12th Jun 2007 07:05
Davis Service Group PLC12 June 2007 NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN 12 June 2007 Davis expands in the UK healthcare sector The Davis Service Group plc ("Davis" or the "Group") announces that it hasacquired the sterile medical consumables (''clinical solutions'') anddecontamination businesses of the InHealth Group. - Initial cash consideration and financial liabilities assumed of£43.0 million, with further deferred cash consideration of up to £22.5 milliondependent on future decontamination contract awards - Provides entry to attractive UK clinical solutions anddecontamination markets, each with good growth prospects - Builds on Davis's existing strengths in the UK healthcare market - Potential to deliver attractive financial returns Roger Dye, Chief Executive of Davis, commented: "The acquisition of the sterile medical consumables and decontaminationbusinesses of the InHealth Group builds on our existing strengths in UKhealthcare and provides entry to new sectors with good growth prospects. We aredelighted to welcome these businesses to the Group" This summary should be read in conjunction with the full text of theannouncement. A conference call for Investors and Analysts will take place on 12 June at 08.30BST. To obtain dial-in details please call Ellie Sankey at Financial Dynamicson 020 7269 7291. Enquiries: Davis Service GroupRoger Dye Tel: +44 (0) 20 7259 6663Kevin Quinn Financial Dynamics Tel: +44 (0) 20 7831 3113Richard Mountain Harriet Keen Notes: 1. This statement should not be taken to mean that earnings per share(before any one-off costs or amortisation of intangibles) of Davis willnecessarily exceed historic earnings per share (before any one-off costs oramortisation of intangibles) of Davis and no forecast is intended or implied. 2. Certain statements made in this announcement are forward-lookingstatements. Such statements are based on current expectations and, by theirnature, are subject to a number of risks and uncertainties that could causeactual results and performance to differ materially from any expected futureresults or performance expressed or implied by the forward-looking statement.The information does not assume any responsibility or obligation to updatepublicly or revise any of the forward-looking statements contained herein. NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN 12 June 2007 Davis expands in the UK healthcare sector The Davis Service Group plc ("Davis" or the "Group") announces a major expansionof its UK Healthcare operations with the acquisition of the sterile medicalconsumables (''clinical solutions'') and decontamination businesses of theInHealth Group. The initial cash consideration and financial liabilitiesassumed is £43.0 million, with further deferred cash consideration of up to£22.5 million dependent on future decontamination contract awards. Background on the acquired businesses Davis has acquired the Rocialle and BDF clinical solutions businesses and theIHSS decontamination business of the InHealth Group. Rocialle is a leading UK provider of clinical solutions to the public andprivate healthcare sectors, with more than 28 years experience of managingcustomers' healthcare supply chain and providing cost effective sterile medicalconsumables to both acute and primary care. These include the ''Opera'' brandedcustom procedure trays, dressing packs and single use instruments with a rangeof supplementary products. BDF provides single use theatre drapes and gownsdirect to customers under its own ''Guardian'' brand or as a contractmanufacturer. IHSS decontaminates and reprocesses surgical instruments and distributes a rangeof surgical supplies, procedure packs and single use instruments to healthcareproviders. It has two existing decontamination contracts (Cardiff andWeston-Super-Mare), is preferred bidder for one decontamination contract that ispart of the National Decontamination Programme (''NDP'') and is bidding forseveral other contracts, the result of which is expected to be determined overthe next two to three years. Typically, contracts awarded under the NDP areexpected to have a life of at least 12 years, with the potential for extension,and generate annual revenues of approximately £7 million within three years ofcommencing operations. Each contract will require an upfront investment to buildadditional plant capacity, which typically could amount to approximately £8million but will vary depending on the size and complexity of the contract. Lowdouble digit margins are targeted within three years of commencing operationsand to build over the life of the contract with the opportunities for additionalconsumables sales. In combination with the existing theatrecare business of Sunlight, Davis' UKdivision, which provides reusable textiles to the operating theatre, thesebusinesses are expected to provide a full service offering to the surgicaltheatre market. Furthermore, the decontamination contracts for which IHSS isbidding have