Interim Management Statement

 Thursday 26 July 2012

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

Q1 Interim Management Statement

Synergy (SYR.L), a leading global provider of specialist outsourced support services to health-related markets will hold its Annual General Meeting at 10.30am today at Investec Bank plc, 2 Gresham Street, London. In advance of that meeting, the Company is pleased to provide an update on trading performance since 1 April 2012.

Trading Update

Trading has been in line with the Board's expectations for the first quarter. Headline growth has been held back by currency translation with the devaluation of the Euro, but margins have improved further during this quarter, offsetting the impact of slower reported revenue growth.

Reported revenue increased by 3.5% to £79.3 million compared to the same period last year (Q1 2011/12: £76.6 million) whilst adjusted operating margins improved by 220 basis points to 16.7% (Q1 2011/12: 14.4%).

Underlying revenue, excluding currency effects, was £81.7 million, 6.6% above last year (Q1 2011/12: £76.6 million). Organic underlying revenue growth, which also excludes the impact of acquisitions, was 2.4% and was impacted by extended public holidays in the UK together with continued price deflation in the Dutch linen business. Organic growth in the sterilisation businesses was 8.4%.

Underlying revenue in the operating regions was as follows:

Net debt at 1 July 2012 had decreased to £167.7 million from £173.5 million at 1 April 2012. Following the acquisition of SRI, net debt has since increased to £191 million, corresponding to a net debt to EBITDA ratio of approximately 2.0 times, comfortably within our banking covenant of 3.25 times.

UK & Ireland

The region was impacted by extended public holidays as well as a doctors' strike, with underlying revenue growth of 3.0%. Excluding these events, the base level of business has continued to perform in line with recent trends. Hospital Sterilisation Services ('HSS') revenue grew by 8.9%, supported by new contracts with the North Lincolnshire & Goole Trust and the United Lincoln Hospitals Trust which became operational in Q3 2011 and Q1 2012 respectively. The HSS bid book remains solid with slow decision-making in the NHS easing slightly. Revenue for Applied Sterilisation Technologies ('AST') showed good growth of 7.4% with particularly strong growth in Ireland. The commencement of a new NHS outsourced contract lifted our Linen growth rate to 4.9%. We anticipate that the lower rate of growth will persist over the summer, affected by the Olympics, followed by an improvement in the second half of the year. The absence of revenue from Fast Aid that was sold in July 2011 has resulted in a decline in HCS revenue for the first quarter.

Europe & Middle East

The region improved slightly on the last quarter with AST growth partially mitigated by continued price competition in the Dutch linen market. Revenue for the region grew by 5.5% with AST up 29.7% led by a good performance from the recently acquired facility in Daniken, Switzerland. The Dutch linen business meanwhile saw price deflation of 2.4% and whilst the main competitor is now loss making, we are unsure how long it will be before the market stabilises. Operating margins have not been impacted by the linen business, as cost synergies continue to be obtained from the region.

Progress is being made in our AST business with further capacity expansion. EtO capacity in Venlo has been doubled and is undergoing validation, and the new gamma irradiation plant in Marcoule will open at the end of the calendar year.

Asia & Africa

Revenue growth in Asia & Africa continued to be strong, increasing by 32.9%. We continue to progress a number of HSS opportunities and expect to reach financial close within the next few months with associated revenue commencing in 2013/14. A project team is working on developing a gamma plant in Suzhou, China to extend our AST capabilities, and the new CEO for the region is reviewing other organic and acquisition opportunities.

Americas

The Americas continues to perform well, growing by 32.4% in the first quarter. Our new EtO plant in Florida is now processing product and will double in capacity towards the end of the summer. The new e-beam and EtO facilities in Costa Rica are both undergoing validation and are expected to begin processing in November. This new capacity will continue to support strong revenue growth within the region's AST business.

The acquisition of MSI which initiated our HSS services in the US is being integrated into the region. A number of new potential projects are being pursued and the outlook for HSS outsourcing remains positive.

SRI/Surgical Express, Inc. ('SRI')

On 13 July 2012 we announced the successful completion of the tender offer to purchase all outstanding shares of SRI for $3.70 per share. SRI became a wholly owned subsidiary on Monday 16 July 2012 following the merger of SRI into our acquisition company. The integration of SRI has commenced, and we will provide an update later in the year.

The sterilisation businesses continue to perform well and we look forward to making continued progress in Asia and the Americas. Synergy remains on track for the full year although the Board recognises that the continued devaluation of the Euro creates additional challenges.

We look forward to reporting further progress at our Interim results on 13 November 2012.

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