&D
Our key enabling technologies andsolutions facilitate the development of
more advanced products.

Read more on pages 26 and 27.
Read more on pages 20 and 21.

Our suppliers
Building lasting relationships on trust andrespect.

High tech
manufacturing

Read more on pages 26 and 27.

Our communities
Being mindful of our potential impact on
the world around us.
Read more on pages 24 and 25.

Our values

Our culture• Inclusive• Employee pride• Innovative and progressive• Respect• Trusted• Reputation• Wholehearted• Accountability• Health and safety

Read more on page 56.

22• TrustProviding products to support today’s
manufacturing challenges andincrease productivity.
Read more on pages 20 and 21.

Distinctively
Oxford Instruments
By addressing academic
fundamental research, applied R&D,
and high technology commercial
segments, we are engaged throughout
the technology cycle and are well
positioned to benefit from each wave
of commercialisation and market
disruption.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Within our chosen end markets, our products, solutions andservices are helping customers accelerate their applied R&D,
increase productivity and make ground-breaking discoveries.

Driven by ourstrategic objectives

Our operations

OutcomesThrough our sectors

Adjusted basic earnings
per share

70.2p

1. Being customercentric, market driven
Read more on pages 28 and 29.

2. Delivering
operational excellence

Materials & Characterisation

Read more on pages 28 and 29.

Read more on pages 32 to 35.

Revenue

3. Prioritising technology& product development

Employee engagement

Read more on pages 28 and 29.

77%

4. Transforming
customer services
Read more on pages 28 and 29.

£317m

Research & Discovery
Read more on pages 36 to 39.

Net promoter score55%

5. Developing capability& culture for success
Read more on pages 28 and 29.

Group gender split

Investment proposition:• Confidence in strategy

Service & Healthcare
Read more on pages 40 and 41.

77:23

male : female• Strong financial position• Resilient Group• ESG focus• Market access

Oxford Instruments plc Report and Financial Statements 202023

Engaging with Stakeholders
Engagement with our stakeholders allows us to grow and execute
our strategy; we therefore consider the impact we have on them aswell as what they consider important when developing our plansfor continued success.

Our stakeholders

Their material issues

Local communities
We believe the work we do and that we enable
others to do is important and both benefits andadvances society. We work hard to ensure that
we have a positive impact on those around us
and give back to our local communities.

•

Local investment•

Opportunity for local employment•

Impact on local environment•

To work in a diverse and inclusive culture•

The opportunity for development and progression•

Consideration of their health and wellbeing•

To be trusted to do an excellent job and encouraged
to contribute

Employees
Our employees are fundamental to our businesssuccess. We continually invest in our people,
developing the capabilities that we will need tosucceed over the longer term. We are committed tobeing the company where the best in our sector want
to work and strive to offer opportunities that will
attract, motivate and retain talented employees,
enabling them to give their best.

24

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Section 172 Statement
Engaging with our stakeholders and acting in a way that
promotes the long-term success of the Company, while taking
into account the impacts of our business decisions on our
stakeholders, is central to our strategic thinking and is in linewith our statutory duty in accordance with Section 172(1)of the Companies Act 2006 (s.172). This constitutes ours.172 Statement, as required under the Companies(Miscellaneous Reporting) Regulations 2018.

Financial Statements

Company Information

We set out in the table below our key stakeholder groups,
their material issues and how we engage with them. We deploy
a tailored engagement approach to each stakeholder group
to foster effective and mutually beneficial relationships.
By understanding our stakeholders, we can factor into
Boardroom discussions the potential impact of our decisions
on each stakeholder group and consider their needs andconcerns, in accordance with s.172 of the Companies Act 2006.

How we engage

2019 highlights

We are committed to helping the generations coming up through allstages of education to see the importance of choosing STEM subjects
and the career opportunities this will offer them. Our sites run school
visits, work experience programmes and offer industrial postdocs,
allowing students the opportunity to gain meaningful industrial
experience. We also encourage our sites to support their local
communities through charity and community activities.

•

Participated in Leonard
Cheshire Change 100
programme•

Page 60,
diversity andinclusion•

Ran successful Girls in
Tech event•

Page 62, socialand community
involvement•

Worked with Oxford
History of Science
Museum to support
their People-ScienceBusiness exhibition•

Page 63, socialand community
involvement•

Held open day at
Belfast site for the local
community to visit andlearn more about the
Group

•

Page 63, socialand community
involvement•

Further developed
employer brand, value
proposition and internal
communications•

Page 58, ouremployees•

Launched new careers
website•Page 58, ouremployees•

Implemented alearning anddevelopment portal•

Page 58,
developing
capability•

Expanded our Mental
Health First Aider
programme•

Page 61, healthand wellbeing•

Launched Push for Zero
programme to raiseawareness of potential
hazards and risks•

Page 62,
investing in
health andsafetyIt is important for our employees to feel connected to our purpose.
Within the Group we continue to build our leadership team, while
enhancing commercial focus and core capabilities across and within
the Group at an operational level. This has been a dual approach ofinvesting in our existing employees as well as looking outside theorganisation for individuals with specific capabilities and experienceto accelerate our progress. We regularly conduct global Employee
Engagement surveys and feedback sessions to find out more from ouremployees about their experiences of working for Oxford Instruments
across all our businesses and the regions in which we operate. We
work hard to create a sense of belonging for our employees andrecognise that in order to retain, attract and enable the best people
to perform, we need to create an inclusive environment and culture,
where difference is valued and everyone can contribute to their fullpotential.

Oxford Instruments plc Report and Financial Statements 2020

Further links

25

Engaging with Stakeholders continued
Our stakeholders

Their material issues

Shareholders
The Group places considerable importance on
regular communications with its Shareholders,with whom it has an ongoing programme of dialogue.
Our goal is to deliver shareholder returns throughprofitable, sustainable growth with strong cash
conversion and efficient use of capital.

•

Current and future financial performance•

Sustainability•

Good governance•Strong dividend position•

Long-term partnerships and fair agreements•

Sustainability and trust•

Opportunity for growth•

Visibility to forecast requirements•

High standard of business conduct•

Appropriate use and storage of personal information•

Fair pricing strategy•

Appropriate engagement and support throughbuying cycle•

Excellent ongoing customer support

Suppliers
The Group recognises that relationships built on
trust and respect with our business partners establish
mutually beneficial relations. Our supply chain plays
a vital role in supporting sustainable growth andefficiency across the business.
The Group outsources many sub-assemblies andwe also purchases a wide variety of raw materials.
It is essential to ensure we attain the highest quality
and service for our customers whilst we enhance theefficiency of our business and reduce risk. As a result,
we develop strong working partnerships with our
suppliers, providing them with the visibility to extend
our supply chain through their supply base too, inorder to create added value.

Customers
We provide advanced technology solutions to abroad range of end markets, supported by new
product offerings and personalised customer
support. We have a wide and diverse range ofacademic and corporate customers across manydifferent industries and end applications. Our productand service solutions, which image, analyse andmanipulate materials down to the atomic andmolecular level, support our customers to addresssome of the world’s most pressing challenges;
enabling a greener economy, increased connectivity,
improved health and leaps in scientificunderstanding.
26

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

How we engage

2019 highlights

We take a proactive approach to investor relations and actively engage
with Shareholders throughout the year to ensure they understand theperformance of the business. We hold numerous Shareholder meetings
and roadshows, publish the Annual Report, and undertake full-year
and half-year results announcements. All Shareholders areencouraged to participate in the AGM, at which the Chair and Chief
Executive present an overview of the Group’s business, review theresults and make comments on strategy and current business activity.
The Non-Executive Directors meet informally with Shareholders both
before and after the AGM and respond to Shareholder queries andrequests. The Chair and the Senior Independent Director makethemselves available to meet Shareholders as required.

•

USA investor roadshow
to meet with
Shareholders andpotential investors•

Page 69,
Company
leadershipand purpose•

Consulted with major
Shareholders on our
new Remuneration
Policy•Page 90,
corporate
performanceand annual
bonus

•

Updated the Investor
Relations section of theGroup website•

Page 77, investor
relations

We have reviewed, and improved, our supplier due diligence andaudit procedures. We have a zero-tolerance approach to all forms ofmodern slavery, including servitude, forced, bonded and compulsory
labour and human trafficking and we expect our suppliers to adopt
the same approach. We perform regular inspections and audits andhave strategic reviews in place for key suppliers. We have a Groupsupplier management process in place that promotes a common
supply chain strategy, driving the business towards fewer, high level,
quality suppliers. We have now started the initial rollout of our new
ERP system, which will offer a more efficient means to manage our
supplier relationships, including how we purchase materials andserve our customers. We also have long-term pricing agreements forkey suppliers and strategic sourcing.

•Consolidation of supply
base, allowing risk
reduction and added
volume to key partners•

Page 17,
Operational
Excellence•

Achieved targeted
benefits, enhancing theGroup’s margin•

Page 29, Our
Strategy•

Spread Equinox
principles across theGroup to include our
US businesses•

Page 14, Chief
Executive’s
Review•

Further global projects
established to add
extra benefits
throughout 2020•

Page 29, Our
Strategy•

Transformation ofcustomer support toimprove customer
capabilities, increasing
their productivity•

Page 41, Service& Healthcare•

Utilising cross-businesscapabilities to deliver
quicker response times
and increased local
support•Page 17,
Customer
Support•

Improved market
segmentation to
optimise full value our
products bring•

Page 16, Market
Intimacy

We aim to treat our supply partners like an extension of our own supply
chain. It is crucial to provide accurate forward visibility in order to alignour customers’ requirements with our total supply capabilities. We sharethe output from our S&OP process with them, and we have dedicatedCategory Managers to help reduce risk and improve efficiency. We mustensure our extended supply chain adheres to our strict environmental
compliance, whilst challenging them to provide improvements to quality.
Our key suppliers are also encouraged to become part of our NPI
process, to allow them to add value to our process.

By being customer-centric and market driven, the Group seeks tocontinuously increase our depth of understanding of customer needs.
Through a deeper understanding of our target market segments andthe diverse challenges faced by our customers, we have changed
the way we communicate and reach our prospective and existingcustomers, more clearly identifying the value our products can add.
We reshaped our portfolio and focused on those areas where our key
enabling technologies are driving long-term success for our customers.
This has allowed us to help our customers accelerate their applied R&D,
increase productivity in high tech manufacturing and make groundbreaking discoveries. Insights from our stronger customer relationships
are informing and aligning our innovation and product development
initiatives to customers’ strategic roadmaps to allow us to create
differentiated products and solutions that will provide significant value
for our customers.
Oxford Instruments plc Report and Financial Statements 2020

Further links

27

Our Strategy
Horizon is now well embedded
across the Group and isdelivering tangible benefits.
Strategic priorities

HorizonHorizon, our transformational programme for the Group, isbuilding a stronger Oxford Instruments, positioned to deliver
long-term sustainable growth and margin improvement. As acustomer-centric, market focused Group we understand thetechnical and commercial challenges faced by our customers.
Our strategy enables us to provide more value to our existingcustomers as well as expand into new attractive markets andapplication areas.

le
op
Pe

28

Customer

Operational
ExcellenceBeingcustomercentric,
marketdrivenBuilding an in-depth
understanding of ourcustomers, applications andmarkets to help us strengthen
relationships whilst developing
a commercially strong sales
engine, equipped with the tools
for success.

Prioritisingproduct
development

Focusing our R&D investment onhigher growth segments,
prioritising our efforts on the mostvaluable product development
opportunities, aligning withmarket developments andcustomer needs.

Transforming
customer
services

Sharing our expertise andknowledge to help ourcustomers get the most fromtheir relationship with Oxford
Instruments, whilst leveraging
our scale to deliver quicker
response times and increased
local support.

Delivering
operational
excellenceTargeting improvements todeliver a step change instrategic procurement,
operational efficiency andlogistics, providing a worldclass experience for Oxford
Instruments’ customers.

Developing
capability
and culture
for success

Identifying and developing the
key capabilities our employees
need to help them succeed andto deliver the strategy, whilstbuilding a culture ofaccountability to empower ourteams to own the challenge
and the solution.

Innovation
and ProductDevelopment

Ca
pa
bi
lit
ie
s

Customer
SupportMarketIntimacy

s
ie
lit
bi
pa
Ca

Pe
op
le

We have maintained a sharp focus on our Horizon strategy todeliver sustainable revenue growth and improved margins. In
the period we have continued to increase our commercial focus
and build capabilities across the Group. We continue to see
opportunities for further revenue and margin improvement
delivered through the Horizon strategy.

Description

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Through our Horizon focus we help our customers
accelerate their R&D, increase their productivity andmake ground‑breaking discoveries.
Progress in 2020

Priorities for 2021•

We continued to strengthen our market intimacy, identifying
additional opportunities for growth and to optimise the fullvalue of our products.

•

Further develop end market application segmentation andembed this across all our business processes to aid further
market intimacy.

•

Our refined commercial practices and enhanced digitalmarketing have allowed us to continue to support ourcustomers through covid-19 disruptions.

•

Proactively manage our sales pipeline through CRM
developments, providing sales teams with richer
information to further enhance our sales process.

•We have increased our new product focus and tailoredsolutions on customer-specific applications that provide
higher growth opportunities.

•

Continue to deliver priority projects in line with theplanned roadmap.

••

We have utilised cross-business technical capabilities andcollaboration with external partners to accelerate thedevelopment of our priority projects.

Increasing the development of recurring revenue
opportunities and upgrade paths throughout our
product ranges.

•

Develop richer product roadmaps and breakthroughtechnologies through our restless innovation.

•

We launched and made good progress with our customer
services transformation, generating tailored support
packages and products specific to end applications.

•Continue with the transformation of our services
provision, enabling it to become a key product portfolio
within the Group.

•

We have invested in technology to enable increased levels of
support remotely, helping drive efficiencies for our customers
and our teams.

•

Develop our online offering of support to incorporate
further training, e-commerce and access to technicalexperts.

•

We continued to transform our supply chain, to help reduce
lead times and better leverage our purchasing scale.

••

We have reviewed and improved our supplier due diligence
and audit procedures to ensure our suppliers share ourzero-tolerance approach to all forms of modern slavery.

Further strengthening relationships with suppliers,
undertaking regular audits to ensure they continue tomeet our high standards of operation.

•

Deliver further operational efficiency gains through ourcommitment to continuous improvement.

•

Building on our career development framework with thedelivery of a learning and development portal to give
employees access to a broad portfolio of courses andtutorials, supported with bespoke training for different job
families and levels within the Group.

•

We have transformed how we are organised internally, ourcore capabilities and how we work with and support ourcustomers and other stakeholders.

•

We have developed the Oxford Instruments Business System,
which has formalised the processes and procedures for
conducting business within the Group.

Oxford Instruments plc Report and Financial Statements 202029

Key Performance Indicators
The Group uses a range of measures to monitor
progress against its strategic plans. The key
performance indicators are presented below:

Strategic priorities

Inventing the future

Realising the brand

Adding personal value

(%)
35

30

2016

2017

37

37

39

2018

2019

2020

48

2016

58

62

60

55

1.42

1.44

1.53

1.51

1.50

2017

2018

2019

2020

2016

2017

2018

2019

2020

What we measure

What we measure

Proportion of revenue coming fromproducts launched in the previous
three years1

Net Promoter Score®2

What we measure

Why we measure
To measure customer feedback“Value Add” = (adjusted operating
profit + employment costs)/
employment costs

Why we measure

Why we measure

To measure the effectiveness of our
R&D programmes

To measure efficiency

Link to strategy

Link to strategy

Link to strategy

Strategic objectives
Market Intimacy

Innovation and Product Development

Customer Support

Operational Excellence

Note: Key performance indicators have been restated to remove the results of discontinued operations from previous years.
1.

To ensure this metric better reflects the performance of those businesses which invest in R&D, the revenue from the Group’s MRI Service division has been excluded fromthis metric.

2.

The Net Promoter Score is a metric which is compiled by asking customers whether they would recommend Oxford Instruments to a friend or colleague. Customers givea score between zero and ten. Those customers who score nine or ten are promoters, those customers who score seven or eight are neutral and customers who score six
or less are detractors. The Net Promoter Score is the difference between the numbers of promoters and the number of detractors (both expressed as a percentage of thenumber of replies received). The score can range between -100 (no customers are promoters) and +100 (all customers are promoters). A positive score indicates that theCompany has fewer detractors than promoters.

3.

Calculated as adjusted operating profit divided by revenue.

4.

Cash conversion is defined as the ratio of cash generated from continuing operations before non-recurring items and pension scheme payments, less capitalised
development expenditure, net capital expenditure on property, plant and equipment and lease repayments to adjusted operating profit (see Income Statement).

5.

Calculated as adjusted operating profit less amortisation (but before impairment) of intangible assets divided by capital employed. Capital employed is defined as assets(excluding cash, pension, tax and derivative assets) less liabilities (excluding tax, debt, derivative and pension liabilities).

30

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Financial goals
To deliver Shareholder returns through profitable, sustainable growth and strong cash conversion and efficient use of capital.

Revenue growth

Adjusted operating
profit margin3 (%)

(%)
15.2

2017

2018

12.9

13.6

16.6

15.2

2019

2020

35.8

15.9
23.4

1.1

0.6

-8.7

2016

13.2

Adjusted earnings per
share (EPS) growth (%)

11.6

12.7

2019

2020

-11.6
2016

2017

2018

2019

2020

2016

2017

2018

Why we measure

Why we measure

Why we measure

To drive profitable, sustainablegrowth through the implementationof our strategy

To consistently maintain underlying
operating margins

To achieve long-term growth in EPS

Link to strategy

Link to strategy

Link to strategy

Cash flow4

Return on capital
employed (ROCE)5 (%)

(%)
132.0

27.2

123.8
99.6

93.4

18.3

67.9
8.3
2016

2017

2018

2019

2020

2016

21.0

11.0

2017

2018

2019

2020

Why we measure

Why we measure

To maintain a strong operating cash
conversion ratio and high level of free
cash flow

To deliver ROCE in excess of our costof capital

Link to strategy

Link to strategy

Oxford Instruments plc Report and Financial Statements 202031

Operations Review

MATERIALS &CHARACTERISATION

Revenue

Adjusted2 operating profit£137.6m-0.2%£21.0m-0.2%(2019: £137.9m)-1.9%1(2019: £21.2m)-7.1%1

At constant currency

Adjusted2 operating margin

15.3%(2019: £296.9m)
15.4%)

At constant currency

Operating profit after adjusting items

-0.1%
-0.8%
+9.9%1£12.3m-34.6%(2019: £296.9m)£18.8m)+9.9%1

At constant currency

1.

For definition, refer to note on page 2 of highlights.

2.

Details of adjusting items can be found in Note 1 of the condensed Financial Statements.

32

At constant currency

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

The Materials & Characterisation
sector comprises Asylum Research,
NanoAnalysis and Plasma Technology.
This sector has a broad customer baseacross a wide range of applications forthe imaging and analysis of materials
down to the atomic level, as well as the
fabrication of semiconductor devices andstructures through our range of advanced
semiconductor etch and deposition
process systems. Our portfolio of imaging
systems includes our range ofmarket‑leading X-ray and electron
analysis systems used in conjunction withelectron and ion microscopes as well as
our performance-leading atomic force
microscopes.

Financial Statements

The sector has a strong focus on
supporting and accelerating ourcustomers’ applied R&D, enabling thedevelopment of new devices, next
generation higher performance materials
and enhancing productivity in advanced
manufacturing, quality assurance (QA)
and quality control (QC). We provide
leading product performance, improved
ease of use and enhanced productivity,with the analytics and information to aid
the interpretation of acquired data.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

Materials & Characterisation delivered
growth in reported orders, with delayed
shipments offsetting underlying growth inrevenue and adjusted operating profit.
Performance in the period was enhancedby our customer-centric approach,which identifies new markets and thensubsequently tailors our productofferings to these specific end-customer
applications, increasing the productvalue and expanding our addressable
markets. We had good order andrevenue growth from academic andGovernment-funded customers
supported by positive funding
environments across Europe andNorth America.

33

Operations Review continued
Materials & Characterisation

This led to good order and revenue growthfrom academic customers in the period.
However, continued weakness in thesemiconductor, electronics, automotive
and steel production markets impacted
orders and revenue from commercial
customers. The proportion of revenue fromcommercial customers remained broadly
in line with the previous year at 55% (2019:57%). Adjusted operating margin of 15.3%
was held back by delayed shipments andinstallations. The order book for futuredeliveries grew 23.5% in the period to£50.9m (2019: £41.2m). Profit before tax
after adjusting items fell against last year
due to the non-cash impairment of
capitalised development costs.
Looking at our end markets, we continued
to see underlying demand within each of
the three main segments for the sector,
namely Advanced Materials,
Semiconductor & Communications andEnergy & Environment, supported by thediverse range of end applications.
Delayed revenues and orders due tocovid-19 disproportionally impacted boththe Semiconductor & Communications
and Advanced Materials sectors forcustomers in Asia and Europe.
Semiconductor & Communications
represented 44% of sales in the sector,
Advanced Materials 37%, with Energy &Environment 14%, and Healthcare &Lifescience 4%, broadly in line with theprevious year.

34

Semiconductor & Communications
remains a significant focus for the sector,
with growth in compound semiconductor
markets offsetting the continued
weakness in demand for our imaging
and analysis systems from silicon
semiconductor and electronics customers
through the year. The global demand forfaster data processing, improved
connectivity and increased efficiency of
power devices has led to growth indemand for our compound semiconductor
etch and deposition process solutions,
underpinned by our market-leading
performance and expertise.
With governments around the world
recognising the critical importance ofconnectivity, there is increasing
investment in developing more capacity
to cope with the growing amount of
information and required communication
bandwidth resulting from developments
such as 5G and device connectivity, as
well as increasing levels of online
activities such as shopping and virtual
meetings. This requires enhanced fibre
optic connectivity in hyperscale data
centres, to enable faster and more
efficient transfer of vast data volumes.
This has driven the demand for next
generation devices for opticaltransmission, detection and dataprocessing which in turn has led toincreased demand for our gallium
arsenide and indium phosphidecompound semiconductor solutions.

These have been specifically tailored toenhance the performance of advanced
optical semiconductor devices, such as
lasers.
The pressing need to find solutions toenable a greener economy is leading toincreased efforts to improve the efficiencyof power conversion devices and the moveto sustainable energy sources. This has
resulted in increased investment in electricvehicles, high efficiency energy conversion
and power delivery systems. This has led
to growing demand within the electricvehicle and industrial power distribution
markets for our silicon carbide (SiC)
processing solutions providing the ability
for batteries to run at higher voltages withsignificantly higher energy efficiency,
enabling faster charging times and longer
mileage range.
In addition, the ability of SiC devices tooperate at higher temperatures reduces
the need for coolants, reducing the size
and weight of batteries and contributing tomore efficient cars. In the year, we further
optimised our SiC processing solutions toprovide higher performance, withincreased yield and reduced
manufacturing cost per wafer.
The demand for improved power
conversion also exists in consumer
devices, although the cost sensitivity ofthis market has driven use of lower costdevices that utilise gallium nitride
compound semiconductors.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

GovernanceOur tailored process solutions for thismarket are being used to produce thelatest USB charging devices, which areenabling significantly faster charging ofmobile phones, tablets and laptops.
We continue to see growth in the
Advanced Materials segment supportedby the drive to develop, control andrepeatably manufacture stronger, lighter,higher performing materials across a
broad range of diverse markets andapplications. These include theincreased use of high-performing alloys
and aluminium components within theaerospace and automotive industries,
which provide more durable, lighter andsafer aircraft and vehicles that are more
fuel efficient and environmentallyfriendly Our market-leading imaging
solutions, which enable themeasurement and characterisationof composition, structure and thin film
characteristics, support our customers
across fundamental research
investigations, applied R&D and quality
control. In addition, the increased
demand for cost‑effective and viable
battery solutions is driving significant
materials science research in this area.
Advanced materials, such as graphene,
are also providing potential solutions forthe provision of clean water, the capture ofcarbon emissions and more robust and

Financial Statements

flexible solar panels. Material purity, thinfilm thickness and reproducibility remain
significant challenges. The ability of our
atomic force microscopes and electron
microscopy imaging solutions provides thenecessary characterisation capabilities toadvance this field-enabling measurement
down to the atomic level. In addition, oursemiconductor processing solutions
provide the capability for customers to
repeatably and controllably deposit theultra-thin layers and coatings of theadvanced materials. The application of
our products across a broad range ofmarkets has more than offset the ongoing
weakness in automotive and steel
production sales within this segment.
We had good growth in the Energy &Environment segment, with applications
across photovoltaics, batteries andforensics. This has included strong growthin sales of our AZtecGSR™ software to theleading forensic laboratories around theworld, supported by the increased speed
and accuracy of our system, and theachievement of industry accreditation in
the year, which allows results to be fully
validated and admissible as evidence incourt.

Company Information

bioimaging. Building on our expertiseand knowledge from the Semiconductor &Communications and Advanced Materials
segments we have developed solutions toenable customers to investigate andcharacterise biological materials. For
example, our video rate AFM is helping
researchers to learn more about thebuilding blocks of life by unlocking the
dynamic behaviour and events at a cellularlevel for those undertaking cancer andvirus research. Our analysers are being
used to look at the micro-particles that
result from general wear and tear on
artificial joint replacements. This is helping
researchers understand how theseparticles impact the tissues around it,
possibly causing inflammation that can
result in tissue death. Studies using our
Ultim™ analyser have sought to understandthe seed and cell structure in plants andhow they can capture and transport air
pollutants, leading to better understandingof allergies such as hay fever.

While still a relatively small proportionof the sector, Healthcare & Lifescience
applications represent an opportunity
for future growth, specifically within

1. N anoscale electricalcharacterisation of asemiconductor device
2. Graphene layers
captured by an atomic
force microscope

Oxford Instruments plc Report and Financial Statements 202035

Operations Review continued

RESEARCH &DISCOVERY

Revenue

Adjusted2 operating profit£126.0m+0.6%£14.5m

+12.4%(2019: £125.2m)-1.1%1(2019: £12.9m)+2.3%1

At constant currency

Adjusted2 operating margin

11.5%(2019: 10.3%)

At constant currency

Operating profit after adjusting items+1.2%+0.4%1£13.3m

+95.6%(2019: £6.8m)

At constant currency

1.

For definition, refer to note on page 2 of highlights.

2.

Details of adjusting items can be found in Note 1 of the condensed Financial Statements.

36

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Page title

The Research & Discovery sector includes
Andor Technology, Magnetic Resonance,
NanoScience and X-Ray Technology. This
sector provides advanced solutions thatcreate unique environments and enable
imaging and analytical measurements
down to the molecular and atomic level,
used predominantly in fundamental andapplied research. We build on our
relationships with customers working on
breakthrough applications in research togain insights and support futurecommercial applications. We havestrong brand recognition and leading
product performance in our chosenmarket segments.
In the second half of the year we soldour minority shareholding in Scienta
Omicron to existing Shareholders fora consideration of SEK 147m (£11.7m).

The sector continued to make good
progress in the second half of the year,
building on a positive first half. However,significant covid-19 related delays to theshipment and installation of systems in
the fourth quarter offset underlying
growth, resulting in revenue broadly inline with the previous year. Despite theimpact to revenue, reported adjusted
operating profit growth of 12.4% to £14.5m(2019: £12.9m) reflected continued gains
from our ongoing operational excellence
programme and improved commercial
practices. This led to improved
profitability for the sector, with operating
margin increasing 120 basis points to
11.5% (2019: 10.3%). From a geographicalperspective, we had good revenue
growth in North America, with covid-19
related delays more than offsetting
underlying growth in Asia; Europe
marginally declined in the year.

Oxford Instruments plc Report and Financial Statements 2020

Reported orders were down 3.4% to£133.5m (2019: £138.2m) but represented
good underlying growth after excluding
the contribution from the prior year’s large
framework order from the Chinese
Academy of Science, which will bedelivered over the next few years.
The delay to shipments and installationsin the year due to covid-19 contributed tostrong growth in the order book for futuredeliveries, which increased by 8.6% to£99.0m (2019: £91.1m).
Our key enabling technologies andproducts within the sector are seeing
increased demand across a broad rangeof commercial applications, leading to
growth in revenue from commercial
customers. Underlying market conditions
and global funding remained positivefrom the academic and Governmentfunded community but reported revenues
declined due to the previously mentioned
covid-19 delays.

37

Operations Review continued
Research & Discovery

As a consequence, the proportion ofrevenue from commercial customers
increased to 35% (2019: 31%).
The positive underlying performance
was supported by demand across a
broad range of end applications for our
portfolio of scientific instruments andcameras, cryogenics, and high magnetic
field platforms. In the year, and in linewith our customer-centric approach,we continued to develop tailoredsolutions for customer-specificapplications. Underlying growth was
further supported by the increased global
initiatives and associated funding acrossQuantum Technology, increased
academic funding into Research &Fundamental Science and theincreasing demand for technology
solutions that drive improvements
across Healthcare & Lifescience.

38

Healthcare & Lifescience remains asignificant focus for the sector, withrevenue broadly in line with the previous
year, representing 39% of the sector. The
continued drive to improve the health andwellbeing of society is leading to theincreased development of more accuratemeans of disease detection, improved
understanding of how the body fights
diseases and the development of
personalised medicine and treatment
plans. The market-leading sensitivity of
our scientific cameras, and theperformance of our X-ray tube and laser
systems, have supported advances in thisarea and have led to increased demandacross a broad range of applications
including gene sequencing, diagnostic
testing, drug discovery and cancer
research. This has included direct sales
to end customers as well as the supplyof our key enabling technologies to our
OEM partners. These products have been
critical in the global response to thecovid-19 pandemic and are being used
to study the virus, determining its
fundamental structure, gene sequencing,mutations, developing potential vaccines
and treatments, as well as within
diagnostic testing equipment. Whenevernecessary, we increased our capacityand prioritised the shipment of products
for these applications to support the
global fight against covid-19.

Improved microscopy techniques withincreased resolution and the ability tointerrogate and interpret large data setsare providing new insights, improved
fundamental understanding andtreatments across many applications,
including cancer research andneurological disorders such as
Parkinson’s and Alzheimer’s. Thishas driven increased demand for ouradvanced visualisation and data
analysis software as we continue to
add application-specific capabilities.
However, sales of our microscopy
systems declined in the period against
a strong comparator and increased
competitor activity.
We had strong revenue growth inQuantum Technology, representing
17% of the sector, with governments andcorporates increasing investments todevelop quantum computing, securecommunication, advanced sensors andquantum imaging capabilities. Our
cryogenic platforms, high-field magnet
systems and scientific cameras are criticalcomponents in the advancement of boththe fundamental science and commercial
applications.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

GovernanceIn the second half of the year welaunched a new cryogenic platform withimproved performance that enables
higher productivity and measurement
capability supporting the development ofpractical quantum computers. In addition,
the requirement to detect and measureindividual photons has led to increased
demand for our tailored scientificcameras, which we have optimised forthese applications.
Within Research & Fundamental Science,increased academic interest andassociated international funding drovestrong underlying revenue growth across
our portfolio of scientific instruments,
cryogenics and high-field magnetic
platforms. This included the deliveryof several advanced systems into theworld’s leading academic institutions.

Financial Statements

The proportion of revenue from this sector
represents 27%, up on the previous year.
Increased investment in astronomy isdriven by the exploration of the universe,
the tracking of space debris to enable thesafe operation of billion-dollar satellites
and monitoring solar activity to predict
interruptions and to protect the securityof satellite and earth-based
communications. This has led toincreased demand for our specificallydesigned, higher performing scientificcameras with increased value. As an
example, during the year, astronomers in
Hawaii took the most detailed images
ever recorded of the sun’s surface using
our Balor™ camera, which we launched in
the first half of the year, whose uniquefeatures include the ability to capture amuch larger area of the sky withimproved resolution and stability.

Company Information

Our customers within the Advanced
Materials segment utilise these same
products and solutions in thedevelopment and characterisation of next
generation materials such as graphene
and represent 8% of revenue in the sector.
The Energy & Environment segment
represents 6% of revenue. Our benchtop
magnetic resonance analysers havebenefited from growth within the food
manufacturing market. Due to themethod’s superior accuracy in measuring
fat levels in snack foods, our benchtop
analyser is becoming the technology ofchoice, with precision becoming
important for accurate food labelling,
quality control and consistency between
batches. Revenue growth in the period
was offset by ongoing weakness in the oilmarket, leading to a reduction in sales of
our Rock Core oil analysers.

1. Market leading scientificcamera imaging
biological samples
2. Benchtop NMR analyser
with robotic sample
automation

Oxford Instruments plc Report and Financial Statements 202039

Operations Review continued

SERVICE &HEALTHCARE

Revenue

Adjusted2 operating profit£53.8m

+5.7%£15.0m(2019: £50.9m)+3.7%1(2019: £13.6m)

At constant currency

Adjusted2 operating margin

27.9%(2019: 26.7%)+10.3%+5.1%1

At constant currency

Operating profit after adjusting items+1.2%+0.4%1£15.0m+10.3%(2019: £13.6m)

At constant currency

1.

For definition, refer to note on page 2 of highlights.

2.

Details of adjusting items can be found in Note 1 of the condensed Financial Statements.

40

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

The Service & Healthcare sector
comprises the Group’s maintenanceservice contracts, billable repairs, training
and support services, and spare partsales related to Oxford Instruments’ own
products; and the support and service ofthird-party MRI scanners in Japan.
In the second half of the year we divested
the OI Healthcare business with
operations within North America. This has
been treated as a discontinued business,along with comparative numbers. Ourcontract to support and service MRI
systems within Japan remains within theGroup, with performance in line with theprevious year.
During the year, as a key focus of our
Horizon strategy, we initiated thetransformation of our customer service
approach by reviewing the way in which we
provide support to our customers as well as
expanding the breadth of service productofferings and capabilities. To aid thedevelopment of future service offerings

Financial Statements

and application-specific tailored products,
we have embedded the requirements ofdesign for service within our new productdevelopment management process.
This has included taking a customer-centric
approach, providing tailored service
products for dedicated end‑market
applications. Our new approach has led toincreased demand for services related toour own products, supporting strong orderand revenue growth and contributed to
improved profitability in the period.
As part of the transformation we arereorganising the resources across ourbusiness units and regions, better
leveraging our scale to provide better
response times for customers, improve
our efficiencies and increase our global
presence. This further contributed to
improved margins from the services
related to our own products.
The transformation has enabled us toincrease the added value that we bring toour customers by focusing on helping

Oxford Instruments plc Report and Financial Statements 2020

Company Information

them improve their capabilities,
knowledge and productivity. This has
included the provision of tailoredmaintenance contracts and upgrades,
training programmes and remote support
from our knowledgeable experts.
We have increased the productivity of ourcustomers through the development andutilisation of remote servicing and Live
Assist capabilities, enabling augmented
reality service support to help withdiagnostics and system repairs.
In addition to providing increased
efficiencies across our service teams,
reducing our carbon footprint andimproving customer response times, wehave found this invaluable in supporting
our customers during the covid-19 related
business and travel disruption.
Whilst at the early stages of thistransformation, we can see a goodpipeline of opportunities to further
support our customers and increase
our productivity.
41

Finance Review
Despite disruption during a busy period, ourfull-year financial outcomes were broadly
consistent with last year.

In January 2020, the Group disposed ofits minority equity stake in the Scienta
Omicron joint venture to existing
Shareholders. In the following month,the Group completed the disposal of its
OI Healthcare business in the US. For the
purposes of current and comparative
reporting, OI Healthcare has been
reclassified as a discontinued operation.

Gavin Hill
Group Finance Director

The Group was impacted by covid-19
towards the latter stages of the financial
year. Approximately two weeks’equivalent product shipments andinstallations were delayed; these are
expected to unwind during the firstquarter of the 2020/21 financial year
depending on the reopening of customer
sites and easing of travel restrictions.
Despite disruption during a busy period
for our businesses, our full-year financial
outcomes were broadly consistent withlast year. In addition, good operating cash
flow, combined with proceeds frombusiness disposals, contributed to ahealthy net cash position at year end.
This, along with proactive cash-saving
actions, provides resilience for the Groupto weather the economic turbulence asa result of covid-19.
Reported orders increased by 0.3% to£336.0m (2019: £335.1m), a decrease of
1.3% at constant currency. At the end of
the period, the Group’s order book for
future deliveries stood at £175.0m(31 March 2019: £153.2m). The order bookgrew 14.2% on a reported basis and 12.1%
at constant currency.
Reported revenue on a continuing basis
increased by 1.1% to £317.4m (2019:£314.0m). Revenue from continuing
operations, excluding currency effects,
declined by 0.7%, with the movement inaverage currency exchange rates over
the year increasing reported revenue by£5.5m.

42

Adjusted operating profit from continuing
operations increased by 5.9% to £50.5m(2019: £47.7m). Adjusted operating profit,
excluding currency effects, decreased by
1.0%. Adjusted operating margin fromcontinuing operations increased by
70 basis points to 15.9% (2019: 15.2%).
Excluding currency effects, adjusted
operating margin fell by 10 basis points
to 15.1%.
Operating profit of £39.8m (2019: £37.4m)
grew by 6.4%.
Adjusted profit before tax from continuing
operations grew by 8.8% to £49.5m (2019:£45.5m), representing a margin of 15.6%(2019: 14.5%).
Amortisation of acquired intangibles
was £8.7m and the business incurred acharge of £1.4m relating to the movementin the mark-to-market valuation of
uncrystallised currency hedges for futureyears. A charge of £0.6m on net adjusting
items comprises a £6.5m gain on thedisposal of Scienta Omicron and a creditof £0.6m on the termination of the US
defined benefit pension scheme, offset by
an impairment of intangible development
costs of £7.1m and a one-off inventory
write‑down and small restructuring costof £0.6m.
After adjusting items, the Group recorded
an operating profit of £39.8m (2019:£37.4m) and profit before tax of £38.8m(2019: £34.3m).
Continuing adjusted basic earnings per
share grew by 12.7% to 70.2p (2019: 62.3p).
Continuing basic earnings per share were
55.9p (2019: 48.6p), growth of 15.0%.
Cash generated from operations of£62.3m (2019: £53.0m) represents 124%
(2019: 100%) cash conversion. Net cash
increased from £6.7m on 31 March 2019to £67.5m, aided by good operating cash
flow and proceeds from disposalsof £20.4m. Net cash at the end of
May 2020 had increased to £70.0m.

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Governance

Revenue£317.4m

Financial Statements

Company Information

Adjusted operating profit+1.1% £50.5m(2019: £314.0m)+5.9%(2019: £47.7m)

At the end of March, our revolving credit facility remained undrawn, leaving approximately £105m of committed facilities.
This represents total headroom of about £200m. The Group has outstanding private placement loan notes of £27.9m, which matureon 31 March 2021, at which point headroom will fall to £172m.
Adjusted operating profit is stated before amortisation of acquired intangibles, restructuring costs, the mark-to-market valuation of
unexpired currency hedges, and other adjusting items, as set out in Note 1 to the Financial Statements.
Under the rules for audit tendering and rotation implemented in 2016, the Group is required to replace our current auditor, KPMG
LLP, no later than 31 March 2021, effective for the 31 March 2022 year end. Following a comprehensive and thorough competitive
tender process for the audit in the first quarter of 2020, BDO were appointed as auditor, effective for the 31 March 2021 year end.
This appointment will be subject to Shareholder approval at the next AGM to be held in September 2020.

Income Statement
The Group’s Income Statement is summarised below.
Year ended
31 March 2020£m

Year ended
31 March 2019£m

ChangeRevenue

317.4

314.0

+1.1%

Adjusted gross profit

158.8

159.3

(0.3%)

Administrative expenses(109.0)(110.6)

Share of profit of associate

0.7

0.2

Foreign exchange

—

(1.2)

Adjusted operating profit

50.5

47.7

Net finance costs

(1.0)

(2.2)

Adjusted profit before tax

49.5

45.5

+5.9%

+8.8%

Amortisation of acquired intangibles

(8.7)

(8.8)

Non-recurring items

(0.6)

(0.9)

Mark-to-market of currency hedges

(1.4)

(1.5)

Profit before tax

38.8

34.3

Tax from continuing operations

(6.8)

(6.5)

Profit for the period from continuing operations

32.0

27.8

Profit from discontinued operations after tax

1.8

2.2

Adjusted effective tax rate1

18.8%

21.8%

Continuing adjusted earnings per share – basic

70.2p

62.3p

+12.7%

Continuing earnings per share – basic

55.9p

48.6p

+15.0%

Continuing adjusted earnings per share – diluted

69.5p

61.7p

+12.6%

Continuing earnings per share – diluted

55.3p

48.2p

+14.7%—

14.4p

Dividend per share1.

+13.1%

The adjusted effective tax rate is calculated excluding amortisation of acquired intangibles, the mark-to-market of financial derivatives, and other adjusting items.

Oxford Instruments plc Report and Financial Statements 202043

Finance Review continued
Income Statement continued
Orders and revenue
Total reported orders grew by 0.3% (a decline of 1.3% at constant currency) to £336.0m. Orders, at constant currency, wereflat for Materials & Characterisation, declined by 5.1% for Research & Discovery and grew by 4.7% for Service & Healthcare.
In the comparative period, orders included a large £11.0m order from the Institute of Physics – Chinese Academy of Sciences(IOP‑CAS). Excluding the impact of this order, the Group and our Research & Discovery segment have seen modest constantcurrency order growth.
Reported revenue of £317.4m (2019: £314.0m) increased by 1.1% (a decline of 0.7% at constant currency). Reported revenue wasbroadly flat for Materials & Characterisation, increasing by 0.6% for Research & Discovery and 5.7% for Service & Healthcare.
Customer disruption from covid-19 meant that we were unable to complete a significant number of product shipments andinstallations in the final quarter, with approximately two weeks’ equivalent revenue being delayed to the following financial year.
In the absence of this disruption the Group would have achieved modest constant currency growth.
The book-to-bill ratio (orders received to goods and services billed in the period) for the year was 1.06.
Revenue, at constant currency, declined by 1.9% for Materials & Characterisation due to several of Plasma Technology’s productshipments, along with a smaller number of Asylum Research’s shipments, being delayed due to the closure of customer sites.
A constant currency decline of 1.1% in Research & Discovery was also impacted by being unable to complete high value productinstallations in Asia ahead of the year end owing to customer site closures and travel constraints on service personnel.
Service & Healthcare constant currency revenue grew by 3.7%, with good growth from the service of our own products.
On a geographical basis, at constant currency, revenue grew by 4.7% in Europe, 3.0% in North America, and a decline of 6.5% in Asia,with the Rest of World growing by 17.0%. The covid-19 disruption to trading was most prevalent in Asia during the fourth quarter ofthe year.
The total reported order book grew by 14.2% (12.1% at constant currency). The order book, at constant currency, compared to
31 March 2019, increased by 20.1% for Materials & Characterisation, 7.4% for Research & Discovery and 16.6% for Service &Healthcare. This good growth has been supported by revenue not recognised in the year owing to delayed shipments andinstallations.
Materials &Characterisation

Research &Discovery

Service &Healthcare

Total

Revenue1: 2018/19

137.9

125.2

50.9

314.0

Underlying movement

(2.6)

(1.4)

1.9

(2.1)

Foreign exchange

2.3

2.2

1.0

5.5

Revenue : 2019/20

137.6

126.0

53.8

317.4

Revenue growth: reported(0.2%)

+0.6%

+5.7%

+1.1%

Revenue growth: constant currency(1.9%)(1.1%)+3.7%(0.7%)£m

1

1.

From continuing operations.

Adjusted gross profit
Adjusted gross profit was broadly flat at £158.8m (2019: £159.3m), representing a gross profit margin of 50.0%, a decline of 70 basis
points over last year.

Adjusted operating profit
Adjusted operating profit from continuing operations increased by 5.9% to £50.5m (2019: £47.7m), representing an adjusted operating
profit margin of 15.9%, an increase of 70 basis points against last year. At constant currency, the adjusted operating profit margin
was 15.1%, a decrease of 10 basis points. Lower contribution recognised in the year on delayed product shipments and installations
from covid-19 has offset underlying margin improvement from our operational excellence and other Horizon programmes,
depressing the full-year operating margin.
Materials & Characterisation margin declined by 10 basis points to 15.3% (2019: 15.4%) with Plasma Technology’s and Asylum
Research’s margins negatively impacted by shipment delays from customer site closures. At constant currency, the margin was
14.6%, a decline of 80 basis points.
Research & Discovery’s adjusted operating margin increased to 11.5% (2019: 10.3%), growth of 120 basis points. At constant currency,
the margin was 10.7%, an increase of 40 basis points. Margin growth was held back by being unable to complete the installation ofsome significant complex magnet and cryogenic systems owing to site closures and travel restrictions for our service personnel.

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Financial Statements

Company Information

Service & Healthcare margin increased by 120 basis points to 27.9% (2019: 26.7%). At constant currency, the margin was 27.1%,
an increase of 40 basis points owing to our focus on improving service revenue on our own products.
Our share of the Scienta Omicron joint venture prior to the sale of our equity shareholding showed an adjusted profit after tax
of £0.7m for the year, against a profit of £0.2m for the comparative period.
Currency effects (including the impact of transactional currency hedging) have increased reported adjusted operating profit
by £3.3m when compared to blended hedged exchange rates for the comparative period.
Materials &Characterisation

Research &Discovery

Service &Healthcare

Total

Adjusted operating profit1: 2018/19

21.2

12.9

13.6

47.7

Underlying movement

(1.6)

0.3

0.8

(0.5)

Foreign exchange

1.4

1.3

0.6

3.3

Adjusted operating profit : 2019/20

21.0

14.5

15.0

50.5

Margin: 2018/19

15.4%

10.3%

26.7%

15.2%

Margin: 2019/20

15.3%

11.5%

27.9%

15.9%

£m

1

1.

From continuing operations.

Adjusting items
Amortisation of acquired intangibles of £8.7m relates to intangible assets recognised on acquisitions, being the value of technology,
customer relationships and brands.
Non-recurring items were a net charge of £0.6m. The sale of our shareholding in Scienta Omicron realised a gain of £6.5m. In
addition, an accounting credit of £0.6m arose from the termination of the US defined benefit pension scheme, which was completed
prior to the end of the year. The impact of covid-19 is, in the short term, expected to reduce some order opportunities across ourbusiness segments. In addition, we have reviewed our development intangible assets to ensure they remain directly related totargeted product or software developments. As a result, we have impaired intangible development assets, realising a charge of£7.1m. The majority of the non-cash impairment relates to our Materials & Characterisation segment; comprising softwareintangibles in Asylum Research, historical balances on general process development in Plasma Technology and productdevelopment in NanoAnalysis that has been affected by a reduction in orders as a result of covid-19. This results in a large reductionin the segment’s operating profit after adjusting items compared to last year. The remaining charge of £0.6m is attributable to a
one-off write-down of inventory built up over time ahead of an in-year implementation of a new ERP system in X-Ray Technology,
as well as a small restructuring cost within our magnet and cryogenics business.
The Group uses derivative products to hedge its short-term exposure to fluctuations in foreign exchange rates. It is Group policy tohave in place at the beginning of the financial year hedging instruments to cover 80% of its forecast transactional exposure for thatyear. The Group has decided that the additional costs of meeting the extensive documentation requirements of IFRS 9 to apply
hedge accounting to these foreign exchange hedges cannot be justified. Accordingly, the Group does not use hedge accounting forthese derivatives.
Net movements on mark-to-market derivatives in respect of transactional currency exposures of the Group in future periods aredisclosed in the Income Statement as foreign exchange and excluded from our calculation of adjusted profit before tax. In thecurrent year this amounted to a charge of £1.4m (2019: £1.5m charge). The year-end liability primarily reflects an uncrystallised
loss arising from a fall in the value of Sterling at the balance sheet date against a blended rate achieved on US Dollar, Euro andJapanese Yen forward contracts that will mature over the next twelve months.

Net finance costs
The Group’s adjusted net finance costs fell by £1.2m to £1.0m (2019: £2.2m) with net finance charges falling by £0.9m to £1.0m,
supported by a refund of overpaid interest for previous years of £0.4m, and pension finance charges falling by £0.3m to zero,reflecting the movement from a net asset pension deficit as at 31 March 2019 to an asset at 31 March 2020.

Profit before tax
Continuing adjusted profit before tax increased by 8.8% to £49.5m (2019: £45.5m). The adjusted profit before tax margin of 15.6%(2019: 14.5%) was above last year due to an increase in the adjusted operating margin and lower net finance costs.
Continuing profit before tax of £38.8m (2019: £34.3m) is after the mark-to-market movement on derivative financial instruments,
amortisation of acquired intangibles and other adjusting items.

Oxford Instruments plc Report and Financial Statements 202045

Finance Review continued
Income Statement continued
Tax
The adjusted tax charge from continuing operations of £9.3m (2019: £9.9m) represents an effective tax rate of 18.8% (2018: 21.8%),
the reduction reflecting provisions made in the comparative period and a change in the geographical mix of profits earned.

Earnings per share
Continuing adjusted basic earnings per share increased by 12.7% to 70.2p (2019: 62.3p); continuing adjusted diluted earnings per
share grew by 12.6% to 69.5p (2019: 61.7p). Continuing basic earnings per share increased by 15.0% to 55.9p (2019: 48.6p); continuing
diluted earnings per share grew by 14.7% to 55.3p (2019: 48.2p).
The number of undiluted weighted average shares increased marginally to 57.3m.

Foreign exchange
The Group faces transactional and translational currency exposure, most notably against the US Dollar, Euro and Japanese Yen.
For the year, approximately 15% of Group revenue was denominated in Sterling, 52% in US Dollars, 20% in Euros, 11% in Japanese
Yen and 2% in other currencies. Translational exposures arise on the consolidation of overseas company results into Sterling.
Transactional exposures arise where the currency of sale or purchase transactions differs from the functional currency in which
each company prepares its local accounts.
The Group maintains a hedging programme against its net transactional exposure using internal projections of currency tradingtransactions expected to arise over a period extending from 12 to 24 months. As at 31 March 2019, the Group had currency hedges
in place extending up to 14 months forward.
For the full year 2020/21, our assessment of the currency impact is, based on hedges currently in place and spot rates prevailing as
at 31 March 2020, a tailwind of approximately £6.0m to revenue and £2.0m to adjusted operating profit. As an example sensitivity, if
we assume a 5% appreciation of Sterling against our major trading currencies, then the impact is a reduction in revenue of £9.0m
and adjusted operating profit of £1.5m. Uncertain volume and timing of shipments and acceptances, currency mix and FX volatility
may significantly affect full-year currency effects.

Disposal of OI Healthcare – discontinued operations
On 24 February 2020, the Group sold the OI Healthcare business in the US to MXR Imaging, Inc, for a consideration of $14.9m(£11.5m). The business has been treated as a discontinued operation. An adjusted loss of £0.5m after taxation has been recorded
under discontinued operations (2019: profit of £1.5m).

Disposal of Scienta Omicron
On 29 January 2020, the Group sold its 47% share in Scienta Omicron to a group of existing Shareholders in the joint venture for aconsideration of SEK 147m (£11.7m). The Group has recorded a gain of £6.5m on the disposal; this has been treated as anon‑recurring item. During the year, the Group recorded a profit of £0.7m (2019: £0.2m) within adjusted operating profit.

Dividend
The Group’s policy is to increase the dividend each year in line with the increase in underlying earnings, considering movements
in currency. Following the high uncertainty created by the impact of covid-19, the Group suspended the payment of the interim
dividend of 4.1p per share, which was due to be paid on 14 April 2020. As a result of continued uncertainty, the Board will defer adecision on payment of dividends until we have fully assessed the outcome of disruption caused by covid-19 on our markets andtrading performance.

