Half Yearly Report

Tuesday 4 November 2014

SYNERGY HEALTH PLC

('Synergy', the 'Company' or the 'Group')

INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 SEPTEMBER 2014

Synergy Health plc (LSE: SYR), a leading global provider of specialist outsourced support services to health-related markets, announces its interim results for the six months ended 28 September 2014.

Financial Highlights

· Reported revenue growth of 2.8%. Underlying revenue growth, excluding currency effects, of 7.4%

· Adjusted operating profit1 margin increased by 80 basis points to 16.0%

· Operating cash flow of £44.8 million, in line with last year, due to increased working capital to support new contracts

· As a result of the proposed combination with STERIS Corporation, the Board is not recommending an interim dividend

· Acquisition of Bioster S.p.A. contributed to net debt increasing to £172.8 million from £147.6 million at the year end

Operational Highlights

· Completed acquisition of Bioster S.p.A. for €29 million net of cash and debt, expanding our presence in Applied Sterilisation Technologies ('AST') into Southern and Eastern European markets

· Strong underlying growth in AST of 17.4% (9.9% organic) supporting focus on key global accounts

· Agreement signed with IBA for X-ray technology to be deployed in the United States

· Completed acquisition of IDtek Track-and-Trace SA ('IDtek') to enhance our competitive position by introducing market leading solutions using RFID

· Underlying growth of 5.9% in Hospital Sterilisation with the bid book growing by 5% to £120 million per annum

· Successful commencement of new US Sterilmed contract at the end of July 2014

· Forward order book has risen by £0.1 billion to £1.6 billion, reflecting contract wins and renewals

Outlook

· Our strategy to prioritise resources to key global accounts is lifting organic growth in AST

· Acceleration of customer transition to X-ray technology underpinned by US FDA approval of first Class III medical device

· Growth in HSS bid book underlines progress with outsourcing proposition

· Proposed combination with STERIS Corporation will support Synergy's growth initiative in HSS, especially within the US, while the enlarged AST business will deliver global services to our shared customer base

Richard Steeves, Chief Executive, said:

"The strong first half financial performance demonstrates our success in driving value-enhancing healthcare services for our customer base. The proposed combination with STERIS will further drive uptake of our services delivering value for current and new customers."

1 Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share shown above exclude amortisation of acquired intangibles and non-recurring items and acquisition-related costs, as shown in the Group's consolidated income statement and the accompanying notes. Operating cash flow excludes non-recurring items and acquisition-related costs.

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CHIEF EXECUTIVE'S REVIEW

Results

It is my pleasure to report another strong period of growth in line with our objectives. Reported revenue (after currency effects) was up 2.8% to £197.5 million (2013: £192.1 million), with revenue at constant currency up 7.4% over the same period last year.

Progress towards the full implementation of our strategies for our Applied Sterilisation Technologies ('AST') and Hospital Sterilisation Services ('HSS') businesses has been in line with expectations. AST is generating strong results globally via enhanced organic growth rates and network and technology expansions to meet the needs of our key global customer partnerships. HSS continues to prepare for more significant growth as we convey our refined value proposition to existing and potential customers and expand our bid book further. We anticipate increased conversions from preferred bidder to full contracts during the second half of the year when we will see the full impact of our expanded business development teams and revised leadership structure. Across the Group our forward order book has increased by £0.1 billion to £1.6 billion, reflecting contract wins and renewals.

Adjusted operating margins showed a marked increase of 80 basis points over the previous half year, reflecting a high level of cost control, a change in revenue mix and the impact of productivity initiatives. As a result, adjusted operating profit was up 7.9% to £31.6m (2013: £29.2m).

In May 2014 we completed the acquisition of the Bioster Group in Italy for €29.0 million, net of cash and debt. The acquisition extends Synergy's AST network into Italy, Slovakia and the Czech Republic. Synergy has the most comprehensive network of AST facilities outside of the United States and this acquisition further strengthens the service that can be offered to our key global medical device customers. I am also pleased to announce the completion of the acquisition of IDtek in Switzerland for £3.3 million. IDtek provides RFID-led solutions to a wide range of industries including energy and automotive sectors, and it is our intention to utilise its expertise and intellectual property to develop new services for the healthcare market. The IDtek team will also help to extend our capabilities in our core HSS services where we are deploying novel RFID instrument tracking solutions that will improve patient safety and reduce operating costs for our customers. I would like to extend a warm welcome to all of the employees that have joined Synergy as part of these two transactions.

