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Synergy Health plc Annual Report and Accounts 2014

Synergy Health plc Annual R

eport and Accounts 2014

Strategic report

Introduction

Who we are Synergy Health delivers a range of specialist outsourced services to healthcare providers and other customers concerned with health management. What we doOur services support our customers to improve the quality and efficiency of their activities, whilst reducing risks to their patients and clients.

Forward-looking statements This document contains certain forward-looking statements with respect to the operations, performance and financial position of Synergy Health. These forward-looking statements are subject to risks, uncertainties, and other factors which as a result could cause Synergy Health’s future financial position, performance and results to differ materially from the plans, goals and expectations set out in the forward-looking statements. Such statements are made only as at the date of this document and, except to the extent legally required, Synergy Health undertakes no obligation to revise or update such forward-looking statements.

Strategic report 1 Financial highlights8 Chairman’s statement10 Our business at a glance 12 Our business model14 Chief Executive’s strategic review17 Our long-term strategy18 Key performance indicators 20 UK & Ireland22 Europe & Middle East24 Americas26 Asia & Africa28 Financial review33 Principal risks and uncertainties38 Corporate social responsibility

Governance 40 Chairman’s Introduction to governance 42 Board of Directors 43 Senior Executive Board44 Corporate governance report51 Audit Committee report54 Remuneration Committee report64 Annual Report on Remuneration70 Nomination Committee report72 Directors’ report

Financial statements75 Independent auditor’s report 77 Consolidated income statement78 Consolidated statement of

comprehensive income79 Consolidated statement of financial position80 Consolidated cash flow statement 81 Consolidated statement of changes in equity82 Accounting policies87 Notes to the consolidated financial statements115 Company balance sheet116 Notes to the Company financial statements124 Financial calendar and advisors

2010 2011 2012 2013 2014

286.4 287.3312.0

361.2380.5

2010 2011 2012 2013 2014

39.743.0

49.0

56.261.3

2010 2011 2012 2013 2014

45.74

53.54

60.3265.58

70.59

2010 2011 2012 2013 2014

13.20

15.84

18.00

20.70

22.77

1 Before amortisation of acquired intangible assets and non-recurring items, as described in the Financial review.

Adjusted1 operating profit £61.3m+9.1%

Revenue £380.5m+5.3%

Adjusted1 basic earnings per share 70.59p+7.7%

Dividend 22.77p+10.0%

Strategic report

Financial highlights

How we create value

Expand Our strategy is to continue to expand our revenues and further internationalise the Group, through organic growth and through bolt-on acquisitions to improve the scale of our operations in a specific market or expand the depth of our services.

FocusOur strategy is to focus solely on niche services that have high barriers to entry, significant value-added content, and a global potential.

Cost leadershipOur strategy is to exercise Group-wide cost leadership, in order to best focus our resources on delivering our customers’ needs.

DifferentiateOur strategy is to differentiate our services through our people, via our shared values of achievement, integrity, accountability and innovation, and through our investments in technology.

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1Synergy Health plc Annual Report and Accounts 2014

Reliable, cost-effective sterilisation underpins the efficiency of our customers’ operations, and ensures their medical instruments and devices are safe to use.

Investment case

Critical.

Synergy provides a critical service for our hospital and medical device manufacturing customers. Synergy deploys the full range of technologies, worldwide, to sterilise instruments and devices for our customers: gamma irradiation, electron, ion and x-ray beam treatments, plasma and ethylene oxide sterilisation. These technologies provide niche high-value solutions and, combined with our accumulated expertise and the strength of our quality systems, make Synergy a critical part of the healthcare market.

By comparison, in-house sterilisation units often lack investment, training and instrument tracking technologies. Research shows that high levels of flash sterilisation in many in-house hospital sterilisation units lead to higher rates of post-operative infections. Across many of our markets, we can see more demanding regulatory requirements driving business opportunities for our services.

2 Synergy Health plc Annual Report and Accounts 2014

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Resilient.We are a niche service provider operating globally in regulated markets with high barriers to entry. Our stable underlying business mitigates risk and provides a platform for growth.

Investment case


Resilient.Synergy’s businesses enjoy significant barriers to entry which make it difficult for customers or potential competitors to achieve our low costs and efficiencies.

One such barrier is our extensive global network of processing facilities, including the backup capacity that is essential to meet our customers’ needs. This investment would be expensive and time-consuming to replicate.

Further, approximately 50% of the Group’s revenue is derived from long duration contracts (between three and 40 years). In our Applied Sterilisation Technologies (‘AST’) business, where long-term contracts are not typical, Synergy has worked hard to build long-term relationships with customers and enjoys excellent retention.

Our businesses have accumulated significant technical expertise. Our AST business includes the design, operation and maintenance of facilities utilising radioactive cobalt, and electron and x-ray beam irradiators. Our Hospital Sterilisation Services (‘HSS’) business holds the knowledge, data and expertise required to rapidly outsource a complex logistical environment whilst generating significant operational and total-cost efficiencies for the customer.

Finally, all our businesses must comply with stringent regulatory standards, which are maintained using the complex systems and quality procedures that Synergy has developed over its 22-year history.

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Growing.We are a dynamic business realising the growth opportunities within our global markets. We are delivering on our growth strategies, and leveraging our potential to exploit exciting future prospects.

Investment case


Growing.Synergy is the largest global provider of outsourced Hospital Sterilisation Services (‘HSS’), and has the scale to differentiate itself from in-house solutions and commercial competitors by continuing to invest in new technology. This presents an opportunity to revolutionise the assembly of surgical instrument trays, as well as decrease risk in the operating theatre. With recent wins of £48 million per annum in the US and China, together with a re-opening of the UK market, the Group is poised to see a strong return to growth.

Synergy is the second largest global provider of Applied Sterilisation Technologies (‘AST’), and the largest outside of the US. Our objective is to grow AST through a combination of organic growth and acquisitions, whilst differentiating our services through technology and our people. During the year we opened a new gamma facility in Marcoule, France, began utilising new capacity in Venlo, Holland and, after the year end, completed the acquisition of Bioster Group in Italy, extending our network further east into Italy, Slovakia and the Czech Republic.

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Synergy remains well placed to exploit its core competitive strengths, strong operational capabilities and internationally respected brand.

Strategic report

Chairman’s statement

Dear Shareholder,I am pleased to report that Synergy has continued to make further progress with its objective to expand internationally, win new contracts and to build a forward order book that will result in a sustainable increase in growth. Our decision to enter the US market has resulted in two of the largest contract wins in Synergy’s history, worth a combined £40 million of annualised revenues, and will pave the way for future development of the US outsourcing market. Similar progress, albeit on a smaller scale, is being made in China with the rapid expansion of our hospital sterilisation network.

ResultsOur progress in 2014 delivers a robust set of results achieved in challenging economic conditions, with significant growth in operating profit and earnings per share. Reported revenue of £380.5 million (2013: £361.2 million) was up 5.3%, and after removing the impact of currency movements was up 4.1%. Adjusted operating profit was £61.3 million (2013: £56.2 million), representing an increase of 9.1%. Underlying adjusted operating profit growth was 7.9%. Adjusted operating margin increased to 16.1% (2013: 15.6%), an increase of 50 basis points.

Over one quarter of our revenue now comes from our Americas and Asia & Africa regions, up from 22% in 2013, and we expect this trend to remain in place for some time.

We have continued the restructuring of our Dutch linen business and closed and consolidated a further two facilities during the year. The combined effects of acquisition-related expenditure and Dutch restructuring costs resulted in non-recurring costs of £3.3 million. After taking account of amortisation, non-recurring items and acquisition-related costs, profit before tax increased by 13.0% to £42.9 million (2013 restated: £38.0 million).

Shareholder returnDriven by the growth in revenue and operating margin, adjusted basic earnings per share before intangibles, amortisation, non-recurring items and acquisition-related costs amounted to 70.59p (2013 restated: 65.58p), an increase of 7.6%. After taking account of amortisation, non-recurring items and acquisition-related costs, basic earnings per share were 57.81p (2013 restated: 53.00p), an increase of 9.1%. The final dividend will be paid, subject to shareholder approval, on 4 September 2014 to shareholders on the register as at 8 August 2014.

An interim dividend of 8.57p per share (2013: 7.90p) was paid to shareholders on 13 December 2013. The Board is proposing a final dividend of 14.20p, which together with the interim dividend would give dividends for the year totalling 22.77p (2013: 20.70p) representing a 10.0% increase.


Business development and acquisitionsIn 2013/14, we won a number of contracts that in aggregate added £0.5 billion to our forward order book, which now stands at £1.5 billion including contracts at preferred bidder stage. In addition we opened one new gamma irradiation facility at Marcoule, France and, after the close of this financial year, acquired the Bioster Group for €29 million net of cash and debt, extending Synergy’s Applied Sterilisation Technologies network into Italy and Eastern Europe.

Further details of this acquisition and other investments are disclosed in the Regional Operating Review, and in the notes to the financial statements. Our strategy of growing key industry sectors through acquisitions is unchanged, and with our strong financial position we will continue to consider targeted bolt-on acquisitions and to evaluate strategic acquisitions to increase shareholder value.

The BoardOn 25 July, 2013, it was announced that Dr Richard Steeves, Group CEO would succeed me as Non-Executive Chairman of the Group upon my retirement on 31 March 2014, and that Dr Adrian Coward would take over from Richard as Group CEO. On account of the expanding opportunities for growth in outsourced hospital sterilisation services in the US, and as the Group continues to grow, there is a need to split strategic and operational oversight via a separate CEO and COO. Therefore, the Board has decided that Dr Steeves should defer his move from CEO to Chairman and similarly I have delayed my retirement. Dr Adrian Coward, formerly CEO for the UK & Ireland region, has now taken on a broader role as Chief Operating Officer for the Group and joined the Board on the 31 March 2014.

Jeff Harris joined the Board as the Senior Independent Non-Executive Director in September 2013. Jeff brings impressive business and governance experience from his time as Chief Executive and then Chairman of Alliance UniChem plc, and through serving on a number of other plc boards.

Tim Mason, Group Company Secretary, is to retire at the conclusion of the next annual general meeting ('AGM'), on 23 July 2014. Jon Turner, currently Head of Tax and Treasury, will assume a broader role, becoming Group Company Secretary at that time. The Board would like to thank Tim for his excellent support over the last five years, and wish Jon every success in his new role.

The Board places great emphasis on governance and is mindful of its responsibility to promote the long-term interests of the Company for all our stakeholders. This is described in detail in the governance section of our Annual Report, on pages 40 to 74.

Corporate responsibility We give high priority to compliance and ethics, as well as health, safety and the environment. Our core values of integrity, innovation, accountability and achievement are central to the relationships we have with all our stakeholders, and underpin how we treat our customers, our suppliers, and the wider communities in which we operate. Details of the Group’s approach to corporate and social responsibility are disclosed on page 38 of the strategic review.

Our peopleI would like to take this opportunity to thank all staff for their focus and engagement throughout the year. Synergy’s well-earned reputation for operational excellence, and its ability to deliver on its commitments to customers, is testament to the effectiveness of those efforts and the shared values to which we all subscribe.

OutlookSynergy remains well placed to exploit its core competitive strengths, strong operational capabilities and internationally respected brand. The business has a number of opportunities for earnings-enhancing investment, and the Board is confident that these will deliver strong growth in shareholder value over the coming years.

Sir Duncan NicholChairman4 June 2014

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1

2

3

4

1. UK & Ireland £164.7m

2. Europe & Middle East £119.1m

3. Americas £77.8m

4. Asia & Africa £18.8m

1

2

3

4

1. UK & Ireland £34.7m

2. Europe & Middle East £20.0m

3. Americas £8.8m

4. Asia & Africa £3.7m

1

2

3

4

1. UK & Ireland 2,216

2. Europe & Middle East 1,574

3. Americas 884

4. Asia & Africa 331

Our business Synergy’s core services are the sterilisation of medical devices, infection control and environmental management services, and other niche outsourced services such as laboratory services (pathology, toxicology, food testing and microbiology).

Synergy’s strategy in these markets, the majority of which are regulated with high barriers to entry, is to gain consolidated, competitive positions with scale benefits which enable it to leverage pricing power with cost leadership programmes.

In addition, through the quality of its management team and the skills of its staff, Synergy seeks to offer a differentiated service from its competitors, focusing on customers’ desired outcomes and business solutions.

Our markets Synergy’s four regions provide us with a mix of established markets, where we continue to invest and improve our service offer to our customers, and growth markets, where we are establishing a significant presence and building a strong reputation with local hospitals and healthcare organisations as a trusted sterilisation provider.

Strategic report

Our business at a glance

Hospital Sterilisation Services (HSS) Applied Sterilisation Technologies (AST) Healthcare Solutions

Sectors Outsourced hospital sterilisation provides a high quality instrument sterilisation service for reusable medical and surgical equipment used in operating theatres.

This service also extends across other hospital departments, primary care facilities and orthopaedic loan set suppliers.

Synergy provides the full range of sterilisation technologies, including gamma irradiation; electron, ion beam and x-ray beam treatments; and ethylene oxide sterilisation. Our customers are drawn from medical device, pharmaceutical and industrial sectors.

Synergy Health is the world's second largest provider of outsourced applied sterilisation services.

Our Healthcare Solutions segment covers a range of services involved in managing the environment in a healthcare setting.

The services primarily involve infection control with services such as linen management, hand hygiene and hard surface systems, occupational health and laboratory services.

Contribution to Group revenue

22.6% 30.2% 47.2%Financial highlights £85.8m

Revenue£115.0m Revenue

£179.7m Revenue

Employees by market

Revenue by market Operating profit by market


Healthcare Solutions

015369_Synergy_AR12_01-31.indd 4 19/06/2012 12:47

Hospital Sterilisation Services (HSS) Applied Sterilisation Technologies (AST) Healthcare Solutions

Sectors Outsourced hospital sterilisation provides a high quality instrument sterilisation service for reusable medical and surgical equipment used in operating theatres.

This service also extends across other hospital departments, primary care facilities and orthopaedic loan set suppliers.

Synergy provides the full range of sterilisation technologies, including gamma irradiation; electron, ion beam and x-ray beam treatments; and ethylene oxide sterilisation. Our customers are drawn from medical device, pharmaceutical and industrial sectors.

Synergy Health is the world's second largest provider of outsourced applied sterilisation services.

Our Healthcare Solutions segment covers a range of services involved in managing the environment in a healthcare setting.

The services primarily involve infection control with services such as linen management, hand hygiene and hard surface systems, occupational health and laboratory services.

Contribution to Group revenue

22.6% 30.2% 47.2%Financial highlights £85.8m

Revenue£115.0m Revenue

£179.7m Revenue

UK & Ireland + AST, HSS, linen, laboratory and medical products businesses

+ 39 sites in the UK & Ireland

+ 2,215 employees

+ Strong medical device market

+ Austerity measures holding back spending in national health services

Europe & Middle East + AST, HSS, linen and laboratory businesses

+ 49 sites in France, the Netherlands, Switzerland, Germany and the UAE

+ 1,575 employees

+ Contracting healthcare market in the Netherlands

+ Opening of new gamma facility in Marcoule, France and commenced utilisation of new capacity at Venlo, the Netherlands

Americas + AST, HSS, and linen businesses

+ 30 sites in the US and Costa Rica

+ 885 employees

+ AST market slowed by Affordable Care Act uncertainty

+ Work progressing on new Bethpage HSS supercenter

+ HSS market offers significant potential for growth

Asia & Africa + AST and HSS businesses

+ 9 sites in South Africa, Malaysia, Thailand, Hong Kong and China

+ 330 employees

+ Work progressing on new China HSS facilities at Wuhan, Chengdu and Nanjing

+ AST growth driven by US multinationals outsourcing to Asia

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Strategic report

Our business model

Synergy delivers a range of specialist outsourced services to healthcare providers and other customers concerned with health management. In performing these services, Synergy supports its customers to improve the quality and efficiency of their activities, whilst reducing risks to their patients and clients.

In addition to core healthcare services, there is a wide demand for our services in other markets. Within our applied sterilisation technologies business we provide services to a diverse range of customers including food manufacturing, pharmaceutical manufacturing and veterinary medicine.

During the year to 30 March 2014 Synergy delivered services via a regional structure, with management teams responsible for our businesses in the UK & Ireland, Europe & Middle East, Asia & Africa, and the Americas. On 1 April 2014, the Board decided to restructure the Group, replacing the regional structure with a service line structure focused on three key global services – Applied Sterilisation Technologies, Healthcare Services and Linen.

This change will enable the Group to more effectively implement its strategic objectives and deliver the global organic growth we are striving for, whilst maintaining our established reputation for operational excellence. Further, a sustained focus on services and customer needs will allow the Group to react more swiftly to emerging opportunities. Whilst the management of each business is encouraged to adopt an entrepreneurial style, they operate within a well-developed and consistently applied framework of operational and financial control.

Synergy’s growth over the last twenty years, both organic and by acquisition, has built the world’s largest supplier of outsourced hospital sterilisation services, and the world’s second largest supplier of applied sterilisation technologies. The Group’s size, structure and accumulated expertise provide it with a strong platform to deliver sustained technological development, customer focus, and robust quality management systems. These strengths are critical to creating and enhancing sustainable value.

Applied Sterilisation Technologies

How the business worksApplied sterilisation technologies (‘AST’) encompasses a range of sterilisation techniques including gamma irradiation, electron, ion and x-ray beam irradiation, and ethylene oxide. Its customers are mainly drawn from the medical, pharmaceutical and biologicals markets, including a large number of multinational medical device manufacturers. In addition, our facilities typically provide sterilisation consultancy, laboratory services and logistics services to support the customer relationship. We operate the world’s second largest outsourced sterilisation business, and the largest outside the US.

How we build long-term valueWe provide services which are mission-critical for our customers, but at a level of efficiency which they cannot attain in-house. Our facilities are capital intensive and static; our success in delivering sustained economic value depends upon delivering exceptional customer satisfaction in long-term customer relationships in order to match capacity to long-term demand.

Our locationsSynergy operates 31 AST facilities in 12 countries across 4 continents: in the US, Costa Rica, Ireland, the UK, France, the Netherlands, Switzerland, Germany, South Africa, Malaysia, Thailand, and China. On 16 May 2014, Synergy acquired the Bioster Group, adding 9 facilities in Italy, Slovakia and the Czech Republic, and a small joint venture in Egypt.

Creating sustainable value

Share of Group revenue


Hospital Sterilisation Services Healthcare Solutions

How the business worksWe operate the world’s largest outsourced hospital sterilisation services (‘HSS’) business. Synergy provides a sterilisation service for reuseable medical and surgical equipment used in hospital operating rooms. This service also extends across other hospital departments, primary care facilities, dentistry practices and orthopaedic loan set suppliers. Our scale and expertise in hospital sterile services has enabled us to invest in the development and exploitation of potentially transformational technology. Our investment in RFID for mass instrument reading is a powerful advance which strengthens the economic case for outsourcing, via improved patient safety and service quality.

How we build long-term valueSynergy provides an essential service at an efficiency and cost which in-house competitors cannot match, whilst increasing operating room utilisation rates and reducing the incidence of hospital-acquired infections. Our ability to deliver this is built upon well-honed operating procedures, long-term customer contracts, a proprietary instrument management application (‘SynergyTrak™’), and our global scale, which enables us to invest in further technological innovation.

How the business worksOur Healthcare Solutions businesses provide a range of services involved in managing the environment in a healthcare setting. The services primarily involve infection control, incorporating hospital linen management, hand hygiene, hard surface systems, occupational health and laboratory services. Our laboratory services business in particular is expected to be a source of future growth, incorporating pathology, toxicology, food testing and microbiology.

How we build long-term valueThe range of products and services delivered by our healthcare solutions businesses deliver value through efficient excellent customer service, a focus on innovation, and a strategy of cost-leadership which enables us to target our resources on our customers’ needs.

Our locationsSynergy operates 48 HSS facilities in 4 countries: in the US, the UK, the Netherlands, and China. Work is ongoing to complete a number of significant new HSS facilities in the US and China. On 16 May 2014, Synergy acquired the Bioster Group, adding a number of further HSS contracts in Italy.

Our locationsSynergy operates Healthcare Solutions businesses in 4 countries: the US, the UK, the Netherlands and the UAE. Our healthcare products business sells worldwide from its head office in the north of England.

Share of Group revenue Share of Group revenue

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Strategic report

Chief Executive's strategic review

IntroductionSynergy is a global leader in outsourced sterilisation services for medical device manufacturers, hospitals and other industries. Worldwide, we operate a complete range of sterilisation technologies including gamma, ethylene oxide (‘EtO’), electron beam, x-ray, steam and plasma. Across the healthcare industry, Synergy also provides other niche outsourced services such as laboratory services (pathology, toxicology, microbiology, and food and allergen testing) and healthcare linen services. All of our businesses have the benefit of significant barriers to entry, stable long-term contracts and good cash generation.

Writing last year, I anticipated that 2013/14 could mark an inflexion point for Synergy with a return to stronger organic growth. This year we have won new long-term contracts worth £39 million per annum in the US, £6.7 million per annum in the UK, and approximately £2.1 million per annum in Asia. Our forward order book has jumped from £1.0 billion to £1.5 billion. We have also progressed over half way to our target of having 50% of our revenue generated outside the UK and Europe. The Americas and Asia & Africa regions now account for 25.4% of revenue and 20.4% of our adjusted operating profits, in the context of the Group’s reported revenues of £380.5 million (2013: £361.2 million) and adjusted operating profits of £61.3 million (2013: £56.2 million). In constant currency, revenue growth was 4.1% and adjusted operating profit growth was 7.9%.

Although our order book has grown significantly, the new contracts won will commence over the next eighteen months, and hence were not reflected in this year’s revenues. In addition, it has been a difficult year with little, if any, healthcare volume growth in the developed countries, caused by the Affordable Care Act in the US and continued austerity measures in the UK and Europe. We have also seen a further decline in Dutch linen revenues of 10.9% in constant currency terms and the last fiscal quarter, which is usually our strongest, was affected by extreme weather in the US and Europe. On a constant currency basis, growth for the year was a respectable 8.6% excluding linen. In light of the Dutch linen concerns we reviewed the Group strategy in November and a number of changes are being implemented during the new fiscal year.

Our objective is to grow revenue and earnings by approximately 15% per annum through a combination of organic and acquisitive growth.


Strategy Our objective is to grow revenue and earnings by approximately 15% per annum through a combination of organic and acquisitive growth. With inflation no greater than 2% and volume growth in a similar 0-2% range for the next few years, the growth challenge is significant. Our addressable markets are very large however, with the global AST market estimated to be worth £1.5 billion per annum, the UK HSS market worth £0.3 billion per annum and the US HSS market worth £1.8 billion per annum. To address the growth challenge we have implemented a four-step plan that builds on our US-UK operating axis. The key objectives and strategies are to:

a) Grow AST by at least 10-12% per annum by continuing to internationalise the network through organic growth and acquisitions, whilst differentiating our services through technology and our people.

During the year we opened the new gamma facility in Marcoule France and after the year end, acquired the Bioster Group in Italy, extending our network across Southern and Eastern Europe with facilities in Italy, Slovakia and the Czech Republic. Globally Synergy’s AST business is number two in the world and has the largest processing capacity.

b) Grow HSS by 10-20% per annum by focusing our outsourcing growth in the US, UK and Asia, whilst offering easily scalable HSS technologies to a broader market.

Our own surgical instrument management software, SynergyTrak™ (formerly known as TrakStar), supported by radio-frequency identification (‘RFID’) technologies, will increase operating room utilisation and reduce patient risk.

Synergy is the largest provider of healthcare outsourcing services globally, and has the scale to differentiate itself from in-house solutions and commercial competitors by continuing to invest in new technology. For example, Synergy recently introduced a new, patented RFID tunnel reader that can mass-read a large tray of instruments with one hundred per cent accuracy in less than 40 seconds. This presents an opportunity to revolutionise the assembly of instrument trays, as well as decrease risk in the operating room. We will continue to invest in research and development (‘R&D’) with the recruitment of a Chief Technology Officer and a ring-fenced R&D budget of 0.5% of revenue per annum.

With recent wins of £41.1 million per annum in the US and China, together with a re-opening of the UK market, the Group is poised to see a strong return to growth. We will see the revenue impact of the first of these large contracts starting in September 2014 and the second in May 2015.

c) Expand the linen services into service adjacencies to broaden their growth prospects and reduce our dependency on pure linen. Whilst the UK service has done well, winning contracts worth over £5.1 million per annum, the Dutch service is seeing a further contraction in their market as the Dutch health service restructures long-term care. The current strategy for this service is very much based on cost leadership, so that at any given price, we intend to make a higher margin than our competitors. Our focus in the new financial year is to restore revenue growth.

d) Expand Synergy’s services into a third market with very strong adjacencies to both the AST and HSS businesses. Our attention is broadly focused on the inspection, testing and certification market, building on our existing laboratory business. During the year we acquired Genon Limited, a small UK-based food testing laboratory, and we anticipate further acquisitions to help create scale in this space. We expect this new service to gain momentum during 2015 and beyond.

Leadership and a revised Group structureIt remains a cornerstone of Synergy’s strategy to rapidly internationalise our business and to decrease our reliance on Europe. However, we have to recognise that the US/UK axis is becoming increasingly important, as is the need to extract scale benefit from our global operations in each service line. Accordingly the Board has decided to restructure the Group in the new fiscal year, replacing our regional structure with a service line structure. In addition we have split the role of the Group Chief Executive Officer (‘CEO’), creating a Chief Operating Officer (‘COO’) role to oversee the day-to-day operations, whilst the CEO focuses on strategy and long-term planning. I have remained in my role as Group CEO, and the former CEO of the UK & Ireland region, Dr Adrian Coward, has become our COO and joins the plc Board.

Our scale and expertise in hospital sterile services has enabled us to invest in the development and exploitation of potentially transformational technology such as RFID.

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Strategic report

Chief Executive's strategic review continued

We believe that this structure will enable us to implement the new strategy effectively and to deliver the global organic growth we are striving for, whilst maintaining our reputation for operational excellence and delivering a service that generates outstanding value for our customers.

During the year we began the search for a Chief Technology Officer to lead the R&D programme. Elsewhere in the Group, we have made several senior leadership appointments to strengthen management, including:

+ Global Vice President of Quality Assurance and Regulatory Affairs

+ Global Vice President of Human Resources

+ Global President AST & Laboratories

+ US President AST

+ US President HSS

Finally, on 16 May 2014 we completed our acquisition of the Bioster Group. Bioster operates nine AST sites, including six in Italy, one each in Slovakia and the Czech Republic and a small Joint Venture in Egypt. All the non-Italian facilities specialise in EtO sterilisation, whilst in Italy, electron beam sterilisation is offered at the Seriate, Bastia di Rovolon and Poggior Rusco facilities. The remaining Italian facilities also offer EtO sterilisation, as does Poggior Rusco, providing access to both technologies at the one site. In addition, Bioster engages in HSS outsourcing, with twelve facilities across Milan, Venice, Florence, Pescara and Naples. As with previous AST acquisitions, we expect that Bioster’s rate of growth will increase as part of Synergy’s global AST network and strong brand recognition in the global medical device market.

Financial strengthSynergy is a robust business and in good shape with an internationally diversified business providing value-added services underpinned by long-term contracts. Cash generation remains strong, with adjusted EBITDA increasing by £4.0 million to £103.3 million (2013: £99.3 million), before non-recurring items. Net debt reduced to £147.6 million, reducing gearing to 1.5 times EBITDA, well below our internal ceiling of net debt to EBITDA of 2.5 times.

Outlook The Board is confident that Synergy’s updated strategy will build on the success we have seen in recent months with new contract wins. The continued internationalisation of our services is broadening the available market, whilst our new structure, recent appointments and new service range will contribute towards a faster rate of growth. We have a vision for how Synergy’s services will integrate with the needs of the changing healthcare industry, and are actively increasing our expenditure in R&D to ensure that we remain on top of technological advancements that could revolutionise our sector. Through our global expertise and investment in technology and solutions delivery we have an increasingly attractive value proposition to help our customers address the challenges that they face.

Looking ahead, our new contract wins of £43 million per annum will be implemented over the next sixteen months, raising our growth rate. In the short to medium term we expect to see a 0.5% reduction in operating margins as we channel investment into R&D, but this investment will be offset by our growing bid books and bid conversions that will ultimately drive top-line growth. We have confidence in our strategy, and in our realigned and significantly expanded leadership team to implement our strategy.

Dr Richard M Steeves Chief Executive 4 June 2014

I am confident that Synergy’s updated strategy will build on the success we have seen in recent months with new contract wins. The continued internationalisation of our services is broadening the available market, whilst our new structure, new talent and new service range will contribute towards a faster rate of growth.


Lead

Differen

tiate

Ex

pand

Focus

Growing sustainable

value

Principal risks and uncertainties

To achieve sustainable growth in shareholder value we have a strategy to develop niche, high value-added outsourcing services with global potential, to health-related markets.

Our present focus is on high growth markets including Asia and the Americas, where we are principally developing our sterilisation services.

We deliver our services more efficiently than our competitors by employing a cost leadership strategy taking advantage of our global scale and the deployment of technology. We also strive to competitively differentiate ourselves through our people by the way we deliver our services, reflected in our core values of integrity, innovation, achievement and accountability.

Our long-term strategy

Expand the business internationallyOur strategy is to continue to expand our revenues and further internationalise the Group, through organic growth and through bolt-on acquisitions to improve the scale of our operations in a specific market or expand the depth of our services.

Cost leadershipOur strategy is to exercise Group-wide cost leadership, in order to best focus our resources on delivering our customers’ needs.

Focus on high value-added servicesOur strategy is to focus solely on niche services that have high barriers to entry, significant value-added content, and a global potential.

Differentiation from our competitorsOur strategy is to differentiate our services through our people, via our shared values of achievement, integrity, accountability and innovation, and through our investments in technology.

Key performance indicators (KPIs) Corporate governance

Read more page 18 Read more page 33 Read more page 40

Our values underpin who we are as a business

AchievementWe believe our success comes from our focus on exceeding expectations and our commitment to go that extra mile, however small the difference.

IntegrityWe believe that the way we work is as important as what we do. We care deeply about the quality of our work and inspire trust by delivering on promises.

AccountabilityWe take personal responsibility for our actions and are equipped to take the right course of action.

InnovationWe achieve the best possible results by working with customers to develop new ways of solving problems and reducing risk.

.

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Description:Growth in total reported revenue compared with the previous year.

Description:Growth in adjusted operating profit1 compared with the previous year.

Description:Adjusted operating profit1 divided by total reported revenue.

An indicator of the rate at which the Group’s business activity is expanding.

Indicators which show whether existing profit margins are being maintained, or whether new acquisitions or incremental revenues are diluting established profit margins.

Comment:Synergy delivered revenue growth in 2014, with reported revenue of £380.5 million (2013: £361.2 million). Underlying revenue growth after removing the impact of currency movements was 4.1%.

Comment:Adjusted operating profit was £61.3 million (2013: £56.2 million), an increase of 9.1%. Underlying operating profit growth after removing the impact of currency movements was 7.9%.

Comment:Adjusted operating margin increased to 16.1% (2013: 15.6%), reflecting a mix effect caused by the comparatively faster growth of the Group’s AST businesses.

Description:Growth in adjusted profit before tax1 compared with the previous year.

Description:Growth in adjusted basic EPS1 compared with the previous year.

Description:Growth in dividend per share compared with the previous year.

An indicator of whether profitable growth is diluted by financing costs.

A key measure of shareholder return. A key measure of shareholder return.

Comment:Growth in adjusted profit before tax has been boosted by stable finance costs. Net finance costs increased by 5%, and net debt reduced by 2%, versus the previous year.

Comment:EPS growth is lower than the growth in adjusted profit before tax, due to a change in the geographical mix of the Group’s profits. Following the acquisition of SRI, a greater proportion of the Group’s profit arises in the US.

Comment:The Group's policy is to increase the total dividend each year in line with the increase in underlying earnings.

A final dividend of 14.20p is proposed; if approved at the Annual General Meeting the year’s total dividend would be 22.77p (2013: 20.70p).

Revenue growth

+5.3%

Strategic report

Key performance indicators

Strategic objectives – Financial KPIs The indicators below have been identified by the Board as giving the best overall indication of the Group’s long-term success in improving total shareholder return.

2013: +15.8%

2012: +8.6%

Adjusted operating profit1,2 growth

+9.1%2013: +14.8%

2012: +13.8%

Adjusted operating margin1,2

16.1%2013: 15.6%

2012: 15.7%

Adjusted profit before tax1,2 growth

+10.6%2013: +16.0%

2012: +13.4%

Adjusted earnings per share1,2 (‘EPS’) growth

+7.6%2013: +10.7%

2012: +12.7%

Dividend per share growth

+10.0%2013: +15.0%

2012: +20.0%


Description:Growth in cash generated from operations compared with the previous year.

Description:Adjusted operating cash flow, divided by adjusted operating profit before interest, tax, and non-cash items.

An indicator of whether profitable growth is being converted into cash.

An indicator of how changes in working capital have impacted operating cash flows.

Comment:Cash generated from operations increased by 2.9%, reflecting strong free cash flow after investment in working capital.

Comment:Cash conversion is consistent with the levels seen in previous years, showing firm management of cash invested in working capital balances.

Description:Adjusted annualised operating profit divided by average capital employed.

Description:The ratio of adjusted operating profit to financing costs associated with borrowings.

An indicator of the historic pre-tax rate of return earned by capital invested in the Group.

An indicator of Group’s ability to meet its interest payments.

Comment:Excluding the net assets of Marcoule, which commenced operations this year, ROCE rose to 12.3%.

Comment:Synergy remains comfortably within our limit (for banking covenant purposes) of 3.25 times.

1 Adjusted operating profit, adjusted operating margin, adjusted profit before tax and adjusted EPS exclude amortisation of acquired intangibles, non-recurring items and acquisition-related costs, as shown in the Group’s consolidated income statement and the accompanying notes. Operating cash flow is before non-recurring items and acquisition-related costs. Underlying revenue/profit growth excludes the impact of currency movements. Organic revenue/profit growth excludes the impact of acquisitions in either the current or previous year.

2 The Group’s 2014 financial performance has been prepared under the requirements of IAS 19 (revised) for the first time. For consistency, 2014 growth rates have been calculated using prior year data restated to comply with the new requirements.

Operating cash flow1

+2.9%2013: +12.0%

2012: +9.5%

Cash conversion

95%2013: 96%

2012: 100%

Return on capital employed (‘ROCE’)

12.0%2013: 11.6%

2012: 11.5%

Net debt to EBITDA ratio

1.53 times2013: 1.76 times

2012: 1.95 times

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2010 2011 2012 2013 2014

158.0 154.9 158.3 160.6 164.7

2010 2011 2012 2013 2014

23.325.0

28.3

34.5 34.7

Strategic report

Regional review

UK & Ireland

Austerity measures in the UK and Irish economies have continued to hold back spending within their respective national health services. However, there has been a distinct improvement in recent months that together with a pre-election boost for the NHS should feed through into a stronger year for Synergy. AST has delivered an upturn in underlying revenue growth of 4.5% compared with last year, but HSS growth was just 1.0%, reflecting flat patient volumes, an extending waiting list and the absence of new contract starts. As a result, our reported revenue in the UK & Ireland (‘UK&I’) region was £164.7 million (2013: £160.6 million), representing a 2.6% increase from last year. The region posted a 0.8% increase in reported operating profits, reaching £34.7 million (2013: £34.5 million).

In recent months we have secured an extension and expansion of our existing contract with one of our significant UK customers, cementing our position providing services to many of the large NHS Trusts. Further, we have won four new HSS contracts collectively worth £1.6 million per annum, which we hope is a leading indicator that the outsourcing market is once again re-opening.

Our scale and expertise in hospital sterile services has enabled us to invest in the development and exploitation of potentially transformational technology such as RFID.

Our investment in RFID technology for mass instrument reading is a powerful technological advancement which strengthens the economic case for outsourcing, via improved outcomes for patient safety and service quality.

The AST business has shown moderate growth with a more buoyant medical device market. In both the UK and Ireland we are performing in line with expectations with 4.5% growth in constant currency.