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Financial Statements

Company Information

Cash flow
The Group cash flow is summarised below.
Year ended
31 March 2020£m

Year ended
31 March 2019£m

Adjusted operating profit

50.5

47.7

Depreciation and amortisation

9.9

9.5

Adjusted EBITDA

60.4

57.2

Working capital movement

10.1

2.8

Loss on disposal of property, plant and equipment—

0.2

Equity settled share schemes

3.1

0.8

Share of profit from associate

(0.7)

(0.2)

Business reorganisation items

(0.6)

(0.7)

Pension scheme payments above charge to operating profit(10.0)(7.1)

Cash generated from operations

62.3

53.0

Interest

(1.0)

(3.2)

Tax

(6.1)

(8.7)

Capitalised development expenditure

(2.8)

(3.5)

Expenditure on tangible and intangible assets

(4.3)

(7.1)

Proceeds from sale of associate

11.7

—

Decrease in long-term receivables

1.4

1.1

Dividends paid

(8.2)

(7.6)

Proceeds from issue of share capital and exercise of share options

0.7

0.2

Payments made in respect of lease liabilities

(3.3)

(2.7)

Decrease in borrowings(0.6)(11.5)Net increase in cash and cash equivalents from continuing operations

49.8

10.0

Note: Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation of acquired intangibles, mark-to-market of financial derivatives, business reorganisation
items costs and other adjusting items.

Cash generated from operations
Cash generated from operations of £62.3m (2019: £53.0m) represents 124% (2019: 100%) cash conversion. Cash conversion is definedas cash generated from operations before non-recurring items and pension scheme payments, less capitalised development
expenditure, capital expenditure and payments made in respect of finance leases/adjusted operating profit.
Working capital fell by £10.1m. Inventories rose by £2.3m with additional finished goods due to shipments held over the year end
following closure of customer sites. Receivables declined by £3.3m and payables and customer deposits increased by £9.1m,
supported by our commercial focus on improving the percentage of deposits on long lead time products.
The increase in the cost of equity settled share schemes is due to a catch-up charge relating to a correction in the valuation ofmanagement share option incentive schemes.

PensionPension costs of £10.0m included a payment of $3.4m (£2.8m) to the US defined benefit pension scheme as full and final settlementof termination liabilities.

Interest
Net interest paid was £1.0m (2019: £3.2m). The comparative period includes a loan note make-whole of £0.9m. The remaining
reduction reflects lower financing costs as the business increased its net cash position, combined with receipt of overpaid interest
relating to previous years.

Oxford Instruments plc Report and Financial Statements 202047

Finance Review continued
Cash flow continued
Tax
Tax paid was £6.1m (2019: £8.7m), with cash tax in the year benefiting from one-off refunds on closure of prior year tax returns.

Investment in Research and Development (R&D)
Total cash spend on R&D in the year was £26.8m, equivalent to 8.4% of sales (2019: £24.8m, 7.9% of sales). A reconciliation between
the adjusted amounts charged to the Income Statement and the cash spent is given below:

R&D expense charged to the Income Statement
Depreciation of R&D-related fixed assets

Year ended
31 March 2020£m

Year ended
31 March 2019
£m

26.6

24.8

—

(0.1)

Amounts capitalised as fixed assets

0.1

0.1

Amortisation and impairment of R&D costs capitalised as intangibles

(2.7)

(3.5)

Amounts capitalised as intangible assets

2.8

3.5

Total cash spent on R&D during the year

26.8

24.8

Net debt and funding
Net debt
Good cash generation in the year, combined with disposal receipts, substantially increased the Group’s net cash position from £6.7m
to £67.5m. Cash generated from operations was £62.3m (2019: £53.0m). Proceeds from disposals were £20.4m. The Group invested incapitalised development costs of £2.8m and tangible and intangible assets of £4.3m.
Movement in net debt£m

Net cash as at 31 March 2019

6.7

Cash generated from operations

62.3

Interest

(1.0)

Tax

(6.1)

Capitalised development expenditure(2.8)

Capital expenditure on tangible and intangible assets(4.3)

Disposal of subsidiary and associate

20.4

Dividends paid

(8.2)

Other items

0.5

Net cash as at 31 March 2020

67.5

Funding
On 2 July 2018, the Group entered into a new unsecured multi-currency revolving facility agreement, which is committed until
June 2023 with one-year extension options at the end of the first and second years. The facility has been entered into with twobanks and comprises a Euro-denominated multi-currency facility of €50.0m and a US Dollar-denominated multi-currency facilityof $80.0m.
We are in discussions to extend the facility by one year to June 2024, with an option to request an extension for a further year in one
year’s time.
The Group has outstanding bilateral private placement notes of £27.9m which mature on 31 March 2021.
Debt covenants are net debt to EBITDA less than 3.0 times and EBITDA to interest greater than 4.0 times. As at 31 March 2020 thebusiness had net cash.

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Pensions
The Group has defined benefit pension schemes in the UK and US. Both have been closed to new entrants since 2001 and closed
to future accrual from 2010.
At 31 March 2020, the net asset arising from our defined benefit pension scheme obligations was £30.7m (31 March 2019: liabilityof £6.5m). The move from a deficit to surplus was attributable to scheme assets rising by more than liabilities due to respective
changes in gilt and corporate bond yields on hedged assets and scheme liabilities respectively. Total scheme assets at
31 March 2020 were £321.4m (31 March 2019: £311.4m) while liabilities were £290.7m (31 March 2019: £317.9m).
As at 31 March 2020, the UK defined benefit pension liability includes an allowance of £0.3m for the expected cost of equalising
Guaranteed Minimum Pension between males and females.
We have completed the process to terminate the US defined benefit pension scheme. This has extinguished all liabilities of thescheme. The cash cost of termination was $3.4m (£2.8m) with all payments having been made during the year in full and final
settlement of the scheme’s liabilities.

Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set
out in the Performance, Strategy and Operations sections. The financial position of the Group, its cash flows, liquidity position andborrowing facilities are described in the Finance Review.
In light of the global health crisis around the outbreak of covid-19, the future performance of the Group is anticipated to be affected,
but it remains too early to assess the impact the unfolding situation will have on trading for the year ahead. The Group has therefore
prepared and reviewed a number of scenarios for the Group based on varying degrees of disruption caused by covid-19 on orders,trading and cash flow performance. In addition, the Group has overlaid the risk of long-term adverse movements in foreignexchange rates to our cash flow forecasts. The Board is satisfied, having considered the sensitivity analysis, as well as its funding
facilities, that the Group has adequate resources to continue in operational existence for the foreseeable future.

Forward-looking statements
This document contains certain forward-looking statements. The forward-looking statements reflect the knowledge andinformation available to the Company during the preparation and up to the publication of this document. By their very nature, thesestatements depend upon circumstances and relate to events that may occur in the future, thereby involving a degree of uncertainty.
Therefore, nothing in this document should be construed as a profit forecast by the Company.

Gavin Hill
Group Finance Director
9 June 2020

Oxford Instruments plc Report and Financial Statements 2020

49

Risk Management
Principal risks and uncertainties
The effective management of risk contributes significantly to thesuccessful delivery of the Group’s strategic plans and objectives.
Therefore, risk management is an essential element of ourregular management activities at a Group and business unit
level. The work performed at the operating business units iscomplemented by the Group risk management function toprovide assistance and challenge where required. It also
provides the link to the Audit and Risk Committee throughreporting the Group risk register, which is prepared on aquarterly basis.
The general methodology for risk management has remained
consistent with last year, although in response to covid-19, theMarch 2020 risk register was focused primarily on risks related
to the pandemic and the business units’ responses thereto.
Operating business units provide granular reports covering their
key external and internal risks relating to markets, operations
and processes. These reports are provided to Group risk
management on a quarterly basis and provide the starting point
for the Group risk register. The reports are standardised andinclude the likelihood of a risk materialising, and both a grossand net risk score. The residual risk score is used to classify therisks as low, moderate, high or significant. Group-wide risks areadded to the key business units’ risks to prepare the Group risk
register. For risks that require ongoing mitigating actions, a riskowner is assigned and action plans are reviewed as part of therisk reporting process.
Risk management at the business unit level forms an integral
part of the senior management team’s agenda. At Group level,
either the Group Finance Director or the Chief Executive review
and approve the quarterly update to the Group risk register in
conjunction with Group head of risk and assurance, prior to it
being reported to the Audit and Risk Committee.

Specific uncertainty 1:
Impact of covid-19
Context: Covid-19 has caused global disruption and there isconsiderable uncertainty relating to the short-term impact on
customers, markets and operations. In the short term, the Groupis taking pragmatic steps to maintain liquidity and capability sothat it is best placed to respond to the new paradigm. The
Group will continue with the customer-centric approach that isa key pillar of the Horizon strategy to focus on growth markets.

Risk factor/uncertainty•

Fall in demand due to reduced funding for academic customers
in key markets/deferral of capex for industrial customers•

Short-term supply chain disruption•

Workforce disruption in production•

Ongoing travel restrictions for service personnel

Possible impact•

Short-term reduction in sales volumes and contribution•

Potentially unable to meet delivery deadlines/reduction incapacity•

Installations and onsite service activities disrupted•

Negative cash flow/liquidity risk

Management actions•

Customer intimacy•

Working closely with key supplier base•

Safe ways of working and changes to shift patterns to maximise
capacity•

Remote service activities•

Iterative financing review and review of cost base

Mitigation•

Sales and operational planning process•

Contractual protection•

Strategic procurement, working with supply chain to mitigate risk•

Strong balance sheet and options for external funding

Change in the year:
NEW

50

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Specific risk 1:
Routes to market

Specific risk 2:
Technical risk

Specific risk 3:
Supply chain risk

Context: In some instances, theGroup’s products are components ofhigher‑level systems sold by OEMs,and thus the Group does not control
its route to market.

Context: The Group provides hightechnology equipment, systems andservices to its customers.

Context: The Group operates a
strategic “make or buy” policy whichplaces reliance on key partners,
notably single-source suppliers, interms of pricing and on-time delivery.

Risk

Risk

Risk

•

Vertical integration by OEMs

Possible impact•

Loss of key customers/routes to market•

Reduction in sales volumes and/or
pricing and lower profitability

Control mechanisms•

Customer intimacy to match productperformance to customer needs•

Positioning of the Oxford Instruments
brand and marketing directly to end users

Mitigation•

Strategic relationships with OEMs to sell
performance of combined systems•

Product differentiation to promoteadvantages of Oxford Instruments’equipment and solutions•

Direct marketing to end users

Change in the year:•

Failure of the advanced technologies
applied by the Group to produce
commercially viable products

Possible impact•

Loss of market share or negative pricing
pressure resulting in lower turnover andreduced profitability•

Additional NPI expenditure•

Adverse impact on the Group’s brandand reputation

Control mechanisms•“Voice of the Customer” approach andmarket intimacy to direct productdevelopment activities•

Formal NPI processes to prioritise
investment and to manage R&D
expenditure•

Product lifecycle management

Mitigation•

Understanding customer needs/
expectations and targeted new productdevelopment programme to maintainand strengthen product positioning•

Stage gate process in productdevelopment to challenge commercial
business case and mitigate technical risks•

Operational practices aroundsales‑production matching andinventory management to mitigate
stock obsolescence risks

Change in the year:

Oxford Instruments plc Report and Financial Statements 2020•

Operational disruption, due to supply
chain shortages•

Change of ownership resulting in lossof supply•Long-term availability of key components

Possible impact•

Reduction or halt to production output•

Lost revenue•

Decreased margins•

Increased lead times•

Poor customer service•

Increased inventory leading to cash
flow reduction•

Negative impact on quality

Control mechanisms•

Group consolidated risk database + sales
and operational planning process•

Proactive management of key suppliers•

Focused efforts on higher risk suppliers
identified•

Long-term contracts with key suppliers

Mitigation•

Long-term demand planning•

Buffer stock in extended supply chain•

Relationship management with key
suppliers•

Responsive and adaptive engineeringchange process

Change in the year:51

Risk Management continued
Specific risk 4:
Political risk

Specific risk 5:
Brexit-related risks

Specific risk 6:
IT risk

Context: The Group operates in global
markets and can be required to secure
export licences from governments.

Context: The transition period to leave
the EU is scheduled to end on
31 December 2020 and there is noclarity on future trading arrangementswith the EU.

Context: Elements of production,
financial and other systems relyon IT availability.

Risk

Risk

Risk

•

Changes in the geopolitical landscape ora global trade war resulting in a complete
embargo on trade with specific nations,barriers to trade with individual customers,
or significant increases in tariffs

Possible impact•

Supply chain disruption••

Lower participation in EU‑funded
research projects

Cyber-attack on the Group’s IT
infrastructure••

End to free movement of goods andservices in the EU

Ransomware/spread of viruses
or malware•

Insider threat•

Tariffs on exports to EU from the UK andvice versa•

UK becomes less attractive to EU
nationals•

Volatility in foreign currency rates

Possible impact

Possible impact•

Lower export volumes or net pricing to
key markets adversely affecting turnover•

Delays to production and revenue
generation•

System failure/data loss and disruption
to business as usual operations•

Increases to input costs and lower
gross margins•

Lower sales and profitability•

Loss of business-critical data•

Lower net pricing on UK exports to EU
and cost increases on products sourced
from the EU•

Financial and reputational damage•

Loss of key skills•

Volatility in earnings•

Limitations on ability to provide
after-sales service to existing customers

Control mechanisms•

Contract review and protection against
breach should export licences be withheld

Mitigation•

Broad global customer base; contractual
protection

Change in the year:

52

Control mechanisms

Control mechanisms•

Sales and operational planning process•

Customer intimacy and monitoring offunded projects•

Strategic sourcing programme•

Product pricing reviews•

Skills and capabilities reviews•

Treasury management

Mitigation

Suite of IT protection mechanisms
including penetration testing, regular
backups, virtual machines, and cyberreviews•

Internal IT governance to maintainprotection systems and our incident
response•

Employee awareness training

Mitigation•

Existing stock of raw materials and workin progress•Market diversification•

Long‑term pricing agreements for key
suppliers and strategic sourcing•

Pricing strategy•

Renewal of UK work permit scheme

Change in the year:••

Managed service with third-party
security specialists providing
incident monitoring•

Regular review, monitoring and testingof key security measures to assess
adequacy of protection against
known threats•

End user education and phishing
simulation exercises

Change in the year:

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Specific risk 7:
Legal/compliance risk

Specific risk 8: Adverse
movements in long-term
foreign currency rates

Specific risk 9:PeopleContext: The Group operates in acomplex regulatory and technologicalenvironment. The Group may attimes experience unintentional
non‑conformance with regulations
and competitors may seek to protect
their position through intellectual
property rights.

Context: A high proportion of theGroup’s revenue is in foreign
currencies, notably US Dollars, while
the cost base is predominantly
denominated in Sterling.

Context: A number of the Group’s
employees have business-criticalskills.

Risk

Risk

Risk

•

Infringement of a third party’s intellectual
property•

Regulatory breachPossible impact•

Long-term strengthening of Sterling
against key currencies such as the US
Dollar, Japanese Yen and the Euro

Possible impact

Key employees leave and effective
replacements are not recruited on atimely basis

Possible impact•

Potential loss of future revenue•

Adverse impact on NPI•

Future royalty payments•

Operational disruption•

Payment of damages•

Lower sales and profitability•

Fines and non-financial sanctions such as
restrictions on trade, disbarment frompublic procurement contracts•

Reputational damage

Control mechanisms•

Formal “Freedom to Operate” assessment
to identify potential IP issues during
product development•

Internal control framework including
policies, procedures and training in risk
areas such as bribery and corruption,
sanctions and export controls

Mitigation••

Confirmation of “Freedom to Operate”
during new product development stagegate process
Compliance monitoring programmes

Change in the year:•

Reduced profitability•

Control mechanisms•

Short-term exposure is managed byhedging programme•

Procurement “make or buy” strategy•

Treasury management

Mitigation••

Strategic procurement in US Dollars,
Euros and Yen
Active review of net exposure in key
currencies

Change in the year:

Oxford Instruments plc Report and Financial Statements 2020

Control mechanisms•

HR people strategy for retention andrecruitment of staff with key skills

Mitigation•

Succession management plans•

Technical career paths•

UK work permit scheme to facilitate
employment of non‑UK nationals in place

Change in the year:53

Risk Management continued
Specific risk 10:
Operational risk

Specific risk 11:
Pensions

Context: Business units’ production
facilities are typically located at asingle site.

Context: The actuarial pension deficit
is sensitive to changes in the actuarial
assumptions.

Risk

Risk

•

Sustained disruption to production arisingfrom a major incident at a site

Possible impact•

The actuarial pension deficit is sensitive
to movements in actuarial assumptions
and returns on investments

Possible impact•

Inability to fulfil orders in the short term,
resulting in a reduction in sales andprofitability•

Reduction in net cash as additional Group
contributions become payable to fundthe deficit•

Additional, non-recurring overhead costs•

Increase in the annual levy paid to thePension Protection FundControl mechanisms•

Business Continuity Plans (BCPs) exist for
all manufacturing sites•

Contractual clauses to limit financial
consequences of delayed delivery

Mitigation•

Detailed response plans in BCPs can
reduce downtime arising from incidents
and facilitate the restoration or relocationof production•

Standard sales contracts include clauses
for limitation of liability, liquidated
damages and the exclusion ofconsequential losses•

Business interruption insurance

Change in the year:

54

Control mechanisms•

Ongoing review of investment strategy,
including active control of risk, by theTrustee’s investment sub-committee•

Liability hedging programme to mitigate
exposure to movements in interest rates
and inflation

Mitigation•

The Group closed its UK defined benefit
pension scheme to future accrual in 2010•

The Group has a funding plan in place toeliminate the pension deficit over the
short to medium term

Change in the year:

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Viability Statement
In accordance with the UK Corporate
Governance Code 2018, the Directors are
required to perform an assessment of theGroup’s viability over a period longer than the
twelve months required for the going concern
statement. As in all previous years since 2016,the viability assessment period extends overthree years. The Directors consider that three
years continues to be the most appropriate
time frame for assessing the Group’s
longer‑term viability. However, as a result ofcovid-19, the methodology used in performing
the viability statement has changed. It does
not draw on the budget or strategic financial
plan as a result of the uncertainty relating tocovid-19. This year’s assessment covers theperiod from 1 April 2020 to 31 March 2023 (the“Viability Assessment Period”).

Key criteria applied in
the assessment
The criteria for considering the Group’s
viability remain unchanged. The Directors
consider that either maintaining a net cash
position during the Viability Assessment
Period or, failing that, the ability to operate
within agreed debt arrangements,
demonstrate that the Group would be able tomeet its liabilities as they fall due. Currently,
the Group has committed credit facilities ofroughly £105m. There are covenantsassociated with the facilities which principally
require the Group to operate within a ratio of
three times EBITDA to net debt. Thesecovenants therefore could limit the headroom
available from facilities and will be factored
into the viability assessment calculations.

Methodology andsensitivities applied
In this year’s assessment, in response tocovid-19, the Group has applied sensitivities tobaseline forecasts prepared by the operating
business units to prepare a downside risk
profit and loss forecast and cash flow forecast.
The risks that are applied to each business
unit are tailored to the specific circumstancesof the business and are informed by theprincipal risks and uncertainties that havebeen identified through the risk management
process. While most of these risks arerecurring, the short-term uncertainty relating
to covid-19 has been the single greatest factor
that has been evaluated in the downside
scenario. In addition to the risks applied at thebusiness unit level, the viability assessment
addresses the risk of long-term adverse
movements in foreign exchange rates. Thisrisk is managed at a Group level via its
currency hedging programme which largely
mitigates the risk of short-term volatility. The
potential impact related to the risk of adverse
movements in the rate of Sterling against key
currencies for the Group (i.e. US Dollar, Euroand Yen) is estimated in all years of theViability Assessment Period. This risk isquantified at Group level, rather than at thebusiness unit level. The list of key risks anduncertainties that have been considered inthis assessment are disclosed on thepreceding pages 50 to 54 of the Annual
Report.
The profit and loss and cash flow forecasts
from the downside scenario underpin thecalculations over the three years of theViability Assessment Period ending in March
2023. The calculations for the first year of theperiod are based on the downside scenario
submissions from the business units and arephased on a monthly basis. The second yearof the assessment period also includes
monthly profit and loss forecasts, withchanges to the first year of the assessment
period based on high level assumptions on theevolution of revenue, margin and overheads
that are specific to each business unit. These
are based on management expectations
regarding customers and markets and thepace of recovery. The third year of the Viability
Assessment Period has been quantified on anannual basis, at Group level only, based on amodest level of assumed growth in revenue
and modest improvements in operating
margins compared to the second year of theViability Assessment Period.
Consideration of the downside risks that arise
from the principal risks and uncertainties
identified are inherently embedded in theforecasts used for all years of the Viability
Assessment Period. The year one figures havebeen adjusted for the current risks anduncertainties and the negative financial
impact of those risks persist through years twoand three due to the methodology adopted inperforming the assessment. The resultant
forecasts reflect the aggregate quantificationof the risks considered but it is not possible toquantify the financial impact of individual risks
or uncertainties – rather the forecasts have tobe viewed as a whole.
The downside sensitivities applied to eachbusiness unit in the first year of the Viability
Assessment Period vary, but they have thefollowing common themes:•

reduction in revenue;•

deterioration in contribution margin; and•mitigating reductions in overhead costs.

OutcomeIn each year of the Viability Assessment
Period, the forecasts show that the Groupremains profitable. These risk-adjusted
projections forecast positive net cash flows inyears one and three of the Viability
Assessment Period with a small cash outflow
in year two. The small outflow in year twoarises in part through significant capital
expenditure of some £22m in the year ending
31 March 2022 linked to planned expenditureon facilities. The forecast level of net cash,
combined with banking facilities ofapproximately £105m, indicate that during theViability Assessment Period, the Group isforecasting substantial headroom.
Consequently, the Board has a reasonable
expectation that the Group will be able tocontinue in operation and meet its liabilities as
they fall due over the next three years.
This assessment supports not only theviability statement above, but also thestatement on going concern, set out below.

Going concern statement
The Group’s business activities and factorsthat are considered likely to affect its
performance and position in the future are set
out in the Strategic Report on pages 2 to 67.
The Finance Review on pages 42 to 49
discloses information relevant to the Group’s
financial position, its cash flows, borrowing
facilities and liquidity.
The Directors have considered the Group’s
current financial position and future prospects
and, as set out in the viability statement
above, have performed an assessment of
longer‑term viability up to 31 March 2023. On
this basis, the Directors conclude that there isa reasonable expectation that the Group willcontinue in operational existence for theforeseeable future and that there are nomaterial uncertainties that may castsignificant doubt over its ability to continue asa going concern.
As a result, the Directors continue to prepare
the Financial Statements under the going
concern basis.

In summary, the downside sensitivities thathave been applied to the business units’
bottom-up projections are:•Group revenue down by £42m (13%);•

reduction in the gross margin of £27m (16%);and•savings in overheads of £8m (7%).

Oxford Instruments plc Report and Financial Statements 202055

Corporate Responsibility

Corporate
responsibility is
integral to ourongoing businesssuccess.

Our values

56

Inclusive:

Innovative and progressive:

We listen and engage withcustomers, colleagues,
Shareholders and partners
for mutual success

We bring skill, experience andopenness to new ideas toaddress the needs of the 21stCentury

Trusted:Wholehearted:

We build long‑term
relationships based on
integrity, trust and respect

We approach what we do with
passion, with care and withpace

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Our people vision is to be proud to be recognised as theleaders in what we do and for the difference we make inthe world.

The key areas in which we focus
our efforts are:• the development,
engagement and wellbeingof our employees;• sustaining and developing
an inclusive workplace;• health and safety andenvironmental
improvements; and• the ethics of how we dobusiness, including humanrights and businessmalpractice.

Corporate Social Responsibility is integral
to our ongoing business success.
It reminds us of the need to minimise
our impact on the environment,
encourages us to pay attention to theneeds of our customers, employees, andinvestors, and to build engagement withlocal communities.
Oxford Instruments is committed to thefollowing guiding principles of corporate
responsibility:•

establishing and maintaining
long‑term, effective stakeholder
relationships;•

offering our people an excellent
employment experience and senseof belonging;•strengthening our business throughdiversity and inclusion; and•operating in an ethical, sustainable
and environmentally responsible
manner.

Oxford Instruments plc Report and Financial Statements 2020

Just as we approach what we do for ourcustomers and investors with passion,
care and pace, this same wholehearted
value underpins our work to ensure that
Oxford Instruments is a responsible
business. We enable our customers toimage, analyse and manipulate materials
at the nanoscale and our technologies
help to underpin the shift to a greener
economy, increased digital connectivity
and advances in healthcare andlifesciences. We take our role in the world
seriously, and recognise that how we dobusiness is as important as what we do.
Our people vision is to be proud to berecognised as the leaders in what wedo and for the difference we make inthe world.

57

Corporate Responsibility continued
During the year, we have continued to makea significant investment in all our teams
across the Group.

Our employees
At Oxford Instruments, our employees
are fundamental to our business success.
We continually invest in our people,
developing capabilities that are alignedwith the Horizon strategy and that we willneed to succeed over the longer term.
We are committed to being the company
where the best in our sector want to workand strive to offer opportunities that will
attract, motivate and retain talented
employees, enabling them to give
their best.
Our people vision is that all employees
are proud to work for a company that isrecognised as the leaders in what we doand understand the positive difference wemake in the world. We have continued todevelop our employer brand, value
proposition and internal and external
communications to tell the story of what
it means to work for Oxford Instruments.
This year we launched a new careers
page with information about our different
business units and locations, insightsfrom our employees and stories about thedevelopment of a number of products
which demonstrate the contribution that
all employees make to our innovative
products. Our aim is to retain, attract andenable the best people to perform,
creating an inclusive environment andculture, where difference is valued andpeople are recognised for what they
deliver and bring to the team.

58

This year, all employees were invited tocomplete another global Employee
Engagement survey, with a particularemphasis on measuring progress and theimpact of the actions and focused activity
resulting from the last Engagement
survey. At a global level, for the second
year running we were ahead of thebenchmark comparison data for
feelings of pride about working for
Oxford Instruments and employee
motivation levels.
Our two areas of focus over the year
resulting from the last Engagement
survey were to increase opportunities forstaff dialogue with the Management
Board and business and regional Senior
Leadership Teams, and to raiseawareness of career development andpromotion opportunities across theGroup. As a result of a worldwide seriesof focus groups, formal and informal
meetings, presentations, newsletters,
blogs and videos, our employees
reported that they feel more listened to(+2%) and have a clearer understandingof how they can contribute to the Horizon
strategy (+5%). Over the year, we rolled out
a global Career Development Frameworkfor our Sales teams, implemented a new
Internal Jobs board for all open vacancies
on Gem, our cloud-based HR Information
System (HRIS), and supported ourmanagers to have effective development
conversations with their teams. We saw
a strong improvement in the feeling thatmanagers help staff to understand theirareas for development (+9%), with amodest overall improvement (+2%) in therating for all questions relating to thissurvey theme.

Developing capability
We regularly undertake capability reviews,
recognising the importance of ensuring wehave the skills we need to help us deliver
long-term sustainable growth. We havebeen working hard to address capability
gaps across the Group by bringing in thecapabilities we need for the future, and byinvesting in the talented people we have.
Our people managers, and those leadingchange, have the skills needed to increase
performance, boost innovation and create
joint accountability for delivering ourstrategically important results.
During the year, we have continued tomake a significant investment in all our
teams across the Group, as well as in thebusiness systems that give our
employees the data they need to makeevidence-based decisions. We have
expanded the functionality of Gem, ourcloud-based HR Information System, withthe addition of a global recruitment tool.
This streamlines our recruitment approval
process, makes advertising vacancies
and managing applications easier andprovides immediate management
information for hiring managers, HRand business leaders. We have also
implemented a Learning andDevelopment portal. Configuration iscomplete, and all employees now haveaccess to a library of over 15,000 online
courses and tutorials, with bespoke
training packages developed for different
job families and levels in the organisation.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

1: I ntroducing science tochildren on site
2: Team running for charity
3: T ough Mudder fun forcharity
4: Local school choir singing
at the Christmas Fayre
5: Fitness class to markSports Relief week

Our work to develop capabilities isunderpinned by the several personal
and leadership development
programmes we run. Our flagshipManagement Development Programme
covers many of the skills needed to be a
successful manager in Oxford
Instruments and our Project Leadership
Programme ensures our technicalmanagers in particular are equipped withthe hard and soft skills they need tosuccessfully deliver substantial andmeaningful projects.
This year, we updated our Early Careers
programme, now relaunched as the
Aspire programme. We have widened
participation in Aspire, whilst also
introducing a strict and objective
selection process for entry onto theprogramme. High potential employees
representing all our job families andregions were selected for this year’scohort. We also relaunched ourApprenticeship scheme at Plasma
Technology to support future business
requirements for talent with hard and soft
skills that can be challenging to findexternally. Our apprentices develop skills
which are useful not only in Production,
but which also enable potential future
career development in other Technical,
Engineering or Operations roles.

We continue to offer our TechnicalDevelopment Programme and structured
career development opportunities forour technical staff, and we use thisprogramme to help us attract and retain
the best engineers and scientists. Throughour technical competency framework andtechnical career ladder, our employees inthese roles can see clear future career
paths that offer a choice between
technical or people management
pathways and that allow them to develop
their careers with the Company in the
direction that best suits them.
For our colleagues in Sales roles, we
saw a positive impact this year from ourwork to develop Career Development
Frameworks for them at the end of lastyear. Comparing the results of the two
Engagement surveys for employees inthis job family shows they feel more
supported by their managers (+11%), morealigned with the Horizon strategy (+6%)
and more positive about their careerdevelopment and progression prospects
within the Group (+4%).

Oxford Instruments plc Report and Financial Statements 2020

Additional development for ourcommercial staff this year has included
the design and global rollout of a
Product Management Development
programme. This bespoke programmeequips colleagues from our ProductManagement, Service, Applications andMarketing teams with the latest tools andmethodologies to help them develop anddeliver a market-driven portfolio of
products and services.

Diversity and inclusion
Our objective is to ensure that we havea high capability, diverse workforce thatenables us to better understand ourcustomers and markets. Building anorganisation with a broad range ofperspectives and experiences increases
our ability to innovate, to make the rightdecisions and to exceed our customers’
expectations. In order to retain, attractand enable the best people to perform,
we work hard to create an inclusive
environment and culture, where
difference is valued and everyone cancontribute to their full potential.

59Corporate Responsibility continued

1: C elebrating Global
Recycling Day
2: Team attending the China
Nano conference
3: T eam building fun in
California
4: Congratulating a new
OI Fellow in the company
5: Easter egg hunt prize
winners

Our employees
continued
Diversity and inclusion continued
Questions about inclusion featured in our
global Employee Engagement survey
and we also analysed all of our results tolook for any differences in responses
across gender. Across the Company, ourfemale employees reported higher levelsof engagement than our male employees(a difference of 9%). In all the different job
families, female employees told us thatthey feel more included and valued thantheir male counterparts (a difference of12%) and more encouraged andsupported to develop their skills andcapabilities (a difference of 13%). Women
working in Operations, Technical andCommercial roles also reported higher
levels of recognition andacknowledgement from their managers
than men in the same job families.

60

This year we published our third gender
pay gap report. This is available on our
website at www.oxinst.com/genderpay-review. The mean and median pay
gaps have both increased since last year.
We have achieved a slight increase
overall in the proportion of female
employees, but this was primarily in thelowest pay quartile, which results in anegative effect on progress to close thepay gap. It is encouraging that our female
employees are more engaged than theirmale counterparts, but we still have morework to do to improve the gender balanceacross the Group.
We participated in the Leonard Cheshire
Change 100 programme this year to offer
an internship at our Head Office for atalented student or graduate with adisability or long-term health condition.
The scheme was a success and we werepleased to be able to offer meaningful
work experience which benefited both theindividual and our Group.

During the year, we also ran a successful
Girls in Tech event at our Asylum
Research site for a group of students who
were interested in exploring career paths
in science and engineering, and wecelebrated International Women’s Day
with a number of meetings andnetworking events for female employees
at our sites around the world.
We have extended our drive to introduce“balanced shortlists” to now cover all
levels of recruitment. Our previous target
focused on ensuring that shortlists for
Director-level appointments included atleast one candidate from a group that isunder-represented in the Company. With
improved global reporting available in the
new Recruitment module of our HRIS, we
are now able to monitor this for all levelsof recruitment. 44% of our appointments
last year were made from a balanced
shortlist, against our target of 50%. We willcontinue working to this target next year.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Gender		Geographical spreadof employees
MaleFemaleGlobal Oxford Instruments

77%

23%

Plc Board

86%

14%

Management Board

80%

20%

Managers

79%

21%

Employees

77%

23%

60th Anniversary celebrations

Health and wellbeing

This year marked the 60th Anniversaryof Oxford Instruments. Business units andteams around the world celebrated thismilestone in a number of different ways.
Events included a steam train ride andfamily picnic through the Californian
redwoods, several beach barbeques,river cruises through central Shanghai
and Osaka, a dinner dance at Titanic
Belfast and a number of site activity
and family fun days around the world.
We were honoured that our founders
Sir Martin and Lady Audrey Wood andtheir family joined us at our celebration
at the Oxford site.

This year we expanded our Mental HealthFirst Aider programme. Having rolled itout in the UK last year, a number ofcolleagues across all of our US sites
volunteered this year to attend aninternationally recognised training
programme and to act as a first pointof contact for any colleagues who areexperiencing mental health issues or
emotional distress, either themselves
or in their families. This service
complements our Employee Assistance
Programmes and the physical healthchecks we already provide at many of
our locations.

Our workplaces

In addition, many of our sites organise
wellbeing activities such as mindfulness
sessions, on site massages and Pilates
classes. We encourage staff to set up
walking groups and informal runningand cycling clubs to help increase
physical activity and exercise, and thisyear teams of colleagues walked
sections of the Great Wall of China, dida virtual hike of the John Muir trail in
California and admired the bluebells in
the Oxfordshire woods.

As an international organisation, ouremployees are located across the world,
frequently based in smaller satellite
offices that are remote from our main
business sites. In this context it isimportant that we work hard to createa sense of belonging for our employees,
and so we continue to run a series ofglobal and local initiatives to ensure
people feel part of the wider Oxford
Instruments team.

Company Information

We publish regular updates on our
intranet pages to recognise thecontributions of all of our different sites
and nearly 150 of our colleagues aroundthe world are members of a Strava group,
helping them to keep connected sociallyand share their sporting achievementswith each other. We also make sure thatpeople feel connected to our purpose
and strategy by publishing regular written
and film updates from members of theManagement Board.

Oxford Instruments plc Report and Financial Statements 2020

UK 60%

Americas 18%
Asia 16%Europe 6%

For sites with canteens, we have worked
with our catering providers to expand therange of healthy meal options that are
offered and to use local produce in theirmenus. Many of our sites have alsoorganised fresh fruit deliveries for staff,
using local suppliers and produce
where possible.
We also offer our employees theopportunity to purchase additional leave
entitlement. This year, more than one infive of our UK‑based staff have taken
advantage of this.

Coronavirus response
With a substantial operation in China,
including employees and customers in
Wuhan and the Hubei province, it wasnecessary towards the end of the year todevelop a response plan that enabled us
to keep our employees safe whilst
continuing to support our customers.
Initially in China, with other countries
following as the pandemic spread, we
provided additional hardware andsoftware that allowed as many
employees as possible to work remotely.
In turn, this reduced the number of
employees physically present at our
manufacturing facilities in the UK and US,
which meant that we could introduce new
ways of working and increase social
distancing measures to protect staff inroles that could not be carried out
remotely.

61Corporate Responsibility continued
We believe that the work we do, and our
products, systems and tools, enable ourcustomers to benefit and advance society.

Five-year view of accidents in ongoing businesses
Minorshowing severity Excludes disposals
2016

42

4

2017

48

2018

49

3

2019

48

5

2020
0

47
10

20

30

40

Serious

7

5
50

60

Our employees
continued

This benchmarks positively against
industry norms in the regions in which
we operate.

Health and safety –protecting our employees

The majority of the accidents recorded
were very minor in nature but we arecommitted to achieving, promoting andmaintaining a high standard of healthand safety for all our employees andeveryone involved in, or affected by, ouractivities. Recording even the smallest
cuts and abrasions helps us to identify
and remove hazards before they canescalate into more serious accidents.

Our Health, Safety and Environment
function is led by our Group HR Director,
who has responsibility for these threeelements across the Oxford Instruments
Group. The Group HR Director is
supported by our Group Health, Safety
and Environment Manager, who is
responsible for ensuring that day‑to‑day
activities are carried out safely and that
we have the capabilities, infrastructure
and processes in place to manage ourhealth, safety and environment matterseffectively across the Group.

Global accident figures
remain at a low level
The total number of accidents recorded
worldwide during 2019/20 reduced
slightly from 53 to 52. Five of theaccidents were classed as serious, which
was the same number as in the previous
year. Three of the serious accidents werereportable under UK RIDDOR regulations,as they resulted in more than seven days’
absence from work. Over the past five
years the total number of accidents
for our ongoing businesses has been
relatively flat, with an average of 51
accidents each year. When looked atin relation to the number of accidents
per 1,000 employees, the average
number over the last five years is
33 accidents/1,000 employees.

62

Investing in health and safety
To raise employee awareness of hazards
and risks and to maintain our focus on
preventative measures, this year welaunched our global “Push for Zero”
programme. We want all of ouremployees, wherever they work, tofeel safe in their working environments.
As part of this programme, we launched
Shield, our new health and safety
software platform and app. This new
system has been rolled out across theGroup manufacturing businesses andoffices to make it easier for employees
to report hazards, near misses andaccidents. We have already seen asignificant increase in the number ofhazards and near misses being reported,with a total of 523 being reported during
2019 against 145 the previous year.
We have raised the target for reporting
hazards, observations and near misses
to 750 for the current year.

Social and community
involvement
We believe that the work we do, and our
products, systems and tools, enable ourcustomers to benefit and advancesociety. To ensure this continues, we arecommitted to helping young people atall stages of education to see theimportance of choosing STEM subjects
and the career opportunities this willoffer them.
Over the course of the year, we organiseda Girls in Tech session at our Asylum
Research site for local middle school
students, hosted work experience andundergraduate placement students andran outreach sessions at local schools at
all of our UK sites. We also organised on
and off-site career development andprofessional skills workshops for students
at our partner universities’ Centres forDoctoral Training.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

To promote wider public engagement inscience, we participated in a number ofactivities, including partnering with twoof the 21 exhibitors at the Royal Society
Summer Science Exhibition to provide
materials and staff for this high-profile
event which received 10,000 visitors. We
also worked with the University of Oxford’s
History of Science Museum to support
their People-Science-Business exhibit andtwo associated evening events tocelebrate our 60th Anniversary. At ourAndor Technology site in Belfast, wearranged two open days for members of
the local community to visit our facility tofind out more about the work we do andhow our systems and tools are used by ourcustomers around the world.
In Japan, our support for the Millennium
Science Forum continued to promoteresearch in Condensed Matter Scienceand to increase the scientific exchange
between Japan and Britain. For over
20 years, we have been sponsoring the
Sir Martin Wood Prize to recognise andencourage young scientists in Japan andthis year we arranged a lecture tour forthe latest winner at a number ofprestigious German and UK universities.
We continue to encourage staff at all of
our sites to support their local
communities through charitable andother activities. At Andor Technology ateam raised over £8,000 for the Belfast
Children’s Cancer Unit Charity byorganising cake sales, quizzes andpop-up shops and colleagues at our
Oxford site run a workplace lottery which
has raised over £4,000 for Helen andDouglas House, a local hospice.
Elsewhere, colleagues collected bras for
donation to women in Africa, arranged
collection points for local charity shops,
repeated our Christmas Shoe Box
scheme for gift donations, and organised
events throughout the year linked tonational campaigns such as Red Nose
Day and Save the Children’s Christmas
Jumper Day.

Financial Statements

At our Oxford site, we organised a
Christmas Market for local independent
traders and small businesses, with carols
sung by children from a local primaryschool who were all given science andengineering-themed books as thankyou gifts.
More active charity activities included
teams entering the Oxford Town and
Gown, the Oxford Half Marathon andthe Race for Life Pretty Muddy event inBristol. During Sports Relief, a team in
Oxford arranged a week of lunchtime
and after-work events to encouragecolleagues to try new activities andmake donations to this cause.
Towards the end of the year, as thecovid-19 pandemic spread around theworld, at sites with 3D printing capability
we began producing Personal Protective
Equipment to donate to local hospitals.
Additionally, a team at Plasma
Technology provided electronic
sub‑components for one of the UK’s
Ventilator Challenge projects.

Ethics – anti-bribery
and corruption
Copies of our new Code of BusinessConduct and Ethics were distributed thisyear to every site around the world andsent electronically to all employees.
This document is also available to all
employees on our Intranet Policy Portal
and is included in the offer paperwork for
all new hires. It clearly sets out how we
do business and what we expect ofourselves and those we work with.
It covers topics such as Bribery &Corruption, Hospitality & Gifts, Human
Rights & Modern Slavery and gives
advice and guidance for dealing withconcerns, including the contact detailsof a confidential and independentwhistle‑blowing service.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

We are a Company united by strong
standards and values. By creating a clear
Code for stakeholders, we are providing
more transparency for our employees
about what’s expected of them.
This will help give all of our employees
the confidence that they are taking theright actions in various situations.

Human rights
Human rights andmodern slavery
We continue to review our policies andsystems supporting human rights and thisyear we reviewed our Human Rights
Policy. Our policy is guided by the United
Nations Guiding Principles on Businessand Human Rights. Our Human Rights
Policy states our intent to be inclusive,
supportive and safe, covering matters
including forced labour, child labour,
discrimination and the right to form or joina trade union and to bargain collectively.
We expect every employee to adhere
to the spirit of our policy and it is fully
supported by our Board. All membersof the Group’s Executive Committee
take responsibility for ensuring its
implementation within their part of theGroup. We also extend our expectations
on human rights to other organisations
we work with, such as our partners,
contractors and suppliers.
We are committed to preventing acts ofmodern slavery and human trafficking
from occurring within our business andsupply chain and put in place effective
systems and controls in order to do so.
We have reviewed, and improved, oursupplier due diligence and audit
procedures and, this year, every
employee in a senior, managerial or
professional role completed mandatory
Modern Slavery training. We have azero-tolerance approach to all forms ofmodern slavery, including servitude,
forced, bonded and compulsory labourand human trafficking and we expect our
suppliers to adopt the same approach.

63

Corporate Responsibility continued
Our sustainability priority is to minimise theenvironmental footprint of our operations,products and services around the world.

Group energy consumption (kWh) 2015-2020
Data for ongoing businesses only
2015/1613.9m

2016/1714.1m

2017/18

14.3m

2018/19

14.1m
11.7m

2019/2004m

8m

Sustainability –protecting theenvironment
Energy efficiency andclimate change
Oxford Instruments places a relatively
low impact on the environment with arelatively low carbon footprint, chemical
and water use. However, it must berecognised that all businesses need toconsider the effects of their business on
climate change, and also on the planet.
Our overall priority within sustainability is
to minimise the environmental footprint of
our operations, products and services
around the world. Whilst our efforts aremainly based around the more efficientuse of energy, various other initiatives toreduce our carbon footprint have beendeveloped during the last year. We arealso preparing plans to meet net zerocarbon by 2050.

Energy Champions
Each site has an Energy Champion who is
responsible at a local level for monitoringenergy use, waste streams, recycling andemissions to air, water and land. The totalenergy use figures are recorded andcollated by the Group HS&E Manager.
The Energy Champions also continuously
look for innovative ways to improve ourenvironmental footprint.

64

12m

16m

Current initiatives include energy
reduction, improving local wildlife
habitats by installing beehives andbirdboxes and giving staff Beebomb
wildflower seed-balls as gifts, offering
more seasonal food with lower food miles
in our canteens, the installation of electric
car charging points and the removal of
single-use plastics.

Greenhouse gas (GHG) emissions
Oxford Instruments is a global businesswith operations in many parts of theworld. Energy consumption from 14
Company sites was monitored and forms
the basis of the figures and calculations
shown. Some small sales offices whereenergy consumption is less than 0.01% of
the Group’s total energy consumption are
omitted. The use of hydro-fluorocarbons
was also monitored but the level fell
below 5kg and has therefore been
excluded. In this report, emission
equivalents from purchased electricity
and fuel for heating or process purposes(gas and oil) are reported in tonnes ofcarbon dioxide equivalent (tCO2e).

Energy consumption
Oxford Instruments consumed a totalof 11.67 GWh of energy globally during
2019/20. This figure consisted of 10.125
GWh of electricity (2018/19: 12.57 GWh),
1.032 GWh of gas (2018/19: 1.01 GWh)
and 0.512 GWh of oil (2018/19: 0.5 GWh).
As OI Healthcare was disposed of during
the year, their consumption of 2.15 GWhof electricity has been removed from theoverall figures.
The Company’s chosen energy intensity
measure is MWh of energy per £m ofrevenue. Using the above figures andrevenue of £317.4m the intensity
measure is as follows:
Totalenergyconsumed

11670
MWh

Total
revenue

317.4=

36.77 MWh/£m ofrevenue

The energy intensity measure was
36.77 MWh/£m revenue (2018/19:
42.21 MWh/£m).
The Group global carbon footprint for
2019/20 was reduced to 5,382.6 tCO2e
from 6,835.2 tCO2e in the previous year.
However, the removal of OI Healthcare
energy consumption and a reduction of
GHG conversion factors for electricity
from 0.2886 kg/kWh to 0.2556 kg/kWh
accounted for the majority of thisreduction. Energy consumption for
ongoing businesses was generally
flat during the year.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Electricity consumption as carbon
Purchased
electricity(tCO 2 e)Secondary
fuel(tCO 2 e)

Fugitiveemissions(tCO 2 e)

Total(tCO 2 e)

2,101.9

321.1502,423.05

North America

371.9

0

0

371.9

Europe

18.35

0

0

18.35

Asia

95.8

0

0

95.8

Total

2,587.95

321.1502,909.1

UK

Streamlined Energy and Carbon
Reporting (SECR) regulations
The Government closed the Carbon
Reduction Commitment Energy Efficiency
Scheme (CRC) on 31 March 2019. This was
superseded by the Streamlined Energy
and Carbon Reporting (SECR) regulations,which came into force from 1 April 2019.
The cost of carbon compliance has beentransferred to our energy bills via an
increase in the Climate Change Levy.
The cost burden of the above change
will be neutral to the business.

SECR responsibility andmethodology
The Group Health, Safety andEnvironment Manager is responsible forcollating energy data, on a monthly basis,and reporting to the Management Boardand the Oxford Instruments Board on anannual basis. He is further responsible forcompiling the SECR report to submit tosenior management for sign off. Data
collected for compiling the SECR report isgathered by various methods, including:•

submetering;•

direct meter readings; and•direct readings from energy bills.

With regard to carbon equivalence,the 2019 GHG conversion factors havebeen used:•••

Purchased grid electricity =0.2556 kg/kWhNatural gas consumption =0.18385 kg/kWh
Gas oil consumption =0.25676 kg/kWh

Energy Saving Opportunities
Scheme (ESOS) Phase 2

SECR carbon intensity
measure from energy use
Oxford Instruments has a statutory duty
to report greenhouse gas emissions as
tonnes of carbon dioxide equivalent(tCO2e). The Company’s chosen carbon
intensity measure for energy use is tonnesof carbon dioxide equivalent (tCO2e) per£m of revenue.
Carbonemissions

2,909.1tCO2e

Revenue

317.4

Oxford Instruments plc Report and Financial Statements 2020

The data from the SECR report for
2019/20 gives an emissions ratio forenergy of 9.17 tCO2e/£m of revenue.
The UK Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations
require the SECR report to be included aspart of the Directors’ Report in the Report
and Financial Statements.

9.17 tCO2e/= £m ofrevenue

Under the Energy Saving Opportunities
Scheme Phase 2, the Company was
subject to an external audit of energy use
and we were required to submit a reportto the Environment Agency by December
2019. An external audit took place at our
NanoScience and Andor Technology
businesses during November. The
resulting report recommended a numberof energy efficiency measures that could
be adopted by the relevant businesses
and these will form the basis of ourenergy efficiency measures for the next
financial year. This report was submitted
to the Environment Agency before thedeadline and was accepted.

65

Corporate Responsibility continued
Sustainability –protecting theenvironment continued

Transport

Environmental Directives

Our biggest environmental impact after
energy is transport.

Energy Saving Opportunities
Scheme (ESOS) Phase 2
continued

We reduced the amount of air travel by
450,000 km during the year, but this is
one area where we could make further
improvements with the use of technology.

The Group complies with allenvironmental legislation in countries
where it operates. This includes European
Directives such as:

The ESOS report recommended a large
number of improvements that could be
implemented to reduce our carbon
footprint still further. These will beconsidered and implemented whereappropriate during the current financial
year. A few examples are shown below:•

replace HVAC chiller and add freecooling element;•

fit destratification fans in the
production area;•

improve compressed air management;•

fit sub-meters to all sites for improved
energy management; and•replace fluorescent lighting with more
efficient LED lighting.

Beyond ESOS – net zerocarbon by 2050
Our CEO, Ian Barkshire, is taking a keeninterest in climate change and has raised
the question as to how the business canmove towards net zero carbon by 2050.
During the year we have taken aproactive approach to the question andengaged an energy consultancy toassess energy efficiency at our large
manufacturing facilities and propose
improvements that will move us towards
the 2050 goal. Their report recommends
ways that we can make more efficient useof energy and where we can reduce our
impact by implementing carbon-free
power such as solar PV, wind power andground source heat pumps. In addition,
they have provided recommendations
that will enable us to build low carbon
facilities in the future. The ideas will be
reviewed during the coming year witha view to preparing a 2050 net zerocarbon plan.

Air travel

UK and US air
travelCarbonequivalent

14.99m km

2,205.6 tCO2e

All of our businesses have trained service
engineers in the use of virtual support
tools that enable remote diagnostics
and repair of our systems to help ourcustomers resolve problems without
having an engineer travel to fix the
problem. The coronavirus outbreak has
led to much more innovation in relation toservices, training and sales webinars.
Andor Technology saw 3,000 users andpotential customers attend one of their
webinars. As we move into our global
recovery phase following the covid-19
pandemic we are looking at all the ways
we can use the new skills and capabilities
we have developed to engage with andsupport our customers without the needto travel, thereby reducing ourenvironmental impact.

Car fuel
The car fuel figures are drawn from fuelcard and business mileage expense
claim records.
UK car fuelCarbonequivalent103,459 litres

268.4 tCO2e

These figures are higher than the previous
year as they now contain fuel equivalent
to the total mileage claims received via
expense claims for the first time, in
addition to the fuel from fuel cards.

•

Waste Electronic and Electrical
Equipment (WEEE) Directive –compliance achieved in the UK bymembership of B2B Compliance –an authorised compliance body.
Other compliance bodies arecontracted for our European
operations.

•

Restriction on use of certain
Hazardous Substances (RoHS)
regulations – all products that were
within scope and were sold into
Europe since July 2017 complied withthese regulations. Some of our
products are outside of the RoHS
scope or are covered by exemptions.

•Registration, Evaluation, Authorisationof Chemicals (REACh) Directive. All
sites are working towards compliance
via their supply chains.

•

European Waste Framework Directive.
This requires the Company to enter
data on parts and products that may
contain Substances of Very High
Concern (SVHC) into a new database
being set up the European Chemical
Agency (ECHA). This is known as the
SCIP database and compliance isrequired by 5 January 2021. Sites are
currently engaged in determining thebest route to compliance by thedeadline.

