Thanks, George. Right, hello, and welcome to today's presentation. Delighted to see so many of you here today for my first time hosting in person, and welcome to those of us joining online. With me today is Gavin Hill, our CFO, and I'd like to take this opportunity to thank Gavin for his support in the early months, getting me up to speed and working with me to develop our updated strategy. I'm going to touch briefly on the headlines of this year's results, then talk you through our refresh strategy before handing over to Gavin to do the detail on the results. I'll come back and sum up at the end, and then open things up for questions. We've delivered a robust performance in the year, with revenue up 9.8% and adjusted operating profit up 3.7%, both at constant currency.
Our performance has been driven by a double-digit growth in material analysis and healthcare, and a 7% increase in semiconductor revenue. Underlying book-to-bill is positive at 1.03, despite the stronger growth in H2, giving us good visibility in the year ahead. Now, we've also been navigating some challenging geopolitical dynamics in relation to China. I'll provide more detail on the actions and decisions we've taken later in the strategy update. And we're continuing to invest in the business. We've completed our first quarter in our new world-class compound semiconductor facility near Bristol, which I hope many of you will be visiting next month. And we've just announced today another small acquisition, Femto Tools, adding to our Imaging and Analysis capabilities. Overall, a solid set of results, good growth, with more to go after in the years to come. So let's move on to the future.
There is no doubt that taking on the job of CEO, I was joining a great business that had been doing well. Over the last five years, the share price has doubled. A nice backdrop for me, but that's not why I'm here. It's what happens next that matters. I've talked to lots of people who knew the business better than me, from external observers like you in the room, to people within the business who achieved the results that we are rightly proud of. There's an awful lot that's good, but we can still be better. There are some things to fix and which we'll tell you all about. The markets where we operate are growing. Scientists and commercial customers alike need Oxford, Oxford equipment to keep these markets growing. Our opportunity for growth is differentiated. We provide market-leading technology, and we need to stay on top.
But the key thing is having a clear plan, simple in its priorities, that works for Oxford Instruments and our customers, and having the right team to deliver the change required. So you will hear me talking about a fresh, simpler look at Oxford Instruments, what's driving us, and clarity on what we need to do. The new divisional structure you'll see is designed to simplify things, both in the way that we manage the, and operate the business and how it's seen from the outside. Since I spoke to you at the interims, I have, with the help of the leadership team, been immersing myself in the business, listening to our people around the world, to our customers, and taking independent soundings from the market, all of which confirmed my initial view that we have a great platform on which to build.
We have committed and talented people, great technology, and a 60-year heritage of innovation. We're positioned in key markets with structural growth linked to sustainability drivers, and I'll talk about, more about that in a moment. For our existing business, we're well invested, with a vibrant new product pipeline and a strong balance sheet. However, as I said to you all in November, there are opportunities to make a good business even better. In looking at our performance and benchmarking peers and competitors, the following is clear: We have to improve our operational performance and grow more profitably. To enhance growth and capture the benefits of larger commercial markets, we must improve our customer performance and service capability, and there are opportunities to simplify and improve efficiency.
So now I'm going to take you through a new way to look at Oxford Instruments, our markets, and a straightforward plan to sustain growth and improve margins. We're confident that we can deliver at least 20% margins in the medium term, while ensuring sustainable growth in the mid to high single digits. There's clearly some work to do to get there, and it won't happen overnight, but we've already got going. So today, I'll run you through how I believe we should think about Oxford Instruments, its position and potential. A simplified structure for the group, focusing on three main markets and two distinct divisions, one already performing well and with a lot of improvement potential - and one with a lot of improvement potential. And underpinning that, we have a plan to improve operational performance and efficiency and deliver a step change in customer service.
So let's look at the background work and the thinking behind the strategy. On arriving at Oxford Instruments, many of you told me that the company was hard to understand... with many markets, multiple businesses, and a lack of clarity around the drivers of growth and performance. Today, I'm going to look at what drives our growth opportunity in a different way. We're going to start here by looking at how our revenue and customers are split across the development life cycle, from pure academic research to commercial production, and what drives the revenue. So looking at the slide from left to right, we confirmed with our customer interviews that our biggest area of strength is our technology and reach into academic research, shown here on the left, which accounts for just over a third of our business today.
Oxford is the go-to business that delivers these customers the leading technology that they require to enable the latest scientific experiments. We have a real market strength here, thanks to our focus on innovation and our deep technical expertise. We have excellent reach to all the main global pools of research funding in 23 countries. Here, there is steady, growing demand, 3%-6% annually. It is this technology leadership and experience that positions us well to access commercial market verticals as we move right on this chart. In commercial applied research and development, companies work either on their own or with academic institutions to commercialize technology. Oxford Instruments has successfully moved into this space, which has higher growth rates in a market that is four times the size of pure academic research, aiding our recent growth.
Then finally, furthest to the right, the commercial production market is another magnitude bigger than the previous two, up to 20 times bigger than pure academic research, with comparable levels of growth to commercial R&D. So we've made some early inroads into this area, and this represents around 20% of our revenue. OI technology is required by our customers to facilitate new breakthroughs and develop new applications that actually drive the market growth we are about to talk about, and this really differentiates the drivers of growth for us. It is, however, critical, as you move right on the chart, to have better operational capability. Customers are significantly more demanding, a topic that I'll return to. So let's move on now to talk about the specific structural growth markets that we serve.
