12th Jun 2007 07:03
Synergy Healthcare PLC12 June 2007 Tuesday 12 June 2007 SYNERGY HEALTHCARE PLC ("Synergy" or "the Company") Preliminary Results for the Year Ended 1 April 2007 Strong Revenue and Profit Growth Synergy Healthcare plc (AIM: SYR), a leading international provider ofsterilisation and infection control solutions for hospitals and the healthcareindustry, announces its preliminary results for the year ended 1 April 2007. Financial Highlights • Turnover up 31% to £152.6 million (2006: £116.9 million) o Underlying revenue, excluding Isotron, up 20% to £140 million • Operating profit* up 43% to £18.8 million (2006: £13.1 million) • Profit before tax* up 33% to £16.9 million (2006: £12.7 million) • Operating cashflow up 29% to £35.5 million (2006: £27.6 million) • Adjusted earnings per share* up 23% to 29.2p (2006: 23.8p) • Basic earnings per share of 15.4p (2006: 20.40p) o Due to non-recurring costs of £6.0 million relating to contested insurance claim and post-acquisition reorganisation costs • Dividend per share for the full year up 20% to 8.4p (2006: 7.0p) Operational Highlights • Acquisition of Isotron completed in January 2007 and now successfully integrated o Now focused on maximising growth opportunities by expanding Synergy's hospital services in Europe and Asia o Potential of strategy now seen as greater than previously envisaged o Plans in place to raise Isotron's organic growth rates to mid-teen Synergy levels over medium term o New facilities to open in the Netherlands, France and China in the coming twelve months • Strong growth by Patient Care in UK and the Netherlands o New products and services, including AirCleanseTM, AssurePlusTM and ExsudexTM, launched to meet the growing demand for infection control solutions • Surgical division continues to make progress with NHS National Decontamination bids and opportunities in Europe Richard Steeves, Chief Executive of Synergy Healthcare, said: "This has been another year of excellent underlying profit and earnings growthwith a strong performance from all parts of Synergy's business. The acquisitionof Isotron completed during the year has now been successfully integrated andprovides us with a platform to extend our hospital sterilisation services acrossEurope and into Asia. With the international healthcare market continuing toadopt outsourced sterilisation services, we are confident in the outlook for thecoming year and believe that Synergy is well placed to achieve strong futuregrowth." * Before amortisation and non-recurring items For further information: Synergy Healthcare plc 01332 387140Dr Richard Steeves, Chief Executive 07768 020202Ivan Jacques, Finance Director 07714 012514 Brewin Dolphin 0113 241 0130Mark BradyAndrew Emmott Financial Dynamics 020 7831 3113Ben Brewerton CHAIRMAN'S STATEMENT Synergy has had another excellent year, with strong growth in revenues andunderlying earnings together with further progress towards meeting its strategicobjectives. On 1 January 2007 Synergy acquired Isotron plc ("Isotron"), the provider ofoutsourced sterilisation services to medical device manufacturers, for £181million to provide the Group with a platform from which to develop itshealthcare service businesses in the European and Asian markets where Isotronhas an established presence. Financials The Group's sales, including a three month contribution from Isotron, increasedby 31% from £116.9 million to £152.6 million. Sales for the ongoing business,which includes the smaller acquisitions made during the year, increased by 20%to £140 million. The forward order book has increased to £700 million comparedto £600 million last year. Profit before tax, amortisation of intangibles and non-recurring items rose 33%from £12.7 million to £16.9 million whilst operating margins, before interest,tax, amortisation of intangibles and non-recurring items, increased by 1.1percentage points, reflecting an improved performance in the underlying businessas well as a contribution from the Isotron acquisition. Profit before tax reduced by 16% from £10.5 million to £8.8 million, impacted bya £4 million non-recurring charge relating to a contested insurance claimfollowing a fire at the linen management facility in Dunstable, andacquisition-related re-organisation costs of £2 million. Based on profit before amortisation of intangibles and non-recurring items,underlying earnings per share were 29.2p, up 23% from 23.8p last year. Basicearnings per share were 15.4p, down 24% from 20.4p last year, due to thenon-recurring charges. As a result of this positive performance, the Board is recommending that thefinal dividend be increased to 5.6p per share, making a total annual dividend of8.4p per share, an increase of 20%. If approved, the final dividend will bepaid on 3 August 2007 to shareholders on the register at 6 July 2007. Operational Overview All of the Group's businesses continue to perform well. The UK market had achallenging year as the National Health Service ("NHS") cut back on the numberof patients treated as part of a plan to balance budgets. Against this backdropthe UK met expectations with a sales increase of 35%, 26% excluding thecontribution of Isotron. Sales in the Netherlands were strong on the back ofnew Surgical Support operations in Amsterdam, increased organic growth and twosmall bolt-on acquisitions. Isotron - (Commercial division) The integration of Isotron has gone well and from an organisational perspectiveis now complete. Around £1 million of annual cost synergies have beenidentified and Paul Santing, who was the European Regional Director for Isotron,has now taken over as Managing Director of the newly created Commercialdivision. Further work is required to harmonise the software systems, whichshould be completed by the end of the summer. The primary reason for acquiring Isotron was to use its international presenceto expand Synergy's hospital services business across Europe and into Asia. Thecombined management team is working to develop a strategy to maximise thesegrowth synergies. We now believe that the potential of this strategy is greaterthan we envisaged at the time of the acquisition. Development activities forEurope will be based in the Netherlands and we recently announced that our Asiandevelopment activities will be based in a new office in Singapore. Plans are progressing to lift the organic growth rates in the Isotron businessesfrom the high single digit to the mid-teen level, closer to the organic growthrates historically enjoyed by the core Synergy business. This will requiresignificant investment in new facilities and three are planned in theNetherlands, France and China. The new EtO plant in Venlo (Netherlands) remainson schedule to start commercial operations in Autumn 2007, the new gamma plantin Marcoule (France) remains on course to open in Spring 2008 and a newsterilisation "super centre" will open in Suzhou (China) in the summer of 2008. Patient Care division During the last quarter of the year several new services and technologies werelaunched in the Patient Care division. The AirCleanseTM air disinfection systemwas launched in January and has seen early success in the acute hospitalenvironment where new isolation wards are being created. Recently AssurePlusTM,using ByotrolTM technology, has been launched along with a new four hour MRSApatient screening service which can help acute hospitals comply with newDepartment of Health guidelines on infection control. All of these developmentsreflect Synergy's commitment to expanding its infection control services overthe coming years. Surgical division The Surgical business has continued to win new acute and primary caresterilisation services in the UK. Work on National Decontamination bidscontinues with four large bids due to reach a conclusion over the coming months.At the same time we are making good progress in the Netherlands where weexpect to announce shortly further progress towards opening a second hospitalsterilisation facility, and we have an active dialogue with another fourhospitals. We are developing a strategy to expand our hospital sterilisationservices into other parts of the world with the help of Isotron, and we expectto see further progress in Europe and China in the coming year. Disposals Following the acquisition of Isotron and the increased emphasis on internationalexpansion, the Managed Equipment Services business, with sales