Half Yearly Report

Tuesday 12 November 2013

SYNERGY HEALTH PLC

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED 29 SEPTEMBER 2013

Synergy Health plc (LSE: SYR), a leading global provider of specialist outsourced support services to health-related markets in the UK & Ireland, Europe & Middle East, Asia & Africa and the Americas, announces its interim results for the six months ended 29 September 2013.

Financial Highlights

· Strong reported growth of 12.0%, increasing revenue to £192.1 million

· Underlying revenue growth, excluding currency effects, increased by 9.0%

· Adjusted operating profit1 increased by 9.8% to £29.2 million

· Adjusted EBITDA increased by 10.4% to £51.2 million

· Interim dividend increased by 8.5%, reflecting growth in underlying earnings

· Net debt decreased to £168.8 million from £177.3 million at 31 March 2013

Operational Highlights

· Four new contract wins in UK & Ireland linen business valued at £2.1 million per annum.

· Strong growth in AST in Europe & Middle East. Facility closures, process re-engineering and management changes in response to continued weakness of Dutch linen market

· As preferred bidder, negotiations with a large US hospital organisation for an HSS outsourcing contract are at an advanced stage

· Signed an outsourcing contract with Suzhou Kowloon Hospital, contributing to HSS China revenue growth of 20.1%. Good progress on other opportunities and widening of commercial relationship with Sinopharm

· Investing in innovation to further differentiate our offering and improve competitive advantage

Outlook

· Our strategy to invest in the US and Asia is showing signs of working well, supported by positive progression of opportunities

· Continued investment in business development expected to support future growth

· The Group is proceeding in line with the Board's expectations for the full year

Richard Steeves, Chief Executive of Synergy Health, said:

"The progression of opportunities in the US and in Asia supports our ability to grow and develop our HSS business in these regions, which I believe will be a catalyst to future strong organic growth. In parallel, we continue our expansion of our global AST network through organic growth and acquisition."

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.

2 Restated to reflect the amendments to IAS 19 Employee Benefits 

Analyst Presentation:

There will be a meeting for analysts at 9.30am today, 12 November 2013, at Investec Bank (UK) Ltd, 2 Gresham Street, London EC2V 7QP.

For Further Information:

CHIEF EXECUTIVE'S REVIEW

Results

I am pleased to report that Synergy has continued to make progress with the continued development of its business with our expansion into the US and bolt-on acquisitions helping to drive continued growth in the six months ended 29 September 2013. Overall revenue for the period increased by 12.0% to £192.1 million (2012: £171.6 million), and underlying revenue, excluding currency effects, increased by 9.0%.

At the same time I am also pleased to announce several new contract wins that will support organic growth in 2014. Synergy has signed heads of terms to provide a national orthopaedic instrument loan-set decontamination and sterilisation service for a large US multinational. In China, we have made further progress with an additional contract win and several more contracts under negotiation, and in the UK the healthcare linen business has won four additional contracts worth £2.1 million per annum. Additionally, we are at an advanced stage in negotiations on an outsourced HSS contract to provide centralised sterile services to a large US hospital organisation.

Adjusted operating profit increased by 9.8% to £29.2 million (2012: £26.6 million), however adjusted operating margins eased down slightly to 15.2% (2012: 15.5%) as a result of increased investment and higher levels of expenditure on commercial development. Cost leadership is a key part of our strategy enabling the Group to benefit from sustainable margins whilst recognising the need to increase our level of competitive differentiation. We have invested in an engineering design centre, expanded our investment in our Hospital Sterilisation Services ('HSS') TrakStar development team, and later this year we will be investing further in new technology aimed at making a significant improvement in the efficiency of our HSS services.

Operating cash flow increased by 4.6% to £45.2 million (2012: £43.3 million), held back by a temporary increase in working capital due primarily to timing differences on payments. Net capital expenditure decreased by £2.3 million to £21.3 million (2012: £23.6 million), supporting a reduction in net debt from the March year end by £8.5 million to £168.8 million.