You've been used to Oxford Instruments talking about six end markets with a number of detailed subsegments. In reality, our revenue can... 90% of our revenue can be characterized by coming from three main markets: material analysis at 43%, semiconductors at 27%, and healthcare and life science at 19%. All have strong structural growth drivers and links to sustainability and global progress, as you can see on the slide. Material analysis is crucial to decarbonization and better use of the Earth's resources, and, and our specialist tools facilitate investigation of the chemical makeup, the strength, and the durability of a whole host of materials. Semiconductors, too, are at the heart of driving productivity, enhancing communications, AI, and power efficiency. We operate in silicon semi, but have much greater exposure to the compound semi market, which is experiencing strong growth and is forecast to continue.
In healthcare and life sciences, there is a demand for improved treatments, such as personalized vaccines currently being developed for various cancers. And our Imaging and Analysis tools have a key role to play here, with their ability to image at the molecular and cellular level. The remaining 10% of our revenues includes quantum, a market with potential, but far less certainty about the timing of that growth. So in short, we're selling highly specialized, market-leading technology into markets that really need what we have to offer, where investment in new technology is a necessity. Pretty much all of our products support global moves to increase sustainability, and with that in mind, we're committing today to accelerate our own sustainability targets and to reach net zero in our own operations, that Scopes 1 and 2, by 2030.
So now we're really clear on what drives the opportunity for growth and the strengths of Oxford's market position, let's discuss a new way to think about the group. Historically, we've had nine business units grouped into three divisions with a service organization linked to them. In my view, Oxford has two distinct types of business, which we'll organize into two divisions with a clear strategy for value creation for each. The first, Imaging and Analysis, covers our scientific cameras, microscopes, analytical instruments, and software. The businesses in this part of the group represents just under 70% of revenue. They're well established with market-leading technology, and as you can see from the indicative figures on the slide, they've been performing well and generating strong margins of 22%-24% over recent periods.
The work we've done suggests this performance benchmarks really well with peers, but we still have the opportunity to improve, driving synergies from integrating more fully, standardizing processes, improving customer service, and extracting more efficiency... So here we're focusing on taking these businesses from being good to great, growing the business sustainably and maintaining and improving already high margins. Advanced Technologies requires a different, more transformative approach. The division constitutes our compound semiconductor business and our quantum-focused business, and makes up the remaining 30% of group revenue. There is a good opportunity in both of these markets, but the division is underperforming. There is a need to fix operational performance and improve efficiency. This will allow us to capitalize on recent investments and the growth potential, and to drive operating leverage.
As you can see here, the current performance is quite stark, contributing little in the way to operating profit and being a significant headwind to margin for the group. We've taken action to pivot from China, initially going well and to reduce the cost base. Our initial goal is to get this division up to 10%-12% operating margins. So I hope you're starting to see how this structure allows us to get really clear on the actions needed to support significant value creation tailored for each of the divisions needs. I'm going to take a deeper dive into each division now. We'll start with Imaging and Analysis. These businesses have a common business model and similar go-to-market strategies to access the same customer base. Bringing them together will enable standard processes, drive efficiencies, and improve customer service.
This should particularly help with the commercial space. It'll also facilitate selling a broader range of Oxford products to the same customers, and although these businesses are already delivering growth and strong margins, there's still plenty to go at, taking them, as I said, from good to great. Over half the revenue in the division comes from material analysis, with healthcare and life sciences making up a further quarter, semiconductors around 13%. Our geographical split is relatively even here. China and the US broadly equal, and the rest of Asia and Europe coming in at just over 20%. Here you can see the overarching action plan for Imaging and Analysis, and we're going to take a look at each of them in turn.
We already have a good sales reach in all key regions to access the large pools of research funding, but some of our regions perform better than others, and all are set up differently. So we'll learn from those performing well and deploy these best practices elsewhere to maximize sales reach and improve sales productivity. We also need to do more to build up some of the key commercial customer account relationships, increasing share of their business, and supporting volume growth, rather than just extending the customer list. And to do that, we'll need a stronger regional service framework to support co-commercial customers who demand better, improving response times, and helping to capture revenue growth from value-adding services. So we're also going to bolster regional service capability to enable repair and spare support in region where possible, better for customers and more sustainable.
This business has a really strong robust track record of research and development, enabling innovation and technology breakthroughs. So we're going to build on that strength and continue to invest significantly in new product development to maintain our competitive position and leading edge. Our complexity extends to the way the business has been run internally, too, with different approaches, multiple systems, duplication of activity and management layers, and sometimes lengthy decision-making processes. We've already begun the process of simplification, and this division will bring together what was previously five separate business units and our existing after-sale service capabilities in Japan into one team. Standardizing processes, common systems, removing layers in the structure, and improving pace and agility, and freeing up our customer-facing teams to enable growth and support customers. I'm not going to dwell on this one now because we're going to cover our operational transformation program in a moment.
But as I've signaled already, in this part of the business, we are targeting a step change in operational performance to support greater efficiency and build capacity for growth from our existing cost base. So I hope that's given you a flavor of the opportunities we have in this division. Let me talk now in more detail of some of our action plans. I mentioned what I felt was a clear need to improve our operational performance. Here we have a summary of some of the initial information on both performance and how we evaluated the opportunity in Imaging and Analysis. We started taking a look at our scientific camera production in Belfast. This makes up around 60% of activity in this facility, so it is significant. Looking at current testing practices, each model has bespoke test software.
The initial work suggests we can implement a common testing protocol that can reduce test time by 8 hours per camera, equivalent to 20% improvement in capacity. Additionally, the product line only averages a 30% first-time pass rate.... However, the business used to achieve over 90% when it was smaller and the capital equipment was newer with more robust process capability. As we expanded, performance dropped significantly. So we can see opportunities here to make a step change, and I've set an initial target to double the pass rates. Across Imaging and Analysis, we also average only 73% on-time delivery, and as you can see from the chart, the performance is variable. Now, there is some tolerance in performance for a business producing such specialist equipment, especially from academic customers.
