Oxford Instruments plc
Report and Financial Statements 2018

Oxford Instruments plc is a leading provider of hightechnology products and services to the world’s leadingindustrial companies and scientific research communities.
We provide advanced nanotechnology solutions to a broad range of end markets.
We are proud to be recognised as the leaders in what we do and for the difference
we make in the world.

Inside this year’s
Report and Financial
Statements

01: Strategic Report

03: Financial Statements

Performance Highlights

01

Directors’ Responsibilities

85

Our Business02

Independent Auditor’s Report

86

Chairman’s Statement

06

Consolidated Statement of Income

91

Chief Executive’s Review

08

Business Model

12

Consolidated Statement ofComprehensive Income

92

Strategic Context

14

Consolidated Statementof Financial Position93

Our Strategy

16

Key Performance Indicators

18

Consolidated Statementof Changes in Equity

94

Operations Review

20

Consolidated Statement of Cash Flows96

Finance Review

28

Accounting Policies

98

Principal Risks

35

Notes to the Financial Statements

105

Viability Statement38

Corporate Responsibility

40

Parent Company Statementof Financial Position

134

Parent Company Statementof Changes in Equity

135

Notes to the Parent Company
Financial Statements

136

02: Governance

Front cover image:
Fully functioning gyroscope structure, 2mm
across; created by a Plasma Technology system.

Leadership49

Effectiveness55

Accountability

61

04: Company Information

Remuneration

67

Historical Financial Summary

145

Relations with Shareholders

81

Directors and Advisers

147

Report of the Directors

83

Oxford Instruments Directory

148

Find out more about us
www.oxinst.com

01: Strategic Report

Performance
Highlights
It has been a positive year for the Group, with good progressin the early implementation phase of the Horizon strategy.

£296.9m

1.1%

22.4%

£46.5m£42.3mAdjusted operating profit

Adjusted2 profit before tax1

(2017: £300.2m)(2017: £38.0m)(2017: £31.5m)

2£34.2mProfit/(loss) before tax

1

35.7%

56.3p

13.3p
Dividend per share (full year)(2017: £(26.2m)(2017: 41.5p)(2017: 13.0p)£33.4m£19.7mCash generated from operations1

Net debt(2017: £34.5m)(2017: £109.3)

Financial Highlights:• Profit before tax from continuing
operations of £34.2 million (2017: lossof £26.2 million).

• Reported orders up 5.0% to £313.0 million(2017: £298.0 million), an increase of
5.8% at constant currency.

2

1• Net debt down significantly to£19.7 million following good operating
cash flow and disposals. Profit after
tax from sale of Industrial Analysisof £45.9 million and net proceeds of£71.2 million.

• Reported revenue in line with previous year
at constant currency.

• Full year dividend increased by 2.3%
to 13.3 pence.

• Adjusted operating profit from continuing
operations up 22.4% to £46.5 million(2017: £38.0 million), with a currency
benefit of £10.6 million – margin increaseof 300 basis points to 15.7%.

Operational Highlights:• Adjusted profit before tax from continuing
operations up 34.3% to £42.3 million(2017: £31.5 million), an increase of
0.6% at constant currency.

• Good progress in the early implementationof our Horizon Strategy, in particular:• Strong growth in orders and order bookdemonstrate early success from ourmarket application focus;• Increased management and leadershipcapability across the Group;• Transitioned to a more commercially
focused, market-driven Group toaddress a broad range of industrial
and academic markets; and• Continued investment in R&D withincreased focus on customer solutions.
• Strong financial performance acrossMaterials & Characterisation driven byleading product portfolio and customer
applications focus in growing markets.
• Good second half performance in
Research & Discovery was offset by aweaker first half. Constant currency orderbook up 15.3%.
• Profit and margin growth in Service &Healthcare driven by services relating toour own products. Reduction in revenue
from the anticipated decline in the sale ofrefurbished imaging systems.

1. Continuing operations.
2. Throughout these Financial Statements we make reference to adjusted numbers. A full definition of adjusted numbers can be found in Note 1. Where we make reference to constantcurrency numbers these are prepared on a month by month basis using the translational and transactional exchange rates which prevailed in the previous year rather than the actual
exchange rates which prevailed in the year. Transactional exchange rates include the effect of our hedging programme.

Oxford Instruments plc Report and Financial Statements 201801

04: Company Information• Reported order book of £134.0 million
as at 31 March 2018, up 5.0% (10.4%
at constant currency). Excluding US
Healthcare, order book up 18.4% on aconstant currency basis.

03: Financial Statements

Adjusted basic earnings per share

1

2.3%

02: Governance

Revenue

1

34.3%

Our
Business
A leading provider of hightechnology products and services.

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

Materials &Characterisation

Products and solutions thatenable the fabrication andcharacterisation of materials
and devices down to theatomic scale, predominantly
supporting customers acrossapplied R&D as well as the
production and manufactureof high technology products
and devices.

Find out more on page 20

Research &Discovery

Provides advanced
solutions that create uniqueenvironments and enable
imaging and analyticalmeasurements down to
the molecular and sub-atomic
level, predominantly usedin scientific research andapplied R&D.

Find out more on page 23

Service &Healthcare

Provides customer service
and support for our own
products and the service,sale and rental of third-party
healthcare imaging systems.

Find out more on page 25

02

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

We enable the world’s leading industrial companies
and scientific research communities to image, analyseand manipulate materials down to the atomic andmolecular level.

Our global end market segments:£118.1m

End market segments revenue
40% of Group revenue
1

11.7%

Revenue6(2017: £105.7m)£20.1m51%

Adjusted2 operating profit49%(2017: £12.2m)

4£112.1m

The exploration of the regime where
quantum effects dominate and radicallychange the “rule book” of what is possible.

(2017: £125.3m)

5
4

0%

73%

Academic

1

27%

3

Commercial

Adjusted2 operating profit(2017: £13.8m)

2£66.8m6 Advanced Materials
Where we help customers lead therace to develop lighter, stronger, higher
functioning and more affordable materials.

22% of Group revenue

7 R esearch &Fundamental Science

3.6%

Revenue

Where we help customers develop
breakthrough applications, gaining
previously unknown insights.

(2017: £69.3m)£12.6m5 Energy
Where improved efficiencies andsustainability remain core drivers,
and includes work in photovoltaics
and batteries.

5.0%

Adjusted2 operating profit(2017: £12.0m)
This segment is captured within total Group revenue.

Oxford Instruments plc Report and Financial Statements 201803

04: Company Information

Highlights

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

7
6

Revenue£13.8m3 Quantum Technology
3

End market segments revenue
38% of Group revenue

10.5%

Where there is a focus on speed, security
and capacity.

03: Financial Statements

Highlights

2

Commercial

5

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

2 S emiconductor &Communications

Academic

64.8%

1 Healthcare & Life Science

02: Governance

Highlights

Our
Business continued
A globally recognised brand with a reputation forworld-class product performance, unprecedented
ease of use and excellence in service and support.

Our locations

We have 28 offices
around the world.
We employ 1,576
people worldwide.

Principal offices and development & manufacturing sites
For a full list of our locations please visit our website:www.oxinst.com/service-and-support

04

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Oxford Instruments is a leading provider of high technology products and services tothe world’s leading industrial companies and scientific research communities to image,analyse, and manipulate materials down to the atomic and molecular level.
We are driving growth and improved returns for the benefit of all stakeholders as
we embed clearly defined core capabilities across our businesses in market intimacy,
innovation and product development, customer support, and operational excellence.

Rest of world£8.3m
Germany£24.8mJapan£34.9m02: Governance

Revenue from externalcustomers by destination

Investment case

Brand and reputation
A globally recognised brand with a reputation for world-classproduct performance, unprecedented ease of use and excellencein service and support. Oxford Instruments offers increased value
to existing customers, as well as creating growth opportunities in
new market segments, through application-specific solutions withimproved workflows, bespoke analytics, data interpretation andassociated support services.

Rest of Asia
£35.8mRest of Europe£35.9m03: Financial Statements

Global business
Oxford Instruments is positioned to address a broad range ofmarkets and industrial sectors, with its key enabling technologies
underpinning the shift to a greener economy, increased digitalconnectivity, and advances in materials, life science and healthcare.
This provides a global base and comprehensive portfolio, offering
diversification of opportunity and risk.

Attractive end markets
Our end markets are robust, supported by sustained commercial
and government investment. This, alongside a customer
application focus and excellent core capabilities, provides strong
long-term drivers for future growth and margin improvement.

China£49.6mFocused investment
04: Company Information

The Group focuses investment on market segments where
nanotechnology drives product innovation, world-leading researchand long-term growth for customers, where it can maintainleadership positions.

Strong customer relationships
USA£89.5mThrough market intimacy, the Group has developed an in-depth
understanding of customer needs, helping customers to accelerate
their applied R&D, increase their manufacturing productivity
and make new scientific discoveries. Today, nearly half of Oxford
Instruments’ customer base comprises commercial organisations.

Oxford Instruments plc Report and Financial Statements 201805

Chairman’s
Statement
It has been a positive yearwith the Group deliveringa performance in line with
our expectations.

The Group has
continued tofocus on the corecapabilities of its
Horizon strategy
as we embed bestpractice across theGroup.

06

It has been a positive year with the Groupdelivering a performance in line with our
expectations and making good progresswith the Horizon strategy. Management hascontinued to steer our business towards
a greater focus on market segments andapplications, designed to help our customers
advance their businesses through enhanced
R&D and productivity improvement. As aresult, we are already starting to see improved
trading in some of our businesses and we
expect progress to continue as the Horizon
strategy gains momentum.
The Group has continued to focus on thecore capabilities of its Horizon strategy:
market intimacy, innovation and productdevelopment, customer support, andoperational excellence as we embed bestpractice across the Group. We have also
strengthened our management with newsenior leaders joining the business during

Oxford Instruments plc Report and Financial Statements 2018the year and created new leadership roles
to sharpen our commercial focus. We also
successfully completed the sale of Industrial
Analysis early in the second quarter of thefinancial year, marking a significant change
to our portfolio.
Against this backdrop of activity andrepositioning for long-term sustainablegrowth, the team maintained their focus
on near-term performance. Adjusted
profit before tax was up 34.3% at£42.3 million (2017: £31.5 million)
driven by a strong performance from ourMaterials & Characterisation sector andsupported by favourable currency effects.
Adjusted profit before tax increased by
0.6% at constant currency. Profit before
tax was £34.2 million (2017: loss of£26.2 million) and adjusted basic earnings
per share on a continuing basis was up
35.7% to 56.3 pence (2017: 41.5 pence).

01: Strategic Report

The management team is energised inchanging the way we operate, implementing
the key tenets of the Horizon strategy.

Alan Thomson
Chairman
12 June 2018

Our governanceprinciples
Leadership
The Chairman is responsible for leadershipof the Board and ensuring its effectivenesson all aspects of its role.
Find out more on page 49

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

03: Financial Statements

As Ian Barkshire sets out in his Chief
Executive’s Review, the management team isenergised in changing the way we operate,
implementing the key tenets of the Horizon
strategy. This will help position the Group
as a leading provider of high technology
products and services to the world’s leadingindustrial companies and scientific researchcommunities.

I would like to thank the Board and all
employees for their dedication and hard
work during this time of change to reposition
Oxford Instruments to deliver long-term
profitable growth and sustainable valuethat benefits all our stakeholders.

02: GovernanceGood operating cash flow and the proceedsfrom the sale of Industrial Analysis led
to a significant reduction in net debt to£19.7 million (2017: £109.3 million).
Given the improvement in net debt andour confidence that the Horizon strategy
is beginning to deliver tangible benefits,
the Board has proposed to raise the final
dividend to 9.6 pence (2017: 9.3 pence),
giving a full-year dividend of 13.3 pence(2017: 13.0 pence), an increase of 2.3%.

Find out more on page 55

Risk management
The Board has accountability for reviewing
and approving the adequacy andeffectiveness of internal controls, including
financial, operational and compliance
controls and risk management.
Find out more on page 57

Remuneration

04: Company Information

The Remuneration Policy promotes thedelivery of the Group’s strategy andseeks to align the interests of Directors
and Shareholders.
Find out more on page 67

Engagement
We continue to ensure our investors
receive regular and transparent
communications.
Find out more on page 81

Oxford Instruments plc Report and Financial Statements 201807

Chief Executive’s
Review
We have made good progress in theyear with the early implementationof the Horizon strategy, which wasintroduced in May 2017.

Summary• Materials & Characterisation
performed strongly in attractive
markets. We continue to invest in
new product development within
the sector to improve and expand
our range of products and solutions.
• Research & Discovery had
an improved second half
performance, with recovery in
optical microscopy systems andlike‑for‑like order growth inAndor. An underperformance in
NanoScience and X-ray Technology
depressed the sector’s result,however we are addressing thechallenges through structuralchange and business simplification.
These self-help actions, combinedwith positive end markets, support
improved financial performance.
• In Service & Healthcare, OiService
continues to focus on increasing
after-market revenue by providing
a broader range of support services,while OI Healthcare is making astrategic shift towards a higher
proportion of service revenue,
which is driving greater visibilityof revenue and improved returns.

08

Horizon progress
We made good progress in the year withthe early stages of the implementation of
the Horizon strategy, launched in May 2017,
and we are starting to see tangible benefits.
I am encouraged by how firmly embedded
the understanding of our strategy is andhow positive engagement has been acrossthe Group.
Through Horizon, we have progressed anumber of areas in support of our new
strategy. We have transitioned to a morecommercially focused, market-driven Groupthrough significant portfolio management
and have implemented a new sector
structure to align our businesses with ourchosen customer segments and applications.
Our three new reporting sectors are Materials& Characterisation, Research & Discovery, andService & Healthcare.
We are now positioned to address a broad
range of markets and industrial sectors, with
our key enabling technologies underpinning
the shift to a greener economy, increased
digital connectivity and advances in materials,
life science and healthcare. We do this byhelping our customers to accelerate theirapplied R&D, increase their manufacturing
productivity and make new scientificdiscoveries. Today, nearly half of our customer
base comprises commercial organisations.

Oxford Instruments plc Report and Financial Statements 2018

We have made good progress in migrating
to a market and customer-centric approach,offering solutions rather than tools.
This allows us to provide more value to ourexisting customers, as well as creating growth
opportunities in new market segments
through application-specific solutions withimproved workflows, bespoke analytics, datainterpretation and associated support services.
For example, customers developing higher
efficiency, power and longer life batteries
need to understand and control the detailed
chemical and electrical interactions at thenano and even atomic scale. Because battery
materials are very reactive and operate within
an active solution this has been extremely
difficult to achieve. To solve this problem,
we developed a sealed sample and imaging
cell for our CypherES atomic force microscopethat enables the direct measurement of theseelectrochemistry processes at the nanoscale
for battery materials operating under theirreal-life conditions.
Within the automotive industry, incoming
parts are inspected to control and maintainsuitable levels of cleanliness and whencontamination is present, stopping its
re‑occurrence at source is critical to maintainproduction. Here we developed a bespoke
workflow and data interpretation package
for our customer to measure the cleanlinessof parts and, importantly, identify the source
within the supply chain of any contaminating
particles. This solution was built as an upgrade
to our generic particle analysis solution.
Importantly, these examples of a hardware
and a software upgrade for existing productplatforms can be delivered on short timeframes relative to new instrument platforms
to both expand our addressable markets andincrease the value to our existing customers.

01: Strategic Report

We have positioned the Group to become a leading
provider of high technology products and services tothe world’s leading industrial companies and scientificresearch communities to image, analyse and manipulatematerials down to the atomic and molecular level.

Customer
SupportCustomerInnovation
and ProductDevelopment

Operational
Excellence

Find out more on page 16

Through Horizon we are changing the way
we operate and we are embedding clearly
defined core capabilities across our businesses
in Market Intimacy, Innovation and ProductDevelopment, Customer Support, andOperational Excellence.

In Market Intimacy we are changing theway we reach and communicate with ourcustomers, more effectively bringing to life
the innovative and value-adding solutions
that we can provide for their specificapplications. As part of our move fromproduct to solution‑selling, all our sales
teams have undertaken bespoke training.
We have also invested in developing our digitalmarketing capabilities and new Group ande-commerce websites.
Innovation and Product Development remaincore to our growth strategy and as part of
Horizon we have established cross-sector
roadmaps, which are providing a broader
range of high-quality investment opportunities
better aligned with our chosen markets.

In the year we have positioned the Groupto become a leading provider of hightechnology products and services to theworld’s leading industrial companies andscientific research communities to image,analyse and manipulate materials down tothe atomic and molecular level. Our chosen
end markets remain robust and, combinedwith our customer applications focus andimproved core capabilities, provide strong
long‑term drivers for future growth andmargin improvement.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

We have transformed the leadership team at
an operational level, targeting individuals who
have the specific capabilities and experienceneeded to accelerate our progress with
Horizon, largely through external recruitment.
Around 50% of our senior managers are
new in their roles within the last two years;
successful placements in the year include
new leaders for our NanoScience and X-ray
Technology businesses and a new senior role,
Group Commercial Director, to lead a sharper
commercial focus across our sales teams andglobal territories.

As part of our change programme we havebeen breaking down silos, establishingcross‑business and functional working groups
to extract best practice and better leverage
our scale and deliver synergies. In the year
we made £1.5 million of central and regional
cost savings through back office and central
overhead efficiencies, this partially offsetting
the previous contribution from, and therefore
stranded costs associated with, the divested
Industrial Analysis business.

03: Financial Statements

Operational excellence is delivering improved
customer satisfaction and operational andlogistical efficiencies. We are implementing
a lean approach to our operations and arein the process of training 50 “green belt”
lean leaders in different roles and functions.
We have added a Head of Strategic Sourcing
to drive our Group procurement programme
to improve efficiencies and exploit synergies
across our supply chain.

MarketIntimacy

02: GovernanceIn customer support we have increased ourbreadth and range of products and services
to support our customers more effectively.
We are investing in a range of technologies
to improve customer productivity, including
remote diagnostics and predictive monitoring.

Operational model09

Chief Executive’s
Review continued
Performance was underpinned by significant growthin the Materials & Characterisation sector andimproved performance from Service & Healthcare.

The order bookincreased by 5.0%
to £134.0 million(2017: £127.6 million)
Adjusted profit
before tax increased
by 34.3% to£42.3 million(2017: £31.5 million)

Results
The following results exclude discontinued
operations.
The Group delivered a performance in linewith expectations, supported by a currency
tailwind and strong second half trading.
This was underpinned by significant growthin the Materials & Characterisation sector
and improved performance from Service &Healthcare, offset by weaker trading in the
Research & Discovery sector despite a positive
uplift in the second half of the year.
Reported orders for the Group were up 5.0%
(5.8% at constant currency) to £313.0 million(2017: £298.0 million). Excluding orders
from our US Healthcare business, constantcurrency orders were up 8.9% against theprevious period. We continue to see increased
demand from commercial and academic
customers engaged in applied R&D as wellas production and manufacturing of hightechnology products and devices. This has
driven a strong performance within Materials& Characterisation, with double-digit growthacross the US, Europe and Asia, as well as
increased demand for services relating to ourown products. Research & Discovery orders
were broadly in line with the previous year,
maintaining a similar geographical split.
Reported revenue was broadly in linewith the previous year at £296.9 million(2017: £300.2 million), and level at constantcurrency supported by a strong second half
performance, with good growth in Materials& Characterisation and services related to ourown products. This was offset by reduced
volumes in Research & Discovery in linewith the phasing of orders, the delivery of
longer lead time items and lower revenues
associated with the sale of third-party systems
in OI Healthcare.

10

Oxford Instruments plc Report and Financial Statements 2018

On a geographical basis, underlying revenue
growth in Europe and Asia was offset by
reduced sales in North America, with Materials& Characterisation having strong growthacross all territories.
The order book, representing orders for
future delivery, increased by 5.0% to£134.0 million (2017: £127.6 million), growthof 10.4% at constant currency. Excluding
our US Healthcare business, the constantcurrency order book is up 18.4%, with strong
growth across Materials & Characterisation,
Research & Discovery, and the service of ourown products.
Currency effects drove adjusted operating
profit up 22.4% to £46.5 million(2017: £38.0 million), a decline of 5.5% atconstant currency. Adjusted operating marginrose to 15.7% for the Group (2017: 12.7%),
supported by the currency tailwind.
Adjusted profit before tax increased by
34.3% to £42.3 million (2017: £31.5 million),with an increased contribution from Materials& Characterisation and Service & Healthcare
and a lower contribution from Research &Discovery. Adjusted profit before tax was up
0.6% at constant currency. Profit before tax of£34.2 million compared favourably to a loss of£26.2 million last year.
Continuing adjusted basic earnings per
share grew strongly by 35.7% to 56.3 pence(2017: 41.5 pence).
We delivered a significant reduction in
net debt in the period to £19.7 million(2017: £109.3 million) due to ongoingstrengthening of the balance sheet
throughout the year, resulting from good
operating cash flow, proceeds from the saleof the Industrial Analysis business and thesale of two properties.

Turning to the individual sector performance:

One of the core elements of our Horizon
strategy is innovation and productdevelopment. We invested £24.8 million(2017: £25.8 million), with an increased
emphasis on the solutions and technologythat will increase value for our customers
through new capabilities, ease of use,enhanced productivity and application-specificinformation. We monitor the proportion of
our revenue which originates from products
launched in the last three years (our vitality
index). Our vitality index for the reported
period increased to 37% (2017: 30%),
reflecting the successful uptake of recently
launched products.

Our staff are fundamental to our businesssuccess and I have been encouraged by how
they have engaged with the Horizon strategy
to improve our business. We continue with
our focus to enhance the capabilities of ourteams through the development of existing
employees and investment in new talent.
I would like to thank all our employees fortheir commitment to Oxford Instruments,and for their ongoing enthusiasm to help
our customers.

Outlook
Our chosen end markets remain attractive,
supported by commercial and government
investment. Our growing order book,customer application focus and drive for
operational efficiencies provide confidence
for the year ahead.
We expect to see an improvement in
performance on a reported basis after
allowing for the impact of an anticipatedcurrency headwind, based on current
exchange rates.

Ian Barkshire
Chief Executive

03: Financial Statements

12 June 201804: Company Information

Research & Discovery provides advanced
solutions that create unique environments
and enable imaging and analyticalmeasurements down to the molecularand sub-atomic level, predominantly
used in scientific research and applied
R&D. Reported orders of £118.2 million(2017: £120.1 million) were broadly inline with the previous year, with continued
growth in quantum solutions, an increased
demand for our benchtop NMR products
and an increase in order intake in the second
half for our optical microscopy products,
offset by lower orders for scientific X-ray
tubes. Reported revenue of £112.1 million
was down 10.5% on the previous year(2017: £125.3 million), due to the softer firsthalf performance of our optical microscopy
products and the higher proportion of
longer lead time customised cryogenic
and magnet system orders. The stronger
second half orders resulted in an increasein order book of 11.7% to £59.0 million,(2017: £52.8 million). Reported adjusted
operating profit was in line with previous yearat £13.8 million (2017: £13.8 million) with
an improved reported adjusted margin of
12.3% (2017: 11.0%).

R&D

People02: GovernanceMaterials & Characterisation products
and solutions enable the fabrication andcharacterisation of materials and devices
down to the atomic scale, predominantly
supporting customers across applied R&D
as well as the production and manufactureof high technology products and devices.
Building on a positive first half year, thesector delivered strong growth and overall
performance with positive contributions
from NanoAnalysis, Asylum Research andPlasma Technology. Reported orders grewin the period by 22.7% to £129.5 million(2017: £105.8 million). Reported revenue
grew by 11.7% to £118.1 million(2017: £105.7 million), with reported adjusted
operating profit increasing to £20.1 million(2017: £12.2 million) and reported adjusted
margin up to 17.0%. The order book for
future deliveries increased by 36.8% to£34.2 million (2017: £25.0 million), providing
positive momentum. The sector is alreadybenefiting from a number of key initiatives
within the Horizon strategy, particularly the
focus on customer-orientated solutions thatare tailored to provide application-specificworkflows and process recipes, information
and analytics.

Service & Healthcare provides customer
service and support for our own products
and the service, sale and rental of third‑party
healthcare imaging systems. Reported
orders for the period of £65.6 million(2017: £72.2 million) were down 9.1% asreported (7.8% at constant currency) due
to reduced orders within our US Healthcare
business. Reported orders for services
related to our own products grew 3.7% to£39.0 million (2017: £37.6 million). Reported
revenue of £66.8 million (2017: £69.3 million),
down 3.6% on the previous year, was due
to lower shipments of refurbished third-party
medical imaging systems. This more thanoffset reported revenue growth of 6.9%
for services related to our own products to£38.8 million (2017: £36.3 million). Reported
adjusted operating profit rose to £12.6 million(2017: £12.0 million), an increase of 5.0%,
while reported adjusted operating marginincreased to 18.9% (2017: 17.3%).

01: Strategic Report

Sector performance

Oxford Instruments plc Report and Financial Statements 201811

BusinessModel
We are a globally recognised brand with a reputation
for world‑class product performance, unprecedented
ease of use and excellence in service and support.

Relationships and resources

How we do it

Customer
relationships

Horizon strategy: This drives our direction, initiatives

Continuous
innovation

Our
peopleOurinfrastructure

Supplier
partnerships

We are a leading provider of high technology
products and services to the world’s leadingindustrial companies and scientific researchcommunities. We enable our customers toimage, analyse and manipulate materials down
to the atomic and molecular level. We have
implemented a new sector structure to align ourbusinesses with our chosen customer segments
and applications.
We focus our investment on market segments
where nanotechnology drives productinnovation, world-leading research andlong‑term growth for our customers and where
we can maintain leadership positions. We use
the insights we get from our market intimacy todrive our development priorities and to ensure
future higher returns on our innovation.
We have invested in building a new
management and leadership team acrossthe business as well as defining and buildingon the core capabilities we need to succeed.
This includes undertaking professional sales skills
training, internal workshops on the Jobs to be
Done methodology and operational excellence
lean training. We are developing a culture ofaccountability, empowering our employees to
own the challenge and the solution.
The significant management we haveundertaken of our portfolio has delivereda more focused, synergistic Group. We are
creating greater value by breaking down silos,
establishing cross-business and cross-functional
working groups to extract best practice andbetter leverage our scale and synergies.
We recognise that relationships built on trust
and respect with our business partners establish
mutually beneficial relations. We perform
regular inspections and audits and have strategic
reviews in place for key suppliers. We have aGroup supplier management process in placethat promotes a common supply chain strategy
driving the business towards fewer, high level,
quality suppliers. In support of this we haverecruited a Head of Strategic Sourcing.

and operating model.

 arketM
Intimacy
We develop an in-depth
understanding of ourcustomers’ segments andalign our innovation andproduct development
initiatives to customers’
strategic roadmaps.

Oxford Instruments plc Report and Financial Statements 2018

We will focus our R&D
investment on higher growth
segments, prioritising our effortson the most valuable productdevelopment opportunities.

Our offering
Imaging, analysis and manipulation is critical from fundamental research
into applied R&D and commercial markets; enabling commercial
exploitation and fundamental discovery of nanotechnology.

Fundamental research
Providing solutions to those wishing to explore new frontiers
at the nanoscale.
Physical & Life Sciences

Innovation approach

Product application insightApplied R&D
Providing solutions to enable the opportunities offered bynanotechnology to develop more advanced products.

Market insight

Product application insightCommercial markets
Providing products to support today’s manufacturing challenges andcreate new opportunities.
QA/QC

12

Innovation and
Product Development

01: Strategic Report

Our ability to image, understand and control matter at thenanoscale enables a revolution in technology and industry
that advances and benefits society.

02: Governance

What we deliver ustomerC
Support perational
O
Excellence

We build on the growing
customer demand and offer
a higher level and broader
range of services andsupport.

We target improvements
in cost, time and defects tobecome a more delivery andoutcome-focused business.

Thought
leadership

Our key enabling technologies provide thebasis for innovation across a range of markets
and industrial sectors and help underpin theshift to a greener economy, increased digitalconnectivity, advances in materials, life science,
manufacturing and healthcare.

Rewarding
careers

We are proud to be widely recognised as
leaders in what we do and for the difference
we make in the world. We have highperformance expectations and, by working
together, our committed and skilled employees
make a real impact. We are committed tobeing the company where the best people inour sector want to work.

Corporate
responsibility

Corporate responsibility is integral to ourongoing business success. It reminds us of
the need to minimise our impact on theenvironment, encourages us to pay attention
to the needs of our customers, employees
and investors, and to build engagement withlocal communities.

Shareholder
value

The business is underpinned by sound financial
management. By achieving sustainable
revenue growth and margin improvement,
we are well placed to deliver business growthand maximise shareholder returns over thelong term.

Strongfinancials

We have positioned the Group to become aleading provider of high technology products
and services to the world’s leading industrial
and scientific research companies. Our chosen
end markets remain robust and, combinedwith our customer applications focus andimproved core capabilities, provide strong
long-term drivers for future growth andmargin improvement.

Oxford Instruments plc Report and Financial Statements 201813

04: Company Information

We provide advanced nanotechnology
solutions to a broad range of end markets,
supported by new product offerings andpersonalised customer support. We enable
our customers to accelerate their R&D,
increase productivity and make newscientific discoveries.

03: Financial Statements

Creating value
for customers
through solutions

StrategicContext
Our strategy of deploying nanotechnology forindustry and research is unique and powerful.

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 tohelp address many of the world’s greatest
challenges and help underpin the shift
to a greener economy, increased digitalconnectivity, advances in materials, life
science, manufacturing and healthcare.
Within academic research, funding isincreasingly being targeted towards
nanotechnology applications that are buildingon the initial foundations of convergence.

14

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.

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.

To support our customers’ new requirements,
we will build our leadership in exploiting our
expertise, skill and intellectual property toimage, analyse and manipulate materials,
structures and devices down to the molecularand atomic scale. We will focus ourinvestment on those market segments where
nanotechnology drives long-term growth forour customers and where we can maintain orgrow 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.

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

We focus on market segments where nanotechnology
drives product innovation, world-leading research andlong-term growth for our customers and where wecan maintain leadership positions.

02: Governance

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

Energy03: Financial Statements

where 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.
04: Company Information

Quantum technology
is the exploitation of the regime where the exotic quantum effects
dominate and radically change the “rule book” of what is possible.

Oxford Instruments plc Report and Financial Statements 2018

15

Our
Strategy
Horizon is a transformational programme for
Oxford Instruments that will reposition the Group forlong‑term sustainable growth with improved margins.

Our strategy

Operational modelThrough Horizon, we have transitioned to a more commercially
focused, market-driven Group through significant portfolio
management and have implemented a new sector structure to alignour businesses with our chosen customer segments and applications.
By aligning closely with our customers’ needs and through a better
understanding of their challenges, we ensure we offer world-classproduce performance, unprecedented ease of use and excellence inservice and support that will add value to our customers’ capabilities
and productivity.
We are now positioned to address a broad range of markets andindustrial sectors, with our key enabling technologies underpinning theshift to a greener economy, increased digital connectivity, and advances
in materials, life science and healthcare.
Our Horizon strategy has the following key elements:• we will focus our investment on market segments where ournanotechnology drives long-term growth for our customers andwhere we can maintain or develop leadership positions;• we will be a more commercially focused, market-driven Group by
maintaining our heritage in supporting fundamental research whilst
increasing our focus on solutions for applied R&D and productsthat can support our commercial manufacturing and production
customers;• we will drive the delivery of synergies and enhanced collaboration.
For example, in R&D we will prioritise our high-impact projects andresource them from across the Group;• we will provide more value to our existing customers, as well as
creating growth opportunities in new market segments throughapplication-specific solutions with improved workflows, bespoke
analytics, data interpretation and associated support services; and• we will transform our operational model to embed consistency andexcellence across our businesses, measured by clearly defined corecapabilities that will enhance our competitive advantage.

16

Oxford Instruments plc Report and Financial Statements 2018

MarketIntimacy

Customer
SupportCustomer

Operational
ExcellenceInnovation
and ProductDevelopment

01: Strategic Report

Horizon will change the way by which we operate
and will embed clearly defined core capabilities
across our businesses in the following areas:

02: Governance

Customer
Support:Operational
Excellence:

We develop an in-depth
understanding of ourcustomer segments and tailor
our solutions to more closely
meet customer needs. Insightsfrom our stronger customer
relationships will better informand align our innovation andproduct development initiatives
to customers’ strategic roadmaps.

We focus our R&D investment
on higher growth segments,
prioritising our efforts on
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 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 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.

Progress during
the year

Progress during
the year

Progress during
the year

Progress during
the year

In Market Intimacy we arechanging the way we reach andcommunicate with our customers,
more effectively bringing to life
the innovative and value-adding
solutions that we can provide
for their specific applications.
As part of our move fromproduct to solution‑selling, all
our sales teams have undertaken
bespoke training. We havealso invested in developing
our digital marketing
capabilities and have launched
new Group and e-commerce
websites.

Innovation and ProductDevelopment remain core to
our growth strategy and as partof Horizon we have establishedcross-sector roadmaps, which
are providing a broader rangeof high quality investment
opportunities better alignedwith our chosen markets.

In Customer Support we haveincreased our breadth andrange of products and services
to support our customers more
effectively. We are investingin a range of technologies toimprove customer productivity,
including remote diagnostics
and predictive monitoring.

Operational Excellence isdelivering improved customer
satisfaction and operational andlogistical efficiencies. We are
implementing a lean approachto our operations and are in theprocess of training 50 “greenbelt” lean leaders in different
roles and functions. We haveadded a Head of Strategic
Sourcing to drive our Groupprocurement programme
to improve efficiencies andexploit synergies across our
supply chain.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

Innovation and
Product Development:

03: Financial Statements

MarketIntimacy:

17

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

Inventing the Future

What we measure
Proportion of revenue coming from products
launched in the previous three years1

How we performed %45

Why we measure

35

To measure the effectivenessof our R&D programmes

2015

Realising the Brand

What we measure

To measure customer feedback

What we measure“Value add” = (adjusted operating profit +employment costs)/employment costs

2017

2018

60

58

2017

2018

How we performed

Net Promoter Score®2

Why we measure

Adding Personal Value

2016

37
30

52

55

2015

2016

How we performed
1.40

1.48

1.41

2016

2017

1.51

Why we measure
To measure efficiency

2015
1. 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.
2. The Net Promoter Score is a metric which is compiled by asking customers whether they would recommend Oxford
Instruments to a friend or colleague. Customers give a score between zero and ten. Those customers who score nine or ten
are promoters, those customers who score seven or eight are neutral and customers who score six or less are detractors.
The Net Promoter Score is the difference between the numbers of promoters and the number of detractors (both expressed
as a percentage of 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.
3. Calculated as adjusted operating profit divided by revenue.
4. Cash conversion is defined as the ratio of cash generated from continuing operations before non-recurring items andacquisition related costs, and pension scheme payments, less, capitalised development expenditure and net capital
expenditure on property, plant and equipment to adjusted operating profit (see Income Statement).
5. Calculated as adjusted operating profit less amortisation (but before impairment) of intangible assets divided by capital
employed. Capital employed is defined as assets (excluding cash, tax and derivative assets) less liabilities (excluding tax,
debt, derivative and pension liabilities).

18

Oxford Instruments plc Report and Financial Statements 20182018

01: Strategic Report

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

Revenue growth

Why we measure

How we performed %To drive profitable, sustainable growth throughthe implementation of our strategy

13.3

11.1

(1.1)

(4.3)

2015
Why we measure

12.9

Why we measure

14.1

2016

15.7
12.7

2017

2018

How we performed %To achieve long-term, consistent growth in EPS

Why we measure

35.7(24.7)

(0.5)

1.2

2015

2016

2017

03: Financial Statements

Cash flow4

2018

How we performed %To consistently maintain underlying
operating margins

2015

Adjusted earnings per
share (EPS) growth

2017

02: Governance

Adjusted operating
profit and margin3

2016

2018

How we performed %To maintain a strong operating cash conversion
ratio and high level of free cash flow

124
90
74

69

2015
Why we measure

2017

2018

How we performed %To deliver ROCE in excess of our cost of capital

04: Company Information

Return on capital
employed (ROCE)5

2016

17.0

6.8

2015

8.5

8.9

2016

2017

2018

Core capabilities:
MarketIntimacy

Innovation and
Product Development

Customer
SupportOperational
Excellence

Oxford Instruments plc Report and Financial Statements 201819

Operations
Review

Materials &Characterisation
Building on a positive
first half year, the sector
delivered strong growthand overall performance.

£118.1m

11.7%

13.2%1

64.8%

19.7%1

Revenue(2017: £105.7m)£20.1mAdjusted2 operating profit(2017: £12.2m)

17.0%
Adjusted2 operating margin(2017: 11.5%)£17.3mProfit before tax(2017: (£14.0m))
1. For definition refer to note on page 1 of highlights.
2. Details of adjusting items can be found in Note 1 of these
Financial Statements.
Growth20

Growth at constant currency

Oxford Instruments plc Report and Financial Statements 2018

A selection of our NanoAnalysis products in use.

01: Strategic Report

This sector is comprises of NanoAnalysis,
Asylum Research and Plasma Technology.

Our electrochemistry sample cell upgrade for
our CypherES™ AFM provides high-resolution
imaging in real device operating conditions.
The advanced environmental control enables
those researching the development oflithium‑ion batteries and emerging solid-stateenergy storage systems to better understandand characterise performance in reallife conditions.
We have strengthened our customer
application focus with the release of aphotovoltaics package for our MFP™ AFM.
This offers a convenient, high-performanceturnkey solution for materials scientists thatare seeking to improve the efficiency, reduce
manufacturing costs and lengthen solar
cell lifetimes.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

The introduction of our UltimTM range of large
area X-ray detectors has driven strong sales
within the semiconductor market by providing
unprecedented resolution and analysisof semiconductor structures and devices.
A range of applications are benefiting fromthe enhanced capabilities we offer, including
fault finding and failure analysis within devices
for the leading semiconductor manufacturers
and cleanliness control in precision
manufacturing. Other applications that are
utilising our UltimTM product range include
solar cells and batteries, where researchers areworking to improve performance and storage
density by better understanding their structure
at a nanoscale. The sensitivity of the UltimTM
Extreme is providing new market opportunities
within the life science and pharmaceuticalmarkets where it is providing further insightand understanding of disease processes
and can aid the identification of counterfeit
prescription drugs.

We saw strong order, revenue and profit
growth for our scanning probe microscopy
products. This has been largely supportedby the strong uptake we have had forour market-leading Cypher portfolio andincreased orders for our updated entry
level platform, with advanced ease of use
providing market‑leading performance ata value price point. CypherVRS™, the firstand only full‑featured video-rate atomic
force microscope (AFM), is generating strong
interest across a diverse range of biologicaland physical science applications, wherethe visualisation of dynamic processes at
a molecular or atomic level provides new
insights and information for research andapplied R&D. Examples include the imaging ofviruses, molecular and cellular dynamics, andsemiconductor etch processes.

03: Financial Statements

Materials & Characterisation delivered strong
order, revenue and profit growth supportedby the successful launch of new products,
our increased customer application focus,
the tailoring of products to provide dedicatedsolutions and general growth within our end
markets. From a geographic perspective,
strong growth was seen across Europe,
the US and Asia.

Sales of our imaging and analysis products
and solutions used in electron microscopy
had strong growth, with placements in theworld’s leading academic, semiconductor andadvanced manufacturing facilities, as well as
top forensic laboratories, where customers
seek rapid, automated solutions to theiranalysis challenges. The launch of Symmetry,our super-fast material structure analyser, wasa key driver in both the advanced materials
and environmental markets, enablingproductivity improvements for our customers
in terms of the speed, high-resolution andaccuracy of analysis.

02: GovernanceThis sector has a broad customer baseacross a wide range of applications for theimaging and analysis of materials down
to the atomic level and the fabrication ofsemiconductor devices and structures throughour range of advanced etch and deposition
processes and systems. Our market-leading
product performance combined withcustomer‑focused solutions is driving strong
growth by providing increased value toexisting customers and the identification ofand reach into new markets and applications.
We are providing new capabilities, easeof use and enhanced productivity throughapplication‑specific workflows, processes,
analytics and information. Revenue in Materials& Characterisation comes from a broad range
of end applications with about three-quartersfrom the Semiconductor & Communications
and the Advanced Materials related customer
segments. Industrial and commercial customers
represent 49% of revenue, with the balanceeither academic or government funded.