of £3.3m, wassold on 2 April 2007 to Findel plc's healthcare division for a cashconsideration of up to £1.4m. Outlook With the integration of Isotron complete, management is now focused on improvingthe organic growth rate of the acquired businesses to bring them closer to thegrowth rates enjoyed by Synergy. Isotron's international presence will allow us to extend the economic modelsdeveloped by Synergy in the UK and the Netherlands across Europe and into Asia,creating unprecedented opportunities for continued organic growth and sustainedeconomic performance. These new developments will take up to 24 months to comeon line setting the business up for stronger organic growth from 2009. The international healthcare market continues to adopt outsourced sterilisationservices. This combined with our development of new outsourced services,construction of three new facilities, and record order book, gives the Boardconfidence that the business will continue to enjoy further success in thecoming year. CHIEF EXECUTIVE'S REVIEW Market Overview The global market for healthcare is growing fast driven by changes indemographic trends and in the case of Asia increased wealth and access toservices. In most countries there is a Government sponsored initiative toimprove the quality of care whilst at the same time improving cost efficiency.These competing demands increase the drive to outsourcing where economies ofscale with technology developments and operating costs can lead to improvedquality and cost effectiveness. Across the European market, healthcare providers are seeking value for money andaffordable solutions from their commercial partners. At the same time contractsare becoming larger in size, long-term partnerships with service providers areseen as important and the level of risk management being transferred is alsogrowing. Against this background, it is important for healthcare providers toselect commercial partners that are experienced and financially strong. Synergyis uniquely placed as a service provider with a demonstrable track record ofmanaging large, complex outsourcing programmes together with the financialstrength to meet these challenges. The Group's strategy is set for each division and is summarised below. Theoperations of each of those divisions are managed on a regional basis. Patient Care The Patient Care division was formed last year as part of a strategy to widenthe range of services provided to help hospitals and extended care facilitiesimprove the patient environment and decrease risk. The range of servicesincludes linen management, continence care, infection control and wound care.In addition the business operates a hospital logistics service in Scotland. JMJLaboratories, which provides pathology and toxicology services, was incorporatedinto the Patient Care division following the Isotron acquisition to support theinfection control strategy and to provide support to JMJ as it looks to widenits pathology services to the NHS. Sales of £107.7 million were up 22% withgood performances from all parts of the business. Patient Care's primarymarkets are the UK and Europe. In February the UK Patient Care division suffered a fire at its linen managementfacility in Dunstable resulting in its temporary closure. The fire did not haveany adverse impact on operations, services to customers were not disrupted andthe division has continued to win new contracts. Surgical The Surgical division primarily provides hospital sterilisation services forreusable medical and surgical equipment utilised in operating theatres. Thebusiness also provides sterilisation services to other departments in an acutehospital environment as well as services to primary care facilities such ascommunity hospitals, podiatry clinics, GP practices and dentists. In additionthe division has recently extended its service in the Netherlands intoprocessing flexible endoscopes. Sales of £29.7 million were up 11%, held backby difficult market conditions in the UK. The division's sales were derivedfrom the UK and Europe. Commercial The Commercial division was formed following the acquisition of Isotron. Thedivision primarily provides sterilisation services for the medical deviceindustry but also provides services to other market sectors. The businessemploys three main technologies: gamma irradiation, beta irradiation andethylene oxide sterilisation. The business operates from the UK, Europe, Asiaand South Africa. Geographical Review United Kingdom The UK performed well despite difficult market conditions, benefiting from anumber of hospital service contract wins during the year, improved marginswithin Patient Care and three months contribution from Isotron. Sales of £91.5million were up 35% with operating profits (before amortisation of intangiblesand non-recurring items) increasing by 59% to £9.5 million. Patient Care Linen management services performed well in the year with strong sales growth of14% with the benefit of a number of new contracts. Margins improved with apricing environment that reflected the increased costs borne in the previousyear with higher wage, utility and commodity prices. Continence sales, which are provided as part of a linen service or alternativelyas a home delivery service, reduced but margin improved during the year due tothe rationalisation of loss making contracts inherited from the Shilohacquisition and through investments in automation. Reduced sales in this areawere more than offset by the growth in the infection control and wound carebusinesses, as described below. Additionally, patient hygiene services are being extended to Europe though ourlinen management operations in the Netherlands and through export sales to theUSA. During the year the division made significant investments in its infectioncontrol products and services and grew by 25%. The business is building uponits strong position in infection control products such as wipes and protectiveclothing towards a more holistic service helping hospitals reduce healthcareacquired infections. In November 2006 the division acquired exclusivehealthcare licences for air decontamination technology branded by Synergy asAirCleanseTM, and ByotrolTM patented biocidal compounds branded as AssureTM andAssurePlusTM. Recently the division also launched a patient screening servicefor detecting MRSA infections before admission to hospital. AirCleanseTM is an air decontamination product using patented technology thatprevents ozone, the active biocide, from escaping the air handling chamber. Thesystem was launched in January 2007 in acute hospitals in the UK and in recentmonths a number of hospitals have decided to use the technology to createisolation wards for managing MRSA and C Difficile outbreaks. There is a growingbody of scientific literature identifying the risk of airborne infections and weexpect to see increased interest in this product over the coming years. ByotrolTM is a patented molecular carrier of biocides that creates a synergisteffect from putting multiple biocides together as well as creating a residualeffect over several days. Both of these effects improve the efficacy of thebiocidal action. A test in a clinical environment at the Glasgow RoyalInfirmary last year showed that the use of a ByotrolTM based product reducedMRSA infections by half compared to a matched control ward. In April, Synergylaunched AssurePlusTM, a range of products including wipes and hand cleansingproducts, required to help manage hospital environments. A large privateoperator in care homes has recently signed a contract with Synergy to provideAssureTM products recognising that it is one of only a few products on themarket that is effective against C Difficile spores, against which commonly usedalcohol gels have no effect. JMJ Laboratories, which provides a range of pathology and toxicology services,performed well. The business recently launched an MRSA patient screeningservice following guidance from the Department of Health for NHS hospitals toadopt screening of patients to help manage healthcare acquired infections. JMJoffers a rapid screening service, providing results within four hours. Thebusiness is now marketing its services to the NHS and private healthcareproviders. In line with the strategy to develop wound care services, an exclusive licenseto provide the ExsudexTM wound care technology was established in the UKrecently. The service has been