Oxford Instruments plc Annual Report and Accounts 2005

A big future for small science

£m

2004
As restated
£m

147.0
156.5
7.4
0.5
7.9
3.6
26.5
82.0

144.2
147.6
7.9
5.7
7.8
11.9
20.7
92.1

2005
pence per share

2004
As restatedpence per share

Earnings, before exceptional items and goodwill amortisation *Earnings
Dividends
Net assets

10.9
3.3
33.4
169.7

12.0
21.3
8.4
191.5

Employees at year end

1,295

1,507

Summary of Results

Orders *Turnover *Operating profit, before exceptional items and goodwill amortisation *Group operating profit
Profit before tax, before exceptional items and goodwill amortisation *Profit before tax
Net cash
Shareholders’ funds* From continuing wholly owned operations

2
4
6
8
12
16
17
64
70
71
72

Chairman’s Statement
Chief Executive’s Introduction
Our Strategy
Operating Review
Financial Review
Directors and Advisers
Reports and Financial Statements
Notice of the 2005 Annual General Meeting and Explanatory Notes
Shareholder Information
Five Year Record
Oxford Instruments Directory2005

Q: Why is small going to be big?

A: At Oxford Instruments small means verysmall, down to the atomic and molecular level.
Here distance is measured in nanometres.
One nanometre is a millionth of a millimetre,or the distance spanned by a few atoms.
Manipulation of matter at this minute scale has
the potential to revolutionise many industries.
The UK Government Committee on Scienceand Technology estimates that a global industry
operating at this atomic and molecular level(the nanotechnology industry) will be worth one
trillion dollars by 2015. There is huge potential
for Oxford Instruments to provide the tools
needed to fully exploit the opportunities.

2

Chairman’s Statement

The last year has been one of immense change for Oxford
Instruments. We have disposed of our Medical business,
continued to address our operational performance, launchedsignificant new products and strengthened our senior
management team.
The successful sale of the Medical business to VIASYS
Healthcare Inc. enabled us to return capital to shareholders
through the payment of a special dividend of £11.8 million
as well as supporting a special contribution of £6.0 million
to the Oxford Instruments UK pension scheme. The remainderof the proceeds, after costs, is being held for reinvestmentin the business.
With the disposal of the Medical business, the organisation
is now highly focused on the provision of tools for new highgrowth, high technology industries such as nanotechnology
and molecular bioscience.
We are at an important moment for Oxford Instruments.
With an efficient operating base, a focused portfolio and new
products coming through to market, it is time to accelerate
the pace of growth. In order to achieve this, the Board decided
to change the leadership of the business and in November
2004 I took over day-to-day control of the business until the
beginning of the new financial year, when Jonathan Flint wasappointed as Chief Executive. I welcome Jonathan to the Groupand I look forward to working with him as he leads and grows
our business from its established operating base. As a firststep, he and I have worked on a revised and clarified strategy
for the business which is outlined in the Strategy Statement.
Group turnover of the continuing operations for the year
to 31 March 2005 was £156.5 million (2004 £147.6 million).
Pre-tax profit for the continuing operations before exceptional
items and goodwill amortisation was £7.9 million, up £0.1
million on the previous year. Both turnover and operating profit
were significantly impacted by the overall change in exchange
rates during the year. If the same exchange rates had applied
during the year to 31 March 2005 as in the previous year,
turnover and pre-tax profit before goodwill amortisation andexceptional items of the continuing operations would havebeen £9.1 million higher at £165.6 million and £1.9 million
higher at £9.8 million respectively. The businesses acquired
during the year contributed £7.5 million and £0.7 million toturnover and operating profit before goodwill amortisation
respectively. The discontinued Medical business made anoperating loss before exceptional items of £0.1 million comparedwith an operating profit of £0.1 million in the prior year.
Within Analytical operating profit, before exceptional items
and goodwill amortisation, increased to £6.6 million from
£3.7 million. Our Microanalysis and Industrial Products businesses
continued to move ahead showing the fifth successive yearof profit growth. Our Plasma Technology business is thriving
following the successful integration of the VG Semicon businessand our X-ray Technology business produced significant growthin turnover and profit driven by the buoyant market forenvironmental monitoring tools.

At Superconductivity operating profit, before exceptional
items and goodwill amortisation, fell from £4.2 million to£0.8 million primarily due to lower magnet sales and adverse
raw material and foreign exchange movements. Orders thisyear were down 5% on last year reflecting the continuing
reduction in business from a significant customer. The NMR
magnet business continues its transformation programme.
A series of business partnerships are being developed in orderto return this part of the business to full financial health.
The Physical Science business, which provides specialised magnet
and cryogenic systems to leading researchers throughout theworld, has lost money in recent years but is now close to
break-even. Our Superconducting Wire business in the USA
continues to perform well. The monolith wire quality problem,
which was disclosed in the Interim Report in November 2004,
has been fully provided for as an exceptional cost. The matter
is now closed and the customer relationship strengthened.
A new high performance superconducting wire has beendeveloped and is now being introduced into our highfield magnets.
Earnings per share from our continuing operations, before
exceptional items and goodwill amortisation, were 10.9p(2004 12.0p) and the Board recommends a final dividend of
6.0p, making the total dividend of 8.4p for the year unchanged
from last year. This excludes the special interim dividend of
25.0p which was paid in March 2005.
In this year of change the progress we have made towards
our goals is due to our talented workforce and I would liketo thank all of our employees for their hard work in deliveringa creditable improvement in performance.
During the year Mike Hughes joined the Board as a NonExecutive Director. As Oxford Instruments enters a new era,
Mike brings strengths to our Board with his broad operational
experience allied with sound technical understanding.
Looking ahead, we have selected a number of value-enhancing
initiatives which are outlined in the Strategy Statement. We
have established a sound operating base and we will continue
to focus on improving profitability and returns across ourbusinesses by building on the momentum generated overrecent years whilst at the same time growing our turnover.
Execution of this strategy will involve a level of investmentthat will impact the financial results of the Group for the next
two years. In the current year we estimate that there will be
incremental product development expenditure of up to £5.0
million. Meanwhile our existing trading activities have a soundbase from which to move forward steadily. Over the next few
years the emerging markets coupled with our talents andinfrastructure will provide significant opportunities to drive
the business forward and increase value for our shareholders.

Nigel Keen Chairman
3 June 2005

3

Q: Why is Oxford Instruments the company for tools
at the atomic and molecular scale?
A: Our track record demonstrates our technicalexpertise. With the disposal of our Medical
business, we are now a Group unified by ourcapability in providing tools for operations at
the smallest scale. This makes us
uniquely placed to service thedemands of this fast growing,
revolutionary industry.

Nigel Keen Chairman

4

Chief Executive’s Introduction

I am delighted to have been appointed to lead Oxford
Instruments through the next important phase in its strategic
development. Since joining the Group, I have spent my time
getting to know our senior management and local management
teams as well as speaking with customers and key partners.
I have also met many of our staff in person and through ourinternet communication systems and have been encouraged
by feedback from around the world. This two-way dialogue
has been invaluable in helping me shape my thoughts
about the business.
I have visited our operations and customers in the UK, North
America and the Far East. I have been enormously impressedby the quality of our people and the great respect that the
Oxford Instruments brand carries throughout our global customer
community. The Group’s technological and human assets areoutstanding and, when coupled with growing demand in
emerging high technology industries, offer a unique andvaluable capability. Nanotechnology, molecular bioscienceand environmental monitoring provide significant growth
opportunities for Oxford Instruments. A key task for me
will be to manage smoothly and successfully the transition
between old product lines and the new business model
described in the Strategy Statement. Going forward, we
will be running our business with a set of aims and objectives
concentrating on strategic repositioning, customer focus
and new product innovation.

My priorities for 2005 are to refine, develop and implement
the Group strategy by harnessing the strengths and resourcesof the business and by selective acquisitions. Oxford Instruments
has an excellent technological heritage but our position in
the value chain has sometimes hampered our ability to realise
sufficient value from this technology. Our new strategic focus
will allow us to leverage our capability in analytical instruments
to provide direct to end users a new generation of tools fornanotechnology, molecular bioscience and environmental
monitoring. At the same time we will continue our initiatives
to improve efficiency and profitability by further use of low-cost
production in Eastern Europe and the Far East, including our
new manufacturing facility in China.
Most importantly, I look forward to delivering shareholder
value through the successful implementation of our strategy.
This will be done by uniting the Oxford Instruments teambehind our common objectives of growth through customer
service and new product innovation.

Jonathan Flint Chief Executive
3 June 2005

5

Q: How will our resources be harnessed to realise thepotential of the nanotechnology revolution?
A: Our customers’ needs are the driving force
behind our activities. Our customers want tools
to work at these small scales and our skills andresources are focused on quickly
and effectively bringing tomarket the products andsolutions to satisfy them.
We are able to service all
three branches of thetechnology. We provide
the environments in which
to work and the ability tounderstand the structure
and manipulate matterat the smallest scale.

Jonathan Flint Chief Executive

6

Our Strategy

With the sale of the Medical business, much organisational complexity has been removed and the focus is
now on commercialising our intellectual property and technological know-how in the development of valuable
tools for new industrial and scientific markets. The continuation of the wide ranging efficiency programme
has created a solid platform from which to grow the business and we are now ready to develop and take tomarket the products which will deliver sustainable growth for the benefit of all of the Group’s stakeholders.
Following internal reviews and external studies of our respective strengths and market opportunities, wehave refocused our future strategy on building upon our key strength which lies in our deep understandingof the world at the atomic and molecular level. Our business model reflects the convergence between thephysical and biological sciences, meaning that an overlapping set of tools can serve both markets.
We will become a leading provider of a new generation of tools and systems for both the physical andbioscience sectors, based on our ability to observe and manipulate matter at the smallest scale. From chemical
and material analysis, to molecular structure and atomic deposition, we will expand our offering of tools
focused on comprehensive solutions to atomic and molecular level problems. We will build on our capability
to create specialised environments such as ultralow temperature or high magnetic fields, to provide systems
to observe and characterise matter at very small scales, and to start manipulating and building structures at
the atomic level. As well as developing new processes and environments we will also actively seek to grow ourcustomer support revenues to provide stable long term earnings in order to match the more volatile cashflow
associated with new product introduction.
There are many areas of outstanding technical competence within Oxford Instruments. These will be brought
together as we operate increasingly as one company. For example, we will continue to generate competitive
advantage though integrated wire and magnet design and will also bring the instrumentation skills in our
Analytical instruments business to bear elsewhere in the organisation. This will facilitate our move towards
providing total solutions direct to end users. This growth strategy will be coupled with an ongoing focus
on operational improvement, using low cost sources of production. We already have extensive skills in serving
the nanotechnology, molecular bioscience and environmental monitoring markets and we plan to invest in
growing our capabilities both organically and by acquisition. Because we are focused on providing tools as
distinct from nano-engineered products, Oxford Instruments will be well positioned to benefit from the earlystages of the development of this new industry.
With this clear vision of the future direction for the Group we will regularly report on the progress made by
the business against this strategic framework.

Nigel Keen Chairman
Jonathan Flint Chief Executive
3 June 2005

7

Q: What environments do our customers need to
begin their operations in the world of nanotechnology?
A: Extremely cold temperatures, intense vacuum
and very high magnetic fields are typically needed
to operate at these very small scales. These are
precisely the capabilities that Oxford Instruments
offers to its customers.

The Nanostat provides the ultimate low temperature, magnetic and ultra highvacuum environment for scanning probe microscope applications. It is extensively
used for the study of atoms on material surfaces. It also provides the capability tocharacterise the electronic and chemical properties of developing nanodevices such as
quantum dots, quantum wires, single electron transistors, and advanced nanotube devices.

8

Operating Review

Following the sale of the Medical business, the Group consistsof two main areas, Analytical and Superconductivity. Analyticalincludes Industrial Products (environmental and quality control
instruments), X-ray Microanalysis (identification of chemicalelements and crystalline structures), Plasma Technology (plasma
etching and deposition equipment) and X-ray Technology(low power X-ray tubes and sources). Superconductivity includes
Magnet Technology (NMR, ICR and MRI magnet systems),
Physical Sciences (magnet and cryogenic systems for appliedresearch customers), Molecular Biotools (Dynamic Nuclear
Polarising systems to enhance NMR sensitivity), Superconducting
Wire (wire for superconducting magnets), MRI magnet service(cryogenic maintenance of hospital MRI magnets) and Austin
Scientific Technology (cryogenic pumps and compressors).
Since the end of the year a new business area has been formed,
Oxford Instruments Innovation, which includes the Molecular
Biotools activity that was previously part of Superconductivity
together with other new instrument projects.
Analytical
Orders and turnover for the year were £67.3 million (2004£60.6 million) and £69.8 million (2004 £58.5 million) respectively.
Operating profit before exceptional items and goodwill
amortisation improved to £6.6 million (2004 £3.7 million).
Our Industrial Products business continues to grow. The
Metorex business acquired in September 2004 has now been
integrated, is operating profitably and was earnings enhancing
in the year. Metorex, as well as providing advanced sensor
technology, brings to our product offerings hand-held EDXRF(energy dispersive X-ray fluorescence) and optical emission
instruments with particular application in the environmental
and scrap metal sorting markets. This acquisition is consistent
with the market trend towards hand-held instrumentation.
The ‘X-Strata960’ instrument has been launched for the quality
control measurement of metal coatings in the electronics
and metal finishing industry. We have also begun to transfer
the manufacture of our range of hand-held coating thickness
products from Chicago to our facility in Shanghai.
The market for our X-ray Microanalysis business, providing
analytical instruments for electron microscopes, remained
steady. The convenience and cost advantages of our recently
introduced ‘INCADryCool’ non liquid nitrogen sample cooler
are gaining increased recognition among our customers andseveral other major new product development programmes areunderway. In addition, with the acquisition of HKL Technology
A/S in April 2005, the product portfolio has been significantly
enhanced with the addition of the best in class EBSD (electronbackscatter diffraction) instrumentation. With our existing
market leading EDS (energy dispersive spectroscopy) and WDS(wave length dispersive spectroscopy) systems we now offer
the best combination of elemental analysis systems in themarket for use with electron microscopes.
Our Plasma Technology business has shown good profitability
in the year despite no significant upturn in the compound
semiconductor market. A vigorous programme of productintroduction based on extensive customer research has been
started and the benefits of this are expected in the next

financial year. Particular developments to produce theequipment for manufacturing high brightness LEDs (lightemitting diodes) are under way. The market for high brightness
LEDs is growing with widespread utilisation already being seenin the automotive industry. These products are very energy
efficient which is expected to lead to their increasing use in
the domestic market. The VG Semicon molecular beam epitaxy
business acquired in October 2003 has now been integrated
into the Plasma Technology facility in Yatton and the costsof closing the East Grinstead factory, which amounted to£1.0 million, have been included within exceptional costs.
Our X-ray Technology business grew strongly last year
on a broadening customer base and with especially strong
sales from low power X-ray sources. This growth was in partdriven by increasingly demanding new environmental legislation
and although last year may have been exceptional in thisregard, we are well positioned to exploit this growth areain future.
Superconductivity
Orders and turnover for the year were £79.7 million (2004£83.6 million) and £86.7 million (2004 £89.1 million)
respectively. Operating profit before exceptional items andgoodwill amortisation declined to £0.8 million (2004 £4.2
million). As previously announced the business took steps
to reduce its UK cost base in both June 2004 and in March
2005 and the redundancy costs of £1.2 million have been
included within the exceptional costs for the year.
As previously signalled, the Magnet Technology business had
a poor year due to lower than expected volumes from Varian,
its largest customer, although good progress has been madeon reducing costs by the introduction of lean manufacturing
techniques and low cost sourcing initiatives. For many years,
Oxford Instruments has maintained a sound business by providing
NMR magnets to systems integrators which use the magnets
as part of their NMR systems sold to end users. Howeverrecently the market has polarised into the supply of high field,
technologically demanding magnets and low field, commodity
magnets. In this latter market, the system integrators are tending
to source low field magnets in-house. In order to ensure anorderly transition to this new way of doing business we haveentered into a new three year contract with Varian for the supplyof magnets. This contract took effect from 1 April 2005.
Oxford Instruments remains the world leader in high fieldmagnets and has recently broadened the range of thesemagnets based on its newly developed high performance‘RRP’ superconducting wire. These include the ‘Actively Shielded’
800 MHz magnet, which also uses new coil structures. Thisnew technology reduces stray fields significantly which in turn
reduces the space our customers need to install systems.
The first of these new 800 MHz magnets is now at field.
Our ‘ActivelyCooled’ 600 MHz and 700 MHz magnets havealso progressed well with prototype testing at our customers’
premises due to start shortly. In addition we have successfully
installed six of our 900 MHz ‘Discovery’ magnets. Our strategy
is now to focus on high value magnets with clear competitive
advantage and to exploit them where possible as end user
systems either on our own or with others.

9

Q: How do our tools enable customers to understandthe structure of the world at its finest scale?
A: Oxford Instruments provides a growing familyof analytical instruments, used alone or in
conjunction with electron microscopes, to enable
our customers to see and understand at anever-decreasing scale.

The unique design of the Nordlys II EBSD Detector allows short scanning electron microscope
working distances and higher spatial resolutions in grain orientation maps. Grain sizes of less than
20 nanometres can now be measured; a human hair is 50,000 nanometres wide.

10

Operating Review

The Physical Science business moved towards break-even
during the year against stable markets for its refrigeration andspectroscopy products. It has successfully launched a numberof new cryo-free products, which offer significantly improved
ease of use for customers as they do not require filling withcryogens after installation. The level of demand for large
customer specific magnets for government sponsored researchremained steady. We continue to do well on high-visibility
science programmes and in particular we have won a numberof orders with the National High Magnet Field Laboratory
in Florida.
The Molecular Biotools business was formed in April 2004 within
the UK Superconductivity business. It was created to exploit thetechnology licensed exclusively from GE Healthcare to develop
certain applications of a novel magnet-based sample preparation
technique in the life sciences market. The first major projectis to produce a DNP (dynamic nuclear polarisation) preparation
unit to allow faster NMR analysis. This new system, branded‘Hyper-Sense’, attracted significant interest at the annual
ENC (Experimental NMR Conference) tradeshow in April 2005.
The programme is on track and we remain confident about
the prospects for the new product. Molecular Biotools acquired
Resonance Instruments in September 2004. The skills andintellectual property acquired are making a significant
contribution to the DNP project as well as giving us capability
that can be used in the low cost end user NMR instrument
markets. The acquisition was earnings enhancing in the year.
Superconducting wire volumes remained strong, based on
growth in the market for hospital MRI magnets, but the
profitability of the business was adversely affected by sales
price erosion and rising raw material prices, particularly copper.
The monolith wire quality problem, which was disclosed in
the Interim Report in November 2004, has been fully provided
for as an exceptional cost. The matter is now closed andthe customer relationship strengthened. We have developed
a new highly efficient ‘RRP’ wire which has been tested
successfully in a number of new Oxford Instruments magnets.
The International Thermonuclear Energy Reactor (ITER) project,
an internationally backed programme to try to generate hugequantities of power from sea water, is expected to receive
formal governmental go-ahead shortly. This project will provide
an opportunity for significant wire supply in the coming years.
We have supplied materials under the qualification programmeand have met the required specification. We plan to invest
in new plant to support this activity and the rest of thewire business.
The MRI magnet service business grew last year reflecting
the steady growth of the installed base in the USA. As theorganisation grows it is able to offer an increasingly attractive
service to its customers.
The Austin Scientific cryogenic pump and compressor businesshad a steady year and sees the opportunity for sales growthand low cost manufacturing in China.

Discontinued Business
Following the restructuring of the Medical business overthe last few years, it was sold to VIASYS Healthcare Inc.
on 1 March 2005 and has been treated as a discontinued
business in the results for the year. The sale will now allow
us to focus on the growth and development of our Analyticaland Superconductivity businesses.
Group-led Initiatives
Customer focus
Since November 2004 we have undertaken a number ofprogrammes to ensure that the Group becomes more customer
focused, concentrating on providing products and services
which present innovative solutions to customer problems.
In particular we ensure that the ‘Voice of the Customer’ plays
a key part in our new product introduction and customer
service activities. Coupled with these customer focus initiatives
the Group has set a target for increased service revenues.
As part of our intent to become more customer facing the
focus of our existing trading activities is increasingly on new
product introduction.
Innovation
Reflecting the Group strategy as outlined in the Strategy
Statement a small new management team, Oxford Instruments
Innovation, has been formed reporting to the Chief Executive
to drive forward the various new investment initiatives focusedon the markets we address. This team will recommend,
implement and control the incremental revenue investment
programmes designed to generate products capable of creating
growth and profits which will be significant in Group terms.
Manufacturing
Our focus on lean manufacturing continues and our initiatives
during the year have cut the lead-time in some products byhalf. During the year we won a Highly Commended National
Training Award for our lean manufacturing training programme.
Low cost sourcing
We have increased the amount of product and components
sourced from low cost regions of the world, particularly China.
We opened a service centre and factory in Shanghai in August
2004. This is already providing high quality service to ourChinese customers and local assembly of some of our hand-heldproducts has been started. Continued growth in the proportionof our value creation undertaken in China is expected.
Japan
The ‘Sir Martin Wood Prize’ ceremony was again held in Japanand has become established as a significant annual event in
the Japanese scientific research community calendar. The prize
is awarded for the most promising post graduate researchundertaken in the field of condensed matter science.
Future Investment
As we move forward to deliver our strategy we will be making
considerable investment, both in product development costs
and in the pursuit of product infill acquisition opportunities.
These investments will be geared to restoring sales growth
to the business and to deliver increasing profits, which are
expected to enhance shareholder value.

11

Q: How can our customers manipulate matter atom
by atom using Oxford Instruments’ tools?
A: Manipulation at the atomic scale is facilitatedby the unique process capability of oursemiconductor etch and deposition systems.
This ability is vital in the creation of the nanoscale
structures which will produce the consumer
electronics products of today and tomorrow.

MBE (molecular beam epitaxy)
enables nanometre scale engineeringof advanced semiconductor structures suchas those used in mobile phones. The Oxford
Instruments/University of Manchester MBE
Facility (illustrated) develops and showcases
these capabilities.

12

Financial Review

Trading resultsGroup turnover for the year to 31 March 2005 of £182.1m was£0.2m lower than the previous year. This total included £156.5m
from the continuing operations for the year (2004: £147.6m),
the increase reflecting the impact of the acquisitions in the
period. Turnover for the discontinued Medical business for the
11 months until disposal on 1 March 2005 was £25.6m, against£34.7m for the twelve months in the prior year. Pre-tax profit
for the continuing operations before exceptional items andgoodwill amortisation was £7.9m, up £0.1m on the previous
year. The Group operating profit of the continuing wholly-owned
operations before exceptional items and goodwill amortisation,
was £7.4m (2004 £7.9m), down 7% from the previous year.
The discontinued Medical business made an operating loss
before exceptional items of £0.1m compared with an operating
profit of £0.1m in the prior year.
Both turnover and operating profit were significantly impacted
by the overall change in exchange rates during the year. If thesame exchange rates had applied during the year to 31 March
2005 as in the previous year, turnover and operating profit
before exceptional items and goodwill amortisation of thecontinuing operations would have been £9.1m higher at£165.6m and £1.9m or 25% higher at £9.3m respectively,
an increase in operating profit of £1.4m over prior year.
The businesses acquired during the year contributed £7.5m
and £0.7m to turnover and operating profit before goodwill
amortisation respectively.
The results summarised by business are set out in Note 1
on the Financial Statements. Despite the increase in turnoverof the continuing operations there was a fall in gross margin
from 30.4% to 29.5% reflecting adverse exchange rate
movements, sales price erosion in specific markets and higher
raw materials prices, particularly copper.
For the continuing operations, sales to overseas customers of£138.6m (2004 £128.1m), including sales by overseas businessesof £93.4m (2004 £85.9m), represented 89% (2004 87%) of theGroup turnover of the continuing operations. UK exports forthe continuing operations of £71.2m (2004 £74.2m) produced
a net benefit to the UK balance of payments of £52.2m (2004£55.9m), after deducting imports of £19.0m (2004 £18.3m).
Turnover by region is shown in the chart on the page opposite.
Profitability
Although the operating assets of continuing businesses reducedby £2.6m from £54.8m to £52.2m the return on operating
assets reduced marginally from 14.4% to 14.2% reflecting thedecline in the return on sales from 5.4% to 4.7%.
Accounting policies
The policies applied in preparing the Financial Statements
are set out on pages 36 to 37. The Group adopted UITF 38‘Accounting for ESOP Trusts’ during the year. The effect of UITF
38 has been to recognise the net carrying value of shares heldby the trust as a deduction from shareholders’ funds rather
than as a fixed asset investment.

