23rd Nov 2005 07:01
Synergy Healthcare PLC23 November 2005 Immediate Release 23 November 2005 Synergy Healthcare plc Interim Results for the 26 weeks ended 2 October 2005 Operating profit up 53% as business continues to grow in line with expectations Synergy Healthcare plc ("Synergy") is a significant supplier of Surgical andPatient Support services to hospitals in the UK and the Netherlands. Thebusiness has focused strategies that assist its customers to improve patientcare. On 5 August 2005 Synergy acquired Shiloh Plc, a UK supplier of healthcareproducts and services. Financial highlights* Turnover up 75% to £50.4 million (2004: £28.8 million)* Operating profit before goodwill amortisation up 55% to £6.0 million (2004: £3.9 million)* Profit before taxation up 48% to £5.0 million (2004: £3.4 million)* Operating cashflow generated of £11.7 million* Basic and adjusted earnings per share up 16% and 20% respectively to 8.63p and 10.63p* Interim dividend up 18% to 2.0p (2004: 1.7p) Operating highlights* UK pre-acquisition organic sales growth of 14% on a like for like basis* Following the opening of a new linen management facility in Dunstable, market share has increased by 3%* Underlying UK pre-acquisition margins stable before Dunstable start up costs* Netherlands operating margins improved by a further 1%* Synergy has been selected as preferred bidder for a large decontamination project in the Netherlands* Forward "order book" lifted to over £550 million Dr Richard Steeves, Chief Executive, commented: "I am very pleased that the business continues to perform well in what has beena challenging market. Synergy has a good business model working with all of thestakeholders in the business to achieve the outcomes desired by our customers.By continuing to invest in our infrastructure for the long term, the businesshas a solid foundation from which to grow and this is reflected in the positiveresults for the half year. "Looking forward the development of wider support services for patients togetherwith our surgical developments in the UK and Netherlands should see the Groupcontinue to sustain its consistent track record of growth and profitability." 23 November 2005 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 CHAIRMAN'S STATEMENT I am pleased to report a successful first half of the current financial year.The results have been achieved through strong performances from the existingbusinesses in the UK and the Netherlands validating Synergy's strategy andbusiness model. We are also pleased to report that Synergy has been selected aspreferred bidder for a large decontamination service in the Netherlands by oneof LTS' largest customers in line with the Group's strategy. As part of Synergy's strategy of focusing on key outcomes for its customers, anew Patient Support business has been created to widen the product and serviceportfolio. As part of this strategy Shiloh Plc (Shiloh) was acquired on 5 August2005 with its infection control, wound care, pressure management and continencecare programmes injected into the Patient Support business. The integration ofthis business began in earnest in September and it delivered a small positivecontribution to operating profit before goodwill in the period. Results and dividend The results for the half year are based on 26 weeks compared with 27 weeks forthe corresponding period in 2004. Group turnover was £50.4 million (2004: £28.8million) representing an increase of 75% over the corresponding period lastyear. Operating profit before goodwill increased by 55% compared with last yearto £6.0 million (2004: £3.9 million) with a 1.5% dilution of operating marginsbefore goodwill due primarily to the acquisition of Shiloh. Basic earnings per share have grown by 16% both on a diluted and non-dilutedbasis. The adjusted EPS has grown by 20% both on a diluted and non-dilutedbasis. Based on this strong performance the Board has declared an interim dividend of2.0p per share (2004: 1.7p), an increase of 18%. The dividend will be paid on 23December 2005 to shareholders on the register on 2 December 2005. Business review Synergy has performed well during the period with strong organic growth andimproved operating margins before the acquisition of Shiloh. Pre-acquisitionoperating margins before interest and goodwill amortisation increased 0.3% to13.7% (2004: 13.4%) although underlying gross margins dipped 0.2% to 33.9%(2004: 34.1%) as a result of the start up of the new linen management facilityin Dunstable. The Group has won further new business lifting the forward "orderbook" to over £550 million. UK UK turnover increased by 49% to £26.4 million (2004: £17.7 million), includingorganic growth in the existing UK business of 10%, which is equal to the trendrate of 14% on a comparable 26 week basis. UK operating profit grew to £2.5million (2004: £2.36 million) although operating margins declined as a result ofthe acquisition of Shiloh. The underlying operating margin pre-acquisition was12.7% (2004: 13.3%) down £0.12 million reflecting the start up costs of the newHealthtex facility in Dunstable. I am pleased to report that following the opening of the new Dunstable facilitythe Healthtex business has gained 3% market share to 15% which gives it criticalmass. The