In a commercial setting, this kind of performance puts our growth at risk, and it is not acceptable. We're setting out on a major operational transformation program to implement world-class lean manufacturing in all of our UK facilities. What does this mean in practice? We'll be standardizing production processes, optimizing the footprint of the shop floor to create effective workflows, and increasing labor efficiency and space. We've appointed a very experienced chief transformation officer and a new program lead, both steeped in lean manufacturing experience and turnaround programs similar to ones I've delivered before elsewhere. A high-level performance assessment was done at the start of the year, some of which I just shared. We now developed the program and the training materials and recruited a transformation team of our best operations resources from across the business to work with this new leadership.
We'll be using the program to significantly enhance our internal operational capability, as well as the physical processes. The program starts with that camera value stream, and we're on with this already, with the project officially launched last week, with immersive training for the entire new team. We'll spend the next six months delivering change in this value stream and building capability in our change agents. We will then leave half of the team in Belfast to continue the work on the next production line, deploying the others as change agents at the next site to start the next value stream. As well as adopting best practice in operations, we'll be doing the same in sales and service, taking ways of working from our highest-performing regions and standardizing our approach group-wide.
Our best-performing region is China, where new leadership has transformed the performance, delivering a 75% increase in sales per head and a 25% growth in service revenue. What's really shifted the dial here was cross-training both sales and service teams and supporting this team with deep applications expertise where it's needed. We'll roll out these concepts to other regions, starting with the U.S. As I flagged in November, this should be a good opportunity for us. Our performance here has been flat, but this is a big market where the growth is good and reshoring and CHIPS Act funding is providing good future growth potential. We're initially targeting a 25%-50% uplift in our sales per head and to get revenue growth back in line with that of the market. But of course, a brilliant sales team still needs great products to sell.
So we're going to make sure that we're continuing to push innovation. Our capacity to innovate and make breakthroughs is what has built the company over the years. I want to ensure that the innovation continues to be a growth engine for Oxford Instruments, with a target return on capital employed of 30% on our investment of 8%-9% of revenue in R&D, in line with the historical spend. We'll target this investment rigorously on the opportunities that have the most potential to drive growth and margin enhancement and here are 3 examples of what I mean. On the left is Symmetry, a breakthrough product enabling customers to analyze material properties at the nanoscale. We've translated its use from pure research into highly successful application for commercial customers.
The commercial growth shown here in orange on the chart, and we've just won a King's Award for Enterprise and Innovation for this product. A big deal, and shows not just great technology, but Oxford Instruments' ability to deliver growth and exports, too. And this year, we launched Unity, an entirely new technique to the market. As you can see, it also transforms gray, indistinct imaging to full-color, high definition, and it does so at speed and at scale, enabling customers to diagnose issues with samples much, much quicker. And it's great to see how our acquisitions are integrating into the product portfolio. We have a long-standing commercial relationship with a number of Formula One teams, some of whom are now using WITec products to integrate with our electron microscope detectors to diagnose opportunities to improve reliability.
I'm now going to turn to our Advanced Technologies division and give you a flavor of the action plans here. This division has a very different profile to Imaging and Analysis. We sell much lower volumes of larger-scale, complex systems into very specialized markets, compound, semi, and quantum, with different growth drivers and a separate customer base. The business is well invested, but it's very clear the division is not performing at an acceptable level. These are the businesses with structurally lower margins and more competition, and they've been most impacted from the pivot from China, and they have higher value, lumpy order profiles. They need a dedicated, focused approach to get margins up and achieve their full potential. The plan here is specific and granular: to fix issues, improve efficiency, and tackle operational performance.
The goal is to capitalize on the significant technology and facility investment to deliver good growth. As I've said, most of the revenue in the division comes from compound semiconductors and quantum. So we've split the quantum revenue out here so you can see it more easily. These two businesses have been the ones most impacted by our pivot from the sensitive applications in China, but we've got on with actions to deal with the challenge, and actually, we're making decent progress. So let's take a look. As I mentioned, we made the decision in H2 to exit the quantum market in China and to withdraw from selling certain other applications, notably high-end semiconductors, where there are restrictions to what we can offer to certain customers. As a result, we removed GBP 23 million of prior year orders from our order book.
It's important to note we only exited certain products. For the group, this has reduced the market for us by around 20%-25%, so it remains a big opportunity for us, over GBP 100 million in sales with growth potential. And there's plenty to go up for this division as well, as we move our focus to lower risk commercial customers in data coms and power semiconductors. The graph on the left describes the effect on order intake. China order intake is down 76% or GBP 36 million, and across the rest of Asia, orders are up 29% or GBP 7 million as our efforts take hold and customers look to reshore capabilities and secure their supply chains. And in Europe, already a good market for the division, orders are up GBP 14 million.
So overall, despite the drop in China, the division still managed a normalized book-to-bill of 1.19. So more to do, but a good start. I said this division needed a clear plan to improve performance and create value. This slide details the actions and gives you a sense of progress to date. The actions are focused on fixing specific areas that are underperforming and capitalizing on the investment already made in the division. With the move to Bristol complete, our compound semi business is well invested to address market growth and now improve operational efficiency. In quantum, following the exit from China, we've needed to restructure our cost base in the business, and again, actions are already underway.
You've seen that our pivot in China to new revenue is already bearing fruit with a good order book to support a return to growth this year and gain some operating leverage. And division-wide, we'll be focused on streamlining and standardizing product ranges, continuing to offer fewer bespoke systems, and ensuring that when we customize, it's from standard modular designs. Customer service also needs to improve. The division is not currently set up to meet the high expectations of commercial customers who need their plants operational 24/7. The final focus is on value engineering to drive down the cost base of these businesses. I'll show you now some initial results suggesting what's possible. Material costs in this division can constitute more than 50% of the overall cost of each product sold.