In Healthcare services, Linen saw another strong performance with revenue increasing 4.2% on account of additional contract wins which have continued into the new financial year. Our UK labs service grew at 5.2% and was enhanced with the acquisition of Genon, a laboratory business in North Yorkshire specialising in food allergen testing. Overall our healthcare products business was flat year on year with underlying revenue growth of £1 million (legacy non-core product streams were ended during the early part of the previous year) but continued to strongly improve its profitability.

Finally, we have invested in new regional head offices in Derby, putting us closer to major infrastructure links and securing our position in the Midlands, allowing us to attract and retain talent in the healthcare industry.

Operating profit£34.7m+0.8%

Revenue£164.7m+2.6%


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2010 2011 2012 2013 2014

117.4 118.8 123.3 120.2 119.1

2010 2011 2012 2013 2014

17.8

20.519.5

16.7

20.0


Revenue£119.1m-0.9%

Strategic report

Regional review

Europe & Middle East

The picture in our Europe & Middle East region is not vastly different from the UK & Ireland, but masks a strong year for AST with 9.2% growth in constant currency offset by a revenue decline in our Dutch linen business of 10.9% in constant currency terms. Overall the region’s revenue was largely stable, with revenue of £119.1 million (2013: £120.2 million) but reported adjusted operating profit rose 19.8% to £20.0 million (2013: £16.7 million), in part reflecting the stronger AST mix.

The Dutch economy is still very weak and this is feeding through to a contracting healthcare market. We are continuing to see revenue contraction as the long-term care sector moves from institutional care to home healthcare. Management focus to restore operational efficiency in light of reduced volumes has been key in the short term. As indicated last year, we have completed the closure of an additional two facilities and have a clear strategy to deliver continuous incremental improvements to efficiency. We will now develop a long-term strategy that allows the business to seek growth in adjacent services, reducing its dependency on healthcare linen alone.

AST has had another solid year of growth in Europe. Marcoule in France has finally opened following regulatory delays, customers have begun to utilise new capacity added at Venlo, the Netherlands, and we have seen organic growth of 9.2% at constant currency, despite severe weather in the fourth quarter.

After the end of the financial year we completed the acquisition of the Bioster Group for €29 million net of cash and debt. The acquisition has revenue of €20.2 million, mainly in EtO and electron beam technologies across Italy, Slovakia and the Czech Republic.

Europe has been a model for the implementation of our AST strategy, and our focus on acquisitive and organic growth has delivered impressive results. With our enlarged network, comprehensive range of technologies and expanding geographic coverage, the region is well placed to support its customers and to continue to grow in line with their success.


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2010 2011 2012 2013 2014

0.4

13.0

62.4

77.8

2010 2011 2012 2013 2014

0.0

3.2

7.3

8.8


Revenue£77.8m+24.8%

Strategic report

Regional review

Americas

The Americas region has continued to show good growth, in what has been a largely preparatory year: we have spent time cementing our relationship with North Shore, working on significant contracts, and making management changes to ensure future progress across both divisions. Gains in market share from new contract wins will flow into the coming financial years, as these are initiatives that take time to deliver. Combined reported revenue growth for the region was 24.8%, achieving £77.8 million (2013: £62.4 million), with an adjusted operating profit increase of 19.6% to £8.8 million (2013: £7.3 million).

HSS revenue this year increased by 32.0%, reaching £63.5 million (2013: £48.1 million). This growth reflects the impact of the first full year of revenues from the SRI business acquired last year. During 2013, we made a strategic change to the provider of a low margin, legacy disposable pack service acquired with the SRI business. The new provider warranted the success of the transition but nonetheless revenues reduced by £4 million as certain contracts failed to make the transition. Operating profits were unaffected, however.

We are gearing up for the full commencement of the North Shore HSS partnership with the opening of our New York supercenter in early summer 2015, and expect

that this deal will prove to be a catalyst for similar outsourcing activity in the Americas. The North Shore hospital group accounts for 35% of all surgical procedures in New York, and our contract reflects the largest outsourcing of instrument reprocessing by volume in the world.

We announced earlier this year that we were selected as preferred bidder for another large outsourcing contract worth approximately $40 million per annum, and now expect this contract to be signed shortly and begin implementation during the summer. With a bid book up by 40%, a strengthened leadership team and the launch of SynergyTrak™ and RFID technologies, the US has become one of our most exciting markets, with prospects that bode well for the future.

AST delivered consistent reported revenue of £14.2 million (2013: £14.1 million) representing a net growth of 0.2% over last year. A much stronger underlying organic growth was masked by the loss of one of our major Costa Rica customers as they withdrew a product from market. Excluding Costa Rica, reported revenue growth was 6.0%, with efficiency and process improvement driving a 9.1% adjusted operating profit growth. We have now ensured that we have a stable, diverse customer base across the rest of our network, with a particular focus on supporting the opening of our enlarged Saxonburg facility. We have gained an extremely competitive share in targeted global key accounts and have made good inroads implementing our global strategy around key multinational account retentions. We have also considerably strengthened the Americas AST leadership team in recent months, with a particular focus on business development, and the early signs of this investment are being reflected in an increase in growth.


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2010 2011 2012 2013 2014

11.0

13.3

17.418.1

18.8

2010 2011 2012 2013 2014

2.2

2.7

3.8 3.93.7

Asia & Africa

Our Asia & Africa region continues to make steady progress. Reported revenue this year rose to £18.8 million (2013: £18.1 million), representing a growth of 3.8%. On a reported basis, adjusted operating profits declined to £3.7 million (2013: £3.9 million) but increased by 4.6% on a constant currency basis. Weakness in the margin arose from the expansion of the regional senior leadership team, as well as a change in the mix with a strong increase in HSS services.

HSS showed another year of strong organic growth of 17.3% on a constant currency basis. Our patience in this area has finally paid off, as we now are making significant progress towards the opening of three further Chinese facilities later this year, in Chengdu, Wuhan and Nanjing. We have worked to perfect our operations model in the country, understanding customer requirements and using our model of delivering services at a quality and price point the customer could not match themselves. Our Sinopharm joint marketing venture has also been delivering results in China, and we are extending this concept to other strategic partnerships with major medical device and drug distributors in Asia, in order to build gateways into

established healthcare markets and to expand HSS growth. Regulatory process still hinders our progress however, as does a lack of brand awareness, and the fact that HSS outsourcing in the region is still in its formative years.

AST growth was 6.6% on a constant currency basis. Growth has been achieved from new contracts in Thailand and China, driven by US multinationals both outsourcing their sterilisation requirements and closing in-house facilities.

Unfortunately, just after the end of the fiscal year one of our gamma facilities in Malaysia suffered a fire that has resulted in the loss of the plant for the coming year. The losses are expected to be fully insured, but we are likely to suffer a small loss of revenue in the short term. We do not expect this to adversely impact the AST business’ growth outcomes for the full year.

Operating profit£3.7m-3.5%

Revenue£18.8m+3.8%

Strategic report

Regional review


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The business continued to progress in 2014 with reported revenue growing 5.3% to £380.5 million (2013: £361.2 million) and adjusted operating profit increasing by 9.1% to £61.3 million (2013: £56.2 million). Excluding currency effects, underlying revenue growth was 4.1%, with organic growth broadly flat. Adjusted operating margin increased by 50 basis points to 16.1%. Adjusted basic EPS grew by 7.6% to 70.59p.

Cash generated from operations (before non-recurring items and acquisition-related costs) increased by 2.9% to £98.0 million, reflecting a conversion of adjusted EBITDA into operating cash flow of 95%. Good cash generation reduced net debt to £147.6 million (2013: £177.3 million), representing a net debt to EBITDA ratio (for banking covenant purposes) of 1.53 times, comfortably within our limit of 3.25 times.

Adjusted operating returns on average capital employed, on an annualised basis, increased to 12.0% (2013: 11.6%).

Adjusted operating profit is stated before amortisation of acquired intangibles, non-recurring items and acquisition-related costs.

We continue to demonstrate the financial strength of the business through sustained margins, strong cash generation and progressive improvement in our return on capital employed.

Strategic report

Financial review


1.1 RevenueReported revenue of £380.5 million (2013: £361.2 million) grew by 5.3%, representing an underlying growth rate, excluding currency effects, of 4.1% over the previous year. The movement in average currency exchange rates over the last year (notably a strengthening of the Euro against Sterling), against the comparative period, has increased reported revenue by £4.2 million. Reported revenue growth excluding the linen business was 8.6%, with reported organic growth of 1.8%.

Underlying revenue, excluding currency effects, grew by 4.1%, with the UK & Ireland at 2.2%, Asia & Africa at 6.9% and the Americas at 24.5%. Europe & Middle East declined by 4.2% due to a contraction in the Netherlands linen business. Our total Americas business represented 20.5% (2013: 17.3%) of total reported revenue.

Underlying organic revenue, which excludes currency effects and the impact of acquisitions, was broadly flat, with growth of 5.9% in AST offset by a decline in the Netherlands linen business.

1.2 Gross profitGross profit increased by 10.7% to £155.7 million (2013: £140.7 million), representing a gross profit margin of 40.9%, an increase of 190 basis points over the previous year.

1.3 Adjusted operating profitAdjusted operating profit increased by 9.1% to £61.3 million (2013: £56.2 million), representing an adjusted operating profit margin of 16.1%, an improvement of 50 basis points over last year. Currency effects have increased reported adjusted operating profit by £0.6 million.

1.4 Non-recurring itemsNet non-recurring items and acquisition-related costs during the period were £3.3 million. £1.4 million related to acquisition transaction fees. The most significant component of this cost was £0.6 million (net of the reimbursement of costs under an exclusivity agreement) relating to an ultimately unsuccessful acquisition. Within the Netherlands, we have incurred restructuring costs of £1.8 million on the closure of two laundries and two wash centres, along with the conversion of a hospital laundry facility into a care home wash centre.

1.5 Net finance costs The Group’s net finance costs totalled £6.6 million (2013: £6.7 million), a decrease of 1.9%. The decrease reflects lower pension charges offsetting a small increase in financing costs. This year we have a higher proportion of average fixed debt against the comparative period following the issuance of additional Private Placement Notes in September 2013. The Notes incur a higher funding cost than our floating rate debt. Finance costs incorporate the impact of the amendments to IAS 19 (Employee benefits) in both the current and prior period.

1. Income statementSynergy’s income statement is summarised below:Table 1: Income statement

Year ended 30 March

2014 £m

Year ended 31 March

2013 £m Change

Revenue 380.5 361.2 +5.3%

Gross profit 155.7 140.7 +10.7%

Administrative expenses (94.4) (84.5)

Adjusted operating profit 61.3 56.2 +9.1%

Net finance costs (6.6) (6.7)

Adjusted profit before tax 54.7 49.5 +10.6%

Amortisation of acquired intangibles (8.5) (9.1)

Non-recurring items and acquisition-related costs (3.3) (2.4)

Profit before tax 42.9 38.0

Tax (8.6) (7.1)

Profit for the period 34.3 30.9 +13.0%

Effective tax rate1 23.6% 22.9%

Adjusted earnings per share 70.59p 65.58p +7.6%

Earnings per share – basic 57.81p 53.00p +9.1%

Adjusted earnings per share 69.66p 64.30p +8.3%

Earnings per share 57.05p 51.97p +9.8%

Dividend per share 22.77p 20.70p +10.0%

1 The effective tax rate is calculated excluding amortisation on acquired intangibles, non-recurring items and acquisition-related costs.* Restated to reflect the amendments to IAS 19 (Employee benefits).

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1.6 Adjusted profit before taxAdjusted profit before tax was £54.7 million (2013: £49.5 million), an increase of 10.6%. The adjusted profit before tax margin increased to 14.4% (2013: 13.7%). The prior period comparative has been restated to reflect the impact of IAS 19 Employee benefits.

1.7 Amortisation of acquired intangiblesAmortisation of acquired intangibles relates to intangible assets identified on acquisitions, being the value of customer relationships and brands.

1.8 TaxThe tax charge (excluding tax on non-recurring items and on the amortisation of acquired intangibles) of £12.9 million (2013: £11.3 million) represents an effective tax rate of 23.6% (2013: 22.9%). The increase in the effective tax rate over the comparative period primarily reflects the reduction in the UK corporation tax rate and a change in the geographical mix of the Group’s profits with a marginally higher proportion of profits arising in the US compared with the previous year.

1.9 Earnings per shareAdjusted basic EPS and adjusted diluted EPS, after adjusting for amortisation of intangibles and non-recurring items, increased by 7.6% and 8.3% respectively. After amortisation of acquired intangibles, non-recurring items and acquisition related costs, basic and diluted EPS increased by 9.1% and 9.8% respectively. As the Group’s activities in the US increase, the Group’s effective tax rate is expected to edge upwards.

Undiluted weighted average shares have increased from 57.8 million to 58.7 million in the period, primarily due to the full-year weighted impact of the placing of 2.8 million shares during 2013.

2. DividendThe Group’s policy is to increase the total dividend each year in line with the increase in underlying earnings. The Board has proposed a final dividend of 14.20p, representing an increase on the 2013 final dividend of 10.9%, and bringing the total dividend for the year to 22.77p, growth of 10.0%. The final dividend will be paid, subject to shareholder approval, on 4 September 2014 to shareholders on the register as at 8 August 2014.

3. Cash flowThe Group cash flow is summarised in the table opposite.

Table 2: Cash flow

Year ended 30 March

2014 £m

Year ended 31 March

2013 £m

Adjusted operating profit 61.3 56.2

Non-cash items 42.0 43.1

Adjusted EBITDA 103.3 99.3

Working capital movement (5.3) (4.1)

Operating cash flow before non-recurring and acquisition-related costs 98.0 95.2

Non-recurring and acquisition-related cashflow movement (3.0) (2.6)

Operating cash flow after non-recurring and acquisition-related costs 95.0 92.6

Interest (5.2) (5.6)

Tax (10.2) (4.2)

Net maintenance expenditure on tangible and intangible assets (24.3) (22.5)

Free cash flow 55.3 60.3

Net investment expenditure on tangible and intangible assets (16.0) (25.8)

Acquisition of subsidiaries, net of cash acquired (1.6) (28.6)

Purchase of financial assets – (0.8)

Payment of pre-acquisition liabilities – (6.1)

Purchase of treasury shares (3.0) –

Proceeds from share issue 1.9 24.2

Dividends paid (12.8) (11.1)

Financing (14.7) (9.4)

Exchange differences (2.0) 0.5

Net increase/(decrease) in cash and cash equivalents 7.1 3.2

Strategic report

Financial review


3.1 Cash generated from operationsCash generated from operations (before non-recurring items and acquisition-related costs) in the year increased by 2.9% to £98.0 million (2013: £95.2 million), reflecting a conversion of EBITDA into operating cash flow of 95% (2013: 96%). Free cash flow decreased by 8.3% to £55.3 million (2013: £60.3 million) owing to an unusually high cash tax refund in the prior year. Free cash flow (after the inclusion of investment capital expenditure) increased by 13.9% to £39.3 million (2013: £34.5 million).

3.2 InterestNet interest paid was £5.2 million (2013: £5.6 million), broadly in line with the income statement charge after the exclusion of the following non-cash charges: amortisation of facility fees, IAS 19 (Employee benefits) charge and costs relating to the unwinding of our cobalt disposal provision.

3.3 TaxTax paid was £10.2 million (2013: £4.2 million). Cash tax is in line with the equivalent income tax charge in the income statement. The prior year tax payment was lower than the current year as a result of timing differences on payments and a refund of tax paid by LEONI Studer HARD AG prior to acquisition.

3.4 Net expenditure on tangible and intangible assetsThe Group has increased its investment in new capacity during the course of the year, as well as continuing to upgrade and maintain its existing infrastructure. Total net capital additions of £40.3 million (2013: £48.3 million) were made during the year.

We analyse capital expenditure between ‘maintenance’ and ‘investment’ expenditure. Maintenance capital expenditure is the capital required to sustain the revenue-generating capacity of the Group. Investment capital expenditure enhances the capacity or efficiency of the Group’s capital base.

The items of necessary ongoing capital expenditure are cobalt-60, the radiation source for AST gamma sterilisation plants, textiles for the linen business, and reusable surgical products. Total maintenance capital expenditure was £24.3 million, of which £10.4 million was spent on cobalt, £9.3 million on textiles and £4.6 million on reusable surgical products.

Total investment capital expenditure was £16.0 million (2013: £25.8 million), comprising £5.1 million and £1.4 million across the AST and HSS estates respectively. The remaining balance was spent on cobalt (primarily for the new Marcoule facility), property, plant and machinery, and IT (principally on our ERP platform and SynergyTrakTM development).

3.5 Purchase of treasury shares On 6 August 2013 the Group purchased 270,500 treasury shares to partially satisfy the exercise of share options previously awarded to management under the Long Term Incentive Plan.

3.6 Proceeds from share issueProceeds from share issues includes £1.1 million from the partner investor in relation to the initial capitalisation of the Group’s 51% owned subsidiary, Chengdu Synergy Health Laoken Sterilization Co. Ltd.

3.7 Financing The movement in financing reflects the repayment of debt on our multi-currency revolving credit facilities.

4. AcquisitionsWith effect from 19 December 2013 the Group acquired the remaining 50% interest it did not own in Synergy Health Logistics B.V. from its partner for a cash consideration of €0.3 million (£0.3 million). The fee is payable in two installments; the first on completion and the second, one year hence.

On 31 January 2014, the Group acquired Genon Laboratories Ltd, a specialist food testing laboratory, for a consideration of £1.8 million (net of cash acquired), of which £0.5 million is deferred consideration.

In the previous financial year, on 6 March 2013, the Group acquired the capital of Bizworth Gammarad Sdn Bhd (‘Bizworth’), a company incorporated in Malaysia. During this financial year, deferred contingent consideration of £0.1 million was paid in accordance with the acquisition agreement.

5.1 Net debtNet debt decreased in the period from £177.3 million to £147.6 million. The decrease in net debt is primarily a result of the Group’s free cash generation in the period, partially offset by investment capital expenditure of £16.0 million and dividend payments of £12.8 million. The movement in the net debt is reconciled below:

Table 3: Movement in net debt£m

Net debt as at 31 March 2013 177.3

Free cash flow (55.3)

Investment capital expenditure 16.0

Proceeds from share issue (1.9)

Acquisitions, including acquired debt 1.6

Purchase of treasury shares 3.0

Dividends paid 12.8

Other items 0.5

Exchange rate impacts (6.4)

Net debt as at 30 March 2014 147.6

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5.2 FundingThe Group has in place a five-year unsecured multi-currency revolving facilities agreement (‘the Agreement‘) which was signed on 26 July 2011. The Agreement has been entered into with a group of seven banks and comprises a Sterling denominated multi-currency facility of £105 million and a Euro denominated multi-currency facility of €130 million. On 1 June 2012 the Group signed a two-year Euro denominated multi-currency facility of €18 million with the same covenants as in the July 2011 Agreement. This facility expired on 31 May 2014.

On 13 September 2012, the Group issued a bilateral private placement note of €20.6 million. At that time the Group also put in place an uncommitted shelf facility with the same lender, allowing it to draw up to $48.5 million over a 2.5-year period. The financial covenants are broadly similar to those in the Agreement. The remaining shelf facility was utilised during September 2013 when two further notes were issued, one for £10.0 million and a second for €25.1 million.

The Group remains comfortably within the financial covenants set out in the Agreement.

The debt is split between Sterling, Euros and US Dollars with the currency mix and level of fixed interest debt within each currency as follows:

Table 4: Composition of gross debt as at 30 March 2014

Level of debt £m

Level of fixed interest

debt %

Sterling 37.6 39%

Euros 76.4 49%

US Dollar 67.0 31%

Total 181.0 41%

The Euro denominated debt, which is predominantly held in the UK, is held to hedge the Group’s Euro denominated net assets (excluding goodwill and intangibles) of €161.1 million. The US Dollar denominated debt is held as a hedge of the Group’s US Dollar denominated net assets (excluding goodwill and intangibles) of $127.4 million. As at 30 March 2014, 41% of the total debt was held at fixed rates of interest.

6. PensionsThe Group operates three final salary schemes in the UK, one in the Netherlands, two in Germany, and one in Switzerland. The Group also operates several defined contribution schemes.

In the UK the Group is required to maintain a final salary pension scheme for employees who have transferred from the NHS, which has to be acceptable to the Government Actuary’s Department. With the exception of NHS transferees, the Group’s defined benefit schemes are closed to new entrants and future accruals; active members have been transferred to deferred status and invited to join the Group’s UK defined contribution scheme.

At 30 March 2014, the net liability arising from our defined benefit scheme obligations was £16.9 million (2013: £16.0 million) on a pension scheme asset base of £59.8 million. An increase in the deficit from the previous year end is primarily due to an increase in liabilities that is not offset by a corresponding increase in the asset base.

Table 5: Defined benefit pension schemesYear ended

30 March 2014

£m

Year ended 31 March

2013 £m

Synergy Healthcare plc Retirement Benefits Scheme 2.5 2.4

Shiloh Group Pension Scheme 2.6 2.5

Vernon Carus Limited Pension and Assurance Scheme 8.5 7.9

Isotron BV Pension and Assurance Scheme 1.8 1.8

Synergy Health Daniken, Switzerland 0.8 0.9

Synergy Health Radeberg and Alleshausen, Germany 0.7 0.5

Balance sheet liabilities 16.9 16.0

Gavin Hill Group Finance Director 4 June 2014

Strategic report

Financial review


Risk Assessment

Identify

Assess

Mitigating actions

Review

Risk Committees

Audit Committee/Senior Executive Board

PLC Board

Rev

iew

Our risk management strategy aims to provide a continously improving, increasingly proactive and embedded risk management capability across the whole organisation.

Strategic report

Principal risks and uncertainties

Given the scale of our business, the Board of Directors recognises that the scope and potential impact of our key business and strategic risks are subject to constant change. As a result, the Board has implemented the necessary framework to ensure that it has sufficient oversight of the Group’s key risks. The Board also has the opportunity to regularly review the adequacy and effectiveness of our mitigating controls and strategies.

During the year the Board has also considered the nature and level of risk that it is prepared to accept in order to deliver our business strategies and has reviewed our internal risk appetite.

Risk Management at Synergy Health plcRisk management supports the Group’s vision to build a lasting reputation and our core values by:

+ building and protecting the Group’s reputation by championing a responsible approach to business;

+ achieving brand and business resilience supported by effective risk management;

+ developing the culture and capability across the Group to manage changing risks and opportunities; and

+ ensuring the safety and wellbeing of employees and others who could be affected by our business activities.

The Board has the ultimate ownership of risk management with responsibilities cascaded into the organisation through the regional and functional leadership teams.

The Risk Management strategy enables and supports each service division and region to identify and manage its own risks. This is accomplished by embedding risk management into the culture of the Group and translating risk management into operational ownership, defining clear responsibilities and measuring risk management performance.

Risk management reports regularly to the plc Board, Senior Executive Board ('SEB') and Audit Committee.

Principal risks and uncertaintiesOur risk management strategy seeks to address the risks and opportunities associated with the Group’s strategic plan. As part of the continuous review and enhancement of the Group’s risk management systems, a framework setting out how the Group identifies, responds and reports on risk performance has been implemented. This strategy translates into clear operational objectives, the ownership of risks and performance measurement.

Following the development and implementation of the major risk review, the focus through the last year has been on developing and establishing regional and functional risk groups and registers. Each business division, region and Group function is responsible for owning and managing risks within their area of responsibility.

The regional and functional risk registers are monitored and reviewed by the Senior Executive Board to ensure effective ongoing identification, assessment, mitigation and reporting of risks to the Group.

The Board considers that the tables overleaf show the principal risks to achieving its strategic aims.

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Key risk and uncertainty Mitigation

Expanding the business internationally

Business retention and expansion

Uncertainty surrounding the resilience of the global economy continues to present challenging trading conditions. Cost cutting in healthcare sectors and the ongoing economic constraints continue to provide uncertainties but also opportunities for the Group.

Despite the ongoing challenges we are committed to investing in our mature and emerging markets to maintain and increase market share to ensure market leadership.

Where there are opportunities to expand and innovate we will do so based on a full understanding of the risks and opportunities.

Cost leadership, service levels and quality continue to be key differentiators in the healthcare market and the Group continues to attract and retain business.

Acquisition risks As the Group has continued to grow through acquisition, the risk of inheriting legacy liabilities and debts remains a key uncertainty. Existing exposure includes workers’ compensation liabilities attached to the former SRI business and legacy employee compensation claims for noise-induced hearing loss.

The risks associated with potential acquisitions are mitigated through extensive due diligence checks to ensure that opportunities for strategic growth are balanced against financial risks. The Group is proactively managing existing workers’ compensation claims.

Integration planning following acquisition has been reviewed and enhanced in order to identify and address safety issues.

Compliance The Group operates across a number of territories with different laws and codes. In addition, regulation, particularly relating to the environment, safety and corporate governance, is subject to change with increasingly higher levels of compliance required.

Keeping pace with, and understanding, the changing requirements of local legislation across the Regions is essential to achieving compliance.

Mitigation depends on ensuring that the regions have ownership of local compliance supported by risk management oversight to ensure that legislative changes are highlighted and effectively implemented.

The creation of the regional Risk Manager roles has further enhanced our ability to monitor and respond effectively to changing compliance requirements.

The Group’s aim is to ensure that our policies and standard operating procedures set best practice, thereby ensuring compliance with legislation.

Focusing on high value-added services

IT infrastructure Information technology is an integral part of Synergy’s business and operational systems.

The failure of key IT systems would have significant impacts on business performance. The increasing threat of cyber-attack and the vulnerabilities of the Cloud in this respect are included in the Group’s major risk review.

Mitigation is being achieved through the strengthening of IT resource and the implementation of projects to address risks associated with legacy systems.

The key aim of these projects is to ensure that critical systems can be fully supported, are sustainable and provide scalability as the business continues to grow. The projects also offer added value through improving consistency and cost leadership.

IT systems and procedures are in place to support business continuity through the secure backing up of data and ensuring information security.

Quality standards compliance

The Group provides services to highly regulated markets, which operate to a range of internationally recognised quality standards. Our business also relies on maintaining the highest level of quality assurance to protect patient safety.

Failing to meet quality standards would have a significant impact on our business and reputation.

Mitigation of these risks is dependent on having clearly established quality control processes in place together with ongoing review and procedures for implementing corrective actions where issues or improvements are identified.

The Group has a well-developed quality assurance structure. The Group adopts an approach of continuous improvement of its quality assurance procedures.

Strategic report

Principal risks and uncertainties continued



Deriving competitive differentiation through our people

Loss of knowledge and expertise

The Group has built its reputation on providing expertise across a range of specialist outsourced services. The Group differentiates itself by offering exceptional support to its customers and this demands that the Group attracts and retains people of the highest calibre across its businesses.

Although employee turnover is very low the impact of losing knowledge and experience from the Group is still considered sufficient for this to remain a key risk.

Mitigating this risk through providing an attractive and stimulating working environment with opportunities for individuals to develop ensures that the Group is well placed to continue to grow successfully in both existing and new markets.

The Group has well-established graduate, leadership and personal development programmes and has implemented a global employee performance review system.

Loss of key person

The Group Chief Executive Officer and other key individuals are integral to the business. The loss of any of these key people could impact on shareholder value and the future success of the business.

Whilst it is difficult to fully mitigate the consequences of losing leaders and others who might be viewed by stakeholders as being essential to the business, the Group aims to reduce the potential impact on the Group through succession planning and maintaining a strong senior management team.

Cost leadership

Financial control and reporting

The global nature of the Group and its markets necessitates robust financial control and reporting. Regional tax regimes and currency markets present additional complexities. Accurate financial reporting and analysis is essential to ensuring that financial performance and long-term shareholder value remain on track.

Mitigation is primarily based on ensuring that the Group invests in and retains employees with comprehensive financial and regional experience. The Group’s recruitment and leadership programmes are an important element of recruiting and developing the right talent. Local professional advisors who have worked with the Group over a number of years provide additional assurance that regional requirements are fully complied with.

The implementation of our new global financial reporting tool has remained on track, providing enhanced financial reporting and cost leadership.

The financial performance of regional business units against the Group’s strategic objectives is subject to regular peer review through the regional management structure.

Internal investment

Major projects and other internal investments are equally critical to meeting the Group’s strategic objectives and failure to achieve planned returns on investment or to deliver projects on time or agreed scope can have financial, operational, commercial and reputational impacts.

Projects and internal investments are based on robust business cases. These must clearly identify the associated risks and are subject to critical review and approval. The Group applies its established risk review processes to all major projects to ensure that risks are identified, evaluated and reviewed through the life of the project.

Commodities The cost of energy and global demand for raw materials can be subject to sudden change, and are influenced by geopolitical unrest and natural catastrophes. The economic climate also continues to be challenging in respect of prices and margins across all business sectors and associated logistics services.

Mitigation includes energy management programmes and strategic commodity procurement in order to ensure continuity of essential supplies and effective cost management. Process innovation and quality are essential to the Group continuing to differentiate itself against its competitors.

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Operational risks

Business continuity

A loss of operational capacity due to the unexpected failure of one or more facilities is potentially significant. Consequently stakeholders’ expectations regarding business continuity planning are increasingly critical elements of their assurance and contractual requirements.

Mitigation is achieved through the continuing development, review and testing of business continuity planning. In addition to meeting required safe working, fire safety and maintenance requirements, all facilities have localised emergency response plans in place which aim to minimise any disruption caused by incidents or plant failures.

The Risk Management team also works in close partnership with insurers and other partners to continually review and enhance business continuity and disaster recovery plans.

Fire safety The principal property risk is fire within a linen facility. Owing to an abundance of fuel sources, a laundry fire has the potential to quickly escalate into a major conflagration, leading to a safety hazard and loss of property and equipment.

Fire safety in the Applied Sterilisation Technologies division could also cause significant financial loss and business continuity impacts.

Mitigation relies on high standards of housekeeping and fire protection.

The Group has comprehensive fire safety procedures and works closely with the fire authorities and insurers to identify and control fire hazards.

Fire risks and controls across AST are subject to global review.

Health and safety

Failure to maintain a safe environment which is attributable to a failure of our health and safety management systems could result in a major incident or fatality. This would impact on colleagues and other stakeholders as well as on our reputation.

Robust health and safety systems are a priority. The Board is committed to creating and maintaining a safe environment and regularly reviews and challenges health and safety performance, standards and targets across our business.

Compliance with health and safety standards is monitored across the Group through an assurance process of self-assessments and health and safety audits, with issues reported to the Senior Executive Board where necessary.

Environmental or ethical failure

The impact from a major environmental or ethical failure, corporate fraud or material non-compliance with legislative or regulatory requirements would be damaging to Synergy Health’s reputation and brand.

The business is committed to carrying on our business ethically and in line with good business practices.

Our commitment to sustainability remains a key value and where possible we integrate sustainable policies into our business models and our property, logistics and distribution strategies.

Strategic report

Principal risks and uncertainties continued


Health and safetyThe Synergy Health plc Board and SEB are fully committed to providing a safe workplace and managing risk; the safety of our colleagues, customers and other people who may be affected by our activities remains a key priority.

Although the Group has had extensive safety procedures in place for many years, we constantly strive to improve and adopt an approach of continuous review and enhancement. This has led to a number of initiatives including the implementation of a web-based risk management information system, online incident reporting, the ongoing development of global safety standards and associated assurance programme.

Over the last year a Group-wide safety campaign ‘Focus on Safety’ has been conceived, developed and implemented to support the launch of the new safety systems, reflect the Group’s commitment to safety and be the lasting internal ‘brand’ for promoting safer working, our safety culture and future safety initiatives. Making Focus on Safety our priority helps to achieve our aim of preventing and reducing accidents.

An effective health and safety communication strategy is critical to our success and this has included key safety≈messages from the Group Chief Executive Officer, regional leadership and business management teams being communicated through the business. We have carried out a safety survey of all employees globally and engagement with health and safety is being driven through new initiatives including the launch of the annual CEO Safety Award.

Incidents and claimsIn spite of health and safety management procedures and safe working systems being in place, a small number of accidents, incidents and claims are inevitable. Minor accidents, including slips, trips and falls, cuts and lacerations, are the leading cause of injuries to employees and the Risk Management team is continuing to work on further reducing the risk of injuries and ill health.

Claims management has been a particular focus area with the team working closely with insurers to enhance investigation, defensibility and management of claims in order to reduce costs and claims experience.

Risk financingThe Group ensures that all relevant insurance cover is maintained and has completed our objective to carry out a full strategic review of risk financing within three years of implementing the global programme. With effect from April 2014 all of the Group’s operations will be included in the global insurance programme, with appropriate local policies in place where required.

Code of Ethics The Group is committed to carrying on our business ethically and in line with good business practices. The Group maintains a strict Code of Ethics and subsidiary anti-corruption, gifts and corporate hospitality policies, which are available to all employees. The Group has continued to deliver Bribery Act training across the business using a range of taught and e-learning training materials. Whistleblower reporting arrangements are also maintained.

Risk management strategy 2014/15The risk management strategy aims to provide a continuously improving, increasingly proactive and embedded risk management capability across the organisation. This is based on devolving ownership of risks to the relevant operational and functional teams, and developing globally consistent safety standards, systems and assurance processes.

The benefits and importance of robust and proactive risk management are clear, with risk management enabling the Group to achieve our strategic objectives and protect and enhance our assets, including our reputation.

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Strategic report

Corporate Social Responsibility

At Synergy Health, we recognise the importance of Corporate Social Responsibility ('CSR'), and understand that we have an obligation to run our business in a responsible and sustainable way for all our stakeholders. We are committed to upholding the highest professional and ethical standards and we encourage and support all our people in having a positive impact in everything they do, whether it is in the workplace or the local community. We recognise the importance of managing day-to-day activities in a responsible way, being accountable for the impact of all operational activities on the environment and on those around us, and creating a working environment in which our colleagues can flourish. Our regional teams incorporate CSR within their roles and responsibilities.

We categorise our CSR efforts into the following three areas:

+ Caring for our people

+ Caring for tomorrow

+ Caring for our stakeholders

Caring for our people Employee training and developmentOur success is based on being able to attract, develop and retain talented people at every level of the organisation. We have a proven track record of developing careers and helping employees fulfil their potential. This provides an exciting environment for ambitious people and is central to attracting talented individuals. Our approach is focused on developing and enhancing the leadership and management capability of the entire organisation.

Synergy continues to invest in its Graduate Programme, established in 2008. Our graduates perform a variety of roles over a two-year period, and report to a senior manager to ensure they receive the necessary development. A number of employees in senior and middle management positions were recruited through this programme.

Employee engagement Regular two-way communication with our employees is vital in ensuring that we all share common goals and values, foster innovation, and deliver service excellence.

We have a number of systems in place that enable us to understand the opinions of our employees. Our annual employee engagement survey is a useful tool for feedback, and we also hold employee forums and works councils

within the Group. We continue to utilise an internal social media platform to communicate Company achievements, our daily challenges, insights into the different business units, and access to thought leadership across the business.

DiversityOur policy is to recruit the best available people who are aligned with and embody our core values of innovation, accountability, achievement and integrity, and these values apply throughout the Group regardless of seniority of position. Synergy is committed to equality, judging applications for employment neither by race, nationality, gender, age, disability, sexual orientation nor political bias.

We passionately believe that our future success is dependent on attracting and retaining people from a cross-section of our communities, and in doing so we will create competitive advantage for Synergy. Our recent growth in Asia and the Americas has helped diversify our senior leadership community.

We promote a supportive and inclusive culture for all our employees and third party business partners. However, we also recognise that there is a need to create the right environment to support our diversity strategy. The senior leadership team continues to look at developing our business to improve its attractiveness to new recruits, as well as to provide support networks for minority groups to positively support their personal development.

Our valuesAchievement – We believe our success comes from our focus on exceeding expectations and our commitment to go that extra mile, however small the difference may seem.

Accountability – We take personal responsibility for our actions and are equipped to take the right course of action.

Integrity – We believe that the way we work is as important as what we do. We care deeply about the quality of our work and inspire trust by delivering on promises.

Innovation – We achieve the best possible results by working with customers to develop new ways of solving problems and reducing risk.

Healthcare4AfricaSynergy Health donated over 120,000 bottles of ASSURE hand sanitisers to Healthcare4Africa, a UK-based charity involved in the delivery of medical aid to people in great need. This donation has been distributed to regional hospitals and local health posts in Ghana.