21

Operations
Review continued

Materials & Characterisation

In addition to the many varied research
applications for our advanced AFM systems,
our entry-level portfolio is ideally positioned
to provide the simpler, routine measurements
such as thin film roughness and uniformity
at nanometre and even sub-nanometre
length scales that are inaccessible to othermetrology tools. Our updated MFP Origin+™
has seen good growth across a broad range
of application areas due to its high level of
performance, ease of use and appropriate
price point.
We had good growth from our semiconductor
processing systems that provide etch anddeposition process solutions used across a
range of semiconductor, device and materials
applications. We have leading expertise in
the processing of compound semiconductors,
which are critical for enabling more compact
devices, higher speeds, larger capacity andhigher energy efficiencies required to deliver
the functionality and demands for big data,
IoT, AI, high speed communications andautonomous vehicles.

Growth has been supported by thedevelopment of new process recipes aligned
to these growing markets, including the
fabrication of sensors and MEMS, which areused across a broad range of optical devices
and communications systems to provide
higher speeds; and the development ofadvanced lasers used across a broad rangeof photonics markets including Vertical Cavity
Surface Emitting Lasers (VCSELs) for facialrecognition applications.
Customers working in these markets value
our expertise and development capabilities,
large portfolio of processing recipes andour applications support to help them
manufacture new devices repeatedly, withthe required quality for new and demanding
applications. We have seen growth in both
applied R&D and the expanding specialist
production markets for the manufacture ofcommercial systems, with specialist production
now representing almost half the sales inthis market.

1: Image of a live virus capturedby the Cypher VRS.
2: A
 n example of a compound
semiconductor wafer.

22

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Research &Discovery
02: Governance

Orders for the sector werebroadly in line with theprevious year; revenue wasdown on the previous year.

9.7%1

0%

36.2%1

03: Financial Statements£112.1m

10.5%

Revenue(2017: £125.3m)£13.8mAdjusted2 operating profit(2017: £13.8m)

12.3%
04: Company Information

Adjusted2 operating margin(2017: 11.0%)£4.1m
Profit before tax(2017: (£3.0m))
1. For definition refer to note on page 1 of highlights.
2. Details of adjusting items can be found in Note 1 of these
Financial Statements.

GrowthGrowth at constant currency

A technician working on the Triton,a key part of our Quantum Technologies portfolio.
Oxford Instruments plc Report and Financial Statements 201823

Operations
Review continued
Research & Discovery

This sector includes Andor Technology,
NanoScience & Magnetic Resonance, X-ray Technology
and our minority share in ScientaOmicron.

This sector provides advanced solutions thatcreate unique environments and enable
imaging and analytical measurements down
to the molecular and sub-atomic level,
used predominantly in fundamental andapplied research. We are able to build on
our relationships with customers working
on breakthrough applications in research togain insights and support future commercial
applications. We have strong brandrecognition and leading product performancewith 73% of sales into research communities
and 23% into industrial customers
predominately for use in applied R&D.
In this sector, 40% of revenue comes from
customers working within Healthcare & Life
Science applications. Customers exploring new
semiconductor materials and devices makea significant contribution, and an increasing
share is coming from customers working inquantum technology applications and research.
Quantum Technology is a strong growth area
for the sector due to increased governmentand corporate funding for applications such as
quantum information processing and quantum
sensors. Research & Fundamental Science
contributes 4% of revenue.
Orders for the sector were broadly in line withthe previous year, with like-for-like growthin Andor and Magnetic Resonance offset bylower orders from X-ray Technology, with
NanoScience broadly in line with last year.
From a geographic perspective, orders from
Europe and the US were broadly in line withprevious year, with increases from Rest of World
offsetting slight declines in Asia.

24

Revenue and profitability in the sector were
impacted by three particular product areasthat more than offset growth across the broad
range of the portfolio. As previously reported,
there was a softer financial performance from
our Andor optical microscopy systems in thefirst half of the year as we transitioned fromthird-party systems to our own portfolio; lower
revenues from NanoScience as they worked
through a high volume of complex specialised
systems at lower margins; and lower volumesof our scientific X-ray tubes in X-ray Technology.
Our NanoScience business is underperforming
relative to its potential and is in transition aspart of our Horizon programme. The quality
and complexity of the order book negatively
impacted performance in the year despite
an improved second half performance. The
current year is expected to be impacted by
the remaining tail of complex systems within
the order book. We have a new leadershipteam and self-help plan in place to increase
the emphasis on margin, drive a stronger
commercial focus and deliver organisational
efficiencies.
We had order growth for our customised highmagnetic systems for national science facilities,building on our strong reputation in this sector.
We increased sales of our ultra-low temperature
portfolio driven by the increasing demand forsystems and solutions to support quantum
research and quantum information processing.
We are moving towards more standardised
solutions designed specifically for this growing
market. Our combined cryogenic and magnetic
solutions grew in the year with the launch of a
new range of measurement probes, providing
more complete solutions for the measurementof 2D materials, such as graphene.

Oxford Instruments plc Report and Financial Statements 2018

Andor had significantly higher order intake
in the second half of the year, driven by new
product launches and the broadening of our
optical microscopy portfolio. Lower revenue
in the period, partly due to phasing of orders,has resulted in a significant increase in theorder book for future deliveries.
We continue to develop our range ofmarket‑leading scientific research cameras
and have seen growth from application areas
requiring higher performance, faster collection
and increased sensitivity. Our specialised
deep‑cooled, large area, high sensitivity
cameras have provided good growth inastronomy, as researchers look for moreaccurate and detailed information with better
spectral performance to enable deep space
imaging, solar astronomy and near-earth object
observation. Our world’s first super‑resolution
microscopy camera, iXon-SRFFTM, allows
customers to observe biological featuresat resolutions significantly smaller than the
wavelength of light to reveal unprecedented
details in living cells, helping to build anunderstanding of the complex intracellularmechanisms that underlie a wide range of
disease states. This image enhancement,
which is only available on Andor cameras,
overcomes frustrations with the complexity ofsample preparation and the added expense ofcurrent super-resolution microscopes enablingcustomers to achieve super-resolution capability
with a more affordable microscope andstandard sample preparation techniques.

01: Strategic Report

We saw increased demand for our benchtop
Nuclear Magnetic Resonance solutions,which provide essential information about
the identification and quantification offoods and chemicals for academic andindustrial researchers and for quality
assurance and control. Revenue and order
growth has been driven by our enhanced
PulsarTM and the recently launched MQC+TM
systems. In the second half of the year wesaw growth in the energy generation andstorage sector following increasing oil prices,
capitalising on developments made across
our application‑specific Geospec rangeof products.
Our X-ray source business continued to growin the medical and research market segments
but experienced greater than expected
headwinds in the material characterisation andindustrial applications, leading to a drop in theyear‑on‑year revenue. This was in part driven by
the delayed introduction of new products forthese markets and pricing pressures in China.

1: Internal cell structure showing theadditional clarity when captured
with iXon SRRF.
2: M
 ining is one of the key areas where
there has been increased demand for
the Geospec range of products.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

The ScientaOmicron joint venture created thelargest player in the ultra-high vacuum surface
science field. The Group has a 47% share in
the joint venture. The business delivered an
improved financial performance for the year,with our share of adjusted operating profit at£0.4 million against a loss of £0.8 million lastyear. After our year end, the business sold its
UK-based ultra-high vacuum products division.
This is in line with the strategy to focus onproviding core surface science products
and solutions.

03: Financial Statements

Our optical microscopy platform, DragonflyTM,
saw strong growth in the second half ofthe year as we introduced a complementary
lower price point model to the portfolio,
enabling the product range to address a muchbroader end market. DragonflyTM provides thecapability to quickly image large samples andreveal detail previously not seen in applications
such as neuroscience, cancer research andregenerative science. The product received
an R&D Top 100 award, recognising therevolutionary technology and superior
performance. We also saw good growthfrom our ImarisTM visualisation software due
to its ability to capture, process and visualise
the extremely large data sets captured bymodern instrumentation, with data analysis
and interpretation becoming an increasing
part and value of the overall product solution.
ImarisTM is sold for use on our own and otheroptical microscopy systems.

02: GovernanceWe continue to benefit from our connections tomany Quantum Imaging centres of excellence
that have been established in support of this
rapidly growing and well-funded market. Our
single photon sensitive cameras saw growing
demand from researchers investigating anddeveloping quantum optics, which are requiredfor communication systems and exotic imaging
solutions, for example those that can lookthrough smoke or around corners.

25

Operations
Review

Service &Healthcare
Increased profitability
and margin in the sector
was driven predominantly
by increased demand forservices relating to ourown products.

£66.8m

3.6%

2.9%1

5.0%

4.2%1

Revenue(2017: £69.3m)£12.6mAdjusted2 operating profit(2017: £12.0m)

18.9%
Adjusted2 operating margin(2017: 17.3%)£10.6mProfit before tax(2017: (£0.2m))
1. For definition refer to note on page 1 of highlights.
2. Details of adjusting items can be found in Note 1 of these
Financial Statements.
Growth26

Growth at constant currency

Oxford Instruments plc Report and Financial Statements 2018

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

01: Strategic Report

This sector comprises the Group’s
maintenance service contracts,
billable repairs, training and support
services, and spare part sales.

OI Healthcare made good progress, withincreased orders in the second half of the year,
in line with the implementation of our strategy
to move to a higher proportion of service
contracts relative to the sale of refurbishedsystems. Revenue was down in the year but
through structural changes in line with ourstrategy, profitability was in line with last year,
providing a solid platform for future growth.

Within OiService we continue to drive ourenhanced customer support offerings,
adapting to our customers’ needs, for example
with remote diagnostics and online self-help.
We are designing product platforms to enable
service upgrades delivering either performanceenhancements or application-specificsolutions. This increases value and builds
versatility for our customers as well as growthin aftermarket revenue. Our new e-commerce
website makes it easier for customers tofind and purchase consumable items andaccessories and we have seen a corresponding
increase in associated revenue.
Growth in service contracts related to our
optical imaging analysis software has been
driven by the value customers place on having
annual updates and access to our in-house
analysis experts. Across the Oxford Instruments
Group we provide extensive customer training
programmes designed to increase theircapability and productivity. This year we also
held many very successful global application
seminars with research and application
scientists, most notably a new microscopy
summer school run in collaboration with the
Chinese Academy of Sciences.

03: Financial Statements

The Service & Healthcare sector increased
profitability and margin in the period, driven
predominantly by increased demand for theservices related to our own products. Revenue
and order growth from our service offerings
relating to our own products were more thanoffset by a decline from US OI Healthcare
business. This was due to a combinationof the timing of sales prospects and thepreviously reported structural changes in themarket by OEM providers.

02: Governance

The Service & Healthcare sector comprises theGroup’s maintenance service contracts, billable
repairs, training and support services, andspare part sales related to Oxford Instruments’
own products under the OiService brand;
and the sale, service and rental of refurbishedthird-party MRI and CT machines under the
OI Healthcare brand.

1: E nhanced customer support offerings
include interconnectivity, remotediagnostics and online self-help.
2: A look inside a mobile imaging unit.

04: Company Information

Oxford Instruments plc Report and Financial Statements 201827

Finance
Review
Adjusted profit before tax fromcontinuing operations grew by
34.4% to £42.3 million.

Summary• Reported revenue in line withprevious year at constant currency.
• Adjusted profit before tax fromcontinuing operations up 34.3%
to £42.3 million.
• Net debt down significantly to£19.7 million following good
operating cash flow and disposals.
• Full year dividend increased by
2.3% to 13.3 pence.

£296.9m

1.1%

Revenue(2017: £300.2m)£150.9m

4.1%

Gross profit(2017: £157.3m)£46.5mAdjusted operating profit(2017: £38.0m)

28

22.4%

During the financial year the Group disposedof its Industrial Analysis business and this has
been treated as a discontinued operationin the Financial Statements. Accordingly,
the numbers detailed in the Finance Review
refer to continuing operations and exclude
the results of Industrial Analysis in both thecurrent and prior periods.

Adjusting items include amortisation of
acquired intangibles of £10.9 million and a net
gain of £1.7 million for business reorganisation
items. Our share of an impairment in ourequity accounted associate was £2.0 million
and the movement in the mark-to-market
valuation of currency hedges for future years
gave rise to a gain of £3.1 million.

Reported orders increased by 5.0% to£313.0 million (2017: £298.0 million), an
increase of 5.8% at constant currency. At
the end of the period the Group’s order bookfor future deliveries stood at £134.0 million(2017: £127.6 million), growth of 5.0% on areported basis and 10.4% at constant currency.

Adjusted profit before tax from continuing
operations of £42.3 million (2017:£31.5 million) represents a margin of 14.2%(2017: 10.5%). After adjusting items,
the Group recorded a profit before tax of£34.2 million from continuing operations(2017: loss of £26.2 million).

Reported revenue declined by 1.1% to£296.9 million (2017: £300.2 million).
Revenue, excluding currency effects, wasbroadly in line with last year, with the
movement in average currency exchange rates
over the last year reducing reported revenueby £3.1 million.

Continuing adjusted basic earnings per
share grew by 35.7% to 56.3 pence(2017: 41.5 pence). Continuing basic earnings
per share was 34.3 pence (2017: loss of
44.7 pence).

Adjusted operating profit from continuing
operations increased by 22.4% to £46.5 million(2017: £38.0 million). Adjusted operating
profit from continuing operations, excluding
currency effects, declined by 5.5%. Adjusted
operating margin from continuing operations
increased by 300 basis points to 15.7%(2017: 12.7%).
Adjusted profit before tax from continuing
operations grew by 34.3% to £42.3 million(2017: £31.5 million). A pre-tax adjusted profitof £0.5 million from the Industrial Analysis
business for the three months of ownership,prior to its sale on 3 July 2017, is included
in discontinued operations. For the twelve
months to 31 March 2017, the Industrial
Analysis and Superconducting Wirebusinesses delivered an adjusted profit before
tax of £5.6 million. Including discontinued
operations, the Group achieved reported
adjusted profit before tax of £42.8 million(2017: £37.1 million).

Oxford Instruments plc Report and Financial Statements 2018

Cash generated from operations fellby £1.1 million to £33.4 million(2017: £34.5 million), representing 68.8%(2017: 90.3%) cash conversion. Cashconversion is defined as: cash generated fromoperations before business reorganisation
items and pension scheme payments, lesscapitalised development expenditure andcapital expenditure/adjusted operating profit.
Net debt decreased from £109.3 million to£19.7 million, representing a net debt to
EBITDA ratio (for banking covenant purposes)of 0.3 times; our banking covenant is set at
3.0 times.
Adjusted operating profit is stated before
impairment and amortisation of goodwill andacquired intangibles, business reorganisation
items, the mark-to-market valuation of
unexpired currency hedges, and otheradjusting items, as set out in Note 1 to
the Financial Statements.

01: Strategic Report
02: Governance

Income Statement
The Group’s Income Statement is summarised below.
								Year ended								31 March 2018								£mYear ended
31 March 2017£m

ChangeRevenue							
296.9

300.2

(1.1%)(4.1%)

Gross profit							
150.9

157.3

Administrative expenses							(105.8)(106.5)

0.5

(0.8)

Share of profit/(loss) of associate 						Foreign exchange							0.9(12.0)

Adjusted operating profit							
46.5

38.0

Net finance costs							
(4.2)

(6.5)
31.5

(10.9)(12.5)

Impairment of goodwill and intangibles						

—(36.7)

Impairment of investment of associate						

—

(8.0)

Business reorganisation items						
1.7

(1.7)

(2.0)

—

Amortisation of acquired intangibles					Share of impairment recognised by associate				Mark-to-market of currency hedges						
3.1

1.2

Profit/(loss) before tax							34.2(26.2)

Tax from continuing operations						(14.6)

0.7

19.6(25.5)

Profit/(loss) for the period from continuing operations					Adjusted effective tax rate1							23.9%+34.3%
03: Financial Statements

Adjusted profit before tax							42.3+22.4%

24.8%

Continuing adjusted earnings per share – basic					

56.3p

41.5p

Earnings per share – basic							114.5p(35.6)p

56.1p

41.4p

Earnings per share – diluted						114.1p(35.6)p

Dividend per share							
13.3p

13.0p

+35.5%+2.3%

1. The adjusted effective tax rate is calculated excluding impairment of non-current assets, amortisation on acquired intangibles, business reorganisation items, the mark-to-market of financial
derivatives, and other adjusting items.

Oxford Instruments plc Report and Financial Statements 201829

04: Company Information

Continuing adjusted earnings per share – diluted					+35.7%

Finance
Review continued
Income Statement continued
Revenue
Orders, at constant currency, increased by 22.8% for Materials & Characterisation, with good growth across all business units, and was broadly
flat for Research & Discovery. A decline of 7.8% in Service & Healthcare as we reduce the level of sales of refurbished imaging systems in the US
Healthcare business, offset order growth of 3.7% in service of our own products. Total reported orders grew by 5.0% (5.8% at constant currency).
Excluding orders from US Healthcare, reported and constant currency orders grew by 8.3% and 8.9% respectively.
Reported revenue of £296.9 million (2017: £300.2 million) decreased by 1.1%. Materials & Characterisation grew by 11.7%. Research & Discovery
and Service & Healthcare declined by 10.5% and 3.6% respectively.
Excluding currency effects, revenue grew by 13.2% for Materials & Characterisation with growth across all constituent businesses. Lower optical
microscopy sales and an increase in the proportion of customised magnetic and cryogenic systems with longer production lead times, resulted in aconstant currency decline of 9.7% in Research & Discovery revenue. Growth in revenue from service of our own products was offset by an anticipateddecline in US Healthcare revenue from selling fewer refurbished imaging systems, leading to a constant currency revenue decline of 2.9% in Service& Healthcare.
On a geographical basis, at constant currency, revenue grew by 4.3% in Europe, 1.2% in Asia and 8.3% for the Rest of World. Constant currency
revenue declined by 5.3% in North America but was in line with last year when excluding revenue from OI Healthcare.
The order book, at constant currency, increased by 42.4% for Materials & Characterisation and 15.2% for Research & Discovery, with a declineof 10.8% in Service & Healthcare. Total reported order book grew by 5.0% (10.4% at constant currency). Excluding the order book from US
Healthcare, reported and constant currency order book growth was 14.0% and 18.4% respectively.
							Materials &£ million						Characterisation

Research &Discovery

Service &Healthcare

Total1

Revenue: 2016/17						
105.7

125.3

69.3

300.2

Underlying movement						13.9(12.1)

(2.0)

(0.2)

Foreign exchange						
(1.5)

(1.1)

(0.5)

(3.1)

Revenue: 2017/18						
118.1

112.1

66.8

296.9

										Revenue growth: reported						+11.7%(10.5%)(3.6%)(1.1%)

Revenue growth: constant currency					(9.7%)(2.9%)(0.1%)+13.2%

1. Excluding inter-sector revenue.

Gross profit
Gross profit fell by 4.1% to £150.9 million (2017: £157.3 million), representing a gross profit margin of 50.8%, a decrease of 160 basis points overlast year.

Operating profit
Adjusted operating profit increased by 22.4% to £46.5 million (2017: £38.0 million), representing an adjusted operating profit margin of 15.7%,
an increase of 300 basis points against last year. Materials & Characterisation margin rose by 550 basis points to 17.0% (2017: 11.5%). Research& Discovery adjusted operating margin increased by 130 basis points to 12.3% (2017: 11.0%). Service & Healthcare margin increased by 160 basis
points to 18.9% (2017: 17.3%).
Our share of the ScientaOmicron joint venture showed a profit of £0.5 million for the year, an improvement of £1.3 million against the comparative
period. After restructuring costs and impairments, our share of the ScientaOmicron joint venture was a loss of £1.9 million.
Currency effects (including the impact of transactional currency hedging) have increased reported adjusted operating profit by £10.6 million whencompared 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 12.0%, a decline of 70 basis points.
							Materials &£ million						Characterisation

Research &Discovery

Service &Healthcare

Total

Adjusted operating profit: 2016/17					12.2

13.8

12.0

38.0

Underlying movement						
2.4

(5.0)

0.5

(2.1)

Foreign exchange						
5.5

5.0

0.1

10.6

Adjusted operating profit: 2017/18					20.1

13.8

12.6

46.5

Margin: 2016/17						
11.5%

11.0%

17.3%

12.7%

Margin: 2017/18						17.0%

12.3%

18.9%

15.7%

30

Oxford Instruments plc Report and Financial Statements 2018

Amortisation of acquired intangibles of£10.9 million relates to intangible assets
recognised on acquisitions, being thevalue of technology, customer relationships
and brands.

During the year our ScientaOmicron associaterecognised an impairment relating to the saleof one of its subsidiaries. The Group’s share ofthis impairment was £2.0 million.

Net movements on marking-to-market
derivatives in respect of future periods aredisclosed in the Income Statement as foreignexchange and excluded from our calculationof adjusted profit before tax.

The Group’s adjusted net finance costs fell by£2.3 million to £4.2 million (2017: £6.5 million)
with net finance charges falling by £1.8 million
to £3.6 million and pension financing charges
falling by £0.5 million to £0.6 million.

Profit before tax
Continuing adjusted profit before tax increased
by 34.3% to £42.3 million (2017: £31.5 million),up 0.6% at constant currency. The continuing
adjusted profit before tax margin increased by
370 basis points to 14.2% (2017: 10.5%).
Continuing profit before tax of £34.2 million(2017: loss of £26.2 million) is after the
mark-to-market movement on derivative
financial instruments, amortisation of acquired
intangibles and other adjusting items.

Tax
The adjusted tax charge from continuing
operations of £10.1 million (2017: £7.8 million)
represents an effective tax rate of 23.9%(2017: 24.8%). The current tax liability
includes a provision of £2.9 million in respectof a historical financing structure, of which£2.0 million was provided in this financial
year. The statutory effective tax rate fromcontinuing operations is 42.7% owing to a
reduction in deferred tax assets arising froma lowering of the US tax rate.

Continuing adjusted basic earnings per
share increased by 35.7% to 56.3 pence(2017: 41.5 pence); adjusted basic
earnings per share increased by 13.5% to55.6 pence (2017: 49.0 pence). Continuing
adjusted diluted earnings per share were56.1 pence (2017: 41.4 pence); adjusted
diluted earnings per share were 55.4 pence(2017: 48.9 pence).
Undiluted weighted average shares haveincreased by 0.1 million to 57.2 million.

Foreign exchange
The Group faces transactional and translational
currency exposure, most notably against the
US Dollar, Euro and Japanese Yen. For the fullyear, approximately 16% of Group revenue wasdenominated in Sterling, 52% in US Dollars,
19% in Euros, 11% in Japanese Yen and 2% inother currencies. Translational exposures arise on
the consolidation of overseas company results
into Sterling. Transactional exposures arise where
the currency of sale or purchase transactions
differs from the functional currency in which
each company prepares its local accounts.
The Group maintains a hedging programme
against its net transactional exposure using
internal projections of expected currency
trading transactions expected to arise overa period extending from 12 to 24 months.
As at 31 March 2018 the Group had currency
hedges in place extending up to twelve
months forward.

03: Financial Statements

The Group uses derivative products to hedge
its short-term exposure to fluctuations inforeign exchange rates. It is Group policy tohave in place at the beginning of the financial
year hedging instruments to cover 80% of its
forecast transactional exposure for 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, the Group does
not use hedge accounting for these derivatives.

Net finance costs

Earnings per share

02: GovernanceBusiness reorganisation items were a net gainof £1.7 million. This comprised three main
items, the first being a net gain of £3.3 million
from the sale of the Superconducting Wirefacility that we initially retained in New
Jersey, US, following the sale of the business,and the disposal of a freehold property inGermany. Second, costs of £0.5 million
were incurred within our US Healthcare
business to successfully defend a legal claim
relating to a prior acquisition. Lastly, we
incurred restructuring costs of £1.1 million
primarily relating to US Healthcare and our
ScientaOmicron joint venture.

The mark-to-market gain in respect ofderivative financial instruments was£3.1 million (2017: £1.2 million gain).
This reflects a movement from a net fairvalue liability to a small net asset position on
currency derivatives that are hedging futuretransactional currency exposures for theGroup compared to the previous year end.
The un‑crystallised balance sheet asset is
attributable to a rise in the value of Sterling at
the balance sheet date against a blended rateachieved on US Dollar, Euro and Japanese Yen
forward contracts that will mature over the
next twelve months.

01: Strategic Report

Adjusting items

For the 2018/19 financial year, we expect
a currency headwind to operating profit ofapproximately £3 million, based on current
exchange rates.

Dividend

Oxford Instruments plc Report and Financial Statements 201804: Company Information

The Group’s policy is to increase thedividend each year in line with theincrease in underlying earnings. Given
the strong reduction in net debt and thepositive impact from the Horizon
strategy, the Board has proposed toincrease the final dividend to 9.6 pence(2017:‑9.3 pence). This results ina total dividend of 13.3 pence(2017: 13.0 pence). The final dividend will
be paid, subject to Shareholder approval,
on 19 October 2018 to Shareholders on
the register as at 14 September 2018.

31

Finance
Review continued
Cash flow
The Group cash flow is summarised below.
									Year ended									31 March 2018									
£mYear ended
31 March 2017£m

Adjusted operating profit							
46.5

38.0

Depreciation and amortisation							
9.1

8.9

Adjusted EBITDA								
55.6

46.9

Working capital movement								(13.2)(4.4)

Purchase of rental assets held for subsequent sale						

(0.7)

(1.0)

Loss on disposal of property, plant and equipment						

0.3

0.5

Equity settled share schemes							
1.1

0.5

Share of (profit)/loss from associate							
(0.5)

0.8

Business reorganisation items							
(1.3)

(1.9)

(7.9)

(6.9)

Cash generated from operations							
33.4

34.5

Pension scheme payments above charge to operating profit					Interest								
(2.1)

(5.0)

Tax									
(3.8)

(2.1)

Capitalised development expenditure							
(5.8)

(5.9)

Expenditure on tangible and intangible assets						

(4.8)

(3.1)

Proceeds from sale of property, plant and equipment						9.3

—Increase in investment in associate							
(2.1)

—

Acquisition of subsidiaries, net of cash acquired						

—

(9.8)

Proceeds from sale of subsidiary undertaking						

71.2

12.2

Decrease in long-term receivables						0.9

—Dividends paid								
(7.4)

(7.4)

0.2

—

Decrease in borrowings								(96.8)(12.8)(7.8)

0.6

Proceeds from issue of share capital						Net (decrease)/increase in cash and cash equivalents from continuing operations 				Note: Adjusted EBITDA is earnings before interest, tax, depreciation, intangible amortisation, mark-to-market of financial derivatives and other non-cash adjusting items.

Cash generated from operations
Cash generated from operations
fell by £1.1 million to £33.4 million(2017: £34.5 million), representing
68.8% (2017: 90.3%) cash conversion.
Cash conversion is defined as: cash
generated from operations before
business reorganisation items and pension
scheme payments, less capitalised
development expenditure and capital
expenditure/adjusted operating profit.
The working capital outflow of£13.2 million reflects an increase ininventories of £4.5 million, an increase
in receivables of £14.4 million, adecrease in payables of £2.8 million
and an increase in customer deposits of£2.9 million. The increase in inventories
reflects an increase in work in progressand components to support our planned
production schedule in the first quarterof 2018/19 for our customised magnets

32

and cryogenic systems, as well as anincrease in demonstration stock to support
new launches of imaging and analysis
products used in electron microscopy.
The movement in receivables consistsof an increase of £8.6 million due togood sales growth across our Materials& Characterisation sector along with ahigher proportion of sales made towards
the end of the year compared to theprevious period. In addition, we also
shipped a higher proportion of customised
magnets and cryogenic systems thatwere invoiced but not paid at the endof the year. Furthermore, an increase of£2.3 million relates to foreign currency
forward contracts relating to the previous
year but settled in this financial year, and£3.5 million relating to the settlement offoreign currency swaps that are hedging
overseas cash balances.

Oxford Instruments plc Report and Financial Statements 2018

Interest
Net interest paid was £2.1 million(2017: £5.0 million). The difference fromlast year is due to lower financing costs
arising from a lower level of average net
debt compared to the comparative period
following the receipt of proceeds from thesale of Industrial Analysis part way throughthe period, and the settlement of £1.0 millionof interest payments made just after the year
end close.

Tax
Tax paid was £3.8 million (2017:£2.1 million), the comparative period
benefiting from tax deductions onallowable adjusting items and utilisationof brought forward tax losses.

Total cash spend on R&D in the year was £24.8 million, equivalent to 8.4% of sales (2017: £25.8 million, 8.6% of sales). A reconciliation between
the amounts charged to the Income Statement and the cash spent is given below:									Year ended									31 March 2018								£mYear ended
31 March 2017
£m

23.4

24.3

Depreciation of R&D-related fixed assets							
(0.1)

(0.1)

R&D expense charged to the Income Statement						Amounts capitalised as fixed assets							
0.1

0.2

(4.4)

(4.5)

Amortisation and impairment of R&D costs capitalised as intangibles					Amounts capitalised as intangible assets							
5.8

5.9

Total cash spent on R&D during the year						
24.8

25.8

Investment in associate

02: GovernanceDuring the year intangible assets of £1.8 million were impaired within our X-ray Technology business on a development project discontinued as aresult of the sale of Industrial Analysis. In addition, we impaired £1.4 million in respect of a development project which has experienced delays andcost overruns.

01: Strategic Report

Investment in Research and Development (R&D)

The Shareholders of ScientaOmicron agreed to a capital injection to strengthen the balance sheet of the joint venture and ensure future liquidity insupport of the business strategy. Our share was £2.1 million and was paid in September 2017.

Disposals
The sale of Industrial Analysis was completed on 3 July 2017. A post-tax profit of £45.9 million has been recorded within discontinued operations.

New accounting standards

The Group will also be adopting IFRS 15 Revenue from Contracts with Customers using the modified retrospective approach, which means thatthe cumulative impact on adoption will be recognised in retained earnings on 1 April 2018, with the half-year results for September 2018 being
IFRS 15 compliant, and the first Annual Report published in accordance with IFRS 15 being for the year ended 31 March 2019. Comparatives
will not be restated. We anticipate that the main differences will be within our NanoScience business where the revenue recognition on complex
customised magnetic and cryogenic systems will be deferred from being primarily on transfer of legal title to completion of installation.
The Group will be adopting IFRS 16 Leases in the 2018/19 financial year. The main impact will be in respect of property and vehicle leases which
are currently accounted for as operating leases. Further detail on the impact of these new accounting standards is set out in the accounting policiesof the Financial Statements.

03: Financial Statements

Transition to IFRS 9 Financial Instruments will take effect from 1 April 2018, with the half-year results for September 2018 being IFRS 9 compliant
and the first Annual Report published in accordance with IFRS 9 being for the year ended 31 March 2019. There is no requirement to restatecomparatives. The main impact is likely to be in respect of mark-to-market valuation of currency derivatives that are hedging future cash flows.
The gain or loss on unrealised forward foreign exchange contracts might qualify for hedge accounting and so be booked directly to reserves withthe gain or loss recycled to the Income Statement on maturity. Currently, gains or losses are treated as adjusting items. Work is ongoing to assess
the extent to which the Group’s hedges will qualify for hedge accounting.

Net debt and funding
Net debt
Net debt decreased in the period from £109.3 million to £19.7 million. Cash generated from operations was £33.4 million. Disposal proceedsof £71.2 million relate to the sale of Industrial Analysis. The Group invested in capitalised development costs of £5.8 million and tangible andintangible assets of £4.8 million.
Net debt as at 31 March 2017								109.3Cash generated from operations								(33.4)
Interest									
2.1Tax										
3.8Capitalised development expenditure								
5.8Capital expenditure on tangible and intangible assets							

4.8Proceeds from sale of property, plant and equipment							(9.3)

Proceeds from sale of subsidiary undertaking							(71.2)

Dividends paid									
7.4Other items									
0.4Net debt as at 31 March 2018								Oxford Instruments plc Report and Financial Statements 2018

19.7

33

04: Company Information

Movement in net debt									
£mFinance
Review continued
Net debt and funding continued
Funding
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 facility of£100.0 million and a US Dollar-denominatedmulti-currency facility of $37.0 million.
In the year, the Group repaid £5.0 million ofits bilateral private placement note, leaving
an outstanding note of £39.5 million, whichmatures in 2021. In September 2017, theGroup repaid the balance of its amortising
fixed rate loan from the European Investment
Bank. The Group has uncommitted facilities of£20.6 million.
Debt covenants are net debt to EBITDA lessthan 3.0 times and EBITDA to interest greaterthan 4.0 times. As at 31 March 2018 net debt
to EBITDA was at 0.3 times and EBITDA tointerest was 14.3 times.

Pensions
The Group has defined benefit pension
schemes in the UK and the US. Both havebeen closed to new entrants since 2001 andclosed to future accrual from 2010.
At 31 March 2018, the net liability arisingfrom our defined benefit scheme obligations
was £15.3 million (31 March 2017:£25.1 million), a fall of £9.8 million. The
reduction in the deficit was primarily due
to the contributions paid in the period andthe actuarial gains on the scheme’s liabilities
arising from a change in the accounting
assumptions at 31 March 2018. Total scheme
assets at 31 March 2018 were £289.5 million(31 March 2017: £287.9 million) whileliabilities were £304.8 million (31 March 2017:£313.0 million).

34

Prior to the year end, the trustees of the UK
defined benefit scheme, in consultation with
the Company, reduced its exposure to on-risk
assets (a portfolio of market-focused asset
classes, the majority being equities) with acorresponding increase in its liability driven
investments, with the objective of steeringa more stable journey to being fully funded.
The pension fund’s gross exposure to on-risk
assets has fallen from 85% to 45%; themajority of transactions required to make thischange were completed in February 2018.
As a result, the level of risk inherent in theinvestment strategy is now significantly lower
than previously, in addition to a substantial
reduction in funding level volatility.

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 thisFinance 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. The Directors
believe that the Group will be able to operate
within its existing debt facilities.

Oxford Instruments plc Report and Financial Statements 2018

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 reasonableenquiries, 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
12 June 2018

01: Strategic Report

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

Possible impact• Failure of the advanced• Loss of market share or
technologies applied by thenegative pricing pressureGroup to produce commerciallyresulting in lower turnover andviable products.
reduced profitability.
• Additional NPI expenditure.

Mitigation• “Voice of the Customer”
approach and market
intimacy to direct productdevelopment activities.

• Understanding customer needs/
expectations and targeted
new product development
programme to maintain andstrengthen product positioning.

• Formal NPI processes toprioritise investment and to
manage R&D expenditure.
• Product lifecycle management.

• Stage gate process in productdevelopment to challengecommercial business caseand mitigate technical risks.

02: Governance• Adverse impact on the Group’s
brand and reputation.

Control mechanisms• 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.
Possible impact

Control mechanisms

Mitigation• Consolidation by OEMsin key markets.

• Loss of key customers/routes
to market.

• Customer intimacy to matchproduct performance tocustomer needs.

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

• New competitors.
• Reduction in sales volumes or
pricing and lower profitability.

03: Financial Statements

Risk• 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.

04: Company Information

Oxford Instruments plc Report and Financial Statements 201835

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

Possible impact

Control mechanisms

Mitigation• Reduction in research fundingin key markets such as the US,
China and the EU (including
the UK).

• Lower sales and profitability.

• Market intimacy anddiversification strategy.

• Increased focus on customers
that are not reliant on
government 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• Changes in the geopolitical• Lower exports adversely
landscape or a global tradeaffecting turnover.
war resulting in a complete• Increases to input costs andembargo on trade with specificlower gross margins.
nations or punitive tariffs.

Control mechanisms

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

Specific risk 5: Brexit-related risks
Context: The UK will leave the EU.
Risk

Possible impact

Control mechanisms

Mitigation• Lower participation in
EU‑funded research projects
post Brexit.

• Lower sales and profitability.

• Customer intimacy andmonitoring of funded projects.

• Market diversification.

• Potential short-term hiatus
in UK research funding.
• Barriers to existing freemovement of goods andservices in the EU.
• Tariffs on exports to EU
countries from the UK andvice versa.

• Salary inflation.

• Product pricing reviews.

• Long‑term pricing agreementsfor key suppliers and strategic
sourcing review.

• Skills and capabilities reviews.

• Pricing strategy.

• Brexit Committee.

• Renewal of UK work permit
scheme to facilitate employmentof non‑UK/EU nationals.

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

• Strategic supply chain review.

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

• Application for Authorised
Economic Operator status tofacilitate movement of goods
with EU 27.

• UK becomes less attractive to
EU nationals as a place to work.

Specific risk 6: Supply chain risk
Context: The Group operates a strategic make or buy policy which places reliance on key partners, notably single source suppliers, in terms
of pricing and on-time delivery.
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.

36• Lower sales and profitability.
• Higher input costs.
• Negative impact on theGroup’s reputation.

Oxford Instruments plc Report and Financial Statements 2018

• Where possible, dual source
supply is sought.

01: Strategic Report

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

Possible impact

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

• Adverse impact on NPI.

• HR people strategy for retention • Succession management plans.
and recruitment of staff with
• Technical career paths.
key skills.
• UK work permit scheme tofacilitate employment of
non‑UK/EU nationals in place.

• Operational disruption.
• Lower sales and profitability.

Mitigation

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

Possible impact

Control mechanisms

Mitigation• Cyber attack on the Group’s
IT infrastructure.

• Disruption to businessas usual operations.

• Spread of viruses or malware
through “Zero-day” incidents
or phishing attacks.

• Loss of business-critical data.

• IT security policy andassociated standards andprotection systems.

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

• Financial andreputational damage.

• Insider threat.

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

02: GovernanceSpecific risk 8: IT risk

• Citadel approach to protect
key data.
• User education.

• Employee awareness training.

Specific risk 9: Operational risk
Risk

Possible impact• Sustained disruption to• Inability to fulfil orders in
production arising from a major
the short term, resulting
incident at a site.
in a reduction in sales
and profitability.
• Additional, non-recurring
overhead costs.

Control mechanisms

Mitigation• Business Continuity Plans (BCPs) • Detailed response plans in BCPs
exist for all manufacturing sites.
can reduce downtime arisingfrom incidents and facilitate• Contractual clauses to limit
the restoration or relocation
financial consequences ofof production.
delayed delivery.
• Standard sales contracts
include clauses for limitationof liability, liquidated
damages and the exclusionof consequential losses.

03: Financial Statements

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

Specific risk 10: Pensions
Risk

Possible impact

Control mechanisms

Mitigation• The reported pension deficit
is sensitive to movements in
actuarial assumptions andreturns on investments.

• Increase in net debt asadditional Group contributions
become payable to fundthe deficit.

• Regular review ofpension strategy.

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

• Liability hedging programme
to mitigate exposure to
movements in interest rates• Increase in the annual levy paid
and inflation.
to the Pension Protection Fund.
• Reduction in net assets.

• The Group has a funding
plan in place to reduce thepension deficit over the short
to medium term.

Oxford Instruments plc Report and Financial Statements 201837

04: Company Information

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

Principal
Risks continued
Specific risk 11: Adverse movements in long-term foreign currency rates
Context: A high proportion of the Group’s revenue is in foreign currencies, notably US Dollars, while the majority of the cost base is denominatedin Sterling.
Risk

Possible impact• Long-term strengthening of• Reduced profitability.
Sterling against key currencies
such as the US Dollar, Japanese
Yen and the Euro. (Short-term
exposure to volatility is managed
by hedging programme.)

Control mechanisms

Mitigation• Procurement “make orbuy” strategy.

• Strategic procurement
in US Dollars, Euros and Yen.

• Review of revenue and costsby currency.

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

Control mechanisms

Mitigation• Infringement of a third party’s
intellectual property.

• Potential loss of future revenue. • Formal “Freedom to Operate”
assessment to identify• Future royalty payments.
potential IP issues during• Payment of damages.
product development.

• Confirmation of “Freedom
to Operate” during new
product development stagegate process.

