Empowering Scienceand Industry

Oxford Instruments plc
Report and Financial Statements 2017

Inside this year’s Report
and Financial Statements
01: Strategic Report
Highlights			

01

Our Business			

02

Chairman’s Statement			

04

Chief Executive’s Review			

06

Business Model			10Strategic Context 			11Strategy			

12

Operations Review			

14

KPIs and Principal Risks			

22

Viability Statement			

26

Finance Review 			

28

Corporate Responsibility 			34

02: Governance
Board of Directors 			

42

Corporate Governance 			44

Audit and Risk Committee Report 			51

Nomination Committee Report			

58

Remuneration Report 			60

Report of the Directors 			76

03: Financial Statements
Directors’ Responsibilities 			79

Independent Auditor’s Report 			

80

Accounting Policies 			

84

Consolidated Statement of Income 			90

Consolidated Statement ofComprehensive Income 			91

Consolidated Statement of Financial Position

92

Consolidated Statement of Changes in Equity

93

Consolidated Statement of Cash Flows94

Notes to the Financial Statements 			96

Parent Company Statementof Financial Position 			124

Statement of Changes in Equity			

125

Notes to the Parent Company
Financial Statements 			126

04: Company Information
Historical Financial Summary 			134

Shareholder Information 			136

Oxford Instruments Directory 			138

Directors and Advisers			

140

in this section

We discuss developments andthe global issues that have had
an impact on our businesspage 01

Oxford Instruments plc
is a leading provider ofhigh technology solutions,information and support
for industry and research.
We use innovation to turn smart
science into world‑class productsthat support research and industry
to address the great challenges ofthe 21st Century.

in this section

Read about how we manage
our Company and maintainhigh standards

We are proud to berecognised as the leadersin what we do and forthe difference we makein the world.

page 42in this section

See how we are performingin light of developmentsin the past year
page 79

in this section

Find additional
information about us
page 134

Front cover image:
A group of nerve cells captured deep in a brain tissue
sample by Andor’s Dragonfly confocal microscopy platform.

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Highlights

It has been a year of structural, operationaland strategic transition for the Group.
Revenue
(£m)
2017
2016

Continuing adjusted earnings
per share1 (p)Adjusted profit before tax1
(£m)
348.5
319.7

2017
2016

36.0
33.6

2017
2016

£348.5m£36.0m

47.8p

9.0%

7.1%

5.5%

Dividend per share(p)Orders
(£m)

2017

13.0

2017

350.7

2016

13.0

2016

336.1

13.0p

47.8
45.3

£350.7m
4.3%

Highlights include:• Reported revenue up 9.0%,
down 3.7% at constant currency• Adjusted profit before tax
up 7.1%, in line with our
expectations• Net debt of £109.3 million(2016: £128.2 million), withleverage of 2.1 times reflecting
good cash conversion and thesale of Oxford Superconducting
Technology (2016: 2.3 times)• Horizon strategy underway,
focused on markets withlong‑term growth drivers where
the Group can be market leader• Completed disposal of Oxford
Superconducting Technology,
and announced sale ofIndustrial Analysis• Increased adjusted profit before
tax on a continuing basis in
NanoTechnology Tools andIndustrial Products more thanoffset a fall in Service

1. Throughout these Financial Statements we make reference to adjusted numbers. These are presented as, in the opinion of the Directors, they present a clearer picture of the business performance.
A full definition of adjusted numbers can be found in Note 1. Where we make reference to organic numbers these exclude the effect of acquisitions and disposals. Where we make reference toconstant currency numbers these are prepared using the exchange rates which prevailed in the previous year rather than the actual exchange rates which prevailed in the year.

Oxford Instruments plc Report and Financial Statements 201701

Our BusinessOne of the great leading technology companies.
Through our deep understanding of our customers’ world and our restless innovation wewill change the art of the possible enabling our customers to address the challenges ofthe 21st Century.

Our business is structured around three segments that reflect our expertise and business objectives:

NanoTechnology
Tools

Industrial
Products

ServiceHigh technology tools tocharacterise, analyse, manipulate
and fabricate at the nanoscaleTechnologically superior
tools and components forindustrial applications

Supplying knowledgeablesupport services, training
and refurbishment of ourown products
The service, sale and rental of
third‑party MRI and CT machines

Find out more on page 14

Find out more on page 19

Find out more on page 21

Our global market comprises seven areas:
Research and academia:
physical sciences
Our target market sector includes research
into nanotechnology applications, newmaterials, Quantum Information Processing
and other developments.

Research and academia:
bio sciences
A growing sector, this includes research intoa range of disease states such as diabetes,
cancer, Alzheimer’s and Parkinson’s.

02

Semiconductors/IT

EnergyThis includes semiconductor electronics,
Micro Electro Mechanical Systems (“MEMS”),
compound semiconductor materials, thin film
and particle analysis.

We have been involved in the
search for sustainable energy, solar
technologies, oil and gas exploration,and superconductor materials.

Medical services

Metals/construction

A growing sector that includes the supportand service of MRI and CT imaging
equipment as well as new opportunities
driven by the convergence of physical andbiological sciences.

We are supporting global industries including
metals, alloy manufacturing, steel foundries
and scrap recycling.

Environment
This includes greener production, recycling,detection of hazardous substances in soil,
and agriculture and food.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

We have offices in 18 countries
and employ 1,974 people worldwide.

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Principal offices

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As one of the world’s first University spin-out
companies, we have been at the forefront oftechnological innovation for more than 55 years.
Oxford Instruments plc Report and Financial Statements 2017

C

5M
£36.
JAPAN

For a full list of our locations please visit our website:www.oxford-instruments.com/offices

03Chairman’s Statement

The business delivered a stable performance in linewith our expectations against an extremely challenging
market backdrop.
We have made good
progress in developing
and implementing the
new Horizon strategy.

This is my first review as Chairman of Oxford
Instruments plc, a position I am delighted tohave taken on at our AGM in September.
It has been a year of structural, operationaland strategic transition for the Group. We
have a new and energised senior executive
team led by Ian Barkshire and Gavin Hill.
They have acted with impressive decisivenessin embedding a number of changes in ouroperating teams to raise the talent bar acrossour business.

We have also made good progress indeveloping and implementing the new
Horizon strategy to reposition our Groupfor long-term sustainable growth. This has
seen some significant actions to manage
our portfolio of businesses with the aim ofaccelerating our delivery of shareholder value.
In November, we announced the disposal of
our underperforming wire business, Oxford
Superconducting Technology, and since theyear end, we have announced the agreed saleof our Industrial Analysis business to Hitachi
High-Technologies.

As Ian Barkshire sets out in his Chief
Executive’s Review, the management
team is now implementing the next phaseof the Horizon strategy to continue thetransformation of Oxford Instruments. This isfocused around the two anchors of returning
to sustainable growth and improving margins
by concentrating on market segments withlong-term growth drivers where we havethe potential to become the market leader.

Our governance principles
Leadership

Effectiveness

Risk management

Remuneration

Engagement

The Chairman is
responsible for leadershipof the Board and ensuring
its effectiveness on all
aspects of its role.

This year, the Board
carried out its annual
effectiveness evaluation
exercise, including a
specific review of theeffectiveness of its
principal committees
and members.

The Board has
accountability forreviewing and approving
the adequacy andeffectiveness of internal
controls including
financial, operationaland compliance controls
and risk management.

The remuneration policy
promotes the deliveryof the Group’s strategy
and seeks to align theinterests of Directors
and Shareholders.

We continue to ensure
our investors receive
regular and transparent
communications.

F ind out moreon page 45

F ind out moreon page 47

F ind out moreon page 49

F ind out moreon pages 60 to 75

F ind out moreon page 35

04

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Our NanoTechnology Tools sector performed
strongly and we saw good returns from theservicing of our own products.

NanoScience’s Triton refrigeration system.

Against this background of strategic
activity, the team maintained the focus
on short-term performance. The businessdelivered a stable performance in line with
our expectations against an extremely
challenging market backdrop of slower
academic funding in the US and Europe andthe anticipated deterioration in the financial
performance of our OI Healthcare business.
Our NanoTechnology Tools sector performed
strongly and we saw good returns from theservicing of our own products. These growthbusinesses provide the platform for our
future growth.
Adjusted basic earnings per share on acontinuing basis grew by 5.5%. However,taking into account the impact on the Groupof business disposals, currency effects andour progressive strengthening of the balance
sheet, the Board has proposed to hold thedividend at last year’s level. This results in a
final dividend of 9.3 pence (2016: 9.3 pence)bringing the total dividend for the year to13.0 pence (2016: 13.0 pence).

Andor’s Dragonfly 3D microscopy platform, which was launched earlier in the year.

I am pleased that Stephen Blair will join the
Board on 1 July 2017 as Senior Independent
Director. He brings with him a wide range ofinternational experience and sound technicalunderstanding that was gained during his time
at a number of top technical companies, suchas e2v and Spectris.
Finally, I would like to thank the Board for their
ongoing support during this time of change
and for their commitment to repositioning
Oxford Instruments to deliver long-term
profitable growth, providing sustainablevalue for our Shareholders.

Alan Thomson
Chairman
13 June 2017

Oxford Instruments plc Report and Financial Statements 201705

Chief Executive’s Review

The year has been one of transition with a new strategy,
associated portfolio changes and the formation of a newleadership team.
Summary• Horizon strategy underway,
repositioning the Group forlong-term growth• Continued strength andimproved profitability across
NanoTechnology Tools sector• Steady performance inIndustrial Products• Increased demand for services
related to our own products

I am encouraged by theperformance of the Groupduring my first year as Chief
Executive, having made good
progress in strengthening thebusiness and positioning it for
the future. The year has been
one of transition with a new
strategy, associated portfoliochanges and the formationof a new leadership team.

The most notable strategic development has
been the launch of the Horizon strategy, ourtransformational programme for the Group,
which will drive both our future direction andour operational model. Horizon will build on
our strengths, brand and innovation heritageand has the following key elements:• We will focus our investment on market
segments where nanotechnology drives
long-term growth for our customers
and where we can maintain or develop
leadership positions.
• We will migrate to being a morecommercially focused, market-driven
Group by maintaining our heritage insupporting fundamental research whilst
increasing our focus on products forapplied R&D and the commercialisationof nanotechnology.
• We will drive the delivery of synergies andenhanced collaboration. For example, in
R&D we will prioritise our high‑impact
projects and resource them from acrossthe Group.

06• We will evolve our existing “tools andservice” model and move up the value
chain by providing our customers withenhanced solutions, information andsupport that will drive advances ininnovation and productivity.
• We will transform our operational model
to embed consistency and excellenceacross our businesses, measured by clearly
defined core capabilities that will enhance
our competitive advantage.
Over the past ten years, Oxford Instruments
has focused on being a leading providerof high technology tools and service toresearch communities all over the world.
Nanotechnology is now well established
as a fundamental and integral driver fordelivering advances across the sciences andcommercial end markets. We will build on
our leadership and expertise in the fabrication,
manipulation and analysis of materials down
to the molecular and atomic scale. We will
support the changing needs of our customers
by evolving to become a leading provider ofhigh technology solutions, informationand support. We will be known for
unprecedented performance, ease of use andservice that will add value to our customers’
capabilities and productivity.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

We have made notable progress in establishing a moresynergistic portfolio.

Within Horizon, we will actively manage ourportfolio of businesses and products, selecting
those markets with long-term growth drivers
where we can maintain or grow leading
positions. We will focus on those markets
where nanotechnology has the potential toaddress some of the world’s most complex andpressing challenges and where we can deliver
enhanced solutions and service excellence.

New operational model
MarketIntimacy

Customer
SupportCustomerInnovation
and ProductDevelopment

Global drivers for our core markets are:
Healthcare where growth is driven by
demand for improvements in disease detection
and the understanding of fundamental
mechanisms;• Our advanced imaging and analysis
solutions, such as our Dragonfly opticalsystem and our newly launched video
rate Atomic Force Microscope areexamples of where we are providing
enhanced capabilities and productivity
for investigators working in this area.
Energy where improved efficiencies andsustainability remain core drivers, and includes
work in photovoltaics and batteries.
• Our deposition and etch processes, andour characterisation solutions are essential
for our customers in the development of
their current and next generation devices.
Plasma Technology, Asylum Researchand NanoAnalysis are particularly wellaligned to support these markets with newprocessing and characterisation capabilities.
IT and Communications where there isa focus on speed, security and capacity.
• Again, it is our ability to provide thefabrication capabilities for new materials
and device structures, and the subsequentcharacterisation of their performancethat helps our customers, for example
in photonics, semiconductors and data
storage devices. Our solutions are being
utilised by fundamental science rightthrough to the practical application of newmaterials within this area, and will support
growth across our NanoTechnology
Tools portfolio.

Operational
Excellence

Find out more on page 13

Within our core markets, we have identified anumber of niche segments that are particularly
attractive to us, such as biodynamics, quantum
computing and advanced batteries, where wewill focus to gain competitive advantage.
As part of Horizon we have undertaken astrategic review of the growth opportunities,
competitive landscapes and leadershipcapabilities across the Group to inform
our portfolio management. We havemade notable progress in establishinga more synergistic portfolio. In November,
we announced the disposal of our
Superconducting Wire business and since theyear end we have announced the agreed saleof our Industrial Analysis business to Hitachi
High-Technologies.

Advanced Materials where we can help
customers lead the race to develop lighter,stronger, higher functioning and more
affordable materials.

Horizon will change the way by which we
operate and will embed clearly defined corecapabilities across our businesses in thefollowing areas:• This remains a core market for ourbusinesses and we continue to build
strong relationships with the leaders in thisfield, ranging from Nobel Prize winners
through to Quality Assurance for leading
manufacturers.

Market Intimacy: We will further develop
in-depth understanding of our customer
segments and align our innovation andproduct development initiatives to customers’
strategic roadmaps.

Quantum Technology is the exploitation of
the regime where quantum effects dominate
and radically change the ‘rule book’ ofwhat is possible. For example, the quantum
interaction between remote particles has
the potential for new paradigms in securecommunications, computing and sensors.
• Our cryogenics, advanced fabrication,
imaging and characterisation capabilities
are all critical to the advancement of
this field.

Oxford Instruments plc Report and Financial Statements 2017

Innovation and Product Development:
We will focus our R&D investment on higher
growth segments, prioritising our effortson the most valuable product development
opportunities.
Customer Support: We will build on thegrowing customer demand and offer ahigher level and broader range of services
and support.
Operational Excellence: We will drive
improvements in cost, time and defects
to become a more delivery and outcome
focused business.
Horizon will drive a culture of continuous
improvement and best practice across allof our businesses, which will deliver clear
competitive advantage and long-term
shareholder value. I am excited by thepotential of the Horizon strategy whichbuilds on our heritage and is the next stage
in the evolution and commercialisation of
Oxford Instruments.

07Chief Executive’s Review continued

Progress in the year has been underpinned by thecontinued strength and improved profitability acrossour NanoTechnology Tools Sector.
Results
Looking back over the previous financial year,
the Group delivered a stable performance,
supported by stronger second‑half tradingin line with our expectations and currency
tailwinds. This was despite an uncertain
macroeconomic background, which has seena sustained period of slow global academic
and R&D funding and continued softness
across industrial end markets.
Progress in the year has been underpinnedby the continued strength and improved
profitability across our NanoTechnology
Tools Sector. Industrial Products delivereda steady performance against continued
challenging end markets supported by new
product launches. In our Service sector, theincreased demand for services related to ourown products was more than offset by thepreviously flagged weaker performance fromour OI Healthcare business in the US.
Orders in the period increased by 4.3%
to £350.7 million (2016: £336.1 million),orders at constant currency were down
7.3%, predominantly due to lower orders
in OI Healthcare and Industrial Analysis.
Orders in NanoTechnology Tools increasedby 7.9% but were marginally down on theprevious year at constant currency. The orderbook for future deliveries at the end of theyear increased by 9.3% to £144.5 million(2016: £132.2 million), representing a
constant currency increase of 0.5% at a Grouplevel and 0.5% and 5.0% for NanoTechnology
Tools and Service respectively.

08

Reported revenue in the period was up 9.0%
to £348.5 million (2016: £319.7 million),
down 3.7% at constant currency, reflecting
the weaker performance across our Industrial
Products and OI Healthcare businesses. On ageographical basis, demand for our products
reflected global trends in funding and capital
expenditure, resulting in an exceptionallystrong performance in Asia, growth in Europe
and a relatively flat performance in the USA.
Reported revenue grew in Europe, North
America and Asia by 4.2%, 0.7% and 22.3%
respectively. Revenue on a constant currency
basis grew 7.2% in Asia supported bycontinued strong growth in China. Constantcurrency revenue declined in Europe by
5.9% with growth in France and Germany
being more than offset by reduced volumes
from the Rest of Europe, principally fromlower shipments from Plasma Technology,
and it declined in North America by 12.0%,
predominantly due to reduced volumes in
OI Healthcare and Asylum Research.
Adjusted profit before tax from continuing
operations increased by 7.1% to £36.0 million(2016: £33.6 million) with improvements
across NanoTechnology Tools and Industrial
Products more than offsetting a fall in Service.
Adjusted operating profit margin fell to
12.2% (2016: 12.9%) reflecting the reduced
profit from OI Healthcare and the uplift torevenue due to the movement in currency
exchange rates.
We recorded a loss before tax of £25.5 million
after the impairment of non-current assets
and other adjusting items of £45.8 million,
primarily reflecting deterioration in thefinancial performance from Asylum Research,
OI Healthcare and our joint venture,
ScientaOmicron. While we have plansthat address the weaknesses and issues
within all three businesses, the impairment
reflects the actions and time required to
improve profitability.

Continuing adjusted basic EPS grew by 5.5%
to 47.8 pence (2016: 45.3 pence). Basic EPS
was a negative 44.0 pence (2016: 12.2 pence)
after reflecting the impairments of non-current
assets and other adjusting items.
Net debt at the end of the period fell to£109.3 million (2016: £128.2 million), largely
due to good cash conversion and proceeds
received from the sale of Superconducting
Wire business in November 2016.
Turning to the individual sectors:
NanoTechnology Tools saw reported
revenue growth of 11.4% to £208.7 million(2016: £187.4 million), adjusted operating
profit grew 20.2% to £25.6 million(2016: £21.3 million), with an increase inadjusted operating margin by 90 basis points
to 12.3%. The improved performance isdue to the success of recently launchedhigher margin products across the portfolio
combined with a focus on operational
efficiencies. We continued to see enhanced
performance from Andor Technology and
NanoAnalysis; while Plasma Technology and
NanoScience both continued to make progressin the year and contributed strongly to theimproved performance. Asylum Researchunderperformed against the previous year
having been disproportionally impacted
by reduced academic funding levels and adelay in launching new products. As a resultof prioritising investments and delivering
operational efficiencies we expect to see an
improvement in the profitability of the Asylum
business, albeit still below original projections
at the time of acquisition.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

In Industrial Products, reported revenue
increased by 5.0% to £56.7 million(2016: £54.0 million), excluding discontinued
contributions from the Superconducting Wirebusiness, which was divested in November.
Reported adjusted operating profit increasedto £1.7 million (2016: £1.1 million) withan associated increase of 100 basis points
in adjusted operating margin to 3.0%.
This represents a stable performancein the face of continued challenging
end‑market conditions.
In Service, reported revenue increased by
6.1% to £83.2 million (2016: £78.4 million).
This was driven by the increased demand
for services relating to our own products.
As previously flagged, the OI Healthcare
business in the US, which offers refurbishedimaging systems, mobile imaging solutions
and maintenance services, had a slower year
due to a change in the software licensing
policy on second hand systems by one of themain system manufacturers. This significantly
reduced the number of refurbished systems
sold in the year and, despite improved profit
and operational margin from the servicing of
our own products, resulted in a fall in reported
adjusted operating profit to £15.2 million(2016: £18.8 million). We have taken thenecessary actions to align the business to the
new software licensing model for refurbishedimaging systems and the OI Healthcare
business is now positioned to deliver an
improved performance going forward.
From a customer perspective, our end‑market
distribution has remained relatively unchanged
compared to the previous year. Over half of
the Group’s revenue came from academic andcommercial research customers, of which aquarter was engaged in Bio and Life Sciences.

03: Financial Statements

The Group continues to invest in future
products and services and in the year we
increased investment in R&D by 7.1%
to £30.3 million (2016: £28.3 million).
We monitor the proportion of our revenue
which originates from products launched in
the last three years (our Vitality Index). Our
Vitality Index stands at 31%, and is in therange we expect from a high technology
business. This reflects the continued strengthof our existing leading products and thesuccessful uptake of more recently launched
products. Some of the new products launchedin the year are outlined in the Operational
Review. We continue to have a healthy
pipeline of new products in developmentthat push the boundaries of scientificunderstanding and technical performanceand increase our market reach.

PeopleOur staff are central to the successful deliveryof our Horizon strategy. We will focus on
resourcing our core capabilities through thedevelopment of our existing workforce andtargeted recruitment.

04: Company Information

OutlookIn a year of transition, the Group delivered astable performance, supported by currency
tailwinds. Whilst academic and R&D funding
levels remain uncertain, we believe that
progress with our strategic initiatives andfavourable currency effects will deliver an
outcome for the year in line with expectations.
Our focus is on markets with long-term
growth drivers where nanotechnology has
the potential to address some of the world’s
most complex and pressing challenges.
Fundamental improvements to our structure,operations and strategy are underway
and give us a solid platform to return tosustainable growth, at improved margins
over the medium term.

Ian Barkshire
Chief Executive
13 June 2017

To further support the delivery of Horizon,
I have reshaped our Management Board.
The Management Board develops andembeds our business processes across theGroup and the new structure will drive theexploitation of synergies and efficiencies
across our businesses.
The progress we have made so far in ourtransformation is largely due to the talented
workforce we have at Oxford Instruments.
I would like to thank all our employees
for their positive response to the newstrategy and the resulting changes, theircontinued enthusiasm and their dedication
to our customers.

Oxford Instruments plc Report and Financial Statements 201709

Business Model

Evolving to become a leading provider of hightechnology solutions, information and support.
Being known for unparalleled performance, ease of use and service, adding value
to our customers’ capabilities and productivity.
New business model
The market we operate in has changed
dramatically with Nanotechnology migratingfrom fundamental research to being
adopted in mainstream applied R&D andthe exploitation into a range of commercial
applications that are available to a larger
end‑user base.

Fundamental
research

We have evolved our business to bettersupport the changing needs of our customers.
This will allow us to be a leading providerof high technology solutions, informationand support to industrial research andacademic markets.

We will focus on those markets where we
can enable the fundamental discovery of
nanotechnology through to its commercial
exploitation in order to address some of theworld’s most complex and pressing challenges.

Applied
R&D

Commercial
markets

Providing solutions to thosewishing to explore new frontiers
at the nanoscale.

Providing products to enable
the opportunities offered bynanotechnology to develop
more advanced products.

Providing tools to support
the commercialisationof nanotechnology
into everyday products.

Triton refrigeration system, which is at theheart of many of the advances being madein quantum computing.

FlexAL system, which offers increased
flexibility and capability in the engineeringof nanoscale structures and devices.

X-Max for particle analysis, which is helping
hard disk manufacturers identify where in
the supply chain a fault occurred.

10

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Strategic Context

Over the past ten years, Oxford Instruments has beensuccessfully driving the adoption of nanotechnology byindustrial and research communities all over the world.
We previously used growth in the convergenceof sciences to build our market position.
Convergence is now well established, and ourcustomers are now focused on the applicationof convergence and nanotechnology
to help address many of the world’s
greatest challenges.
Within academic research, funding isincreasingly being targeted towards
nanotechnology applications that are buildingon the initial foundations of convergence.
Our industrial research and corporate
customers are increasingly focused on
exploiting nano‑enhanced properties in theircommercial applications and the developmentof new advanced systems and devices.

To support our customers’ new requirements,
we will build our leadership in exploiting our
expertise, skill and intellectual property infabrication, manipulation and characterisationof materials, structures and devices down to
the molecular and atomic scale. We will focus
our investment on those market segments
where nanotechnology drives long-term
growth for our customers and where we canmaintain or grow into leadership positions.

We have called our new strategic focus
Horizon. It is a transformational programme
for the Group and will drive both our future
direction and our operational model, returning
us to long-term sustainable growth withimproved margins.

We will move up the value chain providing
our customers with solutions, informationand support to increase their capabilities
and productivity in line with their
evolving requirements.

Increasing capabilities and ease of use

Commercial exploitation

New paradigm forsystems and devices

Increased application focus
Exploiting advanced materials
and capabilities

Accelerated scientificdiscovery and innovation
Convergence of sciences
Biology
Chemistry
Physics
Engineering
2005

2010

Oxford Instruments plc Report and Financial Statements 2017

2020

2040

11

Strategy

Horizon is a transformational programme for Oxford
Instruments that will reposition the Group for long-termsustainable growth with improved margins.
StrategyWith Horizon we will focus on those markets
where nanotechnology has the potential toaddress some of the world’s most complex
and pressing challenges. These are markets
where we can maintain or grow into
leadership positions by providing customers
with high technology solutions, informationand support. By aligning closely with ourcustomers’ needs and through a better
understanding of their challenges we will
ensure we offer unprecedented performance,ease of use and service that will add value toour customers’ capabilities and productivity.
Under Horizon we have already undertaken
significant actions to manage our portfolioof businesses, with the aim of accelerating ourdelivery of customer and Shareholder value.

Key elements of Horizon
Horizon will build on our strengths, brand and innovation heritage and has five key elements:• invest in market segments where nanotechnology drives long-term growth and where wecan maintain or develop leadership positions;• migrate to being a more commercially focused, market‑driven Group;• break down the silo culture to deliver synergies and enhanced collaboration acrossthe Group;• move up the value chain by providing customers with enhanced solutions, informationand support; and• transform our operational model to embed consistency and excellence acrossour businesses.

Growth drivers
The key markets with long‑term growth drivers where we can maintain or grow leading
positions are:
Healthcare
where growth is driven by demand for improvements in disease
detection and the understanding of fundamental mechanisms.

Energywhere improved efficiencies and sustainability remain core
drivers and includes work in photovoltaics and batteries.

IT and Communications
where there is a focus on speed, security and capacity.

Advanced Materials
where we can help customers lead the race to develop lighter,stronger, higher functioning and more affordable materials.

Quantum Technology
is the exploitation of the regime where the exotic quantum
effects dominate and radically change the ‘rule book’ of what
is possible.

12

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Horizon will change the way by which we operate andwill embed clearly defined core capabilities across ourbusinesses in the following areas:
New operational model

MarketIntimacy

Customer
SupportCustomerInnovation
and ProductDevelopment

Operational
ExcellenceMarketIntimacy:

Innovation and
Product Development:

Customer
Support:Operational
Excellence:

We will develop an in-depth
understanding of our customer
segments and tailor our solutions
to more closely meet customer
needs. Insights from our stronger
customer relationships will better
inform and align our innovationand product development
initiatives to customers’
strategic roadmaps.

We will focus our R&D
investment on higher growth
segments, prioritising our effortson the most valuable productdevelopment opportunities.
Importantly, our new operating
model will enhance our ability
to leverage the technicalcapabilities and synergies acrossthe Group to ensure the more
effective delivery of our chosenpriority projects.

We will build on the growing
customer demand for a higher
level and broader range ofservices and support to help
meet their evolving commercial
and strategic needs. Service will
become a core differentiator in
our markets.

We will target improvements incost, time and defects to delivera world class experience for
Oxford Instruments’ customers.
Operational Excellence will drive
us to become a more delivery
and outcome focused business.

Oxford Instruments plc Report and Financial Statements 201713

Operations Review

NanoTechnology Tools

An Andor Technology technician working undercontamination-controlled conditions in a cleanroom.

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Our NanoTechnology Tools sector experienced
continued strength and improved profitability.

The NanoTechnology Tools sector comprises
two divisions: NanoCharacterisation, which
includes NanoAnalysis, Andor Technology andAsylum Research; and NanoSolutions, which
includes NanoScience, Plasma Technology andour minority share in the ScientaOmicron JV.
Our NanoTechnology Tools sector experienced
continued strength and improved profitability.
This was largely due to the success of recently
launched, higher margin products and an
ongoing focus on operational efficiencies
across the sector. Whilst overall academic
funding remains subdued, we continue
to see demand in the nanotechnology
arena, including the characterisation ofmaterials associated with current and next
generation batteries; biomedical imaging in
the exploration and improved understandingof disease mechanisms and with particular
growth in the newly emerging quantum
technology segment. In addition we areseeing an increased demand from commercialorganisations seeking to gain competitive
advantage from the exploitation of
nanotechnology. Our focus on solutions thatoffer increased performance and ease of use
is creating more value for our academic andcommercial customers, providing them withnew capabilities, additional information andhigher productivity.

Our NanoAnalysis business delivers innovative
solutions and services that enable materials
characterisation and sample manipulation
down to the nanoscale. Our products
are used in conjunction with electron
microscopes and ion-beam systems toprovide the critical compositional, structuraland phase information that determines
material properties from plastics throughto advanced aerospace components andquantum devices. Our solutions are market
leading, being used in most of the world’s
leading academic institutions and companies,
with applications ranging from renewableenergy storage, semiconductors, advanced
materials research, mining, metallurgy andforensics. NanoAnalysis continues to delivera strong technical and financial performancein a relatively stable market. We continue
to extend our range of products, and haveexperienced particular success providing
analytical systems supporting production
in commercial applications such as data
storage and automotive markets. In addition,
our flagship XMax Extreme product hasdelivered strong growth since its launch inthe previous year, with customers using its
unique performance to undertake materials
research at a resolution and sensitivity thatwas previously unobtainable.

1: D
 r Mark Dineen and Mike Steel from
Plasma Technology receive the High
Volume Manufacturing award at theannual CS Industry Awards.
2: A training session for the Andor Dragonfly
microscopy platform, which resolves many ofthe barriers life science researchers face withconventional confocal microscopy.

Results for NanoTechnology Tools															
20172016		
						
£m£m
GrowthRevenue						

208.6

187.3

Adjusted2 operating profit						25.621.3		

Adjusted2 operating margin					12.3%11.4%		

(Loss)/profit before tax after adjusting items				(17.4)

9.0		

11.4%

Constant
currency
growth1(1.2%)

1. For definition refer to the highlights on page 1.
2. Details of adjusting items can be found in Note 1 to these Financial Statements.

Oxford Instruments plc Report and Financial Statements 201715

Operations Review continued

NanoTechnology Tools continued

In particular, Extreme offered researchers
new capabilities to characterise current andnext generation batteries and semiconductor
structures at the nanoscale. Whilst the metals
markets remained subdued during the year,
we saw increasing interest and positive
developments in the Advanced Materials andBiomedical markets driven by investment
in new manufacturing technologies, suchas additive manufacturing and a continued
investment in biomedical research.
Andor Technology is a global leader in thedesign and manufacture of high performancescientific imaging cameras, spectroscopy
solutions and microscopy systems for researchand industrial markets. During the year,
Andor continued to build sales and service
presence and expand the portfolio of imaging
and microscopy solutions. We significantly
enhanced our offering into combustion andplasma research markets with the launch of
an intensified camera solution with market
leading speed and sensitivity. Several of
our core technologies have been adopted
by quantum imaging researchers who are
studying quantum applications including
quantum communication and quantum
computing. At the core of our microscopy
business strategy was the launch this yearof our Dragonfly confocal microscope
platform and its associated experiment
sequencing software, Fusion. Combined,
these investments have received exceptionalcustomer feedback as they enable 3D imaging
through thicker samples and larger areasat unprecedented resolution and speed.
A solid order book, dedicated sales teamand customer interest support our highexpectations of this segment in the next
financial year and beyond. The year alsodelivered exceptional performance from ourassociated analysis software platform Imaris,

16

where we continue to embrace our customers’
need to manage and process large complex
data sets, often derived from our Dragonfly
systems. Imaris will deliver smooth handlingof extremely large data sets, which are a corerequirement for the growing brain imaging
market sector.
Asylum Research is the technology leader
in atomic force microscopy (“AFM”) for
both materials and bioscience applications.
While Asylum continues to take a leadership
position when it comes to advanced
technology, this was a difficult year for us
and other AFM providers. The market has
been disproportionately impacted by reduced
academic funding levels in the US andEurope and for us this has offset a stronger
performance in Asia. Increased interestin battery energy storage, photovoltaics,
industrial polymers and two dimensional
materials such as graphene contributed
to a stronger second half to the year. Ourelectrochemistry solution, which is basedon our Cypher AFM platform, enables themeasurement and observation in real time ofreactions for critical processes in their normal
environment. This is particularly importantfor battery research where the electrolyte,
temperature and electrical bias all affectperformance and chemical response. Towards
the end of the year we launched our Video
Rate (“VRS”) AFM which is also based on theversatile Cypher platform. It is the first andonly full-featured video-rate atomic force
microscope and sets a new benchmark forspeed, enabling high resolution imaging ofdynamic events at the nanoscale across a
range of applications including biodynamics,
cosmetics, pharmaceuticals, semiconductor
processing and catalysis.

Plasma Technology provides material etchand deposition processes and solutions tosemiconductor research laboratories andadvanced specialised production facilities
that develop devices and materials for novel
applications in nanotechnology. Our focus
on developing advanced process recipes
to complement our etch and deposition
platforms, combined with a focus on
operational effectiveness, has helped delivera significant improvement in the performanceof the business. Our proprietary processes
have helped us to win a number of orders
into specialist production facilities for
power semiconductors and the productionof sensors. Our new hardware platforms
are delivering the anticipated operational
improvements and efficiencies through theirincreasing standardisation and modular
design. We expect to see continuing interest
from nanotechnology research with building
interest in our solutions for atomic-scale
processing of materials for power conversion
and storage. We were pleased to receive the‘High Volume Manufacturing’ award fromthe Compound Semiconductor industry
recognising our development of SiC plasmaetch processes, which are delivered throughour PlasmaPro 100 Polaris system launchedin the previous year.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

We are seeing an increased demand from commercialorganisations seeking to gain competitive advantage
from the exploitation of nanotechnology.
NanoScience designs, manufactures andsupports market-leading products that create
unique environments and measurement
solutions primarily for the physical science andquantum technology research community.
Our portfolio includes ultra-low temperaturecryogenic systems, specialised high field
superconducting magnets and associatedmeasurement solutions which are enabling
the advances in quantum technologies, newmaterials and device development as well as
fundamental research in the physical sciences.
Demand for our specialist magnet systems
remains strong, including installations into
leading institutes across China, Europe andthe US. In addition, increased investment inexisting beamline facilities drove demandfor high value, specialised superconducting
magnet systems. In the year we madesuccessful installations into several leading
facilities including OakRidge National
Laboratory in the US and the Rutherford
Appleton Laboratory in the UK. We havebenefited from the global increase of funding
into quantum‑related technologies, fuelled byquantum computing and quantum sensors inparticular. This has driven increased demandacross our cryogenic and related opticalmeasurement solutions. Our market leading
portfolio of cryogenic and measurement
solutions are well positioned to benefit fromthe forecast increase in quantum funding
initiatives across Europe, the US and China.

The ScientaOmicron joint venture createdthe largest player in the Ultra-High Vacuum
surface science field. While the integration andongoing restructuring continue, the businesshas been impacted by the subdued academic
funding and slower than planned productlaunches. This is being addressed by more
focused investment to address product gaps
and a continued focus on driving operational
efficiencies. The Group has a 47% share in the
joint venture.
A loss before tax of £17.4 million (2016: profitof £9.0 million) for NanoTechnology Tools isafter the impairment of non‑current assets,
amortisation of acquired intangibles and otheradjusting items. Total impairment costs of£31.3 million relate to Asylum (£23.3 million)
and ScientaOmicron (£8.0 million).
Amortisation of acquired intangibles
was £10.6 million. Other adjusting items
comprise £0.8 million of charges relating to
ScientaOmicron and acquisition related costsof £0.3 million.

Oxford Instruments plc Report and Financial Statements 2017

1: A sylum’s Video Rate AFM, which is the firstand only full-featured video rate AFM on
the market.
2: A ndor’s iXon Ultra, one of the solutions weoffer for those working within the quantum
science arena.

17

Operations Review continued

Industrial Products

A lab technician using the latest MQC analyser from ourMagnetic Resonance business for quality assurance analysis

18

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Industrial Products comprises the X-ray Technology,
Magnetic Resonance and Industrial Analysis businesses.

After the previously announced disposalof our Superconducting Wire business,
Industrial Products comprises the X-ray
Technology, Magnetic Resonance andIndustrial Analysis businesses. Since the closeof the year, we have announced the agreed
sale of our Industrial Analysis business to
Hitachi High‑Technologies in line with our
Horizon strategy.
The sector experienced a stable performance
given the continued challenging end
market conditions driven by subdued oil
and commodity prices and reduced steel
production in China. The launch of new
products, combined with improved efficiencies
across this sector, maintained a stableperformance from the Industrial portfolio.
Our X-ray Technology business supplies
X-ray sources to leading OEMs for industry,
research and medical applications including
material composition analysis, real‑time
medical imaging and analysis of multi-layer
printed circuit boards. X-ray Technology madeprogress in the year despite challenging
markets. While growth of traditional
laboratory and ROHS-driven analysis markets
have slowed, the imaging markets andindustrial analysis markets are becoming
an increasingly important part of ourmarket focus.

The consumer electronics, printed circuit board
inspection and oil and gas markets continued
to be subdued. However, there was growth
in medical imaging applications as demand
for mini and micro CT, bone density andbiopsy equipment increased, driven by trends
in reduced footprint, portability and reduced
patient dosage. Battery inspection is anotherincreasing application area and we are further
improving our products to provide enhanced
offerings to this sector. The regulatory
legislations that were expected in China tocontrol metals in food and water have notyet materialised and represent potential
future growth.
Our Magnetic Resonance business uses
fundamental physical processes to provide
essential information about the natureand behaviour of materials and products.
We provide instruments to academic andindustrial researchers that are simple tooperate, providing essential informationthat relates directly to the performance ofour customers’ products. We continue to
see interest in Pulsar, the highest resolution
benchtop NMR spectrometer on the market.
Pulsar is an affordable system that allows
researchers to have their own NMR analyser
in-house rather than having to go to high cost,
low throughput specialist service laboratories.

Industrial Analysis designs and sells a rangeof spectrometers into a broad range ofindustrial markets. Our customers span global
industries from metals, steel foundries andscrap recycling through to automotive, solar,
petrochemicals, cement, recycling, and foodand agriculture. The business reinforced its
market position through a number of key
product launches across our Optical Emission
Spectroscopy and Hand Held Analyser
portfolio. For example, our recently launched
Vulcan handheld laser induced breakdown
spectroscopy analyser, offers portable
analysis at lower cost and without ionisingradiation. Vulcan has had a successful takeup since launch and is targeted at quality
control applications in general manufacturing
as well as metals recycling. In the year we
also added the “Optimum” model to the
FOUNDRY‑MASTER range of compact opticalemission spectrometers, which provides
unparalleled analytical performance for theentry‑level quality assurance, quality control
and metal production applications.
A loss before tax of £2.1 million (2016: lossof £3.1 million) is after the impairment
of non-current assets, amortisation of
acquired intangibles and other adjusting
items. Total impairment costs of £1.1 million
relate to a write-down of superseded
intellectual property within Industrial Analysis.
Amortisation of acquired intangibles was£1.3 million. Other adjusting items comprise£0.2 million of restructuring charges andacquisition related costs of £1.2 million.

Results for Industrial Products															
20172016		
						
£m£m
GrowthRevenue						

56.7

54.0

Adjusted2 operating profit						

1.7

1.1		

Adjusted2 operating margin					3.0%2.0%		

Loss before tax after adjusting items					(2.1)(3.1)		

5.0%Constant
currency
growth1(7.0%)

1. For definition refer to the highlights on page 1.
2. Details of adjusting items can be found in Note 1 to these Financial Statements.

Oxford Instruments plc Report and Financial Statements 201719

Operations Review continued

Service

MRI scanner inside a mobile
imaging unit from our Healthcare business.

20

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

The Service sector comprises the Group’s maintenanceservice contracts, billable repairs and spare part sales
for Oxford Instruments.
The Service sector comprises the Group’s
maintenance service contracts, billable repairs
and spare part sales for Oxford Instruments’
own products; and the service, sale andrental of refurbished third party MRI andCT machines under the OI Healthcare brand.
The improved profit and operational margin
we saw from the servicing of our own
products was unfortunately offset by a poor
performance in our OI Healthcare business.
The OI Healthcare business in the US, which
offers refurbished imaging systems, mobile
imaging solutions and maintenance services,
was impacted by a change in the software
licensing policy on second‑hand systems by
one of the main system manufacturers and by
the high level of activity in the comparative
period. As a result, the number of refurbishedsystems sold in the year and revenue
generated from leasing were significantly
reduced. We are taking the necessary steps
to improve sustainable profitability, including
driving operational efficiencies and improving
management capabilities in specific areasof focus.

A profit before tax of £1.7 million(2016: £14.9 million) is after the impairment
of non-current assets, amortisation of
acquired intangibles and other adjusting
items. Total impairment costs of £11.2 million
relate to OI Healthcare and amortisationof acquired intangibles was £1.9 million.
Other adjusting items comprise £0.4 millionof restructuring charges.

1: A mobile imaging unit leaving our Healthcare
business for installation at a customer site.
2: A look inside a mobile imaging unit.

Results for Service															
20172016		
						
£m£m
GrowthRevenue						

83.2

78.4

Adjusted2 operating profit						15.218.8		

Adjusted2 operating margin					18.3%24.0%		

Profit before tax after adjusting items					

1.714.9		

6.1%

Constant
currency
growth1(7.1%)

1. For definition refer to the highlights on page 1.
2. Details of adjusting items can be found in Note 1 to these Financial Statements.

Oxford Instruments plc Report and Financial Statements 201721

KPIs and Principal Risks
Key performance indicators
The Group uses a range of measures to monitor progress against its strategic plans.
The key performance indicators are presented below:
How we performed %Financial goal

What we measure

Why we measure

2014

2015

2016

2017

To deliver shareholder returns
through profitable, sustainablegrowth with strong cash
conversion and efficient use
of capital

Revenue growth

To drive profitable, sustainablegrowth through theimplementation of our strategy

7.1

7.6

(4.1)

9.0

Adjusted operating profit
and margin1

To consistently maintain underlying
operating margins

14.2

10.9

12.9

12.2

Adjusted earnings per share(“EPS”) growth

To achieve long-term, consistent
growth in EPS

10.8(31.8)

9.7

5.5

Cash flow2

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

43

72

110

86

Return on capital
employed (“ROCE”)3

To deliver ROCE in excess of ourcost of capital

9.5

5.2

8.3

9.6

Strategic priorities

What we measure

Why we measure

2014

2015

2016

2017

Inventing the Future

Proportion of revenue coming from To measure the effectivenessof our R&D programmes
products launched in the previous
three years4

45

45

36

31

Realising the Brand

Net Promoter Score®5

To measure customer feedback

58

52

59

65

Adding Personal Value“Value add” = (adjusted operating
profit + employment costs)/
employment costs

To measure efficiency

1.50

1.34

1.44

1.39

How we performed %1. Calculated as adjusted operating profit divided by revenue.
2. Cash conversion is defined as the ratio of adjusted operating cash generated to adjusted operating profit (see Income Statement). Adjusted operating cash is defined as adjusted EBITDA, lessmovement in working capital, capitalised development expenditure and net capital expenditure on property, plant and equipment.
3. Calculated as adjusted operating profit less amortisation (but before impairment) of intangible assets divided by capital employed. Capital employed is defined as assets (excluding cash, tax andderivative assets) less liabilities (excluding tax, debt, derivative and pension liabilities).
4. To ensure this metric better reflects the performance of those business which invest in R&D, the revenue from the Group’s OI Healthcare division has been excluded from this metric.
Results from previous years have been restated to show this.
5. The Net Promoter Score is a metric which is compiled by asking customers whether they would recommend Oxford Instruments to a friend or colleague. Customers give a score between zeroand ten. Those customers who score nine or ten are promoters, those customers who score seven or eight are neutral and customers who score six or less are detractors. The net promoter
score is the difference between the numbers of promoters and the number of detractors (both expressed as a percentage of the number of replies received). The score can range between-100 (no customers are promoters) and +100 (all customers are promoters). A positive score indicates that the Company has fewer detractors than promoters.

22

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Specific risk 1: Technical risk
Context: The Group provides high technology equipment and systems to its customers.
Risk

Possible impact

Control mechanisms

Mitigation• Failure of the advanced
technologies applied by
the Group to produce
commercial products, capableof being manufactured andsold profitably.

• Lower returns throughloss of market share andreduced profitability.

• “Voice of the Customer”
approach to drive the productdevelopment road map.

• Negative impact on theGroup’s reputation.

• Formal new productdevelopment stage gate
process to manage R&D.

• Understanding customer
needs/expectations andtargeted new productdevelopment programme
to maintain and strengthen
product positioning.

• Product lifecycle management.

• Stage gate process in productdevelopment to challengecommercial business caseand mitigate technical risks.
• Operational practices
around sales-production
matching and inventory
management to mitigate
stock obsolescence risks.

Specific risk 2: Routes to market
Context: In some instances the Group’s products are components of higher‑level systems
sold by OEMs, and thus the Group does not control its route to market.
Risk

Possible impact

Control mechanisms

Mitigation• Backward vertical integration
by OEMs.

• Loss of a key route to market.

• Customer intimacy to matchproduct performance tocustomer needs.

• Product differentiation
to promote advantagesof Oxford Instruments
equipment and solutions.

• New competitors.
• Lower sales and profitability.

• Positioning of Oxford
Instruments brand and• Strategic marketing with OEMs
marketing directly to end users.
to sell performance of the
combined system.
• Broadening the OEM
customer base.
• Direct marketing to end users.

Specific risk 3: Economic environment
Context: Government expenditure may become constrained in key markets.
Risk

Possible impact

Control mechanisms

Mitigation• Reduction in global
research funding.

• Lower sales and profitability.

• Market intimacy
and identification ofalternative markets.

• Market diversification –increasing penetration into
corporate customers notdependent on external funding.

Specific risk 4: Political risk
Context: The Group operates in global markets and can be required to secure export licences from governments.
Risk

Possible impact

Control mechanisms• Geopolitical changes resulting
in sanctions and bar onexports to specific countries
or unfavourable changes
in tariffs/other controls
on exports.

• Lower sales and profitability.

• Contract review and protection • Broad global customer base;against breach in the event that
contractual protection.
export licence is withheld.

Oxford Instruments plc Report and Financial Statements 2017

Mitigation

23

KPIs and Principal Risks continued
Specific risk 5: Brexit related risks
Context: The UK will leave the EU.
Risk

Possible impact

Control mechanisms• Short-term decline in European
research funding.

• Lower sales and profitability.

• Inflationary pressure onpurchases and salaries.

• Increased input costs.

• Market intimacy
and identification ofalternative markets.

• Possible changes to EU
citizens’ right to work in theUK, impacting retention andrecruitment.

• Salary inflation.
• Loss of key skills, and/or
increased recruitment,
and/or salary costs.

Mitigation• Market diversification –increasing penetration into
corporate customers notdependent on external funding• Procurement strategy to reduce• Long‑term pricing agreements
price volatility.
for key suppliers.
• Product pricing strategy.
•
Margin focused sales targets• HR people strategy to facilitate
to mitigate potential increases
recruitment and retention of
in costs.
staff with key skills.
• Renewal of UK work permit
scheme to facilitate employmentof non‑UK/EU nationals.

Specific risk 6: Supply chain risk
Context: The Group operates a strategic make or buy policy and outsources a significant proportionof the costs of production to benefit from economies of scale and natural currency hedges.
Risk

Possible impact

Control mechanisms

Mitigation• Supply chain disruption inparticular for single sourcecomponents leading to
production delays andpotentially lost revenue.

• Disruption to customers.

• Procurement strategy tomanage stock availability.

• Buffer stocks of key
components.

• Lower sales and profitability.

• Where possible, dual source
supply is sought.

• Negative impact on theGroup’s reputation.

Specific risk 7: People
Context: A number of the Group’s employees have business critical skills.
Risk

Possible impact

Control mechanisms

Mitigation• Key employees leave andeffective replacements are
not recruited on a timely basis.

• Lower sales and profitability.

• HR people strategy for
retention and recruitment ofstaff with key skills.

• Succession management plans.
• Technical career paths.
• Renewal of UK work
permit scheme to facilitate
employment of non‑UK/EU
nationals.

Specific risk 8: IT risk
Context: Elements of production, financial and other systems rely on IT availability.
Risk

Possible impact

Control mechanisms

Mitigation• Increasing risk of data
loss/breach throughcyber‑attack, viruses
or malware.

• Loss of business critical data
and/or financial loss.

• IT security policy andassociated standards andprotection systems.

• Ongoing evolution of security
levels in consultation with IT
security partners to ensurechanges are in line withcurrent threats.

• “Zero-day” incidents, where
new viruses or malware canspread before security vendors
can respond represent a
particularly high risk.

24• Internal IT governanceto maintain those
protection systems andour incident response.

• Inter alia, we deliver user
education, improved
configuration, internal
testing and new tools
where appropriate.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Specific risk 9: Operational risk
Context: Business units’ production are typically located at a single site.
Risk

Possible impact

Control mechanisms• Loss of all or part of a major
production facility.

• Delayed shipments leading tolower sales and profitability.

• Business Continuity Plans(“BCPs”) in place.

Mitigation• Principal sites have detailed
BCPs which include plansto restore or relocate• Use of contractual protection to
production in the event
mitigate financial consequencesof a major incident.
of delayed delivery.
• Mechanisms such as clauses
for limitation of liability/liability
caps/exclusion of consequential
losses in sales contracts.