Mr Leonard Torsu, a Director of Healthcare4Africa, said “this donation will make an important contribution to improving the public health of the beneficiaries. Simple steps to improve hand hygiene can make a significant impact in reducing the spread of infection. We hope to build a long lasting partnership with Synergy Health, working together to support African healthcare needs.”


EthicsOur ethics policy can be found online at: www.synergyhealthplc.com/investor-relations/code-of-ethics

Caring for tomorrowSynergy is committed to taking reasonable actions to minimise the risk of adverse impact on the environment from our business. As a consequence of the services we supply to the healthcare market, the demand for energy in our business is high; however, we continue to reduce carbon emissions and our environmental impact per unit by striving for greater energy efficiency.

Energy and carbon reductionSynergy’s utility consumption has decreased by 0.5% in the past year, due to our continuing focus on energy efficiency. There has been a reduction in electricity consumption of 1.08% and a reduction in gas consumption of 0.34%. There has been an increase in the use of oil but this forms only 0.56% of total energy consumed by the Group.

Total MWh (in thousands)

2013 2014Gas 177,802 177,194Electricity 70,037 69,281Oil 1,317 1,376Total 249,156 247,851

Our initiatives in this area include:

+ Energy efficient lighting for new and existing installations;

+ Heat recovery and flash steam recovery systems;

+ Voltage optimisation technology at pilot sites in the UK;

+ Installation of combined heat and power technology at a number of sites, with feasibility studies running at others;

+ Exploring solar power generation in the UK as an alternative energy source to reduce purchased energy and our carbon footprint.

Data on the Group’s carbon emissions is shown on page 72 of the Directors’ report.

Transport pollutionOur delivery network is important to the service we offer our customers, especially where we directly serve hospital customers. Each of our facilities has an objective to provide our logistics services as efficiently as possible, reducing the impact of vehicle pollution. To achieve this, we continued our programme to electronically monitor driver fuel efficiency, and we have broadened our focus on route management, improving efficiencies.

Caring for our stakeholdersOur business depends on healthy relationships with customers, business partners and suppliers. We build and nurture strong relationships that are mutually beneficial. We make sure that we understand the needs of the people we deal with, so that we can anticipate their requirements and always aim to exceed their expectations.

Our relationships with our customers grow through delivering service excellence, open and honest communication, and building trust. Our success in this area is demonstrated by the long-term relationships we have fostered with customers around the world.

Quality managementSynergy Health is heavily regulated by international healthcare standards and our facilities are certified to the applicable standards by internationally recognised Notified Bodies across all regions. Regulatory bodies such as the US FDA and MHRA routinely inspect us, and all our facilities across all regions have implemented effective quality management systems, maintained by full-time quality professionals. We take pride in the level of compliance we achieve, and this is valued by our hospital customers and the many multinational healthcare medical device manufacturers that use our services.

We have a pool of technical expertise within our management team, and we harness this expertise using technical working groups so that we can continue to develop and improve our Quality Management System. In addition, this expertise can be called upon to help find solutions for customers in relation to the processing of their products.

During the year we have introduced two major computer software systems in our AST and HSS business units, which will improve the quality of our systems and enhance our service offering.

Financial responsibilityWe expect our shareholders to receive fair reward for our business performance. We demonstrate cost leadership and carefully manage our own and our customers’ costs. We manage financial risk systematically and communicate our financial performance in a clear, concise manner. Securing fair reward for our shareholders allows us to invest in the future of the Group, reward our investors, and satisfy our suppliers and lenders appropriately.

As a public company we proactively communicate our financial performance and future expectations in a clear and concise manner. Managing this flow of information helps ensure that we are valued fairly in the market. We understand the importance of maintaining relationships with the financial community that are built on trust, including with investors, analysts and the financial media. We seek investor feedback throughout the year, both informally through our investor relations team, as well as through investor roadshows and one-to-one sessions with our CEO and CFO.

Our next Annual General Meeting, to be held on 23 July 2014, will provide an opportunity for shareholders to raise questions to the Board. We will continue to communicate regular formal updates during the course of the year, including final and interim results, interim management statements, and trading updates.

Our policy is to recruit the best available people who are aligned with and embody our core values of innovation, accountability, achievement and integrity.

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Dear Shareholder, On behalf of the Board I am pleased to present the Corporate Governance Report for the financial year ended 30 March 2014. The Board, as always, is committed to maintaining the highest standards of corporate governance.

This report sets out the framework of governance and the approach the Board of Synergy Health plc has taken during 2014 to achieve and maintain the standards of good corporate governance for which it is accountable and which the Group’s shareholders expect.

The year has seen considerable changes to narrative and remuneration reporting regulations and we have identified in the report how the Board has met the requirements of these new regulations. We also confirm the Group’s compliance with the principles and provisions set out in the revised requirements of the UK Corporate Governance Code (‘the Code’).

Our corporate governance framework enables effective and efficient decision making and ensures that there is the right balance of skills and experience to assess and manage the risks in the international markets in which the Group operates.

This year, in line with corporate governance best practice, the Group has engaged Lintstock Ltd to undertake an external evaluation of the performance of the Board. Further details of the evaluation are set out on page 46.

We have strengthened the Board with the appointment of Jeff Harris as the Senior Independent Director, who brings to the Board significant corporate governance experience. We will be making a further Non-Executive Director appointment in the near future to expand the current skills of the Board.

This corporate governance report is structured in order to demonstrate to shareholders that the Board has complied in all respects with each section of the Code during 2014.

Remuneration is dealt with in the separate Directors’ Remuneration Report.

Sir Duncan NicholChairman 4 June 2014

Governance

Chairman's introduction to governance


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Our governance framework

Sir Duncan Nichol Non-Executive Chairman

Dr Richard Steeves Group Chief Executive Officer

Gavin Hill Group Finance Director

Dr Adrian CowardGroup Chief Operating Officer

Jeff HarrisSenior Independent Director

Constance BaroudelNon-Executive Director

Liz HewittNon-Executive Director

The Board of Directors (membership as at 4 June 2014)

Meetings held during the year: 13

For full biographies, turn to page 42

Liz HewittCommittee Chairman

Jeff Harris Constance Baroudel

Audit Committee (membership as at 4 June 2014)


Constance BaroudelCommittee Chairman

Sir Duncan Nichol Jeff Harris

Liz Hewitt

Remuneration Committee (membership as at 4 June 2014)


Sir Duncan Nichol Committee Chairman

Jeff Harris Constance Baroudel

Liz Hewitt

Nomination Committee (membership as at 4 June 2014)




The Senior Executive Board (SEB) is the key management committee and comprises:

Dr Richard SteevesGroup Chief Executive Officer

Gavin HillGroup Finance Director

Dr Adrian CowardGroup Chief Operating Officer

Tim MasonGroup Company Secretary

Andrew McLeanPresident, AST Americas

Niclas OlssonCEO, Asia & Africa

Ray ReillyGroup HR Director

Senior Executive Board (membership as at 4 June 2014)



AC

RC

NC

SEB

1

2

3

1. Chairman (1) 14.2%2. Executive (3) 42.9%3. Non-executive (3) 42.9%

Board composition

Gender ratios

How we govern the CompanyOur governance structure comprises the functions shown below, supported by the Group’s standard policies and controls which are described on the following pages in more detail.

1

2

1. Male (5) 71.4%2. Female (2) 28.6%

Constance BaroudelNon-Executive DirectorConstance was appointed to the Board as a Non-Executive Director in September 2010 and is Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. She is currently the managing director of the Solution business at De La Rue plc. Prior to De La Rue she was a senior consultant for Strategic Decisions Group. Constance attended l’Institut d’etudes politiques de Paris where she majored in Corporate Finance and International Relations. Constance also has an MSc in International Accounting and Finance from the London School of Economics.

Governance

Board of Directors

RC* AC NC RC AC* NC

Liz HewittNon-Executive DirectorLiz was appointed to the Board as a Non-Executive Director in September 2011 and is Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees. She is also a non-executive director of Novo Nordisk A/S, a non-executive director of Melrose Industries PLC and an external member of the House of Lords Audit Committee. She was previously a non-executive director of an NHS Trust and a trustee of Cancer Research UK. Liz has extensive experience in finance, healthcare and private equity having worked at CVC, 3i Group plc and Smith & Nephew plc. She is a chartered accountant and has a degree in Economics from University College London.

SEB

Dr Adrian CowardGroup Chief Operating OfficerAdrian joined the Group in 2004 as Director of IT and was later appointed Managing Director for the UK HSS division. Adrian previously worked for a scientific and IT consultancy company providing solutions to engineering and R&D companies. Adrian has a BSc in Mathematics and a PhD in Applied Mathematics. Adrian was appointed CEO UK & Ireland In June 2010 before taking up the role of Group Chief Operating Officer in March 2014.

Dr Richard SteevesGroup Chief Executive OfficerRichard founded the business in 1991 and was appointed Chief Executive Officer in 1992. Previously he was corporate development manager for Braithwaite plc, a plant hire company, and associate consultant with strategic consultants, LEK Consulting. Richard has a PhD in Biochemistry from St John’s College, Cambridge and a BSc (1st Class Hons) in Human Physiology from the University of British Columbia in Vancouver, Canada. Richard was recently appointed non-executive chairman of Toumaz plc, a UK semiconductor company focusing on digital radio, connected audio and wireless healthcare.

Gavin HillGroup Finance DirectorGavin joined Synergy Health as Group Finance Director in April 2010. He was previously director, Corporate Finance for Serco Group plc following a number of divisional finance director and commercial roles. Prior to Serco, Gavin worked for Syngenta AG and AstraZeneca plc in both Finance and Corporate Treasury. Gavin is a chartered accountant and associate member of the Association of Corporate Treasurers. Gavin is also a Trustee of the Group’s three defined benefit pension schemes.

SEB

Sir Duncan NicholChairmanSir Duncan became a Non-Executive Director in November 2002. He was chief executive of the National Health Service Management Executive between 1989 and 1994, a non-executive director of BUPA between 1994 and 2002 and a non-executive director at the Christie NHS Foundation Trust between 2008 and 2012. Sir Duncan is currently chairman of Lorica Employee Benefits Ltd, chairman of the Countess of Chester NHS Trust and a non-executive director of Deltex Medical Group plc and UKAS. He is also Chairman of Skills for Justice and the Academy for Healthcare Science. He is Chairman of the Nomination Committee and a member of the Remuneration Committee. Sir Duncan was appointed as Chairman of the Board in June 2012.

RC NC* SEB

Jeff HarrisSenior Independent DirectorJeff was appointed to the Board as Senior Independent Director in September 2013. Jeff read Zoology at Southampton University and is a chartered accountant. He joined UniChem, a co-operative UK pharmaceutical wholesaler, in 1985 as chief accountant and worked his way up to be chief executive and then chairman of Alliance UniChem plc. During that time the Co-operative became a plc and floated on the London Stock Exchange. Jeff has served on a number of boards as a non-executive director, senior independent director and chairman, including Filtrona plc (now Essentra plc), Cookson plc, W H Smith plc, Bunzl plc and Associated British Foods plc. He has also served as the chairman of trustees for various charities.

RC AC NC


Board key

RC Remuneration Committee

AC Audit Committee

NC Nomination Committee

* Committee Chairman

SEB Senior Executive Board

Changes to the Synergy Health plc Board of Directors in 2014

+ Sir Duncan Nichol will continue as Chairman

+ Dr Richard Steeves will continue as Group Chief Executive Officer

+ Dr Adrian Coward was appointed Group Chief Operating Officer with effect from 31 March 2014

+ Jeff Harris was appointed Senior Independent Director with effect from 1 September 2013

SEB

Niclas OlssonCEO, Asia & Africa Niclas was appointed CEO of the Asia & Africa region in June 2012. Niclas worked for the Getinge Group for 10 years in a variety of management positions, culminating in five years as president of Getinge China. His speciality is infection control in emerging markets, with experience in Eastern Europe, India, South East Asia and China. Prior to joining Getinge, he was marketing director for Sanmina-SCI, a world leading outsourcing company, and business area manager Industrial Automation for Mannesman Rexroth in Sweden. Niclas has a Mechanical Engineering degree and is a graduate of the University of Lund.

Andrew McLeanPresident, AST AmericasAndrew holds the dual role of Vice President, AST Business Development and President, AST Americas. Andrew joined Synergy Health in June 2013 from Becton Dickinson and previously Pfizer. During his employment with both organisations, Andrew’s career spanned multiple global geographies and business leadership roles. Andrew holds a Bachelor’s degree in Economics, a Masters of Management, and an MBA from Macquarie University in Sydney, Australia.

SEB

Tim Mason Group Company SecretaryTim joined the Group in September 2009. He was previously group company secretary of Compass Group plc as well as being director and company secretary of their UK & Ireland holding company. Previously Tim held senior corporate secretariat positions with HP Bulmer holdings plc, AMEC plc and Grand Metropolitan plc. Tim is a Fellow of the Institute of Chartered Secretaries and Administrators and holds an MA in Professional Administration. Tim is also Secretary of the Company's Audit, Remuneration and Nomination Committees and Chairman of Trustees for each of the Group’s three defined benefit pension schemes.

Senior Executive Board

Ray ReillyGroup HR DirectorRay joined Synergy Health in July 2012 as part the SRI Surgical Express Inc. acquisition in the Americas. In May 2014 Ray was promoted to the position of Executive Vice President, Global Human Resources. He was previously employed in regional human resource roles with Sodexo as well as healthcare operations management roles with both Sodexo and Marriott Management Services. Ray holds a Bachelors of Science degree in Hotel, Restaurant and Institutional Management from Indiana University of Pennsylvania and a Masters of Science in Human Resources and Industrial Relations from Saint Francis University.

SEB

SEB

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The role of The BoardThe Board is the principal decision making forum for the Group providing entrepreneurial leadership, both directly and through its committees, as well as delegating authority for the day-to-day management of the Group to the SEB.

The Board is responsible for organising and directing the affairs of the Group in a manner most likely to achieve success for the benefit of its shareholders. The Board is accountable to the shareholders for:

+ Setting the Group’s strategic objectives;

+ The creation and delivery of strong sustainable financial and operational performance;

+ Ensuring that, in carrying out its duties, the Group’s legal and regulatory obligations are being met; and

+ Ensuring that the Group operates within appropriately established risk parameters.

The Group’s UK-regulated entities are accountable to the Financial Conduct Authority (‘FCA’).

UK Corporate Governance Code complianceThe Board is committed to the highest standards of corporate governance set out in the Code and is accountable to the Company’s shareholders for good governance. This report describes how the Board has applied the main principles of good governance set out in the Code during the year under review.

Compliance statementThe Directors are of the opinion that the Company has been in compliance with the principles of the Code up to the date of this report except where any non-compliance is disclosed and explained.

The Company’s auditor, KPMG LLP, is required to review whether the above statement reflects the Company’s compliance with the provisions of the Code, specified for their review by the Listing Rules of the UK Listing Authority, and to report if it does not reflect compliance. No such report has been made by KPMG LLP.

The following statements set out the principles and methods to which they adhere.

The statement of Directors’ responsibilities in respect of the Annual Report and the financial statements is set out in the Directors’ report on page 74.

The BoardAs at 30 March 2014, the Board of Directors was made up of six members, comprising a Non-Executive Chairman (who was independent on his appointment), three further Non-Executive Directors and two Executive Directors.

On 25 July 2013, following consultation with a number of major shareholders, it was announced that Dr Richard Steeves, GroupChief Executive Officer, would succeed Sir Duncan Nichol as Non-Executive Chairman of the Group upon Sir Duncan Nichol’s retirement on 31 March 2014 and that Dr Adrian Coward would take over as Group Chief Executive Officer. However, due to the expanding opportunity for the growth in outsourced Hospital Sterilisation services in the US, the Board has decided that Dr Richard Steeves should defer his move from Group Chief Executive Officer to Chairman and Sir Duncan Nichol should similarly delay his retirement.

Dr Adrian Coward, who was regional CEO for the UK & Ireland region, will now take on a broader role as Group Chief Operating Officer for the Group as a whole and joined the Board with effect from 31 March 2014. Notwithstanding that Sir Duncan Nichol has been a Non-

Executive Director since November 2002, the Board believes Sir Duncan Nichol is independent for the purposes of the Code. He brings to the Board significant experience of the wider health sector and by his conduct has displayed the highest corporate governance standards. Finally, the Board believes that Sir Duncan Nichol will play a pivotal role in the development and succession planning of the Board, particularly given the relatively recent appointments to the Board. Whilst not directly involved in the discussions surrounding the potential appointment of Dr Richard Steeves as his successor in the role of Chairman, Sir Duncan Nichol was involved in the discussions surrounding the potential replacement of Dr Richard Steeves by Dr Adrian Coward as CEO designate. With effect from 1 September 2013, Jeff Harris was appointed as a Non-Executive Director and Senior Independent Director.

Schedule of matters reserved for the BoardThe Board has a formal schedule of matters reserved to it for decision, which it reviews and agrees annually, but also delegates specific responsibilities to a senior committee, the SEB, and certain Board committees. Specific responsibilities reserved for the Board include:

+ Setting and amending the Group’s overall business strategy, strategic business plan and the annual operating budget;

+ Approval of the Annual Report and financial statements, interim dividends and recommendation of the final dividend;

+ Approval of any changes to the Company’s capital structure including the raising of additional capital and the purchase of the Company’s shares;

+ Approval of any significant changes in accounting policies or practices;

+ Approval of contracts with annual revenue in excess of £5 million;

+ Approval of any investment or disposal of the share capital of another company greater than 5% of the Company’s market value;

+ Approval of the acquisition of assets with a consideration in excess of £10 million, and any disposal of assets greater than £2.5 million;

+ Approval of any capital expenditure in excess of £10 million;

+ Major changes in the rules of the Company pension schemes, or changes of trustees or fund management arrangements;

+ Approval of changes to the employee share and other incentive schemes and the allocation of executive share options;

+ All Stock Exchange related issues including approval of communications to the Stock Exchange;

+ Establishing Board membership and powers including the appointment and removal of Board members and the Group Company Secretary;

+ Establishing terms of reference and membership of the Board committees;

+ Approval of all related party transactions;

+ Setting the remuneration of the auditors and making recommendations for the appointment or removal of auditors;

+ Approving any major changes in policy with respect to risks covered by insurance;

+ Approving all treasury matters including the setting of policies to enter into contracts that are not in the ordinary course of business and authorising bank facilities (including bank borrowing, other loans and internal rate swaps), and approval of all foreign currency transactions in excess of £5 million;

Governance

Corporate governance report


Board meeting attendance

Board Audit

CommitteeRemuneration

CommitteeNominationCommittee

Total number of meetings 13 4 6 2

Sir Duncan Nichol 13 of 13 1 of 1 6 of 6 2 of 2

Dr Richard Steeves 13 of 13 – – –

Gavin Hill 13 of 13 – – –

Jeff Harris1,2 7 of 8 3 of 4 2 of 2 1 of 1

Constance Baroudel 13 of 13 4 of 4 6 of 6 2 of 2

Liz Hewitt 13 of 13 4 of 4 6 of 6 2 of 2

1 Jeff Harris was appointed to the Board on 1 September 2013.2 The meetings not attended by Jeff Harris were held on the same day. Jeff was unable to attend due to a pre-arranged commitment, agreed before his

appointment to the Board.

+ Overseeing the Group’s main controls and their effectiveness;

+ Other matters including health and safety and risk management;

+ The review of the Group’s overall corporate governance arrangements; and

+ The annual review of its own performance and that of its Committees.

Board activity during 2014At each scheduled meeting the Board received updates from the Executive Directors on the operational and financial performance of the Group.

Board meetings are structured around the following areas:

+ Operational and functional updates;

+ Financial updates;

+ Strategy and risk;

+ Progress against strategy (including potential acquisitions);

+ Human Resources;

+ Other reporting and items for approval; and

+ Feedback from the committees.

The Board composition ensures that the above areas are carefully considered and that best and independent judgement is applied to them.

For 2015, items that are required to be considered on an annual basis will be included on an annual schedule of rolling agenda items to ensure that they are not overlooked and are considered at the appropriate point in the financial and regulatory cycle.

StrategyThe Board sets aside at least two consecutive days each year to conduct a review of its strategy with the SEB and other senior executives in attendance for certain sessions as appropriate.

Strategic items are also discussed at each Board meeting. Risk and risk management is considered side by side with strategy and is included in our operational reporting.

Meetings and attendanceDirectors are expected to attend all meetings of the Board and the committees on which they serve and to devote sufficient time to the Group to perform their duties. Where Directors are unable to attend meetings they receive papers for that meeting, giving them the opportunity to raise any issues with the Chairman in advance of the meeting. The number of scheduled Board and committee meetings of which they are a member attended by each Director during 2014 is provided in the table below.

Directors receive papers several days in advance of Board meetings by means of an electronic Board Pad facility, which provides greater flexibility for the Directors to access papers and also have access to the advice and services of the Company’s advisors.

All Board and committee meetings during the year were held in an open atmosphere conducive to constructive challenge and debate. Additional meetings are called when required and there is contact between meetings, where necessary, to progress the Group’s business.

The Company SecretaryAll the Directors have access to the advice and services of the Group Company Secretary. He has responsibility for ensuring that Board procedures are followed and for advising the Board, through the Chairman, on governance matters. The Group Company Secretary provides updates to the Board on regulatory and corporate governance issues, new legislation, and Directors’ duties and obligations. The appointment and removal of the Group Company Secretary is one of the matters reserved for the Board.

The Board is the principal decision making forum for the Group providing entrepreneurial leadership, both directly and through its committees as well as delegating authority for day-to-day management of the Group to the SEB.

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The Board has established a procedure for Directors, if deemed necessary, to take independent professional advice at the Company’s expense in the furtherance of their duties. This is in addition to the access that every Director has to the Group Company Secretary. In the year under review, as well as advice from the external auditors, KPMG LLP, and Grant Thornton UK LLP, advice was also taken from Deloitte LLP by the Remuneration Committee.

Board effectivenessAs stated in the 2013 Annual Report, it was the Company’s intention to carry out an independent external evaluation of the Board’s performance and all of its Committees in 2014, in order to comply with the Code.

The Board has appointed Lintstock Ltd ('Lintstock'), an independent external consultant which has conducted external evaluations for a number of FTSE 250 companies, to undertake a board evaluation exercise. Lintstock has had no connection with the Company previously.

The first stage of the review has commenced, with Lintstock engaging with the Chairman, Company Secretary and Chief Executive in order to set the context of the evaluation and to tailor the questionnaires used to the specific circumstances of the Company.

All respondents will then be requested to complete an online questionnaire addressing Board, committee, chairman and individual performance. The anonymity of all respondents is ensured throughout the process in order to promote the open and frank exchange of views.

Lintstock will subsequently produce a report addressing the areas covered in the questionnaire. It is also envisaged that Lintstock will conduct a follow-up appraisal next year involving an interview component, to follow up on any issues raised in this year’s process. The review content for each subsequent evaluation is designed to build upon learning gained in the previous year, to ensure that the recommendations agreed in the review are implemented and that year-on-year progress will be measured.

Roles of the Chairman and Group Chief Executive OfficerThe roles of Chairman and Group Chief Executive Officer are separate and clearly defined with the division of responsibilities set out in writing and approved by the Board. The Chairman’s principal responsibilities are to chair the Board and shareholder meetings and to ensure the effective running of the Board. The Group Chief Executive Officer’s principal responsibility is leading the SEB in the day-to-day running of the Group’s business. The Chairman and the Group Chief Executive Officer meet regularly between meetings.

Meetings between the Non-Executive Directors, both with and without the presence of the Group Chief Executive Officer, take place regularly. The Board has arranged to hold Board meetings at Group business locations to help all Board members gain a deeper understanding of the business. This also provides senior managers from across the Group with the opportunity to present to the Board as well as to meet the Directors on more informal occasions. The Non-Executive Directors are also invited to attend the Group’s Leadership Conference, which is normally held annually.

Board balanceThe Board continues to give careful consideration to its structure and the balance of the Board. The Board remains satisfied that it has the appropriate balance of skills, experience, independence and knowledge of the Group to enable it and its committees to discharge their duties and responsibilities effectively, as required by the Code. The table opposite details the length of service of the Chairman and each of the Non-Executive Directors.

The Board will, in the near future, be making a further Non-Executive Directorship appointment to expand the current skills and experience of the Board. The Company has engaged a firm of external search consultants to assist with the appointment. The recruitment process is being led by Sir Duncan Nichol as Chairman of the Nomination Committee, supported by the Committee and the Group Company Secretary.

Biographical details of the Directors currently in office are shown on page 42. The Company’s policy relating to the terms of appointment and the remuneration of both Executive and Non-Executive Directors is set out in the Remuneration Report on page 54.

The Directors’ biographies demonstrate the broad range of skills and experience on the Board.

The procedure for appointing Directors is detailed in the Nomination Committee section below.

In accordance with the Code, all Directors submit themselves for annual re-election by shareholders. New Directors may be appointed by the Board, but are subject to election by shareholders at the first opportunity following their appointment.

Independent Non-Executive Directors are currently appointed for fixed periods of three years, subject to annual re-election by shareholders. The initial three-year period may be extended for two further three-year periods, subject to re-election by shareholders. Their letters of appointment may be inspected at the Company’s registered office or can be obtained on request from the Company Secretary.

The Chairman performs a number of other non-executive roles outside the Group and details of these are included in the Chairman’s biography. The Board continues to be satisfied that these other commitments are not such as to interfere with the performance of his duties for the Group and will not impact on his ability to allocate sufficient time to discharge effectively his responsibilities to the Group.

Governance

Corporate governance report continued


Jeff Harris is the Senior Independent Non-Executive Director. He is available to shareholders if they have concerns that contact through the normal channels of Chairman, Group Chief Executive Officer, or Group Finance Director has failed to resolve or for which such contact is inappropriate. He is also responsible for leading the Board’s discussion on the Chairman’s performance and the appointment of a new Chairman, as and when appropriate.

Independence of Non-Executive DirectorsThe Company requires Non-Executive Directors to be independent of management so that they are able to exercise independent oversight and effectively challenge management. The Company continually assesses the independence of each of the Non-Executive Directors. The Company has determined that all of the Non-Executive Directors are independent in accordance with the Code requirements. None of the Non-Executive Directors or their immediate families has ever had a material relationship with the Group. None of them receive additional remuneration apart from Directors’ Fees, nor do they participate in the Group’s share plans or pension schemes. None of them serve as directors of any companies or affiliates in which any other Director is a director.

More importantly, each of the Non-Executive Directors is prepared to question and challenge management, to request more information and to pursue difficult questions. They insist on robust responses, both within the Boardroom and sometimes between Board meetings. The Group Chief Executive Officer is open to challenge from the Non-Executive Directors and uses this positively to provide more detail and to reflect further on issues.

Professional developmentOn appointment, Directors take part in a comprehensive induction programme whereby they receive financial and operational information about the Group, as well as information about their responsibilities and duties and an introduction to the Group’s governance, regulatory and control environment.

This induction is supplemented by visits to the Group’s head office in Swindon and the European head office in Derby, overseas offices, and meetings with members of the senior management team and their departments. Development and training of Directors is an ongoing process. Throughout their period in office the Directors are regularly updated on the Group’s business, legal matters concerning their role and duties, the competitive environments in which the Group operates, and any other significant changes affecting the Group and the industry of which it is a part. Where appropriate, the Board receives presentations from senior managers within the Group.

Employee engagementThe Group recognises the impact that positive employee engagement has on developing a culture of excellence, maintaining organisational stability and fostering an environment in which people feel valued and included.

The Group is an equal opportunities employer. Equal opportunities are offered to all regardless of race, colour, nationality, ethnic origin, sex (including gender reassignment), marital or civil partnership status, disability, religion or belief, sexual orientation, age or trade union membership.

The Group gives full and fair consideration to applications for employment from people with disabilities. The policy is to offer equal opportunity to all disabled candidates and employees who have a disability or become disabled in any way during the course of their employment. A full assessment of the individual’s needs is undertaken and reasonable adjustments are made to the work environment or practices in order to assist those with disabilities.

All candidates and employees are treated equally in respect of recruitment, promotion, training, pay and other employment policies and conditions. All decisions are based on relative merits and abilities.

The Group continues to employ multiple channels of communication and is committed to improving these channels so that all employees have access to information as well as having an opportunity to express their views and ideas on matters affecting their employment and the Group.

Channels include:

+ Employee forums and, where appropriate, works councils;

+ ‘Touch Point’, the Group intranet site;

+ Ethics hotline;

+ Regular leadership briefings – followed by communication cascades/team briefings;

+ Employee satisfaction surveys;

+ Health and safety surveys;

+ Regular business updates via circulars; and

+ Communication via ‘Yammer’, a professional social networking tool.

Employment policies are updated in a timely way to reflect legislative changes, and training to communicate or embed change is developed and rolled out as appropriate.

Training is provided as required to ensure that we have a skilled workforce; this requires a balance of training for the work our employees do now, and developing and preparing people for the future.

For several years the Company has operated a Savings Related Share Option Scheme for UK-based employees, which gives employees an opportunity to enter into a savings contract for a fixed period, with an opportunity to acquire shares in the Company at the end of that period.

Current length of service

Director Date of appointment Length of service

Sir Duncan Nichol 01.11.2002 11 years 7 months

Constance Baroudel 01.09.2010 3 years 9 months

Liz Hewitt 01.09.2011 2 years 9 months

Jeff Harris 01.09.2013 9 months

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Governance


Women on BoardsThe Board has discussed the guidance issued by Lord Davies of Abersoch in his report ‘Women on Boards’ and the Code. Women currently comprise 28.6% of the members of the Board. The Board hopes the Group will be in a position to maintain this level of representation when renewing Board membership over the coming years. However, this will always be subject to the overriding need to ensure that appointments are made on merit and having regard to an appropriate balance of skills, experience, independence and knowledge required on the Board. The Davies Report also examines the gender diversity at management levels below the board and has asked that chairmen, in consultation with their CEOs, identify two female candidates from their senior management team and give them the opportunity to serve as non-executive directors on other company boards. The Group has a number of initiatives to improve diversity at a senior management level but recognises that these will take time to be reflected in the number of women in the senior management team. To accelerate the number of women in senior management positions, the Group has set up ‘Synergy For Women’.

Synergy for Women has a vision to:

+ Secure increased representation of women in senior leadership roles in the Group,

and a mission to:

+ Promote a working environment which encourages women to aspire to senior positions within the Group.

The initiative started in the UK & Ireland region, with representatives from all divisions and functions. The initiative has recently been extended to operate globally and an international steering group has been set up to encourage similar women’s groups in Europe & Middle East, the Americas and Asia & Africa. The initiative is also being sponsored internally by Dr Adrian Coward, Group Chief Operating Officer and Dr Richard Steeves, Group Chief Executive Officer. As a result of the initiative, female employees can expect to see, amongst other things, growing opportunities for networking, career support and confidential counselling.

Female employees make up approximately 46.5% of all employees within the Group.

The Board will continue to review its approach on gender diversity, particularly in the context of any developing guidance in this area.

Relations with shareholdersThe Group Chief Executive Officer, Group Finance Director and Group Company Secretary are responsible for ensuring effective communication with shareholders. The Company places considerable importance on communication with the shareholders (including its employee shareholders) and all other stakeholders.

Apart from the Annual General Meeting (‘AGM’), the Company communicates with its shareholders by way of the Annual Report and financial statements, which are available to all shareholders either in paper form or electronically and can be accessed via the Company’s website. The Group’s annual and interim results, as well as all announcements issued by the London Stock Exchange, are published on the Company’s website.

The Company also communicates with its institutional shareholders through a combination of analysts’ briefings throughout the year but particularly at the interim and year end results stage.

The Chairman, as required, will hold meetings during the year with major shareholders and other stakeholders, and will discuss with the Board any matters raised with him.

External analysts’ reports are circulated to all Directors and Investec, the Company’s brokers, produce a monthly investor relations report, which is circulated to the Board. The report contains details of any significant changes to the shareholders’ register.

It is proposed that the next AGM be held at the offices of Investec Bank plc, 2 Gresham Street, London EC2V 7QP on Wednesday 23 July 2014 at 10.30a.m., notice of which will be sent to shareholders with the Annual Report.

Business at the Company’s 2014 AGM will cover the Annual Report and financial statements, the Remuneration Report, the Directors’ Remuneration Policy, the declaration of a final dividend, election and re-election of Directors, appointment and remuneration of auditors, political donations and political expenditure, authority to allot shares, disapplication of pre-emption rights, purchase by the Company of its own shares, and the notice period for general meetings.

Full details and an explanation of these resolutions are set out in the Notice of Meeting. The proxy votes for and against each resolution, as well as abstentions, are counted before the AGM and the results will be made available at the meeting after shareholders have voted on each resolution on a show of hands.

All shareholders are invited to the AGM. The Chairmen of the Audit, Remuneration and Nomination Committees attend the AGM along with the other Directors and are available to answer shareholders’ questions on the activities of the Committees they chair. Shareholders also have an opportunity to meet with Directors after the formal business of the meeting has been concluded. Details of proxy voting by shareholders are made available on request and are placed on the Company’s website following the meeting.

Results of 2013 AGM The table below details the voting results of the previous AGM:

Total votes for %

Total votes against %

1 Company’s Annual Report and Accounts 100.0 0.0

2 Directors’ Remuneration Report 99.3 0.7

3 Final dividend 100.0 0.0

4 Re-elect Sir Duncan Nichol 97.1 2.9

5 Re-elect Dr Richard Steeves 99.8 0.2

6 Re-elect Gavin Hill 99.8 0.2

7 Re-elect Constance Baroudel 99.9 0.1

8 Re-elect Liz Hewitt 99.9 0.1

9 Appointment of auditors 100.0 0.0

10 Auditors’ remuneration 99.9 0.1

11 Allow political donations 99.3 0.7

12 Allot relevant securities 99.3 0.7

13 Allot equity securities 100.0 0.0

14 Make market purchases 99.9 0.1

15 14 days’ notice of general meetings 95.4 4.6


Conflicts of interestThere are procedures in place to deal with Directors’ conflicts of interest arising under the Companies Act 2006 and such procedures have operated effectively during the year.

Internal controlThe Directors acknowledge that they have overall responsibility for the Group systems of internal control and for reviewing the effectiveness of those controls.

The Board has taken into account the relevant provisions of the Code, the Turnbull Report and the Listing Rules and an ongoing process has been established for identifying, managing and evaluating the risks faced by the Group.

The systems are designed to manage rather than eliminate risk of failure to achieve the Group’s objectives. The systems provide reasonable, not absolute, assurances against material misstatement or loss. Such systems are reviewed by the Board to deal with changing circumstances.

The Group appointed Grant Thornton UK LLP during the year to provide Internal Audit services across the Group.

The Group has a Group finance function that reports to the Group Finance Director and is independent of the business units to ensure objectivity and control when preparing Group financial information.

The Group finance function undertakes financial reviews of the regional finance functions on an ad hoc basis and provides technical and commercial support when required.

Assessment of business riskExisting and emerging business risks have been identified, assessed and evaluated during the year as part of the Group’s management processes. The formal risk management framework led by the Group Risk Management Director ensures that risks are effectively and consistently managed and reported on. The corporate risk management system is covered in the report of principal risks and uncertainties on page 33. The Board regularly reviews strategic risks.

Control environmentThe Group’s operating procedures include a comprehensive system for reporting financial and non-financial information to the Board including:

+ The definition of authorisation limits, both financial and otherwise. Detailed appraisal documents are produced for any major capital projects;

+ A review of annual budgets and forecasts against budgets that are produced at least twice a year;

+ A review of monthly management accounts at Group and operational level, including financial performance, together with balance sheet and cash flow analysis, which are reported against budget, forecasts and prior year with major variances explained; and

+ A risk management report for each Board meeting, focusing on any new risks arising and management of existing risks.

On an annual basis the Group finance function undertakes a review of financial controls as part of its year end process, which is considered by the Board. The annual review gives a comprehensive update on the previous year’s report and outlines actions taken to redress any weaknesses in each regional business and across Group functions. The review also highlights areas where improved controls have been implemented and key actions to be addressed in the coming financial year, which are monitored by both the Board and the Audit Committee.

Control proceduresDetailed operational procedures that embody key controls have been developed for each of the Group’s businesses. The implications of change in law and regulations are taken into account in those procedures.

