Final Results

RNS Number : 3828I

Oxford Instruments PLC

14 June 2011

 



14^th June 2011

Oxford Instruments plc

Announcement of Preliminary Results for the year to 31 March 2011

Improved profits and revenues

Oxford Instruments plc, a leading provider of high technology tools and systems for industry and research, today announces its Preliminary Results for the year to 31 March 2011.

Financial Highlights:

·      Order intake up 9.4% to £273.5 million (2010: £250.0 million)

·      Revenue up 24.0% to £262.3 million (2010: £211.5 million)

·      Strong organic growth supported by increased R&D investment

·      Adjusted profit before tax* up 120.2% to £26.2 million (2010: £11.9 million)

·      Adjusted EPS* up 133.1% to 41.5 pence (2010: 17.8 pence)

·      Basic EPS up 140% to 65.3 pence (2010:  27.2 pence)

·      Proposed final dividend increased by 8% to 6.48 pence, giving a total dividend for the year of 9.0 pence (2010: 8.4 pence)

·      New medium term plan announced

·      Separately announced today, acquisitions of Omicron Nanotechnology GmbH and Omniprobe, Inc. for an aggregate consideration of £40.2 million.

* Adjusted figures are stated before other operating income, amortisation of acquired intangibles, reorganisation costs, impairments and marking to market of hedging derivatives

Nigel Keen, Chairman of Oxford Instruments plc, said: 

"It is now five years since we announced our plan to double the size of Oxford Instruments and significantly improve our margins.  Our successful implementation of this strategy is reflected by this set of results, the strongest performance in the Group's 51 year history.  Our new three year plan, to target 14% annual revenue growth and ROS of 14% by 2014, sets the framework for delivering sustained shareholder value driven by strong organic growth, continuous efficiency improvements and targeted acquisitions."

Enquiries:

Oxford Instruments plc                                                Tel:  [phone]

Jonathan Flint, Chief Executive

Kevin Boyd, Group Finance Director

MHP                                                                             Tel:  [phone]

Rachel Hirst

Ian Payne

For further copies of this Preliminary Results announcement please contact Lynn Shepherd at the Group's registered office at Tubney Woods, Abingdon, Oxon OX13 5QX (email: [e-mail]) or visit our website on www.oxford-instruments.com/investors.

Chairman's Statement

Oxford Instruments generates shareholder value by being a leading provider of systems used by our customers to analyse and manipulate matter at the smallest scale. We address both research and industrial markets and operate in all regions around the world.  This broad spread of customers and geographical markets served to insulate us from the worst of the effects of the recent recession.  Now that trading conditions have improved, this diversity has enabled us to deliver significant growth during the year.

The Group delivered its strongest performance in its 51 year history.  Revenues rose to £262.3 million (2010: £211.5 million) and adjusted profit before tax more than doubled to £26.2 million (2010 £11.9 million).   Adjusted earnings per share rose significantly to 41.5p (2010: 17.8p).  The Group had a net positive cash balance of £13.1 million (2010: borrowing of £10.4 million) at the year-end.

These results reflect five years of continuous progress in the development of new products for high growth markets and sustained efficiency improvements.  The rapid strengthening of industrial markets after the recession of 2008/2009 was faster than we had expected and our new product launches have been more successful than we had predicted.  As a result we announced increased performance expectations for the year in September 2010 and April 2011, and raised our interim dividend to 2.52 pence (2010: 2.4 pence).

The Group is recommending a final dividend of 6.48 pence bringing the total for the year to 9.0 pence (2010: 8.4 pence).

This year's strong result has been made possible by all our people around the world.  I would like to thank them for their hard work during the year.

It is now five years since we announced our plan to double the size of Oxford Instruments and significantly improve our margins.  The implementation of the strategy to achieve these challenging targets has been successful as reflected by this strong set of results.  Today, as outlined later in the statement, we unveil the next mid-term target, the 14 Cubed Objective. This will form the basis of the next stage of the development of the Group as we continue to deliver shareholder value by using technology to address the issues facing society.

Nigel Keen Chairman

14^th June 2011

Chief Executive's Statement

Financial year 2010/2011

The Group delivered an excellent result in the year from both our Research and our Industrial markets.  We continue to benefit from strong demand from our research based customers helped by our innovative new products.  Demand for our industrial products increased significantly as our customer base emerged from recession.

Our order intake reached £273.5 million (2010: £250.0 million).  This strong performance is particularly pleasing given that the prior year included the large one off order for superconducting wire for ITER, the multinational carbon free energy programme.  Excluding ITER, order intake grew by 30.5%.  The order book now stands at £115.3 million (2010: £101.5 million).  Most of these orders are for delivery in the first half of the current year.

The Group continues to benefit from strong growth in Asia, where sales grew by 40.5%   In China, our second largest market after the United States, sales increased by 70.1%.  To support this growth we opened a fifth China office in Chengdu and increased production capabilities in our Shanghai factory. Japan, which generated 10.9% of our revenue, also saw good growth. The earthquake in March 2011   caused extensive disruption to our day-to-day operations but had a very limited effect on trading in the reported year.  It is too early to predict the ongoing effect to us of the disaster.  Our focus on the opportunities presented by emerging markets continues to strengthen with plans to open an office in Brazil this summer.  We have seen good performance across all product groups in Russia, particularly in the research markets. Growth in India is particularly strong in our industrial markets and we are looking to strengthen our presence there. 

Sales in the more established markets of Europe and North America increased by 10.5% and 23.4% respectively. Going forward we expect a progressively higher proportion of our revenue to come from Asia.