Specific risk 10: Pensions
Context: The Group’s calculated pension deficit is sensitive to changes in the actuarial assumptions.
Risk

Possible impact

Control mechanisms• Movements in the actuarial
assumptions may have anappreciable effect on thereported pension deficit.

• Additional cash required by the • ‘Delivering Shareholder Value’Group to fund the deficit.
- Focus on balanced andattractive global markets.
• Reduction in net assets.

Mitigation• The Group has closed its
defined benefit pension
schemes in the UK and US
to future accrual.

• ‘Liberating Cash’ – Developing
a competitive global supply• The Group has a funding planbase that supports our growth.
in place to reduce the pension
deficit over the short tomedium term.

Specific risk 11: Foreign exchange volatility
Context: The Group’s sterling cost basis is higher than its sterling revenue sources meaningthat a significant proportion of the Group’s profit is made in foreign currencies.
Risk

Possible impact

Control mechanisms

Mitigation• Adverse foreign
currency movements.

• Reduced profitability.

• Natural hedging to offset
foreign currency sales
through procurement inforeign currencies.

• Strategic procurement in
USD, Euros and Yen.

• Hedging programme.

• Short-term exposure tovolatility is managed byhedging programme(forward contracts).

Specific risk 12: Legal/compliance risk
Context: The Group operates in a complex technological environment and competitors
may seek to protect their position through intellectual property rights.
Risk

Possible impact• Infringement of a third party’s
intellectual property.

• Potential loss of future revenue. • Formal ‘Freedom to Operate’• Confirmation of ‘Freedom
assessment
toidentify
potential
to Operate’ during new• Financial compensation.
IP issues during productproduct development stage
development.
gate process.

Oxford Instruments plc Report and Financial Statements 2017

Control mechanisms

Mitigation

25

Viability Statement

Over the past ten years, Oxford Instruments has beensuccessfully driving the adoption of nanotechnology byindustrial and research communities all over the world.
In accordance with provision C.2.2 of the
UK Corporate Governance Code 2014, theDirectors have performed an assessment of
the Group’s viability over a period longer
than the twelve months required for thegoing concern statement. In keeping withthe assessment performed for the first time
last year, the assessment covers a three year
period. The Directors consider that three
years remains an appropriate time frame forassessing the Group’s longer‑term viability,
on the basis that there is a well establishedmedium‑term planning process in place which
is supported by a strategic plan covering
key elements such as product development.
Further, we consider that we have goodvisibility of markets during this period, albeit
there are inherent uncertainties relating to
Brexit which is expected to occur in March
2019. This year’s assessment, therefore, covers
the period from 1 April 2017 to 31 March
2020 (the “Viability Assessment Period”).

26

Key criteria appliedin the assessment
The Directors consider that the Group’s
viability can reasonably be assured if it isable to operate within parameters where net
debt is less than three times EBITDA. In suchcircumstances, the Directors consider that
the Group will continue to operate and meetits liabilities as they fall due. Of particularimportance in the Viability Assessment
Period, the Group’s revolving credit facility
falls due for renewal in February 2020. The
Directors consider that performance within theparameters set out above should enable theGroup to refinance its revolving credit facilities,
if necessary.

Methodology andsensitivities applied
The viability assessment is informed by theprincipal risks and uncertainties which are
faced by the Group and which are disclosed
on pages 23 to 25 of this Annual Report.
The assessment considered the potential
financial impact if the risks identified
were to arise and the measures available
to the Directors to mitigate their impact.
For 2017/18, the sensitivities were applied tothe detailed budget for the year and for thetwo financial years ending 31 March 2019 and
31 March 2020, the reference point was themedium‑term plan (“MTP”).

The most significant risks (in terms of thepotential financial impact in the Viability
Assessment Period) relate to the potential
decline in revenue and potential increases in
input costs which would result in a decrease ingross profit/contribution. Reduced gross profit/
contribution are potential consequences forrisks 1 to 7 as set out in the list of principal
risks and uncertainties. While the impactof the loss of a key customer or market in
an individual business unit might be severeat the business unit level, these risks at aGroup level are mitigated by operating indiverse geographic markets and by not being
overly reliant on a single customer or sourceof funding. Consequently, these risks weremodelled in aggregate, at a Group level,
rather than by applying sensitivities at anindividual business unit level.
The impact of a number of the Group’s
principal risks and uncertainties, should theymaterialise, would likely result in an increase in
the level of non-recurring, overhead costs. Thisis considered to be a potential consequence
for risks 5, 8, 9, 10 and 12 as disclosed.
The potential impact of these risks arising is
considered in aggregate across the whole
Viability Assessment Period by the inclusion ofa net contingency against budgeted overhead
costs of £11.7 million (before tax) in the firstyear of the Viability Assessment Period. For
the purposes of the assessment, the adverse
impact on both cash and EBITDA of this net
contingency is assumed to arise in the firstyear of the Viability Assessment Period.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceIn performing the viability assessment, theDirectors also considered the extent towhich other downside risks were effectively
mitigated in the budget/MTP for the threeyear period. For example, currency exposure(risk 11) in the first year of the viability
assessment is mitigated to a certain extent by
the Group’s hedging programme. Therefore,
the potential impact on earnings of an adverse
exchange rate movement on un-hedged
foreign currency exposure was included
against the budget baseline for the first yearof the Viability Assessment Period. However,the baseline financial forecasts used in the
two years covered by the MTP were based on
foreign exchange rates which are considered
to be prudent compared to current rates.1
On this basis no sensitivity for adverse foreignexchange movements in those years wasconsidered necessary.
Based on the above, the key sensitivities
modelled in the viability assessment relate toa decline in sales revenue and increases tocost of sales which, taken together, would
lead to reduced gross margins/contribution.
Over the Viability Assessment Period as awhole, the impact of the downside risks
modelled resulted in a decrease to thebaseline EBITDA of just over 40%.

OutcomeThe outcome of the assessment, by
quantifying the financial impact of downside
risks, and taking into account mitigating
actions available to reduce the impact of thoserisks on EBITDA and/or net debt, result in theGroup staying within the parameters describedabove (i.e. the ratio of net debt to EBITDA islower than 3:1 in each year of the Viability
Assessment Period).

03: Financial Statements

On the basis of this assessment, which
evaluates the potential impact of both theprincipal risks and uncertainties and themitigating actions that could be taken, theBoard has a reasonable expectation that theGroup will be able to continue in operationand meet its liabilities as they fall due over the
next three years. This is based on the explicit
assumption, set out above, that operating
within such parameters will enable the Groupto obtain external funding, if required, when
the current revolving credit facility falls due forrenewal in February 2020.
This assessment supports not only the viability
statement above, but also the statement on
going concern, set out further below.

Impact of the disposal ofIndustrial Analysis on theviability assessment
The viability assessment performed is basedon the current Group structure (i.e. including
Industrial Analysis) as the disposal is subject
to a number of conditions precedent.
A high‑level assessment of the impact of
the sale of Industrial Analysis shows thatcompletion of the sale would have a positive
impact on the viability assessment. This arises
because the reduction in net debt arising fromthe sale would outweigh the reduction in
future EBITDA and cash flows in the model.

04: Company Information

Going concern statement
The Group’s business activities and factors thatare considered likely to affect its performanceand position in the future are set out in
the Strategic Report on pages 1 to 27.
The Finance Review on pages 28 to 33
discloses information relevant to the Group’s
financial position, its cash flows, borrowing
facilities and liquidity.
The Directors have considered the Group’s
current financial position and future prospects
and, as set out in the viability statement
above, have performed an assessment of
longer‑term viability up to 31 March 2020.
On this basis, the Directors conclude that
there is a reasonable expectation that theGroup will continue in operational existence
for the foreseeable future and that there
are no material uncertainties that may castsignificant doubt over its ability to continue
as a going concern.
As a result, the Directors continue to prepare
the Financial Statements under the going
concern basis.

1. For example, against the pound, the one Euro rate was 1.30 and the USD rate was $1.45.

Oxford Instruments plc Report and Financial Statements 201727

Finance Review

The Group had a stable performance in 2017with total adjusted profit in line with expectations.

Summary• Reported revenue up 9.0%,
down 3.7% at constant currency• Adjusted profit before tax up
7.1%, in line with our expectations• Adjusted operating margin down
70 basis points, reflecting lower
returns in Service and higher
returns in NanoTechnology Tools• Dividend maintained at 13.0p
for the full year

The Group had a stable performance in2017 with total adjusted profit in line withexpectations. Reported revenue grew by 9.0%
to £348.5 million (2016: £319.7 million).
Revenue, excluding currency effects, declined
by 3.7%, with the movement in average
currency exchange rates over the last year
positively impacting reported revenue by£40.6 million. At the end of the year theGroup’s order book for future deliveries stoodat £144.5 million (2016: £132.2 million),
growth of 9.3% on a reported basis and
0.5% at constant currency.
Adjusted operating profit from continuing
operations increased by 3.2% to £42.5 million(2016: £41.2 million). Adjusted operating
profit from continuing operations, excluding
currency effects, declined by 5.8%. Adjusted
operating margin from continuing operations
declined by 70 basis points to 12.2%(2016: 12.9%), with a decline in Service
margin more than offsetting an increasein the NanoTechnology Tools margin.

28

Adjusted profit before tax grew by 7.1% to£36.0 million (2016: £33.6 million). A pre‑tax
adjusted profit of £1.3 million from theSuperconducting Wire business for the sevenmonths of ownership, prior to its sale inNovember 2016, is included in discontinued
operations. For the twelve months to March
2016 the Superconducting Wire businessdelivered an operating profit of £3.4 million.
Including discontinued operations, the Group
achieved reported adjusted profit before tax of£37.1 million (2016: £37.0 million).
Following a decline this year in financial
performance from our US Healthcare andAsylum businesses, we have concluded thatour projections of future cash flows do notsupport the level of goodwill and intangibles
held on the balance sheet. We have also madea small impairment of acquired intellectual
property in Industrial Products and written
down inefficient capitalised development
costs on the Group’s new ERP system.
Consequently, goodwill and intangibles to thevalue of £37.8 million have been impaired.

In addition, we have written down the
carrying value of our investment in the
ScientaOmicron joint venture by £8.0 million.
The combined impairment of £45.8 million in
non-current assets is a non-cash adjustment.
Non-recurring items and acquisition related
costs were £3.1 million and the movementin the mark-to-market valuation of currency
hedges for future years gave rise to a gain of£1.2 million.
Adjusted profit before tax fromcontinuing operations of £36.0 million(2016: £33.6 million) represents a margin of
10.3% (2016: 10.5%). After the impairmentof goodwill and intangible assets and otheradjusting items, the Group recorded a loss
before tax of £25.5 million from continuing
operations (2016: profit of £9.7 million).

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

Revenue

03: Financial Statements

Gross profit

04: Company Information

Operating profit£348.5m £181.7m £42.5m
Continuing adjusted basic earnings
per share grew by 5.5% to 47.8 pence(2016: 45.3 pence). Continuing earnings
per share were a loss of 44.0 pence(2016: profit of 12.2 pence).

operating profit. Net debt decreased from
£128.2 million to £109.3 million, representing
a net debt to EBITDA ratio (for banking
covenant purposes) of 2.1 times, comfortably
within our banking covenant of 3.0 times.

Operating cash flow (as defined in the cash
flow section on page 32) decreased by 14.4%
to £39.7 million, primarily due to a planned
reduction in payables compared to theprevious year end. Adjusted operating cash
(defined as adjusted EBITDA, less movement
in working capital, capitalised development
expenditure and capital expenditure)
represents 86.1% (2016: 110.4%) of adjusted

During the year the Group disposed of its
Superconducting Wire business and this has
been treated as a discontinued operationin the Financial Statements. Accordingly,
the numbers detailed in the Finance Review
exclude the results of Superconducting Wirein both the current and prior periods.

Adjusted operating profit is stated before
impairment and amortisation of goodwill
and acquired intangibles, non-recurring
items and acquisition-related costs, andthe mark‑to‑market valuation of unexpired
currency hedges, as set out in Note 1 to the
Financial Statements.

Income Statement
The Group’s Income Statement is summarised below.
																					

Year ended
31 March 2017£mYear ended
31 March 2016£m

ChangeRevenue							

348.5

319.7

+9.0%
+16.8%

Adjusted gross profit							

181.7

155.5

Administrative expenses							(139.2)(114.3)Adjusted operating profit							

42.5

41.2

Net finance costs							

(6.5)

(7.6)

Adjusted profit before tax							

36.0

33.6

Amortisation of acquired intangibles						(13.8)(16.7)

Impairment of goodwill and intangibles						(37.8)—

Impairment of investment of associate						

(8.0)

—

Non-recurring items and acquisition-related costs					

(3.1)

(4.5)

Mark-to-market of currency hedges						

1.2

(2.7)

(Loss)/profit before tax							(25.5)

9.7

Tax from continuing operations						

0.4

(2.7)

(Loss)/profit for the period from continuing operations					(25.1)

7.0

Adjusted effective tax rate1							

24.1%

22.9%

Continuing adjusted earnings per share – basic					

47.8p

45.3p

Earnings per share – basic							(44.0)p

12.2p

Continuing adjusted earnings per share – diluted					

47.7p

45.2p

Earnings per share – diluted						(44.0)p

12.3p

Dividend per share						

13.0p

13.0p

+3.2%
+7.1%

+5.5%

+5.5%

1. The adjusted effective tax rate is calculated excluding impairment of non-current assets, amortisation on acquired intangibles, non-recurring items and acquisition related costs and themark-to-market of financial derivatives.

Oxford Instruments plc Report and Financial Statements 201729

Finance Review continued

The Group had a stable performance in 2017with total adjusted profit in line with expectations.

Revenue

Operating profit

Reported revenue of £348.5 million(2016: £319.7 million) increased by
9.0%. NanoTechnology Tools grew by
11.4%, Industrial Products by 5.0%
and Service, 6.1%.

Adjusted operating profit increased by
3.2% to £42.5 million (2016: £41.2 million),
representing an adjusted operating profit
margin of 12.2%, a decrease of 70 basis
points against last year. The NanoTechnology
Tools margin rose by 90 basis points to
12.3% (2016: 11.4%) and the Industrial
Products margin rose by 100 basis points to
3.0% (2016: 2.0%). Lower US Healthcare
revenue, due to a large fall in equipment
sales, led to a fall in Service margin to 18.3%(2016: 24.0%). Adjusted operating profit
includes realised losses on the maturityof currency hedges resulting from thedevaluation of Sterling against the US Dollar,
Euro and Japanese Yen since the inception of
the hedges.

The depreciation of Sterling against the US
Dollar, Euro and Japanese Yen has increased
reported revenue by £40.6 million. Revenue
growth, excluding currency effects, showed adecline of 3.7%, with NanoTechnology Tools
falling by 1.2%, Industrial Products by 7.0%
and Service by 7.1%.
At constant currency, revenue grew by
7.2% in Asia, with strong growth in China.
Revenue in Europe, North America and Restof World declined by 5.9%, 12.0% and28.2% respectively.
The transfer of our Omicron business intoa joint venture, ScientaOmicron, led to a
reduction in revenue of £2.0 million comparedto the comparative period as under equity
accounting we no longer consolidate the joint
venture’s revenue.

Gross profit
Adjusted gross profit grew by 16.8% to£181.7 million (2016: £155.5 million),
representing an adjusted gross profit marginof 52.1%, an increase of 350 basis points overlast year.

30

Our share of the ScientaOmicron joint venture
showed an adjusted loss of £0.8 million in
the period, an improvement of £1.0 million
against the comparative period (which
includes ten months when the joint venture
was in operation and two months when
Omicron was a fully owned subsidiary of theGroup) but below the financial performanceenvisaged in the investment case. Our shareof the ScientaOmicron joint venture
loss was £1.4 million after our share of
restructuring costs.
Currency effects (including the impactof transactional currency hedging) haveincreased reported adjusted operating profit
by £3.7 million when compared to blended
hedged exchange rates for the comparative
period, blended hedged exchange rates for
the US Dollar, Euro and Japanese Yen against
Sterling are all at stronger rates than last year.

At constant currency the adjusted operating
profit margin was 12.6%, a decline of
30 basis points.
Operating profit was a loss of £20.0 million(2016: profit of £20.8 million), reflecting
an impairment of non-current assets of£45.8 million, amortisation of acquired
intangibles of £13.8 million and non-financial
net adjusting costs of £2.9 million.

Adjusting items
Amortisation of acquired intangibles of£13.8 million relates to intangible assets
identified on acquisitions, being the valueof technology, customer relationships
and brands.
During the year the financial performance of
our Healthcare business in the US deteriorated
with business operating profit fallingsignificantly from last year’s level. Performancehas been impacted by a lower level of sales ofrefurbished imaging systems compared to theprevious year, which we expect to continue.
This has been driven by both a particularlyhigh level of activity in the prior year but alsoa change in software licensing policy by one of
the large original equipment manufacturers.
We have revised our financial projections forthe business, consistent with a new strategy
and the actions and time required to improve
profitability and operational efficiency.
We concluded that goodwill and acquired
intangible assets of £11.2 million could nolonger be supported by projected cash flows,
resulting in an impairment of the same.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceDuring the year the financial performance of
our Asylum business deteriorated with thebusiness performing below our expectations.
Performance has been impacted by aslowdown in academic funding in US andEuropean markets, resulting in a contractionin the overall scanning probe microscopy
market, compounded by delays in new
product launches. We have revised ourfinancial projections for the business in lightof the trading environment, and planned
launch dates of new products. We concluded
that goodwill of £22.6 million (of which£10.9 million was apportioned goodwill fromthe Andor acquisition) could no longer be
supported by projected cash flows, resulting
in an impairment of the same.
Within our Industrial Analysis division we have
impaired acquired intellectual property valuedat £1.1 million that has been superseded by
new product development. The write‑downof intangible assets also incorporates a£2.2 million charge for inefficient capitalised
costs against the Group’s new ERP system anda charge of £0.7 million for the impairment of
capitalised development costs in Asylum that
had been made at the half year.
An impairment charge of £8.0 million
relating to our investment in ScientaOmicron
is a consequence of the 2016 financial
performance and lower projected cash
flows. This has resulted in a reassessmentof the joint venture’s expected futurebusiness performance and the actions andtime required to improve profitability andoperational efficiency.
Other net non-recurring costs and acquisition
related items during the period were
£3.1 million. These comprise £1.5 million
of professional fees relating to the sale ofSuperconducting Wire and the impending
sale of Industrial Analysis and £1.6 millionof restructuring and charges relating to the
ScientaOmicron venture.
The Group uses derivative products tohedge its exposure to fluctuations in foreignexchange rates. It is Group policy to have inplace at the beginning of the financial year
hedging instruments to cover 75% of its
forecast transactional exposure for that year.
The Group has decided that the additionalcosts of meeting the extensive documentation
requirements of IAS 39 to apply hedge
accounting to these foreign exchange
hedges cannot be justified. Accordingly, theGroup does not use hedge accounting forthese derivatives.

03: Financial Statements

Net movements on marking‑to‑market
derivatives in respect of the next financial
year are disclosed in the Income Statement asfinancial expenditure and excluded from ourcalculation of adjusted profit before tax.
The mark‑to‑market gain in respect ofderivative financial instruments was£1.2 million (2016: £2.7 million loss).
This reflects a reduction in the fair value
liability on currency derivatives that are
hedging future transactional currency
exposures for the Group compared to theprevious year end. The un-crystallised balance
sheet liability is attributable to a fall in thevalue of Sterling at the balance sheet dateagainst the US Dollar, Euro and Japanese Yen,
against a blended rate achieved on hedges inplace for the 2017/18 financial year.

Net finance costs
The Group’s adjusted net finance costs
fell by £1.1 million to £6.5 million(2016: £7.6 million) with finance charges
falling by £0.3 million to £5.6 million, pension
financing charges falling by £0.6 million
to £1.1 million and financial income rising
to £0.2 million.
Total net finance charges were £5.5 million
reflecting the unwind of discount in respect ofcontingent consideration and mark‑to‑market
movements in respect of derivative
financial instruments.

Profit before tax
Continuing adjusted profit before tax
increased by 7.1% to £36.0 million(2016: £33.6 million). The continuing adjusted
profit before tax margin decreased by 20 basis
points to 10.3% (2016: 10.5%).
A loss before tax of £25.5 million(2016: profit of £9.7 million) is after the
impairment of goodwill and acquired
intangibles and other adjusting items.

Tax
The adjusted tax charge of £8.7 million(2016: £7.7 million) represents an effective tax
rate of 24.1% (2016: 22.9%). The increaseis primarily due to a reduction in deferred tax
assets (excluding deferred tax on adjusted
items) recognised in the US and an increasein specific tax provisions.

04: Company Information

Earnings per share
Continuing adjusted basic earnings per shareand adjusted diluted earnings per share,
before adjusting items, both increased
by 5.5% to 47.8 pence and 47.7 pence
respectively. Continuing basic and diluted
earnings per share both decreased to a lossof 44.0 pence.
Undiluted weighted average shares havestayed flat at 57.1 million.

Foreign exchange
The Group faces transactional andtranslational currency exposure, most notably
against the US Dollar, Euro and Japanese
Yen. For the full year, approximately 12%of Group revenue was denominated in
Sterling, 54% in US Dollars, 19% in Euros,
10% in Japanese Yen and 5% in othercurrencies. Translational exposures arise on the
consolidation of overseas company results into
Sterling. Transactional exposures arise where
the currency of sale or purchase transactions
differs from the functional currency in which
each company prepares its local accounts.
The Group maintains a hedging programme
against its net transactional exposure using
internal projections of expected currency
trading transactions expected to arise overa period extending from 12 to 24 months.
As at 31 March 2017 the Group had currency
hedges in place extending up to twelve
months forward.

Dividend
The Group’s policy is to increase the dividend
each year in line with the increase inunderlying earnings. However, taking into
account the impact on the Group of businessdisposals, currency effects and our progressive
strengthening of the balance sheet, the Board
has proposed to hold the dividend at lastyear’s level. This results in a final dividend of
9.3 pence, bringing the total dividend forthe year to 13.0 pence. The final dividend
will be paid, subject to Shareholder approval,
on 19 October 2017 to Shareholders on theregister as at 22 September 2017.

The statutory effective tax rate is 1.5%,
lower than would be expected due to some
impairment charges not deductible fortax purposes.

Oxford Instruments plc Report and Financial Statements 201731

Finance Review continued
Cash flow
The Group cash flow is summarised below. Adjusted operating cash flow excludes rental assets held for resale and profits or losses on disposal of
fixed assets, both of which are included within expenditure on tangible and intangible fixed assets.
																								Year ended
31 March 2017£mYear ended
31 March 2016£m

Adjusted operating profit							

42.5

41.2

Depreciation and amortisation							

10.5

9.4

Adjusted EBITDA								

53.0

50.6

Working capital movement								

(4.4)

8.4

Non-recurring items and acquisition related costs						

(3.3)

(6.5)

Pension scheme payments above charge to operating profit					

(6.9)

(6.7)

Equity settled share schemes							

0.5

0.4

Share of loss of associate								

0.8

0.2

Adjusted operating cash flow							

39.7

46.4

Interest								

(5.0)

(5.6)

Tax								

(2.1)

(3.5)

Capitalised development expenditure							

(7.9)

(8.2)

Expenditure on tangible and intangible assets						

(4.1)

(5.3)

Acquisition of subsidiaries, net of cash acquired						(9.8)(27.1)

Proceeds from sale of subsidiary undertaking						

12.2

0.6

Increase in long-term receivables							

—

(3.0)

Dividends paid								

(7.4)

(7.6)

Decrease/(increase) in borrowings							(12.8)

4.6

Net increase/(decrease) in cash and cash equivalents from continuing operations 				

2.8

(8.7)

Note: Adjusted EBITDA is earnings before interest, tax, depreciation, intangible amortisation, mark-to-market of financial derivatives and other non-cash adjusting items.

Adjusted operating cash flow
Adjusted operating cash flow in the year
decreased by 14.4% to £39.7 million(2016: £46.4 million). Adjusted operating cash
(defined as adjusted EBITDA, less movement
in working capital, capitalised development
expenditure and capital expenditure)
represents 86.1% (2016: 110.4%) of adjusted
operating profit due to an outflow of working
capital over the period.

The working capital outflow of £4.4 million
reflects an increase in inventories of£1.5 million, a decrease in receivables of£0.6 million and a decrease in payablesof £3.5 million. The increase in inventories
primarily reflects a build up of refurbishedimaging system inventory prior to sale orrental. We have experienced a planned
reduction in payables as we move to asmoother phasing of payments comparedto the previous year end.

Interest
Net interest paid was £5.0 million(2016: £5.6 million). The difference from lastyear is primarily due to lower financing costs
arising from a lower level of average net debt
compared to the comparative period.

Tax
Tax paid was £2.1 million (2016: £3.5 million),
the reduction reflecting utilisation of brought
forward tax losses in Germany and the UK.
Losses in Germany arose from the Omicron
business while losses in the UK related torestructuring costs and the roll‑forward of
R&D credits.

Investment in research and development (“R&D”)
Total cash spend on R&D in the year was £30.3 million, equivalent to 8.7% of sales, (2016: £28.3 million, 8.9% of sales).
A reconciliation between the amounts charged to the Income Statement and the cash spent is given below:																								Year ended
31 March 2017£mYear ended
31 March 2016£m

R&D expense charged to the Income Statement						

27.8

23.6

Depreciation of R&D related fixed assets							

(0.1)

(0.8)

Amounts capitalised as fixed assets							

0.2

1.2

Amortisation and impairment of R&D costs capitalised as intangibles					

(5.5)

(3.9)

Amounts capitalised as intangible assets							

7.9

8.2

Total cash spent on R&D during the year

30.3

28.3

32

					

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Acquisitions and disposals
In the first half of the year acquisition payments comprised US$ 10.1 million (£6.5 million) for the final deferred consideration on Medical Imaging
Resources, Inc (“MIR”) and £0.3 million attributable to the purchase of Asylum Research Corporation (“Asylum”). In the second half of the year
£3.0 million was paid for deferred consideration on an inherited Andor earn-out.
The Superconducting Wire business was sold on 17 November 2016 for US$17.5 million (£14.2 million). Cash proceeds of £12.2 million reflect
deferred consideration and cash transferred on disposal.

Net debt and funding
Net debt
Net debt decreased in the period from £128.2 million to £109.3 million. Operating cash flow was £39.7 million. Expenditure of £9.8 million
relates to deferred consideration payable for MIR, Asylum and financial commitments made by Andor prior to acquisition. Disposal proceeds of£12.2 million relate to the sale of Superconducting Wire. The Group invested in tangible and intangible assets of £4.1 million and capitalised
development costs of £7.9 million.
Movement in net debt									

£mNet debt as at 31 March 2016								128.2Operating cash flow									(39.7)

Interest									

5.0Tax									

2.1Capital expenditure on tangible and intangible assets							

4.1Capitalised development expenditure								

7.9Acquisitions, net of cash acquired and loan to associate							

9.8Proceeds from sale of subsidiary undertaking							(12.2)

Dividends paid									

7.4Other items									(3.3)

Net debt as at 31 March 2017								109.3Funding
The Group has in place an unsecured
multi‑currency revolving facility agreement
which is committed until February 2020.
The facility has been entered into witha group of three banks and comprises a
Sterling denominated multi‑currency facilityof £100 million and a US Dollar denominatedmulti‑currency facility of $37.0 million.
The Group has also issued a bilateral
private placement note of £44.5 million,
which matures in 2021 and a £25.0 million
amortising fixed rate loan from the European
Investment Bank that matures in 2020. In
addition, the Group has uncommitted facilitiesof £20.0 million.
Debt covenants are net debt to EBITDA lessthan 3.0 times and EBITDA to interest greaterthan 4.0 times. As at 31 March 2017 net
debt to EBITDA was at 2.1 times and EBITDA
to interest was 9.5 times, both comfortably
within our banking covenants.

Pensions
The Group has defined benefit pension
schemes in the UK and USA. Both have beenclosed to new entrants since 2001 and closed
to future accrual from July 2010.
At 31 March 2017, the net liability arisingfrom our defined benefit scheme obligations
was £25.1 million (2016: £35.0 million), a fallof £9.9 million.

The reduction in the deficit was due to afall in the discount rate which was offset
by a reduction in inflation and mortality
projections rates combined with deficit
recovery contributions. Total scheme assets
at 31 March 2017 were £287.9 million(2016: £239.5 million) while liabilities were£313.0 million (2016: £274.5 million).
The annual deficit recovery payment to the
UK scheme was £6.9 million for the financial
year, payable through to and including 2021.
For the years up to and including 2018, thepayment will rise by the higher of inflation andgrowth in dividend per share; thereafter, thepayment will increase in line with inflation.

Going concern
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position,
are set out in the Performance, Strategy andOperations sections. The financial position of
the Group, its cash flows, liquidity position
and borrowing facilities are described in the
Finance Review.
The diverse nature of the Group, combinedwith its financial strength, provides a solid
foundation for a sustainable business.
The Directors have reviewed the Group’s
forecasts and flexed them to incorporate anumber of potential scenarios relating tochanges in trading performance.

Oxford Instruments plc Report and Financial Statements 2017

The Directors believe that the Group will
be able to operate within its existing debt
facilities. This review also considered hedging
arrangements in place. The Directors believethat the Group is well placed to manage its
business risks successfully.
The Financial Statements have been preparedon a going concern basis, based on the
Directors’ opinion, after making reasonableenquires, that the Group has adequate
resources to continue in operational existence
for the foreseeable future.

Forward-looking statements
This document contains certain
forward‑looking statements. The
forward‑looking statements reflect theknowledge and information available to theCompany during the preparation and up to
the publication of this document. By theirvery nature, these statements depend uponcircumstances and relate to events that may
occur in the future thereby involving a degreeof uncertainty. Therefore, nothing in thisdocument should be construed as a profit
forecast by the Company.

Gavin Hill
Group Finance Director
13 June 201733

Corporate Responsibility

Corporate responsibility is integral
to our ongoing business success.
Our values:

Inclusive:

Trusted:Innovative and progressive:

Wholehearted:

We listen and engage
with customers, colleagues,
Shareholders and partners
for mutual success

We build long‑term
relationships basedon integrity, trust
and respect

We bring skill, experienceand openness to new ideas
to address the needs ofthe 21st Century

We approach what we
do with passion, withcare and with pace

34

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Corporate responsibility enables us to adapt to the changing landscapes we operate within and toengage with local communities whilst being mindful of the needs of our customers, employees andinvestors. By supporting these needs and being aware of our environmental impact we are able toensure that we continue to operate in a socially responsible manner.

The key areas in which we
focus our efforts are:• brand and employee engagement;• diversity and inclusion;• health and safety andenvironmental monitoring; and• business ethics, including humanrights and business malpractice.

Oxford Instruments is committed to
the following guiding principles ofcorporate responsibility:• establishing and maintaining
long‑term, effective stakeholder
relationships;• offering our people an excellent
employment experience;• strengthening our business throughdiversity and inclusion; and• operating in an ethical,
sustainable and environmentally
responsible manner.

Our stakeholders
Investors
We continue to ensure our investors receive
regular and transparent communications
from Oxford Instruments. In their first year,
the Chief Executive and the Group FinanceDirector have met a number of investors andanalysts. In November we hosted over 30 fundmanagers at our Tubney Woods site, providingthem with an overview of the Group and anumber of demonstrations from our Industrial
Analysis and NanoScience businesses. We also
held a site visit for Aviva at our High Wycombesite earlier this year.
We continue to make a recording of ourresults presentations available on our
website. This year we added the ability
to watch our results presentation live
via a webcast. This allowed our analysts,
investors and employees even greater easeof access to this presentation. The investor
pages on the Oxford Instruments website
continue to provide links to investor-relatedmaterials and to our businesses.
www.oxford-instruments.com/investors

An Asylum training session on nanomechanical measurements, which was held at the Massachusetts Institute of Technology.

Oxford Instruments plc Report and Financial Statements 201735

Corporate Responsibility continued

We are focused on building our communication approaches
to ensure that all employees across the Group understandour strategy and how the business is performing.
Customers

Employees

Developing capability

We have a wide and diverse range ofcustomers across many different industries.
It is important that we continue to delivercustomer satisfaction and to keep on top of
this we measure our net promoter score tosee how our customers feel we are doing.
The net promoter system asked our customers
whether they would recommend Oxford
Instruments plc to others. This year we havereceived our highest score for several years.

At Oxford Instruments, our employees arefundamental to our business success. We
continually invest in our people, developing
the capabilities that we will need to succeed
over the longer term. We are committed tobeing the Company where the best in our
sector want to work. We strive to offer theopportunities that will attract, motivate andretain talented employees, enabling them togive their best.

To ensure we can deliver our long‑term
growth plans, each business has undertaken
a capability review. This has allowed them todevelop a strategically aligned capability plan,
which will ensure that we have the resources
required to grow the businesses over the
longer term.

We continue to build on this in our new
Horizon strategy by ensuring that ourcustomers are the central focus of all we do.
By developing a better understanding of ourcustomers’ needs, and, by building deeper
relationships, gaining insights into their
behaviours, we will be able to anticipate thenext set of challenges they may face. This
will allow us to create the solutions that ourcustomers will need in the future.

Our people vision is to be proud to berecognised as the leaders in what we do andfor the difference we make in the world.
Our aim is to retain, attract and enable thebest people to perform, creating an inclusive
environment and culture, where difference isvalued and people are recognised for what
they deliver and bring to the team.

We look to build on our wide range ofcommunication channels, taking advantageof the increasing popularity of social media,
to build two-way communications. ThroughHorizon, we will offer more personalised
and relevant messaging for our customers
to ensure they are kept aware of all we offerthat is relevant to them.

To improve the quality, speed and predictabilityof our people-related decisions, we areinvesting in a leading cloud-based Human
Resources Information System. This will
provide significant advantages in terms of how
we operate across the business and provide
an opportunity to standardise, simplify andautomate many of our key people-related
processes. The system will provide managers
with key metrics and employees will be able
to carry out personal transactions, which will
deliver efficiencies across the business.

Management Development Programme (“MDP”)
Since June 2014, nine new MDP cohorts have run, including one in Japan.
16% of participants have been promoted after completing the programme.

A key element of developing capability is
our ability to identify key talent. To support
this, our talent management activities are
moving into a new phase. We are focusing on
ensuring that those within our Group that are
ready to take on a more complex or higher
level role have the opportunities and support
to reach their potential. We also continue
to make strides in relation to strengthening
our succession planning through identifying
credible successors for each of our key
leadership and technical expert positions.
Our Talent Framework outlines the behaviours
and skills that employees should have tobe successful at Oxford Instruments. We
use this insight to develop our Oxford
Instruments Academy portfolio to offer a
range of relevant training courses, providing
our employees with programmes that canhelp build their capability and careers.
Our flagship Management Development
Programme (“MDP”) covers many of the skills
needed to be a successful manager in Oxford
Instruments. We see the positive impact that
the MDP has on our employees, with 99% ofparticipants recommending it to a colleague
and 97% reporting a positive impact on
their performance.

Highest qualification data

PhD

10.0%

Masters

15.5%

DegreeDiploma

34.0%
11.8%

Vocational
School

36

18.7%
10.0%

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceTo further support our technologists andengineers to deliver innovative products andsolutions that continually meet and exceed ourcustomers’ expectations, we have introduceda Technical Development Programme.
This programme integrates with our technicalcareer ladder, offering technical employees
a clear career path within Oxford Instruments,
without the need to take on people
management roles. This enables us to attract
and retain the best engineers and scientists.
We offer Industrial Post Doctoral placements
to high‑calibre researchers providing them theopportunity to experience a role in industry.
In many cases these individuals have decided
to join us on a permanent basis, helping toensure that our technical skill base remains
at the cutting edge.
Our Early Career Programme continues
to introduce high potential candidates tothe business. We have adjusted the hiring
cycle to better align with the academic
cycle to support our aim of attracting thebest candidates.

Diversity and inclusion
Our objective is to ensure that we have a highcapability, diverse workforce that enables us tobetter understand our customers and markets;with a broad range of perspectives andexperiences that maximise our capability toinnovate, make the right decisions and exceed
our customers’ expectations. In order to retain,
attract and enable the best people to perform,
we need to create an inclusive environmentand culture, where difference is valued andpeople are recognised for what they bring to
the team and what they deliver.

03: Financial Statements

To support this, we are enhancing our focus
on the social environment and culture that
we create globally. Selection, promotion andsuccession planning processes ensure that we
recruit, train and promote the best candidates
based on suitability for the role. Our managers
receive unconscious bias training through our
MDP. In addition we have enhanced our leaveand flexible working schemes to attract andretain a diverse workforce.

04: Company Information

Communication
We are focused on building our communication
approaches to ensure that all employees
across the Group understand our strategy andhow the business is performing. We makeextensive use of the intranet and recordingsof key presentations which are made available
across the Company.

We continue to work towards an environment
where the gender balance of our managers
also reflects the Company’s genderbalance globally.

Many of our businesses hold “Espresso”
meetings, short informal presentations overcoffee or lunch, where topics of interest canbe discussed. Examples of these presentations
include a focus on new products andunderstanding our strategy.

Reward and recognition

Suppliers and partners

This year we have aligned our reward schemeswith our Horizon strategy to provide clarityand focus on performance expectations.
We have streamlined and simplified our coreannual performance bonus schemes andlaunched a new Growth Incentive Plan sothat all employees can take part in a schemethat rewards performance against targets andgoals within their business.
We continue to look at ways to enhance thebenefits we offer our employees. We provide
our Extra intranet site to offer benefits suchas discounts on local activities, merchandise,insurance, dental cover, a key focus being our
employee wellbeing. We provide Employee
Assistance Programmes, which provides ahost of counselling, coaching and digital
resources. Communication of the benefit
programmes is also a key focus and includes
total reward statements, benefit road shows
and interactive sessions.

The Group recognises that relationships
built on trust and respect with our business
partners establish mutually beneficial relations.
This includes our suppliers, banks andcollaborative associates. We have now started
the initial roll out of our new ERP system,
which will offer a more efficient means tomanage our supplier relationships, including
how we purchase materials and serve ourcustomers.
We perform regular inspections and audits andstrategic reviews are in place for key suppliers.
In accordance with ISO 9001 and ISO 14001,
only quality approved organisations areused. There is a Group supplier management
process in place that promotes a common
supply chain strategy split by commodity,
driving the business towards fewer, high level,
quality suppliers.

Gender diversity
Oxford Instruments globally

78%

22%

Board

83%

17%

Management Board

75%

25%

Managers

80%

20%

Employees

78%

22%

Oxford Instruments plc Report and Financial Statements 201737

Corporate Responsibility continued

Many of our businesses continue to work with local schools
and colleges to help introduce science and engineering to a
new audience.

NanoAnalysis staff enjoy a barbecue lunch at work. Andor Technology staff hold a coffee morning to raise funds for Hospice.

Local communities
We want to help make our local communities
better places to work and live in. We recognise
the impact we have socially and economicallyand aim to support those around us in a
number of ways. We encourage our sites tosupport their communities through charity andcommunity activities. This year we have raised
money for a range of charities and staff haveengaged in a range of fundraising activities,
including football matches between sites,
bake-offs and quiz nights.
It is also vitally important to us that we playa role in encouraging the next generationof scientists and engineers. Many of ourbusinesses continue to work with local
schools and colleges to help introduce
science and engineering to a new audience.
We offer work experience to school leaversinterested in careers in a Company like
Oxford Instruments and continue to offer
both summer and gap‑year placements
to promising University students.

38

We also work with several Universities in
the UK, USA, Asia and Europe, sponsoring
technology prizes and getting involved in
career events to open up the opportunities
available in a technology Company for Scienceand Engineering graduates and postgraduates.

EthicsWe have a Code of Business Conduct
and Ethics that supports our commitment
to operate appropriately and ethically.
All employees are made aware of this Codeand have full access to it. We endeavour tobuild a culture of trust and inclusiveness, andexpect any person or company who represents
us or provides services for us, to act in a
way that is consistent with our Code and its
principles. We perform regular due diligenceon our agents, distributors and suppliers tominimise the risk of any unethical behaviour.
Suppliers are required to prove they do not
employ workers under the age of 15 or, in
those countries subject to the developing
country exception of the ILO Convention 138,
employ no children under the age of 14.

We take a risk‑based approach to define
our anti-bribery and corruption policies andprocedures. All employees are required tocomplete our anti-bribery and corruption
training, with additional refresher training at
appropriate intervals. We do not tolerate any
form of bribery, corruption or fraud.
The Board regularly reviews and updates
the range of policies in place to support
our Code of Conduct. Clear guidelines exist
regarding the reporting and managementof any perceived risk and all employees are
made aware of and regularly reminded about
Safecall, a fully independent, confidential
service, where they can report any
wrongdoing in the business.
Oxford Instruments does not makepolitical donations.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

We are a Company united by strong standards and values;
our employees have the right to expect that their basic
human rights and dignity are respected.
Human rights
We continue to review our policies andsystems supporting human rights. Our policy
is guided by the United Nations Guiding
Principles on Business and Human Rights.
Our Human Rights Policy states our intent to
be inclusive, supportive and safe, covering
matters including forced labour, child labour,
discrimination and the right to form or join a
trade union and to bargain collectively.
We expect every employee to adhere to thespirit of our policy and it is fully supported
by our Board. All members of the Group’s
Executive Committee take responsibility forensuring its implementation within their partof the Group. We also extend our expectations
on human rights to those we work with; ourpartners, contractors and suppliers.

Global accident figures
remain at a low level
The total number of accidents recorded
worldwide during 2016/17 showed asignificant fall to 57 compared with 74 in
the previous year. The substantial reductionin accidents over the previous five years has
been broadly maintained. This demonstrates
our commitment to the Health and Safetyof our staff, which we take very seriously
and work hard together as a team to effectimprovements. Our sites are operating in as
safe a manner as possible with the majorityof accidents recorded being very minor cuts
and bruises.
The number of accidents per employee
dropped to 0.030 in 2016/17 from
0.037 in 2015/16.

We are committed to preventing acts ofmodern slavery and human trafficking fromoccurring within our business and supply
chain and put in place effective systems andcontrols in order to do so. We have reviewed,
and improved, our supplier due diligence andaudit procedures. We have a zero-tolerance
approach to all forms of modern slavery,
including servitude, forced, bonded andcompulsory labour and human trafficking
and we expect our suppliers to adopt thesame approach.

Health and safety
The number of accidents has reduced by
23% compared to the previous year.

Director, who is assisted by Dave Wales,
the Group Health, Safety and Environment
Manager. Each Group site has a nominatedHealth, Safety and Environment manager or
representative responsible for ensuring that
day‑to‑day activities are carried out safely.
All of our large sites are audited annually by
the Group Health, Safety and Environment
auditing team, comprising auditors from ourfour UK businesses.
Three of our largest sites are certified to
ISO 14001, ISO 9001 and OHSAS 18001
management system standards. These sites
are subjected to twice-yearly external auditingfrom their nominated certification body.

Health and Safety within Oxford Instruments
is managed at the Executive level by Charles
Holroyd, Group Business Development

Globally, three reportable accidents occurred
during the year, an increase from two in
the previous year. For reporting purposes,
global reportable accidents were normalisedusing the UK definition of over seven days’
absence from work.

2016/1757

2015/1674

2014/1571

2013/142012/13
2011/12

Oxford Instruments plc Report and Financial Statements 2017

We continue to focus on making our sites
safer places to work. The six year picturein the graph below shows a continuing
positive trend.

109
162
217

39

Corporate Responsibility continued

In accordance with our Energy and Environmental Policies
the Group is committed to improving our energy efficiency.

Sustainability – protecting
the environment
Energy has been used more efficiently leading
to a 17.7% reduction in the global carbon
footprint from 11,666 tCO2e to 9,604 tCO2e.
Our overall environmental priority is for ouroperations around the World to minimise
their environmental footprint. Each businesshas an Energy Champion at a local level who
is responsible for monitoring energy use,
waste streams, recycling and emissions toair, water and land. They also continuously
look for innovative ways to reduce energy
consumption.
We monitor our global energy use. During
the 2016 calendar year, we saw a significant
reduction in the Group Carbon Footprint to9,604 tonnes of carbon dioxide equivalent(“tCO2e”) from 11,666 tCO2e in 2015. Thiswas due to several factors, including a general
improvement in energy efficiency, and thedisposal of our Superconducting Wire businessin November. This business consumed moreenergy than our other manufacturing sites.

We also strive to minimise our waste
outputs and ensure that as little as possible
goes to landfill. Several of our sites are
now “zero waste to landfill” where waste
is recycled either directly e.g. cardboard,
metals, wood, paper and food, or indirectly
for non‑recyclable general waste that issent to waste sites where it can be used to
produce energy.
Oxford Instruments consumed 16.73GWh ofenergy globally in 2016/17. The Company’s
measure of energy efficiency was
45.15MWh/£million revenue comparedto 58.75 MWh/£million revenue in theprevious year.
Oxford Instruments is a full participant in the
UK Carbon Reduction Commitment Energy
Efficiency Scheme (“CRC”). The Company
purchases carbon allowances to cover its
emissions from energy generation andburning gas for heating and hot water.
For the 2016/17 year, 3,681 carbon
allowances were required to meet UK
carbon emissions.

Electric (GWh)
Gas (GWh)

18

Oxford Instruments measures the energy
equivalent of employee air travel for its UK
and USA operations. Air travel for the 2016/17
financial year totalled 14.85 million kilometres,
a 12.5% reduction on the previous year. Thisequated to a carbon footprint of 2,229 tCO2e
based on 80% long haul and 20% shorthaul flights, as detailed in the chart opposite.
In accordance with our Energy andEnvironmental Policies the Group iscommitted to improving our energy efficiency.
We continue to invest in energy‑reducing
technologies at our sites, such as LED lighting.
The Group complies with all environmental
legislation in countries where it operates.
This includes European Directives such as the
Waste Electronic and Electrical Equipment(“WEEE”) Directive, the Restriction on use ofHazardous Substances (“RoHS”) regulations
and the Registration, Evaluation, Authorisationof Chemicals (“REACh”) Directive. From
July 2017 all products that are sold into
Europe will comply with the RoHS regulations.
As part of the UK Companies Act 2006
(Strategic Report and Directors’ reports)
Regulations 2013, Oxford Instruments has
a mandatory duty to report greenhousegas emissions as tonnes of carbon dioxide
equivalent (“tCO2e”). The Group’s measureof carbon emissions is tonnes of carbon
dioxide equivalent per £million of revenue.
This year the global carbon emissions figure
is 18.17 tCO2e/£million revenue.

Energy consumption
20

These were purchased in advance and will
be surrendered in September. Due to lower
consumption, only 3,000 carbon allowances
will be purchased in the current year to covercarbon emissions.

16
14
12
10
8
6
4
2
0

40

2010

2011

2012

2013

2014

2015

2016

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Greenhouse gas(“GHG”) emissions
Oxford Instruments is a global business with
operations in many parts of the world. It
has been monitoring energy use and carbon
emissions since 2008. Emissions from 17
company sites are monitored and are reported
as below. Some small sales offices whereenergy consumption is less than 0.01% of theGroup’s total energy consumption are omitted.
The amount of recorded hydro-fluorocarbons
is below 5kg globally and has therefore notbeen included in the figures.

Intensity ratio
The Company’s declared intensity ratio forGreenhouse Gas Reporting is tonnes of
CO2 equivalent per £million of revenue.
With revenues for the year at £348.5 million
and the total emissions of carbon dioxide
equivalent of 6334 tonnes, this gives anintensity ratio as follows:
Carbonemissions= 24.72 tCO2e

Revenue£million revenue

Plasma Technology staff go green with new electric car charging points and an electric bicycle
for staff to try out.

Emissions
Emissions from purchased electricity, fuel for heating or process purposes (gas and oil) and fugitive
emissions from process gases are reported in tonnes of carbon dioxide equivalent.
Purchased		Fugitiveelectricity
Secondaryemissions(tCO2e)(tCO2e)(tCO2e)RegionTotal(tCO2e)

UK

3215

340

0

3555

North America

2109

136

0

2245
282

Europe

218

64

0

Asia

252

0

0

252

Total

5794

540

0

6334

Ian Barkshire
Chief Executive
13 June 2017

Air travel
2016

14.4

2015

16.9

2014

20.14

2013

21.9

2012

23

2011

21

2010
2009

15.5
8.2

million km

Oxford Instruments plc Report and Financial Statements 201741

Board of Directors

Alan Thomson

Ian Barkshire

Gavin Hill

Mary Waldner

Non‑Executive Chairman

Chief Executive

Group Finance Director

Independent
Non-Executive Director

Appointed to the Board
June 2016

Appointed to the Board
November 2015

Appointed to the Board
May 2016

Appointed to the Board
February 2016

Appointed Chairman
September 2016

Appointed Chief Executive
May 2016

Committee membership
Nomination, Chairman
Remuneration

Committee membership
None

Committee membership
None

Committee membership
Audit and Risk, Chairman
Nomination
Remuneration

BackgroundHolds a Masters degree from
University of Glasgow and is qualified
as a Chartered Accountant with theInstitute of Chartered Accountantsof Scotland.

BackgroundHolds a BSc and DPhil in physics
from the University of York andis a Member of the Institute ofPhysics. Ian has worked for Oxford
Instruments since 1997 in a numberof senior leadership roles including
NanoCharacterisation Divisional Head,Group Technical Director and Chief
Operating Officer.

BackgroundHolds a BA in economics andagricultural economics from
University of Exeter. He is a Chartered
Accountant, a Fellow of the Instituteof Chartered Accountants and an
Associate Member of the Associationof Corporate Treasury.

BackgroundHolds a MA in physics from Oxford
University and is a Fellow of theChartered Institute of Management
Accountants. She started her careerat Coopers & Lybrand Management
Consultancy Services and then went
on to hold senior financial positions
in a number of major businesses.

