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#As I have expressed on many occasions, I don't have really what I would call a margin target per se.
I generally speaking do not like seeing things that are under 15% and over 20%, I start thinking about whether or not we are investing appropriately or working appropriately.
But we don't have a cap on margin and we don't have a minimum.
Our job is to try to improve them and create the margins we can create.
We have tremendous value creation capabilities in the life science space and those margins are reflecting that.
They are also reflecting a mix shift, another mix shift which we have been shifting over the years significantly, which is why the margins have improved, to the consumable business.
And then of course, GEPCO is an entirely consumable business, so we saw another step function up in that mix shift.
So I would not characterize that we are trying to move our margins down to 20%.
So we will continue to do the best we can on the production side, the operations side and develop new products that are good for our customers and charge the appropriate prices for that, and as a result create value for them, which creates value for us.
We do, I mentioned earlier on our cost reductions and on product development, we do always try to pass some portion of that back to our customers because we think that is the appropriate thing to do for the long-term.
So it is not like every dollar we save we put in our pockets.
Every dollar we save we either put back into R&D, put it into price ---+ get value creation in price for ourselves, or value creation and price reduction for our customers.
It is a combination of those things.
The only thing I would say different---+ obviously you have the GEPCO acquisition, so you have to put the acquisition into the mix ---+ but the balances of the ---+ so there is an organic, inorganic component.
So the inorganic component popped it up significantly.
But they just had good, strong growth; and you know that we have historically struggled in capital, and capital also grew.
So we had, I will call it the normal growth, I will use the word normal loosely because they had good growth in both service and in consumables.
But we also saw growth in capital, which does not always happen.
Obviously that is an area of opportunity for us in terms of margin improvement.
And since I have already told you I don't like things necessarily under 15, and I start thinking about them over 20, we will be working to improve those margins.
But that is a mixed business, there is laundry in that or linen ---+ the historic linen business of Synergy's in there.
There is historic business that was purchased in the US, and there is a nascent business we are trying to grow in the US.
So it is a mixed bag.
We do anticipate improving those margins over the course of time but part of that is we want to make sure we don't under invest in the growth parts of that business.
All of the ---+ I will call it ongoing businesses, have objectives to improve their margins, some of which is volume, some of which is growth, cost improvement that comes along with growth.
But, we are also making investments in those businesses as we go forward.
We are not going to get into that much detail in Synergy.
We gave the year because in total we had a lot of pressure in the fourth quarter to provide a number and we felt that giving the year was probably the best perspective that we could give.
So I would say the quarter would be no more or less than the year, so it would be similar in that regards.
And pro forma is a difficult term because as you know, in the last five months we have been mixing and matching STERIS and Synergy.
And it is difficult enough for us to determine what is Old Synergy and Old STERIS that we changed our bonus program in the last three months of the year, because we don't feel like we can make those determinations cleanly enough.
And when there is a cost reduction as a result of Synergy, is that Old Synergy or Old STERIS.
When there is revenue growth as a result of us working together, is that Old Synergy, Old STERIS.
The answer is we don't know.
But orders of magnitude as best we can give you, we have given you the STERIS legacy business, and orders of magnitude, we have given you the Synergy legacy business growth rates, total sizes in growth rates and the number for next year, legacy Synergy.
Although there are two reasons there is a range there.
One is there is always a range in forecasting, and the other is it is getting harder and harder for us to tell what is Synergy and what is STERIS, which is a good thing.
That is the power of putting the businesses together.
Sure.
I think you correctly captured the general direction that we have tried to lay out for you for the business as you described.
On the HSS business as I said, we do think ---+ I am going to separate HSS Europe which is largely UK but also has some European component and the HSS business US.
So the HSS business in Europe is a well-established, strong growing business.
We think there is good upside opportunity for both growth and profit growth in a strong business.
There is always some trade-offs in timing and currency right now ---+ currency is not helping us because since that is an all inside the UK, or inside Europe, or largely inside the UK/Europe business, and the pound has not been strong for those two, that has hurt us on a reported basis.
But we do think there is opportunity for growth in both those businesses and it is more routine type of work.
In the US there is an acquisition, acquired businesses in the US, and those businesses are some pieces that we think are good and some pieces that are clearly not having the kind of returns that we would want them to have---+ and we will work to improve those.
