The Business of Science
Oxford Instruments plc Annual Report and Accounts 2006

Group Results

2006
£m

2005
£m

159.9
153.8
6.9
(0.9)
9.8

136.9
135.6
9.1
0.1
26.5

2006
pence per share

2005
pence per share

9.1
(7.2)
8.4

13.9
12.2
33.4

1,290

1,295

Year ended 31 March

Orders *Revenue *Trading profit, before non-recurring items and intangible amortisation *(Loss)/profit before tax
Cash, less overdrafts and bank borrowings

Adjusted earnings **Total basic earnings
Dividends
Permanent employees at year end* Underlying business performance** Underlying business before other operating income, amortisation of intangibles and restructuring and other non-recurring costs

02
04
08
18
20
21

Chairman’s Statement
Chief Executive’s Review
Business and Financial Review
Directors’ Biographies
Directors and Advisers
Reports and Financial Statements

94

Notice of 2006 Annual General Meetingand Explanatory Notes
98 Historical Financial Summary – UK GAAP
99 Historical Financial Summary – IFRS
100 Shareholder Information
101 Worldwide Directory

01

Oxford Instruments specialises in the design and manufacture of high-technology
tools and systems for industry and research. Founded over 40 years ago, theCompany today employs around 1,300 people worldwide, and has been listedon the London Stock Exchange since 1983.
Innovation has been at the heart of Oxford Instruments since it was founded by
Sir Martin Wood and is the driving force behind our growth and success. We havebuilt a sound operational platform from which to launch our key technologicalcapabilities, and our focus is on the commercialisation and support of the innovatory
products that we offer our customers. It is our intention to build on our existing
position as a leader in many of our markets, and to exploit the emerging potentialof nanotechnology in the physical and bioscience sectors.
We will continue to generate value for our shareholders and all the otherstakeholders in our business through the excellence of our worldwide networkof sales and support professionals. Our focus on knowing more, thinking deeper
and looking further ensures that a constant stream of leading edge products
and systems will continue to drive our business forward.

02

Chairman’s Statement

We are implementing the strategy that Jonathan Flint andI outlined last year at the time of his appointment as Chief
Executive. Jonathan reports in more detail on the evolutionof this strategy. Although much remains to be done, we havemade important progress in repositioning the Group towards
future growth markets by concentrating on tools and systems
that enable customers to use our products to transform thenanoscience they undertake into the nanotechnology we all use.
Group trading profit of the underlying business, before
non-recurring items and intangible amortisation, was £6.9 million.
This was after charging £2.7 million arising from the planned
product development investment initiative announced in June
2005. Before this expenditure, trading profit was £9.6 million,up £0.5 million on the previous year. The Group’s Income
Statement shows the results for the year split between thepart of the magnet business where we have ceased volume
manufacture (the restructured magnet business) and the remaining
business (the underlying business). This shows the effect of theactions we have taken and announced. Group revenue of theunderlying business for the year to 31 March 2006 was £153.8
million, £18.2 million (13.4%) higher than the previous year.
Our recent acquisitions; Metorex International, ResonanceInstruments and HKL Technologies, have all contributed tothis year’s performance.
Revenue of the restructured magnet business in the year was£13.4 million (2005 £19.2 million) and its trading loss increasedto £2.5 million (2005 £1.7 million). The restructuring of thisbusiness, which will avoid a continuation of these losses, involved
non-recurring costs of £6.6 million, mainly redundancies, moving
costs and inventory write-offs. The provisions against inventory,
including cancelled new product developments and end of line
supplier commitments, are higher than anticipated at the timeof the February announcement. Additionally, costs have been
provided for on-site work required to meet customer specification
requirements in the bespoke magnet business. Other incomeof £2.0 million, from disposals of minority interests and a surplus
property, has partially offset these non-recurring costs.

After net financial expenditure of £0.4 million the Group madea loss before income tax of £0.9 million (2005 profit £0.1 million)
from the combined results of the underlying business and therestructured magnet business.
Within Analytical, the trading profit before non-recurring items
and intangible amortisation, decreased to £6.0 million from £6.4
million. Although our NanoAnalysis (formerly Microanalysis) andIndustrial Analysis businesses continued to move ahead, showing
the sixth successive year of profit growth, the trading performanceof our Plasma Technology business was impacted by market
pricing pressures, although these appear to have now eased.
The X-ray Technology business again produced growth in revenue
and trading profit, driven by the continuing buoyancy of themarket for environmental monitoring tools.
In Superconductivity, the underlying business made a trading
profit, before non-recurring items and intangible amortisation,of £0.9 million. After adding back the planned increase in productdevelopment expenditure of £2.5 million, the adjusted trading
profit of £3.4 million was £0.7 million higher than last year.
In February 2006, we decided to cease the volume manufactureof NMR and ICR magnets as a product range and to integrate
the NMR magnet skills and technology with the Physical Science
bespoke superconducting magnets and cryogenics business basedat Tubney Woods, renaming the combined business, Oxford
Instruments NanoScience. This restructuring is expected to
improve the Superconductivity trading profit next year by at least£3.0 million and will allow greater clarity of the results of therest of the Group. The NanoScience business, now under new
management, will continue to offer the scientific community
a range of novel bespoke magnets and cryogenics, but at thesame time will seek to secure a proper reward for the technicalrisks involved. Our Superconducting Wire business in the USA
continues to perform well and achieved 7% growth in wire sales.
Good results were achieved from the extra £3.3 million cash
spent during the year on incremental product development under
the sponsorship of our Oxford Instruments Innovation group.
Two potentially significant new products were launched and early
customer response has been very encouraging.

03

Basic earnings per share for the continuing business were a lossof 7.2 pence (2005 loss 3.0 pence). Basic adjusted earnings per
share (defined as earnings per share for the underlying business,before other operating income, non-recurring items and intangible
amortisation) were 9.1 pence (2005 13.9 pence). The Board
recommends a final dividend of 6.0 pence, making the total
dividend of 8.4 pence for the year, unchanged from last year
excluding the special dividend of 25 pence paid in March 2005.
Net cash at 31 March 2006 was £9.8 million (2005 £26.5 million).

Nigel Keen and Jonathan Flint

We are now set on a path
which will provide significant
opportunities to grow thebusiness and thereby increasevalue for our shareholders.

We have a talented and enthusiastic workforce and I would
like to thank all of them for their positive response to the newstrategy and the resulting changes, and for delivering a creditable
improvement in performance in the year.
During the year Charles Holroyd and Steve Parker joined the Board
as Executive Directors. They both have functional worldwide
responsibilities in addition to their business responsibilities forcertain parts of the Group. We announced in May that Martin
Lamaison will retire as Group Financial Director with effect from
7 August 2006 and that Kevin Boyd, currently Group FinanceDirector of Radstone Technology plc, will succeed him. I would
like to thank Martin for his outstanding contribution to Oxford
Instruments over the years. We are delighted with the appointment
of Kevin and believe that his wide ranging business experience
will be an asset to the Group as it continues to evolve and grow.
Trading in the first two months of the year is on track. We are now
set on a path which will provide significant opportunities to growthe business and thereby increase value for our shareholders.

Nigel Keen Chairman
13 June 2006

04

Chief Executive’s Review

I have been Chief Executive of Oxford Instruments for a year
now and we have made good progress in reinventing the Group.
Last year I outlined our new strategy based around our core skillsof a deep understanding of matter at the atomic and molecularlevel. This strategy simultaneously provides a unified theme forall parts of Oxford Instruments and defines the markets in which
the Group seeks to grow. Growth is a key element of our strategy,
as through growth we can achieve the scale necessary to stayat the forefront of our chosen technological areas.
The key elements of the strategy this year have been:• To move the business from a technology led,
to a customer focused business;• To move towards a systems and solutions orientatedcompany;• To aggressively move into new markets and launch
new products;• To move the business towards a single integrated
entity; and• To control costs through technology, process
and organisation.
Each of these key elements of the strategy has progressed during
the first year, though in some areas there remains much more
to be done.
Focus on the customer – Our new ‘voice of the customer’
initiative has been rolled out across the Group. This ensuresthat customer feedback informs our new product development.
Steve Parker was appointed to the Board of Oxford Instruments
plc in November and he has taken on specific responsibility forleading the customer focus drive across the business. Encouragingly
we have seen a growth in service revenues over the last year
of 8%. This provides a stable long-term high quality revenue
stream for the business. As our new products become establishedin the installed base, there are opportunities to grow this typeof business further.

Total solutions – We are recruiting applications engineers
into the business and we are increasingly able to offer complete
solutions to our customers. We have set up a new applications
laboratory in Oxfordshire for our growing Molecular Biotools
business. This laboratory, together with our existing networkof seven worldwide application laboratories, enable end users
to interact directly with our products and specialists, seeing forthemselves the capability of Oxford Instruments tools.
New products and markets – The Oxford Instruments Innovation
Group is doing well in identifying and developing radical new
products, which will fuel the growth of the business. In particular,
the launch of our ‘HyperSense’ DNP system has generated hugecustomer interest. HyperSense has the potential to revolutionise
many NMR applications. The research community is particularly
excited. Prof Geoffrey Hawkes, Professor in Physical Organic
Chemistry, Queen Mary, University of London said “The sensitivity
enhancements achievable in nuclear magnetic resonance (NMR)
spectroscopy through the use of HyperSense are now wellestablished, and at Queen Mary we are engaged in exploiting
this sensitivity gain in applications which have great potential
to the pharmaceutical industry for drug related research, andapplications for biocompatible implant material’’. The first threeunits of this product have been delivered to customers.
Two further new products were developed during the year.
The first of these, ‘FlexAL’ was launched in May 2006. ‘FlexAL’is the first of a range of tools which use Atomic Layer Deposition(ALD) to fabricate one atom thick layers for customers in theelectronics, semiconductor and optics industries. The secondof these new tools will be launched later this year.
Single Entity – A unified organisational structure has now been
implemented throughout the Group. I have created a central
senior management team, all of whom have functional groupwide
responsibilities. The business streams have been reorganised
to provide a greater business focus on markets and customer
groups. This has encouraged a ‘one company’ culture and at

What is The Business of Science?

Oxford Instruments’ strong reputation for product excellence, built
up over 40 years, adds value to our business. The Oxford Instruments’brand is an integral part of the sales process. When customers buy
an Oxford Instruments’ product, they are also buying into the corevalues and reputation of the Group.
We use The Business of Science to capture what the Oxford Instruments’brand stands for and to support our objectives of growth, customer
focus and a ‘one-company’ culture.

The Business of Science• reinforces our focus on the business of making sciencea commercial success• says that science is central to our business and that we are
involved in a broad range of science based activities• underlines our commitment to developing our science into
commercially successful tools and systems• firmly positions the Group as a single entity, ‘The Business’

06

Chief Executive’s Review

the same time created new management opportunities forour best people. Common technological themes can rapidly
be shared between the businesses and duplication of costs
and process has been reduced.
Cost base – We continued to work on the reduction of our costbase. In November Charles Holroyd was appointed to the Board
with specific responsibility for improving operational efficiency.
Our two Oxford based sites have been consolidated into a single
facility at Tubney Woods, which will yield significant ongoingsavings. At the same time we have ceased production of our loss
making volume magnet product lines. In addition we have moved
the production of several of our product ranges to our low cost
manufacturing facility in Shanghai.
On the back of these initiatives orders and revenue of theunderlying business in the year rose by 16.8% and 13.4%
respectively and trading profit, after adding back the increased
new product development spend announced last year,
is up by 5%. The action taken to close down the loss making
undifferentiated magnet product lines together with site
consolidation and further use of our low cost production facilities
means that the way is now clear for sustained margin improvement.

include competitive risks (pricing, new product introduction,acquisition prospects); technical risks (new product development,
new technology); and commercial risks (fixed price technicallydemanding contracts, foreign exchange and commodity pricemovements, key customers and suppliers).
Our increased R&D spend will enable us to generate radical
new products which will enable existing and new customers
to turn nanoscience into nanotechnology. Our new NanoSciencebusiness will operate at the very cutting edge of technology.
At any time we will have a few one-off magnet contracts where
the technical achievements to meet customer specification arechallenging, but we have put enhanced controls in place tomanage these contracts. The NanoScience business also exposes
potential future customers to our products during their years
in higher education. At the moment our Analytical businesses
have a number of high quality tools operating in distinct markets.
We have identified significant latent demand if we could offer
a more comprehensive tool capability which unifies these currently
separate markets. Our strategy is to develop, and in some cases
acquire, tools to fill in any capability gaps. This will enable
us to offer a complete spectrum of analytical tools to ournanoscience and bioscience customers.

Over the next few years we intend to continue to drive ourbusiness through the implementation of our strategy to develop
new generation tools for the nanotechnology and bioscience
industries. This will result in increased revenue, arising from bothorganic and acquisitive growth. Over the next five years I havetargeted a doubling in turnover, and this revenue growth,
coupled with cost reduction, should enable us to increase thereturn on sales by 10% of sales revenue over the same period.

Our growth strategy will enable us to remain at the forefrontof the business of science and enable our shareholders to benefit
from Oxford Instruments’ world-renowned technical capability.

The Group has in place a risk management and mitigation
approach which aims to ensure our medium term objectives
set out above are achievable. The key risks which we address

Jonathan Flint Chief Executive
13 June 2006

This is an exciting time for all of us at Oxford Instruments.
Our new strategy provides the engine which can deliver thesegrowth targets and I am looking forward to making it happen.

What is nanotechnology?

Nanotechnology is the science of making things with sizes up to 100
nanometres. A nanometre is one billionth of a metre. In comparison,a human hair is about 80,000 nanometres wide. Work at the nanoscalemeans operating at atomic and molecular levels, looking at thedifferent properties exhibited by nanoparticles.
Existing and potential applications will touch every part of our lives,
particularly in information and communication technology and medicine.
Our phones, computers and music players are getting smaller andlighter. New drugs are being developed more quickly and effectively,

and improved early diagnosis of diseases and prevention of infection
is becoming possible. Other applications include, self-cleaning
nano-coated glass surfaces, stain resistant textiles, protection from
UV rays – sun creams containing nanoparticles, food preservation,lighter and stronger nanocomposite materials – aviation, motor cars,
golf clubs, fishing rods and fuel efficient transportation.
In effect, nanotechnology is our industrial revolution. By providing
the tools and systems to enable research and development, Oxford
Instruments is part of that revolution.

08

Business and Financial Review

Analytical
Orders and revenue for the year were £85.5 million (2005£67.9 million) and £80.7 million (2005 £68.8 million) respectively.
Trading profit, before non-recurring items and intangible
amortisation, was £6.0 million (2005 £6.4 million).
During the year steps were taken to introduce a more marketfocused structure within our Industrial Analysis (formerly Industrial
Products) and NanoAnalysis (formerly Microanalysis) businesses
in order to be more responsive to customer needs and to reach
into new markets. Separate sales, service and product development
teams have been established within each business but both
continue to share all other functions. New sales and distribution
offices have been set up in Russia and India.
Our Industrial Analysis business has benefited immediatelyfrom these actions and revenue grew strongly in the second half.
Metorex, acquired in September 2004, continued its excellent
performance and has benefited from access to the existing
Analytical global sales and distribution network. We introduced
new products for environmental monitoring during the year forcompliance testing under the Restriction of Hazardous Substances(RoHS) legislation and for soil analysis. At the end of March ourisotope based ‘Horizon’ product was relaunched in France foruse in measuring lead in paint. The introduction of environmentallyfriendly low sulphur fuels with differing sulphur concentrations
means that a wide range of customers now require simple,
on the spot sulphur analysis to certify that the fuel being used
at a particular location conforms to an agreed specification.
Industrial Analysis has now introduced its latest generation
Lab-X instrument to offer sulphur analysis ‘outside the laboratory’
to any location in the fuel supply chain.
We have now transferred the full range of our hand held coating
measurement gauges from Chicago to our low cost facility
in Shanghai, as well as the larger benchtop CMI900 instrumentused in the same marketplace, when higher precision is required.
A project management team has been tasked with the rapidtransfer to China of several other products currently madein the UK and USA.

The market for our NanoAnalysis business, providing analytical
instruments for use with electron microscopes, remained steady.
With the acquisition of HKL Technology in April 2005, the productportfolio has been significantly enhanced with the addition ofthe ‘best in class’ EBSD (electron backscatter diffraction) system.
Following the successful integration of the HKL EBSD systemwith our existing market leading EDS (energy dispersive
spectroscopy) platform and our WDS (wave length dispersive
spectroscopy) systems, we now offer the best combinationof elemental analysis systems in the market for use with electron
microscopes. The second half of the year showed good growth
as the new management structure allowed the NanoAnalysis
team to focus better on its customers’ needs. NanoAnalysis
margins and profit remained strong throughout the year.
Our greater focus on NanoAnalysis applications, as reflectedin our decision to change the name of this business fromMicroanalysis, has also allowed the business to take advantageof the emerging nanotechnology markets and in particular
to address the nanocharacterisation sector.
Although down on the previous year, our Plasma Technology
business was profitable in the year. There was no significant
upturn in the compound semiconductor market. However themarket for high brightness light emitting diodes (LEDs) continues
to grow with widespread utilisation already being seen in theautomotive industry. These products are very energy efficientand this is expected to lead to increasing use in the domestic
and other lighting markets. Reflecting this, we received orders
from eight new customers in this sector during the year.
A vigorous programme of product introduction based on
extensive customer research is now being reflected in new Plasma
Technology product launches. In particular we have successfully
installed beta sites for our new ‘Plasma Enhanced Atomic Layer
Deposition’ (PEALD) product. Initial customer reaction has been
positive with sales enquiries already active. The PEALD productoffers the ability to deposit nano-scale thin films of material in
the creation of nanostructures for new generation semiconductor,
micro mechanical and optical devices and in new surface
treatments. New nanofabrication tools will be launchedLooking further...

The demands on the bioscience and pharmaceutical industries todevelop new drugs quicker and to find new ways of detecting diseaseearlier are increasing. Researchers are looking for innovative techniques
to give them the tools to respond to this demand. Currently, Nuclear
Magnetic Resonance (NMR) is used for routine research.
Now, Oxford Instruments’ ‘HyperSense’ instrument enhances NMR witha unique technique called Dynamic Nuclear Polarisation (DNP) and thismeans scientists have the opportunity to transform the development
process for new pharmaceuticals by receiving more information thanever before. It enables existing research to be carried out in a much
shorter time period, and allows the use of much smaller test samples.
Other applications for ‘HyperSense’ will also provide information
on how molecules interact with one another, potentially valuable
in understanding the performance and effectiveness of new drugs.

10Business and Financial Review

in a few months and will be used for the controlled, repeatable
growth of nanotubes and nanowires from carbon, silicon andother materials. These are expected to form the basis of awhole new generation of electronic devices for use in solar cells,
display technology and nanowire transistors as well as a rangeof materials science applications.
Our X-ray Technology business produced another year of revenue
and profit growth. Following several years of growth for its low
power X-ray sources, driven in large part by new environmental
legislation, the business is increasing its manufacturing capacityand moving to larger premises in the Scotts Valley area of
California. The business now has a dominant market share in
the RoHS market segment and is seeing new growth from theultra-low sulphur market. In recognition of our leading position
in low form factor X-ray tubes, we have been awarded a
US$1.1 million development contract from NASA to develop
an X-ray tube for use in space.
Superconductivity
Orders and revenue for the underlying business for the year
were £74.4 million (2005 £69.0 million) and £73.1 million(2005 £66.8 million) respectively. Trading profit of the underlying
business, before non-recurring items and intangible amortisation,
was £0.9 million (2005 £2.7 million).
The market for bespoke superconducting magnets and cryogenic
equipment picked up as the year progressed and orders werestrong in the second half. However towards the end of the year
it became clear that radical restructuring of our NMR magnet
activity was needed, reflecting the future intention of one ofour major customers to source increasingly from its own recently
acquired magnet manufacturing factory. In February 2006
we announced we would discontinue volume productionof undifferentiated magnets for OEM customers, close ourmanufacturing facility in Eynsham, Oxfordshire and consolidate
all our magnet and cryogenic activity at our nearby Tubney
Woods facility. At the same time a new managing director
was appointed to the merged business, now known as Oxford
Instruments NanoScience. These moves will greatly strengthen
the ongoing business.

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
the world’s first commercial Dynamic Nuclear Polarisation technique(DNP). The use of DNP in conjunction with conventional liquidstate NMR provides an information rich technique whose
performance cannot easily be matched by conventional NMR
instrumentation alone. The information thus generated will help
researchers understand the structure and function of moleculesthat play a vital role in biochemical pathways. This will assist
in the fields of life science and drug discovery. The first major
product to be developed, ‘HyperSense’, was officially launchedat the annual ENC (Experimental NMR Conference) tradeshow
in April 2006. Several beta sites have been successfully installed
and are generating exciting new information. We now have fivecollaboration programmes with major academic institutes. Aheadof forecasts we have now taken three orders in addition to ourbeta site installations. A state of the art DNP-NMR applications
facility has now been set up at the Tubney Woods site to develop
analytical protocols, to run customer samples and to generate
novel applications in biomolecular analysis.
Within Molecular Biotools the Resonance Instruments business,acquired in September 2004, had a good year and showed
growth in both revenue and trading profit. A new bench
top NMR instrument ‘MQC’ for quality analysis and control
for food and chemical manufacture was launched in April 2006.
This product has been well received and is now in production.
Superconducting wire revenue continued to grow, with reduced
demand from within the Group more than offset by increased
third party customer requirements. This reflected growth in
the market for hospital MRI magnets, but the profitability ofthe business was adversely affected by sales price erosion andrising raw material prices, particularly copper. The International
Thermonuclear Energy Reactor (ITER) project, an internationallybacked programme aimed at generating huge quantities ofpower, will provide an opportunity for significant additional wirevolumes in the coming years, both directly and in collaboration
with other worldwide producers. We have supplied materials
under the qualification programme and have met the requiredthinking deeper...

The next generation of powerful, integrated computers, mobile phones
and portable devices will require smaller, faster and less power-hungry
electronic components. In making smaller semiconductor chips, thecomplex series of layers and inter-layers which make up the structureof the chip must also be made thinner.
Atomic layer deposition (ALD) looks set to become the technology ofchoice for doing so. ALD is also of interest in fuel cells, which offer clean
renewable energy by running on hydrogen and emitting only water.

Micro-mechanical devices are now becoming widespread, particularly
in automotive applications such as tyre pressure sensors and airbag
sensors, and ALD technology provides a method of coating tiny parts
with a hard, wear-resistant coating.
By offering new, innovative tools like ‘FlexAL’, Oxford Instruments
is enabling its customers to make the strides in nanotechnology which
will turn these ideas into everyday reality.

12

Business and Financial Review

specification. For about five years this programme will significantly
increase the amount of superconducting wire produced worldwide.
We are finalising our plans to invest in new plant to support thisactivity and the rest of the wire business.
The MRI magnet service business revenue grew during theyear reflecting the steady increase of the installed base in both
American and Japanese hospitals. As the organisation grows
in both countries it is able to offer an increasingly attractive
service to its customers. The USA maintenance support contract
with Siemens was renegotiated and extended.
The Austin Scientific cryogenic pump and compressor businesshad an excellent year with growth in both revenue and profits.
Additionally there was a better revenue balance between the
US domestic and international markets.
Accounting policies
This is the first set of accounts which the Group has prepared underInternational Financial Reporting Standards. An explanation of theaccounting adjustments on transition can be found in Note 37.
Details of the Group’s accounting policies can be found on pages
40 to 45. In addition Note 35 sets out the main areas of judgement
in applying those policies.
The principal exchange rates used to convert foreign currencies
are set out in Note 38.
Revenue and trading profit for the underlying business
The underlying business comprises all of the Group’s activities
except the restructured magnet business. Group revenue forthe year to 31 March 2006 of £153.8 million was £18.2 million
higher than the previous year, the increase reflecting a mixtureof organic growth and the impact of the acquisitions in thecurrent and previous period. The Group trading profit was£6.9 million down £2.2 million from the previous year. However,the £6.9 million includes a charge of £2.7 million arising fromthe incremental product development expenditure initiative
announced in June 2005 and so on a like for like basis Group
trading profit before incremental product development expenditurewas £9.6 million, up £0.5 million on the previous year.
The relative stability of exchange rates during the year meantthat foreign exchange had only a limited impact on revenue andtrading profit for the year.
The results summarised by business segments are set out in Note
1 on the Financial Statements. For the underlying business grossprofit as a percentage of revenue was 31.5%, an increase of 0.2%
over the previous year. This reflected improved manufacturing
yield and low cost outsourcing programmes offset by sales priceerosion in certain specific markets and higher raw materials prices,
particularly copper.
Overheads were higher reflecting recent acquisitions, expansionof the sales and distribution network, the absence of favourable
foreign exchange contracts which benefited the prior year andan increase in research and development expenditure.
Investment in research and development (R&D)
The total amount of cash spent on research and developmentby the underlying business in the year was £12.3 million, up £3.3
million on the prior year. This was made up as shown below.
The net book value of capitalised R&D at the end of the financial
year was £5.5 million (2005 £4.0 million) and consisted mainly ofthe development costs of new generation Analytical instruments.
R&D capitalised in the year represented 21% (2005 13%) of thetotal cash spent on R&D.

Investment in research and development

2006£ million

2005£ million

Research and development as shown in the income statement
Removal of amortisation of previously capitalised research and development

10.8
(1.1)

9.2
(1.4)

Cash spend charged to the income statement
Add research and development spend capitalised in the year

9.7
2.6

7.8
1.2

Total cash spent on research and development in the year

12.3

9.0

knowing more.

How do you make steel stronger, safer, and yet lighter? Metallurgists
are answering this question by working on the nano-scale propertiesof steels using two of Oxford Instruments’ ‘INCA’ microanalysis systems.
By being able to measure the imperfections in the structure of the steel,manufacturers can improve their processes to eliminate those that areharmful leaving cleaner, stronger steel. They can then investigate how
the structure of the steel behaves, and develop new materials whichin effect transform from one type of steel to another on impact.
So, even using less steel, cars protect passengers in a crash.
Lighter stronger steels means less weight in cars, burning less fuel,and decreasing carbon dioxide production. When we use less steel,
we use less energy to make steel. ‘INCASteel’ and electron backscatter
diffraction from HKL are helping steel makers to make these newmaterials and reduce harmful environmental effects.

14

Business and Financial Review

Other operating income, amortisation of acquired
intangibles and non-recurring items
Other operating income included a profit of £1.7 million on
disposal of the Group’s minority holdings in Target Systemelectronic
GmbH and Target Instruments Inc as well as a profit of £0.2
million on the disposal of the surplus Oak Ridge Tennessee site
and a gain of £0.1 million on the sale of part of the minority
shareholding in ARKeX Limited.
Amortisation of other intangibles of £0.2 million (2005 £1.3
million) relates to the amortisation of certain customer related
intangible assets acquired as part of the Resonance and Metorex
acquisitions made in 2005.
In February 2006 the Company announced the restructuring of
its UK Superconductivity businesses. This involved the consolidationof all the UK magnet and cryogenic expertise and resources at theCompany’s Tubney Woods site and closure of the Eynsham factory.
Restructuring and non-recurring costs of £6.6 million reflect theassociated costs, including redundancy and removal costs as wellas inventory write-offs reflecting the decision to focus on bespoke
NMR magnets in future instead of providing a field strength rangeof standard NMR magnets. There is also a charge of £0.1 milliion
relating to redundancies at Plasma Technology.

Financial income and expenditureWithin financial income and expenditure total net interest
receivable was £0.3 million (2005 £0.5 million). The interest charge
on pension scheme liabilities exceeded the expected return on
pension scheme assets by £0.7 million (2005 £0.5 million).
Taxation
The underlying tax rate on the profit before income tax for thecontinuing businesses before other operating income, restructuring
and other non-recurring and amortisation of acquired intangibles
was 55% (2005 36%). The key factors influencing the rate oftax are the UK corporate tax rate of 30% and higher tax rates
in overseas jurisdictions such as USA, Germany and Japan coupledwith the inability to offset losses arising in one jurisdiction against
profit arising in another.
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 £19.1 million (2005 £15.1 million) has
been recognised against timing differences and unused capitalallowances, of this £16.5 million (2005 £13.1 million) relates
to the deficit in the pension schemes. No deferred tax asset
has been recognised against past UK tax losses.

Orders
2006 Analytical £85.5m
2005 Analytical £67.9m

Superconductivity £74.4m
Superconductivity £69.0m£159.9m£136.9m

Underlying business.