Monitoring processThere are clear procedures for monitoring the system of key controls. The significant components are:

+ Cyclical and random reviews of operational and financial controls by the Group Risk Management Director, the Group Quality Director, the Group IT Director, senior finance managers and the Group Finance team; and

+ Review by the Audit Committee of the process for identifying and assessing risks and of the effectiveness of controls via the work of external audit and direct access to Group and operational management.

The Board confirms that it has considered the effectiveness of the Group’s system of internal controls described above for the financial year and up to the date of this report.

Board committeesThe Board has delegated authority to a number of permanent committees to deal with matters in accordance with written terms of reference, as well as the SEB.

Senior Executive BoardThe SEB is the key management committee and comprises the Group Chief Executive Officer, Group Finance Director, Group Chief Operating Officer, Group HR Director, Group Company Secretary and the CEOs of each of the geographic regions of the Group.

The SEB meets regularly and is primarily responsible for:

+ The management of all the Group’s businesses;

+ Delivering the strategy and the agreed business plans and budgets which have been approved by the Board;

+ Implementing Group policy;

+ Making key commercial decisions within the framework of the agreed business plan and strategy;

+ Monitoring all risks (operational, financial and reputational);

+ Reviewing and maintaining the effectiveness of the Group’s system of internal control on a day-to-day basis; and

+ Managing the business in a manner appropriate for a FTSE 250 company.

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Principal committeesThe principal committees of the Board – Audit, Remuneration and Nomination – all comply fully with the requirements of the Code. All committees are chaired by an independent Non-Executive Director, except the Nomination Committee, which comprises Non-Executive Directors and is chaired by the Chairman of the Board, whom the Company deems independent. Appointments to the committees are made on the recommendation of the Nomination Committee and are for a period of up to three years, which may be extended for two further three-year periods, provided the Director remains independent. The committees are constituted with written terms of reference that are reviewed annually to ensure that they remain appropriate and reflect any changes in good practice and governance. These terms of reference are available on request from the Group Company Secretary and can also be found on the Company’s website. Directors are fully informed of all Committee matters by the committee Chairmen reporting on the proceedings of their committee at the subsequent Board meeting. Copies of committee minutes are also distributed to the Board. Committees are authorised to obtain outside legal or other independent professional advice if they consider it necessary. The Chairman of each committee attends the AGM to respond to any shareholder questions that might be raised on the committee’s activities. The Group Company Secretary acts as Secretary to all of the Committees.

Sir Duncan NicholChairman 4 June 2014

Governance


Stay-up-to-date Investors can find all the latest Company updates and regulatory announcements on the Investor Relations section of the Company’s website at www.synergyhealthplc.com

Board

SeniorExecutive

Board

NominationCommittee

AuditCommittee

RemunerationCommittee


Governance

Audit Committee report

Dear Shareholder, On behalf of the Board I am pleased to present the Audit Committee report for the year. We increased the number of meetings to four this year in order to complete our work, given the changes in regulation and reporting for audit committees. This year’s report contains some new disclosures, such as our policy on the balance of audit and non-audit work to be undertaken by the external auditors, our policy on auditor tendering, the establishment of an Internal Audit function and our view of the key reporting risks.

My thanks go to the Audit Committee members, the Finance team and the internal and external auditors for their work this year, particularly given the additional work we have undertaken, as well as for their input to the important work done by the Committee.

Liz HewittChairman of the Audit Committee 4 June 2014

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Audit Committee membersLiz Hewitt (Chairman)

Constance Baroudel

Jeff Harris (appointed 1 September 2013)

Sir Duncan Nichol (resigned from the Committee 1 September 2013)

ResponsibilitiesThe Audit Committee’s terms of reference include all matters indicated by Disclosure and Transparency Rule 7.1 and the Code. The terms of reference are considered annually by the Audit Committee and are then referred to the Board for approval. The full terms of reference were updated during 2014 in line with the revised recommendations of the September 2012 Code and can be found on the Company’s website or can be obtained from the Company Secretary.

The primary responsibilities of the Audit Committee are to:

+ Monitor the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and review significant financial reporting judgements contained therein;

+ Have oversight of risk management, including the review of the Group’s financial, operational and compliance internal controls, Bribery Act 2010 compliance, and whistleblowing and fraud prevention procedures;

+ Make recommendations to the Board, for a resolution to be put to the shareholders for their approval at the general meeting, on the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditor;

+ Review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration the periodic rotation of audit personnel and relevant UK professional and regulatory requirements; and

+ Develop and implement a policy on the engagement of the external auditor to supply non-audit services, taking into account relevant guidance regarding the provision of non-audit services by the external audit firm.

Key issues and activitiesThe Committee reviews the financial reporting of the Company and the effectiveness of the Group’s internal control process. Combined with the Committee’s review of the internal and external audit functions, and review of specific issues with management as required, it is able to obtain sufficient information to discharge its responsibilities.

Significant audit issues

The Committee is mindful of the areas of significant risk disclosed in the Auditor’s Report on page 75. The Committee has carried out its own review of these risks, agrees with their classification as ‘key’, and is satisfied that they have been effectively managed during the period.

Our view of them is set out below:

+ Carrying value of Dutch linen business assets, and Chinese sterilisation business assets. The Dutch linen business has been experiencing tough trading conditions during the last two years. This business is undergoing an improvement programme, which is showing some signs of success. If this programme is not successful we may reconsider the asset carrying value. The Chinese sterilisation business is a fledgling business. If this business does not develop as expected then the asset carrying value may be revisited. During the

year, the Audit Committee reviewed management’s approach to carrying out impairment reviews, and the adequacy of the financial controls in place over this area. In addition, the Committee reviewed the conclusions drawn from management’s impairment reviews, and satisfied themselves that these were valid. The Board’s judgement is that this year these assets are not in need of impairment, as operational activities are ongoing which support the asset carrying values.

+ Non-recurring items in the income statement. Non-recurring items have arisen in the context of acquisitions and restructuring activities. During the year, the Audit Committee reviewed management’s approach to accounting for non-recurring items, and the adequacy of financial controls in place over this area. The Board has discussed these items, and is satisfied that these are non-recurring in nature and have been correctly identified as such.

During the year the Committee increased the number of annual meetings from three to four, in order to address an increased workload. The Committee looked at specific topics as detailed below.

Governance

Audit Committee report continued

Financial statements and reports (about 45% of the Committee’s time) + Reviewed the Annual Report and Accounts, the half year report and the Interim Management Statements issued in the year. As part of these reviews the Committee received a report from the external auditors on their audit of the Annual Report and Accounts;

+ Reviewed both internal and external reports on the effectiveness of the Group’s internal controls;

+ Reviewed regulatory developments in the fields of IFRS and corporate reporting;

+ Considered the Group’s acquisition valuation methodology; and + Considered the Group’s impairment review methodology.

Risk management (about 18% of the Committee’s time) + Considered the output from the Group-wide risk review process to identify, evaluate and mitigate risks, the Group’s changing risk profile and future risk reports;

+ Reviewed the Group major risk register; + Monitored the deployment of the ‘Focus on Safety’ campaign, the Safeguard application, and the risk management learning management system;

+ Reviewed the level of management attention and local resource focused on risk management across the Group; and

+ Reviewed the Group’s whistleblowing policy, which allows the Audit Committee to receive complaints on accounting, risk issues, internal controls, auditing issues and related matters, in confidence.

Internal Audit (about 12% of the Committee’s time) + Initiated a contracted out Internal Audit function, evaluated its scope of work, and the effectiveness of its delivery;

+ Reviewed the IT security and the internal control environment of the Group’s new Enterprise Resource Planning (‘ERP’) system;

+ Reviewed and considered management responses to audit reports issued during the year; and

+ Reviewed the resourcing of Internal Audit.

External auditors and non-audit work (about 15% of the Committee’s time) + Reviewed, considered and agreed the scope and methodology of the audit work to be undertaken by the external auditors including setting the policy for the ratio of audit to non-audit work;

+ Evaluated the independence and objectivity of the external auditors; and

+ Agreed the terms of engagement and fees to be paid to the external auditors for their audit of the 30 March 2014 financial statements.


GovernanceThe Audit Committee is appointed by the Board from the Non-Executive Directors of the Group. The Committee comprises members with a broad range of business and financial experience to effectively fulfil its programme of work. The Board considers that Liz Hewitt is suitably qualified to chair the Committee in accordance with the requirements of the Code and each of the members is independent in accordance with the definition set out in the Code. The expertise and the experience of each of the members of the Committee are summarised on page 42.

The Committee met four times during the year and routinely meets the auditors without the involvement of the Executive Directors. The Chairman of the Committee meets with the auditors prior to each Audit Committee meeting. The Committee has met with the Internal Auditor on a regular basis throughout the year. The Group Chief Executive Officer, Group Finance Director, members of the Group Finance function and representatives from the external auditors attend Committee meetings by invitation in order to provide appropriate advice. The Group Finance Director works closely with the Chairman of the Audit Committee to ensure open communication between them.

The Audit Committee is allowed to obtain, at the Company’s expense, outside legal or other professional advice on any matter within its terms of reference. No external independent advice has been considered necessary or sought in the year to 30 March 2014 outside of the normal discussions with the external auditors.

Auditor independenceKPMG LLP (previously KPMG Audit PLC) was appointed as auditor to the Group in 2007, and is re-appointed annually by shareholders. An annual review of the independence of KPMG LLP is undertaken and includes a review of the policy of hiring of ex-audit staff. At the year end the auditor formally confirmed their independence and that their objectivity has been maintained. The Committee has concluded that the requirement for independence continues to be met.

The auditor is required to rotate the audit partner responsible for the Group audit every five years. The incumbent audit partner was appointed in 2011. The Committee has noted the revisions to the Code introduced by the Financial Reporting Council ('FRC') in September 2012, in particular the recommendation to put the Group’s external audit out to tender at least every 10 years. The Committee noted the proposed transitional arrangements with respect to audit tendering to fit the five-yearly cycle of partner rotation. The Audit Committee agreed that a full tender was not required for the 2014 audit. Consequently, the Committee will consider its external tendering arrangements in anticipation of the next audit partner rotation, which is expected to take place in 2016, and will provide an update in the 2015 Annual Report.

The Committee reviewed its policy on the supply of non-audit services by the external auditors to ensure their continued objectivity and independence and set a ratio of 70:30 for audit and non-audit work. The Committee set a monetary limit for the Group to operate within,

Other areas of interest (about 10% of the Committee’s time) + Considered the Audit Committee’s terms of reference, which were then approved by the Board;

+ Held private meetings with the external auditor; + Reviewed and updated the Company’s ethics and whistleblowing policies;

+ Monitored progress on the roll-out of the Group’s new ERP system; + Evaluated post-investment appraisals of a recent acquisition; and + Contributed to the management’s review of the Group’s cyber-security risks and controls, and completed the UK Government’s cyber-security review.

and later approved the exceeding of this limit and the 70:30 ratio for a specific transaction. The Committee is satisfied that the provision by KPMG LLP of non-audit services does not impair their independence or objectivity. The Committee has approved the range of services that may be provided by KPMG LLP. These include transaction due diligence and accountancy assistance for specific projects. Subject to approved authorisation limits, the services require prior authority from either the Group Finance Director, the Chairman of the Audit Committee or the full Audit Committee.

Auditor evaluationDuring the year, the Committee reviewed KPMG LLP’s fees, effectiveness and the fulfillment of the agreed audit plan and the reasons for any variation from the plan. The Committee also considered the audit plan’s robustness, proposed audit materiality, the degree to which KPMG LLP was able to assess key accounting and audit judgements, the recommendations of the external auditor in connection with internal controls, and the content of the management letter.

Details of the current criteria for judging the effectiveness of the external auditors are set out below:

+ Deliver a smooth-running, thorough and efficiently executed audit;

+ Provide accurate, up-to-date knowledge of technical issues on a timely basis; and

+ Deliver a focused and consistent audit approach globally that reflects local risks and materiality.

An evaluation of the performance of KPMG LLP was conducted during the year through the circulation of an internal questionnaire to members of the Audit Committee and to key customers within the business. The results of the evaluation were satisfactory and showed an improvement on the prior year. The Committee will continue to focus on the effectiveness, objectivity and independence of the Auditor in its reviews.

Auditor fees Before agreeing the audit fee proposed by the external auditors, which is reviewed by management, the Committee considered cost comparisons to ensure that it was fair and appropriate. The audit fees payable to KPMG LLP during 2014 were £448,000 (2013: £469,000) and non-audit service fees were £1,010,000 (2013: £178,000). The principal non-audit service was for transaction-related advisory fees. The Committee considered the appropriateness of using the external auditor for this work and concluded that it was appropriate to work with the external auditor as the benefits of doing so outweighed the implications of exceeding the policy for the ratio of audit to non-audit fees. A summary of fees paid to the external auditor is set out in note 4 to the Accounts on page 89. In accordance with International Standards on Auditing (UK & Ireland) 260 and Ethical Standard 1 issued by the Accounting Practices Board, and as a matter of best practice, the external auditor has confirmed their independence as auditor of the Company, in a letter addressed to the Directors.

Accordingly, the Committee unanimously recommended to the Board that a resolution for the reappointment of KPMG LLP as the Company’s independent auditor be proposed to shareholders at the AGM in July 2014 and the Board has accepted and endorsed this recommendation.

Liz Hewitt Chairman of the Audit Committee 4 June 2014

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Governance

Remuneration Committee report

Dear Shareholder, On behalf of the Board, I am pleased to present our Remuneration report for 2014, which sets out the remuneration policy for the Executive Directors of the Group and the amounts earned in respect of the year ended 30 March 2014. New regulations have come into effect, which have an impact on the presentation and disclosure of Directors’ remuneration, and the layout of this report reflects those new regulations. This report is, therefore, presented in two sections: the Directors’ Remuneration Policy Report and the Annual Report on Remuneration. The Directors’ Remuneration Policy Report sets out the forward-looking remuneration policy that will be subject to a binding vote at the AGM on 23 July 2014. The Annual Report on Remuneration provides details of the amounts earned in respect of the year ended 30 March 2014 and how the Directors’ Remuneration Policy will be operated for the year commencing 31 March 2014, and will be subject to an advisory vote at the AGM.

The Committee believes that a significant proportion of senior executives’ remuneration should be made up of performance-related incentives so that overall reward is closely aligned to the creation of long-term shareholder value. This year’s remuneration again reflects the delivery of strong performance in challenging economic circumstances.

Incentive out-turns The Group’s performance during the year is reported in detail throughout the Annual Report and, in the view of the Committee, justifies the payments to Executive Directors under the annual bonus plan as set out on page 64.

Executive Directors are encouraged to invest an amount up to the value of their annual bonus in shares in the Group in return for an opportunity to earn a matching share award under the Co-invest element of the Long Term Incentive Plan (‘LTIP’). The matching share award granted in 2011 will vest on a one-to-one basis in July 2014 (based on achievement of compound annual growth in adjusted Earnings Per Share (‘EPS’) of 12.08% over the three-year performance period to 30 March 2014).

The long term incentive options granted in 2010 vested at 72.4% in July 2013 (based on achievement of compound annual growth in adjusted EPS of 15.8% to 31 March 2013 and second quartile Total Shareholder Return (‘TSR’) performance over the three-year period to 14 June 2013). Long term incentive options granted in 2011 are expected to vest at 36.2% in July 2014 (based on achievement of compound annual growth in adjusted EPS of 12.08% to 30 March 2014 and an expected second quartile TSR performance to 27 June 2014).


2014 decisionsOn 25 July 2013, it was announced that Dr Richard Steeves, Group Chief Executive Officer, would succeed Sir Duncan Nichol as Non-Executive Chairman of the Group upon his retirement on 31 March 2014 and that Dr Adrian Coward would take over from Dr Richard Steeves as Group Chief Executive Officer. As a result of the expanding opportunity for the growth in outsourced hospital sterilisation services in the US, the Board has decided that Dr Richard Steeves should defer his move from Group Chief Executive Officer to Chairman and Sir Duncan Nichol has similarly delayed his retirement. Dr Adrian Coward, who was regional Chief Executive Officer for the UK & Ireland, took on a broader role as Group Chief Operating Officer for the Group as a whole, and joined the Board with effect from 31 March 2014.

For the financial year that commenced 31 March 2014 the base salaries for the Executive Directors have been increased to £480,000 for Dr Richard Steeves and £290,000 for Gavin Hill, and the base salary for Adrian Coward has been set at £290,000 reflecting his promotion to Group Chief Operating Officer. On 2 June 2014, Richard Steeves entered into a new contract to reflect his return to the sole role as Group Chief Executive Officer.

We have continued to monitor our executive remuneration policy to take account of evolving market practice whilst also seeking to ensure that a fair and stable framework is maintained and avoiding making unnecessary and frequent changes to the structure of pay. Accordingly, the existing remuneration policy and fundamental structure of the package remains largely unchanged and the overall quantum of the incentives has not changed. We believe this ensures a continued alignment to business strategy and encourages the creation of shareholder value.

The rules of the Group’s LTIP expire in 2015. Therefore, the grant of awards in respect of the year ending 29 March 2015 is likely to be the final grant of awards under the LTIP. During the year ending 29 March 2015, the Committee will review the LTIP and the overall Executive Directors’ remuneration package, with a view to seeking shareholder approval at the 2015 AGM for a new LTIP, aligned with the Company’s ongoing strategy.

For LTIP awards to be granted in respect of the year ending 29 March 2015, the Committee has introduced a ‘malus’ provision, enabling the Committee to reduce or cancel unvested awards in certain circumstances, as referred to on page 56.GovernanceWe remain committed to a responsible approach in respect of executive pay. The Committee will continue to engage actively with and seek to incorporate the views of its shareholders in any major changes to the Executive Directors’ remuneration policy.

Constance BaroudelChairman of the Remuneration Committee4 June 2014

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Element Purpose and link to strategy Operation Opportunity Performance measures

Base salary Core element of fixed remuneration reflecting the individual’s role and experience.

Salary levels are set to both support retention and reward performance at a competitive level.

Base salaries are normally reviewed once a year.

Salaries are determined by the Committee with reference to a number of factors including, but not limited to:

+ The size and scope of the role;

+ The experience and performance of the individual;

+ Performance of the Group;

+ Average change in broader workforce salary; and

+ Group profitability and prevailing market conditions.

No maximum salary opportunity has been set out in this Policy to avoid setting expectations for Executive Directors and employees. The base salaries effective as at 30 March 2014 are shown on page 64.

Salary increases are reviewed in the context of the wider workforce increases and the Committee considers any increase out of line with this carefully. Higher increases may be awarded in circumstances such as:

+ Increase in scope and responsibility;

+ Promotional increase to Executive Director; and

+ A salary falling below market positioning.

None, although performance of the individual is one of the considerations in setting salary levels.

Benefits Fixed element of remuneration providing market competitive benefits.

Executive Directors receive benefits in line with market practice and principally include private healthcare, life assurance and a car, or car allowance.

Other benefits may be provided based on individual circumstances, such as relocation allowances.

Benefits do not form part of pensionable earnings.

Whilst the Committee has not set an absolute maximum on the levels of benefit Executive Directors receive, the value of benefits is set at a level which the Committee considers appropriate and provides sufficient level of benefit based on individual circumstances.

Not applicable.

All-employee UK share schemes

To encourage all employees to make a long-term investment in the Company’s shares in a tax efficient way.

Executive Directors are entitled to participate in a tax qualifying all-employee Savings Related Share Option Scheme (‘Sharesave’) under which they make monthly savings over a period of three or five years linked to the grant of an option over the Company’s shares with an option price which can be at a discount of up to 20% of the market value of shares on grant.

Participation limits are those set by the UK tax authorities from time to time. No performance conditions are attached to awards in line with HMRC practice.

Retirement benefits

Help recruit and retain employees.

Ensure adequate income in retirement.

Executive Directors are eligible to participate in the defined contribution pension plan or can opt to take a cash supplement.

Contribution rates are up to 15% of base salary. Not applicable.

Annual bonus scheme

Incentivise performance on an annual basis against the achievement of key financial business targets and delivery of personal objectives relevant to the Group’s strategy.

Bonuses are awarded annually. Bonus level is determined by the Committee after the year end based on performance against targets.

The Committee has the discretion to amend the bonus pay-out should any formulaic outputs not produce a fair result for either the Executive Director or the Company, taking into account overall business performance.

Executive Directors have the opportunity to invest an amount up to the value of their annual bonus in shares in the Company in return for an opportunity to earn a matching share award under the Co-invest element of the LTIP as described below.

Maximum bonus opportunity is 100% of base salary. Stretching targets are set each year reflecting business priorities, which underpin the Group’s strategy and align with financial key performance indicators.

Targets, whilst stretching, do not encourage inappropriate business risks to be taken.

At least 60% of total bonus opportunity is based on financial performance (set by the Committee) and the remainder based on non-financial strategic measures and/or individual performance (reviewed and approved by the Committee at the start of the financial year and clearly aligned to the strategic objectives of the Group).

Vesting will apply on a scale between 0% and 100% based on the Committee’s assessment of the extent to which a performance metric has been met.

Governance

Remuneration Committee report continued

Remuneration Committee membersConstance Baroudel (Chairman)

Sir Duncan Nichol

Jeff Harris

Liz Hewitt

IntroductionThe Remuneration Report has been prepared in accordance with the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2013 and meets the relevant requirements of the FCA Listing Rules.

Policy reportThis part of the report sets out the Directors’ Remuneration Policy, which, subject to shareholder approval at the 2014 AGM, shall take binding effect from the date of that meeting. The Policy has been determined by the Committee. Information on how the Committee intends to implement the policy for the current financial year is set out in the Annual Report on Remuneration on pages 64 to 69.

Key elements of payAn overview of the main elements of the Executive Directors’ remuneration is set out below:



Base salary Core element of fixed remuneration reflecting the individual’s role and experience.

Salary levels are set to both support retention and reward performance at a competitive level.

Base salaries are normally reviewed once a year.

Salaries are determined by the Committee with reference to a number of factors including, but not limited to:

+ The size and scope of the role;

+ The experience and performance of the individual;

+ Performance of the Group;

+ Average change in broader workforce salary; and

+ Group profitability and prevailing market conditions.

No maximum salary opportunity has been set out in this Policy to avoid setting expectations for Executive Directors and employees. The base salaries effective as at 30 March 2014 are shown on page 64.

Salary increases are reviewed in the context of the wider workforce increases and the Committee considers any increase out of line with this carefully. Higher increases may be awarded in circumstances such as:

+ Increase in scope and responsibility;

+ Promotional increase to Executive Director; and

+ A salary falling below market positioning.

None, although performance of the individual is one of the considerations in setting salary levels.

Benefits Fixed element of remuneration providing market competitive benefits.

Executive Directors receive benefits in line with market practice and principally include private healthcare, life assurance and a car, or car allowance.

Other benefits may be provided based on individual circumstances, such as relocation allowances.

Benefits do not form part of pensionable earnings.

Whilst the Committee has not set an absolute maximum on the levels of benefit Executive Directors receive, the value of benefits is set at a level which the Committee considers appropriate and provides sufficient level of benefit based on individual circumstances.

Not applicable.

All-employee UK share schemes

To encourage all employees to make a long-term investment in the Company’s shares in a tax efficient way.

Executive Directors are entitled to participate in a tax qualifying all-employee Savings Related Share Option Scheme (‘Sharesave’) under which they make monthly savings over a period of three or five years linked to the grant of an option over the Company’s shares with an option price which can be at a discount of up to 20% of the market value of shares on grant.

Participation limits are those set by the UK tax authorities from time to time. No performance conditions are attached to awards in line with HMRC practice.

Retirement benefits

Help recruit and retain employees.

Ensure adequate income in retirement.

Executive Directors are eligible to participate in the defined contribution pension plan or can opt to take a cash supplement.

Contribution rates are up to 15% of base salary. Not applicable.

Annual bonus scheme

Incentivise performance on an annual basis against the achievement of key financial business targets and delivery of personal objectives relevant to the Group’s strategy.

Bonuses are awarded annually. Bonus level is determined by the Committee after the year end based on performance against targets.

The Committee has the discretion to amend the bonus pay-out should any formulaic outputs not produce a fair result for either the Executive Director or the Company, taking into account overall business performance.

Executive Directors have the opportunity to invest an amount up to the value of their annual bonus in shares in the Company in return for an opportunity to earn a matching share award under the Co-invest element of the LTIP as described below.

Maximum bonus opportunity is 100% of base salary. Stretching targets are set each year reflecting business priorities, which underpin the Group’s strategy and align with financial key performance indicators.

Targets, whilst stretching, do not encourage inappropriate business risks to be taken.

At least 60% of total bonus opportunity is based on financial performance (set by the Committee) and the remainder based on non-financial strategic measures and/or individual performance (reviewed and approved by the Committee at the start of the financial year and clearly aligned to the strategic objectives of the Group).

Vesting will apply on a scale between 0% and 100% based on the Committee’s assessment of the extent to which a performance metric has been met.

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LTIP Incentivise executive performance over the longer term.

Supports retention and promote share ownership.

Supports creation of shareholder value.

Awards under the LTIP comprise two elements:

+ LTIP Option: annual awards of nominal cost options with vesting dependent on the achievement of performance over a three-year period.

+ LTIP Co-invest: Executive Directors are encouraged to invest their annual bonus in shares in the Company in return for an opportunity to earn a matching share award granted in the form of a nominal cost option. The vesting of the matching shares is dependent on the achievement of performance over a three-year measurement period and the retention of the investment shares throughout this measurement period.

The Committee will regularly review the performance conditions and targets for awards to ensure they are aligned with the Group’s business strategy and remain challenging. Any LTIP Options and LTIP Co-invest awards granted in 2014 will be subject to a malus provision such that, at the discretion of the Committee, unvested awards may be reduced or cancelled in certain circumstances such as misstatement of results, material failure of risk management by a Group company, or information coming to light which, had it been known at the relevant time, would have affected a vesting decision or reputational damage to the Company.

The maximum opportunities for the LTIP Option and LTIP Co-invest are set out separately below.

In addition to the performance conditions detailed below, the vesting of any LTIP award is also subject to an additional test based on the Committee’s assessment of and satisfaction that vesting is justified by the underlying financial performance of the Group over the measurement period.

LTIP Option awards are typically up to 150% of base salary. + 50% of the LTIP Option is based on the achievement of stretching annual growth in EPS targets. 25% of this element vests for threshold performance, 50% for target performance and 100% for maximum performance. Vesting is on a straight-line basis between these points.

+ 50% of the LTIP Option is based on relative TSR of the Company. 25% of this element vests for minimum performance and 100% for maximum with straight-line vesting between these points.

Under the LTIP Co-invest element, an amount up to 100% of the bonus earned may be invested in shares in the Company and matched, up to a two-for-one basis.

+ Vesting of the LTIP Co-invest is based on the achievement of stretching annual growth in EPS. For maximum EPS growth or above, two shares vest for every share invested. For EPS growth between minimum and maximum performance, one share vests for every share invested.

Explanation of chosen performance measures and how targets are setPerformance measures have been selected that reflect the key performance indicators for the Company and are aligned to the Company’s strategy. Stretching performance targets are set each year for the annual incentive and long term incentive awards. In setting these stretching performance targets the Committee will take into account a number of different reference points which may include the Company’s business plans and strategy.

The annual bonus is assessed against both financial and individual strategic targets as determined by the Committee. This incentivises Executive Directors to focus on delivering the key financial goals of the Group as well as specific strategic objectives for each Director which are aligned to the delivery of the overall business strategy.

Long term incentive performance conditions are chosen by the Committee to provide a robust and transparent basis on which to measure the Group’s performance over a longer term timeframe. The Committee considers that EPS is closely aligned to the Company’s key performance metrics and, in conjunction with the annual bonus performance metrics, provides a balanced measurement of performance that encourages sustainable growth. TSR aligns management’s objectives to those of shareholders and rewards for the delivery of year-on-year growth and delivery of value to shareholders. For the relative TSR performance condition there will be no vesting for performance below median compared with the comparator group. In addition, no part of the long term incentive will vest unless the Committee is satisfied that vesting is justified by the underlying financial performance of the Group over the measurement period.

The Remuneration Committee retains the discretion to adjust the performance targets and measures where it considers it appropriate to do so – for example, to reflect changes in the structure of the business and to assess performance on a fair and consistent basis from year to year.

Awards may be adjusted in the event of a variation of capital in accordance with the scheme rules.

Governance




LTIP Incentivise executive performance over the longer term.

Supports retention and promote share ownership.

Supports creation of shareholder value.

Awards under the LTIP comprise two elements:

+ LTIP Option: annual awards of nominal cost options with vesting dependent on the achievement of performance over a three-year period.

+ LTIP Co-invest: Executive Directors are encouraged to invest their annual bonus in shares in the Company in return for an opportunity to earn a matching share award granted in the form of a nominal cost option. The vesting of the matching shares is dependent on the achievement of performance over a three-year measurement period and the retention of the investment shares throughout this measurement period.

The Committee will regularly review the performance conditions and targets for awards to ensure they are aligned with the Group’s business strategy and remain challenging. Any LTIP Options and LTIP Co-invest awards granted in 2014 will be subject to a malus provision such that, at the discretion of the Committee, unvested awards may be reduced or cancelled in certain circumstances such as misstatement of results, material failure of risk management by a Group company, or information coming to light which, had it been known at the relevant time, would have affected a vesting decision or reputational damage to the Company.

The maximum opportunities for the LTIP Option and LTIP Co-invest are set out separately below.

In addition to the performance conditions detailed below, the vesting of any LTIP award is also subject to an additional test based on the Committee’s assessment of and satisfaction that vesting is justified by the underlying financial performance of the Group over the measurement period.

LTIP Option awards are typically up to 150% of base salary. + 50% of the LTIP Option is based on the achievement of stretching annual growth in EPS targets. 25% of this element vests for threshold performance, 50% for target performance and 100% for maximum performance. Vesting is on a straight-line basis between these points.

+ 50% of the LTIP Option is based on relative TSR of the Company. 25% of this element vests for minimum performance and 100% for maximum with straight-line vesting between these points.

Under the LTIP Co-invest element, an amount up to 100% of the bonus earned may be invested in shares in the Company and matched, up to a two-for-one basis.

+ Vesting of the LTIP Co-invest is based on the achievement of stretching annual growth in EPS. For maximum EPS growth or above, two shares vest for every share invested. For EPS growth between minimum and maximum performance, one share vests for every share invested.

Non-Executive DirectorsElement Purpose and link to strategy Operation Opportunity

Non-Executive Director fees Sole element of Non-Executive Director remuneration set at a level sufficient to attract individuals with sufficient knowledge and experience.

Fees are reviewed periodically.

The Committee determines the fees of the Chairman of the Board and the remuneration of each of the other Non-Executive Directors is established by the whole Board.

Fees may be paid solely or partly in shares.

The Non-Executive Directors do not participate in any of share incentive plans nor do they receive any pension contributions.

Non-Executive Directors may be eligible to benefits such as the use of secretarial support, travel costs or other benefits as appropriate.

Based on the level of fees paid to Non-Executive Directors serving on boards of similarly-sized UK listed companies, and the time commitment and contribution expected for the role.

Fees are subject to an overall cap as set out in the Articles of Association (currently £375,000).

Actual fee levels are disclosed in the Annual Report on Remuneration on page 64.

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Remuneration policy for new hiresWhen hiring a new Executive Director, the Committee will typically seek to use the policy detailed in the Policy table above to determine the Executive Director’s ongoing remuneration package.

However, subject to the principles and limits set out below, to facilitate the hiring of candidates of the appropriate calibre required to implement the Group’s strategy, the Committee retains the discretion to make remuneration decisions which are outside the Policy. In determining appropriate remuneration, the Committee will take into consideration all relevant factors (including quantum, the nature of remuneration and the jurisdiction the candidate was recruited from) to ensure that arrangements are in the best interests of both the Group and its shareholders.

This may, for example, include (but is not limited to) the following circumstances:

+ An interim appointment being made to fill an Executive Director role on a short-term basis;

+ Exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short-term basis;

+ An Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long term incentive award for that year as there would not be sufficient time to assess performance. The quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis; or

+ The Executive Director received benefits at his previous employer which the Remuneration Committee considers it appropriate to offer.

Appropriate costs and support will be covered if the recruitment requires the relocation of the individual.

The Committee will ensure that awards within the maximum variable remuneration limit set out below are linked to the achievement of appropriate and challenging performance measures. The Committee does not intend to use this discretion to make a non-performance-related incentive payment (for example a ‘golden hello’). The Committee may also alter the performance measures, performance period and vesting period of the annual bonus or long term incentive, subject to the rules of the scheme, if the Remuneration Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained.

The Committee may make an award or payment to ‘buy-out’ incentive remuneration arrangements forfeited on leaving a previous employer. In doing so the Committee will take account of relevant factors regarding the forfeited arrangements which may include the form of any forfeited awards (e.g. cash or shares), any performance conditions attached to these awards (and the likelihood of meeting those conditions) and the time over which they would have vested. It will generally seek to structure buy-out awards and payments on a comparable basis to remuneration arrangements forfeited. The Committee would seek to incorporate buy-out awards to be in line with the Company’s remuneration framework as far as is practical. These awards or payments are excluded from the maximum level of variable pay referred to below; however, the Committee’s intention is that the value awarded or paid would be no higher than the expected value of the forfeited arrangements.

All recruitment awards, buy-out awards and payments will normally be liable to forfeiture or ‘clawback’ on early departure (i.e. within one year).

The maximum level of variable pay which may be awarded to new Executive Directors, excluding buy-out arrangements, would normally be in line with the maximum level of variable pay that may be awarded under the annual bonus plan and LTIP, but in any event the Committee would not make an award of annual variable pay above 450% of salary. The Committee will ensure that such awards will be forfeited if performance or continued employment conditions are not met.

Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, and subject to the limits referred to above, in order to facilitate the awards mentioned above, the Committee may rely on exemption 9.4.2. of the Listing Rules which allows for the grant of awards to facilitate, in exceptional circumstances, the recruitment of a Director.

Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue according to the original terms.

Fees payable to a newly-appointed Chairman or Non-Executive Director will be in line with the fee policy in place at the time of appointment.

Pay policy for other employeesThe remuneration policy applied to the most senior executives in the Group is similar to the policy for the Executive Directors in that a significant element of remuneration is dependent on Group and individual performance. The key principles of the remuneration philosophy are applied consistently across the Group below this level, taking account of seniority and local market practice. In addition, a UK all-employee share scheme is offered to all UK employees encouraging share ownership throughout the Group.

Governance



Executive Director pay mix (£’000)

0

500100%£553

Minimum In line with expectations

Maximum

nLong term incentive

nAnnual bonus

nFixed remuneration

42%21%

37%

18%

18%

64%£3,042

£1,313

1,000

1,500

2,000

2,500

3,500

3,000

Dr Richard Steeves

0

500

100%£320


Maximum


nAnnual bonus

nFixed remuneration

42%21%

37%

18%

18%

64%£1,760

£760

1,000

1,500

2,000

Dr Adrian Coward

0

500

100%£320


Maximum


nAnnual bonus

nFixed remuneration

42%21%

37%

18%

18%

64%

£1,760

£760

1,000

1,500

2,000

Gavin Hill

Three scenarios have been illustrated for each Executive Director:

Fixed pay Annual bonus LTIP

Minimum performance

Fixed elements of remuneration – base salary, benefits and pension only.

Base salary is the latest known salary (i.e. the salary effective from 31 March 2014) and the value for benefits has been calculated as per the single figure table on page 64.

Pension is up to 15% of the latest known salary.

No bonus No LTIP vesting

Performance in line with expectations

For illustrative purposes, assumed 50% of salary awarded.

25% of maximum LTIP Option award vesting (i.e. 37.5% of salary for achieving target performance based on a maximum potential of 150% of salary).

1:1 match for the LTIP Co-invest based on investment of the entire bonus earned for performance in line with expectations (i.e. 50% of salary).

Maximum performance For illustrative purposes, assumed 100% of salary awarded.

100% of maximum award vesting (i.e. 150% of salary for achieving maximum performance).

2:1 match for the LTIP Co-invest, based on investment of the maximum bonus potential (i.e. 200% of salary).