We have a complex and extensive supply chain, so we're starting a process of evaluating the supply chain and looking at value engineering to deliver a step change in the cost of components. We've been carrying out a pilot in our quantum business, where we've taken one high-cost assembly to see what might be possible. Our new sourcing team, through a structured tender process, were immediately able to identify a 25% cost reduction by sourcing the component from an alternative supplier. The next step is to get manufacturing engineers to carry out a detailed assessment of what the part should cost to manufacture, building it up process by process. This has highlighted a possible additional 25% reduction. The final step is to look at whether we can redesign the part to take out even more cost without any detrimental impact to the product.
We plan to roll this approach out on the higher volume products across the division. Now, clearly, it won't be appropriate for all components, and we won't be able to generate such significant savings every single time, but we do think it's a realistic target to target a 30% material cost reduction on the runner products in this division over the next few years. Our investment in the world-class compound semiconductor fabrication equipment facility in Bristol is one of the largest made in the UK semiconductor sector in recent years, demonstrating confidence in the business and the growth in the markets we're focused on, consumer and power electronics and Micro LED and data coms. We've delivered 12.5% CAGR over the last three years, and given the potential to triple production, we're setting ourselves up to ensure we continue the growth.
We moved in in the final quarter of the year, and the team were able to deliver a 42% production uplift over the period. We have a really engaged team here, relishing the opportunity to drive process improvements, and they've already delivered a 15% reduction in build hours per system, and there's plenty of more to go at. So I hope that's given you a flavor of the actions we believe will support our new group margin goal of getting to 20%+ over the medium term. You can see the key building blocks on the slide here. Delivering our cost improvement plan and turnaround in our quantum business, the operational process and overhead efficiencies that I've spoken about throughout today's presentation, and leveraging our revenue growth to improve drop-through to margin.
There are also some clear headwinds, some short-term investments to enable the improvement, and a mix effect, especially in the first couple of years, as we anticipate advanced technologies growing faster but at lower margins. We also anticipate a short-term currency headwind. All of this coming together to support a significant value opportunity and attractive investment proposition. Before I conclude and hand over to Gavin, let's take a brief look at our capital allocation priorities. We're well invested at all sites, and clearly, Gavin has done a great job to ensure that we have a strong balance sheet. Organically, we will invest in improving the operations over the next couple of years, and we're going to continue to invest 8%-9% of revenue in R&D.
We will also make selective and disciplined acquisitions, such as FemtoTools, announced today, WITec, and First Light Imaging, where there are synergies and where we have, we feel that acquiring businesses will really add to our capabilities. Underpinning all of that, you can expect to see us continue to demonstrate financial discipline with strong cash conversion and maintain our very good return on capital. So a reminder, these are the key priorities that we will focus on to achieve our new margin goal, building to 20%+ over the medium term. Alongside the actions to simplify and streamline the organization, we will ensure a step change in operational improvement and customer service. We will continue to invest in maintaining our leading positions in technology and innovation, all supporting differentiated, sustainable growth and margin expansion. We have a clear plan for the two new divisions to generate value.
Over the last few weeks, I've been out with our teams around the world, sharing the new strategy, and there is a reality... There is rightly real passion and excitement about our future. There's a real appetite to deliver on the plans and take the business forward to realize the exciting potential we have in Oxford Instruments. I'm looking forward to taking your questions shortly, but first, I'm gonna hand you over to Gavin to take you through the details of this year's results. Over to you, Gavin.
Thank you, Richard, and good morning, everyone. Richard has just presented our new divisional structure. For comparative purposes and consistency with the accounts, I will present here the performance of the business under the old structure, and from the half-year results, we will report under the new divisions. So let's start with the income statement. We saw good growth in constant currency, revenue of just under 10%, with approximately equal growth coming from volume and price. Adjusted operating profit at constant currency grew by just under 4%. However, a currency headwind meant that reported AOP was broadly flat at GBP 80.3 million. Adjusted operating margin at constant currency fell by 100 basis points to 17.1% due to trading losses incurred in our quantum business as a result of ceasing commercial activities in China, as well as continued operational investment for the group.
Adjusting measures include amortization of acquired intangibles of GBP 9.1 million. Other items of GBP 2.2 million include a net credit from the settlement of a third-party litigation, offset by acquisition costs, one-off expenses relating to the move to our new compound semiconductor systems facility, and dual CEO running and compensation costs. A charge of GBP 0.7 million reflects the mark-to-market movement in the revaluation of forward contracts, hedging future cash flows. Adjusted profit for tax increased by 1.6% to GBP 83.3 million. The effective tax rate has risen from 20.7% to 24.4%. The increase primarily reflects a rise in the UK corporation tax rate. The board has proposed a final dividend, giving total dividend growth of 6.7%. Turning to revenue by sector.
Materials and Characterization grew by 11.4% at constant currency, with strong growth across the portfolio of products. Research and Discovery grew by 5.7% at constant currency, supported by shipments of optical imaging and microscopy products. Growth was tempered by lower revenue from our cryogenic systems business, resulting from a significant number of order cancellations as we retrench from the quantum market in China due to U.K. export license restrictions. A strengthening of Sterling, principally against the dollar, U.S. dollar, and yen, resulted in a currency headwind just under GBP 18 million. Moving to operating profit by sector. Reported group AOP of GBP 80.3 million was broadly in line with last year and equivalent to a margin of 17.1% against 18.1% last year.