Revenue2006 Analytical £80.7m
2005 Analytical £68.8m
Underlying business.

Superconductivity £73.1m
Superconductivity £66.8m£153.8m£135.6m

15

Earnings
After a total tax charge of £2.5 million (2005 £1.7 million) thenet loss for the financial year was £3.4 million. In the previous
period the net profit after taxation was £5.6 million including
a profit from discontinued operations of £7.2 million.

Pensions
Overall the deficit in the UK pension scheme increased by£9.4 million to £49.9 million. Assets of the scheme at 31 March
2006 were £123.3 million. Despite an increase in assets of £22.2
million over the year this was more than offset by the combined
effect of a reduction in the discount rate applied to liabilities anda further change in the mortality tables. An actuarial valuation as
at 31 March 2006 is in progress and once the results are available
to the Company and the Pension Trustee Directors a long term
plan for funding the deficit will be agreed which is acceptable
to all parties.

With a weighted average number of shares of 47.7 million(2005 47.1 million) the total basic earnings per share was a lossof 7.2 pence (2005 profit 12.2 pence). After adjusting for nonrecurring items and amortisation the earnings per share of theunderlying business was 9.1 pence (2005 13.9 pence).
Dividends
The Group’s proposed final dividend of 6.0 pence per share(2005 6.0 pence), payable on 27 October 2006, makes a total
dividend for the year of 8.4 pence per share and remains thesame as last year, excluding the special dividend of 25.0 pence
per share paid in March 2005 following the disposal of the Medical
business. Dividend cover for the underlying business before
other operating income, non-recurring items and amortisationof acquired intangibles amortisation was 1.1 times.
Employees
The number of permanent employees at 31 March 2006 was
1,290 compared with 1,295 at 31 March 2005. Shortly after
the year end a further 43 employees left the UK Superconducting
business following the closure of the Eynsham factory.

By the end of March 2006 £1.8 million of the special contributionof £6.0 million referred to last year had been paid into the scheme.
The balance will form part of the long term funding plan.
Acquisitions
In April 2005 the Group acquired the share capital of HKL
Technologies A/S, based in Hobro, Denmark. A total cash
consideration of £2.1 million was paid during the year witha further estimated £0.3 million due to be paid based on thelevel of post acquisition sales revenue growth. HKL is a supplierof electron backscatter diffraction devices used in conjunction
with electron microscopes. The revenue of HKL in the year was£1.8 million on which it made a small contribution to trading
profit of £0.1 million.

Trading profit
2006 Analytical £6.0m
2005 Analytical £6.4m
Underlying business, before non-recurring items and intangible amortisation.

Superconductivity £0.9m
Superconductivity £2.7m

£6.9m
£9.1m

16

Business and Financial Review

Discontinued business
The Group’s Medical business was sold to VIASYS Healthcare
Inc on 1 March 2005 and has been treated as a discontinued
business in the prior year results.
Segment assets
Segment assets increased by £8.9 million to £67.6 million reflecting
an increase in working capital and capitalised R&D. As a resultof this increase and the reduction in trading profit resulting fromthe increased product development spend, return on segment
assets reduced by 3.3% to 9.9%.
Cash
The Group began the year with net cash (cash less overdrafts
and bank borrowings) of £26.5 million and ended the yearwith net cash of £9.8 million, an outflow of £16.7 million.
Gross cash was £13.9 million (2005 £29.7 million) with bankloans and overdrafts amounting to £4.1 million (2005 £3.2
million). Principal contributors to the outflow were an operating
cash outflow of £4.7 million relating mainly to increased working
capital, acquisition of new plant and machinery of £4.2 million
and acquisitions £3.9 million.
The group intends to use the surplus cash to fund acquisitions
as and when suitable opportunities present themselves. There are
no plans at present to return cash to shareholders.

At the year end the Group’s bank facilities were sufficient for
its short term needs. In addition to multi-currency overdraft andshort term borrowing facilities of £30.9 million (or the foreign
currency equivalent) available to the Group at 31 March 2006,
the Group had contractually committed unsecured facilities of£15.0 million. At 31 March 2006 none of the committed facilities
and only £4.1 million of the uncommitted facilities were in use.
There are no known restrictions on the ability of the Group totransfer funds within the organisation.
Further details on treasury management and policy can be foundin Note 21.
Capital structure
Shareholders’ funds at the year end were £46.4 million (2005£58.0 million), or 95 pence per share (2005 120 pence per share).
There were no net borrowings. After provision for the interim
dividend (paid after the period end) and the proposed final dividend,
distributable reserves of the Company were £87.2 million.
There was no change in the capital structure of the Company
during the year. At the year end the number of shares issued
was 48.7 million (2005 48.3 million) ordinary shares of 5p each.

Adjusted basic earnings per share
2006

9.1p

2005

13.9p

Underlying business, before other operating income, amortisation of intangibles and restructuring and other non-recurring costs.

Dividends per share
2006
2005
Underlying business.

8.4p
Special dividend 25.0p

33.4p

17

0.4 million new ordinary shares were issued in the year representing
0.9% of the total issued share capital at the year end. Undervarious employee share option schemes, set out in Note 25
a further 2.7 million new shares may be issued if performance
conditions, where applicable, are met and the options are
exercised. This would give a maximum increase in issued sharecapital of 5.5%. In addition 0.6 million issued shares are heldin trust in relation to the share option schemes.
Balance sheet
Net operating assets, excluding acquired intangibles, increasedby £7.3 million to £57.5 million. Net working capital increasedby £5.4 million. This is reflected in an increase in the net working
capital to sales ratio from 14.9% to 17.1%. Stock increased fromprior year by £3.2 million reflecting acquisitions, higher stocklevels to allow faster response to customer enquiries and moredemonstration stock relating to new products. Debtor days forthe continuing businesses increased from 48 days to 51 days.

Goodwill increased by £1.7 million reflecting goodwill of£2.2 million arising on the acquisition of HKL Technologies(see Note 14) an exchange gain of £0.3 million and a £0.8 million
reduction of the goodwill arising on Metorex acquisition due
to recognition of a deferred tax asset in respect of certain tax
losses now utilised.
Share price
The closing mid-market price of the ordinary shares at the endof the financial year was £2.00, compared with £2.49 at the
beginning of the year. The highest and lowest prices recordedin the financial year were £2.54 and £1.97 respectively. At theclose of trading on 13 June 2006 the share price was £2.05.
Going concern
The Financial Statements have been prepared on a going concern
basis, based on the Directors’ opinion, after making reasonableenquiries, that the Group has adequate resources to continue inoperational existence for the foreseeable future.

An analysis of tangible fixed assets is shown in Note 15.
The increase in net book value of fixed assets of £0.4 million
reflected expenditure on new assets at a level slightly in excess
of depreciation and the net book value of disposals.

Group revenue by region
2006 North America£49.7m2005£43.6m2006 Japan£34.5m2005£32.8m2006 Continental Europe£27.7m2005£22.7m2006 Rest of Far East

£19.9m2005£17.7m2006 UK£17.4m2005£16.5m2006

Rest of World

2005
Underlying business.

£4.6m
£2.3m

18

Directors’ Biographies

ChairmanNigel Keen, 59, Non-Executive Chairman, joined the Board in
1999. He is Chairman of The Laird Group PLC, Axis-Shield plc
and Deltex Medical Group plc.
Executive Directors
Jonathan Flint, 45, 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, 62, joined Oxford Instruments plc in 1985
as Group Financial Director. He has a BA in Industrial Economics
from Nottingham University. Previously he was with Glaxo Groupplc and BOC Limited.
Charles Holroyd, 50, was appointed to the Board as GroupOperations Director in November 2005, having joined Oxford
Instruments in November 1999. He has a BSc in Electrical andElectronics Engineering from Bristol University and an MBA fromINSEAD. Previously he held senior management positions within
United Industries plc, B Elliott plc, Bowthorpe plc and Chloride
Group plc.
Steven Parker, 55, was appointed to the Board as Group
Commercial Director in November 2005, having joined Oxford
Instruments in July 2002. He has an MBA from Wake Forest
University and BA in Economics from Randolph-Macon College.
Previously he was with Compagnie de Saint-Gobain andAlliedSignal Inc (now Honeywell Inc).

Non-Executive Directors
Professor Sir Michael Brady, 61, Deputy Chairman and Senior
Independent Director, joined the Board in 1995 and is BP Professorof Information Engineering at Oxford University. He is also a Fellowof the Royal Society. He is a founding Director of Guidance andControl Systems Limited and Mirada Solutions Limited, now partof Siemens AG, a Director of ISIS Innovation Limited and Senior
Independent Director of Ixico Ltd.
Professor Michael Hughes, 61, Independent Non-Executive
Director, joined the Board in November 2004. He is Chairman
of EA Technology Limited, a Non-Executive Director of South
Staffordshire Group plc and Non-Executive Chairman of Cyan
Holdings plc.
Peter Morgan, 70, 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 Consulting
plc. He is a member of the Council of Lloyd’s and a Directorof the Association of Lloyd’s Members.
Bernard Taylor, 49, Independent Non-Executive Director, joined
the Board in 2002 and is Chief Executive of Braveheart Financial
Services Limited. He is a member of The Council of the Universityof Oxford and is Chairman of the University’s Audit Committee.
He is Chairman of ISIS Innovation Limited, and a Non-Executive
Director of TI Automotive Limited. He is also a Fellow of the Royal
Society of Chemistry.
Martin Lamaison will retire as Group Financial Director andCompany Secretary with effect from 7 August 2006. Kevin Boyd,currently Group Finance Director of Radstone Technology plc,
will replace him.

The Board

Nigel Keen, Jonathan Flint, Martin Lamaison,Charles Holroyd, Steven Parker, Mike Brady,
Michael Hughes, Peter Morgan and Bernard Taylor.

20

Directors and Advisers

Directors
The following Directors served throughout the year except as noted:
N J Keen FCA, Chairman
M Brady FREng FRS, Deputy Chairman
D J Flint, Chief Executive (from 5 April 2005)
M Lamaison FCA, Financial Director and Company Secretary
C J A Holroyd, Group Operations Director (from 22 November 2005)
S M Parker, Group Commercial Director (from 22 November 2005)
M A Hughes
P W L Morgan
B J Taylor
Board Committees
Audit: Peter Morgan, Chairman; Mike Brady; Bernard Taylor; Mike Hughes
Remuneration: Nigel Keen, Chairman; Mike Brady; Peter Morgan; Mike Hughes
Nomination: Nigel Keen, Chairman; Mike Brady; Peter Morgan; Bernard Taylor; Mike Hughes
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

21

The Business of Science
Oxford Instruments plc Reports and Financial Statements 2006

22
24
26
32
38
39
40

Report of the Directors
Corporate and Social Responsibility
Corporate GovernanceDirectors’ Remuneration Report
Directors’ Responsibilities in relation to the Financial Statements
Report of the Independent Auditors
Accounting Policies

46
47
48
49
50
51
87

Group Income Statement – year ended 31 March 2006
Group Income Statement – year ended 31 March 2005
Group Statement of Recognised Income and Expenditure
Group Balance SheetGroup Statement of Cash Flows
Notes on the Financial Statements
Parent Company (Note 39)

22

Report of the Directors

The Directors present their Report and the Financial Statements of
Oxford Instruments plc for the year ended 31 March 2006.
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 high technology tools andsystems for industry and research. The business, the strategy, theresearch and development activities and likely future prospects arereviewed in the Chairman’s Statement on pages 2 and 3, the Chief
Executive’s Review on pages 4 to 6, and the Business and Financial
Review on pages 8 to 17.
Acquisitions and disposals
Details of acquisitions and disposals are set out within the Businessand Financial Review on page 15 and within Note 14 on the Financial
Statements.
Results and dividends
The results for the year are shown in the Group Income Statementon pages 46 and 47. The Directors recommend a final dividend of
6.0p per ordinary share, which together with the interim dividendof 2.4p per ordinary share makes a total of 8.4p per ordinary sharefor the year (2005 33.4p this included a special interim dividend of
25.0p). Subject to shareholder approval, the final dividend will be
paid on 27 October 2006 to shareholders registered at close ofbusiness on 29 September 2006.
Directors
Profiles of all the Directors at the date of this report, including the
Non-Executive Directors, appear on page 18. All the Directors servedon the Board for the whole year under review with the exceptionof Jonathan Flint who was appointed to the Board on 5 April 2005
and Charles Holroyd and Steve Parker, who were appointed to theBoard on 22 November 2005 as Executive Directors.

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 2006 are shown
below. Details of share options are shown in the Directors’
Remuneration Report on pages 32 to 37.

Mike Brady
Jonathan Flint
Charles Holroyd
Mike Hughes
Nigel Keen
Martin LamaisonPeter Morgan
Steve Parker
Bernard Taylor

2006
Shares

2005
Shares

2,500–
24,561–
111,580
51,315
10,000
–
190

2,500
–
24,561–85,00051,035
10,000–190

No Director was beneficially interested in the shares of any subsidiarycompany at any time during the year. In the year to 31 March 2006
no Director had a material interest in any contract of significancewith the Company or any of its subsidiaries other than the contract
between Imperialise Limited and the Company for the services ofNigel Keen.
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 and inrespect of damages resulting from the unsuccessful defence of any
proceedings. To the extent permitted by UK law, the Company also
indemnifies its Directors and Officers. Neither the insurance nor theindemnity provided cover situations where the Director has acted
fraudulently or dishonestly.

Report of the Directors

Oxford Instruments plc

Share capital
During the year 430,375 new shares were issued (2005 218,330).
Details are set out in Note 25 on the Financial Statements.
Substantial shareholdings
The following are beneficial interests of 3% or more and any nonmaterial interests of 10% or more, of which the Directors havebeen notified, of the Company’s issued ordinary share capital, theonly class of voting capital, at 13 June 2006:

Aberforth Partners
Hermes Pension Management Ltd
Sir Martin and Lady Audrey WoodGAM London Limited
Credit Suisse Asset Management Ltd
AVIVA plc
HBOS plc
Howson Tattersall Investment Counsel
Legal & General Investment Management Ltd

Shares
000

% of
total

11,589
4,117
3,487
2,910
2,746
1,806
1,725
1,645
1,622

23.8
8.4
7.2
6.0
5.6
3.7
3.5
3.4
3.3

Payment of suppliers
The Group does not follow a standard payment practice but agrees
terms and conditions for its business transactions with each of 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 2006
were equivalent to 35 days’ (2005 40) and 38 days’ (2005 41)purchases respectively, based on the average daily amount invoiced
by suppliers to the Company and Group’s UK subsidiaries during
the year.

Disclosure of information to Auditors
Pursuant to Section 234ZA(2) Companies Act 1985 the Directors
who held office at the date of this Directors’ Report confirm that,so far as they are each aware, there is no relevant audit informationof which the Company’s Auditors are unaware; and each Director
has taken all the steps that he might reasonably have been expected
to have taken as a Director to make himself aware of any relevant
audit information and to establish that the Company’s Auditors areaware of that information.
Annual General Meeting
The Notice of the Annual General Meeting to be held on 26
September 2006 is set out on pages 94 to 97 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
13 June 2006

23

24

Corporate and Social Responsibility

Principles
Oxford Instruments is committed to responsible corporate behaviour.
This governs the way we provide sustainable value for our shareholders through our interaction with all key stakeholders: customers,
business partners, employees, suppliers and the setting in which
we operate, including governments, society, local communities,
and the environment.
The Company’s reputation, together with the trust and confidenceof those with whom it deals, is one of its most valuable assets. It
is therefore essential that all employees accept responsibility for
maintaining Oxford Instruments’ excellence in this area.
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.
Corporate values
The Group has chosen the following six corporate values:
Inspiration
Responsibility
Working smarter
Integrity
Agility
Will to win
It is made clear to employees that Oxford Instruments’ corporate
values must underpin all that we do and examples of how this works
in practice are discussed with employees. These Company values
are used to guide the way in which we work and are an integral
part of our internal communications.
Corporate accountability
It is the responsibility of the operational management teams to ensurethat policies are communicated, implemented and maintained
within their particular businesses, whilst taking into account local
legislation.
Ethical trading
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, through which
our employees can raise, in confidence, concerns they may havewith any aspect of Company behaviour. We have a clear code of
ethics, which is given to all new employees and is available at all
times to all employees.
A fair and open culture is fostered in which everyone’s views andcontributions are encouraged and respected. We work to ensurethat those 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. Key suppliers are audited prior to being
appointed to ensure that their principles match our own.
Our ethical approach is continuously under review and we look todevelop it further as our business needs and practice evolve.

Oxford Instruments plc

Health & safety
Oxford Instruments is committed to ensuring the health, safety andwelfare of its employees and to the continual improvement in its
health and safety performance. The achievement of this aim isdependent on the establishment and maintenance of effective
health and safety management systems, integrated into all businessprocesses and line management functions within each of ourbusinesses. Health and safety is an area where all parts of theGroup can learn from each other. The Group Health, Safety andEnvironment Manager is responsible for coordinating this and forsharing knowledge and best practice across the Group.
All businesses within the Group recognise the importance of keeping
all employees updated on health and safety issues, and of bringing
to their notice a written statement of the policy relating to healthand safety at work. In addition employees are kept informed ofcurrent issues through staff notice boards and bulletins. Employees
are encouraged to suggest improvements that can be made inwork conditions and practices. In order to maintain high standards
throughout the Group training courses are run regularly and risk
assessments are conducted to ensure staff are working in a
comfortable and safe environment. Action is taken when required.
All businesses report to the Board annually on the progress with
their health and safety objectives and goals, including actions taken.
Environmental issues
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 andenvironmental impact by the adoption of appropriate practices in
its operations.
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 operating 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. Oxford Instruments’ products
make a significant contribution to society across numerous fields.
Our magnet and cryogenic products are used by scientists toenable groundbreaking 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 to find alternative, plentiful, energy sources anda Group product could be a key enabling factor in this programme.

Corporate and Social Responsibility

For environmental monitoring, Oxford Instruments provides tools todetermine easily the presence of hazardous substances in consumer
products and the environment. Recent trends toward the restrictionof certain dangerous elements in manufactured products has led toEuropean Union legislation such as RoHS (Restriction of Hazardous
Substances), WEEE (Waste Electrical and Electronic Equipment), ELV(End of Life Vehicle) and the Packaging Directive. X-ray fluorescenceis fast becoming the preferred technique for regulatory compliancescreening, and Oxford Instruments has a range of products speciallydesigned for a variety of testing methods for a range of restrictedhazardous substances such as lead, mercury, cadmium and chromium.
Shareholders
We provide timely and accurate information to all shareholders on
our activities and performance. To deliver shareholder value we seek
to use assets wisely and maintain these with the utmost care andrespect, guarding against waste and abuse. We are cost-conscious andalert to opportunities for improving performance whilst reducing costs.
Employees
As a knowledge based company our employees are our mostimportant asset. Relations with our employees are based on
respect. We are committed to a working environment where there
is mutual trust and respect and where everyone is accountable for
their own actions and believes themselves to be responsible for the
performance and reputation of our Company.
We aim to recruit, employ and promote employees on the sole basisof their ability and are committed to developing and enhancing
each employee’s skills and capabilities. Our policies are designed toprovide employees with safe and healthy working conditions andpractices, and to enable everyone to work free from discrimination,harassment or bullying of any kind.
In return we expect our employees to act with integrity and maintainhigh ethical standards.
Our aim is to ensure there are equal opportunities for all employeeswith no discrimination on account of race, age, gender, sexual
orientation, disability, and 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 and valuing
core skills. Having the right skills mix ensures that the businessgrows through producing innovative products that meet or exceed
our customers’ expectations.
It is the Group’s policy to provide competitive remuneration referenced
against external market data, whilst business and individual
performance determine actual remuneration. Salaries are reviewed
on an annual basis. Financial participation in the Group is encouraged
through the Savings Related Share Option Scheme in the UK,
Executive Share Options granted to management, and throughbonus schemes based on financial performance.
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 theemployment of Oxford Instruments, the Group works with them tomake the necessary adjustments to ensure that wherever possible,
their employment continues.

Oxford Instruments plc

The Group shares with its employees, many of whom are shareholders,
information on business activities, priorities and performancethrough regular team briefings and half-yearly Chief Executive’s
updates on financial performance and progress against strategy. In
addition the Group distributes to all employees an electronic
newsletter “Business News”, which keeps the employees updated
on the Group’s progress. All employees receive a copy of theAnnual Report and Accounts.
Employees cannot engage in an activity for personal gain that is in
conflict with the Company’s business interests or applicable law, andmust disclose to the Company any personal interest, or interests of
their immediate family that could create a potential conflict of interest.
Customers
We believe that integrity in dealing with customers is a prerequisite
for a successful and sustained business relationship. This principle
governs all aspects of our approach. We value our customers andthe trust that they place in us. We will safeguard the information
provided to us by our customers in accordance with relevant laws
and contractual commitments.
Business partners
We are committed to establishing mutual trust and mutually beneficial
relations with our other business partners, namely suppliers, banks
and collaborative associates. In our business dealings we expect ourpartners to respect our business principles and in turn, we respect
theirs. Protecting intellectual property would be an example of this.
We have a full audit process when considering a new major supplier
which covers good business and corporate practice.
Regulators
It is Company policy to cooperate fully with all enquiries from any
regulatory authority.
Communities
For many years Group businesses have contributed and supported
local charities and community activities. Total donations made by theGroup during the year amounting to £5,420 (2005 £30,000) weremade to a range of community organisations. It is the Group’s policy
to prohibit donations to any political party or similar organisationand 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 2006 spent £22,000 (2005 £65,000) providing student
sponsorship in the UK. The Group also sponsors a number ofinternational awards and events including the prestigious Sir Martin
Wood Prize through the Millennium Science Forum in Japan. As
well as a cash prize, the winner receives a unique opportunity tolecture at a number of UK universities.

Nigel Keen Chairman
13 June 2006

25

26

Corporate GovernanceIntroduction
The Board is committed to ensuring that high standards of corporate
governance are maintained by the Group. The Board endorses themain and supporting principles and the provisions set out in the
Combined Code on Corporate Governance of the Financial
Reporting Council (the Code) which applied to the Company since
1 April 2004 and complies with the Code, except as detailed below.
The Board’s policies and procedures are documented in a Board
Reference File that sets 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, theCompany 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 page 33 in respect of provision
B.1.1. This provision relates to the inclusion of cash bonuses forpension purposes.
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 four
Executive Directors. For Board biographies and details of length ofservice, please see page 18. All the Directors have written letters of
appointment that have been approved by the Board.
Nigel Keen is Non-Executive Chairman of the Board and for part of
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
the Chief 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.
General Committee Management TeamThe Board delegates management of the business to the Chief
Executive. To assist in this, the Chief Executive has created a
General Committee. Headed by the Chief Executive, the General
Committee comprises the Group Financial Director, the Group
Commercial Director, the Group Operations Director, the Managing
Director of the Oxford Instruments Innovation group and theGroup Director of Human Resources.
Executive Committee Management TeamThe General Committee is supported by an Executive Committee
which comprises all members of the General Committee with theaddition of the Managing Directors of each of the individual strategic
customer facing businesses, for which they are financially responsible.

Oxford Instruments plc

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 2005 the Board reviewed and approved a revised
Board Reference File which details the way the Board operates,
including a schedule 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 bymanagement in the areas of governance, strategic and financial
management and reporting, capital structure, corporate actions,mergers and acquisitions, major contracts and commitments,
litigation and regulatory proceedings, remuneration and share plans.
Where the Board delegates authority to management it is on a
structured basis, which requires that proper management oversight
exists at the appropriate level. Within management, the General
Committee, which meets at least twice a month and the Executive
Committee, which meets once a month, both either physically or byvideo or telephone conference, focus on group-wide performanceand risk management. Each of the individual strategic businesses
holds monthly management 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 thestrategic businesses 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.
Board papers are distributed in advance of the relevant meeting insufficient time to allow the Directors to prepare for meetings. Minutesof Committee meetings are circulated to the relevant Directors. In
the very few instances when a Director has not been able to attend
Board or Committee meetings, his comments on the papers to beconsidered at the meeting are communicated in advance to therelevant 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.

Corporate Governance

The Company Secretary and the Company Secretary’s Office areresponsible 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 the balanceof skills and experience is appropriate for the requirements of thebusiness and that there is a balance of Executive and Non-Executive
Directors such that no individual or small group of individuals candominate the Board’s decision making. The composition of theBoard and the combination of diverse backgrounds and expertiseof the Non-Executive Directors meets these principles.
In the opinion of the Board each of the Non-Executive Directors iscurrently independent under the guidelines set out in the
Combined Code. This opinion is based on current participation andperformance 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 theBoard; his continual constructive probing of the technical aspect ofproposals being considered by the Board; the composition of theBoard generally and the fact that he qualifies as independent in allother criteria referred to in the Combined Code, leads the Board toconclude that it is appropriate that he continue in office and thathe 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. Nigel Keen also serves as
Chairman of Oxford Instruments Pension Trustees Limited which is
responsible for the UK defined benefit scheme.
Appointments to the Board
There is a formal, rigorous and transparent procedure for theappointment of new Non-Executive Directors to the Board, theprime responsibility for which is delegated to the Nomination
Committee. Each appointment process begins with an evaluationof the balance of skills, knowledge and experience existing on the
Board that is effected through a series of one-on-one meetings
between the Committee Chairman and Directors. A 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 several
Directors 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.

Oxford Instruments plc

On joining the Board, new Non-Executive 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 are provided
with an opportunity to meet any new Non-Executive Directors.
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 to retire
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.
Board development and evaluation
Board development
On appointment Directors undertake an induction process which isdesigned to develop knowledge and understanding of the Company’sbusiness, through visits to various Group operating sites, discussion of
relevant technology as well as product demonstrations, 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 award presentations.
The Company Secretary and his office act as advisers to the Boardon matters concerning governance and ensure compliance with
Board procedures. All Directors have access to this advice and aprocedure also exists for Directors to take independent professional
advice at the Company’s expense. No such advice was sought
during the year. The appointment and removal of the Company
Secretary are matters for the Board as a whole.

27

28

Corporate GovernanceOxford Instruments plc

Board evaluation
In the year ended 31 March 2006 the Board completed its annual effectiveness evaluation exercise, including a specific review of theeffectiveness of its principal committees and members. This was an internal exercise using a detailed questionnaire completed by all
Directors in relation to the key areas of Board accountability and the arrangements in place to enable effective focus on these areas. Topics
covered included Group strategy, performance, delegation and accountability, success, development and reward, Board and Committee
composition, Board induction and training, internal control and risk management. The following table explains the Board assessment
process and highlights which Board members completed anothers’ assessment questionnaire:
Role being reviewed

Self

Questionnaires completed by
Directors

Chairman
Non-Executive Directors
Chief Executive
Financial Director
Executive Directors

Yes
Yes
Yes
Yes
Yes

Deputy Chairman and Chief Executive
Chairman and Executive Directors
Chairman, Deputy Chairman and Executive Directors
Chairman and Chief Executive
Chairman and Chief Executive

Attendance at meetings
No one other than the Committee Chairman and members is entitledto 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.
The following table sets out the frequency of, and attendance at,
Board and principal Board Committee meetings for the year to 31
March 2006:
Board

Audit
Committee

Remuneration
Committee

Nomination
Committee

No of meetings held

15

7

3

3

Nigel Keen
Jonathan Flint
Martin Lamaison
Charles Holroyd 2
Steve Parker 2
Mike Brady
Peter Morgan
Bernard Taylor
Mike Hughes

15
15
15
5
5
13
15
12
14

71
71
71
21
21
4
7
7
7

3
21
21
–
–
2
2
3
3

3
21
21
–
–
2
2
3
3

1 in attendance by invitation of the Committee
2 appointed 22 November 2005
During the year five additional exceptional Main Board meetings werescheduled bringing the total number of Board meeting held for theyear to fifteen. Due to illness Peter Morgan did not physicallyattend the Annual General Meeting, but he did join the Audit
Committee and Main Board meetings held on that day by phone.
Board Committees
The Board is supported by the following Committees: Nomination,
Remuneration, Audit and Administration. Membership of theBoard Committees is set out on page 20. 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 Board in
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 theBoard. The appointments are based on merit and against objective
criteria including the time available and the commitment that will
be required of the potential Director.
The Nomination Committee recommends to the Board whether a
Non-Executive Director’s appointment should be renewed for afurther three years at the end of each three year term, taking into
account the performance of the individual.
The Nomination Committee also annually reviews the performanceof the Chief Executive.
The Board is aware of the other commitments of its Directors andis satisfied that these do not conflict with their duties as Directorsof 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 Chairman of
the Board may be Chairman of the Committee. The Chairman of
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 remuneration of
the Non-Executive Directors, including the Chairman.
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 32 to 37.