Service contracts The contract details for the current Executive Directors are as follows:

Effective date Expiry Notice period by Group Notice period by Executive Director

Dr Richard Steeves* 02.06.2014 One year rolling 12 months 12 months

Gavin Hill 26.04.2010 One year rolling 12 months 12 months

Dr Adrian Coward 31.03.2014 One year rolling 12 months 12 months

The Committee believes that this arrangement provides a measure of stability in that it provides an opportunity for the recruitment of replacement executives and an orderly handover of duties.

* As disclosed last year, following the acquisition of SRI and reflecting the importance of the Americas region to the Group, Dr Richard Steeves spent a substantial amount of time working in the US. The Company formalised Dr Richard Steeves’ role as Chief Executive Officer of the Americas region and his role as Group Chief Executive Officer under two separate contracts effective 3 November 2012. The contract in the UK for the Group Chief Executive Officer role replaced the original agreement in the UK dated 1 November 1999. With effect from 2 June 2014, Dr Richard Steeves entered into a new contract with the Group to reflect his return full time to his role as Group Chief Executive Officer, replacing the two previous contracts which were effective from 3 November 2012. No changes have been made to the notice period in his new contract, or to the policy set out below relating to termination of an Executive Director’s service contract.

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The policy below is applied in the event of termination of an Executive Director’s service contract:

Policy

General principles The service contracts of all the Executive Directors contain a provision, exercisable at the option of the Group, to pay an amount on early termination of employment. The Committee’s policy is that payments to Executive Directors on termination should reflect the circumstances that prevail at that time, also taking account of, if applicable and appropriate, the Director’s duty to mitigate.

Other than the maximum limits set out below, no predetermined compensation is payable.

Payment in lieu of notice Payments in lieu of notice are equivalent to one year’s base salary and pension contributions. Consideration will also be given to the inclusion of benefits.

The Group will use the pay in lieu of notice provisions when the speed, certainty and protection of restrictive covenants afforded by such clauses are thought to be in the best interests of the Group and the circumstances surrounding the departure of the relevant Director justify their use.

Annual bonus The Committee has the discretion to determine appropriate bonus amounts taking into consideration the circumstances in which the Executive Director leaves. Typically ‘good leavers ’ bonus amounts will be determined by reference to the applicable performance targets, pro-rated for time in service to termination and paid at the usual time. The Committee may decide to pay a good leaver’s bonus earlier than the usual time in appropriate circumstances. Typically for ‘good leavers ’, bonus amounts (as estimated by the Committee) will be pro-rated for time in service to termination and will be, subject to performance, paid at the usual time.

‘Good leavers ’ typically include leavers due to death, illness, injury, disability, redundancy, retirement with the consent of the Company or any other reason as determined by the Remuneration Committee.

LTIP The extent to which any award under the LTIP will vest would be determined based on the leaver provisions contained within the LTIP rules.

If the participant leaves before the end of the measurement period applying to an award’s performance condition other than as a result of his death, that award will lapse 30 days after cessation unless the Committee determines otherwise. If the Committee determines otherwise, the award shall be exercisable in such period as the Committee determines and to the extent the Committee shall determine, taking into account such factors as it considers relevant, including the increase in the value of a share over the measurement period, the underlying financial performance of the Company and the length of time for which the participant was an employee. If the participant leaves due to death, the Committee shall determine the extent to which the award may be exercised. If the participant ceases employment for any reason after the end of the measurement period relating to an award, the participant may exercise that award to the extent vested in the period of six months after the date of cessation.

Change of control Awards under the LTIP will vest to the extent determined by the Committee in the event of a change of control of the Company. The Committee will determine the level of vesting taking account of performance conditions and, unless the Committee determines otherwise, pro-rating for time, where applicable. Alternatively, participants may be allowed or required to exchange their awards for awards over shares in the acquiring company. Awards under the Sharesave scheme will vest on a change of control.

Mitigation The Executive Directors’ service contracts do not provide for any reduction in payments for mitigation or for early payment.

Other payments In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and legal fees. Awards under the Sharesave scheme will vest if a participant ceases employment due to death, injury, disability, redundancy, retirement or the transfer of his employer out of the Group.

Where a buy-out award is made under the listing rules then the leaver provisions would be determined at the time of the award.

The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment. In doing so, the Committee will recognise and balance the interests of shareholders and the departing Executive Director, as well as the interests of the remaining Directors.

Where the Committee retains discretion it will be used to provide flexibility in certain situations, taking into account the particular circumstances of the Executive Director’s departure and performance.

Governance



Non-Executive Directors – terms of appointmentAll Non-Executive Directors are engaged on letters of appointment that set out their duties and responsibilities and confirm their remuneration. The appointment details for the current Non-Executive Directors are as follows:

Date of current letter of appointment Expiry of current term Notice period by Group

Notice period by Non-Executive Director

Sir Duncan Nichol 01.11.2002 30.10.2014 3 months 3 monthsJeff Harris 01.09.2013 31.08.2016 3 months 3 monthsConstance Baroudel 01.09.2010 31.08.2016 3 months 3 monthsLiz Hewitt 01.09.2011 31.08.2014 3 months 3 months

The Group may terminate each of these appointments at any time without the payment of compensation other than the notice payment.

Statement of consideration of employment conditions elsewhere in the Company Salary, benefits and performance-related reward provided to employees is taken into account when setting Policy for Executive Directors’ remuneration (although employees are not formally consulted in relation to the setting of the Policy). This includes consideration of:

+ Salary increases for the general employee population;

+ Company-wide benefit (including pension) offerings;

+ Overall spend and participation levels in the annual bonus and LTIP; and

+ The Remuneration Committee taking into account relevant ad hoc information.

Existing contractual arrangementsThe Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the Policy set out below where the terms of the payment were agreed:

(i) Before the Policy came into effect (including the vesting and exercise of long term incentive awards in line with the LTIP rules under which these awards were made); or

(ii) At a time when the relevant individual was not a Director of the Group and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company.

For these purposes ‘payments’ include the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.

The Committee may make minor changes to this Policy, which do not have a material advantage to Directors, to aid in its operation or implementation without seeking shareholder approval but taking into account the interests of shareholders.

Statement of consideration of shareholders’ viewsThe Group is committed to ongoing dialogue and seeks shareholder views ahead of making significant changes to its remuneration policies.

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GovernanceWhen appropriate, the Committee invites the views of the Executive Directors and the Group Company Secretary.

The terms of reference for the Remuneration Committee can be found on the Company’s website at www.synergyhealthplc.com.

For the year ended 30 March 2014 the activities of the Committee included:

+ Review and implementation of the new Department for Business Innovation and Skills proposals for the Directors’ Remuneration Report;

+ Setting Executive Directors’ bonus objectives for 2014;

+ Review of Executive Directors’ salaries and agreement of nil salary increases for 2014;

+ Review of overall Group pay proposals for 2014;

+ Review and sign-off of the vesting calculation for the 2010 LTIP grant;

+ Review and agreement of LTIP scheme rule amendments;

+ Assessment and agreement of 2013 bonus payments for Executive Directors and senior executives;

+ Agreement of participants to be eligible for the 2013 LTIP grant; and

+ Review of remuneration implications following Board changes.

All members of the Committee are Non-Executive Directors of the Company, are regarded as independent and do not participate in any form of performance-related-pay or pension arrangements.

No Director or executive plays a part in any discussion about his own remuneration.

Advisors: Deloitte LLP

Deloitte LLP is retained to provide independent advice to the Committee as required. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. Deloitte LLP were appointed by the Company Secretary on behalf of the Committee. Deloitte’s fees for providing remuneration advice to the Committee amounted to £11,750 for the year ended 30 March 2014 and have been charged on a time and materials basis. The Committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and took into account the Remuneration Consultants Group Code of Conduct when reviewing the ongoing appointment of Deloitte. The Committee is satisfied that Deloitte’s appointment continues to be independent and appropriate. Deloitte was appointed by the Committee and has provided share scheme advice to management and corporation tax advice to the Company.

Summary of remuneration policyThe main objectives of the Group’s remuneration policy are:Key principles Remuneration policy

Paying competitively In setting executive salaries, the Committee takes into account a number of factors, including market conditions, salaries in comparable companies in similar industries and affordability, in order to attract and retain competent executives.

The Committee also considers general pay and employment conditions of all employees within the Group and is sensitive to them, to prevailing market conditions and to governance trends when assessing the level of salaries and the remuneration packages of Executive Directors.

Pay for performance A substantial proportion of Executive Director remuneration is variable, linked to the Group’s performance, in particular to the delivery of sustained profitable growth as well as individual performance.

The Committee does not consider that the targets that are included in the remuneration package are incompatible with the Executive Director’s responsibility for environmental, social and governance matters. Whilst the Committee’s terms of reference do not require specific targets on these matters, the Committee is obliged to ensure that, when setting remuneration policy, appropriate incentives are provided to encourage enhanced performance in a fair and reasonable manner.

Alignment with interests of shareholders

A substantial proportion of the package is delivered in shares in the Company to ensure that the interests of executives are aligned with those of shareholders. The Co-invest element to the annual bonus also encourages prolonged share ownership.

Directors’ remuneration (audited)The remuneration of the Directors for the period to 30 March 2014 was as follows:

Salary/fees £’000

Benefits £’000

Bonus £’000

Long term incentive

£’000Pension £’000

Total remuneration

£’000Dr Richard Steeves1 466 53 357 1,066 70 2,012Gavin Hill 280 18 214 243 28 783

Sir Duncan Nichol 80 – – – – 80Jeff Harris2 29 – – – – 29Constance Baroudel 45 – – – – 45

Liz Hewitt 45 – – – – 45

Notes:

1 The amounts shown in the table above have been aggregated and converted into Sterling at an exchange rate of $1.6131:£1.00 in respect of salary. Benefits paid in the US have been converted using the prevailing rate at the time of payment.

2 Jeff Harris joined the Board on 1 September 2013.

Governance

Annual Report on Remuneration


The remuneration of Directors, who served throughout the period except where indicated, for the period to 31 March 2013 is as follows:

Salary/fees £’000

Benefits £’000

Bonus £’000

Long term incentive

£’000 Pension £’000

Total remuneration

£’000Dr Richard Steeves1 466 31 312 1,037 70 1,916Gavin Hill 280 22 216 392 28 938

Sir Duncan Nichol 74 – – – – 74Constance Baroudel 45 – – – – 45Liz Hewitt 45 – – – – 45Robert Lerwill2 20 – – – – 201 The amounts shown in the table above have been aggregated and converted into Sterling at an exchange rate of $1.6131:£1.00. 2 Resigned 7 June 2012.

The figures in the single figure table above are derived from the following:

Salary and fees The amount of salary and fees received in the period, further details provided below.

Benefits The taxable value of benefits received in the period, further details provided below.

Bonus Bonus is the cash value of the bonus earned in respect of the year. A description of the performance targets against which the bonus pay-out was determined is provided on page 66.

Long term incentives The value of performance-related incentives vesting in respect of the financial year.

For the year ended 31 March 2013 comparative figures:

+ The Company’s three-year EPS growth to 31 March 2013 was 15.8% and therefore 54% of the EPS element of the LTIP Option vested and one share for every share invested under the LTIP Co-invest vested; and

+ For the three-year period to 14 June 2013 the Company was positioned second quartile compared with the FTSE 250 and 90.8% of the LTIP element vested.

For the year ended 30 March 2014:

+ The Company’s three-year EPS growth to 30 March 2014 was 12.08% and therefore 35.4% of the EPS element of the LTIP Option vested and one share for every share invested under the LTIP Co-invest vested; and

+ For the three-year period to 27 June 2014 the Company is expected to be positioned around second quartile compared with the FTSE 250 and 37% of the TSR element is expected to vest (based on TSR performance to 30 March 2014).

+ The estimated face value of the vested shares is based on the three month average share price to 30 March 2014.

Pension The pension figure represents the cash value of pension contributions received by the Executive Directors. This includes the Company’s contribution to the defined contribution pension scheme and any salary supplement in lieu of a Company pension contribution.

Individual elements of remunerationBase salaryAs disclosed in the Directors’ Remuneration Report last year, the base salaries for the Executive Directors were frozen for the year commencing 1 April 2013. The following table shows the base salaries of the Executive Directors at 1 April 2013 and 31 March 2014:

Base salary as at 1 April 2013

£’000

Base salary as at 31 March 2014

£’000 Salary increase

Dr Richard Steeves1 £466 £480 3%

Gavin Hill £280 £290 3.6%

Dr Adrian Coward2 n/a £290 n/a1 In the period ending 30 March 2014 and prior period ending 31 March 2013 the total base salary paid to Dr Richard Steeves included a base salary of $566,190 in respect of his US

role and £115,000 in respect of his Group Chief Executive Officer role.2 Dr Adrian Coward became Group Chief Operating Officer on 31 March 2014.

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Non-Executive Director feesThe Non-Executive Directors have letters of appointment and fees for Non-Executive Directors are determined by the Board as a whole in light of market best practice and with reference to the time commitment and responsibilities associated with the role. The Non-Executive Directors do not participate in any decision in relation to the determination of their fees.

The fees of the Non-Executive Directors have been reviewed with effect from 31 March 2014 and it has been decided to pay a flat fee to cover their basic duties and an additional fee to cover any additional committee chairmanships or to act as Senior Independent Director.

The Non-Executive Directors are not eligible for performance-related bonuses or the grant of awards under the Company’s LTIP. No pension contributions are made on their behalf.

Non-Executive Director fees

As at 1 April 2013

£’000

As at 31 March 2014

£’000Basic fee 45 45Committee chairmanship – 5Senior Independent Directorship – 5

Fees to be paid to the Chairman effective 31 March 2014 are £90,000, an increase of 12.5% from £80,000 for the year ending 30 March 2014. He does not receive any additional fees for Committee memberships.

Benefits-in-kind (audited)As noted in the table on page 56, Executive Directors are entitled to participate in other regular employee benefit plans and other benefits may be provided based on individual circumstances. Benefits provided to Directors were car/car allowance, fuel, private medical insurance, life assurance and Group income protection.

During the year Dr Richard Steeves received an allowance to cover reasonable living expenses ($4,327 per month) and a flight allowance for the purposes of family visits related to the time he has spent working in the US. The flight allowance consisted of six flights for his spouse and three for each of his children. The flights were in line with the Group’s travel policy. These payments do not form part of pensionable earnings.

Annual bonus plan pay-outs (audited)The Directors consider that the EPS, adjusted operating profit and free cash flow targets are matters which are commercially sensitive and should therefore remain confidential to the Group. They provide our competitors with insight into our business plans and expectations. However, the following table sets out the financial, corporate and personal performance conditions for the annual bonus, the maximum amount that each Executive Director could achieve and the level of annual bonus obtained:

Performance conditions Weightings Targets set Level of achievement Resulting level of awardFinancial performance

EPS 20% of salary + A budget at constant currency

100% 20% of salary

Adjusted operating profit 20% of salary + A budget at constant currency

100% 20% of salary

Free cash flow 20% of salary + A budget of free cash flow after maintenance CAPEX, interest and tax

30% 4% of salary

Corporate and personal performance

Corporate and personal objectives

For Dr Richard Steeves: For Dr Richard Steeves: Dr Richard Steeves:12.5% of salary + Americas growth budget 100% 12.5% of salary12.5% of salary + Securing the senior

management team100% 12.5% of salary

15% of salary + New business stream 50% 7.5% of salary

For Gavin Hill: For Gavin Hill: Gavin Hill:12.5% of salary + Successful completion of

ERP implementation100% 12.5% of salary

12.5% of salary + New forecasting model 100% 12.5% of salary15% of salary + New business stream 50% 7.5% of salary

Total Dr Richard Steeves: 76.5%

Gavin Hill: 76.5%

Summary of 2014/15 bonus operation The Remuneration Committee is not making any changes to the annual bonus policy and structure for 2014/15. The bonus design for 2014/15 will mirror that of the 2013/14 scheme and the maximum annual bonus opportunity remains at 100% of base salary. The Remuneration Committee considers that the actual annual bonus targets are commercially sensitive and should therefore remain confidential to the Company. They provide our competitors with insight into our business plans, expectations and our strategic actions. However, the Remuneration Committee will continue to disclose how the bonus pay-out delivered relates to performance against the targets on a retrospective basis.

Governance

Annual Report on Remuneration continued


Value earned from long term incentive awards during the year (audited)For LTIP Option awards due to vest on 27 June 2014 in respect of the year ended 30 March 2014, this was based on the following:

Performance conditions Weightings Targets set Level of achievement Resulting level of awardAdjusted EPS 50% of maximum Average annual compound EPS growth 12.08% 35.4%

20% growth 100% vesting15% growth 50% vesting10% growth 25% vesting<10% growth 0% vestingStraight-line vesting between these points

Total Shareholder Return 50% of maximum Position in the TSR table: Second quartile 37.0%Upper quartile 100% vestingMedian 25% vestingBelow median 0% vestingStraight-line vesting between these points

36.2%

+ Adjusted EPS – adjusted for amortisation of intangibles, non-recurring items, share option charges and any other items deemed reasonable by the Committee. Growth in adjusted EPS is measured for the three years to 30 March 2014.

+ Total Shareholder Return – TSR is compared with the constituents of the FTSE 250 index (excluding investment trusts). TSR is measured over the three-year period to 27 June 2014 and an estimated vesting based on performance to 30 March 2014 has been used to estimate the vesting amount in the table above.

In July 2011 Dr Richard Steeves invested in 44,210 shares that were allocated to the LTIP Co-invest. As a result he was granted an LTIP Co-invest award over 88,420 shares. In July 2010 Gavin Hill invested 8,000 shares that were allocated to the LTIP Co-invest. As a result he was granted a LTIP Co-invest award over 16,000 shares. The table below summarises the vesting in respect of this award:

Performance conditions Targets set Level of achievement Resulting level of awardAdjusted EPS Average annual compound EPS growth:

+ Two shares for each one purchased: Over 15% each year

+ One share for each one purchased: Between 10% and 15%

12.08% One share for each share purchased

+ Adjusted EPS – adjusted for amortisation of intangibles, non-recurring items, share option charges and any other items deemed reasonable by the Committee. Growth in adjusted Earnings Per Share is measured for the three years to 30 March 2014.

Long term incentive awards granted during the year (audited)LTIP OptionFor the year ended 30 March 2014, the table below outlines awards granted under the LTIP Option:

Grant date Director Basis of awardFace value of award (based on a share price of £9.84)

Vesting at threshold performance Measurement period

1 August 2013 Dr Richard Steeves 150% of salary £618,257 25% of maximum Three-year period from date of grant1 August 2013 Gavin Hill 100% of salary £247,663 25% of maximum Three-year period from date of grant

The performance conditions attaching to these awards are the same as those details above on pages 56 to 59.

LTIP Co-investFor the year ended 30 March 2014, the table below outlines awards made under the LTIP Co-invest:

Grant date Director Basis of award*Face value of award (based on a share price of £9.85)*

Vesting at threshold performance Measurement period

6 August 2013 Gavin Hill Based on the amount of bonus voluntarily invested in shares (38,760 shares)

£381,786 1:1 vesting Three-year period from date of grant

* The LTIP Co-invest award provides a maximum award of 2x the number of shares invested by an Executive Director (subject to EPS performance during the measurement period). Gavin Hill invested 38,760 shares.

The performance conditions attaching to these awards are the same as those details above on pages 56 to 59.

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Long term incentive awards for the year ending 29 March 2015The performance conditions for any awards which may be granted in the year ending 29 March 2015 will continue to be as set above for awards made in the year ended 30 March 2014. For the avoidance of doubt, no changes are being proposed to the normal maximum incentive opportunity.

Total pension entitlementsDr Richard Steeves is entitled to 15% of base salary. Gavin Hill is entitled to 10% of base salary. Dr Adrian Coward will be entitled to 10% of base salary.

Relative importance of spend on pay (audited)The following table shows the relative importance of spend on pay against other cash outflows for the years ending 30 March 2014 and 31 March 2013:

2014 2013 % changeDistribution to shareholders 22.77p 20.70p 10.0Employee remuneration £142.4m £139.0m 2.4

Payments to past DirectorsThere were no payments made to past Directors during the year ended 30 March 2014.

Payments for loss of officeNo payments for loss of office payments were made during the year ended 30 March 2014.

Group performanceThe graph below shows the Group’s performance for the five-year period to 30 March 2014 measured by TSR, compared with the performance of the FTSE 250 index (excluding investment trusts) also measured by TSR, which is defined as share price growth plus reinvested dividends. The FTSE 250 index has been chosen because it provides a basis for comparison against companies in a relevant broad-based equity index in which the Group is a constituent member.

0

100

Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Apr 14Oct 13

Synergy Health PLC FTSE 250 Ex Investment Trust

250

200

150

400

350

300

500

450

Table of historical Group Chief Executive Officer data

Year CEOCEO single figure of total

remuneration

Annual variable element award rates against maximum

opportunityLong term incentive vesting rates

against maximum opportunity2014 Dr Richard Steeves 2,012,096 76.5% 67.6%2013 Dr Richard Steeves 1,915,541 66.9% 86.2%2012 Dr Richard Steeves 1,545,863 95% 93.8%2011 Dr Richard Steeves 1,375,688 100% 41.3%2010 Dr Richard Steeves 1,003,150 100% 74.3%

Governance

Annual Report on Remuneration continued


Percentage change in Group Chief Executive Officer remunerationThe table below sets out in relation to salary, taxable benefits and annual bonus the percentage increase in pay for Dr Richard Steeves compared with the Group’s UK workforce.

% increase CEO Wider workforceSalary 3.0% 1.9%Taxable benefits 71.7% 0%Annual bonus 14.3% 2.0%

The Group’s UK workforce has been used as comparator group in recognition of the Company’s UK listing and to discount any variation in economic and currency fluctuations that may be present across the Group’s worldwide operations.

Statement of Directors’ interests in shares (audited)There are no formal shareholding guidelines for Executive Directors. However, the Executive Directors are encouraged to invest and hold shares in the Company. Dr Richard Steeves has an interest in excess of 3% of the issued share capital and Gavin Hill has an interest in shares with a value equivalent to more than 100% of base salary (as at 30 March 2014).

Name Type of share Owned outright

Unvested subject to performance

condition

Unvested not subject to

performance condition

Vested but not exercised

Totalinterests

Exercised during year

Dr Richard Steeves Shares 1,832,472 – – – 1,832,472 339,311LTIP – 210,483 – – 210,483 193,815LTIP Co-Invest – 185,736 – – 185,736 145,496Sharesave – – 2,950 – 2,950 –

Gavin Hill Shares 33,480 – – – 33,480 57,530LTIP – 84,274 – – 84,274 28,010LTIP Co-Invest – 66,960 – – 66,960 32,600Sharesave – – 2,313 – 2,313 –

Sir Duncan Nichol – – – – – –Jeff Harris – – – – – –Constance Baroudel Shares 735 – – – 735 –Liz Hewitt Shares 2,000 – – – 2,000 –

Statement of Directors’ shareholding The present Directors of the Group are shown on page 41. In accordance with the recommendations set out in the UK Corporate Governance Code, all the elected Directors will submit themselves for re-election at the AGM. Details of the Directors’ service contracts are shown on page 61.

The interests of the Directors and each of their connected persons in the shares of the Group as at 1 April 2013 and 30 March 2014 were as follows:

30 March 2014 ordinary shares of 0.625p each

1 April 2013 ordinary shares of 0.625p each

Dr Richard Steeves 1,832,472 1,832,472Gavin Hil 33,480 30,400Dr Adrian Coward 31,298 n/aSir Duncan Nichol – –Jeff Harris – –Constance Baroudel 735 735Liz Hewitt 2,000 2,000

There was no change in the shareholding of any Director between the end of the financial period and the date of this report.

Shareholder voting on the Directors’ Remuneration Report for the year ended 31 March 2013Votes cast For Against Abstentions47,000,164 46,662,159 338,005 591,533

99.3% 0.7% –

Constance BaroudelChairman of the Remuneration Committee4 June 2014

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Governance

Nomination Committee report

Dear Shareholder, Part of the Committee’s remit is to review on a regular basis the composition and experience of the Board, its Committees and senior management to ensure that the range of skills, breadth of experience and diversity are fully accommodated. To this end, I am delighted that we have been able to appoint Jeff Harris as Senior Independent Director. Jeff is a chartered accountant and brings with him experience beneficial to the Company. In addition, we have commenced a search for an additional Non-Executive Director with the help of a firm of external search consultants, which will add to and underpin the Board’s skills base and experience.

As you will see from the Corporate Governance report, we have a good mix of skills, experience and length of service amongst your Board of Directors and I expect this to continue.

We have commissioned an externally led, independent Board evaluation which will be reviewed by the Board and will form the basis for the overall succession planning for the Board and its Committees. The outcome of this review will be included in the 2015 Annual Report.

Sir Duncan NicholChairman of the Nomination Committee4 June 2014


Nomination Committee membersSir Duncan Nichol (Chairman)

Jeff Harris

Constance Baroudel

Liz Hewitt

Committee activityJeff Harris, the Senior Independent Director, was appointed to the Committee on 1 September 2013. Only members of the Committee are entitled to be present at meetings but others may be invited by the Committee to attend if appropriate.

The Nomination Committee is responsible for considering all potential appointments to the Board and for making suitable proposals to the Board in relation to potential appointments. It meets as and when Board appointments or other senior positions within the Group are made.

The Board has agreed formal, rigorous and transparent procedures to be followed by the Committee in making its recommendations and appointments to the Board. The Committee has access to such information and advice both within the Group and externally, at the cost of the Company, as it considers necessary. This may include the appointment of external executive search consultants where considered appropriate. The Committee met twice during the year.

For the proposed new Non-Executive Director role, the Company has engaged a firm of external search consultants to handle the search and recruitment process. The Nomination Committee will be fully involved with both the recruitment and assessment of potential candidates. A shortlist of candidates will be put through a rigorous assessment process and final candidates will be interviewed by the whole Nomination Committee.

The Nomination Committee reviews the senior leadership needs of the Group to enable it to compete effectively in the market place. The Nomination Committee also advises the Board on succession planning for executive Board appointments although the Board is itself responsible for succession generally.

The Board’s diversity and equal opportunities policies are set out in the Employee engagement and Women on Boards sections of the Corporate Governance report on pages 47 and 48 respectively.

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Governance

Directors’ report

The Directors submit their Annual Report and the audited consolidated accounts of the Company and its subsidiaries for the year ended 30 March 2014.

Statutory disclosuresGroup results and dividendsThere was a profit for the period after taxation amounting to £34,265,000 (2013: £31,564,000). An interim dividend of £5,042,213 (2013: £4,614,000) was paid on 13 December 2013. A final dividend of 22.77p is proposed by the Board for the period ended 30 March 2014. The final dividend will, subject to shareholders’ approval, be paid on 4 September 2014 to shareholders on the register at 8 August 2014. The shares will be quoted ex-dividend from 6 August 2014. A review of the Group’s performance for the period ended 30 March 2014 is contained in the Strategic report.

BriberyThe Company has further reviewed and updated its policies in light of the enactment of the Bribery Act 2010. The Company remains committed to the highest standards of business conduct and insists all its employees act accordingly.

The Audit Committee has reviewed and updated the Company’s ethics and whistleblowing policies and the policies are available on the Company’s website.

PensionsThe Group operates a defined contribution Group Personal Pension Plan (‘GPP’), which permanent employees are invited to join. The provision of the GPP is via Aviva.

All those employees who transfer from the public sector under the Transfer of Undertakings (Protection of Employment) Regulations 2006 are eligible to join the Synergy Health plc Retirement Benefit Scheme, a defined benefit pension arrangement which is otherwise closed to new entrants. The Group Company Secretary is the Chairman of the Trustees. There are two other Company Nominated Trustees, and one Member Nominated Trustee. There is a vacancy for one Member Nominated Trustee. Details of all Group pension schemes are contained in note 27 to the Accounts on page 110.

The Company became subject to the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 for employees in the UK on 1 September 2013. The GPP is compliant and is used for the purposes of these Regulations and was registered accordingly.

Permanent employees outside the UK are usually offered membership of local pension arrangements where they exist.

Directors’ indemnityIn accordance with the Company’s Articles of Association, Directors have been granted a continuing indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The indemnity would not provide any coverage to the extent that the Director is proved to have acted fraudulently or dishonestly.

Directors’ and officers’ liability insuranceDuring the period the Company maintained insurance cover for Directors’ and Officers’ liability as permitted under the Companies Act 2006.

Directors and Directors’ interestsThe present Directors of the Company are shown on page 41 of this report. No other Director served during the period. The Directors’ interests in the share capital of the Company are set out in the Directors’ Remuneration Report on page 69.

Corporate Social ResponsibilityThe statement on Corporate Social Responsibility on page 38 contains disclosures concerning environmental matters, employee involvement and social and community issues.

Contractual relationships or other arrangementsThe Company has no contractual relationships or other arrangements with contractors, customers or suppliers that are critical to the business.

The Company has a number of significant agreements. The only agreements considered to be essential to the Group as a whole concern its bank facilities, which include change of control provisions. In the event of a change in ownership of the Company, these provisions could result in renegotiation or withdrawal of the relevant facilities.

Policy and practice on payment of creditorsAll Group companies are responsible for establishing terms and conditions with their suppliers and it is Group policy that payments are made within such agreed terms and conditions. Trade creditors at the period end amount to 44 days (2013: 48 days) of average supplies for the period.

Political and charitable donationsDuring the period the Group made charitable donations totalling £88,000 (2013: £5,000). No political donations were made during the period (2013: £nil).

Treasury and risk managementThe Group’s treasury and financial risk management objectives, and details in respect of the Group’s exposure to these risks, are detailed in note 19 to the financial statements.

Greenhouse gas emissionsThe table below details our Global Greenhouse Gas (‘GHG’) emissions data for 2014:

Emissions1 Tonnes of CO2eCombustion of fuel and operation of facilities (GHG Protocol Scope 1) 56,961Electricity, heat, steam and cooling purchased for own use (GHG Protocol Scope 2) 41,301Total 98,262Intensity metric: tonnes CO2e / thousand GBP revenue (£) 0.258

1 Assessment results exclude transmission and distribution losses.

We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. These sources fall within our consolidated financial statements. With the exception of scope 1 fugitive emissions (which form a very small part of our footprint) we do not have responsibility for any emission sources that are not included in our consolidated statement.

The method we have used to calculate GHG emissions is the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), together with the latest emission factors from recognised public sources including, but not limited to, Defra, the International Energy Agency, the US Energy Information Administration, the US Environmental Protection Agency and the Intergovernmental Panel on Climate Change.

In some cases emissions associated with our activities have been extrapolated or estimated to ensure as complete a picture as possible. The largest area of uncertainty relates to sites where we operate within client hospital premises and do not have direct visibility of utility consumption data. We are working with sustainability reporting experts Ecometrica to further improve our carbon footprint data quality and reporting processes.


Going concernThe Company’s business activities, together with the factors likely to affect its future development, performance and position are set out on pages 1 to 37. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the financial review on pages 28 to 32. In addition, notes 18 to 19 to the financial statements include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.

The Company has considerable financial resources together with long-term contracts with a number of customers and suppliers across different geographic areas and market places. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

This statement in respect of the business as a going concern has been prepared in accordance with ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’, published by the Financial Reporting Council in October 2009.

Group companiesA full list of the Group’s subsidiaries is detailed on page 119.

Risk managementDetails of the Company’s principal risks and uncertainties are set out on pages 33 to 37.

Substantial shareholdersAt the date of this report the Company had been notified of the following holdings of voting rights attaching to the Company’s ordinary shares of 0.625p each in accordance with the Disclosure and Transparency Rules:

Name Shareholding %AXA Investment Managers SA 6,866,545 11.67%Prudential plc 3,458,504 6.29%INVESCO Limited 3,087,757 5.30%F&C Asset Management plc 3,038,208 5.16%Artemis Investment Management LLP 2,926,688 4.97%BlackRock Inc 2,705,645 4.95%Old Mutual Asset Managers (UK) Limited 2,599,250 4.74%Newton Investment Management 2,561,177 4.71%Kames Capital 2,357,675 4.00%Norges Bank 1,991,170 3.41%Dr Richard Steeves 1,832,472 3.13%

Share capitalAs at 30 March 2014 the Company’s authorised share capital consisted of one class of 106,000,000 ordinary shares of 0.625p each of which there were 58,896,145 ordinary shares in issue. No shares are currently held in treasury. During the period, the Company purchased 270,500 shares which were placed into treasury on 6 August 2013 which were subsequently used to satisfy the exercise of LTIP Options on 13 August 2013. At that date authority had been granted to the Company and remained in force for the purchase of up to 5,852,734 ordinary shares, of which 5,582,234 ordinary shares were unused.

The rights and obligations attached to the Company’s ordinary shares, and restrictions on the transfer of shares in the Company, are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House in the UK or the Group Company Secretary. Shareholders are entitled to receive dividends, when declared, to receive

the Company’s reports and financial statements, to attend and speak at general meetings of the Company, to appoint proxies, and to exercise voting rights.

No person holds securities in the Company carrying special rights with regard to control of the Company. The Company is not aware of any agreements between the holders of securities that may result in restrictions on the transfer of securities or on voting rights.

Articles of AssociationUnless expressly specified to the contrary in the Articles of Association of the Company (‘the Articles’), the Articles may be amended by a special resolution of the Company’s shareholders.

Additional information for shareholdersOn a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The notice of the general meeting specifies deadlines for exercising voting rights either by proxy notice or present in person or by proxy in relation to resolutions to be passed at general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the AGM and published on the Company’s website after the meeting. There are no restrictions on the transfer of ordinary shares in the Company other than:

+ Certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws); and

+ Pursuant to the Listing Rules of the FCA whereby certain employees of the Company require the approval of the Company to deal in the Company’s securities.

There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

Power to issue sharesAt the last AGM, held on 25 July 2013, authority was given to the Directors to allot unissued relevant securities in the Company up to a maximum of £121,931.96 equivalent to one third of the issued share capital as at 5 June 2013. This authority expires on the date of the AGM to be held on 23 July 2014 and the Directors will seek to renew this authority for the following year.

A further special resolution passed at that meeting granted authority to the Directors to allot equity securities in the Company (up to a maximum of 5% of the issued share capital of the Company) for cash, without regard to the pre-emption provisions of the Companies Act 2006. This authority also expires on the date of the AGM to be held on 23 July 2014 and the Directors will seek to renew this authority for the following year.

Appointment of DirectorsThe Articles give the Directors power to appoint and replace Directors. Under the terms of reference of the Nomination Committee, any appointment must be recommended by the Nomination Committee for approval by the Board of Directors.

The Articles also require Directors to retire and submit themselves for election at the first AGM following appointment and all Directors who held office at the time of the two preceding AGMs, to submit themselves for re-election.

However, in accordance with the requirement under the Code for annual election of Directors, all Directors will submit themselves for re-election at the Group’s AGM on 23 July 2014.

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Governance

Directors’ Report continued

Powers of DirectorsThe Directors are responsible for managing the business of the Company and may exercise all powers of the Company subject to the provisions of relevant statutes, to any directions given by special resolution and to the Company’s Memorandum and Articles. The Articles, for example, contain specific provisions and restrictions concerning the Company’s power to borrow money. Powers relating to the issuing of new shares are also included in the Articles and such authorities are renewed by shareholders at the AGM each year.

Directors’ responsibilitiesThe Directors confirm that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements, in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period.

In preparing each of the Group and parent company financial statements, the Directors are required to:

+ Select suitable accounting policies and then apply them consistently;

+ Make judgements and estimates that are reasonable and prudent;

+ For the Group financial statements, state whether they have been prepared in accordance with IFRS as adopted by the EU;

+ For the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and

+ Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.

Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statementWe confirm that to the best of our knowledge:

+ The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

+ The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

+ the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Disclosure of information to auditorsThe Directors who held office at the date of approval of this report confirm that so far as they are each aware, there is no relevant audit information of which the Group’s auditors are unaware; and each Director has taken all steps that he/she ought to have taken as a Director to make him/herself aware of any relevant audit information and to ensure that the Group’s auditors are aware of that information.

AuditorSeparate resolutions proposing appointment and determination of KPMG LLP’s remuneration will be proposed at the AGM on 23 July 2014.