Constant currency AOP grew strongly for Materials and Characterization, with demand across our portfolio of businesses, encompassing electron microscope analyzers, atomic force microscopes, Raman imaging systems, and semiconductor processing systems. Within Research and Discovery, our imaging and microscopy business did not see a rise in profitability, despite an increase in revenue. A shortfall in OEM orders in the life science market, against a backdrop of investment, has put a brake on short-term profit growth. Furthermore, an increase in material costs and stock provisioning due to an inventory buildup resulting from the lower than anticipated order demand also impacted profitability. Finally, we incurred a trading loss in our primary quantum business from ceasing commercial activities in China. These impacts more than offset good growth from our X-ray business, resulting in a decline in profitability for the Research and Discovery segment.
I will now look at each division's performance in turn, starting with Materials and Characterization. Revenue grew by 11.4% at constant currency, with good growth across advanced materials markets for our portfolio of materials analysis products. Demand was strong for our compound semi processing systems, underpinned by our focus on delivering critical process solutions. Revenue growth led to an improvement in operating margin of 110 basis points. Reported orders fell, impacted by a strong comparator period for our materials analysis tools, as well as the removal of orders because of U.K. export license restrictions. Underlying book-to-bill, which removes the impact of canceled prior year orders from current year order intake, was 98% for the year. Looking at Research and Discovery.
Revenue grew by just under 6% at constant currency, supported by shipments of optical imaging and microscopy products and X-ray tubes. As previously mentioned, profitability was impacted by trading losses arising from the withdrawal of China for the principal quantum business, as well as a shortfall in life science OEM orders against a backdrop of additional costs arising from anticipated higher demand and investment. The removal of prior year China orders and weaker order intake from life science customers resulted in a reduction in orders against last year. However, underlying book-to-bill, which excludes the cancellations, was 112%, owing to strong order intake for our cryogenic systems for the U.S. quantum market. Finally, Service and Healthcare. We've delivered good growth in our service segment, supported by the successful implementation of a regionally led service model.
Service and Healthcare adjusted operating profit fell by 2.3% at constant currency, largely due to an increase in the cost of helium, which is used in service contracts under our Japan MRI business. Now looking at regional performance. With total orders in the year of GBP 459 million, our underlying book-to-bill was 103%, normalized for the removal of prior year canceled orders to China. We've delivered good constant-currency revenue and order growth in Europe of 11% and 5% respectively, supported by strong demand for our compound semiconductor process systems and optical imaging and microscopy products. Revenue for North America fell by 2% at constant currency, reflecting a lengthening of commercial order cycles. In addition, unfavorable timing of academic budgets for our semiconductor processing systems contributed to a weaker year for the region.
These issues also contributed to a fall in constant currency orders of 5%, although pipelines remain strong across our end markets. Asia remains our largest region by revenue, with China constituting 58% of regional revenue, following strong order intake in the previous financial year. Revenue for China grew by 23% at constant currency. Overall, Asia delivered revenue growth of 16% at constant currency, with strong demand for our materials analysis products, optical and microscopy products, and compound semiconductor processing systems. Orders for the region fell by 15% at constant currency. UK export license restrictions and our withdrawal from the China quantum market led to the removal of prior year orders from the 2024 order intake. In addition, we booked fewer orders in compound semi as we pivot to customers less sensitive to export license restrictions. Turning to the order book.
The total order book of GBP 302 million declined by 4% after GBP 23 million of prior year orders to China were removed, as previously mentioned. We have also seen lead times for our products move closer to more normalized levels. The larger reduction in Materials and Characterization was against a strong comparator period, particularly skewed to China. Research and Discovery grew marginally, with lower demand from our OEM life science customer base, offset by demand from North America for cryogenic systems for the quantum market and order book growth for our X-ray tubes business. Turning now to the cash flow. Working capital increased by GBP 24.7 million, with inventories increasing by just over GBP 26 million. Approximately half the rise in inventory was due to some specific issues.
An increase in raw materials arose from customer OEM overstocking within our optical imaging business, leading to an unexpected decline in orders against an already planned production cycle. Furthermore, we invested in raw materials ahead of the move to the new facility in Bristol, and export license restrictions meant that we had several systems awaiting reallocation to new customers sitting in stock at the year-end. A quarter of the increase related to investments in work in progress on a one-off quantum-related long-term contract, additional demo stock, principally for our newer life science products, high levels of service stock within our regions, and some additional safety stock to limit operational risk. The remaining increase supports the good revenue growth that the business has delivered over the year.
Capital expenditure of just over GBP 26 million primarily comprises later stage construction costs on the new compound semiconductor processing facility in Bristol, as well as purchase and strip out costs on the new building in Belfast to support expanded production of our life science product range. For the current financial year, we expect payments of approximately GBP 17 million to complete the facility in Bristol and progress the Belfast expansion. Cash conversion was 64% on a normalized basis, which excludes expenditure relating to capacity expansion. This was lower than our normal conversion rate due to the larger-than-expected increase in inventories. Plans are in place this year to reduce inventories and deliver cash conversion metrics in line with historic conversion rates. Acquisition costs reflect the initial consideration for First Light Imaging acquired last January. We made deficit recovery payments of GBP 8 million to the UK Defined Benefit Pension Scheme.
We are recording an accounting asset of GBP 16 million and remain on track to attain funding self-sufficiency within the next 18 months. Net cash was GBP 84 million at the end of March, down from GBP 100 million last year, primarily due to the consideration for the acquisition of First Light, facility-related capital expenditure, and the increase in working capital. Turning to FX, the group's financial results are subject to currency fluctuations, although we maintain a hedging program to mitigate short-term currency movements. In the year, we recorded an adverse currency impact of GBP 17.8 million to revenue and GBP 3.2 million to operating profit. Looking ahead to this financial year, our assessment of the currency impact is based on hedges currently in place and forecast hedges, a decrease in revenue and operating profit of approximately GBP 8 million and GBP 6.2 million, respectively.