Our strong organic growth has been driven by our focussed R&D programme.  Our growing end markets offer the potential to increase market share through the introduction of new technologies.  In order to more fully exploit this opportunity rich environment, we increased our R&D cash spend by 29% to £16.9 million (2010: £13.1 million).

More detail about the Group's operational performance is set out on pages 6 to 7.

Five years of progress:  Laying the foundations for further profitable growth

In 2006 we announced a five year objective to double the size of the business and improve our net margins by ten percentage points through organic growth and acquisitions.  We set out to achieve this by becoming a more customer focused business, increasingly concentrating on new products in markets such as nanotechnology. 

Having reached the end of the five year period, we have achieved very significant progress and a substantial increase in shareholder value. Our growth target equated to a compound average annual growth rate of 15.0%. We achieved 14.4%. This reflects our success in beating our five year organic growth target, delivering an average annual compound organic growth rate of 12.8%, compared to our 10.0% target.  This was facilitated by the rapid culture change that has been achieved across our businesses, bringing a highly commercial focus to our R&D capability and significantly accelerating the pace and quality of technological innovation across the Group, despite the severe downturn suffered by the global economy.

The plan envisaged that acquisitions would deliver the remaining five per cent of growth per annum.  We made four successful acquisitions during 2007 and 2008.  In 2009, we took the decision to suspend acquisitions until such time as the world economy stabilised.  This inevitably delayed the acquisitive part of our growth and impacted the margin improvement which had been planned to come from acquisitions. We are now actively searching for appropriate acquisition targets. 

At the beginning of the plan in 2005/06, the Group delivered a return on sales of 3.0%. The corresponding figure for 2010/11 is 10.7%. This progress has been achieved through internal efficiency improvements, the better targeting of our R&D towards the needs of our customers and improved operational gearing. 

All parts of the Group are now performing well and the foundations have been laid for further profitable growth. Our brand, our technology and our global reach position us well for the next stage in our evolution.

2011 to 2014:  The "14 Cubed" Plan

Having broadly achieved the objectives of our five year plan, we are now focused on delivering the next phase of growth.  Our objective over the next three years is to target an average compound annual revenue growth rate of 14% per year.  At the end of the three year period we plan to have a net return on sales of at least 14%. This plan, to achieve compound growth of 14% and a return on sales of 14% by 2014, is known within the Group as the "14 Cubed" Plan.

Our annual trading patterns are now more predictable due to the operational improvements that have been achieved across the Group. We enjoy a broad spread of customers, applications and geographic markets. This, together with improved processes for R&D and cash management, increases our ability to plan more confidently for the medium term. For this reason we have selected a three year time horizon for our next strategic plan. We believe that this also better reflects the time horizons of many of our investors and customers.           

The new plan will be driven by three elements; strong organic growth, continuous efficiency improvements and targeted acquisitions. These will each contribute to our targets for growth and margin improvement.

The 14% compound growth rate is planned to be achieved more through organic growth than by acquisition.  We believe that this growth level can be obtained because of the valued position of the Oxford Instruments brand in our high technology markets, our high exposure to the growing markets of Asia and our customer targeted R&D programme.  We are proud of the fact that our customers from around the world often specify that they want "The Oxford" when procuring new systems.

Our product development pipeline is populated with new, commercially driven products which will be released over the next two years. This will further consolidate and grow our market position and as a result we believe that our organic growth can continue as evidenced by the strong average rate achieved over the last five years. 

Organic growth will be supplemented by targeted acquisitions. Today in a separate statement, we announce two acquisitions:  Omicron Nanotechnology GmbH, a German company specialising in the manufacture of very high end microscopes for nanotechnology research and Omniprobe, Inc., an American company which designs and manufactures nano-manipulators for use within scanning electron microscopes. The aggregate consideration is £40.2 million on a no cash, no debt basis.   

Further exploitation of the Oxford Instruments brand, our superior technology and exposure to markets where demand is growing faster than supply will drive continued margin progression. This, together with our ability to implement greater economies of scale and efficiency improvements, underpins our confidence in achieving our 14% return on sales target.

Oxford Instruments has a proud scientific heritage embodied in our strong worldwide cadre of engineers who bring world class skills in the most advanced technological fields. As the business grows, increased operational gearing will enable us to deliver even greater value from this highly skilled team. 

We have an internal efficiency programme which seeks both to increase revenues (by boosting our customer satisfaction levels) and to manage costs. This programme is built around five key goals:

·      Delivering for shareholders

·      Liberating cash

·      Investing for the future

·      Realising the Brand

·      Adding personal value

Each of these goals is measured by key performance indicators against which we calibrate our progress, enabling us to monitor momentum at both divisional and Group level on a regular basis.  

Current Trading

We are now two months into the time period covered by the 14 Cubed Plan.  Trading to date has been in line with our expectation with orders, sales and profit better than the same period in the prior year. As part of our annual trading cycle there has been a cash outflow in the period and the cash balance at the end of May 2011 was £4.1 million.

Outlook

The progress made over the last five years in commercialising and focusing the Group has laid the foundations for long term profitable growth.  Our markets, and the position of our products in those markets, is strong.

As we enter the next stage of the evolution of Oxford Instruments, the 14 Cubed Plan outlines the framework through which all of our stakeholders will benefit from increased profitability, greater scope to invest in organic growth and acquisitions, continued innovation and global recognition of the Oxford Instruments Brand.

Jonathan Flint

Chief Executive

14^th June 2011

Operational Review

Nanotechnology Tools

The Nanotechnology Tools sector comprises our NanoAnalysis, NanoScience and Plasma Technology businesses.  This sector produces our highest technology products and serves research customers in both the public and private sectors.  Revenues were £121.8 million, an increase of 20% on the prior year.  Trading Profit was £14.6 million (2010: £8.2 million), with performance up across both industrial and research markets worldwide.