the potential to provide Sunlight with a long term contractualstream of revenue. The existing management are expected to remain with theacquired businesses. Relevant markets The UK theatre consumables market addressed by the acquired businesses' currentservice range has a market potential of approximately £275 million annualrevenues and provides a growth opportunity at close to double digits per annumin the short to medium term. The UK decontamination market is estimated to beapproximately £300 million annual revenues, with strong growth prospectsexpected for outsourced providers, as the capacity of the NHS is increased andgreater levels of outsourcing are driven by the NDP. Davis' healthcare business Healthcare is an important part of the operations of the Davis Group, withrevenues in the year ended 31 December 2006 of £75 million and £125 million, inthe UK and Continental European respectively. Sunlight currently serves over150 NHS Trusts in the UK, which includes a strong theatre drape and gown rentalbusiness (Theatrecare) and a ward-based linen rental business (Patientcare). The Directors of Davis believe that the potential of the acquired businesseswill be enhanced by: - the strong relationships that Sunlight already has in the UK withmany NHS Trusts and other healthcare providers; - developing a broader range of services to the UK Healthcare marketalongside Sunlight's existing operations; - delivering the same focus on operational excellence that existswithin Sunlight, thereby improving the existing margins within the acquiredbusinesses; and - the longer-term potential to expand the acquired businesses'activities into Davis' Continental European operations. Expected financial effects The acquisition is expected to be earnings neutral (before any one-off costs andamortisation of intangibles) for the year ending 31 December 2007 and marginallyearnings enhancing (before any one-off costs and amortisation of intangibles) inthe year ending 31 December 2008 (see note 1). It is not expected that any of the decontamination contract awards under theNational Decontamination Programme will generate significant revenues prior to2009. However, the requirement to build the decontamination 'super centres' inadvance of the start up of operations will result in a capital expenditurerequirement in 2008. The extent of this will depend on the number and timing ofsuccessful contract awards under the programme. The Directors expect the returns from the acquisition to reach a satisfactorylevel in the year ending 31 December 2009 (see note 1). The aggregate gross and net assets being acquired, based on financialinformation extracted as at 30 September 2006, were £30.9 million and £17.7million respectively with revenues and operating profit attributable to theseassets in the year then ended of £37.6 million and £0.8 million, respectively.Over the last two years, InHealth Group has invested for growth by increasingits overhead base and has undertaken a restructuring of the business. This hasresulted in the low operating margin for the year ended 30 September 2006. Principal terms of the acquisition agreement The transaction is being effected by way of an acquisition of the relevantholding and operating companies of the InHealth Group. Davis will pay an initialcash consideration of £34.9 million and assume financial liabilities of £8.1million. Deferred cash consideration will potentially be payable of up to £22.5million, dependent on future decontamination contract awards, where the acquiredbusiness achieves preferred bidder status prior to 31 December 2008. Theconsideration is being funded out of the existing debt resources of the Group.The acquisition agreement contains warranties and indemnities customary in atransaction of this nature and size. Other Davis expects to issue its next trading update on Monday 2 July 2007 Davis has been advised on this transaction by Dresdner Kleinwort Enquiries: Davis Service Group Tel: +44 (0) 20 7259 6663Roger DyeKevin Quinn Financial Dynamics Tel: +44 (0) 20 7831 3113Richard MountainHarriet Keen Notes: 1. This statement should not be taken to mean that earnings per share(before any one-off costs and amortisation of intangibles) of Davis willnecessarily exceed historic earnings per share (before any one-off costs andamortisation of intangibles) of Davis and no forecast is intended or implied. 2. Certain statements made in this announcement are forward-lookingstatements. Such statements are based on current expectations and, by theirnature, are subject to a number of risks and uncertainties that could causeactual results and performance to differ materially from any expected futureresults or performance expressed or implied by the forward-looking statement.The information does not assume any responsibility or obligation to updatepublicly or revise any of the forward-looking statements contained herein. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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