Adjusted basic EPS was 33.54p (2012: 30.92p), an increase of 8.5%.

Dividend

The Board has declared an interim dividend of 8.57pence per share (2012: 7.90 pence), an increase of 8.5%. The dividend will be paid on 13 December 2013 to shareholders on the register on 22 November 2013.

Service Business Review and Strategy

Synergy is an international leader in the provision of outsourced sterilisation services for hospitals and medical device manufacturers. In addition Synergy provides other niche outsourcing services in related areas such as healthcare linen and laboratories, and manufactures a range of products under the brand "Healthcare Solutions".

We have been expanding our Applied Sterilisation Technology ('AST') network both organically and through acquisition, and the continued expansion of this network, principally outside of the US market, remains a priority for the Group. AST revenue grew by 8.5%, slightly slower than expected, which we attribute to a slowdown in Asia and the effects of a loss of revenue in Costa Rica. Growth in the UK and Europe has been more robust, accompanied by market share gain.

Organic growth in HSS is focused on the US and China markets with the US offering by far the greatest growth opportunity in the near term, with an equivalent value per contract approximately four times greater than in China. Global HSS revenue grew by 15.3%, supported by the new and expanded services into the US market.

Healthcare Solutions and Linen Services revenue increased by 12.7%, although organic revenue was impacted by a decline in Dutch linen revenue originating from extreme price competition over the last two years.

In addition to our core services we are midway through an in-depth review looking at options to drive faster growth of the Group through the broadening of our available markets with new services adjacent to our core medical device customers, or with entry to new markets where we have core competencies that can generate shareholder value. This review will complete at the end of November and we will update our investors in December.

Management

In anticipation of the uplift in US growth we have expanded our senior management team based at our regional headquarters in Tampa. We have recruited three Presidents responsible for Global AST Development, US HSS, and Global Quality and Regulatory Affairs respectively. In addition, we have recruited a US Vice President of Quality. In Europe a new MD for Dutch linen has been appointed.

Regions

United Kingdom & Ireland ("UKI")

Our UKI region has continued to deliver solid returns, despite spending constraints within the NHS and the wider economy. Revenue increased by 1.5% to £81.5 million (2012: £80.3 million); on a constant currency basis, revenue increased by 0.9%. Margins were broadly stable at 20.2% (2012: 20.0%). Operating profit increased by 2.6% to £16.5 million (2012: £16.0 million).

HSS revenue growth slowed to 2.1% during the period with NHS volumes flat and no new contract wins to offset the impact. NHS data shows that waiting times are lengthening again, preventing any increase in growth beyond price indexation. Process volumes in our UK linen business, historically an effective barometer of NHS activity, were down during the period. However, revenue remained flat, and the business has won four new contracts valued at £2.1 million per annum, commencing in the fourth quarter.

There has been a great deal of focus this year on the development of new technology that could have a transformational impact on the economics of our HSS business, and differentiate between our services and those operated in-house by the NHS. We remain determined to extend our market share in the UK by liberating further cost savings for the NHS.

UKI AST revenue increased by 6.9%, showing an improvement on the previous year partly supported by rapid take-up of our new ethylene oxide capacity in Thorne.

Europe & the Middle East ("EME")

Our Europe & the Middle East region produced a somewhat mixed picture, with solid AST growth offset by price compression in the Dutch linen business and the impact of a weakened Euro. Reported revenue decreased by 1.1% to £59.5 million (2012: £60.1 million) but on a constant currency basis revenue decreased by 6.3%. Operating margins were largely unchanged at 15.4% but operating profit declined by 1.7% to £9.1 million (2012: £9.3 million), reflecting lower revenue.

AST delivered excellent growth in the face of slower global demand, with revenue increasing by 12.9%. A strong reputation for quality has helped the business gain new customers from competitors experiencing quality issues. Our new facility in Marcoule remains offline whilst we patiently await final approval from the French authorities, but it is obvious that whilst the barriers to market entry in France remain significant, once this facility is open we are unlikely to face any fresh competition for some time.

