14th Nov 2006 07:03
Synergy Healthcare PLC14 November 2006 Immediate Release 14 November 2006 SYNERGY HEALTHCARE PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 1 OCTOBER 2006 Synergy Healthcare plc (AIM : SYR), a leading provider of outsourced medicalsupport services to the UK and Netherlands, is pleased to announce interimresults for the six months ended 1 October 2006. (These results are presentedunder IFRS for the first time and include share based payments and otheradjustments which are set out in the notes contained within the financialsection of this report.) Financial highlights * Turnover up 33% to £66.9 million (2005: £50.4 million) * Operating profit before intangible amortisation and share scheme charges up 25% to £7.5 million (2005: £6.0 million) * Profit after taxation up 21% to £4.4 million (2005: £3.6 million) * Operating cashflow generated of £12.9 million (2005 : £11.7m), with net debt reducing to £2.1 million from £2.7 million at year end 2006 * Basic and adjusted (excluding intangible amortisation but including share charges) earnings per share up 21% and 23% respectively to 11.89p (2005 : 10.64p) and 12.98p (2005 : 10.57p) * Interim dividend up 40% to 2.8p (2005: 2.0p) Operating highlights * Strong organic growth across the Group - UK - 16%, Netherlands - 6% * Turnaround of Shiloh business ahead of plan * Good progress in surgical with contract wins, opening of Barts supercentre and the Academic Medical Centre (AMC) facility in Amsterdam now operational * Strategic investments in infection control technology - acquisition of worldwide license for healthcare market for o AirCleanse(TM) - a new air decontamination system using Close Coupled Field Technology o Byotrol(TM) - a portfolio of products designed to combat a wide array of micro-organisms * Forward "order book" lifted to £675 million * On 25 October 2006 Synergy announced a £164 million Offer for Isotron for which the Offer Document was posted on 2 November 2006 Dr Richard Steeves, Chief Executive, commented: "Synergy has performed well throughout the first half of the year with theunderlying business demonstrating strong growth whilst the integration of Shilohcontinues to outperform our initial expectations. We are continuing to gainbusiness as the healthcare market commits further towards outsourcing solutionswhich provide demonstrable improvements in risk management and value for money.The acquisitions of the worldwide rights for AirCleanse(TM) and Byotrol(TM) reflect our strategy and focus on infection control whilst representing excitingadditions to our portfolio of products and services. We look forward withconfidence to another good full year performance" ENQUIRIES: Synergy Healthcare plcDr Richard Steeves, Chief Executive 01332 387107Ivan Jacques, Group Finance Director 01332 387140 Buchanan CommunicationsTim Anderson/ Mark Court/ Isabel Podda 020 7466 5000 SYNERGY HEALTHCARE PLC INTERIM RESULTS FOR THE 26 WEEKS ENDED 1 OCTOBER 2006 CHAIRMAN'S STATEMENT I am pleased to report a very successful first half to the current financialyear continuing Synergy's value creation for its shareholders. Sales are up 33%at £66.9 million, operating profits (before finance costs, amortisation ofintangibles, share scheme charges and tax) are up 25% at £7.5 million, basicearnings per share is up 21% and adjusted basic earnings per share is up 23%. Itis pleasing to note that the earnings per share performance remains strong andcontinues the track record of previous years. These results reflect a strongperformance from all areas of the Group including Shiloh, which was acquired on5 August 2005. The underlying business has continued to perform well, theturnaround of Shiloh continues ahead of plan and new investments have been madein Synergy's infection control technologies, all underlining Synergy'ssuccessful strategy and business model. In line with the Group's strategy to expand geographically and develop newservices, we announced the Offer for Isotron plc on 25 October 2006. We believethis acquisition represents a tremendous opportunity for existing SynergyShareholders and those Isotron Shareholders who accept Synergy Shares in theOffer to benefit from the complementary strengths of two leading healthcareenterprises. The Offer was posted to Isotron Shareholders on 2 November andreaches its first closing date on 23 November 2006. Dividend The Board has declared an interim dividend of 2.8p per share (2005: 2.0p), anincrease of 40%. The dividend will be paid on 15 December 2006 to shareholderson the register on 24 November 2006. Business review The Group has performed very well during the half year with both strong organicsales and profit growth. Whilst Synergy operates three main businesses, theGroup is run on a geographic basis and this is the primary basis for segmentalreporting. Sales at Patient Care, which includes most of the former Shiloh businesses, sawsales up 35% to £51.7 million (2005: £38.2 million). Surgical sales were up 16%to £13.6 million (2005: £11.7 million) and Managed Equipment sales were up to£1.6 million (2005: £0.4 million). Gross profit margins declined to 31.7% (2005: 34.1%) almost entirely as a resultof the former Shiloh businesses adopting Synergy's policy of stating grossprofit margins after distribution costs. At the Group level operating profitmargins (before finance costs, amortisation of intangibles, share scheme chargesand tax) were ahead of management's expectations at 11.2% (2005: 11.9%) with theanticipated dilutive effect of the Shiloh acquisition having reduced followingthe application of Synergy's business model. The margin dilution was identifiedat the time of the acquisition and good progress has been made rejuvenatingShiloh's product and service portfolio. The former Shiloh businesses remain oncourse for achieving margins in line with the wider Group by the end of the nextfinancial year. All areas of the business have enjoyed further contract wins lifting the forward"order book" to over £675 million (2 April 2006: £600 million). United Kingdom Turnover increased by 57% to £41.4 million (2005: £26.4 million), withunderlying organic growth of 16% excluding Shiloh. Operating profit grew to £3.7million (2005: £2.5 million) up 48%. Patient Care UK The Patient Care business, which consists of the former Shiloh businesses andSynergy's linen management operation, is now operated by a single managementteam. The business' focus is on developing solutions for healthcare customersthat improve patient perception and reduce operational risks. The core linenbusiness increased its market share by 2% to circa 16% through new contractwins. The strategy of the Patient Care business is to bundle products andservices into long term contracts creating efficient services for customers. Twomajor NHS customers, representing combined sales of circa £3.5 million per annumare benefiting from this strategy, entering into seven year, complex supplyagreements. This service model should become increasingly attractive as the NHSmoves towards Foundation Trusts with a higher degree of purchasing autonomy andgreater focus on competitive differentiation and patient choice. During the period MacDonald and Taylor, a former Shiloh business, which is amanufacturer of cotton wool products, was sold for its net asset value of £0.25million including deferred consideration of up to £0.1 million. Earlier in the year Synergy identified wound care and infection control as twokey areas for future development. Wound care sales have continued