Okay, good morning and welcome to Oxford Instruments' full year results. For those of you who may be wondering about the image on the screen, this is a fully functioning gyroscope created by one of our plasma technology systems. At only two millimeters across, these devices are used for measuring motion in various applications, including cars, navigation systems, and image stabilization on cameras. Moving to the highlights for the agenda for today, I will take you through the highlights for the year, hand over to Gavin, who will take you through the financial results before returning for a progress update with our Horizon Strategy, an operational review, and then closing with our summary and outlook. Moving straight to the highlights, we've made good progress with the early implementation of our Horizon Strategy, which we launched last May, and are starting to see tangible benefits.
We have transitioned to a more commercially focused, market-driven group through significant portfolio management, our new sector structure, and an increased customer application and product solution focus. The group delivered performance in line with expectations, supported by strong second half trading and reflecting currency benefits. Constant currency revenue was in line with previous year, reported adjusted operating profit before tax increased by 22.4% to GBP 46.5 million, and reported adjusted operating margin increased by 300 basis points to 15.7%. Positive order intake continued through the second half of the year, resulting in reported order growth for the period of 5%. The order book representing orders for future delivery also increased by 5%, representing growth of 10.4% at constant currency. Increased demand from corporate and academic customers engaged in applied R&D and high-tech manufacturing led to strong growth across our materials and characterization sector.
The service and healthcare sector improved performance in the period, driven by continued demand for services related to our own products. Strong second half performance in research and discovery was more than offset by a weaker first half. The balance sheet has been significantly strengthened during the year, with net debt down to GBP 19.7 million following good cash collections and proceeds from disposals. I'll now hand over to Gavin for the financial review.
Thanks, Ian. Morning, everyone. I'll now specify the numbers I'm going to discuss today on a continuing basis, excluding, therefore, the industrial analysis business that was sold last year. Reported revenue was marginally lower against last year at GBP 296.9 million. On a constant currency basis, revenue was broadly flat. Currency benefits drove a 22% improvement in adjusted operating profit to GBP 46.5 million, with adjusted operating margin rising from 12.7% - 15.7%. On a constant currency basis, adjusted operating profit fell by 5.5%. Lower average debt over the period and a reduction in pension financing charges led to a fall in net financing cost to GBP 4.2 million. Adjusted profit before tax grew by 34% to GBP 42.3 million, with margin rising from 10.5% - 14.2%. Amortization of acquired intangibles of GBP 10.9 million is a non-cash charge and treated as an adjusting item.
Also included with adjusting items, we have a net gain of GBP 1.7 million from business reorganization items. This is derived from a net profit of GBP 3.3 million on the sale of the superconducting wire facility in the U.S., which was retained after the sale of the business in 2016, and a property lease to our associate in Germany. This profit was partially offset by legal costs related to an unsuccessful claim against us in the U.S., and restructuring costs, primarily being our share of those incurred by our Scienta associate. We incurred an impairment charge of GBP 2 million, being our share of the loss on disposal on the side of one of Scienta Omicron's subsidiaries. The mark-to-market gain in respect to derivative financial instruments was GBP 3.1 million.
This reflects a movement from a net fair value liability to a small net asset position on currency derivatives that are hedging future transactional currency exposures for the group compared to the previous year-end. Profit before tax from continuing operations was GBP 34.2 million. In addition, we recorded a post-tax profit of GBP 45.9 million from the sale of industrial analysis. This is included as a profit under discontinued operations. The movement in profit before tax led to a rise of 36% in adjusted basic EPS. Finally, the board has decided to increase the final dividend to 9.6%, giving a total dividend of GBP 13.30, an increase over last year of 2.3%. Looking at revenue by sector, reported revenue for materials and characterization grew by 11.7%, 13.2% at constant currency, with particularly strong growth across our imaging and analysis products, scanning probe microscopes, and semiconductor processing solutions.