Our EME HSS business is small, and faces a number of barriers to new contract wins that we have not as yet successfully overcome. As a result we are giving priority to US opportunities in the near future.

The Dutch linen market remains volatile with inconsistent if not opportunistic behaviour from our main competitors. We have appointed a new MD for the service who starts in January 2014. We intend to continue our focus on cost reductions and process innovations whilst reviewing strategic options to rebuild the service.

Americas

The Americas region continues to be the focus of much attention given the opportunity in the HSS market. Revenue for the region increased by 87.6% to £41.4 million (2012: £22.1 million) with underlying revenue increasing by 81.4% before currency effects. Operating profit increased 95.6% to £4.7 million (2012: £2.4 million), with operating margins increasing by 0.4% to 11.2%.

The region consists of three businesses:

· Reusable Surgical Solutions (RSS), processing reusable barrier surgical gowns;

· HSS, operating instrument sterilisation and rental services, managed services and outsourcing services; and

· AST, operating electron beam and ethylene oxide sterilisation services in the US and in Costa Rica.

Our HSS business is progressing a number of outsourcing bids, including a service to provide a national decontamination and sterilisation service for instrument loan sets for a large orthopaedic company in the US.

In June 2013 we announced we had attained preferred bidder status on an outsourced HSS contract to provide centralised sterile services to a large US hospital organisation. This is a complex transaction, and negotiations have progressed well and are now in the final stages.

RSS revenue has remained flat despite a number of contract wins, as a result of services that either we have terminated on the grounds of profitability, or have left Synergy as a result of customer decisions taken prior to our acquisition of the business. To help strengthen the service, a partnership with Medline Industries has been established in which a hybrid reusable/ disposable service is being marketed through Medline's national sales force. We are also exploring an expansion into an outsourcing service for single use device reprocessing companies. Synergy is uniquely placed to provide such an outsourced service to its AST customers, having in place logistics systems to collect used devices, reprocessing know-how, and the necessary sterilisation expertise.

Our AST business in the US grew by 9.5%, ahead of its market, but the overall Americas region grew by just 3.1% with the impact of Costa Rica offsetting US growth. As we reported last year, our Costa Rica facility was highly dependent on a single customer, and when their main product was withdrawn from the market, revenue fell sharply. New customer products are being validated for processing at the Costa Rica facility, but it is now unlikely that revenues will be restored until after this financial year. Meanwhile in the US market, volume growth has been lower than in recent years, reflecting the US slowdown in healthcare expenditure driven by the implementation of the Affordable Care Act.

Asia & Africa

Revenue for the region increased by 7.6% to £9.7 million (2012: £9.0 million) and by 5.0% on a constant currency basis. Operating profit increased by 4.5% to £2.0 million (2012: £1.9 million) with margins broadly stable at 20.7% (2012: 21.3%). 

HSS revenue in China increased by 20.1%, with additional volumes processed through the Suzhou facility, assisted by the commencement of our new prestigious contract with the Suzhou Kowloon Hospital. The new cleanroom and processing centre in Chengdu is now under construction and is expected to open towards the end of this fiscal year. A memorandum of understanding has been signed for an outsourced contract in Nanjing, which we expect to start in the fourth quarter of this fiscal year. Our joint marketing venture with Sinopharm is generating positive results with an imminent award in Wuhan and a further half dozen projects under negotiation. At a recent meeting with the senior executives of Sinopharm, it was agreed to continue the joint marketing agreement and to explore the possibility of a deeper relationship.

Revenue in our AST business increased by 6.8% during the period. Growth has been slower in the region than expected, but we expect to see an upturn from January when a US customer outsources their US sterilisation to one of our facilities in Asia.

Outlook

Our strategy to increase Synergy's rate of growth through bolt-on acquisitions and our early expansion into the US is working well. However, the Dutch linen service is depressing headline growth for the overall Group and there is a risk that this will continue to impact the Group in the second half of the year. We currently anticipate that earnings for the year ending 30 March 2014 will be in line with the Board's expectations.