Forecast rates used are 1.28 for Sterling dollar, 1.17 for Sterling euro, and 200 for Sterling yen. Looking further ahead to the financial year 2025, 2026, using the same currency rate assumptions, we would expect a neutral impact on revenue and operating profit. The actual currency impacts will depend on currency volumes and mix, as well as currency rates at the time of shipments and customer acceptances, and therefore, these estimates do have a high degree of uncertainty. So to summarize key financial highlights from the year, we've delivered constant currency revenue growth of 10%. Trading losses from the China commercial quantum exit and overhead investment resulted in a fall in margin of 100 basis points. Underlying book-to-bill was positive at 103%.
We've weathered a currency headwind and expect this to further impact the business in the current year due to a strengthening of Sterling. Our confidence in the business supports growth in the total dividend of 6.7%. And finally, a healthy net cash balance and a new and larger RCF provides a strong balance sheet to support future growth and investment opportunities. And with that, I'll hand back to Richard.
Thanks, Gavin. So I hope that what I've shared has helped simplify your understanding of Oxford Instruments. My aim has been to give you a new perspective and way to think about the business drivers, our position, and our potential for value creation. Given our robust performance in the year, we've got a strong platform from which to move forward. So with the group starting the year with a strong order book and opportunity pipeline, coupled with the business improvement actions, we expect to make good constant currency progress in the full year ending March 2025. We have a clear plan for the future, a simplified structure for the group, actions to support improvement in both divisions already underway, and we have an exciting future ahead. Thank you for joining us today. We're now going to open up for questions for people in the room.
There is a microphone going around. Perhaps you could sort of say your name and which company you work for, for the benefit of the webcast. And for those of you on the webcast, there is an opportunity to ask questions that way too. So if you put them in, we will pick those up once the room has dried up. Harry, go for it. Yeah.
Excuse me, it's Harry Phillips of Peel Hunt. Just interested in the R&D, 8%-9%, is that common for both of the new divisions? And then the return on capital, you want the 30% return plus. Obviously, looking at the big margin difference, sort of... I'm just trying to get my head around that return level on the, on, of that 30% with that differential, or am I missing an obvious moving part there?
Don't think you're missing so, you know, the, firstly, the 8%-9% for both divisions, technology is really key. We'll lay out exactly what the future spend rates will be when we sort of recut the numbers for the group, so you can see it really clearly. But the intention of the 8%-9% is all about sort of showing that we are gonna continue to invest in the key technology that drives growth for both of these divisions, and we're gonna do it at an equivalent level, and it will grow with growth. And if anything, the 8-9 is a bit more than has been there before. So sort of signaling if there's more opportunity, we might push it a little bit more to support that growth.
The counter to that is clearly us saying we're not looking to reduce it to improve margin.
With respect to ROIC, we peaked at about 35% return on capital employed. That's come down to 29%, principally because of the investment we've made in the compound semiconductor facility. As that comes on stream now and we increase volumes, we expect to start seeing an improvement again.
Yeah. Okay.
Yeah, Lush? Yeah.
Thanks, guys. It's Lush Mehandra from JPMorgan. A couple of questions. Firstly, just how do we think about the sort of phasing on that margin target? I guess some of the stuff in advanced technology seems like it could happen quite quickly, in the new facility, the China impact, unwinding. Obviously, some of that longer term, you've got to put some cost in. So just how do we think about that-
that phasing? And then just on advanced technology, again, what's the highest margin that business has done historically? I guess, what gives you that confidence you can get to 10-12? Because that's, I guess, that's quite a big move. And then just lastly, on the balance sheet. So you sort of allude to sort of returning cash to shareholders at the right time. I guess, have you done some work on what you think the right balance sheet position should be? So when will you have excess cash to sort of return that to shareholders or something similar? Thanks.
All right. Thanks, Lush. Okay, margin, margin phasing. I mean, so big picture on the margin phasing, we've got, we've got some actions to do internally to improve the business overall. They're specific for each division, but as I've articulated, there's a pretty comprehensive set of actions and improvement program to do. That's, that's obviously gonna take a bit of investment over like the kind of roughly 18 months to 2-year timeframe that I talked about in the chart. So think about a bit of investment in that near term to deliver the upside, beyond in the kind of 3- to 5-year timeframe. Now, clearly, in advanced technologies, there is some short-term as well as medium-term, margin improvement potential.
I think we're, you know, we are looking to drive some of that short-term potential now, and we anticipate, you know, in the year ahead, there'll be some improvement, which will offset some of those investment costs that we've got to make in the very short term. So that's probably the way I'd put that, I think. Yeah. In terms of advanced technologies and the sort of roughly not very much contribution to 10-12, there's some clear building blocks to that. Clearly, the losses in quantum are a first part of that.
The compound semi business is in the sort of mid-single-digit margins, but now that it's in the new facility with that opportunity to scale up, as well as, you know, I gave you a sense of what Q4 was already presenting as an opportunity for the team. You know, we can see a very clear migration of improvement there to the 10%-12%. Now, for those of you who are gonna come down to the facility, that, you know, in a few weeks' time, we're gonna show you the full picture of that, and I'm sure you'll see what I'm talking about. But in terms of sort of history, I don't know whether it's ever got to those numbers, but-
Yeah, it's got towards the higher single-
Toward the higher end-
Higher single digit
... Higher single digit, perhaps, before. So, yeah, we're signaling getting a bit better than that, but it's, as I, as I said there, it's, to me, it's a fairly straightforward, clear, simple action plan that's down to us. So it's a kind of... The majority of that is a self-help improvement plan. Clearly, we need the compound semi market to keep going because that's gonna help drive operating leverage going forward, but the rest of those actions are down to us.