Adjusted diluted EPS was up 9.7% to 36.12 pence (2013: 32.94 pence), held back somewhat by currency headwinds. Basic undiluted EPS was up 7.8% to 31.02 pence (2013: 28.78 pence).

Net debt at the end of the period increased from the year end by 17.1% to £172.8m, predominantly due to the acquisition of Bioster and increased net capital investment in our facilities of £31.9 million (2013: £21.3 million). Operating cash flow was £44.8m (2013: £45.2m), broadly in line with last year as a result of a working capital increase attributed to new contracts starting in the period.

Recommended Combination

On 13 October STERIS Corporation ('STERIS') announced a recommended combination of Synergy and STERIS valuing Synergy at approximately £1.2 billion. The combination of Synergy with STERIS has considerable strategic merit for both organisations, creating a leading outsourced sterilisation network to further improve the service we provide to our customers, and potentially accelerating the growth of both companies, leveraging STERIS's capabilities and infrastructure to make Synergy's products and services more successful, and Synergy's customer base and markets to cross-sell existing and new STERIS products.

Dividend

As a result of the proposed combination with STERIS, the Board has decided not to pay an interim dividend.

Business Line Review

Synergy is a leading provider of specialist outsourced support services to health-related marketsand an international leader in the provision of outsourced sterilisation services for hospitals and medical device manufacturers. We operate in three distinct service lines:

Applied Sterilisation Technologies ('AST'), providing gamma, electron beam, X-ray and ethylene oxide contract sterilisation services to medical device manufacturers and related industries, as well as a range of technical laboratory services;

Hospital Sterilisation Services ('HSS'), providing a range of outsourced sterilisation services to hospital systems in the US, UK, Italy, Netherlands and China, reusable sterile gowns and drapes in the US ('RSS'), and an international products business based in the UK; and

Healthcare Solutions ('HCS'), providing healthcare linen rental services in the UK and Netherlands.

Applied Sterilisation Technologies

Reported revenue for the period was up 11.0% to £67.0m (2013: £60.4m) and up 17.4% on a constant currency basis. Volume growth has been a key driver of stronger operating margins of 34.7%, filling new capacity added in the year and recovering volumes in Costa Rica. The margin improvements led to a 13.9% increase in adjusted operating profit to £23.3m (2013: £20.4m).

Over the past six months we have taken further steps to improve the quality of our business. The acquisition of the Bioster Group has extended our network into Italy and Eastern Europe, extending our coverage for our customers and creating additional capacity for growth. Our new gamma facility in Marcoule, France is filling capacity as planned. In the Americas, we have seen significant organic growth of close to 16%. We are doubling capacity in Saxonburg, adding a new facility in San Francisco and investing in plant and process innovation along with new productivity initiatives to increase the throughput of our existing electron beams.

We are pleased to announce that we have signed an agreement with IBA for X-ray technology to be deployed in the United States, supplemented by our in-house knowledge and expertise. Our X-ray services are now the fastest growing of our AST technologies, driven by the higher levels of quality, favourable economics and faster processing speed, which helps our customers to reduce their working inventories. Most recently the first FDA approval of a Class III medical device was achieved by one of our major global customer partners, paving the way for further conversions.

Following the acquisition of Nordion by Sterigenics, we are looking to diversify our cobalt supply and reduce our dependency on a single source. We are working closely with an alternative supplier of cobalt who will be able to support our growth and importantly, meet our disposal requirements for spent sources in the future.

AST's strategy continues to focus resources on selected key global customer partnerships. We work with these customers to deliver a superior, value-added service that is differentiated from our competitors, and as a result these customers have contributed a disproportionate share of the 17.4% underlying growth. Incremental month-on-month figures are continuing to grow, giving us confidence that we will achieve our organic growth targets of 10 to 12% for the current financial year. The global bid book now sits at £32 million per annum, an increase of 25%, reflecting the investment we have made in our business development team, and giving us confidence for future growth.