The main areas of judgement in applying the accounting
policies relate to the estimation of the cost to completeon long term contracts, which represent less than 2% ofannual turnover, and to the assessment of the risk of stock
obsolescence. The appropriateness of these policies isreviewed regularly.
Going concern
The Financial Statements have been prepared on a going
concern basis, based on the Directors’ opinion, after making
reasonable enquiries, that the Group has adequate resources
to continue in operational existence for the foreseeable future.
Exceptional items and goodwill amortisation
Exceptional items for the year of £5.5m related to continuing
activities and included redundancy costs of £1.2m incurredas the Superconductivity business reduced its cost base, costs
relating to a specific quality problem at the US superconducting
wire manufacturing plant of £1.5m, restructuring costs of£1.1m following the acquisition of Metorex International Oy(‘Metorex’) and Resonance Instruments Limited (‘Resonance’),costs of £1.0m relating to the transfer of the VG Semiconbusiness from East Grinstead to Plasma Technology’s facility
in Yatton and £0.9m relating to the replacement of the Chief
Executive. Offsetting these costs was an exceptional gainof £0.2m on the sale of a freehold property in Eynsham.
Amortisation of goodwill amounted to £1.1m (2004 £0.7m)
an increase over last year, reflecting additional goodwill
amortisation following the acquisition of both Metorex andResonance in the year and a full year charge relating to VG
Semicon acquired in the previous year. The average period
over which goodwill is being amortised is 9 years.
Acquisitions and disposals
In September 2004 the Group acquired 89.5% of the sharecapital of Metorex, based in Espoo, Finland. A further 9.6%of the share capital had been acquired by 31 March 2005.
A total cash consideration of £4.0m was paid during the yearwith a further £1.3m due to be paid in instalments in May 2005
and June 2006. Metorex is a supplier of advanced instruments
and key components for chemical analysis and rapid elemental
identification, primarily using X-ray technology.
In September 2004 the Group acquired the entire sharecapital of Resonance based in Witney, Oxfordshire. Resonanceis a manufacturer of instruments used for quality control andresearch applications using low resolution nuclear magnetic
resonance as well as components and subsystems for magnetic
resonance imaging systems. A cash consideration of £1.8m
was paid on completion with up to a further considerationof £1.3m payable in cash in the next two years.
In March 2005 the Group sold its Medical business to VIASYS
Healthcare Inc for £24.0m. The resultant profit on disposal
was £6.0m before adjusting for goodwill previously written
off to reserves.

13

TurnoverGroup turnover by region

2005£156.5m

2004£147.6m

2003£150.3m

Continuing wholly owned operations.

Pre-tax profit
2005

£7.9m

2004

£7.8m

2003

£7.0m

Continuing wholly owned operations before exceptional items and goodwill amortisation.

Contribution to improvement in pre-tax profit

2005
2004
2003

£58.5m£64.9m£66.2mNorth America

2005
2004
2003

Japan

Continental Europe

2005
2004
2003

Rest of Far East

£17.9m£13.7m£14.3m

2005
2004
2003

UK

£17.9m£19.5m£20.6mRest of World£7.8m

Analytical

£2.9m

2005
2004
2003

Superconductivity£(3.4)m

Continuing wholly owned operations.

Interest

£0.6m

2005

£7.9m

Operating return on operating assets
2005

14.2%

2004

14.4%

2003

13.3%

Continuing wholly owned operations before exceptional items and goodwill amortisation.

Net cashflow from operating activities
2005

£7.1m

2004

£17.8m2003£14.9mNet cash2005£26.5m2004£20.7m

2003

£3.3m

Martin Lamaison Financial Director£25.3m
£21.7m£21.8m

2005
2004
2003

2004

Continuing wholly owned operations before exceptional items and goodwill amortisation.

£34.4m£25.2m£23.2m

£2.5m
£2.6m
£4.2m

14

Financial Review

Earnings per share
2005

10.9p

2004

12.0p

2003

9.5p

Continuing wholly owned operations before exceptional items and goodwill amortisation.

Interest
Total net interest receivable was £0.5m, compared to net interest
payable last year of £0.1m, ignoring the interest in the joint
venture. This reflected the improved net cash position and higher
sterling interest rates.

An analysis of tangible fixed assets is shown in Note 13 on
the Financial Statements. The decrease in net book valueof fixed assets of £4.0m reflected the net effect of disposals
and acquisitions as well as depreciation of £4.4m exceeding
capital expenditure by £1.2m in the year.

Taxation
The underlying tax rate on the profits of continuing operations
after goodwill amortisation but before exceptional items was
41% (2004 30%). The key factors influencing the rate of tax
are the UK corporate tax rate of 30%, the increase in goodwill
amortisation and higher tax rates in overseas jurisdictions suchas USA, Germany and Japan. The Group has significant tax
losses in the UK available to set off against future taxable profits
from certain business streams. A deferred tax asset of £3.8m
has been recognised against timing differences and unused
capital allowances. No deferred tax asset has been recognised
against past UK tax losses.

The Group continues to own the majority of its factories in the
UK and the USA. Overseas sales offices are all leased. The longleasehold property in Abingdon and the factory in Oak Ridge,
Tennessee are in the process of disposal.

Employees
The number of employees at 31 March 2005 was 1,295
compared with 1,507 at 31 March 2004, a reduction of 14%.
The number of additional employees joining the Group with
the Metorex and Resonance acquisitions were more than offset
by the reduction in headcount following the Medical businessdisposal and the restructuring at Superconductivity.
Exchange rates
The principal exchange rates used to convert foreign currencies
are set out in Note 34 on the Financial Statements.
Cashflow
The Group began the year with net cash of £20.7m and ended
the year with net cash of £26.5m, an inflow of £5.8m. Principal
contributors to the inflow were £24.0m from the disposal of
the Medical business offset by the acquisitions of Metorex andResonance of £5.8m and the special dividend to shareholdersof £11.8m. Within the operating cash inflow of £7.1m were
exceptional cash outflows of £4.3m.
Balance sheet
The year end net cash position of £26.5m was made up of
cash and short-term deposits of £29.7m offset by bank loans
and overdrafts of £3.2m.
Net operating assets, excluding goodwill, of £66.6m reported
last year fell by £14.4m to £52.2m. This reduction was primarily
due to the disposal of the Medical business, partially offset by
the acquisitions of Metorex and Resonance. Net working capitalof the continuing operations, excluding net cash, taxation,
non-operating assets and accrued dividends, decreased by£1.7m to £23.6m. Overall the net working capital to sales
ratio reduced from 17.1% to 14.4% on a like-for-like basis.
Stock reduced from prior year by £4.6m, however, taking into
account the acquisitions and disposals in the year, stock levels
were unchanged. Debtor days for the continuing businesses
increased from 46 days to 51 days.

Goodwill increased by £6.7m reflecting the additional goodwill
arising on the acquisitions of Metorex (£4.9m) and Resonance(£2.9m) offset by amortisation of £1.1m for the year.
Pension schemes
The Company continues to account for pensions in accordancewith SSAP 24. However, the combined deficit of the UK andUS defined benefit pension plans under the FRS 17 accounting
standard has increased from £25.8m to £30.0m after deducting
the related deferred tax asset. The increase in the deficit reflects
primarily the reduction from 5.6% to 5.4% in interest rates
used to evaluate the present value of the UK liabilities. The
principal (UK) scheme, which accounts for £28.3m of the total
deficit of £30.0m was closed to new members in 2001. At
31 March 2003, at the time of the last formal actuarial valuationof the UK scheme, the liabilities in respect of past service
exceeded the assets by £22.2m. On the advice of the actuary
following this valuation, both the Company and employee
contributions were increased commencing October 2003.
These new contribution rates were set with the expectationthat the deficit would be recovered over the average working
life of members of sixteen years. The Board has announced
its intention of making a special contribution to the UK defined
benefit pension scheme of £6.0m. The next actuarial valuationof the UK scheme will occur at 31 March 2006 with the results
expected to be available in September 2006.
Financing
At the year end the Group’s bank facilities were sufficient for
its short term needs. In addition to the multi-currency overdraft
and short term borrowing facilities of £30.0m (or the foreign
currency equivalent) available to the Group at 31 March 2005,
the Group had contractually committed unsecured facilitiesof £15.0m. At 31 March 2005 none of the committed facilities
and only £3.2m of the uncommitted facilities were in use.
There is no known restriction on the Group’s ability to transfer
funds within the organisation.
Treasury management and policyGroup Treasury acts as a service to the businesses of the Group,
not as a profit centre. It operates under policies approved by
the Board. A formal report on Treasury activities is prepared
for the Board at least twice each year. Group Treasury seeks to
reduce financial risk and to ensure that the Group has sufficientliquidity available to meet all foreseeable needs. It is responsible
for all of the Group’s funding requirements, cash management
and other treasury business. Group Treasury makes limited
use of derivative instruments to hedge foreign currencies;
speculative transactions are not permitted.

Dividends per share

Net assets per share

2005

33.4p

2005

170p

2004

8.4p

2004

192p

2003

8.4p

2003

185p

All of the Group’s borrowing facilities are arranged by Group
Treasury and the funds raised are then lent to operating
subsidiaries on an arms length basis. In a few cases operating
subsidiaries have external borrowings but these are supervisedand controlled centrally. Group Treasury also manages thelocation and investment of surplus funds which, whenappropriate, are invested predominantly in short-term deposits
with major financial institutions meeting the credit criteria
approved by the Board. At the present time the Group has
decided not to enter into any arrangements to hedge against
future movements in interest rates.
Given the high level of net exports, the Group faces currency
exposures on those trading transactions undertaken by its
UK subsidiaries in foreign currencies. To reduce uncertainty,
the Group has a policy of selling forward known and forecast
net foreign currency receivables for up to 12 months ahead.
Note 30 on the Financial Statements shows the value at
31 March 2005 of contracts for forward sale of the major
currencies in which the Group trades.
Subsidiaries are encouraged to manage all material transactional
foreign currency exposures using forward contracts. Our overall
policy of selling forward net currency receivables provides shortterm predictability but not long term protection from sterling
movements against other currencies. Any items of a more
complex nature require approval by Group Treasury.
Currency translation risks are controlled centrally. The policy is
to manage the translation exposure of major overseas net assets
by seeking to match partially the currency of borrowings withthe currency in which the net assets are denominated. The
objective is to maintain a low cost of borrowings overall whilst
permitting the transfer of the profits of overseas subsidiaries
to the Company through regular dividends. The Group does
not hedge its currency exposure on the translation of profits
earned in overseas subsidiaries.
Earnings and dividends
The profit on ordinary activities before tax of £3.6m included
a profit of £6.8m from continuing operations, exceptional
losses of £5.5m and a net combined profit on disposal andoperating loss of the Medical business of £2.3m. After a total
tax charge of £2.0m the net profit for the financial year
was £1.6m.
Excluding the special interim dividend of 25.0p per share paidon 24 March 2005 the Group’s proposed final dividend of 6.0p
per share (2004 6.0p), payable on 28 October 2005, makes
a total dividend for the year of 8.4p and remains the same aslast year. Ignoring exceptional items and the profit on disposalof the Medical business, the total dividend for the year wascovered 1.3 times by earnings, before goodwill amortisation.

Share price
The closing mid-market price of the ordinary shares at the endof the financial year was £2.49, compared with £2.38 at the
beginning of the year. The increase in share price is in addition
to the special dividend of 25.0p per share paid during the year.
The highest and lowest prices recorded in the financial year
were £2.68 and £1.76 respectively. At the close of trading on
2 June 2005 the share price was £2.39.
Shareholders’ funds and share capital
Shareholders’ funds at the year end were £82.0m (2004 £92.1m),
or £1.70 per share (2004 £1.92 per share). There were no
net borrowings. After provision for the proposed final dividend,
distributable reserves of the Company were £93.7m.
There was no change in the capital structure of the Company
during the year. At the year end the number of shares issued
was 48.3m ordinary shares of 5p each.
0.2m new ordinary shares were issued in the year representing
0.5% of the total issued share capital. Under various employee
share option schemes, set out in Note 24 on the Financial
Statements, a further 3.5m new shares may be issued if
performance conditions, where applicable, are met and theoptions are exercised. This would give a maximum increase
in issued share capital of 7.3%. In addition 1.0m issued sharesare held in trust in relation to the share option schemes.
International Accounting Standards (‘IFRS’)The Group has been assessing the changes that will be required
under IFRS in order to plan the transition from UK AccountingStandards and to be in a position to report its results under
IFRS for the year to 31 March 2006. A transition plan has beenpresented to and approved by the Audit Committee and theBoard. Key areas of focus include intangible assets, in particularresearch and development expenditure, share options, pensions
and financial instruments. The interim results due to be publishedin November 2005 will be reported under IFRS.

Martin Lamaison Financial Director
3 June 2005

15

16

Nigel Keen

Directors and Advisers

Michael Brady

Jonathan Flint

Martin Lamaison

Directors
The following Directors served throughout the year except as noted:
N J Keen FCA, Chairman (and Chief Executive from18 November 2004 until 4 April 2005)
M Brady FREng FRS, Deputy Chairman
M Lamaison FCA, Financial Director and Company Secretary
M A Hughes (from 1 November 2004)
P W L Morgan
B J Taylor
Jonathan Flint was appointed as a Director of the Company
and its Chief Executive with effect from 5 April 2005.

Michael HughesPeter Morgan

Bernard Taylor

ChairmanNigel Keen, 58, Non-Executive Director, joined the Board in
1999. He is Chairman of The Laird Group PLC, Axis-Shield plc
and Deltex Medical Group plc.
Deputy Chairman
Professor Sir Michael Brady, 60, Senior Independent Director,
joined the Board in 1995 and is BP Professor of Information
Engineering at Oxford University. He is also a Fellow of theRoyal Society. He is a founding Director of Guidance and Control
Systems Limited and Mirada Solutions Limited, now part ofSiemens AG, and a Director of ISIS Innovation Limited.

Peter Hill resigned as a Director on 31 May 2004.
Andrew Mackintosh was Chief Executive until 17 November
2004 and resigned as a Director on 31 March 2005.
Board Committees
Audit: Peter Morgan, Chairman; Mike Brady; Bernard Taylor;
Mike Hughes (from 1 November 2004)
Remuneration: Nigel Keen, Chairman; Mike Brady; Peter
Morgan; Mike Hughes (from 1 November 2004)
Nomination: Nigel Keen, Chairman; Mike Brady; Peter Morgan;
Bernard Taylor; Mike Hughes (from 1 November 2004)
Administration: Any two Directors.
Honorary President
Sir Martin Wood OBE FRS Hon FREng DL
Advisers
Auditors: KPMG Audit Plc
Principal Bankers: Barclays Bank PLC; HSBC Bank plc;
Fortis Bank S.A./N.V.
Financial Advisers: JPMorgan Cazenove Limited
Stockbrokers: JPMorgan Cazenove Limited
UK Solicitors: Laytons
USA Counsel: Holland & Knight

Executive Directors
Jonathan Flint, 44, became Chief Executive in April 2005.
He has a BSc in physics from Imperial College and an MBAfrom Southampton University. He has held senior management
positions within Vislink plc, BAE Systems, GEC Marconi andMatra Space Systems.
Martin Lamaison, 61, joined Oxford Instruments plc in 1985
as Group Financial Director. Previously he was with Glaxo Groupplc and BOC Limited.
Non-Executive Directors
Professor Michael Hughes, 60, Independent Non-Executive
Director, joined the Board in November 2004. He is Chairman
of EA Technology Limited and a Non-Executive Director ofSouth Staffordshire Group plc.
Peter Morgan, 69, Independent Non-Executive Director, joined
the Board in 1999. He is Chairman of Technetix Group Ltd andStrategic Thought Group plc and a Director of Hyder plc. He isa member of Kinnect Holdings Ltd and the Council of Lloyd’s
and a Director of the Association of Lloyd’s Members.
Bernard Taylor, 48, Independent Non-Executive Director,
joined the Board in 2002 and is Vice Chairman of JP Morgan
plc. He is a member of The Council of the University of Oxford,
Chairman of ISIS Innovation Limited, and a Non-Executive
Director of TI Automotive Limited. He is also a Fellow of theRoyal Society of Chemistry.

17

Oxford Instruments plc Reports and Financial Statements 2005

A big future for small science
18
20
22
28
34
35
36
38
39
39
40
41
41
42

Report of the Directors
Corporate Social Responsibility Statement
Corporate GovernanceDirectors’ Remuneration Report
Directors’ Responsibilities in relation to the Financial Statements
Report of the Independent Auditors
Accounting Policies
Group Profit and Loss Account – 2005
Group Profit and Loss Account – 2004
Group Statement of Total Recognised Gains and Losses
Balance Sheets
Group Cash Flow Statement
Reconciliation of Net Cash Flow to Movement in Net Funds
Notes on the Financial Statements

18

Report of the Directors

The Directors present their Report and the Financial Statementsof Oxford Instruments plc for the year ended 31 March 2005.
Principal activity and business reviews
The Company is the ultimate holding company of a group of
subsidiary undertakings (‘the Group’) engaged in the research,development, manufacture and sale of advanced instrumentation.
The business, the strategy, the research and development activities
and likely future prospects are reviewed in the Chairman’s
Statement on page 2, the Strategy Statement on page 6, theOperating Review on pages 8 to 10 and the Financial Review on
pages 12 to 15.
Acquisitions and disposals
Details of acquisitions and disposals are set out within the
Financial Review on page 12 and within Notes 15 and 16 on the
Financial Statements.
Results and dividends
The results for the year are shown in the Group Profit and Loss
Account on pages 38 and 39. The Directors recommend a final
dividend of 6.0p per ordinary share, which together with theinterim dividend of 2.4p per ordinary share and special interim
dividend of 25.0p per ordinary share paid on 24 March 2005
makes a total of 33.4p per ordinary share for the year (20048.4p). Subject to shareholder approval, the final dividend will be
paid on 28 October 2005 to shareholders registered at close ofbusiness on 30 September 2005.
Directors
Profiles of all the Directors at the date of this report, including the
Non-Executive Directors, appear on page 16. All the Directors
served on the Board for the whole year under review with the
exception of Andrew Mackintosh who ceased acting as Chief
Executive on 17 November 2004 and resigned on 31 March 2005,
Peter Hill who resigned on 31 May 2004 and Mike Hughes who
was appointed on 1 November 2004. Jonathan Flint was appointed
to the Board and as Chief Executive on 5 April 2005.

Oxford Instruments plc

Directors’ interests
The beneficial interests of the Directors in the Company’s sharecapital, all in fully paid up shares at 31 March 2005 are shown
below. There were no changes in the Directors’ holdings between
the year end and 3 June 2005. Details of share options are shownin the Directors’ Remuneration Report on pages 30 to 32.

Mike Brady
Nigel Keen
Martin LamaisonPeter Morgan
Bernard Taylor

2005
Shares

2004
Shares2,500
85,00051,035
10,000190

2,500
45,00048,751
10,000190

Andrew Mackintosh had an interest in 58,752 shares at 31 March
2005 (2004 58,752).
No Director was beneficially interested in the shares of any subsidiarycompany at any time during the year. In the year to 31 March 2005
no Director had a material interest in any contract of significancewith the Company or any of its subsidiaries.
Insurance cover
For some years the Company has purchased insurance to cover its
Directors and Officers against their costs in defending themselvesin civil legal proceedings taken against them in that capacity andin respect of damages resulting from the unsuccessful defence ofany proceedings. To the extent permitted by UK law, the Company
also indemnifies its Directors and Officers. Neither the insurance
nor the indemnity provided cover situations where the Director
has acted fraudulently or dishonestly.
Share capital
During the year 218,330 new shares were issued (2004 164,063).
Details are set out in Note 24 on the Financial Statements.

Report of the Directors

Oxford Instruments plc

19

Substantial shareholdings
The following are beneficial interests of 3% or more and any non-material interests of 10% or more, of which the Directors have been
notified, of the Company’s issued ordinary share capital, the only class of voting capital, at 3 June 2005:

Aberforth Partners
Britel Fund Trustees Limited (of which 5.7% forms part of Aberforth Partners holding
and 6.6% forms part of the Hermes Pension Management holding)
Co-operative Insurance Society Limited (forms part of Aberforth Partners holding)
Sir Martin and Lady Audrey Wood
Hermes Pension Management
Devon County Council (forms part of Hermes Pension Management holding)
Nottinghamshire County Council (of which 6.6% forms part of Hermes Pension
Management holding)
Railways Pension Trustee Company Limited (of which 5.0% forms part of
Hermes Pension Management holding)
GAM Limited
AVIVA plc
Framlington Investment Management
Legal & General

Payment of suppliers
The Group does not follow a standard payment practice but
agrees terms and conditions for its business transactions with eachof its suppliers. Payment is then made to these terms, subject to theterms and conditions being met by the supplier. Trade creditors of
the Company and the Group’s UK subsidiaries at 31 March 2005
were equivalent to 40 days’ and 41 days’ purchases respectively,
based on the average daily amount invoiced by suppliers to theCompany and Group’s UK subsidiaries during the year.

Shares
000

% of
total

11,109

23.0

5,274
2,413
3,487
3,202
3,202

12.3
5.0
7.2
6.6
6.6

3,402

7.0

3,202
2,910
2,837
2,024
1,617

6.6
6.0
5.9
4.2
3.3

Annual General Meeting
The Notice of the Annual General Meeting to be held on 20
September 2005 is set out on pages 64 to 69 together with
explanatory notes relating to the resolutions.
A resolution to re-appoint KPMG Audit Plc as Auditor will be
proposed at the Annual General Meeting.
By Order of the Board
Martin Lamaison Company Secretary
3 June 2005

20

Corporate Social Responsibility Statement

Introduction
Overall responsibility for developing policies on social, ethical andenvironmental matters and for reviewing their effectiveness lies
with the Board. The Board is aware of the guidelines issued by the
Association of British Insurers on corporate and social responsibility.
As set out below, these matters are addressed currently in several
ways. It is the responsibility of the operational management teams
to ensure that policies are communicated, implemented andmaintained within their particular businesses, whilst taking into
account local legislation and potential risks.
Improving the world environment
Oxford Instruments’ products make a significant contribution tosociety across numerous fields. Our magnet and cryogenic products
are used by scientists to enable ground-breaking research into
the world in which we live. Our products are also at the heart of
hospital MRI body scanners, an increasingly preferred diagnostic
tool used to examine the soft tissue of the human body. As the
non-renewable energy reserves of the world are being consumed,
national governments are combining their resources in a bid tofind alternative, plentiful, energy sources and a Group productcould be a key enabling factor in this programme.
For environmental monitoring, Oxford Instruments provides tools
to determine easily the presence of hazardous substances in
consumer products and the environment. Recent trends toward
the restriction of certain dangerous elements in manufactured
products has led to European Union legislation such as RoHS
(Restriction of Hazardous Substances), WEEE (Waste Electronics
and Electrical Equipment), ELV (End of Life Vehicle) and the
Packaging Directive. X-ray fluorescence is fast becoming thepreferred technique for regulatory compliance screening, andOxford Instruments has a range of products specially designed fora variety of testing methods for a range of restricted hazardous
substances such as lead, mercury, cadmium and chromium.
Working ethically
The Group’s policy is to ensure that in all countries where it operates
it complies with all legislation and recognised codes of practice.
A business malpractice policy is in place worldwide, throughwhich our employees can raise, in confidence, concerns they may
have with any aspect of Company behaviour.

Oxford Instruments plc

A fair and open culture is fostered in which everyone’s views andcontributions are encouraged and respected. The Company values
are used to guide the way in which we work and are an integral
part of our internal communications. We work to ensure thatthose who join the Company understand our culture and style,and business managers are provided with practical guidance
explaining our policies and standards of conduct to ensure thatthese are maintained. Suppliers are rigorously audited prior to being
appointed to ensure that their ethical principles match our own.
Our ethical approach is continuously under review and we lookto further develop it as business needs and practice evolve.
Supporting our employees
Our aim is to ensure there are equal opportunities for all employeeswith no discrimination on account of race, age, gender, sexual
orientation, disability, political or religious beliefs. Ability andcontribution are the determining factors in the selection, training,career development and promotion of all employees. The Group iscommitted to continuing professional development and to managing
actively individual and team performance and developing andvaluing core skills. Having the right skills mix ensures that thebusiness grows through producing innovative products that meetor exceed our customers’ expectations.
It is the Group’s policy to provide competitive remunerationreferenced against external market data, whilst business andindividual performance determine actual remuneration. Salaries
are reviewed on an annual basis. Financial participation in theGroup is encouraged through the Savings Related Share Option
Scheme in the UK and by executive share options granted to
management.
It is the Group’s policy to minimise the need for compulsory
redundancy through redeployment and re-training of employees
where possible. Where an employee becomes disabled in any
way whilst in the employment of Oxford Instruments, the Group
works with them to make the necessary adjustments to ensurethat wherever possible, their employment continues.
The Group shares with its employees, many of whom areshareholders, information on business activities, priorities andperformance through regular team briefings. In addition theGroup distributes to all employees an electronic newsletter“Business News”, which keeps the employees updated on theGroup’s progress. All employees receive a copy of the Annual
Report and Accounts.

Corporate Social Responsibility Statement

Our approach to health and safety
Oxford Instruments is committed to ensuring the health, safety
and welfare of its employees and to the continual improvement
in its health and safety performance. The achievement of this aim
is dependent on the establishment and maintenance of effective
health and safety management systems, integrated into allbusiness processes and line management functions within eachof our businesses. Health and safety is an area where all parts of
the Group can learn from each other. The health and safety
managers from each of our manufacturing businesses in the UK
meet regularly to share knowledge and best practice.
All businesses within the Group recognise the importance of
keeping all employees updated on health and safety issues, andbringing to the notice of their employees a written statement of
their policy relating to health and safety at work. In addition
employees are kept informed of current issues through staff
notice boards and bulletins. Employees are encouraged to submit
observations or concerns relating to improvements that can bemade in work conditions and practices. In order to maintain highstandards throughout the Group training courses are regularly run
and risk assessments are conducted to ensure staff are working in
a comfortable and safe environment. Action is taken when required.
Overall the number of days lost during the year through work
related occupational ill health as well as the recorded accidents
were both lower than in the previous year.
Audits of health and safety procedures are undertaken at all major
locations by external assessors on a regular basis. All businesses
report to the Board on a regular basis progress with their healthand safety objectives and goals, including actions taken.
Minimising our environmental impact
As with all businesses the Group’s products, activities and services
impact on the environment. Oxford Instruments is committed totaking steps to reduce any adverse impacts and thereby deliver
continual improvement in its environmental performance.
Systems are in place to meet the requirements of all applicable
environmental laws and regulations, and the Group seeks to
reduce waste and environmental impact by the adoption of
appropriate practices in its operations.