Waste outputs
We aim to minimise our waste outputs
and ensure that as little as possible goesto landfill. Several of our sites are now“zero waste to landfill” where waste isrecycled either directly, e.g. cardboard,
metals, wood and paper, or indirectly for
non‑recyclable general waste and foodwaste, which is sent to waste incineratorsites where it can be burned to produce
energy.
Signed on behalf of the Board

Ian Barkshire
Chief Executive
9 June 2020

66

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Non-financial information statement
Key policies and standards
Employees

Environment

Additional information•

Health and Safety Policy•

Working at Oxford Instruments Policy•

Leaving Oxford Instruments Policy•

IT Infrastructure and Use Policy•

Conflicts of Interest Policy•

Business Travel Policy•

Crisis Management Policy•

Reward and Recognition Policy•

Performance Management Policy•

Opportunity and Career Policy•

Health and Safety Policy

www.oxinst.com/corporate-content/sustainability•Group Energy Policy

www.oxinst.com/CBCE•

Environmental Policy•

Supplier Due Diligence and Audit Procedureswww.oxinst.com/corporate-content/supplierand-partner-engagement

www.oxinst.com/corporate-content/health-andsafety
www.oxinst.com/CBCE
www.oxinst.com/corporate-content/employees
www.oxinst.com/corporate-content/diversityand-inclusion
https://careers.oxinst.com/working-here
Employee engagement: pages 24 and 25
How we look after our employees: pages 58 to 62

Sustainability – protecting the environment:
pages 64 to 66

Social matters

Human rights•

Export Control Policy

www.oxinst.com/corporate-content/privacy•

Privacy Policy

www.oxinst.com/CBCE•

Code of Business Conduct and Ethics•

Group Sanctions Policy

Community engagement: pages 24 and 25•

Global Marketing Policy

Social and community involvement: pages 62 and 63•

Global Human Rights Policy•

Modern Slavery Statement

www.oxinst.com/corporate-content/humanrights-policy•

Gender Pay Report•

Privacy Policy

www.oxinst.com/corporate-content/modernslavery
www.oxinst.com/corporate-content/gender-payreportwww.oxinst.com/corporate-content/privacy
Ethics – human rights: page 63

Anti-corruption
and anti-bribery•

Anti-bribery and Anti-corruption Policy•

Reporting a Business Malpractice Policy•

Share Dealing Policy

Ethics – anti-bribery and corruption: page 63•

Supplier Code of Conduct

Supplier engagement: pages 26 and 27•

Conflicts of Interest Policy•

Supplier Due Diligence and Audit Procedures

Additional
disclosure

www.oxinst.com/CBCE

Investment case: page 7
Business Model: pages 22 and 23
Strategy: pages 28 and 29
KPIs: pages 30 and 31
Principal Risks: pages 50 to 54

Oxford Instruments plc Report and Financial Statements 202067

Governance

Governance is an important element of our Board
environment. To support how we do business andhow we serve our stakeholders, it needs to be
relevant, authentic and meaningful.

Company Leadershipand Purpose

Division of
Responsibility

See pages 69 to 79 of the Corporate Governance Report.

See pages 73 and 77 of the Corporate Governance Report.

Composition, Succession
and Evaluation

Audit, Risk andInternal Control

See pages 80 to 82 of the Corporate Governance Report.

See pages 83 to 89 of the Corporate Governance Report.

Remuneration

Report of the
Directors

See pages 90 to 111 of the Corporate Governance Report.

See pages 114 to 116 of the Corporate Governance Report.

Relations with
Shareholders
See pages 112 and 113 of the Corporate Governance Report.

68

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Company Leadership and Purpose
Chair’s Introduction

The Corporate Governance Statement provides aninsight into how the Board operated during the year.

Dear Shareholders,

Neil Carson
Non-Executive Chair

The Board is committed to conducting
business responsibly and maintaining
high standards of corporate
governance. This commitment extends
to driving the Group’s long-term
objectives and overseeing the Group’s
operations to ensure competent andprudent management, continuous
leadership development and ongoing
succession planning. Throughout thedisruption, the Board and executive
team have made it their priority toprotect the health and wellbeing of
our employees, support our customers
and other stakeholders, and secure
the long-term future of the business.
Over the year end and into the newfinancial year, the governance model
has stood up well to managing thesechallenges.

I am pleased to introduce the Group’s
Corporate Governance Report on behalfof the Board. The Corporate GovernanceStatement provides an insight into how
the Board operated during the year.
The Board is committed to conducting
business responsibly and maintaining
high standards of corporate governanceand is collectively responsible for thelong‑term success of the Group. This will,when underpinned by our businessstrategy and close attention tooperations, finance and risk, enhance
performance and grow the business of
Oxford Instruments. The Board remains
committed to driving the Group’s
long‑term objectives, overseeing theGroup’s operations to ensure competentand prudent management, andcontinuous leadership development andsuccession planning. The approach to
governance is set by the Board and theManagement Board ensures that theapproach is effectively implemented
across Oxford Instruments’ businesses
around the world.
The main Group‑wide governancedocuments are the Oxford Instruments
Code of Business Conduct and Ethics
together with the policies which sit within
our statement on Corporate and Social
Responsibility. These can be found on
our website atwww.oxinst.com/investors‑content/
corporate-social-responsibility.
The ethics programme is actively
managed by a cross‑functional team, theCBCE Forum, which regularly reviews thepolicies and works with the Group’sbusinesses to ensure that employee
communications relating to the ethics
programme are delivered in a consistentand engaging manner. There is a policy
portal on the intranet which makes it easy
for employees to access those policies
and procedures that are relevant to them.
These policies and statements set out thevalues and standards that we expect ouremployees to meet. These documents,

Oxford Instruments plc Report and Financial Statements 2020

together with our policies, govern how
we conduct our business and set thestandards that drive performance.
Compliance training and, in some areas,
standard procedures, help to enforce this.
Board oversight, reviews and audits form
part of the monitoring and supervision
process. Risk processes are embedded
and reviewed on an ongoing basis acrossthe organisation.
During the year, I agreed with the Board
that we would carry out an internal
evaluation of the Board. I am pleased toconfirm that we continue to have acommitted, engaged and effective Board
that is operating well. More details on thefindings of the evaluation are outlined on
pages 75 and 76.
The Board has visited a number of sites
during the past year, meeting withmanagement and staff and receiving
in-depth presentations on the business
operated from those sites. It was evident
that we have committed, enthusiastic andknowledgeable teams of people who
deliver leading-edge products that help
their customers meet their varied needs.
All businesses have strong new productpipelines and are fully committed toproject Horizon and the advancement of
the Oxford Instruments strategy. The
Chief Executive’s Review on pages 14 to
19 and the Operations Review on pages
32 to 41 give full details of the year’s
activities.
I encourage all Shareholders to engage
with us ahead of the AGM which will beheld on Tuesday 8 September 2020.
Notice of, and details of thearrangements for, the AGM will be
provided to Shareholders at the usual
time and will take into account legislativerequirements and the circumstances at
the time.

Neil Carson
Chair
9 June 2020

69

Company Leadership and Purpose continued
Board of Directors

Neil Carson (63)

Ian Barkshire (54)Gavin Hill (52)

Steve Blair (60)

Non-Executive Chair

Chief Executive

Group Finance Director

Independent Non‑Executive
Director and Senior
Independent Director

Appointed to the Board
December 2018

Appointed to the Board
November 2015

Appointed to the Board
May 2016

Appointed to the Board
July 2017

Appointed Chair
December 2018

Appointed Chief Executive
May 2016

Background
Over 30 years’ experience of
operations management in the
UK and the US, technicalinnovation and strategicplanning, culminating in ten
years as Chief Executive at theFTSE 100 science/R&D based
company, Johnson Matthey. In
2016 he was awarded an OBE forservices to the chemical industry.

BackgroundHolds a BSc and DPhil in physics
from the University of York, is a
Chartered Physicist, a Memberof the Institute of Physics anda Fellow of the Royal Academyof Engineering. Ian has worked
for Oxford Instruments since1997 in a number of seniorleadership roles, including
NanoCharacterisation DivisionalHead, Group Technical Director
and Chief Operating Officer.

BackgroundHolds a BA in economics andagricultural economics from the
University of Exeter. Gavin is a
Chartered Accountant and an
Associate Member of the
Association of Corporate
Treasurers.

BackgroundHolds an engineering degreefrom the University of Sheffield.
Extensive experience inestablished and high‑growth
emerging markets, strategicplanning and portfolio
development.

External appointments
Non‑Executive Director:
Royal Dutch Shell plc

Previous experience
Senior Principal Scientist:
GEC Marconi Materials
Technology

Previous experience
Group Finance Director:
Synergy Health plc

External appointments
Chief Executive:
Ordnance Survey

Director:
The Goldsmiths’ Company
CharityPrevious experience
Chair:TT Electronics plc

Research Fellow:
University of York

Director, Corporate Finance:
Serco Group plc
Senior finance positions:Syngenta AG and AstraZeneca
plc

Previous experience
Chief Executive:
e2v
Director:
Spectris plc

Deputy Chair:
TI Fluid Systems plc
Non‑Executive Director:
Paypoint plc
Amec Foster Wheeler plc
Founder Member:
Prince of Wales’ Corporate
Leaders Group on Climate
ChangeHonorary President:
SCI (the Society of Chemical
Industry)
Chief Executive:
Johnson Matthey plc

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Strategic Report

Governance

Financial Statements

Mary Waldner (50)Thomas Geitner (65)

Independent
Non‑Executive Director

Independent
Non‑Executive Director

Professor Sir Richard
Friend (67)

Appointed to the Board
February 2016

Appointed to the Board
January 2013

Appointed to the Board
September 2014

BackgroundHolds an MA in physics from the
University of Oxford and is a
Fellow of the Chartered Instituteof Management Accountants.
Mary started her career at
Coopers & Lybrand Management
Consultancy Services and thenwent on to hold senior financial
positions in a number of major
businesses.

BackgroundA graduate of the Technische
Universität München and holds
an INSEAD MBA. Extensive
international experience in thetechnology and engineering
sectors, having spent over 30
years in businesses operating
across the globe.

Background
Richard’s research encompasses
the physics, materials scienceand engineering ofsemiconductor devices madewith carbon‑based
semiconductors. He is a Fellowof the Royal Society and of theRoyal Academy of Engineeringand a Foreign Member of the
US National Academy ofEngineering.

External appointments
Chief Financial Officer:
Lloyd’s Register

External appointments
Chair:
Bibliotheca RFID Library Systems
AG Switzerland

External appointments
Cavendish Professor of Physics
and a Fellow of St. John’s College
at the University of Cambridge

Previous experience
Group Finance Director:
Ultra Electronics plc
Director, Group Finance:
QinetiQ plc

Previous experience
Executive Director:
Vodafone Group Plc
Henkel AG & Co. KGaA
RWE AG
Non‑Executive Director:
BBC Worldwide Limited
Constantia Flexibles GmbH
Supervisory Board of Haniel & Cie
GmbH Duisburg

Committee membership
Secretary:Company Information

Independent
Non‑Executive Director

Non‑Executive Director:
Cambridge Photon Technology
LimitedEight19 Limited
Helio Display Materials Limited
Previous experience
Council member:
The Engineering and PhysicalSciences Research Council

Key to Committees
Audit and Risk

BackgroundHolds a BA from the University of
Keele and has previously worked
in the Secretariats of St. Modwen
Properties plc, Hydro Agri (UK)
Limited and TSB Group plc.

Nomination
Remuneration
Chair of Committee

Susan Johnson‑BrettCompany Secretary

Oxford Instruments plc Report and Financial Statements 202071

Company Leadership and Purpose continued
Corporate Governance Report
Board priorities during the year

Strategic

Operations

Leadership and people

Finance

Governance and ethics

Compliance
The Board endorses the main andsupporting principles and the provisions
set out in the UK Corporate Governance
Code (2018) (“the Governance Code”) andconsiders that, throughout the period
under review, the Group has compliedwith the provisions recommended in
the Governance Code.
Taken together with the reports of
the Nomination Committee, Audit
and Risk Committee, and the reports

72•

Annual strategy day and technology strategy session to consider progress andprovide challenge on the Horizon strategy and next steps.

•

Reviewed, challenged and approved the strategic direction of the Group’s
medium‑term plan.

•

Deep-dive reviews into aspects of the strategic plan.

•

Received regular operational updates.

•

Site visits to Group manufacturing sites including meetings with employees andin-depth business unit reviews.

•

Monitored performance and provided challenge in key areas of operations, such as
health and safety, operational excellence, human resources, innovation andbusiness development.

•

Continued the focus on organisation capability and succession planning within thesenior leadership teams and more generally across the organisation.

•

Reviewed output and actions from all-employee survey.

•

Commenced the search for a NED with remuneration committee experience.

•

Monitored progress against the 2019/20 financial plan and considered the 2020/21
financial plan.

•

Reviewed and approved the financial elements of the Group’s medium‑term plan.

•

Continued to monitor the progress of Project Connect (the new ERP system) and its
implementation.

•

Updates on major tax matters.

•

Approved the Annual Report, half‑year results and presentations to analysts.

•

Considered and approved the Group’s going concern and viability statements.

•

Review of the interim and final dividends.

•

Carried out an internal Board evaluation, discussed the output openly andtransparently and agreed opportunities for improvement.

•

Further developed employee engagement including Board-led focus groups withrepresentative cohorts held at a number of sites around the world and site visits.

•

Reviewed feedback from institutional Shareholders.

•Reviewed the new requirements introduced by the 2018 UK Corporate Governance
Code.

•

Regular meetings of the Non‑Executive Directors without management being
present.
on remuneration and corporate
responsibility, this Statement explains
how Oxford Instruments has applied theprinciples of good corporate governanceas set out in the Governance Code.
Resolutions for the re-election of all
Directors will be put to Shareholders at
the Company’s forthcoming AGM. Oncepassed, this will continue to deliver a
Board which meets the requirements ofPrinciple G of the Governance Code.

Preservation of value
The basis on which the Group generates
and preserves value over the longer term
and the strategy for delivering theobjectives of the Group are to be foundin the Strategic Report.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Operation of the Board

Board of Directors andmanagement structure
Board of Directors
As at the date of this report, the Board
comprises the Chair, four Non‑Executive
Directors and two Executive Directors.
The Directors’ biographies and details oflength of service are shown on pages 70,
71 and 74. All the Directors have written
letters of appointment that have been
approved by the Board and which areavailable for inspection at the Company’s
Annual General Meeting.
The Chair is responsible for leadershipof the Board and for ensuring its
effectiveness in all aspects of its role.
The division of responsibilities between therole of the Chair and the Chief Executive
has been agreed by the Board anddocumented in the Board Reference File.
The Board is responsible to Shareholders
for good corporate governance, setting
the Group’s strategic objectives, values
and standards, and ensuring thenecessary resources are in place toachieve the objectives.
The Board has delegated Group
responsibility for the management ofhealth, safety and the environment to
Ian Barkshire and he reports to the Boardon these matters at each meeting.

Board members’ length of service
Thomas Geitner

7 years

Richard Friend

5 years

Ian Barkshire

4 years

Mary Waldner

4 years

Gavin Hill

4 years

Steve Blair

3 years

Neil Carson

1 yearManagement Board
The Board delegates management of thebusiness to the Chief Executive. To assist
in this, the Chief Executive has created aManagement Board that consists of the
Executive Directors, senior managers withGroup‑wide functional responsibilities
and the Managing Directors of theprincipal operating businesses.

The Board is responsible to Shareholders
for delivering sustainable incremental
shareholder value throughentrepreneurial leadership within aframework of controls for managing risk.
The Board sets the Group’s strategy andmaintains the policy and decision‑making
framework in which this strategy isimplemented. Further, it verifies that thenecessary financial and human resources
are in place to meet strategic aims,
monitors performance against key
financial and non‑financial indicators,
oversees the system of risk management
and sets values and standards ingovernance matters.
The details of the way the Board operates,
including a schedule of matters reservedto the Board for decision, are set out in the
Board Reference File, which also includes
the documented policies and procedures
and sets out the roles and delegatedauthorities applying to the Directors, theBoard and the Board Committees. The
Board Reference File is reviewed annuallyas part of the annual governance review
undertaken by the Chair.
The Board retains control over strategy,
investments and capital expenditure, andlimits the decisions which can be taken bymanagement in the areas of strategic
and financial management andShareholder reporting. The Board alsodecides on the Group’s capital structure,corporate actions, mergers andacquisitions, major contracts and othercommitments, litigation and regulatory
proceedings, remuneration and share
incentive plans.
Where the Board delegates authority to
management it is on a structured basis,
which requires that proper management
oversight exists at the appropriate level.
Compliance with the delegation of
authorities is monitored by the Group’s
internal audit function.

Company Information

The Board meets on a regular basis, atleast seven times a year, and otherwise
as required. Board meetings are held at
a number of Group and other locations
during the year. The Board holds one
meeting specifically to discuss theCompany’s strategic direction during
the year.
Board meetings involve reviews offinancial and business performanceagainst the plan approved by the Board.
Risk management review, both at Grouplevel and also for each of the Group’sbusinesses, is embedded in the reporting
system. On a rotating basis, the Board
receives presentations from thebusinesses and key functional areas,
enabling it to explore specific issues inmore detail. Matters requiring a decisionby the Board are supported by apre‑circulated paper analysing all
relevant aspects of the proposal andrecommending a course of action.
Board papers are distributed in advanceof the relevant meeting in sufficient time toallow the Directors to prepare formeetings. Minutes of Committee meetings
are circulated to the relevant Directors.
In the very few instances when a Director
has not been able to attend Board or
Committee meetings, his/her commentson the papers to be considered at themeeting are communicated in advanceto the relevant Chair.
The Non‑Executive Directors meet without
the Executive Directors after most Board
meetings, with the Chair leading thesemeetings. The Non‑Executive Directors
also meet annually without the Chair in
attendance. The Senior Independent
Director chairs these meetings.
The Company Secretary and theCompany Secretary’s office areresponsible for implementing Board
procedures and for advising the Boardon corporate governance matters.

The Management Board meets monthly,
either in person or by video or telephone
conference, and focuses on Group‑wide
performance, strategy and risk
management.

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Company Leadership and Purpose continued
Corporate Governance Report continued
Board balance andindependence
The Governance Code requires theBoard to be of sufficient size that thebalance of skills and experience isappropriate for the requirements of thebusiness and that there is a balance of
Executive and Non‑Executive Directors
such that no individual or small group ofindividuals can dominate the Board’s
decision making. The Board iscommitted to promoting diversity andinclusiveness of all kinds, both on the
Board and throughout the Group.
The Board recognises that diversity,
construed in its broadest sense andincluding gender, religious and ethnic
diversity, social and economic
backgrounds, age and cognitive andpersonal strengths, is an importantfactor in Board and, indeed, operational
effectiveness. The way in which theBoard manages diversity within the
Board is reported on more fully in the
Nomination Committee Report on
page 81 and diversity is more generally
reported on pages 59 and 60 in the
Corporate Responsibility Report.
The composition of the Board and the
combination of diverse backgrounds andexpertise of the Non‑Executive Directors
meet these principles.
Neil Carson, Chair, was appointed to
the Board as Non‑Executive Chair in
December 2018. Neil has a proven trackrecord of delivering growth as a leaderof Johnson Matthey, a FTSE 100
science/R&D based company, where heworked for over 30 years, including from2004 until his retirement in 2014 as Chief
Executive, gaining experience of
operations management, technicalinnovation and strategic planning; allskills which are highly complementary to
the Company’s needs. He has also
worked across a wide range of industry
sectors, having served as a
Non‑Executive Director to a number of
UK listed companies, on a number ofGovernment bodies and has worked with
the Corporate Leaders Group on Climate
Change. In June 2019, Neil wasappointed as a Non-Executive Directorof the Board of Royal Dutch Shell plc.

Steve Blair was appointed to the Board
in July 2017. Prior to his appointment, he
was Chief Executive of Teledyne e2v
Limited (previously e2v technologies plc),
a manufacturer of sensors, radio
frequency generators andsemiconductors and a listed company
until its acquisition by Teledyne
Technologies in March 2017. Previously
he was Business Group Director forSpectris plc. He has broad operational
experience and a breadth of experience
covering established and high‑growth
emerging markets, strategic planningand portfolio development.
Steve is Senior Independent Director andalso a member of the Audit and Risk,
Remuneration and Nomination
Committees.
Richard Friend was appointed to theBoard as an independent Non‑Executive
Director in September 2014. Richard is a
Fellow of the Royal Society and Fellow of
the Royal Academy of Engineering. He is
also Cavendish Professor of Physics, aFellow of St. John’s College at the
University of Cambridge and a Director of
the Winton Programme for the Physics of
Sustainability and of the Maxwell Centre.
He was knighted for services to physics in
the Queen’s Birthday Honours List in
2003. He has also been directly involvedin the commercialisation of technology
through several spin‑off companies fromthe University of Cambridge.
His research encompasses the physics,
materials science and engineering ofsemiconductor devices made withcarbon-based semiconductors,
particularly polymers. His researchadvances have shown that thesematerials have significant applications
in LEDs, solar cells, lasers, photovoltaics
and electronics. Richard’s knowledge
and understanding of the science that
underpins the Group’s businesses andresearch and development programmes
bring unique insights to the Board.

Thomas Geitner was appointed to theBoard as an independent Non‑Executive
Director in January 2013. He is a
graduate of the Technische Universität
München and holds an INSEAD MBA.
Thomas has extensive international
experience in the technology andengineering sectors, having spent morethan 30 years in businesses operating
across the globe. Having worked in a
number of global companies, heunderstands the importance of
remuneration connecting with strategy
to appropriately incentivise the executive
team. The Board believes that his skills,
experience and knowledge makeThomas well suited to chair theRemuneration Committee.
Thomas is Chair of the Remuneration
Committee and also a member of the
Audit and Risk and Nomination
Committees.
Mary Waldner was appointed to theBoard as an independent Non‑Executive
Director in February 2016. She is Chief
Financial Officer at Lloyd’s Register.
She has a Masters degree in physics
from Oxford University and is a Fellow of
the Chartered Institute of Management
Accountants.
Mary has a broad range of financial
experience in high technology
companies that operate internationallyand has worked in a number of seniorfinancial roles within major public limited
companies, including as Group FinanceDirector of Ultra Electronics plc andDirector, Group Finance, at QinetiQ
Group plc. The Board believes that
Mary’s background gives her the various
insights needed to be a well-qualified
Chair of the Audit and Risk Committee.
Mary is Chair of the Audit and Risk
Committee and also a member of theRemuneration and Nomination
Committees.

Richard is a member of the Audit andRisk, Remuneration and Nomination
Committees.

Neil is also Chair of the Nomination
Committee and a member of theRemuneration Committee.

74

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Strategic Report

Governance

Financial Statements

Independence of
Non‑Executive Directors

Board development
and evaluation

In the opinion of the Board, Steve Blair,
Richard Friend, Thomas Geitner andMary Waldner are independent and
Neil Carson, Chair of the Board, wasindependent on appointment.

Board development

The Board considers that they are eachindependent in character and judgement,
provide constructive challenge and do
not have relationships which are likely toaffect their judgement. This opinion isbased on current participation andperformance on both the Board andBoard Committees, including
consideration of the length of service
at Oxford Instruments plc.

Term of appointment of
Non‑Executive Directors
Each Non‑Executive Director was
appointed for an initial term of three
years. In line with Provision 18 of theGovernance Code, the Board has
determined that all Directors of the Board
are to be subject to annual re‑election by
Shareholders and, accordingly, theappropriate resolutions will be put toShareholders at the Company’s
forthcoming AGM.

Composition of the Board
5		
			
		

2

Independent

Non‑independent

On appointment, Directors undertakean induction process which is designed
to develop knowledge and understandingof the Group’s businesses through visits tovarious Group operating sites, discussionof relevant technology, as well as productdemonstrations, briefings frommanagement and familiarisation withinvestor perceptions of the Group. This
induction is supported by briefing papers
prepared by the Company Secretary.
The operating businesses’ senior
management teams and functional
leaders present to the Board on a regularbasis. Non‑Executive Directors areencouraged to meet individual membersof the senior management team and areinvited to participate in relevant events.
This they have done during the year
under review.
Throughout the year, Non‑Executive
Directors attend Oxford Instruments
events, exhibitions and award
presentations.
The Company Secretary and her office
act as advisers to the Board on mattersconcerning governance and ensurecompliance with Board procedures.
All Directors have access to this advice
and a procedure also exists for Directors
to take independent professional advice
at the Group’s expense. No such advice
was sought during the year. The
appointment and removal of theCompany Secretary are matters for the
Board as a whole.

Board evaluation
To comply with the provisions ofPrinciple L of the Governance Code,the Board expects to carry out anexternally facilitated review of Board
effectiveness at least triennially. It
underwent such an externally facilitatedevaluation of the Board in 2018, in which
ICSA Board Evaluation carried out a fullevaluation of the performance of theBoard of the Company and concluded
that: the Board was performing well in allareas that were reviewed; the Board
comprised a strong team of Executive
and Non‑Executive Directors; theCommittees of the Board were effective;
and the Board has adopted highgovernance standards throughout.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

This year, the Chair determined withthe rest of the Board that the annual
evaluation of the performance andeffectiveness of the Board, its principal
Committees and its Directors should be
subject to an internal review. This exercise
was under the control of the Chair, using
detailed questionnaires completed by all
Directors in relation to the key areas ofBoard accountability and thearrangements in place to enable effective
focus on these areas. Topics covered
included Group strategy, performance,delegation and accountability, success,development and reward, Board andCommittee composition and Committee
effectiveness, Board training, internal
control and risk management. The outputof the questionnaires was shared with all
Directors. The Chair had one‑to‑one
discussions with each Director at which
they discussed individual performanceand the operation of the Board and its
Committees in some detail. Each
Committee followed the same process
and the Chair of each held similar
meetings with members of their
Committees. The Senior Independent
Director discussed with theNon‑Executive Directors the effectivenessof the Chair of the Board. The process
culminated in a round table discussion,
chaired by the Chair, at which each Chair
reported on his/her findings and led an
open and frank discussion on theeffectiveness of the operation of theBoard and Committees. The Board cameto a collective view around what worked
well and where there were areas for
improvement. The process as a whole
allows the Chair, with the Board, toobjectively evaluate the overall balanceand effectiveness of the Board and its
Committees.

75

Company Leadership and Purpose continued
Corporate Governance Report continued
Board development andevaluation continued
Board evaluation continued
The Board concluded that it is operating inan open and transparent way with all
Board members having freedom toexpress their opinions, which creates anappropriate environment to take effective
decisions and provide appropriate
challenge and support to the Executive
Directors. The Board noted that good
progress has been made on all the areasof attention identified as part of last year’s
effectiveness review and these were nolonger identified as being of particularconcern. In summary, this year’s evaluation
found that the Board and each Committee
was considered to be working well andmeeting its legal obligations. In terms ofpossible areas of attention in the future,
the Board evaluation process highlighted
the following as areas for improvement:(i) to improve access of the Board to theviews of customers;(ii) further refinement in the reporting ofongoing activity and action against thestrategic plan; and(iii) there is more work to do on climatechange and sustainability, including
drawing together the part Oxford
Instruments has to play in facilitating
advances in climate change andsustainability and to communicate thismore effectively to all stakeholders.

The Chair of the Audit and Risk
Committee confirmed that she had
concluded that her Committee isoperating effectively, meeting its legal
obligations and providing an appropriate
focus on risk. The questionnaires andindividual meetings put forward somehelpful suggestions on how to further
improve the effectiveness of theCommittee:

The Chair of the Remuneration
Committee reported that there had been
good progress on the suggestions for
improvement made last year, that themembers of the Committee considered
they were better informed of market
practices ahead of the process fordetermining the new Remuneration
Policy, and the consultation process had
been well run.

(i) to take the opportunity when
onboarding the new external auditor
to take a fresh look at the way theCommittee operates;

Overall, the Board concluded that it
and its Committees had performed
satisfactorily in the year under review.

(ii) to look more holistically at Group-levelrisks; and(iii) as the new ERP system is rolled out
through the Group, to review themethods and reporting of controls.
The Chair of the Nomination Committee
reported that there was consensus thatthe process for appointing a new NED
was well run and had produced awell-qualified candidate who is now inthe process of being appointed and that
the Committee had carried out the rest ofits duties effectively.

To complete the internal Board
evaluation, the Chair reviewed theperformance of each Board member
and has confirmed with the Nomination
Committee that all Directors continue toperform effectively and demonstratecommitment to their roles. In May 2020,
the Chief Executive, Ian Barkshire, wasappraised by the Chair and theNon‑Executive Directors and the Group
Finance Director, Gavin Hill, wasappraised by the Chair, the Non‑Executive
Directors and the Chief Executive. Led by
the Senior Independent Director, Steve
Blair, the Non‑Executive Directors carriedout an evaluation of the Chair’s
performance and concluded that they
were satisfied with the Chair’s
commitment and performance.

Attendance at meetings
Only the Committee Chair and members are entitled to be present at a meeting of the Audit and Risk, Nomination or Remuneration
Committees, but others may attend by invitation. No Director votes on matters where he or she has a conflict of interest. Further
details of the individual Committees’ activities are described below and in the Committee reports.
The following table sets out the frequency of, and attendance at, Board and principal Board Committee meetings for the year to
31 March 2020:
Board

Audit and Risk
Committee

Remuneration
Committee

Nomination
Committee

Number of meetings held

9

7

6

3

Neil Carson

8

61

6

3

Ian Barkshire

9

7

1

1

4

31

Gavin Hill

9

7

1

1

4

31

Steve Blair

9

7

6

3

Richard Friend

9

7

6

3

Thomas Geitner

9

7

6

3

Mary Waldner

9

7

5

3

1.

76

Attended by invitation.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Board Committees
The Board has formed the following
Committees: Audit and Risk, Nomination,
Remuneration, and Administration.
Membership of Board Committees, which
is set out on pages 70 and 71 and above,is determined by the Board and isreviewed regularly. The written terms ofreference of the Board Committees arereviewed annually by each Committee
and the Board and are available on the
Company’s website at www.oxinst.com/
investors and from the Company onrequest. They will be on display at theAnnual General Meeting.
Detail on the operation of each of the
Audit and Risk, Remuneration and
Nomination Committees is to be foundwithin the relevant Committees’ reports.

Nomination Committee
The Nomination Committee comprises
all the Non‑Executive Directors and ischaired by the Chair of the Board.
The Nomination Committee is responsible
for leading the process in the formal
selection and appointment of Directors
and ensures plans are in place for an
orderly succession of Board and senior
management positions and oversees thedevelopment of a diverse pipeline forsuccession.

Remuneration Committee
The Remuneration Committee comprises
all the independent Non‑Executive
Directors and the Chair of the Board.
Thomas Geitner is the Chair of theCommittee. The Board considers that
Thomas, with his experience of working
at senior levels in global companies,
including high technology companies,
has an appropriate blend of skills to makea successful Chair of the Remuneration
Committee. The members of theCommittee are appointed by the Board.

Financial Statements

Company Information

The Remuneration Committee has
responsibility for determining the policy
for the remuneration packages for
Executive Directors and the bonus andshare option strategy for the Group’s
executive management. Independent
professional advice is sought when
considered necessary. The Chair and the
Executive Directors are responsible forfixing the remuneration of theNon‑Executive Directors and theRemuneration Committee is responsible
for fixing the remuneration of the Chair.
No Director is involved in the process thatsets his/her own remuneration.

Annual General Meeting (AGM)

The Chief Executive is invited to attend
all or part of Remuneration Committee
meetings as deemed appropriate, forexample when consideration is being
given to the performance of other
Executive Directors and on significant
Group‑wide changes in salary structure
and terms and conditions affecting other
employees at senior executive level.

The next AGM will be held on
8 September 2020.

Audit and Risk Committee
The Audit and Risk Committee comprises
all the independent Non‑Executive
Directors and its Chair is Mary Waldner.
Other members of the Board, senior
management and the external auditor
are invited to attend all or part of any
meetings. The Board has determined that
Mary, with her background in financial
management, is the designated financial
expert and is a well qualified Audit
Committee Chair.
The Audit and Risk Committee’s main
responsibilities are focused on financial
reporting, external audit, internal audit,
internal controls and risk management.
Full details of the operation and the workof the Audit and Risk Committee areincluded in the Audit and Risk Committee
Report set out on pages 83 to 89.

The AGM is an opportunity for the Board
to meet Shareholders. At its AGM, theGroup complies with the provisions of theGovernance Code relating to thedisclosure of proxy votes, the separationof resolutions and the attendance ofCommittee Chairs. The Group arranges
for the Report and Financial Statements
and related papers to be posted on its
website and, where Shareholders haveelected to receive paper copies, posted
to Shareholders so as to allow at least
20 working days for consideration prior
to the AGM.

Investor relations
The Group places considerable
importance on regular communications
with its Shareholders, with whom it has
an ongoing programme of dialogue.
All Shareholders are encouraged toparticipate in the AGM. This year, in lightof the potential restrictions on movement
and large-scale meetings, Shareholders
are encouraged to raise questions in the
period leading up to the AGM.
The Non‑Executive Directors meetinformally with Shareholders both before
and after the AGM and respond to
Shareholder queries and requests.
The Chair and the Senior Independent
Director make themselves available
to meet Shareholders as required.
All Group announcements are posted on
the Group website, www.oxinst.com/
investors, as soon as they are released.
The Investor Relations section of thewebsite provides financial and otherinformation on the Group and the website
itself carries additional information on theGroup’s products, services and markets.

Administration Committee
The Administration Committee consists ofa minimum of two Directors and deals
with items of a routine and administrative
nature. At each of its meetings, the Board
receives a summary outlining all matters
decided by the Administration Committee
since the previous Board meeting.

Oxford Instruments plc Report and Financial Statements 202077

Company Leadership and Purpose continued
Corporate Governance Report continued
Risk management

Internal audit and assurance

Within the Group there is an ongoingprocess for identifying, evaluating andmanaging the significant risks faced by
the Group that is embedded in all
business units. Day‑to‑day managementof this process has been delegated by the
Board to the Executive Directors. Detailsof the process are set out in the Audit andRisk Committee Report on page 84.
This process has been in placethroughout the financial year and up to
the date of approval of the Report and
Financial Statements. It is regularly
reviewed by the Board of Directors andaccords with the principles of theGovernance Code.

The Group’s internal audit function
assesses the adequacy and effectivenessof the management of significant risk
areas and provides oversight ofoperational management’s front line andassurance activities. Further details of thescope of internal audit activities are set
out in the Audit and Risk Committee
Report on pages 88 and 89.

The Board has carried out a robust
assessment of the principal risks facing
the Group, including those which threaten
its business model, future performance,
solvency and liquidity. Details of all majorrisks identified, and the mitigating actions
adopted, are reported to and reviewed by
the Board and the Audit and Risk
Committee on at least a quarterly basis.
The principal risks set out on pages 50 to
54 provide an overview of the major risks
and uncertainties faced by the Group.
All operating businesses follow a standard
process for risk identification andreporting. The process is further describedon page 84. On a regular basis, eachbusiness reviews and updates its risk
register which is then reported to the Chief
Executive. If a material risk changes orarises, the Managing Director of thebusiness reports this to the Chief
Executive, at which time there is a
discussion on the adequacy of the
mitigating actions taken. In addition, theBoard and the Audit and Risk Committee
consider risks to the Group’s strategic
objectives which arise at a Group level anddevelop appropriate actions to manage
and mitigate these risks where possible.

78

Internal control
The Board has accountability forreviewing and approving the adequacyand effectiveness of internal controls
operated by the Group. This covers
financial, operational and compliance
controls and risk management.
The management of each business is
responsible for risk management andcontrol within their business and, throughthe Management Board, implementing
Board policies on risk and control.
The internal control framework includes
central direction, oversight and risk
management of the key activities within
the Group. This framework includes afinancial planning process which
comprises a five‑year planning modeland a detailed annual budget which is
subject to Board approval. All Groupbusinesses’ results are reported monthly
and include variance analysis to budget
and the prior year. Management also
prepare monthly reforecasts.
Control activities include policies andprocedures for appropriate authorisation
and approval of transactions, theapplication of financial reporting
standards and reviews of significant
judgements and financial performance.
Financial, regulatory and operational
controls, procedures and risk activities
across the Group are reviewed by theGroup’s assurance function.

The internal control framework has
been designed to manage rather thaneliminate material risks to theachievement of strategic and businessobjectives and can provide only
reasonable, and not absolute, assurance
against material misstatement or loss.
Because of inherent limitations, internal
controls over financial reporting may notprevent or detect all misstatements.
There has been no material change to theGroup’s internal control framework during
the period covered by this Report and
Financial Statements.
The key components designed to provide
effective internal control within the Group
include the following:•

there is a formal schedule of mattersreserved to the Board for decision;other than these matters, the Board
delegates to the Chief Executive andreviews the delegation of authorities
throughout the management structure;•

the Group’s management structure isheaded up by the Management Board.
Its membership comprises the
Executive Directors, senior managers
with Group‑wide functional
responsibilities and the heads of theprincipal businesses of the Group’s
activities. Day‑to‑day responsibility
for the management of the Group isdelegated to the Management Board.
The responsibility is based on theidentification of separate businesses
for each of the Group’s activities forwhich there are clearly defined linesof management responsibilities at alllevels up to and including the Group
Board and the Group’s accounting andreporting functions reflect thisorganisation;

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements•

financial executives within Groupbusinesses report to their own
operational head but there is also awell‑established and acknowledged
functional reporting relationshipthrough to the Group Finance Director;•

the Board receives regular updates
on pensions, corporate responsibility,business ethics and health and safety
and the Audit and Risk Committee
receives regular updates on treasury,tax, insurance and litigation;•

the Board reviews strategic issues andoptions formally once a year during
the annual strategic planning process
and during the year as appropriate.
In addition, the Executive Directors
maintain a five‑year planning modelof the Group and its individual
businesses;•

authorisation limits are set atappropriate levels throughout theGroup; compliance with these limits
is monitored by the Group FinanceDirector and the Group Internal Audit
and Risk Manager;•

there is a detailed and risk‑based
delegation of authority structure inplace for sales contracts andmanaging commercial risks. Contracts
with onerous terms and conditions(such as unlimited liability contracts)
require approval by either the Chief
Executive or Group Finance Director;•

the International Trade Committeemonitors, considers action and makes
recommendations around the
management of key risks relating tointernational trade, including sanctions,
export controls and tariffs; and•with respect to the UK pension
scheme, the Group nominates half ofthe trustee directors of the corporate
trustee to the pension scheme,
involves as appropriate its own
independent actuary to review
actuarial assumptions, agrees theinvestment policy with the trustee,works with the trustee on its
investment sub‑committee to deal
with day‑to‑day investment matters,
ensures there is an independentactuarial valuation every three years
and agrees funding levels to provide
adequate funding to meet the benefit
payments to the members as theyfall due.

••annual budgets are prepared for eachof the Group’s businesses which
include monthly figures for turnover,profit, capital expenditure, cash flow
and borrowings. The budgets arereviewed through the Groupmanagement structure and resultin a Group financial budget which isconsidered and approved by the
Board;
the businesses prepare monthly
management accounts which
compare the actual operating resultwith both the budget and the prioryear. The businesses also prepare
rolling reforecasts for orders, turnover,
operating profit and cash. Both arereviewed by the Board at each of its
scheduled meetings;•

the Board approves all acquisition anddivestment proposals and there areestablished procedures for theplanning, approval and monitoringof capital expenditure;•

for all major investments, theperformance of at least the first twelve
months against the original proposal isreviewed by the Board;•

an internal audit is carried out througha system of regular reviews of thefinancial and non‑financial internal
controls at each site. This is further
reported on in the Audit and Risk
Committee Report on pages 83 to 89.
These reviews are co-ordinated by theGroup Internal Audit and Risk
Manager;Company Information

Susan Johnson‑BrettCompany Secretary
9 June 2020

Oxford Instruments plc Report and Financial Statements 202079

Composition, Succession and Evaluation
Nomination Committee Report
Attendance at meetings year ended 31 March 2020
Nomination
Committee

Number of meetings held

Date of appointment
to Committee

3

Number of meetings attended:
Neil Carson (Chair)3

1 December 2018

Steve Blair

3

1 July 2017

Richard Friend

3

1 September 2014

Thomas Geitner

3

15 January 2013

Mary Waldner

3

4 February 2016

Number of meetings in attendance:
Ian Barkshire1

3

Gavin Hill1

3

1.

The Committee continues
to focus on ensuring thatthe composition of theBoard is appropriate forthe delivery of theGroup’s strategy.

Dear Shareholder,I am pleased to introduce the Nomination
Committee Report for 2019/20. The
Committee’s key objective is to support
the Board in fulfilling its responsibilities toensure there is a formal, rigorous andtransparent process for the appointmentof new Directors to the Board and toensure that effective succession planning
processes are in place across the Group.
During the year, we reviewed thesuccession plan for the Board andidentified a need to bring on board an
additional Non-Executive Director withremuneration committee experience who
has the appropriate skills to potentiallytake over from Thomas Geitner as Chairof the Remuneration Committee when hesteps down in due course. The searchwent well and we met with someinteresting, well qualified candidates.
From our shortlist, we were able torecommend to the Board our preferredcandidate, whom the Board agreed toappoint. I am pleased to confirm that
Alison Wood, an experienced
remuneration committee chair, will bejoining the Board on 8 September 2020.

80

Attended by invitation.

Key responsibilities•

The Committee is responsible for assisting the Board in the formal selection andappointment of Directors. It considers potential candidates and recommends
appointments of new Directors to the Board.

•

The Committee considers succession planning for the Board and the top level ofsenior management.

•

Annual performance appraisal of the Chief Executive.

•

Annual review of the Committee’s terms of reference.

The Committee will continue to focus on
ensuring that the present and futurecomposition of the Board is appropriate
for the delivery of the Group’s strategy
and to maintain and, where applicable,
broaden, the range of expertise,
experience and diversity of thoseserving on the Board.
Members of the Committee have beendelighted to see the continuing
development of leadership teams,
succession planning and processes thatencourage both the onboarding of newtalent and further development of the
careers and capabilities of employees
across all businesses and functions.
During the year, we have seen
management focus on building anorganisation with a broad range ofperspectives and experiences where
difference is valued and everyone cancontribute to their full potential. Clear
progress is being made in developing
the pipeline of talent and capabilities
throughout the Group that we will need tocontinue to be successful into the future.

The Committee will continue to work toensure all relevant requirements in the
UK Corporate Governance Code are met.
Our objective is to ensure that we havea high capability, diverse workforce thatenables us to better understand ourcustomers and markets. Building anorganisation with a broad range ofperspectives and experiences increases
our ability to innovate, to make the rightdecisions and to exceed our customers’
expectations. In order to retain, attractand enable the best people to perform,
we work hard to create an inclusive
environment and culture, where
difference is valued and everyone
can contribute to their full potential.

Neil Carson
Chair of the Nomination Committee
9 June 2020

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

The Nomination Committee comprises all the Non‑Executive Directors, under the chairmanship of the Chair of the Board.
The composition of the Committee is therefore compliant with Provision 17 of the UK Corporate Governance Code 2018 (the“Governance Code”). Full details of the Committee’s responsibilities are set out in its terms of reference, which can be foundon our website at www.oxinst.com/investors-content/advisers-and-company-secretary, and include all matters requiredby the Governance Code.
The main responsibilities of the Committee are summarised below:•

the Committee is responsible for assisting the Board in the formal selection and appointment of Directors. It considers
potential candidates and recommends appointments of new Directors to the Board:•

there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board, the prime
responsibility for which is delegated to the Committee;•

the purpose of the Committee’s selection process is to identify the most suitably qualified candidates who willcomplement and balance the current skills, knowledge and experience of the Board:••

recommendations for appointments seek to strengthen the Board by selecting the best candidate based on meritand against objective criteria, including time available and the commitment that will be required of the potential
Director;•each appointment process begins with an evaluation of the balance of skills, knowledge, experience and diversity
existing on the Board that is drawn up through a series of meetings between the Committee Chair and Directors;•

the Board recognises that diversity, construed in its broadest sense and including gender, religious and ethnic
diversity, age, personality and background, is an important factor in Board and operational effectiveness;•in drawing up long and shortlists of potential candidates, the Committee considers not only relevant skills,
experience and knowledge but also diversity; and•the Committee actively considers diversity, in all its forms, before making a recommendation to appoint to theBoard;

the Committee takes external advice when considered appropriate and will only engage executive search firms who
have signed up to the Voluntary Code of Conduct for Executive Search Firms on gender diversity and best practice;•

the Committee considers succession planning for the Board and the top level of senior management;•

annual performance appraisal of the Chief Executive; and•annual review of the Committee’s terms of reference.

Oxford Instruments plc Report and Financial Statements 202081

Composition, Succession and Evaluation continued
Nomination Committee Report continued
Principal activities of the Committee during the year
Succession planning
The Committee carried out its annual review of the succession plan for the Board, reviewing the balance of skills on the
Board and those needed for the future, lengths of tenure and diversity, and determined that an additional NED wasneeded.
The Group HR Director and the Chief Executive presented the work that had been carried out within the business on
succession planning, talent management, and leadership, including at Management Board and Executive Director level.

Constitution of the Board
The Committee undertook a search for, and appointed, a Non-Executive Director of the Board.
•

The Committee set up a process to identify potential candidates and develop a shortlist for consideration by the Board.
•

The Committee established a sub‑committee comprising the Chair, CEO and Group HR Director.

•

The sub-committee’s work comprised:•establishing a clear specification of requirement and drawing up a description of the role and desired capabilities
for candidates;•

taking external advice on market conditions and expectations;•considering diversity, including gender, religion, ethnicity, age, personality and background, reviewing a longlist of
potential candidates, whittling it down to a shortlist, undertaking interviews as appropriate;•drawing up a shortlist of candidates for discussion with the Committee; and•all members of the sub-committee met with the preferred candidates.

•

All members of the Committee met with, in person or by video conference, the final choice of candidate.

•

The Committee convened a meeting where it considered each Director’s feedback and agreed its recommended
candidate.

•

Appropriate references were taken up for the final shortlisted candidates.

•

The Remuneration Committee convened a meeting to consider and agree the fees for the appointment.

•

The Board convened a meeting at which the Committee’s recommended candidate was considered and approval was
given to appoint the preferred candidate at the level of fees agreed by the Remuneration Committee.

•

Following successful completion of the search, on 8 June 2020, the Company announced that Alison Woods is to beappointed a Non-Executive Director with effect from 8 September 2020.

•

A resolution will be put to Shareholders at the AGM in September 2020 to confirm the appointment.

The Committee, taking into account the performance and value that each Director brings to the Board, has considered
whether each of the Non‑Executive and Executive Director appointments should be renewed for a further year and has
confirmed that this is indeed the case. Accordingly, a resolution to re‑appoint each Director will be put to Shareholders at
the Company’s forthcoming AGM.

Performance review of Executive Directors
The members of the Committee also carried out their annual review of the performance of:•

the Chief Executive;•

with the help of the Chief Executive, the Group Finance Director; and•excluding the Chair, reviewed the performance of the Chair.

Other
Annual review of the performance of the Nomination Committee and of its terms of reference.

82

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Governance

Financial Statements

Company Information

Audit, Risk and Internal Control
Audit and Risk Committee Report
Attendance at meetings year ended 31 March 2020
Audit and Risk
Committee

Number of meetings held

Date of appointment
to Committee

7

Number of meetings attended:
Mary Waldner (Chair)

7

4 February 2016

Steve Blair

7

1 July 2017

Richard Friend

7

1 September 2014

Thomas Geitner

7

15 January 2013

Number of meetings in attendance:
Neil Carson

61

Ian Barkshire

71

Gavin Hill

71

1.

During the course of theyear, the Committee has
increasingly focused on key
non-financial risk areas.
The short-term focus for
2020/21 is on covid-19 risk
mitigation actions.
Dear Shareholder,
During the year, the Group has continued
to develop its approach in managing the
key risks it faces. In particular, the past
year has seen improvements in theGroup’s policies and procedures for
managing international trade risks
relating to export controls and sanctions.
Work in that respect has been a key
element of the internal audit programmein 2019/20 and the focus on those risks
will continue in the new financial year. In
terms of the external environment at theyear end, it should come as no surprisethat covid-19 superseded Brexit as themost significant external risk faced by theGroup. It has contributed to major global
economic uncertainty and Oxford
Instruments will not be immune from its
effects. Our operations in California were
temporarily shut down following the “stayat home” order issued in the state and wehave already experienced a contraction
in demand for our products as customers
review their expenditure commitments.
At the time of drafting this report, there
remains considerable uncertainty

Attended by invitation.

Key responsibilities•

Financial reporting.

•External audit.

•

Internal controls and risk management.

•Internal audit.

•

Business malpractice reporting.

regarding the duration and extent of
restrictions to our key operations in the
UK. It is incumbent on the Group to takeprudent actions to mitigate the liquidity
risks that arise from this uncertainty andShareholders have already seen this,through actions designed to preserve
cash in the short term. Equally, with astrong balance sheet, and net cash ofsome £67m at the year end, the Group iswell placed to navigate the troubled
waters of the current economic
environment.
The composition of the Audit and Risk
Committee has remained the same for asecond consecutive year and the scopeof the Committee’s role and oversight has
not changed significantly. However, as
set out further on page 88, the Audit
and Risk Committee has overseen thetendering process for the appointmentof the external auditor. This led to theappointment of BDO with effect from
the March 2021 year end.

Oxford Instruments plc Report and Financial Statements 2020

During the year the Audit and Risk
Committee fulfilled its core remit relating
to corporate governance by, inter alia,
evaluating key elements of accounting
estimates and judgement, assessing the
integrity of the Financial Statements andby considering whether the Financial
Statements, taken as a whole, are fair,balanced and understandable. Further,
the Committee has performed its annual
evaluation of the effectiveness of theinternal audit function and has reviewed
external auditor independence throughthe monitoring of the provision of
non-audit services.
The areas of continuing focus for the
Audit and Risk Committee that are
particularly relevant to the Group include
the non-financial audit topics of new
product innovation, human resources,
health and safety, and IT andcyber‑security. Further, in terms of thefinancial internal audit programme, theCommittee has retained a balanced
approach through the inclusion of a corefinancial controls review to complement arisk-based approach that is derived from83

Audit, Risk and Internal Control continued
Audit and Risk Committee Report continued
the Group’s risk register. The annualinternal audit programme is reviewed andagreed by the Audit and Risk Committee.
As set out further below, key risk areas ofinternal audit focus in the year included
customs and export controls complianceand the implementation of the new ERP
system, CSI, at the X-Ray Technology
business unit.
In terms of risk management, the overall
approach and methodology have been
largely consistent with the prior year.
At every meeting, the Committee reviews
the Group’s risk register, which is updated
on a quarterly basis. Further, there are
deeper dives into business unit specificareas of risk which are undertaken withthe senior management of individual
business units from time to time. These
are typically performed by rotation sothat the Committee benefits fromfirst-hand experience of the operatingsites in the UK.
In the forthcoming financial year, therisk-based audit topics will include tworecurring elements of CSI implementationand export controls compliance. Further,
the internal audit plan includes reviewsof business continuity plans and Brexit
readiness as risk areas that areconsidered to be particularly importantin the current financial year.
Looking back at the past financial year,
the main areas of recurring work aresummarised below:•

review of the Financial Statements,
the key accounting judgements used
to compile them and an assessment
as to whether, taken in entirety, they
are fair, balanced and understandable;•

review of the viability statement issued
by the Group, encompassing themethodology used in the supporting
calculations;•review of the statement issued at theAGM and the statements issued withresults at the half year and year end;•

review and discussion of the Grouprisk register at each of its meetings;•

an annual review of treasury andtax matters;

84•

a bi-annual review of significant areasof ongoing litigation and potential
litigation risks;•assessment of internal audit’s
effectiveness; and•review of external audit’s effectiveness.

Further, the Committee has focused on
the following specific subject areas
during the last year:•

cyber-security and wider IT risks;•

export controls compliance;•

Brexit-related risks;•business unit specific risks in
NanoScience and Andor; and•the implementation of CSI at X-Ray
Technology.

The remainder of the Audit and Risk
Committee Report is set out in thefollowing sections:•composition and terms of reference;•role and responsibilities;•

summary of activities during the year;•

significant matters relating to the
Financial Statements;•

external auditor and auditor
independence;•

internal audit, internal control and risk
management; and•whistle-blowing.

As in previous years, I am planning toattend the AGM in September (subject toany covid-19-related constraints). In themeantime, if you have any questions orcomments I would be delighted to hearfrom you.