to growstrongly recording sales growth of 43% from a relatively low base. New productlaunches are planned for the end of this financial year and the business remainscommitted to developing and acquiring new technologies to widen the availablemarket. Within infection control, considerable progress has been made with thedevelopment of an infection control system. The announcement of the AirCleanse(TM) air decontamination system and the acquisition of an exclusive healthcare license for Byotrol(TM) antimicrobial products are visible key indicators of such development. Patient Care's strategy is to bundle together the necessary tools and know how to enable healthcare providers to reduce the risk of healthcare acquired infections. AirCleanse(TM) We have today announced the acquisition of an exclusive license to use the CloseCoupled Field Technology (CCFT) across the worldwide healthcare market. Usingthe technology, Patient Care has developed a new air decontamination systemwhich it is calling AirCleanse(TM). This development is part of a wider programme to address cross infection risks in hospitals. Airborne transmission of pathogens is a recognised, natural route for infection.Studies have shown that in addition to purely airborne infections such SARs,influenza, TB, measles and chicken pox, S. aureus (MRSA), spores and norovirusare also spread by air as aerosols. Aircleanse(TM) has been demonstrated todestroy and remove all of these airborne pathogens and is therefore highlysuited for high risk areas such as operating theatres and isolation wards. Thetechnology can reduce occupational risks to healthcare workers and improvepatient safety and is safe to operate in the normal hospital environment.AirCleanse(TM) has been approved by the HPA Rapid Review Panel and may thereforebe deployed in any UK hospital. The potential worldwide market for AirCleanse(TM) is substantial including anaftermarket in maintenance and filters. The technology has recently been soldsuccessfully into the food and remediation markets and it is expected that itwill be taken up widely by the aerospace industry. As a result there is a highdegree of confidence that the technology will be adopted by the healthcareindustry. Initially Synergy is limiting the sale of AirCleanse(TM) to its existing customers. Feedback from key opinion leaders has been positive and a small number of units have already been sold. From January, AirCleanse(TM) will be made available to the whole of the UK healthcare market followed by a systematic rollout across Continental Europe and the United States. Byotrol(TM) Synergy has also announced the acquisition of an exclusive license for theworldwide healthcare market to use Byotrol(TM), an antimicrobial technology.Byotrol(TM) is a portfolio of products designed to combat a wide array ofmicro-organisms that are medically important, and can be added into Synergy'sexisting portfolio of manufactured products or sold directly to controlmicro-organisms safely. Byotrol(TM) has two unique properties: firstly it has been demonstrated to have a more effective kill rate than antimicrobial products currently used in themarket today. A recent study at a pair of NHS Hospital wards showed that MRSAinfections were more than halved when Byotrol(TM) was used compared with routinecleaning methods. Secondly, Byotrol(TM) remains active after it has dried andprovides lasting active protection for extended periods. Products containingByotrol(TM) continue to kill and control bacteria, mould and fungi for weeks andmonths when incorporated in coatings and polymers and for many days when used assanitizers or disinfectants. As part of the Byotrol(TM) license agreement Synergy acquired the rights andgoodwill of the Assure brand of products, which Byotrol(TM) developed for thecommunity care market. Assure, together with other Byotrol(TM) infection controlproducts, are estimated to have a UK market value of approximately £44 millionbased on current NHS and care home expenditure on such products, giving aworldwide market value of around £800 million per annum based on spend percapita. Synergy will co-promote the use of AirCleanse(TM) to reduce the bioburden in air, which results in surface contamination, and Byotrol(TM) based products tosustainably reduce surface based bioburden levels as part of its infectioncontrol system. Surgical UK The UK Surgical business continued to make progress with the new PFI contract atthe St Bartholomew and the Royal London Hospital starting in May, which isserviced from an offsite super centre together with further new business winswith Primary Care Trusts and Independent Treatment Centres lifting organicgrowth rates to 16%. The Healthcare Commission begins auditing sterilisationservices from April 2007 to ensure they comply with the European Medical devicesdirective and we are working with a number of private sector hospital groups todevelop strategies to help them to meet this deadline. We expect to seecontinued progress into the next financial year. Under the national decontamination programme, the Group was awarded preferredbidder status on the Central Lancashire and North Sefton project. The award wasannounced in August 2006 and reached commercial close on the North West SterileServices Partnership in October 2006. Services should start during the secondhalf of next year. The bid pipeline remains active with a large number of newbusiness opportunities including six national decontamination bids. Netherlands Sales in the Netherlands increased 6% to £25.5 million (2005: £24.0 million).Operating profit grew to £3.8 million (2005: £3.5 million) up by 9%. Patient Care Netherlands LTS in the Netherlands has performed very well lifting organic growth ratessubstantially in a relatively mature market. LTS is initiating the Patient Carestrategy with early success through the introduction of the continence careprogramme. LTS has recruited a new senior commercial manager together withclinical support staff to accelerate the development of the Patient Carestrategy, which will extend to infection control and ultimately wound care. Atthe same time the underlying business has grown with the benefit of a number ofnew contract wins. Surgical Netherlands The Surgical business in the Netherlands has started well with theimplementation of the sterilisation service at the Academic Medical Centre inAmsterdam ("AMC") in August, under a 10 year contract. The AMC, one of thelargest teaching hospitals in the Netherlands, outsourced its sterilisationservice to Synergy to lower operational risks and improve patient safety. Thesuccessful start of this service has attracted the attention of a number ofother hospitals in the Netherlands: opportunities which are being activelypursued. Geographic Expansion The Board has clearly set out its strategy to invest in its core sterilisationand patient care services, notably infection control and wound care. It is alsoSynergy's objective to expand the business geographically to support organicgrowth and ensure that it remains competitive against larger global competitors.As part of the execution of this strategy Synergy is seeking to develop itsexport markets in both Continental Europe and the United States so as to widenthe available markets for Patient Care and to improve its cost leadershipposition. All new product and service developments will need to be capable ofaddressing a global rather than simply a domestic market. At the same time thebusiness continues to actively look for acquisition