Oxford Instruments plc

All businesses report on environmental issues and compliance withlocal legislation. Action is taken to correct any unsatisfactory
issues disclosed by these reviews.
As part of the Group’s ongoing development, ways of improving
efficiency so as to minimise the use of materials, energy andgeneration of waste and harmful emissions are sought constantly.
There are a number of recycling initiatives operated at site level
throughout the Group. Examples include the recovery of helium
gas, the encouragement of staff to recycle paper and packaging
including bottles and cans, reduction in energy consumption
through the use of timing switches and increased use of telephone
and video conferencing instead of travel.
Community involvement
For many years Group businesses have contributed and supported
local charities and community activities. Total donations made by
the Group during the year amounting to £30,000 (2004 £23,000)
were made to a range of community organisations. It is theGroup’s policy to prohibit donations to any political party or similarorganisation and therefore no donations to political parties were
made.
Employees are encouraged to contribute to local charities using theGive-As-You-Earn scheme and the Company makes an additional
donation to the chosen charity. The Group also regularly provides
work placement experience for students and in the year ended
31 March 2005 spent £65,000 providing student sponsorshipin the UK. The Group also sponsors a number of international
awards including the prestigious Sir Martin Wood Prize throughthe Millennium Science Forum in Japan. As well as a cash prize,
the winner receives a unique opportunity to lecture at a numberof UK universities.

Nigel Keen Chairman
3 June 2005

21

22

Corporate GovernanceIntroduction
The Board is committed to ensuring that high standards ofcorporate governance are maintained by Oxford Instruments plc.
The Board endorses the main and supporting principles and theprovisions set out in the Combined Code on Corporate
Governance of the Financial Reporting Council (the Code) whichapplied to the Company for the year commencing 1 April 2004
and complies with the Code, except as detailed below.
During the year, the Board conducted a full review of its corporate
governance policies and procedures to reflect the impact of the
Higgs Review of the Role and Effectiveness of Non-Executive
Directors, the Smith Report on Audit Committees and the Codeissued in July 2003. As a result of this review existing Board
procedures and practices were strengthened. The Board’s policies
and procedures are documented in a Board Reference File thatsets out the roles and delegated authorities applying to the
Directors, the Board and the Board Committees.
Compliance
The Board considers that, throughout the period under review,
the Company has complied with the provisions recommended in
Section 1 of the Code, except where it has been explained in the
Director’s Remuneration Report on pages 28 and 29 in respect ofprovisions B.1.1 and B.1.6. These provisions relate to the inclusionof cash bonuses for pension purposes and the length of notice inservice contracts. At 30 June 2005 the Company was compliant
in respect of length of notice in service contracts for Executive
Directors, and the recently agreed service contract for the newly
appointed Chief Executive, Jonathan Flint, is compliant as it has a
notice period of one year and because cash bonuses are excluded
from pensionable salary.
Board of Directors and management structure
Structure
The Company is headed by the Board, which comprises the
Chairman, four other independent Non-Executive Directors and two
Executive Directors. For Board biographies and details of length ofservice, please see page 16. All the Directors have written lettersof appointment that have been approved by the Board.
Nigel Keen is Non-Executive Chairman of the Board and for partof the year was also Chief Executive. Nigel Keen became Chief
Executive on 18 November 2004 and served until 5 April 2005
when Jonathan Flint was appointed.
The division of responsibilities between the role of Chairman and theChief Executive has been set out in writing and agreed by the Board.
Mike Brady, the Company’s Deputy Chairman, has been Senior
Independent Director since 2001.

Oxford Instruments plc

Executive Management TeamThe Board delegates management of the business to the Executive
Management Team, headed by the Chief Executive. The othermembers of the Executive Management Team comprise the Group
Financial Director, the Managing Directors of the Analytical andSuperconductivity businesses, the Managing Directors of theInnovation business group and the Group’s Japanese subsidiary,
the Group-based Directors of Supply Chain and Customer Service
and of Human Resources.
Operation of the Board
The Board is responsible to shareholders for delivering sustainable
shareholder value through entrepreneurial leadership within aframework of controls for managing risk. The Board sets the Group’s
strategy; maintains the policy and decision making framework inwhich this strategy is implemented; ensures that the necessaryfinancial 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 in governance matters.
The Board meets on a regular basis, at least ten times a year, andotherwise as required to ensure satisfactory execution of its duties.
Of the ten regular meetings, typically eight are held at Company
locations either in the UK or US, and the remaining two are heldby telephone conference.
In November 2004 the Board approved a revised Board ReferenceFile which details the way the Board operates, including aschedule of matters reserved to the Board for decision. The Board
retains control over strategy, investments and capital expenditure,and limits the decisions which can be taken by management in
the areas of governance, strategic and financial management
and reporting, capital structure, corporate actions, mergers andacquisitions, contracts and other commitments, litigation andregulatory proceedings, remuneration and share plans. Where theBoard delegates authority to management it is on a structured
basis, which requires that proper management oversight exists at
the appropriate level. Within management, the Executive
Management Team, which meets at least once a month, either
physically or by telephone conference, focuses on group-wide
performance and risk management. Each of the individual strategic
businesses holds monthly board meetings.
Board meetings involve reviews of financial and business performanceagainst the plan approved by the Board and of risk management,
both at group level and also for each of the strategic businesses.
On a rotating basis, the Board receives presentations from thebusiness groups and key functional areas enabling it to explore
specific issues in more detail. Any matter requiring a decision by
the Board will be supported by a pre-circulated paper analysing
all relevant aspects of the proposal.

Corporate Governance

Board papers are distributed in advance of the relevant meetingin sufficient time to allow the Directors to prepare for meetings.
Minutes of Committee meetings are circulated to the relevant
Directors. In the very few instances when a Director has not beenable to attend Board or Committee meetings, his comments on
the papers to be considered at the meeting are communicated inadvance to the relevant Chairman.
The Non-Executive Directors meet without the Executive Directors
annually with the Chairman leading these meetings. The NonExecutive Directors also meet, annually, without the Chairman inattendance. The Senior Independent Director chairs these meetings.
The Company Secretary and Assistant Company Secretary are
responsible for implementing Board procedures and for advising
the Board on corporate governance matters.
Board balance and independence
The Code requires the Board should be of sufficient size that thebalance of skills and experience is appropriate for the requirementsof the business and that there is a balance of Executive and NonExecutive Directors such that no individual or small group ofindividuals can dominate the Board’s decision making. The
composition of the Board and the combination of diverse
backgrounds and expertise of the Non-Executive Directors meetsthese principles.
In the opinion of the Board each of the Non-Executive Directors
is currently independent under the guidelines set out in the
Combined Code. This opinion is based on current participationand performance on both the Board and Board Committees
including consideration of the length of service at Oxford
Instruments plc.
Mike Brady has been a member of the Board since June 1995. He
is BP Professor of Information Engineering at Oxford University andis one of the UK’s leading engineers. He brings a depth of technicalexpertise to Board discussions. The breadth of his professional andbusiness interests unrelated to the Group or other members of
the Board; his continual constructive probing from the technicalaspect of proposals being considered by the Board; the compositionof the Board generally and the fact that he qualifies as independent
in all other criteria referred to in the Combined Code, leads theBoard to conclude that it is appropriate that he continue in officeand that he should properly be considered as independent.
The Chairman, Nigel Keen who fulfilled the independence criteria
at the time of his appointment as set out in the Code, is currently
Chairman of the Remuneration Committee as the Board considers
that in a small company it is essential that the Chairman be
involved in setting remuneration policy.

Oxford Instruments plc

Appointments to the Board
There is a formal, rigorous and transparent procedure for theappointment of new Directors to the Board, the prime responsibility
for which is delegated to the Nomination Committee. Eachappointment process begins with an evaluation of the balance ofskills, knowledge and experience existing on the Board that is
effected through a series of one-on-one meetings between theCommittee Chairman and Directors. An external search consultant
is then appointed and a description of the role and capabilities
required is prepared using the information gathered. The consultant
draws up a list of potential candidates and a shortlist is then createdthrough consultation with the Chairman and the Chief Executive.
Candidates meet with the Chairman and the Senior Independent
Director and a final selection of potential appointees meets each
Director individually. Following these meetings, the Nomination
Committee meets formally to consider each Director’s feedback
and to finalise a recommendation to the Board concerning any
appointment.
On joining the Board, new Directors are given an induction
programme including site visits and meetings with senior
management. This induction is supported by briefing papers
prepared by the Company Secretary. Major shareholders areprovided with an opportunity to meet any new Non-Executive
Directors.
This process was followed in the recent search and subsequentappointment of both Mike Hughes, as a Non-Executive Director
and Jonathan Flint as Chief Executive.
Term of appointment of Non-Executive Directors
Each Non-Executive Director is appointed for an initial term of three
years. The requirement to submit Directors for reappointment at
regular intervals is met by applying the Company’s articles ofassociation. These require that at each Annual General Meeting:(1) not less than one-third of the Directors who are subject toretirement by rotation must retire, and (2) any Director has toretire who was not appointed at either of the two previous
Annual General Meetings and who has served as a Director for
more than two years since appointment or last reappointment.
In addition Directors who have been appointed since the previous
Annual General Meeting have to resubmit themselves for election
at the first Annual General Meeting following their appointment.

23

24

Corporate Governance

Board development and evaluation
Board development
On appointment Directors undertake an induction process which
is designed to develop knowledge and understanding of theCompany’s business, through visits to various Group operatingsites, discussion of relevant technology as well as productdemonstrations, briefings from management and familiarisation
with investor perceptions of the Group.
The operating businesses’ senior management teams present to
the Board on a regular basis and a series of opportunities exists
throughout the year for informal contact. Directors are free tomeet individual members of the senior management team andhave done so during the year under review. Throughout the year,
Directors are encouraged to attend any of Oxford Instruments
events, exhibitions and awards.
The Company Secretary and Assistant Company Secretary act asadvisers to the Board on matters concerning governance andensure Board procedures are complied with. All Directors haveaccess to this advice and a procedure also exists for Directors totake independent professional advice at the Company’s expense.
No such advice was sought during the year. The appointment,
removal and remuneration of the Company Secretary are mattersfor the Board as a whole.
Board evaluation
In the year ended 31 March 2005 the Board completed its initialannual effectiveness evaluation exercise, including a specific reviewof the effectiveness of its principal committees. This was an internal
exercise using a detailed questionnaire completed by all Directors
in relation to the key areas of Board 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, Board induction and training, internal
control and risk management. The performance of individual
Non-Executive Directors was evaluated by the Chairman and the
Executive Directors in conjunction with the Non-Executive
Director himself. The Non-Executive Directors, led by the Senior
Non-Executive Director, have considered the performance of the
Chairman, taking into account the views of the Executive
Directors. The Chairman has considered the performance of the
Executive Directors.
Attendance at meetings
No one other than the Committee chairman and members isentitled to be present at a meeting of the Nomination, Audit or
Remuneration Committee, but others may attend by invitation of
the Committee.
No Director votes on matters where he has a conflict of interest.
Further details of the individual Committees’ activities aredescribed below.

Oxford Instruments plc

The following table sets out the frequency of, and attendance at,
Board and principal Board Committee meetings for the year to 31
March 2005:
Main
Board

Nomination
Committee

Remuneration
Committee

Audit
Committee

No of meetings held

11

4

5

5

Nigel Keen
Andrew Mackintosh
Martin Lamaison
Mike Brady
Peter Hill
Peter Morgan
Bernard Taylor
Mike Hughes 2

11
6
11
11
–
11
11
6

4
31
31
4
–
4
3
1

5
–
21
5
–
5
31
3

51
31
51
5
–
5
4
2

1 in attendance by invitation of the Committee
2 appointed 1 November 2004
Board Committees
The Board is supported by the following Committees: Nomination,
Remuneration, Audit and Administration. Membership of theBoard Committees is set out on page 16. Membership of Board
Committees is determined by the Board and is reviewed regularly.
The written terms of reference of the Board Committees areavailable from the Company on request and will be on display at
the Annual General Meeting.
Nomination Committee
The Nomination Committee comprises independent Non-Executive
Directors, under the chairmanship of the Chairman of the Company.
The Nomination Committee is responsible for assisting the Boardin the formal selection and appointment of Directors and considers
succession planning for the Board. It also considers potential
candidates and recommends appointments of new Directors to
the Board. The appointments are based on merit and against
objective criteria including the time available, and commitmentthat will be required of, the potential Director.
The Nomination Committee also recommends to the Board
whether a Non-Executive Director’s appointment should be
renewed for a further three years at the end of each three year
term, taking into account the performance of the individual.
The Board is aware of the other commitments of its Directors
and is satisfied that these do not conflict with their duties as
Non-Executive Directors of the Company.
Remuneration Committee
The Remuneration Committee is responsible for recommending
to the Board the remuneration packages for Executive Directors andthe bonus and share option strategy for the Group’s executive
management. Independent professional advice is sought when
considered necessary. Under its terms of reference the Chairmanof the Board may be Chairman of the Committee. The Chairmanof the Board, Nigel Keen, who fulfilled the independence criteria
at the time of his appointment as set out in the Code, is currently
Chairman of the Remuneration Committee as the Board considers
it essential that the Chairman be involved in setting remuneration
policy. The members of the Committee are appointed by the Board.
The Board as a whole is responsible for fixing the remunerationof the Non-Executive Directors, including the Chairman.

Corporate Governance

The Chief Executive is invited to attend Remuneration Committee
meetings as deemed appropriate, for example when consideration
is being given to the performance of other Executive Directors andon significant group-wide changes in salary structure and terms
and conditions affecting other employees at senior executive level.
Further details of the Remuneration Committee are included in
the Directors’ Remuneration Report set out on pages 28 to 33.
Audit Committee
The primary objective of the Audit Committee is to assist the Boardof Directors in fulfilling its responsibilities relating to externalfinancial reporting and associated announcements; oversightof the external audit process including consideration of the
independence of the Group’s external auditors; the resourcing
and plans of the Internal Audit function; and the adequacy andeffectiveness of the control environment.
The Audit Committee’s terms of reference include all matters
indicated by the Combined Code. The terms of reference areconsidered annually by the Audit Committee and are thenreferred to the Board for approval. The Audit Committee structure
requires the inclusion of one member with relevant recent financial
experience, currently the Committee Chairman, and expects all
Audit Committee members to be financially literate.
The Audit Committee is chaired by Peter Morgan. The Chairmanof the Board and members of senior management such as theChief Executive and Financial Director are invited to attend all orpart of any meetings or to present such reports as are required
for the Committee to discharge its duties. The external auditors
are invited to attend meetings of the Committee on a regularbasis, including once at the planning stage before the audit andonce after the audit at the reporting stage. At least once a year
the Committee meets with the external auditors without the
Executive Directors present.
The Audit Committee Chairman reports the outcome of meetings
to the Board and the Board receives minutes of all Audit Committee
meetings. The Audit Committee has unrestricted access to Group
documents and information, as well as to employees of theGroup and the external auditor.
The Committee reviews the interim and annual financial statements,
together with the related Stock Exchange announcements, having
received information on the accounting principles, policies andpractices adopted in the Group’s accounts; changes proposed tothose principles, policies and practices; significant accounting
issues; litigation and contingent liabilities affecting the Group;
potential tax contingencies and the Group’s compliance withstatutory tax obligations.
The Audit Committee is responsible for the development,
implementation and monitoring of the Group’s policy on external
audit. The Audit Committee reserves oversight responsibility formonitoring the independence and objectivity of the external
auditors and compliance with ethical and regulatory requirements.
The policy states that the external auditors are jointly responsible
to the Group Board and the Audit Committee and that the Audit
Committee is the primary contact.

Oxford Instruments plc

A review takes place annually of the performance of the external
auditors following the completion of the annual audit.
To assess the effectiveness of the external auditors, the Audit
Committee reviews:
l The external auditors’ fulfilment of the agreed audit plan andvariations from the planl The robustness and perceptiveness of the auditors in theirhandling of key accounting and audit judgementsl The external auditors’ comments in respect of internal controls

To fulfil its responsibility regarding the independence of theexternal auditors, the Audit Committee reviews the changes in key
external audit staff in the external auditor’s plan for the current
year; the arrangements for day-to-day management of the audit
relationship; a report from the external auditors describing theirarrangements to identify, report and manage any conflicts ofinterest and the overall extent of non-audit services provided by
the external auditors, in addition to the case-by-case approval of
the provision of non-audit services by the external auditors.
Details of the audit fees, together with fees for non-audit services
for the year, are set out in Note 5 on the Financial Statements.
In November 2002 the Audit Committee was briefed on therecommendation of management to appoint KPMG Corporate
Finance to advise on the disposal of the Medical business following
a formal selection process. The Committee considered andsubsequently approved the Executive Directors’ recommendation.
The Audit Committee is required to assist the Group Board to fulfil
its responsibilities relating to the adequacy and effectiveness ofthe control environment. This includes consideration of theadequacy of the resourcing and plans of the Internal Audit function.
To fulfil these duties the Committee reviews:
l The Group’s risk framework and risk policies
l The external auditors’ annual internal control reportl The Internal Audit function’s terms of reference, reporting lines

and access to the Audit Committee and all members of theBoard, and its plans and achievement of the planned activityl Internal Audit reports on key audit areas and significant control

environment deficiencies
l Reports on the systems of internal controls and risk managementl Reports on fraud perpetrated against the Group and current

fraud trends
The Group’s whistleblowing policy contains arrangements for the
Audit Committee to receive, in confidence, complaints on
accounting, risk issues, internal controls, auditing issues andrelated matters from the Group’s employees. During the year nosuch complaints were received.
Administration Committee
The Administration Committee consists of a minimum of two
Directors and deals with items of a routine and administrative
nature.

25

26

Corporate Governance

Investor relations
The Company places considerable importance on regularcommunications with shareholders, including employees, asignificant number are also shareholders of the Company. The
Company has an ongoing programme of dialogue and meetings
with its shareholders, where a wide range of relevant issues
including strategy, performance, management and governance are
discussed. In the year, a ‘Business Briefing’ was held for analysts
and shareholders focusing on Oxford Instruments’ businesses andhighlighting current product and development activities. This
presentation was posted on the Company website for the benefit
of investors who were not present at the briefing.
All investors are encouraged to participate in the Annual General
Meeting at which the Chairman and Chief Executive present an
overview of the Group’s business and review the results and makecomment on strategy and current business activity.
The Non-Executive Directors meet informally with shareholders
both before and after the Annual General Meeting, and respondto shareholder queries and requests. The Chairman makes himself
available to meet any significant shareholders, as required.
All Company announcements are posted on the Company website,www.oxford-instruments.com, as soon as they are released.
Annual General Meeting (AGM)
The Board welcomes the move towards a more constructive useof Annual General Meetings and regards the AGM as a principal
opportunity to meet private shareholders. At its AGM, the Company
complies with the provisions of the Combined Code relating to
the disclosure of proxy votes, the separation of resolutions andthe attendance of Committee Chairmen. The Company arranges
for the Annual Report and Accounts and related papers to beposted to shareholders so as to allow at least 20 working days forconsideration prior to the AGM. The next AGM will be held on
20 September 2005.
Risk management
Within the Group there is an ongoing embedded process for
identifying, evaluating and managing the significant risks facedby the Group. Day-to-day management of this process has beendelegated by the Board to the Executive Directors.
A standard process is in place throughout the Group that requires
the senior management of each business to identify significant
business risks and to classify them both as to probability andpotential impact. Once identified, mitigating action, where possible,
is decided and responsibility within the management teamassigned. On a regular basis each business reviews and updates
its risk summary which is then reported to the Chief Executive. If
a material risk changes or arises, the Managing Director of thebusiness reports this in writing to the Chief Executive at whichtime there is a discussion on the adequacy of the mitigating
actions taken. Details of all major risks identified and the mitigating
actions in place are reported to and reviewed by the Board.

Oxford Instruments plc

In addition, the Board considers risks to the Group’s strategic
objectives which are not addressed within the Group’s businesses
and develops appropriate actions to manage and mitigate theserisks.
Internal control
The Board is ultimately responsible for the Group’s system ofinternal controls and for reviewing its effectiveness. However,such a system is designed to manage rather than eliminate therisk of failure to achieve business objectives, and can provide only
reasonable and not absolute assurance against material misstatement or loss. Day-to-day responsibility for maintaining adequate
systems of internal control is delegated to the Executive Directors.
During the year the Directors have reviewed the effectiveness of
the Group’s system of internal controls. These controls include
financial, operational, compliance and risk management.
The key components designed to provide effective internal control
within the Group are as follows:
l a formal schedule of matters is reserved to the Board for

decision with appropriate delegation of authority throughout
the management structure;l the Group’s management structure is based on the identificationof separate businesses for each of the Group’s activities; theheads of these businesses together with the Chief Executive,
the Group Financial Director and certain other members of
the senior management team form the Group’s Executive
Management Team; there are clearly defined lines of management
responsibilities at all levels up to and including the Group
Board; the Group’s accounting and reporting functions reflect
this organisation;l financial executives within Group businesses report to theirown operational head but there is also a well established andacknowledged functional reporting relationship through to
the Group Financial Director;l the Board reviews strategic issues and options formally once a

year during the annual strategic planning process and during
the year as appropriate;
l annual budgets are prepared for each of the Group’s businesses

which include monthly figures for turnover, profit, capital
expenditure, cash flow and borrowings; the budgets arereviewed through the Group management structure andresult in a Group financial budget which is considered andapproved by the Board;l the businesses prepare monthly management accounts which

compare the actual operating result with both the budget andthe prior year; the businesses also prepare rolling reforecasts
for orders, turnover, operating profit and cash covering at least
the next six months in detail and from time to time a further
six months in summary; both are reviewed by the Board
monthly;Corporate Governancel the Board approves all acquisition and divestment proposals,

and there are established procedures for the planning,approval and monitoring of capital expenditure;l for all major investments the performance of the first twelve

months against the original proposal is reviewed by the Board;l the Board maintains an internal control framework defining foreach control area, the reporting mechanics and the responsibility;
l each Group site, except for representative sales offices, submits

a self assessment internal control questionnaire every six months;
l internal audit is carried out through a system of regularreviews of the internal controls at each site by accountantsfrom other parts of the Group and in Japan and China, due tolanguage issues, by the local external auditors;
l work performed is based on a standardised Group format but

involves random testing, together with a review of the internal
control questionnaire;
l where required, action plans are drawn up by the businesses

in conjunction with the Group Financial Director to remedy
any significant control weaknesses that are identified fromcompletion of the internal control questionnaire or as a resultof the internal audit; checks on the progress of the action
items arising are then made; the results of audit reviews arereported to local management, the Group Financial Director
and the Audit Committee;
l the Board receives regular updates on treasury, tax, property,

insurance and health and safety matters;
l authorisation limits are set at appropriate levels throughout

the Group; compliance with these limits is monitored by theGroup Financial Director and internal audit; andl all requests to quote for substantial fixed price contracts arereviewed by a multi-disciplinary team to assess both technicaland financial risk and to fix an appropriate balance between
risk and reward. However, no procedure can guarantee theavoidance of losses on fixed price contracts of a technicalnature.

Martin Lamaison Company Secretary
3 June 2005

Oxford Instruments plc

27

28

Directors’ Remuneration Report

The Directors’ Remuneration Report sets out the Company’s policyon the remuneration of Executive and Non-Executive Directors
together with details of the Directors’ remuneration packages
and service contracts.
Remuneration Committee
Details of the composition of the Remuneration Committee are setout on page 16. The principal function of the Committee is todefine and communicate to the Executive Directors the Company’s
policy on the remuneration, benefits and terms of employment foreach Executive Director. As part of this process, the Committee
aims to provide a formal and transparent framework for thedevelopment of remuneration policy for the Executive Directors
and for fixing the remuneration packages of individual Directors.
The Board, as a whole is responsible for fixing the remunerationof the Non-Executive Directors, including the Chairman.

Oxford Instruments plc

Service contracts
Each of the Executive Directors has a service contract. Company
policy is to enter into service contracts with Executive Directorsthat have a notice period of one year.
In the past the service contracts in place for the Executive
Directors have not complied with the Remuneration Committee’s
current policy. As stated in last years Directors’ Remuneration
Report steps were taken to reduce the two year notice period inplace for older contracts progressively to one year and by 30 June
2005 Martin Lamaison’s notice period will be a maximum of one
year. During the year Andrew Mackintosh, the only other Director
with a contract containing a two year notice period, ceased to bea Director of the Company.
The Non-Executive Directors do not have service contracts but
their appointments are subject to review every three years andthe rotation provisions of the Company’s Articles of Association.

No Director is involved in deciding his own remuneration.
The Committee also reviews the granting of share options (both in
the approval of new long term incentive schemes and significant
changes to existing schemes) and general increases in salaries andbonus arrangements for staff and the Executive Directors, with
input as required from the Chief Executive in respect of the Group
Financial Director and senior management. The Chairman maintains
contact with principal shareholders regarding remuneration policy
as appropriate.
Over the past year the Committee appointed New Bridge Street
Consultants to provide independent external professional advice
on the Executive Directors’ remuneration and option schemes andthe Chairman’s salary.
Remuneration policy
The Remuneration Committee has established a policy on the
remuneration of Executive Directors and the Board has establisheda policy for the remuneration of the Chairman and the NonExecutive Directors for the current and subsequent financial years.
Executive Directors
The Company has an incentive-driven Executive Director
remuneration policy that promotes the Group strategy and seeks
to align the interests of directors and shareholders and reflects theperformance of each Director. A significant proportion of total
potential rewards is provided through performance-based schemes.
Overall the remuneration package aims to be appropriate to attract,
motivate and retain high calibre executives. The Remuneration
Committee’s policy on early termination is to provide compensation
which reflects the Company’s contracted obligations, whilst
recognising the principle of mitigation of damages.