very successful following its launch in March2007 and the division expects to launch similar services in Germany and Francein the near future. The fledgling wound care business grew by over 40% duringthe year. Surgical Despite NHS funding pressures, Surgical performed largely to plan following thesuccessful start of the new sterilisation facility in East London and a numberof primary care, Independent Treatment Centres ("ITCs") and acute hospitalcontract wins. Collectively these lifted sales by 11%. The business continues to bid for hospital clusters tendered under the NationalDecontamination scheme. The Manchester scheme, which reached financial closeduring the year, is expected to come on line in November. Central Lancashireand North Sefton, where Synergy has been selected as preferred bidder, isexpected to reach financial close shortly. Synergy's proposal for the Kentservice was not successful as a result of a lower cost bidder. A number offurther bids remain open with two significant projects due to select a preferredbidder around July. The market remains competitive with a small number of aggressive, butinexperienced competitors. Sterilisation services interface very closely withthe clinical environment where extremely high service and quality standards aredemanded. As the market leader Synergy has invested heavily in technology thatenables it to meet these exacting standards providing value to its customers butat the same time managing the operational risks. By contrast we are aware thatnew entrants to the market have encountered difficulties in meeting the requiredservice standards. We continue to believe that there are significant barriers toentry and that over the coming year the UK market will consolidate with a smallnumber of quality European competitors. In the new financial year there has been an uplift in activity driven by arequirement for UK healthcare providers to meet European standards. TheHealthcare Commission will audit both NHS and private healthcare providers thisyear to assess progress towards meeting the standard, and this has increased thenumber of outsourced services. In addition underlying patient volumes havebegun to increase as Synergy's customers work towards meeting the 18 weekwaiting list by adding extra operating sessions. Commercial The Isotron businesses now making up the Commercial division enjoyed asuccessful year in the UK with sales up 12%. The business continues to see asteady increase in demand from the medical device and other industrial sectors.All of the UK facilities are either at or nearing their capacity for new work.To address the capacity constraints we are investing in new software systems toimprove production planning and increase capacity utilisation of the existingfacilities. Rest of Europe Patient Care LTS, our Dutch linen management business, enjoyed a very successful year withsales up 13%, including contributions from two small bolt-on acquisitions. Afurther acquisition completed shortly after the end of the year. During theyear the business has worked towards implementing the Patient Care strategy withthe introduction of the patient hygiene programme. The three acquisitions were all in the Netherlands and increased our marketshare of extended care facilities in that market. These acquisitions have beenintegrated well benefiting from the cost synergies of the larger business.Increasingly the business is looking outside of the Dutch borders to continueits growth and development. Infection control and wound care products are largely sold through selecteddistributors in a small number of European countries. Patient Care willincrease its investment in Europe over the coming year as it launches theAirCleanseTM, AssurePlusTM and ExsudexTM technologies. Surgical The new sterilisation service at the Academic Medical Centre ("AMC") inAmsterdam started well bringing improved service standards, cost efficienciesand lower post operative infection rates for the customer. The service willshortly be extended to include the decontamination of flexible endoscopes. As a result of the successful start of the service the Dutch market has becomeincreasingly aware of the benefits of outsourcing sterilisation services.Synergy has been engaged in discussions with a number of potential customers andexpects to announce shortly further progress towards opening a secondsterilisation facility. A European development board has been created from across the Synergy group toconsider a strategy for extending hospital sterilisation services to other partsof the continent. It remains Synergy's objective to extend its hospitalsterilisation leadership throughout Europe. Commercial Isotron's services enjoyed a successful year with sales up 11% on alike-for-like basis. The business operates from Ireland, the Netherlands,France and Germany. As in the UK many of the European facilities are operatingat or near capacity and efforts will therefore be focused on improving capacityutilisation from existing investments. In addition the business has decided tobuild new facilities to support continued growth: • In the Netherlands, a new sterilisation super centre is in the final stages of development in Venlo. Initially the facility will provide ethylene oxide sterilisation for the medical device market with a plan to extend the services to include gamma and beta technologies. • In France, a new gamma facility at the French Atomic Energy Authority's site in Marcoule has been given outline planning permission. Formal planning permission is expected imminently enabling the facility to be constructed and open in the spring of 2008. The new facility will bring much needed capacity to our French operations and improve our competitive position at the same time. The Commercial division in Europe and the UK is increasing the number of valueadded services it offers as part of an outcome-based strategy. The businesstoday operates a very successful logistics service, for example coordinating thesupply chain from the manufacturer through our sterilisation services andonwards to the final market in Europe. In addition the business is increasinglyfocusing its attention on developing its R&D capabilities working alongside ourcustomers to make best use of our technologies. Asia and South Africa In both Asia and South Africa, Synergy operates commercial sterilisationservices for the medical device and other industrial markets. During the yearcapacity in Thailand was increased with the introduction of a second gammainstallation providing much needed capacity. Synergy recently announced a major investment in China where it will build asterilisation super centre in Suzhou. The new 33,000 m2 facility will providegamma and ethylene oxide sterilisation services, as well as logistics and labservices to global medical device manufacturers. The facility is expected tobegin services in the spring/summer of 2008 and is likely to be followed withfurther new facilities in the country. To enable the development of Synergy's wider services, particularly hospitalsterilisation and infection control services, a new development office will beestablished in Singapore. From this new office, development projects will becoordinated for all of the three main divisions of Synergy. One of the early developments is expected to be an investment in hospitalsterilisation services in Beijing, China following several discussions with theMinistry of Health ("MOH"). The MOH is in the process of issuing new regulatoryguidelines that mirror European standards and they are keen to see hospitalsterilisation services improved. Synergy will commit up to £5m to create a newsterilisation super centre to provide services to hospitals in Beijing. FINANCIAL REVIEW Sales Synergy has enjoyed another year of strong growth in all areas of its business.Headline sales growth is 31%, which includes a contribution to sales by Isotronof £12.6 million. Excluding Isotron, the growth would have been 20%. The Isotron transaction became unconditional in all material respects on 1January 2007 and therefore the accounts reflect three months of Isotron salesequal to £12.6 million. Margins and operating profit The gross margin (before non-recurring items) at 33% is up 1.8 percentage pointson last year. This partly reflects the higher margin of Isotron and alsoreflects the progress made by Patient Care (which includes the former Shilohbusinesses) to