Corporate Governance

Audit Committee
The primary objective of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibilities relating to external financial
reporting and associated announcements; oversight of the external
audit process including consideration of the independence of theGroup’s external auditors; the resourcing and plans of the Internal
Audit function; and the adequacy and effectiveness of the control
environment.
The Audit Committee’s terms of reference include all matters indicatedby the Combined Code. The terms of reference are consideredannually by the Audit Committee and are then referred to theBoard for approval. The Audit Committee structure requires theinclusion 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 Chairman of
the Board and members of senior management such as the Chief
Executive and Financial Director are invited to attend all or part ofany meetings or to present such reports as are required for theCommittee to discharge its duties. The external auditors are invited
to attend meetings of the Committee on a regular basis, including
once at the planning stage before the audit and once after the audit
at the reporting stage. At least once a year the Committee meetswith 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 the Groupand 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 with statutory 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.
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:• The external auditors’ fulfilment of the agreed audit plan andvariations from the plan;• The robustness and perceptiveness of the auditors in theirhandling of key accounting and audit judgements; and• The external auditors’ comments in respect of internal controls.

Oxford Instruments plc

To fulfil its responsibility regarding the independence of the external
auditors, the Audit Committee reviews the changes in key external
audit staff in the external auditor’s plan for the current year; thearrangements for day-to-day management of the audit relationship;a report from the external auditors describing their arrangements
to identify, report and manage any conflicts of interest; and theoverall extent of non-audit services provided by the external auditors,
in addition to 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 2 on the Financial Statements.
The Audit Committee is required to assist the Group Board to fulfil
its responsibilities relating to the adequacy and effectiveness of thecontrol environment. This includes consideration of the adequacyof both the resourcing and the plans of the Internal Audit function.
To fulfil these duties the Committee reviews:• The Group’s risk framework and risk policies;• The external auditors’ annual internal control report;• 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 activity;• Internal Audit reports on key audit areas and significant control
environment deficiencies;• Reports on the systems of internal financial controls and risk
management; and• Reports on fraud perpetrated against the Group and current
fraud trends.
The Group’s business malpractice policy contains arrangements forthe members of the Board to be involved in confidence by theinvestigating officer in the event of complaints on accounting, risk
issues, internal controls, auditing issues and related matters fromthe Group’s employees. During the year no such complaints werereceived.
Administration Committee
The Administration Committee consists of a minimum of two Directors
and deals with items of a routine and administrative nature.
Investor relations
The Company places considerable importance on regularcommunications with shareholders. The Company has an ongoingprogramme of dialogue and meetings with its shareholders, wherea wide range of relevant issues including strategy, performance,
management and governance are discussed.
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 makecomments on strategy and current business activity.
The Non-Executive Directors meet informally with shareholders
both before and after the Annual General Meeting, and respond toshareholder queries and requests. The Chairman makes himself
available to meet any shareholders, as required.
All Company announcements are posted on the Company website,www.oxford-instruments.com, as soon as they are released.

29

30

Corporate Governance

Annual General Meeting (AGM)
The Board welcomes the move towards a more constructive use of
Annual General Meetings and regards the AGM as an opportunity
to meet private shareholders. At its AGM, the Company complies
with the provisions of the Combined Code relating to the disclosureof proxy votes, the separation of resolutions and the attendance ofCommittee Chairmen. The Company arranges for the Annual Reportand Accounts and related papers to be posted to shareholders so
as to allow at least 20 working days for consideration prior to theAGM. The next AGM will be held on 26 September 2006.
Risk management
Within the Group there is an ongoing embedded process for
identifying, evaluating and managing the significant risks faced by
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 and potential
impact. Once identified, mitigating action, where possible, is decided
and responsibility within the management team assigned. 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 the business reports this in writing
to the Chief Executive at which time there is a discussion on theadequacy of the mitigating actions taken. Details of all major risks
identified and the mitigating actions in place are reported to andreviewed by the Board.
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 these risks.
Internal control
The Board is ultimately responsible for the Group’s system of internal
controls and for reviewing its effectiveness. However, such a system
is designed to manage rather than eliminate the risk of failure toachieve business objectives, and can provide only reasonable andnot absolute assurance against material mis-statement or loss. Dayto-day responsibility for maintaining adequate systems of internal
control is delegated to the Executive Directors.

Oxford Instruments plc• the Group’s management structure comprises the General
Committee whose members have group wide financial
responsibilities and to whom day-to-day responsibility for the
management of the Group is delegated. The responsibility isbased on the identification of separate businesses for each of theGroup’s activities; the heads of these businesses together with
the Chief Executive, the Group Financial Director and certain
other members of the senior management team form theGroup’s Executive Committee; there are clearly defined lines ofmanagement responsibilities at all levels up to and including theGroup Board; the Group’s accounting and reporting functions
reflect this organisation;• financial executives within Group businesses report to their own
operational head but there is also a well established andacknowledged functional reporting relationship through to theGroup Financial Director;• the Board reviews strategic issues and options formally once a
year during the annual strategic planning process and during theyear as appropriate; in addition the Executive Directors maintaina five year planning model of the Group and its individual
strategic businesses;• 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 and resultin a Group financial budget which is considered and approvedby the Board;• 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 fororders, turnover, operating profit and cash covering at least thenext six months in detail and from time to time a further six
months in summary; both are reviewed by the Board monthly;• the Board approves all acquisition and divestment proposals,
and there are established procedures for the planning, approvaland monitoring of capital expenditure;• for all major investments the performance of the first twelve
months against the original proposal is reviewed by the Board;

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 Board maintains an internal control framework defining for

The key components designed to provide effective internal control
within the Group are as follows:

to submit a self assessment internal control questionnaire on aregular basis;• a formal schedule of matters is reserved to the Board for decision• internal audit is carried out through a system of regular reviews

with appropriate delegation of authority throughout the
management structure;of the internal controls at each site by accountants from otherparts of the Group and in Japan, due to language difficulties, by
the local external auditors;

each control area, the reporting mechanics and the responsibility;• each Group site, except for representative sales offices, is requiredCorporate Governance• work performed is based on a standardised Group format but
involves random testing, together with a review of the internal
control questionnaire;• 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 from completionof the internal control questionnaire or as a result of the internal
audit; checks on the progress of the action items arising arethen made; the results of audit reviews are reported to local
management, the Group Financial Director and the Audit
Committee;• the Board receives regular updates on treasury, tax, property,
insurance and health and safety matters;• authorisation limits are set at appropriate levels throughout theGroup; compliance with these limits is monitored by the Group
Financial Director and internal audit;• 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 the avoidanceof losses on fixed price contracts of a technical nature; and• with respect to the UK pension scheme the Company has its own
trustee representatives; involves its own independent actuarywith whom actuarial assumptions are reviewed; agrees theinvestment policy with trustees; ensures there is an independentactuarial valuation every three years; reviews members benefits
and contributions regularly; and audits the annual changes inpensionable salaries.

Martin Lamaison Company Secretary
13 June 2006

Oxford Instruments plc

31

32

Directors’ Remuneration Report

Oxford Instruments plc

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 andservice contracts.
Remuneration Committee
Details of the composition of the Remuneration Committee are setout on page 20. The principal function of the Committee is to define
and communicate to the Executive Directors the Company’s policyon the remuneration, benefits and terms of employment for each
Executive Director. As part of this process, the Committee aims toprovide a formal and transparent framework for the developmentof 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 remuneration of
the Non-Executive Directors, including the Chairman.
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. The Chairman maintains
contact with principal shareholders regarding remuneration policy
as appropriate.
Over the past year the Committee continued to use New Bridge
Street Consultants to provide independent external professional
advice on the Executive Directors’ remuneration.
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 Non-Executive
Directors.
Executive Directors
The Company has an incentive-driven Executive Director remuneration
policy that promotes the delivery of the Group strategy, seeks toalign 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 losses.

Service contracts
Each of the Executive Directors has a service contract. Company
policy is to enter into service contracts with Executive Directors thathave a notice period of one year.
The Non-Executive Directors do not have service contracts but their
appointments are subject to review every three years and the rotation
provisions of the Company’s Articles of Association.
Non-Executive Directors
The Company’s policy is to appoint Non-Executive Directors to theBoard with a breadth of international skills and experience that isrelevant to Oxford Instruments’ global business. Appointments are
made by the Board upon the recommendations and advice fromthe Nomination Committee.
Executive Directors’ remuneration
The Executive Directors receive base salary, annual and long term
performance awards, pensions and other benefits. Base salaries,
benefits and performance awards of the Executive Directors arereviewed annually by the Remuneration Committee. Base salaries
are determined with reference to an appropriate comparator groupof 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 andhealth insurance, participation in a bonus scheme and a pension.
For UK based Executive Directors appointed up to April 2001, a
contributory pension of up to two thirds of pensionable salary isprovided on retirement related to the length of service, together
with a dependants’ pension on death in service or retirement. UK
Executive Directors joining since April 2001 are entitled to Company
contributions to a defined contribution scheme of their choice inaccordance with contractually agreed contribution rates. Steve
Parker, who is based in the US, is a member of the Oxford
Instruments Holdings Inc Defined Benefit Pension Plan. This Plan is
non-contributory on the part of the participant and requires five
1,000 hour years of employment before the participant realises any
vested interest in the plan. Upon Normal Retirement Date (age 65),
the participant is then entitled to a monthly pension benefit basedon an actuarial calculation taking into effect his years of service, age,and the salary earned over the last five years of employment. He is
also a member of the Oxford Instruments Inc 401k Savings Plan, in
which the Company matches at half the employee’s contribution
rate up to the first 6% of salary. Employees’ contributions fully vest
after three years of service.

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

Benefits£000

Performance related
remuneration
£000

2006
£000

Total Remuneration
2005
£000

Jonathan Flint
Martin Lamaison
Steve Parker
Charles Holroyd

250
200
143
140

13
13
6
11

87
50
46
42

350
263
195
193

–
332
–
–

Total

733

43

225

1,001

332

Directors’ Remuneration ReportCharles Holroyd and Steve Parker were appointed to the Board on
22 November 2005. The table shows their remuneration for thewhole year, including remuneration prior to and after the date of
appointment. It includes both remuneration for their roles as
Executive Directors as well as their functional responsibilities elsewhere in the Group.
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 between 60%
to 75% of base salary dependent on the role of the participant.
Bonuses are earned primarily on the achievement of financial targets,with further elements payable on meeting specific personal goals.
Bonuses are paid after the completion of the statutory annual audit.
The Executive Directors’ bonus scheme for the year ended 31
March 2006 set performance targets which would pay bonuses foron target performance at the rate of 50% of base salary for
Jonathan Flint, 35% of base salary for Martin Lamaison andCharles Holroyd and 45% of base salary for Steve Parker.
Pension Plans
Oxford Instruments Pension Scheme
All employees, including the Company’s UK based Executive
Directors, who were engaged before April 2001 were entitled to
become members of the Oxford Instruments Defined Benefit
Pension Scheme. This is a contracted-out contributory pension
scheme which provides benefits based on earnings at or nearretirement and is funded through a separate trust. Salary eligible
for pension under this scheme 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. Variableearnings 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 accrual 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 thelower age of 60. However the normal retirement age for all UK
employees is 65 and accrual of service in the pension schemes cancontinue until 65.
Early retirement is possible on a reduced pension from age 50 withthe 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 a maximum of 5% peryear thereafter, subject to any applicable statutory requirements.
For death before retirement a dependant’s pension of one half of themember’s prospective pension is payable plus a capital sum of threetimes the member’s pensionable salary and a refund of the member’s
contributions. For death after retirement a spouse’s pension of one
half of the member’s pension is payable plus the balance of a fiveyear guarantee if applicable. In the event of death after leaving
service but before commencement of pension a spouse’s pensionof one half of the accrued preserved pension revalued to the dateof death is payable plus a refund of the member’s contributions. In all
circumstances children’s allowances are also payable if applicable.

Oxford Instruments plc

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 Holdings Inc
Defined Benefit Pension Plan (USA)All employees of Oxford Instruments Superconducting Technology
and Austin Scientific engaged before 1 February 2006 were entitledto become members of the Oxford Instruments Holdings Inc
defined benefit Pension Scheme. The scheme provides a benefit toeligible participants with effect from the date that the employee
has completed one thousand (1,000) hours of service in any one
year. Employees remain participants until the entire amount ofbenefit is distributed (if any) to the employee or to a beneficiary in
the event of the death of the participant.
Employees do not contribute to this scheme.
The benefit terms are complex but in simple terms the plan provides
accrued benefit equal to 1.6% of average annual compensation
multiplied by the number of years of credited service (not to exceed
35 years).
Vesting, or the opportunity to have a monetary interest in the plan,is based on ‘cliff vesting’. This means that the participant must have
five years, each with one thousand hours of service, at the terminationof employment or after having reached normal retirement date, inorder to receive any retirement benefit from the plan.
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 theCompany makes contributions to this scheme. The scheme is not
currently available to new members.
The Oxford Instruments Holdings Inc
Savings & Investment Plan 401K (USA)This is a savings plan open to all USA employees of Oxford
Instruments. It is viewed by the US government as a pension planthat supplements the US Social Security system. Therefore, allmonies contributed to the plan on a calendar year basis are tax
deferred until the monies are withdrawn by the participant.
A committee consisting of two company Trustees and three Plan
Administrators administers the plan. This committee has theexpertise of an elected outside 401K administration firm thatprovides fiduciary advice and counsel to the committee as well asa selection of investment vehicles to the participants.
Provided the employee does not exceed the maximum dollar value
for contributions that the US government allows, the company matches
the employee’s contribution up to the first 6% of compensation.
The employee may contribute more than 6% of compensation ona non-matched basis.
Vesting is as follows:
2 Years of Service = 25% vested in the employer’s contributions
3 Years of Service = 100% vested in the employer’s contributions

33

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Directors’ Remuneration Report

Oxford Instruments plc

Executive Director pension arrangements
Under the terms of his service contract Jonathan Flint requested
the Company to contribute to a pension plan of his own choice.
The Company contributes a maximum of 14% of base salary ifmatched by a contribution of 10% by him. Cash bonuses are
excluded from contribution calculations. During the year theCompany contributed £35,000 to a defined contribution plan inrespect of Jonathan Flint.

Martin Lamaison
Charles Holroyd

Martin Lamaison and Charles Holroyd are members of the UK
Oxford Instruments Pension Scheme. On 31 May 2005 Martin
Lamaison withdrew from the Pension Scheme as an active member
and ceased to accrue benefit from this date. By the year end hehad not started to draw his entitlement.
With respect to the UK Pension Scheme the following table shows
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 2006
Years

Accrued yearsof service
Years

Member’s
contributions
during the year
£000

62
50

21
6

4
10

Martin Lamaison
Charles Holroyd

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

22
2

20
2

95
13

2006
£000

Transfer value of accrued pension
2005
£000

Change in transfer value over year
less member contributions
£000

1,762
130

1,306
87

452
33

During the year the Company contributed £26,000 (2005 £17,000)
to the Oxford Instruments 1998 Executive Pension Scheme in respectof Martin Lamaison.
Steve Parker is a member of the Oxford Instruments Holdings
Inc Pension Scheme and Oxford Instruments Inc Savings andInvestment Plan (401K). The Company contributed US$10,500 to
the Oxford Instruments Holdings Inc Pension Scheme in respect of
Steve Parker. No entitlement to benefits arises under this scheme
until the individual has worked for the Group for five years. At theyear end this condition has not been met in respect of Steve Parker.
The Company also contributed US$7,200 to a defined contribution(USA 401K) plan on behalf of Steve Parker.
Share Incentive Schemes
The Company has a number of share option schemes for the
incentivisation of Executive Directors and employees of the Group:• the Executive Share Option Scheme (ESO);• the Senior Executive Long Term Incentive Scheme (SELTIS);

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 in excessof £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 normally exceed
twice base salary. However, in exceptional circumstances the limit
is three times base salary, provided that to the extent an individualis granted options in excess of the standard limit, there will be acorresponding reduction in the number of shares under options
granted in the following two years. For the purpose of calculatingthese limits, the Company’s share price will be averaged over thethree 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.

• Individual Options (Individual); and• Save-As-You-Earn Scheme (SAYE).
The ESO scheme is the principal vehicle used to incentivise the
Executive Directors and senior management. The SELTIS and Individual
schemes are used at the discretion of the Remuneration Committee.
The SAYE scheme is open to all UK permanent staff employed forat least 6 months on the date of invitation to join the scheme.

Performance conditions
1995 ESOOver a period of three consecutive years the growth in earnings per
share (EPS) of the Company expressed as a percentage is to exceed
the growth in the Retail Price Index (RPI) expressed as a percentage
plus a further 2% per year over the same period.

Directors’ Remuneration Report

Oxford Instruments plc

2001 ESO
The performance conditions are based equally on the Company’s
total shareholder return (‘TSR’) performance and on its earnings
per share (‘EPS’) performance (adjusted to exclude non-recurring
items and goodwill amortisation).

It was resolved at last year’s Annual General Meeting that various
amendments should be made to the 2001 ESO scheme in order topermit and reflect the grant of Share Appreciation Rights (‘SAR’)and the satisfaction of outstanding options with share appreciationrights under unapproved options of the Scheme.

The Committee considers that the combination of TSR and EPS
performance conditions will encourage shareholder value creationand 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.

Under SAR an option holder receives shares equal in value to thegain under his option but does not receive the number of sharesoriginally granted. In effect, an option is settled by only issuingshares to the value of the gain, and these shares are issued at no
consideration. This means that the number of shares to which an
option holder may become entitled depends on the Company’s
share price at the time of exercise.

When the 2001 ESO scheme was established the Remuneration
Committee set the initial conditions for the full vesting of options
at 30% per year growth in EPS and TSR. This was considered
consistent with the recovery phase of the business. It was intended
that over time the performance conditions would revert to a lower
target, appropriate to a more 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
and TSR is required. Details are set out in the tables below.
Only 50% of the options granted in September 2001 are exercisable,
as the TSR performance test failed and none of the options granted
in 2002 are exerciseable due to failure of both tests.
The options granted in July 2003 will become exercisable proportionately by reference to the level of both TSR and EPS target
growth performance achieved as follows:
EPS/TSR performance

Proportion of options exercisableagainst 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 the TSR and EPS target
performance levels are:
EPS/TSR performance

Proportion of options exercisableagainst 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 theperformance 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.

No SARs have been granted since authorisation.
SELTISThe SELTIS scheme is similar to the ESO schemes, with the exceptionthat options are exercisable at no cost to the option holder.
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 this limit,
the market value is the closing middle market price of the Company’s
shares on the day before the date of grant.
Performance conditions
SELTIS options granted prior to the establishmentof 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 the establishmentof 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
Individual options are granted at the discretion of the Remuneration
Committee.
Performance conditions
Individual options granted in March 1998
A market price of greater than £4.50 per ordinary share is achievedat some time during the four months preceding the date uponwhich notice to exercise is given. This price is absolute and is not
linked to general Stock Exchange or Stock Exchange sector pricemovements.

35

36

Directors’ Remuneration Report

Oxford Instruments plc

SAYE options
The SAYE scheme is administered in accordance with Inland Revenue guidelines. There are no performance conditions.
As at the 31 March 2006 the outstanding options for Jonathan Flint, Martin Lamaison, Charles Holroyd and Steve Parker under the 1995
and 2001 ESO schemes, the SELTIS scheme, Individual options and SAYE were as follows:
Number of options during the year
GrantedExercised
Lapsed*2005

Exercise
price

Date forearliest
exercise

Date forlatestexercise

Scheme2006

JonathanFlint

SELTIS
ESO

50,000200,000

50,000200,000

–
–

–
–

–
–

Nil
£2.19

15/07/08
15/07/08

15/07/12
15/07/15

MartinLamaison**

SAYE
SAYE
ESO
ESO
ESO
ESO
SELTISSELTIS
Individual

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

–
–
–
–
–
–
–
–
–

–
(280)
–
–
–
–
–
–
–

–
–
–
–
(105,726)
–
–
–
–

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

£1.74
£1.35
£2.18
£1.875£2.22£1.585
Nil
Nil
£2.95

01/02/07
01/02/06
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
14/07/14
14/07/13
14/07/12
27/09/11
20/12/07
13/07/06
06/03/08

CharlesHolroyd

SAYE
SAYE
SAYE
SAYE
ESO
ESO
ESO
ESO
ESO
SELTIS

699
649
636
280
40,00050,00050,000–26,50020,000699–––
40,000––––20,000

–
–
–
–
–
–
–
–
(53,000)
–

–
–
–
–
–
–
–
(67,000)
–
–

–
649
636
280
–
50,00050,00067,00079,500
–

£2.14
£1.75
£1.74
£1.35
£2.19
£2.18
£1.875£2.22£1.585
Nil

01/02/09
01/02/08
01/02/07
01/02/06
15/07/08
15/07/07
15/07/06
15/07/05
28/09/04
15/12/08

31/07/09
31/07/08
31/07/07
31/07/06
14/07/15
14/07/14
14/07/13
14/07/12
27/09/11
14/12/12

Steve
Parker

ESO
ESO
ESO
ESO
SELTIS

40,00060,00070,00030,00020,00040,000–––20,000

–
–
–
–
–

–
–
–
(30,000)––
60,00070,00060,000
–

£2.19
£2.18
£1.875£1.48
Nil

15/07/08
15/07/07
15/07/06
15/07/05
15/12/08

14/07/15
14/07/14
14/07/13
14/07/12
14/12/12* Lapsed as the performance condition was not met in the required timeframe.
** Martin Lamaison will retire on 7 August 2006. On retirement the latest date for exercise of his SAYE, ESO and individual options will become
6 February 2007, 6 August 2007 and 6 August 2007 respectively. The date for latest exercise of his SELTIS options will remain unchanged.
Charles Holroyd made gains of £30,408 (2005 £52,180) on theexercise and sale of share options during the year to 31 March
2006, and Martin Lamaison made gains of £267 (2205 £1,094) but
this gain has not been realised as the shares to which they relate
have not been sold. Cumulatively Martin Lamaison, Charles Holroyd
and Steve Parker have 194,125 options, 26,780 options and 30,000
options respectively under various schemes capable of exercise.
Outside appointments
The Board allows Executive Directors to accept appropriate outsidecommercial 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 £81,282 (2005 £66,000) for his services forwhich he must account to Imperialise Limited. In addition
Imperialise Limited has been paid a sum equivalent to the national
insurance on these fees of £10,408 per annum. Imperialise Limited
is responsible for the cost of national insurance on payments to
Nigel Keen, whereas national insurance contributions in respect of
the other Non-Executive Directors are made direct to the UK Inland
Revenue and therefore not included in the table below.
Nigel Keen’s initial period of appointment as a Non-Executive Director
was for three years commencing 25 February 1999, subject toretirement 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 retirementby rotation. The appointment may be terminated by either party
giving not less than six months’ notice.

Directors’ Remuneration Report

Oxford Instruments plc

Non-Executive Directors
Non-Executive Directors receive fixed fees agreed by the full Board
after reference to similar roles in an appropriate comparator groupof companies and reimbursement of expenses incurred in attending
Board and other meetings. It is the Board’s policy for the NonExecutive Directors to be paid a level of fee that reflects the timecommitment and responsibilities of the role and is sufficient to
attract individuals with appropriate knowledge and experience.
The Chairman and Non-Executive Directors receive no other benefits.
Mike Brady has served as a Non-Executive Director for eleven years.
Upon the recommendation of the Nomination Committee it wasagreed by the full Board to extend Mike Brady’s term of appointment by a further three years with effect from 1 August 2004. Thisappointment is to be subject to annual approval by shareholders.
Remuneration of the Chairman and Non-Executive Directors:
2006
£000

2005
£000

Nigel Keen, Chairman
Mike Brady
Mike HughesPeter Morgan
Bernard Taylor

92
29
25
29
25

74
25
10
25
25

Total

200

159

Performance graph
The graph below shows for the five years ended 31 March 2006
the Total Shareholder Return (TSR) on a holding of the Company’s
ordinary shares compared with a hypothetical holding of shares madeup of shares of the same kind and number as those by reference
to which the FTSE Techmark and FTSE Electronic and Electrical
Equipment are calculated. These indices have been chosen as they
are considered to be the most appropriate comparator groups for
the Company. TSR has been calculated by reference to the relevant
share price for each constituent company assuming dividends are
reinvested.
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 havenot been audited.
This report was adopted by the Remuneration Committee at a
meeting on 5 June 2006 and has been approved subsequently by
the Board for submission to shareholders at the Annual General
Meeting to be held on 26 September 2006.

Nigel Keen Chairman of the Remuneration Committee
13 June 2006

300
Oxford Instruments

FTSE E&EE

FTSE Techmark

275
250
225
200
175
150
125
100
75
50
25
0

Source: Thomson Financial Datastream
April 2001

March 2006

37

38

Directors’ Responsibilities in relation to the Financial Statements

The directors are responsible for preparing the Annual Report andAccounts and the Group and Company financial statements inaccordance with applicable law and regulations.
Company law requires the directors to prepare Group and Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordancewith IFRSs as adopted by the EU and have elected to prepare theCompany financial statements in accordance with UK AccountingStandards.
The Group financial statements are required by law and IFRSs as
adopted by the EU to present fairly the financial position and theperformance of the Group; the Companies Act 1985 provides inrelation to such financial statements that references in the relevant
part of that Act to financial statements giving a true and fair vieware references to their achieving a fair presentation.
The Company financial statements are required by law to give atrue and fair view of the state of affairs of the Company.
In preparing each of the Group and Company financial statements,
the directors are required to:• select suitable accounting policies and then apply them consistently;• make judgments and estimates that are reasonable and prudent;• for the Group financial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the EU;• for the Company financial statements, state whether applicable
UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the Company
financial statements; and• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the Company
will continue in business.

Oxford Instruments plc

The directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that its financial
statements comply with the Companies Act 1985. They have general
responsibility for taking such steps as are reasonably open to themto safeguard the assets of the Group and to prevent and detectfraud and other irregularities.
Under applicable law and regulations, the directors are also responsible
for preparing a Directors’ Report, Directors’ Remuneration Report
and Corporate Governance Statement that comply with that law
and those regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation anddissemination of financial statements may differ from legislation inother jurisdictions.

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

We have audited the Group and Parent Company financial statements (the “financial statements”) of Oxford Instruments plc forthe year ended 31 March 2006 which comprise the Group Income
Statement, the Group and Parent Company Balance Sheets, theGroup Cash Flow Statement, the Group Statement of Recognised
Income and Expense and the related notes. These financial statements have been prepared under the accounting policies set out
therein. 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’ responsibilities for preparing the Annual Report and
the Group financial statements in accordance with applicable law andInternational Financial Reporting Standards (IFRSs) as adopted by theEU, and for preparing the Parent Company financial statements andthe Directors’ Remuneration Report in accordance with applicablelaw and UK Accounting Standards (UK Generally Accepted
Accounting Practice) are set out in the Statement of Directors’
Responsibilities on page 38.
Our responsibility is to audit the financial statements and the partof the Directors’ Remuneration Report to be audited in accordancewith relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements andthe part of the Directors’ Remuneration Report to be audited havebeen properly prepared in accordance with the Companies Act
1985 and as regards the Group financial statements Article 4 of the
IAS Regulation. We also report to you whether, in our opinion theinformation given in the Directors’ Report is consistent with thefinancial statements. The information given in the Directors’ Report
includes that specific information presented in the Business andFinancial Review that is cross referenced from the Business andFinancial Review section of the Directors’ Report. We also report toyou if, in our opinion, the Company has not kept proper accounting
records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
Directors’ remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects
the Company’s compliance with the nine provisions of the 2003
FRC Combined Code specified for our review by the Listing Rulesof the Financial Services Authority, and we report if it does not. We
are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion on
the effectiveness of the Group’s corporate governance proceduresor its risk and control procedures.