Non-Executive Directors
The Company’s policy is to appoint Non-Executive Directors to
the Board with a breadth of international skills and experience thatis relevant to Oxford Instruments’ global business. Appointments
are made by the Board upon the recommendations and advice
from the Nomination Committee.
Executive Directors’ remuneration
The Executive Directors receive base salary, annual performance
awards, pensions and other benefits, and long term performance
awards. Base salaries, benefits and performance awards of the
Executive Directors are reviewed annually by the Remuneration
Committee. Base salaries are determined with reference to an
appropriate comparator group of companies, which is reviewed
annually. Consideration is also given to the Director’s experience,
performance and responsibilities. Benefits comprise provision of a
car allowance, life, disability and health insurance, participation
in a bonus scheme and a pension.
For Executive Directors appointed up to April 2001, a contributory
pension at the age of sixty of up to two thirds of pensionable salaryis provided, related to the length of service, together with adependants’ pension on death in service or retirement. Executive
Directors appointed since April 2001 are entitled to Company
contributions to a defined contribution scheme of their choice inaccordance with contractually agreed contribution rates.

Directors’ Remuneration Report

Oxford Instruments plc

Emoluments of the Executive Directors showing the breakdown between base and performance related remuneration:
Salary£000

Benefits£000

Performance related
remuneration£000

Termination
payment
£000

2005
£000

Total remuneration
2004
£000

Nigel Keen 1
Andrew Mackintosh 2
Martin Lamaison

120
159
200

–
8
13

–
–
119

–
525
–

120
692
332

–
388
235

Total

479

21

119

525

1,144

623

1 This reflects payments to Imperialise Limited as described below in respect of Nigel Keen’s service as Chief Executive between 18
November 2004 and 31 March 2005.
2 Andrew Mackintosh’s salary and benefits to 17 November 2004.
Annual Performance Incentive Bonus
The annual bonus is set at a percentage of base salary on a sliding
scale with a maximum in normal circumstances of 75% of basesalary. Bonuses are earned primarily on the achievement of target
economic added value, with further elements payable on meeting
specific personal goals and on comparative share price performancein the financial year. Bonuses are paid after the completion of thestatutory annual audit.
The Executive Directors’ bonus scheme for the year ended 31
March 2005 set performance targets which would pay bonuses
for on target performance at the rate of 50% of base salary for
Andrew Mackintosh and 35% of base salary for Martin Lamaison.
Performance in excess of the targeted economic added value
would attract incremental payments.
The Remuneration Committee considered that Andrew Mackintosh’s
performance in the period from 1 April 2004 to 17 November 2004
had not met the required performance targets and he would
therefore not be eligible for a bonus. Following the successful
disposal of the Medical business at a higher than expected price,
the Remuneration Committee decided to provide Martin Lamaison
with an exceptional bonus equal to 60% of his salary.
Pension Plans
Oxford Instruments Pension Scheme
All employees, including the Company’s Executive Directors, whowere engaged before April 2001 were entitled to become membersof the defined benefit Oxford Instruments Pension Scheme. Thisis a contracted-out contributory pension scheme which provides
benefits based on earnings at or near retirement and is fundedthrough a separate trust. Salary eligible for pension under thisscheme is defined as base salary received in the last tax year plus
average annual variable earnings received in the last five consecutive
scheme years, provided that the annual variable earnings do not
exceed 50% of base salary. Variable earnings for the Executive
Directors are cash bonuses only, which are deemed an integral
part of their remuneration.
With effect from 1 April 2004 the Company contributed to thescheme at a rate of 14.5% of pensionable salary. Employees canchoose to contribute at rates of 6.0%, 7.0%, 9.5% or 10.5% of
pensionable salary, with the higher rates earning benefits at thefaster rate of 2% per year (1/50ths) of service instead of 1.67%(1/60ths). The additional 1.0% paid by those contributing 7.0%
and 10.5% entitle the member to take all benefits at the lower ageof 60. However the normal retirement age for all UK employees
is 65 and continued accrual of service in the pension schemes cancontinue until 65.

Early retirement is possible on a reduced pension from age 50
with the consent of the Company. Pensions in payment are
guaranteed to increase by a level of inflation up to a maximum
of 3% per year on pension earned before 1 April 1997 and amaximum of 5% per year thereafter, subject to any applicablestatutory requirements.
For death before retirement a spouse’s pension of one half of themember’s prospective pension is payable plus a capital sum of
three times the member’s pensionable salary and a refund of themember’s contributions. For death after retirement a spouse’s
pension of one half of the member’s pension is payable plus thebalance of a five year guarantee if applicable. In the event ofdeath after leaving service but before commencement of pension
a spouse’s pension of one half of the accrued preserved pension
revalued to the date of death is payable plus a refund of themember’s contributions. In all circumstances children’s allowances
are also payable if applicable.
Following the closure of the Company’s defined benefit scheme
to new members in April 2001, Executive Directors appointed now
are offered membership of the Oxford Instruments Stakeholder
Plan, a defined contribution scheme or the Executive Director canelect that contributions be made into a defined contribution planof his or her choice. Under this arrangement only base salary is
pensionable.
Oxford Instruments 1998 Executive Pension Scheme
The Oxford Instruments 1998 Executive Pension Scheme is adefined contribution ‘top-up’ arrangement providing a lump sum
at retirement and also an additional capital sum of one times themember’s pensionable salary for death before retirement. Only
the Company makes contributions to this scheme. The scheme is
not currently available to new members.
Martin Lamaison and Andrew Mackintosh are members of the
Oxford Instruments Pension Scheme and the Oxford Instruments
1998 Executive Pension Scheme. The Government’s proposedchanges to the tax regime applying to occupational pension
schemes to take effect from 6 April 2006 are still under review.
Under the terms of his service contract Jonathan Flint can choose
to join the Company’s Stakeholder Plan or elect that the Company
contributes to a pension plan of his own choice. The Company
will contribute a maximum of 14% of base salary if matched bya contribution of 10% from him. Cash bonuses are excluded
from contribution calculations.

29

30

Directors’ Remuneration Report

Oxford Instruments plc

The following table shows for the Oxford Instruments Pension Scheme the compulsory member’s contributions, the increase in accrued
entitlement during the year in excess of inflation and the accrued entitlement at the end of the reporting period, together with thetransfer value of the accrued pensions:

Age as at
31 March 2005
Years

Accrued yearsof service
Years

Member’s
contributions
during the year
£000

Additional annual
pension earned
during the year
£000

Additional annual
pension earned
during the year inexcess of inflation£000

Accrued annual
entitlement
at year end
£000

49
61

20
20

29
19

16
7

13
5

109
73

Andrew Mackintosh
Martin Lamaison

Andrew Mackintosh
Martin Lamaison

2005
£000

Transfer value of accrued pension
2004
£000

Change in transfer value over year
less member contributions
£000

1,265
1,306

1,002
1,190

234
97

Company contributions to the Oxford Instruments 1998
Executive Pension Scheme during the year were £19,000 (2004£16,000) and £17,000 (2004 £16,000) for Andrew Mackintosh
and Martin Lamaison respectively.
Share Incentive Schemes
The Company has a number of share option schemes for the
incentivisation of Executive Directors and employees of the Group:
l the Executive Share Option Scheme (ESO);l the Senior Executive Long Term Incentive Scheme (SELTIS);l Individual Options (Individual); andl Save-As-You-Earn Scheme (SAYE).

The ESO scheme is the principal vehicle used to incentivise the
Executive Directors and senior management. The SELTIS andIndividual schemes are used at the discretion of theRemuneration Committee. The SAYE scheme is open to all UK
permanent staff employed for at least 6 months on the date ofinvitation to join the scheme.
ESO schemes (1995 and 2001)
These shareholder and Inland Revenue approved schemes grant
options over new shares to be issued at the time of exercise andalso over existing shares. Options granted to an individual inexcess of £30,000 are classified as unapproved options.
All future awards of ESO share options will be made under the
2001 ESO scheme. The aggregate market value of shares overwhich options under the 2001 ESO scheme may be granted to anindividual participant in any financial year may not normallyexceed twice base salary. However, in exceptional circumstances
the limit is three times base salary, provided that to the extent
an individual is granted options in excess of the standard limit,
there will be a corresponding reduction in the number of shares
under options granted in the next two years. For the purposeof calculating these limits, the Company’s share price will beaveraged over the three months before the options are granted.

Options are granted at the middle market price on the last dealing
day prior to grant and are exercisable after three years but not
more than ten years from the date of grant.
Performance conditions
1995 ESOOver a period of three consecutive years the growth in earnings
per share (EPS) of the Company expressed as a percentage to
exceed the growth in the Retail Price Index (RPI) expressed asa percentage plus a further 2% per year over the same period.
2001 ESO
The performance conditions are based equally on the
Company’s total shareholder return (TSR) performance and on
its EPS performance (adjusted to exclude exceptional items
and goodwill amortisation).
The Committee considers that the combination of TSR andEPS performance conditions will encourage shareholder value
creation and improved financial performance. In selecting
appropriate targets the Committee takes into account both
the recent performance of the Company and its projections
for future growth.
When the 2001 ESO scheme was established theRemuneration Committee set the initial conditions for the fullvesting of options at 30% per year growth in EPS and TSR.
This was considered consistent with the recovery phase of thebusiness. It was intended that over time the performance
conditions would revert to a lower target, appropriate to amore stable business. For 2002 and 2003 full exercise of
options requires 25% and 20% per year growth respectively
in EPS and TSR. For 2004 onwards 15% growth in EPS andTSR is required. Details are set out in the tables opposite.

Directors’ Remuneration Report

Oxford Instruments plc

The options granted in September 2001 will become exercisable proportionately by reference to the levels of both TSR and EPS target
growth performance achieved as follows:
EPS/TSR growth performance

Proportion of total options exercisable against each criteria

Average of 30% or more p.a.

50%

Average of 15% – 29.99% p.a.

Pro-rata between 12.25% and 50%

Average of 15% p.a.

12.25%

Less than an average of 15% p.a.

Nil

For the options granted in July and December 2002 both the TSR and EPS target performance levels are:
EPS/TSR growth performance

Proportion of total options exercisable against each criteria

Average of 25% or more p.a.

50%

Average of 12.5% – 24.99% p.a.

Pro-rata between 12.25% and 50%

Average of 12.5% p.a.

12.25%

Less than an average of 12.5% p.a.

Nil

For the options granted in July 2003 both the TSR and EPS target performance levels are:
EPS/TSR growth performance

Proportion of total options exercisable against each criteria

Average of 20% or more p.a.

50%

Average of 10% – 19.99% p.a.

Pro-rata between 12.25% and 50%

Average of 10% p.a.

12.25%

Less than an average of 10% p.a.

Nil

For options granted from July 2004 onwards both the TSR and EPS target performance levels are:
EPS/TSR growth performance

Proportion of total options exercisable against each criteria

Average of 15% or more p.a.

50%

Average of 7.5% – 14.99% p.a.

Pro-rata between 12.25% and 50%

Average of 7.5% p.a.

12.25%

Less than an average of 7.5% p.a.

Nil

The performance conditions for options under the 2001 ESO scheme are measured over a single three year period. No extension of
the performance period is permitted although once performance conditions have been met participants have the remainder of theten year period of the option in which to exercise the option.
SELTISThe SELTIS scheme is similar to the ESO schemes, with the exceptionthat options are exercisable at no cost to the option holder.

Individual options
Individual options are granted at the discretion of theRemuneration Committee.

The value of shares over which options may be granted under the
SELTIS scheme to any one participant in a financial year may notexceed 50% of base salary. For the purpose of calculating thislimit, the market value is the closing middle market price of theCompany’s shares on the day before the date of grant.

Performance conditions
Individual options granted in March 1998
A market price of greater than £4.50 per ordinary share isachieved at some time during the four months preceding thedate upon which notice to exercise is given. This price isabsolute and is not linked to general Stock Exchange or Stock
Exchange sector price movements.

Performance conditions
SELTIS options granted prior to theestablishment of the 2001 ESO scheme
The growth in EPS of the Company expressed as a percentage
exceeds the growth in the RPI expressed as a percentage plus
a further 4% per year over the same period.
SELTIS options granted since theestablishment of the 2001 ESO scheme
The performance conditions are the same as those applying toawards under the 2001 ESO scheme in the same financial year
as detailed above.

Individual options granted in December 2001
The performance conditions are the same as those applying toawards under the 2001 ESO scheme in that financial year as
detailed above.
SAYE options
The SAYE scheme is administered in accordance with Inland
Revenue guidelines. There are no performance conditions.

31

32

Directors’ Remuneration Report

Oxford Instruments plc

As at the 31 March 2005 the outstanding options for Andrew Mackintosh and Martin Lamiason under the 1995 and 2001 ESO
schemes, the SELTIS scheme, Individual options and SAYE were as follows:

Scheme2005

Number of options during the year
GrantedExercised
Lapsed1

2004

Exercise
price

Date forearliest
exercise

Date forlatestexerciseAndrew
Mackintosh

SAYE
2001 ESO
2001 ESO
2001 ESO
2001 ESO
1995 ESOSELTISSELTISSELTISSELTIS
Individual
Individual
Individual

280
220,085
217,097
148,678
166,666
25,00049,751
24,69244,00044,00082,75075,806
100,000–
220,085
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
(166,667)––(24,691)––(82,750)(75,807)–280–
217,097
148,678
333,333
25,00049,751
49,38344,00044,000165,500
151,613100,000

£1.35
£2.18
£1.88
£2.22
£1.59
£4.13
Nil
Nil
Nil
Nil
Nil
£2.05
£2.95

01/02/06
15/07/07
15/07/06
15/07/05
28/09/04
28/11/98
17/07/05
20/12/04
14/07/02
21/12/03
20/12/04
20/12/04
06/03/03

31/07/06
14/07/14
14/07/13
14/07/12
27/09/11
27/11/05
16/07/09
19/12/08
13/07/06
20/12/07
20/12/08
20/12/08
06/03/08

MartinLamaison

SAYE
SAYE
SAYE
SAYE
2001 ESO
2001 ESO
2001 ESO
2001 ESOSELTISSELTIS
Individual

636
280
–
–
145,128
154,340
105,726
128,125
33,00033,00050,000––––145,128
–
–
–
–
–
–

–
–
(568)
(1,716)
–
–
–
–
–
–
–

–
–
–
–
–
–
–
(128,125)
–
–
–

636
280
568
1,716
–
154,340
105,726
256,250
33,00033,00050,000

£1.74
£1.35
£1.87
£1.77
£2.18
£1.88
£2.22
£1.59
Nil
Nil
£2.95

01/02/07
01/02/06
01/02/05
01/02/05
15/07/07
15/07/06
15/07/05
28/09/04
21/12/03
14/07/02
06/03/03

31/07/07
31/07/06
31/07/05
31/07/05
14/07/14
14/07/13
14/07/12
27/09/11
20/12/07
13/07/06
06/03/08

1 Lapsed as the performance condition had not been met in the required timeframe.
Andrew Mackintosh and Martin Lamaison respectively made gains of £nil and £1,094 on exercise of share options during the year to
31 March 2005 (2004 £1,053 and £113). These gains have not been realised as the shares to which they relate have not been sold.
Cumulatively Andrew Mackintosh and Martin Lamaison have 382,359 and 151,417 options under various schemes capable of exercise.
A further 55,555 and 42,708 options for Andrew Mackintosh and Martin Lamaison respectively have met their performance criteria,
but need to be held until the fourth anniversary of the date of grant in order to be capable of exercise. In addition Andrew Mackintosh
has 25,000 options under the 1995 ESO scheme technically capable of exercise, although currently the option price is above the current
market price.

Directors’ Remuneration Report

Outside appointments
The Board allows Executive Directors to accept appropriate outside
non-executive appointments 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.
The Executive Directors currently hold no outside non-executive
appointments.
Independent Non-Executive Directors
ChairmanUnder an arrangement between the Company and Imperialise
Limited, Nigel Keen is retained to act as Chairman of the Company.
Nigel Keen’s fees were £66,000 (2004 £66,000) for his services
for which he must account to Imperialise Limited. In addition
Imperialise Limited has been paid a sum equivalent to the National
Insurance on these fees of £8,400 per annum. Imperialise Limited
is responsible for the cost of National Insurance on payments to
Nigel Keen, whereas National Insurance contributions in respectof the other Non-Executive Directors are made directly to the UK
Inland Revenue and therefore not included in the table below. In
addition, Imperialise Limited was paid £120,000 for Nigel Keen’s
services as Chief Executive for the period between 18 November
2004 and 31 March 2005, during which time the Medical business
was successfully sold.

Oxford Instruments plc

Remuneration of the Chairman and Non-Executive Directors:
2005
£000

2004
£000

Nigel Keen, Chairman
Mike Brady
Peter Hill
Mike HughesPeter Morgan
Bernard Taylor

74
25
2
10
25
25

72
25
25
–
25
25

Total

161

172

Performance graph
The graph below shows for the five years ended 31 March 2005
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 Techmark and FTSE Electronic andElectrical Equipment are calculated. These indices have been chosen
as they are considered to be the most appropriate comparatorgroups for the Company. TSR has been calculated by reference tothe relevant share price for each constituent company assuming
dividends are reinvested.
225
Oxford Instruments

Nigel Keen’s initial period of appointment as a Non-Executive
Director was for three years commencing 25 February 1999,
subject to retirement by rotation. His term of appointment was
extended by the Oxford Instruments Board for a further three
years commencing in February 2002 and again in February 2005,
subject to retirement by rotation. The appointment may beterminated by either party giving not less than six months’ notice.

33

FTSE E&EE

FTSE Techmark

200
175
150
125
100
75
50

Non-Executive Directors
Non-Executive Directors receive fixed fees agreed by the full Board
after reference to similar roles in an appropriate comparatorgroup of companies and reimbursement of expenses incurred inattending Board and other meetings. It is the Board’s policy for
the Non-Executive Directors to be paid a level of fee that reflects
the time commitments and responsibilities of the role and issufficient to attract individuals with appropriate knowledge andexperience. The Chairman and Non-Executive Directors receive
no other benefits.
Mike Brady has served as a Non-Executive Director for nine years.
Upon the recommendation of the Nomination Committee it
was agreed by the full Board to extend Mike Brady’s term of
appointment by a further three years with effect from 1 August
2004. This appointment is to be subject to annual approval byshareholders.

25
0

Source: Thomson Financial Datastream
April 2000

March 2005

In accordance with the Directors’ Remuneration Report Regulations,the four tables setting out the Executive and Non-Executive
Directors’ remuneration, pensions and share options contained
within the report have been audited; the statements of policy
have not been audited.
This report was adopted by the Remuneration Committee at a
meeting on 24 May 2005 and has been approved subsequently
by the Board for submission to shareholders at the Annual General
Meeting to be held on 20 September 2005.

Nigel Keen Chairman of the Remuneration Committee
3 June 2005

34

Directors’ Responsibilities in relation to the Financial Statements

Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view ofthe state of affairs of the Company and Group and of the profit
or loss for that year.
In preparing those financial statements, the Directors are requiredto:l select suitable accounting policies and then apply themconsistently;
l make judgements and estimates that are reasonable andprudent;
l state whether applicable accounting standards have been

followed, subject to any material departures disclosed andexplained in the financial statements; andl prepare the financial statements on the going concern basis

unless it is inappropriate to presume that the Company andGroup will continue in business.
The Directors are also responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time thefinancial position of the Company and enable them to ensurethat the financial statements comply with the Companies Act
1985. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of theCompany and Group and to prevent and detect fraud and otherirregularities.

Oxford Instruments plc

Report of the Independent Auditors to the members of Oxford Instruments plc

We have audited the financial statements on pages 36 to 63. We
have also audited the information in the Directors’ Remuneration
Report that is described as having been audited.
This report is made solely to the Company’s members, as a body,in accordance with section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to theCompany’s members those matters we are required to state tothem in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.
Respective responsibilities of directors and auditors
The Directors are responsible for preparing the Annual Report andthe Directors’ Remuneration Report. As described on page 34,
this includes responsibility for preparing the financial statements inaccordance with applicable United Kingdom law and accounting
standards. Our responsibilities, as independent auditors, areestablished in the United Kingdom by statute, the Auditing
Practices Board, the Listing Rules of the Financial Services
Authority, and by our profession’s ethical guidance.
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements
and the part of the Directors’ Remuneration Report to be audited
have been properly prepared in accordance with the Companies
Act 1985. We also report to you if, in our opinion, the Directors’
Report is not consistent with the financial statements, if theCompany has not kept proper accounting records, if we have notreceived all the information and explanations we require for our
audit, or if information specified by law regarding Directors’
remuneration and transactions with the Group is not disclosed.
We review whether the Corporate Governance Statement on
pages 22 to 27 reflects the Company’s compliance with the nine
provisions of the 2003 FRC Code specified for our review by the
Listing Rules, and we report if it does not. We are not required toconsider whether the Board’s statements on internal control cover
all risks and controls, or form an opinion on the effectivenessof the Group’s corporate governance procedures or its risk andcontrol procedures.

Oxford Instruments plc

We read the other information contained in the Annual Report,
including the Corporate Governance Statement and the unauditedpart of the Directors’ Remuneration Report, and consider whether
it is consistent with the audited financial statements. We consider
the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial
statements.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements and the part of the
Directors’ Remuneration Report to be audited. It also includes anassessment of the significant estimates and judgements made by
the Directors in the preparation of the financial statements, andof whether the accounting policies are appropriate to the Group’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessary inorder to provide us with sufficient evidence to give reasonableassurance that the financial statements and the part of the
Directors’ Remuneration Report to be audited are free frommaterial misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated theoverall adequacy of the presentation of information in the financial
statements and the part of the Directors’ Remuneration Report tobe audited.
OpinionIn our opinion:
l the financial statements give a true and fair view of the stateof affairs of the Company and the Group as at 31 March 2005
and of the profit of the Group for the year then ended; andl the financial statements and the part of the Directors’

Remuneration Report to be audited have been properly
prepared in accordance with the Companies Act 1985.

KPMG Audit Plc Chartered Accountants Registered Auditor
3 June 2005

35

36

Accounting Policies

The following principal accounting policies have been appliedconsistently, except for the treatment of the Group ESOP Trust as
described below, in dealing with items which are consideredmaterial to the Group’s financial statements.
Basis of presentation of financial statements
The financial statements have been prepared under the historicalcost convention and in accordance with applicable accounting
standards. There is no material difference between reported andhistorical profit.
As defined in FRS 3 ‘Reporting Financial Performance’ discontinued
operations are clearly separate operations which materially affectthe nature and focus of the reporting entity’s operations andwhich have been sold or permanently terminated either during
the financial year or during the subsequent period up to the dateof approval of the accounts. The comparatives are restated toreflect those businesses as discontinued. All other operations areclassified as continuing operations.
New accounting policy
The Group has adopted UITF 38 ‘Accounting for ESOP Trusts’ andthe related amendments to UITF 17 ‘Employee Share Schemes’ inthe year. In previous periods the purchase cost of these shareswere treated as fixed asset investments. The effect of UITF 38 has
been to recognise the net carrying value of shares held by thetrust as a deduction in shareholders’ funds rather than as a fixed
asset investment. The impact of the change in accounting policy
is disclosed in Note 25 on the Financial Statements.
Basis of consolidation
The consolidated financial statements include the accounts of theCompany and its subsidiary undertakings made up to 31 March
2005. Unless otherwise stated, the acquisition method of
accounting has been adopted. Under this method, the results ofsubsidiary undertakings acquired or disposed of in the year are
included in the consolidated profit and loss account from thedate of acquisition or up to the date of disposal.
An associate is an undertaking in which the Group has a longterm interest, usually from 20% to 50% of the equity voting
rights and over which it exercises significant influence. Where theholding is in excess of 20%, but there is no significant influence,
the investment is stated at the lower of cost and net realisablevalue. A joint venture is an undertaking in which the Group hasa long term interest and over which it exercises joint control. The
Group’s share of the profits less losses of associates and of joint
ventures is included in the consolidated profit and loss accountand its interest in their net assets is included in investments inthe consolidated balance sheet, whilst it is considered that joint
control exists. During the year ended 31 March 2004, the Group
disposed of its interest in its joint venture, Oxford Magnet
Technology Limited (see Note 16 on the Financial Statements).

Oxford Instruments plc

All significant intra-group transactions have been eliminated on
consolidation. Under Section 230(4) of the Companies Act 1985
the Company is exempt from the requirement to present its own
profit and loss account. The profit for the financial year dealt within the financial statements of the holding company was £6.9
million (2004 £7.6 million).
Goodwill
Purchased goodwill arising on consolidation in respect of acquisitions
before 1 April 1998, when FRS 10 ‘Goodwill and intangible assets’
was adopted, was written off to reserves in the year of acquisition.
When a subsequent disposal occurs any related goodwill previously
written off to reserves is written back through the profit and loss
account as part of the profit or loss on disposal.
Purchased goodwill (representing the excess of the fair value ofthe consideration given and associated costs over the fair valueof the separable net assets acquired) arising on consolidation in
respect of acquisitions since 1 April 1998 is capitalised and isamortised to nil by equal annual instalments over its estimateduseful life. On the subsequent disposal or termination of a businessacquired since 1 April 1998, the profit or loss on disposal or
termination is calculated after charging the unamortised amountof any related goodwill.
In the Company’s financial statements, investments in subsidiary
undertakings, associates and joint ventures are stated at cost, lessprovisions.
TurnoverTurnover, which excludes value added tax and similar sales basedtaxes, represents sales to external customers of products andservices and is stated before commissions payable to agents.
Turnover is recognised on shipment, except for service contracts
and long term contracts. Turnover from contracts for maintenanceand support is recognised on a pro-rata basis over the contract
period. Turnover recorded at the time of shipment includes anallowance for installation where the estimated warranty andinstallation costs are accrued in full at the same time. Warranty
costs are based on the historical relationship between actual
costs incurred and the relevant turnover exposure. The Group
reviewed its policy regarding revenue recognition following the
publication of amendment Note G to FRS 5: ‘Reporting thesubstance of transactions: Revenue recognition’. The applicationnote does not have a significant effect on the revenue recognition
policy of the Group.
Long term contracts
Contracts which take more than six months to complete and are
significant in size are included in the financial statements toreflect progress towards completion. Turnover includes the valueof work carried out during the year in respect of these long term
contracts including amounts not invoiced to customers. Profit
recognition reflects the stage reached, the estimated costs tocomplete and the degree of risk remaining on each long term
contract.