Hospital Sterilisation Services

Reported revenue grew by 1.9% to £83.0 million (2013: £81.4 million) and was up 5.9% at constant currency. Growth has been driven by the start of new contracts, partially offset by exiting from £6 million of non-core, low margin legacy single use product distribution business in the US. Operating profit grew by 4.3% to £8.7 million (2013: £8.3 million), with underlying growth of 6.8%.

During the first half we won £6 million per annum of new HSS contracts and a further £2 million per annum is at preferred bidder stage. In September, we launched a new initiative in the UK to reduce operating costs with the use of our latest SynergyTrak software and RFID technology. The initial reception has been positive, generating new leads and opportunities worth more than £10 million per annum at this early stage.

In the US we have recently won several new Accuset contracts, with particular customer enthusiasm about the potential to access RFID technologies in processing surgical instruments and trays. Interest in HSS outsourcing remains strong with our bid book now at approximately £90 million per annum, reinforcing our confidence in this business. Our US business development team is managing a large number of outsourcing proposals which we are confident will convert to full outsourcing contracts in due course. The North Shore project remains on track for full service delivery to commence in the second quarter of 2015, and continues to generate interest from healthcare providers in the New York area and across the US. The efficiencies, cost-savings and risk reduction offered through our work with major partners, such as North Shore and Sterilmed, is resonating with the key decision makers in large US health organisations.

On 27 July 2014 we began a multi-year contract with Sterilmed (part of Johnson & Johnson), reprocessing single use medical devices. Synergy is responsible for receiving, production and distribution of products. The contract has been implemented well, albeit two months later than originally envisaged. Synergy's processing expertise in this market segment has been well received by the customer.

In our UK-based healthcare products business, revenue and operating profits are both ahead of target. International sales are growing well, particularly in the Middle East. We are capitalising on the coalescing of our products business with the rest of our HSS business, starting with the integration of RFID into our surgical products. The use of RFID tracking devices on consumables in the operating room will contribute to improved patient safety.

HCS

Reported revenue for the linen business was £47.5 million (2013: £50.4 million). Underlying revenue for the period was down just 2.2% reflecting increasing stability in the market and a strong performance from the UK linen business. During the period, the linen order book saw a net increase of £24.5 million.

Adjusted operating profit was flat at £3.5m (2013: £3.5m), following further investments in cost control and automation.

Synergy Team

I would like to take this opportunity to recognise the great work that has been done by the Synergy team over the years and to thank everyone for their contribution to the creation of a world leader in sterilisation and infection control services. The hard work and dedication of our employees has not only created a great business but has also had a significant impact on improving patient safety and reducing risks for our healthcare customers around the world.

Outlook

Since the initial listing of Synergy in the summer of 2001 the business has produced compound revenue growth of 20% per annum and adjusted EPS growth of 15% per annum. The strategies that we have set out for the continued development of our AST and HSS businesses in a global market create the opportunity for Synergy to grow further and to extend a track record of which we are very proud. The proposed combination with STERIS will create an even stronger combined group that will help to support the implementation of our strategy as well as create new opportunities. We enter a new chapter in Synergy's evolution, where our access to the US sales teams and infrastructure of STERIS will help to accelerate the HSS outsourcing market, and the combined comprehensive, global AST network will be of significant value to our shared customer base.

I am personally very excited about the opportunities at hand, and look forward to seeing the continued growth of the combined organisation.FINANCE DIRECTOR'S REPORT

Overview

Our business delivered a strong first half financial performance with reported revenue growing 2.8% to £197.5 million (2013: £192.1 million) and adjusted operating profit increasing by 7.9% to £31.6 million (2013: £29.2 million). Excluding currency effects, underlying revenue growth was 7.4%. Adjusted operating margin increased by 80 basis points to 16.0% with a rise in margin across all service lines. Adjusted basic earnings per share grew by 8.6% to 36.42p.

Working capital to support the start-up of new contracts resulted in cash generated from operations (before non-recurring itemsand acquisition-related costs) being broadly flat at £44.8 million (2013: £45.2 million), reflecting a conversion of adjusted EBITDA into operating cash flow of 86%. The acquisition of Bioster S.p.A. contributed to the increase in net debt to £172.8 million, from £147.6 million at the year end, representing a net debt to EBITDA ratio of 1.77 times, comfortably within our banking covenant of 3.25 times.