opportunities that wouldenable Synergy to extend its geographic reach to other countries in Europe andthe Far East. Financial Review Group turnover was £66.9 million (2005: £50.4 million) whilst operating profitwas £7.5 million (2005: £6.0 million). These results are presented under IFRSfor the first time and include share based payments and other adjustments setout in the notes. After these charges profit after tax increased 21% to £4.4million (2005: £3.6 million). Basic earnings per share was 11.91 pence (2005: 9.88 pence) whilst adjustedbasic earnings per share increased to 12.98 pence (2005: 10.57 pence). Theadjusted earnings per share adds back intangible amortisation charges but isafter deducting share scheme charges, which if added back (making it comparablewith previous years) would have resulted in adjusted earnings per share growthof 27%. Net operating cashflow in the period rose to £12.9 million, representing a cashconversion rate of 172%, which continues the previous trend of convertingoperating profit into cash. The Group continued to invest in its capital asset base and processingfacilities, with capital expenditure during the period totalling £7.8 million. The Group has nominal gearing at the half year with cash balances of £7.9million (2005: £5.4 million) and net debt of £2.1 million (compared with £2.7million at the year end). The Board has available bank facilities of over £220million, established mainly in connection with the proposed acquisition ofIsotron, representing sufficient facilities to support the full cash alternativeto the Offer for Isotron. The facility also includes sufficient headroom toallow the Group to continue to grow and invest in the business, including itsparticipation in the NHS' national decontamination programme. Outlook The Board is pleased with the performance of the business and is positive aboutfuture prospects with strong market positions, increased investment in coreareas and an effective and committed team. We look forward with confidence toanother good full year performance. Stephen WilsonChairman CONSOLIDATED INTERIM INCOME STATEMENTFOR THE PERIOD ENDED 31 OCTOBER 2006 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 (unaudited) (unaudited) (audited) Note £000 £000 £000 Sales 4 66,923 50,366 116,862Cost of sales (45,728) (33,207) (80,438) --------- --------- ---------Gross profit 21,195 17,159 36,424 Administrative expenses (14,666) (11,790) (24,388)Exceptional items - - (998) --------- --------- ---------Operating profit 4 6,529 5,369 11,038---------------------------- ------ --------- --------- ---------Operating profit beforeamortisation and sharescheme charges 7,520 6,014 13,593Amortisation of otherintangibles (603) (505) (1,107)Share scheme charges 8 (388) (140) (450)Exceptional items - - (998)---------------------------- ------ --------- --------- ---------Investment income 481 367 673Finance costs (720) (565) (1,164)Other gains and losses (74) - - --------- --------- ---------Profit before tax 6,216 5,171 10,547Income tax expense 5 (1,807) (1,527) (3,012) --------- --------- ---------Profit for the period 4 4,409 3,644 7,535 ========= ========= =========Attributable to:Equity holders of the Company 4,409 3,644 7,535 ========= ========= =========Earnings per share for profitattributable to the equityholders of the Company duringthe yearBasic 7 11.91p 9.88p 20.40p ========= ========= =========Diluted 7 11.62p 9.79p 20.19p ========= ========= ========= The accompanying accounting policies and notes form part of these financialstatements. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSESFOR THE PERIOD ENDED 1 OCTOBER 2006 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 (unaudited) (unaudited) (audited) Note £000 £000 £000 Exchange differences ontranslation of foreignoperations 13 (884) (133) 349 Actuarial gains ondefined benefitpension schemes - - 658Less: provision fordeferred tax - - (205) --------- --------- ---------Net income recogniseddirectly in equity (884) (133) 802 Profit for the period 4,409 3,644 7,535 --------- --------- ---------Total recognised income andexpense for the period 13 3,525 3,511 8,337 ========= ========= =========Attributable to: Equity holders of the Company 3,525 3,511 8,337 ========= ========= ========= The accompanying accounting policies and notes form part of these financialstatements CONSOLIDATED BALANCE SHEETAT 1 OCTOBER 2006 At 1 October At 2 October At 2 April 2006 2006 2005 (audited) (unaudited) (unaudited) £000 £000 £000ASSETSNon-current assetsGoodwill 30,690 29,026 30,660Other intangible assets 13,704 14,909 14,307Property, plant and equipment 52,284 50,473 53,413Trade and other receivables 68 336 278 -------- -------- -------- 96,746 94,744 98,658 -------- -------- --------Current assetsInventories 4,825 5,683 4,733Trade and other receivables 19,547 19,107 20,218Cash and cash equivalents 7,887 5,397 11,051Available for sale investments 126 - - -------- -------- -------- 32,385 30,187 36,002 -------- -------- --------Total assets 129,131 124,931 134,660 ======== ======== ========EQUITYCapital and reservesattributable to theCompany's equity holdersShare capital 13 232 231 231Share premium account 13 59,270 59,050 59,172Equity share reserve 13 1,333 538 863Translation reserve 13 214 616 1,098Other reserves 13 430 430 430Retained earnings 13 16,744 10,582 14,187 -------- -------- --------Equity attributable toequity holders of theparent 78,223 71,447 75,981Minority interest - 367 - -------- -------- --------Total equity 78,223 71,814 75,981 ======== ======== ========LIABILITIESNon-current liabilitiesBorrowings 3,613 8,197 7,312Retirement benefitobligations 1,870 2,270 1,870Deferred tax liabilities 5,612 6,298 6,058Provisions 3,280 3,592 3,703Obligations under hirepurchase loans 3,724 1,424 4,288Deferred government grant 174 232 201 -------- -------- -------- 18,273 22,013 23,432 -------- -------- --------Current liabilitiesTrade and other payables 27,462 24,704 30,128Current tax liabilities 2,430 1,834 2,810Borrowings 1,129 3,607 696Obligations under hirepurchase loans 1,499 850 1,498Deferred government grant 115 109 115 -------- -------- -------- 32,635 31,104 35,247 -------- -------- --------Total liabilities 50,908 53,117 58,679 ======== ======== ========Total equity andliabilities 129,131 124,931 134,660 -------- -------- -------- The accompanying accounting policies and notes form part of these financialstatements. CONSOLIDATED INTERIM CASHFLOW STATEMENTFOR THE PERIOD ENDED 1 OCTOBER 2006 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 £000 £000 £000 Cash flows from operating activitiesCash generated from operations 12,945 11,727 27,608Interest paid (533) (599) (1,201)Income tax paid (2,085) (669) (1,249) --------- --------- ---------Net cash generated from operatingactivities 10,327 10,459 25,158 --------- --------- ---------Cash flows from investing activitiesAcquisition of subsidiary, includingoverdraft acquired (520) (13,057) (13,886)Disposal of subsidiary 100 - -Purchases of property, plant andequipment (PPE) (7,782) (7,907) (18,484)Proceeds from sale of PPE 28 12 933Net insurance proceeds on disposal - - 2,108Purchases of investments (126) - -Government grant received - 337 337Interest received 364 367 679 --------- --------- ---------Net cash used in investing activities (7,936) (20,248) (28,313) --------- --------- ---------Cash flows from financing activitiesDividends paid (1,852) (1,587) (2,326)Repayments of borrowings (3,049) (173) (1,219)New hire purchase loans - - 