Our NanoAnalysis business produces analysis tools which give precise chemical and structural data to users of electron microscopes. It was an excellent year for orders and shipments due to recovering industrial markets and strong demand for nano-characterisation of new materials in the automotive, aerospace and solar markets.  Much of this demand has been met through the launch of innovative 3D analytical software giving customers more information than ever before, particularly in the semi-conductor and metallurgy markets where detailed analysis of the structure of a sample is required. Sales of our large area silicon drift detector, X-Max, continue to exceed expectations, and this year we sold our 1,000^th detector. A new variant of the X-Max for high performance electron microscopes, launched in 2010, offers significant benefits to the semiconductor and materials research markets and generated sales which exceeded expectations. We have seen significant growth in the sales of our Electron Backscatter Diffraction (EBSD) systems due to product enhancements and improved marketing.  April 2011 saw the introduction of AZtec, a revolutionary materials characterisation system which will ultimately replace our world-renowned INCA platform.  The launch was particularly successful and orders are exceeding expectations.

Our NanoScience business produces equipment for experimental research in the areas of very low temperature and very high magnetic fields.   The business continues to improve its performance, further consolidating the process efficiencies introduced over the last two years.    Demand continues to be strong, with particular interest from institutes conducting research into quantum information processing, which will directly influence next generation computers and security systems.  New market leading cryogen free magnet systems were developed and launched in 2010, laying the foundations for development of a wider cryogen free platform and offering further opportunities to grow market share.  This new technology has also led to record sales in China, where we have increased our investment in our sales and service capability.

Our Plasma Technology business provides nanotechnology fabrication tools which are used to manipulate materials at the atomic scale for research and advanced manufacturing applications.  This business delivered a strong performance. The majority of its sales were in Asia, driven by strong demand in the High Brightness Light Emitting Diode (HBLED) sector.  We have opened a research facility in Taiwan to offer further collaboration with our partners and customers.  A similar facility was also opened in the UK and our production capacity has been more than doubled as a result of a factory refurbishment. Two new products were launched this year to support the continued growth in the photovoltaic and HBLED markets. As a result of its improved performance in the export market, Plasma Technology was a winner of a 2011 Queen's Award for International Trade.

Industrial Products

The Industrial Products sector contains our Industrial Analysis, Superconducting Wire and Magnetic Resonance businesses.  Revenue increased to £97.6 million (2010: £72.1 million), reflecting significant growth in demand from the industrial markets worldwide. Trading Profit in this sector rose to £5.9 million (2010: £1.0 million) on the increased volume.

Our Industrial Analysis business produces analytical equipment for industrial quality control and environmental monitoring.   We have seen strong growth in this business, particularly in the metals and petroleum markets.  Our X-ray Fluorescence range of products, which includes the X-MET hand-held analysers, has seen a significant increase in sales due to increased investment in our sales and service teams worldwide and the strengthening of our industrial markets in general.  Our Optical Emission Spectrometers are now leading the market in metals analysis and this business continues to perform well.

Our Superconducting Wire business is the world leader in the provision of wire for the MRI scanner market where demand for wire for MRI scanners has continued to strengthen, with a significant increase in sales recorded this year.  We also provide high specification superconducting wire to customers engaged in research.  Plans to expand the facility in New Jersey, USA are now underway following a successful ramp up in production of wire for the ITER project.    

Our Magnetic Resonance business produces bench top equipment which can be used to analyse industrial and food products, particularly oils and fats. It also provides magnetic resonance analytical tools for the petrochemical industry, providing data to improve the efficiency of oil extraction.  This business has returned strong sales due to the focus on its core product line, particularly in the oil from sunflower seeds market.

Service

This sector consists of our MRI Service businesses in North America and Asia, our Austin Scientific business and the service elements of Nanotechnology Tools and Industrial Products. Turnover was £45.4 million (2010: £39.0 million) and Trading Profit was £7.6 million (2010: £5.5 million).  The USA is our biggest service region but we are seeing increased revenue in China and Japan as our installed base grows.

The MRI Service businesses provide service and support to the MRI industry, offering magnet service, parts and accessories predominantly in North America and Japan. This business has continued to perform well. 

Our Austin Scientific business supplies, services and refurbishes high quality cryogenic vacuum pumps, helium compressors and cold heads for customers in the semiconductor, medical and research sectors.   This business has recorded its best ever results due to significant growth across all revenue streams.

People

Our talented workforce is a key element of our success. We periodically undertake all-employee surveys in order to measure attitudes amongst our staff worldwide. We achieve levels of employee engagement which are significantly above the industry benchmark and are rising. We have launched a Group wide incentive plan through which all staff will benefit with the achievement of our 14 Cubed objectives.

We have also launched an Oxford Instruments management development programme which promotes high standards of performance and aims to develop the talented, international managers needed to deliver our strategy.  Over 100 employees will undertake management training during the coming year.

Our people continue to develop innovative, market leading products, offer quality customer service and meet the needs of more customers than ever before. In particular, our staff in Oxford Instruments Japan deserve special recognition. In the aftermath of the March earthquake and tsunami they continued to support our customers in very difficult circumstances. Some also assisted the emergency services in the affected areas.

All our people have made the difference. They deliver against demanding targets and have my admiration and thanks.

Sustainability

Our Sustainability programme continues to command a high profile across the Group. Every site has an Energy Champion who is actively responsible for reducing our carbon footprint locally.