External appointments
Chairman:
Bodycote PLC
Hays PLC

Previous experience
Senior Principal Scientist:
GEC Marconi Materials Technology

Previous experience
Group Finance Director:
Synergy Health plc

External appointments
Chief Financial Officer:
Lloyd’s Register

Research Fellow:
University of York

Director, Corporate Finance:
Serco Group plc

Previous experience
Group Finance Director,
Ultra Electronics plc

Previous experience
Chairman:Polypipe Group plc
Senior Independent Director:
Johnson Matthey plc

Senior finance positions:Syngenta AG and AstraZeneca plc

Director, Group Finance:
QinetiQ Limited

Non‑Executive Director:
Laporte plc
Chief Financial Officer:
Smiths Group plc

42

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic ReportThomas Geitner
Independent
Non-Executive Director

02: Governance

Professor
Sir Richard Friend

03: Financial Statements

Stephen Blair

Independent
Non-Executive Director

Independent Non-Executive
Director and Senior Independent
Non-Executive Director

Appointed to the Board
January 2013

Appointed to the Board
September 2014

To be appointed to the Board
July 2017

Committee membership
Audit and Risk
Nomination
Remuneration, Chairman

Committee membership
Audit and Risk
Nomination
Remuneration

Committee membership(from July 2017)
Audit and Risk
Nomination
Remuneration

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

Background
Richard’s research encompasses
the physics, materials science andengineering of semiconductor
devices made with carbon-based
semiconductors. He is a Fellow of
the Royal Society and of the Royal
Academy of Engineering and a
Foreign Member of the US National
Academy of Engineering.

BackgroundHolds an Engineering degree from
University of Sheffield. Extensive
experience in established and highgrowth emerging markets, strategicplanning and portfolio development.

External appointments
Chairman:
Bibliotheca RFID Library Systems AG
Switzerland

External appointments
Cavendish Professor of Physics anda Fellow of St. John’s College at the
University of Cambridge.
Council member:
The Engineering and Physical Sciences
Research Council.

Previous experience
Chief Executive:
e2v

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

04: Company Information

Business Group Director:
Spectris plc

Non‑Executive Director:
Eight19 Ltd
Heliochrome Limited

Susan Johnson-BrettCompany Secretary
Committee membership
Secretary:
Audit and Risk
Nomination
Remuneration

Oxford Instruments plc Report and Financial Statements 2017

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

43

Corporate Governance
The Board is committed to conducting
business responsibly and maintaining highstandards of corporate governance.

Alan Thomson
Non‑Executive Chairman

Dear Shareholders
I am pleased to introduce the Group’s
corporate governance report on behalfof the Board. The corporate governancestatement provides an insight into how the
Board operated during the year. The Board iscommitted to conducting business responsibly
and maintaining high standards of corporate
governance. This will, when underpinned byour business strategy, enhance performanceand grow the business of Oxford Instruments.
The approach to governance is set by the
Board and the Management Board ensuresthat the approach is effectively implemented
across Oxford Instruments’ businesses aroundthe world.
The main Group-wide governance documents
are the Oxford Instruments Code ofBusiness Conduct and Ethics together withthe policies which sit within our statement
on Corporate and Social Responsibility.
These can be found on our website atwww.oxford-instruments.com/investors/
corporate-and-social-responsibility

44

These policies and statements set out thevalues and standards that we expect ouremployees to meet. These documents,
together with our policies, govern how we
conduct our business and set the standards
that drive performance. Compliance training
and, in some areas, standard procedures,
help to enforce this. Board oversight, reviews
and audits form part of the monitoringand supervision process. Risk processes areembedded and reviewed on an ongoing basis
across the organisation.
The last few years’ succession planningfor both Executive and Non-Executive
Directors has seen considerable change inthe constitution of our Board over the past
year. We have welcomed a new executive
team with Ian Barkshire, Chief Executive,
and Gavin Hill, Group Finance Director.
I was brought in to succeed Nigel Keen as
Chairman in September 2016. At our AGM in
September, we also said goodbye to two of
our Non‑Executive Directors, Jock Lennox andJennifer Allerton.

During the latter half of the year, we started asearch for a Non-Executive Director with skills
to complement those already on the Board.
On 13 June 2017 we announced that Stephen
Blair, until recently Chief Executive of e2v,
will be joining the Board. Our Board is now
in good shape to guide Oxford Instruments
through its next phase of development.
I encourage all Shareholders to attend
the AGM which will be held at theCompany’s Head Office in Tubney Woods,
Oxfordshire, on Tuesday 12 September
2017. This event provides an opportunity
for Shareholders to meet the Executive andNon‑Executive Directors.

Alan Thomson
Non‑Executive Chairman
13 June 2017

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceCompliance
The Board endorses the main and supporting
principles and the provisions set out in the2014 UK Corporate Governance Code(“the Governance Code”) and considers
that, throughout the period under review,
the Group has complied with the provisions
recommended in the Governance Codesave for provision A.4.1. The Board did notdesignate a Non-Executive Director as Senior
Independent Director after Jock Lennox stood
down from the Board after the AGM on
13 September 2016. Instead, the Chairman,
Alan Thomson, who was appointed on
12 September 2016, undertook a reviewof the Board and commenced a search
for a new Non-Executive Director. This has
culminated with the appointment of Stephen
Blair to the Board on 1 July 2017 as an
Independent Non‑Executive Director and hehas been designated as Senior Independent
Director. The 2016 UK Corporate Governance
Code was issued in April 2016 and applies
to accounting periods beginning after
16 June 2016.
Taken together with the reports of theNomination Committee, Audit and Risk
Committee, the report on remunerationand the report on corporate responsibility,
this Statement explains how Oxford
Instruments has applied the principles ofgood corporate governance as set out in the
Governance Code.
Resolutions for the election of all Directors
will be put to Shareholders at the Company’s
forthcoming AGM. Once passed, this willcontinue to deliver a Board which meetsthe requirements of Provision B.1.2 of theGovernance Code.

03: Financial Statements

Board of Directors andmanagement structure

Operation of the Board

Board of Directors
The Board as at the date of this Reportcomprises the Chairman, three Non-Executive
Directors (rising to four with effect from
1 July 2017) and two Executive Directors.
The Directors’ biographies and details oflength of service are shown on pages 42 and
43. All the Directors have written letters of
appointment that have been approved by the
Board and which are available for inspection
at the Company’s Annual General Meeting.
The Chairman is responsible for leadershipof the Board and ensuring its effectivenesson all aspects of its role. The division of
responsibilities between the role of Chairman
and the Chief Executive has been set out inwriting and agreed by the Board.
The Board is responsible to Shareholders
for good corporate governance,
setting the Group’s strategic objectives,
values and standards, and ensuring thenecessary resources are in place to achieve
the objectives.
The Board has delegated Group responsibility
for the management of health, safety and theenvironment to Ian Barkshire and he reports to
the Board on these matters at each meeting.

Board members’ length of service
Thomas Geitner

4 years

Richard Friend

3 years

Ian Barkshire

1 yearMary Waldner

1 yearGavin Hill

1 yearAlan Thomson

1 yearPreservation of value

Management Board

The basis on which the Group generates andpreserves value over the longer term and thestrategy for delivering the objectives of theGroup are to be found in the Strategic Report.

The Board delegates management of thebusiness to the Chief Executive. To assist
in this, the Chief Executive has created aManagement Board that consists of the
Executive Directors, senior managers withGroup-wide functional responsibilities andthe heads of the principal businesses of theGroup’s activities.
The Management Board meets monthly either
physically or by video or telephone conference
and focuses on Group-wide performance,
strategy and risk management.

Oxford Instruments plc Report and Financial Statements 201704: Company Information

The Board is responsible to Shareholders
for delivering sustainable incremental
Shareholder value through entrepreneurial
leadership within a framework of controls
for managing risk. The Board sets the Group’s
strategy, maintains the policy and decision
making framework in which this strategy
is implemented, verifies that the necessaryfinancial and human resources are in place
to meet strategic aims, monitors performanceagainst key financial and non-financial
indicators, oversees the system of risk
management and sets values and standards
in governance matters.
The details of the way the Board operates,
including a schedule of matters reserved to
the Board for decision, are set out in the
Board Reference File. The Board’s policies
and procedures are documented in the
Board Reference File, which sets out theroles and delegated authorities applying
to the Directors, the Board and the Board
Committees. The Board Reference File isreviewed annually by the Board as part of
the annual governance review undertakenby the Chairman.
The Board retains control over strategy,
investments and capital expenditure, andlimits the decisions which can be taken bymanagement in the areas of strategic andfinancial management and shareholder
reporting. The Board also decides on theGroup’s capital structure, corporate actions,mergers and acquisitions, major contracts andother commitments, litigation and regulatory
proceedings, remuneration and share
incentive plans.
Where the Board delegates authority to
management it is on a structured basis, which
requires that proper management oversight
exists at the appropriate level.
The Board meets on a regular basis, at least
seven times a year, and otherwise as required.
Board meetings are held at a number ofGroup locations during the year. The Board
also held one meeting specifically to discuss
the Company’s strategic direction during
the year.

45

Corporate Governance continued
Board meetings involve reviews of financial
and business performance against the plan
approved by the Board. Risk management
review, both at Group level and also for eachof the business units, is embedded in thereporting system. On a rotating basis, theBoard receives presentations from the business
units 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
and recommending a course of action.
Board papers are distributed in advance of therelevant meeting in sufficient time to allow
the Directors to prepare for meetings. Minutesof Committee meetings are circulated to therelevant Directors. In the very few instances
when a Director has not been able to attend
Board or Committee meetings, his/hercomments on the papers to be considered at
the meeting are communicated in advance tothe relevant Chairman.
The Non-Executive Directors meet without
the Executive Directors at least annually,
with the Chairman leading these meetings.
The Non-Executive Directors also meet
annually without the Chairman in attendance.
The Senior Independent Director chairs thesemeetings. During the year, whilst a new Senior
Independent Director was being recruited,
Richard Friend chaired this meeting.
The Company Secretary and the Company
Secretary’s office are responsible for
implementing Board procedures andfor advising the Board on corporate
governance matters.

Board balance and independence
The Governance Code requires the Board
should be of sufficient size that the balanceof skills and experience is appropriate for therequirements of the business and that there
is a balance of Executive and Non‑Executive
Directors such that no individual or small
group of individuals can dominate theBoard’s decision making. The compositionof the Board and the combination ofdiverse backgrounds and expertise of theNon‑Executive Directors meet these principles.

Thomas has extensive international experience inthe technology and engineering sectors, having
spent more than 30 years in businesses operating
across the globe. Having worked in a number ofglobal companies he understands the importanceof remuneration connecting with strategy toappropriately incentivise the executive team.

Alan Thomson, Chairman, was appointed to
the Board as an Independent Non-Executive
Director on 1 June 2016 and appointed
Chairman on 13 September 2016. He has a
Masters degree from Glasgow University andis a Member and past President of the Instituteof Chartered Accountants of Scotland. He is
Chairman of Hays pc and Bodycote plc.
On 30 March 2017 Bodycote announced that
Alan will be retiring from his role of Chairman
but that he will stay on until a successor
is found. Previously, he was Chairman of
Polypipe Group plc and a Non-Executive
Director of Laporte Plc, Alstom SA and ofJohnson Matthey Plc. Earlier in his career,
he worked on a variety of audits for Arthur
Andersen and Price Waterhouse, followed bysenior management positions with Rockwell
International plc, Raychem Ltd and Courtaulds
plc and was Group Finance Director of Rugby
Group plc and then Smiths Group plc.

The Board believes that his skills, experienceand knowledge make Thomas well suited tochair the Remuneration Committee. Thomas
is also a member of the Audit and Risk andNomination Committees.

Alan is Chairman of the Nomination
Committee and a member of theRemuneration Committee.

The Board believes that Mary’s backgroundgives her the various insights needed tomake her a well qualified Chairman of the
Audit and Risk Committee. Mary is also
Chairman of the Audit and Risk Committee
and a member of the Remuneration and
Nomination Committees.

Richard Friend was appointed to the Board
as an Independent Non-Executive Director
on 1 September 2014. Richard is a Fellowof the Royal Society and Fellow of the Royal
Academy of Engineering. He is also Cavendish
Professor of Physics and a Fellow of St. John’sCollege at the University of Cambridge.
His research encompasses the physics,
materials science and engineering ofsemiconductor devices made withcarbon‑based semiconductors. His researchadvances have shown that these materials
have significant applications in LEDs, solar
cells, lasers and electronics. He was knighted
for services to physics in the Queen’s Birthday
Honours List in 2003. He has also been
directly involved in the commercialisationof technology through several spin-out
companies from the University of Cambridge.
Richard is a member of the Audit and Risk,
Remuneration and Nomination Committees.

46

Thomas Geitner was appointed to the Board
as an Independent Non-Executive Director
on 15 January 2013. He is a graduate of theTechnische Universität München and holds an
INSEAD MBA.

Mary Waldner was appointed to the Board
as an Independent Non-Executive Director
on 4 February 2016. She is now Chief
Financial Officer at Lloyd’s Register and wasGroup Finance Director of Ultra Electronics
plc until April 2016. She has a masters
degree in physics from Oxford University
and is a Fellow of the Chartered Institute ofManagement Accountants.
Mary has a broad range of experience inhigh technology companies that operateinternationally and has worked in a number ofsenior financial roles with major public limited
companies, including Group Finance Directorof Ultra Electronics plc until April 2016.

Following the year end and date of this report,
it has been announced that Stephen Blair
will be joining the Board as an Independent
Non-Executive Director, with effect from
1 July 2017. He will also be designated as
Senior Independent Director from the same date.
Stephen was Chief Executive of Teledyne e2v
Limited (previously e2v technologies plc), a
manufacturer of sensors, radio frequency
generators and semiconductors and alisted company until its recent acquisition
by Teledyne Technologies in March 2017.
Previously he was Business Group Director
for Spectris plc. He has broad operational
experience and a breadth of experience
covering established and high growth
emerging markets, strategic planning andportfolio development.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceIndependence of
Non-Executive Directors
In the opinion of the Board, Alan Thomson,
Mary Waldner, Thomas Geitner and Richard
Friend are independent. Stephen Blair wasconsidered independent on appointment.
The Board considers that they are eachindependent in character and judgement anddo not have relationships which are likely toaffect their judgement. This opinion is basedon current participation and performanceon both the Board and Board Committees
including consideration of the length ofservice at Oxford Instruments plc and for
Stephen Blair was demonstrated through therecruitment process.

Term of appointment of
Non‑Executive Directors
Each Non-Executive Director was appointed
for an initial term of three years. In linewith provision B.7.1 of the Governance
Code, the Board has determined that all
Directors of the Board are to be subject
to annual re-election by Shareholders andaccordingly the appropriate resolutions will
be put to Shareholders at the Company’s
forthcoming AGM.

Composition of the Board
Independent vs. non-independent
Independent (3)Non-independent (2)160%

1. As at the date of this report and in line with theGovernance Code, the Chairman is excluded fromthese numbers.

Board development
and evaluation
Board development
On appointment, Directors undertake an
induction process which is designed todevelop knowledge and understanding of
the Group’s businesses through visits tovarious Group operating sites, discussionof relevant technology, as well as productdemonstrations, briefings from management
and familiarisation with investor perceptionsof the Group. This induction is supported
by briefing papers prepared by theCompany Secretary.

03: Financial Statements

The operating business units’ senior
management teams and functional leaderspresent to the Board on a regular basis.
Non‑Executive Directors are encouraged
to meet individual members of the senior
management team and have done so during
the year under review.
Throughout the year, Non-Executive Directors
attend Oxford Instruments’ events, exhibitions
and award presentations.
The Company Secretary and her office act asadvisers to the Board on matters concerning
governance and ensure compliance with Board
procedures. All Directors have access to thisadvice and a procedure also exists for Directors
to take independent professional advice at theGroup’s expense. No such advice was sought
during the year. The appointment and removalof the Company Secretary are matters for the
Board as a whole.

Board evaluation
In light of the provisions of Section B.6.2 of
the Governance Code which expects that an
externally facilitated evaluation of the Board
be carried out at least triennially, in 2014/15
Colin Mayer, the Peter Moores Professor ofManagement Studies at Said Business School,
University of Oxford, and a Board Member ofthe European Corporate Governance Institute,carried out a thorough review of the way the
Board operates. Professor Mayer determinedthat Oxford Instruments is well governed,
well run and a successful company which
comfortably fulfils the requirements of theGovernance Code in terms of the structure
and conduct of its governance. He considered
the formal governance and procedures in
Oxford Instruments are significantly better
than in most companies of a similar size.
Professor Mayer suggested a number of areasin which the Company’s governance could
be strengthened with a view to promoting its
development from a successful medium sized
firm to a truly global company of internationalsignificance.

Oxford Instruments plc Report and Financial Statements 201704: Company Information

This year, the Board carried out its annual
effectiveness evaluation exercise, including
a specific review of the effectiveness of its
principal Committees and members. This
was an internal exercise under the control of
the Chairman using a detailed questionnairecompleted by all Directors in relation to the
key areas of Board accountability and thearrangements in place to enable effective
focus on these areas. Topics covered included
Group strategy, performance, delegation andaccountability, success, development andreward, Board and Committee composition,
Board induction and training, internal
control and risk management. At theindividual one‑to-one interviews which the
Chairman holds with each Director, individual
performance and the operation of the Boardand its Committees have been discussed
in more detail. The Chief Executive is also
involved in the process by giving his input
on the way the Board helps him in his role.
Each Committee Chairman also reviewed
the effectiveness of his/her committee in asimilar way. The output from these evaluations
allows the Chairman to review objectively theoverall balance and effectiveness of the Board.
The Non-Executive Directors met during theyear, chaired by Richard Friend, and appraised
the Chairman’s performance.
The Board evaluation covered the activitiesof the Board and each of its Committees.
The Board and its Committees are considered
to be working well. Arising from theexercise it was concluded that the Board isworking well together and providing goodchallenge and support to the Executive.
The overall conclusion is that the Board and
its Committees are performing well and havegood governance standards.

47

Corporate Governance continued
Attendance at meetings
No one other than the Committee Chairman and members is entitled to be present at a meeting of the Audit and Risk, Nomination or
Remuneration Committees, but others may attend by invitation of the Committee. No Director votes on matters where he or she has a conflictof interest. Further details of the individual Committees’ activities are described below and in the Committee reports.
The following table sets out the frequency of, and attendance at, Board and principal Board Committee meetings for the year to 31 March 2017:													
Board Main

Audit and Risk
Committee

Remuneration
Committee

Nomination
Committee

Number of meetings held						

10

5

6

4

Alan Thomson2						

7

51

5

4

Ian Barkshire						

10

5¹

41

21

Gavin Hill 						

7

5¹

—

11
4

3

Richard Friend 						

10

5

6

Thomas Geitner						

10

5

6

4

Mary Waldner						

10

5

6

4

Nigel Keen4						

6

31

3

2

Jonathan Flint4						

5

2¹

1¹

—

Jock Lennox4						

6

3

3

2

Jennifer Allerton 						

6

2

3

2

4

1. Attended by invitation.
2. Alan Thomson was appointed to the Board on 1 June 2016. He has attended all Board and Committee meetings since his appointment.
3. Gavin Hill was appointed to the Board on 9 May 2016. He has attended all Board meetings since the date of his appointment.
4. Nigel Keen, Jock Lennox and Jennifer Allerton resigned from the Board with effect from 13 September 2016 and Jonathan Flint resigned from the Board with effect from 31 July 2016.
Other than Jennifer Allerton, they attended all meetings until they stepped down from the Board. Jennifer Allerton missed one Audit and Risk Committee meeting.

Board committees

Remuneration Committee

Audit and Risk Committee

The Board has formed the following
Committees: Audit and Risk, Nomination,
Remuneration and Administration.

The Remuneration Committee comprises all
the Independent Non-Executive Directors andthe Chairman of the Board. Thomas Geitneris the Chairman of the Committee. The Board
considers that Thomas, with his experience ofworking at senior levels in global companies,
including high technology companies, has
an appropriate blend of skills to make a
successful Chairman of the Remuneration
Committee. The members of the Committee
are appointed by the Board.

The Audit and Risk Committee comprises
all the Independent Non-Executive Directors
and its Chairman is Mary Waldner. Mary
took over from Jock Lennox as Chairmanof the Committee on 16 June 2016. Other
members of the Board, senior management
and the external auditor are invited to attend
all or part of any meetings. The Board has
determined that Mary, with her background in
financial management, will be the designatedfinancial expert from 16 June 2016 and that
Jock Lennox, as a Chartered Accountant andformer Senior Audit Partner at EY, was thedesignated financial expert until 16 June 2016.

Membership of Board Committees, which is
set out on pages 42 and 43, is determinedby the Board and is reviewed regularly.
The written terms of reference of the Board
Committees are reviewed annually by eachCommittee and the Board and areavailable on the Company’s website atwww.oxford-instruments.com/investors
and from the Company on request. They will
be on display at the Annual General Meeting.
Detail on the operation of each of the Audit
and Risk, Remuneration and Nomination
Committees is to be found within the relevantCommittees’ reports.

Nomination Committee
The Nomination Committee comprises all
the Non-Executive Directors, under thechairmanship of the Chairman of the Board.
The Nomination Committee is responsible
for assisting the Board in the formal selection
and appointment of Directors and considers
succession planning for the Board. The
Nomination Committee reviews succession
plans annually.

48

The Remuneration Committee is responsible
for recommending to the Board the
remuneration packages for Executive Directors
and the bonus and share option strategy for
the Group’s executive management.
Independent professional advice is sought
when considered necessary. The Chairman
and the Executive Directors are responsible forfixing the remuneration of the Non-Executive
Directors and the Remuneration Committee
is responsible for fixing the remuneration of
the Chairman. No Director is involved in theprocess that sets his/her own remuneration.
The Chief Executive is invited to attend
all or part of Remuneration Committee
meetings as deemed appropriate, for example
when consideration is being given to theperformance of other Executive Directors andon significant Group-wide changes in salarystructure and terms and conditions affecting
other employees at senior executive level.

The Audit and Risk Committee’s main
responsibilities are focused on financial
reporting, external audit, internal audit,
internal controls and risk management.
Full details of the operation and the work of
the Audit and Risk Committee are included in
the Audit and Risk Committee Report set out
on pages 51 to 57.

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

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Annual General Meeting (“AGM”)

Risk management

Internal audit and assurance

The AGM is an opportunity for the Board
to meet Shareholders. At its AGM, theGroup complies with the provisions of theGovernance Code relating to the disclosureof proxy votes, the separation of resolutions
and the attendance of Committee Chairmen.
The Group arranges for the Annual Reports
and Financial Statements and related papers
to be posted on its website and, where
Shareholders have elected to receive paper
copies, posted to Shareholders so as to allow
at least 20 working days for consideration
prior to the AGM. The next AGM will be heldon 12 September 2017 at the Group’s offices
in Tubney Woods, Oxfordshire.

Within the Group there is an ongoingembedded process for identifying, evaluating
and managing the significant risks faced by
the Group. Day-to-day management of thisprocess has been delegated by the Board to
the Executive Directors. Detail of the process
is set out in the Audit and Risk Committee
Report on pages 51 to 57. This process has
been in place for the year under review and
up to the date of approval of the Annual
Report and Financial Statements. It isregularly reviewed by the Board of Directors
and accords with the principles of theGovernance Code.

The Group’s internal audit function has
responsibility for independently assessing
the adequacy and effectiveness of the
management of significant risk areas andprovides an oversight view of operational
management’s front line and assurance
activities. Further details of the internal audit
activities are set out in the Audit and Risk
Committee Report on pages 51 to 57.

Investor relations
The Group places considerable importance on
regular communications with its Shareholders,with whom it has an ongoing programme of
dialogue. All Shareholders are encouraged toparticipate in the AGM at which the Chairman
and Chief Executive present an overview of
the Group’s business, review the results andmake comments on strategy and current
business activity.
The Non-Executive Directors meet informallywith Shareholders both before and after the
AGM and respond to Shareholder queries
and requests. The Chairman and the Senior
Independent Director make themselves
available to meet Shareholders as required.
All Group announcements are postedon the Group website,www.oxford-instruments.com/investors,
as soon as they are released. The Investor
Relations section of the website provides
financial and other information on the Groupand the website itself carries additional
information on the Group’s products, services
and markets.

The Board has carried out a robust assessmentof the principal risks facing the Group,
including those which threaten its businessmodel, future performance, solvency andliquidity. Details of all major risks identified,
and the mitigating actions in place, arereported to and reviewed by the Board
and/or Audit and Risk Committee. The
Principal Risks (pages 23 to 25) gives an
overview of the major risks and uncertainties
faced by the Group. A standard process isin place throughout the Group that requires
the senior management of each businessto identify significant business risks andto classify them both as to probability andpotential impact. Once identified, mitigating
action, where possible, is formulated andresponsibility within the management teamassigned. On a regular basis each business
reviews and updates its risk summary whichis then reported to the Chief Executive. If amaterial 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 the adequacy of the mitigating
actions taken.
In addition, the Board and the Audit andRisk Committee consider 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.

Oxford Instruments plc Report and Financial Statements 2017

Internal control
The Board has accountability for reviewing
and approving the adequacy and effectivenessof internal controls operated by theGroup, including financial, operational andcompliance controls and risk management.
The management of each business is
responsible for risk management and control
within their business and, through theManagement Board, implementing Board
policies on risk and control.
The internal control framework includes
central direction, oversight and risk
management of the key activities within theGroup. As part of this framework there is afinancial planning process which includes athree year planning model and the preparationof an annual budget approved by the Board.
The results of the business units are reported
monthly and compared with the budget.
Forecasts are also prepared monthly.
Control activities include policies and practices
covering appropriate authorisation andapproval of transactions, the application offinancial reporting standards and reviewsof significant judgements and financial
performance. Financial, regulatory andoperational controls, procedures and risk
activities across the Group are reviewed by
the Group’s assurance function.
The internal control framework has been
designed to manage rather than eliminate
material risks to the achievement of strategic
and business objectives and can provide only
reasonable, and not absolute, assurance
against material misstatement or loss. Because
of inherent limitations, internal controls overfinancial reporting may not prevent or detect
all misstatements. There has been no materialchange to the Group’s internal control
framework during the period covered by thisReport and Financial Statements.

49

Corporate Governance continued
Internal control continued
The key components designed to provide
effective internal control within the Group are
as follows:• there is a formal schedule of mattersreserved to the Board for decision; otherthan these matters, the Board delegatesto the Chief Executive and reviews thedelegation of authorities throughout the
management structure;• the Group’s management structureis headed up by the Management
Board. Its membership comprises the
Executive Directors, senior managers withGroup‑wide functional responsibilities
and the heads of the principal businessesof the Group’s activities. Day-to-day
responsibility for the management of theGroup is delegated to the Management
Board. The responsibility is based on
the identification of separate businesses
for each of the Group’s activities forwhich there are clearly defined lines ofmanagement responsibilities at all levels
up to and including the Group Board andthe Group’s accounting and reporting
functions reflect this organisation;• financial executives within Groupbusinesses report to their own operational
head but there is also a well establishedand acknowledged functional reporting
relationship through to the Group
Finance Director;• the Board reviews strategic issues andoptions formally once a year during theannual strategic planning process andduring the year as appropriate. In addition
the Executive Directors maintain a threeyear planning model of the Group and its
individual businesses;

50• annual budgets are prepared for eachof the Group’s businesses which include
monthly figures for turnover, profit, capital
expenditure, cash flow and borrowings.
The budgets are reviewed through theGroup management structure and resultin a Group financial budget which isconsidered and approved by the Board;• the businesses prepare monthly
management accounts which compare
the actual operating result with both thebudget and the prior year. The businesses
also prepare rolling reforecasts for orders,turnover, operating profit and cash. Bothare reviewed by the Board at each of its
scheduled meetings;• the Board approves all acquisition anddivestment proposals and there areestablished procedures for the planning,approval and monitoring of capital
expenditure;• for all major investments the performanceof at least the first twelve months against
the original proposal is reviewed by
the Board;• each Group site, except for representative
sales offices, is required to submit
a self‑assessment internal control
questionnaire annually;• internal audit is carried out through asystem of regular reviews of the financial
and non-financial internal controls at eachsite and this is further reported on in the
Audit and Risk Committee Report on pages
51 to 57. These reviews are coordinatedby the Group Internal Audit and Risk
Manager;• authorisation limits are set at appropriate
levels throughout the Group; compliancewith these limits is monitored by the Group
Finance Director and the Group Internal
Audit and Risk Manager;• all requests to quote for substantial fixedprice contracts are reviewed by the Chief
Executive and/or the Group FinanceDirector to assess both technical andfinancial risk and to fix an appropriatebalance between risk and reward.
However, no procedure can guarantee theavoidance of losses on fixed price contracts
of a technical nature; and• with respect to the UK pension scheme,
the Group nominates half of the trustee
directors of the corporate trustee to thepension scheme, involves as necessary
its own independent actuary with whom
actuarial assumptions are reviewed,
agrees the investment policy with thetrustee, works with the trustee on its
investment sub-committee to deal with
day-to-day investment matters and to act
as a co‑ordinator between the investment
advisers, investment managers and thetrustee, ensures there is an independentactuarial valuation every three years andagrees funding levels to provide adequate
funding to meet the benefit payments ofthe members as they fall due.

Susan Johnson-BrettCompany Secretary
13 June 2017

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

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Audit and Risk Committee Report
I am pleased to present the Audit and Risk
Committee report having taken over as
Chairman of the Committee in June 2016.

Mary Waldner
Audit and Risk Committee Chairman

Dear Shareholder,As part of my handover from my predecessor,
Jock Lennox, we discussed key areas of historicalimportance and potential areas of risk which
may require scrutiny in the future. I would liketo take the opportunity to thank Jock for his
assistance in this transition in particular andalso, more broadly, for the work he performed
during his tenure as Chairman of this Committee.
The role of the Audit and Risk Committee
has remained broadly stable during the year,
against a period of change in the Group’s
leadership. The appointments of Ian Barkshireas CEO and Gavin Hill as Group FinanceDirector have brought a new executive teamto the Board. Ian brings 20 years of experience
within Oxford Instruments, most recently as
the sector head of Nano Characterisation
and Gavin comes with valuable external
perspective, as the former Group Financial
Director of Synergy Health plc. Further, in
2016/17 Alan Thomson was appointed as
Chairman of the Board.
The Committee has the responsibility forassurance over financial controls as well asover other functions of key importance to
the Group such as New Product Innovation,
Information Technology and Security,
Health Safety and Environment and HR. The
Committee is also responsible for reviewing
the effectiveness of internal audit, oversees
the relationship with the external auditor(including the Group’s policy on theprovision of non-audit services) and monitors
the integrity of the Financial Statements,
including the application of significant
financial judgements.

• a review of the key financial risks such as
adverse movements in foreign exchange
and the pension deficit, together with key
mitigating strategies (e.g. hedging policy);During the year the Committee continued to
evolve its focus to reflect the risk environment.
The Audit and Risk Committee and the newGroup Finance Director agreed to focus theinternal audit function on the fundamentalsof the financial control environment, in orderto gain assurance over the effective operationof key financial controls. In addition, theaudit programme has maintained a risk based
element and has also delivered ad hoc work,
to address specific risks, mandated by theGroup Finance Director. This approach willcontinue in 2017/18.

• a review of the effectiveness of internal audit;

Key areas of activity for the Audit andRisk Committee in the last twelve months
have included:• a review of the Group Risk Register at eachmeeting of the Committee;• a detailed review of specific subjects on
the Group Risk Register (e.g. IT and cybersecurity) and of certain business units’
principal risks;• an assessment of the effectiveness of theexternal audit process;• a review of the statement issued at theAnnual General Meeting; and• a bi-annual review of the Financial
Statements and the significant accounting
judgements used in their compilation.
(The significant accounting judgements
relating to the 2017 Financial Statements
are set out on page 54.)
The rest of this report sets out thecomposition of the Audit and Risk Committee;
summarises its role and responsibilities;
provides a summary of key activities it has
undertaken over the course of the year andthe Committee’s view of significant mattersrelated to the Financial Statements. It also
explains how the Committee has fulfilled its
responsibilities in each area of its remit.

• a half‑yearly review of significant litigation;

I will be at the AGM in September. In themeantime, if you have any questions orcomments I should be delighted to hearfrom you.

• a review of the Group’s Viability Statement
including the methodology used in theforecasts and key assumptions on which
it is based;

Mary Waldner
Audit and Risk Committee Chairman• a review of treasury and tax matters;

13 June 2017
Oxford Instruments plc Report and Financial Statements 2017

51

Audit and Risk Committee Report continued
Composition

External audit

Internal audit and risk management

The members of the Audit and Risk
Committee are Mary Waldner, Sir Richard
Friend and Thomas Geitner. Mary wasappointed as Chairman on 16 June 2016.
Jock Lennox and Jennifer Allerton retired fromthe Committee in September 2016 when they
stepped down from the Board.

• Oversight of the external audit relationship.

• Annual consideration of the resources
required for an effective internal audit
and risk management function.

• Reviewing and approving the annual audit
plan and audit findings• Reviewing the Group’s internal control
and risk management systems.

In keeping with the FRC’s Guidance on
Audit Committees, the Audit and Risk
Committee’s terms of reference require thatat least one member of the Committee has
recent and relevant financial experience.
Mary Waldner is the current Chief Financial
Officer of Lloyd’s Register and has previously
held senior financial roles at a number ofquoted companies including, most recently,
Ultra Electronics plc. On this basis, the Board
considers that Mary fulfils the requirement tohave recent and relevant financial experienceand is also independent. Both Professor Sir
Richard Friend and Thomas Geitner bringrelevant sector experience to the Committee.

• Responsible for evaluating the effectivenessof the external audit process and assessing
the external auditor’s independence
and objectivity.

• Regular review of the Group’s key risks(both inherent risks and emerging
risks) and associated monitoringprocess, together with a regular reviewof the output from the Group’s risk
management processes.

The Committee invites participation fromnon‑members at its meetings as required.
This may include auditors (external andinternal); members of the Board; and subject
matter experts (e.g. the Chief Information
Officer). The Committee has the opportunity
to speak with the external auditor without
the presence of the executive management
at each meeting attended by the external
auditor. The Company Secretary acts as
secretary to the Committee.

Role and responsibilities
The Committee’s key duties are
summarised below and are detailed infull in the terms of reference, a copy ofwhich can be found on our website atwww.oxford-instruments.com/investors.
The main responsibilities of the Committee
are focused on the following areas:

Financial reporting• Reviewing and challenging significant
financial reporting judgements andaccounting policies and compliance withaccounting standards.
• Monitoring the integrity of the
Financial Statements and associatedannouncements.

• Holding regular meetings with the external
auditor, including meetings without
executive directors, including meetings
for audit planning and reporting.

• Providing recommendations to the Boardfor the appointment or re-appointment of
the external auditor.
• Reviewing and monitoring the non-audit
services policy and the level of non-audit
services provided.

Effectiveness of the internal
control environment• The Audit and Risk Committee consideredinformation from a number of sources toevaluate the effectiveness of the internal
control environment. This included,inter alia, reports from both internal andexternal audit. Further, on the basis of
those reports, the Committee assessed
whether internal audit activities wereappropriately directed to provide therequired level of assurance. The Committee
concluded that the cyclical programmeof internal financial audits provided aneffective mechanism to assess internal
controls and, based on the reports
received, controls were generally foundto be operating effectively.
• Following discussions with the CEO
and the Group Finance Director, it wasagreed that the delegation of authorities
would be updated in order to implement
a number of changes arising from therevised risk appetite of the Board and toensure that revised limits were effectively
communicated throughout the Group.
The revised delegation of authorities was
finalised and distributed in September
2016. Specific tests of adherence areincluded in the internal audit programmefor 2017/18.

• Approval of internal audit’s annual
audit programme.

Business malpractice• Reviewing the adequacy and security of
the Group’s whistle-blowing arrangements
and the provision of proportionate andindependent investigation of any mattersraised through those channels.
• Reviewing the Group’s procedures for
detecting fraud and its processes andcontrols to prevent bribery.

Reporting• Compilation of a report on its activities,
in accordance with the UK Corporate
Governance Code.
• Reporting to the Board on any matter it
considers requires action or improvement.
• Advising the Board on Directors’
responsibilities relating to the
Financial Statements.
The Committee periodically reviews its
terms of reference and its effectivenessand recommends to the Board any changes
required as a result of such review.

• Advising the Board on whether the
Annual Report and Financial Statements,
taken as a whole, are fair, balanced andunderstandable and whether all material
matters such as contingent liabilities havebeen considered in their preparation.
• Monitoring compliance with relevant
statutory and listing requirements.

52

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Activities of the Audit and Risk Committee in respect of the financial year ended 31 March 2017
The Committee has worked largely to a recurring and structured programme of activities developed from its terms of reference and designed tofulfil its responsibilities throughout the financial year. A summary of the items discussed in each meeting is set out in the table below:				
Agenda item				

January
2017

June
2017

Review the integrity of the draft Financial Statements,
appropriateness of accounting policies and going concern
assumption (reports received from management and KPMG)				

•		

•

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

•

•		

•

•			

•		

•

Review of significant financial reporting issues and judgements

June
2016

July
2016

September
2016

November
2016

Review viability statement requirements and reporting proposal					Assess the effectiveness of the external audit process			

•

•

•				

Consider the independence and objectivity of the external auditor					

•Review internal management representation letters
Review and agree the internal audit plan 							

•Review the output of the internal audit work			

••		

Review the effectiveness of the Audit and Risk Committee			

•

•				

Review of litigation update 				

•			

•
•		

Evaluate the effectiveness of the internal audit function 						

•Review the internal control framework							

•Review the risk management processes							

•Review the Group Risk Register			••Annual review of the whistle-blowing arrangements						

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

•

•

•

•				

Update on changes to accounting standards(taking effect in 2017/18)							Consideration of paper outlining key IT risks and mitigating actions••		Annual review of insurance							

•

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

•Annual review of treasury arrangements							

•Annual review of tax								•The Committee’s remit extends beyond financial risk and considers assurance activities in relation to a number of key, non-financial areas. These
include New Product Innovation (“NPI”), a core area in the Group’s strategy for success, and key enabling functions such as HR (with a particularfocus on succession management and potential challenges arising from Brexit) and IT. The Committee has renewed its focus on data/cyber security
and breach response as its evaluation of external threats in this domain continues to rise. The Committee also receives reports on the operational
audit programme and health and safety, and environmental performance and compliance. The Committee considers these areas provide
proportionate coverage and assurance over the most significant areas of potential risk faced by the Group.
In accordance with the 2014 UK Corporate Governance Code, the Board requested that the Committee advise it on whether the Annual Report,taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group’s position andperformance, business model and strategy. This work formed part of the review of the draft Financial Statements that was undertaken in May andJune 2017.

Oxford Instruments plc Report and Financial Statements 201753

Audit and Risk Committee Report continued
Significant matters related
to the Financial Statements
The Committee reviews all significant issues
concerning the Financial Statements. The
principal areas of significant accounting
judgement considered in relation to the 2017
Financial Statements were:

Disposal of OST Wireand Industrial Analysis
Following its disposal in November 2016,
the OST Wire business has been treated asa discontinued operation. As a result, theafter‑tax profit of the OST Wire operation has
been presented as a single line item at thefoot of the Income Statement.
This treatment is considered to be correct
because, inter alia, the OST Wire was asignificant component of the Group; wasdisclosed as an operating segment to theBoard; had its own management team;
had a distinct customer base and businessmodel; and was a separate calculation
component within the model which createsthe segmental analysis included within the
Financial Statements.
With regard to the disposal of Industrial
Analysis, the Committee takes the view thatas at 31 March 2017, the transaction was nothighly probable. At that time, a number ofsignificant commercial issues relating to thedisposal were outstanding; there was still a
possibility of a material reduction in Hitachi’soffer (which may have made it unattractive tothe Board); and the transaction had not been
approved by the Board of either company.
Accordingly, the Industrial Analysis businesshas not been treated as a held for sale asset as
at 31 March 2017 and its results are included
within continuing operations for the year.

54

Carrying Value of Acquired
Intangible Assets (including
Capitalised Goodwill)
Intangible assets total £181.0 million (Note 17)of which acquired intangible assets amountto £160.7 million. This comprises capitalised
goodwill of £84.5 million and other intangible
assets from acquisitions of £76.2 million.
The most significant elements of acquired
intangibles relate to Andor at £118.4 million(of which £61.4 million relates to goodwill).
As set out in Note 17 to the Financial
Statements, the carrying value of goodwill
for each investment has been assessed
for impairment.
Impairment charges were recognised in theyear against the carrying value of goodwill inboth the Asylum and OI Healthcare businesses
amounting to £28.8 million with a further£5.0 million of impairments against otherintangibles in these two business units.
This arose from a detailed review of the future
performance expected from these business
units and as a result, management considered
it was no longer appropriate to retain any
goodwill balance against those acquisitions.
The Committee has received detailed
explanations and supporting information
relating to both the impairment charges
recognised and the current carrying value of
intangible assets. The Committee is satisfied
with the methodology used in assessing theposition at 31 March 2017.

Valuation of investment
in associate undertaking
Following the disposal of the Omicron
businesses in May 2015 to Scienta ScientificAB, the Group has held a 47% shareholdingin the resultant business combination.
The Group has a minority shareholding andappoints two out of five directors to Scienta
Scientific AB’s board. On this basis, theCommittee is satisfied with management’s
assessment that the Group does not control
Scienta Scientific AB. Accordingly it has beentreated in the Group Financial Statements as
an investment in an associate.

The investment in Scienta Scientific AB isaccounted for under the equity method of
accounting and is assessed for impairment.
As set out at Note 7 to the Financial
Statements, management performed a reviewof the carrying value of this investment anddetermined that an impairment of £8.0 million
was required to reduce the value of its equity
investment to £3.8 million. The Audit andRisk Committee has reviewed a detailed paperon this impairment and is satisfied that it has
been performed appropriately.

Provisions for product warranty
and related matters
The Group faces an inherent risk ofpotential claims in relation to productquality or intellectual property infringement.
Management has presented its analysis ofpotential exposure to these risks and the Audit
and Risk Committee has also discussed thelevel of provisions recognised in the Financial
Statements with KPMG. Given the inherent
uncertainty in such matters it is likely thatthe actual settlement cost arising from any
potential claim would vary from the amounts
provided. The methodology to estimate
potential exposure in this area has been
calculated in a manner consistent with theprior year.

UK defined benefit scheme
IFRS requires the Group to value its pension
deficit at the difference between the netpresent value of the scheme liabilities andthe assets of the scheme as at the balance
sheet date. The reported deficit has reducedby £9.5 million to £21.5 million as at
31 March 2017.
IFRS requires the Group to appoint an
external actuary to give advice as to suitable
assumptions and to calculate the value ofthe liabilities at the balance sheet date.
The Group has appointed Aon Hewitt,
the pension scheme‘s actuary, to performbi-annual valuations on its behalf foraccounting purposes.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

AON Hewitt recommended suitable
assumptions which were, except as noted
below, in line with previous years. These
recommendations were accepted bymanagement and form the basis of the
updated valuation.
The valuation of the scheme assets wasprovided by PSolve (the scheme’s investment
manager) in accordance with market practicefor valuing investment assets.
In calculating the deficit AON Hewitt usedmember data from the March 2015 triennial
valuation prepared for the scheme’s Trustees.
In respect of the calculation of the discountrate, the actuary has refined the methodology
so as to exclude debt issued by universities
from the group of borrowers used to establish
an AA rated bond yield. The Group considers
this more accurately reflects the financing
cost of companies which are similar to Oxford
Instruments. This change was first adopted at
the half year. This change in methodology has
the impact of reducing the reported deficit by£6.5 million compared to the previous basis.
Further, the actuary used the latest mortality
tables which give lower life expectancies thanthose used in the past. The impact of thisrevision was to reduce the reported deficit
at 31 March 2017 by £5.6 million.

Tax provisions
The Group has a number of tax positions
where the outcome is uncertain and ultimately
depends on the view taken by tax authorities,
both in the UK and overseas. The net tax
liability reported in the Financial Statements is
effectively reduced as a result of tax efficient
activities including claims for technology
related tax reliefs, benefits from a tax efficientfinancing structure, and deferred tax assets(e.g. timing differences and carried forward
losses). In preparing the provisions, judgement
has been exercised by management with theaim of recording assets and liabilities at thefair value of the most likely outcome. The
Committee is satisfied that judgement has
been applied consistently with prior years.

03: Financial Statements

04: Company Information

Adjusted profit and EPS

External auditor

As explained in Note 1 to the Financial
Statements, the Group applies adjustments
to the statutory definition of profit and EPS
to present adjusted profitability and earnings
as the Board believes they present a clearer
picture of the financial performance of theGroup. In the year ended 31 March 2017,adjustments before taxation totalled£61.5 million of which £48.7 million relate to
the amortisation and impairment of acquired
intangible assets. A further £8.0 million
relates to the impairment charge against
the investment in the Scienta Omicron joint
venture and impairments against otherintangible assets amounted to £2.9 million.
Other adjustments arose from non-recurring
and acquisition and disposal related activities(together a charge of £3.1 million) anda mark‑to‑market gain of £1.2 million
on derivative financial instruments. The
Committee has received a detailed analysis
from management to demonstrate that theGroup’s definitions have been consistently
applied. These items involve careful judgement
and the Committee is satisfied that they havebeen rigorously considered by management
and appropriately disclosed.

The Committee monitors the performance,
objectivity and independence of the external
auditor. It also recommends the appointmentof the external auditor to the Board and is
responsible for approval of its fees.

Misstatements
Management reported to the Committeethat they were not aware of any material
misstatements or immaterial misstatements
made intentionally to achieve a particularpresentation. The auditor reported aschedule of unadjusted audit differences to
the Committee. Following discussion withmanagement and the auditor, the Committee
were satisfied that the adjustments were
not material to the Financial Statements
and therefore remained unadjusted.
The Committee concluded that it was satisfied
that the auditor had fulfilled its responsibilities
with diligence and professional scepticism.

At the Audit and Risk Committee meeting inJanuary 2017, KPMG, the external auditor,
set out its plan for undertaking the external
audit. KPMG’s audit planning memorandum
set out its proposed audit methodology,
scope and draft materiality for its audit of
the Financial Statements for the year ended
31 March 2017. It was compiled following
meetings with, inter alia, the Group FinanceDirector, Chairman of the Board and Chairmanof the Audit and Risk Committee. Further,it covered KPMG’s assessment of key areasof audit risk and its planned approach foraddressing them. After due consideration, theCommittee approved KPMG’s audit strategy
and planning memorandum.
The Committee assesses the effectivenessof the audit process through the reporting
received from KPMG at the half year
and year end and through feedback
from key stakeholders at all levels acrossOxford Instruments. Its assessment of theeffectiveness of the process for the year ended
31 March 2017 will take place in July 2017.
KPMG was reappointed as auditor following
a tender process in 2014. Under the rules foraudit tendering and rotation implemented
in June 2016, the Group shall be required
to replace KPMG as auditor by no later
than 31 March 2021. In the meantime, theCommittee shall monitor the reappointment
of KPMG on an annual basis and will arrange
for a tender process when it considers it isappropriate to do so.

After reviewing the presentations and reports
from management, and after consulting,where necessary, with the external auditor theCommittee was satisfied that the Financial
Statements appropriately addressed the criticaljudgements and key estimates (both in respect
to the amounts reported and the disclosures).
The Committee was also satisfied that thesignificant assumptions used for determining
the value of assets and liabilities, including thepension commitments of the Group, had been
appropriately scrutinised and challenged.

Oxford Instruments plc Report and Financial Statements 201755

Audit and Risk Committee Report continued
Auditor independence
In its assessment of the independence of theauditor the Committee receives confirmationof any relationships between the Groupand KPMG that may have a bearing on its
independence and receives confirmation that
it is independent of the Group.
To further safeguard the objectivity andindependence of the external auditor and to
mitigate the risk of the external auditor firm’s
independence becoming compromised, theCommittee has a formal policy governing
the engagement of the external auditor
to provide non-audit services. In light ofchanges to the Corporate Governance Codethat took effect in June 2016, all non-audit
related engagements over £50,000 require
formal advance approval by the Committee.
The details of the audit fees for the year,
together with fees for non-audit services, are
set out in Note 4 (page 100) to the Financial
Statements. In the year ended 31 March 2017,
audit fees paid to KPMG were £421,000 andnon‑audit fees were £142,000. This represents
a non‑audit to audit fee ratio of 0.34:1.

Internal audit
The Audit and Risk Committee seeks
assurance over the effective design andoperation of internal controls from the internal
audit function. This is delivered through theannual internal audit programme which
includes a core focus on internal financial
controls. These financial controls audits are
performed at business units on a rotational
basis and are complemented by a numberof risk based audit topics which are typically
performed across all operational business
units. The internal audit methodology for
financial audits was updated in the first halfof 2016/17 and delivery of the updated
programme commenced in the second halfof the financial year.

56

In the course of the second half of 2016/17,
the revised internal financial audit programme
was delivered at three operational business
units (NanoAnalysis, NanoScience and Plasma
Technology) and at the German Federal Office.
The internal audit plan for 2017/18 includes
coverage of five further operational business
units and two Federal Offices.
The current internal audit strategy is to focus
on the fundamentals of financial controls
and governance, to establish whether there
is an effective control environment at abusiness unit level and to identify potential
opportunities for improvement. In addition to
the audits performed at business units, theaudit programme will be delivered across theprincipal Federal Offices.
The internal audit plan for 2017/18 wasapproved by the Audit and Risk Committee inJanuary 2017. It considered whether the scopeof the plan was sufficient to address the key
requirements of the audit strategy. Factors thatwere considered included the levels of risk,other assurance activities and findings fromprevious audits (both internal and external).
The Chairman of the Audit and Risk
Committee and the Group Internal Audit andRisk Manager have regular meetings during
the year. The latter has a direct reporting
line to the Chairman of the Audit and Risk
Committee and also meets regularly with theexternal auditor, independently from senior
management, to discuss areas of potential
risk and audit focus. All financial internal
audit reports are provided to the Audit andRisk Committee and the external auditor on atimely basis once finalised, in addition to therelevant business unit/Federal Office and theGroup Finance Director.

