Synergy Health PLC (SYR.L), a provider of outsourced healthcare support services, Wednesday reported an increase of 15% in its third-quarter sales, and said overall trading has been in line with its revised expectations. Issuing an update on its progress since September 28, 2008, the company said it remains on course to recover Group net operating margins to levels previously achieved by autumn of this year.
Sales in the third quarter increased to GBP 67.9 million from GBP 58.8 million reported for the same period in the previous year. Sales rose 11% in the UK and 21.7% in rest of Europe. In Asia and South Africa, sales increased 25%.
Synergy has won new contracts worth GBP 6.5 million per annum during the quarter, which includes GBP 2.5 million of new linen services work across the Netherlands and the UK, and GBP 4.0 million of new decontamination services work across three acute hospitals and two primary care trusts.
The company noted that health related sales to date have been relatively unaffected by the economic crisis. Though slow down continues in the company's drug and alcohol testing laboratory business in the UK, as well as the industrial use of its sterilisation processes for applications like materials modification, these two areas accounted for only GBP 2.4 million of the Group's sales this quarter, the company said.
Synergy remains on schedule to open a number of new facilities in the coming months. A significant part of the budgeted revenues for the new facilities is underpinned by long-term contracts with large customers.
The company has made significant progress within the Decontamination business. Synergy expects margins within this business to have fully recovered by the end of the next quarter. Margins in Healthcare Solutions are set to improve towards the end of this year as energy costs reduce. The company also expects to push through price rises in the coming months to offset the impact on costs of the rapid devaluation of Sterling.
The company closed one Dutch Healthcare Solutions facility in December and another one would close early in the new financial year together with a Healthcare Solutions' facility in the UK. The closures are aimed at increasing efficiency and reducing costs by further rationalising facilities.
The company noted that the debt position remains comfortably within covenants agreed with the company's syndicate of banks. Net debt was at GBP 167.4 million at the end of the 3rd quarter, while it was GBP 153.3 million at the end of the second quarter.
The increase in net debt was primarily driven by an increase in the Sterling value of Euro denominated debt arising from the devaluation of Sterling. As a mitigating action, EUR 30.1 million of debt was converted to Sterling during December at an average exchange rate of about 1.15 Euros to UK pounds' Sterling, leaving EUR 70.5 million in Euros.
The level of investment expenditure next year will be lower than this year, as the company focuses on improving margins and returns from recent investments and the existing portfolio.
Despite the difficult economic environment, Synergy expects to continue making progress in the next quarter. The Board's expectations for the results for the full year to March 30, 2009 remain unchanged.
In October, Synergy reported that first-half profit attributable to equity holders dropped to GBP 6.23 million or 11.36 pence per share from GBP 8.49 million or 15.53 pence per share last year. Profit for the period was GBP 6.28 million, lower than GBP 6.51 million in the prior-year period. Pre-tax profit fell to GBP 8.5 million from GBP 10.69 million a year earlier. The company's half-yearly revenue grew to GBP 133.1 million from GBP 102.02 million in the comparable period a year ago.
However, the company noted then that it expects its businesses to be resilient in the face of the anticipated economic slowdown and the Board continues to expect steady sales growth during the second half of the year.
SYR.L closed Tuesday's regular trade at 329.00 pence, down 17.25 pence or 4.98%, on 94,719 shares.
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