improve margins by reducing its cost base and adding value-addedproducts and services. Healthtex, the UK linen business which forms part ofPatient Care, has also been helped by another year of strong organic growth,allowing the business to take advantage of economies of scale and improvedproductivity. Last year margins were diluted by the acquisition of Shiloh, which had been aloss making business suffering from a weak competitive position and poormanagement. It is pleasing that the gross and net margins have improved thisyear in the former Shiloh businesses especially Patient Care where they havealmost doubled, with a net margin at the end of the year of almost 10%. Excluding the non-recurring items, amortisation of intangibles and share schemecharges, operating profit increased by 45% to £19.7 million, and the operatingmargin increased by 1.3 percentage points. Isotron contributed £3.0 million at anet margin of 24%, which represents an increase in Isotron's operating profit of9% versus the same period last year. The non-recurring costs relating to the fire in Dunstable, totalling just under£4 million, mainly relate to the write-off of assets and the rectification coststhat will be required to bring the damaged assets back into production. Whilstthe insurance company has sought to reject the insurance claim, Synergy and itsadvisors are pursuing the claim through the legal process. Accounting guidancerequires that such a claim cannot be recognised until virtually certain.Therefore there is no recognition of any potential income from the insurancealthough a claim has been made and the Company is optimistic about its prospectsof recovering this loss. The claim includes increased costs of working, whichare being mitigated, but cannot be quantified until operations at Dunstableresume. The remainder of the non-recurring items, totalling £2 million, relateto the costs associated with the integration of Isotron and the relatedrestructuring, which has now been completed. As a result operating profits underIFRS reduced from £11.0 million in 2006 to £10.7 million. Earnings per share The growth in basic earnings per share and diluted earnings per share, afteradjusting for amortisation of intangibles and non-recurring items, was 23% and21% respectively, continuing the track record of previous years which has seenearnings per share increase at or above this level. After adding back sharecharges to the adjusted earnings per share number, the increase was 25%. Beforeany adjustments, basic and diluted earnings per share were reduced by 24% and26% respectively, mainly due to the non-recurring items described above. Taxation The taxation charge for the year of £2.5 million represents a headline rate of28% compared with the standard UK rate of 30%. This is affected by the impact ofthe rate in overseas territories which, except for France and Germany, aregenerally below UK rates. The Isotron companies also benefit from tax incentivesand holidays in Asia. The overall effective rate of taxation compared withprofit before goodwill amortisation and non-recurring items is 29.1% versus30.5% last year. The main overseas tax rate that affects the business is the Netherlands, whichhas been reducing the standard rate of corporate tax in recent years from 29.6%in calendar year 2006 to 25.5% in calendar year 2007. 37% of Synergy's revenueswere derived from the Netherlands in the year ended 1 April 2007. Therefore taking account of an increased profit contribution from Isotron andthe lowering of the Dutch tax rate, the effective rate of tax for the Groupshould reduce further next year. Deferred tax mainly relates to accelerated capital allowances and therecognition of intangible assets. Operating cash flow The Group has a track record of generating a strong operating cash flow and thiscontinued in the year with cash flow from operations totalling £35.5 million,representing 189% of operating profit before amortisation of intangibles andnon-recurring charges. Working capital improved by £0.5 million mainly due to reduced stocks and tradecreditors rising in line with the growth of the business and increasing creditordays from 37 to 44 days. Most of the stock reductions came in the area ofPatient Care, as the management team further reduced product lines and kept bothraw material and finished goods stocks under tight control. Trade and other debtors reduced slightly with an average of 46 trade debtor daysacross the Group compared with 41 last year. This partly reflects the slightlydifferent profile of the Isotron debtors and also the fact that a small numberof NHS customers delayed payments outside of normal terms. Acquisitions and divestments On 26 October the Board announced its offer to acquire Isotron plc. Havingsecured a recommendation from the Isotron board in December, the acquisitionbecame unconditional in all material respects from 1 January 2007, whenacceptances and irrevocable undertakings to sell had been received fromshareholders owning more than 50% of Isotron's share capital. From that dateIsotron's results have been consolidated as part of the Synergy Group. The total cost of acquisition was £181 million, including professional fees andother related costs. Additionally, at the date of acquisition, Isotron had netdebt of £16.3 million and therefore the total investment in Isotron was £197million. The offer made was 1.20702 shares in Synergy for every share in Isotronwith a full cash alternative of 800 pence per share. We were pleased that the majority of Isotron shareholders elected to take sharesand remain as investors in the enlarged Group. The final split of theconsideration was approximately 60:40 in favour of shares, which facilitated acomfortable level of gearing, whilst increasing the investor base withinSynergy. The number of new shares issued as a result of the transaction was 15.9 millionand by the end of the year the number of issued shares in Synergy had increasedto 53.1 million. Additionally, the Group made three much smaller acquisitions all paid in cash.In the Netherlands LTS acquired two linen businesses, one primarily for theacute and nursing home sector, and the other mainly processing patient clothingfor residents in long-term care. The consideration for these two acquisitionstotalled £4.4 million and both of them were earnings enhancing. These fit wellwith the existing LTS business and the integration process has been handled wellby the local team. Patient Care in the UK acquired the business of Reed Shilling, which had beenoperating as a sole trader supplying a range of infection control products tothe NHS and the wider healthcare sector, which has allowed Synergy to gainfurther scale in this growing market. The total price paid was £3.7 million,including deferred consideration of £0.3 million and transaction costs. At the half year, Synergy sold the cotton-wool making business which traded asMcDonald and Taylor for £150,000 plus deferred consideration of up to £100,000depending on performance. This business had become part of the Group through theShiloh acquisition. It had been making a small profit and did not fit with theGroup's healthcare strategy. Shortly after the end of the year, Synergy Managed Equipment Services Limitedwas sold to Nottingham Rehab Limited, a subsidiary of Findel plc for aconsideration of up to £1.4 million. This business made an operating profit of£0.3 million during the year on sales of £3.3 million. The business was arelatively small part of the Group and operated in a small UK specific marketand therefore was not scaleable. As a result the business was non-core. Capital expenditure and investments The Group has continued to invest in the business over the year, with capitalexpenditures totalling £20.8 million, a 6% increase on last year, reflectingmanagement's commitment to keep its infrastructure updated and maintain costleadership. The business requires a level of maintenance capital expenditure, particularlyin relation to the linen-rental businesses in UK and the Netherlands. Similarly,Isotron requires cobalt to be purchased each year to maintain its sterilisationcapacity. Maintenance capital expenditure totalled £12.8 million in the year. The main elements of investment expenditure were: • upgrading and expanding linen processing plants in the UK and the Netherlands, reflecting the strong growth in those businesses • selective investments