The Committee monitors the resources andscope of work of the Group internal audit
function to ensure that its activities are
directed to the most appropriate areas, taking
into account the requirements of corporate
governance and specific risks identified fromthe risk management process.

Internal control andrisk management
The maintenance of effective internal
controls and risk management systems are
critical to mitigating the risks faced by theGroup. As both the Group and the external
environment change, we are required torespond and consider whether existingmechanisms are sufficient to provide theassurance required. During the year, theAudit and Risk Committee has evaluatedthe effectiveness of internal audit and themechanisms used for risk management.
The Board has also considered its approach
to risk, setting its risk appetite and the means
used to cascade this throughout the Group.
The Audit and Risk Committee maintains a
critical role in its oversight of the risk agenda
and the operation of internal controls.
The Group risk register is a key output of risk
management activities. It consolidates andaggregates risks identified within the various
business units and overlays those business
unit risks with risks that materialise at a Grouplevel (e.g. financing risks). The CEO and Group
Finance Director hold a meeting with the Headof Internal Audit and Risk Management every
quarter to review and update the Group Risk
Register. Once complete, this document forms
the basis for discussions on risk at Board level
and is reviewed at each meeting of the Audit
and Risk Committee. On occasions, the Board
instructs a review/audit of key risks identified
in the Group Risk Register to evaluate existingmechanisms for mitigating the risk and to
identify areas for improvement.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceFollowing the result of the UK referendum inJune 2016, the Board instructed the creationof a Brexit Committee to identify and reporton key risks to the Group arising from Brexit.
The Committee meets on a monthly basis
and reports to the Management Board.
A detailed list of Brexit‑related risks has been
identified and reported. Where relevant,mitigating actions have been identified andare being monitored.
The Committee reviewed the system ofinternal financial control on behalf of theBoard and satisfied itself that the Group is
meeting the required standards both for theyear ended 31 March 2017 and up to thedate of approval of this Report and Financial
Statements. No concerns were raised with
the Committee in the year about possible
improprieties in matters of financial reporting.
In coming to these conclusions, theCommittee reviewed reports from internal
audit and from the external auditor on internal
control findings. It obtained reviews into thecontrol environment and risk management
process and considered the outputs fromother assurance activities relating tooperations, health and safety, NPI, humanresources and IT.

03: Financial Statements

04: Company Information

Whistle-blowing
The Group’s Business Malpractice Policy
comprises an internal process that has beencommunicated directly to all employees
by which employees can raise a concern,
including concerns relating to fraud,
bribery and/or corruption, damage to theenvironment, criminal activity or danger tohealth and safety, in the knowledge that it
will be taken seriously, treated as confidential
and that no action will be taken against theemployee raising the concern. Reporting
channels include an independent third party
provider that provides summary reports to
the Group Compliance Team (comprising
the Director of Legal Affairs and the GroupInternal Audit and Risk Manager). There isalso provision within the policy for employees
to raise concerns directly with the Senior
Independent Director. This policy is reviewed
annually by the Committee. The Headof Internal Audit and Risk Management
maintains a log of all matters reported throughthe confidential third‑party provider and theirresolution. No serious matters were reported
during the year ended 31 March 2017.

Summary
The Committee has concluded that, as a resultof its work during the year, it has acted inaccordance with its terms of reference andfulfilled its responsibilities. I will be available
at the AGM to answer any questions.

Mary Waldner
Audit and Risk Committee Chairman
13 June 2017

Oxford Instruments plc Report and Financial Statements 201757Nomination Committee Report
The Committee supports the Board
in operating a formal, rigorous andtransparent process for the appointmentof new Directors to the Board.

Alan Thomson
Chairman of the Nomination Committee

Dear Shareholder,I am pleased to introduce the Nomination
Committee report for 2016/17. The
Committee’s key objective is to support theBoard in fulfilling its responsibilities to ensure
there is a formal, rigorous and transparent
process for the appointment of new Directors
to the Board and to ensure that effective
succession planning processes are in placeacross the Group.
There have been a number of changes tothe membership of the Board over the last
18 months, culminating with three Directors,
including Nigel Keen, Chairman, and Jock
Lennox, Senior Independent Director, stepping
down at the AGM in September 2016. Aftermy appointment as Chairman I undertook areview of the composition of the Board anddetermined with the Committee that theBoard would benefit from the appointmentof a further Non-Executive Director who
could also potentially serve as Senior
Independent Director. With the help of theZygos Partnership, we have undertakensuch a search and have met with a numberof interested candidates. We are pleased toreport that Stephen Blair has agreed to join
our Board as a Non‑Executive Director andSenior Independent Director with effect from
1 July 2017.
The Committee will continue to focus
on ensuring that the present and futurecomposition of the Board is appropriate forthe delivery of the Group’s strategy and that
all relevant Governance Code requirements
continue to be met.

Alan Thomson
Chairman of the Nomination Committee
13 June 2017

58

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

The Nomination Committee
The Nomination Committee comprises
all the Non-Executive Directors, under thechairmanship of the Chairman of the Board.
• The Committee is responsible for assisting
the Board in the formal selection andappointment of Directors. It considers
potential candidates and recommends
appointments of new Directors to
the Board.
• The appointments are based on meritand against objective criteria includingtime available and the commitment thatwill be required of the potential Director.
• There is a formal, rigorous andtransparent procedure for theappointment of new Non-Executive
Directors to the Board, the prime
responsibility for which is delegatedto the Nomination Committee. Eachappointment process begins with anevaluation of the balance of skills,
knowledge and experience existingon the Board that is effected througha series of meetings between theCommittee Chairman and Directors.
• The Nomination Committee
takes external advice when
considered appropriate.
• The Committee also considers succession
planning for the Board and the top levelof senior management.

Principal activities of theCommittee during the year
Constitution of the Board• Jennifer Allerton advised the Committeethat she was not putting herself forward
for re-election as a Non-Executive Director
at the 2016 AGM. As reported last year,

03: Financial Statements

Jock Lennox and Nigel Keen stood downat the 2016 AGM and successors for
Chairman of the Audit and Risk Chairman
and Chairman to the Board had alreadybeen identified and are now in place.
• After the AGM, the Committee carriedout a review of the constitution of theBoard. With the changes to the Board in
2016, and taking into account the skills,
knowledge and experience on the Board,it decided that a further Non-Executive
Director be appointed.
• The Committee evaluated the balanceof skills, knowledge and experienceon the Board and used the output of
this evaluation to identify the skills it
would like introduced to the Board.
The Committee, with the help ofexecutive search consultants, the Zygos
Partnership, drew up a description of
the role and desired capabilities forcandidates and, taking into accountboth diversity within, and the balanceof skills on, the Board, developed ashortlist of qualifying candidates.
• Candidates met with the Chairman
and Chief Executive and the
proposed candidate met several
Directors individually.
• Following these meetings, theNomination Committee consideredeach Director’s feedback and made afinal recommendation to the Board of
the appointment of an Independent
Non-Executive Director who also
had the experience necessary to bean appropriately qualified Senior
Independent Director.

04: Company Information• Following this process, it has beenannounced that Stephen Blair will be
appointed to the Board as an Independent
Non-Executive Director with effect from
1 July 2017 and will be appointed Senior
Independent Director from the same date.
All Directors of the Board are put forward for
re-appointment by Shareholders each year at
the AGM and this includes those appointed
during the year. The Committee, taking into
account the performance and value that each
Director brings to the Board, has considered
whether each of the Non-Executive andExecutive Director appointments should be
renewed for a further year and has confirmedthat this is indeed the case and accordingly
a resolution to reappoint each Director will
be put to Shareholders at the Company’s
forthcoming AGM.

Succession planning• The Group HR Director and the Chief
Executive presented the work that had
been carried out within the business on
succession planning, talent management,
and leadership, including at Management
Board and Executive Director level.
• The Chairman updated theBoard’s succession plan for
Non‑Executive Directors.

Other• The Nomination Committee also carriedout its annual review of the performanceof the Chief Executive and it, excluding the
Chairman, also reviewed the performanceof the Chairman.

Attendance at meetings year ended 31 March 2017															Nomination							Committee

Number of meetings held							Date ofappointment
to Committee

4

Number of meetings attended:		
Alan Thomson (Chairman from 13 September 2016)					

41 June 2016

Richard Friend							

41 September 2014

Thomas Geitner 							

415 January 2013

Mary Waldner							

44 February 2016

Nigel Keen1 (Chairman to 12 September 2016)					

225 February 1999

Jennifer Allerton1							

211 June 2013

Jock Lennox1							2		 1 April 2009

Number of meetings in attendance: 		
Ian Barkshire							

2Gavin Hill							

11. Nigel Keen, Jennifer Allerton and Jock Lennox resigned from the Board on 13 September 2016. They each attended all meetings prior to that date.

Oxford Instruments plc Report and Financial Statements 201759

Remuneration Report
On behalf of the Board, I am pleased topresent the Directors’ Remuneration Reportfor 2016/17.

Thomas Geitner
Chairman of the Remuneration Committee

Executive Directors’ remuneration at a glance
Total remuneration 2016/17
Notes to these figures can be found on pages 64 and 65.
				
				
				

Base			salary Benefits Pension
£000
£000
£000

Annual		
bonus
LTIP
£000
£000

Total
£000

Ian Barkshire				

398

20

49

231

—

698

Gavin Hill				

287

15

37

182

—

521

Total remuneration payableOntarget

60

32%
27%

£1,542k£1,122k

41%

Group Finance Director£384k

Remuneration
performance scenarios
The charts illustrate how the compositionof the Chief Executive’s (“CEO”) andGroup Finance Director’s (“GFD”)
remuneration packages could vary at
different levels of performance under theCompany’s Remuneration Policy as a total
value opportunity.

Maximum
payable

28%

44%

£492k

Below
targetFixed pay

28%

100%

100%

Bonus

41%

Chief Executive

Belowtarget

LTIPs

28%

On
targetMaximum
payable

28%
32%

27%

44%

£876k

£1,204k

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

Dear Shareholder,

Review of Remuneration Policy

It has been another busy year for theRemuneration Committee. On top of theusual standing agenda items this year theCommittee’s time has been spent reviewing
the Directors’ remuneration policy inpreparation for our 2017 AGM, which has
coincided with the appointment of our new
CEO and GFD and their review of the Group’s
overall business strategy.

Shareholders must approve our Directors’
Remuneration Policy at least every three years.
Our current Policy was approved in 2014
and re-approval is therefore required at our2017 AGM.

The former CEO and GFD left during 2016/17.
Their remuneration arrangements on cessation
were determined and disclosed in last year’s
Remuneration Report. Salary, benefits andpension were paid to the date of cessation
with no annual bonus for the period of
employment during 2016/17 and all long-term
incentive awards lapsing on cessation.

Corporate performanceand annual bonus paymentsfor 2016/17
The annual bonus for 2016/17 is determinedby a combination of cash, sales and profit
financial targets, and non-financial strategic
targets. As in previous years, the Committee
set stretching performance targets whichwere clearly linked to the strategy andfinancial performance of the Group. Group
performance has overall been in line withexpectations with the organic sales and cash
conversion targets being met and profit
before tax just above threshold performance.
In relation to the strategic targets set fora small part of the bonus, the Committee
carefully reviewed performance against theobjectives and scored the CEO at 95% and the
GFD at 100%, noting the strong performanceof our new Executive Directors in driving
the strategic repositioning of the Group.
Full details of the annual bonus outturn of
56.25% of maximum for the CEO and 57%
of maximum for the GFD are set out in the
Annual Report on Remuneration.

The Remuneration Committee reviewed thecurrent policy carefully in light of the evolving
strategy and concluded that no fundamental
changes are required to the current quantum
and structure of pay. Accordingly, limitedchanges will be made as follows:• greater flexibility to select performance
conditions for the Performance Share Plan(“PSP”) which are best aligned to thebusiness strategy, rather than as currently
having specific measures (EPS and TSR)
bound into the Policy;• adding a two-year holding period
on vested PSP awards and increasing
shareholding guidelines for Executive
Directors from 100% to 150% of basesalary, which will bring the policy into linewith current investor expectations;• a harder PSP award limit so that, otherthan in truly exceptional circumstancessuch as recruitment, there is a cap of150% of salary, which is aligned tothe current grant level. Previously the
PSP limit could be exceeded in normal
circumstances, up to 250% of salary, withshareholder consultation; and• all incentive payments will ultimately beat the discretion of the Committee, which
may override the formulaic outturn of theannual bonus or PSP if, for example, it fails
to represent the shareholder experience ofperformance over the performance period.

There were no long-term incentive awards
with performance periods ending during theyear under review.

Oxford Instruments plc Report and Financial Statements 201704: Company Information

Implementation of
Policy for 2017/18
Executive Directors
Effective from 1 July 2017, the Executive
Directors’ salaries will be increased by
2.5%, in line with general workforce
increases. Annual bonus and PSP award
levels are unchanged at 100% and 150%of salary respectively.
As explained in more detail in our Strategy
section on pages 12 and 13, our strategy
focuses on improving the profitability of theGroup, its capital efficiency and the businessportfolio to develop higher margin and growthbusinesses. To this end, the performance
metrics for the incentive awards are being
adjusted to better mirror these objectives.
Small changes are being made to theweighting of metrics for the 2017/18 annual
bonus with profit before tax (45%), revenue
growth (10%), cash flow (20%) and strategic
objectives (25%). This represents a slight shift
in weighting from revenue (-10%) to strategic
objectives (+10%) to link more of the bonus
to clear and defined strategic objectives as theCompany undergoes a period of transition.
There is still significant emphasis on revenue,
profit and cash to retain a strong focus on
improving financial performance at the sametime as strategically repositioning the business.
Appropriately stretching sliding scales will
be set for each financial metric, with full
disclosure of targets and performance againstthem being made in next year’s Report and
Financial Statements.
For the FY2018 PSP awards a ROCE target will
be set for 50% of the award in place of thecurrent TSR metric. This will provide a tighter
link to the business strategy over the next few
years to support and incentivise management
to make the changes needed to our businessportfolio by ensuring that there is efficient
redeployment of our capital into higher
margin and growth businesses.

61Remuneration Report continued
Implementation of Policy
for 2017/18 continued
Executive Directors continued
EPS growth targets will be set for the other
50% of the award reflecting the continued
importance of growth in profitability. The
Committee considered retaining an elementof TSR so that there are three metrics but
this would make the PSP overly complex.
The two-year holding period for PSP awards
and enhanced share ownership requirements
will ensure that there is a strong long termalignment of interest between executives andShareholders, particularly in the absence of a
TSR measure.
The targets set for the annual bonus and PSP
awards take into account the impact of therecently announced disposal of our Industrial
Analysis business and the EPS and ROCE
targets for the 2017/18 PSP awards are set
out in the Annual Report on Remuneration.

Conclusion
Two resolutions on remuneration will be
brought to Shareholders at our AGM to beheld on 12 September 2017. The first is thebinding vote to approve our new Policy andthe second is the annual advisory vote toapprove the Annual Report on Remuneration,
which sets out the remuneration outcomes forthe year under review and how the policy will
be implemented for the year ahead.
I hope that you will be supportive of bothresolutions. If you have any queries in themeantime I will be pleased to engage withyou either at the AGM or beforehand.
Yours sincerely

Thomas Geitner
Chairman of the Remuneration Committee
13 June 2017

Non-Executive Directors’ fees
Following a Board review, the Non-Executive
Director fees, which were last reviewed inJuly 2014, will be increased by 8% from
1 July 2017. The Chairman’s fee will increaseby 2.5%, in line with the salary increases
for the general workforce. In addition,
the additional fee for the role of Senior
Independent Director will increase from£5,000 to £7,500. The additional fee forchairing the Remuneration and Audit andRisk Committees remains at £7,500.

62

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Part A: Directors’ Remuneration Policy
This part of the Remuneration Report sets out the Group’s remuneration policy for its Directors. As it is three years since ourlast policy vote, a revised Policy will be submitted to a binding Shareholder vote at our AGM on 12 September 2017. Subject toshareholder approval the new Policy will take effect from that date and, unless changed with Shareholders’ prior agreement,
will stay in place until September 2020.

Summary of the changes to thecurrent Remuneration Policy
The Committee is proposing some changes
to the current Policy to bring it in line withlatest investor guidance and to provide alittle more flexibility in its operation. There
are no changes proposed to actual quantum
or structure.
The changes are as follows:• the normal Performance Share Plan award
limit is reduced from 250% of base salary
to 150% of base salary. This lower limit
reflects the current PSP grant level and ourneeds for the policy period. Awards canonly be made to the 250% of salary limit
in truly exceptional circumstances;• there will be flexibility to choose a broader
range of performance metrics for the
Performance Share Plan than the current
policy of just EPS and TSR;
• there will be an explicit provision for theCommittee to be able to over-ride theformulaic outturn of any incentive payment
if, for example, there are circumstanceswhere such a payment fails to reflect wider
company performance and shareholder
experience;

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

• there will be a two-year holding period
applied to vested PSP awards for awards
granted in 2017/18 onwards; andOther matters taken
into consideration in
determining policy
The Committee reviews the Executive
Directors’ packages periodically, taking
account of the level of remuneration
paid for comparable positions in similar
companies. Comparative pay data is usedcarefully recognising the potential for an
upward ratchet in remuneration caused byover‑reliance on such data.
In determining the remuneration of the
Executive Directors, the Committee also
takes into account the general trends in pay
and conditions across the Group as a whole.
The Committee seeks to ensure that theunderlying principles which form the basis for
decisions on Directors’ pay are consistent withthose on which pay decisions for the rest of
the workforce are taken. Employees are notcurrently consulted on Executive pay. However,
the Committee will keep this under review.
The Committee considers feedback from
Shareholders received at each AGM, together
with any feedback from additional meetings,
as part of any review of Executive Director
remuneration. In addition, the Committee
engages proactively with Shareholders where
any material changes to the remuneration
policy are proposed.

• share ownership guidelines will be
increased from 100% to 150% ofbase salary.

Oxford Instruments plc Report and Financial Statements 201763

Remuneration Report continued
Remuneration Policy
The following table summarises the key features of our Remuneration Policy.
Element of pay

Purpose and link to strategy

Operation

Maximum opportunity

Base salary• To provide a competitive and appropriate
level of basic fixed pay to recruit andretain superior talent and avoid excessive
risk taking that might otherwise result
from an over-reliance on variable
remuneration.

• Reviewed annually with any increaseusually effective 1 July.

• There is no maximum or maximum
annual increase.

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

• Higher increases than the average
percentage for the workforce may beappropriate, for example, where an
individual changes role, where thecomplexity of the Group changes, where
an individual is materially below market
comparators or is appointed on a below
market salary with the expectationthat his/her salary will increase withexperience and performance.

• Reflects the experience, performance andresponsibilities of the individual.

• Set with regard to market datafor comparable positions insimilar companies in terms of size,internationality, business model, structure
and complexity, including within
the industry.
Benefits• Provided on a market-competitive
basis, aids retention and follows reward
structure for all employees.

• Currently include but are not limited
to the cost of:• life assurance;• private medical;• company car benefit (car, driver,car allowance); and/or• overnight hotel accommodation
where necessary to enable theexecutive to carry out his duties
efficiently at the Head Office andother Company sites.

• The value of benefits varies from year
to year depending on the cost to theCompany and is not subject to a specificcap. Benefit costs are monitored andcontrolled and represent a small elementof total remuneration costs.

• The benefits provided may be subject toamendment from time to time by theCommittee within this policy.
• Relocation costs and other incidental
expenses may be provided as necessary
and reasonable.
• Benefits are not part ofpensionable earnings.
Pension• To provide a market-competitive benefit
for retirement.

• Company contributions to a money
purchase pension scheme; or• 14% of base salary.

• Salary supplement where HMRC annual
or lifetime allowances are exceeded.
Annual bonus• Drives and rewards the successfulachievement of annual targets set at thestart of the year.

• Performance targets based on the key
performance indicators and strategic
objectives of the business.
• At least 70% of the bonus based on
financial metrics and the balance on
non‑financial strategic metrics.
• Clawback provisions apply for
misstatement, error or misconduct.

64• 75% of salary at year end payable attarget performance.
• 100% of salary at year end payable for
maximum performance.
• Bonuses start to be earned from
0% of salary for achieving thresholdperformance.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Element of pay

Purpose and link to strategy

Operation

Maximum opportunity

Long‑term
incentives• To incentivise the Executives and reward
them for meeting stretching targets inthe long term which accrue substantial
value to and align the Directors’ interests
with Shareholders’.

• Annual awards under the 2014
Performance Share Plan of performance
shares (or nil‑cost options) withvesting subject to achievement of
performance targets. Both the vestingand performance period will be over aminimum of three years.

• The maximum normal award limit
is 150% of salary. This limit may be
exceeded in exceptional circumstances
e.g. recruitment, up to the limit in the
PSP rules of 250% of base salary.

• Facilitates share ownership to provide
further alignment with Shareholders.

• The Committee will set targets eachyear based on long‑term financial
performance and/or a stock market
based metric.
• 25% of the awards will vest at thresholdperformance under each performance
condition.

• Dividend equivalents may accrue on the
PSP awards over the vesting period andfor awards granted from 2018 to the endof the post vesting holding period andbe paid out either as cash or as shareson vesting or at the end of the holding
period as appropriate and in respect of
the number of shares that have vested.

• Clawback may be applied for
misstatement, error or misconduct.
• For PSP awards granted from 2017/18,
vested awards must be held for a further
two years before sale of the shares (otherthan to pay tax).
All-employee
share schemes• To encourage employee shareparticipation.

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

• The schemes are subject to the limits
set by tax authorities.

• The SIP is open to all UK permanent staff
employed for at least six months.
Shareholding
guideline• To further align Executive Directors’interests with Shareholders’.

• The Committee has establishedshareholding guidelines which encourage
the Executive Directors to build andretain a holding of Company sharesequivalent to 150% of base salary.

• Not applicable.

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

• To remunerate the Chairman and
Non-Executive Directors.

• Reviewed annually.
• Determined and reviewed taking into
account time commitment, experience,
knowledge and responsibilities of therole as well as market data for similarroles in other companies of a similar size
and/or business to Oxford Instruments.

• There is no prescribed maximum
or maximum annual increase.

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

Oxford Instruments plc Report and Financial Statements 201765

Remuneration Report continued
Differences in the Remuneration
Policy of the Executive Directors
and the general employees
There are no material differences in the
structure of remuneration arrangements
for the Executive Directors and senior
management population, aside from quantum
and participation levels in incentive schemes,
which reflect the fact that a greater emphasis
is placed on performance-related pay for
Executive Directors and the most seniorindividuals in the management team. Outside
the senior management team, the Company
aims to provide remuneration structures for
employees which reflect market norms.

Choice of performance measuresand approach to setting targets
The Committee selects financial and strategic
measures for the annual bonus that are key
performance indicators for the business overthe short term. For the long‑term incentives,
the Committee will select a combinationof measures that provide a good focus on
the outcomes of the Company strategy
together with sustainable improvements
in long‑term profitability.
The Committee sets appropriate anddemanding targets for variable pay in thecontext of the Company’s trading environmentand strategic objectives. The targets forthe annual bonus plan will be set eachyear with reference to the Company’s
budget and business and strategic plan.
The Committee will review the performance
conditions and targets for awards under the
PSP each year prior to awards being madetaking account of the Company’s internalfinancial planning, market forecasts and thebusiness environment.

Discretions retained by theCommittee in operating its
incentive plans
The Committee may adjust the formula‑driven
outturn for an annual bonus or PSP
performance condition in the event that
the Committee considers that the quantum
would be inappropriate in light of wider
Company performance or overall shareholder
experience. Any such use of discretion
would be detailed in the Annual Report
on Remuneration in Part B.

The Committee operates the Group’s various
incentive plans according to their respective
rules and in accordance with HMRC rules
where relevant. To ensure the efficientadministration of these plans, the Committee
may apply certain operational discretions.
These include the following:• select the participants in the plans;• determine the timing of grants
and/or payments;• determine the quantum of grants
and/or payments;

The Committee may adjust the targets and/or
set different measures and alter weightings forexisting annual bonus plan and share-based
awards only if an event occurs which causes
the Committee to reasonably consider that theperformance conditions would not without
alteration achieve its original purpose and thevaried conditions are no less difficult to satisfy
than the original conditions. Any changes, andthe rationale for those changes, will be set out
clearly in the Annual Report on Remunerationin respect of the year in which they are made.

Legacy arrangements• determine the extent of vesting basedon the assessment of performance;• determine “good leaver” status, andwhere relevant, the extent of vesting in
the case of the share-based plans;• where relevant determine the extent ofvesting in the case of share-based plansin the event of a change of control;• making the appropriate adjustments
required in certain circumstances (e.g.
rights issues, corporate restructuring
events, variation of capital and special
dividends); and• the annual review of weighting of
performance measures, and setting targets
for annual bonus plan and discretionary
share plans from year to year.

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

Remuneration scenarios
for Executive Directors
The charts below show the level of
remuneration potentially payable to
Executive Directors under different
performance scenarios for the financial year
2017/18 (see notes for assumptions):

Remuneration scenarios
Chief Executive (“CEO”)

Group Finance Director (“GFD”)£(000s)
1,600
1,400

£1,542

LTIPs
Annual bonus
Fixed pay

1,200

£1,204£1,122

1,000

41%

28%

£876

800
600

£492

£384

400
200
0

28%

27%

28%

41%

28%

27%

100%

44%

32%

100%

44%

32%

Below
targetTargetMaximumBelowtargetTargetMaximum

Assumptions for charts above:
1. Fixed pay comprises salary levels as at 1 July 2017, pension contribution of 14% and the value of benefits received in
2016/17.
2. The on-target level of bonus is 75% of the maximum opportunity, i.e. 75% of salary.

Remuneration scenarios

3. The on-target level of vesting under the annual PSP is taken to be 50% of the face value of the award at grant,
i.e. 75% of salary.Chief Executive (“CEO”)
Group Finance Director (“GFD”)
4. £(000s)
The maximum level of bonus and vesting under the PSP is 100% of the bonus opportunity and 100% of the face value of the
PSP award at grant, i.e. 100% and 150% of salary respectively.

1,600£1,542LTIPs
5. No share priceappreciation has been assumed for the PSP awards and for simplicity SIP awards, as well as dividend
Annualbonus
equivalents, areexcluded.
1,400
Fixed pay

1,200
1,000

66

41%

28%

£876
41%
Oxford Instruments plc Report and Financial Statements 2017
28%
27%

800
600

£492

£1,204£1,12228%

01: Strategic Report

02: Governance

Recruitment and promotion
policy for Executive Directors
In setting total remuneration levels and inconsidering quantum for each element of
the package for a new Executive Director, theCommittee takes into account the skills andexperience of the individual, the market rate
for a candidate of that experience and theimportance of securing the relevant individual.
The Company seeks to align the remuneration
package with the Remuneration Policy
approved by Shareholders, including the
maximum plan limit for the long‑term
incentives and an annual bonus entitlement inline with that of the other Executive Directors.
Salary is provided at such a level as required
to secure the most appropriate candidate.
For new appointments base salary and total
remuneration may be set initially at below
normal market rates on the basis that it may
be increased once expertise and performancehas been proven and sustained.
Specific variable remuneration performancetargets can be introduced for an individual
where necessary for the first year of
appointment if it is appropriate to do so toreflect the individual’s responsibilities and thepoint in the year in which he or she joined
the Board.
Flexibility is retained to offer additional cash
and/or share-based payments on appointment
in respect of deferred remuneration or benefit
arrangements forfeited on leaving a previous
employer. The Committee would look to
replicate the arrangements being forfeitedas closely as possible and in doing so, willtake account of relevant factors including
the nature of the deferred remuneration,
performance conditions, attributed expectedvalue and the time over which they would
have vested or been paid. Such awards may
be made under the terms of the PSP or as
permitted under the Listing Rules.

03: Financial Statements

04: Company Information

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

Ian Barkshire

11 May 2016

Rolling contract

Gavin Hill

9 February 2016

Rolling contract

Details of contractual terms and the policy on cessation of employment are summarised in thetable below.
Contractual
provision

Detailed terms

Notice period

Twelve months by the Company or by the Director.

Termination
payment

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

Remuneration
entitlements

Pro-rata bonus may also become payable for the period of active service along withvesting for outstanding share awards (in certain circumstances – see below).

Changeof control

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

Any share-based entitlements granted to an Executive Director under the Company’s share plans
will be determined based on the relevant plan rules. The default treatment for existing awards
is that any unvested awards lapse on cessation of employment. However, in certain prescribedcircumstances, such as death, injury, ill health, disability, retirement or other circumstances atthe discretion of the Committee, “good leaver” status may be applied. For good leavers, under
the ESOS awards will vest at cessation to the extent the performance condition is satisfied, butwith the Committee having discretion to vest on the normal vesting date if appropriate and to
waive the performance condition. Under the 2014 PSP, awards to good leavers will vest on thenormal vesting date, subject to the satisfaction of the relevant performance conditions at thattime and be scaled back to reflect the proportion of the performance period actually served.
The Committee has discretion in exceptional circumstances to disapply time pro-rating and/or tomeasure performance to and vest awards at the date of cessation. Vesting at cessation would be
the default position where a participant dies.
In the event of a takeover, awards vest to the extent the performance condition is satisfied andare scaled back to reflect the actual period of service with the Committee having the discretion,acting fairly and reasonably, not to scale back.

For an internal appointment, any variable
pay element awarded in respect of the priorrole may be allowed to pay out according to
its terms, adjusted as relevant to take into
account the appointment. In addition, anyother ongoing remuneration obligations
existing prior to appointment may continue.
For external and internal appointments, theCommittee may agree that the Company willmeet certain relocation, legal and any otherincidental expenses as appropriate.

Oxford Instruments plc Report and Financial Statements 201767Remuneration Report continued
External appointments

PART B: Annual Report on Remuneration

The Board encourages Executive Directors toaccept appropriate external 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. Currently, Executive Directors do
not hold any outside Directorships.

The financial information in this part of the report has been audited where indicated.

Non-Executive Directors

The role of the Committee includes:

For the appointment of a new Chairman or
Non-Executive Director, the fee arrangement
would be in accordance with the approved
remuneration policy in place at the time.

• considering and determining the remuneration policy for the Executive Directors;

Non-Executive Directors do not have service
contracts but are appointed under letters of
appointment for an initial period of three
years with subsequent reviews. Non-Executive
Director appointments are now renewed for
periods of one year terminating at the next
AGM. Their appointment can be terminatedwithout notice and with no compensation
payable on termination, other than accrued
fees and expenses.
Date of last
appointment

Notice period

Alan Thomson

5 May 2016

6 months

Richard Friend

1 Sept 2014

None

Thomas Geitner

13 Mar 2017

None

Mary Waldner

4 Feb 2016

None

The Remuneration Committee (unaudited)
The Remuneration Committee (the “Committee”) is responsible for recommending to the Board
the remuneration packages for Executive Directors and has oversight of the bonus and share
incentive strategy for the Group’s executive management. The Chairman and the Executive
Directors are responsible for determining the remuneration of the Non‑Executive Directors,
and the Remuneration Committee, with the exception of the Chairman, is responsible fordetermining the remuneration of the Chairman.

• within this agreed policy, considering and determining the various elements and total
remuneration packages of each Executive Director of the Company;• approving the design and performance targets for all performance-related plans for
Executives as well as the overall total payments made under such plans;• reviewing and noting remuneration trends across the Group and considering these in termsof the Executive Directors’ remuneration; and• determining the policy for pension arrangements, service agreements, recruitment terms andtermination payments to Executive Directors.
The members of the Committee are appointed by the Board and currently comprise all the
Independent Non-Executive Directors: Thomas Geitner, Richard Friend, Mary Waldner; and the
Chairman of the Board, Alan Thomson. Thomas Geitner is the Chairman of the Committee.
All members served throughout the year except for Alan Thomson who joined the Board andthe Committee on 1 June 2016. Nigel Keen, Jennifer Allerton and Jock Lennox served on theCommittee until they ceased to be Directors of the Company on 13 September 2016.
The Chief Executive, the Group HR Director and other Executives are invited to attend
Committee meetings as deemed appropriate. For example the Chief Executive is able to make asignificant contribution when considering the performance of other Executive Directors and to
discuss the wider Group remuneration policy and structure and terms and conditions affecting
other employees. However, no Executive Director is present when the Committee is determining
his or her remuneration.

Attendance at meetings year ended 31 March 2017
Remuneration
Committee

Number of meetings held

Date of appointment
to Committee

6

Number of meetings attended:		
Thomas Geitner, Chairman

6

15 January 2013

Richard Friend

6

1 September 2014

Alan Thomson1

5

1 June 2016

Mary Waldner

6

4 February 2016

Nigel Keen2

3

25 February 1999

Jennifer Allerton2

3

11 June 2013

Jock Lennox2

3

1 April 2009

1. Alan Thomson has attended all meetings since his appointment to the Committee.
2. Nigel Keen, Jennifer Allerton and Jock Lennox attended all meetings until their appointments ceased on
13 September 2016.

68

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01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

The Committee acts within its agreed written terms of reference (which are published on the company’s website:www.oxford-instruments.com/investors) and complied with the provisions of the 2014 UK Corporate Governance Code regarding
remuneration.
The performance of the Committee is reviewed at least once a year as part of the wider Board evaluation process.
During the year the Committee fulfilled its duties, as laid down in the Committee’s terms of reference.
New Bridge Street (a trading name of Aon Hewitt Limited and part of Aon plc) (“NBS”) was the Committee’s independent remuneration
consultants until September 2016. The Committee conducted a tender process to appoint a new remuneration consultant over the summer andfrom this process Korn Ferry Hay Group (“KFHG”) was appointed the Committee’s independent remuneration consultants from September 2016.
NBS and KFHG were appointed by the Committee to provide advice on all aspects of Executive remuneration as required by the Committee.
NBS and KFHG are signatories to the Remuneration Consultants’ Code of Conduct and each has confirmed to the Committee that it adheres to
the Code. During the year KFHG met with the Committee Chairman to discuss remuneration matters which are of particular relevance to theCompany and how best it can work with the Committee to meet the Company’s needs.
Fees are charged predominately on a “time‑spent” basis. The total fees paid for the advice provided to the Committee during the year to NBS was£13,400 and to KFHG was £15,000.
During the year in question Aon Hewitt Limited acted as both Scheme Actuary and Scheme Administrator to the Company’s UK defined benefit
pension scheme and the Scheme Actuary also provided the Company with its IAS 19 pension calculations and non-contentious pension advice.
The Committee is satisfied that the advice it has received from NBS is objective and independent.

Directors’ remuneration (audited)
The remuneration paid to the Directors during the year under review and the previous year is summarised in the tables below:										Salary			Annual			
and fees
Benefits4
Pension5
bonus6
Executive			
£’000
£’000
£’000
£’000

Long‑term
incentive		
awards7
Other8
£’000
£’000

Total
£’000

Ian Barkshire1		

2017

398

20

49

231

—

—

		

2016

116

6

12

92

—

—

698
226

Gavin Hill2		

2017

287

15

37

182

—

—

521

		

2016

—

—

—

—-	

—

—

—

Jonathan Flint3		

2017

159

6

21

0

—

—

186
743

		

2016

474

18

66

184

—

1

Kevin Boyd3		

2017

8

0

0

0

—

—

8

		

2016

316

14

45

113

—

1

489

Total		

2017

852

41

107

413

—

—

1,413

		

2016

909

38

123

389

—

2

1,458

1. Ian Barkshire was appointed to the Board as an Executive Director on 10 November 2015. Only his remuneration as an Executive Director in 2015/16 is reported in the table above.
2. Gavin Hill was appointed to the Board as an Executive Director on 9 May 2016.
3. Jonathan Flint and Kevin Boyd ceased to be Executive Directors on 31 July 2016 and 8 April 2016 respectively.
4. “Benefits” comprise provision of a car or car allowance, health insurance, life assurance and, for Ian Barkshire, overnight hotel accommodation where necessary to carry out his duties at the
Head Office of the Company. Overnight hotel accommodation accounted for £6,957 of the total for Ian Barkshire.
5. Contractually, each Executive Director is entitled to receive a contribution to a money purchase pension scheme worth 14% of salary. Where the contractual pension contribution exceeds theannual allowance, any balancing payment is made by the Company as a cash allowance which is paid net of employer’s national insurance contributions.
6. “Annual bonus” represents the full annual bonus, payable in cash.
7. “Long‑term incentive awards” are those awards where the vesting is determined by performance periods ending in the year under report under the SELTIS, ESOS and PSP. No awards vested as aresult of performance periods ending in the years reported on.
8. The Company operates a Share Incentive Plan (“SIP”) which is open to all UK permanent staff employed for at least six months. “Other” includes the value of matching SIP shares attributable tothe year. Jonathan Flint and Kevin Boyd participate in the SIP up to the maximum extent permitted by HMRC. The Company offers a 1:5 match for partnership shares purchased by employees.

Oxford Instruments plc Report and Financial Statements 201769

Remuneration Report continued
Directors’ remuneration (audited) continued
			
					
				
Salary			Annual				
and fees
Benefits
Pensionbonus
Non-Executive				
£’000
£’000
£’000
£’000

Alan Thomson1			

2017

104

—

—

—

Long term
incentive
awards
£’000

Total
£’000

—

104

			

2016

—

—

—

—

—

—

Nigel Keen2			

2017

72

—

—

—

—

72

			

2016

183

—

—

—

—

183

Thomas Geitner			

2017

52

—

—

—

—

52

			

2016

52

—

—

—

—

52

Richard Friend			

2017

44

—

—

—

—

44

			

2016

44

—

—

—

—

44

Mary Waldner3			

2017

50

—

—

—

—

50

			

2016

7

—

—

—

—

7

Jock Lennox4			

2017

23

—

—

—

—

23

			

2016

52

—

—

—

—

52

Jennifer Allerton5			

2017

20

—

—

—

—

20

			

2016

44

—

—

—

—

44

Total			

2017

365

—

—

—

—

365

			

2016

382

—

—

—

—

382

1. Alan Thomson was appointed Non Executive Director on 1 June 2016 and Chairman of the Board on 13 September 2016.
2. Nigel Keen ceased to be Chairman and Director of the Board on 13 September 2016. Under an arrangement between the Company and Imperialise Limited, Nigel Keen is retained to act as
Chairman of the Company and Chairman of the Trustee to the Oxford Instruments Pension Scheme and he must account to Imperialise Limited for his services. Imperialise Limited is paid feesfor Nigel Keen’s services together with a sum equivalent to the employer’s national insurance contributions on these fees as it 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. For the year to 31 March 2017, Nigel Keen’s
fees as Chairman were £72,376 (2016: £161,000) and as Chairman to the Trustee were £11,238 (2016: £25,000) for his services for which he must account to Imperialise Limited. In addition,
Imperialise Limited has been paid a sum equivalent to the employer’s national insurance on both these fees of £11,539. Since 12 September 2017, Imperialise Limited continues to provide theservices of Nigel Keen as Chairman to the Trustee and continues to receive fees at the rate of £25,000 per annum plus a sum equivalent to the employer’s national insurance on these fees.
3. Mary Waldner was appointed as a Non-Executive Director on 4 February 2016 and Chairman of the Audit and Risk Committee on 16 June 2016.
4. Jock Lennox ceased to be Chairman of the Audit and Risk Committee on 16 June 2016 and Non-Executive Director on 13 September 2016.
5. Jennifer Allerton ceased to be Non-Executive Director on 13 September 2016.

External appointments (unaudited)
The Board encourages Executive Directors to accept appropriate external commercial 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.
Jonathan Flint is a Non-Executive Director of Cobham plc and received fees of £19,219 for the period to 31 July 2016.
Kevin Boyd is a Non-Executive Director of EMIS Group plc and received fees of £795 for the period to 8 April 2016.

Details of variable pay earned in year (audited)Bonus
It has been a year of structural, operational and strategic transition for the Group. Against this background of strategic activity, the businessdelivered a stable performance in line with expectations against an extremely challenging market backdrop of slower academic funding in the
US and Europe and the deterioration of the OI Healthcare business. The NanoTechnology Tools sector performed strongly.
As in previous years, the Committee set stretching performance targets for the annual bonus which are clearly linked to the strategy and financial
performance of the Group. The organic sales and cash conversion targets were met in full paying out at 100% of the maximum for thosemeasures. Adjusted PBT was slightly above threshold with 4.45% of that part of the bonus being payable. The targets set at the beginning of theyear were based on the OST wire business being part of the Group for the full year. In assessing performance against the organic sales target theCommittee therefore adjusted the sales outcome to recognise the part-year contribution of the business to the date of disposal.
		Measure		Threshold
CEO/GFD

On-target
CEO/GFD

Maximum
CEO/GFD

Adjusted PBT		

0%

20%

45%

Organic sales		

0%

20%

20%

Cash conversion		

0%

20%

20%

Strategic objectives		

0%

15%

15%

70

Threshold£m

On-target£m

Maximum£mActual£m

Payout %of maximum

37.0

40.0

361.9

380.2

46.5

37.3

4.45%

—

385.4

70%

100%

80%

—

86.6%

—

100%

—

—

See page 71

See page 71

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

The Committee carefully reviewed performance against the strategic objectives set for the annual bonus which were critical to laying thefoundations for future growth. For the CEO, these comprised targets relating to developing a new vision for the Group and an executable strategy
to develop sustainable growth and margin improvement, building an effective leadership team, relieving pressure on the balance sheet as well asbuilding his leadership profile across the Group and in the investment community. For the GFD, his strategic targets comprised improving financial
reporting processes and developing key KPIs, building efficiencies across the federal office and finance structures, delivering a strategic andinvestment plan for the US healthcare business and leading the implemention of the new ERP system to deliver business efficiencies in a timely
and cost effective manner.
The maximum payable under this element of their bonus arrangements is 15% of salary. As identified elsewhere in the Annual Report there has
been excellent progress made against the business objectives and after careful consideration of each of the objectives set and what has beenachieved during the year, the Committee concluded that the personal strategic objectives were achieved at a level of 95% of the maximum award
for the CEO and 100% of the maximum award for the GFD.
The on-target and maximum bonus potentials for the Executive Directors as well as the amount actually payable for the year ended 31 March 2017
are set out below.
														
On‑target
Maximum						
bonus
bonus						(% of salary)(% of salary)

Actual bonus
payable for
2016/17(% of salary1)

Actual bonus
payable for
2016/17(£’000)Ian Barkshire						

75%

100%

56.25%£230.6

Gavin Hill						

75%

100%

57.00%£182.4

1. Bonus is calculated on salary as at 31 March 2017.

No bonus was paid to Jonathan Flint or Kevin Boyd in respect of their service from 1 April 2016 to when their appointments ceased on
31 July 2016 and 8 April 2016 respectively.

Long Term Incentive Plans (audited)
Both Jonathan Flint and Kevin Boyd held PSP awards granted in October 2014 and June 2015 with a three‑year performance period and vestingon the third anniversary of grant. All unvested awards held by these Executives were forfeited on their cessation and the performance targets
were not tested as the awards lapsed before the end of the performance period. There are no other share awards held by Executive Directors withperformance periods ending in 2016/17.

Awards made in the year and outstanding share incentive awards (audited)Awards were made to the Executive Directors for the 2016/17 year under the 2014 Performance Share Plan.

2014 Performance Share Plan (“PSP”)
Awards made under the PSP on 21 June 2016 were as follows:
					
					

Total number ofshares granted

Percentage Share price on day
of salary before award date

Initialvesting date

Ian Barkshire					83,390150%£7.37521 June 2019

Gavin Hill					65,085150%£7.37521 June 2019

The Awards are subject to two performance conditions measured over a three year period commencing 1 April 2016. One half of each Award is
subject to a performance condition based on the Company’s compound annualised earnings per share (EPS) growth. The other half of each Awardis subject to a performance condition based on the Company’s total shareholder return (TSR) relative to the TSR of the members of a comparatorgroup of companies. Dividend equivalents are payable on vesting, for the period to vesting in respect of the actual number of shares vesting.
50% of the Award will vest as set out below based on EPS measured over a three year performance period starting 1 April 2016:
Performance level				EPS growth required

Below threshold				Less than 7% per annum over three years

0%

Threshold				

7% per annum over three years

25%

Between threshold and maximum			

7% to 12% per annum over three years

25%‑100%

Maximum				

12% per annum and above over three years

100%

Oxford Instruments plc Report and Financial Statements 2017

% of award that will vest

71

Remuneration Report continued
Long Term Incentive Plans (audited) continued
2014 Performance Share Plan (“PSP”) continued
50% of the Award will vest as set out below based on TSR being measured over a three‑year performance period starting 1 April 2016:
TSR relative to FTSE 250 (excluding certain sectors)1
Performance level				Performance required

Below threshold 				Below median% of total award vesting0%

Threshold 				Median25%

Between threshold and stretch			

Between median and upper quartile

25%–100%

Stretch or above				Upper quartile

100%

1. Sectors excluded within the FTSE Industry classification of “Financials” (namely, Banks, Equity Investment Instruments, Finance Services, Life Insurance, Nonlife Insurance, Real Estate Investment
Trusts and Real Estate Investment and Services sectors).

As at 31 March 2017, the outstanding options for Ian Barkshire and Gavin Hill under the ESOS scheme and the 2014 PSP2 were as follows:						Name		
Scheme						
Movements during the year
March				MarchExercise
2017
GrantedExercised
Lapsed2016
price37,549				

Ian Barkshire1		

ESOS

		

ESOS

		

ESOS

		

PSP

83,390Gavin Hill		

PSP

65,085

Share price			on dateDate of
Earliestof grant
grant
exercise

Latestexercise

37,549£10.28£10.31

15/06/15

15/06/18

14/06/25

14,25014,250£14.55£13.95

13/06/14

13/06/17

12/06/24

15,000				

15,000

£9.90

£9.87

14/12/11

14/12/14

13/12/21

83,390			—£7.375£7.34

21/06/16

21/06/19

20/06/26

65,085			

—£7.375£7.34

21/06/16

21/06/19

20/06/26—			

1. Ian Barkshire was appointed to the Board on 10 November 2015. His ESOS options were granted to him as an employee of the Company prior to his appointment to the Board.
2. Dividend equivalents are payable on PSP shares vesting, for the period to vesting in respect of the actual number of shares vesting.

The market price of the shares at 31 March 2017 was £8.20 (2016: £6.80) and the range during the year was £6.18-£8.20 (2016: £5.16-£10.88).
Performance conditions outstanding for awards are described below:
Date of award

ESOS

15 June 20152	Award only to Ian Barkshire prior to being appointed an Executive Director of market value options granted without
performance conditions consistent with the Company’s policy for below Executive Director level.
PSP

50% of award

21 June 20163	EPS growth – 7% p.a. (25% vesting
to 12% p.a. (100% vesting)

50% of award

TSR v FTSE 250 Index (excluding financial companies1) –median (25% vesting) to upper quartile (100% vesting)

1. Sectors excluded – banks, equity investment instruments, finance services, life insurance, non-life insurance, real estate investment trusts and real estate investment services.
2. ESOS options granted on 15 June 2015 were only awarded to employees below the level of Executive Director.
3. Three‑year performance period commencing 1 April 2016.

Achievement of performance conditions (unaudited)
The calculation of the TSR performance conditions are independently measured. EPS performance conditions are measured using the audited
accounts of the Company. All performance conditions are then verified by the Remuneration Committee.

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

Shareholding requirements (audited)
The Executive Directors are required to build and retain a shareholding in the Company equivalent in value to 100% of basic salary (increasing
to 150% of basic salary for 2017/18). Until the requirement is met, whenever ESOS or 2014 PSP awards are exercised Executive Directors are
expected to retain or purchase shares equivalent to the value of 50% of the net amount realised from exercise of the awards after allowing fortax payable.
Executive Directors’ shareholdings as at 31 March 2017 are shown in the table below.
						
Percentage of			Subject to						
salary held in
Guideline
LTIP options
performance						 shares under share
met as atvested but conditions under					
Legally owned holding guideline1
31 March 2017
unexercised the LTIP unvested

Ian Barkshire2					

5,982

12%

No

15,000120,939

Gavin Hill					

0

0%

No

0

65,085

1. Shares valued using the market price of the shares on 31 March 2017: £8.20.
2. Ian Barkshire was appointed to the Board on 10 November 2015. For the share option award granted to him in June 2015, the shareholding requirement is to retain shares on vesting as set out
above but over 50% of salary. All awards after the date of his appointment will be subject to the requirement as detailed above.

72

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Pension arrangements
Executive Director Pension Arrangements (audited)
Under the terms of their service contracts, Executive Directors can ask the Company to contribute to a pension plan of their choice. The Company
contributes a maximum of 14% of base salary. Only base salary is pensionable and contributions are not included in the calculation of bonus andshare award entitlements. Where the Company’s pension contribution exceeds the annual allowance a balancing payment is paid by the Company
to the Director, which is taxed as income. In line with the policy for all UK employees, this cash payment is reduced by 12.12% to cover employer’s
national insurance costs.
During the year, the Company contributed £7,478 (2016: £11,786) into the Company’s Group Personal Pension Plan in respect of Ian Barkshireand £9,167 (2016: n/a) into a personal defined contribution plan in respect of Gavin Hill. Balancing payments to 14% of base salary (net of
employer’s national insurance contributions) were paid as cash.
Ian Barkshire is a deferred member of the defined benefit scheme and is no longer accruing benefits in the scheme. In accordance with therules of the Scheme his deferred benefits are subject to increases in line with statutory revaluation. The transfer value of his accrued benefits at
31 March 2017 was £579,101 (2016: £444,608).