Oxford Instruments plc

We read other information contained in the Annual Report andconsider 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 thefinancial statements. Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the financial
statements and the part of the Directors’ Remuneration Report
to be audited. It also includes an assessment of the significant
estimates and judgments made by the Directors in the preparationof the financial statements, and of whether the accounting policies
are appropriate to the Group’s and Company’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 from material
misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion we also evaluated the overall adequacyof the presentation of information in the financial statements andthe part of the Directors’ Remuneration Report to be audited.
OpinionIn our opinion:• the Group financial statements give a true and fair view, in
accordance with IFRSs as adopted by the EU, of the state of theGroup’s affairs as at 31 March 2006 and of its loss for the year
then ended;• the Parent Company financial statements give a true and fairview, in accordance with UK Generally Accepted Accounting
Practice, of the state of the Parent Company’s affairs as at 31
March 2006;• the financial statements and the part of the Directors’ Remuneration
Report to be audited have been properly prepared in accordancewith the Companies Act 1985 and, as regards the Group financial
statements, Article 4 of the IAS Regulations; and• the information given in the Directors’ Report is consistent withthe financial statements.

KPMG Audit Plc
Chartered Accountants
Registered Auditor
2 Cornwall Street
Birmingham B3 2DL
13 June 2006

39

40

Accounting Policies

Oxford Instruments plc (the Company) is a company incorporated
in Great Britain.
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the “Group”). The parent
company financial statements present information about theCompany as a separate entity and not about the Group.
The Group financial statements have been prepared and approvedby the Directors in accordance with International Financial
Reporting Standards as adopted by the EU (“Adopted IFRSs”). The
Company has elected to prepare its Parent Company financial
statements in accordance with UK GAAP; these are presented on
pages 87 to 93.
The accounting policies set out below have, unless otherwise statedbeen applied consistently to all periods presented in these Groupfinancial statements and in preparing an opening IFRS balance
sheet at 1 April 2004 for the purposes of the transition to Adopted
IFRSs. The principal exception is that, as more fully explained below,
financial instruments accounting is determined on different basesin the year ended 31 March 2006 and for the year ended 31 March
2005 due to the transitional provisions of IAS 32 and IAS 39.
As permitted by the standard, the Group has opted to include therequirements of IAS 19 (revised 2004): Employee Benefits, earlyrather than from its effective date of 1 January 2006.
(a) Transition to Adopted IFRSs
The Group is preparing its financial statements in accordance with
Adopted IFRS for the first time and consequently has applied IFRS
1. An explanation of how the transition to Adopted IFRSs has
affected the reported financial position, financial performance andcash flows of the Group is provided in Note 37.
In addition to exempting companies from the requirement to restatecomparatives for IAS 32 and IAS 39, IFRS 1 grants certain exemption
from the full requirements of IFRSs in the transition period. The
following exemptions have been taken in these financial statements:

Oxford Instruments plc

assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimatesand associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making thejudgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future periods
if the revision affects both current and future periods. Further detailof the estimates and judgements made can be found in Note 35.
The accounting policies have been applied consistently by all of theGroup’s entities.
(c) Basis of consolidation(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists
when the Company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtainbenefits from its activities. In assessing control, potential voting
rights that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control
commences until the date that control ceases.
(ii) Transactions eliminated on consolidation
Intragroup balances and any unrealised gains and losses or income
and expenses arising from intragroup transactions, are eliminatedin preparing the consolidated financial statements. Unrealised gains
arising from transactions with associates and jointly controlled entities
are eliminated to the extent of the Group’s interest in the entity.
Unrealised losses are eliminated in the same way as unrealised gains,but only to the extent that there is no evidence of impairment.

• Business combinations – Business combinations that took placeprior to 1 April 2004 have not been restated.

• Fair value or revaluation as deemed cost – At the date of transition,
fair value at the date of previous revaluation has been used as
deemed cost for properties previously measured at fair value.

• Employee benefits – All cumulative actuarial gains and losses on
defined benefit plans have been recognised in equity at 1 April
2004.

• Cumulative translation differences – Cumulative translationdifferences for all foreign operations have been set to zero at 1
April 2004.
(b) Basis of preparation
The financial statements are presented in £ sterling rounded to thenearest £100,000. They are prepared on the historical cost basis
except that the following assets and liabilities are stated at their fairvalue: derivative financial instruments and financial instruments
classified as available-for-sale.
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and(iii) Associates
An associate is an undertaking in which the Group has a long-term
interest, usually from 20% to 50% of the equity voting rights andover which it exercises significant influence. Where the holding isin excess of 20%, but there is no significant influence, the investment
is stated at amortised cost. The Group’s share of the profits lesslosses of associates is included in the consolidated income statement
and its interest in their net assets is included in investments in the
consolidated balance sheet.
(d) Foreign currency(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreignexchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at thebalance sheet date are translated to £ sterling at the foreignexchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using theexchange rate at the date of the transaction. Non-monetary assets

Accounting Policies

and liabilities denominated in foreign currencies that are stated atfair value are translated to £ sterling at foreign exchange rates
ruling at the dates the fair value was determined.
(ii) Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on consolidation, are translated
to £ sterling at foreign exchange rates ruling at the balance sheet
date. The revenues and expenses of foreign operations are translated
to £ sterling at rates approximating to the foreign exchange rates
ruling at the dates of the transactions. Foreign exchange differences
arising on translation are recognised directly in equity.
In respect of all foreign operations, any differences that have arisen
after 1 April 2004, are presented as a separate component of equity.
(e) Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure
to foreign exchange arising from operational and financing activities.
In accordance with its treasury policy, the Group does not hold or
issue derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted
for as trading instruments.
Derivative financial instruments are recognised at fair value. The gainor loss on remeasurement to fair value is recognised immediately in
profit or loss. However, where derivatives qualify for hedge
accounting, recognition of any resultant gain or loss depends on
the nature of the item being hedged (see accounting policy f).
The fair value of forward exchange contracts is their quoted market
price at the balance sheet date, being the present value of thequoted forward price.
(f) Hedging(i) Cash flow hedges
Where a derivative financial instrument is designated as a hedge ofthe variability in cash flows of a recognised asset or liability, or ahighly probable forecasted transaction, the effective part of any gainor loss on the derivative financial instrument is recognised directlyin equity. When the forecasted transaction subsequently results in
the recognition of a non-financial asset or non-financial liability,
or a forecast transaction for a non-financial asset or non-financial
liability the associated cumulative gain or loss is removed fromequity and included in the initial cost or other carrying amount of thenon-financial asset or liability. If a hedge of a forecasted transaction
subsequently results in the recognition of a financial asset or a financial
liability, the associated gains and losses that were recognised
directly in equity are reclassified into profit or loss in the same period
or periods during which the asset acquired or liability assumed affects
profit or loss (i.e. when financial income or expense is recognised).
For cash flow hedges, other than those covered by the preceding
two policy statements, the associated cumulative gain or loss isremoved from equity and recognised in the income statement in
the same period or periods during which the hedged forecast
transaction affects profit or loss. The ineffective part of any gain orloss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised,or the entity revokes designation of the hedge relationship but thehedged forecast transaction is still expected to occur, the cumulative

Oxford Instruments plc

gain or loss at that point remains in equity and is recognised inaccordance with the above policy when the transaction occurs. If
the hedged transaction is no longer expected to take place, thecumulative unrealised gain or loss recognised in equity is recognised
immediately in the income statement.
(ii) Hedge of monetary assets and liabilities
Where a derivative financial instrument is used to hedge economicallythe foreign exchange exposure of a recognised monetary asset or
liability, no hedge accounting is applied and any gain or loss on thehedging instrument is recognised in the income statement.
(iii) Effect of first time adoption of IAS 32 and IAS 39
on 1 April 2005
The Group has taken advantage of the transitional arrangementsof IFRS 1 not to restate corresponding amounts in accordance with
IAS 32 and IAS 39. Instead the following policies were applied in
respect of financial instruments issued by the Group, investments
in debt and equity securities, derivative financial instruments andhedging.
In the comparative period all financial assets and financial liabilities
were carried at cost (amortised as appropriate) less, in the case offinancial assets, provision for any permanent diminution in value.
Gains and losses on forward foreign exchange contracts treated as
hedging instruments were not recognised in the income statement. On recognition of the hedged transaction the unrecognised
gains and losses arising on the investment were recognised, either
in the income statement or combined into the carrying value of theassociated asset or liability.
The following adjustments necessary to implement the revised policy
have been made as at 1 April 2005 with the adjustment to net
assets, after tax, taken through the 31 March 2006 statement ofrecognised income and expense. Corresponding amounts for 31
March 2005 are presented and disclosed in accordance with therequirements of the Companies Act 1985, SSAP 20 and FRS 4 asapplicable in the year ended 31 March 2005. The nature of themain effects upon the consolidated balance sheet at 1 April 2005
are as follows:£m

Deferred tax
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Trade and other payables
Derivative financial liabilities

(0.1)
(0.5)
1.1
(0.1)
(0.1)
(0.1)
0.2

Cash flow hedge reserve

0.2

The nature and main effects upon the consolidated balance sheet
at 1 April 2005 and upon the consolidated income statement, thestatement of recognised income and expense and cash flow
statement to 31 March 2006 are as follows:
Hedging instruments and hedged items are accounted for separately
in the balance sheet as at 31 March 2006. Gains and losses in bothare included in profit for the year when they arise (fair value hedges)

41

42

Accounting Policies

Oxford Instruments plc

or when the hedged transaction occurs having first recorded thoseon the hedging instrument within equity (cash flows hedges, to theextent effective). As at 31 March 2005 hedging instruments were
not recognised and hedged items were held at cost (amortised as
appropriate) without an adjustment in respect of the hedging risk.
On 1 April 2005 the hedging items and hedging instruments arebrought separately on to the balance sheet in accordance with thepolicy for the year to 31 March 2006. In the cash flow statement
opening cash is revalued from contract rate to spot rate.
(g) Property, plant and equipment(i) Owned assets
Items of property, plant and equipment are stated at cost, or atdeemed cost, less accumulated depreciation (see below) and
impairment losses (see accounting policy l). The cost of selfconstructed assets includes the cost of materials, direct labour, andan appropriate proportion of production overheads.
Certain items of property, plant and equipment that had been revalued
to fair value on or prior to 1 April 2004, the date of transition to IFRS,
are measured on the basis of deemed cost, being the revalued
amount at the date of that revaluation.
Where parts of an item of property, plant and equipment havedifferent useful lives, they are accounted for as separate items ofproperty, plant and equipment.
(ii) Leased assets
Leases in terms of which the Group assumes substantially all therisks and rewards of ownership are classified as finance leases.
The Group has no significant finance leases.
(iii) Depreciation
Depreciation is charged to the income statement on a straight line
basis to write off the cost less estimated residual value of property,
plant and equipment in equal instalments over their estimated useful
lives of each part of an item of property plant and equipment asfollows:
Freehold land
Freehold buildings
Furniture and fittings
Machinery and other equipment
Computer equipment and software
VehiclesNil
50 years
10 years
5 to 10 years
4 years
4 years

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.
(h) Intangible assets(i) Goodwill
All business combinations are accounted for by applying the purchasemethod. Goodwill represents amounts arising on acquisition ofsubsidiaries, associates and joint ventures. In respect of businessacquisitions that have occurred since 31 March 2004, goodwill
represents the difference between the cost of the acquisition andthe fair value of the identifiable net assets acquired.

In respect of acquisitions prior to this date, goodwill is included on
the basis of its deemed cost, which represents the amount recorded
under previous GAAP. The classification and accounting treatmentof business combinations that occurred prior to 31 March 2004 has
not been reconsidered in preparing the Group’s opening IFRS
balance sheet at 31 March 2004.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units and is no longer
amortised but is tested annually for impairment (see accounting
policy l). In respect of associates, the carrying amount of goodwill is
included in the carrying amount of the investment in the associate.
(ii) Research and development (R&D)
Expenditure on research activities, undertaken with the prospect ofgaining new scientific or technical knowledge and understanding,is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings
are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the
product or process is technically and commercially feasible and theGroup has sufficient resources to complete development. The
expenditure capitalised includes the cost of materials, direct labour
and any direct overheads. Capitalised development expenditure isstated at cost less accumulated amortisation (see below) and
impairment losses (see accounting policy l). Other development
expenditure is recognised in the income statement as an expense
as incurred.
Research and development expenditure is accounted for after
deducting the relevant proportion of any related grants receivable.
If R&D expenditure is recoverable under a customer contract it iscarried forward as work in progress at the lower of cost and net
realisable value.
(iii) Other intangible assets
Other intangible assets that are acquired by the Group are statedat cost less accumulated amortisation (see below) and impairment
losses (see accounting policy l).
(iv) Amortisation
Amortisation of capitalised development expenditure is charged tothe income statement on the basis of unit shipments over a product’s
estimated useful economic life. Amortisation in respect of otherintangible assets is charged to the income statement on a straightline basis over the estimated useful lives of intangible assets unlesssuch lives are indefinite. Goodwill and intangible assets with anindefinite useful life are systematically tested for impairment at
each balance sheet date. Other intangible assets are amortisedfrom the date they are available for use.
The estimated useful lives are as follows:
Capitalised development costs
Acquired intangible assets

3 to 5 years
6 months to 5 years(i) Trade and other receivables
Trade and other receivables are stated at their amortised cost less
impairment losses (see accounting policy l).

Accounting Policies(j) Inventories
Inventories are stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion andselling expenses.
Inventories are valued at the lower of cost, including materials,
direct labour and an attributable proportion of production overheads based on normal operating capacity, and net realisablevalue, net of payments on account. Cost includes expenditure
incurred in acquiring the inventories and bringing them to their
existing location and condition. Provision is made for obsolete, slow
moving and defective stock where appropriate in the light of recent
usage, expected future requirements, new product introductionplans and likely realisable values. The Group uses demonstrationequipment to market its products to customers. The majority ofdemonstration equipment is held within inventory. All categories ofdemonstration equipment are written down during use and then
are actively marketed from time to time in order to rotate assets sothat 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 revenue. Amounts
recoverable on contracts are included in debtors and represent
revenue 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 is needed, regular
technical and financial reviews of these contracts are undertaken.
These reviews involve estimating the likely cost to complete thecontract based on an assessment of the outstanding technical risks
and the resources required using the best information available atthe time.
(k) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and fixed shortterm deposits with an original maturity of less than three months.
Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a componentof cash and cash equivalents for the purpose of the statement ofcash flows.
(l) Impairment
The carrying amounts of the Group’s assets, other than inventories(see accounting policy j) and deferred tax assets (see accounting
policy r), are reviewed at each balance sheet date to determine
whether there is any indication of impairment. If any such indication
exists, the asset’s recoverable amount is estimated (see (i) below).
An impairment loss is recognised whenever the carrying amount ofan asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units
are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units (group of units) and then, toreduce the carrying amount of the other assets in the unit (groupof units) on a pro rata basis.

Oxford Instruments plc

Goodwill was tested for impairment at 1 April 2004, the date oftransition to IFRS, even though no indication of impairment existed.
When a decline in the fair value of an available-for-sale financial
asset has been recognised directly in equity and there is objective
evidence that the asset is impaired, the cumulative loss that had
been recognised directly in equity is recognised in profit or loss
even though the financial asset has not been derecognised. The
amount of the cumulative loss that is recognised in profit or loss is thedifference between the acquisition cost and current fair value, lessany impairment loss on that financial asset previously recognised in
profit or loss.
(i) Calculation of recoverable amountThe recoverable amount of the Group’s investments in held-tomaturity securities and receivables carried at amortised cost is
calculated as the present value of estimated future cash flows,
discounted at the original effective interest rate (i.e. the effective
interest rate computed at initial recognition of these financial
assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their net
selling price and value in use. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. For an asset that
does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which theasset belongs.
(ii) Reversals of impairment
An impairment loss in respect of a held-to-maturity security or
receivable carried at amortised cost is reversed through the income
statement if the subsequent increase in recoverable amount can be
related objectively to an event occurring after the impairment loss
was recognised.
An impairment loss in respect of an investment in an equity instrumentclassified as available for sale is not reversed through the income
statement. If the fair value of a debt instrument classified as availablefor-sale increases and the increase can be objectively related to an
event occurring after an impairment loss was recognised in theincome statement, the impairment loss shall be reversed, with theamount of the reversal recognised in the income statement.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if noimpairment loss had been recognised.
(m) Employee benefits(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans
are recognised as an expense in the income statement as incurred.

43

44

Accounting Policies(ii) Defined benefit plans
The Group’s net obligation in respect of defined benefit pension plans
is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service
in the current and prior periods; that benefit is discounted to determine
its present value, and the fair value of any plan assets is deducted.
The discount rate is the yield at the balance sheet date on AA credit
rated bonds. The calculation is performed by a qualified actuaryusing the projected unit credit method.
Differences between the actual and expected returns on assets andexperience gains and losses arising on scheme liabilities during theyear, together with differences arising from changes in assumptions,are recognised in the statement of recognised income and expensein the year.
Contributions to the scheme are paid in accordance with thescheme rules and the recommendation of the actuary. The charge
to the income statement reflects the current service cost of suchobligations. The expected return on scheme assets and the interest
cost on scheme liabilities are included within financial income or
financial expenditure in the income statement.
(iii) Share-based payment transactions
The share option programme allows Group employees to acquire
shares of the Company. The fair value of options granted is recognised
as an employee expense with a corresponding increase in equity.
The fair value is measured at grant date and spread over the period
during which the employees become unconditionally entitled tothe options. The fair value of the options granted is measured using
the most appropriate models for each scheme, taking into accountthe terms and conditions upon which the options were granted.
The amount recognised as an expense is adjusted to reflect theactual number of share options that vest except where forfeiture is
only due to market performance conditions not being met.
(n) Provisions
A provision is recognised in the balance sheet when the Group has
a present legal or constructive obligation as a result of a past event,and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect is material, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time valueof money and, where appropriate, the risks specific to the liability.
(i) Restructuring
A provision for restructuring is recognised when the Group has
approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly.
Future operating costs are not provided for.
(ii) Onerous contracts
A provision for onerous contracts is recognised when the expected
benefits to be derived by the Group from a contract are lower thanthe unavoidable cost of meeting its obligations under the contract.
(o) Trade and other payables
Trade and other payables are stated at amortised cost.

Oxford Instruments plc(p) Revenue(i) Goods sold and services rendered
Revenue is recognised in the income statement when the significant
risks and rewards of ownership have been transferred to the buyer.
Revenue, which excludes value added tax and similar revenue
based taxes, represents sales to external customers of products andservices and is stated before commissions payable to agents.
Revenue is recognised on shipment, except for installation, service
contracts and long term contracts. Revenue from installation isseparately recognised on completion of the installation. Revenue
from contracts for maintenance and support is recognised on a
pro-rata basis over the contract period.
(ii) Long term contracts
Contracts which take more than six months to complete and are
significant in size are included in the financial statements to reflectprogress towards completion. Revenue includes the value of work
carried out during the year in respect of these long-term contracts
including amounts not invoiced to customers. Profit recognitionreflects the stage reached, the estimated costs to complete and thedegree of risk remaining on each long-term contract.
(iii) Government grants
Government grants are recognised in the balance sheet initially as
deferred income when there is reasonable assurance that it will bereceived and that the Group will comply with the conditions
attaching to it. Grants that compensate the Group for expenses
incurred are recognised in the income statement on a systematic
basis in the same periods in which the expenses are incurred.
Grants that compensate the Group for the cost of an asset arerecognised in the income statement as other operating income ona systematic basis over the useful life of the asset.
(q) Expenses(i) Operating lease payments
Payments made under operating leases are recognised in theincome statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement
as an integral part of the total lease expense.
(ii) Finance lease payments
Minimum lease payments are apportioned between the financecharge and the reduction of the outstanding liability. The financecharge is allocated to each period during the lease term so as toproduce a constant periodic rate of interest on the remaining balanceof the liability.
(iii) Foreign exchange gains and losses
Foreign exchange gains and losses and gains and losses on hedging
instruments that are recognised in the income statement (seeaccounting policy f) are recognised within administrative expenses
and separately disclosed in the notes on the accounts.
(iv) Financial income
Financial income comprises interest receivable on funds invested
and dividend income.

Accounting Policies

Interest income is recognised in the income statement as it accrues,
using the effective interest method. Dividend income is recognisedin the income statement on the date the entity’s right to receive
payments is established.
(v) Financial expenditure
Financial expenditure comprises interest payable on borrowings
calculated using the effective interest rate method.
The interest expense component of finance lease payments is
recognised in the income statement using the effective interest rate
method.
(vi) Warranty costs
Warranty costs are based on the historical relationship between
actual costs incurred and the relevant revenue exposure.
(r) Income tax
Income tax on the profit or loss for the year comprises current anddeferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly inequity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income forthe year, using tax rates enacted or substantively enacted at thebalance sheet date, and any adjustment to tax payable in respectof previous years.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and theamounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax
purposes, the initial recognition of assets or liabilities that affectneither accounting nor taxable profit, and differences relating toinvestments in subsidiaries and associates to the extent that they
will probably not reverse in the foreseeable future. The amount ofdeferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probablethat future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that
it is no longer probable that the related tax benefit will be realised.
Additional income taxes that arise from the distribution of dividends
are recognised at the same time as the liability to pay the related
dividend.
(s) Segment reporting
A segment is a distinguishable component of the Group that is
engaged in providing products or services in a particular businesssegment (business segment), or in providing products or services
within a particular economic environment (geographic segment),
which is subject to risks and rewards that are different from thoseof other segments.

Oxford Instruments plc

The Group’s primary reporting format is business segments and its
secondary format is geographical segments. Segment results, assets
and liabilities, include items directly attributable to a segment as wellas an allocation of central items. Transfer prices between businesssegments are set on an arms length basis.
(t) Discontinued operations
A discontinued operation is a component of the Group’s businessthat represents a separate major line of business operations.
Classification as a discontinued operation occurs upon disposal orwhen the operation meets the criteria to be classified as held for
sale, if earlier.
(u) Held for sale assets
Immediately before classification as held for sale, the measurementof the assets is brought up-to-date in accordance with applicable
IFRS. Then, on initial classification as held for sale, non-current
assets are recognised at the lower of carrying amount and fairvalue less costs to sell.
Impairment losses on initial classification as held for sale are included
in profit or loss, even when the asset has previously been revalued.
The same applies to gains and losses on subsequent remeasurement.
(v) Adopted IFRS not yet applied
The following adopted IFRSs were available for early application but
have not been applied by the Group in these financial statements:(i)

Amendment to IAS 1, Capital Disclosures(ii) Amendment to IAS 39, Cash Flow Hedge Accounting of
Forecast Intragroup Transactions(iii) Amendments to IAS 39, Financial Instruments: Recognition
and Measurement the Fair Value Option(iv) Amendments to IAS 39, Financial Instruments: Recognition
and Measurement(v) IFRS 4, Insurance contracts(vi) IFRS 7, Financial Instruments: Disclosures(vii) IFRIC 4, Determining whether an arrangement contains a lease(viii) IFRIC 5, Rights to Interest arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds incorporating
an amendment to IAS 39, Financial Instruments: Recognition
and Measurement
The Group does not expect the above amendments to have any
significant impact on the financial statements for the period
commencing 1 April 2006.
With respect to financial guarantee contracts, where the Group
enters into such contracts to guarantee the indebtedness of othercompanies within the Group, the Group considers these to be
insurance arrangements, and accounts for them as such. In thisrespect the Group treats the guarantee contract as a contingent
liability until such time as it becomes probable that the Group will
be required to make a payment under the guarantee.

45

46

Group Income Statement year ended 31 March 2006

Oxford Instruments plc

Notes

Revenue
Cost of sales
Gross profit/(loss)
Selling and marketing costs
Administrative expenses
Research and development
Trading profit/(loss)
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

1

2
4

3
16
5

Underlying
business
performance£m

Restructured
magnetbusiness
£m

2006
£m

153.8
(105.3)13.4(13.8)

167.2(119.1)

48.5(21.3)(9.5)(10.8)

(0.4)
(0.5)
(0.7)
(0.9)

48.1
(21.8)(10.2)(11.7)

6.9
2.0
(0.2)
(0.1)

(2.5)
–
–
(6.6)

4.4
2.0
(0.2)
(6.7)

8.6

(9.1)

Operating profit/(loss)
Financial income
Financial expenditure

10

(0.5)
8.1
(8.5)

(Loss)/profit before income tax and discontinued operations
Income tax expense

11

(0.9)
(2.5)

Loss after taxation before discontinued operations
Profit from discontinued operations after tax

1

(3.4)
–

9

(Loss)/profit for the period attributable toequity shareholders of the Parent Company

(3.4)
pence

Earnings per share – continuing
Basic earnings per share
Diluted earnings per share

Dividends per share
Dividends paid
Dividends proposed

12

(7.2)
(7.1)

13
13

6.0
8.4
£m

Total dividends
Dividends paid
Dividends proposed

13
13

2.9
4.0

Group Income Statement year ended 31 March 2005

Oxford Instruments plc

Notes

Revenue
Cost of sales
Gross profit/(loss)
Selling and marketing costs
Administrative expenses
Research and development
Trading profit/(loss)
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

1

2
4

3
16
5

Underlying
business
performance£m

Restructured
magnetbusiness
£m

2005
£m

135.6
(93.1)

19.2(17.3)

154.8(110.4)42.5(19.2)
(5.0)
(9.2)

1.9
(0.3)
(1.0)
(2.3)

44.4
(19.5)(6.0)(11.5)

9.1
0.2
(1.3)
(6.2)

(1.7)
–
–
–

7.4
0.2
(1.3)
(6.2)

1.8

(1.7)

Operating profit/(loss)
Financial income
Financial expenditure

10

0.1
5.3
(5.3)

(Loss)/profit before income tax and discontinued operations
Income tax expense

11

0.1
(1.7)

9

Loss after taxation before discontinued operations
Profit from discontinued operations after tax

(1.6)
7.2

(Loss)/profit for the period attributable toequity shareholders of the Parent Company

5.6
pence

Earnings per share – continuing
Basic earnings per share
Diluted earnings per share

Dividends per share
Dividends paid
Dividends proposed

12

(3.0)
(3.1)

13
13

33.4
33.4
£m

Total dividends
Dividends paid
Dividends proposed

13
13

15.7
15.8

47

48

Group Statement of Recognised Income and Expenditure year ended 31 March 2006 Oxford Instruments plc

2006
£m

2005
£m

Foreign exchange translation differences
Cash flow hedges – effective portion
Deferred tax on the above
Actuarial loss in respect of post retirement benefits
Deferred tax on the above
Impairment of carrying value of investment

0.9
(0.3)
0.1
(10.3)
3.1
(0.2)

–
–
–
(6.1)
1.9
–

Net loss recognised directly in equity(Loss)/profit for the period

(6.7)
(3.4)

(4.2)
5.6

Total recognised (expense)/income for the year
– attributable to equity holders of the Parent Company(10.1)

1.4(10.1)

1.4

0.2

–

(9.9)

1.4

Total recognised (expense)/income for the year
Effect of adoption of IAS 32 and IAS 39,
net of tax on 1 April 2005 (2005 not restated) – cash flow hedges

Group Balance Sheet as at 31 March 2006

Oxford Instruments plc

2006
£m

2005
£m

23.4
15.6
1.0
19.1

23.0
12.5
1.6
15.1

59.1

52.2

27.1
46.2
0.1
13.9
5.0

23.9
46.8
–
29.7
5.4

92.3

105.8

151.4

158.0

2.4
20.2
16.0
0.9
6.9

2.4
19.4
16.0
–
20.2

46.4

58.0

0.5
53.4

1.1
43.3

53.9

44.4

2.9
1.2
38.7
1.9
0.3
6.1

2.1
1.1
44.3
1.3
–
6.8

51.1

55.6

Total liabilities

105.0

100.0

Total liabilities and equity

151.4

158.0

Notes

AssetsNon-current assets
Property, plant and equipment
Intangible assets
Investments
Deferred income tax assets

15
16
17
18

Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Held for sale assets

19
20
21
22
23

Total assets

EquityCapital and reserves attributable to the Company’s equity holders
Share capital
Share premium
Other reserves
Translation reserve
Retained earnings

Liabilities
Non-current liabilities
Borrowings
Retirement benefit obligations

24
24
24
24
24

26
27

Current liabilities
Borrowings
Bank overdrafts
Trade and other payables
Current income tax liabilities
Derivative financial instruments
Provisions

26
22
28

21
29

The financial statements were approved by the Board of Directors on 13 June 2006 and signed on its behalf by:

Jonathan Flint
Director

Martin Lamaison
Director

49

50

Group Statement of Cash Flows year ended 31 March 2006

Oxford Instruments plc

2006
£m

2005
£m

169.2
(173.9)185.9(177.3)

Cash (absorbed by)/generated from operations
Interest paid
Income taxes paid

(4.7)
(0.6)
(2.7)

8.6
(0.2)
(2.2)