in manufacturing equipment in the Patient Care division, which has increased capacity in infection control and wound care, and facilitated increases in productivity • investment in the surgical facility taken over at the AMC hospital in Amsterdam, which has helped improve the service and capacity of the unit • investment in the new surgical decontamination facility in South Manchester which will be developed to deliver the North West Sterile Services' Partnership project, which will be completed and open for service from November 2007. This will comprise a total investment of £5 million, of which £0.4 million had been spent by the end of the year • investment in a new gamma sterilisation line in Thailand, which was opened in January and a new ethylene oxide facility at Venlo in the Netherlands Synergy has a large number of investment opportunities available to it that willenable the Group to maintain its strong organic growth rates, which over thelast few years have averaged 14-15%. We remain committed to relocating the activities of the Patient Care division inNorth West England from their current outdated premises to a modernmanufacturing and distribution unit. However, a suitable alternative locationhas yet to be identified and the position remains under review. We also have a number of Surgical decontamination bids in the UK and Netherlandsthat are at various stages and, if successful, the Group will be investing infurther decontamination facilities to provide the service. Under the UK'sNational Decontamination programme, these would be new builds in virtually allcases. Additionally the board is committed to lifting the Isotron growth rates througha programme of investment across Europe and Asia, particularly China. Therefore a high level of capital investment spending is expected over the nextcouple of years. Treasury and deployment of capital The Isotron acquisition has enabled the Group to take on a comfortable level ofgearing with net debt at the year-end totalling £97.7 million, including netdebt within Isotron totalling £19 million. This meant that overall gearingacross the Group was 52%. The Group had cash on hand of £4.8 million, with gross debt totalling £102.4million, of which £69.4 million related directly to the element of cash paid toIsotron's shareholders and £20.9 million relates to the gross debt of Isotrontaken over. The Group entered into a bank facility with the Bank of Scotland in October 2006for £220 million to enable a full cash alternative to be offered toshareholders. This facility has since been reduced to £130 million reflectingthe level of Isotron shareholders electing for cash and the medium term fundingrequirements of the Group. This includes a term debt facility of £100 millionrepayable over five years and a £30 million revolving credit facility. Theagreement requires the Isotron debt to be re-financed within facility. Bank ofScotland will syndicate the debt once all the refinancing has been completed. The facility allows for permitted borrowings with other banks outside of themain agreement, including leasing lines, to finance new projects and localworking capital needs and the Group has bank funding available from a number ofother banks totalling over £40 million. The Group has a comfortable level of available debt facilities to fund itsforeseeable working capital and capital expenditure needs. The debt is heldmainly in sterling and euros. Since the year end the Group has swapped a significant amount of the sterlingdebt into euros as a hedge against its euro-denominated investments. At thedate of this report over 40% of the debt is at a fixed rate of interest. Foreign currency risk Most overseas business is transacted in local currency. The results of overseasoperations are translated into Sterling using the average exchange rate for theyear. We estimate the impact of exchange rate movements compared with last yearto be £759,000 reduction on turnover and £155,000 reduction on operating profitbefore amortisation of intangibles, non-recurring items and share charges. The Group does not enter into any speculative foreign currency trades and anyforward purchases are to hedge against known future transactions. Systems and reporting procedures The application of technology to improve productivity and provide betterinformation for decision-making remains a vital part of the business. During the year the Group completed a project to centralise a number ofactivities, particularly in relation to the Surgical division, including stockcontrol and purchasing. This project will be completed during the early part ofthe new financial year. In the new financial year, the Group intends to roll-out a new consolidation andreporting system, which will enable the Group to more effectively analyse andconsolidate financial information across the Group. On a monthly basis, the Board is provided with a comprehensive pack of financialand non-financial reports, including analysis of sales, gross margins and netmargins; balance sheet and cash flow analysis; financial forecasts; operationalreports which include key performance indicators regarding productivity, volumeof activity, employee costs and sickness levels. Additionally, any serious riskevents are reported; and forward looking information regarding the winning ofnew sales orders and contracts is also reported. Pensions The Group has two main final salary schemes in the UK and one in theNetherlands, which was acquired as part of Isotron. In the UK the Group isrequired to maintain final salary pension arrangements for employees who havetransferred from the NHS, which has to be acceptable to the Government's ActuaryDepartment. Otherwise the UK schemes are closed to new entrants. Isotron'spension scheme in the Netherlands includes defined benefit and definedcontribution elements. The increase in the deficit at the end of the year to £3.0 million from £1.9million last year mainly relates to the inclusion of the Isotron scheme in theNetherlands which has a year-end deficit of £0.8 million under IAS 19. IFRS The Group is reporting its full year results for the first time under adoptedIFRS. The Group is quoted on AIM and was therefore under no obligation totransition until the year ending 31 March 2008. However, given the Group's sizeand international profile, enhanced by the Isotron acquisition, it wasconsidered beneficial to shareholders and other readers of the accounts to makethe switch early. The main accounting changes and their impact on the accounts are as follows: • Goodwill and intangible assets: The Group has identified intangible assets acquired on all its acquisitions since July 2004, including customer related intangibles and brand names, which total £48.7 million. These are amortised over their economic life which varies between five and fifteen years. The amortisation charge for such intangibles totalled £2.1 million during the year. • Share-based payments (IFRS 2): the Group has a policy of awarding share options to its senior managers and has a long-term incentive scheme for senior executives which, subject to conditions being fulfilled, will make awards of shares. Under IFRS 2 an annual charge has been made to operating profits for the fair value of these awards. The charge for the year was £0.9 million and this is anticipated to rise significantly in the next two years as the Group continues to grow. • Deferred tax (IAS 12): full provision for deferred tax has been made for revalued properties, most notably in the Netherlands linen business and totals £1 million. A deferred tax liability has also been provided for the intangible assets explained above and is released to the profit and loss account over the life of those assets. • Pensions (IAS 19): IAS 19 has been adopted in the same manner as FRS 17 and therefore there is no real difference in the accounting except that the retirement benefit obligation is now disclosed before the impact of deferred tax. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENTFor the year ended 1 April 2007 2007 Before Amortisation and amortisation and non-recurring non-recurring items items (note 3) Total Notes £'000 £'000 £'000Continuing operations Revenue 152,563 - 152,563 Cost of sales (102,280) (3,975) (106,255) ______ ______ ______ Gross profit 50,283 (3,975) 46,308 Administrative expensesAdministration expenses excludingamortisation of intangibles and sharescheme charges (30,599) (1,990) (32,589)Amortisation of intangibles - (2,104) (2,104)Share scheme charges (913) - (913) ______ ______ ______ (31,512) (4,094) (35,606) Operating profit 18,771 (8,069) 10,702Finance income 4 1,906 - 1,906Finance costs 5 (3,792) - (3,792) ______ ______ ______Net finance costs (1,886) - (1,886) ______ ______ ______ Profit before tax 16,885 (8,069) 8,816 Income tax 6 (4,891) 2,419 (2,472) ______ ______ ______ Profit for the year 11,994 (5,650) 6,344 ______ ______ ______ Attributable to:Equity holders of the parent 11,977 (5,650) 6,327Minority interest 17 - 17 ______ ______ ______ 11,994 (5,650) 6,344 ______ ______ ______ Earnings per shareFrom continuing and total operationsBasic 8 15.43pDiluted 8 15.01p (CONTINUED FROM TABLE ABOVE) 2006 Before Amortisation and amortisation and non-recurring non-recurring items items (note 3) Total Notes £'000 £'000 £'000Continuing operations Revenue 116,862 - 116,862 Cost of sales (80,438) - (80,438) ______ ______ ______ Gross profit 36,424 - 36,424 Administrative expensesAdministration expenses excludingamortisation of intangibles and sharescheme charges (22,831) (998) (23,829)Amortisation of intangibles - (1,107) (1,107)Share scheme charges (450) - (450) ______ ______ ______ (23,281) (2,105) (25,386) Operating profit 13,143 (2,105) 11,038Finance income 4 1,099 - 1,099Finance costs 5 (1,590) - (1,590) ______ ______ ______Net finance costs (491) - (491) ______ ______ ______ Profit before tax 12,652 (2,105) 10,547 Income tax 6 (3,859) 847 (3,012) ______ ______ ______ Profit for the year 8,793 (1,258) 7,535 ______ ______ ______ Attributable to:Equity holders of the parent 8,793 (1,258) 7,535Minority interest - - - ______ ______ ______ 8,793 (1,258) 7,535 ______ ______ ______ Earnings per shareFrom continuing and total operationsBasic 8 20.40pDiluted 8 20.19p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 1 April 2007 2007 2006 £'000 £'000 Exchange differences on translation of foreign operations 2,327 349Cash flow hedges - derivative instrument effective portion 57 -Actuarial (losses)/gains on defined benefit pension plans (412) 658Less: provision for deferred tax 123 (205) ______ ______ Net income recognised directly in equity 2,095 802 Profit for the year 6,344 7,535 ______ ______ Total recognised income and expense for the year 8,439 8,337 Attributable to:Equity holders of the parent 8,419 8,337Minority interest 20 - ______ ______ 8,439 8,337 ______ ______ CONSOLIDATED BALANCE SHEETAT 1 APRIL 2007 Note 2007 2006 £'000 £'000Non current assetsGoodwill 146,966 30,660Other intangible assets 46,086 14,307Property, plant and equipment 129,788 53,413Other receivables - 278 ______ ______Total non-current assets 322,840 98,658 ______ ______ Current assetsInventories 4,948 4,733Trade and other receivables 32,558 20,218Income tax receivable 37 -Available for sale investments 126 -Cash and cash equivalents 4,790 11,051 ______ ______Total current assets 42,459 36,002 ______ ______ Total assets 365,299 134,660 ______ ______ Capital and reserves attributable to the company's equityholdersShare capital 9 332 231Share premium account 9 59,479 59,172Translation reserves 9 3,422 1,098Cash flow hedging reserve 9 57 -Merger reserve 9 106,757 430Retained earnings 9 19,913 15,050 ______ ______ Equity attributable to equity holders of the parent 189,960 75,981Minority interest 9 251 - ______ ______Total equity 190,211 75,981 ______ ______ Current liabilitiesBank overdraft 41 -Interest bearing loans and borrowings 4,042 2,194Trade and other payables 44,325 30,128Current tax liabilities 2,145 2,810Deferred government grant - 115 ______ ______Total current liabilities 50,553 35,247 ______ ______ Non-current liabilitiesInterests bearing loans and borrowings 98,359 11,600Retirement benefit obligations 2,999 1,870Deferred tax liabilities 16,060 6,058Provisions 6,913 3,703Deferred Government grant 204 201 ______ ______Total non-current liabilities 124,535 23,432 ______ ______Total liabilities 175,088 58,679 ______ ______Total equity and liabilities 365,299 134,660 ______ ______ CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 1 APRIL 2007 2007 2006 Note £'000 £'000 Cash generated from operations 11 35,486 27,608Interest paid (1,927) (1,201)Income tax paid (6,075) (1,249) ______ ______Net cash generated from operating activities 27,484 25,158 ______ ______Cash flows from investing activitiesAcquisition of subsidiaries - net of cash (78,281) (13,886)Disposal of subsidiary - net of cash 150 -Purchases of property, plant and equipment (PPE) (21,032) (18,484)Purchase of intangible assets (1,258) -Proceeds from sale of PPE 3 933Insurance proceeds on disposal - 2,108Purchases of investments (126) -Government grant received - 337Interest received 731 679 ______ ______Net cash used in investing activities (99,813) (28,313) ______ ______Cash flows from financing activitiesDividends paid (2,890) (2,326)Proceeds from borrowings 68,053 -Repayment of borrowings - (1,219)New hire purchase loans 2,200 4,000Repayment of obligations under hire purchase loans (1,402) (882)Dividend paid to minority shareholders (66) -Proceeds from issue of shares 308 259 ______ ______Net cash generated by financing activities 66,203 (168) ______ ______Net decrease in cash and bank overdrafts (6,126) (3,323)Cash and bank overdrafts at beginning of period 11,051 14,100Exchange differences (176) 274 ______ ______Cash and bank overdrafts end of period 4,749 11,051 ______ ______Net cash and cash equivalents comprises Cash at bank 4,790 11,051 Overdraft (41) - ______ ______ 4,749 11,051 ______ ______ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION The 2007 financial statements are the first financial statements prepared by theGroup in accordance with accounting standards as adopted for use in the EU andas such take account of the requirements and options in IFRS1 (First-timeAdoption of International Financial Reporting Standards) as they relate to the2006 comparatives included therein. No adjustment would be required if thecompany wished to assert compliance with IFRS's as issued by the IASB. 2. SUMMARY SEGMENTAL INFORMATION For management purposes the Group is organised into three geographicaldivisions, the UK, Rest of Europe and Asia & South Africa. These divisions arethe basis on which the Group reports its primary segment information. Segment information about these divisions is presented below: Rest of Europe Asia and South Eliminations & Africa unallocated UK items Consolidated 2007 2007 2007 2007 2007 £'000 £'000 £'000 £'000 £'000 Revenue 91,484 60,102 1,396 (419) 152,563 ResultSegment result before amortisation and non-recurringitems 9,517 9,751 416 - 19,684Amortisation (738) (1,289) (77) - (2,104)Share scheme charges (738) (171) (4) - (913)Non recurring items (5,965) - - - (5,965) ______ ______ ______ ______ ______Segment result afteramortisation, share schemecharges and non-recurring items 2,076 8,291 335 - 10,702 ______ ______ ______ ______Net finance costs (1,886) ______Profit before tax 8,816Income tax (2,472) ______Profit after tax 6,344 ______ Asia and South UK Rest of Europe Africa Eliminations Consolidated 2007 2007 2007 2007 2007 £'000 £'000 £'000 £'000 £'000Other informationCapital additions 7,423 13,589 1,042 - 22,054Depreciation, impairment andamortisation (7,592) (10,180) (473) - (18,245) Balance SheetAssetsSegment assets 158,708 193,149 39,626 (26,184) 365,299 ______ LiabilitiesSegment liabilities (140,105) (43,033) (2,074) 26,184 (159,028)Unallocated deferred tax liability (16,060) ______Consolidated total liabilities (175,088) ______ Primary Segment Information (continued) Eliminations & unallocated UK Rest of Europe items Consolidated 2006 2006 2006 2006 £'000 £'000 £'000 £'000 Revenue 67,677 49,185 - 116,862 ResultSegment result before amortisation and non-recurring items 5,991 7,266 336 13,593Amortisation (196) (911) - (1,107)Share scheme charges (419) (31) - (450)Non recurring items - - (998) (998)Segment result after amortisation, share schemecharges and non-recurring items 5,376 6,324 (662) 11,038Net finance costs (491)Profit before tax 10,547Income tax (3,012)Profit after tax 7,535 UK Rest of Europe Consolidated 2006 2006 2006Other information £'000 £'000 £'000Capital additions 8,132 11,414 19,546Depreciation, impairment and amortisation (5,795) (8,422) (14,217) Balance SheetAssetsSegment assets 64,897 69,763 134,660 LiabilitiesSegment liabilities (26,569) (26,052) (52,621)Unallocated deferred tax liability (6,058)Consolidated total liabilities (58,679) The Group's secondary segment information relates to its business segments -Patient Care, Surgical, Managed Equipment Services and Commercial. The followingtable provides an analysis of the Group's sales by business segment,irrespective of the origin of the goods/ services: Sales revenue by business segment 2007 2006 £'000 £'000 Patient Care 107,710 88,352Surgical 29,687 26,773Managed Equipment Services 3,338 1,737Commercial 11,828 - ______ ______ 152,563 116,862 ______ ______ Carrying amount of Segment Additions to Property, Plant, Assets Equipment and Intangible Assets 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Patient Care 112,957 113,217 12,482 18,905Surgical 24,694 20,847 2,615 641Managed Equipment Services 723 596 40 -Commercial 226,925 - 6,917 - ______ ______ ______ ______ 365,299 134,660 22,054 19,546 ______ ______ ______ ______ 3 NON-RECURRING ITEMS Non-recurring items of £5,965,000 (2006: £998,000) have been charged in arrivingat operating profit. £1,990,000 relates to costs of reorganisation andrationalisation following the acquisition of Isotron plc and its subsidiaries.