4,000Repayment of obligations under hirepurchase loans (557) (393) (882)Proceeds from issue of shares 99 137 259 --------- --------- ---------Net cash used in financing activities (5,359) (2,016) (168) --------- --------- ---------Net decrease in cash and bankoverdrafts (2,968) (11,805) (3,323)Cash and bank overdrafts atbeginning of period 11,051 14,100 14,100Exchange differences (196) 13 274 --------- --------- ---------Cash and bank overdrafts at end of period 7,887 2,308 11,051 ========= ========= ========= Cash generated from operations 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 £000 £000 £000 Operating profit for the period 6,529 5,369 11,038Adjustments for:- depreciation on PPE 6,630 5,854 12,547- amortisation of intangible assets 603 505 1,107- equity settled share based payments 388 140 450- profit on sale of tangible fixed assets (21) (12) (340)Changes in working capital:- inventories (345) 457 1,288- trade and other receivables 235 (339) (444)- trade and other payables (1,074) (247) 1,962 --------- --------- ---------Cash generated from operations 12,945 11,727 27,608 The accompanying accounting policies and notes form part of these financialstatements. NOTES TO THE INTERIM RESULTSFOR THE PERIOD ENDED 1 OCTOBER 2006 1 General information Synergy Healthcare plc ("the Company) and its subsidiaries (together "theGroup") are providers of outsourced healthcare services within the UK, theNetherlands and Germany. The Company is registered in the United Kingdom undercompany registration number 3355631 and its registered office is NewmarketDrive, Derby, DE24 8SW. As a consequence of its AIM listing the Company will berequired to prepare statutory financial statements which comply with accountingstandards as adopted for use in the European Union ("EU") in respect of itsfinancial year ending on 30 March 2008, (the "2008 financial statements") andsubsequently. However, the Directors of the Company have elected to prepareaccounts for the year ending 1 April 2007 (the "2007 financial statements") onthis basis. When the 2007 financial statements are prepared, they will be the firstfinancial statements prepared by the Group in accordance with accountingstandards as adopted for use in the EU and as such will take account of therequirements and options in IFRS1 (First-time Adoption of InternationalFinancial Reporting Standards) as they relate to the 2006 comparatives includedtherein. These consolidated interim financial statements have been approved for issue bythe Board of Directors on 14 November 2006. 2 IFRS 1 - Transition to IFRS The Group's financial statements for the year ended 1 April 2007 will be thefirst annual financial statements that comply with IFRS. The Group has appliedIFRS 1 in preparing these consolidated interim financial statements. Exemptions IFRS 1 sets out procedures which the Group must follow when it adopts IFRS forthe first time as the basis of preparation of its consolidated financialstatements. The Group is required to determine appropriate accounting policiesin compliance with IFRS and, in general, to apply them retrospectively indetermining the opening IFRS balance sheet at its date of transition, 3 April2005. IFRS 1 provides a number of optional exemptions to this general principle. Thosebeing adopted by the Group are described below. Business Combinations The Group has elected to apply IFRS 3 retrospectively to the LIPS TextielserviceHolding B.V. business combination that took place on 8 July 2004. Therefore norecalculation of the goodwill arising on any of the Group's acquisitions, whichoccurred before 8 July 2004 has taken place. Share based payments The Group has elected to apply IFRS 2 - 'Share-based Payment' only toshare-based payment transactions granted after 7 November 2002 and not vested at3 April 2005. Revaluation of property, plant and equipment The Group has elected to take advantage of this exemption and therefore allpreviously revalued assets have been held at their UK GAAP carrying value as at3 April 2005. These values have been treated as "deemed cost". Employee benefits - actuarial gains and losses The Group has elected to take advantage of this exemption such that allcumulative actuarial gains and losses up to 3 April 2005 have been taken toreserves in full. Accumulated translation reserve The Group has elected to take advantage of the exemption and will absorbhistoric differences into reserves. From 3 April 2005 such translationadjustments will be tracked at an individual entity level. 3 Summary of significant accounting policies The Group's accounting policies have been revised to comply with IFRS as adoptedby the EU, and are shown below. Basis of preparation These September 2006 interim consolidated financial statements of the Group arefor the six months ended 1 October 2006. They have been prepared in accordancewith IAS 34 Interim Financial Reporting and the requirements of IFRS 1First-time Adoption of International Financial Reporting Standards relevant tointerim reports. These interim financial statements have been prepared inaccordance with the recognition and measurement requirements of those IFRSstandards and IFRIC interpretations issued and effective or issued and earlyadopted as at the time of preparing these statements. The policies set out below have been consistently applied to all the yearspresented. The Group's consolidated financial statements were prepared in accordance withUK Generally Accepted Accounting Principles (UKGAAP) until 2 April 2006. UKGAAPdiffers in some areas from IFRS. In preparing the Group's 2006 consolidatedinterim financial statements, management has amended certain accounting,valuation and consolidation methods applied in the UKGAAP financial statementsto comply with IFRS. The comparative figures in respect of 2005 were restated toreflect these adjustments, except as described in the accounting policies. Reconciliations and descriptions of the effect of the transition from UKGAAP toIFRS on the Group's equity and its net income and cash flows are provided inNote 14. The consolidated interim financial statements have been prepared under thehistorical cost convention. Consolidation The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up tothe period end. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity so as to obtainbenefits from its activities. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. All intra-grouptransactions, balances, income and expenses are eliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair value atthe acquisition date. Goodwill arising on acquisition is recognised as an asset and originallymeasured at cost, being the excess of the cost of the business combination overthe Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities recognised. If, after reassessment, theGroup's interest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in the income statement Provided fair value can be measured reliably, intangible assets acquired in abusiness combination are recognised separately from goodwill at fair value atthe date of acquisition. Intangible assets are amortised on a straight-linebasis over their estimated useful lives. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwill isinitially recognised as an asset at cost and is subsequently measured at costless any accumulated impairment losses. Goodwill which is recognised as an assetis reviewed for impairment at least annually. Any impairment is recognisedimmediately in profit or loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently where there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to other assets of the unit pro-rata on the basis of the carryingamount of each asset in the unit. An impairment loss recognised for goodwill isnot reversed in a subsequent period. On disposal of a subsidiary, the attributable goodwill is included in thedetermination of the profit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Sales of services are recognised and invoiced as the services are performed.Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates, itsfunctional currency. For the purpose of the consolidated financial statements,the results and financial position of each Group company are expressed in poundssterling which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionin currencies other than the entity's functional currency, foreign currencies,are recorded at rates of exchange prevailing at the dates of the transactions.At each balance sheet date, monetary assets and liabilities that are denominatedin foreign currencies are retranslated at the rates prevailing on the balancesheet date. Non-monetary items that are measured in terms of historical cost ina foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the period except fordifferences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such non-monetaryitems, any exchange component of that gain or loss is also recognised directlyin equity. In order to protect the Group's sterling balance sheet from movements in thelocal currency exchange rate, the Group partly finances its net investment inits overseas subsidiary by means of local currency borrowings, and also has ahire purchase loan denominated in euros which is designated as a hedge. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatesignificantly during that period, in which case the exchange rates at the dateof transactions are used. Exchange differences arising, if any, are classifiedas equity and transferred to the Group's translation reserve. Such translationdifferences are recognised as income or expenses in the period in which theoperation is disposed of. Borrowing costs All borrowing costs are recognised in profit or loss in the period in which theyare incurred. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. For defined benefit schemes, the cost of providing benefits is determined usingthe Projected Unit Credit Method, with actuarial valuations being carried out ateach balance sheet date. Actuarial gains and losses are recognised in full inthe period in which they occur, and presented in the statement of recognisedincome and expense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service cost, plus thepresent value of available refunds and reductions in future contributions to thescheme. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the liability method. Deferred taxliabilities are generally recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Property, plant and equipment Land and buildings held for use in the production or supply of services orgoods, or for administrative purposes, are stated in the balance sheet at theirbook value, being cost less any subsequent accumulated depreciation andsubsequent accumulated impairment losses. Fixtures and equipment are stated atcost less accumulated depreciation and any recognised impairment loss. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss. Where the asset does not generate cash flows thatare independent from other assets, the Group estimates the recoverable amount ofthe cash-generating unit to which the asset belongs. An intangible asset with anindefinite useful life is tested for impairment annually and whenever there isan indication that the asset may be impaired. Trade receivables Trade receivables are non-derivative financial assets which arise when the Groupprovides goods or services directly to a debtor with no intention of trading thereceivable. Any change in their value through impairment or reversal ofimpairment is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at fair value, net ofdirect issue costs. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are accounted for on an accrual basis inprofit or loss using the effective interest rate method and are added to thecarrying amount of the instrument to the extent that they are not settled in theperiod in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Derivate financial instruments and hedge accounting The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates and interest rates. The group uses foreignexchange forward contracts to manage these exposures. The Group does not usederivative financial instruments for speculative purposes. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows or against netinvestment in overseas subsidiaries are recognised directly in equity and theineffective portion is recognised immediately in the income statement. If thecash flow hedge of a firm commitment or forecasted transaction results in therecognition of an asset or liability, then, at the time the asset or liabilityis recognised, the associated gains or losses on the derivative that hadpreviously been recognised in equity are included in the initial measurement ofthe asset or liability. For hedges that do not result in the recognition of anasset or a liability, amounts deferred in equity are recognised in the incomestatement in the same period in which the hedged item affects net profit orloss. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting is discontinued when the hedging instrument expires, or issold, terminated, or exercised, or no longer qualifies for hedge accounting. Atthat time any cumulative gain or loss on the hedging instrument recognised inequity is retained in equity until the forecasted transaction occurs. If ahedged transaction is no longer expected to occur, the net cumulative gain orloss recognised in equity is transferred to net profit or loss for the period. Share based payments The Group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value (excluding theeffect of non market-based vesting conditions) at the date of grant. The fairvalue determined at the grant date of the equity-settled share-based payments isexpensed on a straight-line basis over the vesting period, based on the Group'sestimate of shares that will eventually vest and adjusted for the effect of nonmarket-based vesting conditions. Fair value is measured by use of a Black-Scholes model, except for the Long TermIncentive Plan (LTIP) awards which are subject to a Total Shareholder Return(TSR) performance condition where a model following similar principles to theMonte Carlo approach is used. The expected life used in the model has beenadjusted, based on management's best estimate, for the effects ofnon-transferability, exercise restrictions, and behavioural considerations. 