Net cash from operating activities

(8.0)

6.2

Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sale of held for sale assets
Proceeds from sale of investment
Interest received
Disposal of subsidiary, net of cash disposed
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Capitalised development expenditure

–
0.6
2.2
0.9
–
(3.9)
(4.2)
(2.6)

0.8
–
–
0.7
24.0
(5.8)
(3.2)
(1.5)

Net cash from investing activities

(7.0)

15.0

Cash flows from financing activities
Proceeds from issue of share capital
Proceeds from the disposal of own shares
Proceeds from increase in short term borrowings
Dividends paid

0.8
0.1
0.8
(2.9)

0.4
–
0.6
(15.7)Net cash from financing activities(1.2)(14.7)Net (decrease)/increase in cash equivalents
Cash and cash equivalents at beginning of the period
Revaluation of cash balances on adoption of IAS 32 and IAS 39
Effect of exchange rate fluctuations on cash held

(16.2)
28.6
(0.1)
0.4

6.5
22.3
–
(0.2)

12.7

28.6

Notes

Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees

Cash and cash equivalents at end of the period

14
15
4

22

Notes on the Financial Statements

Oxford Instruments plc

1 SEGMENT INFORMATION – ANALYSIS BY BUSINESS
Segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis.
a) Total – Year to 31 March 2006
Analytical£m

Superconductivity
£m

Total
£m

Revenue

80.7

86.5

167.2

Trading profit/(loss)
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

6.0
0.9
(0.1)
(0.1)

(1.6)
1.1
(0.1)
(6.6)

4.4
2.0
(0.2)
(6.7)

Operating profit/(loss)
Net financing expense
Income tax expense

6.7

(7.2)

(0.5)
(0.4)
(2.5)

Loss for the period
Segment assets
Unallocated assets

(3.4)
55.6

55.9

Total assets
Segment liabilities
Unallocated liabilities

111.5
39.9
151.4

21.7

22.2

Total liabilities

43.9
61.1
105.0

Depreciation charge

1.8

2.2

4.0

Amortisation charge

1.0

0.3

1.3

Other significant non-cash expenses – end of line inventory write down

–

3.7

3.7

Capital expenditure, including capitalised research and development

4.6

2.2

6.8

–

–

–

Impairment losses

51

52

Notes on the Financial Statements

Oxford Instruments plc

1 SEGMENT INFORMATION – ANALYSIS BY BUSINESS continueda) Total – Year to 31 March 2005
Analytical£m

Superconductivity
£m

Total
£m

Revenue

68.8

86.0

154.8

Trading profit
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

6.4
–
(1.2)
(2.7)

1.0
0.2
(0.1)
(3.5)

7.4
0.2
(1.3)
(6.2)

Operating profit/(loss)
Net financing expense
Income tax expense

2.5

(2.4)

0.1
–
(1.7)

Loss for the period before discontinued operations
Profit from discontinued operations

(1.6)
7.2

Profit for the period

5.6

Segment assets
Unallocated assets

46.0

59.9

Total assets
Segment liabilities
Unallocated liabilities

105.9
52.1
158.0

19.1

28.1

Total liabilities

47.2
52.8
100.0

Depreciation charge

1.7

2.0

3.7

Amortisation charge

2.3

0.2

2.5

Other significant non-cash expenses – impairment of held for sale assets

0.5

–

0.5

Capital expenditure, including capitalised research and development

3.0

1.2

4.2

Impairment losses

0.7

–

0.7

Discontinued operations
The results of the Medical business segment prior to its disposal on 1 March 2005 were as follows:
2005£mRevenue

25.6

Trading profit
Net finance expense
Profit on sale of business

–
(0.2)
8.1

Profit before tax
Income tax expense (including tax on profit of disposal of £0.6m)

7.9
(0.7)

Profit for the period from discontinued operations

7.2

Depreciation charge

0.4

Amortisation charge

0.2

Capital expenditure, including capitalised research and development

0.5

Impairment losses

–
pence

Basic earnings per share – discontinued operations
Diluted earnings per share – discontinued operations

15.2
15.1

Notes on the Financial Statements

Oxford Instruments plc

1 SEGMENT INFORMATION – ANALYSIS BY BUSINESS continueda) Total – Year to 31 March 2005 continued
During the year ended 31 March 2005 the Medical business had a cash inflow from operating activities of £0.2m and a cash inflow of£23.5m from investing activities, including the proceeds of disposal.
b) Underlying business performance
The underlying business comprises all of the Group’s operations except the restructured magnet business. The restructured magnet businessdoes not constitute a discontinued business within the meaning of IFRS. Disclosure of segmental information for the underlying businessis not required by IFRS but certain limited information is included below to give shareholders greater insight into the performance of theGroup. Information relating to the restructured magnet business is not included.
Year to 31 March 2006
Analytical£m

Superconductivity
excluding restructured
magnet business
£m

Total
£m

Revenue

80.7

73.1

153.8

Trading profit
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

6.0
0.9
(0.1)
(0.1)

0.9
1.1
(0.1)
–

6.9
2.0
(0.2)
(0.1)

Operating profit

6.7

1.9

8.6

Analytical£m

Superconductivity
excluding restructured
magnet business
£m

Total
£m

Revenue

68.8

66.8

135.6

Trading profit
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

6.4
–
(1.2)
(2.7)

2.7
0.2
(0.1)
(3.5)

9.1
0.2
(1.3)
(6.2)

Operating profit/(loss)

2.5

(0.7)

1.8

Year to 31 March 2005c) Geographical Analysis
Year to 31 March 2006
UK
£mContinental
Europe£m

North
America
£m

Japan
£m

Rest ofFar East£m

Rest of
World
£m

Total
£m

Revenue from external customers

18.8

29.2

59.9

34.8

19.9

4.6

167.2

Segment assets
Unallocated assets

60.3

12.7

31.1

6.9

0.5

–

111.5
39.9
151.4

4.2

0.8

1.7

0.1

–

–

6.8

UK
£m

Continental
Europe£m

North
America
£m

Japan
£m

Rest ofFar East£m

Rest of
World
£m

Total
£m

Revenue from external customers

17.7

25.0

57.9

34.0

17.7

2.5

154.8

Segment assets
Unallocated assets

61.7

9.5

26.2

8.4

0.1

–

105.9
52.1

Capital expenditure
Year to 31 March 2005

158.0
Capital expenditure

2.1

0.8

1.2

0.1

–

–

4.2

53

54

Notes on the Financial Statements

Oxford Instruments plc

2 ADMINISTRATIVE EXPENSES
2006
£m

2005
£m

10.1
0.1

7.7
(1.7)

10.2

6.0

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

0.2
–

0.2
0.4

Total fees paid to auditor and its associates

0.2

0.6

Administrative expenses
Foreign exchange loss/(gain)

Fees paid to the auditor and its associates in respect of non-audit services totalled £40,000 (2005 £391,000). This comprised IFRS advisory
work of £28,000 (2005 £12,000) and tax and other services of £12,000 (2005 £20,000). Additionally during 2005 KPMG Corporate
Finance were paid £325,000 in connection with the disposal of the Group’s Medical business and KPMG Audit Plc were paid £23,000 and£11,000 in respect of vendor due diligence and other audit services respectively.

3 OTHER OPERATING INCOME

Profit on disposal of investments
Profit on disposal of property

2006
£m

2005
£m

1.8
0.2

–
0.2

2.0

0.2

Profit on disposal of investments comprises a profit of £1.7m on the disposal of the Group’s entire holdings in Target Systemelectronic
GmbH and Target Instruments Inc and a profit of £0.1m in a part disposal of the Group’s interest in ARKeX Limited (see Note 17).

4 RESEARCH AND DEVELOPMENT
The total research and development spend by the group is as follows:

Analytical£m

Superconductivity
excludingrestructured
magnet business£m

Underlying
business
Total£m

Restructured
magnet business
£m

2006
Total
£m

Total cash spent on research and development during the year
Less: amount capitalised
Add: amortisation of amounts previously capitalised

7.4
(2.4)
0.9

4.9
(0.2)
0.2

12.3
(2.6)
1.1

0.9
–
–

13.2
(2.6)
1.1

Research and development charged to income statement

5.9

4.9

10.8

0.9

11.7

Analytical£m

Superconductivity
excludingrestructured
magnet business£m

Underlying
business
Total£m

Restructured
magnet business
£m

2005
Total
£m

Total cash spent on research and development during the year
Less: amount capitalised
Add: amortisation of amounts previously capitalised

5.1
(1.2)
1.3

3.9
–
0.1

9.0
(1.2)
1.4

2.3
–
–

11.3
(1.2)
1.4

Research and development charged to income statement

5.2

4.0

9.2

2.3

11.5

Notes on the Financial Statements

Oxford Instruments plc

5 RESTRUCTURING AND OTHER NON-RECURRING COSTS
2006
£m

2005
£m

–
–
6.7
–

1.2
1.5
3.0
0.5

6.7

6.2

Post acquisition restructuring
Wire quality costs
Restructuring costs
Impairment of held for sale assets

Restructuring costs for the year ended 31 March 2006 relate to the restructuring of the UK magnet business and restructuring at Plasma
Technology in Yatton, Bristol. The cost comprises inventory write-downs of £3.7m, redundancy and similar costs of £1.0m, halted researchand development costs of £0.8m, supplier commitments of £0.7m and other costs of £0.5m.
Restructuring and other non-recurring costs for the year ended 31 March 2005 comprise restructuring costs (redundancy expense, inventory
write-off and surplus lease costs) following the acquisition of Metorex International Oy and Resonance Instruments Limited in September
2004, costs relating to a specific quality issue at the US superconducting wire manufacturing plant, restructuring costs relating to
redundancies in the Superconductivity business, closure of the East Grinstead site and the replacement of the Chief Executive and impairmentof the held for sale property in Abingdon (see Note 23).

6 PERSONNEL COSTS

Wages and salaries
Social security costs
Charge in respect of defined benefit pension scheme
Contributions to defined contribution pension plans
Charge in respect of employee share options

2006
£m

Continuing£m

Discontinued
£m

2005
Total
£m

42.2
3.9
2.9
1.1
0.3

40.8
3.9
2.5
0.6
0.2

7.3
1.0
0.5
0.1
–

48.1
4.9
3.0
0.7
0.2

50.4

48.0

8.9

56.9

Directors’ emoluments are disclosed in the Directors’ Remuneration Report on pages 32 to 37 of this document.

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

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

2006

Continuing

Discontinued

2005
Total

780
260
202
170

748
227
185
165

61
127
22
46

809
354
207
211

1,412

1,325

256

1,581

55

56

Notes on the Financial Statements

Oxford Instruments plc

8 SHARE OPTION SCHEME EXPENSE
Administrative expenses include a charge of £0.3m (2005 £0.2m) in respect of the cost of providing share options. The cost is calculated
by estimating the fair value of the option at grant and spreading that amount over the vesting period. Further details of the assumptions
used in these calculations are given below.
The terms and conditions of all awards and grants made since 7 November 2002 are as follows:
Number of
instruments
grantedGrant date

Plan

Employees
entitled

Contractual lifeof option

December 2005

Senior Executive Long
Term Incentive Scheme

Certain senior
executives

40,000Three years of service plus satisfactionof performance conditions

7 years

December 2005

Executive Share
Option Scheme

Certain senior
executives

6,000

Three years of service plus satisfactionof performance conditions

10 years

December 2005

UK Save as You
Earn scheme 20

All UK
employees

156,881Three or five years of service

July 2005

Senior Executive Long
Term Incentive Scheme

Certain senior
executives

50,000Three years of service plus satisfactionof performance conditions

7 years

July 2005

Executive Share
Option Scheme

Certain senior
executives

540,300

Three years of service plus satisfactionof performance conditions

10 years

December 2004

UK Save as You
Earn scheme 19

All UK
employees

221,749

Three or five years of service

July 2004

Executive Share
Option Scheme

Certain senior
executives

786,213

Three years of service plus satisfactionof performance conditions

December 2003

UK Save as You
Earn scheme 18

All UK
employees

227,157

Three or five years of service

July 2003

Executive Share
Option Scheme

Certain senior
executives

932,037

Three years of service plus satisfactionof performance conditions

10 years

December 2002

Executive Share
Option Scheme

Certain senior
executives

60,000Three years of service plus satisfactionof performance conditions

10 years

December 2002

UK Save as You
Earn scheme 17

All UK
employees

120,552

Three or five years of service

Vesting conditions

3.5 or 5.5 years

3.5 or 5.5 years
10 years
3.5 or 5.5 years

3.5 or 5.5 years

All awards and option exercises are settled by physical delivery of shares. Full details of the performance conditions can be found in the
Directors’ Remuneration Report on pages 32 to 37.
Fair value of share options and assumptions are set out below:
Executive Share Option Scheme

Fair value at measurement date
Share price
Exercise price
Expected volatility
Expected option life
(expressed as weighted average
life used in the modelling)
Expected dividend yield
Risk free interest rate
Performance condition discountin respect of TSR condition

December
2005

July
2005

July
2004

July
2003

December
2002

64.0p
£2.421/4£2.421/2
37.3%

56.5p
£2.171/2
£2.19
38.4%

64.5p
£2.181/2
£2.18
41.9%

47.5p
£1.871/2
£1.88
41.7%

31.5p
£1.471/2
£1.48
40.4%

6 years
3.5%
4.3%

6 years
3.9%
4.2%

6 years
3.8%
5.1%

6 years
4.5%
3.9%

6 years
5.7%
4.4%

24.2%

23.0%

21.0%

26.0%

31.0%

Notes on the Financial Statements

Oxford Instruments plc

8 SHARE OPTION SCHEME EXPENSE continued
Senior Executive Long Term Incentive Scheme

Fair value at measurement date
Share price
Exercise price
Expected volatility
Expected option life (expressed as weighted average life used in the modelling)
Expected dividend yield
Risk free interest rate
Performance condition discount in respect of TSR condition

December
2005

July
2005

£1.62
£2.421/4£nil
32.2%
3 years
3.5%
4.3%
51.5%

£1.46
£2.171/2£nil
34.8%
3 years
3.9%
4.2%
23.0%

UK Save as You Earn scheme – 3 year

Fair value at measurement date
Share price
Exercise price
Expected volatility
Expected option life (expressed as weighted
average life used in the modelling)
Expected dividend yield
Risk free interest rate

December
2005

December
2004

December
2003

December
2002

65.0p
£2.44
£2.14
33.3%

63.0p
£2.14
£1.75
35.0%

55.0p
£1.95
£1.74
40.1%

37.0p
£1.471/2
£1.35
41.6%

3.25 years
3.4%
4.3%

3.25 years
3.9%
4.4%

3.25 years
4.3%
4.5%

3.25 years
5.7%
4.1%

December
2005

December
2004

December
2003

December
2002

79.0p
£2.44
£2.02
34.2%

78.0p
£2.14
£1.65
39.8%

69.0p
£1.95
£1.64
43.7%

43.0p
£1.471/2
£1.27
41.5%

5.25 years
3.4%
4.2%

5.25 years
3.9%
4.4%

5.25 years
4.3%
4.7%

5.25 years
5.7%
4.3%

UK Save as You Earn scheme – 5 year

Fair value at measurement date
Share price
Exercise price
Expected volatility
Expected option life (expressed as weighted
average life used in the modelling)
Expected dividend yield
Risk free interest rate

In all cases expected volatility has been based on historical volatility over a period of time of the same length as the expected option life andending on the grant date. The volatility has been used to incorporate a discount for TSR market condition in the ESO and SELTIS schemes.
The Executive Share Option and Senior Executive Long Term Incentive Schemes have been valued using a Monte-Carlo stochastic model.
The Save as You Earn schemes have been valued using a modified Black-Scholes model.
The number and weighted average exercise prices of share options are as follows:
Weighted average
exercise price
2006

Numberof options
2006

Weighted average
exercise price2005

Numberof options
2005

Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Lapsed during the period

£1.89
£1.92
£1.75
£1.44
£2.26

4,321,458
793,181(57,273)(596,351)(1,171,415)

£1.77
£2.07
£1.80
£1.48
£1.58

4,509,512
1,007,962(74,098)(236,236)(885,682)

Outstanding at the period end£1.85

3,289,600£1.89

4,321,458

Exercisable at the period end£1.38

636,787£1.67

1,158,227

57

58

Notes on the Financial Statements

Oxford Instruments plc

9 FINANCIAL INCOME
2006
£m

2005
£m

0.9
7.2

0.7
4.6

8.1

5.3

2006
£m

2005
£m

Interest payable and similar charges on bank loans and overdrafts
Interest charge on pension scheme liabilities

0.6
7.9

0.2
5.1

Total interest payable

8.5

5.3

% of (loss)/profit
before tax

2005
£m

Interest receivable
Expected return on pension scheme assets

10 FINANCIAL EXPENDITURE

11 INCOME TAX EXPENSE
Recognised in the income statement% of (loss)/profit
before tax

Current tax expense
Current year
Adjustment for prior years

2006
£m

2.4
0.1

1.1
0.1

2.5

1.2

(0.8)
–
0.8

0.9
0.3
–

–

1.2

Total tax expense
Less tax charge included within discontinued operations

2.5
–

2.4
(0.7)

Total income tax expense in income statement

2.5

1.7

Reconciliation of effective tax rate
(Loss)/profit before tax(including discontinued operations)

(0.9)

8.0

Deferred tax expense
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Benefit of tax losses recognised

Income tax using the UK corporation tax rate
Effect of:Tax rates in foreign jurisdictions
Amortisation of intangible assets
Non-tax deductible expenses
Tax incentives not recognised in the income statement– mainly US manufacturing deductions
Profit on disposal of Medical businessTemporary differences not recognised for deferred tax
Effect of current tax losses not utilised
Effect of previous tax losses now utilised
Under/(over) provided in prior years
Total tax expense
Deferred tax recognised directly in equity
Relating to employee benefits
Relating to cash flow hedges

30

(0.3)

30

2.4

(56)
(11)
(11)

0.5
0.1
0.1

5
4
6

0.4
0.3
0.5

44
–
(167)
(185)
89
(11)

(0.4)
–
1.5
1.7
(0.8)
0.1

(7)
(29)
8
9
(1)
5

(0.5)
(2.3)
0.6
0.7
(0.1)
0.4

(278)

2.5

30

2.4

3.1
(0.1)

1.9
–

3.0

1.9

Notes on the Financial Statements

Oxford Instruments plc

12 EARNINGS PER SHAREa) Continuing
The calculation of continuing basic earnings per share is based on the loss for the period after taxation but before discontinued operations
and a weighted average number of ordinary shares outstanding during the period, excluding shares held by the Employee ShareOwnership Trust, as follows:
2006
£m

2005
£m

(3.4)

(1.6)

SharesmillionSharesmillionWeighted average number of shares outstanding
Less shares held by Employee Share Ownership Trust

48.6
(0.9)

48.1
(1.0)

Weighted average number of shares used in calculation of earnings per share

47.7

47.1

Loss for the periodb) Total
Total earnings per share based on the profit for the period as disclosed in the Income Statement are as follows:

Basic earnings per share
Diluted earnings per share

2006
pence

2005
pence

(7.2)
(7.1)

12.2
12.0

c) Diluted
Diluted earnings per share have been calculated using the same numerators as set out in (a) and (b) above and by reference to the following
number of shares:
2006
Sharesmillion2005
SharesmillionNumber of ordinary shares per basic earnings per share calculations
Effect of shares under option

47.7
0.5

47.1
0.5

Number of ordinary shares per diluted earnings per share calculations

48.2

47.6

d) Adjusted
The earnings per share before other operating income, amortisation of acquired intangibles, restructuring and other non-recurring costs,
the result of the restructured magnet business and discontinued operations are as follows:

Basic
Diluted

2006
pence

2005
pence

9.1
9.0

13.9
13.8

A reconciliation of the profit for the periods used to calculate basic earnings per share to the adjusted profit used to calculate the adjusted
earnings per share shown above is set out below:
2006
£m

2005
£m

(Loss)/profit for the period
Other operating income
Amortisation of acquired intangible assets
Restructuring and other non-recurring costs
Tax impact of the above
Loss of restructured magnet businessProfit after tax in respect of discontinued operations

(3.4)
(2.0)
0.2
6.7
0.3
2.5
–

5.6
(0.2)
1.3
6.2
(0.8)
1.7
(7.2)

Adjusted profit

4.3

6.6

59

60

Notes on the Financial Statements

Oxford Instruments plc

13 DIVIDENDS PER SHARE
The following dividends per share were paid by the Group:
2006
pence

2005
pence

6.0
–
–

6.0
2.4
25.0

6.0

33.4

2006
pence

2005
pence

2.4
–
6.0

2.4
25.0
6.0

8.4

33.4

Previous period final dividend
Current period interim dividend
Special dividend

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

Interim dividend
Special dividend
Final dividend

Subject to the approval of the shareholders at the Annual General Meeting on 26 September 2006, the proposed final dividend will be
paid on 27 October 2006 to shareholders registered at the close of business on 29 September 2006. The ordinary shares will be quoted
ex-dividend on 27 September 2006. The dividends payable on the shares held in trust have been waived.

14 ACQUISITIONSHKL Technologies A/S
On 4 April 2005 the Group acquired HKL Technologies A/S based in Hobro, Denmark for a net cash consideration of £2.1m. Further
consideration of up to £0.7m is payable based on post acquisition revenue growth. The Group’s best estimate of this deferred consideration
at the current time is £0.3m. HKL contributed turnover of £1.8m and profit before income tax of £0.1m to the Group in the period.
Book value£m

Fair value
adjustments£m

Fair value
to the Group£m

Property, plant and equipment
Inventories
Receivables
Payables

0.2
0.3
0.6
(0.7)

(0.1)
(0.1)
–
–

0.1
0.2
0.6
(0.7)

Total net assets/(liabilities)

0.4

(0.2)

0.2

Goodwill

2.2

Total purchase costLess consideration deferred

2.4
(0.3)

Net cash outflow in respect of the purchase *Less net cash acquired

2.1–

Net cash outflow on acquisition

2.1* Includes costs associated with the acquisition of £0.1m.
The book value of the assets acquired are based on the management accounts at the date of acquisition. The fair value adjustments reflect
the alignment of accounting policies in respect of stock provisioning and project based contracts.
Goodwill arose on the above acquisition as the criteria for the recognition of any intangible assets are not met at the date of acquisition.
It is recorded as a component of intangible assets.

Notes on the Financial Statements

Oxford Instruments plc

14 ACQUISITIONS continued
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 total cash consideration was £5.3m of which £4.9m had
been paid at 31 March 2006 and the remaining £0.4m is payable in June 2006.
Book value£m

Fair value
adjustments£m

Accounting policy
adjustments£m

Fair value
to the Group£m

Intangible assets
Property, plant and equipment
Inventories
Debtors
Creditors
Provisions

–
0.1
1.4
1.4
(1.6)
(0.1)

1.4
–
–
–
–
–

–
–
(0.6)
–
(0.1)
–

1.4
0.1
0.8
1.4
(1.7)
(0.1)

Total net assets/(liabilities)

1.2

1.4

(0.7)

1.9

Goodwill

3.4

Total purchase cost

5.3

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 inventory provisioning and project based contracts. The fair value adjustments
relate to recognition of certain customer related intangible assets not previously recognised by the company.
Goodwill arose on the above acquisition because the criteria for the recognition of certain other technology, customer and market related
intangible assets were not met at the date of acquisition. It is recorded as a component of intangible assets.
Resonance Instruments Limited
On 21 September 2004 the Group acquired Resonance Instruments Limited based in Witney, Oxfordshire for a net cash consideration of£1.8m. A further £1.3m payment was deferred and payable over the next two years based on future performance and staff retention.
Book value£m

Fair value
adjustments£m

Fair value
to the Group£m

Intangible assets
Property, plant and equipment
Inventories
Debtors
Creditors
Provisions

–
0.1
0.4
0.5
(0.5)
(0.1)

0.5
–
–
–
–
–

0.5
0.1
0.4
0.5
(0.5)
(0.1)

Total net assets

0.4

0.5

0.9

Goodwill

2.2

Total purchase cost

3.1

The book value of the assets acquired are based on the management accounts at the date of acquisition. The fair value adjustments relate
to recognition of certain customer related assets not previously recognised by the company.
Goodwill arose on the above acquisition because the criteria for the recognition of certain other technology, customer and market related
assets were not met at the date of acquisition. It is recorded as a component of intangible assets.

61

62

Notes on the Financial Statements

Oxford Instruments plc

15 PROPERTY, PLANT AND EQUIPMENT
Land andbuildings£mPlant andequipment£mFixtures andfittings
£m

Total
£m

Cost
Balance at 1 April 2004
Acquisitions through business combinations
Other acquisitions
Disposals
Disposal of business
Effect of movements in foreign exchange

19.2
–
0.1
(0.6)
(2.0)
(0.1)

33.6
0.2
3.1
(1.5)
(5.7)
(0.2)

9.0
–
–
(0.3)
(1.2)
–

61.8
0.2
3.2
(2.4)
(8.9)
(0.3)

Balance at 31 March 2005

16.6

29.5

7.5

53.6

Balance at 1 April 2005
Acquisitions through business combinations
Other acquisitions
Disposals
Effect of movements in foreign exchange

16.6
–
0.2
(0.1)
0.2

29.5
0.1
3.9
(1.9)
0.8

7.5
–
0.1
(0.1)
0.1

53.6
0.1
4.2
(2.1)
1.1

Balance at 31 March 2006

16.9

32.4

7.6

56.9

Depreciation and impairment losses
Balance at 1 April 2004
Depreciation charge for the year
Disposals
Disposal of business
Effect of movements in foreign exchange

4.0
0.4
(0.2)
(0.8)
(0.1)

26.2
2.9
(1.2)
(5.1)
(0.2)

4.9
0.8
(0.3)
(0.7)
–

35.1
4.1
(1.7)
(6.6)
(0.3)

Balance at 31 March 2005

3.3

22.6

4.7

30.6

Balance at 1 April 2005
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange

3.3
0.3
(0.1)
0.2

22.6
2.9
(1.7)
0.5

4.7
0.8
–
–

30.6
4.0
(1.8)
0.7

Balance at 31 March 2006

3.7

24.3

5.5

33.5

Carrying amounts
At 1 April 2004

15.2

7.4

4.1

26.7

At 31 March 2005

13.3

6.9

2.8

23.0

At 31 March 2006

13.2

8.1

2.1

23.4

Notes on the Financial Statements

Oxford Instruments plc

16 INTANGIBLE ASSETS
Goodwill£m

Customer relatedacquired intangibles£m

Development costs
£m

Total
£m

Cost
Balance at 1 April 2004
Acquisitions through business combinations
Other acquisitions
Disposals
Effect of movements in foreign exchange

2.2
5.6
–
–
0.1

–
1.9
–
–
–

5.6
–
1.5
(1.7)
–

7.8
7.5
1.5
(1.7)
0.1

Balance at 31 March 2005

7.9

1.9

5.4

15.2

Balance at 1 April 2005
Acquisitions through business combinations
Adjustment relating to recognition of deferred tax asset
Other acquisitions – internally developed
Effect of movements in foreign exchange

7.9
2.2
(0.8)
–
0.3

1.9
–
–
–
0.1

5.4
–
–
2.6
–

15.2
2.2
(0.8)
2.6
0.4

Balance at 31 March 2006

9.6

2.0

8.0

19.6

Amortisation and impairment losses
Balance at 1 April 2004
Amortisation charge for the year
Impairment
Disposals
Effect of movements in foreign exchange

–
–
0.2
–
–

–
1.1
–
–
–

0.9
1.6
–
(1.1)
–

0.9
2.7
0.2
(1.1)
–

Balance at 31 March 2005

0.2

1.1

1.4

2.7

Balance at 1 April 2005
Amortisation for the year
Impairment charge
Effect of movements in foreign exchange

0.2
–
–
–

1.1
–
0.2
–

1.4
1.1
–
–

2.7
1.1
0.2
–

Balance at 31 March 2006

0.2

1.3

2.5

4.0

Carrying amounts
At 1 April 2004

2.2

–

4.7

6.9

At 31 March 2005

7.7

0.8

4.0

12.5

At 31 March 2006

9.4

0.7

5.5

15.6

2006
£m

2005
£m

5.6
3.8

4.0
3.7

9.4

7.7

Impairment tests for cash-generating units containing goodwill
The following units have significant carrying amounts of goodwill:

Analytical
Superconductivity

The recoverable amount of the above units is based on value in use calculations. Those calculations use cash flow projections based on
forecast operating results for the current period and budgeted operating results for the subsequent four year period. A pre-tax discountrate of 10% has been used in discounting the projected cash flows.
During 2005 certain goodwill in the Analytical business was impaired since it related to an activity which had ceased.