On behalf of the Board

Tim Mason Group Company Secretary 4 June 2014


Financial statements

Independent auditor’s report to the members of Synergy Health plc only

Opinions and conclusions arising from our audit1 Our opinion on the financial statements is unmodified We have audited the financial statements of Synergy Health plc for the year ended 30 March 2014 set out on pages 77 to 123. In our opinion:

+ The financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 March 2014 and of the Group’s profit for the year then ended;

+ The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

+ The Company financial statements have been properly prepared in accordance with UK Accounting Standards; and

+ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

2 Our assessment of risks of material misstatementIn arriving at our audit opinion above on the Group financial statements the risks of material misstatement that had the greatest effect on our audit were as follows:

Impairment of assets in the Netherlands linen services business and Chinese sterilisation business. Refer to page 52 (Audit Committee report), page 84 (accounting policy) and page 92 (financial disclosures).

+ The risk –The Group has significant property, plant and equipment and intangible assets. The healthcare linen services business in the Netherlands continues to face challenging economic and market conditions while organic growth in the early-stage Chinese sterilisation business has been slower than anticipated. There is a risk that the book value of the assets in these businesses exceeds their recoverable amount (as defined in accounting standards) and should therefore be written down in value (impaired). Due to the inherent uncertainty involved in forecasting and discounting future cash flows, which are the basis of the recoverable amount, this is one of the key judgemental areas that our audit is concentrated on.

+ Our response – Our audit procedures included, among others, testing of the Group’s budgeting process upon which the forecasts are based. We held discussions with divisional management responsible for creation of these budgets to understand their view of the key inputs and sensitivities. We critically assessed the reasonableness of divisional management’s assumptions in the 2014/15 budget by evaluating the historical accuracy of forecasts in the past two years and comparing key inputs such as sales growth and operating margins to external data sources such as independent market reports, competitor annual reports and OECD country GDP and inflation forecasts. We utilised our own valuation specialist to assist us in evaluating the Group’s assumptions made in deriving the discount rate for each business. We also applied sensitivities to the key inputs, particularly growth rates, operating margins and the discount rate as we considered these to be the most sensitive to variation, and sought to understand and assess the level of available headroom as a consequence of reasonable changes to these key inputs. We also assessed whether the Group’s disclosures about the outcome of their impairment assessment reflected our own analysis.

Identification of items as non-recurring (£3,254,000) Refer to page 52 (Audit Committee Report), page 82 (accounting policy) and page 88 (financial disclosures).

+ The risk – The Group Income Statement includes a column that highlights items that are considered to be non-recurring in nature. These items are disclosed separately to enable the presentation of an ‘underlying’ profit (profit before amortisation of acquired intangibles and non-recurring items) for the year. Underlying profit is a key performance indicator for the Group. The assessment as to whether income or expense should be identified as non-recurring is a subjective and judgemental area, and there is a risk that expenses that are not non-recurring are identified as such and income that is non-recurring is omitted.

+ Our response – Our audit procedures included, among others, critically assessing the nature of the items presented as non-recurring and challenging management’s rationale for identifying the income or expense to be included in these items. In particular for the two most significant areas of expenditure we did the following:

+ Acquisition related costs: we agreed the costs charged back to third party documentation being invoices, proposals or letters of engagement. We confirmed that the costs are directly attributable to an acquisition or were incurred pursuing an acquisition target by comparing the project information in these invoices, proposals and letters of engagement to the Group’s acquisition and acquisition target projects in the year.

+ Restructuring costs: we assessed the expenses with reference to historical spend in previous years to confirm the expenses were part of discrete, identifiable projects. We corroborated that the outlay met the Group’s definition of a non-recurring expense by confirming it represented the physical closure of facilities, redundancy costs for employees working at these facilities or the write down of relevant assets. We also inspected documentation, such as communication with employees, to confirm that restructuring provisions at the year end are in relation to committed and specific plans. In assessing the amount recognised as a restructuring expense we considered the number of employees affected and the minimum amounts payable under local laws and regulations.

We have undertaken a detailed analysis of the income statement of the Group to assess the completeness of the classification of transactions as non-recurring in nature.

We also assessed whether the Group’s disclosures about non-recurring items reflected our own understanding of these costs.

3 Our application of materiality and an overview of the scope of our audit

The materiality for the Group financial statements as a whole was set at £2.5 million. This has been determined with reference to a benchmark of Group profit before taxation (of which it represents 5.8%) which we consider to be one of the principal considerations for members of the Company in assessing the financial performance of the Group.

We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of £125,000 in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.

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Audits for Group reporting purposes were performed by component auditors at the reporting components in the following countries: USA, The Netherlands, Germany, Ireland, Malaysia, Thailand, France and Switzerland and by the Group audit team in the UK. Group reporting procedures covered 93% of total Group revenue, 87% of Group profit before taxation, and 92% of total Group assets.

The audits undertaken for Group reporting purposes at the key reporting components of the Company were all performed to the component materiality level set by the Group audit team. The component materiality applied to all was £1,500,000.

Detailed instructions were sent to all the auditors in these locations. These instructions covered the significant areas that should be covered by these audits (which included the relevant risks of material misstatement detailed above) and set out the information required to be reported back to the Group audit team. The Group audit team visited the component auditors of the following locations: The Netherlands and USA. In addition we held telephone meetings with the component auditors of the following locations: France, Germany, Ireland, Malaysia, Thailand, France and Switzerland to discuss matters arising from the component reporting following completion of the audit fieldwork.

4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion:

+ The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;

+ The information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

+ Information given in the corporate governance statement set out on page 49 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.

5 We have nothing to report in respect of the matters on which we are required to report by exception

Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the Annual Report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

+ We have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or

+ The section of the Annual Report describing the work of the Group Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

+ Adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or

+ The Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or

+ Certain disclosures of Directors’ remuneration specified by law are not made; or

+ We have not received all the information and explanations we require for our audit; or

+ A corporate governance statement has not been prepared by the Company.

Under the Listing Rules we are required to review:

+ The Directors’ statement, set out on page 73, in relation to going concern; and

+ The part of the corporate governance statement on pages 40-50 relating to the Company’s compliance with the nine provisions of the 2010 UK Corporate Governance Code specified for our review.

We have nothing to report in respect of the above responsibilities.

Scope of report and responsibilitiesAs explained more fully in the Directors’ responsibilities statement set out on page 74, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.

Tim Widdas (Senior Statutory Auditor)for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants St Nicholas House Park Row Nottingham NG1 6FQ

4 June 2014


Consolidated income statement For the period ended 31 March 2013

77

* Restated to reflect the amendments to IAS 19 (Employee benefits) - see note 2.

2014

Restated* 2013

Restated*

Note

Before amortisation

of acquired intangibles and

non-recurring items £’000

Amortisation of acquired intangibles

and non-recurring

items (note 4)

£’000 Total

£’000

Before amortisation

of acquired intangibles and

non-recurring items £’000

Amortisation of acquired intangibles

and non-

recurring items

(note 4) £’000

Total £’000

Continuing operations

Revenue 3 380,453 – 380,453 361,248 – 361,248

Cost of sales (224,729) – (224,729) (220,516) – (220,516)

Gross profit 155,724 – 155,724 140,732 – 140,732

Administrative expenses

– Administration expenses excluding amortisation of acquired intangibles (94,410) (3,254) (97,664)

(84,519)

(2,441)

(86,960)

– Amortisation of acquired intangibles – (8,557) (8,557) – (9,062) (9,062)

(94,410) (11,811) (106,221) (84,519) (11,503) (96,022)

Operating profit 61,314 (11,811) 49,503 56,213 (11,503) 44,710

Finance income 6 4,141 – 4,141 4,060 – 4,060

Finance costs 7 (10,751) – (10,751) (10,799) – (10,799)

Net finance costs (6,610) – (6,610) (6,739) – (6,739)

Profit before tax 4 54,704 (11,811) 42,893 49,474 (11,503) 37,971

Income tax 8 (12,933) 4,305 (8,628) (11,319) 4,238 (7,081)

Profit for the year 41,771 (7,506) 34,265 38,155 (7,265) 30,890

Attributable to:

Equity holders of the parent 41,455 (7,506) 33,949 37,885 (7,265) 30,620

Non-controlling interests 316 – 316 270 – 270

41,771 (7,506) 34,265 38,155 (7,265) 30,890

Earnings per share

Basic 10 57.81p 53.00p

Diluted 10 57.05p 51.97p

Consolidated income statementFor the period ended 30 March 2014


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Consolidated statement of comprehensive income For the period ended 31 March 2013

78

* Restated to reflect the amendments to IAS 19 (Employee benefits) – see note 2.

Note 2014 £’000

Restated* 2013 £’000

Profit for the year 34,265 30,890

Other comprehensive income/(expense) for the year:

Items that are or may be reclassified to profit or loss

Exchange differences on translation of foreign operations (17,844) 6,208

Cash flow hedges

– fair value movement in equity (830) (1,385)

– reclassified and reported in net profit 1,385 1,341

Related tax movements (145) –

(17,434) 6,164

Items that will never be reclassified to profit or loss

Actuarial (loss)/gain on defined benefit pension plans 27 (3,066) 52

Related tax movements 20 159 (163)

(2,907) (111)

Other comprehensive (expense)/income for the year (20,341) 6,053

13,924 36,943

Total comprehensive income for the year

Attributable to:

Equity holders of the parent 13,701 36,649

Non-controlling interests 223 294

13,924 36,943

Consolidated statement of comprehensive incomeFor the period ended 30 March 2014



Consolidated statement of financial position At 31 March 2013

79

The consolidated financial statements on pages 77 to 114 were approved by the Board on 4 June 2014 and signed on its behalf by:

G Hill Director

Note 2014 £’000

2013 £’000

Non-current assets

Goodwill 11 216,246 223,453

Other intangible assets 12 48,685 56,289

Property, plant and equipment 13 259,807 279,705

Investments 382 435

Trade and other receivables 17 3,020 1,651

Total non-current assets 528,140 561,533

Current assets

Inventories 15 13,477 15,400

Asset held for sale 16 2,765 –

Trade and other receivables 17 61,530 66,630

Cash and cash equivalents 33,811 25,189

Total current assets 111,583 107,219

Total assets 639,723 668,752

Capital and reserves attributable to the Group’s equity holders

Share capital 23 368 365

Share premium account 89,909 89,098

Translation reserve 24,708 42,459

Cash flow hedging reserve (664) (1,385)

Merger reserve 106,757 106,757

Retained earnings 123,025 105,774

Equity attributable to equity holders of the parent 344,103 343,068

Non-controlling interest 2,473 1,307

Total equity 346,576 344,375

Current liabilities

Interest-bearing loans and borrowings 18 3,935 3,125

Trade and other payables 21 68,412 77,268

Derivative financial instruments 830 1,385

Current tax liabilities 6,731 6,942

Short-term provisions 22 2,472 394

Total current liabilities 82,380 89,114

Non-current liabilities

Interest-bearing loans and borrowings 18 177,455 199,323

Retirement benefit obligations 27 16,882 15,953

Deferred tax liabilities 20 7,529 8,679

Trade and other payables 21 913 645

Provisions 22 7,754 10,295

Deferred government grants 234 368

Total non-current liabilities 210,767 235,263

Total liabilities 293,147 324,377

Total equity and liabilities 639,723 668,752

Consolidated statement of financial positionAt 30 March 2014


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Consolidated cash flow statement For the period ended 31 March 2013

80


Note 2014 £’000


Profit for the year 34,265 30,890

Adjustments 60,768 60,159

Cash generated from operations 95,033 91,049

Income tax paid (10,162) (4,243)

Net cash generated from operating activities 84,871 86,806

Cash flows from investing activities

Acquisition of subsidiary – net of cash 24 (1,558) (28,603)

Purchases of property, plant and equipment (39,243) (47,562)

Purchase of intangible assets (1,671) (1,573)

Proceeds from sale of property, plant and equipment and investment property 647 2,367

Purchase of financial asset – (840)

Payment of pre-acquisition liabilities – (6,126)

Interest received 1,609 1,882

Net cash used in investing activities (40,216) (80,455)

Cash flows from financing activities

Dividends paid (12,563) (11,122)

Dividends paid to minority interest (173) –

Proceeds from borrowings 58,302 82,809

Repayment of borrowings (70,643) (89,506)

Repayment of hire purchase loans and finance leases (2,349) (2,711)

Interest paid (6,836) (7,508)

Proceeds from issue of shares 814 24,169

Proceeds from issue of shares – minority interest 1,105 –

Purchase of treasury shares (3,046) –

Net cash used in financing activities (35,389) (3,869)

Net increase in cash and bank overdrafts 9,266 2,482

Cash and bank overdrafts at beginning of period 25,189 21,986

Exchange differences (2,192) 721

Cash and bank overdrafts at end of period 32,263 25,189

2014 £’000

2013 £’000

Cash generated from operations

Profit for the period 34,265 30,890

Adjustments for:

– depreciation 39,297 41,162

– amortisation of intangible assets 9,406 9,596

– equity-settled share-based payments 1,112 1,800

– gain on settlement of deferred consideration – (129)

– loss on sale of tangible fixed assets 1,463 100

– gain on sale of investment property – (601)

– curtailment and cessation gains on defined benefit pension schemes (716) (1,219)

– finance income (4,141) (4,060)

– finance costs 10,751 10,799

– income tax expense 8,628 7,081

Changes in working capital:

– inventories 1,349 3,331

– trade and other receivables 1,417 (898)

– trade, other payables and provisions (7,798) (6,803)

Cash generated from operations 95,033 91,049

Consolidated cash flow statementFor the period ended 30 March 2014



Consolidated statement of changes in equity For the period 31 March 2013

81


The cash flow hedging reserve debit of £664,000 (2013: £1,385,000 debit and 2012: £1,341,000 debit) represents the fair value gains and losses on hedging arrangements that are effective and qualify for cash flow hedge accounting. The brought forward reserve of £1,385,000 debit unwound during the year and revaluation of existing instruments at the balance sheet date gave rise to the closing reserve. The movement on cash flow hedges credit of £410,000 includes a £145,000 debit relating to deferred taxation. Deferred taxation relating to prior periods of £311,000 is included in transfers.

The share-based payment credit of £2,129,000 (2013: £2,545,000) includes a debit of £357,000 (2013: credit £358,000) relating to deferred taxation and a credit of £1,374,000 (2013: credit £527,000) relating to current taxation.

The movement on the treasury share reserve relates to the purchase and reissue during the year of 270,500 treasury shares, in order to partially satisfy the exercise of share options.

The accompanying accounting policies and notes form part of these financial statements.

Share capital £’000

Share premium

£’000

Treasury share

reserve £’000

Merger reserve £’000

Cash flow hedging reserves

£’000

Translation

reserve £’000

Restated*

Retained earnings

£’000

Restated* Total

attributable to equity holders

of the parent £’000

Non-controlling

interest £’000

Restated*

Total equity £’000

Balance at 1 April 2012 346 64,952 – 106,757 (1,341) 36,275 83,842 290,831 822 291,653

Total comprehensive income:

Profit – – – – – – 30,620 30,620 270 30,890

Other comprehensive income:

Translation of foreign operations – – – – – 6,184 – 6,184 24 6,208

Net movements on cash flow hedges – – – – (44) – – (44) – (44)

Actuarial movement net of tax – – – – – – (111) (111) – (111)

Total comprehensive income for the year – – – – (44) 6,184 30,509 36,649 294 36,943

Transactions with owners of the

Company recognised directly in equity:

Dividends paid – – – – – – (11,122) (11,122) – (11,122)

Non-controlling interest recognised on acquisition – – – – – – – – 191 191

Issue of shares 19 24,146 – – – – – 24,165 – 24,165

Share-based payments (net of tax) – – – – – – 2,545 2,545 – 2,545

Balance at 31 March 2013 365 89,098 – 106,757 (1,385) 42,459 105,774 343,068 1,307 344,375

Total comprehensive income:

Profit – – – – – – 33,949 33,949 316 34,265

Other comprehensive income:

Translation of foreign operations – – – – – (17,751) – (17,751) (93) (17,844)

Net movements on cashflow hedges – – – – 410 – – 410 – 410

Actuarial movement net of tax – – – – – – (2,907) (2,907) – (2,907)

Total comprehensive income for the year – – – – 410 (17,751) 31,042 13,701 223 13,924

Transactions with owners of the

Company recognised directly in equity:

Dividends paid – – – – – – (12,563) (12,563) – (12,563)

Movement in non-controlling interest – – – – – – – – (162) (162)

Non-controlling interest recognised in the period – – – – – – – – 1,105 1,105

Issue of shares 3 811 – – – – – 814 – 814

Purchase of treasury shares – – (3,046) – – – – (3,046) – (3,046)

Issue/allocation of treasury of shares – – 3,046 – – – (3,046) – – –

Share-based payments (net of tax) – – – – – – 2,129 2,129 – 2,129

Transfers – – – – 311 – (311) – – –

Balance at 30 March 2014 368 89,909 – 106,757 (664) 24,708 123,025 344,103 2,473 346,576

Consolidated statement of changes in equityFor the period 30 March 2014


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Notes to the consolidated financial statements For the period ended 30 March 2014

82

1 General information Synergy Health plc (‘the Company’) and its subsidiaries (together ‘the Group’) deliver a range of specialist outsourced services to healthcare providers and other customers concerned with health management. The Company is registered in the United Kingdom under company registration number 3355631 and its registered office is Ground Floor Stella, Windmill Hill Business Park, Whitehill Way, Swindon, Wilts SN5 6NX.

The financial statements are rounded to the nearest thousand pounds and have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted for use in the EU (‘IFRS’). The Company has elected to prepare its parent company financial statements in accordance with UK Generally Accepted Accounting Principles (‘UK GAAP’). These are presented on pages 115 to 123.

2 Accounting policies Basis of accounting The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the nearest weekend to 31 March each year. The current accounting period is 52 weeks in length (2013: 52 weeks in length).

Basis of consolidation Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Jointly-controlled entities are those entities over whose activities the Group has joint control established by contractual agreement. The consolidated financial statements include the Group’s proportionate share of the entities’ assets, liabilities, revenue and expenses, with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases.

Measurement convention The financial statements are prepared on the historical cost basis except as disclosed in the accounting policies set out below.

Going concern In adopting the going concern basis for preparing the financial statements the Directors have considered the Group’s business activities as set out in the strategic review and regional review, the financial position of the Group and its cash flows and borrowing requirements as set out in the Finance Director’s review, and the principal risks and uncertainties set out on pages 33 to 37. Based on the Group’s cash flow forecasts and projections, the Board is satisfied that the Group will be able to operate within the level of its facilities for the foreseeable future. For this reason the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Business combinations The Group applies IFRS 3 (revised) ‘Business combinations’ in accounting for business combinations. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the acquisition date. Provisional fair value allocations are reviewed and if necessary adjusted no later than one year from the acquisition date. Costs that the Group incurs in connection with a business combination, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

The principal activity of the Group is the provision of services but sometimes goods are also supplied, usually as part of a service offering. Revenue is recognised once the service has been completed and the Group has transferred the significant risks and rewards of ownership of the goods to the buyer. The Group does not participate in activities which need to be accounted for under long-term contract accounting rules.

Non-recurring items Non-recurring income and expenses are those items that are one-off in nature and create significant volatility in reported earnings and are therefore reported separately in the income statement.

Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit schemes the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur and presented in the consolidated statement of comprehensive income. Past service cost is recognised immediately to the extent that the benefits are already vested.

Notes to the consolidated financial statementsFor the period ended 30 March 2014



83

2 Accounting policies continued The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost plus the present value of available refunds and reductions in future contributions to the scheme.

Finance charges and income Interest charges and income are accounted for on an accruals basis. Financing transaction costs that relate to financial liabilities are charged to interest expense by reference to the effective interest rate method and are recognised within the carrying value of the related financial liability on the balance sheet. Fees paid for the arrangement of credit facilities are recognised through the finance expense over the term of the facility. Where assets or liabilities on the Group balance sheet are carried at net present value, the increase in the amount due to unwinding the discount is recognised as a finance expense or finance income as appropriate.

Taxation The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on the taxable profit for that year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Furthermore, as the Group operates in many jurisdictions and is subject to tax audits which are complex and can take several years to conclude, the accrual for current tax includes provisions for uncertain tax positions which require estimates for each matter and the exercise of judgement in respect of the interpretation of tax laws and the likelihood of challenge of historic tax positions. As amounts provided in any year could differ from the eventual tax liabilities, subsequent adjustments may arise which may have a material impact on the Group's tax rate and/or cash payments. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are recognised for taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is not recognised on taxable temporary differences arising on the initial recognition of goodwill or for temporary differences arising from the initial recognition of assets and liabilities in a transaction that is not a business combination and that affect neither accounting nor taxable profit.

Deferred tax is calculated at the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Dividends Final dividends are recorded in the financial statements in the period in which they are approved by the Group’s shareholders. Interim dividends are recorded in the period in which they are approved and paid.

Intangible assets

Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement.

Other intangible assets Intangible assets acquired by the Group are initially capitalised at fair value as at the date of the acquisition, and subsequently stated at carrying value less accumulated amortisation and impairment losses. Intangible assets are amortised from the date they are available for use. Amortisation is charged to the income statement on a straight-line basis over their estimated useful lives as follows:

Customer-related intangibles 5–15 years Trade names 10 years

Costs incurred in setting up long-term agreements are capitalised as intangible assets and amortised over the life of the contract to which the costs relate. Technology licences are amortised from the date that they generate economic benefit and over the period of that benefit.

Property, plant and equipment Land and buildings

The Group’s policy is not to revalue property for accounting purposes.


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Notes to the consolidated financial statements continuedFinancial Statements

Notes to the consolidated financial statements continued

84

2 Accounting policies continued Depreciation Depreciation is charged so as to write off the cost of tangible non-current assets (excluding cobalt), less estimated residual values, over their estimated useful lives in equal annual instalments as follows:

Freehold land Not depreciated Plant and machinery 3–20 years Freehold property 50 years Office equipment 3–5 years Leasehold improvements Period of lease Cobalt 15 years Assets in the course on construction Not depreciated Circulating inventory 1–5 years

Cobalt is depreciated over 15 years; the reducing balance method is used for the first eight years, then the residual net book value is depreciated on a straight-line basis over seven years. This method has been selected to align the depreciation charge with the radioactive decay profile of the cobalt-60 isotope. Potential decommissioning costs are also capitalised and amortised over 15 years. A corresponding provision is recognised in the balance sheet on acquisition.

Circulating inventory mainly comprises linen textile assets provided to customers on a rental service basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

During the year, management reassessed the useful economic lives of certain assets to establish consistency across the Group. The net impact of this change in accounting estimate was a recurring and sustainable decrease of 4.3% to the Group’s depreciation charge.

Assets held under leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under hire purchase contracts are recognised as assets of the Group at their fair value or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Impairment of tangible and intangible assets At each balance sheet date the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Any impairment in value is recognised in the income statement.

Investment property Investment properties are properties (land and buildings) which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at cost less accumulated depreciation. Depreciation is charged so as to write off the cost of the buildings over 50 years. Land is not depreciated.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Provisions Provisions are recognised when the Group has a present obligation as a result of past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Director’s best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where appropriate.

Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables Trade receivables are non-derivative financial assets which arise when the Group provides goods or services directly to a third party, and where there is no intention of trading the financial asset. The receivables are initially recognised at fair value. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the income statement.



85

2 Accounting policies continued Provision against trade receivables is made when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows.

Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Overdrafts that are repayable on demand and form an integral part of the Group’s cash management are netted off against cash.

Financial liabilities and equity instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Bank borrowings Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in profit or loss using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

Equity instruments Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Derivative financial instruments and hedge accounting The Group’s activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses floating to fixed interest rate swaps and foreign exchange forward contracts to manage these exposures. Some of these contracts are designated as cash flow hedges under IAS 39 ‘Financial instruments: recognition and measurement’. The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are measured at fair value.

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows or against net investment in overseas subsidiaries are recognised directly in equity and any ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires, or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not clearly related to those of the host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement.

Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statement of the individual companies, transactions in 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 denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement.

In order to manage its exposure to certain foreign exchange risks, the Group enters into forward contracts and options (see above for the details of the Group’s accounting policies in respect of such derivative financial instruments).

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve.


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2 Accounting policies continued Share-based payments The Group has applied the requirements of IFRS 2 ‘Share-based payments’. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 3 April 2005.

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value of each award is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. The level of vesting is reviewed annually; the charge is adjusted to reflect actual and estimated levels of vesting.

Fair value is measured by use of a Black-Scholes model except for the Long Term Incentive Plan awards which are subject to a Total Shareholder Return performance condition where a model following similar principles to the Monte Carlo approach is used. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Where estimates and associated assumptions are made they are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Key areas of judgement, and estimate uncertainty, are set out below.

• Impairment tests have been undertaken with respect to goodwill (note 11) using commercial judgement and a number of assumptions and estimates have been made to support their carrying amounts. Sensitivity analysis as at 30 March 2014 has indicated that no reasonable foreseeable change in the key assumptions used in the impairment model will result in a significant impairment charge being recorded in the financial statements. In addition, a more detailed review has been carried out on certain Group assets, focusing on whether these assets required impairment. Following the review, no impairment was judged to be required.

• The designation of certain items of income and of cost as ‘non-recurring’ in nature, and their separate disclosure as such in the primary statements of the Group’s consolidated accounts.

• In relation to the Group’s property, plant and equipment (note 13), useful economic lives and residual values of assets have been established using historical experience and an assessment of the nature of the assets involved.

• In relation to the Group’s cobalt provision, costs of future disposal are based on contractual arrangements with third parties and latest disposal cost estimates.

• The Group cobalt depreciation policy is based on the actual physical decay of the cobalt-60 isotope.

• In relation to the Group’s defined benefit pension schemes, actuarial assumptions are established using relevant market benchmark data and with the advice of external qualified actuaries. Pension deficit valuations are most sensitive to changes in the underlying discount rate and inflation assumptions.

• Customer-related intangibles that are acquired as part of an acquisition are valued based on the forecast discounted cash flows arising from these customers taking account of historically observed customer attrition rates.

• The Group operates in a number of countries, all of which have their own tax legislation. Deferred tax assets and liabilities are recognised at the current tax rate which may not be the tax rate at which they unwind. The Group has available tax losses, some of which have been recognised and some of which have not, based upon management’s judgement of the ability of the Group to utilise those losses.

Adoption of new standards With effect from 1 January 2013, the Group has adopted the amendments to IAS 19 (Employee benefits) issued by the IASB in June 2011. This amendment has been applied retrospectively, resulting in the restatement of certain previously reported figures.

In the year ended 31 March 2013, financing income in the income statement decreased by £875,000 with a corresponding increase in the actuarial gain recognised in the statement of comprehensive income. The related deferred tax credit in the income statement increased by £201,000, with a corresponding reduction in the deferred tax credit recognised in the statement of comprehensive income. The impact of these changes in the year to 30 March 2014 is not materially different from these figures.

The following new standards, amendments to standards or interpretations must be applied for the first time by the Group for the period ending 30 March 2014 but are not currently relevant:

• IFRS 10 (Consolidated financial statements)

• IFRS 11 (Joint arrangements)

• IFRS 12 (Disclosure of interests in other entities)

• IAS 27 (Separate financial statements)

• IAS 28 (Investments in associates and joint ventures)

• Amendments to IFRS 10, IFRS 12, IAS 27, IAS 32, and IAS 36

• IFRIC 21 (Levies)



87

2 Accounting policies continued The Group chose not to adopt any of the above standards and interpretations early. Other than the impact of IAS 19 (revised), no significant net impact from the adoption of these new standards is expected.

3 Segmental information The Group is organised into four operating segments, and information on these segments is reported to the chief operating decision maker (‘CODM’) for the purposes of resource allocation and assessment of performance. The CODM has been identified as the Board of Directors. The four operating segments are: the UK & Ireland, Europe & Middle East, the Americas and Asia & Africa.

The segments derive their revenues from the same range of products and services – being the provision of Hospital Sterilisation Services (‘HSS’), Applied Sterilisation Technologies (‘AST’), and Healthcare Services. The CODM monitors the performance of the operating segments based on adjusted operating profit, being operating profit excluding the impact of amortisation on acquired intangibles and non-recurring items.

Segment information is presented below. During the period, management undertook a review of the allocation of certain reseller customers between the segments. Some customers were reallocated between segments and consequently the comparative data presented for previous periods has been restated.

UK & Ireland 2014 £’000

Europe & Middle East

2014 £’000

Asia & Africa 2014 £’000

Americas 2014 £’000

Total 2014 £’000

Revenue from external customers 164,701 119,118 18,798 77,836 380,453

Segment profit 34,718 19,984 3,730 8,765 67,197

Segment depreciation 12,978 17,486 4,442 4,391 39,297

Segment assets 228,265 244,196 81,772 83,942 638,175

The table below reconciles the total segment profit above, to the Group’s operating profit and profit before tax:


The table below analyses the Group’s revenues from external customers between the three principal product/service groups:

IFRS 8 (Operating segments) requires the Group to disclose information about the extent of its reliance on its major customers. The Group has no single customer making up more than 10% of total revenues.

Restated

UK & Ireland 2013 £’000

Restated Europe &

Middle East 2013 £’000

Restated

Asia & Africa 2013 £’000

Restated

Americas 2013 £’000

Total 2013 £’000

Revenue from external customers 160,559 120,183 18,113 62,393 361,248

Segment profit 34,454 16,677 3,867 7,328 62,326

Segment depreciation 13,330 19,451 4,438 3,943 41,162

Segment assets 229,930 254,345 91,435 93,042 668,752

2014 £’000


Total segment profit 67,197 62,326

Unallocated amounts:

– Corporate expenses (5,883) (6,113)

– Non-recurring costs (3,254) (2,441)

Amortisation of acquired intangibles (8,557) (9,062)

Operating profit 49,503 44,710

Net finance costs (6,610) (6,739)

Profit before tax 42,893 37,971

2014 £’000

2013 £’000

Healthcare Solutions 179,663 171,893

Hospital Sterilisation Services 85,771 82,073

Applied Sterilisation Technologies 115,019 107,282

380,453 361,248


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3 Segmental information continued The table below analyses the Group’s revenue from external customers, and non-current assets other than financial instruments, investment properties, deferred taxation and rights under insurance, by geography:

During the period, management undertook a review of the allocation of certain reseller customers between the UK & Ireland, Europe & Middle East, and Asia & Africa segments. Some customers were reallocated between segments and consequently the comparative data presented for previous periods has been restated.

4 Profit before tax Profit before tax has been arrived at after charging/(crediting):

Non-recurring items of £3,254,000 (2013: £2,441,000) have been charged in arriving at operating profit. The table and accompanying notes provide further details:

Net non-recurring items and acquisition-related costs during the period were £3.3 million. £1.4 million related to acquisition transaction fees. The most significant component of this cost was £0.6 million (net of the reimbursement of costs under an exclusivity agreement) relating to an ultimately unsuccessful acquisition. Within the Netherlands, we have incurred restructuring costs of £1.8 million on the closure of two laundries and two wash centers, along with the conversion of a laundry to a wash center.

In the prior year, non-recurring items of £2,441,000 were charged in arriving at operating profit. The table and accompanying notes provide further details:

Transaction costs incurred on the acquisition of businesses were recognised in the income statement. These costs related primarily to the acquisition of SRI, which is disclosed in more detail in note 24. During the prior period the Group incurred costs in restructuring both SRI, and the linen business in the Netherlands. These costs related mainly to employee termination payments and property costs. The total impact of non-recurring items on profit after tax was a charge of £1,761,000.

2014

Restated

2013

Revenue

£’000

Non-current assets £’000

Revenue £’000

Non-current assets £’000

UK 147,859 146,191 144,866 145,623

Netherlands 92,528 116,200 95,296 125,827

USA 76,009 41,793 59,904 44,484

Rest of World 64,057 223,956 61,182 245,599

380,453 528,140 361,248 561,533

2014 £’000

2013 £’000

Depreciation of property, plant and equipment 39,297 41,162

Amortisation of acquired intangible assets 8,557 9,062

Amortisation of purchased intangible assets 849 534

Cost of inventories recognised as expense 33,027 32,918

Staff costs (note 5) 143,108 139,089

Foreign exchange gain/(loss) 140 (238)

Auditors’ remuneration for audit services 448 469

£’000

Closure of certain operating and manufacturing facilities 1,820

Costs incurred on the acquisition and disposal of businesses 1,353

Other 81

2014 non-recurring charge 3,254

£’000

Closure of certain operating and manufacturing facilities 3,000

Cessation gain on defined benefit pension scheme (699)

Costs incurred on the acquisition and disposal of businesses 473

Gain on disposal of investment property (437)

Contingent consideration on acquisitions (129)

Other 233

2013 non-recurring charge 2,441



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4 Profit before tax continued A more detailed analysis of auditors’ remuneration is provided below:

The principal non-audit service was for transaction-related advisory fees, and amounted to £941,000 for the period.

5 Staff costs The average number of monthly employees employed by the Group during the year, including Executive Directors, was as follows:

Their aggregate remuneration comprised:

Details of the Directors’ aggregate emoluments can be found in the Directors’ Remuneration Report, commencing on page 54.

6 Finance income


2014 £’000

2013 £’000

Audit services

– audit of these financial statements 82 73

– audit of financial statements of subsidiaries 366 396

448 469

– audit-related regulatory reporting 18 18

– other services 992 160

2014

Number 2013

Number

Production 4,028 4,262

Selling and distribution 328 278

Administration 751 716

5,107 5,256

2014 £’000

2013 £’000

Wages and salaries 123,162 118,943

Social security costs 12,316 13,003

Share-based payments 1,112 1,800

Other pension costs 5,796 5,343

Total staff costs 142,386 139,089

2014 £’000


Interest on bank deposits 1,673 1,883

Interest income on defined benefit pension scheme assets 2,468 2,177

Total financing income 4,141 4,060


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7 Finance costs

8 Taxation


UK corporation tax is calculated at 23% (2013: 24%) of the estimated assessable profit for the year. Taxation for overseas operations is calculated at the local prevailing rates.

A reduction in the UK corporation tax rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 5 July 2012, and further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Company's future current tax charge accordingly. The deferred tax liability at 30 March 2014 has been calculated based on the rate of 20% substantively enacted at the balance sheet date.

The charge for the year can be reconciled to the profit before tax per the income statement as follows:


2014 £’000

2013 £’000

On bank loans and overdrafts 7,164 6,901

Finance charges in respect of hire purchase loans 247 436

Other interest payable and similar charges 194 171

Total external borrowing costs 7,605 7,508

Unwinding of discount on provisions 94 82

Interest on defined benefit plan obligations 3,052 3,209

Total financing cost 10,751 10,799

2014 £’000


Current tax:

UK tax 4,414 4,010

Overseas tax 8,707 3,990

Adjustment in respect of prior years (2,507) (2,516)

Total current tax 10,614 5,484

Deferred tax:

Origination and reversal of temporary differences (919) 1,010

Adjustment in respect of prior years (228) 958

Effect of rate change (839) (371)

Total deferred tax (1,986) 1,597

Total tax in income statement 8,628 7,081

2014 £’000


Profit before tax 42,893 37,971

Tax at the UK corporation tax rate of 23% (2013: 24%) 9,865 9,113

Effect of:

Expenses not deductible for tax purposes and other permanent differences 553 (94)

Different tax rates on overseas earnings 592 373

Overseas withholding tax 116 –

Adjustment in respect of prior years (2,735) (1,550)

Effect of change in UK corporation tax rate (629) (296)

Changes in the recognition of tax losses 866 (465)

Tax charge for year 8,628 7,081



91

9 Dividends

The Board of Directors will recommend to the shareholders a final dividend for the period ended 30 March 2014 of 14.20p (2013: 12.80p).

10 Earnings per share

2014 £’000


Earnings

Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 33,949 30,620

Shares

’000 Shares

’000

Number of shares

Weighted average number of ordinary shares for the purposes of basic earnings per share 58,726 57,769

Effect of dilutive potential ordinary shares:

Share options 784 1,148

Weighted average number of ordinary shares for the purposes of diluted earnings per share 59,510 58,917

Earnings per ordinary share

Basic 57.81p 53.00p

Diluted 57.05p 51.97p


2014 £’000

2013 £’000

Amounts recognised as distributions to equity holders in the period:

Final dividend for the prior period of 12.80p (2013: 11.18p per share) 7,521 6,512

Interim dividend for the current period of 8.57p per share (2013: 7.90p per share) 5,042 4,610

12,563 11,122

£’000 Restated*

£’000

Adjusted earnings per share

Operating profit 49,503 44,710

Amortisation of acquired intangible assets 8,557 9,062

Non-recurring items 3,254 2,441

Adjusted operating profit 61,314 56,213

Net finance costs (6,610) (6,739)

Adjusted profit on ordinary activities before taxation 54,704 49,474

Taxation on adjusted profit on ordinary activities (12,933) (11,319)

Non-controlling interest (316) (270)

Adjusted net profit attributable to equity holders of the parent 41,455 37,885

Adjusted basic earnings per share 70.59p 65.58p

Adjusted diluted earnings per share 69.66p 64.30p


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11 Goodwill

Goodwill acquired on a business combination is allocated at acquisition to the cash-generating units (‘CGUs’) that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as shown in the table below. This table also provides the assumptions used by management in assessing the carrying value of these amounts.