Balance sheet efficiency.
Ah, yeah, balance sheet efficiency. Well, I think that... Look, hopefully, I've given you a pretty good indication that, you know, I think Oxford Instruments is a great platform with some really interesting markets and lots of opportunity to invest organically, and create quite a lot of value doing that. So you know, that, that's priority number one. We've shown some clear ways that we can support that and supplement it with acquisitions. I think that's the way we think about using the balance sheet, really overall. Clearly, ultimately, if it gets a bit inefficient, then that would be an ongoing debate for the board. But priority number one and two are organic and M&A deployment, I'd say.
We have a question from the webcast online.
Okay.
One of our questions is: What are the largest milestones on the way? From Stephen Clamp, from HSBC.
Stephen, right. Largest milestones on the way. Well, I think, you know, the main ones for both divisions, I tried to indicate a way that you can think about us moving through the improvement program. So there's sort of six monthly blocks on the operational improvement program that, you know, go site by site effectively. So you'll see us update you on that. And then, Stephen, the chart on advanced technologies, you can see, as you'd expect, frankly, with the opportunity for improvement, we've got on with some of those actions already. Per the answer to Lush, there's gonna be some impact and improvement on that this year, but that will continue.
You can see us progress through those, if you like, bars of progress to conclusion, which ultimately will deliver the sort of 10-12 range initially. Actually, it sort of reminds me, I think you asked where it might be able to get to as well, if I can supplement the answer to Stephen. I think we both think it ultimately could be a mid-teens margin division, but, you know, with job number one, getting it to double digits. So the aim is to give you, you know, continue to give you updates on those milestones that I've outlined here. Hopefully, they're clear enough, and you will be able to follow our progress, and ultimately, it feeds through into the numbers. Did I miss something?
Thank you. Perfect. The next question is from Stephen again. He asks: How much can or will the new purpose-built facilities contribute to the margin journey?
I suppose the new purpose-built facility effectively is part of that journey to the 10-12 and then maybe beyond, when we get to that point into mid-single digits. It's the opportunity for efficiency improvement and process improvement, I think, is really good. That team down there, it's why I kind of signaled their excitement about being in the new facility 'cause, you know, to the credit of Gavin and the team, you know, they made the choice to make a significant move and a significant investment in that facility. Really important to give them the chance for the future, and they've come out of a relatively old, pretty tricky facility to build the kind of kit they do in, and now they've got this really big opportunity in front of them.
You can see what they delivered in Q4, and they're excited to make the most of it going forward. So, you know, it's clearly a key part of the building block. Operating leverage is really where it takes off.
Yeah.
Did I answer all that? Yeah.
There are no further questions on the webcast.
Brilliant. There's definitely some in the room, so David, David.
Thanks. David Farrell from Jefferies. A couple of questions from me. Reading between the lines on Imaging and Analysis, it seems to suggest that you think the business is being too decentralized, that the six businesses in there weren't, weren't working collaboratively. What does that mean going forward in terms of the people running those businesses now? What management changes have you made? And to the extent that a lot of those businesses have discrete sites-
How easy is it for them to function cohesively?
Good, really good question. So yeah, I mean, that is what I've sort of indicated, is that they've been run as individual units, often with a sort of direct line into customers and back down, both for technology and, and customer and opportunity development. Over the last couple of years, there's been a nice move to try and work to integrate some of those businesses, and in places, we've seen some really good benefit from it, which is what I've talked about on a couple of those charts. Like the sales benefit in one region was really driven across two or three of those business units, and it made a really big difference. So what we're doing is basically taking that and expanding it around a group of businesses that should have that capability around all of them. So the...
There is some delayering going on in the structure there, and there's some redeployment of resources, and there's a few changes that have happened. We've got a new sales service lead. We've got a new sales lead in North America. We've got a new leader for that one part of that division. So there's a few changes being made to coordinate the activity that we, we've laid out in the action plan.
Yeah, thanks. Follow-up question, just in terms of the margins of that division.
You talked a lot about customer service-
... et cetera, and maybe failing there or certainly not delivering as well as you could do.
How has that manifested itself in the financial results? Is this you missing out on orders? Are there penalty payments that you've been paying-
which have impacted margins? 'Cause I guess-
... 'cause it sounds like there's a lot of opportunity. At the bottom end, you're only indicating 100 basis points of margin improvement potential.
Yeah. That's also a really good question.
Thanks. Doing well.
No, it's spot on. It's exactly the purpose behind the plan in that division. So just to answer where we found it, over the last sort of six months or so, we've been doing quite a lot of referencing with customers, competitors, and independently getting questions and feedback from the market as well. So in terms of how it's impacted the business, firstly, in the pure academic research, not very much. It's amazing technology. They love us. They'll wait for it or, you know, they'll adjust their experiment. You know, we'll go back and help them through the process. In the commercial market, where it's manifested itself is in the loss of some orders and an occasional loss of a customer, but not lots of it, just bits of it.
So what we've done here is kind of gone, "Well, what's underneath all of that, and what do we need to do?" That's where the action plans, they're to, to deliver that and ensure we deliver that sort of step change in, in customer performance and service. What that's really designed to do is underpin the revenue growth and make sure that we can have sustainable organic revenue growth there and don't put that at risk, 'cause the market opportunity is great.
Thank you.