63

64

Notes on the Financial Statements

Oxford Instruments plc

17 INVESTMENTS
2006
£m

2005
£m

1.0

1.6

Percentage ofcompany owned

Carrying value£m

Equity securities available for sale

Other investments at 31 March 2006 comprise:
Investment

Principal activity

ARKeX Limited

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

18.9%

0.3

Link Nordiska AB

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

10.0%

–

Oxford BioSignals Limited

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

7.0%

0.4

Oxford Diffraction Limited

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

23.0%

0.3

The Group considers that ARKeX Limited and Oxford Diffraction Limited are not associates because in both cases the Group is unable toexert significant influence over their financial and operating policies due to the dominant influence exerted by other investors.
The investments are unlisted and engaged in the development of new high technology products. Due to the inherent uncertainties thiscreates, the Group considers that it is not possible to reliably estimate the fair value of these investments.
During the year the Group sold its investments in Target Systemelectronic GmbH and Target Instruments Incorporated. The carrying value
at the time of sale was £0.4m and the profit on disposal was £1.7m.
During the year the Group reduced its percentage holding in ARKeX Limited by 3.6% from 28.5% to 24.9%. The gain on disposal was£0.1m. Additional “B” round funding during the year resulted in the Group’s percentage holding being reduced to 18.9%.

18 DEFERRED TAX ASSET
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
2006£mAssets
2005
£m

2006
£m

Liabilities
2005
£m

2006
£m

Net
2005
£m

Property, plant and equipment
Deferred revenue
Inventories
Employee benefits
Provisions
Intangible assets
Other items
Tax value of loss carry-forwards recognised

1.9
0.4
1.5
16.5
0.4
–
–
0.1

1.7
0.5
1.0
13.1
0.2
0.2
0.2
0.1

(0.3)
–
–
–
–
(1.3)
(0.1)
–

(0.3)
(0.2)
–
–
–
(1.4)
–
–

1.6
0.4
1.5
16.5
0.4
(1.3)
(0.1)
0.1

1.4
0.3
1.0
13.1
0.2
(1.2)
0.2
0.1

Tax assets/(liabilities)
Set off of tax

20.8
(1.7)

17.0
(1.9)

(1.7)
1.7

(1.9)
1.9

19.1
–

15.1
–

Net tax assets/(liabilities)

19.1

15.1

–

–

19.1

15.1

Notes on the Financial Statements

Oxford Instruments plc

18 DEFERRED TAX ASSET continued
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:

Deductible temporary differences
Tax losses

2006
£m

2005
£m

1.7
7.3

1.0
6.6

9.0

7.6

£1.5m of the tax losses expire between now and 2015. The balance do not expire under current tax legislation. The deductible temporary
differences relate to plant and machinery and other short-term items and do not expire under current tax legislation. Deferred tax assets havenot been recognised in respect of these items because it is not certain that future taxable profit will be available against which the Group canutilise the benefits there from.
Movement in temporary differences during the year
Balance
1 April
2004£m

Recognised
in income£m

Recognisedin equity£mTransferredout ondisposal£m

Foreignexchange
adjustment£m

Balance
31 March
2005
£m

1.6
0.3
1.3
11.8
0.2
(1.6)
1.1
0.2

(0.2)
–
(0.1)
(0.7)
–
0.4
(0.6)
–

–
–
–
1.9
–
–
–
–

–
–
(0.2)
–
–
–
(0.3)
(0.1)

–
–
–
0.1
–
–
–
–

1.4
0.3
1.0
13.1
0.2
(1.2)
0.2
0.1

14.9

(1.2)

1.9

(0.6)

0.1

15.1

Balance
1 April2005£mAdoptionof IAS 32
and 39£m

Recognised
in income£m

Recognisedin equity£m

Recognised
in respect ofacquisitions£m

Foreignexchange
adjustment£m

Balance
31 March
2006
£m

1.4
0.3
1.0
13.1
0.2
(1.2)
–
0.2
0.1

–
–
–
–
–
–
0.1
–
–

0.2
0.1
0.5
0.2
0.2
(0.1)
–
(0.3)
(0.8)

–
–
–
3.1
–
–
(0.1)
–
–

–
–
–
–
–
–
–
–
0.8

–
–
–
0.1
–
–
–
–
–

1.6
0.4
1.5
16.5
0.4
(1.3)
–
(0.1)
0.1

15.1

0.1

–

3.0

0.8

0.1

19.1

Property, plant and equipment
Deferred revenue
Inventories
Employee benefits
Provisions
Intangible assets
Other items
Losses carried forward

Property, plant and equipment
Deferred revenue
Inventories
Employee benefits
Provisions
Intangible assets
Cash flow hedges
Other items
Losses carried forward

The deferred tax recognised in respect of acquisitions has been credited against Goodwill as required by IAS 12.

65

66

Notes on the Financial Statements

Oxford Instruments plc

19 INVENTORIES
2006
£m

2005
£m

9.9
10.9
6.3

9.0
10.5
4.4

27.1

23.9

2006
£m

2005
£m

5.2

5.6

2006
£m

2005
£m

Trade receivables
Less provision for impairment of receivables

38.8
(0.4)

32.7
(0.4)

Net trade receivables
Prepayments
Other receivables
Tax recoverable

38.4
2.9
4.0
0.9

32.3
3.1
11.1
0.3

46.2

46.8

Raw materials and consumables
Work in progress
Finished goods

Inventories stated at fair value less costs to sell

20 TRADE AND OTHER RECEIVABLES

Other receivables includes £2.6m (2005 £5.4m) due from customers in respect of long term contracts. Revenue recognised during the year
in respect of long term contracts was £1.3m (2005 £2.7m). Revenue is recognised in accordance with the long term contracts accounting
policy which requires management to set milestones and associated cumulative revenue at the start of each contract. The aggregate costs
to date plus recognised profits (less recognised losses) in respect of long term contracts in progress at the balance sheet date were £5.9m(2005 £8.8m). Advances received were £0.2m (2005 £1.5m) and have been offset against other receivables.

21 FINANCIAL INSTRUMENTS
Exposure to credit, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial instruments areused to hedge exposure to fluctuations in foreign exchange rates.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are
performed on all customers requiring credit over a certain amount. The Group does not require collateral in respect of financial assets.
Surplus cash is deposited and derivative financial instruments are made only with banks credit ratings of at least AA. Given their high credit
ratings, management does not expect any counterparty to fail to meet its obligations.
At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by
the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet.
Interest rate risk
The Group has minimal borrowing at present and consequently does not hedge interest rate risk.
Foreign currency risk
The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than sterling.
The currencies giving rise to this risk are primarily US Dollar, the Euro and Japanese Yen.

Notes on the Financial Statements

Oxford Instruments plc

21 FINANCIAL INSTRUMENTS continued
Given the high level of net exports, the Group faces currency exposures on trading transactions undertaken by its UK subsidiaries in foreign
currencies. To eliminate uncertainty subsidiaries are encouraged to manage all material transactional foreign currency exposures using forward
contracts. Subsidiaries are required to maintain a minimum of three months cover. In ordinary circumstances they are not permitted to havecover for more than twelve months ahead. Our overall policy of selling forward net currency receivables provides short-term predictability
but not long term protection from sterling movements against other currencies.
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 with the 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.
Forecasted transactions
The Group classifies as cashflow hedges its forward exchange contracts which are held to hedge forecasted transactions and states themat fair value. The fair value of forward exchange contracts at 1 April 2005 was adjusted against the opening balance of the hedging reserve atthat date. The net fair value of forward exchange contract used as hedges of forecasted transactions in respect of which hedge accounting
has been applied at 31 March 2006 was £nil.
Recognised assets and liabilities
Changes in the fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies andfor which no hedge accounting is applied are recognised in the income statement. Both the changes in fair value of the forward contracts
and the foreign exchange gains and losses relating to the monetary items are recognised in the income statement within administrative
expenses. The net fair value of forward exchange contracts used as economic hedges of monetary assets and liabilities in foreign currencies
at 31 March 2006 was an asset of £0.3m. A deferred tax liability of £0.1m was recognised in respect of this.
Fair values
The fair values of financial instruments together with the carrying amounts shown in the balance sheet are as follows:

Investments
Trade and other receivables
Cash and cash equivalents
Forward exchange contracts:
AssetsLiabilities
Unsecured bank borrowings
Other borrowings
Trade and other payables
Bank overdraft

Carrying amount2006£m

Fair value
2006
£m

1.0
45.3
13.9

1.0
45.3
13.9

0.1
(0.3)
(2.9)
(0.5)
(38.7)
(1.2)

0.1
(0.3)
(2.9)
(0.5)
(38.7)(1.2)

Effective interest rates and repricing analysis
In respect of income earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest
rates at the balance sheet date and the periods in which they reprice:

Unsecured bank borrowings
Bank overdrafts
Cash and cash equivalents

Effective interest rate

Total

Six months or lessSix to twelve months

5.56%
2.64%
3.63%

2.9
1.2
13.9

2.9
1.2
13.9

–
–
–

Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table.
Investments
See Note 17.
Derivatives
Forward exchange contracts are either marked to market using listed market prices or by discounting the contractual forward price anddeducting the current spot rate.

67

68

Notes on the Financial Statements

Oxford Instruments plc

21 FINANCIAL INSTRUMENTS continued
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All otherreceivables/payables are discounted to determine the fair value.
Forward foreign currency contracts
As explained more fully in Accounting Policies Note f, classifications of financial assets and liabilities are determined on different bases in2006 and 2005 due to the transitional provisions of IAS 32 and IAS 39. Below are the UK GAAP comparatives for 2005.
The Group enters into forward foreign currency contracts to reduce the currency exposures that arise on sales and purchases denominatedin 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.
The gross contract values of the forward contracts which the Group had not yet recognised at 31 March 2005 were:

US Dollar
Japanese Yen
EuroGross contract value
millionBook value£m

Fair value
£m

5.5
6.9
444

–
–
–

0.1
0.1
0.2

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

US Dollar
Japanese Yen
Euro

–
–
–

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 and short term deposits
Cash in hand and short term deposits

Currency

Interest rate

Sterling
US Dollar
Euro
Japanese Yen

floating
floating
floatingnone

Total financial assets
Bank loans
Bank overdraft
Bank overdraft
Total financial liabilities

Book and fair value
£m

20.3
5.2
1.8
2.4
29.7

US Dollar
Euro
Singapore Dollar

floating
floating
floating

2.5
0.5
0.2
3.2

Notes on the Financial Statements

Oxford Instruments plc

21 FINANCIAL INSTRUMENTS continued
Maturity of financial assets and liabilities
All financial assets and liabilities mature within one year or on demand. The non-current creditors of £1.1m relate to deferred payments
on acquisitions made in the current and preceding 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:
2005£m

Expiring in less than 1 year
Expiring in more than 2 years but less than 5 years–
15.0

22 CASH AND CASH EQUIVALENTS
2006
£m

2005
£m

Bank balances
Fixed short-term deposits

8.9
5.0

14.7
15.0

Cash and cash equivalents
Bank overdrafts

13.9
(1.2)

29.7
(1.1)

Cash and cash equivalents in the statement of cash flows

12.7

28.6

23 HELD FOR SALE ASSETS
Held for sale assets at 31 March 2005 represented properties in Abingdon, UK and Oakridge, Tennessee, USA which were surplus tooperating requirements. Both properties related to the Analytical segment. The Tennessee property was sold in March 2006. The Abingdon,
UK property is available for immediate occupation and being actively marketed.

24 RECONCILATION OF MOVEMENT IN CAPITAL AND RESERVES

Share
capital£mSharepremium
account£m

Capitalredemption
reserve£m

Otherreserves£mCash flow
hedge
reserve£m

Foreignexchangetranslation
reserve£m

Retainedearnings
£m

Total
£m

Total recognised income/(expense) for the period
Credit in respect of employee service costs
settled by award of share options
Proceeds from shares issued
Dividends paid
Opening equity shareholders’ funds at 1 April 2004

–

–

–

–

–

–

1.4

1.4

–
–
–
2.4

–
0.4
–
19.0

–
–
–
0.1

–
–
–
15.9

–
–
–
–

–
–
–

0.2
–
(15.7)
34.3

0.2
0.4
(15.7)
71.7

Closing equity shareholders’ funds
at 31 March 2005

2.4

19.4

0.1

15.9

–

–

20.2

58.0

69

70

Notes on the Financial Statements

Oxford Instruments plc

24 RECONCILATION OF MOVEMENT IN CAPITAL AND RESERVES continued

Sharecapital£mSharepremium
account£m

Capitalredemption
reserve£m

Otherreserves£mCash flow
hedge
reserve£m

Foreignexchangetranslation
reserve£m

Retainedearnings
£m

Total
£m

Total recognised income/(expense) for the period
Credit in respect of employee service costs
settled by award of share options
Proceeds from shares issued
Disposal of own shares held
Dividends paid
Opening equity shareholders’ funds at 1 April 2005
Arising on adoption of IAS 32 and IAS 39

–

–

–

–

(0.2)

0.9

(10.8)(10.1)

–
–
–
–
2.4
–

–
0.8
–
–
19.4
–

–
–
–
–
0.1
–

–
–
–
–
15.9
–

–
–
–
–
–
0.2

–
–
–
–
–
–

0.3
–
0.1
(2.9)
20.2
–

0.3
0.8
0.1
(2.9)
58.0
0.2

Closing equity shareholders’ funds
at 31 March 2006

2.4

20.2

0.1

15.9

–

0.9

6.9

46.4

The capital redemption reserve represents the nominal value of shares repurchased and then cancelled during the year ended 31 March 1999.
The other reserve represents negative purchased goodwill arising since flotation in October 1983 which has been added directly to reserves.
The translation reserve comprises all foreign exchange differences arising since 1 April 2004 from the translation of the Group’s net
investments in foreign subsidiaries into sterling.
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related
to hedged transactions that have not yet occurred.
The Group holds 826,441 (2005 994,997) of its own shares in an employee benefit trust. The cost of these shares is included within
retained earnings.

25 CALLED UP SHARE CAPITAL
Issued and fully paid ordinary shares:
2006
Shares

2005
SharesAt beginning of the period
Issued for cash

48,308,217
430,375

48,089,887
218,330

At the end of the period

48,738,592

48,308,217

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

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

2006
Shares 000

2006
£m

2005
Shares 000

2005
£m

58,0002.9

58,0002.9

48,7392.4

48,3082.4

Number of shares

Aggregate nominal value

Consideration per share

121,456
282,339
26,580£6,073£14,117£1,329£1.270 – £1.870£1.585 – £1.875£2.175 – £2.4125

Notes on the Financial Statements

Oxford Instruments plc

25 CALLED UP SHARE CAPITAL continued
2006
Numberof shares

Optionprice
range

Periodwhen
exercisable

2005
Numberof shares

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

2,171,670
492,705£1.480 – £4.870£1.270 – £2.140

01/04/06 – 14/12/15
01/04/06 – 31/07/11

3,009,070
525,466

Total options subsisting on unissued ordinary shares

2,664,375

3,534,536

5.5%

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

294,692
81,250150,000
99,283

Total options subsisting on existing ordinary shares
held in trust

625,225

Nil£1.945 – £1.960£2.950£1.640 – £1.750

01/04/06 – 14/12/12
01/04/06 – 23/12/09
01/04/06 – 19/12/08
01/02/08 – 31/07/09

254,442
92,250308,556
131,673
786,92126 BORROWINGS
2006
£m

2005
£m

Interest bearing loans
Other creditors – non interest bearing

2.9
0.5

2.1
1.1

Total borrowings
Less long term portion

3.4
(0.5)

3.2
(1.1)

Current borrowings

2.9

2.1

None of the loans are secured on the assets of the Group.
The interest bearing bank loan relates to a floating rate US dollar loan made in the US to the Group’s US operation. It is repayable on demand.
The other creditors relate to deferred consideration in respect of acquisitions made in 2005 and other long term creditors.

27 RETIREMENT BENEFIT OBLIGATIONSThe Group operates defined benefit plans in the UK and US, both offer pensions in retirement and death benefit to members. Pension
benefits are related to members’ final salary at retirement and their length of service. Both schemes are now closed to new employees.
The Group has opted to recognise all actuarial gains and losses immediately via the Statement of Recognised Income and Expenditure(SORIE).
The amounts recognised in the balance sheet are:Present value of funded obligations
Fair value of plan assets
Recognised liability for defined benefit obligations

UK
2006
£m

USA
2006
£m

Total
2006
£m

UK
2005
£m

USA
2005
£m

Total
2005
£m

173.2
(123.3)

7.6
(4.1)

180.8
(127.4)139.1(98.6)

6.0
(3.2)

145.1
(101.8)

49.9

3.5

53.4

40.5

2.8

43.3

71

72

Notes on the Financial Statements

Oxford Instruments plc

27 RETIREMENT BENEFIT OBLIGATIONS continued
Reconciliation of the opening and closing balances of the present value of the defined benefit obligation
UK
2006
£m

USA
2006
£m

Total
2006
£m

UK
2005
£m

USA
2005
£m

Total
2005
£m

Benefit obligation at the beginning of the year
Interest on obligation – continuing operations
Interest on obligation – discontinued operations
Current service cost – continuing operations
Current service cost – discontinued operations
Past service cost
Contributions paid by plan participants
Benefits paid
Actuarial loss on obligation
Settlements and curtailments – discontinued operations
Exchange rate adjustment

139.1
7.6
–
2.2
–
0.1
1.1
(2.0)
25.1
–
–

6.0
0.3
–
0.6
–
–
–
(0.3)
0.4
–
0.6

145.1
7.9
–
2.8
–
0.1
1.1
(2.3)
25.5
–
0.6

124.3
4.9
2.1
2.2
0.4
–
1.4
(2.0)
6.8
(1.0)
–

4.4
0.2
0.1
0.3
0.1
–
–
(0.1)
1.2
–
(0.2)

128.7
5.1
2.2
2.5
0.5
–
1.4
(2.1)
8.0
(1.0)
(0.2)

Benefit obligation at the end of the year

173.2

7.6

180.8

139.1

6.0

145.1

Reconciliation of the opening and closing balances of the fair value of plan assets
UK
2006
£m

USA
2006
£m

Total
2006
£m

UK
2005
£m

USA
2005
£m

Total
2005
£m

Fair value of plan assets at the beginning of the year
Expected return on plan assets – continuing operations
Expected return on plan assets– discontinued operations
Contributions by employers
Contributions paid by plan participants
Benefits paid
Actuarial gain
Exchange rate adjustment

98.6
7.0

3.2
0.2

101.8
7.2

88.8
4.4

2.7
0.2

91.5
4.6

–
3.4
1.1
(2.0)
15.2
–

–
0.7
–
(0.3)
–
0.3

–
4.1
1.1
(2.3)
15.2
0.3

1.9
2.3
1.4
(2.0)
1.8
–

–
0.4
–
(0.1)
0.1
(0.1)

1.9
2.7
1.4
(2.1)
1.9
(0.1)

Fair value assets at the end of the year

123.3

4.1

127.4

98.6

3.2

101.8

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 2006, the Company paid contributions to the scheme on a variable scale up to a maximum of 4% formembers 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 distribution plan in the USA.
Expense recognised in the income statement
2006
£m

2005
£m

Current service cost
Past service cost
Interest on obligation
Expected return on plan assets

2.8
0.1
7.9
(7.2)

2.5
–
5.1
(4.6)

Total – defined benefit
Contributions to defined contribution schemes

3.6
1.1

3.0
0.6

4.7

3.6

Notes on the Financial Statements

Oxford Instruments plc

27 RETIREMENT BENEFIT OBLIGATIONS continued
The pension costs are recorded in the following lines of the income statement:
2006
£m

2005
£m

1.6
0.5
1.3
0.6
(7.2)
7.9

1.6
0.4
0.3
0.5
(6.5)
7.3

4.7

3.6

2006
£m

2005
£m

10.3

6.1

2006
£m

2005
£m

Expected return on plan assets
Actuarial gain

7.2
15.2

6.5
1.9

Actual return on plan assets

22.4

8.4

Cost of sales
Selling and marketing costs
Administrative expenses
Research and development
Financial income
Financial expenditure

Actuarial gains and losses shown in the statement of recognised income and expenditure:

Actuarial loss

Actual return on plan assets

History of experience gains and losses in both defined benefit schemes are as follows:
2006

UK
2005

2006

USA
2005

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

15.2
12%

1.9
2%

–
–

–
–

Experience losses on scheme liabilities:
Amount £m% of the present value of the scheme liabilities(25.1)
15%

(6.8)
5%

(0.4)
5%

(1.2)
20%

Defined benefit scheme – United Kingdom
A full actuarial valuation of the UK scheme was carried out as at 31 March 2003 and has been updated to 31 March 2006 by a qualified
independent actuary. The major assumptions used by the actuary were (in nominal terms):

Discount rate (AA rated corporate bond rate)
Rate of salary increase
Rate of increase to pensions in payment
Rate of inflation
Mortality – pre-retirement – males
Mortality – pre-retirement – females
Mortality – post-retirement – males
Mortality – post-retirement – females

As at 31 March2006%

As at 31 March
2005
%

4.9
4.0
2.8
3.0
PA91c2030
PA91c2030
PA92c2015
PA92c2015

5.4
3.9
2.7
2.9
PMA92c2015
PFA92c2015
PMA92c2005
PFA92c2005

The assumptions used in determining the overall expected rate of return of the plan have been set with reference to yields available on
government bonds and appropriate risk margins.

73

74

Notes on the Financial Statements

Oxford Instruments plc

27 RETIREMENT BENEFIT OBLIGATIONS continued
The mortality assumptions imply the following expected future lifetime from age 65:

Pre-retirement – males
Pre-retirement – females
Post-retirement – males
Post-retirement – females

2006

2005

20.5
23.4
19.4
22.4

19.4
22.4
18.5
21.4

The assumptions have been chosen by the Directors from a range of possible actuarial assumptions, which due to the timescales covered,
may not be borne out in practice.
The assets in the UK defined benefit scheme and the expected rate of return were:

Equities
Corporate bonds
Gilts
Property
Cash and other assets
Absolute return fundLong-term rate of
return expected
at 31 March
2006%

Value at
31 March
2006£mLong-term rate of
return expected
at 31 March
2005%

Value at
31 March
2005
£m

7.5
4.9
4.2
6.0
4.5
7.0

66.5
8.4
26.9
10.6
0.9
10.0

8.0
4.7
6.5
4.0
7.5

56.1
23.6
8.8
1.6
8.5

123.3

98.6

Defined benefit scheme – United States
A full actuarial valuation of the US plan was carried out as at 1 January 2005 and has been updated to 31 December 2005 by a qualified
independent actuary. Results at 31 March 2006 have been taken to be the same as those at 31 December 2005. The major assumptions
used by the actuary were (in nominal terms):

Discount rate
Rate of salary increase
Rate of increase to pensions in payment
Rate of inflation
Mortality – pre-retirement
Mortality – post-retirement

As at 31 March2006%

As at 31 March
2005
%

5.25
4.00
0.00
3.00
1983 Group Annuity Table,
male and female
1994 Group Annuity Reserving Table,
split 50% for males and females

5.25
4.00
0.00
3.00
1983 Group Annuity Table,
male and female
1983 Group Annuity Table,
male and female

The assumptions used in determining the overall expected rate of return of the plan have been set with reference to yields available on
government bonds and appropriate risk margins.
The mortality assumptions imply the following expected future lifetime from age 65:

Pre-retirement – males
Pre-retirement – females
Post-retirement – males
Post-retirement – females

2006

2005

19.4
19.4
18.0
20.3

19.4
19.4
16.7
21.3

The assumptions have been chosen by the Directors from a range of possible actuarial assumptions, which due to the timescales covered,
may not be borne out in practice.

Notes on the Financial Statements

Oxford Instruments plc

27 RETIREMENT BENEFIT OBLIGATIONS continued
The assets in the plan and the expected rate of return were:Long term rate of
return expected
at 31 March
2006%

Value at
31 March
2006£mLong term rate of
return expected
at 31 March
2005%

Value at
31 March
2005
£m

8.05
5.25
7.30
–

2.2
1.6
0.3
–

8.50
5.25
7.00
–

1.5
1.4
0.3
–

Equities
Bonds
Property
Other

4.1

3.2

28 TRADE AND OTHER PAYABLES

Trade payables
Social security and other taxes
Accrued expenses
Other creditors

2006
£m

2005
£m

21.9
1.0
12.4
3.4

22.4
1.2
17.1
3.6

38.7

44.3

Payables includes accrued costs of £0.7m (2005 £0.5m) in respect of long term contracts.

29 PROVISIONS FOR OTHER LIABILITIES AND CHARGES
Warranties£m

Restructuring
£m

Other
£m

Total
£m

Balance at 1 April 2005
Provisions made during the year
Provisions used during the year
Provisions reversed during the year
Exchange adjustment

2.6
3.2
(2.4)
(0.9)
0.1

3.5
1.7
(2.1)
–
–

0.7
0.3
(0.6)
–
–

6.8
5.2
(5.1)
(0.9)
0.1

Balance at 31 March 2006

2.6

3.1

0.4

6.1

Warranty provisions reflect the Group’s standard terms and conditions. In general these apply for a year, and, as a result, the majority of theprovision is expected to be utilised within a twelve-month period. Restructuring provisions relate to the closure of the UK based magnet
business and the sale of the Group’s Medical business in 2005. The magnet business provision relates to employee redundancy costs andcosts associated with terminating supplier commitments and are expected to become payable within the next year. The Medical businessprovision relates mainly to possible claims due under the warranties and indemnities given at the time of sale. A claim, including a claim
under tax indemnities, could arise at any time between now and 1 March 2012.

75

76

Notes on the Financial Statements

Oxford Instruments plc

30 OPERATING LEASES
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:

Less than one year
Between one and five years
More than five years

2006
£m

2005
£m

0.5
3.6
2.7

0.7
3.2
1.6

6.8

5.5

31 CAPITAL COMMITMENTS
During the year ended 31 March 2006, the Group entered into contracts to purchase property, plant and equipment for £0.5m (2005£0.6m). These commitments are expected to be settled in the following financial year.

32 CONTINGENCIES
Certain subsidiaries of the Group have, in the normal course of business, given guarantees in respect of performance bonds.
In an international group of companies a variety of legal claims arise from time to time. The Board, having taken legal advice, are of theopinion that the ongoing actions and investigations will not have a material impact on the Group’s financial position.

33 RELATED PARTIESThe Group has a related party relationship with its subsidiaries (see Note 34) and with its Directors and Executive officers.
Transactions with key management personnel are disclosed in the Director’s Remuneration Report on pages 32 to 37. There were no othersignificant transactions with key management personnel in either the current or preceding year other than the following.
During the year the Company had the following transactions with Imperialise Limited of which Nigel Keen is a Director:
Purchases£m

2006
Current liabilities£m

Purchases£m

2005
Current liabilities
£m

0.1

–

0.2

–

Notes on the Financial Statements

Oxford Instruments plc

34 GROUP ENTITIESOxford Instruments Analytical Holdings Ltd
Oxford Instruments Overseas Holdings Ltd
Oxford Instruments Superconductivity Holdings Ltd
Oxford Instruments Overseas Marketing Ltd
Oxford Instruments Analytical Ltd
Oxford Instruments Molecular Biotools Ltd
Oxford Instruments Plasma Technology Ltd
Oxford Instruments Superconductivity Ltd(trading as Oxford Instruments NanoScience)
Oxford Instruments America Inc
Oxford Instruments OST Holdings LLC
Oxford Instruments (Tennessee) Inc
Oxford Instruments Holdings Inc
Austin Scientific Company
Oxford Instruments X-Ray Technology Inc
Oxford Superconducting Technology
HKL Technologies A/S
Oxford Instruments Analytical Oy
Oxford Instruments SAS
Oxford Instruments GmbH
Oxford Instruments Measurement Systems GmbH
Oxford Instruments KK
Oxford Instruments (Shanghai) Company Ltd
Oxford Instruments Pte Ltd

Equity owned by
the company%

Country ofincorporation

Principal
activity

100
100
100
*100
*100
*100
*100

Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain

Holding
Holding
Holding
MarketingTrading
Trading
Trading

*100
*100
*100
*100
*100
*100
*100
*100
*100
*99.1
*100
*100
*100
*100
*100
*100

Great Britain
USA
USA
USA
USA
USA
USA
USA
Denmark
FinlandFranceGermany
GermanyJapan
ChinaSingapore

Trading
Distribution
Holding
Holding
Holding
Trading
Trading
Trading
Trading
Trading
Distribution
Distribution
Distribution
Distribution
Trading
Distribution

A full list of the Group companies as at 31 March 2006 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 by subsidiarycompanies is indicated by an asterisk (*). All the above companies are included in the Group accounts.
Oxford Instruments Analytical Oy is accounted for as though it is a 100% subsidiary since the 0.9% minority interest is not considered material.

