The efforts of Asia’s emerging economies to bridge the technology gap with the west and the growing use of nanotechnology helped Oxford Instruments to boost pre-tax profits by 35 per cent last year.

In its latest five-year plan, the Chinese government set out its intention to increase the amount of money spent on research and development from 1.5 to 2.5 per cent of national output – potentially adding around $70bn to the local research and development market.

Jonathan Flint, chief executive, said that Oxford Instruments, which makes high technology tools and systems for industrial and academic research, was well placed to exploit this shift, as well as similar developments elsewhere in Asia.

“China is investing a lot of money to bring its physics laboratories up to the standard of those in the west and we have the opportunity to fill them with products made by Oxford Instruments. And at the same time, China’s manufacturers are trying to move into more advanced areas of manufacturing and we sell the capital equipment that they need to do this,” he said.

In the year to March 31, the group, which was the first commercial spinout company from Oxford university, reported a 29 per cent rise in revenues, from £262.3m a year earlier, to £337.3m. Stripping out the effects of acquisitions, sales were up 15 per cent.

Improving margins meant that pre-tax profits jumped from £26.7m to £36.1m. Ben Bourne, an analyst at Liberum Capital, said that he expected operating margins to improve further still.

“They raised margins to 12.5 per cent this year and should be able to hit or better their target of 14 per cent by 2014. They are increasing the services part of their business, where the margins are higher, and are becoming increasingly skilled at exploiting their intellectual property,” he said.

Good management of working capital meant that the group ended the year with a net cash position of £35.1m, which Mr Flint said left scope for bolt-on acquisitions should the opportunity arise.

Oxford Instruments declared a final dividend of 7.23p, bringing the full-year payout to 10p per share, up from 9p last year, and payable from diluted earnings per share of 45p.

Mr Flint said that he was confident of the company’s prospects for the year ahead. However, he warned that the economic and financial trouble in Europe, where Oxford Instruments earns around a third of its revenues, could slow the company’s progress.

Shares in the company, which last year entered the FTSE 250 for the first time in its 52-year history, were down 57p in late afternoon trading to £11.51, a loss of 4.7 per cent on the day.

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