Payments for loss of office (audited)
Kevin Boyd, Group Finance Director, and Jonathan Flint, Chief Executive, left the Company on 8 April 2016 and 31 July 2016 respectively. Messrs
Boyd and Flint received the following remuneration:• base salary, benefits and pension to the date of cessation;• annual bonus for the financial year ended 31 March 2016 determined in accordance with the financial and non-financial performance targets
set at the beginning of the year and as disclosed in last year’s report and paid in June 2016;• no annual bonus will be awarded for the part of the year 2016/17 for which they were with the Company; and• all outstanding long-term incentive awards lapsed on the date of cessation.
On 13 September, Nigel Keen, Chairman, Jock Lennox and Jennifer Allerton ceased to be Non-Executive Directors of the Company. They each
received fees to the date of cessation.
Nigel Keen continues to be Chairman of the Trustee of the Oxford Instruments Pension Scheme.

Performance graph and CEO’s remuneration (unaudited)
The graph below shows for the nine years ended 31 March 2017 the Total Shareholder Return (“TSR”) on a holding of the Company’s ordinary
shares compared with a hypothetical holding of shares made up of shares of the same kind and number as those by reference to which the FTSE
SmallCap, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices are calculated. These indices have been chosen as they are
considered to be the most appropriate comparator groups for the Company. TSR has been calculated by reference to the relevant share price foreach constituent company assuming dividends are reinvested.
Value (£)
1,800

Source: Thomson Reuters
Oxford Instruments

1,600

FTSE 350 E&EE

1,400

FTSE Techmark
FTSE SmallCap

1,200
1,000
800
600
400
200
0
31 March
2009

31 March
2010

31 March
2011

31 March
2012

31 March
2013

31 March
2014

31 March
2015

31 March
2016

31 March
2017

This graph shows the value, by 31 March 2017, of £100 invested in Oxford Instruments plc on 31 March 2009 compared with the value of £100
invested in the FTSE SmallCap, FTSE250, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices. The other points plotted are thevalues at intervening financial year ends.

Oxford Instruments plc Report and Financial Statements 201773Remuneration Report continued
Performance graph and CEO’s remuneration (unaudited) continued
The total remuneration of the CEO over the last seven years is shown in the table below. The annual bonus payout and LTIP vesting level as apercentage of the maximum opportunity is also shown.
								DJFIRBYear ending 31 March		

2017

2017

				
2011

2012

2013

2014

2015

2016

Total remuneration (£’000)		

2,596

3,464

2,348

1,179

579

743

64

620

Annual bonus outcome (%)

100%

100%

69.1%

15.0%

7.5%

38.6%

0%

56.3%

ESOS vesting (%)		

100%

100%

100%

100%

0%

0%

0%

0%

SELTIS/PSP vesting (%)		

50%

100%

100%

100%

0%

0%

0%

0%

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

Percentage change in the remuneration of the Chief Executive (unaudited)
The table below shows the percentage change in each of the CEO’s salary, taxable benefits and annual bonus earned between 2015/16 and2016/17, compared to that for the average UK‑based employee of the Group (on a per capita basis).
CEO1

Average employee2£’000				2016/172015/16% change

2016/172015/16% change

Salary				397.9

473.9	-16%

41.4

41.7

0.7%

Benefits				

20.0

18.3

9%

1.9

1.8

6%

Bonus3				

230.6

184.3

25%

1.3

2.2	-41%

1. The CEO remuneration for 2016/17 is that for Ian Barkshire (who was paid a salary of £300,000 p.a. to 11 May 2016 when he was appointed CEO and for the remainder of the year
£410,000 p.a.) and the comparative year, 2015/16, is that of the previous CEO, Jonathan Flint.
2. Average employee includes all UK employees in service on 1 April 2015 and 31 March 2017 but excludes those who were on maternity or long‑term sick leave.
3. The value of the average employee bonus for the year ended 31 March 2017 (to be paid at the end of June 2017) was not known at the time the Report and Financial Statements
were approved and has been subsequently included.

Relative importance of the spend on pay
The following table shows the Group’s employee costs relative to dividends and share buybacks:																					

Year ended
31 March
2017

Year ended
31 March2016% change

Employee costs (£m)							

114.3

104.7

9%

Dividends (£m)							

7.4

7.6	-3%

Share buybacks (£m)							

0.0

0.0

0.0%

Statement of Shareholder voting (unaudited)
At last year’s AGM, the Directors’ Remuneration Policy Report and Annual Report on Remuneration received the following votes from Shareholders:					
Resolution				Votes forVotes				discretionary
Votes against% for% against

To approve the Directors’ Report on Remuneration		

3,106,493

43,295,222

136,505

99.6

0.4

Votes marked
as abstain

5,769

How the policy will be applied in 2017/18 (unaudited)
Base salaries
In line with the general workforce, the Executive Directors will receive salary increases of 2.5% for 2017/18 effective from 1 July 2017. The CEO’ssalary as a result of the increase will be £420,250 and the GFD’s £328,000.

Benefits and pension
These will be made in accordance with the approved policy. Benefits will be in line with those received in 2016/17. The Committee has authorisedthat the CEO may use the services of a chauffeur for travel to and from work to enable him to make best use of his travelling time.

Annual bonus
The maximum opportunity under the annual bonus plan for 2017/18 will be 100% of base salary for both the CEO and GFD.

74

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

A combination of financial (75%) and non-financial strategic (25%) metrics will be used to determine the level of payment under the annual bonus
and as detailed in the table below:
Weighting as a % of opportunity
Measure								

CEO

GFD

Organic sales (£m)								

10%

10%

Profit (£m)								

45%

45%

Cash generation (£m)								

20%

20%

Strategic objectives								

25%

25%

Non-financial strategic objectives have been agreed and are broadly linked to the development and implementation of the Horizon strategy.
The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year as these include matters which theCommittee considers commercially sensitive. Retrospective disclosure of the performance against them will be made in next year’s Annual Report
on Remuneration to the extent the targets are not commercially sensitive at that time.

Long‑term incentives in respect of the 2017/18 financial year
The 2017/18 PSP awards will be over shares with a market value at grant of 150% of salary for the CEO and GFD. Vesting will be subject to theperformance conditions as set out below measured over a three-year performance period commencing 1 April 2017.
Half of the award

Half of the award

EPS growth – 4% p.a. (25% vesting) to 10% p.a. (100% vesting)over three financial years commencing with the 2017/18 financial year.

ROCE 13.0% in the final year of the performance period(2019/20 financial year) (25% vesting) to 15.5% (100% vesting).

The EPS and ROCE targets are based on the underlying business performance (excluding the disposal of the Industrial Analysis (“IA”) business).
The Committee is comfortable that these targets remain equivalently stretching as prior to the disposal. However, the Committee has agreed toreview the targets once the transaction has completed and all necessary adjustments have been made to the Financial Statements to exclude theeffect of IA. If, on its review at that time, the Committee concludes that the targets set are not as stretching as prior to the IA disposal then an
appropriate adjustment will be made at that time. Any subsequent adjustments to the base year or actual targets, as appropriate to take accountof the IA disposal, will be disclosed in next year’s Remuneration Report.

Non-Executive Directors’ fees
The Committee and the Board, as appropriate, have reviewed the fees for the Chairman and Non-Executive Directors. The Non-Executive Director
fee levels have not been reviewed since 1 July 2014. The following increases were agreed with effect from 1 July 2017:															
2016/1732017/183% increase2

Annualised
increase

Board Chairman1						£165,000£169,125

2.5%

Additional fee Deputy Chairman					£5,000£5,000

0%

2.5%
0%

Basic fee2						£44,000£47,500

8.0%

2.6%

Additional fee for Senior Independent Director				£5,000£7,500

50.0%

14.5%

Additional fee for Committee Chairman					£7,500£7,5000%

0%

1. The Chairman fee for 2016/17 and 2017/18 is the annual fee payable to Alan Thomson who was appointed Chairman from 13 September 2016. The total of the pro-rated fees for 2016/17
payable to the former Chairman, Nigel Keen, and Alan Thomson was £163,190.
2. Fees for Non-Executive Directors were last increased on 1 July 2014.
3. The fees shown for 2016/17 and 2017/18 are the annualised rates as at 1 July 2016 and 1 July 2017 respectively.

ApprovalThis report was adopted by the Committee on 13 June 2017 and has been approved subsequently by the Board for submission to Shareholders at
the Annual General Meeting to be held on 12 September 2017.

Thomas Geitner
Chairman of the Remuneration Committee
13 June 2017

Oxford Instruments plc Report and Financial Statements 201775

Report of the Directors
The Directors present their Report and the
Financial Statements of Oxford Instruments plc
for the year ended 31 March 2017.

Principal activity andbusiness reviews
The Company is the ultimate holding company
of a group of subsidiary undertakings(“the Group”) engaged in the research,development, manufacture, rental, sale andservice of high technology tools and systems.
The Company is required to set out in thisreport a true and fair view of the business of
the Group during the financial year ended
31 March 2017, the position of the Group at
the end of the financial year and a descriptionof the principal risks and uncertainties facing
the Group. The information which fulfils
these requirements includes an Operations
and Finance Review on pages 14 to 33 andCorporate Responsibility on pages 34 to
41, which are incorporated in this report byreference. The operations, the strategic review,the research and development activities
and likely future prospects of the Group are
reviewed in the Strategic Report on pages
1 to 41.

Results and dividends
The results for the year are shown in theConsolidated Statement of Income on
page 90. The Directors recommend a final
dividend of 9.3 pence per ordinary share,
which together with the interim dividend of
3.7 pence per ordinary share makes a totalof 13.0 pence per ordinary share for the year
(2016: 13.0 pence). Subject to Shareholder
approval, the final dividend will be paid on
19 October 2017 to Shareholders registered atclose of business on 22 September 2017.

Risks and uncertainties
The Board exercises proper and appropriate
corporate governance for the Group.
It ensures that there are effective systems
of internal controls in place to manage
Shareholders’ interests and the Group’s
assets, including the assessment and the
management of the risks to which thebusinesses are exposed, and to monitor
and manage the compliance with all thelegal requirements that affect the Group’s
worldwide business activities. However, such
systems are designed to manage rather thaneliminate the risk of failure to achieve businessobjectives and can provide only reasonable
and not absolute assurance against material
misstatement or loss.

76

The Executive Directors report to the Board onchanges in the business and in the external
environment which may affect the risks which
the Group faces. The Executive Directors also
provide the Board with monthly financial
information. Key performance indicators arereviewed periodically.
There are a number of risks and uncertainties
which may have a material effect on the
Oxford Instruments Group. These aredescribed in KPIs and Principal Risks on pages
22 to 25.

Directors
Biographies of all the Directors at the dateof this report, including the Non-Executive
Directors, appear on pages 42 and 43.
During the year:• Alan Thomson was appointed an
Independent Non-Executive Director on
1 June 2016 and succeeded Nigel Keen as
Chairman of the Board after the AGM on
13 September 2016;• Ian Barkshire was appointed Chief
Executive Officer on 11 May 2016;

Directors’ conflicts of interest
With effect from 1 October 2008, theCompanies Act 2006 allows Directors of publiccompanies to authorise conflicts and potential
conflicts of interest, where appropriate. Only
Directors with no interest in the matter underconsideration may participate in the relevant
decision and in doing so they must act in a
way which they consider in good faith will bemost likely to promote the Company’s success.
A conflicts policy has been drawn up and aregister of conflicts and potential conflicts
is maintained.

Directors’ interests
The beneficial interests of the Directors in the
Company’s share capital, all in fully paid up
shares at 31 March 2017, are shown below.
Details of share options for the Executive
Directors are shown in the Directors’
Remuneration Report on pages 60 to 75.
31 March
2017
Shares31 March
2016
SharesIan Barkshire

5,982

5,982

Richard Friend——• Gavin Hill was appointed Group FinanceDirector on 9 May 2016;

Thomas Geitner——

Alan Thomson——• Mary Waldner succeeded Jock Lennox as
Chairman of the Audit and Risk Committee
on 16 June 2016;

Mary Waldner——

Jennifer Allerton1

n/a

1,000

Kevin Boyd2

n/a93,975• Kevin Boyd ceased to be Group FinanceDirector and stepped down from the Board
on 8 April 2016;

Jonathan Flint2

n/a207,322

Nigel Keen1

n/a

126,580

Jock Lennox1

n/a

3,500

• Jonathan Flint ceased to be Chief Executive
on 10 May 2016 and stepped down fromthe Board on 31 July 2016; and• at the conclusion of the AGM on
13 September 2016:• Nigel Keen retired as Chairmanof the Board;• Jennifer Allerton stepped down as a
Non-Executive Director; and• Jock Lennox stepped down as a
Non-Executive Director and Senior
Independent Director.

1. Nigel Keen, Jock Lennox and Jennifer Allerton resigned
from the Board with effect from 13 September 2016.
2. Jonathan Flint and Kevin Boyd resigned from theBoard with effect from 31 July 2016 and 8 April
2016 respectively.

No Director was beneficially interested in theshares of any subsidiary company at any time
during the year. In the year to 31 March 2017
no Director had a material interest in any
contract of significance with the Company or
any of its subsidiaries other than as describedin the Directors’ Remuneration Report on
pages 60 to 75. Since the year end, there havebeen no changes to the above shareholdings.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceInsurance cover andDirectors’ indemnities
For a number of years, the Group has
purchased insurance to cover its Directors
and Officers against their costs in defending
themselves in legal proceedings taken
against them in that capacity and in respectof damages resulting from the unsuccessful
defence of any proceedings. In addition, tothe extent permitted by UK law, the Group
indemnifies its Directors and Officers forliabilities arising from such proceedings.
Neither the insurance nor the indemnity
provides cover for situations where the
Director has acted fraudulently or dishonestly.

Share capital
The Company only has one class of sharecapital which comprises ordinary shares of
5 pence each. All shares forming part of theordinary share capital have the same rights
and carry one vote each. There are no unusual
restrictions on the transfer of a share. The
full rights and obligations attaching to theCompany’s ordinary shares, as well as thepowers of the Directors, are set out in the
Company’s Articles of Association, a copy ofwhich is available on the Company’s website.
These can also be obtained from Companies
House or by writing to the Company Secretary.
During the year to 31 March 2017 the issued
share capital was increased by 0.03% with theissue of 17,005 ordinary shares (2016: 7,575)
following the exercise of options under
the Company’s share option schemes.
At 31 March 2017, the issued share capitalof the Company was therefore 57,315,916
ordinary shares of 5 pence each. In connection
with the Company’s equity incentive
plans, a separately administered trust held
183,145 ordinary shares at 31 March 2017(representing 0.3% of the total issued sharecapital of the Company). No shares in the
Company were acquired by the Company
during the year (2016: nil). Details of theshare capital and options outstanding as at
31 March 2017 are set out in Notes 24 and
13 respectively to the Financial Statements.

03: Financial Statements

Charitable donations

At this year’s Annual General Meeting, theDirectors propose to renew the authorities
granted to them at last year’s AGM to:a) allot ordinary shares up to an aggregate
nominal value of one-third of theCompany’s issued share capital and, wherefull pre-emption rights are applied, up toan aggregate nominal value of two-thirdsof the Company’s issued share capital;b) allot ordinary shares up to an aggregate
nominal value of 10% of the Company’s
issued share capital without first offering
them to existing Shareholders; andc) buy back up to 10% of the Company’s
issued share capital.
Shareholders will be requested to renew theseauthorities at the AGM, details of which are
set out in the notice of the meeting.

Substantial shareholdings
The following are beneficial interests of 3% ormore (where the holding is direct), or of 5%
or more (where the holding is indirect), whichhave been notified to the Directors of theCompany, in accordance with Chapter 5 of
the Disclosure and Transparency Rules, of theCompany’s issued ordinary share capital, theonly class of voting capital, at 5 June 2017:
Direct/indirect

Shares000

Indirect/direct

7,539,411 13.2

Aberdeen AssetManagers Limited Indirect

5,717,089 10.0

Sir MF and
Lady KA Wood

Direct3,105,530

5.4

Baillie Gifford & Co Indirect

2,917,516

5.1

Ameriprise
Financial

% of
total

Payment of suppliers
The Group does not follow a standard
payment practice but agrees terms andconditions for its business transactions witheach of its suppliers. Payment is then madein accordance with these terms. At 31 March2017 trade creditors of the Company and theGroup’s UK subsidiaries were equivalent to
5 days (2016: 26) and 64 days (2016: 74) ofpurchases respectively, based on the amounts
invoiced by suppliers during the year and theamounts owed to trade creditors at the endof the year.

Oxford Instruments plc Report and Financial Statements 201704: Company Information

During the year, the Group made charitable
donations of £8,585 (2016: £2,542). There
have been no political donations during
the year.

Fixed assets
Whilst the market value of some fixed assets
may differ from book value, the Directors
believe that the differences are not material.

Disclosure of
information to auditor
Pursuant to Section 418(2) of the Companies
Act 2006 the Directors who held office atthe date of approval of this Directors’ Reportconfirm that, so far as they are each aware,
there is no relevant audit information of which
the Company’s auditor is unaware; and each
Director has taken all the steps that he or she
might reasonably have been expected to havetaken as a Director to make himself or herself
aware of any relevant audit information and toestablish that the Company’s auditor is awareof that information.

Annual General Meeting
The Notice of the Annual General Meeting
to be held on 12 September 2017 is set out
in a letter to Shareholders together with
explanatory notes relating to the resolutions.
A resolution to re-appoint KPMG LLP as
Auditor and to authorise the Directors to set
their remuneration will be proposed at theAnnual General Meeting.

Change of control arrangements
There are a number of agreements that takeeffect, alter or terminate upon a change ofcontrol of the Company following a takeover,such as banking agreements and company
share plans. On a change of control, theCompany’s committed credit facilities may
be cancelled by lenders by giving not lessthan three days’ notice. It is also possible thatpension plan funding arrangements would
need to be changed following a change ofcontrol if that resulted in a weakening of theemployer covenant.

Corporate governance
The Board reviews its work on corporate
governance in Corporate Governance on
pages 44 to 51.

77

Report of the Directors continued
Financial risk management

Material events

Details of the Group’s financial risk
management objectives and policies, including
the exposure to price, credit and liquidity
risk are set out in Note 22 to the Financial
Statements.

Since the year end, on 26 April 2017, theBoard announced that it has agreed to sell
its Industrial Analysis business to Hitachi
High‑Technologies Corporation for aconsideration of £80 million. The transaction
is subject to regulatory approval in Austria, ashare transfer filing in China and completionof a pre-sale reorganisation to carve out therelevant businesses. Assuming satisfaction ofthese conditions, the transaction is expected
to close in the second quarter of the
2017/18 fiscal year. Further details on
the announcement can be found atwww.oxford-instruments.com/investors.
There were no other material events since
31 March 2017 to report.

Diversity and inclusion
The Board recognises that its employees
are fundamental to the Group’s success.
The Group’s aim is to ensure there are equal
opportunities for all employees and that there
is an inclusive culture where differences arevalued and people are given the environment
in which they can do their best work.
Corporate Responsibility on pages 34 to 41
further describes how diversity and inclusion
is managed within Oxford Instruments.

Greenhouse gas emissions
To meet the requirements of the Companies
Act 2006 (Strategic and Directors’ Report)
Regulations 2013, CO2 emissions are reported
on as part of our reporting on greenhouse gas
emissions in Corporate Responsibility on pages
34 to 41.

78

By order of the Board

Susan Johnson-BrettCompany Secretary
13 June 2017

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Directors’ Responsibilities
in relation to the Report and Financial Statements

The Directors are responsible for preparing
the Annual Report and the Group and Parent
Company Financial Statements in accordancewith applicable law and regulations.
Company law requires the Directors to
prepare Group and Parent Company Financial
Statements for each financial year. Under that
law they are required to prepare the Group
Financial Statements in accordance with IFRSs
as adopted by the EU and applicable law andhave elected to prepare the Parent Company
Financial Statements in accordance with UK
Accounting Standards, including FRS 101
Reduced Disclosure Framework.
Under company law, the Directors must not
approve the Financial Statements unless they
are satisfied that they give a true and fair viewof the state of affairs of the Group and Parent
Company and of their profit or loss for that
period. In preparing each of the Group andParent Company Financial Statements, theDirectors are required to:• select suitable accounting policies and thenapply them consistently;• make judgements and estimates that arereasonable and prudent;

The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Parent
Company’s transactions and disclosewith reasonable accuracy at any time thefinancial position of the Parent Company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of
the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, theDirectors are also responsible for preparing a
Strategic Report, 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 and disseminationof financial statements may differ fromlegislation in other jurisdictions.

• for the Group financial statements, state
whether they have been prepared inaccordance with IFRSs as adopted by
the EU;• for the Parent Company Financial
Statements, state whether applicable UK
Accounting Standards have been followed,
subject to any material departures
disclosed and explained in the Parent
Company Financial Statements; andResponsibility statement of the
Directors in respect of the annual
financial report
We confirm that to the best of our knowledge:• the Financial Statements, prepared inaccordance with the applicable set ofaccounting standards, give a true andfair view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; and• the Strategic Report/Directors’ Report
include a fair review of the development
and performance of the business and theposition of the issuer and the undertakings
included in the consolidation taken asa whole, together with a description of
the principal risks and uncertainties thatthey face.
We consider the annual report and accounts,
taken as a whole, is fair, balanced andunderstandable and provides the informationnecessary for Shareholders to assess theGroup’s position and performance, businessmodel and strategy.
Signed on behalf of the Board

Ian Barkshire
Chief Executive

Gavin Hill
Group Finance Director

13 June 2017

• prepare the Financial Statements on
the going concern basis unless it isinappropriate to presume that the Groupand the Parent Company will continue
in business.

Oxford Instruments plc Report and Financial Statements 201779

Independent Auditor’s Reportto the members of Oxford Instruments plc only

Opinions and conclusions arising from our audit

Overview

1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Oxford Instruments plc for the year ended
31 March 2017 set out on pages 90 to 133. In our opinion:• the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 March 2017 and of the group’s loss for the year then ended;

Materiality:
group financial
statements as
a whole£1.1m (2016: £0.9m)

Coverage

92% (2016: 82%) of grouploss (2016: Group profit)
before tax from continuing
operations• the group financial statements have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;• the parent company financial statements have been properly prepared in accordance with UK
Accounting Standards, including FRS 101 Reduced Disclosure Framework; and• the financial statements have been prepared in accordance with the requirements of theCompanies Act 2006; and, as regards the group financial statements, Article 4 of the
IAS Regulation.

2. Our assessment of risks of material misstatement

Risks of material misstatement
Recurring risks• In arriving at our audit opinion above on the financial statements the risks of material
misstatement that had the greatest effect on our audit, in decreasing order of audit
significance, were as follows (unchanged from 2016 with the exception of the removal of
Valuation of Investment in Associate):• We continue to perform procedures over the investment in associate. However, due to thegroup equity accounting for this investment it has not been fair valued in the year and so wehave not assessed this as one of the risks that had the greatest effect on our audit. It is nottherefore separately identified in our report this year.

Recoverability of acquired intangible assets(£160.7 million (2016: £201.0 million))
Risk vs 2016 tu
Refer to page 54 (Audit committee report),
page 84 (accounting policy) and pages 108 to 110(financial disclosures)vs 2016

Recoverabilityof acquired
intangible assetstu

Revenuerecognition in the
NanoTechnology
Tools segmentqCompletenessand accuracyof provisions in
respect of productrelated claimstu

The risk

Our response

Forecast based valuation:

Our procedures included:

The Group balance sheet includes a significant
amount of goodwill and other acquired intangible
assets that have arisen as a result of acquisitions.

Benchmarking assumptions: Performing ourown assessment of the key assumptions used toestimate recoverable amount such as forecast cash
flows, long-term growth rates and the discount rateapplied with reference to historical performanceof similar lines of business and externally derived
data including, industry growth rates and market
interest rates.

Goodwill and other acquired intangibles,
particularly in the OI Healthcare and Asylum
businesses, are at risk of impairment due to weaker
than forecast demand and market changes.
The OI Healthcare market has faced significant
challenges due to a change in software licensing
policy on second hand systems from one of themain system manufacturers which has reduced
its income.
In the NanoTechnology Tools division performancein the Asylum business has been lower than
expected having been affected by reduced
academic funding levels and delays in launching
new products.
Furthermore, there is inherent uncertainty andcomplexity involved in estimating future cash flows,
long-term growth rates and discount rates that are
the basis for the assessment of recoverability and,as such, this is one of the key judgement areas our
audit is focussed on.

80

5% (2016: 4.4%) of Groupadjusted profit before tax
from continuing operations
normalised for the items
disclosed in Note 1 to thefinancial statements excluding
amortisation of acquired
intangibles.

Control design: Testing the budgeting procedures
upon which the cash flow forecasts are based.
Historical comparisons: Considering historical
forecasting accuracy, by comparing previously
forecasted cash flows to actual results achieved.
Comparing valuations: Comparing the sum of
the discounted cash flows to the group’s market
capitalisation to assess the reasonableness of thosecash flows.
Sensitivity Analysis: Performing our own
sensitivity analysis in relation to the key
assumptions.
Assessing transparency: Assessing whether
the Group’s disclosures regarding the sensitivityof the impairment assessment, to changes
in key assumptions, appropriately reflected
the risks inherent in the valuation of acquired
intangible assets.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

Revenue recognition in the NanoTechnology
Tools segment (Revenue: £208.6 million(2016: £187.3 million))
Risk vs 2016 q
The risk has decreased in significance in comparison
to the prior year as a result of a no bill and holdtransactions being recorded at the period end.
Refer to page 84 (accounting policy) and pages
97 to 99 (financial disclosures)

03: Financial Statements

04: Company Information

The risk

Our response

2017/2018 sales:

Our procedures included:

There is a risk that revenue is recognised onsales of individual products produced by theGroup’s NanoTechnology Tools segment before
the significant risks and rewards of ownershiphave passed.

Tests of details

Given the complex nature of the products,
judgement is required in determining whether
the risks and rewards have passed by assessing
a number of factors, notably, whether shipping
terms have been met, customer acceptanceof the product received and the complexity of
any installation element of the sale. As suchthere is a risk that, revenue is recognised in theincorrect period.
Furthermore, due to the seasonality of the business,a significant proportion of NanoTechnology Tools
divisional revenue is recognised in period 12
resulting in an increased risk of revenue being
recognised in the incorrect period.

Testing, on a sample basis, whether specificrevenue transactions around the year end had beenrecognised in the appropriate period by assessing
whether the significant rewards of ownership had
passed, with reference to, nature of products, theterms of sale within the associated contracts, thestatus of customer acceptance of the product andthe relative complexity of product installation.
Considering whether a sample of credit notes
issued after the year end should reduce revenue inthe period and challenging those that were not by
obtaining evidence.
Assessing a sample of year end deferred andaccrued income against contractual terms andevidence of transfer of risks and rewards todetermine whether revenue for this sample has
been recognised in the correct period.

Consequently this is one of the key areas our audit
is focussed on.
Completeness and accuracy of provisions in
respect of product related claims
Risk vs 2016 tu
Refer to page 54, page 84 (accounting policy)
and page 121 (financial disclosures)

Omitted exposure:

Omitted exposure procedures:

The Group designs and builds customised,high technology products, notably in the
NanoTechnology Tools segment, and as such there
is a risk that the Group is subject to customer claims
in respect of products not meeting contractual
specifications.

Management enquiry: Enquiring with Groupmanagement and Group’s internal legal counsel
regarding new and previously unrecorded productrelated claims and the likelihood of the claims.

In addition, since the Group’s products incorporate
specific complex design features and intellectual
property there is a risk that the Group inadvertently
infringes the intellectual property belonging tothird parties.
This could result in a material unrecorded provision
for compensation required to be paid to customers
or third parties respectively.
Subjective estimate:
The estimation of any provision required for productrelated claims is inherently subjective based on thewide range of potential outcomes.

Compliance data scrutiny: Inspecting theGroup’s litigation register for unrecorded claims
and assessing whether a provision is required forthese claims.
Considering the specific circumstances aroundclaims which have arisen by inspecting
correspondence between the Group and otherparties, such as legal advisors and customers.
Subjective estimate procedures:
Our sector experience: Challenging thereasonableness of the key assumptions madeby the Group, such as potential royalty rates
payable in respect of intellectual property claims,
estimates of amounts payable to customers in
respect of claims relating to a failure to meetbespoke product specification and likelihood of an
outflow of resources, against our own expectations
based on our historical knowledge, experience,and understanding.
Personnel interviews: Evaluating assumptions
through discussion of claims with internal legal
counsel and relevant management.
Benchmarking assumptions: Assessing the levelof provisions held against the nature and status ofclaims, range of possible outcomes and likelihood
discussed in the correspondence between theGroup and legal advisors and customers.

Oxford Instruments plc Report and Financial Statements 201781

Independent Auditor’s Report continued
to the members of Oxford Instruments plc only

3. Our application of materiality
and an overview of the scopeof our audit
The materiality for the financial statements
as a whole was set at £1.1 million(2016: £0.9 million). This has been
determined with reference to a benchmark
of group profit before tax from continuing
operations normalised for the items disclosed
in Note 1 to the financial statements,
excluding amortisation of acquired intangibles,of £22.2 million, of which it represents 5.0%
(2016: same basis, 4.4%).
We report to the audit committee any
corrected or uncorrected misstatements
exceeding £55,000 (2016: £45,000), in
addition to other identified misstatements thatwarranted reporting on qualitative grounds.
Of the Group’s 70 (2016: 65) reporting
components, 15 (2016: 17) were subject
to audit procedures for group reporting

purposes. The components within the scopeof our work accounted for 93% (2016: 93%)of total group revenue; 92% (2016: 82%) ofgroup loss before taxation from continuing
operations; and 89% (2016: 89%) of totalgroup assets.
For the remaining components, we
performed analysis at an aggregated grouplevel to re-examine our assessment that
there were no significant risks of material
misstatement within these. The Groupaudit team instructed component auditors
as to the significant areas to be covered,including the relevant risks detailed above
and the information to be reported back.
The Group audit team approved eachcomponent teams audit materiality, whichranged from £0.6 million to £0.8 million(2016: £0.4 million to £0.7 million), having
regard to the size and risk profile of theGroup across the components.

Group profit before tax1

Materiality£22.2m (2016: £20.3m)£1.1m (2016: £0.9m)

The Group audit team visited 12 (2016: 19)component locations in the UK, United States,
Germany and Sweden (2016: UK, UnitedStates and Germany). The work performed
for the US components was undertaken by
the Group audit team. Telephone conference
meetings were also held with the component
auditors in China (2016: China and Japan).
At these visits and meetings, the findings
reported to the Group audit team werediscussed in more detail, and any further workrequired by the Group audit team was thenperformed by the component auditor. The
Group audit team reviewed the significant
risk areas of the component audit files forindividually financially significant components.
The group team performed procedures on theitems excluded from normalised group profit
before tax.

£1,100,000

Whole financial
statements materiality(2016: £900,000)£825,000

Range of materiality
at 15 components(£0.6m to £0.8m)(2016: £0.4m to £0.7m)
Group PBT 1Group materiality£55,000

Misstatements reported
to the audit committee(2016: £45,000)

1 Normalised for the items noted in Note 1 to the financial
statements, excluding amortisation of acquired intangibles.

Group revenue

Group loss before tax
from continuing operations

Group total assets

93%

92%

89%

(2016: 93%)(2016: 82%)(2016: 89%)

In scope for Group audit purposes 2017
In scope for Group audit purposes 2016
Residual components

82

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance4. Our opinion on other mattersprescribed by the Companies
Act 2006 is unmodified
In our opinion:• the part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with theCompanies Act 2006; and• the information given in the Strategic
Report and the Directors’ Report for
the financial year is consistent with thefinancial statements.

03: Financial Statements

In particular, we are required to report toyou if:• we have identified material inconsistencies
between the knowledge we acquired
during our audit and the directors’
statement that they consider that theannual report and financial statements
taken as a whole is fair, balanced
and understandable and provides theinformation necessary for shareholders
to assess the group’s position andperformance, business model and strategy;orBased solely on the work required to beundertaken in the course of the audit of thefinancial statements and from reading theStrategic Report and the Directors’ Report:• the Audit Committee Report does
not appropriately address matterscommunicated by us to the audit
committee.

• we have not identified material
misstatements in those reports; andUnder the Companies Act 2006 we are
required to report to you if, in our opinion:• in our opinion, those reports havebeen prepared in accordance with theCompanies Act 2006.

5. We have nothing to report on
the disclosures of principal risks
Based on the knowledge we acquired during
our audit, we have nothing material to add or
draw attention to in relation to:• the directors’ statement of viability
assessment on pages 26 and 27,
concerning the principal risks, their
management, and, based on that, thedirectors’ assessment and expectations of
the group’s continuing in operation overthe 3 years to March 2020; or• the disclosures on page 27 concerning
the use of the going concern basis ofaccounting.

6. We have nothing to reportin respect of the matters on
which we are required to reportby exception
Under ISAs (UK and Ireland) we are required toreport to you if, based on the knowledge weacquired during our audit, we have identified
other information in the annual report that
contains a material inconsistency with either
that knowledge or the financial statements,a material misstatement of fact, or that isotherwise misleading.

• adequate accounting records have notbeen kept by the parent company, or
returns adequate for our audit have notbeen received from branches not visitedby us; or• the parent company financial
statements and the part of the Directors’
Remuneration Report to be audited are notin agreement with the accounting records
and returns; or• certain disclosures of directors’
remuneration specified by law are notmade; or04: Company Information

Scope and responsibilities
As explained more fully in the Directors’
Responsibilities Statement set out on page79, the directors are responsible for the
preparation of the financial statements andfor being satisfied that they give a true andfair view. A description of the scope of anaudit of financial statements is provided on
the Financial Reporting Council’s website atwww.frc.org.uk/auditscopeukprivate.
This report is made solely to the Company’s
members as a body and is subject toimportant explanations and disclaimers
regarding our responsibilities,
published on our website atwww.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set
out in full and should be read to provide anunderstanding of the purpose of this report,
the work we have undertaken and the basis of
our opinions.

Greg Watts (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
One Snowhill
Snowhill Queensway
Birmingham
B4 6GH
13 June 2017

• we have not received all the informationand explanations we require for our audit.
Under the Listing Rules we are required
to review:• the directors’ statements, set out on pages
26 and 27, in relation to going concern
and longer-term viability; and• the part of the Corporate GovernanceStatement on page 44 relating to thecompany’s compliance with the elevenprovisions of the 2014 UK Corporate
Governance Code specified for our review.
We have nothing to report in respect of theabove responsibilities.

Oxford Instruments plc Report and Financial Statements 201783

Accounting Policies
Oxford Instruments plc (the “Company”) is
a company incorporated and domiciled in
the UK.
The Group Financial Statements have been
prepared and approved by the Directors
in accordance with International Financial
Reporting Standards as adopted by the EU(“Adopted IFRS”). The Company has elected
to prepare its Parent Company Financial
Statements in accordance with FRS 101;
these are presented on pages 124 to 133.
The accounting policies set out below
have, unless otherwise stated, been appliedconsistently to all periods presented in theseGroup Financial Statements.
The Financial Statements have been preparedon a going concern basis based on the
Directors’ opinion, after making reasonableenquiries, that the Group has adequate
resources to continue in operational existence
for the foreseeable future.
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position, are
set out in the Strategy section on pages 11
to 13. The financial position of the Group, its
cash flows, liquidity position and borrowing
facilities are described in the Finance Review
on pages 28 to 33.
The relatively diverse nature of the Group
together with its current financial strength
provides a solid foundation. The Directors havereviewed the Group’s forecasts and flexed
them to incorporate a number of potential
scenarios relating to changes in trading
performance and believe that the Group will
be able to operate within its existing debt
facilities which expire between February 2021
and March 2022. This review also consideredhedging arrangements in place. As aconsequence, the Directors believe that theGroup is well placed to manage its businessrisks successfully. Further information can befound in the Viability Statement on page 26.
The Financial Statements were authorised forissuance on 13 June 2017.

84(a) New accounting standards
The following standards and interpretations
are applicable to the Group and have been
adopted as they are mandatory for the year
ended 31 March 2017:

The estimates and underlying assumptions
are reviewed on an ongoing basis. The mostsignificant judgements and estimates madein applying the Group accounting policies
relate to:

Impairment of intangible assets(including goodwill), tangible assets
and investment in associate• Amendments to IFRS 2 –Share‑based Payments;• Amendments to IFRS 3 –Business Combinations;

Goodwill is held at cost and tested annuallyfor impairment. Amortised intangibles,
tangible assets and the Group’s investment
in associate are tested for impairment where
there are indications of impairment. These
impairment tests require the Group to makean estimate of the expected cash flows and toselect suitable discount rates. These require an
estimation of the value in use of these assets(see Notes 7 and 17).

• Amendments to IFRS 8 –Operating Segments;• Amendments to IFRS 13 –Fair Value Measurement;• Amendments to IAS 16 –Property, Plant and Equipment;• Amendments to IAS 24 –Related Party Disclosures; andProvisions• Amendments to IAS 38 –Intangible Assets.
The adoption of these standards has not
had a material impact on the financial
statements. There are no other new standards,
amendments to standards or interpretations
mandatory for the first time for the year
ended 31 March 2017.

(b) Basis of preparation
The Financial Statements are presented in
Sterling, rounded to the nearest £0.1m andare prepared on the historical cost basis except
as described on page 85 under the heading“Financial instruments”.
The preparation of Financial Statements
in conformity with adopted IFRSs requires
management to make judgements, estimatesand assumptions that affect the application ofpolicies and reported amounts of assets andliabilities, income and expenses. The estimatesand associated assumptions are based on
historical experience and various other factorsthat are believed to be reasonable under
the circumstances, the results of which form
the basis of making the judgements aboutcarrying values of assets and liabilities thatare not readily apparent from other sources.
Actual results may differ from these estimates.

Provisions are recognised in the period
when it becomes probable that there will
be a future outflow of funds resulting
from past expectations or events which
can be reasonably estimated. The timingof recognition requires the application ofjudgement to existing facts and circumstances
which can be subject to change. Amounts
provided represent the Group’s best
estimate of exposure based on currently
available information.
Key assumptions surrounding estimation
uncertainty relate to future warranty costsof the Group’s products, which are based on
historical return rates and any known productquality issue; as well as estimating potential
royalty or profit sharing rates surrounding any
product-related intellectual property claims.

Revenue recognition
Revenue is recognised when, in the opinion of
the Group, the significant risks and rewardsof ownership have transferred to the buyer.
The complex technical nature of the Group’s
products, particularly in the NanoTechnology
Tools sector, means that the applicationof judgement is required in determining
whether those risks and rewards have passed
by assessing a number of factors, notably
whether shipping terms have been met,customer acceptance of the product received
and the complexity of any installation elementof the sale.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

The following other significant judgements
and estimates were made in applying theGroup accounting policies:

Measurement of defined benefit
scheme liabilities
The Group recognises and measures costs
relating to defined benefit pension schemesin accordance with IAS 19 (Revised) Employee
Benefits. In applying IAS 19 (Revised) the costs
are assessed in accordance with the advice ofindependent qualified actuaries. This requires
the exercise of judgement in relation to theestimation of future changes in salaries andinflation, as well as mortality rates, expected
returns on plan assets and the selectionof suitable discount rates. Further detail isprovided in Note 26.

Capitalised development costs
Capitalised development costs involve
judgements around the future economic
benefits that will flow from the associateddevelopment activity and in particular theGroup’s assessment of the technical andcommercial feasibility of the product tobe developed.

Deferred tax assets
A deferred tax asset is recognised in the
period if it is probable that future taxable
profits will be available against which the asset
can be utilised. This requires the exercise ofjudgement in relation to the estimation of
future taxable profit.
Revisions to accounting estimates arerecognised 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 andfuture periods. The key areas where estimateshave been used and assumptions applied arein the calculation of provisions, the valuationof acquired intangible assets, the impairment
testing of goodwill and the estimation ofdefined benefit pension plan liabilities.

Contingent purchase consideration
Contingent purchase consideration ismeasured at fair value at the date ofacquisition and tested annually against
the criteria for payment, with movements
in fair value being recorded in the Income
Statement. The key judgements involved
are the estimation of future cash flows andprofitability of the acquired business and theselection of a suitable discount rate.

03: Financial Statements

Fair value measurements on businesscombinations (prior year risk only)
The measurement of fair values on a businesscombination requires the recognition andmeasurement of the identifiable assets,
liabilities and contingent liabilities.
The key judgements involved are:• the identification and valuation of
intangible assets which require theestimation of future cash flows and theselection of a suitable discount rate
(see Note 17); and• the initial valuation of investment in
Scienta Scientific AB which required
the estimation of future cash flows andthe selection of a suitable discount rate
(see Note 7).

(c) Basis of consolidation
The Group Financial Statements include theaccounts of Oxford Instruments plc and its
subsidiary companies adjusted to eliminate
intra-Group balances and any unrealised gains
and losses or income and expenses arisingfrom intra-Group transactions.
Subsidiaries are entities controlled by theGroup. Control exists when the Group is
exposed to or has rights to variable returns
from its investment with the investee and has
the ability to affect those returns through its
power over the investee. In assessing control,
potential voting rights that are currently
exercisable or convertible are taken into
account. The results of subsidiary companies
are included in the consolidated Financial
Statements from the date that control
commences until the date that control ceases.
The acquisition method is used to account for
the acquisition of subsidiaries.
Associates are those entities in which theGroup holds more than 20% of the sharesand voting rights and has significant influence,but not control, over the financial andoperating policies.
The Group financial information includes theGroup’s share of the total comprehensive
income of the associate on an equity
accounted basis, from the date that significant
influence commences until the date thatsignificant influence ceases. When theGroup’s share of losses exceeds its interestin associate, the Group’s carrying amount isreduced to £nil and recognition of further
losses is discontinued except to the extent that
the Group has incurred legal or constructive
obligations or made payments on behalf ofan associate.

Oxford Instruments plc Report and Financial Statements 201704: Company Information

The assets and liabilities of foreign operations,
including goodwill and fair value adjustments
arising on consolidation, are translated into
Sterling at exchange rates ruling at the end of
the reporting period. Income statements andcash flows of foreign operations are translated
into Sterling at average monthly exchange
rates which approximate foreign exchange
rates at the date of the transaction. Foreignexchange differences arising on retranslation
are recognised directly in a separatetranslation reserve.

(d) Foreign currency
An individual entity’s transactions in foreign
currencies are translated at the foreignexchange rate ruling at the date of thetransaction. Monetary assets and liabilities
denominated in foreign currencies at thereporting date are translated at the foreignexchange rate ruling at that date. Foreignexchange differences arising on translation
are recognised in profit or loss. Non-monetary
assets and liabilities that are measured interms of historical cost in a foreign currency
are translated using the exchange rate at thedate of the transaction.

(e) Financial instruments
Financial assets and liabilities are recognisedin the Group’s Consolidated Statement of
Financial Position when the Group becomesa party to the contractual provisions of the
instrument. Derivative financial instruments of
the Group are used to hedge its exposure tointerest rate, foreign currency and commodity
pricing risks arising from operational, financing
and investment activities. The Group does nothold or issue derivative financial instruments
for trading purposes. All derivatives are
initially recognised at fair value; attributabletransaction costs are recognised in profit orloss as incurred. Derivatives comprising interest
rate swaps, foreign exchange contracts andoptions and metal futures contracts areclassified as “fair value through profit andloss” under IAS 39, unless designated ashedges. Subsequent to initial recognition,
derivatives are measured at fair value andgains or losses on the settlement of suchderivatives are recognised in operating
expenses. Where such derivatives relate to thefollowing year’s exposure, any gains or losses
resulting from the change in fair value aretaken to the mark-to-market gains/(losses) line
within financial income or expense.

85

Accounting Policies continued(e) Financial instruments continued(f) Property, plant and equipment

Changes in the fair value of the derivative
hedging instruments designated as cash flow
hedges are recognised in equity to the extent
that the hedge is effective. To the extent thatthe hedge is ineffective, changes in fair value
are recognised in the Consolidated Statementof Income. If the hedging instrument
no longer meets the criteria for hedge
accounting, expires or is sold, terminatedor exercised, then hedge accounting is
discontinued prospectively. The cumulative
gain or loss previously recognised in equity
remains there until the forecast transaction
occurs. When the hedged item is a nonfinancial asset, the amount recognised inequity is transferred to the carrying amount of
the asset when it is recognised. In other cases
the amount recognised in equity is transferredto the Consolidated Statement of Income inthe same period that the hedged item affects
profit or loss.

Property, plant and equipment is stated athistorical cost less provisions for impairment(see accounting policy l) and depreciation
which, with the exception of freehold land
which is not depreciated and rental assets(see below), is provided on a straight-line basis
over each asset’s estimated economic life.
Depreciation is provided based on historicalcost less estimated residual value. The
principal estimated economic lives used forthis purpose are:

The fair value of interest rate swaps is basedon broker quotes. Those quotes are tested
for reasonableness by discounting estimatedfuture cash flows based on the terms andmaturity of each contract and using market
interest rates for a similar instrument at themeasurement date.
The fair value of forward exchange contracts
is their market price at the Consolidated
Statement of Financial Position date, being thepresent value of the forward price. The gainor loss on remeasurement to fair value of
forward exchange contracts is recognised
immediately in the Consolidated Statementof Income.
Contingent purchase consideration ismeasured at fair value at the date ofacquisition and subsequently carried at fairvalue, with movements recognised in the
Income Statement.
Interest-bearing borrowings are recognised
initially at fair value less attributabletransaction costs. Subsequent to initialrecognition, interest-bearing borrowings arestated at amortised cost with any difference
between cost and redemption value being
recognised in profit or loss over the period of
the borrowing on an effective interest basis.

• Freehold buildings, longleasehold land and buildings

50 years• Leasehold improvements(less than 50 years’ duration)

Periodof lease• Furniture and fittings

10 years• Machinery and otherequipment

5 to 10years• Computer equipment

4 years• Vehicles

4 years

Fixed assets held for rental as part of theGroup’s service business are depreciated using
the reducing balance method at a rate of 3%
per month.
Proceeds on disposal of rental assets whichhave been refurbished by the Group arerecorded as revenue with associated costs
recorded in cost of sales. Otherwise gains andlosses on disposal of an item of property, plantand equipment are determined by comparing
the proceeds from disposal with the carrying
amount of property, plant and equipment andare recognised in the Income Statement.

(ii) Development costs
Research and Development costs are charged
to the Consolidated Statement of Income inthe year in which they are incurred unlessdevelopment expenditure is applied to aplan or design for the production of new or
substantially improved products, in whichcase they are capitalised. The criteria for
capitalisation include demonstration of thetechnical feasibility of completing a new
intangible asset that will be available for saleand that the asset will generate probablefuture economic benefits. Where expenditure
meets the criteria, development costs arecapitalised and amortised through theConsolidated Statement of Income over theiruseful economic lives.

(iii) Acquired intangible assets
An intangible asset acquired with a subsidiary
undertaking is recognised as an intangible
asset if it is separable from the acquired
business or arises from contractual or
legal rights, is expected to generate future
economic benefits and its fair value can bereliably measured. The asset is amortised
through the Consolidated Statement of
Income over it useful economic life.

(iv) Amortisation(g) Intangible assets(i) Goodwill
All business combinations are accounted forby applying the acquisition method. Goodwill
represents amounts arising on acquisition ofsubsidiaries. In respect of business acquisitions
that have occurred since 31 March 2004,
goodwill represents the difference between
the cost of the acquisition and the fair value ofthe assets, liabilities and contingent liabilities
acquired. In respect of acquisitions prior to thisdate, goodwill is included on the basis of its
deemed cost, which represents the amountrecorded under previous GAAP.
The Group expenses transaction costs
associated with its acquisitions andmovements in liabilities relating to contingent
consideration within the Income Statement inconformity with IFRS 3.

86

Goodwill arising on acquisitions is stated atcost less any accumulated impairment losses
and allocated to cash generating units that are
anticipated to benefit from the combination.
It is not amortised but is tested annually for
impairment (see accounting policy l), or more
frequently when there is an indicator that theunit may be impaired.

Amortisation of intangible assets is charged to
the Consolidated Statement of Income on asystematic basis in proportion to the use of theassets over their estimated useful economic
lives as follows:• Capitalised development
costs

3 to 5years• Technology relatedacquired intangibles

5 to 12years• Customer relatedacquired intangibles

6 months
to 15 years• Development costs
acquired intangibles

10 years• Software

10 years

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance(h) Trade and other receivables
Trade and other receivables are initiallyrecognised at fair value and subsequently
stated at their amortised cost less appropriate
allowances for amounts which are expected to
be non-recoverable.

(i) Inventories
Inventories are stated at the lower of cost and
net realisable value. Cost includes materials,
direct labour, an attributable proportionof production overheads based on normal
operating capacity and all other expenditure
incurred in acquiring the inventories andbringing them to their existing location andcondition. Net realisable value is the estimatedselling price in the ordinary course of business,less the estimated costs of completion andselling expenses.
Provision is made for obsolete, slow-moving
and defective stock where appropriate in lightof recent usage, expected future requirements,
new product introduction plans and likely
realisable values.

(j) Cash and cash equivalents
Cash and cash equivalents are carriedin the Statement of Financial Position atamortised cost.
Cash and cash equivalents comprise cash
balances and call deposits and are carriedat amortised cost. Bank overdrafts that are
repayable on demand and form an integral
part of the Group’s cash management areincluded as a component of cash and cash
equivalents for the purpose of the Statementof Cash Flows.