Viability Statement
Provision C.2.2 of the UK Corporate
Governance Code 2016 requires that the
Directors perform an assessment of theGroup’s viability over a period longer than the
twelve months required for the going concern
statement. Consistent with the previous two
years, this assessment covers a three-year
period. The Directors consider that three
years remains an appropriate time frame forassessing the Group’s longer‑term viability,
because the medium-term strategic financial
plan (SFP) provides appropriate visibility of key
areas such as product development and capital
expenditure requirements over this period. This
year’s assessment, therefore, covers the period
from 1 April 2018 to 31 March 2021 (the“Viability Assessment Period”).

Key criteria appliedin the assessment
Using the same criteria as previous
assessments, the Board considers that theGroup’s viability can reasonably be assured
if it is able to obtain sufficient debt financeto meet its liabilities as they fall due. In thisregard it considers that it should be possible
to obtain bank finance at three times leverage(i.e. net debt to EBITDA1). It should be notedthat the Group’s revolving credit facility falls
due for renewal in February 2020 and thatat March 2018, net debt was £19.7 million.
The Group plans to renew its credit facilities
and the Directors consider that continuing tooperate within a gearing ratio of 3:1 should
enable the Group to refinance its revolving
credit facilities, if necessary.

Methodology andsensitivities applied
The viability assessment quantifies thepotential financial impact of the principal
risks and uncertainties which are facedby the Group, should they materialise, toascertain the Group’s ability to withstandadverse events and continue in business.
The key risks and uncertainties which areconsidered in the assessment are disclosed on
the preceding pages 35 to 38 of the Annual
Report. In addition to quantifying the potential
financial impact of the adverse events, theviability assessment also applies estimatesof certain mitigating actions that could betaken to offset the impact of downside risks.
The starting point for the assessment is thedetailed budget for 2018/19, together with
the SFP for 2019/20 and 2020/21. These
financial budgets and plans include profit andloss data and cash flow movements, and form
the baseline to consider the Group’s viability
over the three-year period.

1. For the purpose of this viability assessment, EBITDA = Adjusted EBITDA (as defined on page 105).

38

Oxford Instruments plc Report and Financial Statements 2018

Some of the specific risks identified could
have multiple financial consequences on thefinancial baseline used in the assessment.
Further, several risks would result in similar
financial consequences. As a result, thefinancial impact of risks having similarconsequences has been aggregated andthe potential impact has been quantified byreference to the following four consequences:
1. reduction in revenue;
2. increased cost of sales;
3. additional overhead costs; and4.	reduction in net profitability arising fromadverse movements in exchange rates.

01: Strategic Report

The potential direct financial consequences evaluated of the different risks are summarised below:
Potential direct financial consequences
Description

1

Technical risk

2

Routes to market

3

Economic environment

4

Political risk

5

Brexit-related risks

6

Supply chain risk

7

People8

IT risk

9

Operational risk

10

Pensions

11

Adverse movements in long-term foreign currency rates

12

Legal/compliance risk

Higher overheads

Lower net profit

sensitivities at an individual business unit level.
This approach has been taken for all of thesensitivities that have been applied.
The potential for increases to prime costs isthe third most significant risk, as evaluated, byvalue. This sensitivity in the viability assessment
quantifies the potential downside risk toprime costs that might arise from an increase
to input costs as a result of new or increased
tariffs or other inflationary pressures.
The final category of downside risk consideredrelates to possible increases in overheads.
It is inherently difficult to predict the timing
and quantum of the potential financial
consequences arising from the risks identified.
Therefore, these risks were quantified by using
a fixed contingency against EBITDA and net
debt for each year in the Viability Assessment
Period. In total, the downside included in
the assessment represents 3.2% of total
overheads in the baseline model.
Over the Viability Assessment Period as awhole, the impact of the downside risks
modelled resulted in a decrease to thebaseline EBITDA of roughly 47%.

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 net debt only, result in the Groupstaying 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).

Based on the outcome of the assessment
performed, the Board has a reasonable
expectation that the Group will be able tocontinue in operation and meet its liabilities
as they fall due over the next three years.
This is based on the assumption that operating
within the gearing parameter identified will
enable the Group to obtain external funding,if required, when the current revolving credit
facility falls due for renewal in February 2020.
This assessment supports not only the viability
statement above, but also the statement on
going concern, set out below.

Going concern statement
The Group’s business activities and factorsthat are considered likely to affect its
performance and position in the future are set
out in the Strategic Report on pages 1 to 47.
The Finance Review on pages 28 to 34
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‑termviability up to 31 March 2021. On this basis, theDirectors conclude that there is a reasonable
expectation that the Group will continue inoperational existence for the foreseeable future
and that there are no material uncertainties
that may cast significant 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.

Oxford Instruments plc Report and Financial Statements 201839

04: Company Information

The impact of a reduction in sales volumes,
including the consequential impact on prime
costs and contribution margins was quantified
as the second most significant risk in value
terms. While the impact of the loss of a key
customer or market in an individual business
unit might be severe for the specific business
unit, the risk is mitigated at a Group level by
operating in diverse geographic markets andthrough diversification of the customer basewithin those markets. As a result, the potential
revenue risk was modelled in aggregate,
at a Group level, rather than by applying

Higher cost of sales

03: Financial Statements

The most significant risk in value terms relates
to the potential impact arising from adverse
movements in exchange rates (risk 11).
As described on page 38, long-term adverse
movements in three key currencies (USDollar, Euro and Japanese Yen) would be
detrimental to Group profitability because of
the Group’s predominantly Sterling cost base.
The risk of short-term adverse movements in
exchange rates is mitigated by the Group’s
hedging programme. As a result, the financial
consequences of adverse movements in
exchange rates is estimated in years two andthree only of the Viability Assessment Period.
It should be noted that in this assessment,
the impact has been quantified in terms of
net profitability, by reference to estimatednet currency exposure. However, if this risk
were to materialise, the reported impact inSterling would be more complex – foreign
currency denominated turnover, prime costs
and overheads would all reduce in absolute,
Sterling terms and the net impact would be
unfavourable in terms of net profitability.

Lower turnover

02: GovernanceRisk ID

Corporate
Responsibility
Corporate responsibility
is integral to our ongoing
business success.

Our values:

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

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

Innovative and progressive:
We bring skill, experience andopenness to new ideas to address
the needs of the 21st Century

Wholehearted:
We approach what we
do with passion, withcare and with pace40

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Our commitment to corporate responsibility is to recognise theimpact we have on the world, our employees, our communities
and our working environments.

• the development, engagement
and wellbeing of our employees;• sustaining and developing
an inclusive workplace;• health and safety andenvironmental monitoring; and• the ethics of how we do business,
including human rights andbusiness malpractice.

• establishing and maintaining
long‑term, effective stakeholder
relationships;• offering our people an excellent
employment experience and senseof belonging;• strengthening our businessthrough diversity and inclusion;and• operating in an ethical, sustainable
and environmentally responsible
manner.

Our ability to enable industrial companies
and scientific research communities to image,analyse and manipulate materials at thenanoscale is instrumental in the advancementof society, a role that we take seriously.
We are mindful of the impact we have on
the world through the resources we bring
into the Company, such as our people, oursupplier relationships, and the products
we send out, ensuring they are safe andenvironmentally sound.
We are encouraged to take our corporate
responsibility seriously by the fact our key
enabling technologies are providing the basis
for innovation across a range of markets andindustrial sectors, and are helping underpin
the shift to a greener economy, increased
digital connectivity, advances in materials,
life science, manufacturing and healthcare.

03: Financial Statements

Oxford Instruments is committed to
the following guiding principles ofcorporate responsibility:

02: GovernanceThe key areas in which we focus ourefforts are:Our employees
At Oxford Instruments, our employees
are fundamental to our business success.
We continually invest in our people,
developing the capabilities that we will needto succeed over the longer term. We arecommitted to being the company where thebest in our sector want to work. We strive
to offer the opportunities that will attract,
motivate and retain talented employees,
enabling them to give their best.

1: S anta Barbara employees taking part in
the Oxford Instruments running challenge.
2: A nnual intra-company football match.
3: C hinese team working together inthe office.

Oxford Instruments plc Report and Financial Statements 201841

04: Company Information

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.

Corporate
Responsibility continued
We have introduced a range of global initiatives
to help create a sense of belonging.

Our employees continued

Developing capability

Our workplace

We regularly undertake capability reviews,
recognising the importance of ensuring wehave the skills we need to help us deliver
long-term sustainable growth. We have beenworking hard to address capability gaps acrossthe Group by both bringing in the capabilities
we need for the future, and investing in thetalented people we have, reaching beyond ourmanagement capabilities. We have made asignificant investment in our sales, marketing,innovation and operational excellence teams
across the Group. We are undertaking Miller
Heiman training for our sales teams, with
249 people participating, and have identified
60 people as operational excellence champions
who are undergoing training in support of this.

As an international organisation, ouremployees are located across the world,
frequently based in satellite offices that are
remote from the main business sites. In thiscontext it is important that we work hard to
help people feel part of a global team, andwe have been upgrading many of our officespaces to enhance the Oxford Instruments
experience. We have also introduced a rangeof global initiatives to help create a sense of
belonging and ensure people feel part of a
global team. Activities have included a global
photo competition and a running challenge,
whereby our employees were challenged torun a combined distance of 10,000 miles.
This challenge also aligns with our increasing
focus on the wellbeing of our employees.
We are rolling out health checks across all
our sites, and encouraging a good work‑lifebalance through our additional holiday
purchase scheme, which 27% of our UK
employees have taken up, this is increasing
each year.
This year we successfully launched Gem, ourcloud-based information system. This gives
employees much more control over theirpersonal profiles, providing full visibility of theorganisation, making tasks such as booking
holidays or undertaking annual appraisals
much easier. We have further built on thesense of being part of a global team byrunning a number of cross-business projects.
This has allowed us to use the strengths thatexist in one part of the business to support
the rapid expansion of that capability in otherparts of the business. Recent successes include
product and software development projects.

42

We continue to underpin our capability
development through the various leadershipdevelopment programmes we run.
Our flagship Management Development
Programme, (MDP), covers many of the skills
needed to be a successful manager in Oxford
Instruments. We have built on this further with
our Early Careers and Maximising Potential
programmes that focus on introducing highpotential candidates to the business and help
them to succeed within the Group.
To 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 aclear 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.

Oxford Instruments plc Report and Financial Statements 2018

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 values are deeply ingrained in Oxford
Instruments and we endeavour to embody
them in all we do. We are now looking at
how we can further help people understandthe behaviours we need in support of thetransformation we are making through our
Horizon strategy. We have taken time tocreate the environment for change and now
we are empowering our employees to makethe decisions that will drive change. We wanteveryone to feel that they own the challenge
and the solution, encouraging a sense of
responsibility for solving problems and getting
better results.

Our local communities
We believe the work we do and enable others to
do is important, both benefiting and advancing
society. To ensure this continues, we arecommitted to helping the generations coming
up through education to choose STEM subjects,
and to look at how we can support them tomake the move to a career in STEM areas.

01: Strategic Report
02: Governance

1: V olunteers helping a local Riding forthe Disabled school with repairs.
2: S hoe boxes filled with Christmas gifts
for children in need.

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.
As a result of our work in this area we haveseen an increase in the number of womenin high impact roles and we have morebalanced shortlists. Our drive is to ensure
we are encouraging the right behaviours
we need for success. Our managers receive
unconscious bias training through our MDP.
In addition, we have enhanced our leave andflexible working schemes to attract and retain
a diverse workforce.

This year we published our gender pay gap
report. This is available on our website atwww.oxinst.com/gender-pay-review andwas shared internally with employees aheadof external publication to ensure they were
aware of it and fully understood it before it
was released.

EthicsWe have been refreshing our code of conduct,
updating our policies on how we do business
and what we expect of others. We havecreated a clearer, more helpful document for
stakeholders, providing more transparency forour employees about what’s expected of them.
This will help give them confidence that they
are taking the right actions in various situations.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

We continue to encourage our sites tosupport their local communities throughcharity and community activities. This year,
as well as regular charity coffee mornings
and bake sales, we have held Christmas
jumper competitions and filled nearly 100
shoe boxes with Christmas gifts for children.
We are establishing further ways to support
our communities, and this year a group of
our employees gave up their time to help
paint fences at a local Riding for the Disabledschool, which was very much appreciated andmade a real difference for the school.

Our working environment

03: Financial Statements

Many of our businesses have close links withschools in their area, helping bring STEM tolife in the classroom, while all our UK sites
also run school work experience programmes.
We continue to work with a range of Centres
for Doctoral Training to offer students theopportunity to build on their educational
learning with practical, project-based experienceand have also launched industrial postdocs,
which are fixed term contracts to allow
postdocs to experience working in industry.

43

Corporate
Responsibility continued
Each business has an energy champion at a
local level who is responsible for monitoringenergy use, waste streams, recycling andemissions to air, water and land.

Our working environment
continued
Human rights and modern slavery
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 to: ourpartners, contractors and suppliers.
We are committed to preventing acts ofmodern slavery and human trafficking fromoccurring within our business and supply chain
and put in place effective systems and controls
in order to do so. We have reviewed, andimproved, our supplier due diligence and audit
procedures. We have a zero-tolerance approach
to all forms of modern slavery, including
servitude, forced, bonded and compulsory
labour and human trafficking and we expect
our suppliers to adopt the same approach.

Health and safety
Health and safety within Oxford Instruments
has been managed for several years by
Charles Holroyd, Group Business Development
Director. However, going forward, Richard
Pollard, Managing Director of Plasma
Technology, will assume responsibility for
health and safety at the Group level, assistedby the Group Health, Safety and Environment
Manager Dave Wales, who is responsible
for ensuring that day-to-day activities arecarried out safely. All manufacturing sites areaudited annually by the Group Health, Safety
and Environment Manager or by members of
his auditing team. The large federal offices
are audited every two years and the smaller
offices every three years.
Three of our largest sites are certified to
ISO 14001, ISO 9001 and OHSAS 18001
management system standards. Thesesites are subjected to twice-yearly external
auditing from their nominated certification
body. During 2017/18 all the sites certified to
ISO 14001 achieved certification to the new
ISO 14001‑2015 management system standard.

The number ofaccidents hasremained low at 52– 8.9% down on theprevious year

Global accident figures
remain at a low level
The total number of accidents recorded
worldwide during 2017/18 was reduced
to 52 from 57 in 2016/17. Accidents
have been reduced by 76% over theprevious six years. This demonstrates ourcommitment to the health and safetyof our employees – which we take very
seriously and work hard, as a team, toeffect improvements. Our sites continue
to operate safely, with the majority ofaccidents recorded being very minor cuts
and bruises. The number of accidents
per employee increased slightly to
0.033 during 2017/18 from 0.030 theprevious year.
Globally, three reportable accidents
occurred during 2017/18, the same level
2016/17. For reporting purposes, global
reportable accidents were normalisedusing the UK definition of over seven days’
absence from work. We continue to focus
on making our sites safer places to work.
The seven-year picture in the graph below
shows a continuing positive trend.

Annual accident figures
2017/18 52
2016/172015/1674

2014/1571

2013/142012/13
2011/1244

Oxford Instruments plc Report and Financial Statements 2018

57

109
162
217

01: Strategic Report

Our overall environmental priority is for ouroperations around the world to minimise theirenvironmental footprint. Each business has
an Energy Champion at a local level who is
responsible for monitoring energy use, waste
streams, recycling and emissions to air, waterand land. They also continuously look forinnovative ways to reduce their environmental
footprint. Current initiatives include the removalof single use plastics, the installation of electric
car charging points and energy reduction.

Energy consumption

Legal compliance – Carbon
Reduction Commitment Energy
Efficiency Scheme (CRC)
Oxford Instruments is a full participant in
the UK Carbon Reduction Commitment
Energy Efficiency Scheme (CRC). The
Company purchases carbon allowances tocover its emissions from energy generation
and burning gas for heating and hot water.
For the 2017/18 financial year 3,211 carbon
allowances were required to meet UK carbon
emissions. There were 819 allowances in hand
and the remaining 2,392 will be purchased
in July and will be surrendered in September.
The carbon allowances for 2018/19 will
be purchased in advance in order to takeadvantage of discounted prices.

03: Financial Statements

We continue to monitor our global energy
use and implement energy-saving techniques
where they prove beneficial. During thecalendar year 2017 we saw a significant
reduction in the Group carbon footprint to7,161 tonnes of carbon dioxide equivalent(tCO2e). This reflects continued efforts to use
energy more efficiently and also businessdisposals.

Oxford Instruments consumed 12.86 GWhof energy globally in 2017/18. The Company’s
measure of energy efficiency was
44.7 MWh/£million revenue comparedto 58.75 MWh/£million revenue in theprevious year.

02: Governance

Sustainability – Protecting
the environment

Energy consumption
20

Electric (GWh)

Gas (GWh)

18

04: Company Information

16
14
1: Tubney staff taking part in a
Christmas jumper charity event.

12

2: Belfast staff on a charity walkfor Northern Ireland Hospice.

10

3: The team at Yatton go green withfurther environmental work.

8
6
4
2
0

2010

2011

2012

2013

2014

2015

2016

2017

Oxford Instruments plc Report and Financial Statements 201845

Corporate
Responsibility continued
The global carbon footprint continued toreduce – falling to 7,161 tCO2e during 2017from 9,604 tCO2e the previous year.

Waste outputs
We aim to minimise our waste outputs andensure that as little as possible goes to landfill.
Several of our sites are now “zero waste tolandfill”, where waste is recycled either directly
e.g. cardboard, metals, wood, paper and food,or indirectly for non-recyclable general waste,
which is sent to waste sites where it can beused to produce energy.

Air travel
Oxford Instruments measures the energy
equivalent of employee air travel for its
UK and US operations. Air travel for the2017 calendar year totalled 13.67 million
kilometres, a 5.3% reduction on theprevious year’s total of 14.4 million
kilometres. This equated to a carbon
footprint of 2,130 tCO2e based on 80%
long haul and 20% short haul flights.

Air travel (million km)
2017

13.67

2016

14.40

2015

• Waste Electronic and Electrical Equipment(WEEE) Directive – compliance achievedby membership of B2B Compliance –an authorised compliance body.
• Restriction on use of certain Hazardous
Substances (RoHS) regulations – allproducts that were within scope and weresold into Europe since July 2017 complied.
Some of our products are outside of
the RoHS scope or are covered by an
exemption.
• Registration, Evaluation, Authorisationof Chemicals (REACh) Directive. All sites
are working towards compliance via their
supply chains.

As part of the UK Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013, Oxford Instruments has
a mandatory duty to report greenhousegas emissions as tonnes of carbon dioxide
equivalent (tCO2e). The Company’s measure ofcarbon emissions is tonnes of carbon dioxide
equivalent (tCO2e) per £million of revenue.
This year the global carbon emissions figure is
15.60 tCO2e/£million revenue.

Greenhouse gas (GHG) emissions
Oxford Instruments is a global businesswith operations in many parts of theworld. Emissions from 17 Company sites
are monitored and are reported as to theright. Some small sales offices where energy
consumption is less than 0.01% of theGroup’s total energy consumption are omitted.
The recorded use of hydro-fluorocarbons is
below 5kg and has therefore been excluded.
Emissions from purchased electricity, fuel forheating or process purposes (gas and oil)and fugitive emissions from process gases
are reported in tonnes of carbon dioxide
equivalent (tCO2e).

20.14

2013

21.90

2012

23.00

2011

21.00

2010

46

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

Carbon reporting

16.90

2014

2009

Legal compliance –Environmental Directives

15.50
8.20

Oxford Instruments plc Report and Financial Statements 2018

1: S
 TEM work in California withlocal school children.

01: Strategic Report
02: GovernanceIntensity ratio
The Company’s declared intensity ratio for greenhouse gas reporting is tonnes of carbon dioxide equivalent (tCO2e) per £million of revenue.
With revenues for the year at £313.23 million and the total emissions of carbon dioxide equivalent of 4,886.9 tonnes, this gives an intensity ratio
as follows:
Carbonemissions= 15.60 tCO2e

Revenue£million revenue

Purchased electricity(tCO2e)Secondary fuel(tCO2e)Fugitive emissions(tCO2e)Total(tCO2e)UK

2,773.3356.8

03,130.3

North America

Region1,513.3001,513.3

Europe

76.2

6.5

0

82.7

Asia

160.8

0

0

160.8

Total

4,523.6363.3

04,886.9

Global Oxford Instruments

78%

22%

PLC Board

86%

14%

Management Board

86%

14%

Managers

85%

15%

Employees

78%

22%

03: Financial Statements

Geographical spreadof employees

Gender

UK 58%

Americas 22%
Asia 14%Europe 6%

Signed on behalf of the Board
04: Company Information

Ian Barkshire
Chief Executive
12 June 2018

Oxford Instruments plc Report and Financial Statements 201847

Governance
Governance is an important element of our Board
environment. To support how we do business andhow we serve our stakeholders it needs to be relevant,authentic and meaningful.
We have used the key themes of the Code to articulate
the Board’s activities during the year:
Leadership
See pages 49 to 54 of the Corporate Governance Report.

EffectivenessSee pages 55 to 58 of the Corporate Governance Report andNomination Committee Report on page 59 to 60.

Relations with
Shareholders
See page 81.

Report of the Directors
See pages 83 to 85.

Accountability
See the Audit and Risk Committee Report on pages 61 to 66,
risk management disclosures on pages 66 andFinancial Statements on pages 91 to 97.

Remuneration
See the Remuneration Report on pages 67 to 80.

48

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Leadership

Chairman’s introduction

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

The main Group-wide governancedocuments are the Oxford Instruments
Code of Business Conduct and Ethics
together with the policies which sit within
our statement on Corporate Responsibility.
These can be found on our website atwww.oxinst.com/investors. The ethics
programme is managed by a cross‑functionalteam, the CBCE Forum, which works with
the Group’s businesses to ensure that
employee communications relating to the
ethics programme is delivered in a consistentand engaging manner. There is a policy
portal on the Intranet which makes it easy
for employees to access those policies andprocedures that are relevant to them.
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.

During the year, we asked ICSA Board Evaluation
to carry out a full evaluation of the performanceof the Board. Overall, the Board achieved a “verygood” result. More details on the findings of theevaluation are outlined below.
In July 2017, we were pleased to welcome Steve
Blair onto our Board as Senior Independent
Director. His broad operational experience in our
sectors and sound technical understanding are avaluable addition to the Board.
I encourage all Shareholders to attend the AGM
which will be held at the Company’s Head
Office in Tubney Woods, Oxfordshire on Tuesday
11 September 2018. This event provides anopportunity for Shareholders to meet the
Executive and Non-Executive Directors.

Alan Thomson
Chairman
12 June 201803: Financial Statements

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 and is collectively responsible
for the long-term success of the Company.
This will, when underpinned by our businessstrategy and close attention to operations,finance and risk, enhance performance andgrow the business of Oxford Instruments.
The Board remains committed to driving theGroup’s long-term objectives, overseeing
the Group’s operations to ensure competentand prudent management and continuous
leadership development and succession
planning. The approach to governance is set
by the Board and the Management Board
ensures that the approach is effectively
implemented across Oxford Instruments’businesses around the world.

02: Governance

Dear Shareholders,

04: Company Information

Oxford Instruments plc Report and Financial Statements 201849

Leadership continued
Board of Directors

Alan Thomson (71)

Ian Barkshire (52)Gavin Hill (50)

Stephen Blair (58)

Non‑Executive Chairman

Chief Executive

Group Finance Director

Independent Non-Executive
Director and Senior Independent
Director

Appointed to the Board
June 2016

Appointed to the Board
November 2015

Appointed to the Board
May 2016

Appointed to the Board
July 2017

Appointed Chairman
September 2016

Appointed Chief Executive
May 2016

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, is a
Chartered Physicist and a Memberof the Institute of Physics. Ian has
worked for Oxford Instruments since1997 in a number of senior leadershiproles including NanoCharacterisation
Divisional Head, Group Technical
Director and Chief Operating Officer.

BackgroundHolds a BA in economics andagricultural economics fromthe University of Exeter. He is a
Chartered Accountant and an
Associate Member of the Associationof Corporate Treasurers.

BackgroundHolds an engineering degree fromthe University of Sheffield. Extensive
experience in established andhigh‑growth emerging markets,
strategic planning and portfolio
development.

External appointments
Chairman:Hays plc

Previous experience
Senior Principal Scientist:
GEC Marconi Materials Technology

Previous experience
Group Finance Director:
Synergy Health plc

Previous experience
Chief Executive:
e2v

Research Fellow:
University of York

Director, Corporate Finance:
Serco Group plc

Business Group Director:
Spectris plc

Previous experience
Chairman:
Bodycote plc
Polypipe Group plc

Senior finance positions:Syngenta AG and AstraZeneca plc

Senior Independent Director:
Johnson Matthey plc
Non‑Executive Director:
Laporte plc
Chief Financial Officer:
Smiths Group plc

Board diversity

Key to Committees
TenureGender diversity
Male

86%

Female50

14%

Oxford Instruments plc Report and Financial Statements 2018

Audit and Risk

1-2 years 14%

Nomination

3-4 years 72%

Remuneration

5-6 years 14%

Chairman of Committee

01: Strategic ReportThomas Geitner (63)Independent
Non-Executive Director

Independent
Non-Executive Director

Appointed to the Board
February 2016

Appointed to the Board
January 2013

Appointed to the Board
September 2014

BackgroundHolds an MA in physics from the
University of Oxford and is a
Fellow of the Chartered Instituteof Management Accountants. She
started her career at Coopers &Lybrand Management Consultancy
Services and then went on to holdsenior financial positions in a numberof major businesses.

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.

External appointments
Chief Financial Officer:
Lloyd’s Register

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

Director, Group Finance:
QinetiQ plc

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

Independent
Non-Executive Director

03: Financial Statements

Previous experience
Group Finance Director:
Ultra Electronics plc

Professor
Sir Richard Friend (65)02: GovernanceMary Waldner (48)

Non‑Executive Director:
Eight19 Ltd
Heliochrome Limited
Previous experience
Council member:
The Engineering and Physical Sciences
Research Council

04: Company Information

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

Oxford Instruments plc Report and Financial Statements 201851

Leadership continued
Corporate Governance Report

Board priorities during the year
Strategic• Annual strategy day to consider progress and provide challenge on the Horizon strategy and next steps.
• Completed the disposal of the Industrial Analysis business to Hitachi High Technology and the strategic
reorganisation of the business under the new operating segments.
• Reviewed, challenged and approved the strategic direction of the Group’s medium-term plan.

Operations• Received regular operational updates through the Management Board.
• Site visits to Group manufacturing sites.

Leadership and people• Completed the refresh of the Company’s Board of Directors.
• Continued the focus on organisation capability and succession planning within the senior leadership teams andmore generally across the organisation.

Finance• Monitored progress against the 2017/18 financial plan and considered and approved the 2018/19 financial plan.
• Reviewed and approved the financial elements of the Group’s medium-term plan.
• Monitored the progress of Project Connect (the new ERP system) and the first phase of implementation.
• Approved the Annual Report, half-year results and presentations to analysts.
• Considered and approved the Group’s going concern and viability statements.
• Reviewed and recommended payment of the interim and final dividends.

Governance and ethics• Appointment and induction of the new Senior Independent Director.
• Discussed the outcome of the 2017/18 external Board evaluation and agreed opportunities for improvement.
• Reviewed feedback from institutional Shareholders.
• Meetings of the Non-Executive Directors without management being present.

Compliance

Preservation of value

The Board endorses the main and supporting
principles and the provisions set out in the2016 UK Corporate Governance Code(“the Governance Code”) and considers that,throughout the period under review, the Grouphas complied with the provisions recommended
in the Governance Code save for provision
A.4.1. Stephen Blair was designated as Senior
Independent Director from the date of his
appointment as independent Non-Executive
Director on 1 July 2017.

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.

Taken together with the reports of theNomination Committee, Audit and Risk
Committee, the Report on Remuneration
and Corporate Responsibility, this Statement
explains how Oxford Instruments has applied
the principles of good corporate governanceas 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.

52

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

Board of Directors andmanagement structureThomas Geitner		

5 years

Board of Directors

Richard Friend		

4 years

Ian Barkshire		

2 years

Mary Waldner		

2 years

Gavin Hill		

2 years

Alan Thomson 		

2 years

Stephen Blair		

1 yearThe Board as at the date of this reportcomprises the Chairman, four Non-Executive
Directors and two Executive Directors. The
Directors’ biographies and details of length ofservice are shown on pages 50 and 51. All the
Directors have written letters of appointmentthat have been approved by the Board andwhich are available for inspection at theCompany’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 the
Chairman and the Chief Executive has been
set out in writing 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 the necessary
resources are in place to achieve the objectives.

Oxford Instruments plc Report and Financial Statements 2018

Management Board
The Board delegates management of thebusiness to the Chief Executive. To assist
in this, the Chief Executive has created aManagement Board that consists of the
Executive Directors, senior managers withGroup-wide functional responsibilities andheads 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.

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, which also includes the
documented policies and procedures andsets out the roles and delegated authorities
applying to the Directors, the Board and theBoard Committees. The Board ReferenceFile is reviewed annually as part of theannual governance review undertaken by
the Chairman.

Where the Board delegates authority to
management it is on a structured basis, which
requires that proper management oversight
exists at the appropriate level. Compliancewith the delegation of authorities is monitoredby the Group’s internal audit function.

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 Group’s businesses, is embedded in
the reporting system. On a rotating basis,the Board receives presentations from thebusinesses and key functional areas enabling
it to explore specific issues 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.

03: Financial Statements

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.

The Board meets on a regular basis, at least
seven times a year, and otherwise as required.
Board meetings are held at a number of Group
locations during the year. The Board also
held one meeting specifically to discuss theCompany’s strategic direction during the year.

02: Governance

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 and maintains the policy anddecision‑making framework in which thisstrategy is implemented. Further, it verifies
that the necessary financial and humanresources are in place to meet strategic aims,
monitors performance against key financial
and non‑financial indicators, oversees thesystem of risk management and sets values
and standards in governance matters.

01: Strategic Report

Operation of the Board

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
these meetings.
The Company Secretary and the Company
Secretary’s office are responsible for
implementing Board procedures andfor advising the Board on corporate
governance matters.

04: Company Information

Oxford Instruments plc Report and Financial Statements 201853

Leadership continued
Corporate Governance Report

Board balance and independence
The Governance Code requires the Board
to be of sufficient size that the balance ofskills 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 the Board’s
decision making. The Board is committed topromoting diversity and inclusiveness of all
kinds, both on the Board and throughout theGroup. The Board recognises that diversity,
which should be construed in its broadest
sense and includes gender, religious andethnic diversity, background and age, isan important factor in Board and, indeed,in operational effectiveness. The way inwhich the Board manages diversity within
the Board is reported on more fully in the
Nomination Committee Report on page 59
and diversity is more generally reported on
page 43 in the Corporate Responsibility
Report. The composition of the Board andthe combination of diverse backgrounds andexpertise of the Non-Executive Directors meetthese principles.
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 plc. Previously, he was
Chairman of Bodycote plc and Polypipe Groupplc and a Non-Executive Director of Laporteplc, Alstom SA and of Johnson Matthey plc.
Earlier in his career, he worked on a variety
of audits for Arthur Andersen and Price
Waterhouse, followed by senior management
positions with Rockwell International plc,
Raychem Ltd and Courtaulds plc and wasGroup Finance Director of Rugby Group plc
and then Smiths Group plc.

Independence of
Non-Executive Directors
In the opinion of the Board, Alan Thomson,
Stephen Blair, Richard Friend, Thomas Geitnerand Mary Waldner are independent.
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.

54

Alan is Chairman of the Nomination
Committee and a member of theRemuneration Committee.
Steve Blair was Chief Executive of Teledyne
e2v Limited (previously e2v technologies plc),
a manufacturer of sensors, radio frequency
generators and semiconductors and a listedcompany until its acquisition by Teledyne
Technologies in March 2017. Previously he
was Business Group Director for Spectris plc.
He has broad operational experience and abreadth of experience covering establishedand high-growth emerging markets, strategicplanning and portfolio development.
Steve is Senior Independent Director andalso a member of the Audit and Risk,
Remuneration and Nomination Committees.
Richard Friend was appointed to theBoard as an independent Non-Executive
Director on 1 September 2014. Richard is
a Fellow of the Royal Society and Fellow of
the Royal Academy of Engineering. He is
also Cavendish Professor of Physics and a
Fellow of St. John’s College at the Universityof 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.

Term of appointment of
Non‑Executive Directors

Thomas Geitner was appointed to theBoard as an independent Non-Executive
Director on 15 January 2013. He is a
graduate of the Technische Universität
München and holds an INSEAD MBA.
Thomas has extensive international
experience in the technology and engineering
sectors, having spent more than 30 years
in businesses operating across the globe.
Having worked in a number of global
companies he understands the importanceof remuneration connecting with strategy toappropriately incentivise the executive team.
The Board believes that his skills, experienceand knowledge make Thomas well suited toChairman the Remuneration Committee.
Thomas is Chairman of the Remuneration
Committee and also a member of the Audit
and Risk and Nomination Committees.
Mary Waldner was appointed to the Board
as an independent Non-Executive Director
on 4 February 2016. She is Chief Financial
Officer at Lloyd’s Register. She has a Masters
degree in physics from Oxford University
and is a Fellow of the Chartered Instituteof Management Accountants.
Mary has a broad range of experience inhigh technology companies that operateinternationally and has worked in a numberof senior financial roles within major public
limited companies, including as Group
Finance Director of Ultra Electronics plc.
The Board believes that Mary’s backgroundgives her the various insights needed to makeher a well qualified Chairman of the Audit
and Risk Committee.
Mary is Chairman of the Audit and Risk
Committee and also a member of theRemuneration and Nomination Committees.

Composition of the Board

Each Non-Executive Director was appointed
for an initial term of three years. In line with
provision B.7.1 of the Governance Code, theBoard has determined that all Directors of theBoard are to be subject to annual re-election by
Shareholders and, accordingly, the appropriate
resolutions will be put to Shareholders at theCompany’s forthcoming AGM.

Oxford Instruments plc Report and Financial Statements 201867%

Independent (4)Non-independent (2)01: Strategic Report

EffectivenessCorporate Governance Report

Board development and evaluation
Board development
On appointment, Directors undertake an
induction process which is designed todevelop knowledge and understanding of theGroup’s businesses through visits to various
Group operating sites, discussion of relevant
technology, as well as product demonstrations,briefings from management and familiarisation
with investor perceptions of the Group.
This induction is supported by briefing papers
prepared by the Company Secretary.

Throughout the year, Non-Executive Directors
attend Oxford Instruments’ events, exhibitions
and award presentations.

All the results of the evaluation were thenconsidered by the Board at a meeting
attended by Mr Shepheard, where the
Directors discussed the recommendations.
Overall, the conclusion of the evaluation
was that the Board was performing
well in all areas that were reviewed, theCommittees of the Board were effective andthat the Board has adopted high governancestandards throughout. The evaluation
confirmed that the Board, comprising afairly new team, of whom only two had
served more than two years at the start ofthe evaluation, is working well together
and providing good challenge and support
to the Executive Directors.

It further concluded that the leadershipshown by the Chairman, appointed in
September 2016, has brought about asignificant, positive change to the culture
and behaviours pervading the business andthat the Chairman has built a strong team,both executive and non-executive.
The Board concluded that its focus should
remain on progressing the Horizon strategy,
that it should continue its strong workon risk management and, now that themembership of the Board and management
team has stabilised, to refresh its succession
planning. Actions from the evaluation are in
the process of being implemented.
In addition to the external Board evaluation,
the Chairman has assessed the performanceof each Board member by conducting
individual interviews and has confirmedwith the Nomination Committee that all
Directors continue to perform effectively
and demonstrate commitment to theirroles. The Chief Executive, Ian Barkshire,
was appraised by the Chairman and theNon‑Executive Directors and the Group
Finance Director, Gavin Hill, was appraisedby the Chairman, Non-Executive Directors
and the Chief Executive in May 2018. Led by
the Senior Independent Director, Steve Blair,
the Non-Executive Directors carried out anevaluation of the Chairman’s performanceand concluded that they were satisfied
with the Chairman’s commitment andperformance.
Key:

75

Board Role and Responsibilities
70

Oversight

78

Board Meetings

80

Board Composition

80

Working Together

80

0-19

Poor

20-39

Average

40-54

Fair

55-70

Good

71-90

Very Good

91-100

Excellent

04: Company Information

Support for the Board

Outcome and Achievements

03: Financial Statements

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.

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, ICSA Board
Evaluation, which is independent of theGroup, carried out a full evaluation of theperformance of the Board of the Company.
The evaluator, Mr Geoffrey Shepheard, metwith each Director on an individual basis
to obtain their views on seven aspects of
the Board’s performance and observed afull meeting of the Board. The evaluation
included relevant questions to cover theactivities of each Committee of the Board.
The evaluator ensured that pre-definedconstituent elements of each topic werecovered in the discussions and a qualitativescore was assigned by each Director.

02: Governance

The operating businesses’ senior management
teams and functional leaders present to
the Board on a regular basis. Non-Executive
Directors are encouraged to meet individual
members of the senior management team andhave done so during the year under review.

Board evaluation

73

Oxford Instruments plc Report and Financial Statements 201855

Effectiveness continued
Corporate Governance Report

Attendance at meetings
Only the Committee Chairman and members are entitled to be present at a meeting of the Audit and Risk, Nomination or Remuneration
Committees, but others may attend by invitation. No Director votes on matters where he or she has a conflict of interest. Further details of theindividual 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 2018:								Audit and Risk							BoardCommittee

Remuneration
Committee

Nomination
Committee

Number of meetings held						9

4

4

2

Alan Thomson						
9

41

4

2

Ian Barkshire						
9

41

31

21

Gavin Hill						
9

41

21

11

Richard Friend 						
9

4

4

2

Thomas Geitner						
9

4

4

2

Mary Waldner						
9

4

4

2

Steve Blair 						5

3

2

1

2

1. Attended by invitation.
2. Steve Blair was appointed to the Board and Committees on 1 July 2017. He has attended all Board and Committee meetings since his appointment.

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. 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 backgroundin financial management, is the designatedfinancial expert.

Membership of Board Committees,
which is set out on pages 50 and 51, isdetermined by the Board and is reviewed
regularly. The written terms of reference of
the Board Committees are reviewed annually
by each Committee and the Board and areavailable on the Company’s website atwww.oxinst.com/investors and from theCompany 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.

56

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.

Oxford Instruments plc Report and Financial Statements 2018

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 61 to 66.

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.

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 develop
appropriate actions to manage and mitigate
these risks where possible.

All Group announcements are posted on theGroup website, www.oxinst.com/investors,
as soon as they are released. The Investor
Relations section of the website provides
financial and other information on theGroup and the website itself carries additional
information on the Group’s products,
services and markets.

Internal audit and assurance

Investor relations

Risk management

Internal control
The Board has accountability for reviewing
and approving the adequacy and effectivenessof internal controls operated by the Group.
This covers 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 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 bythis Report and Financial Statements.
The key components designed to provide
effective internal control within the Group
include the following:• there is a formal schedule of mattersreserved to the Board for decision; 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;

Oxford Instruments plc Report and Financial Statements 201857

04: Company Information

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. Details of the process
are set out in the Audit and Risk Committee
Report on pages 61 to 66. This process has
been in place throughout the financial year
and up to the date of approval of the Annual
Report and Financial Statements. It is regularly
reviewed by the Board of Directors and accords
with the principles of the Governance Code.

The Group’s internal audit function assesses
the adequacy and effectiveness of the
management of significant risk areasand provides oversight of operational
management’s front line and assurance
activities. Further details of the scope ofinternal audit activities are set out in the Audit
and Risk Committee Report on pages 61 to 66.

Control activities include policies andprocedures for 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.

03: Financial Statements

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.

The next AGM will be held on
11 September 2018 at the Group’s
offices in Tubney Woods, Oxfordshire.

The internal control framework includes
central direction, oversight and risk
management of the key activities within theGroup. This framework includes a financial
planning process which comprises a five-yearplanning model and a detailed annual budget
which is subject to Board approval. All Groupbusinesses’ results are reported monthly
and include variance analysis to budget andthe prior year. Management also preparemonthly reforecasts.

02: Governance

The Group places considerable importance on
regular communications with its Shareholders,with whom it has an ongoing programme of
dialogue. All Shareholders are encouraged
to participate in the AGM, at which the
Chairman and Chief Executive present an
overview of the Group’s business, review theresults and make comments on strategy andcurrent business activity.