The Group tests goodwill for impairment annually, or more frequently if there are indications that goodwill might be impaired. An impairment test is a comparison of the carrying value of the assets of a segment to their recoverable amount based on a value in use calculation. An impairment results where the recoverable amount is less than the carrying value. During the year the goodwill for each segment was separately assessed and tested for impairment, with £nil (2013: £nil) impairment charges resulting. In addition, as described in the Audit Committee report on page 52, a more detailed review has been carried out on certain Group assets, focusing on whether these assets required impairment. Following the review, no impairment was judged to be required.

As part of testing goodwill for impairment, detailed forecasts of operating cash flows for a period of five years are derived from the most recent financial forecasts approved by management. Cash flows for the period beyond the financial forecasts are extrapolated based on estimates of future growth rates as disclosed above. For each segment the future growth rates used in the recoverable amount calculation do not exceed the long-term average growth rates for the markets to which each segment is dedicated.

Discount rates have been calculated based on pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the segment. In determining the discount rate management have sought to arrive at a pre-tax weighted average cost of capital using the capital asset pricing model to determine the cost of equity and then weighting the overall cost of capital for the Group by equity and debt. The discount rates applied to each specific CGU are set out in the table above.

A number of key assumptions are used as part of impairment testing. These key assumptions are made by management reflecting past experience combined with their knowledge as to future performance and relevant external sources of information. In determining the recoverable amount of each segment the key assumptions are discount rate, long term growth rate, future sales prices and volumes, new business won and the cost structure of each business.

Sensitivity analysis as at 30 March 2014 has indicated that no reasonable foreseeable change in the key assumptions used in the impairment model will result in a significant impairment charge being recorded in the financial statements.

£’000

Cost and carrying amount

At 1 April 2012 218,305

Exchange differences 3,798

Recognised on acquisition of businesses 1,350

At 31 March 2013 223,453

Exchange differences (8,427)

Recognised on acquisition of businesses 1,220

At 30 March 2014 216,246

2014 2013

Pre-tax discount

rate (%)

Mid-term growth

rates (%)

Perpetuity growth

rates (%) £’000

Pre-tax discount

rate (%)

Mid-term growth

rates (%)

Perpetuity growth

rates (%) £’000

UK & Ireland segment 8.2 8.0 2.0 61,955 7.5 8.0 2.0 60,996

Europe & Middle East segment 8.1 4.0 2.0 117,101 7.3 4.0 2.0 119,588

Americas segment 8.3 10.0 2.0 15,558 7.9 10.0 2.0 17,046

Asia & Africa segment 8.3 8.0 2.0 21,632 7.6 8.0 2.0 25,823

216,246 223,453



93

12 Other intangible assets

Amortisation of intangible assets is included in administrative expenses in the income statement. Other intangibles includes capitalised software, £709,000 was transferred from property, plant and equipment during the period.

Trade name £’000

Customer contracts and relationships

£’000

Other Intangibles

£’000 Total

£’000

Cost At 1 April 2012 9,246 80,921 7,885 98,052

Exchange differences 153 1,460 80 1,693

Additions – – 1,668 1,668

Transfers – – 809 809

Acquired on acquisition of businesses 478 970 – 1,448

At 31 March 2013 9,877 83,351 10,442 103,670

Exchange differences (322) (3,301) (58) (3,681)

Transfers – – 709 709

Additions – – 1,671 1,671

Acquired on acquisition of businesses – 1,654 – 1,654

At 30 March 2014 9,555 81,704 12,764 104,023

Amortisation

At 1 April 2012 5,260 30,299 1,600 37,159

Exchange differences 105 521 – 626

Charge for the year 1,287 7,775 534 9,596

At 31 March 2013 6,652 38,595 2,134 47,381

Exchange differences (218) (1,231) – (1,449)

Charge for the year 1,099 7,458 849 9,406

At 30 March 2014 7,533 44,822 2,983 55,338

Carrying amount

At 30 March 2014 2,022 36,882 9,781 48,685

At 31 March 2013 3,225 44,756 8,308 56,289

At 1 April 2012 3,986 50,622 6,285 60,893


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13 Property, plant and equipment

The carrying amount of the Group’s plant and equipment includes an amount of £11.2 million (2013: 13.0 million) in respect of assets held under hire purchase loan contracts.

At the balance sheet date, the Group had no land and buildings assets pledged to secure banking facilities or other loans granted to the Group (2013: land and buildings assets with a carrying value of £5.7 million).

At 30 March 2014, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £2.4 million (2013: £1.8 million).

Included in the cost of property, plant and equipment is £805,000 (2013: £805,000) of capitalised interest.

At the end of the period the Group transferred a recently vacated property from property, plant and equipment to current assets as an asset held for sale. Immediately prior to this reclassification, the asset carrying value was adjusted to its estimated fair value less costs to sell. The asset was held at a carrying value of £2,765,000. Other transfers include intangible assets of £709,000 reclassified as other intangible assets.

Land and buildings

£’000

Plant, machinery and office

equipment £’000

Cobalt £’000

Circulating inventory

£’000

Assets in course of

construction £’000

Total £’000

Cost

At 1 April 2012 87,544 170,800 85,434 43,577 14,281 401,636

Additions 1,841 15,622 12,076 18,497 133 48,169

Acquisitions 9,530 – (967) 5,548 124 14,235

Exchange differences 3,060 3,728 3,770 1,824 568 12,950

Disposals (712) (8,075) (1,397) (3,430) (89) (13,703)

Transfers 8,752 (6,288) – – (3,273) (809)

At 31 March 2013 110,015 175,787 98,916 66,016 11,744 462,478

Additions 2,655 6,091 10,690 14,330 3,908 37,674

Exchange differences (5,874) (7,577) (9,227) (2,947) (611) (26,236)

Disposals (549) (11,963) (4,141) (18,130) (77) (34,860)

Transfers 2,734 2,027 – – (9,659) (4,898)

At 30 March 2014 108,981 164,365 96,238 59,269 5,305 434,158

Accumulated depreciation

and impairment

At 1 April 2012 23,374 69,986 28,421 25,413 – 147,194

Charge for the year 4,935 15,307 8,116 12,804 – 41,162

Exchange differences 745 2,660 2,136 1,175 – 6,716

Disposals (126) (7,349) (1,394) (3,430) – (12,299)

At 31 March 2013 28,928 80,604 37,279 35,962 – 182,773

Charge for the year 7,958 8,975 8,474 13,890 – 39,297

Exchange differences (1,779) (4,840) (5,236) (1,690) – (13,545)

Disposals (428) (11,421) (4,136) (16,765) – (32,750)

Transfers (196) (1,280) – 52 – (1,424)

At 30 March 2014 34,483 72,038 36,381 31,449 – 174,351

Carrying amount

At 30 March 2014 74,498 92,327 59,857 27,820 5,305 259,807

At 31 March 2013 81,087 95,183 61,637 30,054 11,744 279,705

At 1 April 2012 64,170 100,814 57,013 18,164 14,281 254,442



95

14 Interest in jointly-controlled entity As part of the acquisition of Isotron plc and its group in 2007, the Group obtained a 50% interest in a jointly-controlled entity, Synergy Health Logistics B.V. (previously named Isotron Logistics B.V.) (‘SH Logistics’), whose principal activity is the provision of logistics consultancy, and which is incorporated and operates in the Netherlands.

At the start of the period, the Group purchased 50% of the share capital of SH Logistics as disclosed in note 24b. In the previous year, SH Logistics was proportionately consolidated into the Group financial statements on a line-by-line basis.

15 Inventories

The value of stock recognised as cost of sales is shown in note 4. The write down of inventories to net realisable value amounted to £193,000 (2013: £507,000). The write down is included in cost of sales.

16 Asset held for sale

At the end of the period the Group transferred a recently vacated US office building from property, plant and equipment to current assets as an asset held for sale. Immediately prior to this reclassification, the asset carrying value was adjusted to its estimated fair value less costs to sell. This asset is expected to be disposed outside the Group within the next twelve months.

2014 £’000

2013 £’000

Current assets – 83

Current liabilities – (22)

Net assets – 61

Income – 660

Expenses (including interest and tax) – (607)

Profit from operations – 53

2014 £’000

2013 £’000

Raw materials 4,131 4,923

Work-in-progress 225 90

Finished goods 8,336 8,945

Process consumables 785 1,442

13,477 15,400

£’000

At 31 March 2013 –

Transfer in the year 2,765

At 30 March 2014 2,765


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17 Trade and other receivables

The average credit period taken on sales of goods and services is 51 days (2013: 46 days). The Directors consider that the carrying amounts of trade and other receivables approximate their fair value.

18 Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 19. The Directors consider that the carrying amount of the Group’s interest-bearing loans and borrowings approximates to their fair value.

2014 £’000

2013 £’000

Current liabilities

Bank loans 348 629

Bank overdrafts 1,548 –

Other interest-bearing loans – 57

Finance lease liabilities 2,039 2,439

3,935 3,125

Long-term liabilities

Bank loans 126,512 176,326

Other interest-bearing loans 48,381 18,470

Finance lease liabilities 2,562 4,527

177,455 199,323

Total 181,390 202,448

Analysis of borrowings by currency:

The weighted average interest rates paid were as follows:

2014

% 2013

%

Bank overdrafts 2.3 2.3

Bank and other loans 2.9 2.8

2014 £’000

2013 £’000

Current

Amounts receivable for the sale of goods and services 50,697 55,857

Other receivables 3,947 4,618

Prepayments and accrued income 6,886 6,155

61,530 66,630

Non-current Other receivables 1,508 212

Prepayments 1,512 1,439

3,020 1,651

Total 64,550 68,281

Total

£’000 Sterling

£’000 Euros £’000

US Dollars £’000

Chinese Renminbi

£’000

Swiss Francs £’000

2014

Bank loans 126,860 21,902 37,957 67,001 – –

Bank overdrafts 1,548 1,417 – 131 – –

Other interest-bearing loans 48,381 10,000 38,381 – – –

Finance lease liabilities 4,601 4,601 – – – –

181,390 37,920 76,338 67,132 – –

2013

Bank loans 176,955 24,878 74,968 73,098 742 3,269

Other interest-bearing loans 18,527 – 18,470 – 57 –

Finance lease liabilities 6,966 6,820 146 – – –

202,448 31,698 93,584 73,098 799 3,269



97

18 Interest-bearing loans and borrowings continued Terms and debt repayment schedule On 2 August 2011, the Group entered into new Revolving Credit Facilities with a club of banks. The new Revolving Credit Facilities were used to refinance the Group’s previous syndicated loan facility of £160 million, which had been due for repayment on 15 January 2012. The new Revolving Credit Facilities comprise one facility of £105 million, and a second facility of €130 million. Both Facilities are unsecured and attract a floating rate of interest, although fixing arrangements have been entered into as described in note 19.

On 1 June 2012, the Group entered into an additional Revolving Credit Facility with a club of banks. The additional Revolving Credit Facility was used to preserve the Group’s debt headroom following recent acquisitions. The additional Revolving Credit Facility has largely the same terms as the 2011 Revolving Credit Facility and has not been utilised since inception.

On 13 September 2012, the Group issued a US Private Placement note with a value of €20.6 million. The Private Placement note is due for repayment in September 2019.

Certain Euro-denominated loans outside the main facilities totalling £0.5 million are secured by mortgages on certain Dutch freehold properties. The loans attract both floating and fixed rates of interest.

At 30 March 2014, the Group had available £53.1 million of undrawn committed borrowing facilities. In addition, the Group had undrawn overdraft and other uncommitted facilities (including additional amounts of Private Placement notes) totalling £39.3 million which it expects to renew during the financial year.

Financial liabilities gross maturity The following are the contractual cash flows of financial liabilities, including interest payments:

2014

Carrying value £’000

Total £’000

0–6 months £’000

6–12 months £’000

1–3 years £’000

>3 years £’000

Trade payables 17,169 17,169 17,169 – – –

Non-trade payables and accrued expenses 51,030 51,030 51,030 – – –

Contingent consideration 1,126 1,269 33 222 652 362

Bank loans less than one year 348 348 348 – – –

Bank overdrafts 1,548 1,548 1,548 – – –

Other interest-bearing loans less than one year – – – – – –

Finance leases less than one year 2,039 2,088 1,295 793 – –

Bank loans greater than one year 126,512 131,623 857 857 129,909 –

Other interest-bearing loans greater than one year 48,381 58,883 868 868 3,471 53,676

Finance leases greater than one year 2,562 2,738 47 47 2,644 –

Financial liabilities (excluding derivative instruments) 250,715 266,696 73,195 2,787 136,676 54,038

Derivative financial assets 830 830 830 – – –

Financial liabilities 251,545 267,526 74,025 2,787 136,676 54,038

2013

Carrying value £’000

Total £’000

0–6 months £’000

6–12 months £’000

1–3 years £’000

>3 years £’000

Trade payables 23,428 23,428 23,428 – – –

Non-trade payables and accrued expenses 53,840 53,840 53,840 – – –

Contingent consideration 645 719 – – 74 645

Bank loans less than one year 629 692 252 440 – –

Other interest-bearing loans less than one year 57 58 58 – – –

Finance leases less than one year 2,439 2,690 1,407 1,283 – –

Bank loans greater than one year 176,326 186,140 1,472 1,472 5,035 178,161

Other interest-bearing loans greater than one year 18,470 22,673 332 332 1,681 20,328

Finance leases greater than one year 4,527 5,021 134 134 4,306 447

Financial liabilities (excluding derivative instruments) 280,361 295,261 80,923 3,661 11,096 199,581

Derivative financial assets 1,385 1,385 1,385 – – –

Financial liabilities 281,746 296,646 82,308 3,661 11,096 199,581


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18 Interest-bearing loans and borrowings continued Finance lease liabilities Finance lease liabilities are payable as follows:

All finance lease liabilities are contracted at fixed rates of interest, in both years.

19 Financial instruments Financial instruments carried at fair value are required to be measured by reference to the following levels:

Level 1: quoted prices in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All financial instruments carried at fair value have been measured by a Level 2 valuation method, with the exception of contingent consideration which is measured by a Level 3 valuation method.

a) Financial risk management objectives and policies The Group’s principal financial instruments, other than derivatives, comprise bank loans, finance leases and cash. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group also has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations.

The Group also enters into derivative transactions, primarily interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance.

It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

b) Interest rate risk The Group is subject to fluctuations in interest rates on its loans and surplus cash deposits. At 30 March 2014 and 31 March 2013 the Group held hedging arrangements in order to fix the interest charge on $35.0 million of its bank debt.

The swap arrangements cover:

Amounts to be paid or received under these arrangements will be recognised in the interest expense consistent with the terms of the agreement. The expiry of each agreement is disclosed in the table above.

The arrangements are fully effective in fixing the interest on the underlying debt. In revaluing them to fair value, the Group has recognised £830,000 (2013: £1,385,000) in current liabilities and equity.

The following table demonstrates the sensitivity to a reasonable possible change in interest rates on the element of the total Group interest which is not subject to fixed interest arrangements. The reasonable change is based on the difference between current market interest rates and one year forward rates:

2014 2013

Minimum lease payments

£’000 Interest £’000

Principal £’000

Minimum lease

payments £’000

Interest £’000

Principal £’000

Less than one year 2,088 49 2,039 2,690 251 2,439

Between one and five years 2,738 176 2,562 5,021 494 4,527

4,826 225 4,601 7,711 745 6,966

Debt covered Fixed rate Expiry

$35 million 2.5% 31 March 2016

Increase/(decrease) in basis points

Effect on profit after tax and equity

£’000

2014 32/(32) (261)/261

2013 23/(23) (273)/273



99

19 Financial instruments continued c) Foreign currency risk The Group’s principal currency exposures are to fluctuations in the exchange rate between Sterling and the Euro and between Sterling and the US Dollar. The Group’s policy is to ensure that the proportion of interest cost in each currency is consistent with the proportion of earnings in that currency. By arranging its affairs in this manner, the Group seeks to ensure that there is no disproportionate impact on its results as a result of exchange rate movements.

During the 12 months to March 2014 the average exchange rate for Sterling against the Euro weakened by 3% in comparison with the 12 month average to March 2013. A 3% strengthening in the average exchange rate for Sterling against the Euro over the entire year to March 2014 would have resulted in increased adjusted operating profit of £0.8 million (2013: a 6% weakening, which would have led to a decrease of £1.3 million). This analysis assumes that all other variables remain constant. A 3% weakening in the average exchange rate for Sterling against the Euro would have an equal but opposite effect.

During the 12 months to March 2014 the average exchange rate for Sterling against the US Dollar has strengthening by 1% in comparison to the 12 month average to March 2013. A 1% weakening in the average exchange rate for Sterling against the US Dollar over the entire year to March 2014 would have resulted in reduced adjusted operating profit of £0.0 million (2013: a 1% strengthening, which would have led to a reduction of £0.0 million). This analysis assumes all other variables remain constant. A 1% weakening in the average exchange rate for Sterling against the US Dollar would have an equal but opposite effect.

Where the Group subsidiaries make significant purchases in non-functional currencies, such as US and Canadian Dollars, the Group enters into forward exchange currency contracts to manage this exposure. The Group utilises currency derivatives to hedge significant future transactions and cash flows in foreign currencies and is a party to a variety of foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are denominated in the functional currencies of the Group’s trading entities and its suppliers.

The Group does not trade in derivatives. The derivatives held hedge specific exposures and have maturities designed to match the exposures they are hedging. It is the intention to hold the financial instruments giving rise to the exposure and the underlying hedged item until maturity and therefore no net gain or loss is expected to be realised.

Additionally, the Group holds net Euro- and US Dollar- denominated loans in UK companies totalling £76.3 million and £67.1 million respectively (2013: £93.6 million and £73.0 million respectively). This represents a fully effective designated net investment hedge against the first £76.3 million of the Group’s Euro-denominated net assets of £133.2 million and £67.1 million of the Group’s US Dollar-denominated net assets of £76.6 million (2013: £93.6 million of £118.7 million and £73.0 million of £85.2 million). The revaluation of these loans resulted in a gain of £2.0 million (2013: loss of £2.6 million) which has been posted to the translation reserve.

d) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for impairment. The Group’s principal financial assets are bank balances and cash, and trade and other receivables. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Management has credit policies in place to manage risk and to monitor exposure to risk on an ongoing basis. These include the use of customer specific credit limits based on third party credit reports and in cases of customer default or requests for credit above agreed limits the use of pro forma invoices to secure payment in advance of delivery. Given these factors and based on extensive past experience, the Group believes that its financial assets are of good credit quality.

The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £89,963,000 (2013: £85,876,000) being the total trade and other receivables and cash and cash equivalents in the balance sheet.

The Group’s customer base mainly comprises major medical device companies, commercial distributors, NHS Trusts and healthcare providers, including public sector, private sector and charitable organisations, throughout the world. No single customer or top 10 customer grouping accounts for a significant proportion of the Group’s trade receivables. The Group has in place an insurance policy to cover the majority of its Healthcare Solutions UK export customers.

Credit quality of trade receivables and impairment losses At the balance sheet date, the ageing of trade receivables was:

Group 2014 £’000

2013 £’000

Current 35,697 41,311

1–30 days overdue 9,276 9,996

31–60 days overdue 2,269 2,053

61–90 days overdue 1,382 1,888

More than 90 days overdue 2,073 609

50,697 55,857


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19 Financial instruments continued Financial assets are reviewed for impairment at the balance sheet date and a full provision for impairment is made against trade receivables that are not considered to be recoverable. The total provision against trade receivables at the period end was £645,000 (2013: £626,000), of which the majority relates to amounts more than 90 days overdue.

No further analysis has been provided for cash and cash equivalents, trade receivables from Group companies, other trade receivables and other financial assets as there is limited exposure to credit risk and no provisions for impairment have been recognised.

Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Details of the maturity of the Group’s financial liabilities are given in note 18.

Capital management The Group’s objectives when managing capital are:

i. to safeguard the entity’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits to other stakeholders, and

ii. to provide an adequate return to shareholders by (a) pricing products and services commensurate with the level of risk and (b) ensuring that returns on new investment programmes will maintain or increase shareholder returns.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares, if required. No changes were made in the objectives, policies or processes during the periods ended 30 March 2014 and 31 March 2013.

The table below presents the quantitative data for the components the Group manages as capital:

20 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period.


The Group has deferred tax assets of £4,802,000 (2013: £5,480,000) in respect of tax losses that have not been recognised as their recoverability is uncertain. Deferred tax assets and liabilities have been offset where appropriate.

In March 2013, the Chancellor announced the reduction in the main rate of UK corporation tax to 21% with effect from 1 April 2014 and to 20% from 1 April 2015. The change was enacted on 2 July 2013 and therefore the effect of the rate reduction creates a reduction in the deferred tax liability which has been included in the figures included above.

2014 £’000

2013 £’000

Shareholders’ funds 344,103 343,068

Finance leases 4,601 6,966

Bank loans 126,860 176,955

Other interest-bearing loans 48,381 18,527

Bank overdrafts 1,548 –

525,493 545,516

Accelerated capital

allowances £’000

Recognition of intangibles

£’000

Share-based payments

£’000

Other temporary

differences £’000

Pension schemes

£’000

Restated*

Total £’000

At 1 April 2012 13,676 9,545 (1,225) (6,065) (4,395) 11,536

Charge/(credit) to income (301) (1,550) (377) 3,256 770 1,597

Charge/(credit) to equity and other comprehensive income – – (358) – (38) (195)

Acquired with business during the period (1,873) – – (2,408) 3 (4,278)

Exchange differences 28 – – – (9) 19

At 31 March 2013 11,530 7,995 (1,960) (5,217) (3,669) 8,679

Charge/(credit) to income 145 (2,182) (115) (350) 516 (1,986)

Charge/(credit) to equity and other comprehensive income – – 357 145 (159) 343

Acquired with business during the period – 583 – – – 583

Transfer from other liabilities – – – – (45) (45)

Exchange differences (27) – – – (18) (45)

At 30 March 2014 11,648 6,396 (1,718) (5,422) (3,375) 7,529



101

21 Trade and other payables

2014 £’000

2013 £’000

Current

Trade payables 17,169 23,428

Deferred contingent consideration 213 –

Non-trade payables and accrued expenses 51,030 53,840

68,412 77,268

Non-current

Deferred contingent consideration 913 645

69,325 77,913 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 44 days (2013: 48 days). The deferred consideration provision at 30 March 2014 relates to the acquisitions disclosed in note 24.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

22 Provisions

Cobalt disposal costs

£’000

Environmental provision

£’000

Other provisions

£’000 Total

£’000

At 31 March 2013 5,289 149 5,251 10,689

Additional provision in the year 619 – 1,768 2,387

Unwinding of discounting 94 – – 94

Utilised in the year (102) (62) (2,654) (2,818)

Exchange differences (23) (3) (100) (126)

At 30 March 2014 5,877 84 4,265 10,226

Included in non-current liabilities 5,877 – 1,877 7,754

Included in current liabilities – 84 2,388 2,472

5,877 84 4,265 10,226 The cobalt disposal cost provision recognises a decommissioning liability in respect of radioactive isotopes of cobalt used at certain of the Group’s AST sites. This provision is being utilised as the cobalt to which the provision relates reaches the end of its useful economic life.

The environmental provision relates to a liability acquired as part of the 2004 acquisition of Lips Textielservice Holding B.V. The majority of this liability was settled during December 2012; the small remaining balance is expected to be settled within the short term.

Other provisions include provisions against vacated properties and other restructuring costs. These are expected to unwind over the next one to five years.

23 Share capital

2014 £’000

2013 £’000

Allotted, called up and fully paid 368 365

During the year, the Company issued 646,711 ordinary shares (2013: 348,732 ordinary shares) of 0.625p in respect of options exercised under share option schemes. Proceeds amounted to £814,000 (2013: £1,736,000). During the previous year, the Company completed a placing of 2,755,520 ordinary shares of 0.625p at a price of 820p per share. The placing raised proceeds of £22,600,000 before expenses.

The difference between the total consideration and the total nominal value of shares issued has been credited to the share premium account.

The holders of ordinary shares are entitled to receive dividends from time to time and are entitled to one vote per share at meetings of the Group.


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102

24 a) Acquisition of subsidiary – Genon On 31 January 2014, the Group acquired the entire issued share capital of Genon Laboratories Limited (‘Genon’), a company incorporated in England, as part of its strategy to expand the scale of its laboratory services business.

The provisional fair value of the net assets acquired and the related consideration were as follows:

The goodwill arising on the acquisition of the business is attributable to the assembled workforce and the synergies generated following the integration of Genon into the Group.

In accordance with IFRS 3 (revised) (Business combinations), management have made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The most significant of these is the recognition of intangibles assets (customer lists).

Total transaction costs of £46,000 were incurred in the acquisition and were expensed within non-recurring items and acquisition-related costs. During the period, the Genon business contributed £125,000 to revenue and £55,000 to operating profit.

Summary of cash flows:

Summary of deferred consideration:

Fair value

£’000

Intangible assets 1,331

Inventories 10

Trade and other receivables 264

Cash and cash equivalents 670

Trade and other payables (424)

Deferred taxation liabilities (266)

Fair value of assets acquired 1,585

Cash consideration 2,025

Deferred consideration 20

Contingent consideration 500

Total consideration 2,545

Goodwill arising on acquisition 960

£’000


Cash acquired with business (670)

1,355

£’000

At acquisition 520

As at 30 March 2014 520



103

24 b) Acquisition of subsidiary – SH Logistics As part of the acquisition of Isotron plc and its group in 2007, the Group obtained a 50% interest in a jointly-controlled entity, Synergy Health Logistics B.V. (previously named Isotron Logistics B.V.) (‘SH Logistics’), whose principal activity is the provision of logistics consultancy and which is incorporated and operates in the Netherlands.

On 1 April 2013, the Group purchased the remaining 50% of the issued share capital of SH Logistics from the joint venture partner.


The goodwill arising on the acquisition is attributable to the assembled workforce and the synergies generated following the integration of the remaining 50% of the business into the Group.

Total transaction costs of £18,000 were incurred in the acquisition and were expensed within non-recurring items and acquisition-related costs. During the period, the Group’s increased ownership of the SH Logistics business contributed £616,000 to revenue and £121,000 to operating profit.


Summary of deferred consideration:

Fair value

£’000


Fair value of assets acquired 8

Cash consideration 134

Deferred consideration 134

Total consideration 268


£’000



126

£’000

At acquisition 134

As at 30 March 2014 134


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104

24 c) Prior period acquisition of subsidiary – SRI In the previous year, the Group acquired the entire issued share capital of SRI/Surgical Express Inc (‘SRI’), a NASDAQ-listed healthcare business incorporated in Florida, as part of its strategy to enter the US HSS market. Since acquisition the company has been renamed Synergy Health North America, Inc.


The goodwill arising on the acquisition of SRI is attributable to the assembled workforce and the synergies generated following the integration of SRI into the Group.

In accordance with IFRS 3 (revised) (Business combinations), management made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The most significant of these was a reduction in the carrying value of property, plant and equipment and circulating inventory, where book value on acquisition was higher than fair value. In the period, no adjustments were made to provisional fair values.

The SRI business contributed £61,059,000 to revenue and £5,863,000 to operating profit for the period.


£’000



14,725

Fair value

£’000

Property, plant and equipment 9,102

Circulating inventory 6,100

Intangible assets 478

Deferred taxation 5,424

Inventories 6,731

Trade and other receivables 9,228


Trade and other payables (12,308)

Loans (10,208)

Fair value of assets acquired 15,130


Total consideration 15,308




105

24 d) Prior period acquisition of subsidiary – Bizworth In the previous financial year, the Group acquired the entire issued share capital of Bizworth Gammarad Sdn Bhd (‘Bizworth’), a company incorporated in Malaysia, as part of its strategy to expand the geographic coverage of its AST business.


In accordance with IFRS 3 (revised) (Business combinations), management made adjustments to the book value of net assets acquired to arrive at the fair values disclosed above. The most significant of these was the recognition of intangible assets (customer lists).

In the period, adjustments were made to provisional fair values, increasing the carrying value of intangible assets and deferred tax liabilities by £323,000.

The Bizworth business contributed £307,000 to revenue and £154,000 to operating profit for the period.

Summary of contingent consideration:

Fair value

£’000

Intangible assets 1,293

Deferred taxation liabilities (323)

Fair value of assets acquired 970


Contingent consideration 836

Total consideration 970

Goodwill arising on acquisition –

£’000

As at 31 March 2013 836

Amounts paid (77)

Exchange differences (111)

As at 30 March 2014 648


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106

25 Operating lease arrangements

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Operating lease payments represent rentals payable by the Group for certain of its properties, vehicles and equipment.

26 Share-based payments The Group recognised total expenses of £1,112,000 related to share-based payment transactions in the period (2013: £1,800,000). The Group has in the past operated seven separate share option schemes. In the previous period, this fell to six, and in the current period to four.

The Executive Share Option Scheme 2007 This scheme was adopted on 3 July 2007 and was approved by the Inland Revenue on 12 July 2007. It is administered by the Board and is open to all employees, and to Directors who devote not less than 25 hours per week to their duties.

Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the three dealing days prior to the date of grant. The vesting period is three years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest except in the case of retirement, redundancy or similar situations.

Options granted to a participating individual are Approved options to the extent that, when taken together with any other Approved options held by that individual, they do not exceed £30,000 in value. Any option granted in excess of that figure is Unapproved.

Exercise of the options is subject to performance conditions determined by the Remuneration Committee linked to a sustained and significant improvement in the underlying financial performance of the Company over a three-year period. Options granted during the year will vest in accordance with an increase in the Company’s earnings per share, adjusted for the amortisation of acquired intangibles, and non-recurring items.

Details of the share options outstanding during the year are as follows:

The weighted average share price at the date of exercise for share options exercised during the period was £11.47 (2013: £9.66).

The options outstanding at 30 March 2014 were exercisable at prices between £5.05 and £7.96 and had a weighted average remaining contractual life of 3.9 years (2013: 4.8 years). No options were granted in the period ended 30 March 2014, or in the period ended 31 March 2013.

2014 £’000

2013 £’000

Minimum lease payments under operating leases recognised in income for the year 6,348 7,379

2014 £’000

2013 £’000

In one year or less 6,758 6,868

Between one and five years 16,823 19,164

In five years or more 19,301 20,476

42,882 46,508

2014 2013

Number of share options

(£)

Weighted average exercise price

(£)


(£)

Weighted average

exercise price (£)

Outstanding at beginning of period 157,444 7.36 347,623 6.62

Forfeited during the period (15,198) 7.96 (22,315) 5.23

Exercised during the period (53,124) 7.33 (167,864) 6.12

Outstanding at end of period 89,122 7.27 157,444 7.36

Exercisable at end of period 89,122 7.27 157,444 7.36



107

26 Share-based payments continued The approved share option plan The approved share option plan was adopted on 13 July 2001 and was approved by the Inland Revenue on 3 August 2001. It is administered by the Board and was open to all employees, and to Directors who devote not less than 25 hours per week to their duties. No further options will be granted under this scheme.

Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the three dealing days prior to the date of grant. The vesting period is between three and four years. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest.



The unapproved share option plan The unapproved share option plan was adopted on 30 November 1999 and was not submitted for approval by the Board to the Inland Revenue. The scheme was open to all employees. No further options will be granted under this scheme.

Options were exercisable at a price equal to the average quoted market price of the Company’s shares on the three dealing days prior to the date of grant. The vesting period was between three and four years. If the options remained unexercised after a period of seven years from the date of grant, the options expired. Options were forfeited if the employee left the Group before the options vested.


The weighted average share price at the date of exercise for share options exercised during the period was £nil (2013: £9.75).

‘Phantom’ Performance Share Plan (‘Phantom PSP’) The Phantom PSP was adopted by the Group in a similar manner to the PSP scheme following the acquisition of Isotron plc. It was available to certain overseas employees of the Group. No new options will be granted under this scheme. The scheme was cash-settled.


The weighted average share price at the date of exercise for Phantom PSP options exercised during the period was £11.12 (2013: £9.99).

2014 2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)


Forfeited during the period – – (1,000) 1.73


Outstanding at end of period – – 4,413 3.86

Exercisable at end of period – – 4,413 3.86

2014 2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)

Outstanding at beginning of period – – 33,746 6.57

Forfeited during the period – – – –

Exercised during the period – – (33,746) 6.57

Outstanding at end of period – – – –

Exercisable at end of period – – – –

2014

2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)


Forfeited during the period – – – –


Outstanding at end of period – – 1,066 0.83



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108

26 Share-based payments continued The Performance Share Plan (‘PSP’) Following the acquisition of Isotron plc, the Group allowed members of the Isotron PSP scheme to roll forward their entitlement into an identical scheme based on Synergy shares. No new options will be granted under this scheme.


The weighted average share price at the date of exercise for PSP options exercised during the period was £11.09 (2013: £9.49).

The options outstanding at 30 March 2014 were exercisable at an exercise price of £0.83 and had a weighted average remaining contractual life of 2.3 years (2013: 3.3 years). No options were granted in the period ended 30 March 2014, or in the period ended 31 March 2013.

The Save As You Earn scheme The Save As You Earn scheme was adopted on 13 July 2001 and is open to all UK employees and full-time Directors who have at least six months’ service with the Group. Options are granted for a period of either three, five or seven years.

Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the three dealing days prior to the date of grant discounted by 20%. Options are forfeited if the employee leaves the Group before the options vest except in the case of retirement, redundancy or similar situations.



The options outstanding at 30 March 2014 were exercisable at prices between £4.27 and £8.41 and had a weighted average remaining contractual life of 2.9 years (2013: 3.0 years). During the year ended 30 March 2014 options were granted on 1 February 2014 (2013: 1 February 2013). The aggregate of the estimated fair values of the options granted on this date is £0.38 million (2013: £0.26 million). The weighted average fair value of options granted in the year is £2.48 (2013: £1.63).

The inputs into the Black-Scholes model for grants during the year are as follows:

The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

2014

2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)


Forfeited during the period (602) 0.83 – –

Exercised during the period (2,211) 0.83 (739) 0.83



2014 2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)


Granted during the period 114,144 6.93 114,363 7.86





2014 2013

Weighted average share price £12.89 £10.96

Weighted average exercise price £8.41 £7.86

Expected volatility 23.70% 20.74%

Expected life in years 3.9 3.9

Risk free rate 1.22% 0.68%

Dividend yield 2.04% 2.14%



109

26 Share-based payments continued Long-term Incentive Plan (‘LTIP’) The LTIP for executive Directors and senior executives was approved at the Annual General Meeting on 28 June 2005 and is described in the Remuneration report on page 54.


The weighted average share price at the date of exercise for share options exercised during the period was £11.21 (2013: £9.01). The options outstanding at 30 March 2014 were exercisable at a price of £0.01, being the nominal value of the ordinary shares, and had a weighted average remaining contractual life of 8.1 years (2013: 8.0 years).

During the year ended 30 March 2014 options were granted on 1 August 2013. The aggregate of the estimated fair values of the options granted on these dates that were expected to vest was £0.6 million. During the year ended 31 March 2013 options were granted on 2 June 2012 and 17 June 2012. The aggregate of the estimated fair values of the options granted on these dates that were expected to vest was £1.76 million. The weighted average fair value of options granted in the year is £2.38 (2013: £8.99).

The fair value of an award of shares under the LTIP has been adjusted to take into account Total Shareholder Return (‘TSR’) as a market-based performance condition, using a pricing model that takes into account expectations about volatility and the correlation of share price returns in the comparator group. The model follows similar principles as the Monte Carlo approach and takes into account that TSR vesting and share price performance are not independent.