Accounting Policies

StocksStocks and work in progress are valued at the lower of cost,
including materials, direct labour and an attributable proportionof production overheads, and net realisable value, net of payments
on account. Provision is made for obsolete, slow moving anddefective stock where appropriate in the light of recent usage,
expected future requirements, new product introduction plans andlikely realisable values. The Group uses demonstration equipment
to sell to customers. The majority of demonstration equipment isheld within stock. All categories of demonstration equipment are
written down during use and then are actively marketed fromtime to time in order to rotate assets so that as the older items
are sold they are replaced, as necessary, by new equipment.
Work in progress on long-term contracts is valued at cost, net ofamounts taken to cost of sales, after deducting foreseeable losses
and progress payments not matched with turnover. Amounts
recoverable on contracts are included in debtors and represent
turnover recognised in excess of payments on account. Work inprogress usually includes costs incurred on fixed price contracts todeliver technically complex unique custom built products. To
ascertain whether any provision for future contract losses isneeded, regular technical and financial reviews of these contracts
are undertaken. These reviews involve estimating the likely costto complete the contract based on an assessment of the outstanding technical risks and the resources required using the best
information available at the time.
Cash and liquid resources
Cash, for the purpose of the cash flow statement, comprises cashin hand and deposits repayable on demand, less overdrafts
payable on demand.
Liquid resources are current asset investments which are disposable
without curtailing or disrupting the business and are either readily
convertible into known amounts of cash at or close to theircarrying values or traded in an active market. Liquid resources
comprise term deposits of less than one year (other than cash).
Research and development and grants
Research and development expenditure, net of the relevant
proportion of grants receivable, is charged to the profit and loss
account in the year in which it is incurred, unless it is recoverable
under a customer contract when it is carried forward as work inprogress at the lower of cost and net realisable value.
Depreciation
Depreciation is calculated on a straight line basis to write off thecost less estimated residual value of tangible fixed assets in equal
instalments over their estimated useful lives using the following
annual rates:
Freehold land
Nil
Freehold buildings, long leasehold land and buildings
2%
10%
Furniture and fittings
Machinery and other equipment
10% to 20%
Computer equipment
25%
Vehicles25%

Oxford Instruments plc

Leasehold land and buildings where the period of the lease is lessthan 50 years are written off on a straight line basis over theremaining period of the lease.
Taxation
The charge for taxation is based on the profit for the year andtakes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting
purposes. Deferred tax is recognised, without discounting, inrespect of all timing differences between the treatment of certain
items for taxation and accounting purposes which have arisen
but not reversed by the balance sheet date, except as otherwise
required by FRS 19.
LeasesOperating lease rentals are charged to the profit and loss accounton an accruals basis. The Group has no significant leases of acapital nature.
Pensions
Under the transitional arrangements of FRS 17, the Group has
continued to account for pensions in accordance with SSAP 24.
The cost of providing retirement pensions and related benefits is
assessed in accordance with the advice of qualified independentactuaries and is charged to the profit and loss account as a constantpercentage of employees’ earnings over the periods benefitingfrom the employees’ services. The difference between the charge
to the profit and loss account and the contributions paid to theschemes is shown as an asset or liability in the balance sheet andan appropriate deferred tax adjustment is made.
Foreign currencies and financial derivatives
The Group enters into forward exchange contracts to mitigate thecurrency exposures that arise on sales and purchases denominatedin foreign currencies.
Transactions in foreign currencies are translated into sterling at
appropriate forward contract rates or the rate ruling on the dateof transaction where no forward cover exists. Monetary assets andliabilities denominated in foreign currencies are translated at therates ruling at the balance sheet date or at appropriate forward
contract rates. Exchange profits and losses arising from the above
are dealt with in the profit and loss account with the exceptionof differences on foreign currency borrowings to the extent thatthey are used to finance the net assets of foreign subsidiaries.
These are taken directly to reserves together with the exchange
difference on the net assets of the related investments.
For foreign entities, profits and losses are translated at the averageexchange rate for the year, and assets and liabilities are translated
at the rates ruling at the balance sheet date. The exchange
differences arising from translating overseas investments are taken
directly to reserves.

37

38

Group Profit and Loss Account year ended 31 March 2005

Oxford Instruments plc

Continuing operations
Beforeexceptional
items
£m

Exceptional
items
£m

Sub-total£m

Discontinued
operations
£m

2005
£m

156.5
–

–
–

156.5
–

25.6
–

182.1
–

3

156.5
(110.4)

–
(1.9)

156.5
(112.3)25.6(13.2)

182.1(125.5)3

46.1(39.8)

(1.9)
(3.8)

44.2
(43.6)

12.4(12.5)

56.6(56.1)

Group operating profit/(loss)
before goodwill amortisation
Goodwill amortisation

7.4
(1.1)

(5.7)
–

1.7
(1.1)

(0.1)
–

1.6
(1.1)

Group operating profit/(loss)(including acquisition profit of £0.3m)
Share of operating loss of joint venture

6.3
–

(5.7)
–

0.6
–

(0.1)
–

0.5
–

6.3
–
–
–
–

(5.7)
–
–
–
0.2

0.6
–
–
–
0.2

(0.1)
6.0
–
(3.6)
–

0.5
6.0
–
(3.6)
0.2

6.3
0.5

(5.5)
–

0.8
0.5

2.3
–

3.1
0.5

6.8
(2.8)

(5.5)
0.9

1.3
(1.9)

2.3
(0.1)

3.6
(2.0)

4.0

(4.6)

(0.6)

2.2

1.6

Notes

TurnoverGroup and share of joint venture turnoverLess share of joint venture turnoverGroup turnover (including acquisitions of £7.5m)
Cost of sales
Gross profit/(loss)
Net operating expenses

Total operating profit/(loss)
Group and share of joint venture
Gain on disposal of discontinued business before goodwill
Gain on disposal of joint venture before goodwill
Goodwill previously written off against reserves
Profit on the disposal of property
Profit/(loss) before interest and tax
Total net interest receivable/(payable)
Profit/(loss) on ordinary activities before tax
Tax on profit/(loss) on ordinary activities

1, 2

16

16

1
4
2,5
8

Profit/(loss) for the financial year
attributable to shareholders
Dividends payable to shareholders

10(15.8)

Retained loss for the financial year26

(14.2)

Earnings per share
Basic earnings per share before goodwill amortisation
Basic and diluted earnings per share

11

Dividends per share

10

pence

pence

pence

pence

pence

10.9
8.7

(9.9)
(9.9)

1.0
(1.2)

4.5
4.5

5.5
3.3

33.4

Group Profit and Loss Account year ended 31 March 2004

Oxford Instruments plc

Continuing operations
Exceptional
items andterminatedInterest in
business
joint venture
£m
£m

39

Notes

Beforeexceptional
items
£m

16

147.6
–

–
–

10.8
(10.8)

158.4(10.8)

34.7
–

193.1
(10.8)

3

147.6(102.8)

–
–

–
–

147.6
(102.8)34.7(19.0)

182.3(121.8)3

44.8(37.6)

–
(1.6)

–
–

44.8
(39.2)

15.7(15.6)

60.5(54.8)

7.9
(0.7)

(1.6)
–

–
–

6.3
(0.7)

0.1
–

6.4
(0.7)

7.2
–

(1.6)
–

–
(0.2)

5.6
(0.2)

0.1
–

5.7
(0.2)

7.2

(1.6)

(0.2)

5.4

0.1

5.5

–
–
–
–

–
–
–
–

–
6.8
(0.2)
–

–
6.8
(0.2)
–

–
–
–
–

–
6.8
(0.2)
–

7.2
(0.1)

(1.6)
–

6.4
(0.1)

12.0
(0.2)

0.1
–

12.1
(0.2)

7.1
(2.1)

(1.6)
0.4

6.3
0.1

11.8
(1.6)

0.1
(0.3)

11.9
(1.9)

5.0

(1.2)

6.4

10.2

(0.2)

10.0

TurnoverGroup and share of joint venture turnoverLess share of joint venture turnoverGroup turnover
Cost of sales
Gross profit/(loss)
Net operating expenses

1, 2Group operating profit/(loss)
before goodwill amortisation
Goodwill amortisation
Group operating profit/(loss)
Share of operating loss of joint venture
Total operating profit/(loss)
Group and share of joint venture
Gain on disposal of discontinued businessbefore goodwill
Gain on disposal of joint venture before goodwill
Goodwill previously written off against reserves
Profit on the disposal of property
Profit/(loss) before interest and tax
Total net interest receivable/(payable)
Profit/(loss) on ordinary activities before tax
Tax on profit/(loss) on ordinary activities

16

16
16

1
4
2,5
8

Profit/(loss) for the financial year
attributable to shareholders

Sub-total£m

Discontinued
operations
£m

2004
£m

Dividends payable to shareholders

10

(3.9)

Retained profit for the financial year

26

6.1

Earnings per share
Basic earnings per share before goodwill amortisation
Basic and diluted earnings per share

11

Dividends per share

10

pence

pence

pence

pence

pence

pence

12.0
10.6

(2.4)
(2.4)

13.7
13.7

23.3
21.9

(0.6)
(0.6)

22.7
21.3

8.4

Group Statement of Total Recognised Gains and Losses year ended 31 March 2005

2005
£m

2004
£m

Profit for the financial year
Exchange differences on foreign currency net investments of the Group

1.6
0.1

10.0
(2.8)

Total recognised gains and losses relating to the financial year

1.7

7.2

40

Balance Sheets as at 31 March 2005

Oxford Instruments plc

Group
2005

Fixed assets
Intangible assets – goodwill
Tangible assets
Subsidiary undertakings
Other investments

Notes

£m

Group
2004
As restated
£m

12

9.3
28.6
–
1.6

2.6
32.6
–
1.6

–
0.6
66.7
1.1

–
0.6
66.6
1.1

39.5

36.8

68.4

68.3

23.9
47.5
29.7

28.5
58.9
23.2

–
48.7
34.7

–
68.0
18.9

101.1

110.6

83.4

86.9

(3.2)
(44.9)(2.5)(47.5)(4.3)(26.4)(0.7)(25.4)(48.1)(50.0)(30.7)(26.1)

53.0

60.6

52.7

60.8

92.5
(1.1)
(9.4)

97.4
–
(5.3)

121.1
–
(0.6)

129.1
–
(0.1)

82.0

92.1

120.5

129.0

25

2.4
19.4
(2.7)
16.0
46.9

2.4
19.0
(2.7)
16.0
57.4

2.4
19.4
(2.7)
7.7
93.7

2.4
19.0
(2.7)
7.7
102.6

26

82.0

92.1

120.5

129.0

13
14
14

Total fixed assets
Current assets
Stocks
Debtors
Cash at bank and in hand

18
19
30

Creditors: Amounts falling due within one year
Bank loans and overdrafts
Other creditors

30
20

Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after one year
Provisions for liabilities and charges

21
22

Net assets employed

Capital and reserves
Called up share capital
Share premium accountInvestment in own shares
Other reserves
Profit and loss accountEquity shareholders’ funds

24
25
25
25

Company2005£mCompany
2004
As restated£m

The financial statements were approved by the Board of Directors on 3 June 2005 and signed on its behalf by:

Jonathan Flint Director

Martin Lamaison Director

Group Cash Flow Statement year ended 31 March 2005

Oxford Instruments plc

Notes

Net cash inflow from operating activities
Returns on investments and servicing of financeTaxation
Capital expenditure and financial investment
Acquisitions
Disposals
Equity dividends paid
Cash inflow before management of liquid resources and financing
Management of liquid resources
Financing

27
28

28
15
16

28
28

Increase in cash in the year

41

2005
£m

2004
£m

7.1
0.5
(2.2)
(2.4)
(5.8)
24.0
(15.7)

17.8
(0.1)
(2.4)
(2.2)
(0.2)
8.5
(3.9)

5.5
(0.4)
0.4

17.5
(14.8)
0.2

5.5

2.9

2005
£m

2004
£m

5.5
0.4
(0.1)

2.9
14.8
(0.3)

5.8
20.7

17.4
3.3

26.5

20.7

Reconciliation of Net Cash Flow to Movement in Net Funds year ended 31 March 2005

Notes

Increase in cash in the year
Change in liquid resources
Translation difference

28

Movement in net funds in the year
Opening net funds
Closing net funds

29

42

Notes on the Financial Statements

1 SEGMENTAL INFORMATION – ANALYSIS BY WHOLLY-OWNED BUSINESSContinuing operations
Beforeexceptional
items
£m

Exceptional
items
£m

Sub-total£m

Discontinued
operations
£m

2005
£m

69.8
86.7
–

–
–
–

69.8
86.7
–

–
–
25.6

69.8
86.7
25.6

156.5

–

156.5

25.6

182.1

Profit/(loss) before interest and tax
Analytical
Superconductivity
Medical

6.6
0.8
–

(2.4)
(3.1)
–

4.2
(2.3)
–

–
–
2.3

4.2
(2.3)
2.3

Goodwill amortisation

7.4
(1.1)

(5.5)
–

1.9
(1.1)

2.3
–

4.2
(1.1)

6.3

(5.5)

0.8

2.3

3.1

25.1
27.1

–
–

25.1
27.1

–
–

25.1
27.1

52.2

–

52.2

–

52.2

Sub-total£m

Discontinued
operations
£m

2004
£m

TurnoverAnalytical
Superconductivity
Medical

Net operating assets
Analytical
Superconductivity

Beforeexceptional
items
£m

TurnoverAnalytical
Superconductivity
MedicalContinuing operations
Exceptional
items andterminatedbusiness
£m

58.5
89.1
–

–
–
–

58.5
89.1
–

–
–
34.7

58.5
89.1
34.7

147.6

–

147.6

34.7

182.3

Profit/(loss) before interest and tax
Analytical
Superconductivity
Medical

3.7
4.2
–

–
(0.5)
(1.1)

3.7
3.7
(1.1)

–
–
0.1

3.7
3.7
(1.0)

Goodwill amortisation

7.9
(0.7)

(1.6)
–

6.3
(0.7)

0.1
–

6.4
(0.7)

7.2

(1.6)

5.6

0.1

5.7

24.6
30.2
–

–
–
–

24.6
30.2
–

–
–
11.8

24.6
30.2
11.8

54.8

–

54.8

11.8

66.6

Net operating assets
Analytical
Superconductivity
MedicalDetails of the businesses are set out on pages 8 to 10. Exceptional items are detailed in Note 3. Discontinued operations comprise theMedical business sold in March 2005 (see Note 16).

Notes on the Financial Statements

43

1 SEGMENTAL INFORMATION – ANALYSIS BY WHOLLY-OWNED BUSINESS continued
The net operating assets comprise:
2005
£m

2004
£m

Tangible assets
Net working capital

28.6
23.6

32.6
34.0

Net operating assets

52.2

66.6

2005
£m

2004
As restated£m

Net operating assets
Current taxation
Deferred taxation
Amounts due for acquisitions
Non-operating provisions
Dividends payable
Closing net cash
Goodwill
Investments

52.2
(1.0)
3.8
(2.6)
(4.9)
(2.9)
26.5
9.3
1.6

66.6
(1.8)
5.2
–
–
(2.8)
20.7
2.6
1.6

Group net assets employed

82.0

92.1

The net operating assets reconcile to Group net assets as follows:

2 SEGMENTAL INFORMATION – GEOGRAPHICAL ANALYSIS
UK£mContinental
Europe£m

North
America
£m

Far
East
£m

Rest of
World
£m

2005
£m

19.7

36.8

67.2

54.9

3.5

182.1

–
–

–
–

–
–

–
–

–
–

–
–

Group turnover to third parties

19.7

36.8

67.2

54.9

3.5

182.1

Including discontinued operations

1.8

11.5

8.7

2.6

1.0

25.6

Group turnover by origin
Group and share of joint venture
Less share of joint venture turnover

137.2
–

5.3
–

39.6
–

–
–

–
–

182.1
–

Group turnover to third parties

137.2

5.3

39.6

–

–

182.1

Including discontinued operations

25.6

–

–

–

–

25.6

Profit/(loss) before tax by origin
Group operating profit by origin
Share of operating loss of joint venture
Exceptional items

0.8
–
(3.3)

0.2
–
(0.9)

5.2
–
(1.5)

–
–
–

–
–
–

6.2
–
(5.7)

Operating (loss)/profit

(2.5)

(0.7)

3.7

–

–

0.5

Including discontinued operations

(0.1)

–

–

–

–

(0.1)

Group turnover by destination
Group and share of joint venture
Adjustment for share of trading
between Group and joint venture
Less share of joint venture external turnoverGain on disposal of discontinued business before goodwill
Gain on disposal of joint venture before goodwill
Goodwill previously written off against reserves
Profit on disposal of property
Net interest receivable/(payable)

6.0
–
(3.6)
0.2
0.5

Profit on ordinary activities before tax

3.6

Net assets employed by location

63.3

7.4

8.9

2.4

–

82.0

44

Notes on the Financial Statements

2 SEGMENTAL INFORMATION – GEOGRAPHICAL ANALYSIS continuedUK£mContinental
Europe£m

North
America
£m

Far
East
£m

Rest of
World
£m

2004
£m

20.5

49.8

76.5

42.4

3.9

193.1

1.9
(0.1)

–
(12.1)

–
(0.5)

–
–

–
–

1.9
(12.7)

Group turnover to third parties

22.3

37.7

76.0

42.4

3.9

182.3

Including discontinued operations

2.8

16.0

11.1

3.5

1.3

34.7

Group turnover by origin
Group and share of joint venture
Less share of joint venture turnover

154.5(10.8)

–
–

38.6
–

–
–

–
–

193.1
(10.8)

Group turnover to third parties

143.7

–

38.6

–

–

182.3

Including discontinued operations

34.7

–

–

–

–

34.7

Profit/(loss) before tax by origin
Group operating profit by origin
Share of operating loss of joint venture
Exceptional items

0.9
(0.2)
(0.7)

–
–
(0.7)

6.4
–
(0.2)

–
–
–

–
–
–

7.3
(0.2)
(1.6)

–

(0.7)

6.2

–

–

5.5

(0.1)

(0.7)

(0.2)

–

–

(1.0)

Group turnover by destination
Group and share of joint venture
Adjustment for share of trading
between Group and joint venture
Less share of joint venture external turnover

Operating (loss)/profit
Including discontinued operations
Gain on disposal of discontinued business
Gain on disposal of joint venture before goodwill
Goodwill previously written off against reserves
Profit on disposal of property
Net interest receivable/(payable)

–
6.8
(0.2)
–
(0.2)

Profit on ordinary activities before tax

11.9

Net assets employed by location – as restated

67.0

9.1

14.1

1.9

–

92.1

3 COST OF SALES, NET OPERATING EXPENSES AND EXCEPTIONAL ITEMS
Continuing operations
Beforeexceptional
items
£m

Exceptional
items
£m

Sub-total£m

Discontinued
operations
£m

2005
£m

Cost of sales

110.4

1.9

112.3

13.2

125.5

Distribution costs
Research and development costs
Administrative expenses
Goodwill amortisation

19.5
11.3
7.9
1.1

–
–
3.8
–

19.5
11.3
11.7
1.1

7.8
1.8
2.9
–

27.3
13.1
14.6
1.1

Net operating expenses

39.8

3.8

43.6

12.5

56.1

Notes on the Financial Statements

45

3 COST OF SALES, NET OPERATING EXPENSES AND EXCEPTIONAL ITEMS continued

Beforeexceptional
items
£m

Continuing operations
Exceptional
items andterminatedbusiness£m

Sub-total£m

Discontinued
operations
£m

2004
£m

Cost of sales

102.8

–

102.8

19.0

121.8

Distribution costs
Research and development costs
Administrative expenses
Goodwill amortisation

19.2
10.4
7.3
0.7

–
0.4
1.2
–

19.2
10.8
8.5
0.7

9.7
2.1
3.8
–

28.9
12.9
12.3
0.7

Net operating expenses

37.6

1.6

39.2

15.6

54.8

Cost of sales and net operating expenses of the continuing operations for the year ended 31 March 2005 include in relation toacquisitions: cost of sales £3.3m, distribution costs £1.4m, research and development costs £1.3m, administration expenses £0.8m
and goodwill amortisation of £0.4m.
Exceptional items and terminated business
Exceptional items for the year ended 31 March 2005 relate to continuing operations. In the year ended 31 March 2004 exceptional
items of £1.1m relate to discontinued operations.
Exceptional items can be analysed as follows:

Superconducting wire quality issues
Redundancy costs
Post acquisition restructuring
Site closure costs
Chief Executive replacement

Cost of sales£m2005
Net operating
expenses£m

2004
Net operating
expenses
£m

(1.5)
–
(0.4)
–
–

–
(1.2)
(0.7)
(1.0)
(0.9)

–
(1.6)
–
–
–

(1.9)

(3.8)

(1.6)

Exceptional items for the year ended 31 March 2005 comprise costs relating to a specific quality issue at the US superconducting wire
manufacturing plant, redundancy costs arising in the Superconductivity business and restructuring costs (redundancy expenses, stock
write-off and surplus lease costs) following the acquisition of Metorex International Oy and Resonance Instruments Limited in
September 2004, costs relating to the closure of the East Grinstead site and expenses associated with the replacement of the Chief
Executive.
Exceptional items for the year ended 31 March 2004 comprise redundancy costs incurred as the Medical business reduced its overseas
cost base and costs of the Cambridge based operations of Superconductivity prior to the spin out of ARKeX Limited.
Research and development costs
In addition to the £13.1m (2004 £12.9m) charged against research and development, no further costs (2004 £nil) have been charged
to cost of sales in respect of funded projects. These figures are stated net of grants receivable of £0.2m (2004 £0.1m). The total
research and development costs, gross of funding and stock movements, were £13.3m (2004 £13.1m).

4 TOTAL NET INTEREST RECEIVABLE/(PAYABLE)
2005
£m

2004
£m

Interest receivable on deposits at short callInterest payable and similar charges on bank loans and overdrafts

0.7
(0.2)

0.2
(0.3)

Group net interest receivable/(payable)
Share of joint venture net interest payable

0.5
–

(0.1)
(0.1)

Total net interest receivable/(payable)

0.5

(0.2)

46

Notes on the Financial Statements

5 PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAX
2005
£m

2004
£m

(4.4)
–
(1.1)
0.1

(4.7)
(0.2)
(0.7)
0.1

(1.1)
(2.1)

(1.0)
(2.3)

Fees paid to auditor and its associates:
Services as auditors
Non-audit services

(0.2)
(0.4)

(0.2)
–

Total fees paid to auditor and its associates

(0.6)

(0.2)

Profit/(loss) on ordinary activities before tax is stated after (charging)/crediting:
Depreciation of tangible fixed assets
Amortisation of Oxford Instruments plc shares held under the Long Term Incentive Plan
Amortisation of goodwill
Net profit on disposal of fixed assets
Rentals payable in respect of operating leases:
Hire of plant, machinery and vehicles
Other operating leases

The fees for auditing the parent company’s accounts were £58,000 (2004 £48,000). Fees paid to the auditor and its associates inrespect of non-audit services totalled £391,000 (2004 £13,000). KPMG Corporate Finance fees incurred by Oxford Instruments plc forthe disposal of the Medical business were £325,000. Fees were paid to KPMG Audit Plc of £23,000 for vendor due diligence, £12,000
for IFRS advisory work and £11,000 for other audit services. Tax services were provided to a number of the overseas subsidiaries andtotalled £20,000.

