Interim Management Statement

23 July 2014

SYNERGY HEALTH PLC("Synergy" or "the Company") 

Q1 Interim Management Statement

Synergy (SYR.L), a leading provider of specialist outsourced support services to health-related markets, is pleased to provide an update on trading performance since 30 March 2014. 

Trading Update

Underlying trading, excluding currency effects, for the three months to 29 June 2014, has been in line with the Board's expectations with revenue at £99.1 million, 2.6% above last year. Reported revenue declined by 1.1% to £95.6 million (Q1 2013/14: £96.6 million) impacted by £3.5 million of currency translation effects.

Underlying revenue by service line stated at constant currency was as follows:

Note: Following the reorganisation of the business away from regional towards business service lines, we have detailed in Appendix I historical presentation of results by quarter under the old and new basis for the financial year 2013/14 by quarter and the full year 2012/13.

Reported operating margin declined by 0.2% (0.1% on an underlying basis) on the comparative period in line with expectations as a result of currency effects and increased investment in research & development.

AST

Our Applied Sterilisation & Laboratory Services business has started the year well with underlying growth of 13.6% to £34.3 million after winning £2 million of contract wins offset by a similar level of revenue that has temporarily been displaced following the fire we reported in June in our Malaysian gamma facility. Against last year we have seen good growth across all regions, an expanding bid book now over £10 million p.a. and we have also seen an encouraging start from our recently acquired facilities in Italy, Czech Republic and Slovakia as part of the acquisition of the Bioster Group.

HSS

Underlying revenue in HSS declined marginally by 1.3% to £40.2 million reflecting lower patient volumes in the UK and US, and exiting from £6 million of non-core, low margin legacy product distribution business in the US. During the quarter we won £3 million p.a. of new HSS contracts that will start later in the year. The interest in HSS outsourcing remains strong with our bid book well over £100 million p.a. reinforcing our confidence in the business. Our US development team is managing a large number of outsourcing proposals which we are confident will convert to full outsourcing contracts throughout the year. Meanwhile in the UK, Synergy will launch a revised technology-led HSS outsourcing service in September that could generate significant savings for the NHS if fully adopted, and we expect this initiative to also lift the rate of growth in this segment to our objective of 10-20% growth p.a.

On 6 June we announced that we had signed a multi-year outsourcing agreement with Sterilmed Inc, a world leader in the reprocessing of medical Single Use Devices, taking responsibility for their manufacturing operations. The transfer of operations and employees will take place on 28 July 2014. This contract, along with the conversion of opportunities in HSS outsourcing, will lift trading from the second quarter onwards, a trajectory that meets the lower end of the HSS growth targets we have set.

Healthcare Solutions

Underlying revenue declined by 4.2% to £24.6 million with the anticipated contraction of the Netherlands business of 10.2%, partially offset by growth of 11.1% in the UK. The business in the Netherlands continues to face a contraction of the care home market due to government austerity measures. A new strategy has been set focusing on an expansion into new sectors together with the on-going rationalisation and re-engineering of our estate, and with a number of new contract wins in recent weeks, we expect to see improved outcomes as the year progresses. The UK business continues to perform well.

Outlook

We set out a strategy at the start of this fiscal year to lift growth rates over the coming 18 months. Our AST services are already operating on target with new contract wins and plans to further expand our international network of facilities in the coming years. With the launch of a new HSS service in the UK, recent contract wins in the US, and a rapidly growing bid book, we expect to see these services grow within our target range from August onwards.

With approximately 60% of revenue denominated in currencies other than Sterling, we are facing obvious currency headwinds as Sterling appreciates against all our market currencies. Whilst we remain committed to achieving our underlying growth expectations, the appreciation of Sterling may have an effect on our reported results. The outlook for the 2014/15 financial year remains positive given our progress with new contracts and sentiment in our core service lines and markets.

Appendix I: Geographic Segments Restated by Service Line

Table 1: Total Revenue by Service Line

Table 2: Total Revenue by Region