business will now form part of the Patient Support operation focusingon improving risk management and patient perception as the NHS introducespatient choice. The business will more aggressively promote the positiveoutcomes achieved by its services and in tandem with this strategy Synergy willfocus on increasing prices to reflect value creation. The Surgical business continued to perform well with increased sales fromIndependent Sector Treatment Centres and Primary Care Trusts. Most of the focusduring the last six months has been directed at bidding for new decontaminationcontracts. These projects are at various stages of development. The new supercentre strategy is being positively supported by Synergy with investments intechnology and operating methodologies that will result in improved servicescompared with the current in-house, local processing units. We are cautiouslyoptimistic that Synergy will win one or more of these new projects in the next12 months or so.Netherlands LTS in the Netherlands had a steady period with sales increasing to £24.0million (2004: £11.1 million) whilst operating margins increased 1.0% to 14.6%(2004: 13.6%). LTS has been focusing on acquiring market share from smallerindependents whilst the senior management have been focusing on the developmentof new opportunities in the surgical market. I am pleased to announce that Synergy has been selected as preferred bidder fora central decontamination project with one of LTS' largest customers. Theproject is due to reach financial close in June 2006. In addition two othersimilar projects are actively being developed as part of an underlying strategyto lead the decontamination market in the Netherlands. Cash flow Net operating cashflow in the period rose to £11.7 million, representing anincrease of 55% compared to last year. The Group continued to make a high levelof capital investments during the period, totalling £7.9 million. This included£2.4 million in relation to the new facility at Dunstable. The acquisition of Shiloh together with its overdraft of £4.8 million atacquisition involved a total cash outflow of £13.1 million during the period,all paid from the Group's existing cash resources.The investments in the Shiloh acquisition and capital equipment meant theGroup's net debt closed at £8.7 million, compared to £0.1 million last year andnet cash of £2.9 million at 3 April 2005. However, the Group remains relativelymodestly geared at 12.5% and had the benefit of £5.4 million of cash at bank atthe close of period. The board is also comfortable that it has substantial bankfacilities to continue to grow and invest in the business, including therequirements of the NHS' Decontamination programme. Acquisition A recommended cash offer of £1.30 per share was made on 29 June 2005 to Shiloh'sshareholders, which valued Shiloh's share capital at approximately £8.7 million.The Offer became unconditional on 5 August 2005 when the number of shareholderacceptances for the Synergy Offer passed the level of 75%. Accordingly, Shiloh'sresults have been consolidated in Synergy's results from that date. By 9 September 2005 the company had received acceptances for more than 90% ofvalue of the Shiloh shares to which the Offer related. Shortly thereafter,Synergy exercised its right under Section 429 of the Companies Act 1985 tocompulsorily acquire the balance of shares. As at the balance sheet date, the cost of the acquisition was included as £8.5million including £0.3 million of acquisition costs. The acquisition was fundedfrom Synergy's existing cash resources. Additionally, Shiloh had net debt of£5.4 million at the date of acquisition including an overdraft balance of £4.8million. Shiloh is a healthcare company providing products and services in the areas ofinfection prevention, pressure care, wound management, continence care,decontamination and mobility. The integration of Shiloh is progressing well anda new management structure has been established, rationalising reporting linesand providing clearer accountability. As part of the new structure a UK Patient Support Services business has beenestablished to include most of the Shiloh businesses together with Synergy'sexisting UK linen business (Healthtex). A marketing strategy is being developedto provide our UK customers with an integrated offering of products and servicesto meet their required outcomes, including risk management and increasedefficiency in the delivery of patient care. All of these core products andservices acquired with Shiloh will be developed to improve their technical andcompetitive performance. Shiloh's decontamination business Trust Sterile Services is being integratedwith Synergy's Surgical Support business combining the strengths and operatingknowledge of both businesses. Trust Sterile Services has been developing newmethodologies for specific stages of the decontamination process that can bedeveloped further with the benefit of Synergy's resources. Two patentapplications have been filed.The Mobility business has been split between contracted services and thenon-contracted sales business. The contracted services business is beingre-launched as a Managed Equipment business. Managed Equipment enjoys long termcontracts with the NHS and under