6 EMPLOYEESThe average number of people employed by the Group (including Directors) during the year was as follows:

Production
Sales and marketing
Research and development
Administration
Total average number of employees

2005

2004

809
354
207
211

777
364
229
167

1,581

1,537

The number of employees at 31 March was:By country

2005

2004

By business

2005

2004

UK
USA
Germany
Japan
FranceFinland
Italy
Spain
Rest of World

691
397
32
49
18
56
–
–
52

867
438
44
49
27
–
15
15
52

Analytical
Superconductivity
Medical

643
652
–

549
684
274

Total employees

1,295

1,507

Total employees

1,295

1,507

2005
£m

2004
£m

Wages and salaries
Social security costs
Other pension costs

48.1
4.9
5.7

48.3
4.8
4.2

Total payroll costs

58.7

57.3

The aggregate payroll costs (including Directors) were as follows:Notes on the Financial Statements

47

7 PENSIONS
2005
£m

2004
£m

The total pension cost for the Group was as follows:
Defined benefit scheme – UK
Defined benefit scheme – Others
Defined contribution schemes

3.0
0.4
0.6

3.4
0.4
0.4

Total pension costs before Medical disposal
Defined benefit scheme – UK – Medical deficit crystallised on disposal

4.0
1.7

4.2
–

Total pension costs

5.7

4.2

The Group operates a number of pension schemes throughout the world. The major schemes, covering approximately half of theGroup’s employees, are of the defined benefit type. The assets of such schemes are held in separate trustee administered funds.
Defined benefit scheme – United Kingdom
In the UK the Group and all participating employees hired before 1 April 2001 contribute to the defined benefit Oxford Instruments
Pension Scheme. The cost of this scheme is assessed in accordance with the advice of a qualified independent actuary using the
projected unit method. The last actuarial valuation of this scheme was at 31 March 2003 when the actuary advised that the regularcompany funding rate for the Scheme on current market conditions should be 11.6% over the long term. The principal assumptions
underlying this rate were that the return on investments held in respect of liabilities before and after members retire would be 7.5%
and 5.25% per annum respectively, salary increases would average 3.5% per annum and future pensions in payment would increaseby 2.3% per annum.
At 31 March 2003, the date of the last actuarial valuation, the market value of the assets of this scheme was £69.9m. The Minimum
Funding Requirement funding level at 31 March 2003 was 106%. The assets represented 76% of the value of the benefits that had
accrued to members at that date based on the assumptions set out above including assumed future increases in earnings. This shortfall is being funded over the remaining working life of the scheme members, estimated to be 16 years giving rise to an overall charge
for the year of 17.1% (2004 17.2%) of pensionable salaries.
During the year the Group contributed to the Scheme at a rate of 14.5% (2004 13%) of pensionable salary. The charge in excess ofcontributions has resulted in the prior year prepayment of £0.2m being replaced by an accrual of £0.3m at 31 March 2005.
Defined benefit scheme – Others
The Group also provides a defined benefit pension scheme in the USA. At the year end the Japanese scheme, which had a small
surplus, was in the process of being closed with no further accrual of service. A new defined contribution scheme is being introduced
to replace it.
Defined contribution schemes
Since 1 April 2001 all new joiners in the UK have been offered participation in the defined contribution Oxford Instruments
Stakeholder Plan. During the year ended 31 March 2005 the Company paid contributions to the scheme on a variable scale up to a
maximum of 4% for members who contributed at a rate of at least 2%. Employees make contributions at a rate of their choice. Other
defined contribution schemes are the Oxford Instruments 1998 Executive Pension Scheme, a UK scheme, and the 401k defined
contribution plan in the USA.
FRS 17 retirement benefits
The two largest defined benefit schemes in the UK and USA have been assessed as at 31 March 2005 in the manner prescribed by
FRS 17 in order to provide an indication of how these schemes would have been reflected in the Group Accounts under FRS 17. Thesefurther disclosures are included below.
For FRS 17 purposes, the last full valuations of the main schemes were updated to 31 March 2005 by qualified independent actuaries.
The full actuarial valuation for the USA scheme at 1 January 2004 was updated to 31 December 2004. Results at 31 March 2005 havebeen taken to be the same as those at 31 December 2004. The following assumptions were used:

Rate of general increase in salaries
Rate of increase of pensions in payment
Discount rate for scheme liabilities
Inflation

2005
%

2004
%

United Kingdom
2003
%

2005
%

2004
%

USA
2003
%

3.90
2.70
5.40
2.90

3.90
2.70
5.60
2.90

3.50
2.30
5.50
2.50

4.00
0.00
5.25
3.00

4.00
0.00
6.00
3.00

4.00
0.00
6.00
3.00

48

Notes on the Financial Statements

7 PENSIONS continued
The assets and liabilities of the schemes, together with the expected return on the schemes’ assets, are shown below:
United Kingdom
Expected long term rate of return
2004
2003
%
%

2005
%

Equities
Bonds
Corporate bonds
Gilts
Absolute return funds
Property
Cash and other assets

8.0
–
–
4.7
7.5
6.5
4.0

8.0
–
5.6
4.7
7.5
6.5
4.0
United Kingdom
Market value
2003
£m

8.0
5.0
–
–
–
6.5
4.0

USA
Expected long term rate of return
2004
2003
%
%

8.5
5.25
–
–
–
7.0
–

8.5
6.0
–
–
–
7.0
–

8.5
–
–
–
–
–
–

2005
£m

2004
£m

USA
Market value
2003
£m

2005
£m

2004
£m

Total
Market value
2003
£m

49.2
10.0
–
–
–
4.1
7.0

1.5
1.4
–
–
–
0.3
–

1.5
1.0
–
–
–
0.2
–

2.2
–
–
–
–
–
–

57.6
1.4
–
23.6
8.5
9.1
1.6

51.2
1.0
10.2
10.3
8.1
7.7
3.0

51.4
10.0
–
–
–
4.1
7.0

88.8
(124.3)70.3(101.5)

3.2
(6.1)

2.7
(4.4)

2.2
(4.5)

101.8
(145.2)

91.5(128.7)72.5(106.0)(40.5)
12.2(35.5)
10.7(31.2)
9.4

(2.9)
1.2

(1.7)
0.7

(2.3)
0.9

(43.4)
13.4(37.2)
11.4(33.5)
10.3(28.3)(24.8)(21.8)

(1.7)

(1.0)

(1.4)

(30.0)(25.8)(23.2)

2005
£m

2004
£m

56.1
–
–
23.6
8.5
8.8
1.6

49.7
–
10.2
10.3
8.1
7.5
3.0

Total scheme assets
Present value of scheme liabilities

98.6(139.1)

Deficit in the schemes
Related deferred tax asset
Net pension liability

Equities
Bonds
Corporate bonds
Gilts
Absolute return funds
Property
Cash and other assets

2005%

Balance sheet presentation:
Group
2005
£m

Group
As restated2004£m

Net assets employed
Net assets employed
Adjust for SSAP 24 pension assets and liabilities
Net pension liability under FRS 17

82.0
2.9
(30.0)

92.1
0.7(25.8)Net assets employed including FRS 17 pension liability

54.9

67.0

Capital and reserves
Profit and loss account
Adjust for SSAP 24 pension assets and liabilities
Net pension liability under FRS 17

46.9
2.9
(30.0)

57.4
0.7(25.8)

Profit and loss including FRS 17 pension liability

19.8

32.3

Notes on the Financial Statements

49

7 PENSIONS continued
An analysis of the approximate defined benefit cost for the year to 31 March 2005 pursuant to FRS 17 is:
2005
£m

UK
2004
£m

2005
£m

USA
2004
£m

2005
£m

Total
2004
£m

Current service cost
Past service cost
Settlements/curtailments

(2.6)
–
1.0

(3.0)
–
–

(0.4)
–
–

(0.4)
–
–

(3.0)
–
1.0

(3.4)
–
–

Total operating charge

(1.6)

(3.0)

(0.4)

(0.4)

(2.0)

(3.4)

Expected return on pension investments
Interest on pension liabilities

6.3
(7.0)

5.0
(5.6)

0.2
(0.3)

0.2
(0.3)

6.5
(7.3)

5.2
(5.9)

Net return

(0.7)

(0.6)

(0.1)

(0.1)

(0.8)

(0.7)

Total charge to profit and loss accountbefore deduction of tax if FRS 17 is applied

(2.3)

(3.6)

(0.5)

(0.5)

(2.8)

(4.1)

Analysis of amount which would be recognised in the Statement of Total Recognised Gains and Losses (STRGL) if FRS 17 applied:
2005
£m

UK
2004
£m

2005
£m

USA
2004
£m

2005
£m

Total
2004
£m

Actual return less expected return on pension scheme assets
Experience gains arising on the scheme liabilities
Loss on change of assumptions

1.8
–
(6.8)

11.8
1.1
(16.0)

–
–
(1.2)

0.3
–
–

1.8
–
(8.0)

12.1
1.1
(16.0)

Total actuarial (loss)/profit recognised in STRGL

(5.0)

(3.1)

(1.2)

0.3

(6.2)

(2.8)

2005
£m

UK
2004
£m

2005
£m

USA
2004
£m

2005
£m

Total
2004
£m

Deficit at 1 April 2004
Foreign exchange adjustment
Current service cost
Past service credit
Net return
Contributions
Actuarial (loss)/gain(35.5)
–
(2.6)
1.0
(0.7)
2.3
(5.0)

(31.2)
–
(3.0)
–
(0.6)
2.4
(3.1)

(1.7)
0.1
(0.4)
–
(0.1)
0.4
(1.2)

(2.3)
0.4
(0.4)
–
(0.1)
0.4
0.3

(37.2)
0.1
(3.0)
1.0
(0.8)
2.7
(6.2)

(33.5)
0.4
(3.4)
–
(0.7)
2.8
(2.8)

Deficit at 31 March 2005

(40.5)(35.5)

(2.9)

(1.7)

(43.4)(37.2)

Analysis of FRS 17 movements in deficit during the year:

For the UK scheme, the full FRS 17 actuarial valuation at 31 March 2003 updated to 31 March 2004 showed a deficit of £35.5m.
Company contributions net of expenses of £2.3m (13.3% of pensionable earnings) were made during the year ended 31 March 2005.
Contributions for the next year will be at the rate of 14.5% of pensionable earnings, inclusive of expenses. As the scheme is closed
to new members, under the projected unit method, the current service cost will increase as the members of the scheme approachretirement.
For the USA scheme contributions of £0.4m (6.3% of pensionable earnings) were made during the year ended 31 December 2004.
Contributions for the next year will be at or above the minimum required rate of 2.5% of pensionable earnings.
It is emphasised that the schemes’ assets are not intended to be realised in the short term and may be subject to significant change
before they are realised. In addition, the schemes’ liabilities are derived from cash flow projections over long periods and are affectedby changes in the assumptions adopted.

50Notes on the Financial Statements

7 PENSIONS continued
History of experience gains and losses if FRS 17 were to be fully adopted:
2005

2004

UK
2003

2005

2004

USA
2003

2005

2004

Total
2003

Difference between the expected and actual return:
Amount £m% of scheme assets

1.8
2%

11.8
13%

(23.5)
(34%)

–
–

0.3
9%

(0.7)
(27%)

1.8
2%

12.1
13%

(24.2)(33%)

Experience gains and losses on scheme liabilities:
Amount £m% of the present value of the scheme liabilities

–
–

1.1
1%

–
–

–
–

–
–

–
–

–
–

1.1
1%

–
–

Total amount recognised in Statementof Total Recognised Gains and Losses:
Amount £m% of the present value of the scheme liabilities

(5.0)
(4%)

(3.1) (25.3)(1.2)(3%) (25%) (19%)

0.3
5%

(0.7)
(6.2)
(14%) (14%)(2.8) (26.0)(2%) (25%)

2005
£m

2004
£m

–
–

0.4
(0.1)

–

0.3

1.1
0.1

3.1
–

1.2

3.1

Total current tax

1.2

3.4

Deferred tax:
Origination and reversal of timing differences in respect of:Profit/(loss) in the period
Adjustment to the estimated recoverable amount of deferred assets arising in previous periods

0.5
0.3

(0.8)
(0.7)

Total deferred tax (Note 23)

0.8

(1.5)

Total tax on profit on ordinary activities

2.0

1.9

8 TAX ON PROFIT ON ORDINARY ACTIVITIES
Analysis of tax charge in the year
The charge based on the profit for the year comprises:

UK corporation tax:
Adjustments relating to prior years
Tax on share of loss of joint venture

Foreign tax:
Tax on profit in the period
Adjustments relating to prior years

For discontinued and exceptional items the tax credit has been calculated by comparing the computed taxation charge if these items
did not exist to the overall tax charge for the period.
Factors that may affect future tax charges
The Group’s overseas tax rates are generally higher than those in the UK. The Group provides for deferred tax assets if it is more likely
than not that they will reverse in the future. Deferred tax assets estimated at £7.6m (2004 £5.5m) have not been recognised due tothe degree of uncertainty about the utilisation of the underlying tax losses and deductions.

Notes on the Financial Statements

51

8 TAX ON PROFIT ON ORDINARY ACTIVITIES continued
Factors affecting tax charge for the period
2005
£m

2004
£m

Group profit on ordinary activities before tax

3.6

11.9

Group profit on ordinary activities before tax at 30% (UK corporation tax rate)
Effects of:Permanent differences
Goodwill amortised
Short term timing differences
Accounting depreciation in excess of/(less than) tax depreciation
Current tax losses not utilised
Adjustments relating to prior years’ corporation tax
Net cost of different rates of taxation in overseas undertakings
Tax losses utilised in the year
Differences in UK and overseas accounting policies

1.1

3.6

(1.4)
0.3
(0.6)
0.7
0.7
0.1
0.4
(0.1)
–

(2.3)
0.2
0.6
(0.3)
0.4
0.4
0.6
–
0.2

Total current tax

1.2

3.4

9 DIRECTORS’ REMUNERATION AND INTERESTS
Information on Directors’ remuneration, pensions, shareholdings and options is set out on pages 28 to 33 and forms part of these
Financial Statements.

10 DIVIDENDS
2005
£m

2004
£m

Interim dividend of 2.4p (2004 2.4p) per share, paid on 24 March 2005
Special interim dividend of 25.0p (2004 nil) per share, paid on 24 March 2005
Proposed final dividend of 6.0p (2004 6.0p) per share, payable on 28 October 2005

1.1
11.8
2.9

1.1
–
2.8

Total dividend of 33.4p (2004 8.4p) per share

15.8

3.9

Subject to the approval of the shareholders at the Annual General Meeting on 20 September 2005, the proposed final dividend will
be paid on 28 October 2005 to shareholders registered at the close of business on 30 September 2005. The ordinary shares will bequoted ex-dividend on 28 September 2005. The dividends payable on the shares held in trust have been waived (see Note 25).

52

Notes on the Financial Statements

11 EARNINGS PER SHARE
Earnings per share has been calculated as follows:
2005
£m

2004
£m

5.1
(4.6)
–
–
(1.1)

5.7
(1.2)
(0.2)
6.6
(0.7)

(0.2)
2.4

(0.2)
–

1.6

10.0

Shares000

Shares000

Weighted average ordinary shares in issue during year
Dilutive effect of employee share options

47,090497

46,887243

Diluted weighted average ordinary shares

47,587

47,130Continuing operations
Profit for the financial year before goodwill amortisation
Exceptional items
Interest in joint venture
Net profit on disposal of joint venture
Goodwill amortisation
Discontinued operations
Loss for the financial year
Net profit on disposal
Net profit for the financial year

12 INTANGIBLE ASSETS – GOODWILL
Group
Total
£m

Cost
At 31 March 2004
Additions

4.7
7.8

At 31 March 2005

12.5

Amortisation
At 31 March 2004
Amortisation

(2.1)
(1.1)

At 31 March 2005

(3.2)

Net book value
At 31 March 2004

2.6

At 31 March 2005

9.3

Goodwill arose on the acquisitions of Metorex International Oy and Resonance Instruments Limited in September 2004 and is being
written off to the profit and loss account over ten years (see Note 15).

Notes on the Financial Statements

53

13 TANGIBLE FIXED ASSETSGroup

Company

Property£m

Other fixed
assets
£m

Total
£m

Property£m

Other fixed
assets
£m

Total
£m

Cost
At 31 March 2004
Exchange adjustments
Additions
Acquisitions
Disposals
Disposal of business

25.2
(0.1)
0.1
–
(0.6)
(2.0)

44.7
(0.2)
3.1
0.2
(1.8)
(6.9)

69.9
(0.3)
3.2
0.2
(2.4)
(8.9)

0.3
–
–
–
–
–

1.9
–
0.2
–
–
–

2.2
–
0.2
–
–
–

At 31 March 2005

22.6

39.1

61.7

0.3

2.1

2.4

Depreciation
At 31 March 2004
Exchange adjustments
Amounts provided
Disposals
Disposal of business

4.9
(0.1)
0.5
(0.2)
(0.8)

32.4
(0.2)
3.9
(1.5)
(5.8)

37.3
(0.3)
4.4
(1.7)
(6.6)

0.1
–
–
–
–

1.5
–
0.2
–
–

1.6
–
0.2
–
–

At 31 March 2005

4.3

28.8

33.1

0.1

1.7

1.8

Net book value
At 31 March 2004

20.3

12.3

32.6

0.2

0.4

0.6

At 31 March 2005

18.3

10.3

28.6

0.2

0.4

0.6

Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004
£m

3.7
9.9
4.7
–

3.7
10.9
5.6
0.1

–
0.2
–
–

–
0.2
–
–

18.3

20.3

0.2

0.2

5.7
3.2
1.2
0.2

6.0
4.9
1.3
0.1

–
–
0.4
–

–
–
0.4
–

10.3

12.3

0.4

0.4

Net book value is analysed by fixed asset category as follows:

Property
Freehold land
Freehold buildings
Long leasehold land and buildings
Short leasehold land and buildings

Other fixed assets
Machinery and other equipment
Fixtures and fittings
Computer equipment
VehiclesThe Directors believe the open market value of freehold land and buildings exceeds the book value by approximately £5.2m (2004£5.6m), which if realised through disposal would create a tax liability of approximately £1.0m (2004 £1.7m). Freehold land is notdepreciated, but the remainder of the property gross cost of £18.9m (2004 £21.8m) is depreciated.

54

Notes on the Financial Statements

14 INVESTMENTS
Group
2005

Company
2005

£m

Group
2004
As restated£m£mCompany
2004
As restated
£m

–
1.6

–
1.6

66.7
1.1

66.6
1.1

1.6

1.6

67.8

67.7

Shares in
subsidiary
undertakings£m

Executive
incentive
share schemes
£m

Other
investments£m

Cost or valuation
At 31 March 2004 – as reported
Prior year adjustment

66.6
–

0.8
(0.8)

1.6
–

At 31 March 2004 – as restated
Additions

66.6
0.1

–
–

1.6
–

At 31 March 2005

66.7

–

1.6

Shares in subsidiary undertakings
Other investments

Movements during the year in the investments summarised in the table above were as follows:

In accordance with UITF 38 ‘Accounting for ESOP Trusts’ the net carrying value of the shares held by the trust has been recognised asa reduction in shareholders’ funds, rather than as a fixed asset investment. See Note 25.
Other investments at 31 March 2005 comprise:

Investment

Principal activity

Percentage
of company
owned

ARKeX Limited

Supply of gravity-gradiometry exploration and related services to the oil,gas and minerals industries

28.50%

Scandinavian distributor of Oxford Instruments Microanalysis X-ray systems
for chemical elemental analysis

10.00%

Advanced signal processing and neural network technology delivering
advanced health monitoring solutions to medical and engineering markets

7.00%

X-ray diffraction systems and ancillary products for chemical crystallography
and protein structure determination

23.00%

Business accommodation and support for start-ups and early-stage
bioscience companies

2.45%

Target Systemelectronic GmbH

Measurement instruments for nuclear radiation detection

25.00%

Target Instruments Incorporated

Measurement instruments for nuclear radiation detection

25.00%

Link Nordiska AB

Oxford BioSignals Limited

Oxford Diffraction Limited

Oxfordshire Biotechnet Limited

Notes on the Financial Statements

55

15 ACQUISITIONS
Metorex International Oy
On 13 September 2004 the Group acquired 89.5% of the share capital of Metorex International Oy (‘Metorex’) based in Espoo,
Finland. A further 9.6% was acquired during January 2005. At 31 March 2005 the Group owned 99.1% of the share capital of
Metorex, with an expectation that the remaining share capital will be acquired in due course. The 0.9% minority interest is not amaterial value. The total cash consideration was £5.3m of which £4.0m had been paid at 31 March 2005 and the remaining £1.3m
is payable by instalments in May 2005 and June 2006.
Book value£m

Accounting policy
adjustments£m

Fair value
to the Group£m

Tangible fixed assets
Stocks
Debtors
Creditors
Provisions

0.1
1.4
1.4
(1.7)
(0.1)

–
(0.6)
–
(0.1)
–

0.1
0.8
1.4
(1.8)
(0.1)

Total net assets

1.1

(0.7)

0.4

Goodwill

4.9

Total purchase costLess consideration deferred

5.3
(1.3)

Net cash outflow in respect of the purchaseLess net cash acquired

4.0–

Net cash outflow on acquisition

4.0

The book value of the assets acquired are based on the management accounts at the date of acquisition. The accounting policy
adjustments reflect the alignment of accounting policies in respect of stock provisioning and project based contracts. There were nofair value adjustments.
Resonance Instruments Limited
The Group acquired Resonance Instruments Limited based in Witney, Oxfordshire on 21 September 2004 for a net cash considerationof £1.8m. A further £1.3m payment is deferred and payable over the next two years based on future performance and staff retention.
Book value
and fair value
to the Group£m

Tangible fixed assets
Stocks
Debtors
Creditors
Provisions

0.1
0.4
0.4
(0.6)
(0.1)

Total net assets
Goodwill

0.2
2.9

Total purchase costLess consideration deferred

3.1
(1.3)

Net cash outflow in respect of the purchaseLess net cash acquired

1.8–

Net cash outflow on acquisition

1.8

The book value of the assets acquired are based on the management accounts at the date of acquisition. No material accounting policy
or fair value adjustments were required.
In the prior year ended 31 March 2004 the Group acquired the business and assets of VG Semicon for a total consideration of £0.3m
of which £0.2m was payable at the time of acquisition.

56

Notes on the Financial Statements

16 DISPOSALS
Medical businessOn 1 March 2005 the Group sold its Medical business, headquartered in Old Woking, UK. The aggregate gross cash consideration,
including the repayment of inter-company loans was £24.0m. The transaction comprised the sale of the entire share capital of certain
subsidiaries and the Medical related business and assets within certain other subsidiary companies. The resultant profit on disposal
before goodwill was £6.0m. Included within the provisions on disposal is an amount of £1.7m for the related pension deficit.
The results of the Medical business are shown as discontinued operations in the Group profit and loss account on pages 38 and 39.
There was a net profit on disposal of the business as follows:£mGross cash consideration
Net tangible assets soldNet expenses
Provisions

24.0(12.8)(1.0)(4.2)

Gain on the sale of net tangible assets
Less goodwill previously written off against reserves

6.0
(3.6)

Net profit on disposal

2.4

Cash received
Net expenses paid

24.0–

Cash inflow on disposal

24.0

Oxford Magnet Technology
On 4 December 2003 the Company sold its 49% interest in Oxford Magnet Technology (‘OMT’) to Siemens plc. The proceeds on
disposal were £8.5m giving rise to a gain on disposal of £6.8m before goodwill of £0.2m previously written off against reserves. The
results of OMT were equity accounted in accordance with FRS 9 for the three months ended 30 June 2003, up to which date it wasconsidered joint control existed, and from this date when it was considered that joint control ceased until the date of disposal, theinvestment was accounted for as a minority investment in accordance with FRS 2.

17 PRINCIPAL SUBSIDIARY UNDERTAKINGS

Oxford Instruments Analytical Holdings Ltd
Oxford Instruments Superconductivity Holdings Ltd
Oxford Instruments Overseas Holdings Ltd
Oxford Instruments Analytical Ltd
Oxford Instruments Plasma Technology Ltd
Oxford Instruments Superconductivity Ltd
Oxford Instruments Molecular Biotools Ltd
Oxford Instruments Overseas Marketing Ltd
Oxford Instruments Holdings Inc
Oxford Instruments Inc
Oxford Instruments (Tennessee) Inc
Oxford Instruments Measurement Systems LLC
Oxford Instruments X-Ray Technology Inc
Oxford Superconducting Technology
Austin Scientific Company
Oxford Instruments America Inc
Oxford Instruments Analytical Oy
Oxford Instruments SAS
Oxford Instruments GmbH
Oxford Instruments KK
Oxford Instruments (Shanghai) Company Ltd
Oxford Instruments Pte Ltd

Equity owned by
the company %Country ofincorporation

Principal
activity

100.0
100.0
100.0
*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*100.0*99.1*100.0*100.0*100.0*100.0*100.0EnglandEnglandEnglandEnglandEnglandEnglandEnglandEngland
USA
USA
USA
USA
USA
USA
USA
USA
FinlandFranceGermanyJapan
ChinaSingapore

Holding
Holding
Holding
Trading
Trading
Trading
Trading
MarketingHolding
Holding
Holding
Trading
Trading
Trading
Trading
Distribution
Trading
Distribution
Distribution
Distribution
Trading
MarketingA full list of the Group companies as at 31 March 2005 is available for inspection at the Company’s registered office.
With the exception of holding companies, all the above companies are engaged in advanced instrumentation. Equity owned bysubsidiary companies is indicated by an asterisk (*). All the above companies are included in the Group accounts.

Notes on the Financial Statements

57

18 STOCKS
Group
2005
£m

Group
2004
£m

Raw materials and consumables
Work in progress
Finished goods and goods for resale

9.0
10.5
4.4

11.8
10.7
6.0

Total stocks

23.9

28.5

19 DEBTORS

Amounts falling due within one year
Trade debtors
Amounts recoverable on contracts
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income

Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004
£m

32.3
5.4
–
2.9
3.1

40.5
8.4
–
2.2
2.6

–
–
47.6
0.5
0.2

–
–
67.0
0.3
0.4

43.7

53.7

48.3

67.7

Amounts falling due after one year
Deferred tax (see Note 23)

3.8

5.2

0.4

0.3

Total debtors

47.5

58.9

48.7

68.0

Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004£mPayments received on accountTrade creditors
Amounts owed to subsidiary undertakings
Other creditors
Corporation tax, UK and overseas
Payroll tax, social security and sales related taxes
Accruals and deferred income
Proposed dividends

3.3
19.1
–
3.6
1.3
1.2
13.5
2.9

4.1
19.4
–
1.2
2.1
1.9
16.0
2.8

–
0.8
21.9
–
0.2
–
0.6
2.9

–
0.3
20.7
–
0.2
–
1.4
2.8

Other creditors

44.9

47.5

26.4

25.4

Group
2005
£m

Group
2004
£m

1.1

–

20 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

21 CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR

Other creditors (see Note 30)

58

Notes on the Financial Statements

22 PROVISIONS FOR LIABILITIES AND CHARGES
Warranty
provisions£m

Pensionobligations£m

Restructuringprovisions
£m

Other
provisions
£m

Group
Total
£m

At 31 March 2004
Provided in the year
Utilised in the year
Released unused
Acquisitions
Disposal

4.2
4.4
(4.9)
(1.0)
0.2
(0.3)

0.9
0.4
(0.4)
–
–
–

–
6.1
(0.9)
–
–
–

0.2
0.6
(0.1)
–
–
–

5.3
11.5
(6.3)
(1.0)
0.2
(0.3)

At 31 March 2005

2.6

0.9

5.2

0.7

9.4

Warranty provisions reflect the Group’s standard terms and conditions. In general these apply for a year, and, as a result, the majorityof the provision is expected to be utilised within a twelve month period. The provision for pension obligations relates to USA pension
costs charged to the profit and loss account, but under IRS regulations, not yet paid into the USA defined benefit scheme. These pension
payments are expected to be made over several future accounting periods. Restructuring provisions comprise costs associated withthe closure of the East Grinstead Site, disposal of the Medical business and remaining amounts for the restructuring of acquisitions
made during the year. Other provisions relate to replacement of the Chief Executive and to surplus leases. The lease provisions reflect
the discounted value of the expected shortfall in rental income against rental costs and will be used over the related lease periods.
The £0.6m (2004 £0.1m) provision in the Company balance sheet relates primarily to replacement of the Chief Executive.