We believe that the positive developments in the US HSS market will create an inflexion point for Synergy in which further contract wins can establish a return to an improved growth trajectory. Further, we expect the uncertainty created by the impact of the Affordable Care Act in the US to start to dissipate during 2014, improving prospects for our global AST service. As we continue to expand our international AST network organically and through acquisition, the Board remains confident about the long-term prospects for the Group.

FINANCE DIRECTOR'S REPORT

Overview

Our business delivered a good first half financial performance with reported revenue growing 12.0% to £192.1 million (2012: £171.6 million) and adjusted operating profit increasing by 9.8% to £29.2 million (2012: £26.6 million). Excluding currency effects, underlying revenue growth was 9.0%. Adjusted operating margin declined by 30 basis points to 15.2% due to an increase in investment, particularly in business development. Adjusted basic earnings per share grew by 8.5% to 33.54p.

Cash generated from operations (before non-recurring itemsand acquisition-related costs) increased by 4.6% to £45.2 million, reflecting a conversion of adjusted EBITDA into operating cash flow of 88%. Cash generated from operations reduced net debt to £168.8 million, representing a net debt to EBITDA ratio of 1.69 times, comfortably within our banking covenant of 3.25 times.

Adjusted operating returns on average capital employed, on an annualised basis, increased to 11.7% from 11.6% at the year end.

The income statement has been restated by £0.4 million to reflect amendments to IAS 19, as further explained in note 2 on page 14.

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* Restated to reflect the amendments to IAS 19 Employee Benefits

1.1 Revenue

Reported revenue of £192.1 million (2012: £171.6 million) increased by 12.0%, representing an underlying growth rate, excluding currency effects, of 9.0% over the previous year.

Underlying revenue, excluding currency effects, grew by 0.9% in UK & Ireland, 5.0% in Asia & Africa and 81.4% in the Americas. A further contraction of the linen business in the Netherlands due to price erosion resulted in a decline of 6.3% in Europe & Middle East revenue.

1.2 Gross profit

Gross profit increased by 12.7% to £76.9 million (2012: £68.2 million), representing a gross profit margin of 40%, an increase of 20 basis points over the previous year.

1.3 Adjusted operating profit

Adjusted operating profit increased by 9.8% to £29.2 million (2012: £26.6 million), representing an adjusted operating profit margin of 15.2%, a reduction of 30 basis points over last year due to an increase in investment, particularly in business development. Currency effects have increased reported adjusted operating profit by £0.9 million.

1.4 Non-recurring items and acquisition related costs

Net non-recurring items and acquisition-related costs during the period of £0.3 million primarily relate to acquisition transaction fees plus a small amount of restructuring costs.

1.5 Net finance costs

The Group's net finance costs totalled £3.2 million (2012: £3.3 million), remaining broadly flat over the period. Finance costs incorporate the impact of the amendments to IAS 19 Employee Benefits in both the current and prior period.

1.6 Adjusted profit before tax

Adjusted profit before tax was £26.0 million (2012: £23.4 million), an increase of 11.5%. The adjusted profit before tax margin was 13.6% (2012: 13.6%), in line with last year.

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. The decrease compared to the prior period is due to one-off amortisation recorded in 2012 relating to the BeamOne acquisition.

1.8 Tax

The tax charge (excluding amortisation of acquired intangibles) of £6.2 million (2012: £5.6 million) represents an effective tax rate of 24.0% (2012: 23.8%). The increase in the effective tax rate over the comparative period primarily reflects a greater proportion of the Group's profit arising in the United States, which has a higher tax rate than the current Group average, partially mitigated by a reduction in the UK corporation tax rate.

1.9 Earnings per share (EPS)

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 8.5%. Afteramortisation of acquired intangibles, and non-recurring items and acquisition related costs, basic and diluted earnings per share increased by 15.3%.