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 adopted, arereported to and reviewed by the Board andthe Audit and Risk Committee on a quarterly
basis. The principal risks set out on pages 35
to 38 provide an overview of the major risks
and uncertainties faced by the Group. All
operating businesses follow a standard process
for risk identification and reporting. All risks
identified are assessed in terms of probability
and potential impact. The resultant scores
are used to classify and prioritise risks and all
significant risks are reported in the Group’s
risk register. For those risks where mitigation
actions are possible, the businesses also reporton the action being taken. On a regular basis
each business reviews and updates its risk
register which is then reported to the Chief
Executive. If a material risk changes or arises,
the Managing Director of the business reports
this in writing to the Chief Executive, at whichtime there is a discussion on the adequacy ofthe mitigating actions taken.

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 disclosure ofproxy votes, the separation of resolutions andthe attendance of Committee Chairmen. The
Group arranges for the Annual Report and
Financial Statements and related papers to beposted on its website and, where Shareholders
have elected to receive paper copies, posted toShareholders so as to allow at least 20 working
days for consideration prior to the AGM.

01: Strategic Report

Annual General Meeting (AGM)

Effectiveness continued
Corporate Governance Report

Internal control continued• 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 five‑year
planning model of the Group andits individual businesses;• 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.
Both are reviewed by the Board at eachof its scheduled meetings;• the Board approves all acquisitionand divestment proposals and there
are established procedures for theplanning, approval and monitoringof capital expenditure;• for all major investments, the performanceof at least the first twelve months against
the original proposal is reviewed by
the Board;• the Board receives regular updates
on pensions, corporate responsibility,business ethics and health and safety andthe Audit and Risk Committee receives
regular updates on treasury, tax, insurance
and litigation;• 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;• there is a detailed and risk-based
delegation of authority structure inplace for sales contracts and managing
commercial risks. Contracts with onerous
terms and conditions (such as unlimited
liability contracts) require approval byeither the Chief Executive or Group FinanceDirector; 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 appropriate
its own independent actuary to review
actuarial assumptions, agrees theinvestment policy with the trustee,works with the trustee on its investment
sub-committee to deal with day-to-day
investment matters, ensures there is anindependent actuarial valuation every three
years and agrees funding levels to provide
adequate funding to meet the benefit
payments of the members as they fall due.

Susan Johnson-BrettCompany Secretary
12 June 2018

• an internal audit is carried out through asystem of regular reviews of the financial
and non-financial internal controls at eachsite. This is further reported on in the Audit
and Risk Committee Report on pages 61 to
66. These reviews are coordinated by theGroup Internal Audit and Risk Manager;

58

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

EffectivenessNomination Committee Report

The Committee’s key objective isto support the Board in fulfilling
its responsibilities.

The Nomination Committee

I am pleased to introduce the Nomination
Committee report for 2017/18. 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.

The Nomination Committee comprises all
the Non-Executive Directors, under thechairmanship of the Chairman of the Board.

Alan Thomson
Chairman of the Nomination Committee
12 June 2018

• there is a formal, rigorous andtransparent procedure for theappointment of new Directors to theBoard, the prime responsibility forwhich is delegated to the Committee;• the purpose of the Committee’s
selection process is to identify the mostsuitably qualified candidates who willcomplement and balance the current
skills, knowledge and experience of
the Board;−− recommendations for appointments
seek to strengthen the Board byselecting the best candidate basedon merit and against objective
criteria, including time available
and the commitment that will be
required of the potential Director;−− in drawing up long and shortlists ofpotential candidates, the Committee
considers not only relevant skills,
experience and knowledge but
also diversity;−− the Committee actively considers
diversity before making a
recommendation to appoint to
the Board;• the Committee takes external advice
when considered appropriate and will
only engage executive search firms who
have signed up to the Voluntary Codeof Conduct for Executive Search Firms
on gender diversity and best practice;• the Committee considers succession
planning for the Board and the top levelof senior management;

04: Company Information

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 tomaintain, and where applicable, broaden, therange of expertise, experience and diversity of
those serving on the Board. The Committee
will continue to work to ensure all relevant
requirements in the UK Corporate Governance
Code are met.

• 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 Board recognises that diversity,
construed in its broadest sense
and including gender, religious andethnic diversity, age, personality
and background, is an importantfactor in Board and operational
effectiveness;
03: Financial Statements

I took over as Chairman of the Committee
and the Board in September 2016, undertooka review of the composition of the Boardand determined with the Committee that theBoard would benefit from the appointment ofa further Non-Executive Director who could
also potentially serve as Senior Independent
Director. With the help of the Zygos
Partnership, we undertook such a search andmet with a number of interested candidates.
This culminated in the appointment ofStephen Blair as Non‑Executive Director andSenior Independent Director on 1 July 2017.

The composition of the Committee istherefore compliant with the UK Corporate
Governance Code 2016 (“GovernanceCode”). Full details of the Committee’s
responsibilities are set out in its terms ofreference, which can be found on our website
at www.oxinst.com/investors-content/
advisers-and-company-secretary, andinclude all matters required by the GovernanceCode. The main responsibilities of theCommittee are summarised below:−− each appointment process begins
with an evaluation of the balanceof skills, knowledge, experienceand diversity existing on the Board
that is drawn up through a series ofmeetings between the Committee
Chairman and Directors;

02: Governance

Dear Shareholder,• annual performance appraisal of the
Chief Executive; and• annual review of the Committee’s termsof reference.

Oxford Instruments plc Report and Financial Statements 201859

Effectiveness continued
Nomination Committee Report

Principal activities of theCommittee during the year
Constitution of the Board• The Committee undertook a search for, andappointed, a Non-Executive Director who
had the right experience to act as Senior
Independent Director.
This comprised a number of steps.
• The Committee evaluated the balanceof skills, knowledge, experience anddiversity on the Board and used theoutput of this evaluation to identify theskills it would like introduced to theBoard. 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, theCommittee considered each
Director’s feedback and made a final
recommendation to the Board on
the appointment of an independent
Non-Executive Director who also
had the experience necessary to bean appropriately qualified Seniorindependent Director.
• Following successful completion of
the search, on 1 July 2017 Stephen
Blair was appointed to the Board as anindependent Non-Executive Director
and Senior Independent Director.
• All Directors of the Board are put forward
for re-appointment by Shareholders eachyear at the AGM and this includes those
appointed during the year. The Committee,
taking into account the performance andvalue that each Director brings to theBoard, has considered whether each of
the Non-Executive and Executive Director
appointments should be renewed fora further year and has confirmed that
this is indeed the case. Accordingly, aresolution to re-appoint 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 Committee discussed Board diversity
and succession planning for Directors.

Performance review of Executive
Directors• The Committee also carried out its annual
review of the performance of:• the Chief Executive;• with the help of the Chief Executive,
the Group Finance Director; and• excluding the Chairman, reviewed
the performance of the Chairman.

Other• Annual review of the Nomination
Committee’s terms of reference.

Attendance at meetings year ended 31 March 2018						

Nomination Committee

Number of meetings held					

2Date of appointment to Committee

Number of meetings attended:					Alan Thomson (Chairman)					

2Stephen Blair1					

11 July 2017

Richard Friend					

21 September 2014

Thomas Geitner 					

215 January 2013

Mary Waldner					

24 February 2016

Number of meetings in attendance: 					Ian Barkshire					

2Gavin Hill					

11. Steve Blair was appointed to the Board on 1 July 2017. He has attended all Committee meetings since his appointment.

60

Oxford Instruments plc Report and Financial Statements 2018

1 June 2016

01: Strategic Report

Accountability

Audit and Risk Committee Report

The Committee’s oversight covers a
range of financial and non-financial areas
which are of particular importance to thelong‑term performance of the Group.

During the last financial year, the focus andcomposition of the Audit and Risk Committee
has continued to evolve as the Group has
sought to strengthen its corporate governanceand management of key risk areas.

• review and discussion of the Group risk
register at each meeting of the Committee;• the composition of the Audit and Risk
Committee;• review of treasury and tax matters;• a summary of the Committee’s role andresponsibilities;• bi-annual review of significant litigation;• review of the Group’s viability statement,
including the methodology used in theforecasts and the underlying assumptions
used in its preparation;• consideration of the Group’s principal areasof financial risk and associated mitigation;• review of the effectiveness of internal audit;• assessment of the effectiveness of theexternal audit process;• review of the statement issued at theAnnual General Meeting; and• review of the Financial Statements andany significant accounting judgementsthat were used in their compilation.
(The significant accounting judgements
relating to the 2018 Financial Statements
are set out on page 64.)
In addition to its recurring activities, theCommittee has focused on a number of
specific risk areas that have been identified in
the Group risk register over the course of theyear. Key matters that have been brought to
the Audit and Risk Committee for its review
and discussion have included:• a summary of key activities by meetingover the course of the year;• the Committee’s comments on the mattersthat it considers to be of significancerelating to the Financial Statements;• the external audit process and auditor
independence; and• the work of internal audit and theeffectiveness of internal controls andrisk management.
I will be at the AGM in September. In themeantime, if you have any questions orcomments I should be delighted to hearfrom you.

Mary Waldner
Audit and Risk Committee Chairman
12 June 201804: Company Information

During the year the Committee has changed
elements within its focus to reflect changes
in the risk environment while retaining focus
on core elements such as governance andcontrol. In keeping with this approach, theinternal audit function has continued toreview key financial controls within the Groupand has also delivered risk-based audit work.
In addition, internal audit delivered a numberof pieces of ad hoc work, to address specificemerging risks that were identified by theGroup Finance Director and agreed with
the Committee. This overall approach willcontinue in 2018/19 although the balance willcontinue to move towards specific risk areas.

The remainder of this report comprises anumber of sections, which include:

03: Financial Statements

The Committee’s prime areas of responsibility
are the same as in the prior year. The
provision of assurance relating to thefinancial control environment and oversightof other key functional areas including
Information Technology and security, New
Product Innovation and HR remain core to
the Committee’s role. As part of its remit, theCommittee actively monitors the integrityof the Financial Statements, considers key
areas of subjectivity that are material to theGroup’s results and assesses the applicationof significant financial judgements. It also
considers the effectiveness of internal audit on
an annual basis and has ongoing responsibility
for overseeing the external audit relationship,including monitoring the provision of
non‑audit services as part of its review
of auditor independence.

In the last twelve months, the principal areasof recurring activities have included:

02: Governance

Dear Shareholder,• the Group’s management of cyber security
and associated risks;• IT disaster recovery plans;• leadership and succession plans;• Brexit-related risks; and• the methodology used for risk reportingand how risk management is embedded
in operating business units.

Oxford Instruments plc Report and Financial Statements 201861

Accountability continued
Audit and Risk Committee Report

Composition

Role and responsibilities

In July 2017, membership of the Committee
increased to four, with Steve Blair joining theexisting members of Mary Waldner, Sir Richard
Friend and Thomas Geitner. Mary has acted as
Chairman throughout the year.

Full details of the Committee’s
responsibilities are set out in its terms ofreference, which can be found on our
website at www.oxinst.com/investorscontent/advisers-and-company-secretary.
The main responsibilities of the Committee
are summarised below:

In keeping with the FRC’s Guidance on Audit
Committees, the Audit and Risk Committee’s
terms of reference require that at least one
member of the Committee has recent andrelevant financial experience. Mary Waldneris the current Chief Financial Officer of
Lloyd’s Register and has previously held
senior financial roles at a number of quoted
companies. On this basis, the Board considers
that Mary fulfils the requirement to haverecent and relevant financial experience andis also independent. Sir Richard Friend, Steve
Blair and Thomas Geitner bring sector-specificexperience to the Committee.
The Committee obtains reports, informationand explanations from non-members at its
meetings to help it to fulfil its remit. Typically,
the Committee will obtain input frommembers of the Board, both external andinternal audit, and subject matter experts inareas such as data security, data protection,pensions, treasury and tax. At each meeting
attended by the external auditor, theCommittee has the opportunity to speak withthe external auditor without the presence ofthe executive management. The Company
Secretary acts as secretary to the Committee.

• The Committee makes recommendations
to the Board for the appointment or
re‑appointment of the external auditor.

Financial reporting

Internal controls and risk management• The Audit and Risk Committee undertakes
a review of the Financial Statements
and associated results announcements.
As part of this review it advises the Board
whether the Annual Report and Financial
Statements, taken as a whole, are fair,balanced and understandable and provide
sufficient information for Shareholders
to assess the Company’s performance,business model, strategy and risks.

• Monitors the adequacy and effectivenessof the internal control environment.

• The review of the Financial Statements
also includes a review of significant
financial reporting judgements (which
are considered further below), together
with the accounting policies used intheir compilation and compliance withaccounting standards. It also considers
whether all material matters such ascontingent liabilities have been taken
into account and treated appropriately.
• The Committee also monitors
compliance with relevant statutory
and listing requirements.

External audit• The Committee maintains oversight of
the relationship with the Company’s
external auditor.
• As part of this remit, the Committee has
regular meetings with KPMG to consider
key matters such as audit planning, audit
risk areas and reporting.
• The Committee reviews and approves theannual audit plan, reviews audit findings
and is responsible for evaluating theeffectiveness of the external audit process.

62• It also monitors and assesses the external
auditor’s independence and objectivity,
is responsible for the Group’s non-audit
services policy and reviews the level of
non‑audit services provided.

Oxford Instruments plc Report and Financial Statements 2018

• Performs a review of risk management
processes and the output of risk reporting.

Internal audit• Annual consideration of the resources
required for an effective internal
audit function.
• Approval of internal audit’s annual audit
programme and review of financial andnon-financial internal audit reports.

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

Reporting• Produces a report on its activities,
in accordance with the UK Corporate
Governance Code.
• Reports to the Board on any matter it
considers requires action or improvement.
• Advises 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 its review.

01: Strategic Report

Activities of the Audit and Risk Committee in respect of the financial year ended 31 March 2018
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 at each meeting is set out in the table below:
June
2017

Agenda item

September
2017

November
2017

January
2018

June
2018

•

•

•

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

•

•

•

Review of significant financial reporting issues and judgements

•

•

•

Review viability statement•

Assess the effectiveness of the external audit process••

Consider the independence and objectivity of the external auditor•

Review internal management representation letters•••

Review and agree the internal audit plan•

Review the output of the internal audit work•

Review the effectiveness of the Audit and Risk Committee

•

•

•

Update on changes to accounting standards (taking effect in 2018/19)

•

•

•

Review of cyber security•

Update on litigation

•

•

•

Evaluate the effectiveness of the internal audit function•

Review the internal control framework•

Review the risk management processes

•
•

•

•

•

Review of whistle-blowing arrangements•

Review systems and controls for detecting fraud and the prevention of bribery and corruption

•

•

•

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

Annual review of treasury arrangements•

Annual review of tax•

03: Financial Statements

Review the Group risk register

Annual review of insurance

02: Governance

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

The Committee’s oversight covers a range of financial and non-financial areas which are of particular importance to the long-term
performance of the Group. Key non-financial elements include New Product Innovation (NPI), and support functions such as IT and HR.
Cyber security, disaster recovery and data protection are areas of continued focus in IT, whilst skills and succession plans have been priorities
within HR. The Committee also undertakes regular reviews of reports relating to operational, health and safety, and environmental audits.
The Committee considers that focus on these areas provides appropriate assurance for the key risk areas faced.

Oxford Instruments plc Report and Financial Statements 2018

63

04: Company Information

In accordance with the 2016 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 2018.

Accountability continued
Audit and Risk Committee Report

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 the2018 Financial Statements were:

Revenue recognition
As set out in more detail in the Group’s
accounting policies, the application ofjudgement is required in determining whether
risks and rewards of ownership have passed tothe customer in order to establish appropriate
revenue cut-off. The Group applies prescriptive
rules relating to revenue recognition.
The Committee has received reports relating
to year-end revenue cut-off and no significant
errors were reported.

Provisions for intellectual
property claims
The Group faces potential exposure tothird‑party claims in relation to potential
intellectual property infringement. The Audit
and Risk Committee obtains updates on thesematters twice a year and obtains informationand explanations from management onmaterial matters. Management has presented
its analysis of potential exposure to these risks
and has also discussed the level of provisions
recognised in the Financial Statements with theCommittee and with KPMG. The Committee
has verified that the methodology used toestimate potential exposure in this area has
been calculated in a manner consistent withthe prior year. It also recognises that the final
outcome of each specific case is likely tovary from the amount provided but does notconsider that adjustments to the provisions
carried are required.

64

UK defined benefit pension scheme

Tax provisions

Under the terms of IAS 19, the Group isrequired to value its pension deficit as thedifference between the net present valueof the pension scheme’s assets and liabilities
as at 31 March 2018.

In managing its tax position, the Group had
previously used certain structures which are
currently subject to review by tax authorities.
Until such matters are resolved, there isinherent uncertainty relating to the overall
tax liability. Consequently, management
is required to take a view as to whether
any provisions are required to mitigate theestimated exposure. Inter alia, this requires
the exercise of judgement to consider themost likely outcome and the quantum ofany provisions that may be required as aresult. The Committee has considered papers
presented on the issues and the methodology
used to evaluate provisions at 31 March 2018and has concluded that the approach isconsistent with prior years.

IAS 19 also 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 perform bi‑annual
valuations on its behalf for accounting purposes.
For the year-end accounts, Aon Hewitt
recommended assumptions on a consistentbasis with those adopted at the previous
year end. Market conditions did not movesignificantly during the year and as a result
the actual assumptions used were largely
the same as at 31 March 2017 apart from asmall reduction in the inflation rate. Mortality
assumptions were also updated to use the latest
CMI 2017 tables. The valuation of the scheme
assets was provided by PSolve (the scheme’s
investment manager) in accordance with market
practice for valuing investment assets.
During the year, the Company and the trustee
agreed to implement a pension increaseexchange (PIE) option at retirement. For the
purpose of preparing the IAS 19 disclosures,
Aon Hewitt assumed that 30% of members
would take this option. Aon Hewitt typicallysees take-up rates in the range of 20%-40%
in other companies which have implemented
a PIE option. As a result of adopting thisassumption, the reported deficit reduced by£0.9 million. In line with IAS 19, this has beencredited to the Income Statement.
As set out in Note 25 to the Financial
Statements, the reported deficit for the
UK scheme reduced by £9.0 million to£12.5 million. This was largely due to thedeficit recovery contributions of £7.1 million
made by the Group. Further, the slightly lower
inflation assumption and the PIE credit, as set
out above, contributed to the reduction in the
UK scheme’s reported deficit.

Oxford Instruments plc Report and Financial Statements 2018

Adjusted profit and EPS
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 2018,adjustments to operating profit totalled£8.1 million. The principal adjusting item wasthe charge of £10.9 million relating to theamortisation of acquired intangible assets.
Other adjustments to operating results include
the profit of £3.3 million from the disposalof land and buildings, the mark-to-market
gain of £3.1 million relating to currency
hedging contracts, the Group’s proportion(£2.0 million) of the impairment charge
recognised by SSAB and restructuring costs of£1.6 million. The Committee has considereda paper from management setting out theseadjustments. The conclusion from its reviewof the paper was that the Group’s definitions
have been consistently applied year-on-year.
The nature of these adjustments requires
appropriate judgement to be exercised.
The Committee is satisfied with the processadopted and the disclosure in the Financial
Statements.

External auditor
The Committee monitors the performance,
objectivity and independence of the external
auditor. It also recommends the appointment
or re-appointment of the external auditor to
the Board. It also has responsibility for theapproval of audit fees.

Auditor independence
In evaluating auditor independence, theCommittee obtains confirmation of any
relationships between the Group and KPMG
that may have an impact on its independence.
It also receives confirmation that KPMG is
independent from the Group.
The Committee has a formal policy governing
the engagement of the external auditor toprovide non-audit services. This aims to further
safeguard the objectivity and independence ofthe external auditor and to mitigate the riskof the external auditor firm’s independence
becoming compromised. Under the terms ofthis policy, all non-audit related engagements
over £50,000 require formal approval by theCommittee in advance. Note 4 (page 109) tothe Financial Statements sets out the amountof audit fees for the year, together with fees
for non-audit services. In the year ended
31 March 2018, audit fees paid to KPMG were£395,000 and non‑audit fees were £39,000.
This represents a non-audit to audit fee ratioof 0.1:1.

Internal audit
The Audit and Risk Committee seeks
assurance over the effective design andoperation of internal controls from the internal
audit function. The Committee approvesinternal audit’s annual programme which
includes audits that consider the effectivenessof internal financial controls. Internal audit
performs financial controls audits on arotational basis across operational business
units and the principal Federal Offices.
In addition, the programme includes a numberof risk-based audit topics which tend to focus
on the operational business units.

In February 2018, the Group’s new financial
system, CSI, went live in Magnetic Resonance– the first operational business unit to adopt
the new system. The 2018/19 internal audit
plan includes a review of the implementationof CSI in Magnetic Resonance, focused on theunderlying processes and controls.
The overall internal audit strategy is broadly
consistent with the prior year and it sees acontinuing evolution to a more risk-based
audit programme. In 2018/19, the amountof time scheduled for risk-based elements
exceeds the number of hours planned forroutine financial controls reviews.
The Audit and Risk Committee approved theinternal audit plan for 2018/19 at its meetingin January 2018. Amongst other things, theCommittee considered whether the balanceand scope of the plan was sufficient to address
the audit strategy and fulfil the Committee’s
requirements. Relevant criteria in considering
the plan included the levels of risk, otherassurance activities and previous audit findings.
The Committee monitors the activities of bothfinancial and non-financial internal audit work,
to ensure that focus is directed to the mostsuitable areas. The direction of internal audit
work considers the specific risks identified fromthe risk management process and also takes into
account corporate governance requirements.
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 has regular dialogue with theexternal auditor, 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.

Oxford Instruments plc Report and Financial Statements 2018

65

04: Company Information

KPMG, the external auditor, presented its audit
strategy and planning memorandum to the
Audit and Risk Committee at its meeting inJanuary 2018. Its proposals covered the audit
methodology, scope and planned materiality
for its audit of the Financial Statements for theyear ended 31 March 2018 and set out the
principal areas of audit risk identified by KPMG
and how it would address them. KPMG’s audit
strategy was informed by a number of factors
including meetings with various stakeholders,such as the Chairman of the Audit and Risk
Committee, the Chairman of the Board andalso the Group Finance Director. Following its
review, the Committee approved KPMG’s audit
strategy and planning memorandum.

KPMG was re-appointed as auditor
following a tender process in 2014. Underthe rules for audit tendering and rotation
implemented in June 2016, the Group shallbe required to replace KPMG as auditor
for the 31 March 2022 year end. In themeantime, the Committee shall monitor the
re-appointment of KPMG on an annual basis
and will arrange for a tender process when it
considers it is appropriate to do so.

Over the course of the last two financial years,
the financial controls audit has covered all of
the Group’s operational business units andFederal Offices in Germany and the UnitedStates. The plan in 2018/19 includes two
further Federal Offices, including China.

03: Financial Statements

Based on its review of management reports
and information and explanations received
from the auditor, the Committee concluded
to its satisfaction that the critical judgements
and key estimates required in preparing the
Financial Statements had been appropriately
addressed, both in terms of quantum andthe information disclosed. The Committee
was also satisfied that there had been
suitable challenge to, and scrutiny of, thekey assumptions adopted in determining thevalue of assets and liabilities reported in the
Financial Statements.

The Committee assesses the effectiveness ofthe external audit process. This is informed via
feedback from a number of key stakeholders
within Oxford Instruments and also throughreports from KPMG at both the half year andyear end. The effectiveness of the process
for the year ended 31 March 2018 will be
evaluated by the Committee at its next
meeting, scheduled for September 2018.

02: Governance

The Committee received reports from Groupmanagement that they were not aware ofany material misstatements or immaterial
misstatements that had been made with theaim of achieving a specific presentation of
results. The Committee also received a reportfrom the external auditor of unadjusted
audit differences. Following discussion withmanagement and the auditor, the Committee
reached the conclusion that the unadjusted
differences identified by KPMG were notmaterial to the Financial Statements andtherefore no adjustment was required in the
Financial Statements. Further, the Committee
was satisfied that the auditor had fulfilled its
duties diligently and with an appropriate levelof professional scepticism.

01: Strategic Report

Misstatements

Accountability continued
Audit and Risk Committee Report

Risk management andinternal control
The operation of an effective risk management
system plays an important role in achieving
strategic plans and objectives. The regular andtimely identification of material risks to specificbusiness units and the Group as a whole isa pre-requisite for risk mitigation activities.
In this context, the Group risk register is a
key element of risk management activities
which combines the results from a bottom‑up
approach, at business unit level, with anassessment of Group‑level risks to provide aholistic view of key risks across the Group.
During 2017/18, the Audit and Risk
Committee reviewed the Group’s risk registerat every meeting and also reviewed themechanism for risk reporting. Following the
introduction of the new reporting segments,
risks reported in the Group risk register havebeen grouped by segment since December
2017. In addition, the focus on longer-term,
strategic risks has been strengthened by the
introduction of discussions between the risk
management function and business unit
senior management as part of the strategic
financial planning process.
The Audit and Risk Committee’s evaluationof the effectiveness of the internal control
environment is based on both internal
assurance reports across multiple areas ofactivity including operations, finance, NPI
and IT, and on external audit reports. The
Committee reviewed the system of internalfinancial control on behalf of the Board andsatisfied itself that the Group is meeting therequired standards both for the year ended
31 March 2018 and up to the date of approvalof this Report and Financial Statements.
No concerns were raised with the Committee
in the year about possible improprieties inmatters of financial reporting.

Whistle-blowing
The Group’s Business Malpractice Policy
provides a reporting mechanism that canbe used by all employees to raise a concern,covering any relevant area to the Group suchas fraud, bribery and corruption, damage tothe environment, criminal activity or danger
to health and safety. This protected disclosure
policy is communicated to all employees andprovides assurances that reports made ingood faith will be taken seriously, treated inconfidence and that no action will be taken
against the employee raising the concern.
Employees can raise concerns throughvarious reporting channels which include an
independent third-party provider. The Group
operates a formal process for dealing with
reports which involves the Group ComplianceTeam and Group Human Resources Director.
Third parties such as suppliers or customers
can also make reports relating to the Group
via the independent reporting channel.
The Business Malpractice Policy is subject
to an annual review by the Committee.
The Head of Internal Audit and Risk
Management maintains a log of all mattersreported through the independent reporting
channel which documents actions arising andhow they were resolved. All reports received
during the year ended 31 March 2018 hadbeen resolved at the year end. No findings
from the reports were considered to beserious.

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
12 June 2018

66

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Remuneration
Remuneration Report

Our strategy focuses on improving the
profitability of the Group to develop
higher margin and growth businesses.

02: Governance

Executive Directors’ remuneration at a glance
Total remuneration payable for 2017/18
Notes to these figures can be found on pages 69 and 70.
				Base			Annual							salaryBenefits
Pension
bonus
LTIP
Other
Total
				£’000
£’000
£’000
£’000
£’000
£’000
£’000

Ian Barkshire			418

51

53

268

—

1

791

Gavin Hill			326

18

41

209

—

1

595

Bonus

Fixed pay

Total remuneration payable

LTIPs

On
targetBelowtargetMaximum
payable

27%
33%

27%

46%

£542k

£1,619k£1,188k

41%

Group Finance Director

28%

Ontarget100%

Maximum
payable

28%
32%

27%

44%

£906k

04: Company Information£401k

03: Financial Statements

27%

100%

Below
target

The chart illustrates how the compositionof the Chief Executive’s and Group FinanceDirector’s remuneration could vary at different
levels of performance under the Company’s
Remuneration Policy.

40%

Chief Executive

Remuneration performance
scenarios for 2018/19£1,242k

Oxford Instruments plc Report and Financial Statements 201867

Remuneration continued
Remuneration Report

Dear Shareholder,

Review of Remuneration Policy

Since the launch of Horizon, progress has
been made in a number of areas in support of
the new strategy. The Group has transitioned
to be a more commercially focused,market‑driven business. Good progress has
also been made in restructuring the portfolio
and in building a new management andleadership team with the specific capabilities
and experience needed to accelerate Horizon.
Against this background of strategic activity,
the Group delivered financial performance inline with expectations.

Shareholders must approve our Directors’
Remuneration Policy at least every three
years. Our current Policy was approved in2017 and re‑approval is therefore required
at our 2020 AGM.

Corporate performanceand annual bonus paymentsfor 2017/18
The annual bonus for 2017/18 wasdetermined by a combination of cash, sales
and profit 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. Groupfinancial performance, on which 75% ofbonus was based, has been broadly in linewith expectations. Organic sales were slightly
above the threshold target and adjusted
profit before tax slightly above on target.
The cash conversion threshold was not met.
In relation to the strategic targets set for
25% of the bonus, the Committee carefully
reviewed performance against the objectives
and scored the Chief Executive (CEO) andGroup Finance Director (GFD) at 96%, noting
the strong performance of the Executive
Directors in driving the strategic repositioningof the Group and the outstanding operationaldelivery. Full details of the annual bonus
outturn of 63.74% of salary (against a target
level of 75% of salary) for both the CEO
and GFD are set out in the Annual Report
on Remuneration.
As both executives are relatively new to role,
there were no Performance Share Plan (PSP)awards, with performance periods ending
during the year under review.
The Committee is comfortable that there
has been a robust link between reward andperformance for the year under review.

The Remuneration Committee reviewed thecurrent Policy in light of our business strategy
and concluded that no fundamental changes
are required. Accordingly, the current Policy
meets the needs of the business. During theyear we will consider carefully the impact ofthe proposed changes to the UK Corporate
Governance Code and proposed new
secondary legislation on our remuneration
policy for executives, the policy more widely
throughout the Group and the enhanced
disclosure requirements.

Implementation of Policy
for 2018/19
Executive Directors

The strategic targets will remain focusedon continuing the strategic transformation
to deliver long-term growth. Appropriately
stretching sliding scales will be set for eachfinancial measure, with full disclosure oftargets and performance against them
being made in next year’s Annual Report on
Remuneration. The bonus is payable fullyin cash, recognising that the balance of theannual bonus and share-based PSP is weighted
60% in favour of the latter.
PSP awards will be based 50% on a ROCE
target range and 50% on an earnings per
share target range. EPS will ensure a continued
focus on growing profitability and thecontinued use of ROCE, which was introduced
last year, provides a close link to the businessstrategy over the next few years to supportand incentivise management to make thechanges needed to our business portfolio byensuring that there is efficient redeploymentof our capital into higher margin and growthbusinesses. The Committee has considered
carefully the target ranges for both measuresand has increased these compared to those set
for last year’s awards.

Effective from 1 July 2018, the Executive
Directors’ salaries will be increased by 2.5%,
in line with general workforce increases.
Annual bonus maximum and the PSP award
level remain unchanged at 100% and 150%of salary respectively.

Non-Executive Directors’ fees

As explained in more detail in our Strategy
section on pages 16 and 17, 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 performancemeasures for the annual bonus and PSP
reflect these objectives.

Conclusion

Small changes are being made to theweighting of the performance measures forthe 2018/19 annual bonus. The measures
and weightings will be profit before tax(30% of salary at target/42.5% maximum),revenue growth (15%/21.25%), cash flow
(15%/21.25%) and strategic objectives(15% maximum). This represents a shift
in weighting from non-financial strategic
objectives (-10%) to financial objectives(+10%), recognising that whilst last year was
focused on anchoring the new strategy in thebusiness and setting the framework for future
growth, the benefits of these changes are now
expected to start to flow through to improved
financial performance and growth.

Following a Board review, the Non‑Executive
Directors’ and Chairman’s fees will be
increased by 2.5% from 1 July 2018.
The additional fees for the role of Senior
Independent Director and chairing theRemuneration and Audit and Risk Committees
remain at £7,500.

I hope you will be supportive of theannual advisory vote to approve theAnnual Report on Remuneration, whichsets out the remuneration outcomes
for the year under review and how thepolicy will be implemented for the year
ahead. This resolution will be brought toShareholders at our AGM to be held on
11 September 2018.
If you have any queries in the meantime, I will
be pleased to engage with you either at theAGM or beforehand.
Yours sincerely

Thomas Geitner
Chairman of the Remuneration Committee
12 June 2018

68

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

PART A: Directors’ Remuneration Policy
This part of the Remuneration Report sets out the Group’s Remuneration Policy for its Directors. The Policy was approved in abinding Shareholder vote at our AGM on 12 September 2017. The Policy took effect from that date and, unless changed with
Shareholders’ prior agreement, will stay in place until September 2020.

Policy overview

The Company seeks to reward executives fairly
and responsibly based on Group performanceand their individual contribution. The
Company has a strategy aimed at deliveringsignificant, 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.

Other 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.

02: Governance

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.

Remuneration Policy
Purpose and link to strategy

Operation

Maximum opportunity

Base salary• To provide a competitive andappropriate level of basic
fixed pay to recruit and retain
superior talent and avoid
excessive risk taking thatmight otherwise result
from an over-reliance onvariable remuneration.

• Reviewed annually with any increase usually effective 1 July.

• There is no minimum or maximum
annual increase.

• Reflects the experience,
performance and responsibilitiesof the individual.
Benefits• Provided on amarket‑competitive basis,
aids retention and follows
reward structure forall employees.

• Takes account of experience, performance andresponsibilities as well as the performance of theCompany, the complexity of the role within the Groupand salary increases for employees generally.
• Set with regard to market data for comparable positions
in similar companies in terms of size, internationality,business model, structure and complexity, including within
the industry.

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

• 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 expectation that
his/her salary will increase with experienceand performance.
• 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.

04: Company Information• The benefits provided may be subject to amendmentfrom time to time by the Committee within this Policy.
• Relocation costs and other incidental expenses may beprovided as necessary and reasonable.
• Benefits are not part of pensionable 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.
Annualbonus• Drives and rewards the
successful achievement ofannual targets set at the startof the year.

03: Financial Statements

Element of pay• Performance targets based on the key performanceindicators and strategic objectives of the business.

• 75% of salary at year end payable attarget performance.

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

• 100% of salary at year end payable for
maximum performance.

• Clawback provisions apply for misstatement, error
or misconduct.

• Bonuses start to be earned from 0% ofsalary for achieving threshold performance.

Oxford Instruments plc Report and Financial Statements 201869

Remuneration continued
Remuneration Report

Remuneration Policy continued
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 in the longterm which accrue substantial
value to and align the Directors’interests with Shareholders’.

• Annual awards under the 2014 Performance Share Planof performance shares (or nil‑cost options) with vesting
subject to achievement of performance targets. Both thevesting and performance period will be over a minimumof 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.

• The Committee will set targets each year based onlong‑term financial performance and/or a stock market
based metric.

• 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.

• Facilitates share ownershipto provide further alignment
with Shareholders.

• 25% of the awards will vest at threshold performance
under each performance condition.
• 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 theshares (other than 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 forat least six months.
Shareholding
guideline• To further align Executive
Directors’ interests with
Shareholders’.

• The Committee has established shareholding guidelines
which encourage the Executive Directors to build andretain a holding of Company shares equivalent to 150%of base salary.

• Not applicable.

• Until the guideline is met in full, Executive Directors are
expected to retain or acquire shares equivalent to thevalue of 50% of the net amount realised from exercise/vesting of share awards 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 timecommitment, experience, knowledge and responsibilitiesof the role as well as market data for similar roles inother companies of a similar size and/or business toOxford Instruments.

• There is no prescribed maximum
or maximum annual increase.

• Out-of-pocket expenses including travel may bereimbursed by the Company in accordance with theCompany’s expenses policy including tax thereon“grossed up” as appropriate.

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 senior individuals 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 measures and approach to setting targets
The Committee selects financial and strategic measures for the annual bonus that are key performance indicators for the business over the shortterm. For the long‑term incentives, the Committee will select a combination of measures that provide a good focus on the outcomes of theCompany strategy together with sustainable improvements in long‑term profitability.
The Committee sets appropriate and demanding targets for variable pay in the context of the Company’s trading environment and strategic objectives.
The targets for the annual bonus plan will be set each year 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 made, taking account of the Company’s
internal financial planning, market forecasts and the business environment.

70

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

Discretions retained by the Committee 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 efficient administration 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;• determine the extent of vesting based on the assessment of performance;• where relevant, determine the extent of vesting in the case of share-based plans in 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 andspecial 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.

02: Governance• determine “good leaver” status and, where relevant, the extent of vesting in the case of the share-based plans;

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

Legacy arrangements
In approving this Directors’ Remuneration Policy, authority is given to the Company to honour any commitments entered into with 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 of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise.

Remuneration scenarios for Executive Directors

Remuneration scenarios
Chief Executive (CEO)Group Finance Director (GFD)

£’000
1,800
1,600

LTIPs
Annual bonus
Fixed pay

£1,619

1,400
27%

1,000
800
600

£401

41%

28%

27%

100%

46%

33%

100%

44%

32%

Fixed
pay

TargetMaximum

Fixedpay

TargetMaximum

04: Company Information

0

£906
28%

27%

27%

£542

400
200

£1,24240%£1,1881,200

Assumptions for charts above:
1. Fixed pay comprises salary levels as at 1 July 2018, pension contribution of 14% and the value of benefits received in 2017/18.
2. The on-target level of bonus is 75% of the maximum opportunity, i.e. 75% of salary.

scenarios
3.Remuneration
The on-target level ofvesting under the annual PSP is taken to be 50% of the face value of the award at grant, i.e. 75% of salary.
4. 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,
Chief Executive (CEO)Group Finance Director (GFD)
i.e. 100% and 150% of salary respectively.

£’000

5. No share price appreciation has been assumed for the PSP awards and for simplicity SIP awards, as well as dividend equivalents, are excluded.

1,600

1,400

LTIPs
Annual bonus
Fixed pay

1,200

£1,122

1,000£1,542£1,204
41%

28%

£876

800
600
400

£492

28%

41%

28%

27%
£384

03: Financial Statements

The charts below show the level of remuneration potentially payable to Executive Directors under different performance scenarios for the financial
year 2018/19 (see notes for assumptions):

28%

Oxford Instruments plc Report and Financial Statements 201827%

71

Remuneration continued
Remuneration Report

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

Executive Directors’ service contracts and policy on cessation
Details of the service contracts of the Executive Directors, available for inspection at the Company’s registered office and at the Company’s AGM,
are as follows:								Contract date		Unexpired term 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 the table 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 in lieu of the notice period (or part thereof) if it
so determines.
In addition, any statutory entitlements in connection with the termination would be paid 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 with vesting for outstanding share awards (in certain
circumstances – see below).
Change of control

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

Any share-based entitlements granted to an Executive Director under the Company’s share plans will be determined based on the relevant planrules. 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 at the 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, but with
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 the normal vesting date, subject to the satisfaction of the relevant performance conditions at that time andbe scaled back to reflect the proportion of the performance period actually served. The Committee has discretion in exceptional circumstances todisapply time pro-rating and/or to measure 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 and are scaled back to reflect the actual period ofservice, with the Committee having the discretion, acting fairly and reasonably, not to scale back.

External appointments
The Board encourages Executive Directors to accept appropriate external Non-Executive appointments provided the aggregate commitment iscompatible 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.

72

Oxford Instruments plc Report and Financial Statements 2018

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.

01: Strategic Report

Non-Executive Directors

Non-Executive Directors do not have service contracts but are appointed under letters of appointment for an initial period of three years withsubsequent reviews. Non-Executive Director appointments are now renewed for periods of one year, terminating at the next AGM. Theirappointment can be terminated without 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

Six months

Richard Friend						1 September 2014

None

Thomas Geitner						13 March 2017

None

Mary Waldner						4 February 2016

None

Steve Blair						None1 July 2017

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

02: Governance							

Attendance at meetings year ended 31 March 2018						

Remuneration Committee

Date of appointment to Committee

Number of meetings held						4Number of meetings attended:						Thomas Geitner, Chairman						

415 January 2013

Steve Blair1						21 July 2017

Richard Friend						41 September 2014

Alan Thomson						41 June 2016

Mary Waldner						44 February 2016

1. Steve Blair has attended all meetings since his appointment to the Committee.

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 for determining the remuneration of the Chairman.
The role of the Committee includes:• considering and determining the Remuneration Policy for the Executive Directors;

03: Financial Statements

The Remuneration Committee (unaudited)• 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 madeunder such plans;• reviewing and noting remuneration trends across the Group and considering these in terms of the Executive Directors’ remuneration; and• determining the policy for pension arrangements, service agreements, recruitment terms and termination payments to Executive Directors.