23 DEFERRED TAX
Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004£mDeferred tax asset
At 31 March 2004
Transfer to profit and loss account
DisposalExchange movements

5.2
(0.8)
(0.6)
–

4.0
1.5
–
(0.3)

0.3
0.1
–
–

–
0.3
–
–

As at 31 March 2005

3.8

5.2

0.4

0.3

Group
Recognised
2005
£m

Group
Recognised
2004
£m

Group
Unrecognised
2005
£m

Group
Unrecognised
2004
£m

1.4
2.3
0.1

1.6
3.4
0.2

0.9
0.1
6.6

0.4
–
5.1

3.8

5.2

7.6

5.5

Company
Recognised
2005£mCompany
Recognised
2004
£

0.3
0.1

0.2
0.1

0.4

0.3

The amounts for deferred tax assets, representing
the full potential liability, are set out below:
Excess of depreciation over corresponding capital allowances
Other timing differences
Carried forward losses

The amounts for deferred tax assets, representing the full potential liability, are set out below:
Excess of depreciation over corresponding capital allowances
Other timing differences

There were no Company unrecognised deferred tax assets (2004 £nil). A deferred tax asset of £3.8m (2004 5.2m) has been recognisedin the accounts. This asset relates to short term timing differences, deferred capital allowances which have not been fully claimed andlosses in some of the Group’s overseas operations. The Group has recognised the assets only to the extent that there is expected tobe suitable taxable profits from which the future reversal of the underlying differences can be deducted and the losses utilised.

Notes on the Financial Statements

59

24 CALLED UP SHARE CAPITAL

Authorised
Ordinary shares of 5p each
Allotted, called up and fully paid
Ordinary shares of 5p each2005
Shares 000

2005
£m

2004
Shares 000

2004
£m

58,0002.9

58,0002.9

48,308

2.4

48,0902.4

New issues of ordinary shares of 5p each during the year
Exercise of Savings Related Share Options
Exercise of Executive Share Options
New shares sold for cash

Numberof shares

Aggregate
nominal value

Consideration
per share

167,330
11,00040,000£8,366£550£2,000£1.270 – £1.870£1.830 – £1.875£2.475

2005
Numberof shares

Optionprice
range

Periodwhen
exercisable

2004
Numberof shares

Options subsisting at the year end
on unissued ordinary shares
Executive Share Option Schemes
Savings Related Share Option Scheme

3,009,070
525,466£1.480 – £4.870£1.270 – £1.870

01/04/05 – 14/07/14
01/04/05 – 31/07/09

2,900,649
607,684

Total options subsisting on unissued ordinary shares

3,534,536

3,508,333

7.3%

7.3%

Percentage of issued share capital
Options subsisting at the year end
on existing ordinary shares held in trust
Senior Executive Long Term Incentive Scheme
Executive Share Option Scheme
Individual Options
Savings Related Share Option Scheme

254,442
92,250308,556
131,673

Total options subsisting on
existing ordinary shares held in trust

786,921Nil£1.945 – £1.960
Nil – £2.950£1.640 – £1.750

01/04/05 – 16/07/09
01/04/05 – 23/12/09
01/04/05 – 19/12/08
01/02/08 – 31/07/09

319,134
119,750
467,113
95,1821,001,179

25 RESERVES
Share premium
account£m

Investment in
own shares£m

Capital redemption
reserve£m

Otherreserves£m

Group
Profit and loss
account£m

At 31 March 2004 – as reported
Prior year adjustment

19.0
–

–
(2.7)

0.1
–

15.9
–

55.5
1.9

At 31 March 2004 – as restatedPremium on issued shares
Retained loss for the financial year
Goodwill written back to the profit and loss account
Other exchange adjustments

19.0
0.4
–
–
–

(2.7)
–
–
–
–

0.1
–
–
–
–

15.9
–
–
–
–

57.4
–
(14.2)
3.6
0.1

At 31 March 2005

19.4

(2.7)

0.1

15.9

46.9

Purchased goodwill of £35.9m (2004 £39.5m), previously eliminated against reserves, has been offset against the profit and loss account.

60

Notes on the Financial Statements

25 RESERVES continued
Sharepremium
account£m

Investmentin ownshares£m

Capitalredemption
reserve£m

Otherreserves£mCompany
Profitand lossaccount£m

At 31 March 2004 – as reported
Prior year adjustment

19.0
–

–
(2.7)

0.1
–

7.6
–

100.7
1.9

At 31 March 2004 – as restatedPremium on issued shares
Retained loss for the financial year

19.0
0.4
–

(2.7)
–
–

0.1
–
–

7.6
–
–

102.6
–
(8.9)

At 31 March 2005

19.4

(2.7)

0.1

7.6

93.7

Distributable reserves of the Company at 31 March 2005 were £93.7m (2004 £100.7m). The impact on the balance sheet of the
adoption of FRS 17 is shown in Note 7.
The prior year adjustment reflects the adoption of UITF 38 ‘Accounting for ESOP Trusts’ whereby the net carrying value of the shares
held in the Employee Benefit Trust has been recognised as a reduction in shareholders’ funds rather than as a fixed asset investment.
In total 990,997 shares (2004 1,051,497) are now held in the Employee Benefit Trust in relation to Executive Share Option and Senior
Executive Long Term Incentive and Save As You Earn Schemes. Dividends on these shares are being waived.

26 RECONCILIATIONS OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS
Group
2005

Company
2005

£m

Group
2004
As restated£m£mCompany
2004
As restated£m

Profit for the financial year
Dividends paid and proposed

1.6(15.8)

10.0
(3.9)

6.9
(15.8)

7.6(3.9)

Retained (loss)/profit for the financial year
Exchange differences on foreign currency net investments
Goodwill written back to the profit and loss account
Change in investment in own shares
New share capital subscribed(14.2)
0.1
3.6
–
0.4

6.1
(2.8)
0.2
0.1
0.2

(8.9)
–
–
–
0.4

3.7
–
0.2
0.1
0.2

Net (reduction)/increase in equity shareholders’ funds(10.1)

3.8

(8.5)

4.2

92.9
(0.8)

89.2
(0.9)

129.8
(0.8)

125.7
(0.9)

Opening equity shareholders’ funds – as restated

92.1

88.3

129.0

124.8

Closing equity shareholders’ funds

82.0

92.1

120.5

129.0

2005
£m

2004
£m

Group operating profit
Depreciation charges
Amortisation of goodwill
Net profit on disposal of fixed assets
Change in stocks
Change in debtors
Change in creditors
Change in provisions

0.5
4.4
1.1
(0.1)
0.3
1.9
(1.8)
0.8

5.7
4.9
0.7
(0.1)
6.9
1.2
(1.4)
(0.1)

Net cash inflow from operating activities

7.1

17.8

Opening equity shareholders’ funds – as reported
Prior year adjustment

27 NET CASH FLOW FROM OPERATING ACTIVITIES

Included in net cash flow from operating activities are outflows of £4.3m (2004 £0.9m) relating to exceptional items.

Notes on the Financial Statements

61

28 CASH FLOWS NETTED IN THE CASH FLOW STATEMENT
2005
£m

2004
£m

Interest received
Interest paid

0.7
(0.2)

0.2
(0.3)

Net cash inflow/(outflow) from returns on investments and servicing of finance

0.5

(0.1)

Purchase of fixed assets
Sale of fixed assets
Investments acquired

(3.2)
0.8
–

(2.4)
0.5
(0.3)

Net cash outflow for capital expenditure and financial investment

(2.4)

(2.2)

Increase in term deposits
Increase/(decrease) in term loans

(1.0)
0.6

(14.0)(0.8)

Net cash outflow from management of liquid resources(0.4)(14.8)

Issue of ordinary shares including share premium

0.4

0.2

Net cash inflow from financing

0.4

0.2

29 MOVEMENT IN NET FUNDS
At 31 March2005£mExchange rate
effect£m

Cash movement
in year£m

At 31 March
2004£mCash at bank and in handBank overdrafts

14.7
(1.1)

(0.2)
–

5.7
(0.2)

9.2
(0.9)

Net cashCash on short-term deposit
Debt due within one year

13.6
15.0
(2.1)

(0.2)
–
0.1

5.5
1.0
(0.6)

8.3
14.0
(1.6)

Net funds

26.5

(0.1)

5.9

20.7

30 DERIVATIVES AND FINANCIAL INSTRUMENTS
Forward foreign currency contracts
The Group enters into forward foreign currency contracts to reduce the currency exposures that arise on sales and purchases
denominated in foreign currencies.
Changes in the fair value of foreign currency contract hedges are not recognised in the financial statements until the hedged position
matures. An analysis of these unrecognised gains and losses at 31 March 2005 was as follows:
Gains
£m

(Losses)£m

Net total£m

Unrecognised gains and losses at 31 March 2004
Gains and losses arising in previous year recognised in current year
Gains and losses arising in current year and not recognised in current year

0.8
(0.8)
0.4

–
–
–

0.8
(0.8)
0.4

Unrecognised gains and losses at 31 March 2005

0.4

–

0.4

All unrecognised gains and losses are expected to be recognised within one year.

62

Notes on the Financial Statements

30 DERIVATIVES AND FINANCIAL INSTRUMENTS continued
The gross contract values of the forward contracts which the Group had not yet recognised at 31 March 2005 were:
Gross contract
value
millionBook value£m

Fair value
£m

5.5
6.9
444

–
–
–

0.1
0.1
0.2

US Dollar
Euro
Japanese Yen

The net foreign currency monetary assets after taking account of contract hedges at 31 March 2005 were:Net monetary
assets£m

US Dollar
Euro
Japanese Yen–––

These net monetary assets relate only to items that are not denominated in the reporting currency of the operating company in which
they are recorded.
Financial assets and financial liabilities
Other than short-term debtors and short-term creditors the Group had the following financial assets and financial liabilities at the
31 March 2005:

Cash in hand and short-term deposits
Cash in hand
Cash in hand
Cash in handCurrency

Interest rate

Sterling
US Dollar
Euro
Japanese Yen

floating
floating
floating
none

20.3
5.2
1.8
2.4

Total financial assets
Bank loans
Bank overdraft
Bank overdraft

Book andfair value£m

29.7
US Dollar
Euro
Singapore Dollar

floating
floating
floating

2.5
0.5
0.2

Total financial liabilities

3.2

Maturity of financial assets and liabilities
All financial assets and liabilities above mature within one year or on demand. The non-current creditors of £1.1m relate to earnout
payments on acquisitions made in the year and will be paid no later than October 2006.
Interest rates
Interest rates for financial assets are based on money market rates for the terms involved. Interest rates on the financial liabilities are
determined by reference to LIBOR and EURIBOR rates.
The Euro cash and overdraft balances are netted for interest calculation purposes under a pan-European notional pooling agreement.
Borrowing facilities
The Group had committed borrowing facilities at 31 March 2005 of £15.0m (2004 £15.0m) of which the following were undrawn:

Expiring in less than 1 year
Expiring in more than 2 years but less than 5 years

2005
£m

2004
£m

–
15.0

5.0
10.0

Notes on the Financial Statements

63

31 CONTINGENT LIABILITIES
Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004
£m

–

–

7.1

2.1

Guarantees in respect of subsidiary undertakings’ indebtedness

Certain subsidiaries of the Group have, in the normal course of business, given guarantees in respect of performance bonds. Where
the Company has issued guarantees to secure bank facilities for its subsidiary undertakings, the value of these guarantees are only
shown to the extent that these facilities were being used by its subsidiary undertakings at the year end.
Other than disclosed in Notes 7 and 22 there are no unfunded pension or post retirement medical costs. No security has been given
in respect of any contingent liability.
In an international group of companies a variety of legal claims arise from time to time. The Board, having taken legal advice, are of
the opinion that the ongoing actions and investigations will not have a material impact on the Group’s financial position.

32 OTHER COMMITMENTS
Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004
£m

0.6

1.0

–

–

Group
2005
£m

Group
2004
£m

Company2005£mCompany
2004£mLand and buildings
Other

0.2
0.2

0.5
0.2

–
–

–
–

Total

0.4

0.7

–

–

Land and buildings
Other

1.2
0.4

0.7
0.6

–
0.1

–
0.1

Total

1.6

1.3

0.1

0.1

Land and buildings

0.6

0.6

–

–

Capital commitments
Contracted for but not provided

Leasing commitments
Annual commitments under non cancellable operating leases expiring within:

1 year2 to 5 years

Thereafter

33 POST BALANCE SHEET EVENT
On 5 April 2005 the Group acquired HKL Technology A/S, a manufacturer of Electron Back Scatter diffraction systems, based in Hobro,
Denmark, for a cash consideration of £2.3m of which £2.1m was paid on acquisition.

34 EXCHANGE RATESThe principal exchange rates to sterling used were:Average translation rates

2005

2004

Year end rates

2005

2004

US Dollar
Euro
Yen

1.85
1.47
198

1.69
1.45
191

US Dollar
Euro
Yen

1.89
1.45
202

1.84
1.50
191

Average contract rates

2005

2004

US Dollar
Euro
Yen

1.80
1.43
187

1.63
1.49
183

64

Notice of the 2005 Annual General Meeting

The formal notice convening the Company’s 2005 Annual General Meeting and explanations of the resolutions the Directors will be
proposing at the meeting are set out below.
NOTICE OF THE 2005 ANNUAL GENERAL MEETING
Notice is hereby given that the forty-first Annual General Meeting of Oxford Instruments plc will be held at 2:30pm on 20 September
2005 at the offices of Oxford Instruments plc, Old Station Way, Eynsham, Witney, Oxon OX29 4TL to transact the following business:
1

Directors’ Remuneration Report
To approve the Directors’ Remuneration Report set out on pages 28 to 33 of the Reports and Financial Statements for the year
ended 31 March 2005.

2

Directors’ Report and Accounts
To receive and adopt the Reports and Financial Statements for the year ended 31 March 2005 and the Report of the Auditors thereon.

3

Final dividend
To declare the final dividend for the year to 31 March 2005.

4

Re-election of Directors(a) To re-elect Peter Morgan who retires by rotation but, being eligible, will be proposed for re-election.
(b) To re-elect Bernard Taylor who retires by rotation but, being eligible, will be proposed for re-election.
(c) To re-elect Mike Brady who is required to retire annually as he has been a Non-Executive Director for more than 9 years.
(d) To re-elect Jonathan Flint who, having been appointed a Director since the date of the last Annual General Meeting, will be
proposed for re-election.
(e) To re-elect Mike Hughes who, having been appointed a Director since the date of the last Annual General Meeting, will be
proposed for re-election.

5

Appointment and remuneration of Auditors(a) To appoint KPMG Audit Plc as Auditors to the Company for the period until the next Annual General Meeting.
(b) To authorise the Directors to agree the remuneration of the Auditors.

6

Permission for the Directors to allot further shares
To consider, as an Ordinary Resolution, that the authority conferred by Article 10.1 of the Articles of Association be renewed until
the earlier of the expiry of the next following Annual General Meeting of the Company and the date which is fifteen months fromthe date of the passing of this Resolution and that the Section 80 amount be £484,589.

7

Relaxation of the restrictions which normally apply when ordinary shares are issued for cash
To consider as a Special Resolution that the authority conferred by Article 10.2 of the Articles of Association be renewed until theearlier of the expiry of the next following Annual General Meeting of the Company and the date which is fifteen months fromthe date of the passing of this Resolution and that the Section 89 amount be £120,771.

8

Authority to buy back up to 10% of the Company’s issued share capital
To consider as a Special Resolution that pursuant to Article 4 of the Articles of Association of the Company and subject to theprovisions of the Companies Act 1985 (“the Act”) the Company be generally and unconditionally authorised to purchase by market
purchase (as defined by Section 163 of the Act) up to 4,830,822 ordinary shares of 5p each in its own capital subject to the following:(i) the purchase price for any share so purchased shall not exceed a sum (exclusive of all expenses) equal to 105% of the averageof the middle market quotations for ordinary shares for the five business days immediately preceding the day of purchase (asderived from the London Stock Exchange Daily Official List) and shall not be less than the nominal value of the share;(ii) the authority shall expire on the earlier of the close of the following Annual General Meeting or the expiry of fifteen months
from the date of the passing of the Resolution;(iii) the Company may make a contract for purchase which would, or might, be executed wholly or partly after the expiry of theauthority; and(iv) any shares purchased pursuant to the authority may be selected by the Directors in any manner as they from time to time
deem appropriate.

9

Donations to EU political organisations and EU political expenditure
To consider as an Ordinary Resolution that the Company be and is hereby authorised to:(i) make donations to any one or more EU political organisations which is not a registered party; and(ii) incur EU political expenditure in an aggregate amount not exceeding £100,000 per annum during the period commencing
on the date of this Resolution and ending on the date of the Annual General Meeting in 2006. For the purposes of thisResolution, the expressions “Donations”, “EU political organisations”, “EU political expenditure” and “registered party” havethe meanings set out in section 347A of the Companies Act 1985 (as amended by the Political Parties, Elections andReferendums Act 2000).

Notice of the 2005 Annual General Meeting

10 Amendments to the Savings Related Share Option Scheme
To consider as an Ordinary Resolution that the rules (“the Rules”) of the Oxford Instruments plc approved Savings Related Share
Option Scheme 1995 (“the Scheme”) be amended in the following manner:(i) to extend the maximum period during which options may be granted under the Scheme until the 10th anniversary of thepassing of this Resolution;(ii) to amend the provisions in Rule 3.1 relating to Aggregate Limitations so that “allocation” shall include options over shares
held in treasury but so that where options are satisfied by the transfer of existing shares (other than shares held in treasury)
such shares shall be ignored in calculating the limits under Rule 3.1;
(iii) to amend the provisions of Rule 13.1(a) so that any alteration to the Rules shall require the approval of HM Revenue andCustoms only where it is a “key feature” within the meaning of paragraph 42(2)(2B) of Schedule 3 to the Income Tax(Earnings and Pension) Act 2003 (“ITEPA”); and(iv) to make such changes as the Directors consider appropriate to conform the Rules to current statutory references in ITEPA;
provided that such amendments shall not take effect unless and until approved by the HM Revenue and Customs and issubject to such changes and/or further amendments as in the opinion of the Directors shall be necessary or conducive toobtaining such approval.
11 Amendments to the 2001 Executive Share Option Scheme
To consider as an Ordinary Resolution that, subject to Inland Revenue approval in relation to Part A of the Oxford Instruments
2001 Executive Share Option Scheme (the “Scheme”), the rules of the Scheme be amended as summarised in explanatory note
below. The amended rules are produced to the meeting and signed by the Chairman for the purposes of identification.
12 Amendment to the Articles of Association
To consider as a Special Resolution that the Company’s Articles of Association should be amended as follows:(i) in Article 152, adding after “indemnified by the Company” the words, “directly or indirectly (whether by funding any
expenditure incurred or to be incurred by him)”;(ii) in Article 152, deleting the words, “and in which judgment is given” through to and including, “is granted to him by the
court.” and replacing them with, “and whether in connection with any proven or alleged negligence, default, breach of dutyor breach of trust by that officer or otherwise in relation to the Company or any associated company (as defined by section
309 of the Act).”; and(iii) in Article 153:(a) adding, after “any liability”, the words, “, loss or expenditure”; and(b) adding, at the end of Article 153, the words, “whether in connection with any proven or alleged negligence, default,
breach of duty or trust by him or otherwise in relation to the Company or any associated company (as defined by section
309 of the Act).”.

MEETING NOTES
1

A member entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and, on a poll, to voteinstead of him. Such proxy or proxies need not be a member or members of the Company. A Form of Proxy is enclosed.

2

To be effective the Form of Proxy must be lodged with the Company’s Registrar at Capita Registrars, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU no later than forty-eight hours before the time fixed for the Meeting.

3

Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those Shareholders
registered in the register of members of the Company as at the close of business on 18 September 2005 shall be entitled to attend
or vote at the Meeting in respect of the number of Ordinary Shares registered in their name at that time. Changes to entries on
the relevant register of securities after the close of business on 18 September 2005 shall be disregarded in determining the rights
of any person to attend or vote at the Meeting.

4

Copies of the following documents will be available for inspection at the Registered Office of the Company and at the offices of
the Company’s solicitors, Laytons, Carmelite, 50 Victoria Embankment, London EC4Y 0LS during normal business hours on any
weekday (Saturdays and public holidays excepted) from the date of this Notice until the conclusion of the Meeting:(i) the service contracts of the Executive Directors;(ii) the register of interests of Directors (and their families) in the shares of the Company;(iii) a copy of the rules of the 2001 Share Option Scheme, marked to show the proposed amendments; and(iv) the written terms of reference of the Board Committees.

The Directors believe that the proposed resolutions are in the best interests of the Company and its shareholders, and accordingly
unanimously recommend shareholders to vote in favour of resolutions numbered 1 to 12 inclusive to be proposed at the Annual
General Meeting, as they propose to do in respect of their beneficial shareholdings.

By Order of the Board
Martin Lamaison Company Secretary
22 July 2005

65

66

Notice of the 2005 Annual General Meeting

EXPLANATORY NOTES ON THE PROPOSED RESOLUTIONSThe explanatory notes below summarise the purpose of the Resolutions to be voted upon by Shareholders at this year’s Annual
General Meeting.
Resolutions 1 to 6 and 9 to 11 will be proposed as ordinary resolutions. More than 50% of the votes cast must support theseresolutions in order for them to be passed. Resolutions 7 and 8 will be proposed as special resolutions and 75% or more of the votes
cast must support them in order for these resolutions to be passed.
Resolution 1 – Shareholders will be asked to approve the adoption of the Directors’ Remuneration Report for the year ended 31
March 2005. Under the “Directors’ Remuneration Report Regulations 2002”, Directors are required to ask shareholders to vote on
the Directors’ Remuneration Report (shown on pages 28 to 33). The Directors, who have unanimously endorsed the Directors’
Remuneration Report, consider that asking the shareholders to vote on this report facilitates accountability and transparency.
Resolution 2 – Shareholders will be asked to approve the adoption of the Reports and Financial Statements for the year ended
31 March 2005.
Resolution 3 – Shareholders will be asked to approve payment of a final dividend of 6.0p per ordinary share for the year ended 31
March 2005. If approved at the Annual General Meeting, the dividend will be paid on 28 October 2005 to shareholders registered at
the close of business on 30 September 2005.
Resolutions 4 (a), (b) and (c) – In reviewing the recommendations of the Nominations Committee concerning these elections, the Board
has concluded that each of the Non-Executive Directors is independent in character and judgment and continues to make effective andvaluable contribution to the Board and to demonstrate commitment to the role. The Board unanimously recommends their re-election.
The Company’s Articles of Association state that every Director shall retire from office at the third annual general meeting after the
Annual General Meeting at which they were last elected. All Directors take it in turn to retire in this way. This gives shareholders the
chance to confirm their re-appointments. At the 2005 annual general meeting Peter Morgan and Bernard Taylor are retiring under
this provision and, being eligible, are standing for re-election.
Peter Morgan is an Independent Non-Executive Director and joined the Board in 1999. He is Chairman of the Audit Committee anda member of the Remuneration and Nomination Board Committees. Bernard Taylor is also an Independent Non-Executive Director andjoined the Board in 2002. He is a member of the Audit and Nomination Board Committees. The Chairman's formal performance
evaluation has shown that their performance is still effective. The rest of the Board feel that they have demonstrated commitment to
the role and that each should be proposed for re-election.
Mike Brady is Deputy Chairman and Senior Independent Director and as of June 2005 had served on the Board for ten years. He iscurrently a member of the Audit, Remuneration and Nomination Board Committees. Mike Brady first became a Non-Executive Directorof the Company in 1995; accordingly the Board has considered whether it is appropriate in view of his length of service that he continue
in office and if so whether he should be considered to be independent. Having taken into account his technical expertise as the only
Non-Executive Director from a scientific profession; the value of that expertise to Board discussions; the strength of his professionaland business interests unrelated to the Group or other members of the Board; his continual constructive probing from the technicalaspect of proposals considered by the Board; the composition of the Board generally and the fact that he qualifies as independent inall other criteria referred to in the Combined Code, the Board has concluded that it is appropriate that he continues in office and thathe should properly be considered to be independent. This year, Mike Brady retires in accordance with the provisions of the Combined
Code and offers himself for re-election to allow shareholders the opportunity to express their views on the matter.
Resolution 4 (d) and (e) – Jonathan Flint and Mike Hughes have been appointed Directors since the last Annual General Meeting and,in accordance with the Articles of Association, are retiring and offering themselves for re-election. The Board believes the re-electionof Jonathan Flint and Mike Hughes is in the best interests of the Company as their skills, experience and knowledge will enhance andmaintain an effective Board. Both their appointments were recommended by the Nomination Committee following a thoroughevaluation process.
The biographical details of all the Directors standing for re-election are set out on page 16.
Resolutions 5 (a) and (b) – The Company is required to appoint auditors at each general meeting at which accounts are laid before
the shareholders. The auditors are appointed from the conclusion of the forthcoming Annual General Meeting until the conclusion ofnext year’s Annual General Meeting. Following the recommendation of the Audit Committee, shareholders will be asked to appoint
KPMG Audit Plc as the Company’s auditors until next year’s Annual General Meeting and to authorise the Directors to set their fees.
Resolution 6 – This Resolution lifts the restrictions which would apply to the Directors’ power to allot or agree to allot new sharesand will allow the Directors to allot or agree to allot further relevant securities up to an aggregate nominal amount of £484,589. This
represents the unissued ordinary share capital on 31 March 2005. This authority replaces the previous power of the Directors to allot
relevant securities and, if passed, will lapse at the earlier of the Annual General Meeting following its passing or, if later, on 19
December 2006. The Directors have no present intention of allotting new ordinary shares, other than pursuant to the exercise of
options under employees’ share schemes. The Company presently holds no Treasury Shares.