4. Segment Information At 1 October 2006, the Group is organised into two geographical divisions; theUK and the Rest of Europe. These divisions are the basis on which the Groupreports its primary segment information. The segment results for the six months ended 1 October 2006 are as follows: UK Rest of Europe Unallocated Group £000 £000 £000 £000 Total gross segment sales 41,395 25,528 - 66,923 ======= ======= ======= =======Operating profit beforeamortisation and share schemecharges 3,680 3,840 - 7,520Intangible amortisation (147) (456) - (603)Share scheme charges - - (388) (388) ------- ------- ------- -------Operating profit afteramortisation and share schemecharges 3,533 3,384 (388) 6,529 ======= ======= ======= Finance costs - net (239)Other gains & losses (74) -------Profit before income tax 6,216Income tax expense (1,807) -------Profit for the period 4,409 ------- The segment results for the six months ended 2 October 2005 are as follows: UK Rest of Europe Unallocated Group £000 £000 £000 £000 Total gross segment sales 26,364 24,002 - 50,366 ======= ======= ======= =======Operating profit beforeamortisation and share schemecharges 2,506 3,508 - 6,014Intangible amortisation (49) (456) - (505)Share scheme charges - - (140) (140) ------- ------- ------- -------Operating profit afteramortisation and share schemecharges 2,457 3,052 (140) 5,369 ======= ======= ======= Finance costs - net (198) -------Profit before income tax 5,171Income tax expense (1,527) -------Profit for the period 3,644 ------- The segment results for the year ended 2 April 2006 are as follows: UK Rest of Europe Unallocated Group £000 £000 £000 £000 Total gross segment sales 67,677 49,185 - 116,862 ======= ======= ======= =======Operating profit beforeamortisation and share schemecharges 5,991 7,266 336 13,593Intangible amortisation (196) (911) - (1,107)Share scheme charges - - (450) (450)Exceptional items - - (998) (998) ------- ------- ------- -------Operating profit afteramortisation and share schemecharges 5,795 6,355 (1,112) 11,038 ======= ======= ======= Finance costs - net (491)- -------Profit before income tax 10,547Income tax expense (3,012) -------Profit for the period 7,535 ------- The Group's secondary segment information relates to its business segments;Patient Care, Surgical and Managed Equipment services. The following tableprovides an analysis if the Group's sales by business segment, irrespective ofthe origin of the goods and services: Sales revenue by business segment Half Year Half Year Year ended 1 Oct 06 2 Oct 05 2 April 06 £000 £000 £000 Patient Care 51,654 38,207 89,945Surgical 13,632 11,741 25,180Managed Equipment Services 1,637 418 1,737 -------- -------- -------- 66,923 50,366 116,862 ======== ======== ======== 5 Income tax expenses 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 £000 £000 £000 Current tax - UK 1,150 655 632Current tax - Overseas 1,179 883 2,509 -------- -------- -------- 2,329 1,538 3,141Deferred tax (522) (11) (129) -------- -------- -------- 1,807 1,527 3,012 ======== ======== ========6. Dividends 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006Half year ended 31 March: £000 £000 £000 Amounts recognised asdistributions to equity holdersin the period:Final dividend for the yearended 2 April 2006 of 5.00p(2005: - 4.3p) per share 1,852 1,587 1,587 ======== ======== ========Proposed interim divided forthe year ended 2 April 2007of 2.8p (2006: - 2.0p) pershare 1,038 739 739 ======== ======== ======== The proposed interim dividend was approved by the Board on 14 November 2006 andhas not been included as a liability in these financial statements. 7. Earnings per share 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 £000 £000 £000EarningsEarnings for the purposes ofbasic earnings per share beingnet profit attributableto equity holders of the parent 4,409 3,644 7,535 -------- -------- --------Number of shares Shares Shares Shares '000 '000 '000 Weighted average number ofordinary shares for the purposesof basicEarnings per share 37,026 36,884 36,929 Effect of dilutive potentialordinary shares:Share options 921 333 397 -------- -------- --------Weighted average number ofordinary shares for the purposesof dilutedEarnings per share 37,947 37,217 37,326 -------- -------- --------Earnings per ordinary share Basic 11.91p 9.88p 20.40p -------- -------- --------Diluted 11.62p 9.79p 20.19p 6 months 6 months 12 months ended ended ended 1 October 2 October 2 April 2006 2005 2006 £000 £000 £000Adjusted earnings per shareOperating profit 6,529 5,369 11,038Intangible asset amortisation 603 505 1,107Exceptional items - - 998 -------- -------- --------Adjusted operating profit 7,132 5,874 13,143Net finance costs (239) (198) (491) -------- -------- --------Adjusted profit on ordinaryactivities before taxation 6,893 5,676 12,652Taxation on adjusted profit onordinary activities (2,088) (1,779) (3,859) -------- -------- --------Adjusted profit for the financialperiod 4,805 3,897 8,793 ======== ======== ========Adjusted basic earnings per share 12.98p 10.57p 23.81p 8 Share-based payments The Group operates four separate share option schemes for employees anddirectors of the Group. The following table summarises the options outstandingby scheme at 1 October 2006 which have been valued in accordance with theprovisions of IFRS 2. Scheme Options Weighted Vesting Weighted Fair value outstanding at average option conditions average charge in 6 1 October 2006 price remaining life months to 1 in years October 2006 £'000 The approvedshare option plan 422,127 £3.45 4 years 2.3 36.6 The unapprovedshare option plan 810,008 £3.65 4 years 2.4 58.0 Sharesave Scheme 274,619 £3.27 3, 5 or 7 Years 2.8 42.6 Long-Term Incentive Plan 802,081 0.625p 50% EPS growth 2.1 251.0 50% position in TSR table -------- 388.2 --------The fair value of services received in return for share options granted toemployees is measured by reference to the fair value of share options granted.The estimate of fair value of the services received is measured based on aBlack-Scholes model for the approved, unapproved and Sharesave schemes and forthe EPS element of the LTIP Scheme. A model following similar principles to theMonte Carlo model has been used to calculate the fair value of the TSR elementof the LTIP scheme. 9 Acquisition of subsidiary On 1 July 2006 the Company acquired the entire issued share capital of WasserijAurora Utrecht B.V. ("Aurora") for a cash consideration of £542,000 (€800,000).Aurora provides linen management services in the Utrecht area of theNetherlands. In the three months to 1 October 2006, the business contributed£16,000 (€24,000) to consolidated operating profit. 10 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 of M&T at the date of disposal were £250,000. 11 Analysis of cash and cash equivalents 6 months 6 months ended 12 months ended ended 1 October 2 October 2005 2 April 2006 2006 £000 £000 £000 Cash at bankand in hand 7,887 2,308 11,051 12 Analysis of changes in net debt At 3 April Cash flows Translation At 1 October differences 2006 2006 £000 £000 £000 £'000 Cash and cashequivalents 11,051 (2,968) (196) 7,887 -------- -------- -------- -------- 11,051 (2,968) (196) 7,887Hire purchaseloans (5,786) 557 6 (5,223)Loans (8,008) 3,049 217 (4,742) -------- -------- -------- --------Net debt (2,743) 638 27 (2,078) -------- -------- -------- -------- 13 Statement of changes in equity Share Share Other Retained Total capital Premium Reserves earnings equity £000 £000 £000 £000 £000 Balance at 3 April2005 230 58,914 1,475 8,525 69,144 Issue of shares 1 136 - - 137Profit for the period - - - 3,644 3,644Dividends paid - - - (1,587) (1,587)Share based payments - - 242 - 242Exchange differences ontranslation of overseasoperations - - (133) - (133) - - ------ ------ ------ ------ ------Balance at 2October 2005 231 59,050 1,584 10,582 71,447Issue of shares - 122 - - 122Issue costs - - - -Profit for the period - - - 3,891 3,891Dividends paid - - - (739) (739)Share based payments - - 325 - 325Exchange differences ontranslation of overseasoperations - - 482 - 482Actuarial gainsand losses onpension scheme - - - 453 453 ------ ------ ------ ------ ------Balance at 2 April2006 231 59,172 