We have set an annual target of a 5% reduction in energy consumption as a percentage of sales.  Our teams achieved a 15% reduction in electricity consumed as a percentage of sales in 2010/11.

Financial Review

Trading Performance

Orders of £273.5 million were £23.5 million ahead of the same period last year.  Excluding the one-off ITER order received in the prior year, orders grew by £63.9 million or 30.5%.

Revenues for the year grew by 24.0% to £262.3 million (2010: £211.5 million).  The majority of growth came through increased volumes in all parts of the business, with a positive foreign exchange variance of £2.4 million being offset by adverse pricing of approximately £2.9 million.

In our Nanotechnology Tools division, which had been less affected by the global downturn and therefore has a stronger comparator year, sales grew by 19.6% while the Industrial Products division continued the recovery seen in the twelve months to September with growth of 35.4%.  This was helped by five shipments of superconducting wire to the ITER programme, representing some 21.5% of the total contract.  Service revenues grew by 16.4% on the back of a strong performance from our Austin Scientific business and a more general willingness in the market to renew service contracts.

Gross margins fell from 42.8% to 41.7% due to the pricing impact mentioned above, an adverse mix variance as superconducting wire became a bigger proportion of Group sales and a desire to maintain strategic market positions, particularly within the fast growing HBLED market.

Constant currency operating expenses increased by £11.2 million.  Sales and marketing costs increased by 10.5% due to the growth in variable overhead costs as a result of higher volumes and our investing for the future in terms of increased sales presence.  R&D increased by 34.4% while other costs rose by 16.5% due, among other things, to one-off ITER set up expenses.  Translational foreign exchange effects added £0.4 million, resulting in a net increase of £11.6 million in reported operating expenses. 

Trading profit increased by £13.4 million to £28.1 million.  The majority of this increase was a result of the higher sales volume, although a significant proportion was due to better transactional foreign exchange rates. 

Other Operating Income

In July 2010 the Group ceased future accrual for those employees who were members of our UK and US defined benefit pension schemes.  This resulted in a one-off credit of £4.1 million which is being treated as an exceptional profit item.  In addition £0.6 million that had been accrued as a potential 'earn-out' payment to the employees of TDI, an acquisition made in April 2008, is now not thought to be necessary and has been released to the income statement as an exceptional profit.

Reorganisation costs and impairment

As reported in our Half Year results, it was decided that the relocation of our Yatton site would not take place as originally planned.  Due to the exceptional growth of the Plasma Technology business, the site which had been selected is now too small and a new location is therefore being sought.  As a result, £0.6 million of costs relating to the move have been written off as an exceptional item.

Amortisation of acquired intangibles

Amortisation of acquired intangibles was in line with the prior year at £4.7 million (2010: £4.1 million).  No acquisitions were made in the year.

Financial income and expenditure

Within financial income and expenditure, total interest on debt reduced by £0.1 million to £1.2 million as debt levels fell. The interest charge on pension scheme liabilities exceeded the expected return on pension scheme assets by £0.7 million, a reduction of £0.8 million over the prior year.

Currency hedging

The Group uses derivative products to hedge its exposure to fluctuations in foreign exchange rates.  It is Group policy to have in place at the beginning of a financial year hedging instruments to cover 80% of its forecast transactional exposure for that period.

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 the foreign exchange hedges cannot be justified. Accordingly the Group does not use hedge accounting for these derivatives. Net movements on marking to market such derivatives at the balance sheet date are disclosed in the income statement as Financial Expenditure and excluded from our calculation of adjusted profit before tax (note 1). 

Commodity hedging

The Group also uses derivative products to hedge its exposure to fluctuations in the price of copper, a major component for the Superconducting Wire business.  Given the small number of contracts involved we apply hedge accounting for these transactions and consequently the results of marking to market are excluded from the Income Statement.

Taxation

The underlying tax rate on the profit before tax for the Group before operating income, amortisation of acquired intangibles, reorganisation costs, impairments and marking to market of hedging derivatives was 22% (2010: 27%). The rate has reduced due to the UK parts of the Group being profitable for tax purposes and therefore able to offset their expenses.

The Group has significant tax losses and timing differences in the UK available to set off against future taxable profits from certain business streams. Due to the improved performance of the Group's UK business units, we now believe that there is a high degree of certainty that these losses and timing differences will be able to be relieved against future profit streams and as a result have recognised a deferred tax asset of £11.3 million in the year and a corresponding credit to the Income Statement.  We believe that this is exceptional in nature and quantum and have therefore excluded it from our calculation of adjusted earnings per share shown in note 1.

Earnings

After a tax credit of £5.5 million (2010: charge £4.8 million) the reported net profit for the financial year was £32.2 million (2010: £13.3 million). With a weighted average number of shares of 49.3 million (2010: 48.9 million), the basic earnings per share were 65.3 pence (2010: 27.2 pence).

Adjusted profit before tax (note 1), which we believe gives a better indication of the underlying performance of the business, grew by £14.3 million to £26.2 million which equated to an adjusted  earnings per share of 41.5 pence (2010: 17.8 pence), an increase of 133%.

Dividends

The Group's proposed final dividend of 6.48 pence per share (2010: 6.0 pence), payable on 27 October 2011 to shareholders who are on the register on 30 September 2011, gives a total dividend for the year of 9.0 pence per share (2010: 8.4 pence). Dividend cover for the underlying business before other operating income, reorganisation costs and impairments, amortisation of acquired intangibles and marking to market of hedging derivatives was 4.6 times (2010: 2.1 times).