A decline in reported revenue of 10.5%, a fall of 9.7% at constant currency for research and discovery, was attributable to lower optical microscopy revenue following a weak first half and an increased proportion of customized magnet and cryogenic systems with longer production lead times. Increased sales for our own products of 7% was offset by lower revenue from equipment sales in healthcare, resulting in a constant currency decline for service and healthcare of 2.9%. Moving to revenue by territory, in Europe, we've seen constant currency revenue growth of 4.3%, driven by strong demand for our plasma process products, in addition to increased sales of our imaging and analysis products and scanning probe microscopes. Orders in the region were up 8.9% at constant currency.
In North America, the decline of 5.3% at constant currency is largely due to weak sales of our optical microscopy systems as we transition from third-party systems to our own portfolio, and, as anticipated, lower equipment sales for OI healthcare. If we exclude the U.S. healthcare business, constant currency order growth for the region is 5.5%. For Asia, constant currency revenue growth grew by 1.2%. Orders for the region were up 7.5% against last year at constant currency, driven by strong demand across our materials and characterization sector. Turning to the order book, the order book has grown by 10.4% since last year at constant currency to GBP 134 million. Constant currency growth was just over 40% for materials and characterization, with strong growth for imaging and analysis products and semiconductor processing solutions.
Good second half order growth for our optical microscopy systems led to constant currency order book growth of 15.2% for research and discovery. An anticipated decline in the sales of used imaging equipment within our U.S. healthcare business led to an order book decline of 10.6% at constant currency within the service and healthcare sector. Excluding U.S. healthcare, the total order book grew by 18.4% against last year. Looking at adjusted operating profit by sector, constant currency adjusted operating profit in materials and characterization grew by just under 20%. The operating margin increased to 17%, assisted by currency benefits. Constant currency adjusted operating profit for research and discovery was negatively impacted by two main factors: a fall in first half optical microscopy sales, which only partially unwound in the second half, and the impact of longer production lead times from our customized magnet and cryogenic systems at lower margins.
This was partially offset by the booking of a small profit from our associate against the loss last year. Currency benefits pushed the margin up to 12.3% from 11% last year. Good demand for sales of our own products and a cut in healthcare overheads to offset the revenue fall led to a 4.2% rise in constant currency operating profit for service and healthcare. Turning to the cash flow, the group made adjusted earnings for interest, tax, depreciation, and amortization of GBP 55.6 million, with cash generated from operations of GBP 33.4 million. Working capital increased by GBP 13.2 million, resulting in a fall in cash conversion to 69%. This is primarily due to two factors. First, across materials and characterization and research and discovery, we had a strong final period of activity, combined with a high proportion of sales compared to the previous period.
Approximately 60% of the increase in receivables of movement of around GBP 8.6 million was due to this increase in activity, with our key metrics, such as day sales outstanding, being in line with last year. Inventories increased by GBP 4.5 million, reflecting an increase in demonstration stock to support new launches of imaging and analysis products, as well as an increase in work in progress to support our planned production schedule in the first quarter of 2018, 2019 for the more complex systems in nanoscience. Second, the other 40% of the increase in receivables, totaling just under GBP 6 million, is due to the settlement of foreign currency forward contracts that related to the previous year, as well as the settlement of foreign currency swaps that are hedging overseas cash balances that have not been repatriated back to the U.K.
The pension deficit fell from GBP 25 million at the end of last year to GBP 15 million due largely to deficit recovery payments. The completion of the sale of Industrial Analysis last July resulted in net proceeds of GBP 71 million, and the sale of the two freehold properties I previously mentioned yielded an additional GBP 9.3 million. Last September, the shareholders of Scienta Omicron agreed to a capital injection to strengthen the balance sheet of the joint venture, and our share was GBP 2.1 million. Net debt fell to GBP 19.7 million, representing a net debt to EBITDA leverage of 0.3 times. Our covenant is set at three times. Just looking at our currency exposure, the business has a large exposure to foreign currency fluctuations facing both translation and transactional currency exposures. Our total currency exposure is detailed on this chart.