Adjusted operating returns on average capital employed, on an annualised basis, increased to 12.4% from 12.0% at the year end.

1. Income statement

The Group's income statement is summarised below.

Table 1: Income statement

1 The effective tax rate is calculated excluding amortisation on acquired intangibles and non-recurring itemsand acquisition-related costs

1.1 Revenue

Reported revenue of £197.5 million (2013: £192.1 million) increased by 2.8%, representing an underlying growth rate, excluding currency effects, of 7.4% over the previous year. The movement in currency exchange rates over the last year (notably the weakening of the Euro and US Dollar against Sterling) has reduced reported revenue by £8.8 million.

Underlying revenue, excluding currency effects, grew by 17.4% in AST (9.9% organic) and 5.9% in HSS, with a decline of 2.2% in Healthcare Solutions.

1.2 Gross profit

Gross profit increased by 13.1% to £87.0 million (2013: £76.9 million), representing a gross profit margin of 44.0%, (2013: 40.0%).

1.3 Adjusted operating profit

Adjusted operating profit increased by 7.9% to £31.6 million (2013: £29.2 million), representing an adjusted operating profit margin of 16.0%, an increase of 80 basis points, with margin improvement across all service lines. Currency effects have reduced reported adjusted operating profit by £1.6 million.

1.4 Non-recurring items and acquisition-related costs

Non-recurring items and acquisition-related costs during the period totalled a net credit of £0.6 million. We have incurred acquisition-related costs of £0.3 million, which are more than offset by a credit of £0.9 million relating to a cessation gain on a component of the Group's retirement benefit obligations.

1.5 Net finance costs

The Group's net finance costs totalled £3.2 million (2013: £3.2 million), remaining flat over the period.

1.6 Adjusted profit before tax

Adjusted profit before tax was £28.4 million (2013: £26.0 million), an increase of 8.9%. The adjusted profit before tax margin was 14.4% (2013: 13.6%), rising in line with the operating margin.

1.7 Amortisation of acquired intangibles

Amortisation of acquired intangibles relates to intangible assets identified on acquisitions, being the value of customer relationships and brands.

1.8 Tax

The tax charge (excluding amortisation of acquired intangibles) of £6.8 million (2013: £6.2 million) represents an effective tax rate of 23.9% (2013: 24.0%), broadly in line with last year's rate. 

1.9 Earnings per share

Adjusted basic earnings per share and adjusted diluted earnings per share, after adjusting for amortisation of intangibles and non-recurring items and acquisition-related costs, increased by 8.6% and 9.7% respectively. After amortisation of acquired intangibles, and non-recurring items and acquisition-related costs, basic and diluted earnings per share increased by 7.8% and 8.8% respectively.

Year on year, undiluted weighted average shares have increased from 58.6 million to 58.9 million.

As a result of the recommended combination between Synergy Health plc and STERIS Corporation, as announced on 13 October 2014, the Synergy Board is not recommending an interim dividend. In the event that the combination does not proceed the Board will revisit this recommendation.

3. Cash flow

The Group's cash flow is summarised below.

Table 2: Cash flow

Note: Adjusted EBITDA is earnings before interest, tax, depreciation, intangible amortisation and other non-cash items

3.1 Cash generated from operations

Cash generated from operations (before non-recurring items and acquisition-related costs) in the year was broadly flat at £44.8 million (2013: £45.2 million), reflecting a conversion of EBITDA into operating cash flow of 86% (2013: 88%). Working capital included a £2 million outflow relating to the one-off purchase of stock at the start of the new Sterilmed contract. Excluding this one-off outflow, operating cash flow grew by 3.6% with a conversion of EBITDA into operating cash flow of 90%.

3.2 Interest

Net interest paid was £3.0 million (2013: £2.3 million). The difference from last year is primarily due to timing differences on interest payments.

3.3 Tax

Tax paid was £2.9 million (2013: £5.7 million). The reduction against last year relates to a tax refund in Switzerland following the closure of tax assessments for the years 2012 and 2013.

3.4 Net expenditure on tangible and intangible assets

We analyse capital expenditure between 'maintenance' and 'investment' expenditure. Maintenance capital expenditure is the capital required to replace the existing capital base. Investment capital expenditure enhances the capacity or efficiency of the Group's capital base.