The Chief Executive, the Group HR Director and other executives are invited to attend Committee meetings as deemed appropriate. For example,
the Chief Executive is able to make a significant contribution when considering the performance of other Executive Directors and to discuss thewider Group remuneration policy and structure and terms and conditions affecting employees. However, no Executive Director is present when
the Committee is determining his or her remuneration.
The Committee acts within its agreed written terms of reference (which are published on the Company’s website: www.oxinst.com/investors)
and complied with the provisions of the 2016 UK Corporate Governance Code regarding remuneration.
The performance of the Committee is reviewed at least once a year as part of the Board evaluation process.
During the year the Committee fulfilled its duties, as laid down in the Committee’s terms of reference.
Korn Ferry Hay Group (KFHG) was the Committee’s independent remuneration consultant during the year and continues with this appointment
in 2018/19. KFHG is appointed by the Committee to provide advice on all aspects of executive remuneration as required by the Committee.
KFGH provides no other services to the Company.
Oxford Instruments plc Report and Financial Statements 201873

04: Company Information

The members of the Committee are appointed by the Board and currently comprise all the independent Non-Executive Directors: Thomas Geitner,
Steve Blair, Richard Friend, Mary Waldner; and the Chairman of the Board, Alan Thomson. Thomas Geitner is the Chairman of the Committee.
All members served throughout the year except for Steve Blair, who joined the Board and the Committee on 1 July 2017.

Remuneration continued
Remuneration Report

The Remuneration Committee (unaudited) continued
KFHG is a signatory to the Remuneration Consultants’ Code of Conduct and 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 the Company 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 KFHG
were £47,261.

Directors’ remuneration (audited)
The remuneration paid to the Directors during the year under review and the previous year is summarised in the tables below:								Long‑term		
				Salary			Annualincentive					and fees
Benefits2
Pension3
bonus4
awards5
Other6
Total
Executive			£’000
£’000
£’000
£’000
£’000
£’000
£’000

Ian Barkshire		
2018

418

51

53

268

—

1

791

			
2017

398

20

49

231

—

—

698

Gavin Hill1		
2018

326

18

41

209

—

1

595

			
2017

287

15

37

182

—

—

521

Total		
2018

744

69

94

477

—

2

1,386

			
2017

685

35

86

413

—

—

1,219

1. Gavin Hill was appointed to the Board as an Executive Director on 9 May 2016.
2. “Benefits” comprise provision of a car or car allowance, health insurance, life assurance, overnight hotel accommodation where necessary to carry out duties at the Head Office of theCompany and, from August 2017 for Ian Barkshire, provision of a driver to allow him to make best use of his commuting time. Provision of a driver accounted for £29,667 of the total benefits
for Ian Barkshire.
3. 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.
4. “Annual bonus” represents the full annual bonus, payable in cash, payable for the year to 31 March 2018 and paid in July 2018 payroll.
5. “Long‑term incentive awards” are those awards where the vesting is determined by performance periods ending in the year under report. No awards vested as a result of performance periods
ending in the year reported.
6. 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. In 2017/18 Ian Barkshire and Gavin Hill participated in the SIP up to the maximum extent permitted by HMRC. The Company offers a 1:5 match for partnership shares purchased by
employees and this amounted to £360 each of matching shares purchased for Ian Barkshire and Gavin Hill.
								Long-term								Annualincentive
					
Fees
Benefits
Pensionbonus
awardsNon-Executive				£’000
£’000
£’000
£’000
£’000

Total
£’000

Alan Thomson1			
2018

168

—

—

—

—

168

				
2017

104

—

—

—

—

104
41

2018

41

—

—

—

—

				
2017

—

—

—

—

—

—

2018

47

—

—

—

—

47

				
2017

44

—

—

—

—

44

2018

54

—

—

—

—

54

				
2017

52

—

—

—

—

52

Steve Blair2 			
Richard Friend			
Thomas Geitner			

2018

54

—

—

—

—

54

				
2017

50

—

—

—

—

50

Total			
2018

364

—

—

—

—

364

				
2017

250

—

—

—

—

250

Mary Waldner			1. Alan Thomson was appointed Non-Executive Director on 1 June 2016 and Chairman of the Board on 13 September 2016.
2. Steve Blair was appointed Non-Executive Director and Senior Independent Director on 1 July 2017.

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. There were no such appointments during the year.

74

Oxford Instruments plc Report and Financial Statements 2018

Since the launch of Horizon, progress has been made in a number of areas in support of the new strategy. The Group has transitioned to bea more commercially focused, market-driven business. Good progress has also been made in restructuring the portfolio and in building a new
management and leadership team with the specific capabilities and experience needed to accelerate Horizon. Against this background of strategic
activity, the Group delivered a stable performance in line with expectations.

01: Strategic Report

Details of annual bonus earned in year (audited)

As in previous years, the Committee set stretching performance targets for the annual bonus which are clearly linked to the strategy and financial
performance of the Group. Reported revenue was slightly above threshold performance of the organic sales metric and paid out 3.4% of the
maximum payable. Cash performance did not meet the threshold for payment. Adjusted PBT was £1 million above the “on-target” performancetarget and paid out 87.6% of the maximum payable for this element. An adjustment was made to the organic sales targets to take account of thedisposal of the Industrial Analysis business.
Actual£m

Payout %of maximum

Adjusted PBT		 0%33.75%

45%

37.2

41.3

43.3

42.3

87.6%

Organic sales		 0%

7.5%

10%

296.7

301.2

305.6

296.9

3.4%

Cash conversion		 0%

15%

20%

75%

80%

85%

68.5%

0%

Strategic objectives		
0%

—

25%

—

—

—

See page 76

96%

02: Governance

Percentage of salary payable
Targets					ThresholdOn target
Maximum
ThresholdOn target
Maximum
Measure		
CEO/GFD
CEO/GFD
CEO/GFD£m£m£m

The organic sales for 2017/18 are lower than those set for the year 2016/17 to take account of the financial impact of the disposal of the Industrial
Analysis business in July 2017. The target ranges set were considered to be equally challenging to those set in previous years taking into accountthe changes to the business.
The non-financial strategic objectives were set at the start of the year. Performance against them is set out below. The Committee in its review
noted the exceptional performance in achieving the Horizon strategic objectives, laying the foundations for future growth and agreed that, when
taking into account all the circumstances, a bonus of 24% out of the total 25% of salary available was appropriate.
WeightingAchievements towards objectives/performance

Develop Horizon strategy to define areas of
margin improvement and sustainable growth.

40%• Horizon strategy developed and approved by the Board.

Build and develop critical people capabilities.

25%• Strategic financial plan with growth and margin improvement opportunities
clearly defined and actions taken to implement approved by Board.
40 out of 40• Core capabilities defined and capability gaps assessed across the business.
• Key leadership and core business capabilities brought into the businessthroughout the year.
23 out of 25

Complete Industrial Analysis disposal
successfully with suitable transition
arrangements for the next twelve months.

25%

Build currency with investment communityand potential and current investors.

10%• Industrial Analysis transaction completed in full.

03: Financial Statements

CEO objectives and weighting• Transition plan put in place and delivered in full.
25 out of 25• Communications with investor community developed.
• New investors secured.
8 out of 10

Total

100%

96%
04: Company Information

Oxford Instruments plc Report and Financial Statements 201875

Remuneration continued
Remuneration Report

Details of annual bonus earned in year (audited) continued
GFD objectives and weighting

WeightingAchievements towards objectives/performance

Complete Industrial Analysis disposal
successfully with suitable transition
arrangements for the next twelve months.

30%• Industrial Analysis transaction completed in full.

Deliver a central and Federal overhead costbase commensurate with the post Industrial
Analysis Oxford Instruments.

20%

Manage and proactively drive the ongoing
implementation of Connect and deliver
efficiencies across the Group.

20%

Build on leadership profile and networks
within Oxford Instruments and externally.

15%

Develop, implement and deliver on the
Healthcare business plan.

15%• Transition plan put in place and delivered in full.
30 out of 30• £2 million savings identify and implemented.
• Federal and central teams restructured.
20 out of 20• Implementation completed in two planned locations.
• Rollout plan agreed, communicated and resourced going forward.
20 out of 20• Strong leadership profile established across the Company.
• Communications with investor community developed.
14 out of 15• Plan agreed and significant changes made to the leadership team andstructure of the business.
• Business did not deliver the financial targets.
12 out of 15

Total

100%

96%

The on-target and maximum bonus potentials for the Executive Directors, as well as the amounts actually payable for the year ended
31 March 2018, are set out below.
									Actual bonus						
On‑target
Maximum
payable for							bonusbonus2017/18							
(% of salary)(% of salary)(% of salary)1

Actual bonus
payable for2017/18(£’000)Ian Barkshire						
75%

100%

63.74%£268

Gavin Hill						
75%

100%

63.74%£209

1. Bonus is calculated on salary as at 31 March 2018.

Long-Term Incentive Plans (audited)
There are no Performance Share Plan (PSP) awards held by Executive Directors with performance periods ending in 2017/18.

Performance Share Plan awards made in the year and outstanding share incentive awards (audited)Awards made under the PSP on 25 September 2017 were as follows:
				
				

Total number ofshares granted

Percentage
of salary

Share price on day
before award date

Vesting date

Ian Barkshire			

65,630150%£9.60525 September 2020

Gavin Hill			

51,223150%£9.60525 September 2020

The awards are subject to two performance conditions measured over a three-year period commencing 1 April 2017. 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 award
is subject to a performance condition based on the Company’s return on capital employed in the final year of the performance period.
50% of the award will vest as set out below based on EPS measured over a three-year performance period starting 1 April 2017:
Performance level				EPS growth required

Below threshold				Less than 4% per annum over three years

0%

Threshold				

4% per annum over three years

25%

Between threshold and maximum			

4% to 10% per annum over three years

25% – 100%

Maximum				

10% per annum and above over three years

100%

76

Oxford Instruments plc Report and Financial Statements 2018

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

Below threshold			

Less than 13%% of award that will vest

0%Threshold			

13%

25%

Between threshold and maximum		

Between 13% and 15.5%

25% – 100%

Maximum			

15.5% per annum and above

100%

01: Strategic Report

50% of the award will vest as set out below based on return of capital employed (ROCE) being measured for the final year of the three-year
performance period starting 1 April 2017:

1. ROCE is calculated as EBIT/Average Capital Employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition related costs and changes in themark‑to‑market values of financial instruments and Capital Employed is the sum of net working capital and net book value of fixed assets, goodwill, intangible assets, investments in associatesand excluding cash.

As at 31 March 2018, the outstanding options for Ian Barkshire and Gavin Hill under the Executive Share Option Scheme (ESOS) and the PSP1 wereas follows:

Ian Barkshire2

Gavin Hill

ESOS

37,549				 37,549£10.28£10.31

15/06/15

15/06/18

ESOS

15,000				 15,000

£9.90

£9.87

14/12/11

14/12/14

13/12/21

PSP

83,390				 83,390

Nil

£7.34

21/06/16

21/06/19

20/06/26
24/09/27

14/06/25

PSP

65,630

—

Nil

£9.58

25/09/17

25/09/20

PSP

65,085				 65,085

Nil

£7.34

21/06/16

21/06/19

20/06/26

PSP

51,223Nil£9.58

25/09/17

25/09/20

24/09/27

65,630			
51,223			

—

02: Governance			
Share price					March		Movements during the year		
March
Exerciseon dateDate of
Earliest
LatestName
Scheme2018
GrantedExercised
Lapsed2017
priceof grant
grant
exercise
exercise

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

The market price of the shares at 31 March 2018 was £7.41 (2017: £8.20) and the range during the year was £6.76 – £11.38 (2017: £6.18 – £8.20).
Performance conditions for outstanding awards are described below:
ESOS

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 at that time.

PSP

50% of award

50% of award

21 June 20162

EPS growth – 7% p.a. (25% vesting)to 12% p.a. (100% vesting)

TSR v FTSE 250 (excluding financial companies3) –median (25% vesting) to upper quartile (100% vesting)

25 September 20174

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

ROCE5 in the final year of the performance period –13% (25% vesting) to 15.5% (100% vesting)

1. ESOS options granted on 15 June 2015 were only awarded to employees below the level of Executive Director.

03: Financial Statements

15 June 20151

2. Three‑year performance period commencing 1 April 2016.
3. Sectors excluded – banks, equity investment instruments, financial services, life insurance, non-life insurance, real estate investment trusts and real estate investment services.
4. Three-year performance period commencing 1 April 2017.
5. ROCE is calculated as EBIT/Average Capital Employed where EBIT is adjusted operating profit less amortisation of acquired intangibles, acquisition related costs and changes in themark‑to‑market values of financial instruments and Capital Employed is the sum of net working capital and net book value of fixed assets, goodwill, intangible assets, investments inassociates and excluding cash.

Achievement of performance conditions (unaudited)
04: Company Information

The calculation of the TSR performance conditions is independently measured. EPS and ROCE performance conditions are measured using theaudited 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.

Oxford Instruments plc Report and Financial Statements 201877

Remuneration continued
Remuneration Report

Shareholding requirements (audited)
The Executive Directors are required to build and retain a shareholding in the Company equivalent in value to 150% of basic salary. Until therequirement is met, the Executive Directors are expected to retain or purchase shares equivalent to the value of 50% of the net amount realised
on exercise of long-term incentive awards after allowing for tax payable.
Executive Directors’ shareholdings as at 31 March 2018 are shown in the table below.
			
			
		
Legally		
owned

Percentage of			
salary held in
Guideline
ESOS options
shares under share
met as atvested but
holding guideline1
31 March 2018
unexercised

Subject toperformance
conditions under the
PSP and ESOS unvested

Ian Barkshire2

11,89221%

No

15,000186,569

Gavin Hill

5,500

12%

No

—

116,308

1. Shares valued using the market price of the shares on 31 March 2018: £7.41.
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.

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 £9,973 (2017: £7,478) into the Company’s Group Personal Pension Plan in respect of Ian Barkshireand £9,950 (2017: £9,167) 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 2018 was £599,835 (2017: £579,101).

Payments to past Directors and for loss of office (audited)
Nigel Keen, who ceased to be the Chairman of the Board on 13 September 2016, acted as Chairman of the Trustee of the Oxford Instruments
Pension Scheme until 1 September 2017. Imperialise Limited is paid fees for Nigel Keen’s services together with a sum equivalent to the employer’s
national insurance contributions on those fees. He received fees of £10,417 (plus the equivalent of employer’s national insurance contributions
thereon) in the year to 31 March 2018.
There were no payments to Directors for loss of office.

Performance graph and CEO’s remuneration (unaudited)
The graph below shows for the nine years ended 31 March 2018 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.
2,000£
Oxford Instruments
FTSE 350 E & EE
FTSE Techmark

1,500

FTSE SmallCap

1,000

500

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

31 March
2018

This graph shows the value, by 31 March 2018, of £100 invested in Oxford Instruments plc on 31 March 2009 compared with the value of £100
invested in the FTSE SmallCap, FTSE Techmark and FTSE 350 Electronic and Electrical Equipment indices. The other points plotted are the values
at intervening financial year ends.
78

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

The total remuneration of the CEO over the last nine years is shown in the table below. The annual bonus payout and PSP vesting level as apercentage of the maximum opportunity is also shown.
									
DJFYear ending 31 March			2011
2012
2013
2014
2015
2016
20171

IRB
20171

Total remuneration (£’000)		2,596

3,464

2,348

1,179

579

743

64

620

791

Annual bonus outcome (%)		 100%

100%

69.1%

15.0%

7.5%

38.6%

0%

56.3%

63.7%

ESOS2 vesting (%)			100%

100%

100%

100%

0%

0%

0%

N/A

N/A

SELTIS/PSP vesting (%)			 50%

100%

100%

100%

0%

0%

0%

N/A

N/A

2018

1. 2016/17 financial year: remuneration shown separately for Jonathan Flint (DJF) who was CEO from 1 April to 11 May 2016 and Ian Barkshire (IRB) who was CEO from 12 May 2016 to
31 March 2017.
2. Executive Directors were last granted ESOS options in June 2014.

The table below shows the percentage change in each of the CEO’s salary, taxable benefits and annual bonus earned between 2016/17 and2017/18, compared to that for the average UK‑based employee of the Group (on a per capita basis).
CEO1
				
£’000				2017/18
2016/17% change

Average employee2
2017/18

2016/17

Salary				
417.7

397.9

5.0%

41.9

41.4

1.2%

Benefits3				
51.0

20.0

155.0%

1.7

1.9(10.5%)

Bonus4				
267.9

230.6

16.2%

1.7

1.3

30.8%

% change

02: Governance

Percentage change in the remuneration of the Chief Executive (unaudited)

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 that year at£410,000 p.a.).
2. Average employee includes all UK employees in service on 1 April 2016 and 31 March 2018 but excludes those who were on maternity or long‑term sick leave.
3. In August 2017, the CEO was provided with a driver. The cost of this benefit for 2017/18 was £29,667.
4. The value of the average employee bonus for the year ended 31 March 2018 (to be paid in July 2018) 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 March2017% change

Employee costs1 (£m)							
96.6

114.3

(15.5%)

Dividends (£m)							
7.5

7.4

1.4%

Share buybacks (£m)							
0.0

0.0

0%

1. The employee costs, restated to take out the employee costs in respect of the Industrial Analysis and Superconducting Wire businesses which were sold in July 2017 and November 2016
respectively, are: year ended 31 March 2018: £92.0 million; year ended 31 March 2017: £92.9 million; percentage change: -1%.

Statement of Shareholder voting (unaudited)

03: Financial Statements								Year ended								31 March							2018

At last year’s AGM, the Directors’ Remuneration Policy and Annual Report on Remuneration received the following votes from Shareholders:						
Votes				Votes marked
Resolution				Votes fordiscretionary
Votes against% for% against
as abstain

To approve the Directors’ Remuneration Policy 		

45,921,808

3,070,455

548,61498.9

1.1

19,533

To approve the Annual Report on Remuneration		

46,473,029

3,070,455

8,393

99.98

0.02

5,533

04: Company Information

Oxford Instruments plc Report and Financial Statements 201879

Remuneration continued
Remuneration Report

How the policy will be applied in 2018/19 (unaudited)
Base salaries
In line with the general workforce, the Executive Directors will receive salary increases of 2.5% for 2018/19 effective from 1 July 2018. The CEO’ssalary as a result of the increase will be £430,750 and the GFD’s £336,200.

Benefits and pension
These will be made in accordance with the approved Policy. Benefits will be in line with those received in 2017/18.

Annual bonus
The maximum opportunity under the annual bonus plan for 2018/19 will be 100% of base salary for both the CEO and GFD.
A combination of financial (85%) and non-financial strategic (15%) metrics will be used to determine the level of payment under the annual bonus
for the CEO and GFD and as detailed in the table below:									Weighting as a % of opportunity
Measure								On target

Maximum

Organic sales (£m)								
15%21.25%

Profit (£m)								
30%

42.5%

Cash generation (£m)								
15%21.25%

Strategic objectives								Up to 15.00%
Non-financial strategic objectives have been agreed and are linked to the development and implementation of the Horizon strategy. For the CEO
these objectives focus on key talent, corporate finance opportunities and operational efficiencies. For the GFD these objectives focus on theimplementation of Connect, active management of working capital and growth in the Healthcare division.
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.

Long‑term incentives in respect of the 2018/19 financial year
The 2018/19 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 2018. The ranges for both measures
have been increased from those set for last year’s awards.
Half of the award

Half of the award

EPS growth – 4% p.a. (25% vesting) to 12% p.a. (100% vesting) overthree financial years commencing with the 2018/19 financial year.

ROCE – 16% in the final year of the performance period(2020/21 financial year) (25% vesting) to 20% (100% vesting).

Non-Executive Directors’ fees
The Committee and the Board, as appropriate, have reviewed the fees for the Chairman and Non-Executive Directors. In line with the general
workforce, the basic fees for the Non-Executive Directors and Chairman will increase by 2.5% for 2018/19, effective from 1 July 2018.
								2017/181

2018/191% increase

Board Chairman							£169,125£173,350

2.5%

Additional fee for Deputy Chairman						£5,000£5,0000%Basic fee							£47,500£48,700

2.5%

Additional fee for Senior Independent Director					£7,500£7,5000%Additional fee for Committee Chairman						£7,500£7,5000%

1. The fees shown for 2017/18 and 2018/19 are the annual rates as at 1 July 2017 and 1 July 2018 respectively.

ApprovalThis report was approved by the Committee on 12 June 2018 and has been approved subsequently by the Board for submission to Shareholders at
the Annual General Meeting to be held on 11 September 2018.

Thomas Geitner
Chairman of the Remuneration Committee
12 June 201880

Oxford Instruments plc Report and Financial Statements 2018

Financial calendar

23 February 2018

Record date forinterim dividend

12 March 2018

Dividend reinvestment(DRIP) last date for election

31 March 2018

Financial year end

6 April 2018

Payment of interim dividend

12 June 2018

Announcement of
preliminary results

12 June 2018

Announcementof final dividend

July 2018

Publication of Annual Report

11 September 2018

Annual General Meeting

13 September 2018

Ordinary shares
quoted ex-dividend

14 September 2018

Record date for final dividend

28 September 2018

DRIP date

19 October 2018

Payment of final dividend

13 November 2018

Announcementof half‑year results

March 2019

Ordinary shares
quoted ex-dividend

March 2019

DRIP last date for election

March 2019

Record date forinterim dividend

31 March 2019

Financial year end

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.signalshares.com. To register
to use this facility you will need your Investor
Code (IVC), which can be found on your sharecertificate, dividend confirmation statement
or proxy card.
Administrative enquiries concerning
shareholdings in Oxford Instruments plc,
such as the loss of a share certificate, dividend
payments, or a change of address should bedirected, in the first instance, to the Registrar,
Link Asset Service, 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: shareholder.enquiries@linkgroup.co.uk
Website: www.signalshares.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.

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 Link 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. Lines are open between 09:00 – 17:30,
Monday to Friday excluding public holidays
in England and Wales).
Website: www.signalshares.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 Link Asset
Services, who will be pleased to carry out yourinstructions.

04: Company Information

Investor publications

03: Financial Statements

Ordinary shares
quoted ex-dividend

Dividend bank mandates

02: Governance

22 February 2018

Administrative enquiries
concerning shareholdings

01: Strategic Report

Relations with
Shareholders

The Group website provides up-to‑date
information on corporate and investor
news, as well as a wide range ofadditional supporting documentation.
The Company’s Annual and Interim
Reports are available to download fromthe website, alongside recent recordingsof the city results presentations.

Find out more online
www.oxinst.com/investors

Oxford Instruments plc Report and Financial Statements 201881

Relations with
Shareholders continued
Shareholder communications

Link Share Dealing Services

Unless you have elected to continue to receive
Shareholder communications by post, you will
be notified by post or, where you have given
us an email address for electronic notification,by email that Shareholder communications
are available for viewing on the Company’s
website at www.oxinst.com/investors.
The Company reserves the right to distribute
any communication in hard copy if it deems
this necessary.

A quick and easy share dealing service toeither sell or buy shares in many leading UK
companies is provided by Link Share Dealing
Services. An online and telephone facility isavailable, providing our Shareholders withan easy-to-access and simple-to-use service.
There’s no need to pre-register and there areno 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 yourinstruction. To deal online or by telephone
all you need is your surname, Investor Code
(IVC) reference number, full postcode, yourdate of birth and National Client Identifier.
Your Investor Code can be found on a recent
share certificate, statement or tax voucher.
Should you not be able to locate your IVC
number, please contact Link Asset Services
on +44 (0)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). 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.

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.oxinst.com

Company registration
Registered office: Tubney Woods, Abingdon
Oxfordshire OX13 5QXRegistered in England number: 775598
Website: www.oxinst.com
Oxford Instruments has an extensive website
which gives details of all its products andservices, contact information, vacancies andlatest news announcements. An interactive
investor relations section gives information on
recent trading reports, share price data andforthcoming events.

For further information on this service,or to buy and sell shares, please contact
www.linksharedeal.com (online dealing)or +44 (0)371 664 0445 (telephone dealing).
Calls are charged at the standard geographic
rate and will vary by provider. Calls outside
the United Kingdom will be charged at theapplicable international rate. Lines are open
between 09:00 – 17:30, Monday to Friday
excluding public holidays in England andWales). Full terms, conditions and risks apply
and are available on request or by visitingwww.linksharedeal.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 thatyou originally invested.

Analysis of Shareholders as at 31 March 2018
Size of shareholding			 Number of holders% of total

Total holding% of total

Up to 5,000 shares			

1,943

87.60

1,162,372

2.03

5,001 to 50,000 shares			

155

6.99

2,657,360

4.63

50,001 to 200,000 shares			

35

1.58

2,557,872

4.46

Over 200,000 shares			

85

3.83

50,998,000

88.88

100

57,375,604

100

Total			2,21882Oxford Instruments plc Report and Financial Statements 2018

The Directors present their Report and the
Financial Statements of Oxford Instruments plc
for the year ended 31 March 2018.

Principal activity andbusiness reviews

Results and dividends

Risks and uncertainties

Biographies of all the Directors at the dateof this report, including the Non-Executive
Directors, appear on pages 50 and 51. During
the year, on 1 July 2017, Stephen Blair was
appointed Non-Executive Director and Senior
Independent Director of the Company.

Directors’ conflicts of interest
The Companies Act 2006 allows Directorsof public companies to authorise conflicts
and potential conflicts of interest, whereappropriate. Only Directors with no interestin the matter under consideration may
participate in the relevant decision and indoing so they must act in a way which they
consider in good faith will be most likely topromote the Company’s success. A conflicts
policy has been drawn up, which is reviewed
annually, and a register of conflicts andpotential 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 2018, are shown below.
Details of share options for the Executive
Directors are shown in the Remuneration
Report on pages 67 to 78.
31 March
2018
Shares31 March
2017
SharesIan Barkshire

11,982

5,982

Stephen Blair——

Richard Friend——

Thomas Geitner——

Gavin Hill

5,500

—

Alan Thomson

5,000

—

Mary Waldner

1,000

—

No Director was beneficially interested in theshares of any subsidiary company at any time
during the year.

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 2018 the issued
share capital was increased by 0.1% with
the issue of 59,688 ordinary shares(2017: 17,005) following the exercise of
options under the Company’s share option
schemes. At 31 March 2018, the issued
share capital of the Company was therefore
57,375,604 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 March2018 (representing 0.3% of the total issued
share capital of the Company). No shares in
the Company were acquired by the Company
during the year (2017: nil). Details of theshare capital and options outstanding as at
31 March 2018 are set out in Notes 23 and
12 respectively to the Financial Statements.

Oxford Instruments plc Report and Financial Statements 201883

04: Company Information

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.

Directors

Insurance cover andDirectors’ indemnities

03: Financial Statements

The results for the year are shown in theConsolidated Statement of Income on
page 91. The Directors recommend a final
dividend of 9.6 pence per ordinary share,
which together with the interim dividend of
3.7 pence per ordinary share makes a totalof 13.3 pence per ordinary share for the year(2017: 13.0 pence). Subject to Shareholder
approval, the final dividend will be paid on
19 October 2018 to Shareholders registeredat close of business on 14 September 2018.

There are a number of risks and uncertainties
which may have a material effect on the Oxford
Instruments Group. These are described in
Principal Risks on pages 35 to 38.

In the year to 31 March 2018 no Director
had a material interest in any contract ofsignificance with the Company or any of its
subsidiaries. Since the year end, there havebeen no changes to the above shareholdings
apart from for Ian Barkshire and Gavin Hill,
who each joined the Oxford Instruments Share
Incentive Plan shortly before the year end andsince the year end have each increased theirbeneficial holding by 251 shares.

02: Governance

The Company is the ultimate holding company
of a group of subsidiary undertakings (“theGroup”) engaged in the research, development,
manufacture, rental, sale and service of hightechnology tools and systems. The Company
is required to set out in this report a true andfair view of the business of the Group during
the financial year ended 31 March 2018,
the position of the Group at the end of thefinancial year and a description of the principal
risks and uncertainties facing the Group. The
information which fulfils these requirements
includes an Operations and Finance Review on
pages 20 to 34 and Corporate Responsibility
on pages 40 to 47, which are incorporated inthis report by reference. The operations, thestrategic review, the Research and Development
activities and likely future prospects of theGroup are reviewed in the Strategic Report on
pages 1 to 47.

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.

01: Strategic Report

Report of
the Directors

Report of
the Directors continued
Share capital continued

Charitable donations

Financial risk management

At this year’s Annual General Meeting, theDirectors propose to renew the authorities
granted to them at last year’s AGM to:

During the year, the Group made charitable
donations of £5,068 (2017: £8,585). There
have been no political donations during
the year.

Details of the Group’s financial risk
management objectives and policies,
including the exposure to price, credit andliquidity risk are set out in Note 21 to the
Financial Statements.

• 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;• 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; and• 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%
or more (where the holding is direct), or of
5% or more (where the holding is indirect),which have been notified to the Directors of
the Company, in accordance with Chapter 5of the Disclosure and Transparency Rules, of
the Company’s issued ordinary share capital,
the only class of voting capital, at 6 June 2018:
Direct/indirect

Shares
‘000

% of
total

Ameriprise
Financial

Indirect/direct8,080,361 14.1

Standard Life
Aberdeen plc

Indirect

3,715,599

6.5

Sir MF and
Lady KA Wood

Direct3,105,530

5.4

Baillie Gifford& Co

Indirect

2,917,516

5.1

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 March2018 trade creditors of the Company and theGroup’s UK subsidiaries were equivalent to
45 days (2017: 11) and 67 days (2017: 64) ofpurchases respectively, based on the amounts
invoiced by suppliers during the year and theamounts owed to trade creditors at the endof the year.

84

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 11 September 2018 is set out
in a letter to Shareholders together with
explanatory notes relating to the resolutions.

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 40 to 47
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
45 to 46.

Material events
There were no material events since the year
end to report.
By order of the Board

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.

Susan Johnson-BrettCompany Secretary

Change of control arrangements

12 June 2018

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 the Corporate Governance
Report on pages 52 to 58.

Oxford Instruments plc Report and Financial Statements 2018

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.

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;• 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;

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.

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 Report and Financial
Statements, taken as a whole, is fair,balanced and understandable and provides
the information necessary for Shareholders toassess the Group’s position and performance,business model and strategy.
Signed on behalf of the Board

Ian Barkshire
Chief Executive

03: Financial Statements• for the Group Financial Statements,
state whether they have been preparedin accordance with IFRSs as adopted by
the EU;

Under applicable law and regulations, theDirectors are also responsible for preparing
a Strategic Report, Directors’ Report,
Remuneration Report and Corporate
Governance Statement that comply withthat law and those regulations.

Responsibility statement of the
Directors in respect of the annual
financial report

02: Governance

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.

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.

01: Strategic Report

Directors’ Responsibilities

Gavin Hill
Group Finance Director

12 June 2018• assess the Group and Parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and

04: Company Information• use the going concern basis of accounting
unless they either intend to liquidate theGroup or the Parent Company or to cease
operations, or have no realistic alternative
but to do so.

Oxford Instruments plc Report and Financial Statements 201885

Independent Auditor’s Reportto the members of Oxford Instruments plc
1. Our opinion is unmodified
We have audited the financial statements of Oxford Instruments plc(“the Company”) for the year ended 31 March 2018 which comprise
the Consolidated Statement of Income, Consolidated statement ofComprehensive Income, Consolidated Statement of Financial Position,
Consolidated Statement of Changes in Equity, Consolidated Statementof Cash Flows, Company Balance Sheet, Company Statement of
Changes in Equity and the related notes, including the accounting
policies set out on pages 98 to 104.

Overview
Materiality:
group financial
statements as awhole

£1.5m (2017: £1.1m)

Coverage

91% (2017: 92%) of group profit before tax fromcontinuing operations

4.8% (2017: 5.0%) of group profit before tax fromcontinuing operations adjusted for restructuring costs,
net profit on disposal of buildings, share of impairment
recognised by associate and mark to market gains in
respect of derivative financial instruments of £31.4 million

In our opinion:

Risks of material misstatement• the financial statements give a true and fair view of the state of theGroup’s and of the parent Company’s affairs as at 31 March 2018
and of the Group’s profit for the year then ended;

Recurring risks• the Group financial statements have been properly prepared inaccordance 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 therequirements of the Companies Act 2006 and, as regards the Groupfinancial statements, Article 4 of the IAS Regulation.

Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities aredescribed below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.
We were appointed as auditor by the Company before 1984.
The period of total uninterrupted engagement is for more than the
35 financial years ended 31 March 2018. We have fulfilled our ethicalresponsibilities under, and we remain independent of the Group inaccordance with, UK ethical requirements including the FRC EthicalStandard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.

86

Oxford Instruments plc Report and Financial Statements 2018vs 2017

Revenue recognition in the NanoScience and Plasma
business unitstuCompleteness and accuracy of provisions in respectof intellectual property claimstuParent company: valuation of investments held by
the parent company

tu

2. Key audit matters: our assessment of risks ofmaterial misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by us, including
those which had the greatest effect on: the overall audit strategy; theallocation of resources in the audit; and directing the efforts of theengagement team. We summarise below the key audit matters, indecreasing order of audit significance, in arriving at our audit opinion
above, together with our key audit procedures to address those mattersand, as required for public interest entities, our results from those
procedures. These matters were addressed, and our results are basedon procedures undertaken, in the context of, and solely for the purposeof, our audit of the financial statements as a whole, and in forming our
opinion thereon, and consequently are incidental to that opinion, andwe do not provide a separate opinion on these matters.

Our response

2017/2018 sales:

Our procedures included:
Tests of details

Risk vs 2017 tu

There is a risk that revenue is recognised on sales before
the significant risks and rewards of ownership havepassed, particularly in the Plasma and NanoSciencebusiness units.

Refer to page 64(Audit and Risk
committee report),
page 102 (accounting
policy) and pages
107 to 109 (financial
disclosures

Given the complex nature of the products, judgement
is required in determining whether the risks andrewards have passed by assessing a number of factors,
notably, whether shipping terms have been met andthe complexity of any installation element of the sale.
As such there is a risk that, revenue is recognised in
the incorrect period.

Revenue recognition(Revenue: £296.9
million (2017:£300.2 million))

Consequently this is one of the key areas our audit isfocused on.
Completenessand accuracy ofprovisions in respectof intellectual
property claims(£3.2 million,
2017: £3.2 million)
Risk vs 2017 tu
Refer to page 64(Audit and Risk
committee report),
page 98 (accounting
policy) and page 131(financial disclosures)

Testing, on a sample basis, whether specific revenue transactions around the year
end had been recognised in the appropriate period by assessing whether thesignificant rewards of ownership had passed, with reference to, nature of products,
the terms of sale within the associated contracts and the relative complexity of
product installation.
Considering whether a sample of credit notes issued after the year end should
reduce revenue in the period and challenging those that were not by obtaining
evidence to support any adjustments made.
Assessing a sample of year end deferred and accrued income against contractual
terms and evidence of transfer of risks and rewards to determine whether revenue
for this sample has been recognised in the correct period.
Our results
We found the revenue recognised in the Plasma and NanoScience business units tobe acceptable (2017: acceptable).

Omitted exposure:

Omitted exposure procedures:

The Group designs and builds customised, hightechnology products, incorporating specific complex
design features and intellectual property. As such there
is a risk that the Group infringes the intellectual property
belonging to third parties.

Personnel interviews: Enquiring with Group’s internal legal counsel and business
unit managers regarding new and previously unrecorded intellectual property
claims and the likelihood of the claims.

This could result in a material unrecorded provision forcompensation required to be paid to third parties.

Compliance data scrutiny: Inspecting the Group’s litigation register andcorrespondence between the group and other parties, including legal advisers, for
unrecorded claims and assessing whether a provision is required for these claims.

Subjective estimate:

Subjective estimate procedures:

The estimation of any provision required for intellectual
property claims is inherently subjective based on thewide range of potential outcomes due to differing
settlement methods and royalty rates.

Our sector experience: Challenging the reasonableness of the key assumptions
made by the Group, such as potential royalty rates payable in respect of intellectual
property claims and likelihood of an outflow of resources against our own
expectations based on our historical knowledge, experience and understanding
and our review of correspondence with competitors.

Personnel interviews: Evaluating assumptions through discussion of claims withGroup’s internal legal counsel and relevant business unit managers.
Assessing transparency: Assessing whether the Group’s disclosures regarding therange of possible outcomes appropriately reflect the risks identified.
Our results
We found the level of provisions for potential infringements of a competitors
intellectual property to be acceptable (2017: acceptable).
Low risk/high value:

Our procedures included:

The carrying amount of the parent company’s
investments in subsidiaries represents 92% (2017: 82%)of the company’s total assets. Their recoverability is not
at a high risk of significant misstatement or subject tosignificant judgement. However, due to their materiality
in the context of the parent company financial
statements, this is considered to be the area that had
the greatest effect on our overall parent company audit.

Tests of detail: Comparing the carrying amount of 100% of investments with therelevant subsidiaries’ draft balance sheet to identify whether their net assets, being
an approximation of their minimum recoverable amount, were in excess of theircarrying amount and assessing whether those subsidiaries have historically been
profit-making.

Our sector experience: For the investments where the carrying amount exceeded
the net asset value, performing our own assessment of the key assumptions used
to estimate recoverable amount such as forecast cash flows, long-term growth
rates and the discount rate applied with reference to historical performance ofsimilar lines of business and externally derived data including, industry growth rates
and market interest rates.
Our results
We found the group’s assessment of the recoverability of the investment in
subsidiaries to be acceptable (2017: acceptable).

We continue to perform procedures over the recoverability of acquired intangible assets. However, following the impairments recognised in theprior year in relation to the Healthcare and Asylum businesses and improved current year performance, we have not assessed this as one of themost significant risks in our current year audit and, therefore, it is not separately identified in our report this year.

Oxford Instruments plc Report and Financial Statements 201887

04: Company Information

Assessing subsidiary audits: Assessing the work performed by the subsidiary
audit team for a sample of subsidiaries and considering the results of that work,on those subsidiaries’ profits and net assets.

03: Financial Statements

Enquiry of lawyers: Enquiring with the Group’s external legal advisers in respectof open matters of litigation regarding the likelihood of an outflow of resources
and the appropriateness of assumptions used, including the royalty rates applied in
calculating a provision.

Valuation of
investments held by
the parent company(£320.9 million;
2017: £320.5 million)

02: GovernanceFurthermore, due to the seasonality of the business,a significant proportion of these businesses revenue isrecognised in March resulting in an increased risk ofrevenue being recognised in the incorrect period.

01: Strategic Report

The risk

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

3. Our application of materiality andan overview of the scope of our audit
Materiality for the group financial statements as a whole was set at£1.5m (2017: £1.1m), determined with reference to a benchmark of
profit before tax from continuing operations normalised to exclude
restructuring costs, net profit on disposal of buildings, share of
impairment recognised by associate and mark to market gains in
respect of derivative financial instruments as disclosed in note 1.
Total profits and losses that made up normalised Group profit before
tax from continuing operations is calculated as £31.4m (2017: £22.2m)
of which materiality represents 4.8% (2017: 5.0%).
Materiality for the parent company financial statements as a whole wasset at £1.0m (2017: £0.8m), determined with reference to a benchmarkof company total assets, of which it represents 0.3% (2017: 0.2%).
We agreed to report to the Audit and Risk Committee any correctedor uncorrected identified misstatements exceeding £75,000, in
addition to other identified misstatements that warranted reporting on
qualitative grounds.
Of the group’s 72 (2017: 70) reporting components, we subjected
14 (2017: 16) to full scope audits for group purposes and 3(2017: 4) to specified risk-focused audit procedures. The latter were
not individually financially significant enough to require a full scope
audit for group purposes, but did present specific individual risks
that needed to be addressed.
The group team performed procedures on the items excluded fromnormalised group profit before tax.