Investment in research and development (R&D)

The total cash spent on research and development in the year was £16.9 million (2010: £13.1 million). A reconciliation between the cash spent and the amounts charged to the Income Statement is given below:

	2011	2010
	£ million	£ million
Research and development expense charged to the consolidated statement of income.	17.6	13.1
Less: depreciation of R&D related fixed assets	(0.6)	(0.6)
Add: amounts capitalised as fixed assets	2.3	0.6
Less: amortisation of R&D costs capitalised as intangibles	(5.4)	(4.0)
Add: amounts capitalised as intangible assets	3.0	4.0
Total cash spent on research and development during the year	16.9	13.1

The net book value of capitalised R&D at the end of the financial year was £15.0 million (2010: £17.5 million).

Balance sheet

Non-current assets fell from £85.0 million to £82.6 million primarily due to the amortisation of acquired intangible assets.

Net working capital (excluding derivative financial instruments and tax payable/receivable) reduced by £9.6 million in the year to £15.9 million, despite £2.4 million of the £10.2 million deposit that was received in the prior year for the ITER contract unwinding.

Inventory turns increased by 0.2 to 3.3 while debtor days reduced from 59 days to 48 days.

Pensions

The Group has defined benefit pension schemes in the UK and the US.  Both have been closed to new entrants since 2001.  The total deficit, before tax, under IAS19 on these pension schemes decreased in the year by £23.4 million to £11.7 million with a corresponding deferred tax asset of £3.1 million.

Assets of the schemes at 31 March 2011 were £173.1 million (2010: £157.6 million), while liabilities fell from £192.7 million to £184.8 million principally as a result of the closure of the schemes to future accrual in July 2010 and the movement from RPI to CPI as the measure of inflation for deferred members.  In ceasing future accrual the Group sought to mitigate the risk of liabilities rising.  The alternatives offered to the employees are cash neutral to the Group.

The latest triennial actuarial valuation of the UK scheme was carried out as at 31 March 2009 and resulted in an actuarial deficit of £39.5 million. A long-term plan for recovering the deficit over 13 years was agreed between the Company and the Pension Trustee, which involves a payment of £3.1 million for the year to March 2010, £5.3 million for the year to March 2011 and £4.2 million for the year to March 2012.  For the subsequent 11 years the 2012 payment of £4.2 million will be inflated by 2.85% per annum.  Should the Group increase the dividend per share paid to shareholders in the period to March 2012, the payment to the pension fund will be similarly increased.

Cash

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by £15.0 million to £37.5 million.  Working capital in the year reduced by £6.9 million, building on a reduction of £16.4 million in the prior year. 

Cash generated from operations was £39.2 million, an increase of £6.4 million on the prior year.  Excluding the exceptional ITER deposit of £10.2 million received in the prior year, the increase was £16.6 million. 

Net cash at the year-end was £13.1 million (2010: net borrowing of £10.4 million).  In December the Group announced that it had agreed a committed Revolving Credit Facility with a club of three banks.  The new facility, which will last for four years, is for £50 million and is extendable to £70 million by mutual consent.  In addition the Group has various overdraft and other facilities totalling £14.8 million.

Employees

The average number of people employed during the year was 1,498, an increase of 157 over the prior year. 

Average sales per employee increased by 11% to £175,000.

Share price

The closing mid-market price of the ordinary shares at the end of the financial year was £7.00, compared with £2.69 at the beginning of the year. The highest and lowest prices recorded in the financial year were £7.36 and £2.56 respectively.

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 Chief Executive's Statement.  The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in this Financial Review.

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 and flexed them to incorporate a number of potential scenarios relating to changes in trading performance and believe that the Group will be able to operate within its existing debt facility which expires in December 2014.  This review also considered hedging arrangements in place.  As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Financial Statements have been prepared on a going concern basis, based on the Directors' opinion, after making reasonable enquiries, that the Group has adequate resources to continue in operational existence for the foreseeable future.

Kevin Boyd

Group Finance Director

14 June 2011

Consolidated Statement of Income year ended 31 March 2011

		2011	2010
	Notes	£m	£m
Revenue	3	262.3	211.5
Cost of sales		(152.8)	(120.9)
Gross profit		109.5	90.6
Trading expenses excluding cost of sales	4	(81.4)	(75.9)
Trading profit		28.1	14.7
Other operating income	6	4.7	-
Reorganisation costs and impairment	7	(0.6)	(0.4)
Amortisation of acquired intangibles		(4.7)	(4.1)
Operating profit		27.5	10.2

	Expected return on pension scheme assets		9.9	7.9
	Mark to market gain in respect of derivative financial instruments	2	1.1	10.7
	Financial income		11.0	18.6
	Interest payable on bank loans and overdrafts		(1.2)	(1.3)
	Interest charge on pension scheme liabilities		(10.6)	(9.4)
	Financial expenditure		(11.8)	(10.7)
	Profit before income tax		26.7	18.1
	Income tax credit/(expense)	8	5.5	(4.8)
	Profit for the year attributable to equity shareholders of the parent		32.2	13.3
			pence	pence
	Earnings per share
	Basic earnings per share	9	65.3	27.2
	Diluted earnings per share	9	63.6	27.1
	Dividends per share
	Dividends paid	10	8.4	8.4
	Dividends proposed	10	9.0	8.4

	Adjusted profit before tax is calculated as follows:
			£m	£m
	Profit before income tax		26.7	18.1
	Other operating income		(4.7)	-
	Reorganisation costs and impairment		0.6	0.4
	Amortisation of acquired intangibles		4.7	4.1
	Mark to market gain in respect of derivative financial instruments		(1.1)	(10.7)
	Adjusted profit before tax	2	26.2	11.9
			pence	pence
	Adjusted earnings per share
	Basic earnings per share	9	41.5	17.8
	Diluted earnings per share	9	40.4	17.8