The inputs into the fair value models are as follows:

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years at the date of grant. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

2014

2013


(£)

Weighted average

exercise price (£)


(£)

Weighted average

exercise price (£)

Outstanding at beginning of period 1,575,573 0.01 1,173,540 0.01

Granted during the period 274,545 0.01 480,266 0.01



Outstanding at end of period 1,124,633 0.01 1,575,573 0.01


2014 2013

Weighted average share price £11.16 £9.05

Weighted average exercise price £0.01 £0.01

Expected volatility 17.60% 21.70%

Expected life in years 3.0 3.0

Risk free rate 0.62% 0.33%

Dividend yield 1.93% 2.10%

£9.12


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110

27 Retirement benefit schemes Defined contribution schemes The Group contributes towards a number of defined contribution and stakeholder schemes. The assets of these schemes are administered by trustees and held in funds independent from the assets of the Group.

The total cost charged to income of £4,709,000 (2013: £4,037,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans.

Defined benefit schemes At the start of the year, the Group participated in six defined benefit pension schemes: three in the UK, one in the Netherlands, one in Germany, and one in Switzerland. In addition, the Group participates in a multi-employer scheme in the Netherlands. These schemes expose the Group to actuarial risks such as: market (investment) risk, interest rate risk, inflation risk currency risk and longevity risk. They do not expose the Group to any unusual scheme-specific or Group-specific risks.

With effect from 1 January 2013, the Group has adopted the amendments to IAS 19 (Employee benefits) issued by the IASB in June 2011. This amendment has been applied retrospectively, resulting in the restatement of certain previously reported figures.

In the year ended 31 March 2013, financing income in the income statement decreased by £875,000 with a corresponding increase in the actuarial gain recognised in the statement of comprehensive income. The related deferred tax credit in the income statement increased by £201,000, with a corresponding reduction in the deferred tax credit recognised in the statement of comprehensive income. The impact of these changes in the year to 30 March 2014 is not materially different from these figures.

Disclosures relating to UK schemes The Group sponsors the schemes which are funded defined benefit arrangements. Each is a separate trustee administered fund holding the pension scheme assets to meet long-term pension liabilities for past and present employees as at 31 March 2012. The level of retirement benefit is principally based on the final pensionable salary prior to leaving active service, and is linked to changes in inflation up to retirement. The schemes are subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December 2005. This, together with documents issued by the Pensions Regulator, and Guidance Notes adopted by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK. The trustees of the schemes are required to act in the best interest of the schemes’ beneficiaries. The appointment of the trustees is determined by the schemes’ trust documentation.

A full actuarial valuation of each scheme was carried out as at 31 March 2012 in accordance with the scheme funding requirements of the Pensions Act 2004 and the funding of the schemes is agreed between the Group and the trustees in line with those requirements. These in particular require the surplus/deficit to be calculated using prudent, as opposed to best estimate actuarial assumptions. For the purposes of IAS 19 the actuarial valuations as at 31 March 2012, which were carried out by a qualified independent actuary, have been updated on an approximate basis to 31 March 2014. There have been no changes in the valuation methodology adopted for this period's disclosures compared with the previous period's disclosures.

The present value of scheme liabilities is measured by discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit credit method. The value calculated in this way is reflected in the net liability in the balance sheet as shown above. The projected unit credit method is an accrued benefits valuation method in which allowance is made for projected earnings increases. The accumulated benefit obligation is an alternative actuarial measure of the scheme liabilities, whose calculation differs from that under the projected unit credit method in that it includes no assumption for future earnings increases. In assessing this figure for the purpose of these disclosures, allowance has been made for future statutory revaluation of benefits up to retirement.

A further measure of the scheme liabilities is the solvency basis, often taken as an estimate of the cost of buying out the benefits at the balance sheet date with a suitable insurer. This amount represents the amount that would be required to settle the scheme liabilities rather than the Company continuing to fund the ongoing liabilities of the scheme. All actuarial gains and losses will be recognised in the year in which they occur in Other Comprehensive Income (OCI).

The Company has reviewed the implications of the guidance provided by IFRIC 14 and has concluded that it is not necessary to make any adjustments to the IAS 19 figures in respect of an asset ceiling or Minimum Funding Requirement as at 30 March 2014.

Allowance has been made for a pension increase exchange being introduced as an option at retirement in the scheme during the year. The corresponding impact has been recognised as a curtailment gain in the income statement.

2014 £’000

2013 £’000

Synergy Healthcare plc Retirement Benefits Scheme, UK 2,450 2,371

Shiloh Group Pension Scheme, UK 2,622 2,423

Vernon Carus Limited Pension and Assurance Scheme, UK 8,478 7,928

Isotron B.V. Pension and Assurance Scheme, the Netherlands 1,813 1,800

Synergy Health Radeberg, Germany 510 537

Synergy Health Alleshausen, Germany 227 –

Synergy Health Daniken, Switzerland 782 894

16,882 15,953



111

27 Retirement benefit schemes continued

UK scheme-specific disclosures Synergy Health plc Retirement Benefits Scheme. The scheme is a defined benefit (final salary) funded pension scheme. Participation in this scheme is only offered to employees transferring their employment from NHS Trusts. The latest actuarial valuation showed a deficit of £2,348,000. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of 6 years and 9 months from 1 April 2013 by the payment of annual contributions of £348,000 payable quarterly, in respect of the deficit increasing by 3% each year. In addition and in accordance with the actuarial valuation, the Group has agreed with the trustees that it will pay 24.2% of pensionable earnings in respect of the cost of accruing benefits and will meet expenses of the plan and levies to the Pension Protection Fund. The estimated value of liabilities at the date of the last full actuarial valuation prepared for the trustees of the pension scheme as at 31 March 2012 was £14,862,000 compared with assets at the same date of £5,828,000.

Shiloh Group Pension Scheme. The scheme is a defined benefit (final salary) funded pension scheme, which is closed to new members and which ceased accrual of benefits on 31 March 2011. The Group currently pays deficit reduction contributions of £478,000 per annum. The latest actuarial valuation showed a deficit of £3,957,000. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of 6 years and 9 months from 1 April 2013 by the payment of annual contributions of £478,000 payable quarterly in respect of the deficit, increasing by 3% per year. In addition and in accordance with the actuarial valuation, the Group has agreed with the trustees that it will meet expenses of the scheme and levies to the Pension Protection Fund. The estimated value of liabilities at the date of the last full actuarial valuation prepared for the trustees of the pension scheme as at 31 March 2012 was £23,554,000 compared with assets at the same date of £10,580,000.

Vernon-Carus Limited Pension and Assurance Scheme. The scheme is a defined benefit (final salary) funded pension scheme, which is closed to new members and which ceased accrual of benefits on 31 March 2011. The Group currently pays deficit reduction contributions of £1,574,000 per annum. This actuarial valuation showed a deficit of £12,855,000. The Group has agreed with the trustees that it will aim to eliminate the deficit over a period of 6 years and 9 months from 1 April 2013 by the payment of annual contributions of £1,574,000 payable quarterly in respect of the deficit, increasing by 3% each year. In addition and in accordance with the actuarial valuation, the Group has agreed with the trustees that it will pay expenses of the scheme and levies to the Pension Protection Fund. The estimated value of liabilities at the date of the last full actuarial valuation prepared for the trustees of the pension scheme as at 31 March 2012 was £60,964,000 compared with assets at the same date of £27,624,000.

Netherlands scheme The Group sponsors the scheme which is a funded defined benefit arrangement in the Netherlands. This is a separate fund holding the pension scheme assets to meet long term pension liabilities for past and present employees as at 31 March 2013. From 1 January 2013 accrual ceased under the scheme. The scheme is not subject to the UK legislation related to valuation of occupational pension schemes.

For the purposes of IAS 19 the actuarial valuation as at 31 March 2013, has been updated on an approximate basis to 30 March 2014. There have been no changes in the valuation methodology adopted for this period's disclosures compared with the previous period's disclosures.

The present value of plan liabilities is measured by discounting the best estimate of future cash flows to be paid out by the scheme using the defined accrued benefit method. The value calculated in this way is reflected in the net liability in the balance sheet as shown above. All actuarial gains and losses will be recognised in the year in which they occur in Other Comprehensive Income (OCI).

The Company has reviewed the implications of the guidance provided by IFRIC 14 and has concluded that it is not necessary to make any adjustments to the IAS 19 figures in respect of an asset ceiling or Minimum Funding Requirement as at 30 March 2014.

The scheme is a defined benefit (career average salary) funded pension scheme, which is closed to new members and which ceased accrual of benefits on 1 January 2013, giving rise to a prior year curtailment gain of £699,000. An actuarial valuation of the scheme is being carried out at 30 March 2014 by a qualified actuary, independent of the scheme’s sponsoring employer, and the preliminary results are being used for the accounting disclosures.

Other schemes Synergy Radeburg and Synergy Alleshausen Schemes. These schemes are defined benefit funded pension schemes, closed to new entrants. A full actuarial valuation of the scheme was carried out at 30 March 2014 by a qualified independent actuary, independent of the scheme’s sponsoring employer.

Synergy Daniken (previously ‘LSH’) Scheme. The scheme is a defined benefit funded pension scheme. A full actuarial valuation of the scheme was carried out at 30 March 2014 by a qualified independent actuary, independent of the scheme’s sponsoring employer.

Lips Textielservice. Our Dutch linen business participates in a multi-employer industry-wide defined benefit scheme (the ‘Textile Industry Pension Fund‘). Participation in this pension plan is mandatory. The pension scheme is an average pay scheme with a conditional fee (indexation). Indexation of the assets and liabilities granted under the pension scheme takes place only if and insofar as the resources of the fund allow for it and this decision is taken by the pension fund. The pension entitlements under the pension plan are fully reinsured.

The pension scheme is classified as a defined benefit agreement. The main agreements included in the pension plan are as follows:

• The pensionable salary is limited to a maximum, which is adjusted annually based on developments of the applicable legislation (Pension Law);

• The premium payable shall, in consultation with the administration of the fund and Collective Labour agreement parties, be set no lower than a cost-effective premium;

• In adopting higher than the cost-effective contribution, the fund may utilise the surplus for additional buffering under a recovery plan, or additional funding for future indexation or for other purposes as described in the actuarial and business report of the fund;

• The fund may only apply discounts to the cost-effective premium if the pension obligations comply with the legal requirements of the Pension Law;

• In the event of a reserve deficit, the fund may, under specific circumstances, decide to reduce the pension entitlements and rights.


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112


It is not possible to identify the share of the underlying assets, liabilities, and overall surplus/deficit of the scheme attributable to the business, because the scheme is industry-wide. Under the specific exemptions within IAS 19, the scheme is therefore treated as a defined contribution scheme within the Group financial statements. The total cost charged to the income statement in respect of this scheme was £2,044,000 (2013: £2,140,000).

IAS 19 disclosures The disclosures below relate to post-retirement benefit plans in the UK, the Netherlands, and other countries which are accounted for as defined benefit plans in accordance with IAS 19. The valuations used for the IAS 19 disclosures are based on the most recent actuarial valuation undertaken by independent qualified actuaries as updated to take account of the requirements of IAS 19 to assess the deficits of the plans at 30 March each year.

Present values of defined benefit obligations, fair value of assets and deficit:

Reconciliation of opening and closing balances of the fair value of plan assets:

The actual return on pension scheme assets over the period ending 30 March 2014 was £1,109,000 (2013: £4,707,000). The best estimate of contributions to be paid by the Group to defined benefit schemes for the period ending 29 March 2015 is £3,522,000.

Reconciliation of opening and closing balances of the present value of the defined benefit obligations:

2014 £’000

2013 £’000

Fair value of scheme assets 59,769 57,810

Present value of defined benefit obligations (76,651) (73,763)

Deficit in scheme (16,882) (15,953)

Liability recognised in the balance sheet (16,882) (15,953)

2014 £’000

Restated 2013 £’000

Fair value of plan assets at start of period 57,810 51,869

Interest income on assets 2,468 2,177

Actuarial (loss)/gain (1,359) 2,530

Contributions from sponsoring companies 3,245 3,454

Contributions from plan participants 394 626

Benefits paid (2,633) (2,948)

Reclassified from other liabilities 36 –

Exchange adjustments (192) 102

Fair value of plan assets at end of period 59,769 57,810

2014 £’000

2013 £’000

Defined benefit obligations at start of period (73,763) (70,181)

Current service cost (1,087) (1,306)

Interest cost (3,052) (3,209)

Contributions from plan participants (394) (626)

Actuarial losses (1,707) (2,478)

Benefits paid 2,633 2,948

Gains on settlements and curtailments 716 1,219

Reclassified from other liabilities (263) –

Exchange adjustments 266 (130)

Defined benefit obligations at end of period (76,651) (73,763)



113


Total expense recognised in the consolidated income statement:

2014 £’000

Restated 2013

£’000

Current service cost 1,087 1,306

Net interest on pension scheme liabilities 584 1,032

Gains on settlements and curtailments (716) (1,219)

Net charge to income statement 955 1,119

Total amount recognised in the consolidated statement of comprehensive income:

Analysis of the scheme assets:

The assets of these schemes are administered by trustees in funds independent from those of the Group. The scheme assets do not include investments issued by the Group nor any properties occupied by the Group. The overall expected rate of return on the scheme assets has been based on the average expected return for each asset class, weighted by the amount of assets in each class.

Key weighted average assumptions used by the actuary and the Directors for the significant pension schemes:

The plan typically exposes the Group to actuarial risks such as investment risk, interest rate risk, salary growth risk, mortality risk and longevity risk. A decrease in corporate bond yields, a rise in inflation or an increase in life expectancy would result in an increase to scheme liabilities. This would detrimentally impact the balance sheet position and may give rise to increased charges in future P&L accounts. This effect would be partially offset by an increase in the value of the plan’s bond holdings. Additionally, caps on inflationary increases are in place to protect the plan against extreme inflation.

2014 £’000

Restated 2013 £’000

(Loss)/gain on plan assets (excluding amounts included in net interest cost) (1,359) 2,530

Experience gain/(loss) arising on defined benefit obligations 154 585

Effects of changes in the demographic assumptions underlying defined benefit obligations (1,861) 2,746

Effects of changes in the financial assumptions underlying defined benefit obligations – (5,809)

Total amount recognised in consolidated statement of comprehensive income (3,066) 52

2014 £’000

2013 £’000

Equities 19 20

Diversified growth 31,443 31,953

Bonds 21,678 19,362

Other assets 6,298 6,277

Cash 331 198

Total market value of assets 59,769 57,810

2014

% 2013

%

Rate of increase in salaries 2.2 3.2

Inflation 3.1 2.9

Discount rate for liabilities 4.2 4.2


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28 Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. One of the Group’s customers owns a minority share of one of the Group’s subsidiaries. During the year, revenue with this customer amounted to £309,000 (2013: £391,000). An amount payable of £428,000 is outstanding at the end of the year (2013: £422,000).

Remuneration of key management personnel The remuneration of key personnel (including Directors) of Synergy Health plc was:

Key personnel (including Directors) comprise the Executive and Non-Executive Directors, and three senior executives (2013: five). The three senior executives comprise two executives directly responsible for two of the Group’s operating regions, and the Group Company Secretary.

29 Post balance sheet events On 16 May 2014, the Group acquired the entire issued share capital of Bioster SpA, a company incorporated in Italy, gaining control of the company and its subsidiaries (‘Bioster Group’). Bioster Group operates ethylene oxide and electron beam sterilisation facilities in Italy, Slovakia, and the Czech Republic, providing sterilisation services to the medical device, pharmaceutical and packaging industries. In addition, it operates a Hospital Sterilisation Services (‘HSS’) business in Italy. Cash consideration amounted to €29 million net of cash and debt. In the year ended 31 December 2013, Bioster Group recorded revenues of €20.2 million (£16.4 million), and underlying EBIT of €2.6 million (£2.1 million). The business had gross assets of €24.8 million (£20.2 million).

On 14 April 2014 the Synergy Health plant in Rawang, Malaysia experienced a mechanical equipment failure which resulted in a small fire due to product becoming overheated. The incident was fully contained. Safety is of paramount importance and we can confirm there was no risk to employees, the local community or environment at any time during this incident. The Group’s financial losses are expected to be fully insured.

2014 £’000

2013 £’000

Short-term benefits 2,943 3,180

Post-employment benefits 148 190

Share-based payments 2,523 54

5,614 3,424



Company balance sheet At 30 March 2014

115

The Company financial statements on pages 115 to 123 were approved by the Board on 4 June 2014 and signed on its behalf by:

G Hill Director

The notes on pages 116 to 123 form part of these financial statements.

Note 2014 £’000

2013 £’000

Fixed assets

Intangible assets 4 4,630 3,325

Tangible assets 5 101 142

Investments 6 361,386 360,825

366,117 364,292

Current assets

Debtors 7 186,627 197,059

Cash at bank and in hand 2,764 2,056

189,391 199,115

Trade and other payables 8 (77,017) (44,041)

Bank overdraft (110) –

Creditors: amounts falling due within one year (77,127) (44,041)

Net current assets 112,264 155,074

Total assets less current liabilities 478,381 519,366

Creditors: amounts falling due after one year 9 (174,261) (194,692)

Net assets 304,120 324,674

Capital and reserves

Called up share capital 10 368 365

Share premium account 11 89,909 89,098

Merger reserve 11 106,757 106,757

Cash flow hedging reserve 11 (664) (1,385)

Profit and loss account 11 107,750 129,839

Shareholders’ funds 12 304,120 324,674

Company balance sheetAt 30 March 2014


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Financial Statements

Notes to the Company financial statements For the period ended 30 March 2014

116

1 Principal Company accounting policies The term ‘Company’ refers to Synergy Health plc. The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’). As permitted by the Act, the separate financial statements have been prepared in accordance with UK Generally Accepted Accounting Principles (‘UK GAAP’).

The following accounting policies have been applied consistently in dealing with items that are considered material in relation to the Company’s financial statements.

Basis of accounting The financial statements presented under UK GAAP are prepared under the historical cost convention and in accordance with applicable accounting standards.

Under section 408 of the Act, the Company is exempt from the requirement to present its own profit and loss account. The Company’s profit for the financial year is disclosed in note 2.

Intangible assets Intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment losses. Costs incurred in setting up long-term arrangements are capitalised as intangible assets and amortised over the life of the contract to which the costs relate.

Tangible fixed assets and depreciation Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Freehold land is not depreciated. For all assets depreciation is provided on a straight-line basis over the estimated useful lives of the assets.

The estimated useful lives are as follows:

Leasehold improvements Period of lease Plant and machinery 3–20 years Office equipment 3–5 years

Deferred taxation Except where otherwise required by accounting standards, full provision without discounting is made for all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date.

Financial instruments Financial assets and liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.

Trade and other receivables: Trade and other receivables are initially stated at fair value. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Trade and other payables: Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments: Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

Derivative financial instruments and hedge accounting: The Company’s activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates. The Company uses foreign exchange forward contracts and interest rate swap contracts to hedge these exposures. The Company does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Company’s treasury policy as approved by the Board of Directors.

Derivative financial instruments are recognised initially at fair value. The gain or loss on remeasurement to fair value is either recognised immediately in the profit and loss account or, if the underlying derivative qualifies for cash flow hedge accounting, then the gain or loss is recognised in equity to the extent that the hedge is effective.

If the cash flow hedge of a firm commitment or a forecast transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For cash flow hedges that do not result in the recognition of an asset or liability, amounts deferred in equity are recognised in the profit and loss account in the same period in which the hedged item affects the profit and loss account.

When a cash flow hedging instrument expires or is sold, terminated or exercised but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised immediately in the profit and loss account.

Notes to the Company financial statementsFor the period ended 30 March 2014




Notes to the Company financial statements continued

117

1 Principal Company accounting policies continued Retirement benefits Defined contribution pension schemes: The pension costs charged against operating profits are the contributions payable to the schemes in respect of the accounting period.

Leased assets Assets held under hire purchase contracts are capitalised in the balance sheet and depreciated over their expected useful lives.

The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the profit and loss account over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the profit and loss account on a straight-line basis over the lease term.

Investments In the Company’s financial statements, investments in subsidiary undertakings are stated at cost except where they have experienced a permanent diminution in value. Where shares have been issued to acquire a subsidiary, the cost of the investment is the market value of the Company’s shares on the date the transaction took place.

Share-based payments The Company has applied the requirements of FRS 20 ‘Share-based payment’. The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity.

The fair value is measured at the date of grant of the equity-settled share-based payments and is spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using both the Black-Scholes and Monte Carlo models, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to growth in the Company’s Total Shareholder Return not achieving the growth threshold for vesting.

The Company also provides employees with the option to purchase the Company’s ordinary shares at a discount of 20% of market value on the date of grant. The fair value of the options granted is measured using the Black-Scholes model.

In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as at 3 April 2005.

Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements, with the corresponding credit being recognised directly in equity.

Financial guarantees Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

Cash flow Under the provisions of FRS 1 ‘Cash flow statements (revised)’, the Company has not presented a cash flow statement because the consolidated financial statements contain a cash flow statement.


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2 Profit and loss account The Directors have taken advantage of the exemption available under section 408 of the Act and not presented a profit and loss account for the Company alone. A loss of £8,966,000 (2013: profit £1,287,000) is included within the consolidated financial statements. Audit fees and expenses paid to the Company’s auditors were £77,000 (2013: £73,000).

Amounts receivable by the Company’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis in the consolidated financial statements.

3 Dividends

The Board of Directors will recommend to the shareholders a final dividend for the period ended 30 March 2014 of 14.20p (2013: 12.80p).

4 Intangible assets

Software

£’000

Cost

At 1 April 2012 1,826

Additions 1,499

At 31 March 2013 3,325

Additions 1,603

At 30 March 2014 4,928

Amortisation

At 1 April 2012 and 31 March 2013 – Charge for the year (298)

At 30 March 2014 (298)

Net book value At 30 March 2014 4,630

At 31 March 2013 3,325

At 1 April 2012 1,826

2014 £’000

2013 £’000

Amounts recognised as distributions to equity holders in the period:

Final dividend for the period ended 1 April 2012 of 11.18p per share – 6,512

Interim dividend for the period ended 31 March 2013 of 7.90p per share – 4,610

Final dividend for the period ended 31 March 2013 of 12.80p per share 7,521 –

Interim dividend for the period ended 30 March 2014 of 8.57p per share 5,042 –

12,563 11,122




119

5 Tangible fixed assets

The net book value of Company plant, machinery and office equipment includes £nil (2013: £nil) in respect of assets held under finance leases.

6 Fixed asset investments Investments in subsidiary undertakings held by Synergy Health plc as at 30 March 2014 are:

Additions comprise the cost of share options granted to employees of the Company’s subsidiaries.

The Company holds, either directly or through subsidiary companies, 100% (except where shown) of the issued share capital of the following principal subsidiaries:

Short leasehold properties

£’000

Plant, machinery and office

equipment £’000

Total £’000

Cost

At 1 April 2012 78 741 819

Additions – 139 139

Disposals – (279) (279)

At 31 March 2013 78 601 679

Additions – 7 7

At 30 March 2014 78 608 686

Depreciation

At 1 April 2012 78 551 629

Charge for the year – 88 88

Disposals – (180) (180)

At 31 March 2013 78 459 537

Charge for the year – 48 48

At 30 March 2014 78 507 585

Net book value

At 30 March 2014 – 101 101

At 31 March 2013 – 142 142

At 1 April 2012 – 190 190

Shares in Group

undertakings £’000

Balance at 31 March 2013 360,825

Additions 561

Balance at 30 March 2014 361,386

Equity owned by the

Company %

Country of incorporation Principal activity

Synergy Health Holdings Limited 100 England Holding company

Synergy Health Investments Limited 100 England Holding company

Synergy Health Laboratory Services Limited 100 England Laboratory services

Synergy Health Sterilisation UK Limited 100 England Device sterilisation and holding company

Synergy Health Systems Limited 100 England Provision of IT services

Synergy Health (UK) Limited 100 England Healthcare products and services

Synergy Healthcare (UK) Limited 100 England Non-trading

Synergy Health Linen Management Services Limited 100 England Non-trading

Trust Sterile Services Limited 100 England Non-trading

Venture Health Care Limited 100 England Non-trading

Vernon and Co. Limited 100 England Non-trading

Vernon Carus Limited 100 England Non-trading

Synergy Healthcare Limited 100 England Non-trading


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120

6 Fixed asset investments continued The Company holds, either directly or through subsidiary companies, 100% (except where shown) of the issued share capital of the following principal subsidiaries:

Equity owned by

the Company

% Country of

incorporation Principal activity

Synergy Health US Holdings Limited 100 England Non-trading

Grendonstar Distribution Limited 100 England Non-trading

Healthtex Synergy Limited 100 England Non-trading

Drug Test Limited 100 England Non-trading

Isotron Limited 100 England Non-trading

JMJ Laboratories Limited 100 England Non-trading

Synergy Health International Limited 100 England Non-trading

MT Health Limited 100 England Non-trading

Reed Shilling Limited 100 England Non-trading

STS Synergy Limited 100 England Non-trading

Shiloh Limited 100 England Non-trading

Shiloh Mobility Limited 100 England Non-trading

Shiloh Properties Limited 100 England Non-trading

Genon Laboratories Limited 100 England Laboratory services

Synergy Health Ireland Limited 100 Republic of Ireland Medical device sterilisation

Synergy Health Westport Limited 100 Republic of Ireland Medical device sterilisation

Synergy Health France S.A.S. 100 France Holding company

Synergy Health Marseille S.A.S. 100 France Medical device sterilisation

Synergy Health Radeberg GmbH 100 Germany Medical device sterilisation

Synergy Health Allershausen GmbH 62.5 Germany Medical device sterilisation

Gammaster Sweden AB 100 Sweden Non-trading

Vernon Carus (Malta) Limited 100 Malta Non-trading

Synergy Health Ede B.V. 100 The Netherlands Medical device sterilisation

Synergy Health (Europe) B.V. 100 The Netherlands Healthcare products and services

Synergy Health Holding B.V. 100 The Netherlands Holding company

Synergy Health Logistics B.V. 100 The Netherlands Logistics consultant

Synergy Health Nederland B.V. 100 The Netherlands Holding company

Synergy Health Utrecht B.V. 100 The Netherlands Laboratory services

Lips Alkmaar B.V. 100 The Netherlands Provision of linen management services

Lips Duiven B.V. 100 The Netherlands Provision of linen management services

Lips Emmen B.V. 100 The Netherlands Provision of linen management services

Lips Gemert B.V. 100 The Netherlands Provision of linen management services

Lips Gezondheidszorg B.V. 100 The Netherlands Holding company

Lips Goes B.V. 100 The Netherlands Provision of linen management services

Lips Hoorn B.V. 100 The Netherlands Provision of linen management services

Lips Linnenmanagement B.V. 100 The Netherlands Provision of linen management services

Lips Salland B.V. 100 The Netherlands Provision of linen management services

Lips Sittard B.V. 100 The Netherlands Provision of linen management services

Lips Tiel B.V. 100 The Netherlands Provision of linen management services

Lips Voorburg B.V. 100 The Netherlands Provision of linen management services

Synergy Health Amsterdam B.V. 100 The Netherlands Hospital sterilisation

Synergy Health Daniken AG 100 Switzerland Medical device sterilisation

Synergy Decontamination (M) Sdn Bhd 100 Malaysia Hospital sterilisation

Synergy Sterilisation (M) Sdn Bhd 100 Malaysia Medical device sterilisation

Synergy Sterilisation KL (M) Sdn Bhd 100 Malaysia Medical device sterilisation

Synergy Sterilisation Kulim (M) Sdn Bhd 100 Malaysia Medical device sterilisation

Synergy Sterilisation Rawang (M) Sdn Bhd 100 Malaysia Medical device sterilisation

Bizworth Gammarad Sdn Bhd 70 Malaysia Medical device sterilisation

Stellar Saga Sdn Bhd 100 Malaysia Non-trading

Sterilgamma Services Sdn Bhd 100 Malaysia Non-trading

Sterile Service Sdn Bhd 100 Malaysia Non-trading




121

6 Fixed asset investments continued

A full list of the Group companies is available for inspection at the Company’s registered office. All the above companies are included in the consolidated financial statements.

7 Debtors

Deferred taxation

The amounts provided for deferred taxation for the Company are analysed below:

A reduction in the UK corporation tax rate from 24% to 23% (effective from 31 March 2013) was substantively enacted on 5 July 2012, and further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013 . This will reduce the Company's future current tax charge accordingly. The deferred tax liability at 30 March 2014 has been calculated based on the rate of 20% substantively enacted at the balance sheet date.

Equity owned by the

Company %

Country of incorporation Principal activity

SINA-Sterilgamma Sdn-Bhd 40 Malaysia Non-trading

Synergy Health (Thailand) Limited 100 Thailand Medical device sterilisation

Synergy Sterilisation South Africa (Pty) Limited 100 South Africa Medical device sterilisation

Synergy Health (Suzhou) Limited 100 China Hospital sterilisation

Chengdu Synergy Health Laoken Sterilisation Co. Ltd 51 China Hospital sterilisation

Synergy Health (Suzhou) Sterilisation Technologies Limited 100 China Medical device sterilisation

Synergy Health (Hong Kong) Limited 100 Hong Kong Holding company

Synergy Health AST S.R.L. 100 Costa Rica Medical device sterilisation

Synergy Health Outsourcing Solutions Inc 100 US Non-trading

Synergy Health True North LLC 100 US Hospital sterilisation

Synergy Health US Holdings Inc 100 US Holding company

Synergy Health AST LLC 100 US Medical device sterilisation

Synergy Health New York LLC 100 US Hospital sterilisation

Synergy Health North America, Inc 100 US Hospital sterilisation

2014 £’000

2013 £’000

Amounts falling due within one year:

Amounts owed by Group undertakings 172,365 184,449

Prepayments and accrued income 2,907 2,794

Corporation tax receivable 10,689 9,246

Deferred taxation 666 570

186,627 197,059

143,148

2014 £’000

2013 £’000

Balance at 31 March 2013 570 598

Charge to the profit and loss account (70) (28)

Credit to equity 166 –

Balance at 30 March 2014 666 570

2014 £’000

2013 £’000

Accelerated capital allowances (221) (149)

Share-based payments 717 715

Other timing differences 170 4

666 570


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8 Trade and other payables: amounts falling due within one year

9 Creditors: amounts falling due after one year

Bank overdraft facilities of £10 million (2013: £3 million) were available to the Company subject to the Group overdraft pool not exceeding £10 million (2013: £3 million). The Group pool is shared with the Company’s UK subsidiaries. Overall, £1.5 million of the UK overdraft pool was utilised at 30 March 2014 (2013: £nil). Interest rates payable are disclosed in note 19 to the consolidated financial statements.

10 Share capital

Throughout the year, the Company issued 646,711 ordinary shares (2013: 348,732 ordinary shares) of 0.625p in respect of options exercised under share option schemes. Proceeds amounted to £814,000 (2013: £1,736,000).

The difference between the total consideration and the total nominal value of shares issued has been credited to the share premium account.

In the previous period, the Company completed a placing of 2,755,520 ordinary shares of 0.625p at a price of 820p per share, via an accelerated bookbuild placing managed by Investec. The placing raised proceeds of £22,600,000 before expenses.

11 Reserves

The loss in the Company is £8,966,000 (2013: profit £1,287,000) after tax and before dividends.

In the year to 30 March 2008, a surplus arose on a Group reorganisation in the sum of £73,629,000 which was credited to the profit and loss account but was considered to be unrealised and therefore non-distributable.

2014 £’000

2013 £’000

Trade creditors 1,062 669

Amounts owed to Group undertakings 71,569 40,296

Other creditors including taxation and social security 107 92

Accruals and deferred income 3,449 1,599

Derivative financial instruments 830 1,385

77,017 44,041

2014 £’000

2013 £’000

Bank loans and other interest-bearing liabilities 174,261 194,692

Obligations under bank loans

Amounts falling due:

Between one and two years – –

Between two and five years 126,527 194,692

Greater than five years 47,734 –

174,261 194,692

2014 £’000

2013 £’000

Alloted, called up and fully paid

58,519,934 ordinary shares (2013: 55,415,682) of 0.625p each 368 365

Share premium account

£’000

Merger reserve £’000

Cash flow hedging reserve £’000

Profit and loss account

£’000

Balance at 1 April 2012 64,955 106,757 (1,341) 137,347

Profit for the financial year – – – 1,287

Dividends – – – (11,122)

Arising on issue of new share capital 24,143 – – –

Cash flow hedges – derivative instruments – – (44) –

Expense in relation to equity-settled share-based payments – – – 2,327

Balance at 31 March 2013 89,098 106,757 (1,385) 129,839

Loss for the financial year – – – (8,966)

Dividends – – – (12,563)

Arising on issue of new share capital 811 – – –

Purchase of treasury shares – – – –

Issue/allocation of treasury shares – – – (3,046)

Cash flow hedges – derivative instruments – – 721

Expense in relation to equity-settled share-based payments – – – 2,486

Balance at 30 March 2014 89,909 106,757 (664) 107,750




123

12 Reconciliation of movements in shareholders’ funds

13 Financial instruments The disclosure requirements of FRS 29 are covered by the disclosure requirements of IFRS 7 (Financial instruments: disclosures). Financial instruments included in the Company are included in the Group disclosure in note 19 of the consolidated financial statements.

Elements of the interest hedging arrangements described in note 19b to the consolidated financial statements were held in the name of Synergy Health plc. The arrangements are deemed to be fully effective in fixing the interest on the underlying debt and in revaluing them to fair value. The Company has recognised £830,000 in current liabilities and equity (2013: £1,385,000), net of the associated deferred tax amount.

The Directors consider that the fair value of the Company’s financial assets and liabilities is equivalent to the value at which they are carried in the Company’s financial statements.

14 Other commitments Financial guarantees Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee.

15 Pensions The Company operates a number of defined contribution pension schemes for all eligible employees. Company contributions are charged to the profit and loss account in the period in which they relate. The charge for the period in respect of the defined contribution schemes was £167,000 (2013: £148,000).

16 Share-based payments The requirements of FRS 20 ‘Share-based payment’ have been applied to grants of equity instruments made since 7 November 2002 outstanding at 3 April 2005. The disclosure requirements of FRS 20 are identical to those of IFRS 2 ‘Share-based payment’ and share-based payments included in the Company are included in the Group disclosure. Full IFRS 2 disclosures are provided in note 26 to the consolidated financial statements.

The charge in the Company-only accounts in relation to equity-settled share-based payments was £551,000 (2013: £979,000). In addition the Company recognised £561,000 (2013: £821,000) in the cost of investment in its subsidiaries which relates to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity.

2014 £’000

2013 £’000

(Loss)/profit for the financial year (8,966) 1,287

Dividends (12,563) (11,122)

(21,529) (9,835)

New share capital 814 24,162

Expense in relation to share-based payments 2,486 2,327

Cash flow hedges – derivative instruments 721 (44)

Issue/allocation of treasury shares (3,046) –

Net (decrese)/increase in shareholders’ funds (20,554) 16,610

Opening shareholders’ funds 324,674 308,064

Closing shareholders’ funds 304,120 324,674


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Financial calendar

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AGM 23 July 2014

Group results

Interim results announced November 2014

Full year results announced June 2015

Dividend dates

Interim dividend for 2014 announced November 2014

Interim dividend for 2014 payable January 2015

Company registration number: 3355631

Advisors

Registered office: Ground Floor Stella Windmill Hill Business Park Whitehill Way Swindon Wiltshire SN5 6NX

Lead Banker: Barclays Bank plc Park House Newbrick Road Stoke Gifford Bristol BS34 8YU

Registrars: Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS99 6ZZ

Secretary: T C Mason MA, FCIS, MCIPD

Cash Management Providers: HSBC Bank plc 3, Rivergate Temple Quay Bristol BS1 6ER

Brokers: Investec Bank (UK) Ltd 2 Gresham Street London EC2V 7QP

Auditors: KPMG Audit LLP

St Nicholas House Park Row

Nottingham NG1 6FQ

Solicitors: DLA Piper UK LLP Victoria Square House Victoria Square Birmingham B2 4DL

Financial calendar



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Synergy Health plc Annual R

eport and Accounts 2014

Synergy Health plc Head OfficeGroupSynergy Health plcGround Floor StellaWindmill Hill Business ParkWhitehill WaySwindonSN5 6NXTel +44 (0) 1793 [email protected]

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