Year on year, undiluted weighted average shares have increased from 57.1 million to 58.6 million, primarily due to the issue of 2.8 million shares in June 2012.

Synergy's policy is to increase the total dividend each year in line with the increase in underlying earnings. The Board has proposed an interim dividend of 8.57p (2012: interim dividend of 7.90p per share), representing an increase on the 2012 dividend of 8.5%.

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 increased by 4.6% to £45.2 million (2012: £43.3 million), reflecting a conversion of EBITDA into operating cash flow of 88% (2012: 93%).

3.2 Interest

Net interest paid was £2.3 million (2012: £2.8 million). This is lower than the corresponding charge in the income statement due to non-cash financing charges.

3.3 Tax

Tax paid was £5.7 million (2012: £4.4 million). Cash tax is slightly higher than the equivalent income tax charge in the income statement as a result of timing differences on payments.

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 £13.7 million (2012: £12.0 million), which includes £2.2 million relating to reusable surgical products for the SRI business.

Total investment capital expenditure was £7.6 million (2012: £11.6 million), of which £0.6 million and £2.5 million were spent on HSS and AST facilities respectively. Other expenditure relates to increasing our installed cobalt base, plant and machinery across our linen facilities and investment in information technology, principally on TrakStar and our new ERP system.

4 Net debt and funding

4.1 Net debt

Net debt reduced in the period from £177.3 million at the end of March 2013 to £168.8 million. The decrease in net debt is primarily a result of the cash generation by the Group 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 1 June 2012 the Group signed a two year Euro denominated multi-currency facility of €18.3 million with the same covenants as in the July 2011 Agreement.

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 29 September 2013

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 €150.9 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 $130.5 million. As at 29 September, 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 29 September 2013, the net liability arising from our defined benefit scheme obligations was £17.9 million (31 March 2013: £16.0 million) on a pension scheme asset base of £57.4 million. An increase in the deficit from the year end is primarily due to an increase in liabilities that is not offset by a corresponding increase in the asset base.

Table 5: Defined benefit pension schemes

Gavin Hill

Group Finance Director

12 November 2013

Condensed consolidated income statement

For the period ended 29 September 2013

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.

Condensed consolidated income statement

Consolidated statement of comprehensive income

For the period ended 29 September 2013

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.

Consolidated statement of financial position

At 29 September 2013

Consolidated cash flow statement

For the period ended 29 September 2013

Condensed consolidated statement of changes in equity

For the period ended 29 September 2013

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.

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

Notes to the financial statements

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 12 November 2013.

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 31 March 2013. 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 31 March 2013 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 29 September 2013 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

Going concernThe Directors have reviewed the Group's medium-term forecasts through to November 2014 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.

With effect from 1 January 2013, the Group has adopted the amendments to IAS 19 Employee Benefits issued by the IASB in June 2011. This amendment has been applied retrospectively, resulting in the restatement of certain previously reported figures.

In the year ended 31 March 2013, financing income in the income statement decreased by £875,000 with a corresponding increase in the actuarial gain recognised in the statement of comprehensive income. The related deferred tax credit in the income statement increased by £201,000, with a corresponding reduction in the deferred tax credit recognised in the statement of comprehensive income.

In the period ended 30 September 2012, financing income in the income statement decreased by £437,000 with a corresponding increase in the actuarial gain recognised in the statement of comprehensive income. The related deferred tax credit in the income statement increased by £105,000, with a corresponding reduction in the deferred tax credit recognised in the statement of comprehensive income.

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 31 March 2013.

4 Financial risk managementThe 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 31 March 2013.

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 31 March 2013.

During the 6 months ended 29 September 2013, 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.

The segments derive their revenue from the same range of products and services - being the provision of healthcare services, applied sterilisation technologies, and hospital sterilisation services. 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. During the period, management undertook a review of the allocation of certain reseller customers between the segments. Some customers were reallocated between segments and consequently the comparative data presented for previous periods has been restated.

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.

The table below analyses the Group's revenue from external customers between the three principal product/service groups:

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.