In sterling equivalent, we have net exposures of dollar, US dollar GBP 44 million, EUR 33 million, JPY 18.8 million. With many of the manufacturing sites being in the U.K., we have a short sterling position of GBP 48.9 billion. We maintain a hedging program against our transactional exposure using internal projections of currency trading transactions expected to rise over the next 12 months. Looking ahead to the 2018, 2019 financial year, we expect a currency headwind to operating profit of approximately GBP 3 million based on current exchange rates. To summarize our key highlights from last year, we've seen good reported and constant currency growth in orders and order book. Adjusted operating margin has risen to 15.7%, reflecting expected currency benefits, and a continuing adjusted EPS grew by just under 36%.
We have a strong balance sheet with net debt down to GBP 19.7 million, and as previously mentioned, a net debt to EBITDA leverage of 0.3 times. Prior to the year-end, we also de-risked the investment strategy for the U.K.-defined benefit pension scheme, with the pension funds' gross exposure to on-risk assets comprised mainly of equities falling from 85% - 45%. As a result, the level of risk inherent in the investment strategy is now significantly lower than previously, in addition to a substantial reduction in funding-level volatility. Finally, as previously mentioned, we expect the currency tailwind that we experienced in 2017, 2018 to turn into a small headwind for the 2018, 2019 financial year. With that, I'll hand back to Ian.
Thank you, Gavin. Moving on to look at progress with our Horizon strategy.
While it's still early in our Horizon journey, we've made good progress in line with management's expectations. I'm encouraged by how firmly embedded our new strategy is and how positive engagement has been across the group, and we are starting to see tangible benefits in a number of areas. In particular, we have transitioned to be a more commercially focused, market-driven group, supported by significant portfolio management and a new sector structure aligning our businesses with our chosen markets and applications. We are now positioned to address a broad range of attractive markets and industrial sectors, with our key enabling technologies underpinning the shift to a greener economy, increased digital connectivity, and advances across materials, life science, and healthcare. We have made good progress in migrating to a customer-centric approach, increasingly offering solutions rather than tools.
This is driving a change across the group, including how we are organized, our communication with customers, and our future product roadmaps. For example, we are building on our market and technology leadership in two ways. Firstly, by better understanding our customers' world, we are transforming the way we communicate the value and benefits of our products by tailoring the information for each specific end-market application, as represented here on the slide. Secondly, we are increasingly providing application-specific solutions, building on our existing platforms through tailored products, software upgrades, bespoke data interpretation, and associated support services. This is creating more value for our existing customers and, importantly, expanding our addressable market at improved margins. Looking at two specific examples, customers developing higher efficiency and longer-life batteries need to understand and control the detailed chemical and electrical interactions at the nanoscale.
Because battery materials are very reactive and operate within a liquid, this has been extremely difficult to achieve. To solve this problem, we developed a unique sealed sample imaging cell that enables the direct measurement of chemical and electrical processes at the nanoscale for battery materials operating under their real-life conditions. This solution, which can be seen in the insert to the image on the left, is provided as a hardware upgrade to an existing atomic force microscope. As another example, and this time in the automotive industry, where incoming parts are inspected to control and maintain suitable levels of cleanliness, when contamination is found, stopping its source is critical to maintain future production. Here, we have developed a bespoke workflow and data interpretation package for our generic particle analysis system that confirms cleanliness and, importantly, identifies the source within the supply chain of any contaminating particles.
These are two examples where we've created application-specific solutions through either a hardware or a software upgrade to an existing product in our portfolio. These tailored upgrades can be delivered on a short time frame compared to relatively long new platform developments. Horizon is also changing the way we work and the capabilities we require. Recognizing this, we have transformed the leadership team at an operational level, targeting individuals with specific capabilities and the experience needed to accelerate our progress, largely through external recruitment. Around 50% of our senior managers are now newly enrolled within the last two years, including new leaders for our nanoscience, magnetic resonance, and X-ray technology businesses. We are embedding clearly defined core capabilities across sales, service, and operations to augment our technology expertise.