2,391 14,187 75,981Issue of shares 1 98 - - 99Profit for the period - - - 4,409 4,409Dividends paid - - - (1,852) (1,852)Share based payments - - 470 - 470Exchange differences ontranslation of overseasoperations - - (884) - (884) ------ ------ ------ ------ ------ Balance at 1October 2006 232 59,270 1,977 16,744 78,223 ------ ------ ------ ------ ------ 14 Reconciliations between IFRS and GAAP The transition from previous UK GAAP to IFRS has been made in accordance withIFRS 1, First-time Adoption of International Financial Reporting Standards. TheGroup's financial statements for the six months ended 1 October 2006 and thecomparatives presented for the period ended 2 October 2005 comply with allpresentation recognition and measurement requirements of IFRS applicable foraccounting periods commencing on or after 3 April 2005. Reconciliation of equity at 3 April 2005 (date of transition to IFRS) Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000ASSETS Non-current assetsGoodwill b 28,708 (6,260) 22,448Other intangible assets c - 12,474 12,474Property, plant andequipment 45,426 - 45,426Trade and other receivables e - 362 362 ------- ------- ------- 74,134 6,576 80,710 ------- ------- -------Current assetsInventories 1,217 - 1,217Trade and other receivables e 12,235 (362) 11,873Cash and cash equivalents 14,100 - 14,100 ------- ------- ------- 27,552 (362) 27,190 ------- ------- -------Total assets 101,686 6,214 107,900 ======= ======= =======EQUITYShare capital 230 - 230Share premium 58,914 - 58,914Equity share reserve a - 296 296Translation reserve - 749 749Other reserves 430 - 430Retained earnings 9,104 (579) 8,525 ------- ------- -------Equity attributable toequity holders of the parent 68,678 466 69,144 ------- ------- -------LIABILITIESNon-current liabilities Borrowings 8,413 - 8,413Deferred tax liabilities d 960 5,450 6,410Provisions 1,746 - 1,746Obligations under hirepurchase loans 1,425 - 1,425Deferred Government grant 6 - 6 ------- ------- ------- 12,550 5,450 18,000 ------- ------- -------Current liabilitiesTrade and other payables 18,307 298 18,605Current tax liabilities 798 - 798Borrowings and overdraft 687 - 687Obligations under hirepurchase loans 666 - 666 ------- ------- ------- 20,458 298 20,756 ------- ------- -------Total liabilities 33,008 5,748 38,756 ------- ------- -------Total equity andliabilities 101,686 6,214 107,900 ======= ======= ======= Reconciliation of equity at 2 October 2005 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000ASSETS Non-current assetsGoodwill b 36,618 (7,592) 29,026Other intangible assets c - 14,909 14,909Property, plant andequipment 50,473 - 50,473Trade and otherreceivables e - 336 336 ------- ------- ------- 87,091 7,653 94,744 ------- ------- -------Current assetsInventories 5,683 - 5,683Trade and otherreceivables e 19,443 (336) 19107Cash and cashequivalents 5,397 - 5,397 ------- ------- ------- 30,523 (336) 30,187 ------- ------- -------Total assets 117,614 7,317 124,931 ======= ======= =======EQUITYShare capital 231 - 231Share premium 59,050 - 59,050Equity share reserve a - 538 538Translation reserve - 616 616Other reserves 430 - 430Retained earnings 10,667 (85) 10,582 ------- ------- -------Equity attributable toequity holders of theparent 70,378 1,069 71,447Minority interest 367 - 367 ------- ------- -------Total equity 70,745 1,069 71,814 ------- ------- -------LIABILITIESNon-current liabilities Borrowings 8,197 - 8,197Retirement benefitobligations f 1,589 81 1,670Deferred tax liabilities d 1,026 5,872 6,898Provisions 3,592 - 3,592Obligations under hirepurchase loans 1,424 - 1,424Deferred Government grant 232 - 232 ------- ------- ------- 16,060 5,953 22,013 ------- ------- -------Current liabilitiesTrade and other payables 24,409 295 24,704Current tax liabilities 1,834 1,834Borrowings and overdraft 3,607 - 3,607Obligations under hirepurchase loans 850 - 850Deferred Governmentgrant 109 - 109 ------- ------- ------- 30,809 295 31,104 ------- ------- -------Total liabilities 46,869 6,248 53,117 ------- ------- -------Total equity andliabilities 117,614 7,317 124,931 ======= ======= ======= Reconciliation of equity at 2 April 2006 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000ASSETS Non-current assetsGoodwill b 36,859 (6,199) 30,660Other intangible assets c - 14,307 14,307Property, plant andequipment 53,413 - 53,413Trade and otherreceivables e - 278 278 ------- ------- ------- 90,272 8,386 98,658 ------- ------- -------Current assetsInventories 4,733 - 4,733Trade and otherreceivables e 20,493 (275) 20,218Cash and cashequivalents 11,051 - 11,051 ------- ------- ------- 36,277 (275) 36,002 ------- ------- -------Total assets 126,549 8,111 134,660 ======= ======= =======EQUITYShare capital 231 - 231Share premium account 59,172 - 59,172Equity share reserve a - 863 863Translation reserve - 1,098 1,098Other reserves 430 - 430Retained earnings 13,962 225 14,187 ------- ------- -------Equity attributable toequity holders of theparent 73,795 2,186 75,981 ------- ------- -------LIABILITIESNon-current liabilities Borrowings 7,312 - 7,312Retirement benefitobligations f 1,309 561 1,870Deferred tax liabilities d 1,061 4,997 6,058Provisions 3,703 - 3,703Obligations under hirepurchase loans 4,288 - 4,288Deferred Governmentgrant 316 - 316 ------- ------- ------- 17,989 5,558 23,547 ------- ------- -------Current liabilitiesTrade and other payables 29,761 367 30,128Current tax liabilities 2,810 - 2,810Borrowings 696 - 696Obligations under hirepurchase loans 1,498 - 1,498 ------- ------- ------- 34,765 367 35,132 ------- ------- -------Total liabilities 52,754 5,925 58,679 ------- ------- -------Total equity andliabilities 126,549 8,111 134,660 ======= ======= ======= Reconciliation of net income for six months ended 2 October 2005 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000 Sales 50,366 - 50,366Cost of sales (33,207) - (33,207) ------- ------- -------Gross profit 17,159 - 17,159Administrative expenses a, c (11,148) (642) (11,790)Goodwill amortisation b (822) 822 - ------- ------- -------Operating profit 5,189 180 5,369 ------------------------ ------ ------- ------- -------Operating profit beforeamortisation and sharescheme charges 5,189 825 6,014Amortisation of otherintangibles - (505) (505)Share scheme charges - (140) (140)------------------------ ------ ------- ------- -------Investment income 367 - 367Finance costs (565) - (565) ------- ------- -------Profit before tax 4,991 180 5,171Tax d (1,805) 278 (1,527) ------- ------- -------Profit attributable toequity shareholders 3,186 458 3,644 ======= ======= ======= Reconciliation of net income for year ended 2 April 2006 Effect of transition to UK GAAP IFRS IFRS Note £000 £000 £000 Sales 116,862 - 116,862Cost of sales (80,438) - (80,438) ------- ------- -------Gross profit 36,424 - 36,424Administrative expenses a, c (22,765) (1,623) (24,388)Goodwill amortisation b (1,871) 1,871 -Exceptional costs (998) - (998) ------- ------- -------Operating profit 10,790 248 11,038 ------------------------ ------ ------- ------- -------Operating profit beforeamortisation and sharescheme charges 10,790 1,805 13,593Amortisation of otherintangibles - (1,107) (1,107)Share scheme charges - (450) (450)Exceptional costs (998) - (998)------------------------ ------ ------- ------- -------Investment income 673 - 673Finance costs (1,164) - (1,164) ------- ------- -------Profit before tax 10,299 248 10,547Tax d (3,684) 672 (3,012) ------- ------- -------Profit attributable toequity shareholders 6,615 920 7,535 ------- ------- ------- Notes to the reconciliations (a) The Group has applied IFRS 2: Share-based payments to its share optionschemes as detailed in note 8. The effect of accounting for equity-settledshare-based payments transactions at fair value is to increase employee benefitcosts by £98,000 in the twelve months to 3 April 2005, £140,000 in the sixmonths to 2 October 2005 and £450,000 in the twelve months to 2 April 2006. (b) Under IFRS 3: Business Combinations, amortisation of goodwill is notpermitted, instead goodwill should be reviewed annually for any impairment. Aspermitted under IFRS 1: First time adoption of IFRSs, the Group has elected toadopt the net book value of the goodwill in its balance sheet at 8 July 2004 asthe deemed value of goodwill for transition to IFRS. Under UKGAAP, amortisationof £1,157,000, £822,000 and £1,871,000 was charged in the periods to 3 April2005, 2 October 2005 and 2 April 2006 respectively, so on transition to IFRSthese charges have been reversed. (c) Under IFRS, if an intangible asset is acquired in a business combination,the cost of that intangible asset is its fair value at the acquisition date. Theacquisitions of Lips Textielservice Holdings BV, July 04, and Shiloh plc, August05, have been revisited and two intangible assets have been identified for Tradenames and Customer contracts and the related customer relationships. The fairvalue of these intangible assets has been assessed using the relief from royaltymethodology for the Lips trade name and the excess earnings method for thecustomer contracts of Lips and Shiloh. These intangible assets are beingamortised over 10 years except for the Lips customer contracts value which isbeing amortised over 15 years. The amortisation charged in the income statementfor the twelve months to 2 April 2005 is £666,000, for the six months to 2October 2005 is £505,000 and for the year ended 2 April 2006 is £1,107,000. (d) Under IFRS, deferred tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying value in the financial statements. Deferred tax is recognisedin the consolidated income statement except when it relates to an item that isrecognised directly in equity, in which case it is dealt with in theconsolidated statement of changes in equity. Adjustments have been made for additional deferred tax liabilities in respect ofthe following items: • Intangibles acquired on acquisition: tax that would be deductible if it was an allowable expense • revalued properties acquired as part of a business combination the corresponding adjustments to the above two items have been made through goodwill • depreciating properties, acquired as part of a business combination, which are not eligible for tax relief. (e) Trade and other receivables include amounts due after more than one year.These have previously been disclosed by way of note under current assets buthave now been reclassified as non-current assets. (f) Under IFRS the deferred tax asset in respect of the pension scheme liabilityis shown within deferred tax and the pension scheme liability is shown gross. Explanation of material adjustments to the cash flow statement for the periodended 1 October 2006 The transition from a UK GAAP to IFRS reporting basis does not have an impact onthe cash position of the Group. The adjustments to the income statement that areexplained above are either non-cash items, or have an equal and oppositeadjustment in working capital, so that the net cash from operating activitiesremains the same under IFRS as under UK GAAP.15. The financial information setout above does not constitute financial statements. The statutory financialstatements for the year ended 2 April 2006 have been delivered to the Registrarof Companies and the auditor's report on those financial statements wasunqualified and did not contain statements under section 240 of the CompaniesAct 1985. The financial information for the 26 weeks ended 1 October 2006 and 26weeks ended 2 October 2005 are unaudited. 16. This interim report is being sent to all shareholders and will be availableto the public from the company's registered office, Newmarket Drive, Derby, DE248SW. INDEPENDENT REVIEW REPORT TO SYNERGY HEALTHCARE PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 1 October 2006 which comprises the consolidated interimincome statement, consolidated statement of recognised income and expense,consolidated interim balance sheet, consolidated interim cashflow statement andthe related notes 1 to 16. We have read the other information contained in theinterim report which comprises only the chairman's statement and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. Our responsibilities do not extend to any otherinformation. This report is made solely to the company in accordance with guidance containedin APB Bulletin 1999/4 "Review of Interim Financial Information". This report isrequired by Rule 28.3(b) of the City Code and is given for the purpose ofcomplying with that rule and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company for our review work, for this report, or for the conclusion we haveformed. Directors' responsibilities The interim report including the financial information contained therein is theresponsibility of, and has been approved by, the directors. They are responsiblefor preparing the interim report and ensuring that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards of Auditing (UK & Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 1 October 2006. We have satisfied ourselves that the financialinformation, so far as the accounting policies and calculations are concerned,has been properly compiled on the basis stated. We have given and not withdrawnour consent to the publication of the interim report dated 14 November 2006 withthe inclusion in it of our report. GRANT THORNTON UK LLPCHARTERED ACCOUNTANTSBirmingham14 November 2006 REPORT BY THE FINANCIAL ADVISERS TO SYNERGY HEALTHCARE PLC We have read the financial information for the six months ended 1 October 2006which comprises the consolidated interim income statement, consolidated interimbalance sheet, consolidated interim cashflow statement and the related notes 1to 16. We have read the other information contained in the interim report whichcomprises only the chairman's statement and the independent review report fromGrant Thornton. We have discussed the financial information, the chairman'sstatement and the independent review report with the directors. We havesatisfied ourselves that the interim results report by the Company has been madewith due care and consideration. Brewin Dolphin Securities Ltd is required to make this report pursuant to Rule28 of the City Code on Takeovers and Mergers in connection with the Offer forIsotron plc announced on 25 October 2006. Brewin Dolphin Securities Ltd isacting for Synergy Healthcare plc and for no-one else in connection with theOffer and will not regard any other person as its client nor be responsible toanyone other than Synergy Healthcare plc for providing the protections affordedto clients of Brewin Dolphin Securities Ltd nor for providing advice in relationto the Offer or any matter referred to in this announcement. Brewin DolphinSecurities Ltd is authorised and regulated by the Financial Services Authority. We have given and not withdrawn our consent to the publication of the interimreport dated 14 November 2006 with the inclusion in it of our report. BREWIN DOLPHIN SECURITIES LTD14 November 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SYR.L