35 ACCOUNTING ESTIMATES AND JUDGEMENTSManagement discussed with the Audit Committee the development, selection and disclosure of the Group’s critical accounting policies
and estimates and the application of these policies and estimates.
Provisions
Note 29 contains information about provisions. Provisions are judgemental by their nature. Amounts provided are the Group’s best estimateof exposure based on currently available information.
Impairment of goodwill
Note 16 contains information about the assumptions relating to goodwill impairment tests.
Foreign currency exposure
Note 21 contains information about the foreign currency exposure of the Group and risks in relation to foreign exchange movements.
Pension assumptions
The principal actuarial assumptions applied to pensions are shown in Note 27. The actuarial evaluation of pension assets and liabilities isbased on assumptions in respect on inflation, future salary increases, discount rates, returns on investments and mortality rates. Due totheir sizes relatively small changes in the assumptions underlying the actuarial valuation of pension schemes can have a significant impact
on the net pension liability included in the balance sheet and the associated deferred tax asset.

77

78

Notes on the Financial Statements

Oxford Instruments plc

36 SUBSEQUENT EVENTS
The interim dividend of 2.4p per share (total cost £1.1m) was paid after the balance sheet date. In addition on 13 June 2006 the Directors
proposed a final dividend of 6.0p per ordinary share (total cost £2.9m). The total amount of £4.0m has not been provided for and there
are no income tax consequences.

37 TRANSITION TO IFRSAs stated in Accounting Policies on pages 40 to 45, these are the Group’s first consolidated financial statements prepared in accordancewith Adopted IFRSs.
The accounting policies set out on pages 40 to 45 have been applied in preparing the financial statements for the year ended 31 March
2006, the comparative information presented in these financial statements for the year ended 31 March 2005 and in the preparation ofan opening IFRS balance sheet at 1 April 2004, the Group’s date of transition.
In preparing its opening IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordancewith its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to Adopted IFRSs has affected the Group’s
financial position, financial performance and cash flows set out in the following tables and notes that accompany the tables.
Reconciliation of profit for the year ended 31 March 2005
Previous
UK GAAP£m

Effect oftransition to IFRS
£m

IFRS
£m

156.5
(110.4)

(1.7)
–

154.8
(110.4)46.1(19.5)(7.9)(11.3)

(1.7)
–
1.9
(0.2)

44.4
(19.5)(6.0)(11.5)

7.4
0.2
(1.1)
(5.7)

–
–
(0.2)
(0.5)

7.4
0.2
(1.3)
(6.2)

s

0.8
0.7
(0.2)

(0.7)
4.6
(5.1)

0.1
5.3
(5.3)

t

1.3
(1.9)

(1.2)
0.2

0.1
(1.7)

(0.6)

(1.0)

(1.6)

2.2

5.0

7.2

1.6

4.0

5.6

pence

pence

pence

(1.2)
(1.2)

(1.8)
(1.9)

(3.0)
(3.1)

Notes

Revenue
Cost of goods sold
Gross profit
Selling and marketing costs
Administrative expenses
Research and development
Trading profit
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs
Operating profit
Financial income
Financial expenditure
Profit before income tax
Income tax expense
Loss after taxation
Discontinued operations:
Profit from discontinued operations – net of tax

n

o
p

q
r

s

u

Profit for the period

Earnings per share:
Basic earnings per share – continuing
Diluted earnings per share – continuing
Earnings per share in respect of discontinued operations are given in Note u.

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continued
Reconciliation of equity

Notes

ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates
Deferred income tax assets

Opening balance sheet as at
1 April 2004
Effect ofPrevioustransition
UK GAAPto IFRS
IFRS
£m
£m
£m

Closing balance sheet as at
31 March 2005
Effect ofPrevioustransition
UK GAAPto IFRS
IFRS
£m
£m
£m

Opening balance sheet as at
1 April 2005 *Effect ofPrevioustransition
UK GAAPto IFRS
IFRS
£m
£m
£m

32.6
2.6
1.6
5.2

(5.9)
4.3
–
9.7

26.7
6.9
1.6
14.9

28.6
9.3
1.6
3.8

(5.6)
3.2
–
11.3

23.0
12.5
1.6
15.1

28.6
9.3
1.6
3.8

(5.6)
3.2
–
11.2

23.0
12.5
1.6
15.0

42.0

8.1

50.1

43.3

8.9

52.2

43.3

8.8

52.1

28.5
53.7
–
23.2
–

–
2.1
–
–
6.0

28.5
55.8
–
23.2
6.0

23.9
43.7
–
29.7
–

–
3.1
–
–
5.4

23.9
46.8
–
29.7
5.4

23.9
43.7
–
29.7
–

–
2.6
1.1
(0.1)
5.4

23.9
46.3
1.1
29.6
5.4

105.4

8.1

113.5

97.3

8.5

105.8

97.3

9.0

106.3

147.4

16.2

163.6

140.6

17.4

158.0

140.6

17.8

158.4

21.4
16.0
–
54.7

–
–
–
(20.4)

21.4
16.0
–
34.3

21.8
16.0
0.1
44.1

–
–
(0.1)
(23.9)

21.8
16.0
–
20.2

21.8
16.0
0.1
44.1

–
0.2
(0.1)
(23.9)

21.8
16.2
–
20.2

92.1

(20.4)

71.7

82.0(24.0)

58.0

82.0(23.8)

58.2

–
0.9

–
36.3

–
37.2

1.1
0.9

–
42.4

1.1
43.3

1.1
0.9

–
42.4

1.1
43.3

0.9

36.3

37.2

2.0

42.4

44.4

2.0

42.4

44.4

1.6
0.9
45.4
2.1
–
4.4

–
–
0.3
–
–
–

1.6
0.9
45.7
2.1
–
4.4

2.1
1.1
43.6
1.3
–
8.5

–
–
0.7
–
–
(1.7)

2.1
1.1
44.3
1.3
–
6.8

2.1
1.1
43.6
1.3
–
8.5

–
–
0.8
–
0.1
(1.7)

2.1
1.1
44.4
1.3
0.1
6.8

54.4

0.3

54.7

56.6

(1.0)

55.6

56.6

(0.8)

55.8

Total liabilities

55.3

36.6

91.9

58.6

41.4

100.0

58.6

41.6

100.2

Total liabilities and equity

147.4

16.2

163.6

140.6

17.4

158.0

140.6

17.8

158.4

Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Held for sale assets

a
b

c

d
e
f
g

Total assets
EQUITY
Capital and reserves attributable to
the Company’s equity holders
Share capital
Other reserves
FX translation
Retained earnings

LIABILITES
Non-current liabilities
Borrowings
Retirement benefit obligations
Current liabilities
Borrowings
Bank overdrafts
Trade and other payables
Current income tax liabilities
Derivative financial instruments
Provisions for other liabilities and charges

h

i

j

k

l
m

* Restated on adoption of IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition andMeasurement.

79

80

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continued
NOTES TO RECONCILIATION OF EQUITY
The notes below identify the adjustments made from UK GAAP to IFRS for each line item in the restated consolidated balance sheets.
a) Property, plant and equipment

Reclassification of empty properties to held for sale assets

1 April
2004£m

31 March
2005£m

1 April
2005
£m

(5.9)

(5.6)

(5.6)

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–
–
(0.4)

(1.9)
0.9
(0.6)

(1.9)
0.9
(0.6)

(0.4)

(1.6)

(1.6)

–
–

1.9
(1.1)

1.9
(1.1)

–

0.8

0.8

5.6
(0.9)
–

7.1
(2.5)
(0.6)

7.1
(2.5)
(0.6)

4.7

4.0

4.0

4.3

3.2

3.2

Under IFRS empty properties are classified as held for sale assets – see Note g.
b) Intangible assets

Goodwill
Goodwill arising since 1 April 2004 reclassified as purchased intangible assets
Reversal of amortisation changed since 1 April 2004
Foreign exchange adjustment

Purchased intangible assets
Reclassified from goodwill
Amortisation charged

Development costs
Cumulative costs capitalised
Cumulative amortisation charged
Written off on sale of Medical businessTotal intangible assets

The Group has applied IFRS 3 to all business combinations that have occurred since 1 April 2004 (the date of transition to IFRS). As a result
part of the goodwill which arose after that date under UK GAAP has been reclassified as purchased intangible assets.
Under UK GAAP goodwill was amortised on a straight-line basis in the profit or loss based on an individual assessment of the economic
life of the asset, however, with a maximum of 20 years. Under IFRS goodwill is not amortised but measured at cost less impairment losses
with a review of impairment annually. Accordingly, the carrying value of goodwill is frozen at 1 April 2004 (the date of transition to IFRS)
and amortisation charged under UK GAAP since that date has been reversed.
Under IAS 21 goodwill arising on a foreign acquisition is treated as a foreign currency asset in the local currency of the acquired entity.
Under UK GAAP goodwill was frozen in sterling at the time of acquisition. As a result a foreign exchange adjustment has been made to
the carrying value of goodwill.
Under IFRS certain development costs are recognised as an intangible asset – when particular criteria are met – and measured at cost lessaccumulated amortisation. Amortisation commences when the asset is available for use. Under UK GAAP development costs were recognised
as an expense as incurred.

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedc) Deferred taxation

Changes in deferred taxation arising as a result of:
Employee benefits
Capitalised development costs
Other

1 April
2004£m

31 March
2005£m

1 April
2005
£m

11.1
(1.5)
0.1

12.3
(1.2)
0.2

12.3
(1.4)
0.3

9.7

11.3

11.2

The transition to IFRS has resulted in the recognition of additional deferred tax assets and liabilities in respect of the other adjustments
made and discussed elsewhere in this report. Additionally, the method of calculation of deferred tax under IFRS is different to the approach
under previous UK GAAP, however, the impact of this on the overall deferred tax asset carried by the group is not significant.
d) Trade and other receivables

Reclassification of pension debtor
Reclassification of amounts recoverable on long term contracts
Revaluation of foreign currency balances to spot from contract rate

1 April
2004£m

31 March
2005£m

1 April
2005
£m

(0.2)
2.3
–

–
3.1
–

–
3.1
(0.5)

2.1

3.1

2.6

Pension prepayments
Pension prepayments previously made under UK GAAP have been reclassified to retirement benefit obligations as part of the adoption of
IAS 19 Employee benefits – see Note j.
Long term contract accounting
Previous UK GAAP permitted a degree of setting off of balances in respect of long term contracts. However, under IFRS these must be
grossed up – see also Note k.
Foreign currency balances
The group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS). Under previous UK GAAP foreign currency
balances were valued at the rate applicable to the forward exchange contract which hedged the foreign currency balance. Under IFRS
foreign currency balances are valued at spot rate at the end of the period – see Note h.
e) Derivative financial instruments

Fair value of forward foreign exchange contracts

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–

–

1.1

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–

–

(0.1)

The group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS) – see Note h.
f) Cash and cash equivalents

Revaluation of foreign currency balances to spot from contract rate

The group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS) – see Note h.

81

82

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedg) Held for sale assets

Empty properties as held for sale assets
Depreciation written backProvision for impairment

1 April
2004£m

31 March
2005£m

1 April
2005
£m

5.9
0.4
(0.3)

5.6
0.6
(0.8)

5.6
0.6
(0.8)

6.0

5.4

5.4

Under UK GAAP non-current assets held for resale were carried at cost less accumulated depreciation. Under IFRS5 these assets are carriedat cost less impairment losses and recorded as held for sale assets rather than fixed assets. Depreciation previously charged under UK GAAP
has been reversed to the extent that it relates to the period after the properties were put up for sale.
h) Other reserves

Gain in respect of forward foreign exchange contracts
designated as hedging instruments
Deferred tax in respect of the above

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–
–

–
–

0.3
(0.1)

–

–

0.2

The Group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS). Under previous UK GAAP forward foreignexchange contracts were only recognised to the extent that they hedged foreign currency assets or liabilities existing at the balance sheet
date. The profit or loss on those contracts was netted against those foreign currency balances in the balance sheet.
Under IFRS the fair value of forward foreign exchange contracts is carried as a separately identified asset or liability (see Notes e and l).
The gain on contracts which did not relate to foreign currency assets or liabilities existing at 1 April 2005 date has been recognised withina separate hedging reserve. A deferred tax liability has been deducted from this gain.
i) Retained earnings

Impact of adjustments:
Pensions
Holiday pay accrual
Post balance sheet events – dividend payable
Research and development
Empty properties
Revenue recognition
Goodwill and intangible assets
Taxation
Foreign exchange translation differences

1 April
2004£m

31 March
2005£m

1 April2005£m(36.5)
(0.5)
2.8
4.7
0.1
(0.3)
(0.4)
9.7
–

(40.4)
(0.5)
2.9
4.0
(0.2)
(0.3)
(0.8)
11.3
0.1

(40.4)
(0.5)
2.9
4.0
(0.2)
(0.3)
(0.8)
11.3
0.1

(20.4)(23.9)(23.9)

The above table shows the cumulative effect on retained earnings of the adjustments described elsewhere in this document.
With effect from 1 April 2004 (the date of transition to IFRS) foreign currency translation differences are recorded in a separate translation
reserve. As a result foreign currency translation differences which were previously recorded within retained earnings under UK GAAP for
the period after 1 April 2004 have now been transferred to the translation reserve. Translation differences which arose prior to that datehave been frozen within retained earnings as allowed by IFRS 1.

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedj) Retirement benefit obligation

Net additional liability required under IAS 19
Reclassification from prepayments
Reclassification from accruals
Reclassification from provisions

1 April
2004£m

31 March
2005£m

1 April
2005
£m

36.5
(0.2)
–
–

40.4
–
0.3
1.7

40.4
–
0.3
1.7

36.3

42.4

42.4

IAS 19 has been adopted from the date of transition as the Group has opted to apply the exemption in IFRS 1 to recognise all cumulative
actuarial gains and losses at the date of transition to IFRS as an adjustment to retained earnings. IAS 19 prescribes a similar valuation
approach to FRS 17. All post retirement benefits where the actuarial and investment risk falls on the Group must be provided for. This has
required an increased liability to be shown on the balance sheet as well as the reclassification of amounts shown previously under provisions
and accruals under previous UK GAAP. The effect on the Group’s balance sheet is shown above.
The service cost element of the annual pension costs is recorded within administrative expenses (see Note o), the expected return on
scheme assets is included within financial income (see Note s), the interest on the pension liability is recorded within financial expenditure(see Note s) and the actuarial cost element is recorded with the statement of recognised income and expense.
k) Trade and other payables

Reclassification of pension accrual
Reclassification of amounts recoverable on long term contracts
Increase in holiday pay accrual
Increase in deferred revenue
Reversal of dividend payable
Revaluation of foreign currency balances to spot from contract rate

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–
2.3
0.5
0.3
(2.8)
–

(0.3)
3.1
0.5
0.3
(2.9)
–

(0.3)
3.1
0.5
0.3
(2.9)
0.1

0.3

0.7

0.8

Pension accrual
Pension accruals previously made under UK GAAP have been reclassified to retirement benefit obligations as part of the adoption of IAS
19 Employee benefits – see Note j.
Long term contract accounting
Previous UK GAAP permitted a degree of setting off of balances in respect of long term contracts. However, under IFRS these must be
grossed up – see also Note d.
Holiday pay accruals
Under IFRS full provision is required in respect of employee’s accrued holiday entitlements. As a result a further accrual has been made.
Revenue recognition
IFRS provides more guidance in respect of accounting for revenue recognition than previously available under UK GAAP. The main impact
for the group is the deferral of certain revenue relating to installation contracts.
Proposed dividends
Under IFRS dividends to shareholders authorised for payment after the balance sheet date are not recognised as a liability at the balance
sheet date but disclosed separately in the notes. Under UK GAAP dividends declared for the accounting year were recognised as a liability.
Foreign currency balances
The group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS) – see Note h.

83

84

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedl) Derivative financial instruments

Fair value of forward foreign exchange contracts

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–

–

0.1

1 April
2004£m

31 March
2005£m

1 April
2005
£m

–

(1.7)

1.7

The group has adopted IAS39 with effect from 1 April 2005 (the date of adoption of IFRS) – see Note h.
m) Provisions

Reclassification of pension provision

Pension provisions previously carried within the restructuring provision under UK GAAP have been reclassified to retirement benefit obligations
as part of the adoption of IAS 19 Employee benefits (see Note j).

NOTES TO THE CONSOLIDATED INCOME STATEMENTS
The notes below identify the adjustments made from UK GAAP to IFRS for each line item in the restated consolidated income statements.
n) Revenue
31 March
2005£mDecrease in revenue as a result of using the exchange rates prevailing at the time of the transaction
Change in revenue recognition

(1.7)
–
(1.7)

Under previous UK GAAP revenue was recorded at the average contract rate applying. Under IFRS revenue is recorded at the exchange rateapplying at the time of the sale with any difference between that rate and the rate achieved by the group being recognised as a separate
line within administrative expenses – see Note o.
See Note k for an explanation of the change in revenue recognition policy.
o) Administrative expenses
31 March
2005£mExchange gain arising from restatement of revenue and administrative expenses
to rate prevailing at the time of transaction
Reversal of depreciation charged in respect of empty properties
Credit in respect of holiday pay accrual
Charge in respect of employee share options
Decrease in pension cost resulting from the adoption of IAS 19

1.7
0.2
–
(0.2)
0.2
1.9

Foreign exchange
Under previous UK GAAP profit and loss account line items were recorded at the average contract rate applying. Under IFRS they arerecorded at the exchange rate applying at the time of the sale with any difference between that rate and the rate achieved by the group
being recognised as a separate line within administrative expenses. The main impact on the group is the restatement of revenue and certain
administrative expenses.
Depreciation
See Note g for an explanation of the reversal of depreciation charged in respect of empty properties.

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedo) Administrative expenses continued
Holiday pay
See Note k for an explanation of the change in respect of holiday pay accruals.
Share options
The Group applied IFRS 2 to its unvested share-based payment arrangements at 1 January 2005 except for equity-settled share-based payment
arrangements granted before 7 November 2002. The Group has granted equity-settled share-based payments in 2004 and 2005. The
Group accounted for these share-based payment arrangements at intrinsic value under previous UK GAAP. Under IFRS the payments areaccounted for at fair value using either a “Black-Scholes” or “Monte-Carlo” stochastic model. A charge is made to the income statement
and a corresponding credit is made to the retained earnings element of equity. As a result total income for the year is reduced but there
is no overall impact on retained earnings or equity.
Pension cost
See Note j for a full explanation of the impact of the adoption of IAS 19. The (charge)/credit above represents the additional cost in theyear of IAS 19 compared to previous UK GAAP.
p) Research and development
31 March
2005£mCosts capitalised during the period
Amortisation charged

1.2
(1.4)
(0.2)

See Note b for an explanation of the changes to accounting for research and development.
q) Amortisation of intangibles
31 March
2005£m

Reversal of amortisation charged on goodwill
Amortisation of acquired intangibles

0.9
(1.1)
(0.2)

See Note b for an explanation of the changes to accounting for goodwill and purchased intangible assets. The impact on the income statement
is the reversal of amortisation previously charged on goodwill but amortisation is suffered in respect of intangible assets not previously
recognised under UK GAAP.
r) Restructuring and other non-recurring costs
31 March
2005£mImpairment of empty property held for sale

(0.5)

See Note g for an explanation of the impairment charged in respect of empty properties.
s) Financial income and expenditure
31 March
2005£mFinancial income
Expected return on pension scheme assets

4.6

Financial expenditure
Interest charge on pension scheme liabilities(5.1)

See Note j for a full explanation of the impact of the adoption of IAS 19.

85

86

Notes on the Financial Statements

Oxford Instruments plc

37 TRANSITION TO IFRS continuedt) Income tax expense
31 March
2005£mIncome tax credit arising as a result of IFRS adjustments

0.2

The transition to IFRS has resulted in an alteration of the tax charge for the year as a result of the other adjustments made and discussed
elsewhere in this document. Additionally, the method of calculation of deferred tax under IFRS is different to the approach under previous
UK GAAP, however the impact of this on the tax charge is small.
u) Profit from discontinued operations
31 March
2005£mGoodwill previously written off to reserves no longer recycled through income statement
Capitalised research and development written off on disposal
Credit arising from the adoption of IAS 19
Other adjustments
Related tax

3.6
(0.6)
2.7
(0.1)
(0.6)
5.0

These adjustments relate to the profit from the Group’s medical business which was sold in March 2005. The principal changes are
explained below:
Under previous UK GAAP goodwill, which had been written off to reserves on the initial acquisition of an entity, was required to be written
off through the income statement on its disposal. However, IFRS does not require such an adjustment.
Research and development carried out by the medical business prior to its disposal and capitalised under IFRS is written off by adjusting
the profit on disposal.
On the sale of the medical business the employees ceased to be members of the Group’s defined benefit pension scheme. Under IAS 19
a curtailment credit arises whereas a charge arose under previous UK GAAP.
A tax charge (relating to an adjustment to the carrying value of deferred tax) arises as a result of the adjustments explained above.
v) Earnings per share – totalpence

Basic earnings per share
UK GAAP
Effect of transition to IFRS

4.5
10.7

IFRS

15.2

Diluted earnings per share
UK GAAP
Effect of transition to IFRS

4.5
10.6

IFRS

15.1

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

2006

2005

Year end rates

2006

2005

US Dollar
Euro
Yen

1.79
1.46
202

1.85
1.47
198

US Dollar
Euro
Yen

1.73
1.43
205

1.89
1.45
202

Notes on the Financial Statements

Oxford Instruments plc

39 PARENT COMPANYa) Company Balance Sheet as at 31 March 2006
Notes

Fixed assets
Tangible assets
Investments in subsidiary undertakings
Other investmentsdeeCurrent assets
Debtors
Cash at bank and in handfCreditors: amounts falling due within one year
Bank loans and overdrafts
Other creditorsg

Net current assets
Total assets less current liabilities
Provision for liabilities and chargeshNet assets employed
Capital and reserves
Share capital
Share premium account
Other reserves
Profit and loss account

j
j
j
j

Equity shareholders’ funds

2006
£m

2005
As restated
£m

1.3
66.7
1.0

0.6
66.7
1.1

69.0

68.4

48.1
26.8

48.7
34.7

74.9

83.4

(4.4)
(18.0)(4.3)(23.5)(22.4)
52.5(27.8)
55.6

121.5
(0.1)

124.0
(0.6)

121.4

123.4

2.4
20.1
7.7
91.2

2.4
19.4
7.7
93.9

121.4

123.4

The financial statements were approved by the Board of Directors on 13 June 2006 and signed on its behalf by:

Jonathan Flint
Director

Martin Lamaison
Director87

88

Notes on the Financial Statements

39 PARENT COMPANY continuedb) Accounting Policies – Company under UK GAAP
The following accounting policies have been applied consistently indealing with items which are considered material in relation to theCompany’s financial statements, except as noted below
In these financial statements the following new standards havebeen adopted for the first time:• FRS 17 Retirement benefits• FRS 20 Share-based payments• FRS 21 Events after the balance sheet date

Oxford Instruments plc

LeasesOperating lease rentals are charged to the profit and loss accounton a straight-line basis over the life of the lease.
Fixed assets and depreciation
Depreciation is provided to write off the valuation or the costless estimated residual value of tangible fixed assets by equal
instalments over their estimated useful economic lives as follows:
Freehold buildings
Machinery and equipment
Computer equipment
Motor vehicles
Furniture and fittings

50 years
5 to 10 years
4 years
4 years
10 years• FRS 23 The effects of changes in foreign exchange rates• FRS 25 Financial instruments: presentation and disclosure• FRS 26 Financial Instruments: measurement• FRS 28 Corresponding amounts
The accounting policies under these new standards are set out
below together with an indication of the effects of their adoption.
FRS 28 Corresponding amounts has had no material effect as it
imposes the same requirements for comparatives as hitherto
required by the Companies Act 1985.
The corresponding amounts in these financial statements are,other than those covered by the exception permitted by FRS 25,
restated in accordance with the new policies. FRS 25 permits thecorresponding amounts not to be restated and the Company has
adopted this approach. The financial instruments policy set out
below provides further details of the current year and comparative
year basis and of the change booked on 1 April 2005.
Basis of preparation
The financial statements have been prepared in accordance withapplicable UK GAAP accounting standards and under the historicalcost accounting rules. In accordance with S230(4) of the Companies
Act 1985 the Company is exempt from the requirement to present
its own profit and loss account.
Going concern
The Financial Statements have been prepared on a going concern
basis, based on the Directors’ opinion, after making reasonableenquiries, that the Company has adequate resources to continue inoperational existence for the foreseeable future.
Taxation
The charge for taxation is based on the result for the year and takes
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.

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. Freehold land is not depreciated.
Pensions
Post retirement benefits
The Company participates in a group wide pension scheme providing
benefits based on final pensionable pay. The assets of the scheme
are held separately from those of the Company. The Company isunable to identify its share of the underlying assets and liabilities ofthe scheme on a consistent and reasonable basis and therefore, as
required by FRS 17 Retirement benefits, accounts for the scheme
as if it were a defined contribution scheme. As a result, the amountcharged to the profit and loss account represents the contributions
payable to the scheme in respect of the accounting period. Refer
to Note 24 for the additional disclosures required by FRS 17.
Foreign currencies
The Company enters into forward exchange contracts to mitigate thecurrency exposures that arise on sales and purchases denominatedin foreign currencies. Transactions in foreign currencies are converted
into sterling at the rate ruling on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are translated at the rates ruling at the balance sheet date or at theappropriate forward contract rates. Exchange profits and losses
arising from the above are dealt with in the profit and loss account.
Classification of financial instruments issued by the Company
Following the adoption of FRS 25, financial instruments issued by
the Company are treated as equity (ie. forming part of shareholders’funds) only to the extent that they meet the following two conditions:i) they include no contractual obligation upon the Company todeliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Company; andii) Where the instrument will or may be settled in the Company’s
own equity instruments, it is either a non-derivative that
includes no obligation to deliver a variable number of theCompany’s own equity instruments or is a derivative that will besettled by the Company’s exchanging a fixed amount of cash orother financial assets for a fixed number of its own equity
instruments.

Notes on the Financial Statements

39 PARENT COMPANY continuedb) Accounting Policies – Company under UK GAAP continued
To the extent that this definition is not met, the proceeds of issue areclassified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts
presented in these financial statements for called up share capitaland share premium account exclude amounts in relation to thoseshares.
Finance payments associated with financial liabilities are dealt withas part of interest payable and similar charges. Finance payments
associated with financial instruments that are classified as part ofshareholders’ funds (see dividend policy), are dealt with as appropriations in the reconciliation of movements in shareholders’ funds.
The Company has taken advantage of the transitional arrangementsof FRS 25 not to restate corresponding amounts in accordancewith the above policy. The adjustment necessary to implement thispolicy has been made as at 1 April 2005 with the adjustment to the
net assets, after tax, taken through the 31 March 2006 reconciliationof movements in shareholders’ funds. Corresponding amounts for
31 March 2005 are presented and disclosed in accordance with therequirements of FRS 4 (as applicable at 31 March 2005).
There is no material difference between the 31 March 2005 and 31
March 2006 bases of accounting.
In the year ended 31 March 2006 hedging instruments andhedged items are accounted for separately in the balance sheet.
Gains and losses in both are included in profit for the year when
they arise (fair value hedges) or when the hedged transaction
occurs having first recorded those on the hedging instrument inequity (cash flow hedges, to the extent effective). In the year ended
31 March 2005 hedging instruments were not recognised andhedged items were held at cost (amortised as appropriate) without
any adjustment in respect of the hedged risk. On 1 April 2005 thehedged items and hedging instruments are brought separately on
to the balance sheet in accordance with the year ended 31 March
2006 policy. The cash flow statement is unaffected by this changein accounting policy.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in theGroup financial statements. In particular, the trust’s purchase ofshares in the company are debited directly to equity.