This has included the appointment of a group commercial director to drive a sharper commercial focus and value selling across our global sales teams. We are embedding a lean approach to operational excellence and are developing a cohort of lean leaders across different roles and functions. As part of our change program, we are exploiting synergies across the group, breaking down silos through cross-business and functional working groups. In the year, we have made cost savings of GBP 1.5 million through back-office efficiencies, partially offsetting the previous contributions and therefore stranded costs associated with the divested industrial analysis business. Moving to our operational performance, as a group, we report in three sectors: materials and characterization, research and discovery, and service and healthcare, with 45% of group revenues now coming from commercial or industrial customers.
A significant proportion of revenues come from customers engaged in life science and healthcare, semiconductor and communications, and advanced materials markets, with a growing proportion now at 9% related to quantum technologies. We have aligned our sectors around market and application segments, with materials and characterization and research and discovery having distinct customer distributions. We create value for our customers through enabling new scientific discoveries, accelerating their applied R&D, and increasing manufacturing productivity. Looking at materials and characterization, this represents 40% of group revenue, and the sector provides products and solutions enabling the fabrication and characterization of materials and devices, predominantly helping customers accelerating their applied R&D and improving their production capability in high-tech manufacturing. The segment had strong order and revenue growth, with improved profitability and operating margin.
Strong contributions from recently launched products, increased application-specific solutions, and healthy end markets supported growth across the U.S., Europe, and Asia, with the proportion of industrial customers representing 49% of the sector's revenue. The sector has a broad range of customer base with a high proportion of sales into semiconductor and advanced materials markets. Looking at individual businesses within the sector and starting with nano analysis, here, the business launched a range of products in the year with superior capabilities. Symmetry, our super-fast materials analyzer, which I mentioned at our interims, was a key growth driver in advanced materials and environmental markets, enabling significant productivity improvements to enhance speed, resolution, and accuracy. Ultim, our new range of large area X-ray detectors, drove strong sales of our imaging and analysis systems for leading semiconductor manufacturers by providing unprecedented resolution, importantly matching the ever-decreasing size of electronic device structures.
For example, the image on the top of the slide is a cross-section of a smartphone processor. Ultim allows manufacturers to both confirm the composition and nanoscale structural integrity of these devices. Asylum Research, our atomic force microscopy business, also had good growth and improved performance in the year, supported by the demand for our new products. In addition to the battery solution I mentioned earlier, new product innovations included our Cypher VRS, which remains the only fully functioning video rate atomic force microscope on the market. It enables the observation of dynamic processes in real time and continues to generate strong interest across a broad range of applications. In the lower of the two images on the screen, you can see the surface of a live virus, which is only about 100 nm across.
Of specific interest here is the ability to observe the interaction and, importantly, the movement of the spikes on the surface of the virus, which are key to its infection mechanism. The business also updated our entry-level atomic force microscope and has seen good growth across a broad range of applications due to its high level of performance, ease of use, and appropriate price point. Moving to plasma technology, this business provides etch and deposition systems used across a broad range of semiconductor and materials applications. Our core expertise in the chemistry and processing recipes for manufacturing compound semiconductor structures enables more compact, higher speed, and energy-efficient devices required to deliver the demands in big data, high-speed communication, and autonomous vehicles. We saw growth from both academia and the expanding compound semiconductor device market, with commercial customers representing half of plasma sales in the period.
Moving to our second sector, research and discovery, this sector represents 38% of group revenue, with products enabling imaging, analytical measurements, and unique sample environments, predominantly supporting scientific research and some applied R&D. Academic customers for the sector represent 73% of revenue. The sector supports a broad range of applications, with a high proportion of sales to customers in life science, advanced materials, and semiconductors, with strong growth in quantum technologies reflecting the significant funding through national and corporate initiatives. Geographically, orders were broadly in line with the previous year, albeit with a slight decline in Asia. Improved second half performance was more than offset by a weaker first half to the year.