Consolidated Statement of Comprehensive Income  year ended 31 March 2011

		2011	2010
	Note	£m	£m
Profit for the year		32.2	13.3
Other comprehensive income/(expense)
Foreign exchange translation differences		(0.9)	(3.8)
Actuarial gain/(loss) in respect of post retirement benefits		14.4	(22.8)
Net gain on effective portion of changes in fair value of cash flow hedges, net of amounts recycled		0.3	0.8
Tax on items recognised directly in equity	8	(4.6)	6.1
Tax recognised in respect of share options		2.7	-
Total other comprehensive income/(expense)		11.9	(19.7)
Total comprehensive income/(expense) for the year attributable to equity shareholders of the parent		44.1	(6.4)

Consolidated Statement of Changes in Equity  year ended 31 March 2011

				Foreign
		Share		exchange
	Share	premium	Other	translation	Retained
	capital	account	reserves	reserve	earnings	Total
	£m	£m	£m	£m	£m	£m
Balance at 1 April 2010	2.5	21.6	0.2	4.1	23.8	52.2
Total comprehensive income/(expense) attributable to equity shareholders of the parent	-	-	0.2	(0.9)	44.8	44.1
Transactions recorded directly in equity: - Credit in respect of employee service costs settled by award of share options	-	-	-	-	0.4	0.4
- Proceeds from shares issued	-	0.9	-	-	-	0.9
- Dividends paid	-	-	-	-	(4.1)	(4.1)
Total contributions by and distributions to equity shareholders	-	0.9	-	-	(3.7)	(2.8)
Balance at 31 March 2011	2.5	22.5	0.4	3.2	64.9	93.5

Balance at 1 April 2009	2.5	21.3	(0.3)	7.9	30.5	61.9
Total comprehensive income/(expense) attributable to equity shareholders of the parent	-	-	0.5	(3.8)	(3.1)	(6.4)
Transactions recorded directly in equity: - Credit in respect of employee service costs settled by award of share options	-	-	-	-	0.5	0.5
- Proceeds from shares issued	-	0.3	-	-	-	0.3
- Dividends paid	-	-	-	-	(4.1)	(4.1)
Total contributions by and distributions to equity shareholders	-	0.3	-	-	(3.6)	(3.3)
Balance at 31 March 2010	2.5	21.6	0.2	4.1	23.8	52.2

Other reserves comprise the capital redemption reserve which represents the nominal value of shares repurchased and then cancelled during the year 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 433,794 (2010: 493,594) of its own shares in an employee benefit trust. The cost of these shares is included within retained earnings.

Consolidated Statement of Financial Position  as at 31 March 2011

		2011	2010
		£m	£m
Assets
Non-current assets
Property, plant and equipment		23.6	22.8
Intangible assets		41.6	49.3
Deferred tax assets		17.4	12.9
		82.6	85.0
Current assets
Inventories		46.6	39.3
Trade and other receivables		52.5	60.2
Current income tax recoverable		1.3	0.9
Derivative financial instruments		1.0	0.8
Cash and cash equivalents		24.5	11.2
		125.9	112.4
Total assets		208.5	197.4
Equity
Capital and reserves attributable to the Company's equity shareholders
Share capital		2.5	2.5
Share premium		22.5	21.6
Other reserves		0.4	0.2
Translation reserve		3.2	4.1
Retained earnings		64.9	23.8
		93.5	52.2
Liabilities
Non-current liabilities
Bank loans		10.5	19.6
Other payables		0.1	0.9
Retirement benefit obligations		11.7	35.1
Deferred tax liabilities		4.1	6.7
		26.4	62.3
Current liabilities
Bank loans		0.1	0.1
Bank overdrafts		0.8	1.9
Trade and other payables		76.5	69.1
Current income tax payables		3.4	2.6
Derivative financial instruments		1.1	4.3
Provisions		6.7	4.9
		88.6	82.9
Total liabilities		115.0	145.2
Total liabilities and equity		208.5	197.4

The financial statements were approved by the Board of Directors on 14 June 2011 and signed on its behalf by:

Jonathan Flint                         Kevin Boyd

Director                                     Director

Consolidated Statement of Cash Flows  year ended 31 March 2011

	2011	2010
	£m	£m
Profit for the year	32.2	13.3
Adjustments for:
Income tax (credit)/expense	(5.5)	4.8
Net financial expense/(income)	0.8	(7.9)
Other operating income	(4.7)	-
Reorganisation costs and impairment	0.6	0.4
Amortisation of acquired intangibles	4.7	4.1
Depreciation of property, plant and equipment	4.0	3.8
Amortisation and impairment of capitalised development costs	5.4	4.0
Earnings before interest, tax, depreciation and amortisation	37.5	22.5
Cost of equity settled employee share schemes	0.4	0.5
Restructuring costs paid	-	(3.2)
Cash payments to the pension scheme more than the charge to operating profit	(5.6)	(3.4)
Operating cash flows before movements in working capital	32.3	16.4
Increase in inventories	(8.2)	(0.4)
Decrease/(increase) in receivables	7.4	(3.7)
Increase in payables and provisions	8.8	11.2
(Decrease)/increase in customer deposits	(1.1)	9.3
Cash generated from operations	39.2	32.8
Interest paid	(0.8)	(1.1)
Income taxes paid	(3.1)	(0.6)
Net cash from operating activities	35.3	31.1
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	0.1	0.2
Proceeds from sale of available for sale equity securities	-	0.7
Acquisition of subsidiaries, net of cash acquired	(0.1)	(2.4)
Acquisition of property, plant and equipment	(5.8)	(3.6)
Capitalised development expenditure	(3.0)	(4.0)
Net cash used in investing activities	(8.8)	(9.1)
Cash flows from financing activities
Proceeds from issue of share capital	0.9	0.3
Repayment of borrowings	(19.1)	(12.2)
Increase in borrowings	10.0	-
Dividends paid	(4.1)	(4.1)
Net cash from financing activities	(12.3)	(16.0)
Net increase in cash and cash equivalents	14.2	6.0
Cash and cash equivalents at beginning of the year	9.3	3.6
Effect of exchange rate fluctuations on cash held	0.2	(0.3)
Cash and cash equivalents at end of the year	23.7	9.3