Synergy's leadership will seek to grow anddevelop services in this exciting new area. The non-contract, sales side ofShiloh's Mobility business is under review. The integration of Shiloh is well underway. Over the last three years thebusiness has suffered from poor management, under investment and the absence ofa credible business model and strategy. Shiloh will now adopt Synergy'scorporate and operational strategies and a programme has been launched torestructure the business to correct the deficiencies created over the last threeyears. It is expected to take 18 months to complete the programme which willinclude a relocation of the business to modern and appropriate manufacturingfacilities. The initial stages of the programme have created annualised costsavings of over £1 million with a less complex management structure, togetherwith operating and purchasing synergies derived from the Group. Further workwill be undertaken over the coming 18 months to further improve the cost basewhilst at the same time lifting sales through investment in product innovation.It is expected that there will be exceptional costs arising from the integrationin the order of £1 million. Employees and management I am pleased to announce that Marcello Smit, Chief Executive of LTS has beenappointed to Synergy's Board with effect from today. Marcello has beeninstrumental in developing LTS and more recently the surgical business. I would like to thank the whole of our team in the UK and Netherlands for theircommitment to Synergy and at the same time extend a warm welcome to our newcolleagues joining from Shiloh. Outlook The primary focus of the Group during the second half will be cross sellingproducts and services across the enlarged UK customer base whilst in theNetherlands we expect to make further progress with the development of thesurgical business. We confidently look forward to another positive year for theGroup. Stephen Wilson Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT 26 weeks 27 weeks Year ended ended ended 2 October 3 October 3 April 2005 2004 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Turnover Continuing operations 43,479 17,689 35,718Acquisitions 6,887 11,082 36,173 --------- --------- --------- 50,366 28,771 71,891 Cost of sales (33,207) (18,960) (47,524) --------- --------- ---------Gross profit 17,159 9,811 24,367 Net administrative expenses (11,150) (5,943) (14,550)Goodwill - continuing operations (764) (139) (273)Goodwill - acquisitions (58) (333) (951) --------- --------- ---------Total net administrative expenses (11,972) (6,415) (15,774) Continuing operations 5,225 2,216 4,547Acquisitions (38) 1,180 4,046 --------- --------- ---------Operating profit 5,187 3,396 8,593 Net interest (198) (32) (144) --------- --------- ---------Profit on ordinary activities beforetaxation 4,989 3,364 8,449 Taxation on profit on ordinaryactivities (1,805) (1,218) (3,047) --------- --------- --------- Profit for the period 3,184 2,146 5,402 ========= ========= ========= Earnings per ordinary shareBasic 8.63p 7.41p 16.51pDiluted 8.47p 7.26p 16.17pAdjusted basic 10.63p 8.87p 20.08pAdjusted diluted 10.44p 8.70p 19.67p CONSOLIDATED BALANCE SHEET As at As at As at 2 October 3 October 3 April 2005 2004 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Fixed assets Intangible assets 36,618 30,595 28,708Tangible assets 50,473 42,947 45,426 --------- --------- --------- 87,091 73,542 74,134Current assetsStocks 5,683 1,189 1,217Debtors 19,443 13,457 12,235Cash at bank and in hand 5,397 12,649 14,100 --------- --------- --------- 30,523 27,295 27,552 Creditors: amounts falling due withinone year (30,700) (19,133) (22,042) --------- --------- --------- Net current (liabilities)/ assets (177) 8,162 5,510 --------- --------- --------- Total assets less current liabilities 86,914 81,704 79,644 Creditors:amounts falling due after more thanone year (11,862) (12,573) (9,844) Provisions for liabilities and charges (2,718) (4,006) (2,706) Pension liability (FRS17) (1,589) - - --------- --------- --------- 70,745 65,125 67,094 ========= ========= ========= Capital and reservesCalled up share capital 231 228 230Share premium account 59,050 58,639 58,914Merger reserve 430 430 430Profit and loss account 10,667 5,828 7,520 --------- --------- ---------Shareholders' funds 70,378 65,125 67,094 Minority Interest 367 - - ========= ========= ========= 70,745 65,125 67,094 ========= ========= ========= CONSOLIDATED CASH FLOW STATEMENT 26 weeks 27 weeks Year ended ended ended 2 October 3 October 3 April 2005 2004 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash inflow from operatingactivities 11,740 7,569 21,063 Returns on investments and servicingof financeInterest received 367 291 532Interest paid (537) (246) (537)Finance lease interest paid (62) (77) (139) --------- --------- ---------Net cash outflow from returns oninvestments and servicing offinance (232) (32) (144) --------- --------- --------- Taxation (669) (418) (2,541) Capital expenditure and financialinvestment Purchase of tangible fixedassets (7,907) (3,422) (11,456)Sale of tangible fixed assets 12 4 113Government grants received 337 - - --------- --------- ---------Net cash outflow from capitalexpenditureand financial investment (7,558) (3,418) (11,343) --------- --------- --------- AcquisitionsAcquisition of business (8,276) (32,648) (32,648)Overdraft acquired with business (4,781) (870) (877) --------- --------- --------- (13,057) (33,518) (33,525) --------- --------- --------- Equity dividends paid (1,587) (597) (1,217) FinancingIssue of ordinary share capital 137 37,501 37,778Issue costs - (1,193) (1,193)Repayment of borrowings (173) - (1,202)Capital element of finance leaserentals (393) (350) (681) --------- --------- ---------Net cash (outflow)/ inflow fromfinancing (429) 35,958 34,702 --------- --------- --------- --------- --------- ---------(Decrease)/ increase in cash (11,792) 5,544 6,995 ========= ========= ========= Reconciliation of net cashflow to movements in net (debt)/ funds(Decrease)/ increase in cash (11,792) 5,544 6,995Cash outflow from financing 173 - 1,202Cash outflow from finance leases 393 350 681 --------- --------- ---------Change in net funds resultingfrom cash flows (11,226) 5,894 8,878Finance leases/ loans acquiredon acquisition (577) (10,000) (10,000)Exchange differences 213 (295) (302) --------- --------- ---------Movement in net funds in theperiod (11,590) (4,401) (1,424)Net funds at beginning of period 2,909 4,333 4,333 --------- --------- ---------Net (debt)/ funds at end ofperiod (8,681) (68) 2,909 ========= ========= ========= MOVEMENT IN SHAREHOLDERS' FUNDS 26 weeks 27 weeks Year ended ended ended 2 October 3 October 3 April 2005 2004 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit for the period 3,184 2,146 5,402Dividends - (620) (2,204) --------- --------- --------- 3,184 1,526 3,198Issue of shares in period 137 37,655 37,931Currency translation differences (37) 244 265 --------- --------- ---------Net increase in shareholders funds 3,284 39,425 41,394Shareholders' funds at start of period 67,094 25,700 25,700 --------- --------- ---------Shareholders' funds at end of period 70,378 65,125 67,094 --------- --------- --------- Notes to the interim results for the twenty six weeks ended 2 October 2005 1. The interim results have been prepared on the basis of the accountingpolicies set out in the audited financial statements for the year ended 3 April2005, but with full adoption of FRS17 requiring that net assets and/ orliabilities relating to any defined benefit pension scheme are to be included inthe balance sheet, and FRS21 requiring that dividends declared after the balancesheet date are not provided for. 2. The directors have declared an interim dividend of 2.0p (2004: 1.7p) pershare payable on 23 December 2005 to shareholders on the register on 2 December2005. 3. The taxable charge is calculated for the period by applying an estimatedeffective Group tax rate of 36% (2004: 36%) for the 52 weeks to 2 April 2006 tothe profit before taxation for the period. The difference between the rate ofcorporate tax in the UK and the Netherlands and these effective rates ispredominantly due to most of the goodwill amortisation not being deductible fortax purposes. 4. The calculation of earnings per share is based on the profit after taxationfor the period divided by 36,884,101 (2004: 28,959,065, 2005: 32,726,883) sharesbeing the weighted average number of shares in issue during the period. Thediluted earnings per share has been calculated using 37,575,481 (2004:29,552,201, 2005: 33,408,818) shares which includes the weighted average numberof dilutive shares in respect of share options outstanding during the period of691,380 (2004: 593,136, 2005: 681,935). Basic and diluted earnings per sharebefore goodwill amortisation use profit on ordinary activities after taxationadjusted for goodwill amortisation. 5. On 28 June 2005 the company announced the terms of arecommended cash offer for Shiloh Plc (Shiloh) at £1.30 per share. Followingacceptances having been received from 75% of Shiloh's shareholders, the offerbecame unconditional on 5 August 2005 and accordingly Shiloh's results have beenconsolidated from this date. By 2 October 2005 the company had acquired 94% ofthe shares for a total consideration of £8.2 million. Costs of £0.3 million wereincurred in relation to the transaction. The calculation of Goodwill relating tothe Shiloh acquisition includes net fair value adjustments of £4.4 million,including £2.8 million relating to goodwill and intangible assets. The fairvalue adjustments are provisional at this stage. Additionally a net adjustmentof £1.6 million was required following the introduction of FRS17 relating toShiloh PLC's defined benefit pension scheme. 6. The financial information set out above does not constitutefinancial statements. The statutory financial statements for the year ended 3April 2005 have been delivered to the Registrar of Companies and the auditor'sreport on those financial statements was unqualified and did not containstatements under section 240 of the Companies Act 1985. The financialinformation for the 26 weeks ended 2 October 2005 and 27 weeks ended 3 October2004 are unaudited. 7. This interim report is being sent to all shareholders andwill be available to the public from the company's registered office, AscotDrive, Derby, DE24 8HE on 6 December 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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