Strong second half recovery from optical microscopy systems contributed to orders for the sector ending roughly in line with the previous year, with the timing of order book order intake resulting in an 11.9% increase in the reported order book. The nanoscience business continued to underperform against its potential, with the complex low-margin specialized systems continuing to impact second half performance. Looking at businesses within the sector and starting with Andor Technologies, Andor had a positive second half to the year, ending the period with like-for-like order growth and an increased order book. This was supported by new product launches, including the planned introduction of a lower price point optical microscopy system, enabling the portfolio to successfully address broader end markets and customer budgets. However, timing of orders negatively impacted revenue and financial performance in the period.
We had growth from our Imaris visualization and analysis software, with data interpretation and navigation becoming an increasing part of the overall microscopy solution. For example, the top image in the slide is highlighting the neurons from a brain sample. Automated analysis of the locations, lengths, and connectivity of the neurons are important for understanding cognizant processes and neurological conditions. We have also continued to see increased demand for our high-end scientific cameras for application areas such as astronomy, life science, and quantum imaging, which each require high performance, faster collection, and more sensitivity. For example, our Surfstream super-resolution camera option provides the capability to image biological samples with significantly higher resolution.
This can be seen in the top part of the blue image on the slide, where the detailed internal structures of a cell are clearly observable compared to the conventional image resolution in the lower half of the picture. This performance, only available on Andor cameras, enables customers to upgrade their new or existing microscopes to achieve super-resolution capability. Our X-ray technology business had a weaker overall performance, with continued growth in medical and research markets, but with greater-than-expected headwinds in materials characterization and industrial segments. This was due in part to delayed introduction of new products and increased pricing pressure in China. We have an improvement plan in place for the business under a new leadership team. Moving to our nanoscience business, as previously mentioned, the quality of the order book negatively impacted the financial performance in the period.
This remains work in progress and will have some carryover and impact into the current year. An improvement plan for the business is in place under a new leadership team with an increased commercial focus. Positively, we have seen order growth in customized magnet systems for national science facilities and in ultra-low-temperature cryogenic platforms for quantum research and quantum information processing. Demand for our benchtop nuclear magnetic resonance portfolio increased in the year with improvements in performance and ease of use. The products serve a broad range of end markets, including food, chemicals, and oil exploration. The Scienta Omicron Joint Venture delivered improved financial performance in the year, and the business divested VacGen, a non-core ultra-high vacuum manufacturing facility, increasing their focus on core surface science products and solutions. Moving to our third sector, service and healthcare.
This sector represents 22% of group revenue and comprises the group's service revenues associated with our own products under the OI Service brand and the sale, service, and rental of third-party medical imaging systems under the OI Healthcare brand. Sector profitability and margin increased in the period. However, revenue and order growth in OI Service was more than offset by an anticipated reduction from OI Healthcare. The OI Healthcare business made strategic progress in the second half of the year, moving to a higher proportion of service contracts relative to the sales of refurbished systems. Despite a decline in orders and revenue, structural changes in the business maintained profitability in line with the previous year. Within OI Service, we continue to deliver enhanced customer support offerings, including remote diagnostics, online self-help, and service upgrades, increasing the value and versatility for our customers and our aftermarket revenues.
Moving to our summary, we've made good progress with Horizon, transitioning to a more commercially focused, market-driven group. Materials and characterization perform strongly in attractive markets. In the sector, we continue to invest in new product development to improve and expand our range of products and solutions, increasing our addressable market. Research and discovery had an improved second half performance with recovery in optical microscopy systems and like-for-like order growth in Andor Technologies. Underperformance in nanoscience and X-ray technology contributed to the sector's depressed result. We are addressing these challenges through structural changes and business simplification. These self-help actions, combined with positive end markets, support improved financial performance. In service and healthcare, OI Service continues to focus on increasing aftermarket revenue by providing a broader range of support services, while OI Healthcare is making a strategic shift towards a higher proportion of service revenue and improved returns.
Finally, moving to our outlook, our chosen end markets remain attractive and supported by commercial and government investments. Our growing order book, customer application focus, and drive for operational efficiencies provide confidence in the year ahead. We expect to see an improvement in performance on a reported basis after allowing for the impact of an anticipated currency headwind based on current exchange rates. All right. Thank you very much. Enjoy the rest of your day.