The remaining 6% (2017: 7%) of total group revenue, 9% (2017: 8%)of total profits and losses that made up group profit before tax fromcontinuing operations and 8% (2017: 10%) of total group assets isrepresented by 55 (2017: 50) reporting components, none of which
individually represented more than 2% (2017: 2%) of any of totalgroup revenue, group profit before tax or total group assets. For theseresidual 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 Group team visited 6 (2017: 6) component locations in the UK,
USA and Sweden (2017: UK, USA, Sweden and Germany) to confirm
appropriate execution of the audit strategy & plan and inspect theirfindings. Video and telephone conference meetings were also heldwith these component auditors and all others that were not physically
visited. At these visits and meetings, the findings reported to the Groupteam were discussed in more detail, and any further work required by
the Group team was then performed by the component auditor.
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above andthe information to be reported back. The Group team approved
the component materialities, which ranged from £0.1m to £1.0m(2017: £0.6m to £0.8m), having regard to the mix of size and risk
profile of the Group across the components. The work on 8 of the
17 components (2017: 12 of the 24 components) was performed bycomponent auditors and the rest, including the audit of the parent
company, was performed by the Group team.

The components within the scope of our work accounted for thepercentages indicated opposite.

Profit before tax from continuing
operations adjusted for
restructuring costs, net profit on
disposal of buildings, share of
impairment recognised by associate
and mark to market gains in respectof derivative financial instrumentsof £31.4m (2017: £22.2m)

Group Materiality£1.5m (2017: £1.1m)£1,500,000

Whole financial
statements materiality(2017: £1.1m)£1,000,000

Range of materiality at
17 components £0.1m
to £1.0m (2017: £0.6m
to £0.8m)

Profit before tax from continuing operations1
Group materiality
1. Adjusted for restructuring costs, net profit
on disposal of buildings, share of impairment
recognised by associate and mark to market gains
in respect of derivative financial instruments.

88

Oxford Instruments plc Report and Financial Statements 2018

£75,000

Misstatements reported
to the audit committee(2017: £55,000)

5. We have nothing to report on theother information in the Annual Report

Group total assets

The directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.

8
16

8
12

11
9

94%

92%

(2017: 93%)81(2017: 89%)

78

80

84

3
24

9

Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, theinformation therein is materially misstated or inconsistent with thefinancial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.

Strategic report and directors’ report
Based solely on our work on the other information:• we have not identified material misstatements in the strategic report
and the directors’ report;

02: GovernanceTotal profits and losses that madeup group profit before tax fromcontinuing operations

01: Strategic Report

Group revenue• in our opinion the information given in those reports for thefinancial year is consistent with the financial statements; and8• in our opinion those reports have been prepared in accordance with
the Companies Act 2006.

91%(2017: 92%)

68

Directors’ remuneration report88

In our opinion the part of the Directors’ Remuneration Report to beaudited has been properly prepared in accordance with the Companies
Act 2006.

Disclosures of principal risks and longer-term viability

Specified risk-focused audit procedures 2018

Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in
relation to:

Full scope for group audit purposes 2017
Specified risk-focused audit procedures 2017
Residual components

4. We have nothing to report on going concern
We are required to report to you if:• we have anything material to add or draw attention to in
relation to the directors’ statement on page 39 of the financial
statements on the use of the going concern basis of accounting
with no material uncertainties that may cast significant doubt
over the Group and Company’s use of that basis for a period ofat least twelve months from the date of approval of the financial
statements; orWe have nothing to report in these respects.

• the Principal Risks disclosures describing these risks and explaining
how they are being managed and mitigated; and• the directors’ explanation in the viability statement of how they
have assessed the prospects of the Group, over what period
they have done so and why they considered that period to beappropriate, and their statement as to whether they have areasonable expectation that the Group will be able to continue inoperation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.

Oxford Instruments plc Report and Financial Statements 201889

04: Company Information• if the related statement under the Listing Rules set out on page 39
is materially inconsistent with our audit knowledge.

• the directors’ confirmation within the viability statement on page 38that they have carried out a robust assessment of the principal risksfacing the Group, including those that would threaten its businessmodel, future performance, solvency and liquidity;

03: Financial Statements

Full scope for group audit purposes 2018

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

5. We have nothing to report on the otherinformation in the Annual Report continued
Corporate governance disclosures
We are required to report to you if:• we have identified material inconsistencies between the knowledge
we acquired during our financial statements audit and the directors’
statement that they consider that the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess theGroup’s position and performance, business model and strategy; or• the section of the annual report describing the work of the Audit
Committee does not appropriately address matters communicatedby us to the Audit Committee.
We are required to report to you if the Corporate GovernanceStatement does not properly disclose a departure from the elevenprovisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.

Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether thefinancial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and toissue our opinion in an auditor’s report. Reasonable assurance is a highlevel of assurance, but does not guarantee that an audit conducted inaccordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisionsof users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.

Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be
expected to have a material effect on the financial statements from oursector experience and through discussion with the directors and othermanagement (as required by auditing standards).

Under the Companies Act 2006, we are required to report to you if,
in our opinion:

We had regard to laws and regulations in areas that directly affect thefinancial statements including financial reporting (including relatedcompany legislation) and taxation legislation. We considered theextent of compliance with those laws and regulations as part of ourprocedures on the related financial statement items.

• adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or

We communicated identified laws and regulations throughout our teamand remained alert to any indications of non-compliance throughout
the audit.

• the parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreementwith the accounting records and returns; orAs with any audit, there remained a higher risk of non-detection of
non-compliance with relevant laws and regulations (irregularities),
as these may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal controls.

6. We have nothing to report on the other matterson which we are required to report by exception• certain disclosures of directors’ remuneration specified by law are
not made; or• we have not received all the information and explanations werequire for our audit.
We have nothing to report in these respects.

7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 85,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fairview; for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group andparent Company’s ability to continue as a going concern, disclosing,as applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate theGroup or the parent Company or to cease operations, or have norealistic alternative but to do so.

8. The purpose of our audit work andto whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to theCompany’s members those matters we are required to state to themin an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for
our audit work, for this report, or for the opinions we have formed.

Greg Watts (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway Birmingham
B4 6GH
12 June 201890

Oxford Instruments plc Report and Financial Statements 2018

year ended 31 March 2018

2018
2017
				
					
Adjusting			Adjusting					
Adjusted1
items1
Total
Adjusted1
items1
				
Notes
£m
£m
£m
£m
£m

Total
£m

296.9

—

296.9

300.2

—

300.2

(146.0)—(146.0)(142.9)—(142.9)Gross profit				
150.9

—

150.9

157.3

—

157.3

5

(23.4)—(23.4)(23.6)(0.7)(24.3)

Selling and marketing				(53.9)—(53.9)(54.1)—(54.1)

Administration andshared services				(28.5)(12.1)(40.6)(28.8)(49.6)(78.4)

6

0.5

(2.4)

(1.9)

(0.8)

(8.4)

(9.2)

Other operating income				

—

3.3

3.3

—

—

—

Foreign exchange				
0.9

3.1

4.0

(12.0)

1.2(10.8)

Operating profit/(loss)				
46.5

(8.1)

38.4

38.0

(57.5)(19.5)

0.3

—

0.3

0.2

—

0.2

Financial income				
0.3

—

0.3

0.2

—

0.2

Research and Development			

Share of profit/(loss) of associate, net of tax

Other financial income			

8
25

(0.6)

—

(0.6)

(1.1)

—

(1.1)

Other financial expenditure			

9

(3.9)

—

(3.9)

(5.6)

(0.2)

(5.8)

Financial expenditure				
(4.5)

—

(4.5)

(6.7)

(0.2)

(6.9)

Profit/(loss) before income tax
from continuing operations			
42.3

(8.1)

34.2

31.5

(57.7)(26.2)(10.1)(4.5)(14.6)

(7.8)

8.5

0.7

32.2

(12.6)

19.6

23.7(49.2)(25.5)

(0.4)

46.3

45.9

4.3

0.9

5.2

31.8

33.7

65.5

28.0

(48.3)(20.3)

Income tax (expense)/credit			

13

Profit/(loss) for the year fromcontinuing operations			
(Loss)/profit from discontinued operations after tax

7

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

pence		pence

Earnings per share
Basic earnings per share			2

From continuing operations			

56.3		34.3

41.5		(44.7)

From discontinued operations			(0.7)		80.2

7.5		9.1

From profit/(loss) for the year			55.6		114.5

49.0		(35.6)

From continuing operations			

56.1		34.1

41.4		(44.7)

From discontinued operations			(0.7)		80.0

7.5		9.1

From profit/(loss) for the year			55.4		114.1

48.9		(35.6)

Diluted earnings per share			

03: Financial Statements

Interest charge on pension scheme net liabilities

02: Governance

Revenue			3
Cost of sales				

01: Strategic Report

Consolidated Statement of Income

2

Dividends per share
Dividends paid			14			
13.0			13.0During the current year, the Group amended the presentation in the Income Statement to include the change in fair value derivatives in operating
expenses rather than financial income or expenditure. Prior year comparatives have been re-presented to be consistent with this change and, as aresult, £1.2 million has now been included on the foreign exchange line. There is no impact on profit after tax in either period.
The attached notes form part of the Financial Statements.

Oxford Instruments plc Report and Financial Statements 201891

04: Company Information

Dividends proposed			
14			
13.3			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.

Consolidated Statement of Comprehensive Income
year ended 31 March 2018									2018								
Notes
£m

2017
£m

Profit/(loss) for the year 							65.5(20.3)

Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss—

0.1

Foreign exchange translation differences							
(8.8)

18.8

(4.8)

(5.7)

Gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled			Net cumulative foreign exchange gain on disposal of subsidiaries recycled to the Income Statement			
Items that will not be reclassified subsequently to profit or loss
Remeasurement gain in respect of post-retirement benefits				

25

2.2

4.4

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

13

(0.9)

(0.9)

Total other comprehensive (expense)/income						(12.3)

16.7

Total comprehensive income/(expense) for the year
attributable to equity Shareholders of the parent						
53.2

(3.6)

92

Oxford Instruments plc Report and Financial Statements 2018

as at 31 March 2018									2018								
Notes
£m

2017
£m

Assets

01: Strategic Report

Consolidated Statement of Financial PositionNon-current assets
Property, plant and equipment						
15

22.8

32.5

Intangible assets							
16

158.7

181.0

Investment in associate							
6

4.1

3.9

Long-term receivables							
19

1.4

3.6

Deferred tax assets							
17

13.4

26.0

									
200.4

247.0

Current assets
45.9

53.9

73.3

81.1

Current income tax recoverable							
2.5

4.2

2.4

0.6

Cash and cash equivalents								
20.7

27.2

									
144.8

167.0

Total assets								
345.2

414.0

Derivative financial instruments						
2202: Governance

Inventories							18Trade and other receivables							
19EquityCapital and reserves attributable to the Company’s equity Shareholders
2.9

2.9

Share premium								
61.7

61.5

Share capital							
23Other reserves								
0.2

0.2

Translation reserve								
9.2

22.8

Retained earnings								
105.6

45.1

									
179.6

132.5

Non-current liabilities
Bank loans and overdrafts							
24

39.4

129.6

Retirement benefit obligations						
25

15.3

25.1

Provisions							
27

1.7

—

Deferred tax liabilities							
17

6.1

5.6

									
62.5

160.3

Current liabilities
Bank loans and overdrafts							
24

1.0

6.9

Trade and other payables							
26

85.5

93.0

Current income tax payables							
6.2

6.5

0.4

5.0

Provisions 							
27

10.0

9.8

									
103.1

121.2

Total liabilities								
165.6

281.5

Total liabilities and equity							
345.2

414.0

The Financial Statements were approved by the Board of Directors on 12 June 2018 and signed on its behalf by:

Ian Barkshire 			Gavin Hill
Director			Director
Company number: 775598

Oxford Instruments plc Report and Financial Statements 201893

04: Company Information

Derivative financial instruments						
2203: Financial Statements

Liabilities

Consolidated Statement of Changes in Equity								Foreign								
Share		exchange		
					
Share
premium
Othertranslation
Retained					
capitalaccount
reserves
reserveearnings
Total
Year ended 31 March 2018				£m
£m
£m
£m
£m
£m

Balance at 1 April 2017				 2.9

61.5

0.2

22.8

45.1

132.5

—

—

—

65.5

65.5

—

(8.8)
(4.8)

Total comprehensive income/(expense):
Profit for the year				—

Other comprehensive income:						– Foreign exchange translation differences			

—

—

—

(8.8)

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

—

—

—

(4.8)

—

– Remeasurement gain in respect of post-retirement benefits

—

—

—

—

2.2

2.2

– Tax on items recognised directly in other comprehensive income

—

—

—

—

(0.9)

(0.9)

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

—

—

—

(13.6)

66.8

53.2

—

0.2

Transactions with owners recorded directly in equity:– Proceeds from issue of shares			

—

0.2

—

—

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

—

—

—

—

1.1

1.1

– Dividends paid				

—

—

—

—

(7.4)

(7.4)

Total transactions with owners
recorded directly in equity			—

0.2

—

—

(6.3)

(6.1)

Balance at 31 March 2018			
2.9

61.7

0.2

9.2

105.6

179.6

94

Oxford Instruments plc Report and Financial Statements 2018

Balance at 1 April 2016				2.9

61.5

0.1

9.7

68.8

143.0

—

—

—

(20.3)(20.3)

01: Strategic Report								Foreign								
Share		exchange		
					
Share
premium
Othertranslation
Retained					
capitalaccount
reserves
reserveearnings
Total
Year ended 31 March 2017				£m
£m
£m
£m
£m
£m

Total comprehensive income/(expense):
Profit for the year				—Other comprehensive income:
—

—

—

18.8

—

18.8

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

—

—

—

(5.7)

—

(5.7)

– 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				—

—

—

—

4.4

4.4

– Tax on items recognised directly inother 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)

02: Governance– Foreign exchange translation differences			Transactions with owners recorded directly in equity:– Charge in respect of employee service costs settled
by award of share options 			

—

—

—

—

0.5

0.5

– Dividends paid				—

—

—

—

(7.4)

(7.4)

Total transactions with owners
recorded directly in equity			—Balance at 31 March 2017		 2.9

—

—

—

(6.9)

(6.9)

61.5

0.2

22.8

45.1

132.5
03: Financial Statements

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 (2017: 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.

04: Company Information

Oxford Instruments plc Report and Financial Statements 201895

Consolidated Statement of Cash Flows
year ended 31 March 2018									2018									
£m

2017
£m

Profit/(loss) for the year								65.5(20.3)

Profit for the year from discontinued operations (Note 7)						(45.9)(5.2)

Profit/(loss) for the year from continuing operations						19.6(25.5)

Income tax expense/(credit)								
14.6

(0.7)

Adjustments for:Net financial expense								
4.2

6.7

(3.1)

(1.2)

Fair value movement on financial derivatives						Acquisition related costs								—

0.3Restructuring costs								
1.2

0.4

Restructuring costs – relating to associate							

0.4

0.4

One-off impairment of capitalised development costs						

—

0.7Loss on disposal of subsidiary							—

0.4Net profit on disposal of buildings							

(3.3)

—

Share of impairment recognised by associate						2.0

—Impairment of investment in associate							—

8.0Amortisation and impairment of acquired intangibles						

10.9

46.3

Impairment of capitalised intangible software costs						

—

2.2Depreciation of property, plant and equipment						

4.7

5.1

Amortisation and impairment of capitalised development costs					

4.4

3.8

Adjusted earnings before interest, tax, depreciation and amortisation				
55.6

46.9

Loss on disposal of property, plant and equipment						

0.3

0.5

Cost of equity settled employee share schemes						

1.1

0.5

Share of (profit)/loss from associate							
(0.5)

0.8

Restructuring costs paid								
(1.3)

(1.1)

Foreign currency loss on intra-Group dividends						

—

(0.8)

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

(7.9)

(6.9)

Operating cash flows before movements in working capital					
47.3

39.9

Increase in inventories								
(4.5)

(1.7)

Increase in receivables								(14.4)

(1.1)

2.8

(2.5)

Increase/(decrease) in payables and provisions						Increase in customer deposits							
2.9

0.9

(0.7)

(1.0)

Cash generated from continuing operations						
33.4

34.5

Purchase of rental assets held for subsequent sale						Interest paid								
(2.1)

(5.0)

Income taxes paid								
(3.8)

(2.1)

Net cash from operating activities – continuing operations					
27.5

27.4

Net cash from operating activities – discontinued operations					
3.0

6.1

Net cash flow from operating activities						
30.5

33.5

96

Oxford Instruments plc Report and Financial Statements 2018

2017
£m

Cash flows from investing activities
Proceeds from sale of property, plant and equipment						9.3

—Acquisition of subsidiaries, net of cash acquired						

—

(9.8)

Acquisition of property, plant and equipment						

(4.3)

(3.0)

Acquisition of intangible assets							
(0.5)

(0.1)

71.2

12.2

Capitalised development expenditure							
(5.8)

(5.9)

Net cash flow on disposal of businesses							Increase in investment in associate							
(2.1)

—

Decrease in long-term receivables							
0.9

—
(6.6)

Net cash used in investing activities – discontinued operations					
—

(2.5)

Net cash generated from/(used in) investing activities					
68.7

(9.1)

Cash flows from financing activities
0.2—

Decrease in borrowings								(96.8)(12.8)

Proceeds from issue of share capital							Dividends paid								
(7.4)

(7.4)

Net cash used in financing activities							(104.0)(20.2)Net (decrease)/increase in cash and cash equivalents						

(4.8)

4.2

Cash and cash equivalents at beginning of the year						

26.5

20.4

Effect of exchange rate fluctuations on cash held						

(1.0)

1.9

Cash and cash equivalents at end of the year						
20.7

26.5

02: GovernanceNet cash generated from/(used in) investing activities – continuing operations				
68.7

01: Strategic Report									2018									
£mReconciliation of changes in cash and cash equivalents to movement in net debt
2017£m

(Decrease)/increase in cash and cash equivalents						

(4.8)

4.2

Effect of foreign exchange rate changes on cash and cash equivalents					

(1.0)

1.9

									
(5.8)

6.1

96.8

12.8

Cash outflow from decrease in debt							Accrued interest								
(1.0)

—

Amortisation of prepaid issuance fees							
(0.4)

—

Movement in net debt in the year							

89.6

18.9

Net debt at start of the year							(109.3)(128.2)

Net debt at the end of the year							(19.7)(109.3)03: Financial Statements									2018									
£m04: Company Information

Oxford Instruments plc Report and Financial Statements 201897

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 134 to 144.
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
16 to 17. The financial position of the Group,
its cash flows, liquidity position and borrowing
facilities are described in the Finance Review
on pages 28 to 34.
The relatively diverse nature of the Group
together with its current financial strength
provides a solid foundation. The Directors
have reviewed the Group’s forecasts andflexed them to incorporate a number ofpotential scenarios relating to changes in
trading performance and believe that theGroup will be able to operate within its
existing debt facilities which expire between
February 2020 and March 2021. This review
also considered hedging arrangements inplace. As a consequence, the Directors believethat the Group is well placed to manage its
business risks successfully. Further information
can be found in the Viability Statement on
page 38.

(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 2018:• Amendments to IAS 7 Cash Flow
Statements; and• Amendments to IAS 12 Income Taxes.

(b) Significant estimatesand judgements
The preparation of Financial Statements
requires management to make judgements,
estimates and assumptions that affect theapplication of accounting policies and thereported amounts of assets, liabilities, income
and expenses. Actual results may differ fromthese estimates.

Significant judgements
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 Materials &Characterisation and Research & Discovery
segments, 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 andthe complexity of any installation element of
the sale.

Significant estimates
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 are
as follows.

The Financial Statements were authorised forissuance on 12 June 2018.

98

Oxford Instruments plc Report and Financial Statements 2018

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
certain estimates and assumptions inrelation to future changes in salaries andinflation, as well as mortality rates, expected
returns on plan assets and the selection ofsuitable discount rates. The factors affecting
these assumptions are influenced by wider
macro‑economic factors that are largely
outside of the Group’s control. A sensitivity
analysis is set out in Note 25.

Provisions for IP-related claims
Provisions for IP-related claims are recognisedin the period when it becomes probablethat there will be a future outflow offunds resulting from past expectations or
events which can be reasonably estimated.
The timing of recognition requires theapplication of judgement to existing facts andcircumstances 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 estimating potential
royalty or profit sharing rates surrounding
any product-related intellectual property
claims (see Note 27).

Taxation
Significant estimation is required indetermining the provision for taxes as the tax
treatment is often by its nature complex, andcannot be finally determined until a formal
resolution has been reached with the relevant
tax authority, which may take several years
to conclude. Amounts provided are accrued
based on management’s interpretation ofcountry-specific tax laws and the likelihoodof settlement. Where necessary, management
will seek external professional advice. Actual
liabilities could differ from the amountprovided, which could have a consequent
adverse impact on the results and net positionof the Group. Further detail is provided in
Note 13.

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 99 under the heading“Financial instruments”.

(d) Foreign currency

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.

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 not hold or issue derivative
financial instruments for trading purposes.
All derivatives are initially recognised atfair value; attributable transaction costs
are recognised in profit or loss as incurred.
Derivatives comprising interest rate swaps,
foreign exchange contracts and options andmetal futures contracts are classified as “fairvalue through profit and loss” under IAS 39,
unless designated as hedges. Subsequent toinitial recognition, derivatives are measured
at fair value and gains or losses on thesettlement of such derivatives are recognised
in operating expenses. Where such derivatives
relate to the following year’s exposure, any
gains or losses resulting from the change infair value are recognised as an adjusting item
in operating expenses.

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.

(e) Financial instruments

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
the present value of the forward price. The
gain or loss on remeasurement to fair valueof 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.

Oxford Instruments plc Report and Financial Statements 201899

04: Company Information

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.

03: Financial Statements

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.

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
non‑financial 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.

02: Governance

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.

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 through the Statement ofComprehensive Income.

01: Strategic Report(c) Basis of preparationand consolidation

Accounting Policies continued(f) Property, plant and equipment
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
historical cost less estimated residual value.
The principal estimated economic lives used
for this purpose are:
• Freehold buildings, longleasehold land and buildings

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

Periodof lease• Furniture and fittings

10 years• Machinery andother equipment

5 to 10 years• 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.

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.

(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 newor substantially improved products, in whichcase they are capitalised. The criteria for
capitalisation include demonstration of
the technical feasibility of completing a
new intangible asset that will be available
for sale and that the asset will generate
probable future economic benefits. Where
expenditure meets the criteria, development
costs are capitalised and amortised throughthe Consolidated Statement of Income overtheir useful economic lives.

(iii) Acquired intangible assets

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.

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.

(g) Intangible assets(iv) Amortisation(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.

100

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 5 years• Technology relatedacquired intangibles

5 to 12 years• Customer relatedacquired intangibles

6 months to
15 years• Development costs
acquired intangibles

10 years• Software

10 years

Oxford Instruments plc Report and Financial Statements 2018(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.

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.

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.

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.

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

(ii) Defined benefit plans
The Group’s net obligation in respect ofdefined benefit pension plans is calculated
separately for each plan by estimating theamount of future benefit that current andpast employees have earned in return for
their service in prior periods. That benefit is
discounted to determine its present value andthe fair value of any plan assets is deducted.
The calculation is performed by a 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.

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(iii) Share-based
payment transactions

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.

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 attachedconditions.
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.

Oxford Instruments plc Report and Financial Statements 2018101

04: Company Information

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.

03: Financial Statements

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.

(n) Provisions

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

02: Governance

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.

(m) Employee benefits

01: Strategic Report(l) Impairment of
non‑current assets

Accounting Policies continued(q) Interest-bearing borrowings(s) Income tax(t) Lease payments

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.

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
the total lease expense.

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.

(u) Segment reporting(r) Revenue
Revenue is recognised in the Consolidated
Statement of Income when the significant
risks and rewards of ownership havetransferred to the buyer. This is generally
considered to be on dispatch for productsthat have a low level of customisation,
are manufactured on a routine basis andtypically have no installation requirement.
In the Materials & Characterisation andResearch & Discovery segments, products
can be bespoke and customer contracts
more complex. As such, there are a numberof conditions which must be satisfied before
revenue can be recognised. These can
include: legal; contractual ownership; passing
internal quality control testing; dispatch frommanufacturing sites; installation at customer
sites; customer inspection both before andafter installation; and/or, ultimately, customer
acceptance. Given these conditions, a greater
degree of consideration is given as to whether
the terms of sale have been met and whether
revenue can be recognised for each product.
In the Service & Healthcare segment, revenue
for maintenance and support is recognised ona pro-rata basis over the length of the contract
period. Revenue relating to the rental ofmachinery is recognised on a straight-line basis
over the life of the lease. Where the Service& Healthcare segment makes asset sales,similar considerations as those set out for the
Materials & Characterisation and Research &Discovery segments are applied. For contracts
which combine the sale of goods andprovision of services, the contracts revenue isallocated across the individual components inline with their relative value. Revenue excludes
value added tax and similar sales-based taxes
and is stated before commission payable
to agents.

102

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.

Oxford Instruments plc Report and Financial Statements 2018

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
The following standards and interpretations
are applicable to the Group but have not been
adopted as they are not yet effective for theyear ended 31 March 2018:

IFRS 9 Financial Instruments
Transition to IFRS 9 for the Group will takeeffect from 1 April 2018 with the half-year
results for September 2018 being IFRS 9
compliant, and the first Annual Reportpublished in accordance with IFRS 9 being forthe year ended 31 March 2019. There is norequirement to restate comparatives.

• The Group reviewed the classificationand measurement of each of its financial
instruments. Although the classificationof instruments is altered under IFRS 9,
this does not result in any changes to themeasurement approach apart from theimpairment of trade receivables, which isaddressed below.

IFRS 15 Revenue fromContracts with Customers
The Group has adopted IFRS 15 Revenue
from Contracts with Customers using themodified retrospective approach, which meansthat the cumulative impact on adoption will
be recognised in retained earnings as of
1 April 2018 with the half-year results for
September 2018 being IFRS 15 compliant,and the first Annual Report published inaccordance with IFRS 15 being for the year
ended 31 March 2019. Comparatives will
not be restated. IFRS 15 provides a single,
principles-based, five-step model to be applied
to all sales contracts, based on the transfer ofcontrol of goods and services to customers,
and it replaces the separate model for goods
and services of IAS 18 Revenue.

Under IFRS 15, revenue from the sale ofgoods, where the goods are not required to beinstalled, will continue to be recognised whenlegal title transfers to the customer on delivery.
When the sale of goods is combined withinstallation, revenue recognition depends
upon the nature of the installation. Simple
installations are those which the customer
perceives as a separate obligation within theoverall contract to deliver goods, whereas
complex installations are those for which
the installation is an integral part of thedelivery of the goods. Revenue will berecognised for simple installations separatelyfrom the delivery of goods, and only when
the installation has occurred. For complex
installations, revenue recognition on thedelivery of the goods will be deferred until
installation is complete.
Revenue from the provision of services,
including ongoing support, servicing andmaintenance, will continue to be recognised
in line with the delivery of the service.

03: Financial Statements• The new impairment model for financial
assets requires the recognition of
impairment provisions based on expectedcredit losses rather than only incurred
credit losses as is the case under IAS 39.
The Group will apply the simplified
approach to its trade receivables as per
the scope exception in IFRS 9 in which all
loss allowances for trade receivables will
be measured at initial recognition andthroughout its life at an amount equal
to lifetime expected credit losses. This isconsistent with the nature of the Group’s
trade receivables as they do not include
a significant financing component. Basedon the assessments undertaken to date,the Group does not expect a material
movement in the loss allowance for tradereceivables.

Management carried out a comprehensive
impact assessment which included scoping
the Group’s revenues to identify different
revenue streams and performing sample
contract reviews to determine the appropriate
revenue recognition treatment under IFRS 15.
To ensure a consistent approach across theGroup, the exercise was supported centrally
through setting the approach to transition andproviding the appropriate tools and guidance.
Revenue is derived from a single performanceobligation which is either the sale of goods or
the provision of services.

02: Governance

The impact assessment performed by theGroup included a review of the classificationand measurement of financial instruments;
the impairment of financial assets and theGroup hedging policy which resulted in thefollowing conclusions:• The new hedge accounting rules will alignthe accounting for hedging instruments
more closely with the Group’s risk
management practices. The Group is still
assessing to what extent it will be able
to hedge account such that derivative
financial instruments currently used tohedge foreign exchange and interest raterisk, and recorded at fair value throughprofit or loss and in adjusting items,
will be recorded at fair value throughother comprehensive income. Due tothe inherent volatility in the fair value of
foreign currency and interest rate derivative
contracts, it is not possible to reliably
estimate the impact of the new hedge
accounting rules on the future results of
the Group. If the Group had fully applied
hedge accounting from 1 April 2017,
the impact on reported profit for the year
ended 31 March 2018 would have been adecrease of £3.1m, with a corresponding
increase in other reserves of £3.1m.

01: Strategic Report

IFRS 9 addresses the classification,measurement and derecognition of financial
instruments, introduces a new impairment
model for financial assets and new rules forhedge accounting. It replaces IAS 39 Financial
Instruments guidance and comprehensive
updates have been made to IFRS 7 Financial
Instruments: Disclosure and IAS 32 Financial
Instruments: Presentation.

For contracts which combine sale of goods
and provision of services, the contract’s
revenue will continue to be allocated acrossthe individual components in line withthe relative value and accounted for as
described above.

04: Company Information

Oxford Instruments plc Report and Financial Statements 2018103

Accounting Policies continued(w) New standards and interpretations not yet adopted continued
IFRS 15 Revenue from Contracts with Customers continued
The overall impact on transition on 1 April 2018 for the Group is expected to be as follows:									Decrease in									retained									earnings
Segment								
£mIncrease indeferredincome£mMaterials & Characterisation							
0.1

0.8

Research & Discovery								
8.8

21.0

Service & Healthcare								—

—Group								
8.9

21.8

If the Group had applied IFRS 15 from 1 April 2017, the impact on reported revenue for the year ended 31 March 2018 would have been adecrease of £7.8m.

IFRS 16 Leases
Transition to IFRS 16 for the Group will takeeffect from 1 April 2018 with the half-year
results for September 2018 being IFRS 16
compliant, with the first Annual Reportpublished in accordance with IFRS 16 being
for the year ended 31 March 2019. IFRS 16
provides a single model for lessees which
recognises a right of use asset and leaseliability for all leases which are longer than
one year or which are not classified as
low value.

The impact of IFRS 16 will be to recognisea lease liability and a corresponding asset
in the Statement of Financial Position forleases currently classified as operating leases.
The most significant impact will be that theGroup’s land, building and car leases will berecognised on the balance sheet. The overall
impact on the Group Statement of Financial
Position on transition on 1 April 2018 is
expected to be the recognition of a leaseliability and corresponding asset to the valueof £11.2m.

The table below summarises the effect thatIFRS 15 and IFRS 16 would have had on theGroup Statement of Income if they had been
applied for the year to 31 March 2018:										Operating									Revenue
profit									£m
£mAs reported in the Group Statement of Income						296.9Effect of IFRS 15 Revenue from Contracts with Customers					

(7.8)

(3.6)

Effect of IFRS 16 Leases								
—

(0.2)

									
289.1

31.5

104

Oxford Instruments plc Report and Financial Statements 201835.3

01: Strategic Report

Notes to the Financial Statements
year ended 31 March 2018

1 Non-GAAP measures
In the preparation of adjusted numbers, the Directors exclude certain items in order to assist with comparability between peers and to give what
they consider to be a better indication of the underlying performance of the business. These adjusting items are excluded in the calculation ofadjusted operating profit, adjusted profit before income tax, adjusted profit for the year from continuing operations, adjusted EBITDA, adjusted
EPS, adjusted cash conversion, and adjusted effective tax rate. Details of adjusting items are given below.
Adjusted EBITDA is calculated by adding back depreciation of property, plant and equipment and amortisation of intangible assets to adjusted
operating profit and can be found in the Consolidated Statement of Cash Flows. Calculation of adjusted EPS can be found in Note 2. Adjusted
effective tax rate is calculated by dividing the share of tax attributable to adjusted profit before tax by adjusted profit before tax. Definitions of cash
conversion and return on capital employed are set out in the KPI section.

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

34.2(19.5)(26.2)

Acquisition related costs						
—

—

0.3

0.3

Restructuring costs						
1.2

1.2

0.4

0.4

Restructuring costs – relating to associate					

0.4

0.4

0.4

0.4

Loss on disposal of subsidiary					

—

—

0.4

0.4

Net profit on disposal of buildings					

(3.3)

(3.3)

—

—

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

0.2Statutory measure from continuing operations				

38.4

—

—

(1.7)

1.5

1.7

Impairment of acquired intangibles					

—

—

33.8

33.8

Impairment of investment in associate					

—

—

8.0

8.0

Share of impairment recognised by associate				

2.0

2.0

—

—

Impairment of capitalised development costs				

—

—

0.7

0.7

Impairment of capitalised software costs					

—

—

2.2

2.2

Amortisation of acquired intangibles					

10.9

10.9

12.5

12.5

Mark-to-market gain in respect of derivative financial instruments			

(3.1)

(3.1)

(1.2)

(1.2)

Adjusted measure from continuing operations				

46.5

42.3

38.0

31.5

Share of taxation							(10.1)		(7.8)
Adjusted profit for the year from continuing operations					32.2		23.7

03: Financial Statements—

Business reorganisation items					(1.7)

02: Governance

2018
2017
					
							Profit		(Loss)/profit							Operating
beforeOperating
before							profitincome tax(loss)/profit
income tax							
£m
£m
£m
£m

Adjusted effective tax rate							23.9%		24.8%
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 of £1.2m primarily relate to our US Healthcare business and include £0.5m to successfully defend a legal claim relating to aprior acquisition.
During the prior year the Group settled various claims totalling £0.4m relating to the disposal of its Omicron business in 2016.

During the year the Group’s equity accounted associate recognised an impairment relating to the disposal of its Vacgen subsidiary. The Group’s
share of this impairment was £2.0m.
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. Impairments in respect of capitalised development costs would not normallybe treated as adjusting items although in certain circumstances they may be; for example, in the prior year a project was completely cancelled aspart of a wider restructuring plan.
Adjusting items include the income tax on each of the items described above. In addition, during the year the tax rate in the United States reduced
from 35% to 21%. As a result, this has reduced the deferred tax asset by £5.4m. This has been excluded from the calculation of share of taxation
attributable to adjusted profit before tax.

Oxford Instruments plc Report and Financial Statements 2018

105

04: Company Information

The Group recorded a net profit on disposal of £3.3m during the year, following the disposal of two buildings previously held under property, plantand equipment. The effect of the disposal on the Group’s balance sheet position is shown in Note 16.

Notes to the Financial Statements continued
year ended 31 March 2018

1 Non-GAAP measures continued
Reconciliation between profit before income tax and adjusted profit from continuing operations continued
During the prior year the Group recognised the following impairments:• £8.0m relating to its equity accounted associate investment. See Note 6 for further details.
• £0.7m concerning capitalised development costs that related to a specific internal systems project that was stopped as the Group focusedand directed resources so as to accelerate key projects.
• £ 2.2m relating to capitalised software costs, following a reassessment of the future value expected to be derived from internallydeveloped software.
The Group reports ineffectiveness of its hedging as an adjusting item. In the prior year this included losses on certain contracts relating to thehedging 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.

2 Earnings per share
Basic and diluted EPS from continuing operations are based on the result for the year from continuing operations, as reported in the Group Income
Statement. Basic and diluted EPS from total operations are based on the result for the year attributable to equity Shareholders of the parent.
Adjusted and diluted adjusted EPS are based on adjusted profit for the year from continuing operations. The profit measures noted above are
divided by the weighted average number of ordinary shares outstanding during the year, excluding shares held by the Employee Share Ownership
Trust. The table below reconciles these different profit measures.
					Continuing					
operations
					
£m

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

19.6

Discontinued
operations
£m

2018
total
£m

Continuing
operations£m

Discontinued
operations
£m

2017
total
£m

45.9

65.5

(25.5)

5.2(20.3)

Adjusting items:
Non-recurring and acquisition related items		

(1.7)			1.7Impairment of acquired intangibles			—			
33.8		

Impairment of investment in associate			

—			
8.0		

Share of impairment recognised by associate		2.0			
—		

Impairment of capitalised development costs		

—			
0.7		

Impairment of capitalised software costs			

—			
2.2		

Amortisation of acquired intangibles			10.9			12.5		

Mark-to-market gain in respect of derivative
financial instruments				(3.1)			(1.2)		
Income tax charge/(credit)				

4.5			
(8.5)		

Adjusted profit for the year from continuing operations

32.2			23.7		

The weighted average number of shares used in the calculation excludes shares held by the Employee Share Ownership Trust, as follows:									2018									Shares									million2017
SharesmillionWeighted average number of shares outstanding						

57.4

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			57.2

57.1

The following table shows the effect of share options on the calculation of diluted earnings per share:									2018									Shares									million2017
Sharesmillion

57.2

57.1

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

Effect of shares under option							
0.2

0.1

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

57.2

106

Oxford Instruments plc Report and Financial Statements 201857.4

01: Strategic Report

For the purposes of calculating diluted and diluted adjusted EPS, the weighted average number of ordinary shares is adjusted to include theweighted average number of ordinary shares that would be issued on the conversion of all potentially dilutive ordinary shares expected to vest,
relating to the Company’s share-based payment plans. Potential ordinary shares are only treated as dilutive when their conversion to ordinary
shares would decrease EPS, or increase loss per share.

3 Segment information
The Group has ten 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.
Following the disposal of the Industrial Analysis business and the introduction of the Horizon strategy in 2017, the Group now reports under arevised segment structure. The aggregated operating segments are as follows:• the Research & Discovery segment comprises a group of businesses providing advanced solutions that create unique environments and enablemeasurements down to the molecular and atomic level which are used in fundamental research; and• the Service & Healthcare segment provides customer service and support for the Group’s products and the service, sale and rental of third-party
healthcare imaging systems.

02: Governance• the Materials & Characterisation segment comprises a group of businesses focusing on applied R&D and commercial customers, enabling the
fabrication and characterisation of materials and devices down to the atomic scale;

The Group’s internal management structure and financial reporting systems have been amended to differentiate the three aggregated operating
segments on the basis of the economic characteristics discussed above. Prior year comparatives have been re-presented due to the change in theGroup’s segment structure.
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.

a) Analysis by businessResearch &Discovery£mService &Healthcare
£m

Total
£m

296.9

External revenue						
118.1

112.0

66.8

Inter-segment revenue						
—

0.1

—

Total segment revenue						
118.1

112.1

66.8

20.1

13.8

12.6

46.5

							Materials &Results from continuing operations (re-presented)					 Characterisation
Year to 31 March 2017						
£mResearch &Discovery£mService &Healthcare
£m

Total
£m

300.2

Segment adjusted operating profit from continuing operations			

External revenue						
105.7

125.2

69.3

Inter-segment revenue						
—

0.1

—

Total segment revenue						
105.7

125.3

69.3

Segment adjusted operating profit from continuing operations			

13.8

12.0

12.2

03: Financial Statements							Materials &Results from continuing operations				Characterisation
Year to 31 March 2018						
£m

38.0

The adjusted profit after tax of £0.5m (2017: £0.8m) from the Group’s associate is reported within the Research & Discovery segment.

Oxford Instruments plc Report and Financial Statements 201804: Company Information

Revenue in the Materials & Characterisation and Research & Discovery segments represents the sale of products. Revenue in the Service& Healthcare segment relates to service income, with the exception of leasing of mobile MRIs of £6.1m (2017: £9.0m) and equipment sales of£3.3m (2017: £5.6m).