Mary Waldner
Audit and Risk Committee Chair
9 June 2020

Composition and termsof reference
The four members of the Audit and Risk
Committee have served throughout theyear. Mary Waldner continues in the roleof Chair. The other members are Richard
Friend, Thomas Geitner and Steve Blair.
The FRC’s guidance on the compositionof audit committees requires that at least
one member of the Committee has recent
and relevant financial experience. In her
current role, Mary Waldner is the Chief
Financial Officer of Lloyd’s Register. In thepast she has held senior financial roles atseveral companies that are listed on the
London Stock Exchange. Based on thisexperience, the Board considers that
Mary meets the criterion of having recent
and relevant financial experience and isalso independent. With a broad range ofexperience in science and technology inboth the academic and corporate worlds,
Richard, Steve and Thomas bringvaluable skills and experience to ensurethat the Committee provides both insightand challenge.
The Committee has focused its activities
on the areas that represent the mostsignificant risks to the Group. These areinformed through both the Group risk
management processes and from wider
experience gained outside the Group.
The key risk areas reviewed during thepast year have included international
trade compliance, Brexit, new productinnovation, financial reporting, pensions,tax and cyber-security. In evaluating theGroup’s response to these risk areas, theCommittee has drawn on reports andpresentations from a range of subject
matter experts that include the Grouphead of internal audit and risk, the Group
director of accounting, tax and treasury
and the Group director of information
technology. Further, to complement
those reviews of risk areas, theCommittee has conducted deeper
dives into specific business units’ risk
areas through discussions with the senior
management teams of certain business
units. The Committee also meetsregularly with the external auditor andat each meeting has the opportunity tomeet the auditor without the Executive
Directors in attendance.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Role and responsibilities

External audit

The Committee’s responsibilities are set
out in its terms of reference. These can befound on our website at www.oxinst.
com/investors-content/advisers-andcompany-secretary. The Committee
periodically reviews both its terms ofreference and its effectiveness andmakes recommendations to the Board if itconsiders that any changes are required.
The Committee’s principal responsibilities
are as follows:•

The Committee oversees the external
audit relationship which includes
making recommendations to theBoard regarding the appointment of
the external auditor.

•

The Committee discusses external
audit planning and strategy at regularmeetings with the external auditor.
This includes discussions around key
areas of audit risk and financial
reporting requirements. Following its
review, the Committee approves theannual audit plan.

Financial reporting•••

The Committee reviews the Financial
Statements and the results
announcements at the half year andfull year. It also advises the Board
whether it considers that the Annual
Report and Financial Statements,
taken as a whole, are fair, balanced
and understandable. Further, theCommittee assesses whether there issufficient information and disclosure
for Shareholders to evaluate theCompany’s performance, businessmodel, strategy and risks.
As part of its review of the Financial
Statements, the Committee considers
areas that require significant financial
reporting judgements, the accounting
policies used, and compliance withaccounting standards. The
Committee’s comments on thesignificant financial reporting
judgements are set out on pages 87
and 88. The Committee also considers
whether all material matters havebeen taken into account and treatedappropriately.

•

At both the half year and year end theCommittee reviews the key external
audit findings and considers whether
any adjustments to the Financial
Statements are required as a result.

•

The Committee performs an annual
evaluation of the effectiveness of theexternal audit process.

•

The Committee monitors and assesses
the external auditor’s independence
and objectivity. This includes taking
responsibility for the policy for
non-audit services and review of all
non‑audit services provided.

Company Information

Internal audit•

Undertakes an annual assessment of
the effectiveness of the internal audit
function and approves the annualinternal audit programme.

•

Reviews all financial internal audit
reports and summaries of nonfinancial internal audit activities.

Business malpractice•

Reviews the adequacy of the Group’s
whistle-blowing procedures and the
response to any reports of businessmalpractice.

•

Reviews the Group’s procedures andcontrols relating to the prevention of
fraud and the detection of bribery.

Reporting•

Reports on the Committee’s activities,
in accordance with the UK Corporate
Governance Code.

•

Reports to the Board on any matter it
considers requires action or
improvement.

•

Provides advice to the Board on
Directors’ responsibilities relating to
the Financial Statements.

Internal controls and risk
management•

The Committee reviews the Group’s
risk register on a quarterly basis andperforms an annual review of therisk management processes.

•

The Committee also monitors theadequacy and effectiveness of theinternal control environment.

The Committee monitors compliancewith relevant statutory and listing
requirements.

Oxford Instruments plc Report and Financial Statements 2020

85

Audit, Risk and Internal Control continued
Audit and Risk Committee Report continued
Activities of the Committee during the financial year ended 31 March 2020
The Committee continues to oversee a range of risk areas that are key to the Group’s long-term success or compliance with relevant
regulations. In addition to its core remit regarding financial controls, the Committee also reviews assurance activities relating to key
non-financial areas such as new product innovation, IT and cyber-security, HR and health and safety. Further, the Committee
receives ad hoc reports on non-recurring areas of risk (e.g. Brexit) and regular reports on recurring matters such as treasury and tax,
litigation and intellectual property disputes. Findings from Group financial internal audit reports are reported at every meeting, inaddition to findings from the recurring health and safety audits. As the risk environment evolves, the Committee will continue toreview its areas of focus so that its activities address the areas of greatest importance.
The majority of the Committee’s work derives from a structured programme that is designed to fulfil its responsibilities as set out inthe terms of reference. The table below summarises the key activities at each meeting since last year’s Annual Report:
Agenda item

Jul
2019

Sep
2019

Nov
2019

Jan
2020

Mar
2020

Jun
2020

Review draft Financial Statements, appropriateness ofaccounting policies and going concern assumption (reports frommanagement and KPMG)••

Review and recommend for approval the half-year and year‑end
announcements, interim management and AGM statements andthe Report and Financial Statements••

Review of significant financial reporting issues and judgements••

Review viability statement•

Assess the effectiveness of the external audit process•

Consider the independence and objectivity of the external
auditor•

Review internal management representation letters•

Review and agree the internal audit plan•

Review the output of financial and non-financial internal audit
work

•

•

•

•

Review the effectiveness of the Audit and Risk Committee
Detailed report on business-specific risk areas•••

Review of cyber-security•

Update on litigation••

Evaluate the effectiveness of the internal audit function•

Review the internal control framework•

Review the risk management processes
Review the Group risk register

•
•

•

•

•

•

Review of whistle-blowing arrangements•

Review systems and controls for detecting fraud and theprevention of bribery and corruption
Annual review of insurance•••

Annual review and approval of policy relating to non-audit
services•

Annual review of tax arrangements•

Annual review of treasury arrangements•

The UK Corporate Governance Code (2018) requires the Directors to prepare the Annual Report and Accounts and to state that they
consider them, taken as a whole, to be fair, balanced and understandable and provide the information necessary for Shareholders
to assess the Group’s position and performance, business model and strategy. The Board requested that the Committee advise it as
to whether the Annual Report meets those requirements. This work formed part of the review of the draft Financial Statements thatwas undertaken by the Committee in May and June 2020.

86

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Strategic Report

GovernanceSignificant matters relating
to the Financial Statements
The Committee performs a review ofsignificant matters that relate to the
Financial Statements. The matters that
the Committee considers are significant inrespect of the 2020 Financial Statements
are set out below:

Revenue recognition
The Group adopted IFRS 15 Revenue fromContracts with Customers in the previous
financial year and revenue is recognisedin accordance with this standard.
Revenue is recognised using principles
based criteria and the trigger point forrecognition is when the performance
conditions in the contract with thecustomer are met. The Group applies
prescriptive rules relating to revenue
recognition that are appropriate to bothproducts and services. As a result of the
adoption of IFRS 15, revenue recognitionis less subjective than in the past,
although revenue cut-off remains anarea of audit focus. The Committee hasreceived no reports of any significant
error in revenue recognition.

UK defined benefit pension scheme
Based on the requirements of IAS 19, theGroup is required to value its pension
deficit as the difference between the netpresent value of the pension scheme’s
assets and liabilities at 31 March 2020.
IAS 19 also requires the Group to appointan external actuary to advise on suitable
assumptions to adopt in calculating thenet present value of the scheme’s
liabilities at the balance sheet date. The
Group has retained the pension scheme‘sactuary, Aon Hewitt, to perform bi‑annual
valuations to satisfy this requirement.
For the year-end accounts, Aon Hewitt
recommended assumptions on aconsistent basis with those adopted at
the previous year end. As in the prior year,
there was a significant improvement in
the value of the scheme assets, which
has led to a balance sheet surplus overthe net present value of the scheme’s
liabilities as at 31 March 2020. Anotherkey factor in the calculated surplus arose

Financial Statements

as a result of reductions in the assumed
levels of inflation (CPI and RPI) which havethe effect of reducing the net present
value of the scheme’s liabilities. Mortality
assumptions were also updated to use
the latest CMI tables although the impactof this change was not significant. The
valuation of the scheme assets wasprovided by River and Mercantile (thescheme’s investment manager) inaccordance with market practice forvaluing investment assets.
As set out in Note 25 to the Financial
Statements, the UK scheme now showsan actuarial surplus of £30.7m compared
to a reported deficit of £3.5m at 31 March
2019. This was largely due to the
reductions in inflation and theimprovement in asset values set out
above. The methodology used for
calculating valuations has not changed.

Provisions for intellectual
property claims
The Group faces potential exposure tothird‑party claims in relation to potential
intellectual property infringement.
Management provide updates andanalysis in relation to potential claims to
the Audit and Risk Committee twice ayear. The Committee has reviewed theinformation and explanations provided bymanagement in support of the amounts
recognised in the Financial Statements
and has also received reports from KPMG
on the matter. As at 31 March 2020, thevalue of the provisions recognised in the
Financial Statements is not material but,
nonetheless, it remains an area ofsignificant accounting judgement andestimation. The Committee has verified
that the approach and calculations
performed to estimate the level ofprovisions required is reasonable andconsistent with the prior year. The
Committee continues to recognise thatthe final outcome of each specific case islikely to vary from the amount provided.
However, it takes the view that no
adjustments to the provisions are
required.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

Adjusted profit and EPS
As explained in Note 1 to the Financial
Statements, the Group applies
adjustments to the statutory definitionof profit and EPS to present adjusted
profitability and earnings, as the Board
believes they present a clearer pictureof the financial performance of the Group.
In the year ended 31 March 2020,
adjustments to operating profit totalled£10.7m. In value terms, the largest
adjusting item was the charge of £8.7m
relating to the amortisation of acquired
intangible assets. Further, there wereimpairment charges against the carrying
value of capitalised development costs of£7.1m. The Group also realised a gain of£6.5m arising on the disposal of its
shareholding in Scienta Omicron. The only
other significant adjustment to operating
results greater than £1.0m is themark‑to‑market loss of £1.4m relating tocurrency hedging contracts. The
Committee has considered a paper frommanagement identifying the adjustmentsthat have been applied and concluded
that application of the Group’s definitions
has been consistent year-on-year. The
nature of these adjustments requires
appropriate judgement to be exercised
and the Committee is satisfied with boththe process adopted and their disclosurein the 2020 Financial Statements.

87

Audit, Risk and Internal Control continued
Audit and Risk Committee Report continued
Significant matters relating
to the Financial Statements
continued
Misstatements
The Committee received reports fromGroup management stating that they were
not aware of any material misstatements
or immaterial misstatements that had
been made with the intent of achieving aparticular presentation in the Financial
Statements. Further, the external auditor
also provided the Committee with its
report on unadjusted audit differences.
The Committee reviewed and discussed
the schedule of unadjusted audit
differences with both KPMG and Groupmanagement. Based on its review anddiscussions, the Committee concluded
that the unadjusted audit differences were
not material to the Financial Statements
and therefore no adjustment wasnecessary. The Committee also concluded
that the external auditor had fulfilled its
duties with diligence and with a suitablelevel of professional scepticism.
On the basis of its discussions and thereports and presentations received frommanagement and the external auditor,
the Committee was satisfied that the key
estimates and critical judgements
required had been appropriately
addressed in the Financial Statements
both in terms of value and the supporting
narrative. The Committee was alsosatisfied that there had been suitable
scrutiny of, and challenge to, the key
assumptions adopted in determining thevalue of assets and liabilities reported in
the Financial Statements.

External auditor

Auditor independence

The Committee monitors the performance,
objectivity and independence of theexternal auditor and makes
recommendations for its appointment
or re-appointment. The Committee alsobears the responsibility for approval of
the external auditor’s fees.

In order to assess auditor independence,
the Committee obtains confirmation of
any relationships between the Group andthe external auditor that may have abearing on its independence. It also
receives confirmation that the external
auditor is independent from the Group.

The Audit and Risk Committee received
KPMG’s presentation on its audit strategy
and planning memorandum at its January
2020 meeting. The audit strategy andplanning memorandum set out the
proposed audit methodology, scope andplanned materiality for its audit of the
Financial Statements for the year ended
31 March 2020. It also identified theprincipal areas of audit risk and theplanned approach for addressing them.
The audit strategy was informed in partthrough meetings with various
stakeholders such as the Chair of the
Audit and Risk Committee, the Chair of
the Board and the Group FinanceDirector. Following its review anddiscussion, the Committee approved theaudit strategy and planning memorandum
that KPMG presented.

In order to mitigate the risk that theexternal auditor’s independence might
become compromised, the Committee
operates a strict policy that governs theengagement of the external auditor toprovide non-audit services. This policy isreviewed annually and sets out a list ofprohibited services and a series ofauthority levels for permitted services.
All non-audit related engagements over
£50,000 require formal approval by theCommittee. Note 4 (page 142) to the
Financial Statements sets out the value ofaudit fees for the year, together with fees
for non-audit services. In the year ended
31 March 2020, audit fees paid to KPMG
were £502,000 and non‑audit fees were£28,000 This represents a non-audit toaudit fee ratio of 0.05:1.

The Committee continues to be
responsible for evaluating theeffectiveness of the external audit
process. This review is based on reports
from the external auditor at both the halfyear and year end and also on feedback
from key members of the Group’s financeteam (both at Group and business unit
level). The Committee plans to perform its
review of the effectiveness of the process
for the year ended 31 March 2020 in
September 2020.
During the year ended 31 March 2020, theCommittee oversaw the call for tender
process for the appointment of a new
external auditor. Following that process,
BDO was selected to replace KPMG,
effective for the year ending 31 March 2021.

88

Internal audit andinternal control
The Committee seeks assurance over theeffective design and operation of internal
controls from the internal audit function. The
Committee approves internal audit’s annual
programme which includes audits thatconsider the effectiveness of internalfinancial controls. Internal audit performs
financial controls audits on a rotational basis
across operational business units and theprincipal Regional Offices. The internal audit
programme also includes non‑recurring,risk-based audit topics which are derived
from the Group’s risk register.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

The rollout of the new ERP system willcontinue at a number of sites in 2020/21,
which includes the NanoAnalysis business
unit. Therefore, the internal audit planfor the year includes an ongoingpost‑implementation audit programme tocomplement the recurring financial controls
reviews. As a Group that relies on its ability
to export, the internal audit programme
includes further international tradecompliance audits. The internal audit planfor 2020/21 was approved by theCommittee at its meeting in March 2020,
although it recognises that focus and scope
may need to change in light of covid-19.
The head of internal audit has a direct
reporting line to the Chair of the Audit andRisk Committee and they have regular
discussions throughout the year. All reports
issued by internal audit are provided to theexternal auditor once finalised.
The Committee’s evaluation of theeffectiveness of the internal control
environment is derived from multiple
sources that include internal assurance
reports, discussions with the head ofinternal audit, and external audit reports.
The Committee reviewed the system ofinternal financial control on behalf of theBoard and satisfied itself that the Group is
meeting the required standards both forthe year ended 31 March 2020 and up to
the date of approval of this Report and
Financial Statements. No concerns wereraised with the Committee in the year
about possible improprieties in mattersof financial reporting.

Financial Statements

Risk management
Key risk management activities performedby the Group are summarised on page 84.
The Committee also takes an active role in
the risk management process that
includes review and discussion of theGroup risk register at every meeting.
The Committee also obtains more detailed
presentations on business unit specificrisks from the UK operating business units
on a regular basis.
The Group’s principal risks anduncertainties are set out on pages 50 to
54. In the current climate, the potential
impact of covid-19 is also disclosed as a
key uncertainty. While many of the key
risks identified recur from year to year, therelative importance evolves over time andmay require the Group to refocus its
assurance activities. In the year ahead,
the Committee will continue to work with
the Board and senior management teams
to ensure that there is appropriate focus
on the most significant risk areas together
with the associated plans for mitigating
their impact.

Company Information

The Committee conducts an annual
review of its Reporting a Business
Malpractice Policy and the outcomes of
the investigations into the reports received.
It also receives a report from managementon its activities in this area. The latest
report and review took place in June 2020
and all matters raised in the year ended
31 March 2020 had been resolved. There
were no significant matters arising.

Summary
The Committee concludes that, as aresult of the work it has performed during
the year, it has fulfilled its responsibilities
and acted in accordance with its terms ofreference. I will be available at the AGM in
September to answer any questions.

Mary Waldner
Audit and Risk Committee Chair
9 June 2020

Whistle-blowing
The Group operates a confidential
reporting mechanism, operated by athird-party provider, which enables
employees to raise concerns ofmalpractice, non-compliance orunethical conduct. Other reporting
channels are also available, including
to the Senior Independent Director.
The options for raising concerns arewidely communicated to employees.
These channels are clearly set out in the
Code of Business Conduct and Ethics
which was updated in July 2019. The
Group’s reporting policy and procedures
provide a framework for protecteddisclosure. The Group also operates
a formal protocol for the independent
investigation of reports of malpracticethat are received.

Oxford Instruments plc Report and Financial Statements 202089Remuneration
Directors’ Remuneration Report
Attendance at meetings year ended 31 March 2020
Remuneration
Committee

Number of meetings held

Date of appointment
to Committee

6

Number of meetings attended:
Thomas Geitner, Chair

6

15 January 2013

Neil Carson

6

1 December 2018

Steve Blair

6

1 July 2017

Richard Friend

6

1 September 2014

Mary Waldner

5

4 February 2016

Number of meetings in attendance:
Ian Barkshire1

4

Gavin Hill1

41.

Attended by invitation.

We have continued tomake good progress with
the implementation of our
Horizon strategy, which isdelivering tangible financial
benefits to the Group.

Key responsibilities

We have adjusted ourremuneration approach forthe present circumstances
on a consistent,
Company‑wide basis.

•

Determining the Remuneration Policy for the Executive Directors and senior
management.

•

Determining the total executive remuneration packages.

•

Designing effective performance‑related incentive plans aligned to the businessstrategy and the wider workforce.

•

Reviewing the Group’s Remuneration Policy periodically (including in 2020).

•

Determining the policy for pension arrangements, service agreements,
recruitment terms and termination payments.

Executive Directors’ remuneration at a glance
Total remuneration payable for 2019/20
Base salary£’000

Benefits£’000

Pension£’000

Annual bonus
£’000

LTIP
£’000

Other
£’000

Total
£’000

Ian Barkshire

440

88

55

279

976

1

1,839

Gavin Hill

343

20

43

224

761

1

1,392

Annual bonus
Link to strategy
As in previous years, the Committee set
stretching performance targets for theannual bonus which are clearly linked tothe strategy and financial performance of
the Group (see page 72 for details).

42.5%
Adjusted
PBT

21.25%

Adjusted
operating profit
margin21.25%
Cashconversion

15%

Strategic
objectives

Performance Share Plan (three-year performance)
Link to strategy
The performance targets ensure a continued focus
on growing profitability and a close link to thebusiness strategy by rewarding efficient
redeployment of capital for the performance
period ending in the year under review.

90

50%

50%

Earnings per
share growth

Return on capital
employed

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Remuneration report at a glanceBasesalaryBenefits

Annualbonus

PensionTotal
remuneration

LTIP

Variable

Fixed

Adjusted
operatingprofit margin

Adjusted
PBT

Annualbonus
Strategic
objectives

Cashconversion

Adjusted PBTAdjusted operating profit margin
Actual:Threshold:Target:Max:£48.6m£51.6m£53.6m£49.5mCash conversion
Threshold:Target:
Max:

77.5%
82.5%
87.5%

Threshold:Target:
Max:

15.1%
15.6%
16.0%

Actual:124%

Targets based on a
range of objectives –see pages 104 and 105 for details

Performance
Share Plan

Earnings per share growth (% CAGR p.a.)

19.5%

Oxford Instruments plc Report and Financial Statements 2020

Actual:StrongReturn on Capital
Employed

Return on capital employed

Actual :4% p.a. CAGR
10% p.a. CAGR

15.9%

Strategic objectives

Earnings per
share growthThreshold:Max:

Actual:Actual:Threshold:
Max:

13.0%
15.5%

26.1%
91

Remuneration continued
Directors’ Remuneration Report continued
Dear Shareholder,
It has been another year of strong
performance for Oxford Instruments,
notwithstanding the impact of thecovid-19 pandemic in the final quarter ofthe financial year, the impact of which
was first felt in our Chinese operations inJanuary. Performance against all of ourinternal financial KPIs improved andthere was strong progress against thenon‑financial elements of the businessstrategy. We delivered order, revenue,
profit and margin growth. Good
underlying growth in orders and revenue(notwithstanding the early impact ofcovid-19) were underpinned by ourchosen end markets and their attractive,
fundamental growth drivers, combinedwith our relentless drive to enhance
our market intimacy through acustomer‑centric approach. This strong
performance has been reflected in the
remuneration payable to executives andthe rest of the workforce over the year,
albeit with decisions around bonuses
being paid delayed until after thesummer.

Response in relation to covid-19
Our business performance was negatively
impacted from January as a result of the
lockdown in China and from mid-March by
restrictions introduced across ourEuropean and American markets. Ourpriority has been the health and wellbeingof all of our employees and the prudent
management of the business throughout
this period of crisis. Recognising the needto conserve cash within the business, weannounced on 30 March that the paymentof the interim dividend, which was due tobe paid on 14 April, had been suspended
and we have taken advantage ofGovernment support where appropriate.
Any furloughed employees havecontinued to receive full pay.
Recognising the need to act withprudence, with effect from 6 April 2020,
the Chief Executive and Group FinanceDirector, together with the rest of theBoard, agreed that their base salary andfees be temporarily reduced by 20% for atleast three months. We have alsodecided to defer the payout of thebonuses earned for 2019/20 and
implementation of any pay increases

92

for both the Executive Directors andmost of the workforce until we havebetter visibility of the financial
consequences for the Company. Finally,
the Committee’s consideration of theperformance targets for the annual bonus
and PSP awards for 2020/21 has beendeferred until later in the year.

Corporate performance andannual bonus and PSP paymentsfor 2019/20
The annual bonus for 2019/20 was
determined by a combination of cash,
operating margin and profit targets, andnon-financial strategic targets. As inprevious years, the Committee set
stretching performance targets whichwere clearly linked to the strategy andfinancial performance of the Group.
Group financial performance was again
strong, as highlighted above, and theannual bonus payout was 63% and 65%
of base salary for the CEO and GFD
respectively. As noted above, payment ofthese cash bonuses has been delayed.
Awards granted under the Performance
Share Plan (PSP) in 2017 were based on
performance over the three years to
31 March 2020. The EPS performance
condition, applied to 50% of the award,
was met in full with compound EPS
growth of 19.5%, resulting in 100% of thiselement vesting. The Company’s ROCE
was 26.1% for the year ended 31 March
2020, which exceeded the stretch target,
resulting in 100% of this element vesting.
Accordingly, across both measures, 100%of the total award vests.
Given the strong performance of thebusiness over both 2019/20 and thelonger three-year performance period of
the PSP award, the Committee is
comfortable that there has been a robust
link between reward and performanceand alignment with investor returns.
Accordingly, the Committee is satisfied
the policy has operated as intended andhas concluded that there are no
circumstances arising where it would
need to exercise discretion to adjust anyof the variable pay outcomes.

New three-year Remuneration
Policy and application in
2020/21At the 2020 AGM, the three-year life of
our current policy will expire and will be
replaced by a new policy, which must be
approved by Shareholders. The current
policy has supported the Horizon
strategy, which has seen the business
transition to a customer-centric, market
focused group, capable of delivering
sustainable revenue growth, improved
margins and significantly improved cash
flow performance. Three years into thisstrategy we are seeing the benefit interms of an improved financial and stock
market performance and, as mentioned
elsewhere in this Annual Report, we
remain well positioned to sustain thisgrowth. The Committee has concluded
that the current Remuneration Policy has
supported the business strategy well andthat only modest changes are needed.
Predominantly these relate to changes
which bring the policy into line with the
UK Corporate Governance Code (2018)
and the guidelines of our institutional
Shareholders and include changes toincrease the required level of executive
shareholding. The changes are set out
clearly, and in full, later in the Policy
Report. A summary is set out below:

Base salary for the Chief Executive
We had consulted with our major
Shareholders in relation to the base salary
positioning of our Chief Executive and had
initially proposed a one-off increase torecognise his development in role, thestrong performance of the business under
his leadership and his relatively low
market positioning on and since his
appointment. The Committee and theChief Executive have both agreed that
now is not the right time to propose asignificant salary increase. The Committee
intends to consult again with major
Shareholders later in the year, with a view
to implementing the salary increase from2021/22 if business circumstances bettersupport a salary increase.
Accordingly, for 2020/21, on the basisthat the temporary reduction to basesalaries will cease later in the year, thesalary for our Chief Executive and Group
Finance Director will increase in line with

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governancethe proposed workforce averageincrease, currently budgeted for 2%,
with the increase taking effect at thesame time as any Company-widesalary increase.

Executive pension provision
We are aware that Shareholder views
are evolving in line with the UK Corporate
Governance Code which encourages
companies to align pensions for Executive
Directors to the average workforce rateover time. We propose to achieve thisthrough the following changes to ourpension policy.
New Executive Director recruits will havea pension contribution set in line with that
applying to the majority of the UK
workforce at that time.
The Committee has reviewed the current
pension contribution for the CEO and GFD
and has determined that, for the durationof this policy period, the “£ value” of thepension contribution will be frozen at the
2019/20 rate, so any salary increases
from 2020/21 onwards would not result inpayment of higher pension contributions.
Furthermore, the Committee has
determined that, with effect from the startof the next policy period (2023/24), thepension contribution rate for incumbent
Directors will be reduced so that it is thesame as the percentage contribution
applying to the majority of the workforce.
This is currently 6% of salary.

Annual bonus
Currently, the annual bonus is capped at100% of base salary, with 75% payable forachieving a target level of performanceand payable all in cash. Under the newpolicy we will have the ability to increase
the annual bonus opportunity to 125% ofsalary. Whilst the maximum opportunity
under the bonus will increase as set out
above, the Committee and the Executive
Directors have agreed that for 2020/21
the annual bonus should remain capped
at 100% of salary to ensure that there isno increase to potential remuneration at
the current time. The Committee intends
to consult again with major Shareholders
later in the year, with a view toimplementing the annual bonus increase
from 2021/22 if business circumstances
better support a bonus increase.

Financial Statements

The target opportunity will remainunchanged at a maximum of 75% ofsalary (60% of the new maximum).
This means that the additional bonus
opportunity from 2021/22 would only bedelivered in the event that above-target
levels of performance are achieved. We
have a demonstrable track record ofsetting stretching performance conditions
with a strong link to improvements infinancial performance and the overall
shareholder experience and believe thata target bonus level of up to 60% of the
new maximum remains appropriate inlight of the current growth plans, but wewill review the position each year and set
the sliding scale range as appropriate.
The threshold level of payment will be
15% of salary (increased from 0%) so as toprovide a modest bonus amount forachieving the threshold goal, which willcontinue to be stretching in its own right.
Under the new policy a deferredshare‑based element will be introduced
whereby, for any bonus paid above thetarget bonus level, half of the bonus will
be paid in shares which must be held forat least three years. This feature will
apply from the 2020/21 bonus (eventhough there is no increased bonus
opportunity until the following year).
We currently intend that performancemeasures for 2020/21 will continue to be
based on profit growth (42.5%), cash
generation (21.25%), operating margin
improvement (21.25%) and strategic
objectives (15%) but will review the choiceof measures later in the year when thetargets are due to be finalised.
Overall, the changes to the policy inrespect of the annual bonus will ensurethat the plan is in line with market norms
and appropriately structured to reward
management for the successful executionof the next phase of the business strategy
and further growth in shareholder value.

Executive shareholding
The shareholding guideline level will
increase from 150% to 200% of basesalary to provide greater alignment ofinterest between investors and executives.
Until this level is achieved, there is arequirement to retain not less than 50%of the net of tax value of any vested PSP
award and any deferred annual bonus(after the holding period in each case).

Oxford Instruments plc Report and Financial Statements 2020

Company Information

Post cessation of employment there will
be a new requirement to retain the lowerof the level of shareholding at that time,or 200% of base salary, for two years(unless by genuine exception, for example
serious ill health). This will provide alonger performance perspective for the
Directors beyond their tenure.

Performance Share Plan awards
There are no changes to the PSP under
the new policy. In 2020/21 we anticipate
that PSP awards will continue to be
based 50% on ROCE and 50% on earnings
per share. EPS will ensure a continued
focus on growing profitability and ROCE
provides a close link to the businessstrategy over the next few years to
support and incentivise management tocontinue to make the changes needed toour business portfolio by ensuring that
there is efficient redeployment of ourcapital into higher margin and growthbusinesses. We intend to delay the grantof all long-term incentive awards until thesecond half of the financial year when weshould have better visibility of ourlong-term financial performance and willconsider the grant levels and targets atthat time. There will be full details of the
grant and the performance conditions in
the RNS announcement and in next year’s
Directors’ Remuneration Report.

Non-Executive Directors’ fees
The Chair’s fee and the Non‑Executive
Directors’ fees will increase in line withthe proposed workforce averageincrease, currently budgeted for 2%, with
the increase taking effect at the sametime as any Company-wide salary
increase.

Conclusion
I hope you will be supportive of the binding
resolution to approve our new
Remuneration Policy and the annual
advisory vote to approve the Annual
Report on Remuneration (ARR), which sets
out the remuneration outcomes for theyear under review and how the policy will
be operated for the year ahead. I lookforward to our AGM on 8 September 2020.

Thomas Geitner
Chair of the Remuneration Committee
9 June 202093Remuneration continued
Directors’ Remuneration Report continued
PART A: Directors’ Remuneration Policy
This part of the Director’s Remuneration Report sets out the Group’s Remuneration Policy for its Directors. The policy is subject
to a binding Shareholder vote at our AGM on 8 September 2020. The policy will take effect from that date and, unless changed
with Shareholders’ prior agreement, will stay in place until September 2023.

Policy overview
The Remuneration Policy promotes the delivery of the Group’s strategy and seeks to align the interests of Directors, Shareholders
and other stakeholders. The Committee regularly reviews the link between its incentive structures and strategy to ensure that
remuneration packages are appropriate to attract, motivate and retain the high calibre executives that are needed to deliver theGroup’s strategy.
The Company seeks to reward executives fairly and responsibly based on Group performance and their individual contribution.
The Company has a strategy aimed at delivering significant, balanced and sustainable long‑term growth and it is important for
motivation and retention that the remuneration of the executives reflects this.
The Committee considers carefully the motivational effects of the incentive structure in order to ensure that it is effective and does
not have an unintentional negative impact on matters such as governance, environmental or social issues. More generally, theCommittee ensures that the overall Remuneration Policy does not encourage inappropriate risk-taking.

The Committee’s approach to determining the new policy
The Committee has considered the following factors when determining the new policy:
Principle

Committee approach

Clarity – remuneration arrangements
should be transparent and promote
effective engagement with
Shareholders and the workforce.

•

The metrics used in our annual bonus have a direct link to our Company KPIs, which
are familiar to our Shareholders and the workforce.

•

Performance Shares are linked to our long-term business strategy, familiar to our
Shareholders and the workforce.

•

The Remuneration Committee consults with Shareholders to explain and clearly set
out any proposed changes to the policy and is committed to having an open andconstructive dialogue with Shareholders.

Simplicity – remuneration structures
should avoid complexity and theirrationale and operation should beeasy to understand.

•

Our Remuneration Policy is in line with market norms.

•

The application of the policy is described clearly each year in this report with a clear
link between reward and performance.

Risk – remuneration arrangements
should ensure reputational and otherrisks from excessive rewards, andbehavioural risks that can arise fromtarget-based incentive plans, areidentified and mitigated.

•

The Committee has ensured that risks are identified and mitigated by:•

Performance Shares (with holding periods), annual bonus deferral, together withstretching share ownership requirements, including post-employment shareownership requirements, ensure executives are not encouraged to make short-term
decisions but to deliver sustainable shareholder returns over the long term.

Predictability – the range of possible
values of rewards to individual
Directors and any other limits or
discretions should be identified andexplained at the time of approving thepolicy.

•The scenario chart on page 100 sets out the potential rewards available to the
Executive Directors under three different performance scenarios.

•

Limits to incentive plans and the basis for the Committee to use discretion are
clearly set out.

94•

introducing discretion to override the formulaic outturn of incentives; and•enhancing clawback and malus provisions.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Principle

Committee approach

Proportionality – the link between
individual awards, the delivery ofstrategy and the long-term
performance of the Company should
be clear. Outcomes should not reward
poor performance.

•

Variable pay comprises the majority of the Executive Directors’ packages, with theindividual limits and payout for different levels of performance set out in the policy
on pages 96 to 98 and the scenario chart on page 100.

•

The performance conditions are aligned to strategy and the targets are set to be
stretching to reward for delivering above-market returns.

•

The Committee retains discretion to override the formulaic outturns of incentives if
the payout does not reflect broader Company performance and other factors.

•

The alignment of metrics to the medium and long-term strategy ensures behaviours
consistent with the Company’s purpose and values are being encouraged.

•

The presence of clawback and malus provisions discourages behaviours that are
not consistent with the Company’s purpose, values and strategy.

•

The Committee reviews the wider workforce pay and policies to ensure there isalignment with the Executive Directors’ Remuneration Policy and that remuneration
is designed to support the Company’s people-centric culture. There is a broadly
consistent cascade of the Remuneration Policy throughout the senior management
team.

Alignment to culture – incentive
schemes should drive behaviours
consistent with Company purpose,values and strategy.

Consideration of
Shareholder views

The changes to the new policy are as
follows:

The Committee considers feedback from
Shareholders received at each AGM,
together with any feedback fromadditional meetings, as part of any review
of Executive Director remuneration.
In addition, the Committee engages
proactively with Shareholders andtheir proxy advisers where any materialchanges to the Remuneration Policy areproposed and has done so during theyear. During the period of consultation onrevisions it wished to make to theRemuneration Policy, the Committee
listened to the views of those it consulted
with and amended the proposals put
forward to address concerns raised.

PensionRemuneration Policy

Annual bonus

Subject to approval by Shareholders at
the 2020 AGM, the Remuneration Policyof the Company is set out in the following
table and will be applicable for three
years commencing from the date of theAGM, 8 September 2020. Explanations of
how each element operates and howeach part links to the corporate strategy
have been provided.

•

The pension rate for new joiners willbe aligned to the rate applying to themajority of the workforce.

•

Current Executive Directors will havetheir pension value frozen at theequivalent of 14% of their 2019/20
base salary (so that any future salary
increases will not result in higher
pension contributions).

•

Current Executive Directors will havetheir pension rate reduced to thepercentage rate applying to themajority of the workforce at theend of the policy period.

•

Currently, the annual bonus is capped
at 100% of base salary. The maximum
opportunity has been increased to125% of salary.

•

The threshold level of payment will be
at 15% of salary, increased from 0%.

•

A deferred shares element has been
added whereby, for any bonus paid
above the target level of 75% of salary,half of the bonus will be deliverable inshares which must be held for at least
three years.

Oxford Instruments plc Report and Financial Statements 2020

Performance Share Plan•

The maximum limit in exceptional
circumstances has been reduced from250% to 200% of base salary.

Executive shareholding•

The shareholding guideline level will
increase from 150% to 200% of basesalary. Until this level is achieved,
there is a requirement to retain not lessthan 50% of the net of tax value of any
vested Performance Shares and any
deferred annual bonus (after theholding period in each case).

•

Post cessation of employment there
will be a requirement to retain thelower of the level of shareholding atthat time, or 200% of base salary, for
two years (unless by genuine
exception e.g. serious ill health). At theCommittee’s discretion, shares whichhave been purchased voluntarily may
be excluded, so as not to discourage
further self-purchases.

95Remuneration continued
Directors’ Remuneration Report continued
Remuneration Policy continued
Element of pay

Purpose and link to strategy

Base salary•

Benefits

Pension96

To provide a competitive
and appropriate level ofbasic fixed pay to recruitand retain superior talent
and avoid excessive risktaking that mightotherwise result from an
over‑reliance on variable
remuneration.

•

Reflects the experience,
performance andresponsibilities of theindividual.

•

Provided on amarket‑competitive basis,
aids retention and follows
the reward structure for all
employees.

•

To contribute towards thecost of living in retirement .

Operation

Maximum opportunity•

Reviewed annually with any increaseusually effective 1 July.

•

There is no minimum or
maximum annual increase.

•

Takes account of experience,
performance and responsibilities as wellas the performance of the Company, thecomplexity of the role within the Groupand salary increases for employees
generally.

••

Set with regard to market data forcomparable positions in similar
companies in terms of size,internationality, business model, structure
and complexity, including within theindustry.

Higher increases than the
average percentage for theworkforce may be appropriate;
for example, where an
individual changes role, where
the complexity of the Groupchanges, where an individual ismaterially below market
comparators or is appointed ona below‑market salary with the
expectation that his/her salarywill increase with experienceand performance.

•

Currently include, but are not limited to,the cost of:•

The value of benefits varies
from year to year depending on
the cost to the Company and is
not subject to a specific cap.

•

Benefit costs are monitored andcontrolled and represent asmall element of total
remuneration costs.

•

14% of base salary based on
the 2019/20 salaries forincumbents, which represents£61,964 and £48,363 per year
for the CEO and GFD
respectively.

•

Pension contributions forincumbents will reduce to therate applying to the majority of
the workforce at the end of thepolicy period.

•

Newly recruited Directors will
receive a pension contribution
in line with the rate applying to
the majority of the workforce.

•life assurance;•

private medical insurance;•company car benefit (car, driver, carallowance, fuel); and/or•

overnight hotel accommodation
where necessary to enable theexecutive to carry out his duties
efficiently at the Head Office and other
Company sites.

•

The benefits provided may be subject toamendment from time to time by theCommittee within this policy.

•

Relocation costs and other incidental
expenses may be provided as necessary
and reasonable.

•

Benefits are not part of pensionableearnings.

•

Company contributions to a money
purchase pension scheme.

•

Salary supplement where HMRC annual
or lifetime allowances are exceeded.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Element of pay

Purpose and link to strategy

Annual bonus•

Long‑term
incentive(Performance
Share Plan)

All‑employee
share schemes

Drives and rewards the
successful achievement ofannual targets set at thestart of the year.

•

To incentivise theexecutives and reward
them for meeting
stretching long-termtargets linked to thebusiness strategy.

•

To align the Directors’interests with those of
Shareholders.

•

Facilitates shareownership to provide
further alignment with
Shareholders.

•

To encourage employee
share participation.

Financial Statements

Operation•

Performance targets based on the key
performance indicators and strategic
objectives of the business.

•

At least 70% of the bonus is based on
financial metrics and the balance on
non‑financial strategic metrics.

•

Clawback and malus provisions apply
for misstatement, error, misconduct,
corporate failure or reputational damage.

•For any bonus earned in excess of thetarget level, 50% will be paid in shares,
which are beneficially owned and whichmust be held by the Executive Director forat least three years.

•

The Committee may use discretion to
override the result of any formula-driven
bonus payment.

•

Annual awards of Performance Shareswith vesting subject to achievement of
performance targets. Both the vestingand performance period will be over aminimum of three years.

•

The Committee will set targets eachyear based on long‑term financial
performance and/or a stock
market‑based metric.

•

25% of the awards will vest at thresholdperformance under each performance
condition.

•

Clawback and malus may be applied for
misstatement, error, misconduct,
corporate failure or reputational damage.

•

Vested awards must be held for a further
two years before sale of the shares (otherthan to pay tax).

•

The Committee may use discretion to
override the result of any formula-driven
payment.

•

The Company may from time to time
operate tax‑approved share schemes(such as the HMRC‑approved Share
Incentive Plan (SIP)) for which Executive
Directors could be eligible.

•

The SIP is open to all UK permanent staff
employed for at least six months.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

Maximum opportunity•

75% of salary at year end
payable at target performance.

•

125% of salary at year end
payable for maximum
performance.

•

Bonuses start to be earned
from 15% of salary for achieving
threshold performance.

•

The maximum normal award
limit is 150% of salary. This
limit may be exceeded in
exceptional circumstances,e.g. recruitment, up to a limitof 200% of base salary.

•

Dividend equivalents may
accrue on the PSP awards overthe vesting period and would
normally be paid out as sharesin respect of the number ofshares that have vested.

•

The schemes are subject to thelimits set by tax authorities.

97Remuneration continued
Directors’ Remuneration Report continued
Remuneration Policy continued
Element of pay

Purpose and link to strategy

Shareholding
guideline•

Non‑Executive
Director fees98•

To further align Executive
Directors’ interests with
Shareholders’.

To remunerate the Chair
and Non‑Executive
Directors.

Operation

Maximum opportunity•

The Committee has establishedshareholding guidelines which encourage
the Executive Directors to build and retain aholding of Company shares equivalent to200% of base salary.

•

Until the guideline is met in full,Executive Directors are expected toretain or acquire shares equivalent tothe value of 50% of the net amountrealised from exercise/vesting of shareawards as appropriate after allowing
for tax payable.

•

Post cessation of employment there will
be a requirement to retain the lower of thelevel of shareholding at that time, or 200%of base salary, for two years (unless by
genuine exception e.g. serious ill health).
At the Committee’s discretion, shares
which have been purchased voluntarily
may be excluded, so as not to discourage
further self-purchases.

•

Reviewed annually.

•

Determined and reviewed taking into
account time commitment, experience,
knowledge and responsibilities of the role
as well as market data for similar roles inother companies of a similar size and/or
business to Oxford Instruments.

•

Out‑of‑pocket expenses including travel
may be reimbursed by the Company inaccordance with the Company’s
expenses policy including tax thereon“grossed up” as appropriate.

•Not applicable.

•

There is no prescribedmaximum or maximum annual
increase.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

GovernanceDifferences in the Remuneration
Policy of the Executive Directors
and the general employees
There are no material differences in the
structure of remuneration arrangements
for the Executive Directors and senior
management population, aside fromquantum and participation levels in
incentive schemes, which reflect the factthat a greater emphasis is placed on
performance-related pay for Executive
Directors and the most senior individuals
in the management team. Outside thesenior management team, the Company
aims to provide remuneration structures
for employees which reflect market
norms, business and personal
performance. The Committee is regularly
apprised of the remuneration policy
throughout the Company to ensure thatdecisions in relation to executive pay are
considered in the round.
The objectives and targets for all
employees are cascaded through theorganisation each year to ensurealignment with the Company strategy.
The bonus plans for the workforce aredesigned around the same performance
metrics as those set for the Executive
Directors. The structure of senior
management bonuses and long-term
incentive plans directly reflects those of
the Executive Directors, with somemeasures being Group-wide and others
specific to their areas of control. Thisalignment is explained to the workforce
at the time that objectives and targets are
set each year.

Choice of performancemeasures and approach tosetting targets
The Committee selects financial andstrategic measures for the annual bonusthat are key performance indicators forthe business over the short term. For thelong‑term incentives, the Committee will
select a combination of measures thatprovide a good focus on the outcomes of
the Company strategy together withsustainable improvements in long‑term
profitability.

Financial Statements

The Committee sets appropriate anddemanding targets for variable pay in thecontext of the Company’s trading
environment and strategic objectives. The
targets for the annual bonus plan will be
set each year with reference to theCompany’s budget and business andstrategic plan. The Committee will review
the performance conditions and targets
for awards under the PSP each year prior
to awards being made, taking account of
the Company’s internal financial planning,market forecasts and the businessenvironment.

Discretions retained by theCommittee in operating its
incentive plans
The Committee may adjust theformula‑driven outturn for an annual
bonus or PSP performance condition in
the event that the Committee considers
that the quantum would be inappropriate
in light of wider Company performance oroverall Shareholder experience. Any suchuse of discretion would be detailed in the
Annual Report on Remuneration in Part B
and in the annual statement from the
Chair of the Committee.
The Committee operates the Group’s
various incentive plans according to theirrespective rules and in accordance with
HMRC rules where relevant. To ensure theefficient administration of these plans, theCommittee may apply certain operational
discretions. These include the following:•

selecting the participants in the plans;•

determining the timing of grants and/or payments;•

determining the quantum of grants
and/or payments;•

determining the extent of vesting
based on the assessment of
performance;•

determining “good leaver” status and,
where relevant, the extent of vesting in
the case of the share‑based plans;•

where relevant, determining the extent
of vesting in the case of share‑basedplans in the event of a change of control;

Oxford Instruments plc Report and Financial Statements 2020

Company Information•

making the appropriate adjustments
required in certain circumstances (e.g.
rights issues, corporate restructuring
events, variation of capital and special
dividends); and•the annual review of weighting of
performance measures and setting
targets for annual bonus plan anddiscretionary share plans from year
to year.

The Committee may adjust the targets
and/or set different measures and alterweightings for existing annual bonus
plans and share‑based awards only if
an event occurs which causes theCommittee to reasonably consider thatthe performance conditions would notwithout alteration achieve their original
purpose and the varied conditions are noless difficult to satisfy than the original
conditions. Any changes, and therationale for those changes, will be set
out clearly in the Annual Report on
Remuneration in respect of the year inwhich they are made.

Legacy arrangements
In approving this Directors’ Remuneration
Policy, authority is given to the Company
to honour any commitments entered intowith current or former Directors (such as
the payment of a pension or the vesting or
exercise of past share awards) that havebeen disclosed to and approved by
Shareholders in previous remuneration
reports. Details of any payments to former
Directors will be set out in the Annual
Report on Remuneration as they arise.

99

Remuneration continued
Directors’ Remuneration Report continued
Remuneration scenarios for Executive Directors
The charts below show the level of remuneration potentially payable to Executive Directors under different performance scenarios
for the financial year 2020/21 (see notes for assumptions):

Remuneration scenarios
Chief Executive (CEO)£’000Group Finance Director (GFD)

2,500
Total including
share price growth:

Fixed pay

£2,031k

Annual bonus

2,000

LTIP
50% share price growth on LTIP value

Total:

Total including
share price growth:£1,700k£1,539k

1,500

Total:£1,257k
26%

1,000

26%

£593k

£934k
26%

500

0

£1,280k

39%

100%

47%

35%

Fixed pay

Target

Max

40%

28%
£416k

28%

27%

100%

45%

33%

Fixed pay

TargetMax

Assumptions for charts above:•

Fixed pay comprises salary levels as at 1 July 2020, pension contribution of 14% and the value of benefits received in 2019/20.

•

The on‑target level of bonus is 75% of salary.

•

The on‑target level of vesting under the annual PSP is taken to be 50% of the face value of the award at grant, i.e. 75% of salary.

•

The maximum level of bonus and vesting under the PSP is 100% of the bonus opportunity for 2019/20 and 100% of the face value of the PSP award at grant,
i.e. 100% and 150% of salary, respectively.

•

To show the impact of potential share price growth on the value of an Executive Director’s package, the impact of share price growth of 50% on the PSP is used.

Recruitment and promotion policy for Executive Directors
In setting total remuneration levels and in considering quantum for each element of the package for a new Executive Director, theCommittee takes into account the skills and experience of the individual, the market rate for a candidate of that experience and theimportance of securing the relevant individual.
The Company seeks to align the remuneration package with the Remuneration Policy approved by Shareholders, including the
maximum plan limit for the long‑term incentives and an annual bonus entitlement in line with that of the other Executive Directors.
Salary is provided at such a level as required to secure the most appropriate candidate. For new appointments, base salary andtotal remuneration may be set initially at below normal market rates on the basis that it may be increased once expertise andperformance has been proven and sustained.
Specific variable remuneration performance targets can be introduced for an individual where necessary for the first year of
appointment if it is appropriate to do so to reflect the individual’s responsibilities and the point in the year in which he or she joined
the Board.
Flexibility is retained to offer additional cash and/or share‑based payments on appointment in respect of deferred remuneration or
benefit arrangements forfeited on leaving a previous employer. The Committee would look to replicate the arrangements being
forfeited as closely as possible and, in doing so, will take account of relevant factors including the nature of the deferredremuneration, performance conditions, attributed expected value and the time over which they would have vested or been paid.
Such awards may be made under the terms of the PSP or as permitted under the Listing Rules.
For an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to
its terms, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations
existing prior to appointment may continue.
For external and internal appointments, the Committee may agree that the Company will meet certain relocation, legal and anyother incidental expenses as appropriate.

100

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Executive Directors’ service contracts and policy on cessation
Details of the service contracts of the Executive Directors, available for inspection at the Company’s registered office and at theCompany’s AGM, are as follows:
Contract date

Ian Barkshire

Unexpired term of contract

11 May 2016 12-month rolling contract

Gavin Hill

9 February 2016 12-month rolling contract

Details of contractual terms and the policy on cessation of employment are summarised in the table below. Payments to departing
Directors can only be made in line with this Shareholder-approved policy:
Contractual provision

Detailed terms

Notice period

Twelve months by the Company or by the Director.

Termination
payment

A Director’s service contract may be terminated without notice and without any further payment orcompensation, except for sums accrued up to the date of termination, in the event of grossmisconduct.
For termination in other circumstances, the Company has a right to pay salary in lieu of the notice
period (or part thereof) if it so determines.
In addition, any statutory entitlements in connection with the termination would be paid asnecessary, and, at the Committee’s discretion if deemed necessary and appropriate, outplacement,
legal fees and settlement of claims or potential compensation claims.

Remuneration
entitlements

Pro‑rata bonus may also become payable for the period of active service along with vesting foroutstanding share awards or deferred bonus shares (in certain circumstances – see below).

Change of control

No Executive Director’s contract contains additional provisions in respect of a change of control.

Any share‑based entitlements granted to an Executive Director under the Company’s share plans will be determined based on therelevant plan rules. The default treatment for existing awards is that any unvested awards lapse on cessation of employment.
However, in certain prescribed circumstances, such as death, injury, ill health, disability, retirement or other circumstances at thediscretion of the Committee, “good leaver” status may be applied. Under the 2014 PSP, awards to good leavers will vest on thenormal vesting date, subject to the satisfaction of the relevant performance conditions at that time and normally be scaled back toreflect the proportion of the original vesting period actually served. In the event of a good leaver there would be no early releasefrom a post-vest holding period (again, unless by genuine exception, for example serious ill health). The Committee has discretion in
exceptional circumstances to disapply time pro‑rating, to measure performance to, and vest awards at, the date of cessation.
Vesting at cessation would be the default position where a participant dies. Deferred bonus shares are beneficially owned by the
executive from the time of the bonus payment, so are not at risk of forfeiture (other than in relation to clawback).

External appointments
The Board encourages Executive Directors to accept one appropriate external non‑executive appointment provided the aggregate
commitment is compatible with their duties as Executive Directors. The Executive Director concerned may retain fees paid for these
services, which will be subject to approval by the Board. Currently, the Executive Directors do not hold any outside directorships.

Non‑Executive Directors
For the appointment of a new Chair or Non‑Executive Director, the fee arrangement would be in accordance with the approved
Remuneration Policy in place at the time.
Non‑Executive Directors do not have service contracts but are appointed under letters of appointment for an initial period of three
years with subsequent reviews. Non‑Executive Director appointments are now renewed for periods of one year, terminating at thenext AGM. Their appointment can be terminated without notice and with no compensation payable on termination, other than
accrued fees and expenses.
Date of last appointment

Notice period

Neil Carson

1 December 2018

Rolling six months

Richard Friend

1 September 2014

None

Thomas Geitner

13 March 2017

None

Mary Waldner

4 February 2016

None

1 July 2017

None

Steve Blair

Oxford Instruments plc Report and Financial Statements 2020101

Remuneration continued
Directors’ Remuneration Report continued
PART B: Annual Report on Remuneration
The financial information in this part of the report has been audited where indicated.

The Remuneration Committee (unaudited)
The Remuneration Committee (the “Committee”) is responsible for recommending to the Board the remuneration packages for
Executive Directors and has oversight of the pay, bonus and share incentive strategy for the Group’s executive management.
The Chair and the Executive Directors are responsible for determining the remuneration of the Non‑Executive Directors, and theRemuneration Committee, in the absence of the Chair, is responsible for determining the remuneration of the Chair.
The role of the Committee includes:•considering and determining the Remuneration Policy for the Executive Directors;•

within this agreed policy, considering and determining the various elements and total remuneration packages of each Executive
Director of the Company;•

approving the structure and targets for all performance‑related remuneration plans for executives as well as the overall
payments made under such plans;•reviewing and noting remuneration policy and trends across the Group and considering the Executive Directors’ remuneration
within this context; and•determining the policy for pension arrangements, service agreements, recruitment terms and termination payments to Executive
Directors.