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

Increase in cash and cash equivalents	14.2	6.0
Effect of foreign exchange rate changes on cash and cash equivalents	0.2	(0.3)
	14.4	5.7
Cash outflow from decrease in debt	19.1	12.2
Cash inflow from increase in debt	(10.0)	-
Movement in net borrowings in the year	23.5	17.9
Net borrowing at start of the year	(10.4)	(28.3)
Net borrowing at the end of the year	13.1	(10.4)

Notes on the Financial Statements

1     BASIS OF PRESENTATION OF ACCOUNTS

This preliminary statement has been prepared under the same accounting policies as those used to prepare the 2011 Annual Report and Accounts.

The principal exchange rates to sterling used were:

Year end rates

	2011	2010
US Dollar	1.60	1.52
Euro	1.13	1.12
Yen	133	142

Average translation rates 2011

	US Dollar	Euro	Yen
Quarter 1 2011	1.50	1.17	138
Quarter 2 2011	1.55	1.20	133
Quarter 3 2011	1.57	1.17	130
Quarter 4 2011	1.58	1.16	131

Average translation rates 2010

	US Dollar	Euro	Yen
Quarter 1 2010	1.55	1.13	150
Quarter 2 2010	1.64	1.14	153
Quarter 3 2010	1.62	1.11	145
Quarter 4 2010	1.56	1.12	142

2     Reconciliation between profit and adjusted profit

	2011	2010
	£m	£m
Profit before income tax	26.7	18.1
Other operating income	(4.7)	-
Reorganisation costs and impairment	0.6	0.4
Amortisation of acquired intangibles	4.7	4.1
Mark to market gain in respect of derivative financial instruments	(1.1)	(10.7)
Adjusted profit before income tax	26.2	11.9
Share of taxation	(5.7)	(3.2)
Adjusted profit	20.5	8.7

Adjusted earnings per share	pence	pence
Basic	41.5	17.8
Diluted	40.4	17.8

Adjusted figures are stated before other operating income, amortisation of acquired intangibles, reorganisation costs and impairment and mark to market gains in respect of derivative financial instruments.

The tax credit during the year was £5.5m.  In calculating the share of tax attributable to adjusted profit before tax a tax charge relating to the adjusting of items of £0.1m and a one-off recognition of deferred tax assets relating to the Group's UK businesses of £11.3m have been excluded.  In future years part of this deferred tax asset will unwind as tax losses are utilised or if recognition criteria change.   The Group intends to exclude this unwinding effect from the calculation of the share of tax attributable to adjusted profit before tax in the years in which it arises.

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 bring any significant economic benefit.  Accordingly, the Group accounts for these derivative financial instruments at fair value through profit or loss.  Adjusted profit for the year is stated before changes in the valuation of these instruments so that the underlying performance of the Group can more clearly be seen.

See note 9 for details of the number of shares used in the calculation of earnings per share.

3     Segment information

The group has eight operating segments. 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.

These operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. The group's internal management structure and financial reporting systems differentiate the operating segments on the basis of these economic characteristics and accordingly present these as three separate reportable segments as discussed below.

- The Nanotechnology Tools segment contains a group of businesses supplying similar products, characterised by a high degree of customisation and high unit prices. These are Group's highest technology products serving research customers in both the public and private sectors.

- The Industrial Products segment contains a group of businesses supplying high technology products and components manufactured in medium volume for industrial customers.

- The Service segment contains the Group's service business as well as service revenues from other parts of the Group.

Segment results include items directly attributable to a segment as well as those which can be allocated on reasonable basis. Inter-segment pricing is determined on arm's length basis.

No asset information is presented below as this information is not allocated to operating segments in reporting to the Group's Board of Directors.

Year to 31 March 2011

	Nanotechnology	Industrial
	Tools	Products	Service	Total
	£m	£m	£m	£m
External revenue	121.4	95.6	45.3	262.3
Inter-segment revenue	0.4	2.0	0.1
Total segment revenue	121.8	97.6	45.4
Segment trading profit	14.6	5.9	7.6	28.1

Year to 31 March 2010

	Nanotechnology	Industrial
	Tools	Products	Service	Total
	£m	£m	£m	£m
External revenue	101.5	71.0	39.0	211.5
Inter-segment revenue	0.3	1.1	-
Total segment revenue	101.8	72.1	39.0
Segment trading profit	8.2	1.0	5.5	14.7

Reconciliation of reportable segment profit

	2011	2010
	£m	£m
Profit for reportable segments	28.1	14.7
Other operating income	4.7	-
Reorganisation costs and impairment	(0.6)	(0.4)
Amortisation of acquired intangibles	(4.7)	(4.1)
Financial income	11.0	18.6
Financial expenditure	(11.8)	(10.7)
Profit before income tax	26.7	18.1

4     Trading expenses excluding cost of sales

	2011	2010
	£m	£m
Selling and marketing costs	39.9	36.1
Administration and shared services	23.3	20.0
Research and development (note 5)	17.6	13.1
Foreign exchange loss	0.6	6.7
	81.4	75.9

The foreign exchange loss represents the loss arising on foreign exchange hedging instruments which matured during the year.