Thank you. Good morning. It's Thomas Rands from Davy. Just questions around quantum technology. Just kind of a few elements to this, but can you remind us how much China was of from revenues for that division? Prior to the recent kind of export restrictions. And then looking kind of forward, what are the R&D requirements? Do you have the right product range, the right competitive advantage with that?
And ultimately, do you see it being part of the group longer term, given the recent headwinds and the uncertainty it's created?
Yep. China revenues?
China, the revenues for the quantum business were around GBP 50 million in total, of which I'd say 60% were allocated to China.
So just to go into the rebuilding of the business, that pipeline has essentially been rebuilt in other regions to deliver, to support the business at those sort of revenue levels. But obviously, there's been this sort of time window where all of the revenue's not been there. So that's why we're signaling, you know, we've got a nice confidence to return it to growth, and it can stay focused on those regions, that they're, if you like, territories, where we will be able to sell that capability, and there's collaboration between our respective governments. In terms of the R&D, well invested in terms of the capability there, so it's sort of a continual improvement-
... if you like, in the technology and the product capability, rather than the need for some big investment going forward. And then in terms of have you, you know, where does it go from here? And I think, so I highlighted a sort of a relative uncertainty about timing of growth of that market. It's really in the phase of research, investment, testing technologies to see what's gonna win. Now, we have one of those, not all of them. So, you know, there's a relative uncertainty about whether that growth comes through. But right now, there's plenty of requirement for the capability that Oxford have, and we have that opportunity in advanced technologies to take it from not contributing very much to 10%-12%.
That's a proper value creation opportunity for us, and we need to get after it.
Great. Thank you. Quick follow-up. The, you mentioned there was, some systems held in inventory at the year-end.
Have they found a home yet?
They will do. They will do. Yes. These are systems that were earmarked for China, but we've been really successful, as we talked about, in new orders in the U.S., and they're likely to go to the U.S. or Europe.
Yeah. Rich.
Thank you. Morning, Richard Page from Deutsche Numis. Just a couple from me. We've obviously talked a bit about the collaboration across the businesses within the divisions. You've obviously also simplified the end market structure, the 90%. Can you talk a bit more about the collaboration across end markets or how you improve the communication between the businesses?
... on that front?
And then secondly, if I look at the numbers correctly, 9.8% organic growth in the full year shows some acceleration in the second half of the year.
We obviously are aware of the quantum challenges, also healthcare and life science challenges.
Can you just explain a bit more as to whether we've felt the full brunt of those impacts or whether there's something that we maybe look at in future, but also look at, obviously, three years of organic growth, double digits, there or thereabouts, medium-term target of 5-8. Is-
... you know, just understanding of those sort of moving parts as to how we get to those levels of growth, 'cause it looks like the business has had quite a few challenges this year and delivered nearly 10% organic growth.
Is that a question?
It's a very long...
Is that a question about the top end of the range?
Yes.
Really, Richard.
Yeah.
Yeah. Okay, fine. So the first one about collaborating on in across end markets. One of the reasons that I think it's been a great conversation with the team about developing the strategy and really thinking through what markets are driving the revenue growth through the group, because sort of per the conversations some of us were having in November about sort of early impressions, I think that enables us to really get focused on where we have really deep and good knowledge for both technology and market and customers.
We can bring that together as a team, which the team have been talking about as a group, increasingly over the last six to nine months, and then come up with plans as to where we can really piece together subsets of capability to offer a fantastic sort of offering to the workflow of one particular customer base or a new ability to take an application, a technology forward into a new application in another. So the subsets of the teams have effectively been through the strategic process, looking at those markets now in more depth, sharing that opportunity knowledge, and coming up with a blend of products and application ideas, and/or just specific market and customer access ideas.
We've got examples in life science and healthcare, and we've got examples in semiconductor, where, you know, the sort of subnetwork of the team are now focused on those markets to really extract the best for us. So I, I'm really excited about that can create something a little bit new in terms of how we apply our resources in the most effective way for growth. So coming back to the markets, 9.8% in the year just gone, I think, you know, you're right to point it out. I think it's a really good performance for the business whilst dealing with, you know, an order pattern market situation with China and everything else, and still getting a book-to-bill at greater than one.
I think really good test, and it shows what we can do even with some adversity. Last couple of years have been about 8%, I think. That's right. So it's been sort of knocking on around those sort of levels for about three years. And if you look at the markets on the page I showed you on the markets, the kind of deep analytical work we've done there and talking to customers, as well, has suggested that those markets can run in the mid- to high- and sometimes double-digit rate. So with us being part of the generation of market opportunities, because our technology helps customers generate some of that market growth, I feel like it's a great position to be in.
But at any point, you've usually got one market perhaps not running quite as quick as the others, or one region not running as quite as quick as the others. But clearly, you're highlighting the point that if everything goes pretty well and we take a bit of share, maybe we can stay at the top end of that range or, you know, a little bit further. But per the answer to David, there's some risks around at the moment we need to button down and make sure, you know, we can perform at the right level across the piece, too. But, yeah, I think that just presents a great backdrop for value creation when you add that to the margin opportunity.
Thank you. Just one final question to attach on the end there. The China issues and export license controls-
Is this drawing a line under the risks around?
Yeah. So look, our intention this morning and through the actions of the last few months together, Gavin and I are trying to put a box around that issue for Oxford Instruments and draw a relatively conservative box around the current restrictions and get all of our activity focused on areas we can have a productive outcome. That's been the aim of it. Clearly, I can't guarantee how things might move with changes in government and all sorts of other stuff, but basically what we've done is tried to do that, draw a line under it, clean up the order book and focus on the future.
Great. Thank you.
Okay, looks like we're done in the room. Everything done online? Fantastic. Well, look, thanks-