The members of the Committee are appointed by the Board and currently comprise all the independent Non‑Executive Directors:
Thomas Geitner, Steve Blair, Richard Friend, Mary Waldner, and the Chair of the Board, Neil Carson. Thomas Geitner is the Chair of
the Committee. All members served throughout the year.
The Chief Executive, the Group HR Director and other executives are invited to attend Committee meetings as deemed appropriate.
For example, the Chief Executive is able to make a significant contribution when considering the performance of other Executive
Directors and to discuss the wider Group remuneration policy affecting employees. However, no Executive Director is present when
the Committee is determining his or her own remuneration.
The Committee acts within its agreed written terms of reference (which are published on the Company’s website:www.oxinst.com/investors) and complies with the provisions of the 2018 UK Corporate Governance Code regarding remuneration.
The performance of the Committee is reviewed at least once a year as part of the Board evaluation process.
During the year, the Committee fulfilled its duties, as laid down in the Committee’s terms of reference, in line with the normal annual
cycle of remuneration-related matters. In particular, there was a detailed review of the Remuneration Policy and consultation withmajor Shareholders and proxy agencies to ensure that they were supportive of our approach. At the end of the year, in light of the
impact of the covid-19 pandemic on the business, there was significant thought given to whether the proposed new policy should be
amended and how the previous and the new policy should be applied for the period that the business was being impacted.
Korn Ferry (KF) was the Committee’s independent remuneration consultant during the year and continues with this appointment in
2020/21. KF is appointed by the Committee to provide advice on all aspects of executive remuneration as required by theCommittee.
During the year KF also provided executive search related services to the Company through a separate part of the business.
The Committee was comfortable that the controls in place at KF do not result in the potential for any conflicts of interest to arise.
KF is a signatory to the Remuneration Consultants’ Code of Conduct and has confirmed to the Committee that it adheres to theCode. During the year, KF had discussions with the Committee Chair on remuneration matters relevant to the Company and on how
best their team can work with the Committee to meet the Company’s needs.
Fees are charged predominately on a “time spent” basis. The total fees paid to KF for the advice provided to the Committee during
the year were £55,783.25.

102

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Directors’ remuneration (audited)
The remuneration paid to the Directors during the year under review and the previous year is summarised in the tables below:
Salaryand fees£’000

Benefits1
£’000

2020

440

2019

428

Gavin Hill

2020

Total

Other5
£’000

Total
£’000

1,839

Pension2
£’000

88

55

279

976

1

88

54

407

980

1

1,958

343

20

43

224

761

1

1,392

2019

334

22

42

324

765

1

1,488

2020

783

108

98

503

1,737

2

3,231

2019

762

110

96

731

1,765

2

3,446

Executive

Ian Barkshire

Long‑term
incentive
awards 4£’000

Annualbonus3£’000

1.

“Benefits” comprise provision of a car or car allowance, health insurance, life assurance, overnight hotel accommodation where necessary to carry out duties at the Head
Office of the Company and, for Ian Barkshire, provision of a driver to allow him to make best use of his commuting time. For the year to 31 March 2020, provision of a driveraccounted for £66,534 (2019: £67,687) of the total benefits for Ian Barkshire.

2.

Each Executive Director is entitled to receive a contribution to a money purchase pension scheme worth 14% of salary. Where the contractual pension contribution
exceeds the annual or lifetime allowance, any balancing payment is made by the Company as a cash allowance which, in line with the policy for all UK employees, ispaid net of employer’s national insurance contributions.

3.

“Annual bonus” represents the full annual bonus, payable in cash, for the year to 31 March 2020 and would usually be paid in the July 2020 payroll. In light of thecurrent uncertainties around covid-19, the Committee has calculated the outturn of the bonus but has determined that it will only pay the bonus later in the year if thecircumstances then merit it. The amount payable cannot be higher than this amount and if the amount is lower, this would be updated in next year’s report.

4.

“Long‑term incentive awards” are those awards where the vesting is determined by performance periods ending in the year under review and therefore reports the valueof the PSP award granted on 25 September 2017. The value has been determined using the average share price over the three months to 31 March 2020, £14.357. Further
details of how these sums are arrived at are set out on pages 105 and 106. The share price used on grant of the 2017 PSP award was £9.605 and the total face value at
grant of the vested number of shares is £630,374 for the CEO and £492,000 for the GFD. On vesting (based on an average share price for the last three months of thefinancial year) the share price was £14.357, giving a total vested award value of £942,250 for the CEO and £735,409 for the GFD. The value of the PSP award that has been
attributable to share price growth is, therefore, £311,876 and £243,409 for the CEO and GFD respectively. Dividend equivalents have been added to arrive at the total figure
included in the table above. The value of the prior year awards has been restated using the share price on the vesting date of 21 June 2019 of £12.10, giving a total vested
award value, including dividend equivalents, of £979,773 (before restatement £778,960) for the CEO and £764,696 (before restatement £607,965) for the GFD.

5.

The Company operates a Share Incentive Plan (SIP) which is open to all UK permanent staff employed for at least six months. “Other” is the value of matching SIP shares
attributable to the year. In 2019/20, Ian Barkshire and Gavin Hill participated in the SIP up to the maximum extent permitted by HMRC. The Company offers a 1:5 match forpartnership shares purchased by employees and this amounted to £360 each of matching shares for Ian Barkshire and Gavin Hill.

Long‑term
incentive
awards
£’000

Total
£’000

Fees
£’000

Benefits£’000

Pension£’000

Annual
bonus
£’000

2020

180

—

—

—

—

180

2019

60

—

—

—

—

60

Alan Thomson2

2020

—

—

—

—

—

—

2019

57

—

—

—

—

57

Steve Blair3

2020

57

—

—

—

—

57

2019

82

—

—

—

—

82

Richard Friend

2020

50

—

—

—

—

50

2019

48

—

—

—

—

48

Thomas Geitner

2020

57

—

—

—

—

57

2019

56

—

—

—

—

56

2020

57

—

—

—

—

57

2019

56

—

—

—

—

56

2020

401

—

—

—

—

401

2019

359

—

—

—

—

359

Non‑Executive

Neil Carson1

Mary Waldner
Total
1.

Neil Carson was appointed Non‑Executive Director and Chair of the Board on 1 December 2018.

2.

Alan Thomson, Chair of the Board, passed away on 22 July 2018.

3.

Steve Blair was Interim Chair of the Board from 23 July 2018 until 30 November 2018. His fees were uplifted to £130,000 per annum for this period.

Oxford Instruments plc Report and Financial Statements 2020103Remuneration continued
Directors’ Remuneration Report continued
External appointments (unaudited)
The Board encourages Executive Directors to accept one appropriate external non‑executive appointment provided the aggregate
commitment is compatible with their duties as Executive Directors. The Executive Director concerned may retain fees paid for these
services, which will be subject to approval by the Board. There were no such appointments during the year.

Details of annual bonus earned in year (audited)
As in previous years, the Committee set stretching performance targets for the annual bonus which are clearly linked to the strategy
and financial performance of the Group. The targets set and the achievement against them are set out in the table below. All
financial targets are based on the numbers in the Financial Statements and have not been adjusted to exclude the impact of
currency movements:
Percentage of salary payable
MeasureTargets
Threshold£m

Maximum

On target£m

Maximum£mActual 1£m

Payout% of salaryThresholdOn target

Adjusted PBT

0%

30%

42.5%

48.6

51.6

53.6

49.5

9%

Adjusted operating
profit margin

0%

15%

21.25%

15.1%

15.6%

16.0%

15.9%

19.69%Cash conversion

0%

15%

21.25%

77.5%

82.5%

87.5%

124%

21.25%

Strategic objectives

0%

—

15%

—

—

—

See
below

CEO 13%
GFD 15%CEO 62.94%
GFD 64.94%

1.

The actual numbers reported for adjusted PBT and organic sales are adjusted for the impact of currency as described above.

The non‑financial strategic objectives were set at the start of the year. Performance against them is set out. The Committee in its
review noted the exceptional performance in achieving the Horizon strategy objectives, laying the foundations for future growth andagreed that, when taking into account all the circumstances, a bonus of 13% out of the total 15% of salary available was appropriate
for Ian Barkshire and 15% out of the total 15% of salary available was appropriate for Gavin Hill. Details of the objectives and anassessment as to their achievement are set out below:
CEO objectives

WeightingAchievements towards objectives/performance

Establish a sustainable leadership style,commensurate with higher capability
management teams across the Group,
to empower and enable a culture ofaccountability whilst ensuring the correct
governance processes are in place todrive and improve Group performance.

2/3•

Upgraded the leadership talent pool with strong
appointments to business unit senior leadership teams.

•

Developed personal leadership style significantly to enhancethe effectiveness of the Group’s organisational design andoperational efficiency.

9 out of 10
Build on and expand effective investor
relations across a range of relevant
communities and geographies.

1/3•

The investor base is better addressed.

•

First investor roadshow held in US.
4 out of 5

Total

104

100%

86.7%

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

GFD objectives

WeightingAchievements towards objectives/performance

Deliver the successful implementationof Connect in full within NanoAnalysis
and X-Ray Technology. Complete thefull business preparation for Connect toenable implementation in NanoSciencein Q1 2021; and complete scoping,planning and begin business preparation
for implementation at Plasma andAsylum in 2021.

1/2•

Good progress against timetable of implementation in a
number of businesses and progress made in others.

•

All business information systems are aligned significantly,
reducing the accounting and reporting effort.

7.5 out of 7.5
Continue to drive and lead the Equinox
programme to deliver sustainableimprovements in operational efficiency,
strategic procurement and working
capital; expand the project to deliver
operational improvements in Asylumand XT.

1/2•

There has been a significant reduction in the number ofsuppliers, considerably improving efficiency and delivering
enduring cost savings.

•

Operations across businesses have been made sustainable.

•

The work carried out under the Equinox programme put theGroup in a better position to deal with the covid-19 pandemic.
7.5 out of 7.5

Total

100%

100%

The on‑target and maximum bonus potentials for the Executive Directors, as well as the amounts actually payable for the year
ended 31 March 2020, are set out below. The Committee has calculated the outturn of the bonus; however, in light of the current
uncertainties around covid-19, it has determined that the bonus will only be paid later in the year if the circumstances then merit it.
The amount payable cannot be higher than this amount and if the amount is lower, this would be updated in next year’s report.
On‑targetbonus(% of salary)

Maximum
bonus(% of salary)

Actual bonus
payable for
2019/20(% of salary)1

Actual bonus
payable1 for
2019/20(£’000)Ian Barkshire

75%

100%

62.94%

279

Gavin Hill

75%

100%

64.94%

224

1.

Bonus is calculated on salary as at 31 March 2020.

Long‑term incentive plans (audited)
The performance targets, performance against them and the resulting value in respect of the long‑term incentive awards where
vesting is determined by a performance period ending in 2019/20 are as follows:

Performance Share Plan (PSP)The performance targets which applied to the awards made on 25 September 2017 for the performance period ending in the year
under review and actual performance achieved against them were as follows:
50% of the award is based on EPS measured over a three‑year performance period starting 1 April 2017:
Performance level

Below threshold
Threshold
Between threshold and maximum
Maximum

EPS growth requiredLess than 4% per annum over three years

0%4% per annum over three years

25%

4% to 10% per annum over three years

25%-100%

10% per annum and above over three years

100%

Actual EPS

70.2p

Actual growth achieved over the period (per annum)

19.5%

Oxford Instruments plc Report and Financial Statements 2020

% of award that will vest

100%

105

Remuneration continued
Directors’ Remuneration Report continued
Long‑term incentive plans (audited) continued
50% of the award is based on the Company’s return on capital employed in the final year of the three-year performance period:
Performance level

ROCE1 for the final year of the performance period

Below threshold

Less than 13%

0%

13%

25%

Between 13% and 15.5%

25%-100%

Threshold
Between threshold and maximum
Maximum% of award that will vest

15.5% per annum and above

100%

26.1%

100%

Actual ROCE achieved in 2019/20

2

1.

ROCE is calculated as EBIT/average capital employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition‑related costs andchanges in the mark‑to‑market values of financial instruments, and capital employed is the sum of net working capital and net book value of fixed assets, goodwill,
intangible assets, investments in associates and excluding cash.

2.

Actual ROCE achieved has been adjusted from 27.2% to remove the benefit from impairment of development intangibles.

Based on the performance against targets as set out above, the PSP awards will vest on 25 September 2020 as follows:
Value1 ofshares vesting
including
dividend
equivalent(£’000)Date
award
grantedTotal numberof shares
granted

Percentage
of award
vesting

Number ofshares vesting

Value1 ofshares vesting(£’000)

Number ofsharesawarded as
dividend
equivalent 2

Ian Barkshire

25 September 2017

65,630100%

65,630

942

2,368

976

Gavin Hill

25 September 2017

51,223100%

51,223

735

1,848

762

1.

As the awards vest after the date of this report, value has been calculated using the average mid‑market closing price of the Company’s shares over the three‑month
period ending 31 March 2020, £14.357. This will be restated for the actual value on vesting in next year’s report.

2.

Dividend equivalents have been calculated based on dividends paid up until the date of this report. If dividends are payable between the date of this report and thevesting date, additional dividend equivalents will be awarded.

Performance Share Plan awards made in the year and outstanding share incentive awards (audited)Awards made under the PSP on 15 July 2019 were as follows:
Share priceon day before
award date

Total numberof shares
granted

Percentage
of salary

Ian Barkshire

48,319150%£13.74 15 July 2022

Gavin Hill

37,713150%£13.74 15 July 2022

Vesting date

The awards are subject to two performance conditions measured over a three‑year period commencing 1 April 2019. One half ofeach award is subject to a performance condition based on the Company’s compound annualised earnings per share (EPS) growth.
The other half of each award is subject to a performance condition based on the Company’s return on capital employed in the final
year of the performance period.
Vesting of 50% of the award is based on EPS measured over a three‑year performance period starting 1 April 2019 as follows:
Performance level

Below threshold
Threshold
Between threshold and maximum
Maximum

EPS growth required% of award that will vest

Less than 4% per annum over three years

0%4% per annum over three years

25%

4% to 12% per annum over three years

25%-100%

12% per annum and above over three years

100%

Vesting of the other 50% of the award is based on return on capital employed (ROCE) for the final year of the three‑year
performance period starting 1 April 2019:
Performance level

Below threshold
Threshold
Between threshold and maximum
Maximum
1.

ROCE1 for the final year of the performance period% of award that will vest

Less than 20.5%

0%

20.5%

25%

Between 20.5% and 23.4%

25%-100%

23.4% per annum and above

100%

ROCE is calculated as EBIT/average capital employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition‑related costs andchanges in the mark‑to‑market values of financial instruments, and capital employed is the sum of net working capital and net book value of fixed assets, goodwill,
intangible assets, investments in associates and excluding cash.

106

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

As at 31 March 2020, the outstanding options for Ian Barkshire and Gavin Hill under the Executive Share Option Scheme (ESOS) and
the PSP1 were as follows:
Movements during the year
Name

Ian Barkshire2

Gavin Hill

SchemeMarch
2020

GrantedDividend
Lapsed equivalents1

Exercised

March
2019

Exercise
price

Share priceon dateof grant

Date of
grant

Earliest
exercise

Latestexercise

ESOS

37,54937,549£10.28£10.31 15/06/15 15/06/18 14/06/25

ESOS

15,00015,000

£9.90

£9.87

PSP

80,97383,390NilPSP65,63065,630Nil£9.58 25/09/17 25/09/20 24/09/27

PSP

64,61364,613Nil£10.10 03/07/18 03/07/21 02/07/28

PSP

48,319—Nil£14.00 15/07/19 15/07/22 14/07/29

PSP

63,19865,085Nil£7.34 21/06/16 21/06/19 20/06/26

PSP

51,22351,223Nil£9.58 25/09/17 25/09/20 24/09/27

PSP

50,43050,430Nil£10.10 03/07/18 03/07/21 02/07/28

PSP

37,713—Nil£14.00 15/07/19 15/07/22 14/07/29(6,005)

3,588

48,319(4,687)2,800

37,713

14/12/11

14/12/14 13/12/21£7.34 21/06/16 21/06/19 20/06/26

1.

Dividend equivalents are awarded on PSP shares vesting, for the period to vesting, in respect of the actual number of shares vesting.

2.

Ian Barkshire was appointed to the Board on 10 November 2015. His ESOS options were granted to him as an employee of the Company prior to his appointment
to the Board.

The market price of the shares at 31 March 2020 was £12.80 (2018: £9.77) and the range during the year was £9.55‑£16.54 (2019:£7.41‑£10.96).
Performance conditions for outstanding awards are described below:
PSP

50% of award

50% of award

25 September 20172

EPS growth – 4% p.a. (25% vesting) to 10% p.a.
(100% vesting)

ROCE1 in the final year of the performance period –13% (25% vesting) to 15.5% (100% vesting)

3 July 20182

EPS growth – 4% p.a. (25% vesting) to 12% p.a.
(100% vesting)

ROCE1 in the final year of the performance period –16% (25% vesting) to 20% (100% vesting)

15 July 20192

EPS growth – 4% p.a. (25% vesting) to 12% p.a.
(100% vesting)

ROCE1 in the final year of the performance period –20.5% (25% vesting) to 23.4% (100% vesting)

1.

ROCE is calculated as EBIT/average capital employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition‑related costs andchanges in the mark‑to‑market values of financial instruments, and capital employed is the sum of net working capital and net book value of fixed assets, goodwill,
intangible assets, investments in associates and excluding cash.

2.

Three‑year performance period commencing 1 April prior to date of grant.

Achievement of performance conditions (unaudited)
EPS and ROCE performance targets are tested using the audited accounts of the Company. Performance against targets and theresulting level of vesting is then verified by the Remuneration Committee.

Dilution limits (unaudited)
The Company’s share plans provide that overall dilution through the issuance of new shares for employee share schemes should
not exceed an amount equivalent to 10% of the Company’s issued share capital over a ten‑year period. The SIP scheme only uses
market‑purchased shares.
The Committee monitors the position prior to the making of any award under these share schemes to ensure that the Company
remains within this limit. As at the date of this report, the Company’s utilisation remains at 2.5%, within the available 10%
headroom position.

Oxford Instruments plc Report and Financial Statements 2020107Remuneration continued
Directors’ Remuneration Report continued
Shareholding requirements (audited)
The Executive Directors are required to build and retain a shareholding in the Company equivalent in value to 150%1 of basic salary.
Until the requirement is met, the Executive Directors are expected to retain or purchase shares equivalent to the value of 50% of the
net amount realised on exercise of long‑term incentive awards after allowing for tax payable. The value of vested but unexercised
PSP awards may count towards the shareholding level, calculated at the net of tax value.
Executive Directors’ shareholdings as at 31 March 20201 are shown in the table below.

Legallyowned

PSP and
ESOS awards
vested but
unexercised

Percentage ofsalary held inshares undershareholding
guideline2

Guideline
met as at
31 March 2020

Ian Barkshire

12,528

133,522160%

Yes

178,563

Gavin Hill

6,046

63,198147%

No

139,366

Subject toperformance
conditions
under thePSP unvested

1.

The Remuneration Policy being put to Shareholders at the 2020 AGM includes increasing the shareholding requirement from 150% to 200%.

2.

The tax rate used to determine the net value of the vested PSP awards is 47%. Value of vested ESOS options excluded from percentage of salary held calculation.

3.

Shares valued using the market price of the shares on 31 March 2020: £12.80.

Pension arrangements
Executive Director pension arrangements (audited)
Executive Directors can decide to contribute to a pension plan of their choice. The Company contributes a maximum of 14% of basesalary. Only base salary is pensionable and contributions are not included in the calculation of bonus and share award entitlements.
Where the Company’s pension contribution exceeds the annual allowance, a balancing payment is paid by the Company to the
Director, which is taxed as income. In line with the policy for all UK employees, this cash payment is reduced by 12.1% to coveremployer’s national insurance costs.
During the year, the Company contributed £10,000 (2019: £10,000) into the Company’s Group Personal Pension Plan in respectof Ian Barkshire and £10,000 (2019: £10,000) into a personal defined contribution plan in respect of Gavin Hill. Balancing payments
to 14% of base salary (net of employer’s national insurance contributions) were paid as cash.
Ian Barkshire is a deferred member of the defined benefit pension scheme and is no longer accruing benefits in the scheme.
In accordance with the rules of the scheme, his deferred benefits are subject to increases in line with statutory revaluation.
The transfer value of his accrued benefits at 31 March 2020 was £958,367 (2019: £788,549).

Payments to past Directors and for loss of office (audited)
There were no payments to Directors for loss of office or any payments to past Directors.

Performance graph and CEO’s remuneration (unaudited)
The graph below shows for the ten years ended 31 March 2020 the total shareholder return (TSR) on a holding of the Company’s
ordinary shares compared with a hypothetical holding of shares made up of shares of the same kind and number as those byreference to which the FTSE 250, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices are calculated. These
indices have been chosen as they are considered to be the most appropriate comparator groups for the Company. TSR has been
calculated by reference to the relevant share price for each constituent company assuming dividends are reinvested.

800

£

700

Oxford Instruments

600

FTSE 350 E & EE

FTSE Techmark
FTSE 250

500
400
300
200
100
31 March
2010

31 March
2011

31 March
2012

31 March
2013

31 March
2014

31 March
2015

31 March
2016

31 March
2017

31 March
2018

31 March
2019

31 March
2020

This graph shows the value, by 31 March 2020, of £100 invested in Oxford Instruments plc on 31 March 2010 compared with thevalue of £100 invested in the FTSE 250, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices. The other points
plotted are the values at intervening financial year ends.

108

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Strategic Report

Governance

Financial Statements

Company Information

The total remuneration of the CEO over the last ten years is shown in the table below. The annual bonus payout and PSP vestinglevel as a percentage of the maximum opportunity are also shown.
2017 1

Year ending
31 March

2011

2012

2013

2014

2015

2016

DJF

IRB

2018

2019

2020

Total remuneration (£’000)

2,596

3,464

2,348

1,179

579

743

64

620

791

1,957

1,839

Annual bonus outcome (%)

100%

100%

69.1%

15.0%

7.5%

38.6%

0%

56.3%

63.7%

94.4%

62.9%

ESOS2 vesting (%)

100%

100%

100%

100%

0%

0%

0%

N/A

N/A

N/A

N/A

SELTIS/PSP vesting (%)

50%

100%

100%

100%

0%

0%

0%

N/A

N/A

92.8%

100%

2

1.

2016/17 financial year: remuneration shown separately for Jonathan Flint (DJF) who was CEO from 1 April to 11 May 2016 and Ian Barkshire (IRB) who was CEO from 12 May
2016 to 31 March 2017.

2.

Executive Directors were last granted ESOS (market value share options) and SELTIS (nil cost options) in June 2014. PSP awards have been granted after June 2014 as thesole long‑term incentive.

Ratio of Chief Executive pay to that of employees generally
The Chief Executive to employee pay ratio for 2019/20 is set out below:
Financial year

2019/20

Method25th percentile

50th percentile

75th percentileA

62.5:1

47.8:1

33.3:175th percentile

The pay for the CEO and the employees at the percentiles are set out below:
CEO

25th percentile

50th percentile

Salary£439,637£27,364£35,483£51,187

Total pay

£1,838,605£29,396£38,502£55,148

The ratios have been calculated in accordance with Option A under the relevant regulations, as this is the most statistically accurate
method. The CEO pay is compared to the pay of our UK employees at the 25th, 50th and 75th percentile, calculated based on
full-time equivalent pay data for the full financial year to 31 March 2020. All UK employees employed at the end of the financial year
who had worked the full year have been included, part-time employees have been included and pay has been converted to afull-time equivalent number by calculating total part-time pay and grossing up to the full-time equivalent for the role. Accordingly,
any employees that left the Company or joined during the year have been excluded.
The calculations use the pay for Ian Barkshire as disclosed in the single figure table. The pay for all UK employees comprises salary,
benefits, pension and annual bonus payments due for 2019/20. None of the employees at the percentiles received share awards.
The Committee is satisfied the pay of the employees identified for the quartiles appropriately reflects the employee pay structure ineach quartile and the resulting pay ratios are consistent with the pay, reward and progression policies in place for all employees.

Percentage change in the remuneration of the Executive Directors (unaudited)
The table below shows the percentage change in each of the CEO’s and GFD’s salaries, taxable benefits and annual bonus earned
between 2018/19 and 2019/20, compared to that for the average UK‑based employee of the Group (on a per capita full‑timeequivalent basis).
CEO
£’000

Salary2

GFD

Average employee pay1

2019/20

2018/19% change

2019/20

2018/19% change

2019/20

2018/19% change

439.6

428.1

2.7%

343.1

334.1

2.7%

42.0

41.0

2.4%
(21.1)%

Benefits

87.9

88.5

(0.7)%

20.8

22.3(6.7)%

1.5

1.9

Bonus3

278.6

406.8

(31.5)%

224.3

324.2

(30.8)%

Not known4

2.6

1.

Average employee includes all UK employees in service on 1 April 2018 and 31 March 2020 but excludes those who were on maternity leave, long‑term sick leave andthose who started or ended employment within the period.

2.

The average pay increase across all employees in the UK in 2019/20 was 2.75%.

3.

In light of the current uncertainties around covid-19, the Committee has calculated the outturn for the annual bonus for the Executive Directors but has determined that it
will only pay the bonus later in the year if the circumstances then merit it, and this value is used in the table.

4.

The Company has decided to defer the decision on when and to what extent it will pay bonuses to employees for the year to 31 March 2020 until after the printing of thisreport. It has therefore not been possible to calculate the value for the average employee.

Oxford Instruments plc Report and Financial Statements 2020109

Remuneration continued
Directors’ Remuneration Report continued
Relative importance of the spend on pay
The following table shows the Group’s employee costs relative to dividends and share buybacks:

Employee costs (£m)

Year ended
31 March
2020

Year ended
31 March2019% change

100.3

93.6

7.2%

Dividends (£m)20

7.6(100)%

Share buybacks (£m)

0

0.0

0%

1

1.

Employee costs excludes those related to OI Service LLC, which was sold during the year. Last year’s number has been restated.

2.

On 30 March 2020, as part of the measures taken to mitigate the risks presented by the continued spread of covid-19, the Board announced the suspension of the interim
dividend that was due to be paid on 14 April 2020 and that, at the time that this report was signed off, no final dividend has been declared.

Statement of Shareholder voting (unaudited)
At last year’s AGM, the resolution to approve the Annual Report on Remuneration received the following votes from Shareholders:Votes forVotes against% for% against

Votes marked
as abstain

48,664,847

429,389

99.1

0.9

3,464

Resolution

To approve the Annual Report on Remuneration

The resolution to approve the Directors’ Remuneration Policy was passed at the AGM held in 2017 and received the following votes
from Shareholders:Votes forVotes against% for% against

Votes marked
as abstain

48,991,763

548,61498.9

1.1

19,533

Resolution

To approve the Directors’ Remuneration Policy

How the policy will be applied in 2020/21 (unaudited)
Base salaries
As set out in the Chair’s Statement, at the time of writing, the Board, including the Executive Directors, has elected to take atemporary 20% salary or fee reduction. For the remainder of 2020/21, if the Committee and the Board consider that it is prudent toreinstate the full base pay for the Board, the Committee intends to increase the base salary for the CEO and GFD, in line with theaverage increase for the workforce generally, currently budgeted at 2%. The base salary increase for Executive Directors would bemade at the same time as the increase for the wider workforce. The decision for a 2020/21 workforce increase has been similarly
deferred, other than for those employees earning below a certain threshold.
Accordingly, the base salary levels will be as follows:
Salary assuming
a 2% increase is given
alongside workforce increase

Salary from 1 April –5 April 2020

Temporarily reduced
salary from
6 April 2020

Ian Barkshire£442,600£354,080£451,452

Gavin Hill

£345,450£276,360£352,359

Benefits and pension
These will be awarded in accordance with the approved policy. Benefits will be in line with those received in 2019/20. Pension willbe 14% of the level of the (normal) salary rate for 2019/20.

Annual bonus
The maximum opportunity under the annual bonus plan for 2020/21 will remain at 100% of base salary for both the CEO and GFD,
payable in cash up to the target level and then 50% in shares for any bonus earned in excess of the target payout level. Shares mustbe held for three years.

110

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Strategic Report

Governance

Financial Statements

Company Information

At the time of writing, it is intended that a combination of financial (85%) and non‑financial strategic (15%) metrics will be used todetermine the level of payment under the annual bonus for the CEO and GFD as detailed in the table below:
Weighting as a % of opportunity
MeasureOn target

Maximum

Adjusted operating profit margin (%)

15%

21.25%

Profit (£m)

30%

42.5%

Cash conversion (%)

15%

21.25%

Strategic objectives

Up to 15%

The performance targets will be determined later in the year and disclosed fully in next year’s Annual Report on Remuneration.
Non-financial strategic targets have been agreed. For the CEO and GFD, these objectives are linked to providing agile leadership
through and after the covid-19 pandemic and, for the CEO, developing engagement with progressive ESG standards and, for the
GFD, delivering tangible improvements through operational excellence.

Long‑term incentives in respect of the 2020/21 financial year
We anticipate that PSP awards will continue to be based 50% on ROCE and 50% on earnings per share. EPS will ensure a continued
focus on growing profitability and ROCE provides a close link to the business strategy over the next few years to support andincentivise management to make the changes needed to our business portfolio by ensuring that there is efficient redeployment ofour capital into higher margin and growth businesses. We intend to delay the grant of all long-term incentive awards until thesecond half of the financial year, once we have better visibility of our long-term financial performance, and will consider the grantlevels and targets at that time. There will be full details of the grant and the performance conditions in the RNS announcement andin next year’s Directors’ Remuneration Report.

Non‑Executive Directors’ fees
The Chair’s fee and the Non‑Executive Directors’ fees have been subject to the same 20% temporary reduction as the Executive
Directors. At the time of writing, it is intended that the basic fee for Non-Executive Directors and the Chair will be increased in linewith the average increase for the workforce generally and would be applied at the same time as for the workforce.
Accordingly, the fees will be as follows:

Board Chair

Fees from
1 April-5 April
2020

Temporarily
reducedfees from
6 April 2020

Fees assuming
a 2% increaseis givenalongside
workforceincrease1£183,600£180,000£144,000

Additional fee for Deputy Chair£5,000£4,000£5,100

Basic fee

£50,050£40,040£51,050

Additional fee for Senior Independent Director£7,500£6,000£7,650Additional fee for Committee Chair£7,500£6,000£7,6501.

As noted above, any increase will be applied later in the year, at the same time as for the workforce generally, and will be in line with the workforce increase, currently
budgeted at 2%.

ApprovalThis report was approved by the Committee on 9 June 2020 and has been approved subsequently by the Board for submission to
Shareholders at the Annual General Meeting to be held on 8 September 2020.

Thomas Geitner
Chair of the Remuneration Committee
9 June 2020

Oxford Instruments plc Report and Financial Statements 2020

111

Relations with Shareholders

Financial calendar

Dividend bank mandates

31 March 2020

Financial year end

9 June 2020

Announcement of preliminary results

July 2020

Publication of Annual Report

8 September 2020

Annual General Meeting

10 November 2020

Announcement of half‑year results

March 2021

Ordinary shares quoted ex‑dividend

March 2021

DRIP last date for election

March 2021

Record date for interim dividend

31 March 2021

Financial year end

Investor publications
The Group website provides up‑to‑date information on corporate and investor
news, as well as a wide range of additional supporting documentation.
The Company’s Annual and Interim Reports are available to download from thewebsite, alongside recent recordings of the City results presentations. Find out more
online at www.oxinst.com/investors

If you wish dividends to be paid directly
into a bank or building society accountand notification to be sent to yourShareholder register address, please
update your details via
www.signalshares.com (you will need
your Investor Code if you have notregistered before). Alternatively, you cancontact the Company’s Registrar at theaddress given above for a dividend
mandate form. Overseas holders can alsochoose to receive payment directly into
their bank account or can be sent a draftin local currency. Further details oninternational payments are available at
http://ips.linkassetservices.com.
Tel: +44 (0)371 664 0300 (calls arecharged at the standard geographic rate
and will vary by provider. Calls outside
the United Kingdom will be charged at
the applicable international rate. Lines
are open between 09:00-17:30, Monday
to Friday excluding public holidays in
England and Wales).
Website: www.signalshares.com

Duplicate share registeraccounts

Administrative enquiries
concerning shareholdings
You may view your shareholding anddividend history, register to receive yourdividends direct to your bank account orelect to re‑invest your dividends andregister a change of address online atwww.signalshares.com. To register to
use this facility you will need your Investor
Code (IVC), which can be found on yourshare certificate, dividend confirmation
statement or proxy card.
Administrative enquiries concerning
shareholdings in Oxford Instruments plc,
such as the loss of a share certificate,
dividend payments, or a change ofaddress, should be directed, in the first
instance, to the Registrar, Link Asset
Services, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU.

112

Tel: +44 (0)371 664 0300 (calls arecharged at the standard geographic rate
and will vary by provider. Calls outside
the United Kingdom will be charged at
the applicable international rate. Lines
are open between 09:00-17:30, Monday
to Friday excluding public holidays in
England and Wales).
Email:
shareholder.enquiries@linkgroup.co.uk
Website: www.signalshares.com
Correspondence should refer to Oxford
Instruments plc and state clearly theregistered name and address of the
Shareholder. Please notify the Registrar
promptly of any change of address.

If you are receiving more than one copy of
our report, it may be that your shares areregistered in two or more accounts on our
register of members. If that was not yourintention you might consider merging
them into one single entry. Please contact
Link Asset Services, who will be pleased
to carry out your instructions.

Shareholder communications
Unless you have elected to continue toreceive Shareholder communications bypost, you will be notified by post or, where
you have given us an email address forelectronic notification, by email that
Shareholder communications areavailable for viewing on the Company’s
website at www.oxinst.com/investors.
The Company reserves the right todistribute any communication in hard
copy if it deems this necessary.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Shareholder enquiries

Link Share Dealing Services

Shareholders who have questions
relating to the Group’s business or who
wish to have additional copies of theReport and Financial Statements should
apply to:A quick and easy share dealing service toeither sell or buy shares in many leading
UK companies is provided by Link Share
Dealing Services. An online and telephonefacility is available, providing ourShareholders with an easy‑to‑access andsimple‑to‑use service. There’s no need to
pre‑register and there are no complicatedforms to fill in. The online and telephonedealing service allows you to trade “realtime” at a known price which will be given
to you at the time you give your instruction.
To deal online or by telephone all you
need is your surname, Investor Code (IVC)
reference number, full postcode, your dateof birth and National Client Identifier. Your
Investor Code can be found on a recent
share certificate, statement or tax voucher.
Should you not be able to locate your IVC
number, please contact Link Asset
Services on +44 (0)371 664 0300 (calls arecharged at the standard geographic rate
and will vary by provider. Calls outside theUnited Kingdom will be charged at theapplicable international rate. Lines areopen between 09:00-17:30, Monday to
Friday excluding public holidays in
England and Wales). Please have theappropriate documents to hand when you
log on or call, as this information will beneeded before you can buy or sell shares.

Company Secretary
Oxford Instruments plc, Tubney Woods,
Abingdon, Oxfordshire OX13 5QX
Tel: 01865 393200 Fax: 01865 393442
Email: info.oiplc@oxinst.com
Website: www.oxinst.com
Company registration
Registered office: Tubney Woods,
Abingdon, Oxfordshire OX13 5QXRegistered in England number: 775598
Website: www.oxinst.com
Oxford Instruments has an extensive
website which gives details of all its
products and services, contact
information, vacancies and latest news
announcements. An interactive investor
relations section gives information on
recent trading reports, share price data
and forthcoming events.

Company Information

For further information on this service, or
to buy and sell shares, please contact
www.linksharedeal.com (online dealing)or +44 (0)371 664 0445 (telephone dealing).
(Calls are charged at the standard
geographic rate and will vary by provider.
Calls outside the United Kingdom will becharged at the applicable internationalrate. Lines are open between 09:00-17:30,
Monday to Friday excluding public
holidays in England and Wales). Full terms,
conditions and risks apply and areavailable on request or by visitingwww.linksharedeal.com.
This is not a recommendation to buy orsell shares. Remember the price of sharescan go down as well as up, and you are
not guaranteed to get back the amountthat you originally invested.

Analysis of Shareholders as at 31 March 2020
Numberof holders% of total

Up to 5,000 shares

1,816

86.35

1,074,206

1.87

5,001 to 50,000 shares

164

7.80

2,866,212

4.99

50,001 to 200,000 shares

36

1.71

2,505,801

4.36Over 200,000 shares

87

4.14

50,988,544

88.77

2,103

100%

57,434,763

100%

Size of shareholding

Total

Oxford Instruments plc Report and Financial Statements 2020

Total holding% of total

113

Report of the Directors

The Directors present their Report
and the Financial Statements of Oxford
Instruments plc for the year ended
31 March 2020.

Principal activity andbusiness reviews
The Company is the ultimate holding
company of a group of subsidiary
undertakings (the “Group”) engaged in
the research, development, manufacture,rental, sale and service of hightechnology tools and systems and is aleading provider of high technology
products, systems and tools to the world’s
leading industrial companies andscientific communities. The Company isrequired to set out in this report a true andfair view of the business of the Groupduring the financial year ended
31 March 2020, the position of the Groupat the end of the financial year and a
description of the principal risks anduncertainties facing the Group. The
information which fulfils theserequirements includes the Operations
Review and Finance Review on pages
32 to 49 and the report on Corporate
Responsibility on pages 56 to 67, which
are incorporated in this report byreference. The operations, the strategic
review, the Research and Development
activities and likely future prospects of
the Group are reviewed in the Strategic
Report on pages 2 to 41.

Results and dividends
The results for the year are shown in theConsolidated Statement of Income on
page 124. Following the uncertainty
created by covid-19, the Board
suspended the payment of the interim
dividend of 4.1p. As a result of continued
uncertainty, the Board has deferred adecision on payment of the interim
dividend and proposal to declare a final
dividend until the outcome of the
disruption caused by covid-19 has been
fully assessed. The dividend paid in
2018/19 was 14.4p per share.

114

Risks and uncertainties

Directors’ interests

The Board exercises proper andappropriate corporate governance for theGroup. It ensures that there are effective
systems of internal controls in place tomanage Shareholders’ interests and theGroup’s assets, including the assessment
and the management of the risks towhich the businesses are exposed, and tomonitor and manage the compliance withall the legal requirements that affect theGroup’s worldwide business activities.
However, such systems are designed to
manage rather than eliminate the risk offailure to achieve business objectives andcan provide only reasonable and not
absolute assurance against material
misstatement or loss.

The beneficial interests of the Directors in
the Company’s share capital, all in fully
paid up shares at 31 March 2020, areshown below.

The Executive Directors report to theBoard on changes in the business andin the external environment which may
affect the risks which the Group faces.
The Executive Directors also provide theBoard with financial information at each
Board meeting. Key performanceindicators are reviewed periodically.
There are a number of risks anduncertainties which may have a material
effect on the Oxford Instruments Group.
These are described in Principal Risks on
pages 50 to 54.

Directors
Biographies of all the Directors at thedate of this report, including theNon‑Executive Directors, appear on
pages 70 and 71. There have been nochanges to the Board during the year to
31 March 2020.

Directors’ conflicts of interest
The Companies Act 2006 allows
Directors of public companies toauthorise conflicts and potential conflictsof interest, where appropriate. Only
Directors with no interest in the matter
under consideration may participate in
the relevant decision and in doing so theymust act in a way which they consider ingood faith will be most likely to promote
the Company’s success. A conflicts policy
has been drawn up, which is reviewed
annually, and a register of conflicts andpotential conflicts is maintained.

Details of share options for the Executive
Directors are shown in the Remuneration
Report on pages 105 to 107.
31 March
2020
Shares31 March
2019
SharesIan Barkshire

12,52812,388Neil Carson

8,000

—

Steve Blair——

Richard Friend——

Thomas Geitner——

Gavin Hill

6,046

5,906

Mary Waldner

1,000

1,000

No Director was beneficially interested in
the shares of any subsidiary company at
any time during the year.
In the year to 31 March 2020, no Director
had a material interest in any contract ofsignificance with the Company or any of
its subsidiaries. Since the year end, there
have been no changes to the above
shareholdings apart from for Ian
Barkshire and Gavin Hill, who eachparticipate in the Oxford Instruments
Share Incentive Plan and since the year
end have each increased their beneficial
holding by 24 shares.

Insurance cover andDirectors’ indemnities
For a number of years, the Group has
purchased insurance to cover its Directors
and Officers against their costs indefending themselves in legal
proceedings taken against them in thatcapacity and in respect of damages
resulting from the unsuccessful defenceof any proceedings. In addition, to theextent permitted by UK law, the Group
indemnifies its Directors and Officers forliabilities arising from such proceedings.
Neither the insurance nor the indemnity
provides cover for situations where the
Director has acted fraudulently or
dishonestly.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Share capital
The Company only has one class of sharecapital, which comprises ordinary sharesof 5p each. All shares forming part of theordinary share capital have the samerights and carry one vote each. There are
no unusual restrictions on the transfer ofa share. The full rights and obligations
attaching to the Company’s ordinary
shares, as well as the powers of the
Directors, are set out in the Company’s
Articles of Association, a copy of which isavailable on the Company’s website.
These can also be obtained from
Companies House or by writing to theCompany Secretary.
During the year to 31 March 2020, theBoard issued 59,159 new shares (2019: nil)following the exercise of options under
the Company’s share option schemes.
At 31 March 2020, the issued sharecapital of the Company was 57,434,763
ordinary shares of 5p each. In connection
with the Company’s equity incentive
plans, a separately administered trust
held 72,121 ordinary shares at 31 March
2020 (representing 0.13% of the total
issued share capital of the Company). No
shares in the Company were acquired by
the Company during the year (2019: nil).
Details of the share capital and options
outstanding as at 31 March 2020 are set
out in Notes 23 and 12 respectively to the
Financial Statements.

Financial Statements

At this year’s Annual General Meeting, theDirectors propose to renew the authorities
granted to them at last year’s AGM to:•allot ordinary shares up to an
aggregate nominal value of one‑thirdof the Company’s issued share capital
and, where full pre‑emption rights areapplied, up to an aggregate nominal
value of two‑thirds of the Company’s
issued share capital;•

allot ordinary shares up to an
aggregate nominal value of 10% of theCompany’s issued share capital
without first offering them to existing
Shareholders; and•buy back up to 10% of the Company’s
issued share capital.

Shareholders will be requested to renew
these authorities at the AGM, detailsof which are set out in the Notice ofthe Meeting.

Substantial shareholdings
The following are beneficial interests of
3% or more (where the holding is direct),or of 5% or more (where the holding is
indirect), which have been notified to the
Directors of the Company, in accordancewith Chapter 5 of the Disclosure andTransparency Rules, of the Company’s
issued ordinary share capital, the onlyclass of voting capital, at 2 June 2020:

Company Information

Tax strategy
The Group’s tax strategy supports thestrategic objectives of the Group andapplies equally to both UK and non-UK
taxes and to all forms of tax. The Grouppays a significant amount of tax tonational and local governments,
including taxes on employment,
corporate taxes on profits, customs andexcise duty on purchases, withholding
taxes and environmental taxes. We also
administer VAT and similar sales taxes
charged to our customers andwithholdings on payments made to ouremployees. The Group’s tax strategy ispublished on the Group’s website atwww.oxinst.com/investors-content/
tax-strategy.

Payment of suppliers
The Group does not follow a standard
payment practice but agrees terms andconditions for its business transactions
with each of its suppliers. Payment is thenmade in accordance with these terms.
At 31 March 2020, trade creditors of theCompany and the Group’s UK subsidiaries
were equivalent to 15 days (2019: 35) and45 days (2019: 47) of purchases
respectively, based on the amounts
invoiced by suppliers during the year andthe amounts owed to trade creditors at
the end of the year.

Direct/indirect

Ameriprise Financial
BlackRock Investment Management (UK) Limited
Sir MF and Lady KA Wood

Shares
‘000

% of
total

Indirect/direct

7,484,658

13.0

Indirect

3,225,962

5.6
5.3

Direct3,015,530

Baillie Gifford & Co

Indirect

2,917,516

5.1

Artemis Investment Management LLP

Indirect2,885,051

5.0

Oxford Instruments plc Report and Financial Statements 2020

115

Report of the Directors continued

Charitable donations

External auditor

Financial risk management

During the year, the Group madecharitable donations of £11,986 (2019:£3,441). There have been no political
donations during the year.

During the year, the Board undertook acompetitive retender exercise for external
audit services, following which it wasdetermined that BDO LLP would be
appointed for the financial year 2020/21
onwards. Further information on thetender exercise is in the Audit and Risk
Committee Report on page 88. KPMG’s
appointment will cease following thereport on the 2019/20 financial
statements at the 2020 AGM. A resolution
to appoint BDO LLP as auditor and toauthorise the Directors to set theirremuneration will be proposed at theAnnual General Meeting.

Details of the Group’s financial risk
management objectives and policies,
including the exposure to price, credit andliquidity risk, are set out in Note 21 to the
Financial Statements.

Fixed assets
Whilst the market value of some fixed
assets may differ from book value, theDirectors believe that the differences are
not material.

Disclosure of information
to auditor
Pursuant to Section 418(2) of theCompanies Act 2006, the Directors whoheld office at the date of approval of thisDirectors’ Report confirm that, so far as
they are each aware, there is no relevant
audit information of which the Company’s
auditor is unaware; and each Director hastaken all the steps that he or she mightreasonably have been expected to havetaken as a Director to make himself or
herself aware of any relevant audit
information and to establish that theCompany’s auditor is aware of that
information.

Annual General Meeting
The Notice of the Annual General
Meeting to be held on 8 September 2020is set out in a letter to Shareholders
together with explanatory notes relating
to the resolutions.

Change of control arrangements
There are a number of agreements thattake effect, alter or terminate upon achange of control of the Company
following a takeover, such as banking
agreements and Company share plans.
On a change of control, the Company’scommitted credit facilities may becancelled by lenders by giving not lessthan three days’ notice. It is also possiblethat pension plan funding arrangements
would need to be changed following achange of control if that resulted in aweakening of the employer covenant.

Diversity and inclusion
The Board recognises that its employees
are fundamental to the Group’s success.
The Group’s aim is to ensure there are
equal opportunities for all employees andthat there is an inclusive culture where
differences are valued and people are
given the environment in which they
can do their best work. Corporate
Responsibility on pages 59 and 60 further
describes how diversity and inclusion is
managed within Oxford Instruments.

Greenhouse gas emissions
To meet the requirements of theCompanies Act 2006 (Strategic andDirectors’ Report) Regulations 2013, CO2
emissions are reported on as part of ourreporting on greenhouse gas emissions in
Corporate Responsibility on page 64.

Material events
There were no material events since theyear end to report.
By order of the Board

Corporate governance
The Board reviews its work on corporate
governance in the Corporate Governance
Report on pages 69 to 79.

Susan Johnson‑BrettCompany Secretary
9 June 2020

116

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

Directors’ Responsibilities
in relation to the Report and Financial Statements
The Directors are responsible forpreparing the Annual Report and theGroup and Parent Company Financial
Statements in accordance withapplicable law and regulations.

•Company law requires the Directors to
prepare Group and Parent Company
Financial Statements for each financial
year. Under that law they are required toprepare the Group Financial Statementsin accordance with International Financial
Reporting Standards as adopted by theEuropean Union (“IFRS as adopted by theEU”) and applicable law and have elected
to prepare the Parent Company Financial
Statements in accordance with UK
accounting standards, including FRS 101
Reduced Disclosure Framework.

•

Under company law the Directors must
not approve the Financial Statements
unless they are satisfied that they give atrue and fair view of the state of affairs of
the Group and Parent Company and of
their profit or loss for that period. In
preparing each of the Group and Parent
Company Financial Statements, theDirectors are required to:•

select suitable accounting policies andthen apply them consistently;•

make judgements and estimates thatare reasonable, relevant, reliable andprudent;••

for the Group Financial Statements,
state whether they have been
prepared in accordance with IFRS as
adopted by the EU;
for the Parent Company Financial
Statements, state whether applicable
UK accounting standards have been
followed, subject to any material
departures disclosed and explained in
the Parent Company Financial
Statements;

assess the Group and Parent
Company’s ability to continue as agoing concern, disclosing, asapplicable, matters related to going
concern; anduse the going concern basis ofaccounting unless they either intend
to liquidate the Group or the Parent
Company or to cease operations,or have no realistic alternative but
to do so.

The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Parent
Company’s transactions and disclose withreasonable accuracy at any time thefinancial position of the Parent Company
and enable them to ensure that its
Financial Statements comply with theCompanies Act 2006. They are
responsible for such internal control as
they determine is necessary to enable thepreparation of Financial Statements thatare free from material misstatement,
whether due to fraud or error, and havegeneral responsibility for taking such
steps as are reasonably open to themto safeguard the assets of the Group andto prevent and detect fraud and otherirregularities.
Under applicable law and regulations,the Directors are also responsible forpreparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report
and Corporate Governance Statementthat comply with that law and thoseregulations.

Responsibility statement of
the Directors in respect of theannual financial report
We confirm that to the best of ourknowledge:•

the Financial Statements, prepared inaccordance with the applicable set ofaccounting standards, give a true andfair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken asa whole; and•the Strategic Report/Directors’ Report
includes a fair review of thedevelopment and performance of thebusiness and the position of the issuer
and the undertakings included in the
consolidation taken as a whole,
together with a description of theprincipal risks and uncertainties thatthey face.

We consider the Report and Financial
Statements, taken as a whole, is fair,balanced and understandable andprovides the information necessary for
Shareholders to assess the Group’s
position and performance, businessmodel and strategy.
Signed on behalf of the Board

Ian Barkshire Gavin Hill
Chief Executive	Group Finance Director
9 June 2020

The Directors are responsible for the
maintenance and integrity of thecorporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination offinancial statements may differ fromlegislation in other jurisdictions.

Oxford Instruments plc Report and Financial Statements 2020117

Independent Auditor’s Reportto the members of Oxford Instruments plc
1. Our opinion is unmodified

Overview

We have audited the financial statements of Oxford Instrumentsplc (“the Company”) for the year ended 31 March 2020 which
comprise the Consolidated Statement of Income, Consolidated
Statement of Comprehensive Income, Consolidated Statementof Financial Position, Consolidated Statement of Changes in
Equity, Consolidated Statement of Cash Flows, Parent Company
Statement of Financial Position, Parent Company Statement of
Changes in Equity, and the related notes, including theaccounting policies set out on pages 130 to 136.

•

•

•

£1.7m (2019: £1.5m)

Coverage

79% (2019: 81%) of Group profit before tax1

Recurringrisks

the financial statements give a true and fair view of the stateof the Group’s and of the parent Company’s affairs as at
31 March 2020 and of the Group’s profit for the year thenended;
the Group financial statements have been properly preparedin accordance with International Financial ReportingStandards as adopted by the European Union;
the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; andthe financial statements have been prepared in accordancewith the requirements of the Companies Act 2006 and,as regards the Group financial statements, Article 4 of the
IAS Regulation.

Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We believe that theaudit evidence we have obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion is consistent with ourreport to the audit committee.
We were first appointed as auditor by the Directors in 1984. The
period of total uninterrupted engagement is for the 37 financial
years ended 31 March 2020. We have fulfilled our ethicalresponsibilities under, and we remain independent of the Groupin accordance with, UK ethical requirements including the FRC
Ethical Standard as applied to listed public interest entities. No
non-audit services prohibited by that standard were provided.