5     RESEARCH AND DEVELOPMENT

The total research and development spend by the Group is as follows:

			2011				2010
	Nanotechnology	Industrial			Nanotechnology	Industrial
	Tools	Products	Total		Tools	Products	Total
	£m	£m	£m		£m	£m	£m
Research and development expense charged to the consolidated statement of income	9.7	7.9	17.6		6.5	6.6	13.1
Less: depreciation of R&D related fixed assets	(0.5)	(0.1)	(0.6)		(0.5)	(0.1)	(0.6)
Add: amounts capitalised as fixed assets	2.2	0.1	2.3		0.6	0.0	0.6
Less: amortisation of R&D costs previously capitalised as intangibles	(2.6)	(2.8)	(5.4)		(1.5)	(2.5)	(4.0)
Add: amounts capitalised as intangible assets	1.9	1.1	3.0		3.2	0.8	4.0
Total cash spent on research and development during the year	10.7	6.2	16.9		8.3	4.8	13.1

6     Other Operating income

	2011	2010
	£m	£m
Shareholder earnout no longer required	0.6	-
Curtailment gains	4.1	-
	4.7	-

During the year, the Group recognised other operating income of £0.6m in relation to a shareholder earnout provided at the time of  the acquisition of Technologies and Devices Inc. and which is no longer required.

During the year, the Group's defined benefit pension schemes in the UK and US were closed to future accrual.  This gave rise to a curtailment gain under IAS19 as the majority of members' accrued benefits are no longer linked to future salary growth.

7     reorganisation costs and impairment

	2011	2010
	£m	£m
Impairment of carrying value of assets	(0.6)	-
Restructuring costs	-	(0.4)
	(0.6)	(0.4)

During the year, the Group recognised an impairment charge of £0.6m against costs capitalised in relation to the planned site move of the Plasma Technology business in the UK.  This move will now not take place in the form originally planned.

In the prior year, the Group concluded the restructuring programme started in the previous year. This resulted in additional redundancy and related costs at sites in Japan, France, Finland and the UK of £0.4m.

8     income tax expense

Recognised in the Consolidated Statement of Income

	2011	2010
	£m	£m
Current tax expense
Current year	6.1	2.8
Adjustment in respect of prior years	(0.5)	(0.8)
	5.6	2.0
Deferred tax expense
Origination and reversal of temporary differences	0.9	2.0
Recognition of deferred tax not previously recognised	(11.9)	-
Adjustment in respect of prior years	(0.1)	0.8
	(11.1)	2.8
Total tax (credit)/expense	(5.5)	4.8
Reconciliation of effective tax rate
Profit before income tax	26.7	18.1
Income tax using the UK corporation tax rate of 28%	7.5	5.1
Effect of:
Tax rates other than the standard rate	0.4	-
Change in rate at which deferred tax recognised	(0.2)	-
Non-taxable income and expenses	0.2	0.3
Tax incentives not recognised in the Consolidated Statement of Income	(0.7)	(0.3)
Temporary differences not recognised for deferred tax	-	0.1
Recognition of deferred tax not previously recognised	(11.9)	-
Effect of previous tax losses now utilised	(0.2)	(0.4)
Adjustment in respect of prior year	(0.6)	-
Total tax (credit)/expense	(5.5)	4.8

Taxation recognised directly in equity

Current tax - relating to employee benefits	(1.5)	(0.9)
Deferred tax - relating to employee benefits	6.0	(5.5)
Deferred tax - relating to share options	(2.7)	-
Deferred tax - relating to cash flow hedges	0.1	0.3
	1.9	(6.1)

9     EARNINGS per share

The calculation of basic earnings per share is based on a weighted average number of ordinary shares outstanding during the year, excluding shares held by the Employee Share Ownership Trust, as follows:

	2011	2010
	Shares	Shares
	million	million
Weighted average number of shares outstanding	49.7	49.4
Less shares held by Employee Share Ownership Trust	(0.4)	(0.5)
Weighted average number of shares used in calculation of earnings per share	49.3	48.9

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

	2011	2010
	Shares	Shares
	million	million
Weighted average number of ordinary shares per basic earnings per share calculations	49.3	48.9
Effect of shares under option	1.4	0.3
Weighted average number of ordinary shares per diluted earnings per share calculations	50.7	49.2

10    dividends per share 

The following dividends per share were paid by the Group:

	2011	2010
	pence	pence
Previous year interim dividend	2.40	2.40
Previous year final dividend	6.00	6.00
	8.40	8.40

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

	2011	2010
	pence	pence
Interim dividend	2.52	2.40
Final dividend	6.48	6.00
	9.00	8.40

The interim dividend was not provided for at the year end and was paid on 7 April 2011.

The final proposed dividend of 6.48 pence per share (2010: 6.00 pence) was not provided at the year end and will be paid on 27 October 2011 subject to authorisation by the shareholders at the forthcoming Annual General Meeting.

11    Report and Accounts

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2011 or 2010. Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The Company is registered in England Number 775598.

12    The Annual General Meeting

The Annual General Meeting will be held on Tuesday, 13 September 2011 at 2.30 pm at Group Head Office, Tubney Woods, Abingdon, Oxfordshire, OX13 5QX.

 

END

 

 

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