(k) Non-current assets
held for sale
A non-current asset is classified as held forsale if its carrying amount will be recovered
principally through sale rather than throughcontinuing use, it is available for immediatesale and sale is highly probable within
one year.
Immediately before classification as held for
sale, the measurement of 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 lowerof their carrying amount and fair value lesscosts to sell.
Impairment losses on initial classification asheld for sale are included in the Consolidated
Statement of Income, even when the asset
has previously been revalued. The same
applies to gains and losses on subsequentremeasurement.

03: Financial Statements(l) Impairment of
non‑current assets
All non-current assets are tested for
impairment whenever events or circumstancesindicate that their carrying value may be
impaired. Additionally, goodwill is subject
to an annual impairment review.
For the purposes of impairment testing assets
are grouped together into the smallest groupof assets that generates cash flows fromcontinuing use that are largely independent of
the cash inflows from other groups of assets.
An impairment loss is recognised in theConsolidated Statement of Income as under
the administration and shared services
heading, to the extent that an asset’s carrying
value, or a cash generating unit’s carrying
value, exceeds its recoverable amount, which
represents the higher of its net realisable value
and its value in use. Value in use is the present
value of the future cash flows expected to
be derived from the asset or from the cash
generating unit to which it relates. The present
value is calculated using a discount rate thatreflects the current market assessment of thetime value of money and the risks specific to
the asset concerned.
Impairment losses recognised in previous
periods for an asset other than goodwill
are reversed if there has been a change
in estimates used to determine the asset’s
recoverable amount, but only to the extent
that the carrying amount of the asset does
not exceed its carrying amount had the
impairment loss not been recognised inprevious periods. Impairment losses in respectof goodwill are not reversed.
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 and thento reduce the carrying amount of the otherassets in the unit.

04: Company Information(ii) Defined benefit plans
The Group’s net obligation in respect ofdefined benefit pension plans is calculated
separately for each plan by estimating theamount of future benefit that current andpast employees have earned in return for
their service in prior periods. That benefit is
discounted to determine its present value
and the fair value of any plan assets isdeducted. The calculation is performed bya qualified actuary using the projected unit
credit method.
All actuarial gains and losses in calculating theGroup’s net obligation are recognised in theConsolidated Statement of Comprehensive
Income in the year.
The charge to the Consolidated Statementof Income reflects the current service cost.
The interest expense or income is calculatedon the net defined benefit liability by
applying the discount rate to the net defined
benefit liability, and is included within
financial expenditure or financial incomein the Consolidated Statement of Income
respectively.

(iii) Share-based payment transactions
The fair value of equity‑settled share option
programmes is measured at grant date andcharged to the Consolidated Statementof Income, with a corresponding increasein equity, on a straight-line basis over theperiod during which the employees become
unconditionally entitled to the options. The
fair value of the options granted is measured
using an option valuation model, taking into
account the terms and conditions upon which
the options were granted.
The amount recognised as an expense isadjusted to reflect the actual number of shareoptions that vest, except where forfeiture is
only due to market performance conditions
not being met.

(m) Employee benefits
The Group operates a number of defined
benefit and defined contribution plans
which require contributions to be made to
independent trustee-administered funds.

(i) Defined contribution plans
Obligations for contributions to defined
contribution pension plans are recognised as
an expense in the Consolidated Statement of
Income as incurred.

Oxford Instruments plc Report and Financial Statements 201787

Accounting Policies continued(n) Provisions(q) Interest-bearing borrowings(s) Income tax

A provision is recognised in the Consolidated
Statement of Financial Position when theGroup has a present legal or constructive
obligation as a result of a past event and it isprobable that an outflow of economic benefits
will be required to settle the obligation.
A provision for warranty and product related
liability is recognised when the underlying
products are sold. A provision for restructuring
is recognised when the Group has approveda detailed and formal restructuring plan andthe restructuring has either commenced or
has been announced publicly. A provision
for onerous contracts is recognised whenthe expected benefits to be derived by theGroup from a contract are lower than theunavoidable cost of meeting its obligations
under the contract. A provision for a claim
or dispute is made when it is considered
probable that an adverse outcome will
occur and the amount of the loss can bereasonably estimated.

Interest-bearing borrowings are recognised
initially at fair value less attributabletransaction costs. Subsequent to initialrecognition, interest-bearing borrowings arestated at amortised cost with any difference
between cost and redemption value being
recognised in the Income Statement overthe period of the borrowings on an effective
interest basis.

Income tax on the profit or loss for the year
comprises current and deferred tax. Income
tax is recognised in profit or loss except tothe extent that it relates to items recognised
directly in equity, in which case it is recognisedin equity.

Contractual and other provisions represent the
Directors’ best estimate of the cost of settling
future obligations where the Directors, taking
into account professional advice received,
assess that it is more likely than not that suchproceedings may be successful.
If the effect is material, provisions are
determined by discounting the expected
future cash flows at a pre-tax rate that reflects
current market assessments of the time valueof money and, where appropriate, the risks
specific to the liabilities.

(o) Trade and other payables
Trade and other payables are initiallyrecognised at their fair value and subsequently
stated at amortised cost.

(p) Government grants
Grants from Governments are recognised attheir fair value where there is a reasonableassurance that the grant will be received
and the Group will comply with all
attached conditions.
Government grants relating to costs aredeferred and recognised in the Income
Statement over the period necessary to matchthem with the costs they are intended tocompensate. Government grants relating toproperty, plant and equipment are included
in other current liabilities and are credited to
the Income Statement on a straight-line basis
over the expected useful economic lives of therelated assets.

88(r) Revenue
Revenue is recognised in the Consolidated
Statement of Income when the significant
risks and rewards of ownership havetransferred to the buyer. In the Industrial
Products segment this is generally considered
to be on dispatch, as products have a low
level of customisation, are manufactured on aroutine basis and typically have no installation
requirement. In the NanoTechnology Tools
segment products are generally bespokeand customer contracts more complex.
As such, there are a number of conditions
which must be satisfied before revenue canbe recognised. These can include: legal;
contractual ownership; passing internal quality
control testing; dispatch from manufacturing
sites; installation at customer sites; customer
inspection both before and after installation;
and/or, ultimately, customer acceptance.
Given these conditions, a greater degree ofconsideration is given as to whether the termsof sale have been met and whether revenue
can be recognised for each product. In theService segment, revenue for maintenanceand support is recognised on a pro-ratabasis over the length of the contract period.
Revenue relating to the rental of machinery
is recognised on a straight-line basis over thelife of the lease. Where the Service segment
makes asset sales, similar considerations as
those set out for the NanoTechnology Tools
segment are applied. Revenue excludes value
added tax and similar sales-based taxes and isstated before commission payable to agents.

Current tax is the expected tax payable on
the taxable income for the year, using tax
rates enacted or substantively enacted at thereporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised in respect of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used fortaxation purposes. The following temporary
differences are not provided for: the initialrecognition of goodwill; the initial recognitionof assets or liabilities that affect neither
accounting nor taxable profit; and differences
relating to investments in subsidiaries to theextent that they will probably not reverse in
the future.
The amount of deferred tax provided is basedon the expected manner of realisation orsettlement of the carrying amount of assets
and liabilities, using tax rates enacted or
substantively enacted at the Statement of
Financial Position date.
A deferred tax asset is recognised only to theextent that it is probable that future taxable
profits will be available against which the asset
can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable thatthe related tax benefit will be realised.
Additional income taxes that arise fromthe distribution of dividends are recognised
at the same time as the liability to pay the
related dividend.

(t) Lease payments
Payments made under operating leases arerecognised in profit or loss 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 thetotal lease expense.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance(u) Segment reporting
An operating segment is a distinguishable
component of the Group that engages inbusiness activities from which it may earnrevenues and incur expenses, including
any revenues and expenses that relate
to transactions with any of the Group’s
other components. Operating components
are combined into aggregated operating
segments to the extent that they have
similar economic characteristics. Aggregatedoperating segments’ operating results arereviewed regularly by the Group’s Board of
Directors to make decisions about resources
to be allocated to the segment and toassess its performance, for which discrete
financial information is available. Segment
results that are reported to the Board include
items directly attributable to a segment aswell as those that can be allocated on areasonable basis.
A reportable segment is an aggregatedoperating segment in respect of whichrevenue or profit exceeds 10% of the Group
total. Discrete financial information is disclosed
for each reportable segment.

(v) Dividends
Interim and final dividends are recognised
as a liability when they are no longer at thediscretion of the Company.

(w) New standards andinterpretations not yet adopted
A number of new standards, amendments
to standards and interpretations have been
issued by the IASB and endorsed by the EU
and are effective for annual periods beginning
after 1 April 2016. They have not been appliedin preparing these consolidated Financial
Statements. None of these standards are
expected to have a significant impact on theGroup Financial Statements.

03: Financial Statements

04: Company Information

A number of other new standards,
amendments to standards and interpretations
have been issued by the IASB, although they
are not yet endorsed by the EU, and are
effective for annual periods beginning after
1 April 2016. They have not been appliedin preparing these consolidated Financial
Statements. The standards which may be
relevant to the Group are set out below:• IAS 7 Statement of Cash Flows: whichbecomes mandatory for the Group’s
consolidated Financial Statements for theannual period beginning on 1 April 2017.
This standard is not expected to have asignificant impact on the Group Financial
Statements;• IAS 12 Income Taxes: which becomesmandatory for the Group’s consolidated
Financial Statements for the annual period
beginning on 1 April 2017. This standard is
not expected to have a significant impact
on the Group Financial Statements;• IFRS 9 Financial Instruments: whichbecomes mandatory for the Group’s
consolidated Financial Statements for theannual period beginning on 1 April 2018
and could change the classification andmeasurement of financial assets;• IFRS 15 Revenue from Contracts with
Customers: which becomes mandatory
for the Group’s consolidated Financial
Statements for the annual period
beginning 1 April 2018. The potential
impact on the Group of the new standard
is still being assessed; and• IFRS 16 Leases: which becomes mandatory
for the Group’s consolidated Financial
Statements for the annual period
beginning 1 April 2019. The potential
impact on the Group of the new standard
is still being assessed.

Oxford Instruments plc Report and Financial Statements 201789

Consolidated Statement of Income
year ended 31 March 20172017		 2016
					
				
Adjusted1
			
Notes
£m

Revenue			

Adjusting			
items1
Total
Adjusted£m£m£m

Adjustingitems1
£m

Total
£m

3

348.5

—

348.5

319.7

—

319.7

Cost of sales				(166.8)—(166.8)(164.2)(1.0)(165.2)Gross profit				

181.7

—

181.7

155.5

(1.0)

154.5

Research and Development			

5(27.1)(0.7)(27.8)(23.6)—(23.6)

Selling and marketing				(66.3)—(66.3)(59.4)—(59.4)

Administration and shared services			(32.9)(53.4)(86.3)(31.8)(23.0)(54.8)

Share of loss of associate, net of tax		

7

(0.8)

(8.4)

(9.2)

(0.2)

(1.3)

(1.5)

Other operating income				

—

—

—

—

4.9

4.9

Foreign exchange				(12.1)—(12.1)

0.7

—

0.7

Operating profit/(loss)				

42.5(62.5)(20.0)

41.2(20.4)

20.8

Other financial income			

9

0.2

1.2

1.4

—

—

—

0.2

1.2

1.4

—

—

—

Interest charge on pension scheme net liabilities

26

(1.1)

—

(1.1)

(1.7)

—

(1.7)

Other financial expenditure			Financial income			
10

(5.6)

(0.2)

(5.8)

(5.9)

(3.5)

(9.4)

Financial expenditure				

(6.7)

(0.2)

(6.9)

(7.6)

(3.5)

(11.1)

Profit/(loss) before income tax			

36.0(61.5)(25.5)

33.6(23.9)

9.7

Income tax (expense)/credit			

14

(8.7)

9.1

0.4

(7.7)

5.0

(2.7)

Profit/(loss) for the year fromcontinuing operations				

27.3(52.4)(25.1)

25.9(18.9)

7.0

Profit/(loss) from discontinued operations after tax

8

0.7

4.1

4.8

1.9

(1.9)

—

Profit/(loss) for the year attributable
to equity Shareholders of the parent			

28.0(48.3)(20.3)

27.8(20.8)

7.0

				

pence		

pence

pence		

pence

Earnings per share 							Basic earnings per share			2						

From continuing operations		

47.8		

(44.0)

45.3		

From discontinued operations			

1.2		

8.4

3.4		

—

From profit/(loss) for the year			

49.0		

(35.6)

48.7		

12.2

From continuing operations			

47.7		

(44.0)

45.2		

12.3

From discontinued operations			

1.2		

8.4

3.4		

—

From profit/(loss) for the year			

48.9		

(35.6)

48.6		

12.3

Diluted earnings per share			

12.2

2

Dividends per share							Dividends paid			15			

13.0			

13.0Dividends proposed			

15			

13.0			

13.01. Adjusted numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1 to the Financial Statements.

The attached notes form part of the Financial Statements.

90

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Consolidated Statement of Comprehensive Income
year ended 31 March 2017															
Notes

2017
£m

2016
£m

(Loss)/profit for the year								(20.3)

7.0

Gain/(loss) on effective portion of changes in fair value of cash flow hedges, net of amounts recycled			

0.1

(0.1)

Foreign exchange translation differences						

18.8

5.6

Net cumulative foreign exchange (gain)/loss on disposal of subsidiaries recycled to the Income Statement		

(5.7)

1.2

4.4

13.6

Other comprehensive income/(expense):		

Items that may be reclassified subsequently to profit or loss			

Items that will not be reclassified subsequently to profit or loss			Remeasurement gain in respect of post-retirement benefits				26

Tax on items that will not be reclassified to profit or loss					

14

(0.9)

(2.6)

Total other comprehensive income						

16.7

17.7

Total comprehensive (expense)/income for the year attributable to equity Shareholders of the parent		

(3.6)

24.7

Oxford Instruments plc Report and Financial Statements 201791

Consolidated Statement of Financial Position
as at 31 March 2017															
Notes

2017
£m

2016
£m

Assets			Non-current assets			
Property, plant and equipment						

16

32.5

35.2

Intangible assets							

17

181.0

220.8

Investment in associate							

13.1

7

3.9

Long-term receivables								

3.6

3.4

Deferred tax assets							

18

26.0

19.0

								

247.0

291.5

Current assets			
Inventories							

19

53.9

61.1

Trade and other receivables							

20

81.1

77.5

Current income tax recoverable							

4.2

2.7

Derivative financial instruments						

23

0.6

1.5

Cash and cash equivalents								

27.2

21.8

								

167.0

164.6

Total assets								

414.0

456.1

Equity			Capital and reserves attributable to the Company’s equity Shareholders

		
24

2.9

2.9

Share premium								

61.5

61.5

Other reserves								

0.2

0.1

Translation reserve								

22.8

9.7

Retained earnings								

45.1

68.8

								

132.5

143.0

Share capital							Liabilities			Non-current liabilities

		Bank loans and overdrafts							

25

129.6

147.0

Retirement benefit obligations						

26

25.1

35.0

Deferred tax liabilities							

18

5.6

5.7

								

160.3

187.7

Current liabilities			Bank loans and overdrafts							

25

6.9

3.0

Trade and other payables							

27

93.0

102.4

Current income tax payables							

6.5

2.1

Derivative financial instruments						

23

5.0

5.8

Provisions 							

28

9.8

12.1

								

121.2

125.4

Total liabilities								

281.5

313.1

Total liabilities and equity

414.0

456.1

						The Financial Statements were approved by the Board of Directors on 13 June 2017 and signed on its behalf by:

Ian Barkshire 			Director				Gavin Hill
Director

Company number: 775598

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04: Company Information

Consolidated Statement of Changes in Equity
year ended 31 March 2017												Share						SharepremiumOther				
capitalaccount
reserves
				
£m
£m
£m

Balance at 1 April 2016				

2.9

61.5

0.1

Foreign		exchange		translation
Retainedreserveearnings
£m
£m

9.7

Total
£m

68.8

143.0

—

(20.3)(20.3)

Total comprehensive income/(expense):						Loss for the year				

—

—

—

Other comprehensive income:						– Foreign exchange translation differences			

—

—

—

18.8

—

18.8

– Net foreign exchange gain on disposal of subsidiaries
recycled to the Income Statement 			

—

—

—

(5.7)

—

(5.7)

– Gain on effective portion of changes in fair value of cash
flow hedges, net of amounts recycled			

—

—

0.1

—

—

0.1

– Remeasurement gain in respect of post-retirement benefits

—

—

—

—

4.4

4.4

– Tax on items recognised directly in other comprehensive income

—

—

—

—

(0.9)

(0.9)

Total comprehensive income/(expense) attributable
to equity Shareholders of the parent			

—

—

0.1

13.1

(16.8)(3.6)

Transactions with owners recorded directly in equity:					– Charge in respect of employee service costs settled by awardof share options 				

—

—

—

—

0.5

0.5

– Dividends paid				

—

—

—

—

(7.4)

(7.4)

Total transactions with owners recorded directly in equity

—

—

—

—

(6.9)

(6.9)

Balance at 31 March 2017			

2.9

61.5

0.2

22.8

45.1

132.5

Foreign		exchange		translation
Retainedreserveearnings
£m
£m

Total
£m

												Share						SharepremiumOther				
capitalaccount
reserves
				
£m
£m
£m

Balance at 1 April 2015				

2.9

61.5

0.2

2.9

58.0

125.5

—

7.0

7.0

Total comprehensive income:						Profit for the year				

—

—

—

Other comprehensive income:						– Foreign exchange translation differences			

—

—

—

5.6

—

5.6

– Net foreign exchange loss on disposal of subsidiaries
taken to the Income Statement 			

—

—

—

1.2

—

1.2

– Loss on effective portion of changes in fair value ofcash flow hedges, net of amounts recycled		

—

—

(0.1)

—

—

(0.1)

– Remeasurement gain in respect of post-retirement benefits

—

—

—

—

13.6

13.6

– Tax on items recognised directly in other comprehensive income

—

—

—

—

(2.6)

(2.6)

Total comprehensive income/(expense) attributable
to equity Shareholders of the parent 		

—

—

(0.1)

6.8

18.0

24.7

Transactions with owners recorded directly in equity:					– Charge in respect of employee service costs settled byaward of share options 				

—

—

—

—

0.4

0.4

– Dividends paid				

—

—

—

—

(7.6)

(7.6)

Total transactions with owners recorded directly in equity

—

—

—

—

(7.2)

(7.2)

Balance at 31 March 2016

2.9

61.5

0.1

9.7

68.8

143.0

		

Other reserves comprise the capital redemption reserve, which represents the nominal value of shares repurchased and then cancelled during theyear ended 31 March 1999, and the hedging reserve in respect of the effective portion of changes in value of commodity contracts.
The foreign exchange 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 Group holds 183,145 (2016: 183,145) of its own shares in an employee benefit trust. The cost of these shares is included within retained
earnings. There was no movement in the shares held by the trust during the year.

Oxford Instruments plc Report and Financial Statements 201793

Consolidated Statement of Cash Flows
year ended 31 March 2017															

2017
£m

2016
£m

(Loss)/profit for the year from continuing operations						(25.1)

7.0

Adjustments for:		
Income tax expense							

(0.4)

2.7

Net financial expense								

5.5

11.1

Acquisition related fair value adjustments to inventory						

—

0.2Acquisition related fair value adjustments to property, plant and equipment				—

0.8

Acquisition related costs								

1.5

2.5

Restructuring costs								

0.6

2.9

Restructuring costs – relating to associate							

0.4

1.3

Impairment of capitalised development costs						0.7

—Loss on disposal of subsidiary							

0.4

0.9

Contingent consideration deemed no longer payable						

—

(4.9)

Impairment of investment in associate							8.0

—Amortisation and impairment of acquired intangibles						

48.7

16.7

One off impairment of capitalised intangible software costs					2.2

—Depreciation of property, plant and equipment						

5.7

5.5

Amortisation of capitalised development costs						

4.8

3.9

Adjusted earnings before interest, tax, depreciation and amortisation				

53.0

50.6

Loss on disposal of property, plant and equipment						

0.5

0.1

Cost of equity settled employee share schemes						

0.5

0.4

Share of loss from associate							

0.8

0.2

Acquisition related costs paid							

(1.2)

(1.8)

Restructuring costs paid								

(1.3)

(4.7)

Foreign currency loss on intra-Group dividends						

(0.8)

—

Cash payments to the pension scheme more than the charge to operating profit				

(6.9)

(6.7)

Operating cash flows before movements in working capital					

44.6

38.1

(Increase)/decrease in inventories							

(1.5)

1.1

Decrease in receivables								

0.6

7.4

(Decrease)/increase in payables and provisions						

(4.5)

2.2

Increase/(decrease) in customer deposits							

1.0

(2.3)

Purchase of rental assets held for subsequent sale						

(1.0)

(3.0)

Cash generated from operations							

39.2

43.5

Interest paid								

(5.0)

(5.6)

Income taxes paid								

(2.1)

(3.5)

Net cash from operating activities							

32.1

34.4

Acquisition of subsidiaries, net of cash acquired						(9.8)(27.1)

Acquisition of property, plant and equipment						

(3.5)

(2.2)

Acquisition of intangible assets							

(0.1)

(0.2)

Net cash flow on disposal of subsidiary							

12.2

0.6

Capitalised development expenditure							

(7.9)

(8.2)

Net cash used in investing activities							(9.1)(37.1)

Increase in long-term receivables							

—

(3.0)

(Decrease)/increase in borrowings							(12.8)

4.6

Dividends paid								

(7.4)

(7.6)

Net cash from financing activities						(20.2)(6.0)

Net increase/(decrease) in cash and cash equivalents from continuing operations				

2.8

(8.7)

Increase in cash from discontinued operations						

1.4

4.9

Cash and cash equivalents at beginning of the year						

20.4

25.1

Cash flows from investing activities		

Cash flows from financing activities		

Effect of exchange rate fluctuations on cash held						

1.9

(0.9)

Cash and cash equivalents at end of the year						

26.5

20.4

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02: Governance

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04: Company Information

Reconciliation of changes in cash and cash equivalents to movement in net debt															

2017
£m

2016
£m

Increase/(decrease) in cash and cash equivalents						

4.2

(3.8)

Effect of foreign exchange rate changes on cash and cash equivalents					

1.9

(0.9)

								

6.1

(4.7)

Cash outflow/(inflow) from decrease/increase in debt						

12.8

(4.6)

Movement in net debt in the year							

18.9

(9.3)

Net debt at start of the year						(128.2)(118.9)Net debt at the end of the year							(109.3)(128.2)Oxford Instruments plc Report and Financial Statements 201795

Notes to the Financial Statements
year ended 31 March 2017

1 Non-GAAP measures
The Directors present the following non-GAAP measures as they consider that they give a better indication of the underlying performance ofthe business.

Reconciliation between profit before income tax and adjusted profit from continuing operations
		

2017

2016

Operating(loss)/profit£m(Loss)/profit
beforeincome tax£mOperatingprofit£m

Profit before
income tax£mStatutory measure from continuing operations				(20.0)(25.5)

20.8

9.7

Reversal of acquisition related fair value adjustments to inventory			

—

—

0.2

0.2

Reversal of acquisition related fair value adjustments to property, plant and equipment		

—

—

0.8

0.8

Acquisition related costs						

1.5

1.5

2.5

2.5

Restructuring costs						

0.6

0.6

2.9

2.9

Restructuring costs – relating to associate					

0.4

0.4

1.3

1.3

Loss on disposal of subsidiary					

0.4

0.4

0.9

0.9

Contingent consideration deemed no longer payable				

—

—

(4.9)

(4.9)

Unwind of discount in respect of contingent consideration and acquisition related accruals		

—

0.2

—

0.8

Non‑recurring and acquisition related items				

2.9

3.1

3.7

4.5

Impairment of acquired intangibles				

34.9

34.9

—

—

Impairment of investment in associate					

8.0

8.0

—

—

Impairment of capitalised development costs				

0.7

0.7

—

—

Impairment of capitalised software costs					

2.2

2.2

—

—

Amortisation of acquired intangibles				

13.8

13.8

16.7

16.7

Mark-to-market (gain)/loss in respect of derivative financial instruments		

—

(1.2)

—

2.7

Adjusted measure from continuing operations				

42.5

36.0

41.2

33.6

Share of taxation						

—

(8.7)

—

(7.7)

Adjusted profit for the year from continuing operations				

—

27.3

—

25.9

						
						
						
					Acquisition related costs comprise professional fees incurred in relation to mergers and acquisitions activity and any consideration which, under
IFRS 3 (revised), falls to be treated as a post-acquisition employment expense.
Restructuring costs comprise one-off costs in respect of the cost reduction programme which began in March 2015. Restructuring costs relating to
the Group’s associate relate to exceptional costs incurred by the associate arising from the merger of the Scienta and Omicron businesses.
During the year the Group settled various claims totalling £0.4m relating to the disposal of its Omicron business in the prior year. In the prior year
the Group made a loss on disposal of £0.9m in respect of the disposal on Omicron.
In order to assist with comparability between peers, adjusted profit excludes the non-cash amortisation and impairment of acquired intangible
assets and goodwill and the unwind of discounts in respect of contingent consideration relating to business combinations.
During the year the Group recognised an impairment of £8.0m relating to its equity accounted associate investment. See Note 7 for further details
The one off impairment of capitalised development costs relates to a specific internal systems project that has been stopped as the Group focusesand directs resources so as to accelerate key projects.
The one off impairment of capitalised software costs has been carried out following a reassessment of the future value expected to be derived
from internally developed software.
The Group reports ineffectiveness of its hedging as an adjusting item. In the current year this includes losses on certain contracts relating to
the hedging of the Japanese Yen which were not required for ordinary trading and which were re-allocated for use against the remittance of
net income of the Group’s Japan operations. Additionally, under IAS 39, all derivative financial instruments are recognised initially at fair value.
Subsequent to initial recognition, they are also measured at fair value. In respect of instruments used to hedge foreign exchange risk and interest
rate risk the Group does not take advantage of the hedge accounting rules provided for in IAS 39 since that standard requires certain stringent
criteria to be met in order to hedge account, which, in the particular circumstances of the Group, are considered by the Board not to bringany significant economic benefit. Accordingly, the Group accounts for these derivative financial instruments at fair value through profit or loss.
To the extent that instruments are hedges of future transactions, adjusted profit for the year is stated before changes in the valuation of these
instruments so that the underlying performance of the Group can be more clearly seen.

96

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01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

In the prior year:• the reversal of acquisition related fair value adjustments to inventory and property, plant and equipment were excluded from adjusted profit toprovide a measure that includes results from acquired businesses on a consistent basis over time to assist comparison of performance; and• £4.9m was released relating to contingent consideration on the acquisition of Asylum Research Corporation following the end of theearnout period.

2 Earnings per share
The calculation of basic and adjusted earnings per share is based on the profit for the year as shown in the Consolidated Statement of Income
and the adjusted profit for the year as shown in Note 1 respectively. Basic and adjusted earnings are divided by the weighted average number ofordinary shares outstanding during the year, excluding shares held by the Employee Share Ownership Trust.
																Basic (loss)/earnings from continuing operations					

2017
£m

2016
£m

(25.1)

7.0

4.8

—

Basic (loss)/earnings							(20.3)

7.0

Adjusted earnings (Note 1)								

28.0

27.8

Weighted average number of shares 						

57.1

57.1

															

2017
pence

2016
pence

Basic (loss)/earnings per share from continuing operations					(44.0)

12.2

Basic earnings from discontinued operations						Basic earnings per share from discontinued operations						8.4

—Basic (loss)/earnings per share							(35.6)

12.2

Adjusted earnings per share							

49.0

48.6

The weighted average number of shares used in the calculation excludes shares held by the Employee Share Ownership Trust, as follows:																								2017Sharesmillion2016
SharesmillionWeighted average number of shares outstanding						

57.3

57.3

Less shares held by Employee Share Ownership Trust						

(0.2)

(0.2)

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

57.1

57.1

																								2017Sharesmillion2016
SharesmillionWeighted average number of ordinary shares per basic earnings per share calculations				

57.1

57.1

Effect of shares under option							

0.1

0.1

Weighted average number of ordinary shares per diluted earnings per share calculations			

57.2

57.2

The following table shows the effect of share options on the calculation of diluted earnings per share:

Adjusted diluted earnings per share has been calculated in a manner consistent with previous periods.

3 Segment information
The Group has seven operating segments. These operating segments have been combined into three aggregated operating segments to theextent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale anddistribution and the regulatory environment in which they operate. Each of these three aggregated operating segments is a reportable segment.
The Group’s internal management structure and financial reporting systems differentiate the three aggregated operating segments on the basis of
the economic characteristics discussed below:• the NanoTechnology Tools segment contains a group of businesses, supplying similar products, characterised by a high degree of customisationand high unit prices. These are the Group’s highest technology products serving research customers in both the public and private sectors;• the Industrial Products segment contains a group of businesses supplying high technology products and components manufactured in medium
volume for industrial customers; and• the Service segment contains the Group’s service, rental and refurbished asset sales business as well as service revenues from other parts of the Group.
Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis.
Inter‑segment pricing is determined on an arm’s length basis. The operating results of each are regularly reviewed by the Chief Operating Decision
Maker, which is deemed to be the Board of Directors. Discrete financial information is available for each segment and used by the Board of
Directors for decisions on resource allocation and to assess performance. No asset information is presented below as this information is notpresented in reporting to the Group’s Board of Directors.

Oxford Instruments plc Report and Financial Statements 201797

Notes to the Financial Statements continued
year ended 31 March 2017

3 Segment information continueda) Analysis by business					
NanoTechnology
Results from continuing operations
				
Tools
Year to 31 March 2017						
£mIndustrial		
Products
Service£m£mExternal revenue						

208.6

56.7

83.2

Inter-segment revenue						

0.1

—

—

Total
£m

348.5

Total segment revenue						

208.7

56.7

83.2

Segment adjusted operating profit from continuing operations			

25.6

1.7

15.2

42.5

						
Results from continuing operations						Year to 31 March 2016						NanoTechnology
Tools
£m

Industrial		
Products
Service
£m
£m

Total
£m

External revenue						

187.3

54.0

78.4

Inter-segment revenue						

0.1

—

—

Total segment revenue						

187.4

54.0

78.4

Segment adjusted operating profit from continuing operations			

21.3

1.1

18.8

319.7

41.2

The adjusted loss after tax of £0.8m (2016: £0.2m) from the Group’s associate is reported within the NanoTechnology Tools segment.
Included in the Service sector is revenue from equipment sales of £5.6m (2016: £13.8m) and from equipment leasing of £9.0m (2016: £8.1m).

Reconciliation of reportable segment profit					 NanoTechnology
					
Tools
Year to 31 March 2017					
£mIndustrial		
Products
Service£m£m

UnallocatedGroup items
£m

Total
£m

Adjusted profit for reportable segments from continuing operations		

25.6

1.7

15.2

—

42.5

Acquisition related costs					

(0.3)

(1.2)

—

—

(1.5)

Restructuring costs					

—

(0.2)

(0.4)

—

(0.6)

Restructuring costs – relating to associate				

(0.4)

—

—

—

(0.4)

Impairment of capitalised development costs			

(0.7)

—

—

—

(0.7)

Loss on disposal of subsidiary				

(0.4)

—

—

—

(0.4)

Impairment of investment in associate				

(8.0)

—

—

—

(8.0)

Impairment of capitalised software costs				

—

—

—

(2.2)

(2.2)

Amortisation of acquired intangibles				(10.6)

(1.3)

(1.9)

—

(13.8)

Impairment of acquired intangibles			(22.6)(1.1)(11.2)—(34.9)

Financial income					

—

—

—

1.4

1.4

Financial expenditure					

—

—

—

(6.9)

(6.9)

(Loss)/profit before income tax on continuing operations		

(17.4)

(2.1)

1.7

(7.7)

(25.5)

										
Year to 31 March 2016
				

NanoTechnology
Tools
£m

Industrial		
Products
Service£m£m

UnallocatedGroup items
£m

Total
£m

Adjusted profit for reportable segments from continuing operations		

21.3

1.1

18.8

—

41.2

Reversal of acquisition related fair value adjustments to inventory		

—

—

(0.2)

—

(0.2)

Reversal of acquisition related fair value adjustments to property,
plant and equipment					

—

—

(0.8)

—

(0.8)

Acquisition related costs					

(1.7)

(0.1)

(0.7)

—

(2.5)

Restructuring costs					

(2.5)

(0.1)

(0.3)

—

(2.9)

Restructuring costs – relating to associate				

(1.3)

—

—

—

(1.3)

Loss on disposal of subsidiary				

(0.9)

—

—

—

(0.9)

Contingent consideration deemed no longer payable			

4.9

—

—

—

4.9

Amortisation of acquired intangibles				(10.8)

(4.0)

(1.9)

—

(16.7)

Financial income					

—

—

—

—

—

Financial expenditure					

—

—

—

(11.1)(11.1)

Profit/(loss) before income tax on continuing operations

9.0

(3.1)

14.9

(11.1)

9.7

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02: Governance

03: Financial Statements

04: Company Information

Depreciation, capital expenditure, amortisation and impairment of intangibles and capitalised development costs arise in the following segments:
		

2017

2016

Capital		
expenditure
Depreciation£m£m						
						
						

Depreciation£m

NanoTechnology Tools						

2.4

2.2

2.6

1.3

Industrial Products						

1.0

1.0

0.8

0.5

Service						

1.9

1.3

1.7

3.1

Unallocated Group items						

0.4

0.1

0.4

0.5

Total						

5.7

4.6

5.5

5.4

		
													
Amortisation						 and impairment						
£m

2017

Capitalexpenditure
£m

2016

Capitalised		development
Amortisationcosts
and impairment£m£m

Capitalised
development
costs
£m

NanoTechnology Tools						

45.5

5.1

13.6

5.8

Industrial Products						

3.6

2.7

5.1

2.4

Service						

13.1

—

1.9

—

Unallocated Group items						

2.2

—

—

—

Total						

64.4

7.8

20.6

8.2

b) Geographical analysis
The Group’s reportable segments are located across a number of geographical locations and make sales to customers in countries across the world.
The analysis below shows revenue and non-current assets (excluding deferred tax) for individual countries or regions that represent more than 5%of revenue.

Revenue from continuing operations from external customers by destination																

2017
£m

2016
£m

USA								

106.1

105.4

Rest of Europe								

42.7

44.4

Rest of Asia								

44.2

38.4

UK								

16.6

17.6

Japan								

36.5

34.9

China 								

65.0

44.3

Germany								

26.4

22.3

Rest of World								

11.0

12.4

Total								

348.5

319.7

																

2017
£m

2016
£m

208.5

Non-current assets (excluding deferred tax)
UK								181.2Germany								

10.4

7.5

USA								

10.3

37.3

Japan								

0.6

0.5

China								

0.5

0.5

Rest of Europe								

15.4

15.4

Rest of Asia								

0.1

0.1

Rest of World								

2.5

2.7

Total								

221.0

272.5

Oxford Instruments plc Report and Financial Statements 201799

Notes to the Financial Statements continued
year ended 31 March 2017

4 Auditor’s remuneration																

2017
£’000

2016
£’000

Audit of these Financial Statements							

140

150

– Audit of Financial Statements of subsidiaries pursuant to legislation					

281

287

– Taxation compliance services							

25

14– Audit related services								

27

27– Services related to corporate finance transactions						90

—Total fees paid to the auditor and its associates						

563

478

Amounts received by the auditor and its associates in respect of:		

5 Research and Development (“R&D”)
The total R&D spend by the Group is as follows:2017		 2016				 NanoTechnology
				
Tools
				
£m

Industrial		
Products
Total
£m
£m

NanoTechnology
Tools
£m

Industrial
Products
£m

Total
£m

R&D expense charged to the Consolidated
Statement of Income				

21.0

6.8

27.8

17.6

6.0

23.6

Less: depreciation of R&D related fixed assets		

(0.1)

—

(0.1)

—

(0.8)

(0.8)

Add: amounts capitalised as fixed assets			

0.1

0.1

0.2

0.1

1.1

1.2

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

(4.3)

(1.2)

(5.5)

(2.8)

(1.1)

(3.9)

Add: amounts capitalised as intangible assets		

5.3

2.6

7.9

5.8

2.4

8.2

Total cash spent on R&D during the year		

22.0

8.3

30.3

20.7

7.6

28.3

In the prior year, a £0.6m impairment of capitalised development costs was included within administration and shared services in the Consolidated
Statement of Income relating to the refocusing of the Plasma Technology business.

6 Acquisitions – prior period only
Medical Imaging Resources, Inc
On 1 May 2015 the Group acquired 100% of the issued share capital of Medical Imaging Resources, Inc (“MIR”) for a net cash consideration of£8.7m. Further contingent consideration of up to £6.3m was payable based on the performance of the Oxford Instruments Healthcare business inthe year to 31 March 2016. MIR specialises in the build, lease, service and sale of mobile medical imaging labs.
The book and fair values of the assets and liabilities acquired are given in the table below. Fair value adjustments have been made to better alignthe accounting policies of the acquired business with the Group accounting policies and to reflect the fair value of assets and liabilities acquired.
The business was acquired for the purpose of integrating into the Oxford Instruments Healthcare business where it was believed that a numberof synergies could be obtained.
														

Book value£m

Adjustments£m

Fair value£mIntangible fixed assets							

—

5.7

5.7

Tangible fixed assets							

3.8

0.5

4.3

Inventories							

1.4

0.1

1.5

Trade and other receivables							

0.9

—

0.9

Trade and other payables							

(1.7)

—

(1.7)

Deferred tax							

0.2

(0.4)

(0.2)

Net debt							

(2.6)

—

(2.6)

Net assets acquired							

2.0

5.9

7.9

Goodwill									

4.5Total consideration									12.4Net debt acquired									

2.6Contingent consideration at acquisition								(6.3)

Net cash outflow relating to the acquisition							

8.7The goodwill arising is not tax deductible and is considered to represent the value of the acquired workforce and synergistic benefits expected toarise from the acquisition. No deferred tax liability was recognised relating to the fair value of acquired intangibles due to the Company making a
Section 338 election in the USA to treat this acquisition as a trade and assets purchase for tax purposes.

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Contingent consideration of £6.5m was paid during May 2016 based on the performance of the Oxford Instruments Healthcare business in theyear to 31 March 2016. The difference of £0.2m between contingent consideration provided at acquisition and that paid in May 2016 was due
to foreign currency movements.
The book value of receivables in the tables above represents the gross contractual amounts receivable.

7 Investment in associate
During the prior year the Group entered into a strategic alliance with GD Intressenter AB of Sweden (“GDI”) to create the world’s largest company
in the highly specialised ultra high vacuum surface science field. The alliance comprised Oxford Instruments’ Omicron Nanotechnology GmbH(“Omicron”) and associated subsidiaries and GDI’s Scienta Scientific AB (“Scienta”) and associated subsidiaries. Scienta Scientific AB is registeredand has its principal place of business in Sweden.
In consideration for new shares in Scienta, Oxford Instruments transferred all of its shares in the capital of Omicron to Scienta. Oxford Instruments
holds a 47% interest in the ordinary share capital of Scienta and GDI holds 53%. The investment has been accounted for as an associate taking
into account the following factors:• the Group holds substantial, but minority, voting rights (47%). All other rights are controlled by a single shareholder;• the Group has a minority number of Non-Executive Board seats (two of five), with the remaining seats held by representatives of GDI; and• whilst the Group has certain veto rights in respect of certain decisions, it cannot unilaterally direct the activities of the Scienta Group.
The book value of the net assets disposed of was £14.9m. The value of the shareholding acquired in Scienta was considered to be £14.6m and as
a result an £0.3m loss on disposal arose on the transaction in 2015/16.
During the current year the Group:• settled various claims totalling £0.4m relating to the disposal of its Omicron business in the prior year.; and• recognised an impairment charge of £8.0m in respect of its investment in Scienta.
The Group’s share of loss in its equity accounted associate for the year was £1.2m (2016: £1.5m). The Group did not receive any dividends fromthe associate in either period.
																

2017
£m

2016
£m

Carrying value at 1 April 2016							

13.1

—

Addition								

—

14.6

Share of loss of associate (net of tax)							

(1.2)

(1.5)

Impairment charge							

(8.0)

—

Dividends received								—

—Carrying value at 31 March 2017							

3.9

13.1

During the year the Group recognised an impairment charge of £8.0m relating to its investment in ScientaOmicron due to the associate’s financial
performance for the year ended 31 December 2016 and lower projected cash flows. This resulted in a reassessment of ScientaOmicron’s expected
future business performance and the actions and time required to improve profitability and operational efficiency.
The £8.0m impairment has been reported in the results of the NanoTechnology Tools segment. As at 31 March 2017, the estimate of therecoverable amount of the Group’s investment in ScientaOmicron, being its value in use, was calculated as £3.9m. The pre-tax discount rateused to arrive at this estimate was 15.5%.
Summary financial information for the equity accounted associate is as follows:																

2017
£m

2016
£m

Non-current assets								

3.5

3.2

Current assets								

25.0

27.0

Total assets								

28.5

30.2

Current liabilities								(21.7)(21.4)

Non-current liabilities								

(3.6)

(4.0)

Total liabilities								(25.3)(25.4)Net assets								

3.2

4.8

Income								

50.8

34.0

Expenses								(53.3)(37.2)

Loss for the year								

(2.5)

(3.2)

Group’s share of net assets						

1.5

2.3

Group’s share of loss								

(1.2)

(1.5)

According to the terms of the transaction, no dividend could be paid by the associate until 27 May 2017. Following that date, any dividend paid
must be agreed by both Oxford Instruments plc and GD Intressenter AB, up to a maximum of 50% of the previous year’s profit after tax. At thedate of signing these Financial Statements no dividend has been declared or paid.
Oxford Instruments plc Report and Financial Statements 2017101

Notes to the Financial Statements continued
year ended 31 March 2017

8 Disposal of subsidiary and discontinued operations
On 17 November 2016 the Group disposed of its Superconducting Wire business for a final consideration of £14.0m. In the prior year,on 23 November 2015, the Group disposed of its Austin Scientific business for a final consideration of £0.6m.

Effect of disposal on the financial position of the Group							Superconducting								Wire								2017								£mAustin Scientific2016£mOther intangible assets 								

—

(1.7)

Property, plant and equipment 							

(3.1)

(0.2)

Inventory								(12.6)(1.4)

Trade and other receivables								

(6.5)

(0.5)

Cash and cash equivalents								

(0.3)

—

Trade and other payables 								

6.6

0.3

Provisions								0.1

—Net assets divested								(15.8)(3.5)

Consideration receivable								

14.0

0.6

Deferred consideration								

(1.0)

—

Consideration received, satisfied in cash							

13.0

0.6

Cash disposed of								

(0.3)

—

Transaction expenses 								

(0.5)

(0.1)

Net cash inflow 								

12.2

0.5

Carrying value of net assets disposed of (excluding cash and cash equivalents)				

(15.5)(3.5)

Deferred consideration								1.0

—Impairment of net assets to fair value less costs to sell						

—

2.8Recognition of provision on disposal							

(0.2)

—

Currency translation differences transferred from translation reserve					

5.7

0.7

Gain on disposal before impairment							

3.2

0.5

Less impairment loss								

—

(2.8)

Gain/(loss) on disposal 								

3.2

(2.3)

Tax credit on gain/loss on disposal							

0.9

0.4

Gain/(loss) on disposal net of tax							

4.1

(1.9)

Discontinued operations
In the year to 31 March 2017 the Group’s Superconducting Wire business was classified as a discontinued operation; and in the year to
31 March 2016 the Group’s Austin Scientific business was classified as a discontinued operation. They were considered major classes of businesson the basis that they were previously operating segments and referred to in the Group Strategic Report.
The 2016 Financial Statements have been re-presented to reflect the classification of the Group’s Superconducting Wire business as a
discontinued operation.

Results of discontinued operations – Superconducting Wire																

2017
£m

2016
£m

Revenue								

22.2

41.9

Expenses							(20.9)(38.5)

Adjusted profit from operating activities before income tax					

1.3

3.4

Income tax charge								

(0.4)

(1.2)

Adjusted profit from operating activities after tax						

0.9

2.2

Profit on disposal								3.2

—Tax on profit on disposal								0.9

—Profit from discontinued operations after tax						

5.0

2.2

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Results of discontinued operations – Austin Scientific																

2017
£m

2016
£m

—

2.3

Expenses							

(0.2)

(2.8)

Adjusted loss from operating activities before income tax						

(0.2)

(0.5)

Revenue								Income tax credit								

—

0.2Adjusted loss from operating activities after tax						

(0.2)

(0.3)

Loss on disposal								

—

(2.3)

Tax on loss on disposal								

—

0.4Loss from discontinued operations after tax						

(0.2)

(2.2)

															

2017
pence

2016
pence

Adjusted basic earnings per share							

1.2

3.4

Adjusted diluted earnings per share							

1.2

3.4

Total basic earnings per share							8.4

—Total diluted earnings per share							8.4—																

2017
£m

2016
£m

Net cash generated from operating activities						

1.4

5.2

Net cash used in investing activities							

—

(0.3)

Earnings per share from discontinued operations

Cash flows from discontinued operations

Net cash used in financing activities							——Net cash flows								

1.4

4.9

																

2017
£m

2016
£m

Interest receivable								0.2

—Fair value movement on derivative financial instruments						1.2—								1.4—																

2017
£m

2016
£m

Interest payable								

5.6

5.9

Interest charge on pension scheme net liabilities						

1.1

1.7

Unwind of discount on contingent consideration						

0.2

0.6

Unwind of discount on accrued expenses							

—

0.2Fair value movement on derivative financial instruments						

—2.7								

6.9

11.1

																

2017
£m

2016
£m

Wages and salaries								

98.7

90.6

Social security costs								

10.8

9.3

Contributions to defined contribution pension plans						

4.3

4.4

Charge in respect of employee share options						

0.5

0.4

								

114.3

104.7

9 Financial income

10 Financial expenditure

11 Personnel costs

Directors’ emoluments are disclosed in the Remuneration Report on pages 60 to 75 of this Report and Financial Statements.
Included in the total above is £4.9m (2016: £9.6m) relating to discontinued operations.

Oxford Instruments plc Report and Financial Statements 2017103

Notes to the Financial Statements continued
year ended 31 March 2017

12 Employees
The average number of people employed by the Group (including Directors and temporary employees) during the year was as follows:
2017
Number

2016
NumberProduction								

797

905

Sales and marketing								

488

501

Research and Development								

410

390

														

Administration and shared services							

279

281

Total average number of employees							

1,974

2,077

13 Share option schemes
The Group operates three share option schemes:

All employee Share Incentive Plan (“SIP”)
All UK employees are eligible to participate in the Group’s HM Revenue and Customs approved SIP. Participating employees make a cash
contribution to the plan each month. The Group contributes a further amount equal to 20% of the employee’s contribution. Independent trustees
then purchase matching shares in the market on behalf of the employees. The matching shares vest on the completion by the participating
employee of a further three years’ service and can be withdrawn from the plan tax-free after five years’ service.

Executive Share Option Scheme (“ESO”)
Options awarded under the Executive Share Option Scheme are made annually to certain senior managers. The exercise prices are determinedaccording to the mid-market closing share price on the day before the date of grant. Options have a life of ten years and a vesting period of
three years.

Senior Executive Long Term Incentive Scheme (“SELTIS”)
Options awarded under the Senior Executive Long Term Incentive Scheme are made annually to certain senior managers. The exercise prices are nil.
Options have a life of seven years and a vesting period of three years.
Both the Executive Share Option Scheme and Senior Executive Long Term Incentive Scheme are subject to performance conditions which can befound in the Remuneration Report on pages 60 to 75.