118

4.2% (2019: 4.0%) of Group normalised profit before
tax from continuing operations

Key audit matters

In our opinion:•

Materiality:Groupfinancialstatements
as a wholevs 2019

The impact of uncertainties due tothe UK exiting the European Union,on our audittuCompleteness and accuracy ofprovisions in respect of intellectual
property claimstuParent Company

tu

Recoverability of investments heldby the parent company
New risks1.

New: Going Concern – Disclosure quality

This is the profit and losses as a percentage of total profits and losses that madeup the Group profit before tax

2. Key audit matters: including our assessmentof risks of material misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks ofmaterial misstatement (whether or not due to fraud) identified byus, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; anddirecting the efforts of the engagement team. We summarise
below the key audit matters in arriving at our audit opinion
above, together with our key audit procedures to address thosematters and, as required for public interest entities, our resultsfrom those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of,and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, andconsequently are incidental to that opinion, and we do notprovide a separate opinion on these matters.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

The impact of
uncertainties dueto the UK exiting
the European
Union, on our audit
Refer to page 52(principal risks),
page 55 (viability
statement) andpage 83 (Audit
Committee Report).

Governance

Financial Statements

Company Information

The risk

Our response

Unprecedented levels of uncertainty:

We developed a standardised firm-wide approach to the considerationof the uncertainties arising from Brexit in planning and performing our
audits. Our procedures included:

All audits assess and challenge thereasonableness of estimates and related
disclosures and the appropriateness of thegoing concern basis of preparation of thefinancial statements (see below). All of thesedepend on assessments of the future economic
environment and the Group’s future prospects
and performance.
In addition, we are required to consider the otherinformation presented in the Annual Report
including the principal risks and uncertainties
disclosure and the viability statement and to
consider the directors’ statement that the annual
report and financial statements taken as awhole is fair, balanced and understandable andprovides the information necessary forshareholders to assess the Group’s position andperformance, business model and strategy.
Brexit is one of the most significant economic
events for the UK and its effects are subject tounprecedented levels of uncertainty ofconsequences, with the full range of possible
effects unknown.

Our Brexit knowledge: We considered the directors’ assessment of
Brexit-related sources of risk for the Group’s business and financial
resources compared with our own understanding of the risks. We
considered the directors’ plans to take action to mitigate the risks.
Sensitivity analysis: When addressing areas that depend on forecasts,
we compared the directors’ analysis to our assessment of the full rangeof reasonably possible scenarios resulting from Brexit uncertainty and,
where forecast cash flows are required to be discounted, consideredadjustments to discount rates for the level of remaining uncertainty.
Assessing transparency: We considered all of the Brexit related
disclosures together, including those in the strategic report, comparing
the overall picture against our understanding of the risks.
Our results
We found the resulting estimates and related disclosures, including
disclosures in relation to going concern, to be acceptable.
However, no audit should be expected to predict the unknowablefactors or all possible future implications for a company and this isparticularly the case in relation to Brexit.

Going Concern

Disclosure quality:

Our procedures included:

Refer to page 83(Audit Committee
Report), page 130(accounting policy).

The financial statements explain how the Board
has formed a judgement that it is appropriate to
adopt the going concern basis of preparation for
the Group and parent Company.

Funding assessment: Assessing the forecast cash position and theavailable committed facilities to understand the financial resources
available to the Group and assessing the ability to comply withcovenants during the forecast period.

That judgement is based on an evaluation of theinherent risks to the Group’s and Company’sbusiness model and how those risks might affect
the Group’s and Company’s financial resourcesor ability to continue operations over a period ofat least a year from the date of approval of thefinancial statements.

Sensitivity analysis: Considering sensitivities over the level of available
financial resources indicated by the Group’s financial forecasts taking
account of reasonably possible (but not unrealistic) adverse effects that
could arise from these risks individually and collectively resulting fromcovid-19 and Brexit.

The risks most likely to adversely affect theGroup’s and Company’s available financial
resources over this period were:••A fall in demand due to reduced funding foracademic customers in key markets and adeferral of capex for industrial customers as
a result of covid-19;
The impact of covid-19 and Brexit on theGroup’s supply chain.

Historical comparisons: Assessing historical forecasting accuracy, bycomparing forecast cash flows to those actually achieved by the Group.
Assessing transparency: Assessing the completeness and accuracy ofthe matters covered in the going concern disclosure by considering
whether they reflect the position of the Group’s financing and the risk
associated with the Group’s ability to continue as a going concern.
Our results
We found the disclosure without any material uncertainty to be
acceptable.

There are also less predictable but realistic
second order impacts, such as the impact of
Brexit and the erosion of customer or supplierconfidence, which could result in a rapid
reduction of available financial resources.
The risk for our audit was whether or not thoserisks were such that they amounted to amaterial uncertainty that may have castsignificant doubt about the ability to continue asa going concern. Had they been such, then thatfact would have been required to have been
disclosed.

Oxford Instruments plc Report and Financial Statements 2020119Independent Auditor’s Report continued
to the members of Oxford Instruments plc

Completenessand accuracy ofprovisions in
respect ofintellectual
property claims(£1.2 million; 2019:£1.8 million)
Refer to page 83(Audit Committee
Report), page 130(accounting policy)
and page 165(financial
disclosures).

The risk

Our response

Subjective estimate:

Our procedures included:

As a result of the complexity of products sold by
the Group and regulations such as patent law
and software licensing, the Group may infringe
third party intellectual property resulting inclaims arising.

Personnel interviews: Enquiring with the Group’s internal legal counsel
and business unit managers regarding new and previously unrecorded
intellectual property claims and the likelihood of the claims requiring aprovision.

This could result in a material unrecorded
provision for compensation required to be paid
to third parties.
Settling disputes between parties can take anumber of years with outcomes difficult topredict.
The effect of these matters is that, as part of ourrisk assessment, we determined that provisions
in respect of intellectual property claims have ahigh degree of estimation uncertainty, with apotential range of reasonable outcomes greaterthan our materiality for the financial statements
as a whole. The financial statements (note 27)
disclose the sensitivity estimated by the Group.

Compliance data scrutiny: Inspecting the Group’s litigation registerand correspondence between the group and other parties, including
legal advisers, for claims where no provision is recognised andassessing whether a provision is required for these claims.
Our sector experience: Challenging the reasonableness of the key
assumptions made by the Group and likelihood of an outflow ofresources against our own expectations based on our historicalknowledge, experience and understanding and our review ofcorrespondence with third parties.
Enquiry of lawyers: Enquiring with the Group’s external legal advisers,
having assessed their experience and competence, in respect of open
matters of litigation regarding the likelihood of an outflow of resources.
Assessing transparency: Assessing whether the Group’s disclosures
regarding the range of possible outcomes appropriately reflect therisks identified.
Our results
We found the level of provisions in respect of intellectual property
claims to be acceptable (2019: acceptable).

Recoverability ofinvestments heldby the parent
Company(£322.2 million;
2019: £321.1
million)Refer to page 175(accounting policy)
and page 176(financial
disclosures).

Low risk/high value:

Our procedures included:

The carrying amount of the parent Company’s
investments in subsidiaries represents 68%(2019: 83%) of the company’s total assets.

Tests of detail: Comparing the carrying amount of 100% of investmentswith the relevant subsidiaries’ draft balance sheet to identify whether
their net assets, being an approximation of their minimum recoverable
amount, were in excess of their carrying amount and assessing
whether those subsidiaries have historically been profit-making.

Their recoverability is not at a high risk ofsignificant misstatement or subject to significant
judgement.
However, due to their materiality in the context
of the parent Company financial statements,
this is considered to be the area that had thegreatest effect on our overall parent
Company audit.

Assessing subsidiary audits: Assessing the work performed by thesubsidiary audit team for a sample of subsidiaries and considering theresults of that work, on those subsidiaries’ profits and net assets.
Comparing valuations: For the investments where the carrying amountexceeded the net asset value, comparing the carrying amount of theinvestment with the expected value of the business based on a suitable
multiple of the subsidiaries’ profit.
Our results
We found the Group’s assessment of the recoverability of theinvestment in subsidiaries to be acceptable (2019: acceptable).

3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £1.7m (2019: £1.5m), determined with reference to a benchmark
of profit before tax from continuing operations normalised to exclude profit on disposal of associate, adjustments relating to defined
benefit pension schemes, impairment of capitalised development costs and the fair value movement on financial derivatives as
disclosed in Note 1 (2019: with reference to a benchmark of profit before tax from continuing operations normalised to exclude
restructuring costs – relating to associate, share of impairment reversal recognised by associate, past service costs, loan note
make-whole payment and mark to market movements in respect of derivative financial instruments as disclosed in Note 1).
Total profits and losses that made up normalised Group profit before tax from continuing operations is calculated as £39.5m(2019: £37.9m) of which materiality represents 4.2% (2019: 4.0%).
Materiality for the parent Company financial statements as a whole was set at £1.1m (2019: £1.0m), determined with reference to abenchmark of Company total assets, of which it represents 0.2% (2019: 0.3%).
We agreed to report to the Audit and Risk Committee any corrected or uncorrected identified misstatements exceeding £85,000(2019: £75,000), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 72 (2019: 74) reporting components, we subjected 9 (2019: 11) to full scope audits for group purposes and 2 (2019: 3)
to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full scope audit
for group purposes, but did present specific individual risks that needed to be addressed.
The Group team performed procedures on the items excluded in determining normalised Group profit before tax.
The components within the scope of our work accounted for the percentages indicated opposite.

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Governance

The remaining 14% of total Group revenue, 21% of Group profit
before tax, 12% of total Group assets and 22% of normalisedGroup profit before tax is represented by 61 (2019: 60) reporting
components, none of which individually represented more than
4% of any of total Group revenue, Group profit before tax, total
Group assets or normalised Group profit before tax. For theseresidual components, we performed analysis at an aggregatedgroup level to re-examine our assessment that there were no
significant risks of material misstatement within these.
The Group team instructed component auditors as to thesignificant areas to be covered, including the relevant risks
detailed above and the information to be reported back.
The Group team approved the component materialities, whichranged from £0.2m to £1.1m (2019: £0.5m to £1.0m), having
regard to the mix of size and risk profile of the Group across thecomponents. The work on 5 of the 11 components (2019: 7 of the
14 components) was performed by component auditors and therest, including the audit of the parent company, was performedby the Group team.
The Group team visited 0 (2019: 1) component locations(2019: UK) to confirm appropriate execution of the audit strategy
and plan and inspect their findings. Telephone conference
meetings were held with these component auditors and allothers that were not physically visited. At these meetings, thefindings reported to the Group team were discussed in moredetail, and any further work required by the Group team wasthen performed by the component auditor.

Financial Statements

Group profit before tax

Group revenue

14 19

Company Information

86%

6 12

(2019: 88%)

79%

(2019: 81%)

69
69

72

Group total assets

73

Normalised Group profit
before tax

6
10

88%

6 12

(2019: 89%)

79

82

78%

(2019: 81%)

69

72

Full scope for group audit purposes 2020
Specified risk-focused audit procedures 2020
Full scope for group audit purposes 2019
Specified risk-focused audit procedures 2019
Residual components

Normalised profit before tax

Group Materiality£40.2m (2019: £37.9m)£1.7m (2019: £1.5m)£1.7m

Whole financial
statements materiality(2019: £1.5m)£1.1m

Range of materiality at
11 components(£0.2m-£1.1m) �(2019: £0.5m to £1.0m)

Normalised Group profit before tax
Group materiality£85,000

Misstatements reported
to the audit committee(2019: £75,000)

Oxford Instruments plc Report and Financial Statements 2020

4. We have nothing to report on going concern
The Directors have prepared the financial statements on thegoing concern basis as they do not intend to liquidate theCompany or the Group or to cease their operations, and as they
have concluded that the Company’s and the Group’s financial
position means that this is realistic. They have also concluded
that there are no material uncertainties that could have castsignificant doubt over their ability to continue as a going concern
for at least a year from the date of approval of the financial
statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to thatin this audit report. However, as we cannot predict all future
events or conditions and as subsequent events may result inoutcomes that are inconsistent with judgements that werereasonable at the time they were made, the absence ofreference to a material uncertainty in this auditor’s report is nota guarantee that the Group and the Company will continue inoperation.

121

Independent Auditor’s Report continued
to the members of Oxford Instruments plc
4. We have nothing to report on going concern
continued
We identified going concern as a key audit matter (see section 2of this report). Based on the work described in our response tothat key audit matter, we are required to report to you if:•

we have anything material to add or draw attention to in
relation to the directors’ statement in Note 1 to the financial
statements on the use of the going concern basis ofaccounting with no material uncertainties that may castsignificant doubt over the Group and Company’s use of thatbasis for a period of at least twelve months from the date of
approval of the financial statements; or•the related statement under the Listing Rules set out on
page 49 is materially inconsistent with our audit knowledge.

We have nothing to report in these respects.

5. We have nothing to report on the otherinformation in the Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the otherinformation and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.

•

the Principal Risks and Uncertainties disclosures describing
these risks and explaining how they are being managed andmitigated; and•the directors’ explanation in the viability statement of how
they have assessed the prospects of the Group, over what
period they have done so and why they considered that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will beable to continue in operation and meet its liabilities as theyfall due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.

Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only
the knowledge acquired during our financial statements audit.
As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were
made, the absence of anything to report on these statements is nota guarantee as to the Group’s and Company’s longer-term viability.

Corporate governance disclosures
We are required to report to you if:•

we have identified material inconsistencies between theknowledge we acquired during our financial statements audit
and the directors’ statement that they consider that theannual report and financial statements taken as a whole isfair, balanced and understandable and provides theinformation necessary for shareholders to assess the Group’s
position and performance, business model and strategy; or•

the section of the annual report describing the work of the
Audit Committee does not appropriately address matterscommunicated by us to the Audit Committee.

Our responsibility is to read the other information and, in doingso, consider whether, based on our financial statements audit
work, the information therein is materially misstated orinconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.

Strategic report and directors’ report
Based solely on our work on the other information:•

we have not identified material misstatements in thestrategic report and the directors’ report;•

in our opinion the information given in those reports for thefinancial year is consistent with the financial statements; and•in our opinion those reports have been prepared inaccordance with the Companies Act 2006.

Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report tobe audited has been properly prepared in accordance with theCompanies Act 2006.

We are required to report to you if the Corporate GovernanceStatement does not properly disclose a departure from theprovisions of the UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report in these respects.

6. We have nothing to report on the other matterson which we are required to report by exception
Under the Companies Act 2006, we are required to report to you
if, in our opinion:•adequate accounting records have not been kept by theparent Company, or returns adequate for our audit have notbeen received from branches not visited by us; or•the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not inagreement with the accounting records and returns; or•certain disclosures of directors’ remuneration specified bylaw are not made; or•

we have not received all the information and explanations
we require for our audit.

Disclosures of emerging and principal risks anduncertainties and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:•

the directors’ confirmation within the viability statement on
page 55 that they have carried out a robust assessment of
the emerging and principal risks facing the Group, including
those that would threaten its business model, future
performance, solvency and liquidity;

We have nothing to report in these respects.

122

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7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 117,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true andfair view; such internal control as they determine is necessary
to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error;
assessing the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related togoing concern; and using the going concern basis of accounting
unless they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic alternative
but to do so.

Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free frommaterial misstatement, whether due to fraud or otherirregularities (see below), or error, and to issue our opinion in
an auditor’s report. Reasonable assurance is a high level ofassurance, but does not guarantee that an audit conducted inaccordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise fromfraud, other irregularities or error and are considered material if,
individually or in aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basisof the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on thefinancial statements from our general commercial and sector
experience, through discussion with the directors and othermanagement (as required by auditing standards), and from
inspection of the Group’s regulatory and legal correspondence
and discussed with the directors and other management thepolicies and procedures regarding compliance with laws andregulations. We communicated identified laws and regulations
throughout our team and remained alert to any indications of
non-compliance throughout the audit. This included
communication from the group to component audit teamsof relevant laws and regulations identified at group level.
The potential effect of these laws and regulations on thefinancial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements, including financial reporting
legislation (including related companies legislation),
distributable profits legislation and taxation legislation, andwe assessed the extent of compliance with these laws andregulations as part of our procedures on the related financial
statement items.

Oxford Instruments plc Report and Financial Statements 2020

Financial Statements

Company Information

Secondly, the Group is subject to many other laws andregulations where the consequences of non-compliance could
have a material effect on amounts or disclosures in the financial
statements, for instance through the imposition of fines. We
identified the following areas as those most likely to have suchan effect: international trading regulations, health and safety,
anti-bribery and employment law, recognising the nature of theGroup’s activities. Auditing standards limit the required audit
procedures to identify non-compliance with these laws andregulations to enquiry of the directors and inspection ofregulatory and legal correspondence, if any. Through theseprocedures, we became aware of actual or suspected
non‑compliance and considered the effect as part of ourprocedures on the related financial statement items. The
identified actual or suspected non-compliance was not
sufficiently significant to our audit to result in our response
being identified as a key audit matter.
Owing to the inherent limitations of an audit, there is anunavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we haveproperly planned and performed our audit in accordance withauditing standards. For example, the further removed
non‑compliance with laws and regulations (irregularities) isfrom the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures
required by auditing standards would identify it. In addition, aswith any audit, there remained a higher risk of non-detection ofirregularities, as these may involve collusion, forgery, intentionalomissions, misrepresentations, or the override of internal
controls. We are not responsible for preventing non-complianceand cannot be expected to detect non-compliance with all laws
and regulations.

8. The purpose of our audit work and towhom we owe our responsibilities
This report is made solely to the Company’s members, as abody, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we mightstate to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company andthe Company’s members, as a body, for our audit work, for thisreport, or for the opinions we have formed.

Mike Barradell (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
LondonE14 5GL
9 June 2020123

Consolidated Statement of Income
Year ended 31 March 20202019 as restated2

2020

Note

3

Adjusted£m

Adjustingitems1
£m

Total
£m

Adjusted£m

Adjustingitems1
£m

Total
£m

317.4

—

317.4

314.0

—

314.0

Cost of sales(158.6)(0.4)(159.0)(154.7)—(154.7)Gross profit

158.8

(0.4)

158.4

159.3

—

159.3

Revenue

Research and Development(26.6)(7.1)(33.7)(24.8)—(24.8)

Selling and marketing5(47.7)—(47.7)(48.5)—(48.5)

Administration and shared services(34.7)(8.3)(43.0)(37.3)(9.1)(46.4)

Share of profit of associate, net of tax

0.7

6.5

7.2

0.2

0.3

0.5

—

(1.4)

(1.4)

(1.2)

(1.5)

(2.7)

Operating profit

Foreign exchange loss

50.5

(10.7)

39.8

47.7(10.3)

37.4

Financial income

0.3

—

0.3

0.3

—

0.3

(0.3)

Interest charge on pension scheme
net liabilities

—

—

—

(0.3)

—

Other financial expenditure

(1.3)

—

(1.3)

(2.2)

(0.9)

(3.1)

Financial expenditure

(1.3)

—

(1.3)

(2.5)

(0.9)

(3.4)

Profit/(loss) before income tax

3

49.5

(10.7)

38.8

45.5(11.2)

34.3

Income tax (expense)/credit

13

(9.3)

2.5

(6.8)

(9.9)

3.4

(6.5)

40.2

(8.2)

32.0

35.6

(7.8)

27.8

(0.5)

2.3

1.8

1.5

0.7

2.2

39.7

(5.9)

33.8

37.1

(7.1)

30.0

pence

pence

pence

pence

70.2

55.9

62.3

48.6

Profit/(loss) for the year fromcontinuing operations(Loss)/profit from discontinued
operations after tax

7

Profit/(loss) for the year attributable
to equity holders of the parent
Earnings per share

Basic earnings per share2– From continuing operations– From discontinued operations

(0.9)

3.1

2.6

3.8

From profit for the year

69.3

59.0

64.9

52.4

69.5

55.3

61.7

48.2

Diluted earnings per share2– From continuing operations– From discontinued operations

(0.9)

3.1

2.6

3.8

From profit for the year

68.6

58.4

64.3

52.0

14

Dividends per share– Dividends paid
– Dividends proposed

3

14.4

13.3

—

14.4

1.

Adjusted numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1.

2.

Details of restatement of prior period numbers can be found in the Accounting Policies.

3.

Payment of the interim dividend which was proposed by the Board on 12 November 2019 has been suspended until further notice.

The attached notes form part of these Financial Statements.

124

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Governance

Financial Statements

Company Information

Consolidated Statement of Comprehensive Income
Year ended 31 March 2020
2020
£m

2019
£m

33.8

30.0

Foreign exchange translation differences

2.5

4.2

Net cumulative foreign exchange gain on disposal of subsidiaries recycled to the Income Statement

(4.4)

—

Profit for the year
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss

Items that will not be reclassified to profit or loss
Remeasurement gain in respect of post-retirement benefits

26.8

2.5

Tax charge on items that will not be reclassified to profit or loss

(5.1)

(0.5)

Total other comprehensive income

19.8

6.2

Total comprehensive income for the year attributable to equity Shareholders of the parent

53.6

36.2

Oxford Instruments plc Report and Financial Statements 2020125

Consolidated Statement of Financial Position
As at 31 March 2020
2020
£m

2019
£m

15
28
16
6
19
25
17

21.8
8.2
135.5
—
—
30.7
17.3
213.5

24.2
8.8
152.5
4.6
0.3
—
15.3
205.7

18
19

58.8
71.1
0.2
0.9
95.4
226.4
439.9

60.8
78.3
2.4
1.1
35.2
177.8
383.5

23

2.9
62.2
0.2
11.5
174.8
251.6

2.9
61.7
0.2
13.4
124.0
202.2

24
28
25
22
27
17

—
6.5
—
0.9
0.9
10.2
18.5

27.9
6.0
6.5
—
1.1
6.3
47.8

24
26
28

Total liabilities

27.9
125.1
2.1
4.6
2.6
7.5
169.8
188.3

0.6
116.9
3.0
4.3
1.1
7.6
133.5
181.3

Total liabilities and equity

439.9

383.5

Note

AssetsNon-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in associateLong-term receivables
Retirement benefit asset
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current income tax receivable
Derivative financial instruments
Cash and cash equivalents

22
20

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
Lease payables
Retirement benefit obligations
Derivative financial instruments
Provisions
Deferred tax liabilities
Current liabilities
Bank loans and overdrafts
Trade and other payables
Lease payables
Current income tax payables
Derivative financial instruments
Provisions

22
27

The Financial Statements were approved by the Board of Directors on 9 June 2020 and signed on its behalf by:

Ian Barkshire

Gavin Hill

Director

Director

Company number: 775598

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Strategic Report

Governance

Financial Statements

Company Information

Consolidated Statement of Changes in Equity
Year ended 31 March 2020

As at 1 April 2019
Total comprehensive income/(expense):
Profit for the year
Other comprehensive income/(expense):– Foreign exchange translation differences– Net cumulative foreign exchange gain on disposalof subsidiaries recycled to the Income Statement– Remeasurement gain in respect of
post-retirement benefits– Tax charge on items that will not be reclassified
to profit or loss
Total comprehensive (expense)/income
attributable to equity Shareholders of the parent
Transactions with owners recorded directly inequity:– Proceeds from exercise of share options– Credit in respect of employee service costs
settled by award of share options– Tax credit in respect of share options– Proceeds from shares issued– Dividends
Total transactions with owners recorded directlyin equity:
As at 31 March 2020
As at 1 April 2018
Impact of adoption of IFRS 15
Total comprehensive income/(expense):
Profit for the year
Other comprehensive income/(expense):– Foreign exchange translation differences– Remeasurement gain in respect of
post-retirement benefits– Tax charge on items that will not be reclassified
to profit or loss
Total comprehensive income attributable toequity Shareholders of the parent
Transactions with owners recorded directlyin equity:– Proceeds from exercise of share options– Credit in respect of employee service costs
settled by award of share options– Tax credit in respect of share options– Proceeds from shares issued– Dividends
Total transactions with owners recorded directlyin equity:
As at 31 March 2019

Sharecapital£mSharepremium£m

Otherreserves£m

Translation
reserve£m

Retainedearnings
£m

Total
£m

2.9

61.7

0.2

13.4

124.0

202.2

—

—

—

—

33.8

33.8

—

—

—

2.5

—

2.5

—

—

—

(4.4)

—

(4.4)

—

—

—

—

26.8

26.8

—

—

—

—

(5.1)

(5.1)

—

—

—

(1.9)

55.5

53.6

—

—

—

—

0.2

0.2

—
—
—
—

—
—
0.5
—

—
—
—
—

—
—
—
—

3.1
0.2
—
(8.2)

3.1
0.2
0.5
(8.2)

—
2.9

0.5
62.2

—
0.2

—
11.5

(4.7)
174.8

(4.2)
251.6

2.9
—
2.9

61.7
—
61.7

0.2
—
0.2

9.2
—
9.2

105.6
(7.2)
98.4

179.6
(7.2)
172.4

—

—

—

—

30.0

30.0

—

—

—

4.2

—

4.2

—

—

—

—

2.5

2.5

—

—

—

—

(0.5)

(0.5)

—

—

—

4.2

32.0

36.2

—

—

—

—

0.2

0.2

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

0.8
0.2
—
(7.6)

0.8
0.2
—
(7.6)

—
2.9

—
61.7

—
0.2

—
13.4

(6.4)
124.0

(6.4)
202.2

Other reserves comprise the capital redemption reserve, which represents the nominal value of shares repurchased and thencancelled during the year ended 31 March 1999.
The foreign exchange translation reserve comprises all foreign exchange differences arising since 1 April 2004 from the translationof the Group’s net investments in foreign subsidiaries into Sterling.
The Group holds 72,121 (2019: 152,710) of its own shares in an employee benefit trust. The cost of these shares is included within
retained earnings.

Oxford Instruments plc Report and Financial Statements 2020127Consolidated Statement of Cash Flows
Year ended 31 March 2020
Note

Profit for the year
Profit for the year from discontinued operations

7

Profit for the year from continuing operations

2020
£m

2019
£m

33.8

30.0

(1.8)

(2.2)

32.0

27.8

6.8

6.5

Adjustments for:
Income tax expense

13

Net financial expense

1.0

3.1

Fair value movement on financial derivatives

1.4

1.5

Restructuring costs

0.2—

Restructuring costs – relating to associate—

0.3

Adjustments relating to defined benefit pension schemes
Share of impairment recognised by associate
Profit on disposal of associate

6

(0.6)

0.3

—

(0.6)

(6.5)

—

Impairment of inventory

0.4—

Impairment of capitalised development costs

7.1—

Amortisation of acquired intangibles

16

8.7

8.8

Depreciation of right-of-use assets

28

3.4

2.7
3.0

Depreciation of property, plant and equipment

15

3.5

Amortisation of capitalised development costs

16

2.7

3.5

Amortisation of capitalised software costs

16

0.3

0.3

60.4

57.2

—

0.2

Adjusted earnings before interest, tax, depreciation and amortisation
Loss on disposal of plant, property and equipment
Charge in respect of equity settled employee share schemes

12

Share of profit of associate

3.1

0.8

(0.7)

(0.2)

Restructuring costs paid

(0.6)

(0.7)

Cash payments to the pension scheme more than the charge to operating profit(10.0)(7.1)

Operating cash flows before movements in working capital

52.2

50.2

Increase in inventories

(2.3)

(5.4)

Decrease/(increase) in receivables

3.3

(3.6)

Increase in payables and provisions

2.5

4.7

Increase in customer deposits

6.6

7.1

Cash generated from operations

62.3

53.0

Interest paid

(1.0)

(3.5)

Income taxes paid

(6.1)

(8.7)

55.2

40.8

Net cash from operating activities – continuing operations
Net cash from operating activities – discontinued operations
Net cash from operating activities

128

7

—

3.3

55.2

44.1

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

2020
£m

2019
£m

Proceeds from sale of property, plant and equipment

0.1—

Acquisition of property, plant and equipment

(4.4)

(4.9)

—

(2.2)

Note

Cash flows from investing activities

Acquisition of intangible assets
Net cash flow on disposal of associate

11.7

—

Capitalised development expenditure

(2.8)

(3.5)

Decrease in long-term receivables

1.4

1.1

Interest received—

0.3

Net cash generated from/(used in) investing activities – continuing operations

6.0

(9.2)

Net cash generated from investing activities – discontinued operations

7

Net cash generated from/(used in) investing activities

8.7

0.8

14.7

(8.4)

Cash flows from financing activities
Proceeds from issue of share capital

0.5—

Proceeds from exercise of share options

0.2

0.2

(3.3)

(2.7)
(11.5)

Payments made in respect of lease liabilities

28

Repayment of borrowings(0.6)

Dividends paid

(8.2)

(7.6)

Net cash used in financing activities – continuing operations(11.4)(21.6)Net cash used in financing activities – discontinued operations

7

Net cash used in financing activities

—

(0.5)

(11.4)(22.1)Net increase in cash and cash equivalents

58.5

13.6

Cash and cash equivalents at beginning of the year

35.2

20.7

Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of the year

Oxford Instruments plc Report and Financial Statements 2020

20

1.7

0.9

95.4

35.2

129

Accounting Policies
Year ended 31 March 2020
Oxford Instruments plc (the “Company”) is
a company incorporated and domiciled in
the UK.
The Group Financial Statements havebeen prepared and approved by the
Directors in accordance with International
Financial Reporting Standards as
adopted by the EU (“Adopted IFRS”).
The Company has elected to prepare its
Parent Company Financial Statementsin accordance with FRS 101; these arepresented on pages 169 to 179.
The accounting policies set out below
have, unless otherwise stated, been
applied consistently to all periods
presented in these Group Financial
Statements.
The Financial Statements have been
prepared on a going concern basis basedon the Directors’ opinion, as outlined
below and after making reasonableenquiries, that the Group has adequate
resources to continue in operational
existence for the foreseeable future.
The relatively diverse nature of the Group,
together with its current financial
strength, provides a solid foundation. In
particular, as at 31 March 2020, the Group
had net cash of £67.5m and undrawn
committed banking facilities of £105m
which expire in June 2023. The Group has
prepared a downside risk profit and cash
flow forecast on a monthly basis covering
the period to 30 September 2021. The
risks applied include uncertainty due tocovid-19 in addition to those risks
identified during the Group’s ongoing risk
management process. This analysis
showed that the Group would be able tooperate well within its cash balance withno need to draw on the committed
facilities. Those facilities are expected toremain available and the modelling
confirms that covenants will not be
breached. As a consequence, theDirectors believe that the Group is wellplaced to manage its business risks
successfully. Further information on theGroup’s business activities, together withthe factors likely to affect its future
development, performance and position,
are set out in the Strategy section on
pages 2 to 67. The financial position of theGroup, its cash flows, liquidity position
and borrowing facilities, are described in
the Finance Review on pages 42 to 49
and in the Viability Statement on page 55.

130

During the year, the Directors reviewed
the classification of costs in the Income
Statement with a particular focus onwhether items are reported within cost of
sales or operating expenses. As a resultof this review a number ofreclassifications were made, the mostsignificant being that outward freightcosts and commissions paid to
employees and external agents are
better presented within cost of sales
rather than within selling and marketing
expenses. The Directors consider this tobe a better presentation since grossmargin is now a clearer indicator ofcommercial performance and overheads
a clearer indicator of cost control.
Consequently, the previously publishedfigures for the year to 31 March 2019 havebeen restated. The effect on the year to
31 March 2019 has been to increase costof sales by £10.0m and reduce researchand development costs by £0.6m, sellingand marketing costs by £9.2m andadministration and shared services by£0.2m. There is no impact on any otherprimary statement at any reporting date.
The Financial Statements wereauthorised for issuance on 9 June 2020.

(a) New accounting standards
No new accounting standards have been
adopted during the year.

(b) Significant estimates andjudgements
The preparation of Financial Statements
requires management to makejudgements, estimates and assumptions
that affect the application of accounting
policies and the reported amounts ofassets, liabilities, income and expenses.
Actual results may differ from theseestimates.

Significant judgements
In the opinion of the Group there are no
judgements made in the preparation of
the Financial Statements in respect ofwhich taking a different view would havea material impact on the Financial
Statements.

Significant estimates
Revisions to accounting estimates arerecognised in the period in which theestimate is revised if the revision affects
only that period or in the period of therevision and future periods if the revisionaffects both current and future periods.
Two key areas where estimates havebeen used and assumptions applied havebeen identified as follows.

Measurement of defined benefit
pension scheme liabilities
The Group recognises and measurescosts relating to defined benefit pension
schemes in accordance with IAS 19(Revised) Employee Benefits. In applying
IAS 19 (Revised) the costs are assessed inaccordance with the advice ofindependent qualified actuaries. The
significant assumptions in determining
the IAS 19 liability include the selection ofan appropriate discount rate, inflation andmortality rates. The factors affecting
these assumptions are influenced bywider macro-economic factors that arelargely outside of the Group’s control.
A sensitivity analysis is set out in Note 25.

Provisions for IP-related claims
Provisions for IP-related claims arerecognised in the period when it becomesprobable that there will be a future
outflow of funds resulting from past
expectations or events which can bereasonably estimated. The timing ofrecognition requires the application ofjudgement to existing facts andcircumstances which can be subject tochange. Amounts provided represent theGroup’s best estimate of exposure basedon currently available information.
Key assumptions surrounding estimation
uncertainty relate to licence feessurrounding any product-related
intellectual property claims (see Note 27).

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance(c) Basis of preparation andconsolidation
The Financial Statements are presented
in Sterling, rounded to the nearest £0.1m
and are prepared on the historical costbasis except as described below under
the heading “(e) Financial instruments”.
The Group Financial Statements include
the accounts of Oxford Instruments plc
and its subsidiary companies adjusted toeliminate intra-Group balances and any
unrealised gains and losses or income
and expenses arising from intra-Grouptransactions.
Subsidiaries are entities controlled by theGroup. Control exists when the Group is
exposed to, or has rights to, variable
returns from its investment with theinvestee and has the ability to affectthose returns through its power over theinvestee. In assessing control, potential
voting rights that are currently exercisable
or convertible are taken into account. The
results of subsidiary companies areincluded in the consolidated Financial
Statements from the date that control
commences until the date that control
ceases. The acquisition method is used toaccount for the acquisition of subsidiaries.
Associates are those entities in which theGroup holds more than 20% of the sharesand voting rights and has significant
influence, but not control, over thefinancial and operating policies.
The Group financial information includes
the Group’s share of the total
comprehensive income of the associate
on an equity accounted basis, from thedate that significant influencecommences until the date that significant
influence ceases. When the Group’s shareof losses exceeds its interest in associate,
the Group’s carrying amount is reduced to£nil and recognition of further losses is
discontinued except to the extent that theGroup has incurred legal or constructive
obligations or made payments on behalfof an associate.

Financial Statements

The assets and liabilities of foreign
operations, including goodwill and fairvalue adjustments arising on
consolidation, are translated into Sterlingat exchange rates ruling at the end of thereporting period. Income statements andcash flows of foreign operations aretranslated into Sterling at averagemonthly exchange rates whichapproximate foreign exchange rates atthe date of the transaction. Foreignexchange differences arising on
retranslation are recognised through theStatement of Comprehensive Income.

(d) Foreign currency
An individual entity’s transactions inforeign currencies are translated at theforeign exchange rate ruling at the dateof the transaction. Monetary assets andliabilities denominated in foreign
currencies at the reporting date aretranslated at the foreign exchange rateruling at that date. Foreign exchange
differences arising on translation arerecognised in profit or loss. Non-monetary
assets and liabilities that are measured interms of historical cost in a foreign
currency are translated using theexchange rate at the date of thetransaction.

(e) Financial instruments
Financial assets and liabilities arerecognised in the Group’s Consolidated
Statement of Financial Position when theGroup becomes a party to the contractual
provisions of the instrument. Derivative
financial instruments of the Group areused to hedge its exposure to foreign
currency risks arising from operational,
financing and investment activities.

Oxford Instruments plc Report and Financial Statements 2020

Company Information

The Group does not hold or issue
derivative financial instruments for trading
purposes. All derivatives are initiallyrecognised at fair value; attributabletransaction costs are recognised in profit
or loss as incurred. Foreign exchange
contracts are classified as “fair value
through profit and loss” under IFRS 9.
Subsequent to initial recognition,
derivatives are measured at fair value andgains or losses on the settlement of suchderivatives are recognised in operating
expenses. Where such derivatives relate to
the following year’s exposure, any gains orlosses resulting from the change in fairvalue are recognised as an adjusting item
in operating expenses.
The fair value of forward exchange
contracts is their market price at theConsolidated Statement of Financial
Position date, being the present valueof the forward price. The gain or loss on
remeasurement to fair value of forward
exchange contracts is recognised
immediately in the Consolidated
Statement of Income.
Contingent purchase consideration ismeasured at fair value at the date ofacquisition and subsequently carried atfair value, with movements recognisedin the Income Statement.
Interest-bearing borrowings arerecognised initially at fair value lessattributable transaction costs.
Subsequent to initial recognition,interest-bearing borrowings are stated
at amortised cost with any difference
between cost and redemption value
being recognised in profit or loss over theperiod of the borrowing on an effective
interest basis.

131

Accounting Policies continued
Year ended 31 March 2020(f) Property, plant andequipment(g) Intangible assets(iii) Acquired intangible assets(i) Goodwill

Property, plant and equipment is statedat historical cost less provisions for
impairment (see accounting policy k) anddepreciation which, with the exception of
freehold land which is not depreciatedand rental assets (see below), is provided
on a straight-line basis over each asset’s
estimated economic life. Depreciation isprovided based on historical cost lessestimated residual value. The principal
estimated economic lives used for thispurpose are:All business combinations are accounted
for by applying the acquisition method.
Goodwill represents amounts arising on
acquisition of subsidiaries. In respect ofbusiness acquisitions that have occurredsince 31 March 2004, goodwill represents
the difference between the cost of theacquisition and the fair value of theassets, liabilities and contingent liabilities
acquired. In respect of acquisitions prior
to this date, goodwill is included on thebasis of its deemed cost, which
represents the amount recorded underprevious GAAP.

An intangible asset acquired with asubsidiary undertaking is recognised as
an intangible asset if it is separable fromthe acquired business or arises fromcontractual or legal rights, is expected togenerate future economic benefits and its
fair value can be reliably measured.
The asset is amortised through theConsolidated Statement of Income
over its useful economic life.

Freehold buildings, longleasehold land andbuildings

50 years

Furniture and fittings

10 years

Machinery and otherequipment

5 to 10 years

Computer equipment

4 years

Vehicles4 years

For leasehold improvements, where thelength of the lease is less than theprincipal estimated economic lives noted
above, the length of the lease is used.
Fixed assets held for rental as part of theGroup’s service business are depreciatedusing the reducing balance method at a
rate of 3% per month.
Proceeds on disposal of rental assets
which have been refurbished by theGroup are recorded as revenue withassociated costs recorded in cost of
sales. Otherwise, gains and losses on
disposal of an item of property, plant andequipment are determined by comparing
the proceeds from disposal with thecarrying amount of property, plant andequipment and are recognised in the
Income Statement.

132

The Group expenses transaction costs
associated with its acquisitions andmovements in liabilities relating tocontingent consideration within the
Income Statement in conformity withIFRS 3.
Goodwill arising on acquisitions is statedat cost less any accumulated impairment
losses and allocated to cash generating
units that are anticipated to benefit fromthe combination. It is not amortised but istested annually for impairment (seeaccounting policy k), or more frequently
when there is an indicator that the unit
may be impaired.

(ii) Development costs
Research and Development costs arecharged to the Consolidated Statementof Income in the year in which they are
incurred unless development expenditureis applied to a plan or design for the
production of new or substantially
improved products, in which case they
are capitalised. The criteria for
capitalisation include demonstration of
the technical feasibility of completinga new intangible asset that will beavailable for sale and that the asset
will generate probable future economic
benefits. Where expenditure meetsthe criteria, development costs arecapitalised and amortised through theConsolidated Statement of Income overtheir useful economic lives.

(iv) Amortisation
Amortisation of intangible assets is
charged to the Consolidated Statementof Income on a systematic basis in
proportion to the use of the assets overtheir estimated useful economic lives
as follows:
Capitalised development
costs

3 to 5 years

Technology-relatedacquired intangibles

5 to 12 years

Customer-related acquired 6 months tointangibles
15 yearsDevelopment costs
acquired intangibles

10 years

Software10 years(h) Trade and other receivables
Trade and other receivables are initiallyrecognised at fair value and subsequently
stated at their amortised cost lessappropriate provision for impairment.
The provision for impairment ofreceivables is based on lifetime expectedcredit losses. Lifetime expected credit
losses are calculated by assessing
historic credit loss experience. The
movement in the provision is recognisedin the Consolidated Income Statement.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance(i) Inventories
Inventories are stated at the lower of costand net realisable value. Cost includes
materials, direct labour, an attributableproportion of production overheads
based on normal operating capacity andall other expenditure incurred in acquiring
the inventories and bringing them to their
existing location and condition. Net
realisable value is the estimated selling
price in the ordinary course of business,less the estimated costs of completionand selling expenses.
Provision is made for obsolete,slow‑moving and defective stock whereappropriate in light of recent usage,
expected future requirements, newproduct introduction plans and likely
realisable values.

(j) Cash and cash equivalents
Cash and cash equivalents are carriedin the Statement of Financial Position atamortised cost.
Cash and cash equivalents comprise
cash balances and call deposits andare carried at amortised cost. Bank
overdrafts that are repayable on demandand form an integral part of the Group’s
cash management are included as acomponent of cash and cash equivalents
for the purpose of the Statement of
Cash Flows.

Financial Statements(k) Impairment of non-current
assetsAll non-current assets are tested
for impairment whenever events orcircumstances indicate that their carrying
value may be impaired. Additionally,
goodwill is subject to an annual
impairment review.
For the purposes of impairment testing,assets are grouped together into thesmallest group of assets that generates
cash flows from continuing use that arelargely independent of the cash inflows
from other groups of assets.
An impairment loss is recognised in theConsolidated Statement of Income under
the administration and shared services
heading, to the extent that an asset’s
carrying value, or a cash generating unit’s
carrying value, exceeds its recoverable
amount, which represents the higher of its
net realisable value and its value in use.
Value in use is the present value of the
future cash flows expected to be derived
from the asset or from the cash
generating unit to which it relates.
The present value is calculated using
a discount rate that reflects the current
market assessment of the time value ofmoney and the risks specific to the asset
concerned.
Impairment losses recognised in previous
periods for an asset other than goodwill
are reversed if there has been a change
in estimates used to determine the asset’s
recoverable amount, but only to theextent that the carrying amount of theasset does not exceed its carrying
amount had the impairment loss notbeen recognised in previous periods.
Impairment losses in respect of goodwill
are not reversed.
Impairment losses recognised in respectof cash generating units are allocatedfirst to reduce the carrying amount of any
goodwill allocated to cash generating
units and then to reduce the carrying
amount of the other assets in the unit.

Company Information(l) Employee benefits
The Group operates a number of defined
benefit and defined contribution plans
which require contributions to be made to
independent trustee-administered funds.

(i) Defined contribution plans
Obligations for contributions to defined
contribution pension plans are recognised
as an expense in the Consolidated
Statement of Income as incurred.

(ii) Defined benefit plans
The Group’s net obligation in respect ofdefined benefit pension plans is calculated
separately for each plan by estimating theamount of future benefit that current andpast employees have earned in return for
their service in prior periods. That benefit is
discounted to determine its present value
and the fair value of any plan assets isdeducted. The calculation is performed bya qualified actuary using the projected unit
credit method.
All actuarial gains and losses incalculating the Group’s net obligation arerecognised in the Consolidated Statementof Comprehensive Income in the year.
The charge to the Consolidated
Statement of Income reflects the current
service cost. The interest expense or
income is calculated on the net defined
benefit liability by applying the discountrate to the net defined benefit liability,
and is included within financial
expenditure or financial income in theConsolidated Statement of Income
respectively.

(iii) Share-based paymenttransactions
The fair value of equity settled share option
programmes is measured at grant dateand charged to the Consolidated
Statement of Income, with a corresponding
increase in equity, on a straight-line basis
over the period during which theemployees become unconditionallyentitled to the options. The fair value ofthe options granted is measured using an
option valuation model, taking into accountthe terms and conditions upon which theoptions were granted.
The amount recognised as an expense isadjusted to reflect the actual number ofshare options that vest, except where
forfeiture is only due to market
performance conditions not being met.

Oxford Instruments plc Report and Financial Statements 2020133

Accounting Policies continued
Year ended 31 March 2020(m) Provisions
A provision is recognised in theConsolidated Statement of Financial
Position when the Group has a present
legal or constructive obligation as a resultof a past event and it is probable that an
outflow of economic benefits will be
required to settle the obligation.
A provision for warranty andproduct‑related liability is recognised
when the underlying products are sold.
A provision for restructuring is recognised
when the Group has approved a detailed
and formal restructuring plan and therestructuring has either commenced or
has been announced publicly. A provision
for onerous contracts is recognised whenthe expected benefits to be derived by
the Group from a contract are lower
than the unavoidable cost of meeting
its obligations under the contract.
A provision for a claim or dispute is madewhen it is considered probable that anadverse outcome will occur and theamount of the loss can be reasonably
estimated.
Contractual and other provisions
represent the Directors’ best estimateof the cost of settling future obligations
where the Directors, taking into accountprofessional advice received, assess that
it is more likely than not that suchproceedings may be successful.
If the effect is material, provisions are
determined by discounting the expected
future cash flows at a pre-tax rate thatreflects current market assessments ofthe time value of money and, whereappropriate, the risks specific to theliabilities.

(n) Trade and other payables
Trade and other payables are initiallyrecognised at their fair value andsubsequently stated at amortised cost.

(o) Government grants
Grants from governments are recognised
at their fair value where there is areasonable assurance that the grant will
be received and the Group will comply
with all attached conditions.

134

Government grants relating to costs aredeferred and recognised in the Income
Statement over the period necessary tomatch them with the costs they areintended to compensate. Government
grants relating to property, plant andequipment are included in other current
liabilities and are credited to the Income
Statement on a straight-line basis overthe expected useful economic lives of
the related assets.

(p) Interest-bearing borrowings
Interest-bearing borrowings arerecognised initially at fair value lessattributable transaction costs.
Subsequent to initial recognition,interest-bearing borrowings are stated
at amortised cost with any difference
between cost and redemption value
being recognised in the Income
Statement over the period of theborrowings on an effective interest basis.

(q) Revenue
Revenue is recognised in theConsolidated Statement of Income
when the performance conditions in
the contract with the customer are met.
In most cases where the contract
includes the sale of both a product andinstallation then the sale of the productand the related installation are treated as
two separate performance conditions.
This is because the Group considers thatthe customer is able to benefit from theproduct even if the Group does not supply
installation, i.e. it would be possible forthem to arrange installation by a third
party. Revenue in respect of the productis recognised when control passes tothe customer, which is normally upon
shipment of the product. Revenue inrespect of installation is recognised when
the customer confirms acceptance of theinstallation.
Revenue is allocated between the
product and installation based on themargin expected for each component.
In general, a higher margin will beapplied to the product since the greater
value add to the customer is in thedesign and manufacture of the product.

In the NanoScience business certain
contracts for the sale of more complex
systems are deemed to comprise justone performance condition, which is met
when the customer confirms acceptanceof the installed product at their premises.
Accordingly, revenue is recognised in its
entirety on completion of installation.
In the Service & Healthcare segment,
revenue for maintenance and support isrecognised on a pro-rata basis over thelength of the contract period. Revenue
relating to the rental of machinery is
recognised on a straight-line basis overthe life of the lease. Where the Service &Healthcare segment makes asset sales,similar considerations as those set out for
the Materials & Characterisation andResearch & Discovery segments areapplied.
Revenue excludes value added tax andsimilar sales-based taxes and is stated
before commission payable to agents.

(r) Income tax
Income tax on the profit or loss for theyear comprises current and deferred tax.
Income tax is recognised in profit or loss
except to the extent that it relates to items
recognised directly in equity, in whichcase it is recognised in equity.
Current tax is the expected tax payable
on the taxable income for the year, using
tax rates enacted or substantively
enacted at the reporting date, and any
adjustment to tax payable in respect ofprevious years. Tax positions are reviewed
to assess whether a provision should bemade based on prevailing circumstances.
Tax provisions are included within current
taxation liabilities.
Deferred tax is recognised in respectof temporary differences between the
carrying amounts of assets and liabilities
for financial reporting purposes and theamounts used for taxation purposes. The
following temporary differences are notprovided for: the initial recognition of adeferred tax liability in respect of goodwill
arising on a business combination; theinitial recognition of assets or liabilities
that affect neither accounting nor taxable
profit; and differences relating toinvestments in subsidiaries to the extent
that they will probably not reverse in
the future.

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

The amount of deferred tax provided
is based on the expected manner ofrealisation or settlement of the carrying
amount of assets and liabilities, using tax
rates enacted or substantively enacted at
the Statement of Financial Position date.
A deferred tax asset is recognised only
to the extent that it is probable that futuretaxable profits will be available against
which the asset can be utilised. Deferred
tax assets are reduced to the extent that
it is no longer probable that the related
tax benefit will be realised.
Additional income taxes that arise
from the distribution of dividends arerecognised at the same time as theliability to pay the related dividend.

(s) Leases
Leases under which theGroup acts as lessee
The Group recognises a right-of-use
asset and a lease liability at the leasecommencement date. The right-of-use
asset is initially measured at cost, which
comprises the initial amount of the leaseliability adjusted for any lease payments
made at or before the commencement
date, plus any initial direct costs incurredand an estimate of costs to dismantle andremove the underlying asset or to restore
the underlying asset or the site on which
it is located, less any lease incentives
received.
The right-of-use asset is subsequently
depreciated using the straight-line methodfrom the commencement date to theearlier of the end of the useful life of theright-of-use asset or the end of the lease
term. The estimated useful lives ofright-of-use assets are determined on
the same basis as those of property andequipment. In addition, the right-of-use
asset is periodically reduced by impairment
losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at
the present value of the lease paymentsthat are not paid at the commencement
date, discounted using the interest rate
implicit in the lease or, if that rate cannot
be readily determined, the Group’s
incremental borrowing rate. Generally,
the Group uses its incremental borrowing
rate as the discount rate.

Financial Statements

Lease payments included in themeasurement of the lease liability
comprise fixed payments.
The lease liability is measured atamortised cost using the effective interest
method. It is remeasured when there is achange in future lease payments arisingfrom a change in an index or rate, if there
is a change in the Group’s estimate of theamount expected to be payable under aresidual value guarantee, or if the Groupchanges its assessment of whether it will
exercise a purchase, extension or
termination option.
When the lease liability is remeasured inthis way, a corresponding adjustment ismade to the carrying amount of theright-of-use asset, or is recorded in profit
or loss if the carrying amount of theright‑of‑use asset has been reduced
to zero.

Short-term leases and leases of
low-value assets
The Group has elected not to recogniseright-of-use assets and lease liabilities for
short-term leases of machinery that havea lease term of twelve months or less andleases of low-value assets, including IT
equipment. The Group recognises thelease payments associated with theseleases as an expense on a straight-line
basis over the lease term.

Leases under which theGroup acts as lessor
When the Group acts as a lessor, it
determines at lease inception whether
each lease is a finance lease or an
operating lease. To classify each lease,
the Group makes an overall assessmentof whether the lease transfers
substantially all of the risks and rewards
incidental to ownership of the underlying
asset. If this is the case, then the lease is afinance lease; if not, then it is an operatinglease. As part of this assessment, theGroup considers certain indicators suchas whether the lease is for the major partof the economic life of the asset.

Company Information(t) Segment reporting
An operating segment is a distinguishable
component of the Group that engages inbusiness activities from which it may earnrevenues and incur expenses, including
any revenues and expenses that relate totransactions with any of the Group’s othercomponents. Operating components are
combined into aggregated operating
segments to the extent that they have
similar economic characteristics.
Aggregated operating segments’operating results are reviewed regularly
by the Group’s Board of Directors to makedecisions about resources to be allocatedto the segment and to assess its
performance, for which discrete financial
information is available. Segment resultsthat are reported to the Board include
items directly attributable to a segment
as well as those that can be allocated ona reasonable basis.
A reportable segment is an aggregatedoperating segment in respect of whichrevenue or profit exceeds 10% of theGroup total. Discrete financial information
is disclosed for each reportable segment.

