June 11, 2013 10:44 pm

Oxford Instruments squeezed by tighter US health budgets

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Oxford Instruments has warned of a slow start to its new financial year, as a tightening of US health budgets threatens to limit demand for nanotechnology equipment that allows scientists to study and build structures at a moleculelar scale.

“We have definitely seen some softness in the US market,” said chief executive Jonathan Flint on Tuesday. “It’s too early to say... whether it’s due to sequestration or not”, he added, referring to the US government’s automatic spending cuts that began in March, and could lower state research funding by about 9 per cent a year.

Reduced US government research spending had already led to a 4.2 per cent fall in Oxford Instruments’ sales to North America in the year to March 31, to £91m.

However, Mr Flint noted that further pressures to lower healthcare costs could benefit the company’s higher-margin equipment servicing division.

Total revenues for the company – which became Oxford university’s first commercial spin-off in 1959 and now provides equipment for NASA’s Mars Curiosity rover – rose by 4 per cent, to £350.8m, for the full year.

This was below analysts’ forecasts, but better operating margins helped Oxford Instruments increase its underlying profits before tax – adjusted for the amortisation of acquisitions – by 14.8 per cent to £48.2m. Profit before tax fell 18 per cent to £29.6m.

Investec analyst Michael Blogg said the nanotechnology sector, globally, had good long-term growth prospects, in spite of uncertainties ahead.

“Everyone is keeping a close eye, because research generally is an area which is coming under scrutiny by a lot of governments,” he said. “Countries like China are prepared to spend much more on advanced scientific research than many western economies, all of which plays to [Oxford Instruments’] strengths”.

He noted that Asia accounted for 35 per cent of Oxford Instruments’ sales last year.

In Europe, the group’s largest geographic market, sales grew 9.5 per cent over the year to £126.2m, as the company was not significantly exposed to customers in southern European economies undergoing austerity measures.

Oxford Instruments’ cash pile grew 11.7 per cent to £39m over the period, well above analyst expectations, and Mr Flint said it would be used to fund further acquisitions that provide access to new technologies.

In December last year, the company bought the probe microscope manufacturer Asylum Research for $32m in cash.

Diluted earnings per share fell from 45 to 38.8 pence, while the company raised its proposed final dividend 13 per cent to 8.15 pence per share, taking total dividends for the year to 11.2 pence.

Shares in the company closed down 7.1 per cent on Tuesday, having risen more than 20 per cent in the past year.

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