107Notes to the Financial Statements continued
year ended 31 March 2018

3 Segment information continueda) Analysis by business continued
Reconciliation of reportable segment profit					Materials &						
Characterisation
Year to 31 March 2018					£mResearch &Discovery£mService &Healthcare£mUnallocatedGroup items
£m

Total
£m

20.1

13.8

12.6

—

46.5

Restructuring costs					
(0.3)

—

(0.9)

—

(1.2)

Restructuring costs – relating to associate				

—

(0.4)

—

—

(0.4)

Net profit on disposal of buildings				

—

—

—

3.3

3.3

Share of impairment recognised by associate			

—

(2.0)

—

—

(2.0)

Amortisation of acquired intangibles				

(2.5)

(7.3)

(1.1)

—

(10.9)

Fair value movement on financial derivatives			

—

—

—

3.1

3.1

Financial income					
—

—

—

0.3

0.3

Financial expenditure					
—

—

—

(4.5)

(4.5)

Profit before income tax on continuing operations			

17.3

4.1

10.6

2.2

34.2

						
Materials &						
Characterisation
Year to 31 March 2017 (re-presented)				
£m

Research &Discovery£mService &Healthcare£mUnallocatedGroup items
£m

Total
£m

Adjusted profit for reportable segments from continuing operations		

Adjusted profit for reportable segments from continuing operations		

12.2

13.8

12.0

—

38.0

Acquisition related costs					
—

(0.3)

—

—

(0.3)

Restructuring costs					
—

—

(0.4)

—

(0.4)

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				

(2.9)

(7.7)

(1.9)

—

(12.5)

Impairment of acquired intangibles				(22.6)—(11.2)—(33.8)

Fair value movement on financial derivatives			

—

—

—

1.2

1.2

Financial income					—

—

—

0.2

0.2

Financial expenditure					—

—

—

(6.9)

(6.9)

Loss before income tax from continuing operations			(14.0)

(3.0)

(1.5)

(7.7)

(26.2)

Depreciation, capital expenditure, amortisation and impairment of intangibles and capitalised development costs arise in the following segments:
20182017 (re-presented)
												Capital		Capital							Depreciation
expenditure
Depreciation
expenditure							
£m
£m
£m
£m

Materials & Characterisation					
1.5

2.8

1.6

1.7

Research & Discovery						
0.8

0.8

1.0

0.7

Service & Healthcare						
1.8

1.0

1.9

1.4

Unallocated Group items						
0.6

0.9

0.6

0.3

Total						
4.7

5.5

5.1

4.1

2018
					
							Amortisation
Capitalised							anddevelopment							impairment
costs							
£m£m

Amortisation
andimpairment£m

Capitalised
development
costs
£m

2017 (re-presented)

Materials & Characterisation					
5.8

4.8

28.1

5.0

Research & Discovery						
8.4

1.0

17.5

0.9

Service & Healthcare						
1.1

—

13.2

—

Unallocated Group items						
—

—

2.2

—

Total					

5.8

61.0

5.9

108

Oxford Instruments plc Report and Financial Statements 2018

15.3

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.

01: Strategic Reportb) Geographical analysis

Revenue from continuing operations from external customers by destination									2018									
£m

2017
£m

USA								
89.5

97.1

Rest of Europe								
35.9

35.4
32.6

UK									
18.1

15.3

Japan								
34.9

33.9

China 								
49.6

53.6

Germany								
24.8

23.7

Rest of World								
8.3

8.6

Total								
296.9

300.2

02: GovernanceRest of Asia								35.8Non-current assets (excluding deferred tax)									2018									
£m

2017
£m

UK									
160.4

181.2

Germany								
3.3

10.4

USA								
11.3

10.3

Japan								
0.5

0.6

China								
0.2

0.5

Rest of Europe								
9.6

15.4
0.1

Rest of World								
1.7

2.5

Total								
187.0

221.0

4 Auditor’s remuneration									2018									
£’000

2017
£’000

Audit of these Financial Statements							
140

140

Amounts received by the auditor and its associates in respect of:255– Audit of Financial Statements of subsidiaries pursuant to legislation					281– Taxation compliance services							
14

25– Audit related services								
25

27

—

90

Total fees paid to the auditor and its associates						
434

563

– Services related to corporate finance transactions						03: Financial Statements

Rest of Asia								—5 Research and Development (R&D)
The total R&D spend by the Group as part of continuing operations is as follows:
2017
Materials &Characterisation£mResearch &Discovery
£m

Total
£m

R&D expense charged to the Consolidated
Statement of Income			

12.3

11.1

23.4

11.3

13.0

24.3

Less: depreciation of R&D related fixed assets		

(0.1)

—

(0.1)

(0.1)

—

(0.1)

Add: amounts capitalised as fixed assets			

—

0.1

0.1

0.1

0.1

0.2

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

(3.2)

(1.2)

(4.4)

(2.6)

(1.9)

(4.5)

Add: amounts capitalised as intangible assets		

4.8

1.0

5.8

5.0

0.9

5.9

Total cash spent on R&D during the year		

13.8

11.0

24.8

13.7

12.1

25.8

Oxford Instruments plc Report and Financial Statements 2018109

04: Company Information

2018
				
					
Materials &Research &							Characterisation
Discovery
Total
					
£m
£m
£m

Notes to the Financial Statements continued
year ended 31 March 2018

6 Investment in associate
During the 2015/16 financial 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 isregistered and 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.
During the current year the Group invested a further £2.1m in its equity accounted associate. During the prior year the Group recognised an
impairment charge of £8.0m in respect of its investment in Scienta and settled various claims totalling £0.4m relating to the disposal of its
Omicron business in 2015/16.
The Group’s share of loss in its equity accounted associate for the year was £1.9m (2017: £1.2m). The Group did not receive any dividends fromthe associate in either period.
									2018									
£m

2017
£m

3.9

13.1

Addition								
2.1

—

(1.9)

(1.2)

Impairment charge								
—

(8.0)

Carrying value at 1 April 2017							Share of loss of associate (net of tax)							Dividends received								—

—Carrying value at 31 March 2018							
4.1

3.9

During the prior 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 was reported in the results of the Research & Discovery segment. As at 31 March 2017, the estimate of the recoverable
amount of the Group’s investment in ScientaOmicron, being its value in use, was calculated as £3.9m. The pre-tax discount rate used to arrive at
this estimate was 15.5%. No further impairment is considered to be required as at 31 March 2018.
Summary financial information for the equity accounted associate is as follows:									2018									
£m

2017
£m

Non-current assets								
2.3

3.5

Current assets								
23.7

25.0

Total assets								
26.0

28.5

Current liabilities								(12.1)(21.7)

Non-current liabilities								
(9.2)

(3.6)

Total liabilities								(21.3)(25.3)Net assets								
4.7

3.2

Income								
51.0

50.8

Expenses								(55.0)(53.3)

Loss for the year								
(4.0)

(2.5)

Group’s share of net assets						
2.2

1.5

Group’s share of loss								
(1.9)

(1.2)

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.

110

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

7 Disposal of subsidiary and discontinued operations
On 3 July 2017, the Group disposed of its Industrial Analysis business for a final consideration of £82.8m. On 17 November 2016, the Group
disposed of its Superconducting Wire business for a final consideration of £14.0m.

Effect of disposal on the financial position of the Group									Industrial									Analysis									2018									
£mSuperconducting
Wire
2017
£m

Goodwill								
(4.3)

—

Acquired intangible assets								
(0.1)

—
—

Property, plant and equipment							
(2.4)

(3.1)

Inventory								(11.5)(12.6)

Trade and other receivables								
(9.8)

(6.5)

Cash and cash equivalents								
(6.0)

(0.3)

Trade and other payables 								
8.6

6.6

Provisions								
0.8

0.1

Tax balances								
(0.4)

—

Net assets divested								(29.8)(15.8)

Consideration receivable								
82.8

14.0

Deferred consideration								
—

(1.0)

Consideration received, satisfied in cash							
82.8

13.0

Cash disposed of								
(6.0)

(0.3)

Transaction expenses								
(5.6)

(0.5)

Net cash inflow								
71.2

12.2

(23.8)(15.5)

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

1.0

Recognition of provision on disposal							
(2.1)

(0.2)

4.8

5.7

Currency translation differences transferred from translation reserve					Gain on disposal 								
50.1

3.2

(2.3)

0.9

						
47.8

4.1

Tax (charge)/credit on gain on disposal							Gain on disposal net of tax

The recognition of provisions on disposal primarily relate to onerous lease contracts. These have been recognised in the Income Statement underdiscontinued operations.

03: Financial Statements

Deferred consideration								—02: Governance

Other intangible assets 								(4.7)

Discontinued operations
In the year to 31 March 2018 the Group’s Industrial Analysis business was classified as a discontinued operation; and in the year to 31 March 2017
the Group’s Superconducting Wire business was classified as a discontinued operation. They were considered major classes of business on the basisthat they were previously operating segments and referred to in the Group Strategic Report.
The 2017 Financial Statements have been re-presented to reflect the classification of the Group’s Industrial Analysis business as a
discontinued operation.
04: Company Information

Oxford Instruments plc Report and Financial Statements 2018111

Notes to the Financial Statements continued
year ended 31 March 2018

7 Disposal of subsidiary and discontinued operations continued
Discontinued operations continued
Results of discontinued operations – year to 31 March 2018										Industrial										Analysis										
£mRevenue									
16.8Expenses									(16.3)
Adjusted profit before tax									
0.5Income tax charge									(0.9)
Adjusted profit after tax									(0.4)
Adjusting items:
Amortisation of acquired intangibles								(0.1)
On-off costs arising as a result of disposal								(2.2)

Income tax on adjusting items								
0.8Loss after tax									(1.9)
Gain on disposal									
50.1Tax on gain on disposal									(2.3)
Profit from discontinued operations after tax							45.9Results of discontinued operations – year to 31 March 2017							Industrial							Analysis							£m

Superconducting
Wire£mAustinScientific
£m

Total
£m

Revenue						
48.3

22.2

—

70.5

Expenses						(43.8)(64.9)(20.9)

(0.2)

4.5

1.3

(0.2)

5.6

Income tax charge						
(0.9)

(0.4)

—

(1.3)

Adjusted profit/(loss) after tax					
3.6

0.9

(0.2)

4.3

Adjusted profit/(loss) before tax					Adjusting items:
Amortisation and impairment of acquired intangibles				

(2.4)

—

—

(2.4)

Acquisition related costs						
(1.2)

—

—

(1.2)

Restructuring costs						
(0.2)

—

—

(0.2)

Income tax on adjusting items					

0.6

—

—

0.6

Profit/(loss) after tax						
0.4

0.9

(0.2)

1.1

Gain on disposal						
—

3.2

—

3.2

Tax on gain on disposal						

—

0.9

—

0.9

Profit/(loss) from discontinued operations after tax				 0.4

5.0

(0.2)

5.2

									2018									
pence

2017
pence

Adjusted basic (loss)/earnings per share							
(0.7)

7.5

Adjusted diluted (loss)/earnings per share							
(0.7)

7.5

Earnings per share from discontinued operations

Total basic earnings per share							
80.2

9.1

Total diluted earnings per share							
80.0

9.1

Cash flows from discontinued operations									2018									
£m

2017
£m

Net cash generated from operating activities						

3.0

6.1

Net cash generated from/(used in) investing activities						

71.2

(9.7)

Net cash used in financing activities							

—

—

112

Oxford Instruments plc Report and Financial Statements 2018									2018									
£m

2017
£m

Interest receivable								
0.3

0.2

									0.30.201: Strategic Report

8 Financial income

9 Financial expenditure									2018									
£m

2017
£m

Interest payable								
3.9

5.6

0.6

1.1

Unwind of discount on contingent consideration						

—0.2									4.56.910 Personnel costs									2018									
£m

2017
£m

Wages and salaries								
82.5

98.7

Social security costs								
9.7

10.8

Contributions to defined contribution pension plans						

3.3

4.3

Charge in respect of employee share options						

1.1

0.5

									
96.6

114.3

02: GovernanceInterest charge on pension scheme net liabilities						Directors’ emoluments are disclosed in the Remuneration Report on pages 67 to 80 of this Report and Financial Statements.
Included in the total above is £4.6m (2017: £21.4m) relating to discontinued operations.

11 Employees
The average number of people employed by the Group (including Directors and temporary employees) during the year was as follows:
2017
NumberProduction								
592

797

Sales and marketing								
431

488

Research and Development								
375

410

Administration and shared services							
244

279

Total average number of employees							
1,642

1,974

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

03: Financial Statements									2018									NumberAll-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)

Medium-Term Incentive Plan Scheme (MTIP)
Options awarded under the Medium-Term Incentive Plan are made annually to certain senior managers. The exercise prices are £nil. Options have alife of ten years and a vesting period of three years.

Oxford Instruments plc Report and Financial Statements 2018113

04: Company Information

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.

Notes to the Financial Statements continued
year ended 31 March 201812 Share option schemes continued
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.
The Executive Share Option Scheme, Medium-Term Incentive Plan Scheme and Senior Executive Long-Term Incentive Scheme are subject toperformance conditions which can be found in the Remuneration Report on pages 67 to 80.

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 £1.1m (2017: £0.5m) 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.
This means that the TSR performance conditions have been incorporated into the calculation of the fair value as a discount in calculating thefair value.
For options granted in the years ended 31 March 2018 and 2017, the fair value per option granted and the assumptions used in the calculation
are as follows:						
Medium-Term						
Incentive Plan						Scheme						
September						2017

Performance
Share Plan
SchemeSeptember
2017

Executive
Share Option
SchemeNovember
2016

Performance
Share Plan
SchemeJune
2016

Executive
Share Option
Scheme
June
2016

£2.02

£4.92

£2.54
£7.38

Fair value at measurement date				

£3.38

£2.96

Share price at grant date					

£9.59

£9.59

£6.23

£7.38

Exercise price					£nil

£nil

£6.23

£nil

£7.38

Expected volatility					41.8%

48.6%

41.8%

36.9%

42.7%

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

6 years

6 years

3 years

6 years

3 years

Expected dividend yield					1.4%

1.4%

2.1%

1.8%

1.8%

Risk-free interest rate					0.9%

0.9%

0.7%

0.5%

0.9%

114

Oxford Instruments plc Report and Financial Statements 2018

2018

2017

			
					
Number					of shares

Exercise		Number
price
Period when exercisableof shares

01: Strategic Report

The options existing at the year end were as follows:

Options subsisting at the year end on unissued ordinary shares:
Executive Share Option Schemes
September 2007					
—£2.32		28/08/10 – 27/09/17

December 2008					7,500£1.35		16/12/11 – 15/12/18

8,339

December 2009					3,500£2.04		17/12/12 – 16/12/19

11,0006,000£7.05		07/01/14 – 06/01/21

82,675

December 2011					140,250£9.90		14/12/14 – 13/12/21

169,650

June 2015					454,588£10.28		15/06/18 – 14/06/25

536,362

June 2016					36,000£7.38		21/06/19 – 20/06/26

36,000November 2016					158,321£6.27		29/11/19 – 28/11/26

163,321

Total options subsisting on existing ordinary shares			

835,285				1,013,347

Percentage of issued share capital				

1.5%				 1.8%

Medium-Term Incentive Plan
September 2017					116,542
Total options subsisting on existing ordinary shares			Percentage of issued share capital				£nil		25/09/20 – 24/09/27

02: Governance

January 2011					35,126—

116,542				

—

0.2%				 0.0%

Performance Share Plan
June 2016					148,475£nil		21/06/19 – 20/06/26

148,475

September 2017					116,853£nil		25/09/20 – 24/09/27—

Total options subsisting on existing ordinary shares			

265,328				148,475

Percentage of issued share capital				

0.5%				 0.3%

Options subsisting at the year end on existing ordinary shares held in trust:January 2011					
—£nil		07/01/14 – 06/01/18

15,500Total options subsisting on existing ordinary shares held in trust		—				 15,500

Percentage of issued share capital				

0.0%		
		0.0%The number and weighted average exercise prices of those options are as follows:
2018
2017
					
							Weighted		Weighted							average
Numberaverage							exercise priceof options
exercise price

Numberof options

1,177,322£9.25

1,798,046

233,395£3.69

347,796

Forfeited during the year						£9.35(21,600)£6.40(574,883)

Exercised during the year						£4.37(59,688)£3.55(17,005)

Lapsed during the year						£9.49(112,274)£12.92(376,632)

Outstanding at the year end					£7.691,217,155£7.91

1,177,322

Exercisable at the year end						£8.87186,376£7.88

293,164

The weighted average share price at the time of exercise of the options was £10.17 (2017: £7.75).

Oxford Instruments plc Report and Financial Statements 2018115

04: Company Information£7.91

Granted during the year						£nilOutstanding at the beginning of the period				03: Financial Statements

Senior Executive Long-Term Incentive Scheme

Notes to the Financial Statements continued
year ended 31 March 2018

13 Income tax expense
Recognised in the Consolidated Statement of Income									2018									
£m

2017
£m

Current tax expense
Current year								
7.3

6.2

(1.7)

(2.2)

									5.64.0Adjustment in respect of prior years							Deferred tax expense
Origination and reversal of temporary differences						

7.3Adjustment in respect of prior years							

1.7

0.9

									
9.0

(4.7)

Total tax expense/(credit)							
14.6

(0.7)

(5.6)

Reconciliation of effective tax rate
Profit/(loss) before income tax							34.2(26.2)

7.5(5.8)

Tax rates other than the weighted average statutory rate						

0.3

(0.5)

Change in rate at which deferred tax recognised						

5.3

(0.2)

Transaction costs, deferred consideration and impairments not deductible for tax				

1.2

5.6

Income tax using the weighted average statutory tax rate of 22% (2017: 22%)				
Effect of:

Non-taxable income and expenses							—

1.4Tax incentives not recognised in the Consolidated Statement of Income					

(0.7)

(0.4)

Current period losses not available for carry forward						0.4

—Movement in unrecognised deferred tax							
0.6

0.6

—

(1.4)

						
14.6

(0.7)

Adjustment in respect of prior years							Total tax expense/(credit)

Taxation charge recognised in other comprehensive income
0.9

0.9

									0.90.9Deferred tax – relating to employee benefits						Taxation charge recognised directly in equity
Deferred tax – relating to share options							—

—Reductions in the UK corporation tax rate from 20% 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 2018 has
been calculated based on those rates. The Group carries tax provisions in relation to uncertain tax positions arising from the possible outcomeof negotiations with tax authorities. Such provisions are a reflection of the geographical spread of the Group’s operations and the variety ofjurisdictions in which it carries out its activities.
Effective 1 January 2018 the rate of federal tax in the US was reduced from 35% to 21% and, as a result, deferred tax assets were reduced by£5.4m. The Group currently expects that on an ongoing basis the effective tax rate will be reduced by between 1% and 2% because of thisrate reduction.
The current tax liability payable includes a provision of £3.4m for uncertain tax positions. The liability includes an amount of £2.9m in respect of
the Group’s financing structure. The range of possible outcomes is between £nil and £5.1m. It is possible that if the outcome is different to that
estimated by management there could be a material effect on the Financial Statements in the next twelve months.
In October 2017, the EU Commission opened a formal State Aid investigation into an exemption within the UK’s current Controlled Foreign
Company (CFC) regime (introduced in 2013) for certain finance income. The investigation is ongoing, but if the Commission ultimately concludes
that the provisions do constitute State Aid then they would require the UK to recover any such aid from affected parties. The Group has claimed
the benefit of this exemption, and therefore may be adversely affected by the outcome of the investigation. If the Commission were to conclude
that the finance exemption with the UK’s CFC regime constitutes State Aid and no other exemptions were available to the Group then, as at
31 March 2018, an additional liability of £1.7m in respect of tax and £0.1m in respect of interest would arise unless such a decision could be
successfully challenged in the EU Courts. However, no provision has been made in respect of this investigation since we believe that it is more
likely than not that no additional tax will ultimately be due.

116

Oxford Instruments plc Report and Financial Statements 2018

The following dividends per share were paid by the Group:									2018									
pence

2017
pence

Previous year interim dividend							
3.7

3.7

Previous year final dividend								
9.3

9.3

									
13.0

13.0

01: Strategic Report

14 Dividends per share

The following dividends per share were proposed by the Group in respect of each accounting year presented:									2018									
pence

2017
pence

3.7

Final dividend								
9.6

9.3

									
13.3

13.0

The interim dividend was not provided for at the year end and was paid on 6 April 2018. The final proposed dividend of 9.6 pence per share(2017: 9.3 pence) was not provided at the year end and will be paid on 19 October 2018 subject to authorisation by the Shareholders at theforthcoming Annual General Meeting.

02: GovernanceInterim dividend								
3.715 Property, plant and equipment							Land and							buildings							£m

Plant andequipment£mFixtures andfittings
£m

Total
£m

92.1

Cost
Balance at 1 April 2016						

25.2

56.9

10.0

Additions – other						
0.3

3.8

0.5

4.6

Disposals						
—(10.7)(0.1)(10.8)

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 2017						

27.0

53.7

10.6

91.3

Additions – other					

0.1

4.5

0.4

5.0

Disposals						(12.0)(10.9)(1.0)(23.9)

Transfer to intangibles						
—

(0.6)

—

(0.6)

Effect of movements in foreign exchange rates				
(0.5)

(1.4)

(0.1)

(2.0)

Balance at 31 March 2018					
14.6

45.3

9.9

69.8
56.9

Depreciation and impairment losses
8.1

41.2

7.6

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

Balance at 1 April 2017						

9.5

41.2

8.1

58.8

Depreciation charge for the year					
0.5

3.8

0.4

4.7

Disposals						
(4.8)

(9.6)

(0.7)

(15.1)

Effect of movements in foreign exchange rates				
(0.5)

(1.0)

0.1

(1.4)

Balance at 31 March 2018					
4.7

34.4

7.9

47.0

At 1 April 2016						
17.1

15.7

2.4

35.2

At 31 March 2017 and 1 April 2017					

17.5

12.5

2.5

32.5

At 31 March 2018					

9.9

10.9

2.0

22.8

Carrying amounts

At 31 March 2018, the net book value of plant and equipment included £0.9m (2017: £0.3m) of assets under construction and£3.2m (2017: £4.6m) of assets subject to operating leases.
Included in the depreciation charge for the year is £nil (2017: £1.0m) relating to discontinued operations.

Oxford Instruments plc Report and Financial Statements 2018117

04: Company Information

Balance at 1 April 2016						03: Financial Statements

Effect of movements in foreign exchange rates				Notes to the Financial Statements continued
year ended 31 March 201816 Intangible assets
					Customer					related					acquired				 Goodwill
intangibles
				£m£m

Technology
relatedacquiredintangibles£m

Development
costs
acquiredintangibles£m

Development		
costs		internally		
generated
Software
Total
£m
£m
£m

Cost							Balance at 1 April 2017			

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

5.2

6.5

—

1.7

—

16.7

3.3

Balance at 31 March 2017			

114.5

56.6

118.5

1.8

66.3

2.2

359.9

Balance at 1 April 2017			

114.5

56.6

118.5

1.8

66.3

2.2

359.9

Additions – internally generated		—

—

—

—

6.1

0.5

6.6

Disposals			(5.6)(3.7)(24.0)—(26.4)—(59.7)

Transfer from PPE			—

—

—

—

—

0.6

0.6

Effect of movements inforeign exchange rates			(1.8)

(4.0)

(3.5)

—

(0.2)

—

(9.5)

Balance at 31 March 2018		

107.1

48.9

91.0

1.8

45.8

3.3

297.9

Amortisation and impairment losses
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

Balance at 1 April 2017			

30.0

41.9

58.2

0.6

46.0

2.2

178.9

Amortisation charge for the year		 —

2.7

8.0

0.1

3.5

0.1

14.4

Impairment charge for the year		—

—

—

—

3.2

—

3.2

Disposals			(1.2)(3.7)(24.0)—(21.8)—(50.7)

Effect of movements inforeign exchange rates			(2.0)

(3.3)

(1.1)

—

(0.2)

—

(6.6)

Balance at 31 March 2018		

26.8

37.6

41.1

0.7

30.7

2.3

139.2

At 1 April 2016			

110.1

21.6

67.9

1.4

17.7

2.1

220.8

At 31 March 2017 and 1 April 2017		

84.5

14.7

60.3

1.2

20.3

—

181.0

At 31 March 2018			80.3

11.3

49.9

1.1

15.1

1.0

158.7

Carrying amounts

The following intangible assets are considered material by the Directors as they represent 91% (2017: 88%) of total acquired intangible assets:
2018		2017						
							Remaining							Amortisationamortisation							periodperiod							
£m
Years
Years
£m

Trademarks – Andor						
8.7

15.0

10.8

9.7

– Product related						
33.1

12.0

7.8

37.6

– Software related						
6.0

10.0

5.8

7.7

9.1

12.0

6.7

11.7

Technology, know-how and patents – Andor:

Technology, know-how and patents – Asylum				118

Oxford Instruments plc Report and Financial Statements 2018									2018									
£m

2017
£m

01: Strategic Report

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

Materials & Characterisation
NanoAnalysis								
10.0

9.9

Research & Discovery
Andor								
61.2

61.4

NanoScience								
6.8

6.7

Magnetic Resonance								
2.3

2.3

Other
4.2

									
80.3

84.5

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.

02: GovernanceIndustrial Analysis								—During the year the Group made impairments in respect of intangible assets as follows:• £1.4m in respect of a development project which has experienced delays and cost overruns; and• £1.8m in respect of a development project that was discontinued as a result of the sale of the Industrial Analysis division.

The £1.8m impairment of capitalised development costs relate to an entire project that was discontinued as a result of the sale of the Industrial
Analysis division. The impaired capitalised development costs were held in the Research & Development segment.
During the prior 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;

03: Financial Statements

During the year an R&D project in the Materials & Characterisation segment fell significantly behind the original development timetable with costs
being ahead of budget. On review, management felt that some of the early work on the project had brought no value and those early costs of£1.4m have consequently been derecognised as an intangible asset. A review was undertaken and a remediation plan put in place. The remainderof the project is still considered to have commercial value.

• £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.

The financial performance of the Group’s Healthcare business also deteriorated in the US during the prior year, with business operating profit
falling significantly from its previous levels. Performance was impacted by a lower level of sales of refurbished imaging systems compared toprevious years, which is expected to continue. This was driven by both a particularly high level of activity during 2015/16 but also a change insoftware 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
Materials & Characterisation and Service & Healthcare segments respectively. As at 31 March 2018, the estimates of the recoverable amountsof the Asylum and OI Healthcare CGUs, being their value in use, were calculated as £16.0m and £9.0m respectively. The discount rates used inarriving at these estimates were 13.2% for Asylum and 15.5% for OI Healthcare. At the year end, the Goodwill balance held by the Group relating
to the Asylum and OI Healthcare CGUs was £nil (2017: £nil). The Group did not consider there to be any indicators of impairment and therefore
no further impairment testing was performed as at 31 March 2018.

Oxford Instruments plc Report and Financial Statements 2018

119

04: Company Information

During the prior year the financial performance of the Group’s Asylum CGU deteriorated, with the business performing below expectations.
Performance was impacted by a slowdown in academic funding in US and European markets, resulting in a contraction of the overall scanningprobe microscopy market, compounded by delays in new product launches. The Group revised its financial projections for the business andplanned launch dates for new products in light of the trading environment.

Notes to the Financial Statements continued
year ended 31 March 201816 Intangible assets continued
In the prior year in respect of the impairment tests for Asylum and OI Healthcare, specific forecasts were prepared for the purpose of theimpairment test taking into account the latest available information regarding business and market conditions.
The £2.2m impairment of software costs in the prior year represented inefficient capitalised costs relating to the Group’s new ERP system and wasreported as part of unallocated central costs in the segmental disclosure. The £1.1m impairment of technology related acquired intangible assets
in the prior year represented the write down of intellectual property obtained as part of a previous acquisition that had since been superseded bya new product. The asset belonged to the now disposed of Industrial Analysis business.
The £0.7m impairment of capitalised development costs arose in the prior year 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 Materials& Characterisation segment.

Key assumptions
The key assumptions are those regarding discount rates and growth rates.
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 Materials & Characterisation and Research & Discovery in impairment testing are 14.1%(2017: 13.2%-13.6%) and 14.1%-14.9% (2017: 12.4%-13.4%) respectively in line with the risk associated with each of the business segments.
The 2017 pre-tax weighted average cost of capital used for the Service & Healthcare impairment testing was 15.5%. No 2018 impairment testinghas been performed because the Service & Healthcare segment does not hold any goodwill. Management has estimated these discount rates byreference 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
The Group’s estimate of impairments are most sensitive to changes in the discount rate and forecast growth rate. Sensitivity analysis has been
carried out by reference to both of these assumptions. This demonstrated that a 359 basis point increase in the discount rate would be required inorder to eliminate current headroom of £37.7m and result in an impairment in the Andor business. Similarly, a reduction in the growth rate to nil
would be required in order to result in an impairment in the Andor business.

17 Deferred tax
Movements in deferred tax assets and liabilities were as follows:				
Property,						
				plant and		
Employee
Intangible							
equipment
Inventory
benefits
assetsTax losses
Other
Total
				£m
£m
£m
£m
£m
£m
£m

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 at 31 March 2017			

3.0

7.1

(0.1)

5.0

4.5

20.4

0.9

Reclassification							Recognised in income			 0.7

(0.6)

(1.7)

(4.8)

(1.9)

(0.7)

(9.0)

Recognised in other comprehensive income

—

—

(0.9)

—

—

—

(0.9)

Recognised directly in equity		

—

—

—

—

—

—

—

Acquisitions			

—

—

—

—

—

—

—

Disposals			 (0.2)

(0.6)

(0.3)

0.7

(0.5)

(0.8)

(1.7)

Foreign exchange			

—

(0.2)

(0.2)

(0.9)

0.1

(0.3)

(1.5)

Balance at 31 March 2018		1.4

1.6

4.0

(5.1)

2.7

2.7

7.3

120

Oxford Instruments plc Report and Financial Statements 2018

Assets
			
					
2018
2017
					
£m
£m

Liabilities
		
2018
2017
£m
£m

Net
2018
£m

2017
£m

20.4

Gross assets/(liabilities)				
18.7

33.4

(11.4)(13.0)

7.3

Offset				
(5.3)

(7.4)

5.3

7.4

—

—

Net assets/(liabilities)				
13.4

26.0

(6.1)

(5.6)

7.3

20.4

									2018									
£m

2017
£m

01: Strategic Report

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

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

1.7

Tax losses								
3.5

9.8

									
16.1

11.5

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.

02: GovernanceDeductible temporary differences							12.6No deferred tax liability has been recognised in respect of £74.6m (2017: £25.7m) 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.

18 Inventories									2018									
£m

2017
£m

Raw materials and consumables							
17.1

19.5

Work in progress								
14.8

14.5

Finished goods								
14.0

19.9

									
45.9

53.9

Inventory carried at net realisable value is £0.6m (2017: £nil).

19 Trade and other receivables									2018									
£m

2017
£m

Trade receivables								
62.8

73.0

(1.4)

(2.4)

Net trade receivables								
61.4

70.6

Prepayments								
3.7

2.9

Less provision for impairment of receivables						Accrued income								
2.3

2.4

Other receivables								
5.9

5.2

									
73.3

81.1

Other receivables includes £1.2m (2017: £nil) due from the Group’s associated undertaking.

Oxford Instruments plc Report and Financial Statements 2018121

04: Company Information

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.

03: Financial Statements

The amount of inventory recognised as an expense was £128.7m (2017: £125.6m). 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 inthe current period (2017: £0.4m). In the current year, £nil (2017: £0.2m) was reversed relating to previous impairments. Impairments are included
within gross profit.

Notes to the Financial Statements continued
year ended 31 March 201819 Trade and other receivables continued
The maximum exposure to credit risk for trade and other receivables by geographic region was:									2018									
£m

2017
£m

UK									
8.5

9.0

China								
14.0

11.4

Japan								
9.6

11.7

USA								
14.9

18.6

Germany								
3.5

1.8

Rest of Europe								
12.1

16.3

Rest of Asia								
6.1

10.3

Rest of World								
2.3

2.7

Total								
71.0

81.8

The ageing of financial assets comprising net trade receivables and other receivables at the reporting date was:									2018									
£m

2017
£m

Current (not overdue)								
46.9

61.1

Less than 31 days overdue								
12.6

9.8

7.2

6.5

More than 90 days overdue							
4.3

4.4

									
71.0

81.8

More than 30 days but less than 91 days overdue						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:									2018									
£m

2017
£m

Balance at start of year								
2.4

2.0

(Decrease)/increase in allowance							
(1.0)

0.4

Balance at end of year								
1.4

2.4

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 of £1.4m (2017: £3.6m) relate to amounts due from the Group’s associated undertaking.

20 Cash and cash equivalents									2018									
£m

2017
£m

Cash balances								
20.7

27.2

Bank overdraft								
—

(0.7)

20.7

26.5

Cash and cash equivalents in the Consolidated Statement of Cash Flows					All cash and cash equivalents are available for use by the Group.

21 Financial risk management
The Group’s multinational operations and debt financing expose it to a variety of financial risks. In the course of its business, the 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.
In common with a number 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 be justified. Accordingly, the Group does not use hedge accounting for such derivatives.

122

Oxford Instruments plc Report and Financial Statements 2018

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% (2017: 75%) 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 2018 amount to £0.4m (2017: £5.0m)
and those recognised as an asset amount to £2.4m (2017: £0.6m).

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 Incomeof overseas subsidiaries.

Interest rate risk

02: GovernanceMovements 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 elements 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).

01: Strategic Report

Foreign currency 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 2018 are set out in Note 24.
03: Financial Statements

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 2018 was£94.1m (2017: £109.6m).
2017£m

Long-term receivables								
1.4

3.6

Trade receivables								
61.4

70.6

Other receivables								
8.2

7.6

Cash and cash equivalents								
20.7

27.2

Forward exchange contracts							
2.4

0.6

									
94.1

109.6

The maximum exposure to credit risk for trade receivables is discussed in Note 19.
Other receivables include £2.9m (2017: £2.8m) in respect of VAT and similar taxes which are not past due date.

Oxford Instruments plc Report and Financial Statements 2018123

04: Company Information									2018									£mNotes to the Financial Statements continued
year ended 31 March 2018

21 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 £199.3m (2017: £241.8m).
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 well inside
any covenants the Group has with lenders. The Group maintains the right to purchase its own shares in the market; the timing of these purchases
would depend on market prices. Buy and sell decisions are made on a specific transaction basis by the Board.
Each year the Board carefully considers the appropriate level of dividend payments. In doing this, the Board looks to increase dividends in line with
underlying earnings, although the Board will also take into account other considerations in their decision making process. The Board does not havea policy to pay a fixed dividend yield or to maintain a fixed rate of dividend cover, but assesses both of these metrics in line with sustained earnings
growth.
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 12),from April 2008 all UK employees have been offered the opportunity to take part in a Share Incentive Plan (SIP). Under this plan, employees 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.

22 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:
2018
					
						
Fair
Carrying
Fair						
value
amountvalue						
hierarchy
£m
£m

2017
Carrying
amount
£m

Fair
value
£m

Assets carried at amortised cost
Long-term receivables						
1.4

1.4

3.6

3.6

Trade receivables						
61.4

61.4

70.6

70.6

Other receivables						
8.2

8.2

7.6

7.6

Cash and cash equivalents						
20.7

20.7

27.2

27.2

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

2

2.4

2.4

0.6

0.6

2

(0.4)

(0.4)

(5.0)

(5.0)
(66.7)

Liabilities carried at fair value
Derivative financial instruments:– Foreign currency contracts				Liabilities carried at amortised cost					Trade and other payables						(58.1)(58.1)(66.7)

Bank overdraft						
—

—

(0.7)

(0.7)

Borrowings						(40.4)(40.4)(135.8)(135.8)124

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

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 otherreceivables/payables are discounted to determine their fair value. Advances received are excluded from other payables above as these are
not considered to be financial liabilities.
02: GovernanceFair 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
Contractual
cash flows£m

Due within
one year£m

Due one to
five years£mTrade and other payables						
58.1

58.1

58.1

—

Foreign exchange contracts						
0.4

0.4

0.4

—

Bank overdraft						
—

—

—

—

Borrowings						
40.4

40.5

1.0

39.5

							
98.9

99.0

59.5

39.5

							Carrying							amount31 March 2017						£mContractual
cash flows£m

Due within
one year£m

Due one to
five years£mTrade and other payables						
66.7

66.7

66.7

—

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

									Carrying									amount									2018									
£mCarrying
amount2017£m

03: Financial Statements							Carrying							amount31 March 2018						£mAt the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:Financial assets								
20.7

27.2

Financial liabilities								
—(70.3)

Fixed rate instruments
Financial assets								
2.6

3.6

Financial liabilities								(40.4)(66.2)

Oxford Instruments plc Report and Financial Statements 2018125

04: Company Information

Variable rate instruments

Notes to the Financial Statements continued
year ended 31 March 2018

22 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
the balance sheet date:• one percentage point increase in interest rates;• ten percentage point weakening in the value of Sterling against all currencies; and• ten percentage point strengthening in the value of Sterling against all currencies.
The sensitivities above represent the Directors’ view of reasonably possible changes in each risk variable, not worst case scenarios or stress tests.
The outputs from the sensitivity analysis are estimates of the impact of market risk assuming that the specified changes occur at the year end 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 in								interest rates								£m10%weakeningin Sterling1£m10%
strengthening
in Sterling2£m

At 31 March 2018
—

(9.1)

9.1

Impact on equity							
—

1.8

(1.8)

Impact on Consolidated Statement of Income					At 31 March 2017
Impact on Consolidated Statement of Income					

—

(5.4)

5.4

Impact on equity							
—

6.5

(6.4)

									2018									Number									of shares

2017
Numberof shares

1. Of the effect on the Consolidated Statement of Income, £6.1m (2017: £6.1m) would have been recognised on the “mark-to-market” line (Note 1).
2. Of the effect on the Consolidated Statement of Income, £6.1m (2017: £6.1m) would have been recognised on the “mark-to-market” line (Note 1).

23 Called up share capital
Issued and fully paid ordinary shares:

57,315,916

57,298,911

Issued for cash								59,68817,00557,375,604

57,315,916

At the beginning of the year							At the end of the year							
2018
					
							Number							of shares£m

2017
Numberof shares£m

2.9

57,315,916

2.9								Number								of shares

Aggregate
nominal value

Consideration
per share

Allotted, called up and fully paid
Ordinary shares of 5p each						57,375,604

New issues of ordinary shares of 5p each during the year
Exercise of executive share options						29,502£1,475£1.35-£10.28

Exercise of executive share options – share appreciation rights				

30,186£1,509£nil-£10.28

The total consideration received from exercise of share options in the year was £0.2m (2017: £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.

126

Oxford Instruments plc Report and Financial Statements 2018								Earlier of							Effective repricing date or
Current						interest ratematurity date

2018
£m

2017
£m

Bank overdrafts							On demand—

0.7

European Investment Bank Loan – unsecured						

—

6.2Loan Notes – unsecured						1.0—									
1.0

6.9

4.36%

March 2021

01: Strategic Report

24 Borrowings								Earlier of									Effective repricing date or
2018
2017
Non-current						interest ratematurity date£m£m

Revolving credit facility – unsecured							
—

69.6
15.6

39.4

44.4

									
39.4

129.6

Loan Notes – unsecured						4.36%March 2021

The Group’s undrawn committed facilities available at 31 March 2018 were £126.4m, comprising the undrawn portion of the Group’s £126.4m
revolving credit facility. This facility expires on 28 February 2020.