(u) Dividends
Interim and final dividends are recognised
as a liability when they are no longer atthe discretion of the Company.

(v) New standards andinterpretations not yet adopted
There are no standards that are not yet
effective and that would be expected tohave a material impact on the Group in
the current or future reporting periods
and on foreseeable future transactions.

The Group recognises lease payments
received under operating leases asincome on a straight-line basis overthe lease term as part of revenue.

Oxford Instruments plc Report and Financial Statements 2020135

Notes to the Financial Statements
Year ended 31 March 2020
1 Non-GAAP measures
In the preparation of adjusted numbers, the Directors exclude certain items in order to assist with comparability between peers
and to give what they consider to be a better indication of the underlying performance of the business. These adjusting items are
excluded in the calculation of adjusted operating profit, adjusted profit before tax, adjusted profit for the year from continuing
operations, adjusted EBITDA, adjusted EPS, adjusted cash conversion and adjusted effective tax rate. Details of adjusting items
are given below.
Adjusted EBITDA is calculated by adding back depreciation of property, plant and equipment, depreciation of right-of-use assets
and amortisation of intangible assets to adjusted operating profit, and can be found in the Consolidated Statement of Cash Flows.
The calculation of adjusted EPS can be found in Note 2. Adjusted effective tax rate is calculated by dividing the share of tax
attributable to adjusted profit before tax by adjusted profit before tax. The definition of cash conversion is set out in the
Finance Review.

Reconciliation between operating profit and profit before income tax
and adjusted profit from continuing operations
2019

2020
Operatingprofit£m

Profit before
income tax£mOperatingprofit£m

Profit before
income tax
£m

34.3

Statutory measure from continuing operations

39.8

38.8

37.4

Restructuring costs

0.2

0.2

—

—

Restructuring costs – relating to associate

—

—

0.3

0.3

Business reorganisation items

0.2

0.2

0.3

0.3

Adjustments relating to defined benefit pension schemes

(0.6)

(0.6)

0.3

0.3

Impairment of inventory

0.4

0.4

—

—

Impairment of capitalised development costs

7.1

7.1

—

—

Share of impairment recognised by associate

—

—

(0.6)

(0.6)

Profit on disposal of associate

(6.5)

(6.5)

—

—

Amortisation of acquired intangibles

8.7

8.7

8.8

8.8

Fair value movement on financial derivatives

1.4

1.4

1.5

1.5

Loan note make-whole payable

—

—

—

0.9

Total non-GAAP adjustments

10.7

10.7

10.3

11.2

Adjusted measure from continuing operations

50.5

49.5

47.7

45.5

47.7

35.6

Income tax expense
Adjusted profit for the year from continuing operations
Adjusted effective tax rate

(9.9)

(9.3)
50.5

40.2
18.8%

21.8%

Restructuring costs
These represent the costs of one-off changes to senior management within the Research & Discovery segment.

Restructuring costs – relating to associate
These represent the Group’s share of mergers and acquisitions costs and other one-off items incurred by the associate in the prioryear.

Adjustments relating to defined benefit pension schemes
During the year, the Group recognised a one-off accounting gain on the termination of its US defined benefit pension scheme.
See Note 25 for further details.
During the prior year, a charge of £0.3m was recognised in respect of the expected cost of equalising Guaranteed Minimum Pension(GMP) between males and females.
GMP is a portion of pension that was accrued by individuals who were contracted out of the UK State Second Pension prior to
6 April 1997. Historically, there was an inequality of benefits between male and female members who have GMP. A High Court
case concluded on 26 October 2018 and confirmed that GMPs need to be equalised.

Impairment of inventory
During the year, the Group implemented a new ERP system at a site within the Research & Discovery division. In reconciling theinventory on the new system, a need for an impairment in respect of certain historic inventory differences was identified. This has
been treated as an adjusting item due to its one-off nature.

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Impairment of capitalised development costs
During the year, the Group reviewed the capitalised development costs to ensure they remained directly related to targeted productor software developments. The one-off non-cash impairment relates to the Materials & Characterisation segment; comprising
software intangibles in Asylum Research, historical balances on general process development in Plasma Technology and productdevelopment in NanoAnalysis that has been affected by a reduction in orders as a result of covid-19.

Share of impairment recognised by associate
During the year to 31 March 2018, the Group’s equity accounted associate recognised an impairment relating to the disposal of its
Vacgen subsidiary. The Group’s share of this impairment was £2.0m. Following the completion and finalisation of the transaction,a one-off impairment of £0.6m was reversed in the year to 31 March 2019.

Profit on disposal of associate
During the year, the Group made a profit on disposal of its shareholding in Scienta Scientific AB; see Note 6. This has been treatedas an adjusting item due to its non-recurring nature.

Amortisation and impairment of acquired intangibles
Adjusted profit excludes the one-off non-cash amortisation and impairment of acquired intangible assets and goodwill.

Fair value movement on financial derivatives
Under IFRS 9, 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 IFRS 9 since that standard requires certain stringent criteria to be met inorder to hedge account, which, in the particular circumstances of the Group, are considered by the Board not to bring any significant
economic benefit. Accordingly, the Group accounts for these derivative financial instruments 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 thevaluation of these instruments so that the underlying performance of the Group can be more clearly seen.

Loan note make-whole payable
During the year to 31 March 2019, the Group repaid £11.6m of the principal outstanding on its loan notes. This payment wasnecessary due to material changes to the Group’s structure following the disposal of its Industrial Analysis business during July 2017.
The one-off costs of £0.9m relate to the make-whole balance payable upon settlement of the £11.6m principal.

Share of taxation
Adjusting items include the income tax on each of the items described above.

Reconciliation of changes in cash and cash equivalents to movement in net cash
2020
£m

2019
£m

Net increase in cash and cash equivalents

58.5

13.6

Effect of exchange rate fluctuations on cash held

1.7

0.9

60.2

14.5

0.6

11.5

Repayment of borrowings
Movement in accrued interest

—

0.4

60.8

26.4

Net cash/(debt) at start of the year

6.7

(19.7)Net cash at the end of the year

67.5

6.7

Note

2020
£m

2019
£m

Loan notes – unsecured

24(27.9)(28.5)Cash and cash equivalents

20

95.4

35.2

67.5

6.7

Movement in net cash in the year

Reconciliation of net cash to Statement of Financial Position

Net cash at the end of the year

Oxford Instruments plc Report and Financial Statements 2020137

Notes to the Financial Statements continued
Year ended 31 March 2020
2 Earnings per share
Basic and diluted EPS from continuing operations are based on the result for the year from continuing operations, as reported in
the Group Income Statement. Basic and diluted EPS from total operations are based on the result for the year attributable to equity
Shareholders of the parent. Adjusted and diluted adjusted EPS are based on adjusted profit for the year from continuing operations.
The profit measures noted above are divided by the weighted average number of ordinary shares outstanding during the year,
excluding shares held by the Employee Share Ownership Trust. The table below reconciles these different profit measures.
2020
£m

2019
£m

Profit for the year attributable to equity Shareholders of the parent

33.8

30.0

Discontinued operations

(1.8)

(2.2)

Business reorganisation items

0.2

0.3

Adjustments relating to defined benefit pension schemes

(0.6)

0.3

Impairment of inventory

0.4—

Impairment of capitalised development costs

7.1—

Share of impairment recognised by associate

—

(0.6)

Adjusting items:

Profit on disposal of associate

(6.5)

—

Amortisation of acquired intangibles

8.7

8.8

Fair value movement on financial derivatives

1.4

1.5

Loan note make-whole payable—

0.9

Adjusted income tax expense

(2.5)

(3.4)

Adjusted profit for the year from continuing operations

40.2

35.6

The weighted average number of shares used in the calculation excludes shares held by the Employee Share Ownership Trust,and is as follows:

Weighted average number of shares outstanding

2020
Sharesmillion2019
Sharesmillion

57.4

57.4

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

(0.1)

(0.2)

Weighted average number of shares used in calculation of basic earnings per share

57.3

57.2

2020
Sharesmillion2019
Sharesmillion

57.3

57.2

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

Number of ordinary shares per basic earnings per share calculations
Effect of shares under option

0.6

0.5

Number of ordinary shares per diluted earnings per share calculations

57.9

57.7

For the purposes of calculating diluted and diluted adjusted EPS, the weighted average number of ordinary shares is adjusted toinclude the weighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary
shares expected to vest, relating to the Company’s share-based payment plans. Potential ordinary shares are only treated as
dilutive when their conversion to ordinary shares would decrease EPS or increase loss per share.

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3 Segment information
The Group has eight 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 ofcustomer, methods of sale and distribution and the regulatory environment in which they operate. Each of these three aggregatedoperating segments is a reportable segment. The aggregated operating segments are as follows:•

the Materials & Characterisation segment comprises a group of businesses focusing on applied R&D and commercial customers,
enabling the fabrication and characterisation of materials and devices down to the atomic scale;•the Research & Discovery segment comprises a group of businesses providing advanced solutions that create uniqueenvironments and enable measurements down to the molecular and atomic level which are used in fundamental research; and•the Service & Healthcare segment provides customer service and support for the Group’s products and the service, sale andrental of third-party healthcare imaging systems.

The Group’s internal management structure and financial reporting systems have been amended to differentiate the threeaggregated operating segments based on the economic characteristics discussed above.
Reportable segment results include items directly attributable to a segment as well as those which can be allocated on areasonable basis. 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 foreach 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 presented in reporting to the Group’s Board of Directors.

Results from continuing operations
Materials &Characterisation£mResearch &Discovery£mService &Healthcare
£m

Total
£m

Total segment revenue

137.6

126.0

53.8

317.4

Segment adjusted operating profit from continuing operations

21.0

14.5

15.0

50.5

Materials &Characterisation£mResearch &Discovery£mService &Healthcare
£m

Total
£m

Total segment revenue

137.9

125.2

50.9

314.0

Segment adjusted operating profit from continuing operations

21.2

12.9

13.6

47.7

Year to 31 March 2020

Year to 31 March 2019

The adjusted profit after tax of £0.7m (2019: £0.2m) from the Group’s associate is reported within the Research & Discovery segment.
Revenue in the Materials & Characterisation and Research & Discovery segments represents the sale of products. Revenue in theService & Healthcare segment relates to service income,As at 31 March 2020, the Group had unfulfilled performance obligations under IFRS 15 of £175.0m.

Oxford Instruments plc Report and Financial Statements 2020139

Notes to the Financial Statements continued
Year ended 31 March 2020
3 Segment information continued
Reconciliation of reportable segment profit from continuing operations
UnallocatedGroup items
£m

Total
£m

15.0

—

50.5

—

—

(0.2)

Materials &Characterisation£mResearch &Discovery£mService &Healthcare£m

Segment adjusted operating profit from continuing operations

21.0

14.5

Restructuring costs

(0.1)

(0.1)

Year to 31 March 2020

Adjustments relating to defined benefit pension schemes

—

—

—

0.6

0.6

Impairment of inventory

—

(0.4)

—

—

(0.4)

(6.3)

(0.8)

—

—

(7.1)

—

6.5

—

—

6.5

Impairment of capitalised development costs
Profit on disposal of associate
Amortisation of acquired intangibles

(2.3)

(6.4)

—

—

(8.7)

Fair value movement on financial derivatives

—

—

—

(1.4)

(1.4)

Financial income

—

—

—

0.3

0.3

Financial expenditure

—

—

—

(1.3)

(1.3)

12.3

13.3

15.0

(1.8)

38.8

Materials &Characterisation£mResearch &Discovery£mService &Healthcare£mUnallocatedGroup items
£m

Total
£m

Profit/(loss) before income tax from continuing
operations

Year to 31 March 2019

Segment adjusted operating profit from continuing operations

21.2

12.9

13.6

—

47.7

Restructuring costs – relating to associate

—

(0.3)

—

—

(0.3)

Adjustments relating to defined benefit pension schemes

—

—

—

(0.3)

(0.3)

Share of impairment recognised by associate

—

0.6

—

—

0.6

(2.4)

(6.4)

—

—

(8.8)

Fair value movement on financial derivatives

—

—

—

(1.5)

(1.5)

Financial income

—

—

—

0.3

0.3

Financial expenditure

—

—

—

(3.4)

(3.4)

18.8

6.8

13.6

(4.9)

34.3

Amortisation of acquired intangibles

Profit/(loss) before income tax from continuing
operations

Depreciation, capital expenditure, amortisation and impairment of intangibles and capitalised development costs arise in thefollowing segments:
Depreciation

2020
£m

2019
£m

Materials & Characterisation

2.9

2.5

Research & Discovery

1.4

1.3

Service & Healthcare

1.1

1.0

Unallocated Group items

1.5

1.4

Total

6.9

6.2

Capital expenditure

2020
£m

2019
£m

4.5

Materials & Characterisation

2.7

Research & Discovery

1.1

1.1

Service & Healthcare

0.1

0.1

Unallocated Group items

0.5

1.3

Total

4.4

7.0

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Amortisation and impairment of intangibles

2020
£m

2019
£m

Materials & Characterisation

10.5

4.6

Research & Discovery

8.0

7.7

Service & Healthcare——

Unallocated Group items

0.3

0.3

Total

18.8

12.6

Capitalised development costs

2020
£m

2019
£m

Materials & Characterisation

1.8

2.7

Research & Discovery

1.0

0.8

Service & Healthcare——

Unallocated Group items

—

—

Total

2.8

3.5

The Group’s reportable segments are located across a number of geographical locations and make sales to customers in countries
across the world.
The analysis below shows revenue and non-current assets (excluding deferred tax) for individual countries or regions that represent
more than 5% of revenue.
Revenue from continuing operations from external customers by destination

2020
£m

2019
£m

UK

13.4

14.2

China

69.7

70.0

Japan

38.5

38.7

USA

83.5

80.2

Germany

26.7

28.3

Rest of Europe

44.8

38.7

Rest of Asia

28.4

34.4

Rest of World

12.4

9.5

Total

317.4

314.0

Non-current assets (excluding deferred tax)

2020
£m

2019
£m

170.2

157.4

Germany

UK

4.0

3.9
15.4

USA

9.7

Japan

1.4

1.7

China		

0.50.5Rest of Europe

8.8

9.4

Rest of Asia

0.3

0.4

Rest of World
Total

Oxford Instruments plc Report and Financial Statements 2020

1.3

1.7

196.2

190.4

141

Notes to the Financial Statements continued
Year ended 31 March 2020
4 Auditor’s remuneration
Audit of these Financial Statements

2020
£’000

2019
£’000

215

199

287

270

Amounts received by the auditor and its associates in respect of:– Audit of Financial Statements of subsidiaries pursuant to legislation– Taxation compliance services—

10– Audit-related assurance services

28

26– Other assurance services

—

6

530

511

Materials &Characterisation£mResearch &Discovery
£m

Total
£m

R&D expense charged to the Consolidated Statement of Income

15.3

11.3

26.6

Add: amounts capitalised as fixed assets

0.1

—

0.1

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

(1.9)

(0.8)

(2.7)

Total fees payable to the auditor and its associates

5 Research and Development (R&D)
The total adjusted Research and Development spend by the Group is as follows:Year to 31 March 2020

Add: amounts capitalised as intangible assets

1.8

1.0

2.8

Total cash spent on R&D during the year

15.3

11.5

26.8

Materials &Characterisation£mResearch &Discovery
£m

Total
£m

R&D expense charged to the Consolidated Statement of Income

14.3

10.5

24.8

Less: depreciation of R&D-related fixed assets

(0.1)

—

(0.1)

Add: amounts capitalised as fixed assets

—

0.1

0.1

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

(2.2)

(1.3)

(3.5)

Add: amounts capitalised as intangible assets

2.7

0.8

3.5

Total cash spent on R&D during the year

14.7

10.1

24.8

Year to 31 March 2019 as restated1

1.

Details of restatement of prior period numbers can be found in the Accounting Policies section.

6 Investment in associate
The Group held a 47% interest in the ordinary share capital of Scienta Scientific AB. Scienta Scientific AB is registered, and has its
principal place of business, in Sweden. On 28 January 2020, the Group sold its holdings in Scienta Scientific AB for £11.7m in cash.
The investment has been accounted for as an associate taking into account the following factors:•

the Group held substantial, but minority, voting rights (47%). All other rights were controlled by a single shareholder;•

the Group had a minority number of non-executive Board seats (two of five), with the remaining seats held by representatives ofthe other shareholder; and•whilst the Group had certain veto rights in respect of certain decisions, it could not unilaterally direct the activities of the Scienta
Scientific AB Group.

The Group’s share of profit in its equity accounted associate for the period to 28 January 2020 was £0.7m (2019: £0.5m for the year).
The Group did not receive any dividend from the associate in either period.
Period to
28 January 2020£m

Year to31 March 2019£m

Income37.4

36.5

Expenses(35.9)(35.4)

Profit for the period

1.5

1.1

Group’s share of profit

0.7

0.5

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The profit on disposal of the associate was determined as follows:£mCash consideration

11.7

Carrying value of investment(5.2)

Transaction costs—

Profit on disposal

6.5

Cash flows:£mCash consideration
Transaction costs paid
Cash inflow

11.7
—
11.7

7 Disposal of subsidiary and discontinued operations
On 21 February 2020, the Group disposed of its OI Healthcare business in the US for a final consideration of $14.9m, of which $1.5m
is held in escrow for twelve months pending any claims from the purchaser.

Effect of the disposal on the financial position of the Group£m

Acquired intangible assets(1.3)

Property, plant and equipment(3.3)

Right-of-use assets(2.7)

Inventory(3.1)

Trade and other receivables(2.4)

Cash and cash equivalents(0.3)

Trade and other payables

1.4

Lease liabilities

2.9

Net assets divested(8.8)

Consideration receivable

11.5

Deferred consideration(1.2)

Consideration received, satisfied in cash

10.3

Cash disposed of(0.3)

Transaction expenses – paid

(2.6)

Net cash inflow

7.4

Carrying value of net assets disposed of (excluding cash and cash equivalents)(8.5)

Deferred consideration

1.2

Recognition of provision on disposal(1.4)

Currency translation differences transferred from translation reserve

4.4

Gain on disposal

3.1

Tax (charge)/credit on gain on disposal—

Gain on disposal net of tax

3.1

The recognition of provision on disposal relates to obligations of the business which the Group expects to remain liable for.

Oxford Instruments plc Report and Financial Statements 2020143

Notes to the Financial Statements continued
Year ended 31 March 2020
7 Disposal of subsidiary and discontinued operations continued
Discontinued operations
In the year to 31 March 2020, the OI Healthcare business was classified as a discontinued operation. It was considered a major classof business on the basis of its size and that it was previously an operating segment and referred to in the Group’s Strategic Report.
The 2019 Financial Statements have been re-presented to reflect the classification of the OI Healthcare business as a discontinued
operation.
During the prior year the Group recognised £1.6m of income representing additional proceeds due in respect of the sale of theIndustrial Analysis business in July 2017 and an associated tax charge of £0.3m. The cash was received during the current year.
2019

2020

Results of discontinued operations

OI Healthcare£mIndustrial
Analysis£m

OI Healthcare£mIndustrial
Analysis£m

Revenue

14.8

—

19.6

—

Expenses(15.5)—(17.6)—

Adjusted (loss)/profit before tax

(0.7)

—

2.0

—

Income tax credit/(charge)

0.2

—

(0.5)

—

Adjusted (loss)/profit after tax

(0.5)

—

1.5

—

Restructuring costs

(0.1)

(0.2)

—

—

Amortisation of acquired intangibles

(0.8)

—

(0.8)

—
—

Adjusting items:

Income tax on adjusting items

0.3

—

0.2

(Loss)/profit after tax

(1.1)

(0.2)

0.9

—

Gain on disposal

3.1

—

—

1.6

Tax on gain on disposal

—

—

—

(0.3)

Profit from discontinued operations after tax

2.0

(0.2)

0.9

1.3

Cash flows from discontinued operations
Net cash generated from operating activities

—

—

3.3

—

Net cash generated from investing activities

7.4

1.3

0.8

—

Net cash used in financing activities

—

—

(0.5)

—

2020
pence

2019
pence

Adjusted basic (loss)/earnings per share

(0.9)

2.6

Earnings per share from discontinued operations

Adjusted diluted (loss)/earnings per share

(0.9)

2.6

Total basic earnings per share

3.1

3.8

Total diluted earnings per share

3.1

3.8

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8 Financial income
Interest receivable

2020
£m

2019
£m

0.3

0.3

0.3

0.3

2020
£m

2019
£m

9 Financial expenditure
Interest payable

1.3

2.2

Interest charge on pension scheme net liabilities—

0.3

Loan note make-whole payable

—

0.9

1.3

3.4

2020
£m

2019
£m

Wages and salaries

87.8

84.5

Social security costs

10.8

10.3

Contributions to defined contribution plans

3.6

3.3

Charge in respect of employee share options

3.1

0.8

105.3

98.9

10 Personnel costs

Directors’ emoluments are disclosed in the Directors’ Remuneration Report on pages 90 to 111 of this Report and Financial Statements.
Included in the total above is £5.0m (2019: £5.3m) in respect of discontinued operations.

11 Employees
The average number of people employed by the Group (including Directors and temporary employees) during the year was asfollows:
2020
Number

2019
NumberProduction

611

620

Sales and marketing

394

386

Research and development

365

355

Administration and shared services

215

218

1,585

1,579

Oxford Instruments plc Report and Financial Statements 2020

145

Notes to the Financial Statements continued
Year ended 31 March 2020
12 Share option schemes
The Group operates three share option schemes:

All-employee Share Incentive Plan (SIP)All UK employees are eligible to participate in the Group’s HM Revenue and Customs-approved SIP. Participating employees makea cash contribution to the plan each month. The Group contributes a further amount equal to 20% of the employee’s contribution.
Independent trustees then purchase matching shares in the market on behalf of the employees. The matching shares vest on thecompletion by the participating employee of a further three years’ service and can be withdrawn from the plan tax-free after five
years’ service.

Medium-Term Incentive Plan (MTIP)
Options awarded under the Medium-Term Incentive Plan are made annually to certain senior managers. The exercise prices are £nil.
Options have a life of ten years and a vesting period of three years.

Performance Share Plan (PSP)
Under the Performance Share Plan awards of performance shares (or nil-cost options) are made annually to certain senior
managers. Awards have a life of ten years with vesting subject to achievement of performance targets and a vesting period of aminimum of three years (but may be up to five years).
Share option schemes that have been discontinued but for which options were outstanding at the year end include the following:

Executive Share Option Scheme (ESO)
Options awarded under the Executive Share Option Scheme were made annually to certain senior managers. The exercise prices
were determined according to the mid-market closing share price on the day before the date of grant. Options have a life of ten
years and a vesting period of three years.
The ESO, MTIP and PSP schemes are subject to performance conditions which can be found in the Directors’ Remuneration Reporton pages 90 to 111.
Administrative expenses include a charge of £3.1m (2019: £0.8m) in respect of the cost of providing share-based remuneration.
The cost of share options is calculated by estimating the fair value of the option at grant date and spreading that amount over thevesting period after adjusting for an expectation of non-vesting.
During the year an error was discovered in the estimation of the fair value of the PSP and MTIP options issued during the 2018 and2019 years. The effect of this error was that profit was understated by £0.2m in 2018 and £0.8m in 2019. The cumulative amount has
been charged to the Income Statement in 2020. There was no impact on the Statement of Financial Position at any reporting date.
The table below includes the corrected valuations in respect of these options.
Fair values are determined using an internal valuation model based on a modified Black-Scholes model. Expected volatility has
been based on historical volatility over a period of time of the same length as the expected option life and ending on the grant date.
Some of the ESO and PSP options use total shareholder return (TSR) as a performance condition. As TSR is a market-based
performance condition, the accounting treatment differs from that for options subject to non-market performance conditions.
This means that the TSR performance conditions have been incorporated into the calculation of the fair value as a discount incalculating the fair value.
For options granted in the years ended 31 March 2020 and 2019, the fair value per option granted and the assumptions used in thecalculation are as follows:
Medium-Term
Incentive Plan
July 2019

Performance
Share Plan
July 2019

Medium-Term
Incentive Plan
July 2018

Performance
Share Plan
July 2018

Fair value at measurement date

£13.58£13.58

£9.71

£9.71

Share price at grant date

£14.00£14.00£10.10£10.10

£nil

£nil

£nil

£nil

Expected volatility

38.2%

38.2%

46.9%

46.9%

Expected option life (expressed as weighted average life used in themodelling)

3 years

Exercise price

3 years

3 years

3 years

Expected dividend yield

1.0%

1.0%

1.3%

1.3%

Risk-free interest rate

0.5%

0.5%

1.0%

1.0%

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The options existing at the year end were as follows:
2019

2020
Number ofsharesExercise
price

Period when
exercisable

Number ofshares—£2.04

17/12/12 – 16/12/19

1,500

Options subsisting at the year end on unissued ordinary shares:
Executive Share Option Scheme
December 2009
January 2011

2,700

£7.05

07/01/14 – 06/01/21

13,726

December 2011

34,945£9.90

14/12/14 – 13/12/21

97,500June 2015

164,181£10.2815/06/18 – 14/06/25

347,729

June 2016

18,000£7.38

21/06/19 – 20/06/26

18,000November 2016

49,750£6.27

29/11/19 – 28/11/26

142,071

Total options subsisting on existing ordinary shares

269,576

620,526

0.5%

1.1%

Percentage of issued share capital
Medium-Term Incentive Plan
September 2017

99,398£nil

25/09/20 – 24/09/27

107,982

July 2018

91,867£nil

03/07/21 – 02/07/28

101,720

July 2019

97,514£nil

15/07/22 – 14/07/29

Total options subsisting on existing ordinary shares
Percentage of issued share capital—

288,779

209,702

0.5%

0.4%

Performance Share Plan
June 2016

148,475£nil

21/06/19 – 20/06/26

148,475

September 2017

116,853£nil

25/09/20 – 24/09/27

116,853

July 2018

115,043£nil

03/07/21 – 02/07/28

115,043

July 201986,032£nil

15/07/22 – 14/07/29—

Percentage of issued share capital

466,403380,371

0.8%

0.7%

The number and weighted average exercise prices of those options are as follows:
2019

2020

Outstanding at the beginning of the period
Granted during the year

Number ofoptions

Weighted
exerciseaverage
price

Number ofoptions£4.68

1,210,599£7.69

1,217,155£nil

188,660£nil

218,558

Weighted
average
exercise
priceForfeited during the year

£3.26

(41,051)£5.62(38,805)

Exercised during the year

£9.03

(307,450)£8.15(93,120)

Lapsed during the year

£9.83

(26,000)£10.14(93,189)

Outstanding at the year end£2.44

1,024,758£4.68

1,210,599

Exercisable at the year end£5.97

418,051£10.08460,455

The weighted average share price at the time of exercise of the options was £13.55 (2019: £10.01).
The total consideration received from exercise of options in the year was £0.7m (2019: £0.2m).

Oxford Instruments plc Report and Financial Statements 2020147

Notes to the Financial Statements continued
Year ended 31 March 2020
13 Income tax expense
2020
£m

2019
£m

Recognised in the Consolidated Statement of Income
Current tax expense
Current year

9.1

8.1

Adjustment in respect of prior years

(0.8)

(0.7)

8.3

7.4

Origination and reversal of temporary differences

(1.6)

(1.2)

Adjustment in respect of prior years

0.1

0.3

(1.5)

(0.9)

6.8

6.5

Profit before income tax

38.8

34.3

Income tax using the weighted average statutory tax rate of 22% (2019: 22%)

8.5

7.5

Deferred tax expense

Total tax expense
Reconciliation of effective tax rate

Effect of:Tax rates other than the weighted average statutory rate

0.1

(0.2)

Change in rate at which deferred tax is recognised

0.1

(1.2)

Profit on disposal

(1.3)

—

Transaction costs, deferred consideration and impairments not deductible for tax—

0.7

Non-taxable income and expenses

0.6—

Movement in unrecognised deferred tax—

0.1

Adjustment in respect of prior years

(1.2)

(0.4)

Total tax expense

6.8

6.5

5.1

0.5

Taxation charge recognised directly in other comprehensive income
Deferred tax – relating to employee benefits
Taxation credit recognised directly in equity
Current tax on adoption of IFRS 15

—

(0.9)

Deferred tax on adoption of IFRS 15

—

(0.9)

(0.2)

(0.2)

Deferred tax – relating to share options

A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September
2016. However, in the Budget on 11 March 2020, it was announced that this reduction would be reversed, which was substantively
enacted on 17 March 2020. Consequently, the UK corporation tax rate will remain at 19%. The UK deferred tax liability at 31 March
2020 has been calculated based on that rate. The Group carries tax provisions in relation to uncertain tax positions arising from thepossible outcome of negotiations with tax authorities. Such provisions are a reflection of the geographical spread of the Group’s
operations and the variety of jurisdictions in which it carries out its activities.
On 2 April 2019, the EU Commission announced that it believes that in certain circumstances the UK’s Controlled Foreign Company(CFC) regime (introduced in 2013) for certain finance income constituted State Aid. The Commission instructed the UK Government torecover any such aid from affected parties. The Group has claimed the benefit of this exemption, and therefore may be required to
repay State Aid. The maximum amount of State Aid repayable as at 31 March 2020 was £1.2m in respect of tax and £0.1m in respectof interest, unless the decision is successfully challenged in the EU Courts. The Group believes that £0.2m may ultimately bepayable and a provision has been made for that amount.

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14 Dividends per share
The following dividends per share were paid by the Group:
2020
pence

2019
pence

Previous period interim dividend

3.8

3.7

Previous period final dividend

10.6

9.6

14.4

13.3

2020
pence

2019
pence

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

Interim dividend—

3.8

Final dividend

—

10.6

—

14.4

Payment of the interim dividend which was proposed by the Board on 12 November 2019 has been suspended until further notice.

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Notes to the Financial Statements continued
Year ended 31 March 2020
15 Property, plant and equipment
Land andbuildings£mPlant andequipment£mFixturesand fittings
£m

Total
£m

69.8

Cost
Balance at 1 April 2018

14.6

45.3

9.9

Additions – external

0.2

4.8

0.2

5.2

Disposals – other

—

(1.8)

(0.3)

(2.1)

Effect of movements in foreign exchange rates

0.1

0.8

0.1

1.0

Balance at 31 March 2019

14.9

49.1

9.9

73.9

Balance at 1 April 2019

14.9

49.1

9.9

73.9

Additions – other

0.2

4.2

0.7

5.1

Disposals – sale of businesses

(0.5)

(9.9)

(0.1)

(10.5)(11.2)

Disposals – other

—

(8.5)

(2.7)

Effect of movements in foreign exchange rates

(0.1)

0.5

—

0.4

Balance at 31 March 2020

14.5

35.4

7.8

57.7

Balance at 1 April 2018

4.7

34.4

7.9

47.0

Depreciation charge for the year

0.4

3.2

0.3

3.9

Disposals – other

—

(1.7)

(0.2)

(1.9)

Depreciation and impairment losses

Effect of movements in foreign exchange rates

—

0.7

—

0.7

Balance at 31 March 2019

5.1

36.6

8.0

49.7

Balance at 1 April 2019

5.1

36.6

8.0

49.7

Depreciation charge for the year

0.4

3.5

0.4

4.3

Disposals – sale of businesses

(0.2)

(6.9)

(0.1)

(7.2)

Disposals – other

—

(8.4)

(2.8)

(11.2)

Effect of movements in foreign exchange rates

(0.2)

0.4

0.1

0.3

Balance at 31 March 2020

5.1

25.2

5.6

35.9

At 1 April 2018

9.9

10.9

2.0

22.8

At 31 March 2019 and 1 April 2019

9.8

12.5

1.9

24.2

At 31 March 2020

9.4

10.2

2.2

21.8

Carrying amounts

As at 31 March 2020, the net book value of plant and equipment included £0.8m (2019: £1.6) of assets under construction.

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16 Intangible assets

Goodwill£m

Customerrelatedacquiredintangibles£mTechnologyrelatedacquiredintangibles£m

Development
costs
acquiredintangibles£m

Development
costsinternallygenerated£m

Software
£m

Total
£m

Balance at 1 April 2018

107.1

48.9

91.0

1.8

45.8

3.3

297.9

Additions – external

—

1.3

—

—

—

—

1.3

Additions – internally generated

—

—

—

—

3.5

0.9

4.4

Cost

Effect of movements in foreignexchange rates

1.2

2.4

2.5

—

—

—

6.1

Balance at 31 March 2019

108.3

52.6

93.5

1.8

49.3

4.2

309.7

Balance at 1 April 2019

309.7

108.3

52.6

93.5

1.8

49.3

4.2

Additions – internally generated

—

—

—

—

2.8

—

2.8

Disposals – sale of businesses(5.9)(22.0)————(27.9)

Effect of movements in foreignexchange rates
Balance at 31 March 2020

0.9

0.7

2.1

—

(0.1)

—

3.6

103.3

31.3

95.6

1.8

52.0

4.2

288.2

26.8

37.6

41.1

0.7

30.7

2.3

139.2

—

1.7

7.7

0.2

3.5

0.3

13.4

Amortisation and impairment losses
Balance at 1 April 2018
Amortisation and impairment
chargedEffect of movements in foreignexchange rates

1.2

2.2

1.2

—

—

—

4.6

Balance at 31 March 2019

28.0

41.5

50.0

0.9

34.2

2.6

157.2

Balance at 1 April 2019

28.0

41.5

50.0

0.9

34.2

2.6

157.2

Amortisation and impairment
charged

—

1.8

7.5

0.2

9.8

0.3

19.6

Disposals – sale of businesses(5.9)(20.7)————(26.6)

Effect of movements in foreignexchange rates

0.8

0.6

1.3

—

(0.1)

(0.1)

2.5

Balance at 31 March 2020

22.9

23.2

58.8

1.1

43.9

2.8

152.7

Carrying amounts
At 1 April 2018

80.3

11.3

49.9

1.1

15.1

1.0

158.7

At 31 March 2019 and 1 April 2019

80.3

11.1

43.5

0.9

15.1

1.6

152.5

At 31 March 2020

80.4

8.1

36.8

0.7

8.1

1.4

135.5

During the year, the Group made impairments of £7.1m in respect of capitalised development costs. Further information can befound in the Finance Review section of the Strategic Report.
The £1.3m addition to customer-related acquired intangible assets in the prior year relates to the acquisition by the Group of acustomer list from a third party.

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Notes to the Financial Statements continued
Year ended 31 March 2020
16 Intangible assets continued
The following intangible assets are considered material by the Directors as they represent 93% (2019: 91%) of total acquired
intangible assets:
2019

2020

£m

Amortisation
periodYears

Remainingamortisation
period
Years

£m

7.2

15.0

8.8

8.0

– Product related

24.7

12.0

5.8

28.9

– Software related

4.2

10.0

3.8

5.3

Technology, know-how and patents – Asylum

6.6

12.0

4.7

8.0

Trademarks – Andor
Technology, know-how and patents – Andor:

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected tobenefit from that business combination. The carrying amount of goodwill was allocated to individual CGUs as follows:
2020
£m

2019
£m

10.1

10.0

Andor

61.3

61.3

NanoScience

6.7

6.7

Magnetic Resonance

2.3

2.3

80.4

80.3

Materials & Characterisation
NanoAnalysis
Research & Discovery

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
Accounting standards require an impairment test to be carried out by determining the recoverable amount of each CGU whichcontains goodwill. The recoverable amount is calculated as the higher of the fair value less costs to sell or the value in use of the
CGU. In the Group’s case, the recoverable amount is based on value in use calculations. Value in use is calculated by discounting
expected future cash flows. In previous years, the Group has used Board-approved five-year cash flow forecasts, prepared by the
management of each CGU and reviewed and amended by Group management as necessary together with 3.0% per annum growth
for the subsequent 20 years. This rate was considered to be at or below long-term market trends for the Group’s businesses.
In the current year, the impact of covid-19 meant that the output of the Group’s five-year planning process (usually completed in
November each year) could not be considered reliable. Accordingly, in April 2020, each CGU prepared an 18-month base case anddownside profit forecast. The downside forecast was used as a basis for the value in use calculation along with an assumption thatannual average cash conversion would be 85%, which is the Group’s target cash conversion and noted to be lower than that
achieved over the last five years. Long-term growth was estimated to be 1.5%, which was considered to be a cautious growth rate
given current economic circumstances.

Key assumptions
The key assumptions are those regarding discount rates and growth rates.
The growth rates are at or below the Group’s view on long-term trends within its markets. Changes in selling prices and direct costs
are based on past practices and expectations of future changes in the market.
The pre-tax weighted average costs of capital used for Materials & Characterisation and Research & Discovery in impairment
testing are 13.7%-14.4% (2019: 12.6.%) and 12.5%-13.8% (2019: 12.2%-12.6%) respectively, in line with the risk associated with each of
the business segments. Management has estimated these discount rates by reference to past experience and an industry average
weighted cost of capital as adjusted for appropriate risk factors reflecting current economic circumstances and the risk profiles ofeach CGU.

Sensitivity analysis
The Group’s estimates of impairments are most sensitive to changes in the discount rate and forecast growth rate. Sensitivity
analysis has been carried out by reference to both of these assumptions. This demonstrated that an 80 basis point increase in the
discount rate would be required in order to eliminate the headroom of £0.3m in the Magnetic Resonance business. Similarly, a
reduction in the growth rate to 0.6% would be required in order to result in an impairment in that business.

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17 Deferred tax
Property,plant andequipment£m

Inventory£m

Employeebenefits£mIntangible
assets£m

Tax losses
£m

Other
£m

Total
£m

Balance at 1 April 2018

1.4

1.6

4.0

(5.1)

2.7

2.7

7.3

Recognised in income

(0.2)

0.4

(1.0)

1.8

0.7

(1.1)

0.6

Recognised in other comprehensive
income

—

—

(0.5)

—

—

—

(0.5)

Recognised directly in equity

—

(1.2)

0.2

—

—

2.1

1.1

Effect of movements in foreignexchange rates

—

0.1

—

0.3

—

0.1

0.5

Balance at 31 March 2019

1.2

0.9

2.7

(3.0)

3.4

3.8

9.0

Recognised in income

(0.4)

1.5

(1.4)

(3.4)

5.4

0.5

2.2

Recognised in other comprehensive
income

—

—

(5.1)

—

—

—

(5.1)

Recognised directly in equity

—

—

0.2

—

—

—

0.2

Effect of movements in foreignexchange rates

—

0.1

0.1

0.2

0.2

0.2

0.8

Balance at 31 March 2020

0.8

2.5

(3.5)

(6.2)

9.0

4.5

7.1

Certain deferred tax assets and liabilities have been offset as follows:
AssetsLiabilities

Net

2020
£m

2019
£m

2020
£m

2019
£m

2020
£m

2019
£m

Gross assets/(liabilities)

19.0

19.3

(11.9)(10.3)

7.1

9.0

Offset

(1.7)

(4.0)

1.7

4.0

—

—

Net assets/(liabilities)

17.3

15.3

(10.2)

(6.3)

7.1

9.0

2020
£m

2019
£m

Deferred tax assets have not been recognised in respect of the following items:

Deductible temporary differences

0.1

3.1

Tax losses

0.4

1.3

0.5

4.4

The tax losses and the deductible temporary differences do not expire under current tax legislation. Deferred tax assets have notbeen recognised in respect of these items as it is not probable that future taxable profits will be available in the subsidiaries
concerned against which the Group can utilise the brought forward tax losses.
No deferred tax liability has been recognised in respect of £19.2m (2019: £58.2m) of undistributed earnings of overseas subsidiaries
since the majority of such distributions would not be taxable. In other cases, the Group considers that it is able to control the timingof remittances so that any tax is not expected to arise in the foreseeable future.

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153

Notes to the Financial Statements continued
Year ended 31 March 2020
18 Inventories
Raw materials and consumables

2020
£m

2019
£m

19.2

19.9

Work in progress

16.0

19.1

Finished goods

23.6

21.8

58.8

60.8

The amount of inventory recognised as an expense was £134.3m (2019: £138.5m). In the ordinary course of business, the Groupmakes impairment provisions for slow-moving, excess and obsolete inventory as appropriate. Inventory is stated after charging
impairments of £3.2m in the current period (2019: £2.0m). In the current year, £nil (2019: £nil) was reversed relating to previous
impairments. Impairments are included within gross profit.
Inventory carried at net realisable value is £1.8m (2019: £0.4m).

19 Trade and other receivables
2020
£m

2019
£m

Trade receivables

61.8

67.4

Less provision for impairment of receivables

(2.1)

(2.7)

Net trade receivables

59.7

64.7

Accrued income

1.2

2.4

Prepayments

3.7

3.6

Other receivables

6.5

7.6

71.1

78.3

Trade receivables are non-interest-bearing. Standard credit terms provided to customers differ according to business and country
and are typically between 30 and 60 days.
Other receivables include £nil (2019: £1.1m) due from the Group’s associated undertaking.
The maximum exposure to credit risk for trade and other receivables by geographic region was:
2020
£m

2019
£m

UK

6.6

4.8

China

11.7

13.4

Japan

9.8

12.8

USA

17.4

20.6

Germany

4.1

5.2

Rest of Europe

10.0

11.6

Rest of Asia

5.9

4.7

Rest of World

1.5

1.9

67.0

75.0

2020
£m

2019
£m

Current (not overdue)

40.0

49.4

Less than 31 days overdue

12.5

13.8

More than 30 but less than 91 days overdue

7.0

6.6

More than 90 days overdue

7.5

5.2

67.0

75.0

The ageing of financial assets comprising net trade receivables and other receivables at the reporting date was:

In both periods presented, the entire provision against trade receivables relates to balances more than 90 days overdue.

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The movement in the allowance for impairment of trade receivables during the year was as follows:
2020
£m

2019
£m

Balance at start of year

2.7

1.4

(Decrease)/increase in allowance

(0.6)

1.3

Balance at end of year

2.1

2.7

2020
£m

2019
£m

Cash balances

95.4

35.2

Cash and cash equivalents in the Consolidated Statement of Cash Flows

95.4

35.2

20 Cash and cash equivalents

21 Financial risk management
The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Groupis exposed to foreign currency risk, interest rate risk, liquidity risk, commodity risk and credit risk. Financial risk management policies
are set by the Board of Directors. These policies are implemented by a central treasury function that has formal procedures to manage
foreign exchange risk, interest rate risk and liquidity risk, including, where appropriate, the use of derivative financial instruments.
Commodity risk is managed locally by the operating businesses. The Group has clearly defined authority and approval limits.
In accordance with its Treasury Policy, the Group does not hold or use derivative financial instruments for trading or speculative
purposes. Such instruments are only used to manage the risks arising from operating or financial assets or liabilities or highly
probable future transactions.
The Group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange rates.
In common with a number of other companies, the Group has decided that the additional costs of meeting the extensive
documentation requirements of IFRS 9 to apply hedge accounting to derivative financial instruments used for hedging exposure
to foreign currency and interest rate volatility cannot be justified. Accordingly, the Group does not use hedge accounting for suchderivatives.

Foreign currency risk
Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respectivefunctional currencies of Group companies (transactional exposures) and where the results of overseas companies are consolidated
into the Group’s reporting currency of Sterling (translational exposures). The Group has operations around the world which record
their results in a variety of different local functional currencies. In countries where the Group does not have operations, it invariably
has some customers or suppliers that transact in a foreign currency. The Group is therefore exposed to the changes in foreign
currency exchange rates between a number of different currencies, but the Group’s primary exposures relate to the US Dollar,
the Euro and the Japanese Yen. To reduce uncertainty, the Group maintains a rolling hedge of forward contracts equivalent to 80%(2019: 80%) of the exposure expected to arise over the following twelve months. The remaining 20% is sold on the spot market.
The fair value of outstanding currency contracts recognised as a liability as at 31 March 2020 amount to £3.5m (2019: £1.1m) andthose recognised as an asset amount to £0.9m (2019: £1.1m).
Movements in the fair value of derivative financial instruments are recognised in the Consolidated Statement of Income
immediately. However, in order to facilitate a more meaningful comparison of the Group’s performance year-on-year, the elementsof these movements that relate to hedges in respect of future sales are treated as an adjusting item in the calculation of adjusted
earnings (Note 1).
The Group’s translational exposures to foreign currency risks can relate both to the Consolidated Statement of Income and net
assets of overseas subsidiaries. The Group’s policy is not to hedge the translational exposure that arises on consolidation of theConsolidated Statements of Income of overseas subsidiaries.

Interest rate risk
Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also theinterest cash flow risk that results from borrowing at variable rates. The Group’s policy is to use a mixture of revolving short andmedium‑term floating rate debt underpinned by longer-term fixed rate debt. The short and medium-term floating rate debt provides
flexibility to reduce debt levels as appropriate. The longer-term fixed rate debt provides stability and cost certainty to the Group’s
financing structure.

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155

Notes to the Financial Statements continued
Year ended 31 March 2020
21 Financial risk management continued
Liquidity risk
Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities whendue, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages this risk by maintaining adequate committed lines of funding from high quality lenders. The facilities committed
to the Group as at 31 March 2020 are set out in Note 24.

Credit risk
Credit risk arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial assets
such as cash balances, derivative financial instruments, trade and other receivables. The Group’s credit risk is primarily attributable
to its trade receivables and cash balances. The amounts recognised in the Consolidated Statement of Financial Position are net of
appropriate allowances for doubtful receivables, estimated by the Group’s management based on prior experience and theirassessment of the current economic environment. Trade receivables are subject to credit limits and control and approval
procedures in the operating companies.
Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its
trade receivables. Credit risk associated with cash balances and derivative financial instruments is managed by transacting withfinancial institutions with high quality credit ratings. In particular, a Board-approved policy sets out guidelines for which categories
of institutions may be used and the maximum amount which may be invested with each institution within a particular category.
Accordingly, the Group’s associated credit risk is limited. The Group has no significant concentration of credit risk. The Group’s
maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial
instruments, in the Group Consolidated Statement of Financial Position.

Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk by typeof asset at 31 March 2020 is as shown below:

Long-term receivables

2020
£m

2019
£m

—

0.3

Trade receivables

59.7

64.7

Other receivables

7.7

10.0

Cash and cash equivalents

95.4

35.2

Derivative financial instruments

0.9

1.1

163.7

111.3

The maximum exposure to credit risk for trade receivables is discussed in Note 19.
Other receivables include £4.1m (2019: £3.3m) in respect of VAT and similar taxes which are not past due date.

Capital management
The Board considers capital to comprise share capital, reserves and the net cash or net debt position of the Company. The
Company was in a net cash position at the year end. Total capital at the end of the current year totalled £184.1m (2019: £195.5m).
The Board’s long-term objective is to have an efficient capital structure by maintaining a balance between the higher returns thatmight be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. This ismonitored by reference to the ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) and theBoard has set itself internal limits, which are well inside any covenants the Group has with lenders. The Group maintains the rightto purchase its own shares in the market; the timing of these purchases would depend on market prices. Buy and sell decisions are
made on a specific transaction basis by the Board.
Each year the Board carefully considers the appropriate level of dividend payments. In doing this, the Board looks to increase
dividends in line with underlying earnings, although the Board will also take into account other considerations in its decision-making
process. The Board does not have a policy to pay a fixed dividend yield or to maintain a fixed rate of dividend cover but assesses
both of these metrics in line with sustained earnings growth.

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As set out in the Chief Executive’s Statement, the Group will actively manage its portfolio of businesses and products, selecting
those markets with long-term growth drivers where we can maintain or grow leading positions. We will focus on those markets
where nanotechnology has the potential to address some of the world’s most complex and pressing challenges and where we candeliver unique solutions and service excellence. In line with the objective of maintaining a balance between borrowings and equity,
the Group would seek to finance organic growth (e.g. through investment in Research and Development) and smaller “bolt-on”
acquisitions from operating cash flow, thus maintaining balance sheet efficiency. Larger acquisitions would be financed either by
equity or a mixture of equity and debt so as to ensure the Group has a manageable ratio of net debt to EBITDA.
The Board encourages employees to hold shares in the Company. As well as various share option plans (full details of which are
given in Note 12), from April 2008 all UK employees have been offered the opportunity to take part in a Share Incentive Plan (SIP).
Under this plan, employees are able to invest up to £1,500 each tax year in shares in the Company. The Company awards one
additional free share (a matching share) for every five shares bought by each employee.
There were no changes to the Group’s approach to capital management during the year. Neither the Company nor any of its
subsidiaries are subject to externally imposed capital requirements.

22 Financial instruments
Fair values of financial assets and liabilities
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levelsin the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fairvalue if the carrying amount is a reasonable approximation of fair value.
2019

2020
Fair value
hierarchy

Carrying
amount£m

Fair value£m

Carrying
amount£m

Fair value£m

Assets carried at amortised cost
Long-term receivables—

0.3

Trade receivables

59.7

64.7

Other receivables

7.7

10.0

95.4

35.2

Cash and cash equivalents
Assets carried at fair value
Derivative financial instruments:– Foreign currency contracts

2

0.9

0.9

1.1

1.1

2

(3.5)

(3.5)

(1.1)

(1.1)

Liabilities carried at fair value
Derivative financial instruments:– Foreign currency contracts
Liabilities carried at amortised cost
Trade and other payables(65.9)(65.7)

Borrowings(27.9)(28.5)

Lease payables

(8.6)

(9.0)

The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflectedin the above table.

Derivative financial instruments
Derivative financial instruments are marked-to-market using market prices.

Fixed and floating rate borrowings
The fair value of fixed and floating rate borrowings is estimated by discounting the future contracted principal and interest cash
flows using the market rate of interest at the reporting date.

Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the carrying amount is deemed to reflect the fair value.
All other receivables/payables are discounted to determine their fair value. Advances received are excluded from other payables
above as these are not considered to be financial liabilities.

Lease payables
The lease liability is measured at amortised cost using the effective interest method.

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Notes to the Financial Statements continued
Year ended 31 March 2020
22 Financial instruments continued
Fair value hierarchy
The table on page 157 gives details of the valuation method used in arriving at the fair value of financial instruments. The different
levels have been identified as follows:•

Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;•

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly(i.e. as prices) or indirectly (i.e. derived from prices); and•Level 3: inputs for the asset or liability that are not based on observable market data.

There have been no transfers between levels during the year.

Maturity of financial liabilities
Carrying
amount£m

Contractual
cash flows£m

Due within
one year£m

Due oneto five years£m

Due morethan five years£mForeign exchange contracts

(3.5)

3.5

2.6

0.9

—

Trade and other payables(65.9)

65.9

65.9

—

—

Borrowings(27.9)

29.1

29.1

—

—

Lease payables

(8.6)

8.9

2.7

3.7

2.5

(105.9)

107.4

100.3

4.6

2.5

Carrying
amount£m

Contractual
cash flows£m

Due within
one year£m

Due oneto five years£m

Due morethan five years£m—

As at 31 March 2020

As at 31 March 2019

Foreign exchange contracts

(1.1)

1.1

1.1

—

Trade and other payables(65.7)

65.7

65.7

—

—

Borrowings(28.5)

28.5

0.6

27.9

—

Lease payables

(9.0)

9.6

3.4

5.9

0.3

(104.3)

104.9

70.8

33.8

0.3

Carrying
amount2020£m

Carrying
amount2019£mFinancial assets

95.4

35.2

Financial liabilities——

Financial assets—

1.4

Financial liabilities(27.9)(28.5)

Variable rate instruments

Fixed rate instruments

Sensitivity analysis
The Group has estimated the impact on the Consolidated Statement of Income and on equity of the following changes in market
conditions at the balance sheet date:•

one percentage point increase in interest rates;•

ten percentage point weakening in the value of Sterling against all currencies; and•ten percentage point strengthening in the value of Sterling against all currencies.

The sensitivities above represent the Directors’ view of reasonably possible changes in each risk variable, not worst-case scenarios
or stress tests. The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified
changes occur at the year end and are applied to the risk exposures at that date. Accordingly, they show the impact on the Balance
Sheet of an instantaneous shock. The calculations include all hedges in place at the year end.