£2,841,000 relates to the write-off of tangible fixed assets, £472,000 relatesto the impairment of fixed assets and £662,000 relates to provisions forclean-up costs and increased costs of working following the fire at theDunstable linen management facility. 4 FINANCE INCOME 2007 2006 £'000 £'000 Interest on bank deposits 1,156 673Expected return on defined benefit pension plan assets 750 426 ______ ______ 1,906 1,099 ______ ______ 5 FINANCE COSTS 2007 2006 £'000 £'000 On bank loans and overdrafts 2,274 903Finance charges in respect of hire purchase loans 288 141Other interest payable and similar charges 510 126Interest on defined benefit plan obligations 720 420 ______ ______ 3,792 1,590 ______ ______ 6 TAX The taxation charge represents: 2007 2006 £'000 £'000Current taxation:UK tax 1,625 632Overseas tax 2,665 2,509Adjustment in respect of prior years 177 - ______ ______ Total current tax 4,467 3,141Deferred taxation:Origination and reversal oftemporary differences (2,118) (129)Adjustment in respect of prior years 123 - ______ ______ (1,995) (129) ______ ______Total tax in income statement 2,472 3,012 ______ ______ UK corporation tax is calculated at 30% (2006: 30%) of the estimated assessableprofit for the year. Taxation for overseas operations is calculated at the localprevailing rates. The charge for the year can be reconciled to the profit per the income statementas follows: 2007 2006 £'000 £'000 Profit before tax 8,816 10,547 ______ ______ Tax at the UK corporation tax rate of 30% (2006: 30%) 2,645 3,163 Effect of:Expenses not deductible for tax purposes 45 (120)Different tax rates on overseas earnings (379) -Use of unrecognised deferred tax assets brought forward (157) - Adjustment in respect of prior years 300 -Other 18 (31) ______ ______ Tax charge for year 2,472 3,012 ______ ______ 7 DIVIDENDS 2007 2006 £'000 £'000Amounts recognised as distributions to equity holders in the period:Final dividend for the year ended 2 April 2006 of 5.0p (2005 - 4.3p) per 1,852 1,587share Interim dividend for the year ended 1 April 2007 of 2.8p (2006 - 2.0p) per 1,038 739share ______ ______ 2,890 2,326 ______ ______Proposed final dividend for the year ended 1 April 2007 of 5.6p (2006 - 2,972 1,8505.0p) per share ______ ______ The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. 8 EARNINGS PER SHARE 2007 2006 £'000 £'000EarningsEarnings for the purposes of basic earnings per share being net profit attributableto equity holders of the parent 6,327 7,535 ______ ______ Number of shares Shares Shares '000 '000 Weighted average number of ordinary shares for the purposes of basicearnings per share 40,999 36,929Effect of dilutive potential ordinary shares:Share options 1,145 397 ______ ______Weighted average number of ordinary shares for the purposes of dilutedearnings per share 42,144 37,326 ______ ______ Earnings per ordinary shareBasic 15.43p 20.40p ______ ______ Diluted 15.01p 20.19p ______ ______ 2007 2006 £'000 £'000Adjusted earnings per shareOperating profit 10,702 11,038Intangible asset amortisation 2,104 1,107Non recurring items 5,965 998 ______ ______ Adjusted operating profit 18,771 13,143Net finance costs (1,886) (491) Adjusted profit on ordinary activities before taxation 16,885 12,652Taxation on adjusted profit on ordinary activities (4,891) (3,859)Minority interest (17) - ______ ______Adjusted net profit before amortisation and non-recurring items attributableto equity holders of the parent 11,977 8,793Net impact of share scheme charges 639 313 ______ ______Adjusted net profit before amortisation, non-recurring items and sharescheme charges 12,616 9,106 ______ ______ Adjusted basic earnings per share before amortisation and non-recurring items 29.21p 23.81p ______ ______Adjusted diluted earnings per share before amortisation and non-recurring items 28.42p 23.56p ______ ______ Adjusted basic earnings per share before amortisation, non-recurring itemsand share scheme charges 30.77p 24.66p ______ ______Adjusted diluted earnings per share before amortisation, non-recurring itemsand share scheme charges 29.93p 24.40p 9 RESERVES RECONCILIATION Share premium Merger Other reserves Share capital Reserve £'000 £'000 £'000 £'000 Balance at 4 April 2005 230 58,914 430 749Total recognised income and expense - - - 349Dividends paid - - - -Issue of shares 1 258 - -Share based payments - - - - ______ ______ ______ ______ Balance at 3 April 2006 231 59,172 430 1,098Total recognised income and expense - - 2,381 -Dividends paid - - - -Issue of shares 101 307 106,327 -Share based payments - - - -Amount arising on acquisition - - - - ______ ______ ______ ______Balance at 1 April 2007 332 59,479 106,757 3,479 (CONTINUED FROM TABLE ABOVE) Total attributable to Retained equity holders Minority earnings of the parent interest Total equity £'000 £'000 £'000 £'000 Balance at 4 April 2005 8,821 69,144 - 69,144Total recognised income and expense 7,988 8,337 - 8,337Dividends paid (2,326) (2,326) - (2,326)Issue of shares - 259 - 259Share based payments 567 567 - 567 ______ ______ ______ ______ Balance at 3 April 2006 15,050 75,981 - 75,981Total recognised income and expense 6,038 8,419 20 8,439Dividends paid (2,890) (2,890) (66) (2,956)Issue of shares - 106,735 - 106,735Share based payments 1,715 1,715 - 1,715Amount arising on acquisition - - 297 297 ______ ______ ______ ______Balance at 1 April 2007 19,913 189,960 251 190,211 ______ ______ ______ ______ The other reserves comprise the cash flow hedging reserve and the translationreserve reflecting the exchange differences on the translation of foreignoperations. The balance on the translation reserve was £3,422,000 (2006:£1,098,000; 2005: £749,000). The cash flow hedging reserve of £57,000 (2006 &2005: £nil) represents the fair value gains and losses on hedging arrangementsthat are effective and qualify for cash flow hedge accounting. The share based payment credit of £1,715,000 includes a credit of £809,000(2006: £117,000) relating to deferred taxation. 