The items of necessary on-going capital expenditure are cobalt-60, the radiation source for AST gamma sterilisation plants, textiles for the linen business, and reusable surgical products. Total maintenance capital expenditure was £13.8 million (2013: £13.7 million), of which £5.6 million related to cobalt-60, £5.9 million to textile linen and £2.3 million to reusable surgical products in the US.

Total investment capital expenditure was £18.1 million (2013: £7.6 million), of which £3.3 million and £11.5 million were spent on HSS and AST facilities respectively. Within AST, we spent £7.0 million on the freehold purchase on our Costa Rica e-beam facility prior to a favourable pricing time period ending. Within AST we incurred expenditure on expanding our Saxonburg facility, upgrading our Lima facility and increasing our installed cobalt base (primarily in Marcoule). Other expenditure relates to investment in plant and machinery across our linen facilities and costs associated with upgrading our global IT infrastructure within outsourced data centres.

4 Net debt and funding

4.1 Net debt

Net debt increased in the period from £147.6 million at the end of March 2014 to £172.8 million. The increase in net debt is primarily a result of the acquisition of Bioster S.p.A. in the period. The movement in the net debt is reconciled below:

Table 3: Movement in net debt

4.2 Funding

The Group has in place a 5 year unsecured multi-currency revolving facilities agreement ('the Agreement'), which was signed on 26 July 2011. The Agreement has been entered into with a group of 7 banks and comprises a Sterling denominated multi-currency facility of £105 million and a Euro denominated multi-currency facility of €130 million.

On 13 September 2012, the Group issued a bilateral private placement note of €20.6 million. The Group at that point also put in place an uncommitted shelf facility with the same lender, allowing it to draw up to $48.5 million over a 2.5 year period. The financial covenants are broadly similar to those in the Agreement.

The remaining shelf facility was utilised during September 2013 when two further notes were issued, one for £10.0 million, and a second note for €25.1 million.

The Group remains comfortably within the financial covenants set out in the Agreement.

The debt is split between Sterling, Euros and US Dollars with the currency mix and level of fixed interest debt within each currency as follows:

Table 4: Composition of gross debt as at 28 September 2014

The Euro denominated debt, which is predominantly held in the UK, is held to hedge the Group's Euro denominated net assets (excluding goodwill and intangibles) of €171.4 million. The US Dollar denominated debt is held as a hedge of the Group's US Dollar denominated net assets (excluding goodwill and intangibles) of $179.0 million. As at 28 September 2014, 36% of the total debt was held at fixed rates of interest.

5 Pensions

The Group operates three final salary schemes in the UK, one in the Netherlands, two in Germany, and one in Switzerland. The Group also operates several defined contribution schemes.

In the UK the Group is required to maintain a final salary pension scheme for employees who have transferred from the NHS, which has to be acceptable to the Government Actuary's Department. With the exception of NHS transferees, the Group's defined benefit schemes are closed to new entrants and future accruals; active members have been transferred to deferred status and invited to join the Group's UK defined contribution scheme.

At 28 September 2014, the net liability arising from our defined benefit scheme obligations was £16.7 million (30 March 2014: £16.9 million) on a pension scheme asset base of £61.3 million.

Table 5: Defined benefit pension schemes

Gavin Hill

Group Finance Director

4 November 2014

Condensed consolidated income statement

For the period ended 28 September 2014

Condensed consolidated income statement

Consolidated statement of comprehensive income

For the period ended 28 September 2014

Consolidated statement of financial position

At 28 September 2014

Consolidated cash flow statement

For the period ended 28 September 2014

Condensed consolidated statement of changes in equity

For the period ended 28 September 2014

The accompanying accounting policies and notes form part of these financial statements.

Notes to the financial statements

1 General information

Synergy Health plc ('the Company') and its subsidiaries (together 'the Group') deliver a range of specialist outsourced services to health-related markets. The Company is registered in England and Wales under company registration number 3355631 and its registered office is Ground Floor Stella, Windmill Hill Business Park, Whitehill Way, Swindon, Wiltshire, SN5 6NX.

These condensed consolidated interim financial statements were approved for issue by the Board of Directors on 4 November 2014.