Performance Share Plan Scheme (“PSP”)
Under the Performance Share Plan awards of performance shares (or nil‑cost options) are made annually to certain senior managers. Awards havea life of ten years with vesting subject to achievement of performance targets and a vesting period of a minimum of three years (but may be up to
five years).
Administrative expenses include a charge of £0.5m (2016: £0.4m) in respect of the cost of providing share‑based remuneration. The cost of shareoptions is calculated by estimating the fair value of the option at grant date and spreading that amount over the vesting period after adjusting foran expectation of non-vesting.
Fair values are determined using an internal valuation model based on a modified Black-Scholes model. Expected volatility has been based on
historical volatility over a period of time of the same length as the expected option life and ending on the grant date. Half of the ESO options
issued before 2009, half of the PSP options and all SELTIS options use total shareholder return (“TSR”) as a performance condition. As TSR is amarket-based performance condition, the accounting treatment differs from that for options subject to non-market performance conditions. Thismeans that the TSR performance conditions have been incorporated into the calculation of the fair value as a discount in calculating the fair value.
For options granted in the years ended 31 March 2017 and 2016, the fair value per option granted and the assumptions used in the calculation
are as follows:
					
					
					
					

Executive
Share Option
SchemeNovember 2016

Performance
Share Plan
SchemeJune 2016

Executive
Share Option
SchemeJune 2016

Performance
Share Plan
SchemeJune 2015

Executive
Share Option
SchemeJune 2015

Fair value at measurement date				

£2.02

£4.92

£2.54

£6.96

£3.57

Share price at grant date					

£6.23

£7.38

£7.38

£10.28£10.28Exercise price					

£6.23

£nil

£7.38

£nil

£10.28

Expected volatility					

41.8%

36.9%

42.7%

38.5%

39.1%

Expected option life
(expressed as weighted average life used in the modelling)		

6 years

3 years

6 years

3 years

6 years

Expected dividend yield					

2.1%

1.8%

1.8%

1.3%

1.3%

Risk free interest rate					

0.7%

0.5%

0.9%

1.0%

1.6%

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The options existing at the year end were as follows:
2017

2016

			
					
					

Numberof shares

Exercise		
price
Period when exercisable

Numberof shares

Options subsisting at the year end on unissued ordinary shares:				
Executive Share Option Schemes				
July 2006					

—

£2.10

15/07/09-14/07/16

September 2007					

6,000

£2.32

28/08/10-27/09/17

6,000

December 2008					

8,339

£1.35

16/12/11-15/12/18

12,839December 2009					11,000£2.04

17/12/12-16/12/19

20,562January 2011				

82,675£7.05

07/01/14-06/01/21

100,075

December 2011				

330,540

9,500

169,650£9.90

14/12/14-13/12/21

December 2012					

—£13.88

19/12/15-18/12/22—

June 2013				

—£14.55

12/06/16-11/06/23

2,250

March 2014					

—£12.8920/03/17-19/03/24

92,000June 2014					

—£14.15

13/06/17-12/06/24

338,400—£12.6108/07/17-07/07/24

16,375536,362£10.2815/06/18-14/06/25

599,562—

July 2014					June 2015				
June 2016				

36,000£7.38

21/06/19-20/06/26

November 2016					163,321£6.27

29/11/19-28/11/26—

1,013,347				

1,528,103

1.8%				2.7%Total options subsisting on existing ordinary shares		
Percentage of issued share capital				Performance Share Plan 			October 2014					

—

£nil

10/10/17-09/10/21

120,325

June 2015					

—

£nil

15/06/18-14/06/22

112,718

June 2016				

148,475£nil

21/06/19-20/06/23—

Total options subsisting on existing ordinary shares			

148,475				

233,043

Percentage of issued share capital				

0.3%				0.4%Options subsisting at the year end on existing ordinary shares held in trust:				
Senior Executive Long Term Incentive Scheme				January 2011					15,500£nil

07/01/14-06/01/18

15,500June 2014					

—

£nil

19/12/15-18/12/19

21,400Total options subsisting on existing ordinary shares held in trust		

15,500				

36,900Percentage of issued share capital				

0.0%				0.1%The number and weighted average exercise prices of those options are as follows:								
						
						

2017

2016

Weighted		
average
Numberexercise priceof options

Weighted
average
exercise price

Numberof options

Outstanding at the beginning of the period				£9.25

1,798,046£10.46

1,558,368

Granted during the year						£3.69347,796£8.67

720,880

Forfeited during the year						£6.40(574,883)£12.45(35,675)

Exercised during the year						£3.55(17,005)£4.78(7,575)Lapsed during the year						£12.92(376,632)£12.40(437,952)

Outstanding at the year end					£7.911,177,322£9.25

1,798,046

Exercisable at the year end						£7.88293,164£8.22

495,016

The weighted average share price at the time of exercise of the options was £7.75 (2016: £9.36).

Oxford Instruments plc Report and Financial Statements 2017105

Notes to the Financial Statements continued
year ended 31 March 201714 Income tax expense
Recognised in the Consolidated Statement of Income																

2017
£m

2016
£m

Current tax expense		
Current year								

6.5

3.6

Adjustment in respect of prior years							

(2.2)

(0.2)

								4.33.4Origination and reversal of temporary differences						

(5.6)

(1.3)

Adjustment in respect of prior years							

0.9

0.6

								

(4.7)

(0.7)

Total tax (credit)/expense

(0.4)

2.7

(Loss)/profit before income tax							(25.5)

9.7

Income tax using the weighted average statutory tax rate of 22% (2016: 20%)			

(5.6)

1.9

Deferred tax expense								

Reconciliation of effective tax rate 		

Effect of: 		
Tax rates other than the weighted average statutory rate					

(0.5)

1.7

Change in rate at which deferred tax recognised						

(0.2)

(0.4)

Loss on disposal of held for sale assets							

—

0.3Transaction costs, deferred consideration and impairments not deductible for tax				

5.7—

Non-taxable income and expenses							

1.4

(0.4)

Tax incentives not recognised in the Consolidated Statement of Income					

(0.4)

(0.8)

Recognition of deferred tax not previously recognised						

—

(0.1)

Movement in unrecognised deferred tax						

0.6

0.3

Adjustment in respect of prior years							

(1.4)

0.2

Total tax (credit)/expense

(0.4)

2.7

Deferred tax – relating to employee benefits						

0.9

2.6

								

0.9

2.6

—

—

						

Taxation charge recognised in other comprehensive income		Taxation charge recognised directly in equity		
Deferred tax – relating to share options							A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further
reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015, andan additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s
future current tax charge accordingly. The UK deferred tax liability at 31 March 2017 has been calculated based on those rates. The Group carries
tax provisions in relation to uncertain tax provisions arising from the possible outcome of negotiations with tax authorities. Such provisions are areflection of the geographical spread of the Group’s operations and the variety of jurisdictions in which it carries out its activities.

15 Dividends per share
The following dividends per share were paid by the Group:																

2017
pence

2016
Pence

Previous year interim dividend							

3.7

3.7

Previous year final dividend								

9.3

9.3

								

13.0

13.0

2017
pence

2016
pence

3.7

3.7

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

Interim dividend								Final dividend								

9.3

9.3

								

13.0

13.0

The interim dividend was not provided for at the year end and was paid on 7 April 2017. The final proposed dividend of 9.3 pence per share(2016: 9.3 pence) was not provided at the year end and will be paid on 19 October 2017 subject to authorisation by the Shareholders at theforthcoming Annual General Meeting.

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16 Property, plant and equipment						
						
						

Land andbuildings£mPlant andequipment£mFixtures andfittings
£m

Total
£m

Balance at 1 April 2015						

24.6

50.1

10.5

85.2

Additions – business combinations					

—

4.3

—

4.3

Additions – other						

0.1

5.2

0.2

5.5

Disposals						

(0.2)

(4.4)

(0.8)

(5.4)

Transfer from inventory						

—

0.5

—

0.5

Effect of movements in foreign exchange rates				

0.7

1.2

0.1

2.0

Balance at 31 March 2016						

25.2

56.9

10.0

92.1

Balance at 1 April 2016						

25.2

56.9

10.0

92.1

Additions – business combinations					

—

—

—

—

Additions – other						

0.3

3.8

0.5

4.6

Disposals						

—(10.7)(0.1)(10.8)

Effect of movements in foreign exchange rates				

1.5

3.7

0.2

5.4

Balance at 31 March 2017					

27.0

53.7

10.6

91.3

Balance at 1 April 2015						

7.5

37.0

7.6

52.1

Depreciation charge for the year					

0.6

5.2

0.5

6.3

Disposals						

(0.2)

(1.7)

(0.5)

(2.4)

Effect of movements in foreign exchange rates				

0.2

0.7

—

0.9

Balance at 31 March 2016						

8.1

41.2

7.6

56.9

Balance at 1 April 2016						

8.1

41.2

7.6

56.9

Depreciation charge for the year					

0.7

4.9

0.5

6.1

Disposals						

—

(7.0)

(0.1)

(7.1)

Effect of movements in foreign exchange rates				

0.7

2.1

0.1

2.9

Balance at 31 March 2017					

9.5

41.2

8.1

58.8

At 1 April 2015						

17.1

13.1

2.9

33.1

At 31 March 2016 and 1 April 2016					

17.1

15.7

2.4

35.2

At 31 March 2017						

17.5

12.5

2.5

32.5

Cost				Depreciation and impairment losses

Carrying amounts

			

			

At 31 March 2017, the net book value of plant and equipment included £0.3m (2016: £0.2m) of assets under construction.
Included in the depreciation charge for the year is £0.4m (2016: £nil) relating to discontinued operations.

Oxford Instruments plc Report and Financial Statements 2017107

Notes to the Financial Statements continued
year ended 31 March 201717 Intangible assets
				
				
				
			
Goodwill			£mCustomer
relatedacquiredintangibles£mTechnology
relatedacquiredintangibles£m

Development
costs
acquiredintangibles£m

Development		
costs		internally		
generated
Software
£m
£m

Total
£m

Cost							Balance at 1 April 2015			

107.6

48.1

123.7

5.9

50.3

1.9

337.5

Additions – business combinations		

4.5

5.7

—

—

—

—

10.2

Additions – internally generated		

—

—

—

—

8.2

0.2

8.4

Disposals			

(2.1)

(3.8)

(15.1)

(4.1)

(2.7)

—

(27.8)

Effect of movements in foreign exchange rates

1.2

1.4

3.4

—

1.0

—

7.0

Balance at 31 March 2016			

111.2

51.4

112.0

1.8

56.8

2.1

335.3

Balance at 1 April 2016			

111.2

51.4

112.0

1.8

56.8

2.1

335.3

Additions – internally generated		

—

—

—

—

7.8

0.1

7.9

Effect of movements in foreign exchange rates

3.3

5.2

6.5

—

1.7

—

16.7

114.5

56.6

118.5

1.8

66.3

2.2

359.9
106.2

Balance at 31 March 2017		

Amortisation and impairment losses							Balance at 1 April 2015			

1.4

29.1

37.4

4.1

34.2

—

Amortisation charge for the year		

—

3.6

12.9

0.2

4.5

—

21.2

Disposals			

(0.4)

(3.8)

(8.2)

(3.9)

(0.5)

—

(16.8)

Effect of movements in foreign exchange rates

0.1

0.9

2.0

—

0.9

—

3.9

Balance at 31 March 2016			

1.1

29.8

44.1

0.4

39.1

—

114.5

Balance at 1 April 2016			

1.1

29.8

44.1

0.4

39.1

—

114.5

Amortisation charge for the year		

—

3.6

10.0

0.2

4.8

—

18.6

Impairment charge for the year		

28.8

5.0

1.1

—

0.7

2.2

37.8

Effect of movements in foreign exchange rates

0.1

3.5

3.0

—

1.4

—

8.0

Balance at 31 March 2017		

30.0

41.9

58.2

0.6

46.0

2.2

178.9

Carrying amounts							At 1 April 2015			

106.2

19.0

86.3

1.8

16.1

1.9

231.3

At 31 March 2016 and 1 April 2016		

110.1

21.6

67.9

1.4

17.7

2.1

220.8

At 31 March 2017			

84.5

14.7

60.3

1.2

20.3

—

181.0

The following intangible assets are considered material by the Directors as they represent 88% (2016: 78%) of total acquired intangible assets:
2017

			

2016

Amortisation
periodYears

Remainingamortisation
period
Years

£m

9.7

15.0

11.8

10.2

– Product related						

37.6

12.0

8.8

41.6

– Software related						

7.7

10.0

6.8

7.9

Technology, know-how and patents – Asylum				

11.7

12.0

7.7

11.5

																				
						£m

Trademarks – Andor						Technology, know-how and patents – Andor:				

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04: Company Information

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGUs”) that are expected to benefit fromthat business combination. The carrying amount of goodwill was allocated to individual CGUs as follows:
2017
£m

2016
£m

NanoScience								

6.7

6.5

NanoAnalysis								

9.9

9.6

Asylum								

—

21.1

Andor								

61.4

61.4

Industrial Analysis								

4.2

3.9

Magnetic Resonance								

2.3

2.3

																NanoTechnology Tools		

Industrial Products		

Service		OI Healthcare															

—

5.3

84.5

110.1

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
Accounting standards require an impairment test to be carried out by determining the recoverable amount of each CGU which contains goodwill.
The recoverable amount is calculated as the higher of the fair value less costs to sell or the value in use of the CGU. In the Group’s case therecoverable amount is based on value in use calculations. Value in use is calculated by discounting expected future cash flows and in particular(except as noted below) Board-approved five year cash flow forecasts, prepared by the management of each CGU, are used together with 3% perannum growth for the subsequent 20 years. These rates are considered to be at or below long-term market trends for the Group’s businesses.
During the year the Group made impairments in respect of intangible assets as follows:• £22.6m in respect of the Goodwill of the Asylum CGU;
• £6.2m in respect of the Goodwill of the OI Healthcare CGU;
• £5.0m in respect of Customer Relationships which arose on the acquisition of MIR in 2015;• £2.2m in respect of bespoke software development;• £1.1m in respect of a technology related acquired intangible which was superseded by a new product; and• £0.7m in respect of a development project which was stopped in order to allow the Group to focus and direct resources so as to accelerate
key projects.
During the year the financial performance of the Group’s Asylum CGU deteriorated with the business performing below expectations. Performancehas been impacted by a slowdown in academic funding in US and European markets, resulting in a contraction of the overall scanning probe
microscopy market, compounded by delays in new product launches. The Group has revised its financial projections for the business and planned
launch dates for new products in light of the trading environment.
The financial performance of the Group’s Healthcare business also deteriorated in the US during the year, with business operating profit fallingsignificantly from last year’s level. Performance has been impacted by a lower level of sales of refurbished imaging systems compared to theprevious year, which is expected to continue. This has been driven by both a particularly high level of activity in the prior year but also a change
in software licensing policy by one of the large original equipment manufacturers. The Group has revised its financial projections for the business,consistent with a new strategy and the actions and time required to improve profitability and operational efficiency.
The Asylum and OI Healthcare CGUs are business operations and the goodwill and acquired intangible assets relating to each are held in the
NanoTechnology Tools and Service segments respectively. As at 31 March 2017, the estimates of the recoverable amounts of the Asylum andOI Healthcare CGUs, being their value in use, were calculated as £16.0m and £9.0m respectively. The discount rates used in arriving at theseestimates were 13.2% for Asylum and 15.5% for OI Healthcare.
In respect of the impairment tests for Asylum and OI Healthcare, specific forecasts were prepared for the purpose of the impairment test taking
into account the latest available information regarding business and market conditions.
The £2.2m impairment of software costs represents inefficient capitalised costs relating to the Group’s new ERP system and has been reported aspart of unallocated central costs in the segmental disclosure. The £1.1m impairment of technology related acquired intangible assets represents
the write down of intellectual property obtained as part of a previous acquisition that has since been superseded by a new product. The asset
belonged to the Industrial Products segment.
The £0.7m impairment of capitalised development costs arose as a result of the termination of a specific project that was stopped in order to focus
and direct resources so as to accelerate key projects. The impaired capitalised development costs were held in the NanoTechnology Tools segment.

Oxford Instruments plc Report and Financial Statements 2017109

Notes to the Financial Statements continued
year ended 31 March 201717 Intangible assets continued
Key assumptions
The key assumptions are those regarding discount rates, growth rates, expected selling volumes and prices and direct costs during the period.
The growth rates are based on industry growth factors. Changes in selling prices and direct costs are based on past practices and expectations of
future changes in the market.
The pre-tax weighted average costs of capital used for NanoTechnology Tools, Industrial Products and Service in impairment testing are
12.8%-13.6% (2016: 12.1%-12.9%), 12.4%-13.1% (2016: 13.0%-13.4%) and 15.5% (2016: 13.3%) respectively in line with the risk associatedwith each of the business segments. Management have estimated these discount rates by reference to past experience and an industry average
weighted cost of capital as adjusted for appropriate risk factors reflecting current economic circumstances and the risk profiles of each CGU.

Sensitivity analysis
Since impairments have been made in respect of the Asylum and OI Healthcare CGUs, any further adverse change in assumptions would resultin a further impairment to the remaining acquired intangible assets held by these two CGUs. There is no remaining goodwill allocated to thesebusinesses. A sensitivity analysis has been performed in respect of the other CGUs as follows.
The Group’s estimate of impairments is most sensitive to changes in the discount rate and forecast growth rate. Sensitivity analysis has been carriedout by reference to both of these assumptions and demonstrated that large headroom remained across the businesses even after significant
changes to both the discount rate and forecast growth rate assumptions.

18 Deferred tax
Movements in deferred tax assets and liabilities were as follows:
			
			
			
			

Balance at 31 March 2015			

Property, 						plant and		
Employee
Intangible			equipment
Inventory
benefits
assetsTax losses
Other
£m
£m
£m
£m
£m
£m

(0.8)

2.9

12.5

(11.1)

Total
£m

4.9

5.5

13.9

Reclassification							Recognised in income			

1.5

0.3

(1.4)

1.7

(0.7)

(0.8)

0.6

Recognised in other comprehensive income

—

—

(2.6)

—

—

—

(2.6)

Recognised directly in equity		

—

—

—

—

—

—

—

Acquisitions			

(0.3)

—

—

—

—

0.2

(0.1)

Disposals			

0.1

—

—

1.4

(0.4)

(0.1)

1.0

Foreign exchange			

0.1

0.1

0.1

(0.1)

0.3

—

0.5

Balance at 31 March 2016			

0.6

3.3

8.6

(8.1)

4.1

4.8

13.3

Reclassification							Recognised in income			

0.4

(0.7)

(1.0)

7.1

0.6

(0.8)

5.6

Recognised in other comprehensive income

—

—

(0.9)

—

—

—

(0.9)

Recognised directly in equity		

—

—

—

—

—

—

—

Acquisitions			

—

—

—

—

—

—

—

Disposals			

—

—

—

—

—

—

—

Foreign exchange			

(0.1)

0.4

0.4

0.9

0.3

0.5

2.4

Balance 31 March 2017			

0.9

3.0

7.1

(0.1)

5.0

4.5

20.4

2016
£m

2017
£m

2016
£m

2017
£m

2016
£m

13.3

Certain deferred tax assets and liabilities have been offset as follows:
AssetsLiabilities

Net

			
				

2017
£m

Gross assets/(liabilities)				

33.4

33.6

(13.0)(20.3)

20.4

Offset				(7.4)(14.6)

7.4

14.6

—

—

Net assets/(liabilities)				

26.0

19.0

(5.6)

(5.7)

20.4

13.3

110

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03: Financial Statements

04: Company Information

Deferred tax assets have not been recognised in respect of the following items:																

2017
£m

2016
£m

Deductible temporary differences						

1.7

1.0

Tax losses								

9.8

9.1

								

11.5

10.1

The tax losses and the deductible temporary differences do not expire under current tax legislation. Deferred tax assets have not been recognised
in respect of these items as it is not probable that future taxable profits will be available in the subsidiaries concerned against which the Group canutilise the brought forward tax losses.
No deferred tax liability has been recognised in respect of £25.7m (2016: £33.1m) of undistributed earnings of overseas subsidiaries since themajority of such distributions would not be taxable. In other cases the Group considers that it is able to control the timing of remittances so thatany tax is not expected to arise in the foreseeable future.

19 Inventories															

2017
£m

2016
£m

Raw materials and consumables							

19.5

19.7

Work in progress								

14.5

20.6

Finished goods								

19.9

20.8

								

53.9

61.1

The amount of inventory recognised as an expense was £147.1m (2016: £143.6m). In the ordinary course of business, the Group makes
impairment provisions for slow-moving, excess and obsolete inventory as appropriate. Inventory is stated after charging impairments of £0.4m
in the current period (2016: £1.9m). In the current year, £0.2m (2016: £0.2m) was reversed relating to previous impairments. Impairments areincluded within gross profit.
Inventory carried at fair value less costs to sell is £nil (2016: £nil).

20 Trade and other receivables															

2017
£m

2016
£m

Trade receivables							

73.0

69.2

Less provision for impairment of receivables						

(2.4)

(2.0)

Net trade receivables								

70.6

67.2

Prepayments								

2.9

4.3

Accrued income								

2.4

0.7

Other receivables								

5.2

5.3

								

81.1

77.5

Trade receivables are non-interest-bearing. Standard credit terms provided to customers differ according to business and country and are typicallybetween 30 and 60 days.
The maximum exposure to credit risk for trade and other receivables by geographic region was:															

2017
£m

2016
£m

UK								

9.0

6.8

China							

11.4

10.7

Japan								

11.7

10.3

USA							

18.6

17.0

Germany								

1.8

3.2

Rest of Europe								

16.3

17.1

Rest of Asia								

10.3

6.6

Rest of World								

2.7

4.4

Total								

81.8

76.1

Oxford Instruments plc Report and Financial Statements 2017111

Notes to the Financial Statements continued
year ended 31 March 201720 Trade and other receivables continued
The ageing of financial assets comprising net trade receivables and other receivables at the reporting date was:																

2017
£m

2016
£m

Current (not overdue)								

61.1

51.0

Less than 31 days overdue								

9.8

15.2

More than 30 days but less than 91 days overdue						

6.5

6.0

More than 90 days overdue							

4.4

3.9

								

81.8

76.1

																

2017
£m

2016
£m

Balance at start of year								

2.0

2.3

Increase/(decrease) in allowance							

0.4

(0.3)

Balance at end of year								

2.4

2.0

In both periods presented the entire provision against trade receivables relates to balances more than 90 days overdue.
The movement in the allowance for impairment of trade receivables during the year was as follows:

Valuation allowances are used to record provisions for credit losses. The valuation allowance is reduced and the asset impaired when the customer
is in liquidation.
Long-term receivables relate to amounts due from the Group’s associated undertaking.

21 Cash and cash equivalents																

2017
£m

2016
£m

Cash balances								

27.2

21.8

Bank overdraft								

(0.7)

(1.4)

Cash and cash equivalents in the Consolidated Statement of Cash Flows					

26.5

20.4

All cash and cash equivalents are available for use by the Group.

22 Financial risk management
The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the Group is exposed
to foreign currency risk, interest rate risk, liquidity risk, commodity risk and credit risk. Financial risk management policies are set by the Board of
Directors. These policies are implemented by a central treasury function that has formal procedures to manage foreign exchange risk, interest raterisk and liquidity risk, including, where appropriate, the use of derivative financial instruments. Commodity risk is managed locally by the operating
businesses. The Group has clearly defined authority and approval limits.
In accordance with its treasury policy, the Group does not hold or use derivative financial instruments for trading or speculative purposes.
Such instruments are only used to manage the risks arising from operating or financial assets or liabilities or highly probable future transactions.
The Group uses derivative financial instruments to hedge its exposure to fluctuations in foreign exchange rates, interest rates and certain
commodity prices.
The Group has adopted hedge accounting for a limited number of related commodity contracts as outlined below. However, in common with anumber of other companies, the Group has decided that the additional costs of meeting the extensive documentation requirements of IAS 39 to
apply hedge accounting to derivative financial instruments used for hedging exposure to foreign currency and interest rate volatility cannot bejustified. Accordingly, the Group does not use hedge accounting for such derivatives.

Foreign currency risk
Foreign currency risk arises both where sale or purchase transactions are undertaken in currencies other than the respective functional currenciesof Group companies (transactional exposures) and where the results of overseas companies are consolidated into the Group’s reporting currencyof Sterling (translational exposures). The Group has operations around the world which record their results in a variety of different local functional
currencies. In countries where the Group does not have operations, it invariably has some customers or suppliers that transact in a foreign currency.
The Group is therefore exposed to the changes in foreign currency exchange rates between a number of different currencies but the Group’s
primary exposures relate to the US Dollar, the Euro and the Japanese Yen. To reduce uncertainty, the Group maintains a rolling hedge of forward
contracts equivalent of to 75% (2016: 80%) of the exposure expected to arise over the following twelve months. The remaining 25% is sold on
the spot market. The fair value of outstanding currency contracts recognised as a liability as at 31 March 2017 amount to £5.0m (2016: £5.8m)
and those recognised as an asset amount to £0.6m (2016: £1.5m).

112

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04: Company Information

Movements in the fair value of derivative financial instruments are recognised in the Consolidated Statement of Income immediately. However, inorder to facilitate a more meaningful comparison of the Group’s performance year on year the element of these movements that relate to hedges
in respect of future sales are treated as an adjusting item in the calculation of adjusted earnings (Note 1).
The Group’s translational exposures to foreign currency risks can relate both to the Consolidated Statement of Income and net assets of overseas
subsidiaries. The Group’s policy is not to hedge the translational exposure that arises on consolidation of the Consolidated Statements of Income ofoverseas subsidiaries.

Interest rate risk
Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flowrisk that results from borrowing at variable rates. The Group’s policy is to use a mixture of revolving short- and medium-term floating rate debt
underpinned by longer-term fixed rate debt. The short- and medium-term floating rate debt provides flexibility to reduce debt levels as appropriate.
The longer-term fixed rate debt provides stability and cost certainty to the Group’s financing structure.

Liquidity risk
Liquidity risk represents the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
this risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages this risk by maintaining
adequate committed lines of funding from high quality lenders. The facilities committed to the Group as at 31 March 2017 are set out in Note 25.

Credit risk
Credit risk arises because a counterparty may fail to perform its obligations. The Group is exposed to credit risk on financial assets such as cash
balances, derivative financial instruments, trade and other receivables. The Group’s credit risk is primarily attributable to its trade receivables
and cash balances. The amounts recognised in the Consolidated Statement of Financial Position are net of appropriate allowances for doubtfulreceivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. Trade
receivables are subject to credit limits and control and approval procedures in the operating companies.
Due to its large geographic base and number of customers, the Group is not exposed to material concentrations of credit risk on its tradereceivables. Credit risk associated with cash balances and derivative financial instruments is managed by transacting with financial institutions
with high quality credit ratings. In particular, a Board-approved policy sets out guidelines for which categories of institutions may be used andthe maximum amount which may be invested with each institution within a particular category. Accordingly, the Group’s associated credit risk
is limited. The Group has no significant concentration of credit risk. The Group’s maximum exposure to credit risk is represented by the carrying
amount of each financial asset, including derivative financial instruments, in the Group Consolidated Statement of Financial Position.

Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 March 2017 was£109.6m (2016: £99.9m).
																

2017
£m

2016
£m

Long-term receivables							

3.6

3.4

Trade receivables								

70.6

67.2

Other receivables								

7.6

6.0

Cash and cash equivalents								

27.2

21.8

Forward exchange contracts							

0.6

1.5

								

109.6

99.9

The maximum exposure to credit risk for trade receivables is discussed in Note 20.
Other receivables include £2.8m (2016: £3.1m) in respect of VAT and similar taxes which are not past due date.

Commodity risk
The Group was exposed to changes in commodity prices, particularly in respect of copper used as a major component in one of the Group’s USA
operations. It managed this exposure using derivative commodity hedging instruments.
At 31 March 2017, the Group had outstanding commodity hedge contracts with a fair value liability of £nil (2016: £0.1m fair value liability)that were designated and effective as cash flow hedges of committed and highly probable forecast transactions. Fair value movements of thesecontracts have been deferred in equity until the hedged transaction takes place. There are no contracts held as at the date of the Consolidated
Statement of Financial Position.
A £nil loss net of tax (2016: £0.1m net loss) has been deferred in equity as at 31 March 2017 in respect of these contracts. A gain of £0.1m(2015: £0.2m gain) has been recycled to current assets (inventory) in respect of contracts designated as cash flow hedges that have matured
during the year to 31 March 2017.

Oxford Instruments plc Report and Financial Statements 2017113

Notes to the Financial Statements continued
year ended 31 March 201722 Financial risk management continued
Capital management
The Board considers capital to comprise share capital, reserves and the net cash or net debt position of the Company. The Company was in a net
debt position at the year end. Total capital at the end of the current year totalled £241.8m (2016: £271.2m).
The Board’s long-term objective is to have an efficient capital structure by maintaining a balance between the higher returns that might be possible
with higher levels of borrowings and the advantages and security afforded by a sound capital position. This is monitored by reference to the ratioof net debt to earnings before interest, tax, depreciation and amortisation (“EBITDA”) and the Board has set itself internal limits, which are wellinside any covenants the Group has with lenders. The Group maintains the right to purchase its own shares in the market; the timing of thesepurchases would depend on market prices. Buy and sell decisions are made on a specific transaction basis by the Board.
The Board carefully considers dividend payments and the Company moved from a fixed dividend policy to a progressive one in the year ended
March 2011. In doing this, the Board will look to increase dividends as adjusted earnings per share increase although there will not be a direct
correlation. The Board does not have a policy to pay a fixed dividend yield or to maintain a fixed rate of dividend cover, but assess both of these
metrics together with dividends paid by peers when assessing what dividend to recommend.
As set out in the Chief Executive’s Statement, the Group will actively manage its portfolio of businesses and products, selecting those markets
with long term growth drivers where we can maintain or grow leading positions. We will focus on those markets where nanotechnology has thepotential to address some of the world’s most complex and pressing challenges and where we can deliver unique solutions and service excellence.
In line with the objective of maintaining a balance between borrowings and equity, the Group would seek to finance organic growth (e.g. throughinvestment in Research and Development) and smaller “bolt-on” acquisitions from operating cash flow thus maintaining balance sheet efficiency.
Larger acquisitions would be financed either by equity or a mixture of equity and debt so as to ensure the Group has a manageable ratio of net
debt to EBITDA.
The Board encourages employees to hold shares in the Company. As well as various share option plans (full details of which are given in Note 13),from April 2008 all UK employees have been offered the opportunity to take part in a Share Incentive Plan (“SIP”). Under this plan, employees areable to invest up to £1,500 each tax year in shares in the Company. The Company awards one additional free share (a matching share) for every
five shares bought by each employee.
There were no changes to the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries
are subject to externally imposed capital requirements.

23 Financial instruments
Fair values of financial assets and liabilities
The fair values of financial assets and liabilities together with the carrying amounts shown in the Consolidated Statement of Financial Position
are as follows:
		
					
					
					

Fair
value
hierarchy

Carrying
amount
£m

2017

2016
Fair
value
£m

Carrying
amount
£m

Fair
value
£m

Assets carried at amortised cost					Long-term receivables						

3.6

3.6

3.4

3.4

Trade receivables						

70.6

70.6

67.2

67.2

Other receivables						

7.6

7.6

6.0

6.0

Cash and cash equivalents						

27.2

27.2

21.8

21.8

0.6

0.6

1.5

1.5

Assets carried at fair value				

Derivative financial instruments:					– Foreign currency contracts				

2

					
Liabilities carried at fair value					Derivative financial instruments:					– Foreign currency contracts				

2

(5.0)

(5.0)

(5.8)

(5.8)

– Copper hedging contracts (designated as an IAS 39 hedge)		

2

—

—

(0.1)

(0.1)

Contingent consideration				

3

—

—

(6.6)

(6.6)

						

(5.0)

(5.0)

(12.5)(12.5)

Trade and other payables						(66.7)(66.7)(82.4)(82.4)

Bank overdraft						

(0.7)

(0.7)

(1.4)

(1.4)

Borrowings						(135.8)(135.8)(148.6)(148.6)

Liabilities carried at amortised cost					

114Oxford Instruments plc Report and Financial Statements 2017

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The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in theabove table.

Derivative financial instruments
Derivative financial instruments are marked to market using market prices.

Fixed and floating rate borrowings
The fair value of fixed and floating rate borrowings is estimated by discounting the future contracted principal and interest cash flows using themarket rate of interest at the reporting date.

Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the carrying amount is deemed to reflect the fair value. All other receivables/
payables are discounted to determine their fair value. Advances received are excluded from other payables above as these are not considered to befinancial liabilities.

Contingent consideration
The fair value of contingent consideration is estimated based on the forecast future performance of the acquired business over a timeframe
determined as part of the acquisition agreement, discounted as appropriate. Key assumptions include growth rates, expected selling volumes andprices and direct costs during the period.

Fair value hierarchy
The table above gives details of the valuation method used in arriving at the fair value of financial instruments. The different levels have been
identified as follows:• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly(i.e. derived from prices); and• Level 3: inputs for the asset or liability that are not based on observable market data.
There have been no transfers between levels during the year.

Maturity of financial liabilities						
						
31 March 2017						Carrying
amount£m

Contractual
cash flows£m

Due within
one year£m

Due one to
five years£mTrade and other payables						

66.7

66.7

66.7

—

Contingent consideration						

—

—

—

—

Foreign exchange contracts						

5.0

5.0

5.0

—

Bank overdraft						

0.7

0.7

0.7

—

Borrowings						

135.8

137.6

6.8

130.8

						

208.2

210.0

79.2

130.8

						
						
31 March 2016						Carrying
amount£m

Contractual
cash flows£m

Due within
one year£m

Due one to
five years£mTrade and other payables						

82.4

82.4

82.4

—

Contingent consideration						

6.6

6.6

6.6

—

Foreign exchange contracts						

5.8

5.8

5.8

—

Bank overdraft						

1.4

1.4

1.4

—

Borrowings						

148.6

148.6

1.6

147.0

						

244.8

244.8

97.8

147.0

																															

Carrying
amount2017£m

Carrying
amount2016£mFinancial assets								

27.2

21.8

Financial liabilities								(70.3)(80.7)(66.2)(69.3)At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

Variable rate instruments		

Fixed rate instruments		
Financial liabilities								Oxford Instruments plc Report and Financial Statements 2017115

Notes to the Financial Statements continued
year ended 31 March 201723 Financial instruments continued
Sensitivity analysis
The Group has estimated the impact on the Consolidated Statement of Income and on Equity of the following changes in market conditions at thebalance sheet date:• one percentage point increase in interest rates;• ten percentage point weakening in the value of Sterling against all currencies; and• ten percentage point strengthening in the value of Sterling against all currencies.
The sensitivities above represent the Directors’ view of reasonably possible changes in each risk variable, not worst case scenarios or stress tests.
The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur at the year end andare applied to the risk exposures at that date. Accordingly, they show the impact on the balance sheet of an instantaneous shock. The calculations
include all hedges in place at the year end.
Actual results in the future may differ materially from these estimates due to commercial actions taken to mitigate any potential losses from suchrate movements, to the interaction of more than one sensitivity occurring and to further developments in global financial markets. As such, thistable should not be considered as a projection of likely future gains and losses.
																												

1%increase ininterest rates£m10%
weakeningin Sterling1£m10%
strengthening
in Sterling2£m

Impact on Consolidated Statement of Income					

—

(5.4)

5.4

Impact on equity							

—

6.5

(6.4)

Impact on Consolidated Statement of Income					

—

(7.6)

7.6

Impact on equity							

—

5.9

(5.6)

																								2017Numberof shares

2016
Numberof shares

At the beginning of the year						57,298,911

57,291,336

Issued for cash							17,005

7,575

57,315,916

57,298,911

At 31 March 2017			

At 31 March 2016			

1. Of the effect on the Consolidated Statement of Income, £6.1m (2016: £8.2m) would have been recognised on the “mark-to-market” line (Note 1).
2. Of the effect on the Consolidated Statement of Income, £6.1m (2016: £8.2m) would have been recognised on the “mark-to-market” line (Note 1).

24 Called up share capital
Issued and fully paid ordinary shares:

At the end of the year																
					

2017

2016

Number		of shares£m

Numberof shares£m

Allotted, called up and fully paid				57,315,916

2.9

57,298,911

2.9														

Numberof shares

Aggregate
nominal value

Consideration
per share

Exercise of executive share options						

9,813

£491

£1.35-£7.05

Exercise of executive share options – share appreciation rights				

7,192

£360

£2.04-£7.05

Ordinary shares of 5p each					New issues of ordinary shares of 5p each during the year		The total consideration received from exercise of share options in the year was £nil (2016: £nil).
The holders of the ordinary shares are entitled to receive dividends as declared, a proportionate amount of capital on a winding up of theCompany and one vote per share at meetings of the Company.

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25 Borrowings													
Effective
Current						interest rate

Earlier of		
repricing date or
2017
maturity date
£m

2016
£m

Bank overdrafts							On demand

0.7

1.4

3.30% August 2020

6.2

1.6

							

6.93.0													
Effective
Non-current						interest rate

Earlier of		
repricing date or
2017
maturity date
£m

2016
£m

European Investment Bank Loan – unsecured				

Revolving credit facility – unsecured					2.26%April 2017

69.6

79.3

European Investment Bank Loan – unsecured				

3.30% August 2020

15.6

23.3

Loan Notes – unsecured						5.10%March 2021

44.4

44.4

								

129.6

147.0

The Group’s undrawn committed facilities available at 31 March 2017 were £59.6m comprising the undrawn portion of the Group’s £129.6m
revolving credit facility. This facility expires on 28 February 2020.
The European Investment Bank loan is repayable in equal quarterly instalments commencing November 2016 with the final maturity inAugust 2020.

26 Retirement benefit obligations
The Group operates defined benefit plans in the UK and USA; both offer pensions in retirement and death in service benefit to members. Pension
benefits are related to members’ final salary at retirement and their length of service. Both schemes have been closed to new members since 2001
and closed to future accrual since 2010.
The amounts recognised in the Consolidated Statement of Financial Position are:2017		 2016
				
			

UK
£m

USA
£m

Total
£m

UK
£m

USA
£m

Total
£m

Present value of funded obligations			

304.0

9.0

313.0

266.0

8.5

274.5

Fair value of plan assets				(282.5)(5.4)(287.9)(235.0)(4.5)(239.5)

Recognised liability for defined benefit obligations		

21.5

3.6

25.1

31.0

4.0

35.0

Reconciliation of the opening and closing balances of the present value of the defined benefit obligation2017		 2016
				
			

UK
£m

USA
£m

Total
£m

UK
£m

USA
£m

Total
£m

292.1

Benefit obligation at the beginning of the year		

266.0

8.5

274.5

283.8

8.3

Interest on defined benefit obligation			

9.1

0.3

9.4

9.5

0.3

9.8

Benefits paid				(13.6)(0.6)(14.2)

(6.1)

(0.5)

(6.6)

Remeasurement loss/(gain) on obligation			

42.5

(0.2)

42.3

(21.2)

0.1(21.1)

Exchange rate adjustment				

—

1.0

1.0

—

0.3

0.3

Benefit obligation at the end of the year			

304.0

9.0

313.0

266.0

8.5

274.5

Reconciliation of the opening and closing balances of the fair value of plan assets
2017		 2016
				
			

UK
£m

USA
£m

Total
£m

UK
£m

USA
£m

Total
£m

Fair value of plan assets at the beginning of the year		

235.0

4.5

239.5

233.9

4.7

238.6

Interest on plan assets				

8.1

0.2

8.3

8.0

0.1

8.1

Contributions by employers			

6.9

0.6

7.5

6.8

0.4

7.2

Benefits paid				(13.6)(0.6)(14.2)

(6.1)

(0.5)

(6.6)

Administrative expenses				

(0.5)

(0.1)

(0.6)

(0.4)

(0.1)

(0.5)

Actual return on assets excluding interest income		

46.6

0.1

46.7

(7.2)

(0.3)

(7.5)

Exchange rate adjustment				

—

0.7

0.7

—

0.2

0.2

Fair value of plan assets at the end of the year		

282.5

5.4

287.9

235.0

4.5

239.5

Oxford Instruments plc Report and Financial Statements 2017117

Notes to the Financial Statements continued
year ended 31 March 201726 Retirement benefit obligations continued
Expense recognised in the Consolidated Statement of Income															

2017
£m

2016
£m

Total – defined benefit expense						

1.1

1.7

Contributions to defined contribution schemes					

4.3

4.4

								5.46.1The Group has agreed a basis for deficit recovery payments with the trustees of the UK pension scheme. The annual deficit recovery payment
to the UK scheme was £6.9m (2016: £6.8m) for the financial year, payable through to and including 2021. For the years up to and including
2018, the payment will rise by the higher of inflation and growth in dividend per share; thereafter, the payment will increase in line with inflation.
The weighted average durations of the UK and US defined benefit obligations at 31 March 2017 were 19 years and 16 years respectively(2016: 20 years and 16 years).
The Group has considered the requirements of IFRIC14 and concluded that there is no impact on the amounts recognised in respect of retirement
benefit obligations.
The Group expects to contribute approximately £7.6m to defined benefit plans in the next financial year.
The pension costs are recorded in the following lines of the Consolidated Statement of Income:															

2017
£m

2016
£m

Cost of sales								

1.1

1.5

Selling and marketing costs								

1.0

1.0

Administration and shared services							

1.1

1.0

Research and Development								

1.1

0.9

Financial expenditure								

1.1

1.7

								5.46.1															

2017
£m

2016
£m

Actual return on assets excluding interest income						

46.7

(7.5)

Experience gain on scheme obligations							

3.7

15.6

– Financial								(51.6)

5.0– Demographic								

5.6

0.5

Remeasurement gains and losses shown in the Consolidated Statement of Comprehensive Income

Changes in assumptions underlying the present value of scheme obligations:		

Cumulative actuarial losses reported in the Consolidated Statement of Comprehensive Income since 1 April 2004, the transition date to IFRS,
are £31.5m (2016: £35.9m cumulative actuarial losses).

Sensitivity analysis
The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions:						
											

Balance at
31 March 2017£m

Discount rate(-0.1% p.a.)£m

Inflation rate(+0.1% p.a.)£mLife expectancy(+one year)£m

Value of funded obligations					

313.0

318.7

318.6

325.2

Fair value of plan assets						(287.9)(287.9)(287.9)(287.9)Deficit						

25.1

30.8

30.7

37.3

The valuation of defined benefit liabilities is most sensitive to changes in the discount rate, inflation rate and mortality rate. The sensitivities havebeen calculated by running the liability calculations in full using the alternative assumptions. In each case, only the indicated assumption haschanged by the amount stated. For the inflation sensitivity, the impact on the assumptions that are based on RPI inflation, such as CPI inflationand the inflation-linked pension increases, has been included.

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Defined benefit scheme – UKA full actuarial valuation of the UK plan was carried out as at 31 March 2015 and has been updated to 31 March 2017 by a qualified independentactuary. The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms):						
											
						As at
31 March
2017
%

As at
31 March
2016%

Discount rate						

2.7%

3.5%

Rate of increase in pensions in payment (“3LPI”)				

2.5%

2.4%

Rate of increase in pensions in payment (“5LPI”)				

3.1%

2.9%

Rate of inflation (“CPI”)						

2.1%

1.9%

Mortality – pre- and post-retirement 			– males and females						

93% of S2PA tables (96%for females)
93% of S2PA tables (96% for females)
future improvement in line with CMI 2016 future improvement in line with CMI 2015
with 1.25% long-term trendwith 1.25% long-term trend

The mortality assumptions imply the following expected future lifetime from age 65:																

2017
years

2016
years

Pre-retirement – males								

24.0

24.5

Pre-retirement – females								

25.7

26.4

Post-retirement – males								

22.6

22.7

Post-retirement – females								

24.2

24.5

The assumptions have been chosen by the Directors from a range of possible actuarial assumptions, which, due to the timescales covered, may not
be borne out in practice.
The assets in the plan were:																															Value at
31 March2017£mValue at
31 March
2016£mEquities								

107.9

92.2

Corporate and Emerging Market Bonds							

46.6

47.2

Gilts								

47.0

37.6

Property								

3.7

3.2

Commodities								

5.8

5.0

Insurance‑linked funds								

14.8

8.4

Credit and global loan funds							

12.6

5.1

Hedge funds								

15.3

7.7

Absolute return fixed income fund							5.8

—Cash 								

23.0

28.6

								

282.5

235.0

Oxford Instruments plc Report and Financial Statements 2017119

Notes to the Financial Statements continued
year ended 31 March 201726 Retirement benefit obligations continued
Defined benefit scheme – USA
A full actuarial valuation of the USA plan was carried out as at 31 December 2014, which for reporting purposes has been updated to
31 March 2017 by a qualified independent actuary. The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms):						
											
						As at
31 March
2017
%

As at
31 March
2016%

Discount rate				

4.00%

3.75%

Rate of increase to pensions in payment			

0.00%

0.00%

Rate of inflation				

2.00%

2.25%

Mortality – pre- and post-retirement			
				
				

RP-2014 with projection
Scale MP-2016 (fully generational),
male and female

RP-2014 with projection
Scale MP-2015 (fully generational)
male and female

The assets in the plan were:																															Value at
31 March2017£mValue at
31 March
2016£mEquities								

2.4

1.8

Bonds								

3.0

2.7

								5.44.5Defined contribution schemes
In the UK employees are offered participation in the defined contribution Oxford Instruments Stakeholder Plan. The Company contribution rateand employee contribution rate varies between grades and whether the individual had previously been in the defined benefit scheme.
The Company contribution ranges between 4% and 14% of base salary. The Group also operates a 401k defined distribution plan in the USA.
Details of pension schemes contributions made in respect of Directors can be found in the Remuneration Report on pages 60 to 75.

27 Trade and other payables																

2017
£m

2016
£m

Trade payables 							

32.0

33.7

Customer deposits								

13.2

13.4

Social security and other taxes							

2.5

2.5

Accrued expenses and deferred income							

40.6

43.3

Contingent consideration due within one year						

—

6.6Other creditors								

4.7

2.9

								

93.0

102.4

Contingent consideration relates to amounts payable in respect of acquisitions. It is reassessed at the end of each year to its fair value.
																											Contingent
consideration£m

Balance at 1 April 2016									

6.6Contingent consideration paid 								(7.2)

Effect of movement in foreign exchange							

0.6Balance at 31 March 2017								

—

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28 Provisions for other liabilities and charges						
						

Warranties£m

Restructuring
£m

Other
£m

Total
£m

Balance at 1 April 2016						

6.3

1.9

3.9

12.1

Provisions made during the year					

2.8

0.5

0.5

3.8

Provisions used during the year					

(1.8)

(0.8)

(0.8)

(3.4)

Provisions released during the year					

(3.0)

—

(0.2)

(3.2)

Effect of movement in foreign exchange					

0.2

0.2

0.1

0.5

Balance at 31 March 2017					

4.5

1.8

3.5

9.8

Warranty provisions
Product warranty provisions reflect commitments made to customers on the sale of goods in the ordinary course of business and included within
the Group companies’ standard terms and conditions. Warranty commitments typically apply for a twelve-month period. The provision represents
the Directors’ best estimate of the Group’s liability based on past experience.

Restructuring provision
The Restructuring provision relates to amounts provided as a result of the cost reduction programme initiated during 2015/16. The remaining
provision relates principally to onerous leases arising as a result of the restructuring programme. The provision represents the Directors’ best
estimate of the liability arising. The Directors believe these amounts may have to be settled within the next twelve months.

Other provisions
Other provisions relate to various obligations including obligations in respect of onerous leases, obligations to employees in Japan on terminationof their employment and claims and disputes such as intellectual property claims arising against the Group in the ordinary course of business.
The Company has on occasion been required to take legal or other actions to defend itself against proceedings brought by other parties. Provisions
are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, taking into
account professional advice received, and represent the Directors’ best estimate of the likely outcome. The timing of utilisation of these provisions
is frequently uncertain reflecting the complexity of issues and the outcome of various court proceedings and negotiations. Contractual andother provisions represent the Directors’ best estimate of the cost of settling future obligations and reflect the Directors’ assessment of the likely
settlement method, which may change over time. However, no provision is made for proceedings which have been, or might be brought by otherparties against Group companies unless the Directors, taking into account professional advice received, assesses that it is more likely than not thatsuch proceedings may be successful. The Group’s expectation is that the other provisions are likely to be utilised within a twelve-month period.

29 Operating leases
LeasesNon-cancellable future total minimum operating lease rentals are payable as follows:																

2017
£m

2016
£m

Within one year								

3.8

3.2

Between one and five years							

9.5

5.4

Over five years								

1.6

2.1

								

14.9

10.7

During the year ended 31 March 2017, £4.5m was recognised as an expense in the Consolidated Statement of Income in respect of operatingleases (2016: £3.0m).
The majority of operating leases relate to properties occupied by the Group in the course of its business. There are no material contingent rent
payment arrangements, purchase options or escalation clauses. It is expected that most leases could be renewed on the existing or similar terms.
The leases do not impose any material restrictions in respect of dividends, additional debt requirements or further leasing.

Oxford Instruments plc Report and Financial Statements 2017121

Notes to the Financial Statements continued
year ended 31 March 201730 Capital commitments
During the year ended 31 March 2017, the Group entered into contracts to purchase property, plant and equipment which are expected to besettled in the following financial year for £nil (2016: £nil).

31 Contingencies
In an international group of companies, a variety of legal claims arise from time to time. The Board, having taken legal advice, are of the opinion
that any ongoing actions and investigations will not have a material impact on the Group’s financial position.

32 Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed inthis Note.
The remuneration of key management personnel is as follows:																

2017
£m

2016
£m

Short-term employee benefits							

1.7

1.5

Post-employment benefits							

0.1

0.2

Share-based payment credit						

(0.2)

—

Total								

1.6

1.7

Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
The share-based payment credit of £0.2m (2016: £nil) arose due to the reversal of the share option charge relating to options previously issued toJonathan Flint.
During the year the Company paid £0.1m (2016: £0.2m) to Imperialise Limited, a company for which Nigel Keen is a Director. The payment wasfor his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2016: £nil).
During the year, the Group supplied services and materials to, and purchased services and materials from, its associate on an arm’s length basis.
It had the following transactions with its associate during the year:						
2017						Revenue£m

Purchases£m

Receivables£m

Payables
£m

0.1

—

3.6

—

						
2016						Revenue£m

Purchases£m

Receivables£m

Payables£m

Scienta Omicron GmbH						

2.0

—

3.6

—

Scienta Omicron GmbH										33 Subsequent events
The interim dividend of 3.7p per share (total cost £2.1m) was paid after the year end. In addition on 13 June 2017, the Directors proposed a
final dividend of 9.3p per ordinary share (total cost £5.3m). The total amount of £5.3m has not been provided for and there are no income tax
consequences.
On 26 April 2017, the Group announced that it had agreed to sell its Industrial Analysis business to Hitachi High-Technologies Corporation (“HHT”)
for a consideration of £80m on a cash and debt‑free basis. HHT will acquire the companies, assets and liabilities that comprise the Industrial
Analysis business.
The transaction is expected to close in the second quarter of the 2017/18 financial year. Proceeds will be used to reduce existing borrowings.
The current Industrial Analysis management team will transfer with the business.