Notice of the 2005 Annual General Meeting

Resolution 7 – Unless they are given an appropriate authority, Directors may allot new equity shares (including Treasury Shares) for
cash (excluding shares issued under employees’ share schemes) only if they have first been offered to existing shareholders in proportion
to their holdings. There may however be occasions when in order to act in the best interests of the shareholders and the Company,
the Directors will need the flexibility to finance business opportunities as they arise by the issue of a small number of shares for cash
in circumstances such as the acquisition of a new company or business by the Group. The maximum number of ordinary shares to becovered under the power, with the exception of a rights issue or other pre-emptive offers, is 2,415,411 which represents 5% of theissued ordinary share capital on 31 March 2005. This Special Resolution replaces the Directors’ existing authority and, if passed, will
lapse at the earlier of the Annual General Meeting following its passing or if later, on 19 December 2006.
Resolution 8 – This Special Resolution is a renewal of the authority granted to Directors at the 2004 Annual General Meeting. It allows
the Company to buy back up to 4,830,822 of its issued ordinary shares on the stock market. This is equal to 10% of the Company’s
issued share capital on 31 March 2005. The Resolution sets out the lowest and highest prices the Company can pay for the shares.
The Directors are committed to creating shareholder value. Buying back the Company’s shares is one of the options they keep underreview. The Directors will only implement such purchases if they think it is in the shareholders’ best interests. Before making such a
decision they would consider the effect on earnings per share.
The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 allow companies to hold shares acquired by way ofmarket purchase in treasury, rather than having to cancel them. The Company may now therefore consider holding any of its own
shares that it purchases pursuant to the authority conferred by this Resolution as treasury shares as an alternative to cancelling them. This
would give the Company the ability to re-issue such shares quickly and cost effectively, and would provide the Company with additional
flexibility in the management of its capital base. The Directors believe that it is desirable for the Company to have this flexibility.
Unless the Directors determine that they are to be held as treasury shares (see above) any shares in its own capital purchased by theCompany shall be cancelled and the number of shares in issue will be reduced accordingly. Shares held in treasury will not automaticallybe cancelled and will not be taken into account in future calculations of earnings per share (unless they are subsequently resold ortransferred out of treasury).
No dividends will be paid on shares whilst held in treasury and no voting rights will be exercisable in respect of treasury shares.
This power will automatically lapse at the end of the Company’s next Annual General Meeting or on 19 December 2006 whicheveris earlier.
Resolution 9 – The Company did not make any donations to political parties in the European Union (“EU”) in the year under review
and it is the Company’s current policy not to do so. However, the Political Parties, Elections and Referendums Act 2000 (“PPERA”)
effective from February 2001, defines EU Political Organisations very widely and, as a result, in certain circumstances, donations
intended for charitable or similar purposes may now be regarded as political in nature.
In order to comply with its obligations and to avoid any inadvertent infringement of PPERA, the Company considers it is prudent toseek shareholders’ approval for a maximum aggregate level of donation. Resolution 9 seeks authority for the Company to makedonations to EU Political Organisations or incur EU Political Expenditure not exceeding £100,000 per annum. The Company has nopresent intention of using this authority for any purpose other than a continuation of normal business and employment practices. In
particular this authority will not be used to make any political donations as that expression would have been understood before PPERA
became law.
This authority will last until the conclusion of the Company’s Annual General Meeting in 2006.
Resolution 10 – This Ordinary Resolution renews the Savings Related Share Option Scheme 1995 following the 10th anniversary ofthat Scheme. The proposed amendments can be summarised as follows.
Eligibility
All UK resident employees (including Directors) of the Group who have completed continuous service of at least six months at any
time when an offer is made will be entitled to participate.
Option Shares
Options under the Scheme are options to acquire ordinary shares in the Company which may, at the election of the Directors, besatisfied by the issue of new shares and/or by the transfer of existing shares, for example shares held in treasury or surplus shares
held by a Company employee benefit trust. Where the option is satisfied by the transfer of existing shares any costs of the transfer,including stamp duty, will be discharged by the Company.
Option Price
The option price may not be less than 80 per cent of the price of shares on the dealing day immediately preceding the issue ofinvitations to participate. For these purposes the price will be the middle market quotation as derived from The Stock Exchange
Daily Official List, or the nominal value of the shares if greater.
Subject always to the minimum price described above the Directors may specify an alternative Option Price depending upon
whether the employee elects to make a savings contract of 3 or 5 years duration.

67

68

Notice of the 2005 Annual General Meeting

The option price and the number of shares subject to an option may be adjusted, subject to the prior approval of theCommissioners of H M Revenue and Customs and confirmation from the auditors of the Company that the adjustment is fair andreasonable, in the event of a rights or capitalisation issue or a reduction, consolidation or sub-division of the share capital. No
adjustment may increase the aggregate option price, nor reduce the option price per share below its nominal value.
Participation
Invitations to participate in the Scheme may be made at the discretion of the Board during the forty-two day period commencing
on the date on which the Company announces its annual or half yearly results. Options will not be transferable.
Invitations may be issued outside the forty-two day period above if the Board considers the circumstances to be sufficiently
exceptional to justify their issue.
Eligible employees who wish to participate must enter into a contractual savings of 3 or 5 years approved for this purpose by the
Inland Revenue. Under the savings scheme the employee will contract to make fixed contributions by deductions from their pay.
At the end of the savings contract a participant may apply for a repayment of contributions together with a tax free bonus. The
proceeds of the savings scheme may be used to acquire shares pursuant the exercise of their option.
Contributions to the savings scheme must not be less than £10 per month nor, when aggregated with contributions under othersavings contracts, be more than the maximum amount from time to time permitted, currently £250 per month. If applications for
options exceed the number of shares available, employees’ contributions will be scaled down and the number of shares overwhich options are granted will be correspondingly reduced.
Limitations
No options shall be granted on any day which would, at the time they are granted, cause the number of Shares allocated in any
period of 10 years ending on that day (but commencing after 31 July 2001) under the Scheme or under any other scheme toexceed such number as represents 10% of the ordinary share capital of the Company in issue at that time.
For these purposes ‘any other scheme’ means a scheme established by the Company, or to which the Company is a party, for the
purposes of enabling Directors and/or employees of the Group to acquire shares in the Company, and “allocated” means placing
unissued shares and/or shares held in treasury under option. Where the right to acquire shares was released or lapsed without
being exercised or where they are in fact satisfied by the transfer of existing shares (other than shares held in treasury), the sharesconcerned will be ignored when calculating the limits.
Exercise of Options
Options may be exercised only within six months of the maturity of the related savings contract. Options may also be exercised
earlier in exceptional circumstances which include death in service, as well as the optionholder ceasing to be employed by theGroup due to injury, disablement, retirement at age 60 or contractual retirement date (being no earlier than 60 or later than 75),
redundancy, the sale of a Group company or business transfer. Options not exercised within six months of the relevant event(twelve months in the case of death) then lapse. Options also become exercisable for six months upon the optionholder reachingage 60 but do not necessarily lapse on the expiry of the period.
If the optionholder ceases to make contributions under the savings scheme his option will lapse. Optionholders remain entitledto the proceeds due under the savings scheme including any bonus or interest accrued.
Options may be exercised in the six month period following the takeover, amalgamation, reconstruction or voluntary winding-upof the Company, and thereafter they will lapse.
In the event of a takeover of the Company, the rules provide that as an alternative to exercise the option may, with the consent
of the acquiring company, be converted from an option over shares in the Company to an equivalent option over shares of theacquiring company.
Share rights
Shares issued under the Scheme will rank pari passu in all respects with the fully paid shares then in issue of the same class in the
Company save that they shall not rank for any dividend or right declared, paid or arising by reference to a record dated earlier
than the date of issue or transfer of the shares.
Amendments
The Board has power to amend the Scheme but no amendment may be made except with the prior sanction of the Company ingeneral meeting in relation to the persons eligible to participate; the determination of option prices; the timing of invitations;limitations on the shares available for options; the ranking of shares acquired upon the exercise of options; restrictions on theexercise and transfer of options, rights of optionholders upon a takeover or liquidation of the Company; the adjustment of
options; and the alteration provisions themselves.
In addition no alteration may alter materially any of the subsisting rights of optionholders, nor in respect of key features withwhich the Scheme must comply to maintain its approved status be made without the prior consent of H M Revenue and Customs.
Termination
The Scheme may be terminated at any time by resolution of the Board and no further options may be granted after the 10th
anniversary of the approval of the scheme. Termination will not affect the outstanding rights of any participant.
The Directors believe that this offers employees an important opportunity to take a personal interest in Oxford Instruments plc as
shareholders as well as employees.

Notice of the 2005 Annual General Meeting

Resolution 11 – It is proposed that various amendments should be made to the 2001 Executive Share Option Scheme (“the Scheme”)
in order to permit and reflect the grant of Share Appreciation Rights (“SAR”) and the satisfaction of outstanding options with shareappreciation rights under Part B (unapproved options) of the Scheme.
Under share appreciation rights (“SAR”) an optionholder receives shares equal in value to the gain under his option but does notreceive the number of shares originally granted. In effect, an option is settled by only issuing shares to the value of the gain, and theseshares are issued at no consideration. This means that the number of shares to which an optionholder may become entitled depends
on the Company’s share price at the time of exercise. Consequently, over the life of a share appreciation right, the Company may wantto adjust the number of unissued shares which count towards the dilution limit to reflect the Company’s share price. A further
explanation of SAR is set out below.
A SAR may be granted under this Schedule to Part B of the Scheme. The Rules shall apply to a SAR as if it were an option, except as
set out in this Schedule. Where there is any conflict between the Rules and this Schedule, the terms of this Schedule shall prevail.
1

Before the grant of a SAR, the Remuneration Committee shall determine a “base price” for each share under the SAR. Thebase price shall be subject to the same restrictions as an option price set out in Rule 3.2 of Part B of the Scheme.

2

There shall be no amount payable on the exercise of a SAR.

3

Subject to paragraph 7 below, within 30 days after a SAR has been exercised by a Participant, the Board shall procure thetransfer to him (or a nominee for him) or, if appropriate, allot to him (or a nominee for him) the number of shares which shallhave an aggregate market value (as defined in paragraph 5 below) as near as possible equal to (but not exceeding) the notional
gain (as defined in paragraph 4 below).

4

The notional gain is the amount by which the aggregate market value of the number of shares in respect of which the SAR
is exercised exceeds the aggregate base price (as calculated in accordance with paragraph 1 above) of that number of shares.

5

For the purpose of this Schedule the market value of a Share is either:(a) if shares are quoted in the London Stock Exchange Daily Official List, the middle market quotation of a share (as derived
from that List) on the day before the day on which the SAR is exercised; or(b) where shares are not so quoted, such value on the day on which the SAR is exercised as the Remuneration Committee,
acting fairly and reasonably, shall decide.

6

Shares may only be allotted to a Participant (or a nominee for him) who exercises his SAR to the extent that the Board isauthorised:(a) to capitalise from the reserves of the Company a sum equal to at least the aggregate nominal value of the shares to beallocated to satisfy the exercise of the SAR; and(b) to apply that sum in paying up such amount on such shares.

7

If the Board so decides, the whole or any part of the notional gain determined under paragraph 4 above shall, instead ofbeing delivered to the Participant (or his nominee) in shares under paragraph 3 above be paid in cash.

8

Any payment of cash under paragraph 7 above will be subject to deduction of such amount (on account of tax and similar
liabilities) as may be required by law or as the Board may reasonably consider to be necessary or desirable.

As a result of this, it is proposed that some minor consequential amendments to reflect the reduced number of shares involved
should be made to the dilutions limits in Part A and Part B of the Scheme in order to allow the Company to reflect the use of SARs.
Resolution 12 – The permitted scope of indemnities which can be granted by a company to its directors and officers has been
widened by an amendment to the Act which came into force on 6 April 2005. Section 19 of the Companies (Audit, Investigation andCommunity Enterprise) Act 2004 now allows a company to indemnify directors for liabilities to third parties even where that director
is unsuccessful in defending the claim against him, and to pay certain directors’ defence costs as they are incurred in civil or criminal cases.
The existing Articles of Association provide an indemnity by the Company, subject to the provisions of the Act, in favour of the
Directors, Alternate Directors, the Company Secretary and the Company’s other officers in the limited circumstances permitted by theprevious legislation.
The amended Act now provides that indemnities cannot extend to liability incurred by the officer in question to the Company or any
associated company of which he is a Director or officer, to fines in criminal proceedings or penalties imposed by regulatory authorities,
to costs incurred in criminal proceedings where the Director or officer is convicted, or to costs incurred in civil proceedings broughtby the Company or an associated company where judgment is given against the individual officer concerned.
The Board considers that it is in the best interests of the Company to take advantage of the amendments to the Act. The amendments
proposed will widen the scope of the indemnity to the extent permitted by the new legislation.

69

70

Shareholder Information

Financial calendar
31 March 2005
3 June 2005
20 September 2005
28 September 2005
30 September 2005
28 October 2005
Mid November 2005
End March 2006
31 March 2006

Financial year end
Announcement of preliminary results
Annual General Meeting
Ordinary shares quoted ex-dividendRecord date for final dividend
Payment of final dividend
Announcement of half year results
Payment of interim dividend
Financial year end

Administrative enquiries
Administrative enquiries concerning shareholdings in Oxford
Instruments plc, such as the loss of a share certificate, dividend
payments, or a change of address should be directed, in the first
instance, to the Registrar whose address is:
Capita Registrars
The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU
Tel 0870 1623100
Fax 020 8639 2342
email ssd@capitaregistrars.com
Correspondence should refer to Oxford Instruments plc and stateclearly the registered name and address of the shareholder. Please
notify the Registrar promptly of any change of address.
Dividend bank mandates
If you wish dividends to be paid directly into a bank or building
society account and notification to be sent to your shareholder
register address, please contact the Company’s Registrar for adividend mandate form.
Consolidation of share certificatesIf your total registered ordinary shareholding is represented byseveral share certificates, you may wish to have these replaced by
one consolidated certificate. There is no charge for this service.
You should send your share certificates to the Company’s
Registrar, together with a letter of instruction.

Shareholder enquiries
Shareholders who have questions relating to the Group’s businessor who wish to have additional copies of the Report and Accounts
or Interim Statement should apply to:Company Secretary
Oxford Instruments plc,
Old Station Way, Eynsham,
Witney, Oxon OX29 4TL
Tel 01865 881437
Fax 01865 881944
E-mail info.oiplc@oxinst.co.uk
Website www.oxford-instruments.com
Company registration
Registered office: Old Station Way,
Eynsham, Witney, Oxon OX29 4TL
Registered number: 775598
Registered in EnglandWebsite – www.oxford-instruments.com
The Oxford Instruments website enables all stakeholders to access
up to date information and contact details across the Company. An
updated site will be introduced in the Autumn of 2005, with specificfocus on our customers and improving external communications.
New investor pages will also give shareholders the opportunity toobtain more information on the Company quickly and easily.
Share dealing scheme
In association with JPMorgan Cazenove Limited a low cost sharedealing service has been introduced providing shareholders witha simple way of buying and selling Oxford Instruments plc
ordinary shares. Further information is available from theCompany Secretary or:
JPMorgan Cazenove Limited
20 Moorgate, London EC2R 6DA
Tel 020 7588 2828
Fax 020 7155 9000

Analysis of shareholders as at 31 March 2005
Size of shareholding

Number of holders% of total

Total holding% of total

Up to 5,000 shares
5,001 to 50,000 shares
50,001 to 200,000 sharesOver 200,000 shares

2,979
194
46
31

91.6
6.0
1.4
1.0

1,987,366
2,854,039
4,404,793
39,062,019

4.1
5.9
9.1
80.9

Total

3,250

100.0

48,308,217

100.0

Five Year Record

71

2001
£m

2002
£m

2003
£m

2004
£m

2005
£m

Profit and loss accountGroup and share of joint venture turnoverLess share of joint venture turnover

221.9(36.8)

260.3(46.6)

231.4(44.1)

193.1(10.8)

182.1–

Group turnover

185.1

213.7

187.3

182.3

182.1

Group operating profit/(loss) before goodwill,
exceptional items and discontinued businesses 1
Exceptional items
Discontinued businesses before goodwill 1
Goodwill amortisation

2.2
(1.4)
(2.1)
(0.1)

6.7
–
(1.1)
(0.3)

6.8
(2.1)
(0.5)
(0.3)

7.9
(1.6)
0.1
(0.7)

7.4
(5.7)
(0.1)
(1.1)

Group operating profit/(loss)
Group share of operating profit/(loss) of joint venture

(1.4)
4.4

5.3
5.2

3.9
1.6

5.7
(0.2)

0.5
–

Total operating profit/(loss)
Profit/(loss) on sale of business before goodwill
Profit on disposal of joint venture before goodwill
Profit on disposal of properties
Goodwill previously written off
Net interest receivable/(payable)

3.0
0.6
–
–
–
(0.8)

10.5
–
–
3.0
–
(1.5)

5.5
(1.5)
–
–
–
(1.6)

5.5
–
6.8
–
(0.2)
(0.2)

0.5
6.0
–
0.2
(3.6)
0.5

Profit/(loss) on ordinary activities before tax
Taxation

2.8
(2.9)

12.0
(2.7)

2.4
(1.2)

11.9
(1.9)

3.6
(2.0)

Profits/(losses) attributable to shareholders

(0.1)

9.3

1.2

10.0

1.6

Balance sheet
Intangible assets – goodwill
Tangible fixed assets
Investments 2

4.4
43.8
5.0

4.4
38.9
5.7

2.7
35.6
4.1

2.6
32.6
1.6

9.3
28.6
1.6

Stocks
Debtors
Other creditors

43.7
69.3
(61.9)

48.5
67.4(59.7)

36.5
61.1(48.8)

28.5
58.9(47.5)

23.9
47.5(44.9)Net current assets, excluding net cash/(debt)

51.1

56.2

48.8

39.9

26.5

Cash at bank and on short-term deposit
Bank loans and overdrafts

1.6
(9.9)

4.8
(8.8)

6.4
(3.1)

23.2
(2.5)

29.7
(3.2)

Net cash/(debt)

(8.3)

(4.0)

3.3

20.7

26.5

Creditors: Amounts falling due after one year
Provisions for liabilities and charges

–
(6.2)

–
(6.0)

–
(5.3)

–
(5.3)

(1.1)
(9.4)

Net assets employed

89.8

95.2

89.2

92.1

82.0

Equity shareholders’ funds 2

89.8

95.2

89.2

92.1

82.0

Cash flow
Net cash inflow/(outflow) from operating activities
Interest and dividends, paid and received
Taxation
Investing activities

(1.9)
(0.7)
(0.2)
(8.2)

6.6
(2.2)
(0.2)
0.1

14.9
(2.6)
(2.0)
(3.2)

17.8
(4.0)
(2.4)
6.1

7.1
(15.3)(2.1)
15.8

Net cash (outflow)/inflow before managementof liquid resources and financing(11.0)

4.3

7.1

17.5

5.5

pence

pence

pence

pence

pence

Per ordinary share
Earnings/(losses)
Earnings from continuing operations before
exceptional items and goodwill amortisation 1
Dividends
Net assets attributable to shareholders 2

(0.1)

19.9

2.6

21.3

3.3

6.3
8.4
187.7

14.6
8.4
198.7

9.9
8.4
186.0

25.7
8.4
191.5

10.9
33.4
169.7

Employees
Average number of employees

1,551

1,773

1,674

1,537

1,581

1 After adjusting for disposal of Medical business 2005 and 2004 only
2 After deducting investment in own shares 2005 and 2004 only

72

Oxford Instruments Directory

Oxford Instruments plc
Head Office
Old Station Way, Eynsham,
Witney, Oxon OX29 4TL, UK
Tel +44 (0) 1865 881437
Fax +44 (0) 1865 881944
email info.oiplc@oxinst.co.uk
AnalyticalIndustrial Analysis and X-ray
Microanalysis
Halifax Road, High Wycombe,
Bucks HP12 3SE, UK
Tel +44 (0) 1494 442255
Fax +44 (0) 1494 524129
email analytical@oxinst.co.uk
PO Box 85 (Nihtisillankuja 5),
FI-02631 Espoo, Finland
Tel +358 9 329 411
Fax +358 9 32941 300
email info@oxinst.fi
Majsmarken 1, 9500 Hobro, Denmark
Tel +45 96 57 26 00
Fax +45 96 57 26 09
email schmidt@hkltechnology.com
945 Busse Road, Elk Grove Village,
Illinois 60007, USA
Tel +1 847 439 4404
Fax +1 847 439 4425
email info@msys.oxinst.com
Plasma etching, deposition equipment
and nanostructure creation
North End, Yatton, Bristol BS49 4AP, UK
Tel +44 (0) 1934 837000
Fax +44 (0) 1934 837001
email plasma.technology@oxinst.co.uk
Low power X-ray sources
275 Technology Circle, Scotts Valley,
California 95066, USA
Tel +1 831 438 5742
Fax +1 831 438 5629
email sales@oxfordxtg.com
Innovation
Old Station Way, Eynsham,
Witney, Oxon OX29 4TL, UK
Tel +44 (0) 1865 881437
Fax +44 (0) 1865 881944
email innovation@oxinst.co.uk
Dynamic nuclear polarising systems
Tubney Woods, Abingdon,
Oxon OX13 5QX, UK
Tel +44 (0) 1865 393200
Fax +44 (0) 1865 393333
email molecularbiotools@oxinst.co.uk

Superconductivity
Magnet Technology and PhysicalScienceTubney Woods, Abingdon,
Oxon OX13 5QX, UK
Tel +44 (0) 1865 393200
Fax +44 (0) 1865 393333
email superconductivity@oxinst.co.uk
Old Station Way, Eynsham,
Witney, Oxon OX29 4TL, UK
Tel +44 (0) 1865 884500
Fax +44 (0) 1865 884501
email superconductivity@oxinst.co.uk
Superconducting wire andField services
600 Milik Street, P O Box 429, Carteret,
New Jersey 07008-0429, USA
Tel +1 732 541 1300
Fax +1 732 541 7769
email sales@ost.oxinst.com
Cryogenic pumps and compressors
4114 Todd Lane, Austin,
Texas 78744, USA
Tel +1 512 441 6893
Fax + 1 512 443 6665
email ASCSales@ost.oxinst.com
Regional Sales and Service Offices
China
Room 714, Tower 3, Henderson Centre,
No 18 Jianguomennei Avenue,
Beijing 100005, China
Tel 86 (0)10 6518 8160/1/2
Fax 86 (0)10 6518 8155
email bj@oichina.cn
Room 14-F, No 1 Plaza,No 800 Nanjing East Road,
Shanghai 200001, China
Tel +86 (0)21 6360 8530/1/2/3
Fax +86 (0)21 6360 8535
email sh@oichina.cn
Right House, No 129, Pingbei Road,
Xinzhuang Industrial Area, Minhang
District, Shanghai, 201109, China
Tel +86 (0)21 64907 705/6/7
Fax +86 (0)21 6490 4042
email sh@oichina.cn
Room 2112, Bai Hui Plaza,
193 Zhong Shan Wu Road,
Guangzhou 510030, China
Tel +86 (0)20 8364 9990/1
Fax +86 (0)20 8364 9996
email gz@oichina.cn
Czech Republic
Velvarska 13, CZ-160 00 Praha,
Czech Republic
Tel +420 233 343 264
Fax +420 224 311 724
email analytical@oxford.de

FranceBatiment Ariane, Domaine Technologiquede Saclay, 4 rue Rene Razel,
91892 Saclay, France
Tel +33 1 69 85 25 25
Fax +33 1 69 41 46 80
email info@oxford-instruments.fr
Germany
Otto-von-Guericke-Ring 10,65205 Wiesbaden, Germany
Tel +49 6122 937 0
Fax +49 6122 937 100
email info@oxford.deJapan
Haseman Bldg., 2-11-6 Tomioka,
Koto-ku, Tokyo 135-0047, Japan
Tel +81 (0)3 5245 3251
Fax +81 (0)3 5245 4472
email info@oxinst.co.jp
Shin-Osaka Nishiura Bldg,
2-7-38 Nishi-Miyahara, Yodogawa-ku,
Osaka 532-0004, Japan
Tel +81 (0)6 6350 0555
Fax +81 (0)6 6350 0880
email info@oxinst.co.jp
Latin America
13575 58th Street N – Suite 154,
Clearwater, Florida 33760, USA
Tel +1 727 538 7702
Fax +1 727 538 4205
email oxford@gate.net
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Russian Federation
Tel +7 (095) 933 51 23
Fax +7 (095) 933 51 24
email analytical@oxford.de
Singapore
371 Beach Rd, #17-07 Keypoint,
Singapore 199597
Tel +65 6337 6848
Fax +65 6337 6286
email oi.admin@oxford-instruments.com.sg
Taiwan1F, No 23, Jing-Shang 19th Street,
Hsinchu, Taiwan
Tel +886 3 5788696
Fax +886 3 5789993
email oi.admin@oxford-instruments.com.tw
USA
130A Baker Avenue Ext,
Concord, MA 01742, USA
Tel +1 978 369 9933
Fax +1 978 369 6616
email info@ma.oxinst.com
7020 Koll Center Parkway, Suite 140,
Pleasanton, CA 94566, USA
Tel +1 510 656 8820
Fax +1 925 461 5340
email info@ma.oxinst.com

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Oxford Instruments plc
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Oxon OX29 4TL UK

Tel +44 (0) 1865 881437
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