2 Summary of significant accounting policies

Basis of preparation

These condensed consolidated interim financial statements of the Group are for the six months ended 28 September 2014.

The condensed consolidated interim financial statements have been prepared on the basis of the accounting policies set out in the Group's latest annual financial statements for the period ended 30 March 2014. These accounting policies are drawn up in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) as adopted for use in the European Union.

The information for the period ended 30 March 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditors' report on those accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial statements for the six months to 28 September 2014 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

Going concern

The Directors have reviewed the Group's medium-term forecasts through to November 2015 along with reasonable possible changes in trading performance and foreign currencies, to determine whether the committed banking facilities are sufficient to support the Group's projected liquidity requirements, and whether the forecast earnings are sufficient to meet the covenants associated with the banking facilities.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and have continued to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

Significant accounting policies

The condensed consolidated interim financial statements have been prepared under the historical cost convention except that derivative financial instruments are stated at their fair value. Except as described below, the accounting policies adopted in the preparation of the condensed consolidated interim financial statements are the same as those followed in the preparation of the Group's annual financial statements for the period ended 30 March 2014.

3 Statement of compliance

These condensed consolidated interim financial statements have been prepared and approved by the Directors in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted by the EU (adopted IAS 34) and with the Disclosure and Transparency Rules of the UK Financial Services Authority. These condensed consolidated interim financial statements have not been audited or reviewed by the Group's auditors in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the period ended 30 March 2014.

4 Financial risk management

The primary risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. These risks and the Group's financial risk management objectives and policies are consistent with that disclosed in the consolidated financial statements as at and for the period ended 30 March 2014.

5 Estimates

The preparation of the condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

5 Estimates (continued)

Except as described below, in preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation and uncertainty were the same as those that applied to the consolidated financial statements as at and for the period ended 30 March 2014.

During the 6 months ended 28 September 2014, management reassessed its estimates in respect of actuarial assumptions in relation to the Group's defined benefit pension schemes using professional advice and relevant market benchmark data for discount rates and inflation.

6 Segmental information

The Group is organised into three operating segments: Applied Sterilisation Technologies and Laboratory Services ('AST'), Hospital Sterilisation Services ('HSS'), and Healthcare Solutions. This represents a change from the reportable segments adopted in previous years, following a restructuring of the Group's internal organisation on 1 April 2014. The comparative information disclosed below for previous periods has been restated.

Information on these segments is reported to the chief operating decision maker ('CODM') for the purposes of resource allocation and assessment of performance. The chief operating decision maker has been identified as the Board of Directors. The CODM monitors the performance of the operating segments based on adjusted operating profit, being operating profit excluding the impact of amortisation on acquired intangibles and non-recurring items. Segment information is presented below.

The table below reconciles the total segment profit above, to the Group's operating profit and profit before tax:

6 Segmental information continued

IFRS 8 Operating Segments requires the Group to disclose information about the extent of its reliance on its major customers. The Group has no single customer making up more than 10% of total revenue.

The table below analyses the Group's revenue from external customers, and non-current assets other than financial instruments, investment properties, and deferred taxation, by geography.

7 Non-recurring items and acquisition-related costs

In the period to 28 September 2014, non-recurring items of £594,000 have been credited in arriving at operating profit. This included costs of £285,000 related to acquisition transaction fees and a credit of £932,000 relates to a cessation gain on a component of the Group's retirement benefit obligations.

In the period to 29 September 2013, non-recurring items of £270,000 have been charged in arriving at operating profit, including £160,000 of acquisition transaction costs.

In the year to 30 March 2014, non-recurring items of £3,254,000 were charged in arriving at operating profit. £1,400,000 related to acquisition transaction fees. The most significant component of this cost was £600,000 (net of the reimbursement of costs under an exclusivity agreement) relating to an ultimately unsuccessful acquisition. Within the Netherlands, we incurred restructuring costs of £1,800,000 on the closure of two laundries and two wash centres, along with the conversion of a laundry to a wash centre.

8 Tax

The Group's effective tax rate for the period on earnings before non-recurring items and the amortisation of acquired intangibles was 23.9% (2013: 24.0%) and this should be sustainable over the full year.