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34 Exchange rates
The principal exchange rates to Sterling used were:Year‑end rates								

2017

2016

US Dollar								

1.25

1.44

Euro								

1.17

1.26

Yen								

139

162

Average translation rates 2017							US Dollar

Euro

Yen

April						

1.45

1.27

159

May							

1.46

1.30

159

June						

1.41

1.27

150

July							

1.35

1.21

138

August							

1.32

1.18

134

September							

1.31

1.16

132

October							

1.26

1.13

130

November							

1.23

1.14

134

December							

1.24

1.17

142

January							

1.25

1.17

144

February							

1.25

1.18

142

March							

1.25

1.18

140

Average translation rates 2016							US Dollar

Euro

Yen

April							

1.50

1.37

180

May							

1.52

1.37

186

June							

1.55

1.40

192

July							

1.57

1.41

194

August							

1.55

1.39

190

September							

1.53

1.36

184

October							

1.53

1.38

184

November							

1.53

1.41

186

December							

1.49

1.39

181

January							

1.45

1.33

175

February							

1.40

1.29

165

March							

1.41

1.27

160

Oxford Instruments plc Report and Financial Statements 2017123

Parent Company Statement of Financial Position
as at 31 March 2017															
Notes

2017
£m

2016
£m

2.1

Assets			Non-current assets			
Intangible assets							d—Tangible assets							

c

1.2

1.3

Investments in subsidiary undertakings						

e

320.5

320.2

Debtors							

f

3.6

3.4

Deferred tax assets							

h

1.7

1.9

								

327.0

328.9

Current assets			
f

62.5

101.0

Current income tax recoverable							

0.6

1.3

Cash at bank and in hand								

2.5

1.4

								

65.6

103.7

Total assets								

392.6

432.6

Debtors							Equity			Capital and reserves attributable to the Company’s equity Shareholders		

Share capital								

2.9

2.9

Share premium account								

61.5

61.5

Capital redemption reserve 							

0.1

0.1

Other reserves								

7.6

7.6

Profit and loss account								

114.3

126.2

								

186.4

198.3

Liabilities			Non-current liabilities			Long-term loans								

129.6

147.0

Retirement benefit obligations							

4.9

7.1

Provisions for liabilities 							

h

0.4

0.4

								

134.9

154.5

Bank loans and overdrafts								

22.1

30.1

Other creditors							

g

49.2

49.7

								

71.3

79.8

Total liabilities								

206.2

234.3

Total liabilities and equity

392.6

432.6

Current liabilities

		

					

The Financial Statements were approved by the Board of Directors on 13 June 2017 and signed on its behalf by:

Ian Barkshire 			Director				Gavin Hill
Director

Company number: 775598

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Statement of Changes in Equity
year ended 31 March 2017

					
				
Share
				
capital
				
£m

Share
premium
account£m

Capital		redemption
Other
reserve
reserves£m£mProfitand lossaccount
£m

Total
£m

Balance at 1 April 2015 (restated)			

2.9

61.5

0.1

7.6

135.3

207.4

Loss for the year				

—

—

—

—

(5.4)

(5.4)

Other comprehensive income: 						Remeasurement of defined benefit liability, net of tax		

—

—

—

—

3.5

3.5

Total comprehensive income for the year			

—

—

—

—

(1.9)

(1.9)

Proceeds from shares issued 			

—

—

—

—

—

—

Share options awarded to employees			

—

—

—

—

0.3

0.3

Share options awarded to employees of subsidiaries		

—

—

—

—

0.1

0.1

Dividends paid				

—

—

—

—

(7.6)

(7.6)

Balance at 31 March 2016				

2.9

61.5

0.1

7.6

126.2

198.3

Loss for the year				

—

—

—

—

(6.7)

(6.7)

Other comprehensive income: 						Remeasurement of defined benefit liability, net of tax		

—

—

—

—

1.7

1.7

Total comprehensive income for the year			

—

—

—

—

(5.0)

(5.0)

Proceeds from shares issued 			

—

—

—

—

—

—

Share options awarded to employees			

—

—

—

—

0.2

0.2

Share options awarded to employees of subsidiaries		

—

—

—

—

0.3

0.3

Dividends paid				

—

—

—

—

(7.4)

(7.4)

Balance at 31 March 2017			

2.9

61.5

0.1

7.6

114.3

186.4

Details of issued, authorised and allotted share capital are included in Note 24 to the Group Financial Statements.
Details of treasury shares held by the Company are included as a Note to the Consolidated Statement of Changes in Equity.
Details of the Group’s share option schemes are included in Note 13 to the Group Financial Statements.
Details of the Group’s defined benefit pension scheme are included in Note 26 to the Group Financial Statements.
Details of dividends paid are included in Note 15 to the Group Financial Statements.
Other reserves relates to premium on shares issued as part of acquisitions made in the year to 31 March 1987.

Oxford Instruments plc Report and Financial Statements 2017125

Notes to the Parent Company Financial Statements
year ended 31 March 2017(a) Accounting policies
Oxford Instruments plc is a company
incorporated and domiciled in the UK.
These Financial Statements were preparedin accordance with Financial ReportingStandard 101 Reduced Disclosure Framework(“FRS 101”). The amendments to FRS 101(2013/14 Cycle) issued in July 2015 andeffective immediately have been applied.
In preparing these Financial Statements,
the Company applies the recognition,measurement and disclosure requirements ofInternational Financial Reporting Standards
as adopted by the EU (“Adopted IFRS”),
but makes amendments where necessary inorder to comply with Companies Act 2006
and has set out below where advantageof the FRS 101 disclosure exemptions has
been taken.
In these Financial Statements, the Company
has applied the exemptions available under
FRS 101 in respect of the following disclosures:• a Cash Flow Statement and related notes;• comparative period reconciliations for sharecapital, tangible fixed assets, intangible
assets and investment properties;• disclosures in respect of transactions withwholly owned subsidiaries;• disclosures in respect of capitalmanagement;• the effects of new but not yet effective
IFRS; and• disclosures in respect of the compensationof key management personnel.
As the consolidated Financial Statements of
Oxford Instruments plc include the equivalent
disclosures, the Company has also taken the
exemptions under FRS 101 available in respectof the following disclosures:• IFRS 2 Share-based Payments in respect ofGroup settled share-based payments;• certain disclosures required by IAS 36
Impairment of Assets in respect of theimpairment of goodwill and indefinite life
intangible assets; and• certain disclosures required by IFRS
13 Fair Value Measurement and thedisclosures required by IFRS 7 Financial
Instrument Disclosures.

The accounting policies set out below
have, unless otherwise stated, been appliedconsistently to all periods presented in these
Financial Statements.

Measurement convention
The Financial Statements are prepared on thehistorical cost basis except that the following
assets and liabilities are stated at their fairvalue: derivative financial instruments.

Going concern
The Financial Statements have been preparedon a going concern basis, based on the
Directors’ opinion, after making reasonableenquiries, that the Company has adequate
resources to continue in operational existence
for the foreseeable future.

Non-derivative financial instruments comprisetrade and other debtors, cash and cash
equivalents, loans and borrowings, and tradeand other creditors.

Trade and other debtors
Trade and other debtors are recognised initiallyat fair value. Subsequent to initial recognition
they are measured at amortised cost using
the effective interest method, less any
impairment losses.

Trade and other creditors
Trade and other creditors are recognised
initially at fair value. Subsequent to initialrecognition they are measured at amortised
cost using the effective interest method.

Taxation

Cash and cash equivalents

Income tax on the profit or loss for the year
comprises current and deferred tax. Income
tax is recognised in profit or loss except tothe extent that it relates to items recognised
directly in equity, in which case it is recognisedin equity.

Cash and cash equivalents comprise cash
balances and call deposits.

Current tax is the expected tax payable on
the taxable income for the year, using tax
rates enacted or substantively enacted at thereporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognised in respect of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used fortaxation purposes. The following temporary
differences are not provided for: the initialrecognition of goodwill; the initial recognitionof assets or liabilities that affect neither
accounting nor taxable profit; and differences
relating to investments in subsidiaries to theextent that they will probably not reverse in
the future.
The amount of deferred tax provided isbased on the expected manner of realisationor settlement of the carrying amount ofassets and liabilities, using tax rates enacted
or substantively enacted at the Balance
Sheet date.
A deferred tax asset is recognised only to theextent that it is probable that future taxable
profits will be available against which the asset
can be utilised. Deferred tax assets are reduced
to the extent that it is no longer probable thatthe related tax benefit will be realised.
Additional income taxes that arise fromthe distribution of dividends are recognised
at the same time as the liability to pay the
related dividend.

126

Non-derivative financial instruments

Interest-bearing borrowings
Interest-bearing borrowings are recognised
initially at fair value less attributabletransaction costs. Subsequent to initialrecognition, interest-bearing borrowings arestated at amortised cost using the effective
interest method, less any impairment losses.
Details of the Group’s interest-bearing
borrowings are included in Note 25 to theGroup Financial Statements.

Intra-Group lending
The Company has lent funds to and from its
UK subsidiaries on interest-free terms. Theseamounts are repayable on demand. They arestated at cost less any impairment losses.

Derivative financial instruments
The Company’s accounting policies forfinancial instruments are the same as theGroup’s accounting policies under IFRS,
namely IAS 32 Financial Instruments:
Presentation, IAS 39 Financial Instruments:
Recognition and Measurement and
IFRS 7 Financial Instruments: Disclosures.
These policies are set out in accounting policy“(e) Financial instruments” in the Groupaccounting policies, on pages 85 and 86.

Tangible fixed assets
Tangible fixed assets are stated at cost lessaccumulated depreciation and accumulated
impairment losses.
Where parts of an item of tangible fixed assets
have different useful lives, they are accounted
for as separate items of tangible fixed assets.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

Depreciation is charged to the profit andloss account on a straight-line basis over theestimated useful lives of each part of an itemof tangible fixed assets. The estimated useful
lives are as follows:

together into the smallest group of assetsthat generates cash inflows from continuing
use that are largely independent of the cash
inflows of other assets or groups of assets (the“cash generating unit” or “CGU”).

• Computer equipment

4 years• Motor vehicles

4 years

An impairment loss is recognised if thecarrying amount of an asset or its CGU
exceeds its estimated recoverable amount.
Impairment losses are recognised in profit orloss. Impairment losses recognised in respectof CGUs are allocated first to reduce thecarrying amount of any goodwill allocatedto the units, and then to reduce the carrying
amounts of the other assets in the unit (groupof units) on a pro-rata basis.

Depreciation methods, useful lives andresidual values are reviewed at each balance
sheet date.

Intangible assets
Intangible assets represents internallydeveloped software. Amortisation ischarged to the profit and loss account on astraight‑line basis over the estimated useful
lives of intangible assets unless such lives areindefinite. Intangible assets are amortisedfrom the date they are available for use.
The estimated useful lives are as follows:• Computer software

10 years

Impairment excluding
deferred tax assets
Financial assets (including
trade and other debtors)
The Company assesses at each Balance Sheetreporting date whether there is any objective
evidence that a financial asset, or group offinancial assets, is impaired. A financial asset,
or group of financial assets, is deemed to
be impaired if, and only if, there is objective
evidence of impairment as a result of one
or more events that have occurred after the
initial recognition of the asset (an incurred“loss event”) and that loss event has an
impact on the estimated future cash flows of
the financial asset or group of financial assetsthat can be reliably estimated.

Non-financial assets
The carrying amounts of the Company’s
non-financial assets, other than deferred tax
assets, are reviewed at each reporting date todetermine whether there is any indication of
impairment. If any such indication exists, thenthe asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash
generating unit is the greater of its value
in use and its fair value less costs to sell. In
assessing value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that reflects
current market assessments of the time valueof money and the risks specific to the asset.
For the purpose of impairment testing, assetsthat cannot be tested individually are grouped

Impairment losses recognised in prior periods
are assessed at each reporting date for any
indications that the loss has decreased or nolonger exists. An impairment loss is reversed
if there has been a change in the estimatesused to determine the recoverable amount.
An impairment loss is reversed only to theextent that the asset’s carrying amount does
not exceed the carrying amount that would
have been determined, net of depreciationor amortisation, if no impairment loss had
been recognised.

Employee benefits
Defined contribution plans
A defined contribution plan is apost‑employment benefit plan under which
the Company pays fixed contributions into
a separate entity and will have no legal
or constructive obligation to pay further
amounts. Obligations for contributions
to defined contribution pension plans arerecognised as an expense in the profit and loss
account in the periods during which services
are rendered by employees.

Defined benefit plans
A defined benefit plan is a post-employment
benefit plan other than a defined contribution
plan. The Company’s net obligation in respectof defined benefit pension plans is calculated
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 (at bid price) are deducted. The
Company determines the net interest on the
net defined benefit liability/(asset) for theperiod by applying the discount rate used tomeasure the defined benefit obligation at the
beginning of the annual period to the net
defined benefit liability/(asset).

Oxford Instruments plc Report and Financial Statements 201704: Company Information

The discount rate is the yield at the reporting
date on bonds that have a credit ratingof at least AA that have maturity dates
approximating the terms of the Company’s
obligations and that are denominated in thecurrency in which the benefits are expected tobe paid.
Remeasurements arising from defined benefit
plans comprise actuarial gains and losses, thereturn on plan assets (excluding interest) andthe effect of the asset ceiling (if any, excludinginterest). The Company recognises them
immediately in other comprehensive income
and all other expenses related to defined
benefit plans in employee benefit expenses
in profit or loss.
The calculation of the defined benefit
obligations is performed by a qualified actuaryusing the projected unit credit method.
When the calculation results in a benefit to
the Company, the recognised asset is limited
to the present value of benefits available in
the form of any future refunds from the planor reductions in future contributions andtakes into account the adverse effect of any
minimum funding requirements.
The Company is the sponsoring employer ofa Group-wide defined benefit pension plan.
The net defined benefit cost of the plans ischarged to participating entities on the basisof the proportion of scheme membership
attributable to each legal entity at thereporting date. The contributions payable by
the participating entities are determined using
an agreed ratio which has been in place forapproximately ten years.

Short-term benefits
Short-term employee benefit obligations aremeasured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognised for the amount
expected to be paid under short-term cash
bonus or profit-sharing plans if the Company
has a present legal or constructive obligation
to pay this amount as a result of past service
provided by the employee and the obligation
can be estimated reliably.

127

Notes to the Parent Company Financial Statements continued
year ended 31 March 2017(a) Accounting policies continued

Own shares held by ESOP trust

Provisions

Termination benefits

Transactions of the Company-sponsored
ESOP trust are treated as being those of theCompany and are therefore reflected in the
Company Financial Statements. In particular,
the trust’s purchases and sales of shares in the
Company are debited and credited directly
to equity.

Provisions are recognised in the period
when it becomes probable that there will
be a future outflow of funds resulting
from past expectations or events which
can be reasonably estimated. The timingof recognition requires the application ofjudgement to existing facts and circumstances
which can be subject to change. Amounts
provided represent the Group’s best estimateof exposure based on currently available
information.

Termination benefits are recognised as an
expense when the Company is demonstrablycommitted, without realistic possibility ofwithdrawal, to a formal detailed plan to either
terminate employment before the normal
retirement date, or to provide termination
benefits as a result of an offer made toencourage voluntary redundancy. Termination
benefits for voluntary redundancies arerecognised as an expense if the company has
made an offer of voluntary redundancy, it isprobably that the offer will be accepted, andthe number of acceptances can be estimatedreliably. If benefits are payable more thantwelve months after the reporting date, thenthey are discounted to their present value.

Share-based payment transactions
The grant date fair value of share-based
payments awards granted to employees isrecognised as an employee expense, witha corresponding increase in equity, overthe period in which the employees become
unconditionally entitled to the awards.
The fair value of the awards granted ismeasured using an option valuation model,
taking into account the terms and conditions
upon which the awards were granted. The
amount recognised as an expense is adjusted
to reflect the actual number of awards forwhich the related service and non-market
vesting conditions are expected to be met,such that the amount ultimately recognised
as an expense is based on the number ofawards that do meet the related service andnon‑market performance conditions at thevesting date. For share-based payment awards
with non-vesting conditions, the grant datefair value of the share-based payment ismeasured to reflect such conditions and there
is no true-up for differences between expected
and actual outcomes.
Where the Company grants options overits own shares to the employees of its
subsidiaries it recognises, in its individual
Financial Statements, an increase in the costof investment in its subsidiaries equivalent
to the equity settled share-based payment
charge recognised in its consolidated Financial
Statements with the corresponding credit
being recognised directly in equity. Amounts
recharged to the subsidiary are recognised
as a reduction in the cost of investment in
subsidiary. If the amount recharged exceeds
the increase in the cost of investment theexcess is recognised as a dividend.

128

Provisions
A provision is recognised in the Balance Sheet
when the Company has a present legal orconstructive obligation as a result of a past
event, that can be reliably measured and it isprobable that an outflow of economic benefits
will be required to settle the obligation.
Provisions are determined by discounting the
expected future cash flows at a pre-tax ratethat reflects risks specific to the liability.

LeasesPayments (excluding costs for services andinsurance) made under operating leases arerecognised in the profit and loss account on astraight-line basis over the term of the lease.
Lease incentives received are recognised in the
profit and loss account as an integral part of
the total lease expense.

Foreign currencies
The Company enters into forward exchange
contracts and options to mitigate thecurrency exposures that arise on sales andpurchases denominated in foreign currencies.
Transactions in foreign currencies areconverted into Sterling at the rate rulingon 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 the appropriate
forward contract rates. Exchange profits andlosses arising from the above are dealt with in
the profit and loss account.

Own shares held by Employee
Benefit Trust (“EBT”)
Transactions of the Group-sponsored EBT are
included in the Group Financial Statements.
In particular, the trust’s purchase of shares in
the Company are debited directly to equity.

Dividends on shares presented
within Shareholders’ funds
Dividends unpaid at the Balance Sheet dateare only recognised as a liability at that dateto the extent that they are appropriately
authorised and are no longer at the discretionof the Company. Unpaid dividends that do notmeet these criteria are disclosed in the notes
to the Financial Statements.

Financial guarantee contracts
Where the Company enters into financial
guarantee contracts to guarantee theindebtedness of other companies within its
Group, the Company considers these to be
insurance arrangements and accounts forthem as such. In this respect, the Company
treats the guarantee contract as a contingent
liability until such time as it becomes probablethat the Company will be required to make apayment under the guarantee.

(b) Loss for the year
The Company’s loss for the financial year
was £6.7m (2016: loss of £5.4m). Other
Comprehensive Income in the year was£1.7m (2016: £3.5m). The expense will not
subsequently be reclassified to profit or loss.
The auditor’s remuneration comprised£140,000 (2016: £150,000) for the
statutory audit.
The average number of people employed by
the Company (including Directors) during theyear was 51 (2016: 51). All of these individuals
were involved in administration.

Investments
Investments in subsidiaries are stated at cost,less any provision for impairment, whereappropriate.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

The aggregate payroll costs (including Directors) of these people were as follows:																

2017
£m

2016
£m

Wages and salaries							

5.0

4.4

Social security costs								

0.6

0.6

Other pension costs								

0.1

0.2

								5.75.2The share-based payment credit was £0.1m (2016: expense of £0.8m). Details of the Group’s share option schemes are included in Note 13 to theGroup Financial Statements.
Full details of the emoluments paid to Directors can be found in the Remuneration Report on pages 60 to 75.

(c) Tangible fixed assets																								Computerequipment
£m

Total
£m

Balance at 1 April 2016								

5.7

5.7

Additions								

0.2

0.2

Balance at 31 March 2017							

5.9

5.9

Balance at 1 April 2016								

4.4

4.4

Charge for year								

0.3

0.3

Balance at 31 March 2017						

4.7

4.7

At 31 March 2016								

1.3

1.3

At 31 March 2017								

1.2

1.2

																		Software£m

Cost		

Depreciation		Net book value		(d) Intangible assets
Cost
Balance at 1 April 2016									

2.1Additions									

0.1Balance at 31 March 2017								

2.2Depreciation and impairment losses
Balance at 1 April 2016									

—Charge for year									

2.2Balance at 31 March 2017								

2.2Net book value
At 31 March 2016									

2.1At 31 March 2017									—The software assets are in the course of construction and therefore not currently being amortised.

Oxford Instruments plc Report and Financial Statements 2017129

Notes to the Parent Company Financial Statements continued
year ended 31 March 2017(e) Investments																																				Investments
in subsidiary
undertakings£m

Cost or valuation
Balance at 1 April 2016									338.9Expense in respect of share options transferred to subsidiary undertakings					

0.3Balance at 31 March 2017								339.2Impairment
Balance at 1 April 2016 and 31 March 2017							18.7Net book value
At 31 March 2016									320.2At 31 March 2017									320.5The following is a full list of the subsidiaries and associates and their country of registration as at 31 March 2017. This information is provided inaccordance with Section 409 of the Companies Act 2006.
Unless otherwise stated, entities listed below are wholly owned by either the Company or a subsidiary of the Company.
																Registeredoffice addressCountry ofincorporation

NanoTechnology Tools Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Analytical Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Superconductivity Limited				Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Innovation Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments NanoScience Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Magnet Technology Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Industrial Analysis Limited				Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Industrial Products Holdings Limited				Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments Industrial Products Limited				Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

RMG Technology Limited						Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments NanoAnalysis Limited					Tubney Woods, Abingdon, Oxon, OX13 5QX		UK

Oxford Instruments NanoTechnology Tools Holdings Limited			Tubney Woods, Abingdon, Oxon, OX13 5QX		

UK

Subsidiaries

Andor Technology Limited

7 Millennium Way, Springvale Business Park, Belfast, NI, BT12 7AL

UK

Andor U.S. Holdings, Inc

425 Sullivan Avenue, Suite 3, South Windsor, CT 06074

USA

Apogee Imaging Systems Inc

425 Sullivan Avenue, Suite 3, South Windsor, CT 06074

USA

Bitplane AG

Badenerstrasse 682, 8048, Zürich

Switzerland

Bitplane Inc

425 Sullivan Avenue, Suite 3, South Windsor, CT 06074

USA

199 Bay Street, Suite 5300, Commerce Court West, Toronto ON M5L 1B9

CanadaSpectral Applied Research Inc
Oxford Instruments Molecular Biotools Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UKResonance Instruments Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments NanoTechnology Tools Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Link Analytical Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxbridge Instruments Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments AFM Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Plasma Technology Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Plasma Technology (UK) Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Overseas Holdings Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

130

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information																Registeredoffice addressCountry ofincorporation

Subsidiaries continued
Oxford Instruments (Shanghai) Co. Limited1

No. 129, Lane 150, Pingbei Road, Minhang District, Shanghai 201109

China

PL 85, Espoo, 02631

Finland

PL 85, Espoo, 02631

FinlandOxford Instruments Industrial Analysis Oy
Oxford Instruments Technologies Oy
Oxford Instruments Holdings 2013 Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments Holdings 2008 Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments Holdings Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Omniprobe, Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments (Tennessee) Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments America Inc

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments Service LLC

300 Baker Avenue, Suite 150, Concord MA 01742

USA

Oxford Instruments Asylum Research Inc

6310 Hollister Avenue, Santa Barbara, CA 93117

USA

Asylum Research UK Limited
Oxford Instruments KK

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Haseman Building, 2-11-6 Tomioka, Koto-ku, Tokyo, 135-0047

Japan

Oxford Instruments Overseas Marketing Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments X-Ray Technology Inc

360 El Pueblo Road, Scotts Valley, CA 95066

USA

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Guernsey Limited

Oxford Instruments Holdings Europe Limited

Frances House, Sir William Place, St Peter Port, GY1 4HQ

Guernsey

Oxford Instruments Holdings GmbH

Borsigstrasse 15a, 65205, Wiesbaden

Germany

Oxford Instruments GmbH

Borsigstrasse 15a, 65205, Wiesbaden

Germany

Wellesweg 31, 47589 Uedem

Germany

Arenavägen 41, 10th Floor, 121 77 Johanneshov

SwedenOxford Instruments Analytical GmbH
Oxford Instruments Nordiska Ab
Oxford Instruments Overseas Holdings 2008 Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments UK 2013 Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Funding (Ireland) Limited

2nd Floor, 1-2 Victoria Buildings, Haddington Road, Dublin 4, D04 XN32

Ireland

121 Avenue de la Faiencerie, L-1511

Luxembourg

Messrs Tan Rajah & Cheah, 80 Raffles Place,#58-01 UOB Plaza 1, Singapore, 048624

Singapore

Oxford Instruments Funding (Luxembourg) S.a.r.l.
Oxford Instruments Private Limited
Oxford Instruments India Private Limited
Oxford Instruments SAS

Unit No.11, Marwah’s Complex, Krishanlal Marwah Marg,
Andheri East, Mumbai, Maharashtra, 400 072

India

77 ZA de Montvoisin, 91400 Gometz la Ville

FranceOxford Instruments Synchrotron Research Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Semicon Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Associates		
Scienta Scientific AB1Vallongata 1, 752 28, Uppsala

SwedenLimburger Strasse 75, 65232 Taunusstein

Germany

Omicron Nanotechnology Japan, Inc.1

No. 20 Shimokawa Building, 5-30-15, Ota-ku, TokyoJapan

Omicron Nanotechnology Limited1

St James House, Kensington Square, London W8 5HD

UK

Omicron UHV Technik Limited1

St James House, Kensington Square, London W8 5HD

UK

240 Saint Paul St, Suite 301, Denver CO 80238

USA

Le Plan d’Aigues, RN 7, 1370 St. Cannat

FranceSt James House, Kensington Square, London W8 5HD

UK

Scienta Omicron GmbH1

Scienta Omicron Inc.1
Societe Omicron Nanotechnology EURL1
VACGEN Limited1					1. Year end is 31 December. The Group has a 47% shareholding in these entities.

Equity owned by the Company represents issued ordinary share capital. All subsidiaries are consolidated in the Group accounts.

Oxford Instruments plc Report and Financial Statements 2017131

Notes to the Parent Company Financial Statements continued
year ended 31 March 2017(f) Debtors

2017
£m

2016
£m

3.6

3.4

Amounts owed by subsidiary undertakings						

57.5

98.0

Other debtors								

4.7

2.7

Prepayments and accrued income							

0.3

0.3

								

66.1

104.4

2017
£m

2016
£m

																Amounts falling due after one year:		
Amounts owed by associate undertakings							Amounts falling due within one year:		(g) Other creditors																Trade creditors								

0.1

0.6

Amounts owed to subsidiary undertakings							

38.6

40.5

Tax, social security and sales related taxes							

1.2

1.2

Other financial liabilities								

6.7

5.8

Accruals and deferred income							

2.6

1.6

								

49.2

49.7

																		Restructuringprovision

Balance at 1 April 2016									

0.4Provisions made during the year								

—Provisions used during the year 								

—Balance at 31 March 2017								0.4(h) Provisions for liabilities

Deferred tax asset																2017£mBalance at 1 April								

1.9

3.1

Profit and loss credit/(debit)								

0.2

(1.2)

Other comprehensive income (debit)/credit						

(0.4)

—

Balance at 31 March								

1.7

1.9

2016
£m

The amounts of deferred tax assets are as follows:		

Recognised																

2017
£m

2016
£m

Excess of depreciation over corresponding capital allowances					

0.6

0.5

Tax losses								—

—Provisions								

—

0.1Employee benefits – pension and share schemes						

1.1

1.3

								1.71.9The Company recognises deferred tax assets only to the extent that there will be suitable taxable profits from which the future reversal of theunderlying timing differences can be deducted.

132

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

03: Financial Statements

04: Company Information

Deferred tax assets have not been recognised in respect of the following items:																

2017
£m

2016
£m

Tax losses								

1.0

1.0

								1.01.0A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further
reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantively enacted on 26 October 2015,
and an additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company’s
future current tax charge accordingly. The UK deferred tax liability at 31 March 2017 has been calculated based on those rates.

(i) Pension commitments
Defined benefit scheme
The Oxford Instruments Pension Scheme (The “Scheme”), a defined benefit scheme, was closed to new members from 1 April 2001 and to future
accrual from the year to 31 March 2011. The Company continues to make deficit recovery contributions to this Scheme. Contributions are basedon the pension deficit of the Group as a whole. The assets of the Scheme are held in a separate trustee-administered fund.
During the prior year, the Group went through a detailed exercise to attempt to identify an employer for each member of the scheme. The actuary
used this data to apportion the pension liability of each member to the appropriate employing company. For approximately one quarter ofmembers it was not possible to identify an employing company. The liability in respect of these members has been allocated to the employers inproportion to the known liabilities for each employer.
Details of the scheme and most recent actuarial valuation can be found in Note 26 to the Group Financial Statements. The contributions paid by
the Company to the Oxford Instruments Pension Scheme were £0.4m (2016: £0.4m).

Stakeholder pension scheme
The Company makes contributions to a stakeholder pension scheme. The pension costs charge for the year represents contributions payable by
the Company to the scheme. These amounted to £0.1m (2016: £0.2m). There were no outstanding contributions at the end of the financial year
(2016: £nil).

(j) Guarantees
The Company has given a guarantee to the pension scheme in respect of the liability of its UK subsidiaries to the pension scheme. The guarantee
is for the excess of 105% of the liabilities of the scheme, calculated on the basis of Section 179 of the Pensions Act 2004, over the assets ofthe scheme.
The Company and its UK subsidiaries have entered into a cross-guarantee for £10.0m (2016: £10.0m) in respect of overdraft facilities of which £nil
(2016: £nil) was drawn at the year end.

(k) Commitments
At 31 March 2017, capital commitments contracted were £nil (2016: £nil) and authorised were £nil (2016: £nil).

(l) Subsequent events
See Note 33 to the Group Financial Statements for details of dividends paid or declared after the Balance Sheet date.

(m) Related party transactions
The Company has a related party relationship with its Directors and Executive Officers and with its wholly owned subsidiary companies.
Transactions with key management personnel are disclosed in the Remuneration Report on pages 60 to 75. There were no other significant
transactions with key management personnel in either the current or preceding year other than the following.
During the year the Company paid £0.1m (2016: £0.2m) to Imperialise Limited, a company for whom Nigel Keen is a Director. The payment wasfor his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2016: £nil).

Oxford Instruments plc Report and Financial Statements 2017133

Historical Financial Summary
					
					

2013
£m

2014
£m

2015
£m

2016
£m

2017
£m

Consolidated Statement of Income					Revenue from continuing operations				

281.4

302.9

333.3

319.7

348.5

Adjusted operating profit from continuing operations			

38.4

43.9

36.5

41.2

42.5

Other operating income					

—

—

—

—

—

Contingent consideration deemed no longer payable			

—

—

1.4

4.9

—

Reversal of acquisition related fair value adjustments			

(0.5)

(3.7)

(0.2)

(1.0)

—

Acquisition related costs					

(2.1)

(7.8)

(2.2)

(2.5)

(1.5)

Loss on disposal of subsidiary undertakings			

—

—

—

(0.9)

(0.4)

Profit on disposal of subsidiary undertakings			

—

—

—

—

3.2

Contingent consideration – further amount deemed payable		

—

—

(6.8)

—

—

Restructuring costs					

—

—

(9.9)

(2.9)

(0.6)

Restructuring costs – relating to associate				

—

—

—

(1.3)

(0.4)

Settlement loss on US pension scheme				

—

(0.1)

—

—

—

Impairment of investment in associate				

—

—

—

—

(8.0)

Impairment of internally generated intangible assets			

—

—

—

—

(2.9)

Impairment of acquired intangibles				

—

—

—

—

(34.9)

Amortisation of acquired intangibles				(13.8)(14.7)(21.7)(16.7)(13.8)

Operating profit/(loss) from continuing operations			

22.0

17.6

(2.9)

20.8

(16.8)Net financing costs					

(4.5)

—

(13.0)(11.1)(5.5)

Profit/(loss) before taxation from continuing operations			

17.5

17.6

(15.9)

9.7(22.3)

Income tax (expense)/credit					

(3.3)

(3.4)

5.8

(2.7)

1.3

Profit/(loss) for the year from continuing operations			

14.2

14.2

(10.1)

7.0(21.0)

Adjusted profit before tax from continuing operations2			

36.1

40.7

29.3

33.6

36.0

Consolidated Statement of Financial Position					Property, plant and equipment				

32.9

34.4

33.1

35.2

32.5

Intangible assets					

91.9

247.9

231.3

220.8

181.0

Investment in associate					

—

—

—

13.1

3.7

Long-term receivables					

—

—

—

3.4

3.6

Deferred and current tax					

14.9

(3.5)

14.6

13.9

18.1

Inventories					

58.1

68.3

70.8

61.1

54.0

Trade and other receivables					

71.8

86.2

90.7

79.0

77.9

Trade and other payables					(112.5)(112.8)(126.5)(108.2)(94.1)Net assets excluding net cash				

157.1

320.5

314.0

318.3

276.7

Cash and cash equivalents					

39.2

32.6

25.1

21.8

27.2

Bank overdrafts					

—

—

—

(1.4)

(0.7)

Bank borrowings					

—(156.9)(144.0)(148.6)(135.8)Net cash/(debt)					39.2(124.3)(118.9)(128.2)(109.3)

Provisions and other items					(10.7)(9.7)(16.1)(12.1)(9.8)

Retirement benefit obligations				(47.9)(46.3)(53.5)(35.0)(25.1)Net assets employed/capital and reserves attributable
to the Company’s equity holders				

137.7

140.2

125.5

143.0

132.5

134

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: Governance

					
					

03: Financial Statements

2013
£m

2014
£m

04: Company Information

2015
£m

2016
£m

2017
£m

32.1

Cash flow					Net cash from operating activities				

33.1

12.7

16.7

34.4

Net cash used in investing activities 				(28.8)(177.6)(13.7)(37.1)(9.1)

Net cash from financing activities				

(5.2)

151.3

(19.8)(6.0)(20.2)Net (decrease)/increase in cash equivalents from continuing operations		

(0.9)(13.6)(16.8)

(8.7)

2.8

					

pence

pence

pence

pence

pence

Per ordinary share					Earnings – continuing					

24.9

24.9

(17.7)

12.2(36.8)

Adjusted earnings1					

53.5

60.3

41.3

45.3

47.8

Dividends					

11.2

12.4

13.0

13.0

13.0

1,927

2,050

2,420

2,077

1,974

Employees					Average number of employees				

1. Adjusted numbers are stated to give a better understanding of the underlying business performance. Details of adjusting items can be found in Note 1 to the Group Financial Statements.
2. Comparative figures have been restated to account for the disposal of the Group’s Superconducting Wire business.

Oxford Instruments plc Report and Financial Statements 2017135

Shareholder Information
Financial calendar
9 March 2017	Ordinary shares quoted
ex-dividend
10 March 2017	Record date for interim
dividend
12 March 2017	Dividend reinvestment(“DRIP”) last date forelection
31 March 2017	Financial year end
7 April 2017	Payment ofinterim dividend
13 June 2017	Announcement of
preliminary results
13 June 2017	Announcement of
final dividend
July 2017	Publication ofAnnual Report
12 September 2017 Annual General
Meeting
21 September 2017 Ordinary shares quoted
ex-dividend
23 September 2017 Record date forfinal dividend
25 September 2017 DRIP date
20 October 2017	Payment of final dividend
15 November 2017

Announcementof half‑year results

March 2018	Ordinary shares quoted
ex-dividend
March 2018	DRIP last datefor election
March 2018	Record date forinterim dividend
31 March 2018	Financial year end

Administrative enquiries
concerning shareholdings
You may view your shareholding and dividend
history, register to receive your dividends direct
to your bank account or elect to re-invest yourdividends and register a change of address
online at www.capitashareportal.com.
To register to use this facility you will need
your Investor code (IVC), which can be foundon your share certificate, dividend tax voucher
or proxy card.

136

Administrative enquiries concerning
shareholdings in Oxford Instruments plc, suchas the loss of a share certificate, dividend
payments, or a change of address should bedirected, in the first instance, to the Registrar,
Capita Asset Services. The Registry,
34 Beckenham Road, Beckenham,
Kent BR3 4TU.
Tel: +44 (0)871 664 0300 (calls cost 12 pence
per minute plus your phone company’s accesscharge. Calls outside the United Kingdom will
be charged at the applicable internationalrate. Lines are open between 09:00 – 17:30,
Monday to Friday excluding public holidays in
England and Wales).
Email: Shareholderenquiries@capita.co.uk
Website: www.capitaassetservices.com
Correspondence should refer to Oxford
Instruments plc and state clearly the registeredname and address of the Shareholder. Please
notify the Registrar promptly of any changeof address.

Dividend bank mandates
If you wish dividends to be paid directly
into a bank or building society account andnotification to be sent to your Shareholder
register address, please contact the Company’s
Registrar at the address given above for adividend mandate form. Overseas holders canalso choose to receive payment directly into
their bank account, or can be sent a draft inlocal currency. Further details on international
payments are available from Capita Asset
Services at the contact details below.
Tel: +44 (0)871 664 0385 (calls cost 12 pence
per minute plus your phone company’s accesscharge. Calls outside the United Kingdom will
be charged at the applicable internationalrate. We are open between 09:00 – 17:30,
Monday to Friday excluding public holidays in
England and Wales).

Shareholder communications
Unless you have elected to continue to receive
Shareholder communications by post, youwill be notified by post or, where you havegiven us an email address for electronic
notification, by email that Shareholder
communications are available for viewing
on the Company’s website atwww.oxford-instruments.com/investors.
The Company reserves the right to distribute
any communication in hard copy if it deems
this necessary.

Shareholder enquiries
Shareholders who have questions relating to
the Group’s business or who wish to haveadditional copies of the Report and Financial
Statements should apply to:Company Secretary
Oxford Instruments plc
Tubney Woods, Abingdon,
Oxfordshire OX13 5QX
Tel: 01865 393200
Fax: 01865 393442
Email: info.oiplc@oxinst.com
Website: www.oxford-instruments.com

Company registration
Registered office: Tubney Woods, Abingdon
Oxfordshire OX13 5QXRegistered in England number: 775598
Website: www.oxford-instruments.com
Oxford Instruments has an extensive website
which gives details of all its products andservices, contact information, vacancies andlatest news announcements. An interactive
investor relations section gives information on
recent trading reports, share price data andforthcoming events.

Website:http://international.capitaregistrars.com

Duplicate share register accounts
If you are receiving more than one copy of
our report, it may be that your shares areregistered in two or more accounts on our
register of members. If that was not yourintention you might consider merging theminto one single entry. Please contact Capita
Asset Services, which will be pleased to carryout your instructions.

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic Report

02: GovernanceCapita Share Dealing Services
A quick and easy share dealing service toeither sell or buy shares in many leading
UK companies is provided by Capita Share
Dealing Services. An online and telephonefacility is available, providing our Shareholders
with an easy to access and simple to use
service. There’s no need to pre-register andthere are no complicated forms to fill in.
The online and telephone dealing service
allows you to trade “real time” at a known
price which will be given to you at the time
you give your instruction. To deal online orby telephone all you need is your surname,
Investor Code (“IVC”) reference number,full postcode and your date of birth. Your
Investor Code can be found on a recent sharecertificate, statement or tax voucher. Should
you not be able to locate your IVC number,please contact Capita Asset Services on+44 (0)871 664 0300 (calls cost 12 pence perminute plus your phone company’s accesscharge. Calls outside the United Kingdom will
be charged at the applicable internationalrate. We are open between 09:00 – 17:30,
Monday to Friday excluding public holidays
in England and Wales). Please have theappropriate documents to hand when you log
on or call, as this information will be needed
before you can buy or sell shares.

03: Financial Statements

For further information on this service, or tobuy and sell shares, please contact
www.capitadeal.com (online dealing) or+44 (0)371 664 0445 (telephone dealing).
Calls are charged at the standard geographic
rate and will vary by provider. Calls outside
the United Kingdom will be charged at theapplicable international rate. We are open
between 09:00 – 17:30, Monday to Friday

04: Company Information

excluding public holidays in England andWales). Full terms, conditions and risks apply
and are available on request or by visitingwww.capitadeal.com.
This is not a recommendation to buy or sellshares. Remember the price of shares cango down as well as up, and you are notguaranteed to get back the amount that you
originally invested.

Analysis of Shareholders as at 31 March 2017
Number ofholders% of total

Total holding% of total

2,219

87.8

1,456,305

2.5

5,001 to 50,000 shares

179

7.1

2,893,098

5.1

50,001 to 200,000 shares

75

3.0

8,088,334

14.1

Over 200,000 shares

52

2.1

44,861,174

78.3

2,523

100

57,298,911

100

Size of shareholding

Up to 5,000 shares

Total

Oxford Instruments plc Report and Financial Statements 2017137

Oxford Instruments Directory
Company/address

Descriptor

Country

Telephone

Fax

Email

+44 (0) 1865 393333

info.oiplc@oxinst.com+44 (0) 1494 442255+44 (0) 1494 524129

nanoanalysis@oxinst.com+46 8 5448 1550

+46 8 5448 1558

nordiska@oxinst.com+1 (805) 696 6444

sba.sales@oxinst.com

Oxford Instruments Head Office				Tubney Woods, Abingdon 		UK+44 (0) 1865 393200
Oxfordshire OX13 5QX, UK		

NanoTechnology Tools					NanoCharacterisation					Oxford Instruments NanoAnalysis				
Halifax Road, High Wycombe
Systems for materials
UK
Buckinghamshire HP12 3SE, UK
analysis at the nanoscale
Arenavägen 41, 10th floor
121 77 Johanneshov, Sweden

Systems for materials
analysis at the nanoscale

SwedenAsylum Research					6310 Hollister Ave, Santa Barbara
Systems for materialsUSA+1 (805) 696 6466
CA 93117, USA
analysis at the nanoscale
Hauptstrasse 161, DE-68259 		
Mannheim, Germany		

Germany+49 621 762117 0+49 621 762117 11

sba.de.sales@oxinst.com

3-4 Shaochuan Street, Kaohsiung City 		
80441, Taiwan, R.O.C.		

Taiwan+886 9 3837 4589

+886 2 2794 2757

sba.tw.sales@oxinst.com

Halifax Road, High Wycombe 		
Buckinghamshire HP12 3SE, UK		UK

+44 (0) 1494 442255+44 (0) 1494 524129

sba.uk.sales@oxinst.com

Andor/Bitplane/Spectral					7 Millennium Way
Scientific imaging cameras,UK+44 (0) 28 9023 7126
Springvale Business Park
spectroscopy solutions
Belfast, BT12 7AL, UK
and microscopy systems+44 (0) 28 9031 0792

info@andor.com

Badenerstrasse 682, 		
CH-8048 Zürich		

Switzerland+41 44 430 11 00+41 44 430 11 01

info@bitplane.com

9078 Leslie St., Unit 11, Richmond Hill		
Ontario, Canada L4B 3L8

Canada+1 (905) 326 5040

+1 (905) 326 5041

info@spectral.ca+44 (0) 1934 837001

plasma@oxinst.com+44 (0) 1865 393333

nanoscience@oxinst.com+44 (0) 1865 393200+44 (0) 1865 393333

industrial@oxinst.com

NanoSolutions					Oxford Instruments
Plasma Technology					North End, Yatton
Tools for nanotechnologyUK+44 (0) 1934 837000
Bristol BS49 4AP, UKfabrication
Oxford Instruments
NanoScience					Tubney Woods, Abingdon
Advanced tools forUK+44 (0) 1865 393200
Oxfordshire OX13 5QX, UK
applied research

Industrial Products					Oxford Instruments
Industrial Analysis				Tubney Woods, Abingdon
Tools for QC/QA,
UK
Oxfordshire OX13 5QX, UK
environmental
and compliance testing
Derby Business Park 		
Tarvonsalmenkatu 17
FI-02600 Espoo, Finland		

Finland+358 932 9411

+358 932 9413

industrial@oxinst.com

Wellesweg 31, 47589 Uedem 		Germany		Germany+49 2825 93830+49 2825 9383100

industrial@oxinst.com

8403 Cross Park Drive, Suite 3F 		
Austin, TX 78754, USA		USA+1 (512) 339 0640

+1 (512) 339 0620

industrial@oxinst.com

USA+1 (831) 439 9729

+1 (831) 439 6051

xray-sales@oxinst.com+1 (954) 596 4945

+1 (954) 596 4946

oiservice@oxinst.com+1 (707) 469 1320

+1 (707) 469 1318

oiservice@oxinst.com

Oxford X-Ray Technology
360 El Pueblo Road, Scotts Valley
CA 95066, USA

X-ray tubes and detectors

Service					OiService CT & MR				
1027 SW 30th Avenue, 		USA
Deerfield Beach, FL 33442, USA		64 Union Way, Vacaville 		CA 95687, USA		

USA

120 Enterprise Drive, Ann Arbor 		USA+1 (888) 323 1316
+1 (734) 822 1011
MI 48103, USA					

138info@mobileleasing.com
info@medimagingsales.com

Oxford Instruments plc Report and Financial Statements 2017

01: Strategic ReportCompany/address

02: Governance

Descriptor

03: Financial Statements

Country

Telephone

04: Company Information

Fax

Email

+1 (978) 369 9933

+1 (978) 369 8287

info@ma.oxinst.com+86 (0) 40 0621 5191

+86 (0) 10 8271 9055

china.info@oxinst.com

Regional Sales and Service Offices				
Oxford Instruments/Canada/
Latin America				300 Baker Avenue, Suite 150 		
USA
Concord, MA 01742, USA		
Oxford Instruments China				
Unit 1, Building A 		
China
No. 66 Zhufang Road
Haidian District, Beijing, 100085, China		
Floor 1, Building 60, No.461 		
Hongcao Road, Shanghai, 200233, China

China+86 21 6127 3858

+86 21 6127 3828

china.info@oxinst.com

No. 129, Lane 150, Pingbei Road 		
Xinzhuang Industrial Area
Minhang District, Shanghai, 201109, China

China+86 (0) 21 6490 8580

+86 (0) 21 6490 4042

china.info@oxinst.com

Room 2112, Bai Hui Plaza 		
193 Zhong Shan Wu Road
Guangzhou 510030, China

China+86 (0) 20 8364 9990

+86 (0) 20 8364 9996

china.info@oxinst.com

Room 1909, Huamin Empire Plaza 		No.1, Fu Xing Street, Chengdu, China

China+86 (0) 28 8670 3596

+86 (0) 28 8670 3595

china.info@oxinst.com

Oxford Instruments Czech Republic				Velvarska 13, CZ-160 00 Praha 		
Czech
Czech Republic		Republic+420 233 343 264+420 234 311 724

czech.info@oxinst.com

Oxford Instruments France				
77 ZA de Montvoisin 		
France91400 Gometz la Ville, France		

+33 1 69 85 25 25+33 1 69 41 46 80

infofrance@oxinst.com

Oxford Instruments Germany				Borsigtrasse 15a, 65205 Wiesbaden,		Germany
Germany+49 6122 9370

+49 6122 937100

info-oiplc@oxinst.com

Oxford Instruments India				11, Marwah’s Complex, Krishanlal Marwah Marg
India
Andheri East, Mumbai 400 072, India		

+91 224 4253 5100

+91 224 4253 5110

india@oxinst.com

Oxford Instruments Japan				IS Building 3-32-42, Higashi-Shinagawa 		
Japan
Shinagawa-ku Tokyo 140-0002, Japan 		+81 (0) 3 6732 8961

+81 (0) 3 6732 8937

info.jp@oxinst.com

Oxford Instruments Korea				No. 8-S 26, 8F., 10 Chungmin-ro 		
Republic
Songpa-gu, Seoul 138-962 Korea (Republic of)of Korea+82 2 2008 4500

+82 2 2008 4555

nanoanalysis@oxinst.com

Oxford Instruments Russia				Denisovskiy per. 26, Moscow 105005 		
RussiaRussian Federation		+7 (095) 933 51 23+7 (095) 933 51 24

russia.info@oxinst.com

Oxford Instruments Singapore				10 Ubi Crescent, #04-81 Ubi TechPark Lobby E
Singapore
Singapore 408564, Republic of Singapore+65 6337 6848

+65 6337 6286

singapore.info@oxinst.com

Oxford Instruments Taiwan				
2F-1, No. 27, Kuang-Hsin Road,Hsin-Chu		
TaiwanTaiwan 300, Taiwan, R.O.C.

+886 3 5788696+886 3 5789993

taiwan.info@oxinst.com

Oxford Instruments plc Report and Financial Statements 2017139

Directors and Advisers
Honorary President

Auditor

Sir Martin Wood OBE FRS Hon FREng DL

KPMG LLP

Company Secretary

Principal Bankers

Susan Johnson-Brett ACISHSBC Bank plc
Santander plc
The Royal Bank of Scotland plc

Board Committees
Audit and Risk
Mary Waldner, Chairman1
Richard Friend
Thomas Geitner
Stephen Blair3

Nomination
Alan Thomson2, Chairman
Richard Friend
Thomas GeitnerMary Waldner
Stephen Blair3

Stockbroker
JPMorgan Cazenove

UK Solicitors
Laytons Solicitors LLP
Ashurst LLPUS Counsel
Wilmer Hale LLP

Remuneration
Thomas Geitner, Chairman
Richard Friend
Mary Waldner
Alan Thomson2
Stephen Blair3

Administration
Any two Directors
1. Mary Waldner became Chairman of of the Audit andRisk Committee on 16 June 2016.
2. Alan Thomson was appointed to the Nomination andRemuneration Committees on 1 June 2016 and was
appointed Chairman of the Nomination Committee
on 13 September 2016.
3. Stephen Blair was appointed to the Audit and Risk,
Nomination and Remuneration Committees on
1 July 2017.

140

Oxford Instruments plc Report and Financial Statements 2017

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Find out more online
www.oxford-instruments.com/investors

For more information please email: investors@oxinst.com
This publication is the copyright of Oxford Instruments plc and provides outline information only, which (unless agreed by the Company inwriting) may not be used, applied or reproduced for any purpose or form part of any order or contract or regarded as the representation
relating to the products or services concerned. Oxford Instruments’ policy is one of continued improvement. The Company reserves theright to alter, without notice the specification, design or conditions of supply of any product or service. Oxford Instruments acknowledges
all trademarks and registrations. © Oxford Instruments plc, 2017.
All rights reserved.