During the period, management undertook a review of the allocation of certain reseller customers between the UK & Ireland, Europe & Middle East, and Asia & Africa segments. Some customers were reallocated between segments and consequently the comparative data presented for previous periods has been restated. 

In the period to 30 September 2012, non-recurring items of £711,000 have been charged in arriving at operating profit. This charge included £780,000 of acquisition transaction costs and restructuring costs relating to the acquisition of SRI, offset by a gain realised on the disposal of an investment property.

In the year to 31 March 2013, non-recurring items of £2,441,000 were charged in arriving at operating profit, which included restructuring costs in the US and in the Dutch linen business, and acquisition transaction costs. It was partially offset by cessation gains on retirement benefit obligations and by a disposal gain on an investment property. 

8 Tax 

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.

The Group's effective tax rate for the period on earnings before non-recurring items and the amortisation of acquired intangibles was 24.0% (2012: 23.8%) and this should be sustainable over the full year.

UK corporation tax is calculated at 23% (2012: 24%) of the estimated assessable profit for the year. Taxation for overseas operations is calculated at the local prevailing rates.

The Finance Act 2012 included legislation to reduce the main rate of corporation tax from 26% to 24% from 1 April 2012 and to 23% from 1 April 2013. In the December 2012 Budget Statement it was announced that the rate would be reduced from 23% to 21% from 1 April 2014 and in the March 2013 Budget statement it was announced that the rate would be further reduced to 20% by 1 April 2015. These further rate reductions were substantively enacted by the interim reporting date at 29 September 2013 and are therefore included in these interim consolidated financial statements.

A proposed interim dividend for the year ending 30 March 2014 of 8.57p per share was approved by the Board of Directors on 12 November 2013. 

* Restated to reflect the amendments to IAS 19 Employee Benefits - see note 2.11 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.

The environmental provision relates to a liability acquired as part of the 2004 acquisition of Lips Textielservice Holding BV. Under the terms of the acquisition, the Group has been contractually obliged to pay the vendor an amount equal to the environmental provision outstanding (not utilised) as at 30 July 2012, together with interest at the rate of Euribor plus 0.75%. Accordingly, the majority of this liability was settled during December 2012; the small remaining balance is expected to be settled within the short term.

Other provisions include provisions against vacated properties and other restructuring costs. 

During the period ended 29 September 2013, the Group purchased assets with a total cost of approximately £17.8 million (30 September 2012: £23.1 million).13(a) Acquisition of subsidiary - Bizworth

In the previous financial year, on 6 March 2013, the Group acquired the entire issued share capital of Bizworth Gammarad Sdn Bhd ('Bizworth'), a company incorporated in Malaysia, as part of its strategy to expand the geographic coverage of its AST business.

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

In accordance with IFRS 3 (revised) 'Business Combinations', management made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The only adjustment made was the recognition of intangible assets (customer lists) and deferred taxation liabilities.

Total transaction costs of £27,000 were incurred in the acquisition of Bizworth and were expensed within non-recurring items and acquisition-related costs.

The Bizworth business contributed £158,000 to revenue and £76,000 to operating profit for the period.

Summary of cash flows:

Summary of contingent consideration:

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

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

In accordance with IFRS 3 (revised) 'Business Combinations', management made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The most significant of these was a reduction in the carrying value of property, plant and equipment and circulating inventory, where book value on acquisition was higher than fair value.

Total transaction costs of £434,000 were incurred in the acquisition of SRI and were expensed within non-recurring items and acquisition-related costs.

The SRI business contributed £32,787,000 to revenue and £3,125,000 to operating profit for the period.

Summary of cash flows:

• 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

12 November 2013

The condensed consolidated interim financial statements for the six months ended 29 September 2013 will be available on the Company's website on 12 November 2013.

Financial Calendar

Registered office

Synergy Health plc

Ground Floor Stella, Windmill Hill Business Park

Swindon, Wiltshire SN5 6NX

Website: www.synergyhealthplc.com