UK corporation tax is calculated at 21% (2013: 23%) of the estimated assessable profit for the year. Taxation for overseas operations is calculated at the local prevailing rates.

A reduction in the UK corporation tax rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2012, and further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Company's future current tax charge accordingly.

9 Dividends

The Directors have decided not to propose an interim dividend for the year ending 29 March 2015.

10 Earnings per share

11 Provisions

The cobalt disposal provision recognises a potential decommissioning liability in respect of certain types of cobalt used in some of the Group's AST sites. It is anticipated that the provision will be utilised as the cobalt to which the provision relates reaches the end of its useful economic life. Other provisions include provisions against vacated properties and other restructuring costs.

12 Property, plant and equipment

During the period ended 28 September 2014, the Group purchased assets with a total cost of approximately £32.9 million (29 September 2013: £17.8 million).

13(a) Acquisition of subsidiary - Bioster

On 15 May 2014, the Group acquired the entire issued share capital of Bioster S.p.A. and associated companies ('Bioster').

Bioster Group operates ethylene oxide and electron beam sterilisation facilities in Italy, Slovakia, and the Czech Republic, providing sterilisation services to the medical device, pharmaceutical and packaging industries. In addition, it operates a hospital sterilisation services ('HSS') business in Italy.

The provisional fair value of the net assets acquired and the related consideration were as follows:

The goodwill arising on the acquisition of the business is attributable to the assembled workforce and the synergies generated following the integration of Bioster into the Group.

In accordance with IFRS 3 (revised) Business Combinations management have made adjustments to the local book values of net assets acquired to arrive at the fair value disclosed above. The most significant of these adjustments include the recognition of intangible assets (customer lists), the recognition of deferred taxation liabilities, and the application of IFRS to the recognition of assets under finance leases and the associated finance lease liabilities.

Total transaction costs of £353,000 were incurred in the acquisition of Bioster Group and were expensed within non-recurring items and acquisition-related costs.

During the period, the Bioster Group contributed £6,524,000 to revenue and £1,134,000 to operating profit.

Summary of cash flows:

13(b) Acquisition of subsidiary - Genon

In the previous financial year, the Group acquired the entire issued share capital of Genon Laboratories Limited ('Genon'), a company incorporated in England and Wales, as part of its strategy to expand the scale of its laboratory services business.

The provisional fair value of the net assets acquired and the related consideration were as follows:

The goodwill arising on the acquisition of the business is attributable to the assembled workforce and the synergies generated following the integration of Genon into the Group.

In accordance with IFRS 3 (revised) (Business combinations), management have made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The most significant of these is the recognition of intangibles assets (customer lists).

Total transaction costs of £46,000 were incurred in the acquisition and were expensed within non-recurring items and acquisition-related costs. During the period, the Genon business contributed £405,000 to revenue and £179,000 to operating profit.

Summary of cash flows:

Summary of deferred consideration

13(c) Acquisition of subsidiary - SH Logistics

As part of the acquisition of Isotron plc and its group in 2007, the Group obtained a 50% interest in a jointly-controlled entity, Synergy Health Logistics B.V. (previously named Isotron Logistics B.V.) ('SH Logistics'), whose principal activity is the provision of logistics consultancy and which is incorporated and operates in the Netherlands. In the previous financial year, the Group purchased the remaining 50% of the issued share capital of SH Logistics from the joint venture partner.

The provisional fair value of the net assets acquired and the related consideration were as follows:

The goodwill arising on the acquisition is attributable to the assembled workforce and the synergies generated following the integration of the remaining 50% of the business into the Group.

Total transaction costs of £18,000 were incurred in the acquisition and were expensed within non-recurring items and acquisition-related costs. During the period, the Group's increased ownership of the SH Logistics business contributed £249,000 to revenue and £58,000 to operating profit.

Summary of cash flows:

Summary of deferred consideration

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

• the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and,

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

This report has been approved by the Board of Directors and signed on its behalf by:

Richard Steeves

Chief Executive

4 November 2014

The condensed consolidated interim financial statements for the six months ended 28 September 2014 will be available on the Company's website on 4 November 2014.

Financial Calendar

Registered office

Synergy Health plc

Ground Floor Stella, Windmill Hill Business Park

Swindon, Wiltshire SN5 6NX

Website: www.synergyhealthplc.com