Oxford Instruments plc

Share-based payments
The share option programme allows employees to acquire sharesof the Company. The fair value of options granted after 7 November
2002 and those not yet vested as at 1 January 2005 is recognised
as an employee expense with a corresponding increase in equity.
The fair value is measured at grant date and spread over the period
during which the employee become unconditionally entitled to theoptions. The fair value of the options granted is measured using an
option pricing mode, taking into account the terms and conditions
upon which the options were granted. The amount recognised as
an expense is adjusted to reflect the actual number of shareoptions that vest except where forfeiture is only due to share prices
not achieving the threshold for vesting. The effect in the current
and preceding years is not material.
In the year ended 31 March 2005, share-based payments were
accounted for under UITF Abstract 17 (revised) Employees shareschemes. The prior year charge of £2.7m has been written back toreserves.
Dividends on shares presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as
a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company.
Unpaid dividends that do not meet these criteria are disclosed in
the notes to the financial statements.
Financial guarantee contracts
Where the Company enters into financial guarantee contracts toguarantee the indebtedness of other companies within its group,
the Company considers these to be insurance arrangements, andaccounts for them as such. In this respect, the Company treats theguarantee contract as a contingent liability until such time as it
becomes probable that the Company will be required to make apayment under the guarantee.

89

90

Notes on the Financial Statements

Oxford Instruments plc

39 PARENT COMPANY continuedc) Profit for the Year
The Company’s profit for the financial year was £0.1m (2005 £6.9m).
The auditor’s remuneration comprised £60,000 (2005 £58,000) for statutory audit, £28,000 (2005 £12,000) for IFRS advisory work and£5,000 for tax advice. Additionally in 2005 the auditors were paid £23,000 for vendor due diligence, £12,000 for IFRS advisory work and£11,000 for other audit services.
The average number of people employed by the Company (including Directors) during the year was 45 (2005 47). All of these individuals
were involved in administration.
The aggregate payroll costs (including Directors) of these people were as follows:

Wages and salaries
Social security costs
Other pension costs

2006
£m

2005
£m

2.2
0.2
0.3

2.1
0.3
0.3

2.7

2.7

Full details of the emoluments paid to Directors can be found in the Directors’ Remuneration Report on pages 32 to 37.
d) Tangible Fixed Assets
Property£m

Other fixed assets
£m

Total
£m

Cost
Balance at 1 April 2005
Additions
Disposals

0.3
–
–

2.1
0.9
(0.4)

2.4
0.9
(0.4)

Balance at 31 March 2006

0.3

2.6

2.9

Depreciation
Balance at 1 April 2005
Charge for year
Eliminated on disposals

0.1
–
–

1.7
0.2
(0.4)

1.8
0.2
(0.4)

Balance at 31 March 2006

0.1

1.5

1.6

Net book value
At 31 March 2005

0.2

0.4

0.6

At 31 March 2006

0.2

1.1

1.3

2006
£m

2005
£m

Property
Freehold buildings

0.2

0.2

Other fixed assets
Computer equipment

1.1

0.4

Net book value is analysed by fixed asset category as follows:Notes on the Financial Statements

Oxford Instruments plc

39 PARENT COMPANY continuede) Investments
Shares in subsidiary
undertakings£mOther investments
£m

Total
£m

Cost
Balance at 1 April 2005
Additions

66.7
–

1.1
0.1

67.8
0.1

Balance at 31 March 2006

66.7

1.2

67.9

Shares in subsidiary
undertakings£mOther investments
£m

Total
£m

Impairment

–

0.2

0.2

Balance at 31 March 2006

–

0.2

0.2

Net book value at 31 March 2005

66.7

1.1

67.8

Net book value at 31 March 2006

66.7

1.0

67.7

Amortisation

Other investments at 31 March 2006 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

18.9%

Oxford BioSignals Limited

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

7.0%

Oxford Diffraction Limited

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

23.0%

Details of the subsidiary investments are given in Note 34.
f) Debtors

Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Amounts falling due after one year:
Deferred tax

2006
£m

2005
£m

47.2
0.3
0.2

47.6
0.5
0.2

47.7

48.3

0.4

0.4

48.1

48.7

2006
£m

2005
As restated
£m

0.5
15.8
0.5
0.6
0.6

0.8
21.9
0.2
–
0.6

18.0

23.5

g) Creditors: Amounts Falling due withing One Year

Trade creditors
Amounts owed to subsidiary undertakings
Corporation tax
Tax, social security and sales related taxes
Accruals and deferred income

91

92

Notes on the Financial Statements

Oxford Instruments plc

39 PARENT COMPANY continuedh) Provisions for Liabilities and Charges
Vacant leaseprovision£m

Chief Executive
replacement provision
£m

Total
£m

At beginning of the year
Utilised in the year

0.1
–

0.5
(0.5)

0.6
(0.5)

Balance at 31 March 2006

0.1

–

0.1

The provision relates to a vacant leasehold property for which the Company is seeking a sub-tenant. The lease expires in September 2012.
i) Deferred Tax

Deferred tax asset
At beginning of the year
Transfer to profit and loss account

2006
£m

2005
£m

0.4
–

0.3
0.1

0.4

0.4

2006
£m

Unrecognised
2005£m

The amounts of deferred tax assets, representing the full potential liability, are as follows:
2006£m

Excess of depreciation overcorresponding capital allowances
Other timing differences

Recognised
2005

0.4
–

0.3
0.1

–
0.1

–
–

0.4

0.4

0.1

–

A deferred tax asset has been recognised in the accounts relating to short-term timing differences and accelerated capital allowances. The
Company has recognised the assets only to the extent that there will be suitable taxable profits from which the future reversal of theunderlying timing differences can be deducted.
j) Reserves and Reconciliation of Movement in Shareholder’s Funds
Sharecapital£mSharepremium
account£m

Capitalredemption
reserve£m

Otherreserves£m

Profit and loss
account
£m

Total
£m

Balance at 1 April 2005
Prior year adjustment

2.4
–

19.4
–

0.1
–

7.6
–

91.0
2.9

120.5
2.9

At beginning of the year as restated
Retained profit for the year
Premium of issued shares
Shares awarded to share option holders
Dividends paid

2.4
–
–
–
–

19.4
–
0.7
–
–

0.1
–
–
–
–

7.6
–
–
–
–

93.9
0.1
–
0.1
(2.9)

123.4
0.1
0.7
0.1
(2.9)

Balance at 31 March 2006

2.4

20.1

0.1

7.6

91.2

121.4

The prior year adjustment relates to the reversal of the dividend payable at 31 March 2005 and arises due to the adoption of FRS 21.

Notes on the Financial Statements

Oxford Instruments plc

39 PARENT COMPANY continuedk) Pension Commitments
The Company and its employees contribute to the Oxford Instruments Pension Scheme, a defined benefit scheme. Contributions are basedon pension costs across the Group as a whole. The assets of the Scheme are held in a separate trustee administered fund.
The Oxford Instruments Pension Scheme was closed to new members from 1 April 2001. Since this date new employees have been invited
to join the Oxford Instruments Stakeholder Plan, a defined contribution scheme. The company makes contributions to this scheme.
The Directors do not believe it possible to allocate the assets and liabilities of the scheme to individual group members on a consistentand responsible basis. Accordingly, under FRS 17 the Company is exempt from recognising its share of the net pension deficit and accounts
for the scheme as though it were a defined contribution scheme.
The latest actuarial valuation was carried out at 31 March 2003 and updated to 31 March 2006 on an FRS 17 basis by a qualified
independent actuary.
The major assumptions used by the actuary were (in nominal terms):

Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation assumptions

Equities
Corporate bonds
Gilts
Property
Cash and other assets
Absolute return fundLong term
Rate of Return
Expected at
31 March 2006
%

7.5
4.9
4.2
6.0
4.5
7.0

Value at
31 March 2006£mLong term
Rate of Return
Expected at
31 March 2005
%

66.7
8.4
26.9
10.6
0.7
10.0

8.0
N/A
4.7
6.5
4.0
7.5

At 31 March2006%

At 31 March
2005
%

4.0
2.8
4.9
3.0

3.9
2.7
5.4
2.9

Value at
31 March 2005£m

Long term
Rate of Return
Expected at
31 March 2004%

Value at
31 March 2004
£m

56.1
–
23.6
8.8
1.6
8.5

8.0
5.6
4.7
6.5
4.0
7.5

49.7
10.2
10.3
7.6
3.0
8.0

Total market vale of assets
Present value of scheme liabilities

123.3(173.2)

98.6(139.1)88.8(124.3)

Deficit in the scheme
Related deferred tax asset *(49.9)
15.0(40.5)
12.2(35.5)
10.7

Net pension liability(34.9)(28.3)(24.8)* Based on 30% rate of tax.
The contributions paid by the Company were £0.1m (2005 £0.2m).
l) Guarantees
The Company has given a guarantee to the pension scheme in respect of the liability of its UK subsidiaries to the pension scheme.
m) Commitments

Operating leases which expire:Within one year
In the second to fifth years inclusive
Over five years

There were no capital commitments as at 31 March 2006 (2005 £nil).
n) Subsequent Events
See Note 36 for details of dividends paid or declared after the balance sheet date.

2006
£m

2005
£m

–
0.1
–

–
0.1
–

0.1

0.1

93

94

Notice of the 2006 Annual General Meeting

PAGES 94 TO 97 ABOUT THE ANNUAL GENERALMEETING ARE IMPORTANT
If you are in any doubt as to what action you should take, you
are recommended to consult your stockbroker, bank manager,
solicitor, accountant or other independent professional
adviser authorised under the Financial Services and Markets
Act 2000. If you have recently sold or transferred all yourshares in Oxford Instruments plc please pass this document
and the accompanying Form of Proxy to the purchaser ortransferee, or to the agent through whom the sale or transfer
was effected for transmission to the purchaser or transferee.

Notice is hereby given that the forty-second Annual General Meetingof Oxford Instruments plc will be held at 2.30pm on 26 September
2006 at the offices of Oxford Instruments NanoScience, Tubney
Woods, Abingdon, Oxon, OX13 5QX to transact the following
business:
1

Directors’ Report and Accounts
To receive and adopt the Reports and Financial Statements forthe year ended 31 March 2006 and the Report of the Auditors
thereon.

2

Final dividend
To declare the final dividend for the year to 31 March 2006.

3

Directors’ Remuneration Report
To approve the Directors’ Remuneration Report set out on
pages 32 to 37 of the Reports and Financial Statements for theyear ended 31 March 2006.

4

Re-election of Directors(a) To re-elect Nigel Keen who retires by rotation but, being
eligible, will be proposed for re-election.
(b) To re-elect Mike Hughes who retires by rotation but, being
eligible, will be proposed for re-election.
(c) To re-elect Peter Morgan who, having attained the age of
70 years on 9th May 2006, will be proposed for re-election.
(d) To re-elect Mike Brady who is required to retire annually as
he has been a Non-Executive Director for more than 9 years.
(e) To re-elect Steve Parker who, having been appointed a
Director since the date of the last Annual General Meeting,will be proposed for re-election.
(f) To re-elect Charles Holroyd who, having been appointed a
Director since the date of the last Annual General
Meeting, will be proposed for re-election.
(g) To re-elect Kevin Boyd 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.

Oxford Instruments plc

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
from the date of the passing of this Resolution and that theSection 80 amount be £463,070.

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
the earlier of the expiry of the next following Annual General
Meeting of the Company and the date which is fifteen months
from the date of the passing of this Resolution and that theSection 89 amount be £121,846.

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 bymarket purchase (as defined by Section 163 of the Act) up to
4,873,859 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 average of the middle market quotations for ordinary
shares for the five business days immediately preceding
the day of purchase (as derived from the London Stock
Exchange Daily Official List) and shall not be less than thenominal value of the share;(ii) the authority shall expire on the earlier of the close of thefollowing 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 the authority; 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 andis hereby authorised to:(i) make Donations to any one or more EU Political Organisation
which is not a Registered Party; and(ii) incur EU Political Expenditure in an aggregate amountnot 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 2007.
For the purposes of this Resolution, the expressions “Donations”,“EU Political Organisations”, “EU Political Expenditure” and“Registered Party” have the meanings set out in section 347Aof the Companies Act 1985 (as amended by the Political
Parties, Elections and Referendums Act 2000).

Notice of the 2006 Annual General Meeting

Meeting notes
1 A member entitled to attend and vote at the Meeting is entitledto 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 theCompany’s Registrar at Capita Registrars, The Registry, 34
Beckenham Road, Beckenham, Kent BR3 4TU no later thanforty-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 thoseshareholders registered in the register of members of theCompany as at the close of business on 24 September 2006
shall be entitled to attend or vote at the Meeting in respect of
the number of Ordinary Shares registered in their name at thattime. Changes to entries on the relevant register of securities
after the close of business on 24 September 2006 shall be
disregarded in determining the rights of any person to attend
or vote at the 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 will be proposed as ordinary resolutions.
More than 50% of the votes cast must support these resolutions inorder 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 adoptionof the Reports and Financial Statements for the year ended 31
March 2006.
Resolution 2 – Shareholders will be asked to approve payment ofa final dividend of 6.0p per ordinary share for the year ended 31
March 2006. If approved at the Annual General Meeting, thedividend will be paid on 27 October 2006 to shareholders registeredat the close of business on 29 September 2006.
Resolution 3 – Shareholders will be asked to approve the adoptionof the Directors’ Remuneration Report for the year ended 31 March
2006. Under the Directors’ Remuneration Report Regulations
2002, Directors are required to ask shareholders to vote on the
Directors’ Remuneration Report (shown on pages 32 to 37 of theAnnual Report and Accounts 2006). The Directors, who haveunanimously endorsed the Directors’ Remuneration Report, consider
that asking the shareholders to vote on this Report facilitatesaccountability and transparency.

Oxford Instruments plc

4

Copies of the following documents will be available for inspection
at the Registered Office of the Company and at the offices of theCompany’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 thisNotice 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; and(iii) the written terms of reference of the Board Committees.

The Directors believe that the proposed resolutions are in the bestinterests of the Company and its shareholders, and accordingly
unanimously recommend shareholders to vote in favour of resolutions
1 to 9 inclusive to be proposed at the Annual General Meeting, as
they propose to do so in respect of their beneficial shareholdings.

By Order of the Board
Martin Lamaison Company Secretary
21 July 2006

Resolutions 4 (a), (b) and (c) – The Company’s Articles of Association
state that at each Annual General Meeting, the following Directors
must retire from office: (i) any Director who has held office forthree years or more since his last election or for whom the Meetingis the third Annual General Meeting since he was last elected, and(ii) one third of the Directors at the commencement of the Annual
General Meeting. All Directors take it in turn to retire in this way. This
gives shareholders the chance to confirm their re-appointments. At
the 2006 Annual General Meeting Nigel Keen and Mike Hughes
are retiring under this provision and, being eligible, are standing for
re-election. Peter Morgan, although he retired by rotation and was
re-elected at the 2005 Annual General Meeting, is included in the
one third of Directors required to retire this year, having attained
the age of 70 since the last Annual General Meeting by reason ofage (see below). Being eligible, he also is standing for re-election.
Nigel Keen, Chairman, was first elected at the Annual General Meetingin 1999, having been appointed by the Board as an Independent
Non-Executive Director in February of that year. He is Chairman of
the Remuneration and Nomination Board Committees. Mike Hughesis an Independent Non-Executive Director and joined the Board in
2004. He is a member of the Audit, Remuneration and Nomination
Board Committees. The formal performance evaluation has shownthat their performances are still effective and the rest of the Board
feel that they have demonstrated commitment to the role and thateach should be proposed for re-election.
Peter Morgan is an Independent Non-Executive Director and alsojoined the Board in 1999. He is Chairman of the Audit Committee anda member of the Remuneration and Nomination Board Committees.

95

96

Notice of the 2006 Annual General Meeting

Having attained the age of 70 years on 9 May 2006, he retires inaccordance with the Act and the Combined Code and is included
within the one third of Directors at the commencement of the
Meeting required by the Articles of Association of the Company toretire by rotation. The Chairman’s performance evaluation has
shown that Peter Morgan’s performance is still effective. The Board
feel that he has demonstrated commitment to the role and that heshould be proposed for re-election.
In reviewing the recommendations of the Nomination Committee
concerning these re-elections, the Board has concluded that each of
the Non-Executive Directors in question is independent in characterand judgment and continues to make effective and valuable
contribution to the Board and to demonstrate commitment to therole. The Board unanimously recommends their re-election.
Resolution 4 (d) – Mike Brady is Deputy Chairman and Senior
Independent Director and as of June 2006 had served on the Boardfor eleven years. He is currently a member of the Audit, Remuneration
and Nomination Board Committees. Mike Brady first became a
Non-Executive Director of the Company in 1995; accordingly the
Board has considered whether it is appropriate in view of his lengthof service that he continue in office and if so whether he should
continue to 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 professional and business interests
unrelated to the Group or other members of the Board; his continual
constructive probing of the technical aspect of proposals consideredby the Board; the composition of the Board generally and the factthat he qualifies as independent in all other criteria referred to in
the Combined Code, the Board has concluded that it is appropriatethat he continues in office and that he should properly be considered
to be independent. This year, Mike Brady retires in accordance withthe provisions of the Combined Code and offers himself for re-election
to allow shareholders the opportunity to express their views on thematter.
Resolutions 4 (e), (f) and (g) – Steve Parker, Charles Holroyd and
Kevin Boyd have been appointed as 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-election of each of them is in the bestinterests of the Company as their skills, experience and knowledge
will enhance and maintain an effective Board. Their appointment
was recommended by the Nominations Committee following athorough evaluation process.
The biographical details of all the Directors standing for re-election
are set out on page 18 of the Annual Report and Accounts 2006.
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 conclusionof the forthcoming Annual General Meeting until the conclusion ofnext year’s Annual General Meeting. Following the recommendationof 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.

Oxford Instruments plc

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 £463,070. This
represents the unissued ordinary share capital on 31 March 2006.
This authority replaces the previous power of the Directors to allot
relevant securities and, if passed, will lapse at the earlier of theAnnual General Meeting following its passing or, if later, on 26
December 2007. 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 notreasury shares.
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 inproportion to their holdings. There may however be occasions whenin order to act in the best interests of the shareholders and theCompany, the Directors will need the flexibility to finance business
opportunities as they arise by the issue of a small number of sharesfor cash in circumstances such as the acquisition of a new company
or business by the Group. The maximum number of ordinary shares
to be covered under the power, with the exception of a rights issue
or other pre-emptive offers, is 2,436,930 which represents 5% of
the issued ordinary share capital on 31 March 2006. 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 26 December 2007.
Resolution 8 – This Special Resolution is a renewal of the authority
granted to Directors at the 2005 Annual General Meeting. It allows
the Company to buy back up to 4,873,859 of its issued ordinary
shares on the stock market. This is equal to 10% of the Company’s
issued share capital on 31 March 2006. The Resolution sets out thelowest 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 wayof market purchase in treasury, rather than having to cancel them.
The Company may therefore consider holding any of its own
shares that it purchases pursuant to the authority conferred by thisResolution as treasury shares as an alternative to cancelling them.
This would give the Company the ability to re-issue such sharesquickly and cost effectively, and would provide the Company withadditional flexibility in the management of its capital base. The
Directors believe that it is desirable for the Company to have thisflexibility.
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 automaticallyNotice of the 2006 Annual General Meeting

be cancelled and will not be taken into account in future calculationsof earnings per share (unless they are subsequently resold ortransferred out of treasury).
No dividends will be paid on shares whilst held in treasury and novoting 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 26 December 2007 whicheveris earlier.
Resolution 9 – The Company did not make any donations to politicalparties in the European Union 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”) effectivefrom February 2001, defines EU Political Organisations andDonations very widely and, as a result, in certain circumstances,
donations intended for charitable or similar purposes may now be
regarded as political in nature.

Oxford Instruments plc

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 ofdonation. 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 no present 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 would last until the conclusion of the Company’s
Annual General Meeting in 2007.

97

98

Historical Financial Summary under UK GAAP

Oxford Instruments plc

2002
£m

2003
£m

2004
£m

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

260.3(46.6)

231.4(44.1)

193.1(10.8)

Group turnover

213.7

187.3

182.3

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

6.7
–
(1.1)
(0.3)

6.8
(2.1)
(0.5)
(0.3)

7.9
(1.6)
0.1
(0.7)

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

5.3
5.2

3.9
1.6

5.7
(0.2)

Total operating profit
Loss on sale of business before goodwill
Profit on disposal of investment before goodwill
Profit on disposal of properties
Goodwill previously written off
Net interest payable

10.5
–
–
3.0
–
(1.5)

5.5
(1.5)
–
–
–
(1.6)

5.5
–
6.8
–
(0.2)
(0.2)

Profit on ordinary activities before tax
Taxation

12.0
(2.7)

2.4
(1.2)

11.9
(1.9)

Profits attributable to shareholders

9.3

1.2

10.0

Balance sheet
Intangible assets – goodwill
Tangible fixed assets
Investments

4.4
38.9
5.7

2.7
35.6
4.1

2.6
32.6
1.6

Stocks
Debtors
Other creditors

48.5
67.4
(59.7)

36.5
61.1(48.8)

28.5
58.9(47.5)Net current assets, excluding net cash/(debt)

56.2

48.8

39.9

Cash at bank and on short term deposits
Bank loans and overdrafts

4.8
(8.8)

6.4
(3.1)

23.2
(2.5)

Net (debt)/cash

(4.0)

3.3

20.7

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

–
(6.0)

–
(5.3)

–
(5.3)

Net assets employed

95.2

89.2

92.1

Equity shareholders’ funds *

95.2

89.2

92.1

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

6.6
(2.2)
(0.2)
0.1

14.9
(2.6)
(2.0)
(3.2)

17.8
(4.0)
(2.4)
6.1

Net cash inflow before management of liquid resources and financing

4.3

7.1

17.5

pence

pence

pence

Per ordinary share
Earnings
Earnings from continuing operations before exceptional items **Dividends

19.9
14.6
8.4

2.6
9.5
8.4

21.3
25.7
8.4

Employees
Average number of employees

1,773

1,674

1,537

* After deducting investment in own shares in 2004.
** After adjusting for disposal of Medical business in 2004.

Historical financial summary under IFRS

Oxford Instruments plc

2005
£m

2006
£m

154.8

167.2

Trading profit
Other operating income
Amortisation of acquired intangibles
Restructuring and other non-recurring costs

7.4
0.2
(1.3)
(6.2)

4.4
2.0
(0.2)
(6.7)

Operating profit/(loss)
Net financing costs

0.1
–

(0.5)
(0.4)

Profit/(loss) before taxation
Income tax expense

0.1
(1.7)

(0.9)
(2.5)

Loss after taxation but before gain/(loss) on discontinued operations
Profit from discontinued operations, net of tax

(1.6)
7.2

(3.4)
–

Profit/(loss) for the period

5.6

(3.4)

Balance sheet
Property, plant and equipment
Intangible assets
Investments
Deferred and current tax
Inventories
Trade and other receivables
Held for sales assets
Trade and other payables

23.0
12.5
1.6
14.1
23.9
46.5
5.4
(44.3)

23.4
15.6
1.0
18.1
27.1
45.4
5.0
(39.0)Net current assets excluding net cash

82.7

96.6

Cash and cash equivalents
Bank borrowings

28.6
(2.1)

12.7
(2.9)

Net cash

26.5

9.8

Provisions and other items
Retirement benefit obligations(7.9)(43.3)(6.6)(53.4)Net assets employed

58.0

46.4

Capital and reserves attributable to the Company’s equity holders

58.0

46.4

Cash flow
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities

5.9
15.3
(14.7)

(8.0)
(7.0)
(1.2)

6.5

(16.2)

pence

pence

Per ordinary share
Earnings – continuing
Adjusted earnings *Dividends – excluding special dividend
Dividends – special

(3.0)
13.9
8.4
25.0

(7.2)
9.1
8.4
–

Employees
Average number of employees

1,325

1,412

Income statement
Revenue

Net increase/(decrease) in cash equivalents* Before other operating income, amortisation of acquired intangibles, restructuring and other non-recurring costs and the result of the restructured magnet business.

99

100

Shareholder Information

Financial calendar
31 March 2006
13 June 2006
26 September 2006
27 September 2006
29 September 2006
27 October 2006
Mid November 2006
31 March 2007
Early April 2007

Oxford Instruments plc

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
Financial year end
Payment of interim dividend

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 0208 639 2342
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 Great Britain
Website – www.oxford-instruments.com
The Oxford Instruments plc website allows users of the site to see
our latest news, to check out a product range, to look for a job or
simply find out about our company – and move between all thesein just a few clicks. In addition, shareholders can browse theInvestor Information section, find out who to contact regarding
enquiries and share dealings, download recent trading reports, andobtain the latest share price. This and other developments are partof a continuing move towards improving communications between
Oxford Instruments plc and its shareholders.
Share dealing scheme
In association with JPMorgan Cazenove Limited a low cost sharedealing service has been introduced providing shareholders with asimple way of buying and selling Oxford Instruments plc ordinary
shares. Further information is available from the Company
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 2006
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

2,850
175
44
29

92.0
5.7
1.4
0.9

1,863,635
2,611,586
4,066,733
40,196,638

3.8
5.4
8.3
82.5

Total

3,098

100.0

48,738,592

100.0

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, X-ray Technology,
Optical Emission Spectroscopy, Coating
Thickness Measurement
Halifax Road, High Wycombe,
Bucks HP12 3SE, UK
Tel +44 (0) 1494 442255
Fax +44 (0) 1494 524129
email analytical@oxinst.co.uk
P.O. Box 85 (Nihtisillankuja 5)
FI-02631 Espoo, Finland
Tel +358 9 329 411
Fax +358 9 32941 300
email info@oxinst.fi
945 Busse Road, Elk Grove Village,
Illinois 60007, USA
Tel +1 847 439 4404
Fax +1 847 439 4425
email info@msys.oxinst.com
360 El Pueblo Road
Scotts Valley, CA, 05066, USA
Tel +1 831 439 7929
Fax +1 831 439 6051
email sales@oxfordxtg.com
NanoAnalysis, X-ray Microanalysis andElectron Backscatter Diffraction
Halifax Road, High Wycombe,
Bucks HP12 3SE, UK
Tel +44 (0) 1494 442255
Fax +44 (0) 1494 524129
email nanoanalysis@oxinst.co.uk

Designed and produced by Simplifydesign (www.simplifydesign.com). Printed by Moore.

HKL Technology
Majsmarken 1, Hobro, DK 9500, Denmark
Tel +45 9657 2600
Fax +45 9657 2609
email info@hkltechnology.com
Plasma Technology
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
NanoScience
Magnet Technology and Physical Science
Tubney Woods, Abingdon,
Oxon OX13 5QX, UK
Tel +44 (0) 1865 393200
Fax +44 (0) 1865 393333
email nanoscience@oxinst.co.uk

Oxford Instruments plc

Molecular Biotools
In-vitro dynamic nuclear polarisingsystems, NMR and imaging systems
Tubney Woods, Abingdon,
Oxon OX13 5QX, UK
Tel +44 (0) 1865 393200
Fax +44 (0) 1865 393333
email molecularbiotools@oxinst.co.uk
Innovation
Tubney Woods, Abingdon,
Oxon OX13 5QX, UK
Tel +44 (0) 1865 393200
Fax +44 (0) 1865 393333
email innovation@oxinst.co.uk
Oxford Superconducting Technology
Superconducting wire and MRI
support 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
Austin Scientific
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
No.129, Lane 150, Pingbei Road,
Xinzhuang Industrial Area, Minhang District,
Shanghai, 201109, China
Tel +86 (0)21 6490 8580/8280
Fax +86 (0)21 6490 4042
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

Germany
Otto-von-Guericke-Ring 10,65205 Wiesbaden, Germany
Tel +49 6122 937 0
Fax +49 6122 937 100
email info@oxford.de
India
Office no 17, Shreeji Arcade,
Almeida Road, Panchapakhadi,
Thane 400 602, India
Tel +91 223 941 2008
Fax +91 222 545 2424
Japan
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
RussiaDenisovskiy per. 26, 105005 Moscow,
Russian Federation
Tel +7 (095) 933 51 23
Fax +7 (095) 933 51 24
email info@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

Czech Republic
Velvarska 13, CZ-160 00 Praha,
Czech Republic
Tel +420 233 343 264
Fax +420 224 311 724
email info@oxford.de
FranceBatiment Ariane
Domaine Technologique de 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

300 Baker Avenue, Suite 150,
Concord, MA 01742, USA
Tel +1 978 369 9933
Fax +1 978 369 8287
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

101

Oxford Instruments plc
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
www.oxford-instruments.com