10 ACQUISITION OF SUBSIDIARIES Acquisition of Isotron plc A recommended share offer of 1.20702 Synergy shares was made on 6 December 2006to Isotron plc's shareholders, which valued Isotron's share capital atapproximately £181 million. An alternative cash offer of £8 per share was alsomade. The Offer became unconditional on 1 January 2007 when the number ofshareholder acceptances passed the level of 50%. Accordingly, Isotron's resultshave been consolidated in Synergy's results from that date. The transaction hasbeen accounted for by the purchase method of accounting. By 9 January 2007 the company had received acceptances for more than 90% ofvalue of the Isotron shares to which the Offer related. Shortly thereafter,Synergy exercised its right under Section 429 of the Companies Act 1985 tocompulsorily acquire the balance of shares. The fair value of the acquisition undertaken in the year was as follows: Book value Adjustments Fair value £'000 £'000 £'000 Tangible fixed assets 72,740 (1,577) 71,163Intangible assets 353 30,415 30,768Stock 792 (50) 742Debtors 9,391 (230) 9,161Trade and other payables (6,716) (722) (7,438)Cash 1,711 - 1,711Short and long term borrowings (17,569) - (17,569)Finance leases (404) - (404)Deferred taxation (4,019) (8,158) (12,177)Other long term liabilities (42) (195) (237)Provisions for liabilities and charges (1,890) (950) (2,840)Pension provision (IAS 19) (915) - (915)Minority interest (297) - (297) ______ ______ ______ 53,135 18,533 71,668 ______ ______ ______ Goodwill 109,279 ______Total consideration 180,947 ______ Satisfied by:Issue of shares 106,427Cash 69,463Directly attributable costs 5,057 ______ 180,947 ______Analysis of net outflow of cash in respect ofacquisition: Cash consideration 69,463Acquisition costs 2,821Cash acquired with business (1,711) ______ 70,573 ______ The above fair value adjustments are stated net of tax, where appropriate, at aneffective tax rate of 30%. The most significant adjustments relate to the recognition of trade name andcustomer relationship intangible assets acquired with the business. Thevaluation of the intangible assets was made by an independent valuation expert.Other adjustments were required following an assessment of the fair value of theacquired Group's identified assets and liabilities. Intangible assets of £353,000 acquired with the business relate to purchasedgoodwill. The goodwill arising on the acquisition of Isotron plc is attributable to theanticipated expansion into Isotron's geographical locations, the assembledworkforce, its expertise in sterilisation and the synergies that can begenerated following the integration of Isotron plc into the Group. Isotron plc contributed £12.6 million revenue and £3.0 million (beforeamortisation of intangibles and non-recurring items) to the Group's profitbefore tax for the period between the date of acquisition and the balance sheetdate. Acquisition of Reed Shilling On 13 November 2006 the Group acquired the name, trade and certain businessassets of an incorporated business trading as Reed Shilling Healthcare ("ReedShilling") for a cash consideration of £3.7 million (including acquisitioncosts). This business manufactures and supplies infection control products andservices for use in a healthcare environment. The fair value of the acquisition undertaken in the year was as follows: Change in Book value Adjustments accounting policy Fair value £'000 £'000 £'000 £'000 Tangible fixed assets 332 - (100) 232Intangible assets - 597 - 597Stock 243 - - 243Trade and other receivables 505 - - 505Trade and other payables (756) - - (756)Deferred taxation - (179) - (179) ______ ______ ______ ______ 324 418 (100) 642 ______ ______ ______ Goodwill 3,043 ______Total consideration 3,685 ______ Satisfied by:Cash 3,300Deferred consideration 322Directly attributable costs 63 ______ 3,685 ______ Analysis of net outflow of cash inrespect of acquisition: Cash consideration 3,300Acquisition costs 63 ______ 3,363 ______ The above fair value adjustments are stated net of tax, where appropriate, at aneffective tax rate of 30% and relate primarily to the recognition of intangibleassets on acquisition. The goodwill arising on the acquisition of Reed Shilling is attributable to theassembled workforce, distribution channels and the synergies that can begenerated following the integration of Reed Shilling into the Patient Caredivision. Reed Shilling contributed £1.6 million revenue and £0.2 million (beforeamortisation and non-recurring items) to the Group's profit before tax for theperiod between the date of acquisition and the balance sheet date. Acquisition of Aurora On 1 July 2006, the Group acquired the entire issued share capital of WassrijAurora Utrecht B.V. ("Aurora") for a cash consideration of £0.6 million (€0.8million). Aurora provides linen management services mainly for patients inlong-term care, in the Utrecht area of the Netherlands. The net assets acquiredand the related consideration were as follows: Book value Adjustments Fair value £'000 £'000 £'000 Tangible fixed assets 200 (60) 140Intangible assets - 175 175Stock 5 - 5Trade and other receivables 139 - 139Trade and other payables (339) 17 (322)Net cash 9 - 9Deferred taxation - (99) (99) ______ ______ ______ 14 33 47 ______ ______ ______ Goodwill 506 ______Total consideration 553 ______ Satisfied by:Cash 553Directly attributable costs - ______ 553 ______Analysis of net outflow of cash in respect of acquisition: Cash consideration 553Cash acquired with business (9) ______ 544 ______ The above fair value adjustments are stated net of tax, where appropriate, at aneffective tax rate of 28% and relate primarily to the recognition of intangibleassets on acquisition. The goodwill arising on the acquisition of Aurora is attributable to theassembled workforce and the synergies that can be generated following theintegration of Aurora into the Group's Dutch patient clothing operations. Aurora contributed £0.7 million revenue (€1.1 million) and £0.05 million (€0.08million) (before amortisation and non-recurring items) to the Group's profitbefore tax for the period between the date of acquisition and the balance sheetdate. Acquisition of Salland With effect from 1 October 2006, the Group acquired the entire issued sharecapital of Vullings Onroerend Goed-en-Exploitatiemaatschappij Raelte B.V. ("Salland") for a cash consideration of £3.8 million (€5.6 million). Sallandprovides linen management services in the east of the Netherlands to acutehospitals and nursing homes. The net assets acquired and the relatedconsideration were as follows: Change in accounting Book value Adjustments policy Fair value £'000 £'000 £'000 £'000 Tangible fixed assets 3,633 (152) (97) 3,384Intangible assets - 1,152 - 1,152Stock 46 - - 46Trade and other receivables 411 - - 411Trade and other payables (778) (133) - (911)Long term bank borrowings (1,920) - 29 (1,891)Deferred taxation (149) (280) - (429) ______ ______ ______ ______ 1,243 587 (68) 1,762 ______ ______ ______ Goodwill 2,039 ______Total consideration 3,801 ______ Satisfied by:Cash 3,801Directly attributable costs - ______ 3,801 ______Analysis of net outflow of cash in respect ofacquisition:Cash consideration 3,801 ______ The above fair value adjustments are stated net of tax, where appropriate, at aneffective tax rate of 28% and relate primarily to the recognition of intangibleassets on acquisition. The goodwill arising on the acquisition of Salland is attributable to theassembled workforce and the synergies that can be generated following theintegration Salland into the Group's Dutch healthcare linen managementbusiness. Salland contributed £2.0 million revenue (€3.0 million) and £0.1 million (€0.15million) (before amortisation and non-recurring items) to the Group's profitbefore tax for the period between the date of acquisition and the balance sheetdate. If all the acquisitions described above had been completed on the first day ofthe financial year, Group revenues for the period would have been £195 millionand Group profit attributable to the equity holders of the parent would havebeen £14.8 million. Disposal of subsidiary On the 8 September 2006 the Group disposed of the assets and liabilities of itssubsidiary Macdonald & Taylor Limited (M&T) for a total consideration of£250,000 including deferred consideration of up to £100,000. The net assets ofM&T at the date of disposal were £250,000. 11 NOTES TO THE CASH FLOW STATEMENT 2007 2006 £'000 £'000 Cash generated from operationsProfit for the period 6,344 7,535Adjustments for:- depreciation and impairments 16,141 12,547- amortisation of intangible assets 2,104 1,107- equity settled share based payments 906 450- loss/(profit) on sale of tangible fixed assets 2,325 (340)- finance income (1,906) (673)- finance costs 3,792 1,164- income tax expense 2,472 3,012Changes in working capital:- inventories 822 1,288- trade and other receivables 82 (444)- trade, other payables and provisions 2,404 1,962 ______ ______Cash generated from operations 35,486 27,608 ______ ______ 12 The financial information set out in this preliminary announcementdoes not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The financial information has been extracted from the Group's2007 statutory financial statements upon which the auditors' opinion isunqualified and does not include any statement under section 237 of theCompanies Act 1985. 13 The annual report and financial statements for the year ended 1April 2007 will be posted to shareholders on 4 July 2007 and will be deliveredto the Registrar of Companies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SYR.L