02: Governance—European Investment Bank Loan – unsecured						The Group’s uncommitted facilities at 31 March 2018 were £20.6m.
The £1.0m (2017: £nil) current Loan Notes balance as at 31 March 2018 represents accrued interest due for payment during April 2018.
A reconciliation of the Group’s borrowings balances is shown below.
							Revolving							credit facility							£m

EIB
Loan
£m

Loan
Notes
£m

Total
£m

Balance at 1 April 2017						

69.6

21.8

44.4

135.8

Cash flows from financing activities (repayments made during the year)			

(69.8)(22.0)(5.0)(96.8)

Interest accrued						
—

—

1.0

1.0

Amortisation of prepaid issuance fees					

0.2

0.2

—

0.4

Balance at 31 March 2018					

—

—

40.4

40.4

Other changes:

The Group operates defined benefit plans in the UK and the 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:
2018
				
					
UK
USA
Total
					
£m
£m
£m

03: Financial Statements

25 Retirement benefit obligations

2017
UK
£m

USA
£m

Total		
£m

Present value of funded obligations			

297.4

7.4

304.8

304.0

9.0

313.0

Fair value of plan assets				(284.9)(4.6)(289.5)(282.5)(5.4)(287.9)

Recognised liability for defined benefit obligations		

12.5

2.8

15.3

21.5

3.6

25.1

Reconciliation of the opening and closing balances of the present value of the defined benefit obligation
2017
UK
£m

USA
£m

Total		
£m

Benefit obligation at the beginning of the year		

304.0

9.0

313.0

266.0

8.5

Past service cost				

(0.9)

—

(0.9)

—

—

—

Interest on defined benefit obligation			

8.1

0.3

8.4

9.1

0.3

9.4

274.5

Benefits paid				(10.7)(1.1)(11.8)(13.6)(0.6)(14.2)

Remeasurement (gain)/loss on obligation			

(3.1)

0.1

(3.0)

42.5

(0.2)

42.3

Exchange rate adjustment				

—

(0.9)

(0.9)

—

1.0

1.0

Benefit obligation at the end of the year			

297.4

7.4

304.8

304.0

9.0

313.0

Oxford Instruments plc Report and Financial Statements 2018127

04: Company Information

2018
				
					
UK
USA
Total
					
£m
£m
£m

Notes to the Financial Statements continued
year ended 31 March 2018

25 Retirement benefit obligations continued
Reconciliation of the opening and closing balances of the fair value of plan assets
2018
				
					
UK
USA
Total
					
£m
£m
£m

2017
UK
£m

USA
£m

Total		£m

Fair value of plan assets at the beginning of the year		

282.5

5.4

287.9

235.0

4.5

239.5

Interest on plan assets				

7.6

0.2

7.8

8.1

0.2

8.3

Contributions by employers			

7.1

0.5

7.6

6.9

0.6

7.5

Benefits paid				(10.7)(1.1)(11.8)(13.6)(0.6)(14.2)

Administrative expenses				
(0.5)

(0.1)

(0.6)

(0.5)

(0.1)

(0.6)

Actual return on assets excluding interest income		

(1.1)

0.3

(0.8)

46.6

0.1

46.7

Exchange rate adjustment				

—

(0.6)

(0.6)

—

0.7

0.7

Fair value of plan assets at the end of the year		

284.9

4.6

289.5

282.5

5.4

287.9

									2018									
£m

2017
£m

Expense recognised in the Consolidated Statement of Income
Total – defined benefit expense							
0.6

1.1

3.3

4.3

									3.95.4Contributions to defined contribution schemes						The 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 £7.1m (2017: £6.9m) 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 2018 were 18 years and 16 years respectively (2017:19 years and 16 years).
Prior to the year end, the trustees of the UK defined benefit scheme, in consultation with the Company, reduced its exposure to on-risk assets(a portfolio of market focused asset classes, the majority being equities) with a corresponding increase in its liability-driven investments, with theobjective of steering a more stable journey to being fully funded. The pension fund’s gross exposure to on-risk assets has fallen from 85% to 45%;the majority of transactions required to make this change were completed in February 2018. As a result, the level of risk inherent in the investment
strategy is now significantly lower than previously, in addition to a substantial reduction in funding level volatility.
The Group has considered the requirements of IFRIC 14. The terms of the scheme give the Group the right to recover any surplus assets on thescheme upon wind-up and therefore management has concluded that there is no impact on the amounts recognised in respect of retirement
benefit obligations.
The Group expects to contribute approximately £7.8m to defined benefit plans in the next financial year.
The pension costs are recorded in the following lines of the Consolidated Statement of Income:									2018									
£m

2017
£m

Cost of sales								
0.8

1.1

Selling and marketing costs								
0.7

1.0

Administration and shared services							
0.8

1.1

Research and Development								
1.0

1.1

Financial expenditure								
0.6

1.1

									3.95.4Remeasurement gains and losses shown in the Consolidated Statement of Comprehensive Income									2018									
£m

2017
£m

Actual return on assets excluding interest income						

(0.8)

46.7

Experience (loss)/gain on scheme obligations						

(2.8)

3.7

– Financial								4.0(51.6)– Demographic								
1.8

5.6

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£29.3m (2017: £31.5m cumulative actuarial losses).

128

Oxford Instruments plc Report and Financial Statements 2018

The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions:							Balance at							31 March 2018							
£m

Discount rate(-0.1% p.a.)£m

Inflation rate(+0.1% p.a.)£mLife expectancy(+one year)£m

Value of funded obligations					

304.8

310.3

309.7

316.7

Fair value of plan assets						(289.5)(289.5)(289.5)(289.5)

Deficit						
15.3

20.8

20.2

27.2

01: Strategic Report

Sensitivity analysis

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.
A full actuarial valuation of the UK plan was carried out as at 31 March 2015 and has been updated to 31 March 2018 by a qualified independentactuary. The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms):							As at			As at							31 March			
31 March							2018			2017							
%			%

02: GovernanceDefined benefit scheme – UK

Discount rate						2.7%			2.7%
Rate of increase in pensions in payment (“3LPI”)				

2.5%			2.5%Rate of increase in pensions in payment (“5LPI”)				

3.0%			3.1%Rate of inflation (“CPI”)						2.0%			2.1%Mortality – pre and post-retirement– males and females

93% of S2PA tables (96% for females)
future improvement in line withCMI 2017 with 1.25% long-term trend

93% of S2PA tables (96% for females)
future improvement in line withCMI 2016 with 1.25% long-term trend

The mortality assumptions imply the following expected future lifetime from age 65:
2017
years

Pre-retirement – males								
23.9

24.0

Pre-retirement – females								
25.7

25.7

Post-retirement – males								
22.5

22.6

Post-retirement – females								
24.1

24.2

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.

03: Financial Statements									2018									yearsThe assets in the plan were:									Value at									31 March									2018									
£mValue at
31 March
2017£mEquities								
90.8

107.9
46.6

Gilts								
123.3

47.0

Property								
6.0

3.7

Commodities								—

5.8Insurance‑linked funds								
24.1

14.8

Credit and global loan funds							
2.1

12.6

Hedge funds								
26.6

15.3

Absolute return fixed income fund							
5.8

5.8

Liability hedge overlay								2.5

—Cash 								
3.7

23.0

284.9

282.5

								Oxford Instruments plc Report and Financial Statements 2018129

04: Company Information

Corporate and Emerging Market Bonds							—Notes to the Financial Statements continued
year ended 31 March 2018

25 Retirement benefit obligations continued
Defined benefit scheme – UK continued
Where assets have no observable market price a valuation will be provided by the fund manager. The scheme’s investment manager will accept
that valuation if it is within the expected range of performance. Otherwise, the investment manager will query the valuation with the fundmanager. Complex financial instruments are valued by the scheme’s investment manager who uses financial models which take as their input thecharacteristics of the instrument and observable market data such as swap rates.
The UK pension scheme implements a liability hedge strategy which is designed to protect the scheme’s funding level from changes in gilt
yields and inflation expectations. The liability hedge strategy consists of a portfolio of gilts, gilt derivatives, interest rate and inflation swaps.
At 31 March 2018, the liability hedge strategy fully covered the scheme’s liabilities from changes in gilt yields and inflation expectations.
However, this is not a precise match for the IAS 19 defined benefit obligation, which is based on corporate bond yields rather than gilt yields.

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 2018 by a qualified independent actuary. The major assumptions used by the actuary for the purposes of IAS 19 were (in nominal terms):							As at			As at							31 March			
31 March							2018			2017							
%			%

Discount rate						3.95%			4.00%Rate of increase to pensions in payment					0.00%			0.00%Rate of inflation 						2.00%			2.00%Mortality – pre and post-retirement

RP-2014 with projection
Scale MP-2017 (fully generational),
male and female

RP-2014 with projection
Scale MP-2016 (fully generational),
male and female

The assets in the plan were:									Value at									31 March									2018									
£mValue at
31 March
2017£mEquities								
2.0

2.4

Bonds								
2.3

3.0

Other								0.3—									4.65.4Defined contribution schemes
In the UK, employees are offered participation in the defined contribution Oxford Instruments Stakeholder Plan. The Company contribution
rate and employee contribution rate 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 67 to 80.

26 Trade and other payables									2018									
£m

2017
£m

Trade payables 								
25.0

32.0

Customer deposits								
15.0

13.2

Social security and other taxes							
2.9

2.5

Accrued expenses and deferred income							
38.1

40.6

Other creditors								
4.5

4.7

									
85.5

93.0

130

Oxford Instruments plc Report and Financial Statements 2018								IP-related									Warranties
claims
Other
Total							£m£m
£m
£m

Balance at 1 April 2017						

4.5

3.2

2.1

9.8

Effect of disposal of subsidiary					

(0.7)

—

(0.2)

(0.9)

Provisions made during the year					

1.9

0.7

3.2

5.8

Provisions used during the year					

(0.8)

—

(0.4)

(1.2)

Provisions released during the year					

(0.8)

(0.7)

—

(1.5)

Effect of movement in foreign exchange					

—

—

(0.3)

(0.3)

				
4.1

11.7

Balance at 31 March 2018

4.4

—

—

1.7

1.7

Amounts falling due before one year					

4.1

3.2

2.7

10.0

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.

02: Governance

3.2

Amounts falling due after more than one year				

01: Strategic Report

27 Provisions for other liabilities and charges

Intellectual Property related claims

Other provisions
Other provisions relate to various obligations including obligations in respect of onerous leases, onerous contracts and dilapidation provisions.

28 Operating leases
Leases under which the Group acts as lessor
Non-cancellable future total minimum operating lease rentals are receivable as follows:									2018									
£m

2017
£m

Within one year								
2.9

2.2

Between one and five years							
0.2

0.3

Over five years								—

—									3.12.503: Financial Statements

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, assess 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.
There is one provision for £2m where the range of possible outcomes is between £nil and £3.1m. As such, there could be a material effect on
the Financial Statements in the next twelve months should the outcome be different from management’s estimate.

Operating leases under which the Group acts as lessor relate to medical imaging equipment available for rent on typically short-term agreements.
There are no material contingent rent payment arrangements.
Non-cancellable future total minimum operating lease rentals are payable as follows:									2018									
£m

2017
£m

Within one year								
2.9

3.8

Between one and five years							
6.6

9.5

Over five years								
0.9

1.6

									
10.4

14.9

During the year ended 31 March 2018, £3.8m was recognised as an expense in the Consolidated Statement of Income in respect of operatingleases (2017: £4.5m).

Oxford Instruments plc Report and Financial Statements 2018131

04: Company Information

Leases under which the Group acts as lessee

Notes to the Financial Statements continued
year ended 31 March 2018

28 Operating leases continued
Leases under which the Group acts as lessee continued
The majority of operating leases under which the Group is a lessee 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.

29 Capital commitments
During the year ended 31 March 2018, the Group entered into contracts to purchase property, plant and equipment which are expected to besettled in the following financial year for £nil (2017: £nil).

30 Contingencies
In an international group of companies, a variety of legal claims arise from time to time. The Board, having taken legal advice, is of the opinion
that any ongoing actions and investigations will not have a material impact on the Group’s financial position.

31 Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed inthis note.
During the current year, members of the Group’s Management Board have taken on new responsibilities following the introduction of the Horizon
strategy. As a result of this, Management Board members are now considered to be key management personnel and their remuneration is includedin the table below.
The remuneration of key management personnel is as follows:									2018									
£m

2017
£m

Short-term employee benefits							
3.4

1.7

Post-employment benefit								
0.2

0.1

Share-based payment charge/(credit)							
0.4

(0.2)

Total								
4.0

1.6

Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
The prior year share-based payment credit of £0.2m arose due to the reversal of the share option charge relating to options previously issued toJonathan Flint.
During the year, the Company paid £nil (2017: £0.1m) to Imperialise Limited, a company for which Nigel Keen (former Chairman) is a Director.
The payment was for his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2017: £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:							Revenue2018						£mPurchases£m

Receivables£m

Payables£m

ScientaOmicron GmbH						
0.6

—

3.0

—

							Revenue2017						£mPurchases£m

Receivables£m

Payables£m

ScientaOmicron GmbH						
0.1

—

3.6

—

					

32 Subsequent events
The interim dividend of 3.7 pence per share (total cost £2.1m) was paid after the year end. In addition, on 12 June 2018, the Directors proposeda final dividend of 9.6 pence per ordinary share (total cost £5.5m). The total amount of £5.5m has not been provided for and there are no income
tax consequences.

132

Oxford Instruments plc Report and Financial Statements 2018

The principal exchange rates to Sterling used were:Year‑end rates								
2018

2017

US Dollar								
1.40

1.25

Euro								
1.14

1.17

Yen								
149

139

Euro

Yen

April							
1.27

1.18

142

May							
1.29

1.17

143

June							
1.29

1.14

144

July							
1.31

1.13

146

August							
1.30

1.10

143

September							
1.31

1.11

146

October							
1.33

1.13

150

November							
1.32

1.13

149

December							
1.34

1.12

151

January							
1.39

1.13

153

February							
1.41

1.14

151

March							
1.40

1.14

149

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

03: Financial Statements

Average translation rates 2017							US Dollar

02: Governance

Average translation rates 2018							US Dollar

01: Strategic Report

33 Exchange rates

04: Company Information

Oxford Instruments plc Report and Financial Statements 2018133

Parent Company Statement of Financial Position
as at 31 March 2018									2018								
Notes
£m

2017
£m

AssetsNon-current assets
Intangible assets							
d

1.0

—

Tangible assets							c

0.6

1.2

Investments in subsidiary undertakings						
e

320.9

320.5

Debtors							f

1.4

3.6

Deferred tax assets							
h

1.5

1.7

									
325.4

327.0

Current assets
Debtors							f

19.5

62.5

Current income tax recoverable							
0.3

0.6

Cash at bank and in hand								
3.6

2.5

									
23.4

65.6

Total assets								
348.8

392.6

EquityCapital and reserves attributable to the Company’s equity Shareholders
Share capital								
2.9

2.9

Share premium account								
61.7

61.5

Capital redemption reserve 							
0.1

0.1

Other reserves								
7.6

7.6

Profit and loss account								
99.7

114.3

									
172.0

186.4

Liabilities
Non-current liabilities
Long-term loans								
39.4

129.6

Retirement benefit obligations							
2.9

4.9

0.4

0.4

									
42.7

134.9

Provisions for liabilities 							hCurrent liabilities

Bank loans and overdrafts								
32.8

22.1

101.3

49.2

Other creditors							g									
134.1

71.3

Total liabilities								
176.8

206.2

Total liabilities and equity							
348.8

392.6

The Financial Statements were approved by the Board of Directors on 12 June 2018 and signed on its behalf by:

Ian Barkshire		Gavin Hill
Director		Director
Company number: 775598

134

Oxford Instruments plc Report and Financial Statements 2018

year ended 31 March 2018						
Share
					
Share
premium					 capital
account					£m£m

Balance at 31 March 2016				

Capital		
Profitredemption
Other
and loss
reserve
reserves
account
£m
£m
£m

Total
£m

2.9

61.5

0.1

7.6

126.2

198.3

Loss for the year				—

—

—

—

(6.7)

(6.7)

01: Strategic Report

Parent Company Statement of Changes in Equity

Other comprehensive income:
—

—

—

—

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

Loss for the year				

—

—

—

—

(8.7)

(8.7)

Remeasurement of defined benefit liability, net of tax		

—

—

—

—

0.4

0.4

Total comprehensive income for the year			

—

—

—

—

(8.3)

(8.3)

Proceeds from shares issued 			

—

0.2

—

—

—

0.2

Share options awarded to employees			

—

—

—

—

0.7

0.7

Share options awarded to employees of subsidiaries		

—

—

—

—

0.4

0.4

Dividends paid				
—

—

—

—

(7.4)

(7.4)

61.7

0.1

7.6

99.7

172.0

Other comprehensive income:Balance at 31 March 2018			

2.9

02: GovernanceRemeasurement of defined benefit liability, net of tax		Details of issued, authorised and allotted share capital are included in Note 23 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 12 to the Group Financial Statements.
03: Financial Statements

Details of the Group’s defined benefit pension scheme are included in Note 25 to the Group Financial Statements.
Details of dividends paid are included in Note 14 to the Group Financial Statements.
Other reserves relates to premium on shares issued as part of acquisitions made in the year to 31 March 1987.

04: Company Information

Oxford Instruments plc Report and Financial Statements 2018135

Notes to the Parent Company Financial Statements
year ended 31 March 2018(a) Accounting policies

Measurement convention

Non-derivative financial instruments

Oxford Instruments plc is a company
incorporated and domiciled in the UK.

The Financial Statements are prepared on thehistorical cost basis except that the following
assets and liabilities are stated at their fairvalue: derivative financial instruments.

Non-derivative financial instruments comprisetrade and other debtors, cash and cash
equivalents, loans and borrowings, and tradeand other creditors.

Going concern

Trade and other debtors

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.

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.

Taxation

Trade and other creditors are recognised
initially at fair value. Subsequent to initialrecognition they are measured at amortised
cost using the effective interest method.

These Financial Statements were prepared inaccordance with Financial Reporting Standard
101 Reduced Disclosure Framework (FRS 101).
The amendments to FRS 101 (2013/14 Cycle)
issued in July 2015 and effective 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 in order
to comply with Companies Act 2006 and has
set out below where advantage of 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; and• certain disclosures required by IFRS 13 Fair
Value Measurement and the disclosuresrequired 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.

136

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.
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.

Oxford Instruments plc Report and Financial Statements 2018

Trade and other creditors

Cash and cash equivalents
Cash and cash equivalents comprise cash
balances and call deposits.

Interest-bearing borrowings
Interest-bearing borrowings are recognised
initially at fair value less 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 24 to
the Group 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 page 99.

Defined benefit plans

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.

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).

Where parts of an item of tangible fixed assets
have different useful lives, they are accounted
for as separate items of tangible fixed assets.
Depreciation is charged to the profit 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:• Computer equipment

4 years• Motor vehicles

4 years

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:
10 years

Impairment excluding deferred
tax assets
Financial assets (including trade andother debtors)

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 depreciation oramortisation, if no impairment loss had beenrecognised.

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.

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.

Oxford Instruments plc Report and Financial Statements 2018137

04: Company Information

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.

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
(group of units) on a pro-rata basis.

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
to be paid.

03: Financial Statements• Computer software

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
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”).

02: GovernanceNon-financial assets

Tangible fixed assets are stated at cost lessaccumulated depreciation and accumulated
impairment losses.

01: Strategic Report

Tangible fixed assets

Notes to the Parent Company Financial Statements continued
year ended 31 March 2018(a) Accounting policies continued
Employee benefits continued
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.

Termination benefits
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.

138

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.

Own shares held by ESOP trust
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 sharesin the Company are debited and credited
directly to equity.

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
rate that reflects risks specific to the liability.
The timing of the recognition requires theapplication of judgement to existing facts andcircumstances which can be subject to change.
Amounts provided represent the Group’s
best estimate of exposure based on currently
available information.

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.

Oxford Instruments plc Report and Financial Statements 2018

Foreign currencies
The Company enters into forward exchange
contracts and options to mitigate the currency
exposures that arise on sales and purchases
denominated in foreign currencies. Transactions
in foreign currencies are converted into Sterlingat the rate ruling on the date of the transaction.
Monetary assets and liabilities denominated inforeign currencies are translated at the rates
ruling at the Balance Sheet date or at theappropriate forward contract rates. Exchange
profits and losses arising from the above aredealt 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.

Investments
Investments in subsidiaries are stated at cost,less any provision for impairment, whereappropriate.

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 makea payment under the guarantee.

The Company’s loss for the financial year was £8.7m (2017: loss of £6.7m). Other Comprehensive Income in the year was £0.4m (2017: £1.7m).
The expense will not subsequently be reclassified to profit or loss.

01: Strategic Report(b) Loss for the year

The auditor’s remuneration comprised £140,000 (2017: £140,000) for the statutory audit.
The average number of people employed by the Company (including Directors) during the year was 47 (2017: 51). All of these individuals wereinvolved in administration.
The aggregate payroll costs (including Directors) of these people were as follows:									2018									
£m

2017
£m

Wages and salaries								
3.9

5.0
0.6

Other pension costs								
0.1

0.1

									4.65.7The share-based payment charge was £0.7m (2017: charge of £0.2m). Details of the Group’s share option schemes are included in Note 12 to theGroup Financial Statements.
Full details of the emoluments paid to Directors can be found in the Remuneration Report on pages 67 to 80.

02: GovernanceSocial security costs								0.6(c) Tangible fixed assets									Computer									equipment									
£m

Total
£m

Cost
Balance at 1 April 2017								
5.9

5.9
0.3

Disposals								
(3.6)

(3.6)

Transfer to intangible assets							
(0.6)

(0.6)

Balance at 31 March 2018						
2.0

2.0

Balance at 1 April 2017								
4.7

4.7

Depreciation
Charge for year								
0.3

0.3

Disposals								
(3.6)

(3.6)

Balance at 31 March 2018							
1.4

1.4

Net book value
At 31 March 2017								
1.2

1.2

At 31 March 2018								
0.6

0.6

03: Financial Statements

Additions								
0.304: Company Information

Oxford Instruments plc Report and Financial Statements 2018139

Notes to the Parent Company Financial Statements continued
year ended 31 March 2018(d) Intangible assets										Software										
£m

CostBalance at 1 April 2017									
2.2Additions									
0.5Transfer from tangible fixed assets								
0.6Balance at 31 March 2018								
3.3Depreciation and impairment losses
Balance at 1 April 2017									
2.2Charge for year									
0.1Balance at 31 March 2018								
2.3Net book value
At 31 March 2017									—At 31 March 2018									1.0(e) Investments										Investments										in subsidiary										undertakings										
£mCost or valuation
Balance at 1 April 2017									339.2Expense in respect of share options transferred to subsidiary undertakings					

0.4Balance at 31 March 2018								339.6Impairment
Balance at 1 April 2017 and 31 March 2018							18.7Net book value
At 31 March 2017									320.5At 31 March 2018									
320.9

140

Oxford Instruments plc Report and Financial Statements 2018

01: Strategic Report

The following is a full list of the subsidiaries and associates and their country of registration as at 31 March 2018. 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.
									Registered									office addressCountry ofincorporation

Subsidiaries
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

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

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 5QXUK

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

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

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

CanadaTubney Woods, Abingdon, Oxon, OX13 5QX

UKSpectral Applied Research Inc
Oxford Instruments Molecular Biotools Limited
Resonance Instruments Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments NanoTechnology Tools Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

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

Floor 1, Building 60, 461 Hongcao Road, Xuhui District, Shanghai

China
FinlandOxford Instruments Technology (Shanghai) Co. Limited
Oxford Instruments Technologies Oy

Technopolis Innopoli 1, Tekniikantie12, Espoo, 02150

Oxford Instruments Holdings 2013 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

IS Building, 3-32-42 Higashi-Shinagawa, Shinagawa-ku, Tokyo, 140-0002

Japan

Tubney Woods, Abingdon, Oxon, OX13 5QXUK

360 El Pueblo Road, Scotts Valley, CA 95066

USA

Oxford Instruments Holdings Europe Limited

Tubney Woods, Abingdon, Oxon, OX13 5QX

UK

Oxford Instruments Guernsey 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

Arenavägen 41, 10th Floor, 121 77 Johanneshov

Sweden1

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 5QXUK

2nd Floor, 1-2 Victoria Buildings, Haddington Road, Dublin 4, D04 XN32

IrelandOxford Instruments Funding (Ireland) Unlimited(in members’ voluntary liquidation)

Oxford Instruments plc Report and Financial Statements 2018141

04: Company Information

Oxford Instruments Overseas Marketing Limited
Oxford Instruments X-Ray Technology Inc

03: Financial Statements

Link Analytical Limited
Oxbridge Instruments Limited

02: GovernanceOxford Instruments NanoScience Limited
Oxford Magnet Technology Limited

Notes to the Parent Company Financial Statements continued
year ended 31 March 2018(e) Investments continued									Registered									office addressCountry ofincorporation

Subsidiaries continued
Oxford Instruments Funding Ltd
Oxford Instruments Private Limited
Oxford Instruments India Private Limited
Oxford Instruments SAS

Frances House, Sir William Place, St Peter Port, GY1 4HQ

Guernsey2

Messrs Tan Rajah & Cheah, 80 Raffles Place,#58-01 UOB Plaza 1, Singapore, 048624

Singapore

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 AB3Vallongata 1, 752 28, Uppsala

SwedenLimburger Strasse 75, 65232 Taunusstein

Germany

Omicron Nanotechnology Japan, Inc.3

No. 20 Shimokawa Building, 5-30-15, Ota-ku, TokyoJapan

Omicron Nanotechnology Limited3

St James House, Kensington Square, London W8 5HD

UK

Omicron UHV Technik Limited3

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

ScientaOmicron GmbH3

ScientaOmicron Inc.3
Societe Omicron Nanotechnology EURL3
VACGEN Limited3,4
1. Voluntary strike off 23 April 2018.
2. UK tax resident.
3. Year end is 31 December. The Group has a 47% shareholding in these entities.
4. Disposed of 20 April 2018.

Equity owned by the Company represents issued ordinary share capital. All subsidiaries are consolidated in the Group accounts.

(f) Debtors									2018									
£m

2017
£m

Amounts falling due after one year:
Amounts owed by associate undertakings							
1.4

3.6

Amounts falling due within one year:
Amounts owed by subsidiary undertakings						

15.2

57.5

Amounts owed by associate undertakings							1.2

—Other debtors								
2.8

4.7

Prepayments and accrued income							
0.3

0.3

									
20.9

66.1

(g) Other creditors									2018									
£m

2017
£m

Trade creditors								
0.4

0.1

Amounts owed to subsidiary undertakings							
95.4

38.6

1.6

1.2

Tax, social security and sales related taxes							Other financial liabilities								
1.4

6.7

Accruals and deferred income							
2.5

2.6

									
101.3

49.2

142

Oxford Instruments plc Report and Financial Statements 2018										Restructuring										provision

01: Strategic Report(h) Provisions for liabilities
Balance at 1 April 2017									
0.4Provisions made during the year								—Provisions used during the year 								—Balance at 31 March 2018								
0.4Deferred tax asset									2018									
£m

2017
£m

Balance at 1 April								
1.7

1.9
0.2

Other comprehensive income debit							
(0.1)

(0.4)

Balance at 31 March								
1.5

1.7

The amounts of deferred tax assets are as follows:
Recognised									2018									
£m

2017
£m

0.6

0.6

Tax losses								—

—Excess of depreciation over corresponding capital allowances					Provisions								
—

—

0.9

1.1

									1.51.7Employee benefits – pension and share schemes						02: Governance

Profit and loss (debit)/credit								(0.1)

The 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.
Deferred tax assets have not been recognised in respect of the following items:
2017£mTax losses								
0.5

1.0

									0.51.0A 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 2018 has been calculated based on those rates.

03: Financial Statements									2018									£m(i) Pension commitments
Defined benefit scheme
The Company and its employees contribute to the Oxford Instruments Pension Scheme (“the Scheme”), a defined benefit scheme, which offers
pensions in retirement and death in service benefit to members. Pension benefits are related to members’ final salary at retirement and their lengthof service.

The Oxford Instruments Group policy for charging net defined benefit costs to participating entities states that member costs are charged directly
to a participating company if that member is also an employee of said participating company. The costs of scheme members that are no longer
employees of any participating company or directly affiliated with a Group company are allocated on the basis of the participating company’s
scheme members as a percentage of the total scheme members that are also employees of participating companies.
The policy for determining contributions to be paid by participating companies is the same as that for charging net defined benefit costs.
Details of the scheme, its most recent actuarial valuation and its funding can be found in Note 25 to the Group Financial Statements.
The contributions paid by the Company to the Oxford Instruments Pension Scheme were £1.6m (2017: £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 (2017: £0.1m). There were no outstanding contributions at the end of the financial year(2017: £nil).

Oxford Instruments plc Report and Financial Statements 2018

143

04: Company Information

The Scheme was closed to new members from 1 April 2001. Since this date, new employees have been invited to join the Oxford Instruments
Stakeholder Plan, a defined contribution scheme. The Scheme is also closed to future accrual.

Notes to the Parent Company Financial Statements continued
year ended 31 March 2018(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 (2017: £10.0m) in respect of overdraft facilities of which £nil
(2017: £nil) was drawn at the year end.

(k) Commitments
At 31 March 2018, capital commitments contracted were £nil (2017: £nil) and authorised were £nil (2017: £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 67 to 80. 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 £nil (2017: £0.1m) to Imperialise Limited, a company for whom Nigel Keen, former Chairman, is a Director.
The payment was for his services as Chairman of the Group. The liability due to Imperialise Limited at the year end was £nil (2017: £nil).

144

Oxford Instruments plc Report and Financial Statements 2018

as at 31 March 2018

2016
£m

2017
£m

2018
£m

Revenue from continuing operations				249.2

282.4

270.3

300.2

296.9

Adjusted operating profit from continuing operations			

40.2

36.4

38.0

38.0

46.5

Other operating income					—

—

—

—

3.3

Contingent consideration deemed no longer payable			

—

—

4.9

—

—

Reversal of acquisition related fair value adjustments			

(3.7)

(0.2)

(1.0)

—

—

Acquisition related costs					 (7.8)

(2.2)

(2.5)

(0.3)

—

Loss on disposal of subsidiary undertakings			

—

—

(0.9)

(0.4)

—

Contingent consideration – further amount deemed payable		

—

(6.8)

—

—

—

Restructuring costs					
—

(8.7)

(2.9)

(0.4)

(1.2)

Restructuring costs – relating to associate				

—

—

(1.3)

(0.4)

(0.4)

Settlement loss on US pension scheme				

(0.1)

—

—

—

—

Impairment of investment in associate				

—

—

—

(8.0)

(2.0)

Impairment of internally generated intangible assets			

—

—

—

(2.9)

—

Impairment of acquired intangibles				

—

—

—

(33.8)—

Amortisation of acquired intangibles				(12.6)(17.1)(12.7)(12.5)(10.9)

Fair value movement on financial derivatives			

4.1

(4.8)

(2.7)

1.2

3.1

Operating profit/(loss) from continuing operations			

20.1

(3.4)

18.9

(19.5)

38.4

Net financing costs					 (4.1)

(8.2)

(8.4)

(6.7)

(4.2)

Profit/(loss) before taxation from continuing operations			

16.0(11.6)

10.5(26.2)

34.2

Income tax (expense)/credit					(3.1)

4.9

(2.9)

0.7

(14.6)

Consolidated Statement of Income

12.9

(6.7)

7.5

(25.5)

19.6

Adjusted profit before tax from continuing operations1			37.0

29.2

30.4

31.5

42.3

Property, plant and equipment				34.4

33.1

35.2

32.5

22.8

Intangible assets					247.9

231.3

220.8

181.0

158.7

Investment in associate					
—

—

13.1

3.9

4.1

Long-term receivables					
—

—

3.4

3.6

1.4

(3.5)

14.6

13.9

18.1

3.6

Inventories					68.3

70.8

61.1

53.9

45.9

Profit/(loss) for the year from continuing operations			

02: Governance

2015
£m

						2014						£m

01: Strategic Report

Historical Financial Summary

Consolidated Statement of Financial Position

90.7

79.0

81.7

73.9

Trade and other payables					(112.8)(126.5)(108.2)(98.0)(84.1)Net assets excluding net cash				

320.5

314.0

318.3

276.7

226.3

Cash and cash equivalents					32.6

25.1

21.8

27.2

20.7

Trade and other receivables					86.2

—

(1.4)

(0.7)

—

Bank borrowings					 (156.9)(144.0)(148.6)(135.8)(40.4)Net debt					 (124.3)(118.9)(128.2)(109.3)(19.7)

Provisions and other items					(9.7)(16.1)(12.1)(9.8)(11.7)

Retirement benefit obligations				 (46.3)(53.5)(35.0)(25.1)(15.3)Net assets employed/capital and reserves attributable
to the Company’s equity holders				

125.5

143.0

132.5

179.6

140.2

Oxford Instruments plc Report and Financial Statements 2018

145

04: Company Information

Bank overdrafts					—03: Financial Statements

Deferred and current tax					Historical Financial Summary continued
as at 31 March 2018						2014						£m

2015
£m

2016
£m

2017
£m

2018
£m

27.5

Cash flow
Net cash from operating activities				

11.2

17.9

34.4

27.4

Net cash (used in)/generated from investing activities 			(175.0)(11.7)(35.2)

(6.6)

67.8

Net cash from/(used in) financing activities				

151.3(19.8)(6.0)(20.2)(103.1)

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

(12.5)(13.6)

(6.8)

0.6

(7.8)

						pence

pence

pence

pence

pence

Per ordinary share
Earnings – continuing					 22.6

(11.7)

13.1(44.7)

34.3

Adjusted earnings2					54.8

41.2

41.0

41.5

56.3

Dividends					12.4

13.0

13.0

13.0

13.3

2,420

2,077

1,974

1,642

Employees
Average number of employees				2,050
1. Comparative figures have been restated to account for the disposal of the Group’s Industrial Analysis business.
2. 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.

146

Oxford Instruments plc Report and Financial Statements 2018

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, Chairman
Stephen Blair1
Richard Friend
Thomas Geitner
Alan Thomson, Chairman
Stephen Blair1
Richard Friend
Thomas GeitnerMary Waldner

Stockbroker
JPMorgan Cazenove

UK Solicitors
Laytons Solicitors LLP
Ashurst LLP

02: GovernanceNomination

01: Strategic Report

Directors and Advisers

US Counsel
Wilmer Hale LLP

Remuneration
Thomas Geitner, Chairman
Stephen Blair1
Richard Friend
Mary Waldner
Alan Thomson

Administration
Any two Directors
03: Financial Statements

1. Stephen Blair was appointed to the Audit and Risk,
Nomination and Remuneration Committees on
1 July 2017.

04: Company Information

Oxford Instruments plc Report and Financial Statements 2018147

Oxford Instruments Directory
Company/address		

Country

Telephone

Fax

Email

Oxford Instruments Head OfficeTubney Woods, Abingdon, 		Oxfordshire OX13 5QX, UK

UK+44 (0)1865 393200+44 (0)1865 393333

info.oiplc@oxinst.com

Materials & Characterisation
Oxford Instruments NanoAnalysis
Halifax Road, High Wycombe,
Buckinghamshire HP12 3SE, UK

Systems for materials
analysis at the nanoscaleUK+44 (0)1494 442255+44 (0)1494 524129

nanoanalysis@oxinst.com

Arenavägen 41, 10th floor,
121 7 Johanneshov, Sweden

Systems for materials
analysis at the nanoscale

Sweden+46 8 5448 1550

+46 8 5448 1558

nordiska@oxinst.com

Asylum Research6310 Hollister Ave,
Santa Barbara, CA 93117 USA

Systems for materials
analysis at the nanoscaleUSA+1 (805) 696 6466

+1 (805) 696 6444

sba.sales@oxinst.com

Borsigstraße 15A,
65205 Wiesbaden, Germany		

Germany.+4961229370+49 621 762117 11

sba.de.sales@oxinst.com

Room 304, Building 52, No. 195,
Section 4, ZhongXing Road,
ZhuDong Township, XinZhu County,
310 Taiwan		Taiwan+886 3 5788696+886 2 2794 2757

sba.tw.sales@oxinst.com

Halifax Road, High Wycombe,
Buckinghamshire HP12 3SE, UK		UK

+44 (0)1494 442255+44 (0)1494 524129

sba.uk.sales@oxinst.com

Tools for nanotechnology
fabricationUK+44 (0)1934 837000+44 (0)1934 837001

plasma@oxinst.com

Scientific imaging cameras,
spectroscopy solutions
and microscopy systemsUK+44 (0)28 9023 7126

+44 (0)28 9031 0792

info@andor.com

Badenerstrasse 682, 		
CH-8048 Zürich

Switzerland+41 44 430 11 00+41 44 430 11 01

info@bitplane.com

2 East Beaver Creek Road, 		Building 2, Richmond Hill,
ON Canada L3B 2N3

Canada+1 (905) 326 5040

+1 (905) 326 5041

info@spectral.ca

Oxford Instruments
Plasma Technology
North End, Yatton,
Bristol BS49 4AP, UK

Research & Discovery
Andor/Bitplane/Spectral
7 Millennium Way,
Springvale Business Park,
Belfast, BT12 7AL UK

Oxford Instruments NanoScience& Magnetic Resonance
Tubney Woods, Abingdon,
Oxfordshire OX13 5QX, UK
Oxford X-Ray Technology
360 El Pueblo Road,
Scotts Valley, CA 95066, USA

Advanced tools forUK+44 (0)1865 393200+44 (0)1865 393333
applied research				nanoscience@oxinst.com
magres@oxinst.com

X-ray tubes and detectors

USA+1 (831) 439 9729

+1 (831) 439 6051

xray-sales@oxinst.com

USA+1 (954) 596 4945

+1 (954) 596 4946

oiservice@oxinst.com

USA+1 (707) 469 1320

+1 (707) 469 1318

oiservice@oxinst.com

Service & Healthcare
OiService CT & MR
1027 SW 30th Avenue, 		Deerfield Beach, FL 33442, USA
64 Union Way, Vacaville, 		CA 95687, USA

120 Enterprise Drive, Ann Arbor, 		USA+1 (888) 323 1316
+1 (734) 822 1011
MI, 48103, USA					

148Oxford Instruments plc Report and Financial Statements 2018

info@mobileleasing.com
info@medimagingsales.com

Company/address		

Country

Telephone

Fax

Email

USA

+1 (978) 369 9933

+1 (978) 369 8287

info@ma.oxinst.com

Oxford Instruments Technology, China
Floor 1, Building 60,
No. 461, Hongcao Road,
Xuhui District, Shanghai, 200233		

China

400 678 0609

+86 21 6127 3828

china.info@oxinst.com

Building B2 West,No. 11 West Third Ring North Road,
Haidian District, Beijing, 100085		

China

400 678 0609

+86 10 5884 7901

china.info@oxinst.com

Room 3312, Building B3,
Hanxi East Road, NanCun Town,
Panyu District, Guangdong Province,
511446, Guangzhou		China

400 678 0609

+86 20 8478 7349

china.info@oxinst.com

Room 2201B, Central Plaza 1,
No. 8 Shuncheng Street,
Jinjiang District, Chengdu,
Sichuan Province, 610024		

China

400 678 0609

+86 28 8620 1871

china.info@oxinst.com

Oxford Instruments Czech Republic
Velvarska 13, CZ-160 00 Praha, 		Czech Republic		

Czech
Republic+420 233 343 264+420 234 311 724

Czech.info@oxinst.com

Oxford Instruments France				
77 ZA de Montvoisin, 		
91400 Gometz la Ville, France

France+33 1 69 85 25 25+33 1 69 41 46 80

infofrance@oxinst.com

Oxford Instruments Germany				Borsistrasse 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,
Andheri East, Mumbai 400072, India

India+91 224 4253 5100

+91 224 4253 5110

india@oxinst.com

Oxford Instruments JapanIS Building 3-32-42, Higashi-Shinagawa,		
Shinagawa-ku Tokyo 140-0002, Japan 		Japan+81 (0)3 6732 8961

+81 (0)3 6732 8937

info.jp@oxinst.com

Regional Sales and Service Offices
Oxford Instruments/Canada/
Latin America
300 Baker Avenue, Suite 150, 		Concord, MA 01742, USA

Shin Osaka Sun R Building 10th Floor,
5-8-3 Nishi-Nakajima, Yodogawa,
Osaka, 532-0011, Japan		

Japan			info.jp@oxinst.com

No. 8-S 26, 8F., 10 Chungmin-ro, 		Songpa-gu, Seoul 138-962 Korea (Republic of)

Republicof Korea+82 2 2008 4500

+82 2 2008 4555

nanoanalysis@oxinst.com

Oxford Instruments Russia
Denisovskiy per. 26, Moscow 105005,
Russian Federation

Russia+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 408564, Republic of Singapore

Singapore+65 6337 6848

+65 6337 6286

Singapore.info@oxinst.com

Oxford Instruments Taiwan
2F-1, No. 27, Kuang-Hsin Road,Hsin-Chu		
Taiwan 300, Taiwan, R.O.C.

Taiwan+886 3 5788696+886 3 5789993

Taiwan.info@oxinst.com

Oxford Instruments Korea

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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 in writing) may not
be used, applied or reproduced for any purpose or form part of any order or contract or regarded as the representation relating to the products or services
concerned. Oxford Instruments’ policy is one of continued improvement. The Company reserves the right 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, 2018.
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Oxford Instruments plc Report and Financial Statements 2018