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Actual results in the future may differ materially from these estimates due to commercial actions taken to mitigate any potential
losses from such rate movements, to the interaction of more than one sensitivity occurring, and to further developments in global
financial markets. As such, this table should not be considered as a projection of likely future gains and losses.
1%
increase ininterest rates£m10%
weakeningin Sterling£m

10%strengthening
in Sterling£m

Impact on adjusted profit (Note 1)—(10.6)

10.6

Impact on reported profit—(10.6)

10.6

Impact on equity

—

4.5

(4.9)

1%
increase ininterest rates£m10%
weakeningin Sterling£m

10%strengthening
in Sterling£m

Impact on adjusted profit (Note 1)

—

(8.0)

8.0

Impact on reported profit

—

(7.0)

7.0

Impact on equity

—

5.0

(4.9)

2020
Number ofshares2019
Number ofshares

57,375,604

57,375,604

As at 31 March 2020

As at 31 March 201923 Called-up share capital
Issued and fully paid ordinary shares:

At the beginning of the year
Issued for cash
At the end of the year

57,434,763—
57,375,604

2019

2020
Number ofshares59,15957,434,763£m

Number ofshares£m

2.9

57,375,604

2.9

Allotted, called up and fully paid
Ordinary shares of 5p each

The holders of the ordinary shares are entitled to receive dividends as declared, a proportionate amount of capital on a winding upof the Company and one vote per share at meetings of the Company.

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Notes to the Financial Statements continued
Year ended 31 March 2020
24 Borrowings
Effective
interest rate

Earlier ofrepricingdate ormaturity date

2020
£m

2019
£m

Current
Loan notes – unsecured

4.36% March 2021

At the end of the year

Effective
interest rate

Earlier ofrepricingdate ormaturity date

27.9

0.6

27.9

0.6

2020
£m

2019
£m

Non-current
Loan notes – unsecured

4.36% March 2021

At the end of the year

—

27.9

—

27.9

The Group’s undrawn committed facilities available at 31 March 2020 were £105.0m, comprising the undrawn portion of the Group’s£105.0m revolving credit facility. This facility expires on 29 June 2023.
The Group’s uncommitted facilities at 31 March 2020 were £18.5m.
The £0.6m current loan notes balance as at 31 March 2019 represented accrued interest due for payment during April 2019.
A reconciliation of the Group’s borrowings balances is shown below.
2020
£m

2019
£m

Balance at the beginning of the year

28.5

40.4
(11.5)

Repayment of borrowings (cash flow from financing activities)(0.6)

Interest charged

1.2

1.4

Interest paid

(1.2)

(1.8)

At the end of the year

27.9

28.5

25 Retirement benefit obligations
The Group operates a defined benefit plan in the UK and operated a defined benefit plan in the US until February 2020. The UK
plan offers pensions in retirement and death in service benefit to members. Pension benefits are related to members’ final salary atretirement and their length of service. The scheme has been closed to new members since 2001 and closed to future accrual since2010. Details of the termination of the US plan are given below.
The amounts recognised in the Consolidated Statement of Financial Position are:
As at 31 March 2019

As at 31 March 2020
UK
£m

US
£m

Total
£m

UK
£m

US
£m

Total
£m

Present value of funded obligations

290.7

—

290.7

309.8

8.1

317.9

Fair value of plan assets(321.4)—(321.4)(306.3)(5.1)(311.4)

Recognised (asset)/liability for defined benefit
obligations(30.7)—(30.7)

3.5

3.0

6.5

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The reconciliation of the opening and closing balances of the present value of the defined benefit obligation is as follows:
2019

2020

Benefit obligation at the beginning of the year

UK
£m

US
£m

Total
£m

UK
£m

US
£m

Total
£m

309.8

8.1

317.9

297.4

7.4

304.8

Past service cost

—

—

—

0.3

—

0.3

Interest on defined benefit obligation

7.6

0.3

7.9

7.9

0.3

8.2

Benefits paid

(9.3)

(0.5)

(9.8)

(10.1)(0.4)(10.5)

—

(9.2)

(9.2)

—

—

—

(17.4)

0.9(16.5)

14.3

0.3

14.6

—

0.4

0.4

—

0.5

0.5

290.7

—

290.7

309.8

8.1

317.9

Settlement payment
Remeasurement (gain)/loss on obligation
Exchange rate adjustment
Benefit obligation at the end of the year

The reconciliation of the opening and closing balances of the present value of the fair value of plan assets is as follows:
2019

2020
UK
£m

Fair value of plan assets at the beginningof the year

US
£m

Total
£m

UK
£m

US
£m

Total
£m

289.5

306.3

5.1

311.4

284.9

4.6

Interest on plan assets

7.6

0.3

7.9

7.7

0.2

7.9

Contributions by employers

7.6

2.8

10.4

7.3

0.5

7.8

Benefits paid

(9.3)

(0.5)

(9.8)

(10.1)(0.4)(10.5)

—

(8.7)

(8.7)

—

—

—
(0.7)

Settlement payment
Administrative expenses

(0.3)

(0.1)

(0.4)

(0.5)

(0.2)

Actual return on assets excluding interest income

9.5

0.7

10.2

17.0

0.1

17.1

Exchange rate adjustment

—

0.4

0.4

—

0.3

0.3

321.4

—

321.4

306.3

5.1

311.4

2020
£m

2019
£m

Fair value of plan assets at the end of the year

The expense recognised in the Consolidated Statement of Income is:

Total defined benefit expense

0.4

1.0

Contributions to defined contribution schemes

3.6

3.3

4.0

4.3

2020
£m

2019
£m

Pension costs are recorded in the following lines in the Consolidated Statement of Income:

Cost of sales

1.1

0.9

Research and Development

1.0

0.9

Selling and marketing costs

0.7

0.8

Administration and shared services

1.2

1.4

—

0.3

4.0

4.3

Financial expenditure

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Notes to the Financial Statements continued
Year ended 31 March 2020
25 Retirement benefit obligations continued
The Group has agreed a basis for deficit recovery payments with the trustees of the UK pension scheme. The deficit recovery
payments are payable through to and including 2026 and will rise by approximately 3% per annum. The annual deficit recovery
payment was £7.6m (2019: £7.3m) for the financial year.
In the prior year an allowance of £0.3m was made for the expected cost of equalising Guaranteed Minimum Pension (GMP) between
males and females.
GMP is a portion of pension that was accrued by individuals who were contracted out of the UK State Second Pension prior to
6 April 1997. Historically, there was an inequality of benefits between male and female members who have GMP. A High Court
case concluded on 26 October 2018 and confirmed that GMPs need to be equalised.
In 2018 the trustees of the UK defined benefit pension scheme, in consultation with the Company, reduced its exposure to on-risk
assets (a portfolio of market focused asset classes, the majority being equities) with a corresponding increase in its liability-driven
investments, with the objective of steering a more stable journey to being fully funded. The pension fund’s gross exposure to on-risk
assets fell from 85% to 45%; the majority of transactions required to make this change were completed in February 2018. As a result,the level of risk inherent in the investment strategy is now significantly lower than previously, in addition to a substantial reduction in
funding level volatility.
The Group has considered the requirements of IFRIC 14. The terms of the scheme give the Group the right to recover any surplus
assets on the scheme upon wind-up and therefore management has concluded that there is no impact on the amounts recognised
in respect of retirement benefit obligations.
The Group expects to contribute approximately £7.8m to the UK defined benefit plan in the next financial year.
Remeasurement gains and losses shown in the Consolidated Statement of Comprehensive Income:
2019
£m

2020
£m

Actual return on assets excluding interest income

10.2

17.1

Experience gain/(loss) on scheme obligations

0.2

(4.1)

– Financial

17.1(14.4)– Demographic

(0.8)

3.9

Cumulative actuarial gain/(loss) recorded in the Statement of Comprehensive Income since 1 April 2004
(date of transition to IFRS)

1.6(26.8)

Changes in assumptions underlying the present value of scheme obligations:

The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension
assumptions:
Balance at
31 March 2020£m

Discount rate(-0.1% p.a.)£m

Inflation rate Life expectancy(+one year)(+0.1% p.a.)£m£mPresent value of funded obligations

290.7

295.5

294.5

302.3

Fair value of plan assets(321.4)(321.4)(321.4)(321.4)

Surplus(30.7)(25.9)(26.9)(19.1)The valuation of defined benefit liabilities is most sensitive to changes in the discount rate, inflation rate and mortality rate.
The sensitivities have been calculated by running the liability calculations in full using the alternative assumptions. In each case,only the indicated assumption has changed by the amount stated. For the inflation sensitivity, the impact on the assumptions thatare based on RPI inflation, such as CPI inflation and the inflation-linked pension increases, has been included.

Defined benefit pension scheme – UKA full actuarial valuation of the UK plan was carried out as at 31 March 2018 which, for reporting purposes, has been updated to
31 March 2020 by a qualified independent actuary. During the year, the Group revised the CPI assumption, which adjusted the gap
between RPI and CPI from 1.1% per annum to 0.7% per annum. This resulted in an increase in the defined benefit obligation of £4.4m.

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The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms):
As at 31 March 2020%

As at 31 March 2019%

Discount rate

2.5

2.5

Rate of increase in pensions in payment (3LPI)

2.2

2.5

Rate of increase in pensions in payment (5LPI)

2.6

3.1

Rate of inflation (CPI)

1.9

2.1

91% of S2PA tables(93% for females) future
improvement in linewith CMI 2019 with 1.25%
long-term trend

91% of S2PA tables(93% for females) future
improvement in line withCMI 2018 with 1.25%
long-term trend

Mortality – pre and post-retirement

As at 31 March 2020, the weighted average duration of the defined benefit obligations was 18 years (2019: 18 years).
The mortality assumptions imply the following expected future lifetime from age 65:
2020
years

2019
years

Pre-retirement – males

23.6

23.5

Pre-retirement – females

25.6

25.4

Post-retirement – males

22.3

22.2

Post-retirement – females

24.1

23.9

The assumptions have been chosen by the Directors from a range of possible actuarial assumptions, which, due to the timescales
covered, may not be borne out in practice.
The assets in the plan were:
Value at
31 March 2020
£m

Value at
31 March 2019£m

Equities

49.7

65.2

Corporate and emerging market bonds

13.9

14.3
156.5

Gilts

171.5

Property fund

10.5

9.7

Insurance-linked funds

27.0

23.0

Credit and global loan funds

0.2

0.3

Hedge funds

32.2

26.7

Liability hedge overlay

7.3

4.3

Cash

9.1

6.3

321.4

306.3

Where assets have no observable market price a valuation will be provided by the fund manager. The scheme’s investment
manager will accept that valuation if it is within the expected range of performance. Otherwise, the investment manager will querythe valuation with the fund manager. Complex financial instruments are valued by the scheme’s investment manager who uses
financial models which take as their input the characteristics of the instrument and observable market data such as swap rates.
The UK pension scheme implements a liability hedge strategy which is designed to protect the scheme’s funding level fromchanges in gilt yields and inflation expectations. The liability hedge strategy consists of a portfolio of gilts, gilt derivatives, interest
rate and inflation swaps. At 31 March 2020, the liability hedge strategy fully covered the scheme’s liabilities from changes in gilt
yields and inflation expectations. However, this is not a precise match for the IAS 19 defined benefit obligation, which is based on
corporate bond yields rather than gilt yields.

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Notes to the Financial Statements continued
Year ended 31 March 2020
25 Retirement benefit obligations continued
Defined benefit pension scheme – US
During the year, the US defined benefit pension plan was terminated. Members were given the option of transferring out theirbenefits. On 4 March 2020, an annuity was purchased for each of those members who chose not to transfer their benefits.
Following the purchase of the annuities, the Group has no ongoing liability to the former members of the plan.
The assumptions for the purposes of the IAS 19 valuation at the end of the prior year were as follows:
As at
31 March 2019%

Discount rate

3.7

Rate of increase in pensions in payment—

Rate of inflation

2.3

Mortality – pre and post-retirement

RP-2014 with projection
Scale MP-2018 (fully
generational), maleand female

As at 31 March 2019, the weighted average duration of the defined benefit obligations was 14 years.
The assets in the plan were:
Value at
31 March 2019£m

Equities

2.2

Bonds

2.8

Gilts

0.1
5.1

Defined contribution schemes
In the UK, employees are offered participation in the defined contribution Oxford Instruments Stakeholder Plan. The Company
contribution rate and employee contribution rate vary between grades and whether the individual had previously been in thedefined benefit pension scheme. The Company contribution ranges between 4% and 14% of base salary. The Group also operates
a 401k defined distribution plan in the US. Details of pension scheme contributions made in respect of Directors can be found in the
Directors’ Remuneration Report.

26 Trade and other payables
2020
£m

2019
£m

Trade payables

20.6

26.1

Customer deposits

45.3

38.5

Social security and other taxes

3.3

2.6

Accrued expenses and deferred income

48.1

43.7

Other payables

7.8

6.0

125.1

116.9

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27 Provisions for other liabilities and charges
Warranties£mIP-related
claims
£m

Other
£m

Total
£m

3.8

1.8

3.1

8.7

Provisions made during the year

2.9

1.2

1.9

5.4

Provisions used during the year

(2.2)

—

(0.5)

(2.7)

Provisions released during the year

Balance as at 1 April 2019

(0.9)

(1.8)

(1.2)

(3.2)

Effect of movement in foreign exchange

—

—

0.3

0.2

Balance as at 31 March 2020

3.6

1.2

3.6

8.4

Amounts falling due before one year

3.4

1.2

2.9

7.5

Amounts falling due after more than one year

0.2

—

0.7

0.9

Warranty provisions
Product warranty provisions reflect commitments made to customers on the sale of goods in the ordinary course of business andincluded within the Group companies’ standard terms and conditions. Warranty commitments typically apply for a twelve-month
period. The provision represents the Directors’ best estimate of the Group’s liability based on past experience.

Intellectual property-related claims
The Company has on occasion been required to take legal or other actions to defend itself against proceedings brought by otherparties. Provisions are made for the expected costs associated with such matters, based on past experience of similar items andother known factors, taking into account professional advice received, and represent the Directors’ best estimate of the likely
outcome. The timing of utilisation of these provisions is frequently uncertain, reflecting the complexity of issues and the outcomeof various court proceedings and negotiations. Contractual and other provisions represent the Directors’ best estimate of the costof settling future obligations and reflect the Directors’ assessment of the likely settlement method, which may change over time.
However, no provision is made for proceedings which have been, or might be, brought by other parties against Group companies
unless the Directors, taking into account professional advice received, assess that it is more likely than not that such proceedings
may be successful. The Group’s expectation is that the other provisions are likely to be utilised within a twelve-month period.
In respect of the provision for IP-related claims, the range of possible outcomes is between £nil and £1.2m. However, there
could be a material effect on the Financial Statements in the next twelve months should the outcome be different frommanagement’s estimate.

Other provisions
Other provisions relate to various obligations including obligations in respect of onerous leases, onerous contracts anddilapidation provisions.

Oxford Instruments plc Report and Financial Statements 2020165

Notes to the Financial Statements continued
Year ended 31 March 2020
28 Leases
The Group leases assets including land and buildings, vehicles and machinery. Information about leases for which the Group is alessee is presented below.

Right-of-use assets
Property leases£mOther leases
£m

Total
£m

Balance on adoption of IFRS 16 at 1 April 2018

9.8

0.9

10.7

Additions – external

0.6

0.3

0.9

Effect of movements in foreign exchange rates

0.5

—

0.5

Balance at 31 March 2019

10.9

1.2

12.1

Balance at 1 April 2019

10.9

1.2

12.1

Additions – external

4.9

0.6

5.5

Disposals – sale of businesses

(3.8)

—

(3.8)

—

(0.2)

(0.2)

Effect of movements in foreign exchange rates

0.3

0.1

0.4

Balance at 31 March 2020

12.3

1.7

14.0

Depreciation charge for the year

2.9

0.4

3.3

Balance at 31 March 2019

2.9

0.4

3.3
3.3

Cost

Disposals – external

Depreciation and impairment losses

Balance at 1 April 2019

2.9

0.4

Depreciation charge for the year

3.0

0.4

3.4

Disposals – sale of businesses

(1.1)

—

(1.1)

Disposals – other

—

(0.1)

(0.1)

Effect of movements in foreign exchange rates

0.3

—

0.3

Balance at 31 March 2020

5.1

0.7

5.8

Balance at 1 April 2018

9.8

0.9

10.7

Balance at 31 March 2019 and 1 April 2019

8.0

0.8

8.8

Balance at 31 March 2020

7.2

1.0

8.2

2020
£m

2019
£m

Balance on adoption of IFRS 16 at 1 April 2018

—

10.7

Balance at beginning of year

9.0—

Additions – external

5.5

0.9

Disposals – sale of businesses

(2.9)

—

Payments made (cash flows from financing activities)

(3.3)

(3.2)

Carrying amounts

Lease liabilities

Interest charge

0.1

0.2

Effect of movements in foreign exchange rates

0.2

0.4

Balance at 31 March 2020

8.6

9.0

Amounts falling due after more than one year

6.5

6.0

Amounts falling due in less than one year

2.1

3.0

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Amounts recognised in profit or loss

Interest on lease liabilities

2020
£m

2019
£m

(0.1)

(0.2)

Expenses on short-term leases not capitalised

—

(0.1)

Expenses on low-value asset leases not capitalised——

Income from sub-letting right-of-use assets

—

—

2020
£m

2019
£m

(3.3)

(3.2)

Amounts recognised in Statement of Cash Flows

Payments made in respect of lease liabilities

29 Capital commitments
During the year ended 31 March 2020, the Group did not enter into any capital commitments. During the year ended 31 March 2019,
the Group entered into contracts to purchase property, plant and equipment which were expected to be settled in the following
financial year for £0.2m.

30 Contingent liabilities
In an international group of companies, a variety of legal claims arise from time to time. The Board, having taken legal advice,
is of the opinion that any ongoing actions and investigations will not have a material impact on the Group’s financial position.

31 Related parties
All transactions with related parties are conducted on an arm’s length basis and in accordance with normal business terms.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation andare not disclosed in this note.
The remuneration of key management personnel is as follows:
2020
£m

2019
£m

Short-term employee benefits

3.1

3.3

Post-employment benefits

0.1

0.2

Share-based payment charges

1.9

0.5

Total

5.1

4.0

Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
Share-based payment charges for the year include the correction for the error made in 2018 and 2019, as set out in Note 12.
During the year ended 31 March 2019, the Group purchased services and materials from a subsidiary of its associate, Scienta
Omicron GmbH, on an arm’s length basis with a total value of £0.7m. There were no such purchases made during the period ending
28 January 2020, when the Group sold the associate.
Included on the Balance Sheet at 31 March 2019 was a long-term loan receivable of £0.3m and a current loan receivable of £1.1m
due from Scienta Scientific AB. The loan was repaid in February 2020. During the year the Group received interest charged on theloan of £0.1m (2019: £0.2m).

Oxford Instruments plc Report and Financial Statements 2020167

Notes to the Financial Statements continued
Year ended 31 March 2020
32 Exchange rates
The principal exchange rates to Sterling used were:Year-end rates

2020

2019

US Dollar

1.24

1.30

Euro

1.13

1.16

Japanese Yen

134

144

Japanese Yen

Average translation rates			Year to 31 March 2020

US Dollar

Euro

April

1.30

1.16

144

May

1.28

1.15

142

June

1.27

1.13

138

July

1.26

1.12

136

August

1.23

1.11

132

September

1.23

1.12

132

October

1.26

1.14

136

November

1.28

1.16

139

December

1.30

1.17

142

January

1.32

1.18

143

February

1.30

1.19

144

March

1.27

1.16

139

Average translation rates
Year to 31 March 2019

US Dollar

Euro

Japanese Yen

April

1.39

1.14

150

May

1.36

1.14

148

June

1.33

1.14

146

July

1.32

1.13

146

August

1.30

1.12

144
146

September

1.29

1.11

October

1.29

1.13

145

November

1.28

1.13

144

December

1.28

1.12

142

January

1.30

1.13

142

February

1.31

1.15

145

March

1.30

1.16

144

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Governance

Financial Statements

Company Information

Parent Company Statement of Financial Position
As at 31 March 2020
Notes

2020
£m

2019
£m

AssetsNon-current assets
Intangible assets

d

1.3

1.6

Tangible assets

c

0.6

0.6

0.1

0.1

Investments in subsidiary undertakings

e

322.2

321.1

Debtorsf—

0.3

Right-of-use assets

Retirement benefit asset

i

7.0

—

Deferred tax assets

h

0.3

1.5

331.5

325.2

Current assets
58.8

47.9

Cash at bank and in hand

Debtors

f

80.7

15.8

139.5

63.7

Total assets

471.0

388.9

EquityCapital and reserves attributable to the Company’s equity Shareholders
Share capital

2.9

2.9

Share premium

62.2

61.7

Capital redemption reserve

0.1

0.1

Other reserves
Retained earnings

7.6

7.6

253.4

118.9

326.2

191.2

Liabilities
Non-current liabilities—

27.9

Retirement benefit obligations

Long-term loans
i

—

0.8

Derivative financial instruments

g

0.9

—

0.9

28.7

Current liabilities
Bank loans and overdrafts
Other creditors

g

36.3

29.9

107.6

139.1

143.9

169.0

Total liabilities

144.8

197.7

Total liabilities and equity

471.0

388.9

The Financial Statements were approved by the Board of Directors on 9 June 2020 and signed on its behalf by:

Ian Barkshire

Gavin Hill

Director

Director

Company number: 775598

Oxford Instruments plc Report and Financial Statements 2020

169

Parent Company Statement of Changes in Equity
Year ended 31 March 2020
Sharecapital£mSharepremium
account£m

Capitalredemption
reserve£m

Otherreserves£m

As at 1 April 2019

2.9

61.7

0.1

7.6

118.9

191.2

Profit for the year

—

—

—

—

134.3

134.3

– Remeasurement of defined benefit liability,
net of tax

—

—

—

—

4.9

4.9

Total comprehensive income for the year

—

—

—

—

139.2

139.2

– Proceeds from exercise of share options

—

—

—

—

0.2

0.2

– Share options awarded to employees

—

—

—

—

2.0

2.0

– Share options awarded to employeesof subsidiaries

—

—

—

—

1.1

1.1

– Tax credit in respect of share options

—

—

—

—

0.2

0.2

– Proceeds from shares issued

—

0.5

—

—

—

0.5

– Dividends paid

—

—

—

—

(8.2)

(8.2)

As at 31 March 2020

2.9

62.2

0.1

7.6

253.4

326.2

As at 1 April 2018

2.9

61.7

0.1

7.6

99.7

172.0

Profit for the year

—

—

—

—

25.2

25.2

Retainedearnings
£m

Total
£m

Other comprehensive income:

Other comprehensive income:– Remeasurement of defined benefit liability,
net of tax

—

—

—

—

0.6

0.6

Total comprehensive income for the year

—

—

—

—

25.8

25.8

– Proceeds from shares issued

—

—

—

—

0.2

0.2

– Share options awarded to employees

—

—

—

—

0.6

0.6

– Share options awarded to employeesof subsidiaries

—

—

—

—

0.2

0.2

– Dividends paid

—

—

—

—

(7.6)

(7.6)

As at 31 March 2019

2.9

61.7

0.1

7.6

118.9

191.2

Details of issued, authorised and allotted share capital are included in Note 23 to the Group Financial Statements.
Details of the Group’s share option schemes are included in Note 12 to the Group Financial Statements.
Details of the Group’s defined benefit pension scheme are included in Note 25 to the Group Financial Statements.
Details of dividends paid are included in Note 14 to the Group Financial Statements.
Other reserves relate to premium on shares issued as part of acquisitions made in the year to 31 March 1987.

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Governance

Financial Statements

Company Information

Notes to the Parent Company Financial Statements
Year ended 31 March 2020(a) Accounting policies
Basis of accounting
Oxford Instruments plc is a company incorporated and domiciled in the UK. These Financial Statements have been prepared inaccordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) on the historical cost basis, except thatderivative financial instruments are stated at their fair value.
In preparing these Financial Statements, the Company applied the recognition, measurement and disclosure requirements ofInternational Financial Reporting Standards as adopted by the EU (“Adopted IFRS”), but made amendments where necessary inorder to comply with the Companies Act 2006.
In these Financial Statements, the Company has applied the exemptions available under FRS 101 in respect of the following
disclosures:•a cash flow statement and related notes;•

comparative period reconciliations for share capital, tangible fixed assets, intangible assets and investment properties;•

disclosures in respect of transactions with wholly owned subsidiaries;•

disclosures in respect of capital management;•

the effects of new, but not yet effective, accounting standards; and•disclosures in respect of the compensation of key management personnel.

As the consolidated Financial Statements of Oxford Instruments plc include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:•

IFRS 2 Share-based Payments in respect of Group settled share-based payments; and•certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument
Disclosures.

As permitted by Section 408 of the Companies Act 2006, a separate statement of income for the Company has not been includedin these Financial Statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
Financial Statements.

Going concern
The Financial Statements have been prepared on a going concern basis, based on the Directors’ opinion, after making reasonableenquiries, that the Company has adequate resources to continue in operational existence for the foreseeable future. Further details
on the Group’s going concern can be found on page 130.

Taxation
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except tothe extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at thereporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initialrecognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.

Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other debtors, cash and cash equivalents, loans and borrowings, and tradeand other creditors.

Oxford Instruments plc Report and Financial Statements 2020171

Notes to the Parent Company Financial Statements continued
Year ended 31 March 2020(a) Accounting policies continued
Trade and other debtors
Trade and other debtors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised costusing the effective interest method, less any impairment losses.

Trade and other creditors
Trade and other creditors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised costusing the effective interest method.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.

Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Details of
the Group’s interest-bearing borrowings are included in Note 24 to the Group Financial Statements.

Intra-Group lending
The Company has lent funds to and from its UK subsidiaries on interest-free terms. These amounts are repayable on demand.
They are stated at cost less any impairment losses.

Derivative financial instruments
The Company’s accounting policies for financial instruments are the same as the Group’s accounting policies under IFRS, namely
IAS 32 Financial Instruments: Presentation, IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. These
policies are set out in accounting policy “(e) Financial instruments” in the Group Accounting Policies, on page 131.

Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible
fixed assets.
Depreciation is charged to the profit and loss account on a straight-line basis over the estimated useful lives of each part of an itemof tangible fixed assets. The estimated useful lives are as follows:•

Computer equipment – 4 years•

Motor vehicles – 4 years

Depreciation methods, useful lives and residual values are reviewed at each Balance Sheet date.

Intangible assets
Intangible assets represents internally developed software. Amortisation is charged to the profit and loss account on a straight-line
basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets are amortised from thedate they are available for use. The estimated useful lives are as follows:•

Software – 10 years

Impairment excluding deferred tax assets
Financial assets (including trade and other debtors)
The Company assesses at each Balance Sheet reporting date whether there is any objective evidence that a financial asset,
or group of financial assets, is impaired. A financial asset, or group of financial assets, is deemed to be impaired if, and only if, there
is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset(an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or group offinancial assets that can be reliably estimated.

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Financial Statements

Company Information

Non-financial assets
The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting dateto determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount isestimated.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment
testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows
from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash generating unit”
or CGU).
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reducethe carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit
(group of units) on a pro-rata basis.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amountthat would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution
pension plans are recognised as an expense in the profit and loss account in the periods during which services are rendered by
employees.

Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in
respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned inreturn for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value ofany plan assets (at bid price) is deducted. The Company determines the net interest on the net defined benefit liability/(asset) for theperiod by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net
defined benefit liability/(asset).
The discount rate is the yield at the reporting date on bonds that have a credit rating of at least AA that have maturity dates
approximating the terms of the Company’s obligations and that are denominated in the currency in which the benefits are expected
to be paid.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excludinginterest) and the effect of the asset ceiling (if any, excluding interest). The Company recognises them immediately in othercomprehensive income and all other expenses related to defined benefit plans in employee benefit expenses in profit or loss.
The calculation of the defined benefit obligations is performed by a qualified actuary using the projected unit credit method.
When the calculation results in a benefit to the Company, the recognised asset is limited to the present value of benefits available
in the form of any future refunds from the plan or reductions in future contributions and takes into account the adverse effect of any
minimum funding requirements.
The Company is the sponsoring employer of a Group-wide defined benefit pension plan. The net defined benefit cost of the planis charged to participating entities on the basis of the proportion of scheme membership attributable to each legal entity at thereporting date. The contributions payable by the participating entities are determined using an agreed ratio which has been in place
for approximately ten years.

Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service isprovided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if theCompany has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee
and the obligation can be estimated reliably.

Oxford Instruments plc Report and Financial Statements 2020173

Notes to the Parent Company Financial Statements continued
Year ended 31 March 2020(a) Accounting policies continued
Employee benefits continued
Termination benefits
Termination benefits are recognised as an expense when the Company is demonstrably committed, without realistic possibility ofwithdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies arerecognised as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted,
and the number of acceptances can be estimated reliably. If benefits are payable more than twelve months after the reporting date,then they are discounted to their present value.

Share-based payment transactions
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with acorresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fairvalue of the awards granted is measured using an option valuation model, taking into account the terms and conditions upon which
the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which therelated service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an
expense is based on the number of awards that do meet the related service and non-market performance conditions at the vestingdate. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment ismeasured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises, in its individual Financial
Statements, an increase in the cost of investment in its subsidiaries equivalent to the equity settled share-based payment charge
recognised in its consolidated Financial Statements with the corresponding credit being recognised directly in equity. Amounts
recharged to the subsidiary are recognised as a reduction in the cost of investment in subsidiary. If the amount recharged exceeds
the increase in the cost of investment, the excess is recognised as a dividend.

Own shares held by ESOP trust
Transactions of the Company-sponsored ESOP trust are treated as being those of the Company and are therefore reflected in the
Company Financial Statements. In particular, the trust’s purchases and sales of shares in the Company are debited and credited
directly to equity.

LeasesLeases under which the Company acts as lessee
The Company recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset isinitially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove theunderlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier ofthe end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by
impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental
borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise fixed payments.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change infuture lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount
expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise
a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use
asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Short-term leases and leases of low-value assets
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that havea lease term of twelve months or less and leases of low-value assets, including IT equipment. The Company recognises the lease
payments associated with these leases as an expense on a straight-line basis over the lease term.

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Financial Statements

Company Information

Foreign currencies
The Company enters into forward exchange contracts and options to mitigate the currency exposures that arise on sales andpurchases denominated in foreign currencies. Transactions in foreign currencies are converted into Sterling at the rate ruling on thedate of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at theBalance Sheet date or at the appropriate forward contract rates. Exchange profits and losses arising from the above are dealt within the profit and loss account.

Investments
Investments in subsidiaries are stated at cost, less any provision for impairment, where appropriate.

Dividends on shares presented within Shareholders’ funds
Dividends unpaid at the Balance Sheet date are only recognised as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in thenotes to the Financial Statements.

Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats theguarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make apayment under the guarantee.

(b) Profit for the year
The Company’s profit for the financial year was £134.3m (2019: £25.2m). Other comprehensive income in the year was £4.9m(2019: £0.6m). The expense will not subsequently be reclassified to profit or loss.
The auditor’s remuneration comprised £215,000 (2019: £199,000) for the statutory audit.
The average number of people employed by the Company (including Directors) during the year was 52 (2019: 46). All these
individuals were involved in administration.
The aggregate payroll costs (including Directors) of these people were as follows:
2020
£m

2019
£m

Wages and salaries

5.4

5.0

Social security costs

1.2

0.9

Other pension costs

0.2

0.2

6.8

6.1

The share-based payment charge was £2.0m (2019: charge of £0.6m). Details of the Group’s share option schemes are included in
Note 12 to the Group Financial Statements.
Full details of the emoluments paid to Directors can be found in the Directors’ Remuneration Report on pages 90 to 111.

Oxford Instruments plc Report and Financial Statements 2020

175

Notes to the Parent Company Financial Statements continued
Year ended 31 March 2020(c) Tangible fixed assets
Computerequipment
£m

Total
£m

Cost
Balance at 1 April 2019

2.3

2.3

Additions

0.3

0.3

Balance at 31 March 2020

2.6

2.6

Depreciation
Balance at 1 April 2019

1.7

1.7

Charge for year

0.3

0.3

Balance at 31 March 2020

2.0

2.0

Net book value
Balance at 31 March 2019

0.6

0.6

Balance at 31 March 2020

0.6

0.6

(d) Intangible assets
Software£m

Cost
Balance at 1 April 2019

2.4

Additions

0.5

Balance at 31 March 2020

2.9

Depreciation and impairment losses
Balance at 1 April 2019

0.8

Charge for year

0.8

Balance at 31 March 2020

1.6

Net book value
Balance at 31 March 2019

1.6

Balance at 31 March 2020

1.3(e) Investments
Investments
in subsidiary
undertakings£m

Cost or valuation
Balance at 1 April 2019
Expense in respect of share options transferred to subsidiary undertakings
Balance at 31 March 2020

339.8
1.1
340.9

Impairment
Balance at 1 April 2019 and 31 March 2020

18.7

Net book value
Balance at 31 March 2019

321.1

Balance at 31 March 2020

322.2

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Governance

Financial Statements

Company Information

The following is a full list of the subsidiaries and associates and their country of registration as at 31 March 2020. This information
is provided in accordance with Section 409 of the Companies Act 2006.
Unless otherwise stated, entities listed below are wholly owned by either the Company or a subsidiary of the Company.
Subsidiaries

Andor Technology Limited

Registered office addressCountry ofincorporation

7 Millennium Way, Springvale Business Park, Belfast, NI, BT12 7AL

UK

Andor Technology, Inc.

300 Baker Avenue, Suite 150, Concord MA 01742

US

Andor U.S. Holdings, Inc

300 Baker Avenue, Suite 150, Concord MA 01742

US

Bitplane AG

Badenerstrasse 682, 8048, Zurich

Switzerland

Bitplane Inc

300 Baker Avenue, Suite 150, Concord MA 01742

US

Oxford Instruments AFM Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments America Inc

300 Baker Avenue, Suite 150, Concord MA 01742

US

Oxford Instruments Asylum Research Inc

6310 Hollister Avenue, Santa Barbara CA 93117

USPO Box 175, Frances House, Sir William Place, St Peter Port,GY1 4HQ

Guernsey1

Borsigstrasse 15a, 65205, Wiesbaden

Germany

Corporation Trust Centre, 1209 Orange Street, Wilmington, New
Castle, Delaware 19801

US

Oxford Instruments Funding Limited
Oxford Instruments GmbH
Oxford Instruments Holdings 2013 Inc
Oxford Instruments Holdings Europe Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Borsigstrasse 15a, 65205, Wiesbaden

Germany

Plot No. A-279, Ground Floor Road No. 16A, Ambica Nagar, Wagle
Industrial Estate, Thane (West), Thane, MH, 400604

India

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Holdings GmbH
Oxford Instruments India Private Limited
Oxford Instruments Industrial Products
Holdings Limited
Oxford Instruments Industrial Products Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo,
140-0002

Japan

Oxford Instruments Molecular Biotools Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments NanoTechnology Tools
Holdings Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments NanoTechnology Tools Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments KK

Oxford Instruments Nordiska Ab

C/o TMF Sweden AB, Sergels Torg 12, 111 57, Stockholm

SwedenOxford Instruments Overseas Holdings 2008
LimitedTubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Overseas Holdings Ltd

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Overseas Marketing GmbH

Borsigstrasse 15a, 65205, Wiesbaden

Germany

Oxford Instruments Overseas Marketing Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Pension Trustee Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Messrs Tan Rajah & Cheah, 80 Raffles Place,#58-01 UOB Plaza 1, 048624

Singapore

Oxford Instruments Private Limited
Oxford Instruments SAS

77 Z.A. de Montvoisin, 91400 Gometz la Ville

FranceTechnopolis Innopoli 1, Tekniikantie 12, Espoo, 02150

FinlandFloor 1, Building 60, 461 Hongcao Road, Xuhui District, Shanghai

China

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Technologies Oy
Oxford Instruments Technology (Shanghai) Co. Ltd
Oxford Instruments UK 2013 Limited
Oxford Instruments X-Ray Technology Inc
Spectral Applied Research Inc
Oxford Instruments India Private Limited
1.

360 El Pueblo Road, Scotts Valley CA 95066

US

199 Bay Street, Suite 5300, Commerce Court West, Toronto ON
M5L 1B9

CanadaUnit No.11, Marwah’s Complex, Krishanlal Marwah Marg, Andheri
East, Mumbai, Maharashtra, 400 072

India

UK tax resident.

Equity owned by the Company represents issued ordinary share capital. All subsidiaries are consolidated in the Group accounts.

Oxford Instruments plc Report and Financial Statements 2020

177

Notes to the Parent Company Financial Statements continued
Year ended 31 March 2020(f) Debtors
2020
£m

2019
£m

—

0.3

Amounts owed by subsidiary undertakings

52.7

43.9

Amounts owed by associate undertakings—

1.1

Amounts falling due after one year:
Amounts owed by associate undertakings
Amounts falling due within one year:

Other debtors

5.3

2.1

Prepayment and accrued income

0.8

0.8

58.8

48.2

2020
£m

2019
£m

0.9

—

Amounts owed by subsidiary undertakings are interest-free, unsecured and repayable on demand.

(g) Creditors
Amounts falling due after one year:
Derivative financial instruments
Amounts falling due within one year
Trade creditors

0.2

0.7

Amounts owed to subsidiary undertakings

96.3

131.8

Tax, social security and sales-related taxes

4.2

1.2

Other financial liabilities

3.6

1.3

Accruals and deferred income

3.3

4.1

108.5

139.1

2020
£m

2019
£m

Amounts owed to subsidiary undertakings are interest-free and repayable on demand.

(h) Deferred tax
Balance at 1 April

1.5

1.5

Profit and loss debit

(0.4)

—

Other comprehensive income debit

(0.8)

—

Balance at 31 March

0.3

1.5

178

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

The amounts of deferred tax assets/(liabilities) are as follows:
Recognised
2020
£m

2019
£m

Excess of depreciation over corresponding capital allowance

0.5

0.5

Tax losses——

Provisions

—

0.1

(0.2)

0.9

0.3

1.5

Employee benefits – pension and share scheme

The Company recognises deferred tax assets only to the extent that there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be deducted.
Deferred tax assets have not been recognised in respect of the following items:

Tax losses

2020
£m

2019
£m

—

—

—

—

A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on 6 September
2016. However, in the Budget on 11 March 2020, it was announced that this reduction would be reversed, which was substantively
enacted on 17 March 2020. Consequently, the UK corporation tax rate will remain at 19%. The UK deferred tax liability at 31 March
2020 has been calculated based on that rate.

(i) Pension commitments
The Company and its employees contribute to the Oxford Instruments Pension Scheme (“the Scheme”), a defined benefit pension
scheme, which offers pensions in retirement and death in service benefit to members. Pension benefits are related to members’ final
salary at retirement and their length of service.
The Scheme was closed to new members from 1 April 2001. Since this date, new employees have been invited to join the Oxford
Instruments Stakeholder Plan, a defined contribution scheme. The Scheme is also closed to future accrual.
The Oxford Instruments Group policy for charging net defined benefit costs to participating entities states that member costs arecharged directly to a participating company if that member is also an employee of said participating company. The costs of scheme
members that are no longer employees of any participating company or directly affiliated with a Group company are allocated on
the basis of the participating company’s scheme members as a percentage of the total scheme members that are also employeesof participating companies.
The policy for determining contributions to be paid by participating companies is the same as that for charging net defined
benefit costs.
Details of the Scheme, its most recent actuarial valuation and its funding can be found in Note 25 to the Group Financial Statements.
The contributions paid by the Company to the Oxford Instruments Pension Scheme were £1.8m (2019: £1.7m).

(j) Guarantees
The Company has given a guarantee to the pension scheme in respect of the liability of its UK subsidiaries to the pension scheme.
The guarantee is for the excess of 105% of the liabilities of the Scheme, calculated on the basis of Section 179 of the Pensions
Act 2004, over the assets of the Scheme.
The Company and its UK subsidiaries have entered into a cross-guarantee for £10.0m (2019: £10.0m) in respect of overdraft facilities,of which £nil (2019: £nil) was drawn at the year end.

(k) Commitments
At 31 March 2020, capital commitments contracted were £nil (2019: £nil) and authorised were £nil (2019: £nil).

(l) Related party transactions
The Company has a related party relationship with its Directors and Executive Officers and with its wholly owned subsidiarycompanies.
Transactions with key management personnel are disclosed in the Directors’ Remuneration Report on pages 90 to 111. There wereno other significant transactions with key management personnel in either the current or preceding year.

Oxford Instruments plc Report and Financial Statements 2020

179

Historical Financial Summary

2016
£m

2017
£m

2018
£m

2019
£m

2020
£m

239.4

275.8

277.5

314.0

317.4

Consolidated Statement of Income
Revenue from continuing operations
Adjusted operating profit from continuing operations

30.9

37.6

46.1

47.7

50.5

Other operating income

—

—

3.3

—

—

Contingent consideration deemed no longer payable

4.9

—

—

—

—

Acquisition-related costs

(1.8)

(0.3)

—

—

—

Loss on disposal of subsidiary undertakings

(0.9)

(0.4)

—

—

—

Restructuring costs

(2.6)

(0.2)

(0.4)

—

(0.2)

Restructuring costs – relating to associate

(1.3)

(0.4)

(0.4)

(0.3)

—

Past service cost on defined benefit pension scheme

—

—

—

(0.3)

0.6

Impairment of investment in associate

—

(8.0)

—

—

—

Share of impairment recognised by associate

—

—

(2.0)

0.6

—

Inventory impairment

—

—

—

—

(0.4)

1

Profit on disposal of associate

—

—

—

—

6.5

Impairment of internally generated intangible assets

—

(2.9)

—

—

(7.1)

Impairment of acquired intangibles—(22.6)

—

—

—
(8.7)

Amortisation of acquired intangibles(10.9)(10.6)

(9.8)

(8.8)

Fair value movement on financial derivatives

(2.7)

1.2

3.1

(1.5)

(1.4)

Operating profit/(loss) from continuing operations

15.6

(6.6)

39.9

37.4

39.8

Net financing costs

(8.4)

(6.7)

(4.2)

(3.1)

(1.0)

Profit/(loss) before taxation from continuing operations

7.2(13.3)

35.7

34.3

38.8

Income tax expense

(1.6)

(4.2)

(12.0)

(6.5)

(6.8)

Profit/(loss) for the year from continuing operations

5.6(17.5)

23.7

27.8

32.0

Adjusted profit before tax from continuing operations

26.0

31.3

42.0

45.5

49.5

35.2

32.5

22.8

24.2

21.8

—

—

—

8.8

8.2

220.8

181.0

158.7

152.5

135.5

13.1

3.9

4.1

4.6

—

Consolidated Statement of Financial Position
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in associateLong-term receivables

3.4

3.6

1.4

0.3

—

Deferred and current tax

13.9

18.1

3.6

7.1

2.7

Inventories

61.1

53.9

45.9

60.8

58.8

Trade and other receivables

79.0

81.7

73.9

79.4

72.0

Trade and other payables(108.2)(98.0)(84.1)(118.0)(128.6)

—

—

—

(3.0)

(2.1)

Net assets excluding net cash

318.3

276.7

226.3

216.7

168.3

Cash and cash equivalents

21.8

27.2

20.7

35.2

95.4

Bank overdrafts

(1.4)

(0.7)

—

—

—

Lease payables

Bank borrowings(148.6)(135.8)(40.4)(28.5)(27.9)Net (debt)/cash(128.2)(109.3)(19.7)

6.7

67.5

Lease payables

—

—

—

(6.0)

(6.5)

Provisions(12.1)(9.8)(11.7)

(8.7)

(8.4)

Retirement benefit obligations(35.0)(25.1)(15.3)

(6.5)

30.7

Net assets employed/capital and reserves attributable to theCompany’s equity holders

143.0

132.5

179.6

202.2

251.6

180

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Financial Statements

Company Information

2016
£m

2017
£m

2018
£m

2019
£m

2020
£m

Net cash from operating activities

29.2

28.4

26.8

40.8

55.2

Net cash (used in)/generated from investing activities(36.3)

(6.8)

68.7

(9.2)

6.0

Net cash used in financing activities(6.0)(20.2)(104.0)(22.1)(11.4)Net (decrease)/increase in cash equivalents from continuing
operations(13.1)

1.4

(8.5)

9.5

49.8

pence

pence

pence

pence

pence

Earnings – continuing

9.6(30.3)

41.6

48.6

55.9

Adjusted earnings1

33.3

41.1

55.8

62.3

70.2

Dividends

13.0

13.0

13.3

14.4

—

2,077

1,974

1,642

1,579

1,585

Cash flows from continuing operations

Per ordinary share

Employees
Average number of employees
1.

Adjusted numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1 to the Group
Financial Statements.

Oxford Instruments plc Report and Financial Statements 2020

181

Oxford Instruments Directory

Company/addressCountry

Telephone

Oxford Instruments Head OfficeTubney Woods, Abingdon,
Oxfordshire OX13 5QX, UK

Fax

Email

UK

+44 (0)1865 393200 +44 (0)1865 393333 info.oiplc@oxinst.com

UK+44 (0)1494 442255+44 (0)1494 524129 nanoanalysis@oxinst.com

Sweden+46 8 5448 1550

+46 8 5448 1558

nordiska@oxinst.com

Materials & Characterisation
Oxford Instruments NanoAnalysis
Halifax Road, High Wycombe,
Buckinghamshire HP12 3SE, UK

Systems for materials
analysis at thenanoscale

Arenavägen 41, 10th floor,
121 7 Johanneshov, Sweden
Asylum Research6310 Hollister Ave,
Santa Barbara, CA 93117 USA

Systems for materials
analysis at thenanoscaleUSA+1 (805) 696 6466

+1 (805) 696 6444

sba.sales@oxinst.com

Borsigstrasse 15A,
65205 Wiesbaden, Germany

Germany+49 6122 9370

+49 621 762117 11

sba.de.sales@oxinst.com

Room 304, Building 52, No. 195,
Section 4, ZhongXing Road,
ZhuDong Township, XinZhu County,
310 Taiwan

Taiwan+886 3 5788696+886 2 2794 2757

sba.tw.sales@oxinst.com

Halifax Road, High Wycombe,
Buckinghamshire HP12 3SE, UK

UK+44 (0)1494 442255+44 (0)1494 524129 sba.uk.sales@oxinst.com

UK+44 (0)1934 837000 +44 (0)1934 837001 plasma@oxinst.com

Oxford Instruments
Plasma Technology
North End, Yatton,
Bristol BS49 4AP, UK

Tools fornanotechnology
fabrication

Research & Discovery
Andor/Bitplane/Spectral
7 Millennium Way,
Springvale Business Park, Belfast,
BT12 7AL, UK

Scientific imaging
cameras, spectroscopy
solutions andmicroscopy systemsUK+44 (0)28 9023 7126 +44 (0)28 9031 0792 info@andor.com

Badenerstrasse 682,
CH-8048 Zürich

Switzerland +41 44 430 11 00+41 44 430 11 01

info@bitplane.com

2 East Beaver Creek Road,
Building 2, Richmond Hill,
ON L3B 2N3, Canada

Canada+1 (905) 326 5040

+1 (905) 326 5041

info@spectral.ca

Advanced tools forapplied researchUKnanoscience@oxinst.com+44 (0)1865 393200 +44 (0)1865 393333 magres@oxinst.com

X-ray tubes anddetectorsUSA+1 (831) 439 9729

Oxford Instruments NanoScience& Magnetic Resonance
Tubney Woods, Abingdon, Oxfordshire
OX13 5QX, UK
Oxford X-Ray Technology
360 El Pueblo Road,
Scotts Valley, CA 95066, USA

182+1 (831) 439 6051

xray-sales@oxinst.com

Oxford Instruments plc Report and Financial Statements 2020

Strategic Report

Governance

Company/address

Financial Statements

Company Information

Country

Telephone

Fax

Email

USA

+1 (978) 369 9933

+1 (978) 369 8287

info@ma.oxinst.com

Floor 1, Building 60,
No. 461, Hongcao Road,
Xuhui District, Shanghai, 200233

China

400 678 0609

+86 21 6127 3828

china.info@oxinst.com

Building B2 West,No. 11 West Third Ring North Road,
Haidian District, Beijing, 100085

China

400 678 0609

+86 10 5884 7901

china.info@oxinst.com

Room 3312, Building B3,
Hanxi East Road, NanCun Town,
Panyu District, Guangdong Province,
511446, Guangzhou

China

400 678 0609

+86 20 8478 7349

china.info@oxinst.com

Czech
Republic+420 233 343 264+420 234 311 724

czech.info@oxinst.com

France+33 1 69 85 25 25+33 1 69 41 46 80

infofrance@oxinst.com

Germany+49 6122 9370

+49 6122 937100

info-oiplc@oxinst.com

India+91 818 017017+91 224 4253 5110

india@oxinst.com

IS Building 3-32-42, Higashi-Shinagawa,Shinagawa-ku Tokyo 140-0002, JapanJapan+81 (0)3 6732 8961

+81 (0)3 6732 8937

info.jp@oxinst.com

Shin Osaka Sun R Building 10th Floor,
5-8-3 Nishi-Nakajima, Yodogawa,
Osaka, 532-0011, JapanJapan+81 (0)6 7639 1761

+81 (0)3 6732 8937

info.jp@oxinst.com

Republicof Korea+82 2 2008 4500

+82 2 2008 4555

nanoanalysis@oxinst.com

Russia+7 (095) 933 51 23+7 (095) 933 51 24

russia.info@oxinst.com

Singapore+65 6337 6848

+65 6337 6286

singapore.info@oxinst.com

Taiwan+886 3 5788696+886 3 5789993

taiwan.info@oxinst.com

Regional Sales and Service Offices
Oxford Instruments/Canada/Latin America
300 Baker Avenue, Suite 150,
Concord, MA 01742, USA
Oxford Instruments Technology, China

Oxford Instruments Czech Republic
Velvarska 13, CZ-160 00 Praha,
Czech Republic
Oxford Instruments France
77 ZA de Montvoisin,
91400 Gometz la Ville, France
Oxford Instruments Germany
Borsigstrasse 15a, 65205 Wiesbaden,
Germany
Oxford Instruments India
Plot No. A-279, Ground Floor, Road No. 16A,
Ambica Nagar, Wagle Industrial Estate,Thane (West), 400604
Oxford Instruments Japan

Oxford Instruments Korea
No. 8-S 26, 8F., 10 Chungmin-ro,
Songpa-gu, Seoul 05840, Korea(Republic of)Oxford Instruments Russia
Denisovskiy per. 26, Moscow 105005,
Russian Federation
Oxford Instruments Singapore
31 Kaki Bukit Road 3,#05-19 Techlink Building Lobby A,
Singapore, 417818
Republic of Singapore
Oxford Instruments Taiwan
Room 304, Building 52, No.195, Section 4
ZhongXing Road, ZhuDong Township,
XinZhu County, Taiwan 310, Taiwan, ROC

Oxford Instruments plc Report and Financial Statements 2020

183

Directors and Advisers

Honorary President

Auditor

Sir Martin Wood OBE FRS Hon FREng DL

KPMG LLPBDO LLP (from 1 April 2020)

Company Secretary
Susan Johnson-Brett ACIS

Principal bankers

Company number

HSBC Bank plc
Santander plc

Registered in England and Wales
number 775598

Board Committees

Stockbroker
JPMorgan Cazenove

Audit and Risk

UK solicitors

Mary Waldner, Chair
Steve Blair
Richard Friend
Thomas GeitnerAshurst LLP

US counsel
Wilmer Hale LLP

Nomination
Neil Carson, Chair
Steve Blair
Richard Friend
Thomas GeitnerMary Waldner

Remuneration
Thomas Geitner, Chair
Steve Blair
Neil Carson
Richard Friend
Mary Waldner

Administration
Any two Directors

184

Oxford Instruments plc Report and Financial Statements 2020

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This publication is the copyright of Oxford Instruments plc and provides outline information only, which (unless agreed by the Company
in writing) may not be used, applied or reproduced for any purpose or form part of any order or contract or regarded as the representation
relating to the products or services concerned. Oxford Instruments’ policy is one of continued improvement. The Company reserves theright to alter, without notice, the specification, design or conditions of supply of any product or service. Oxford Instruments acknowledges
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Oxford Instruments plc Report and Financial Statements 2020