And then we have this, for lack of a better term, nascent business that is just getting started, and we are investing more into that than we are getting back out of it.
And that is normal in a startup kind of a business.
So when you put all of that together, I think that is a good description of those businesses.
And we do anticipate improving the profitability of those businesses and growing revenue in those businesses probably more in later years than in earlier years.
But that is our thinking at this point in time.
I think, in the linen businesses which are also in this segment, and as is often the case, that is a tale of two cities.
And Dr.
Steeves, if you look back at his comments over the course of the years, it seems like one year or two or three, the UK business was stronger.
And one year, two or three, the Netherlands business was stronger.
And clearly in this case, the UK business had a strong year and the Netherlands business had a tough year.
And as you have heard from Dr.
Steeves, I think the last year or two, the Netherlands business there is overcapacity in the space, and we are working to reduce our costs appropriately and manage that appropriately.
But, that is a tough business right now.
We didn't see any significant change in our business model or businesses if you will in the UK in the Synergy space, and because that tends to be a turn business if you will, it is a consumable kind of a business, you don't tend to have as much fluctuation in that as you might some other things.
Now we have seen some delays in timing in terms of working on new projects and signing up projects, as there have been changes in NHS.
So there has been that kind of a delay.
But that does not really affect us on a routine basis.
So in the quarter we didn't see anything significant.
<UNK>, as it turns out we were somewhat optimistic in our forecast as we had anticipated that the favorability in the tax rate that we were experiencing through the third quarter would continue and obviously you know that it did not.
In addition, we had the geographic mix and the negative impact of discrete item adjustments or the timing of the discrete item adjustments which we had underestimated their impact on the rate for the quarter.
Part of those discrete items as I gave you an example earlier about the FIN 48, I mean that was just a natural process we were going through in integrating Synergy as we were doing balance sheet, detailed balance sheet reviews.
And obviously with them being on IFRS and now transitioning to US GAAP, there were some variances in the tax rate reserves that we needed to record and needed to record when we had discovered those.
So we really didn't have any opportunity to move those out.
It was really recognize those and put the reserves on when they were discovered.
I can tell you that since November 2, we have obtained the tax benefits from the combination with Synergy and these items that we talked about, the discrete items specifically and also the geographic mix having a full-year of Synergy and understanding their tax positions going into the full-year, we are as confident as ever that the 25% rate will be withstood in fiscal year 2017.
<UNK>, I would argue we will see a bit more variability in our tax rate over the course of the year because these things don't ---+ just the way taxes are recognized, we may get some variation quarter to quarter.
And as a result both of what you are asking the mix issues because we are much better at forecasting what we will sell in general geographic regions or in countries for a year than for a quarter and we are terrible at forecasting it for a month.
It gets harder and harder as you move down because again, our turn business tends to be more stable but our capital business can move pretty significantly.
What we do is when if we are building product it is pretty easy to shift if we are a little light in I will just say the UK and we have shipments for the UK but we can ship that to the US or vice versa, we do that.
And so even though that hits our total numbers correctly on an operating profit, it will shift our tax rates from quarter to quarter or month to month.
But on an annual basis, we will be much better at that than we ---+ where we don't have to phase it, time it and all those things we did this past year.
The problem with that, <UNK>, is we have discrete item adjustments almost every quarter and we are not going to get into that level of detail.
I mean they are not always negative.
In Q2 this year we had a large positive discrete item adjustment which favorably impacted the tax rate.
We are not going to book keep those, we are going to book keep the total adjusted tax rate on an external basis only.
Sure.
First of all, <UNK>, hopefully I tried to at least answer a portion of that question.
We saw our backlog increase roughly $20 million in the quarter year-over-year quarter so that gives you an order of magnitude of the change.
So obviously our orders grew $20 million more than our shipments for the year so for a yearly change that gives you that view.
Secondly, as Mike mentioned or Mike or I both I think mentioned, we have seen somewhat of a shift and this shift happens, it is not an infrequent happening, it happens all the time between major projects, things where we are selling $0.5 million or bigger projects at a time versus individual orders.
I would not say that those orders independently have changed size significantly.
That is the project orders are staying roughly the same size and the replacement orders are staying roughly the same size.
It is just we have seen a shift to more of those project orders.
And Mike, I think you may have the details on that.
We started seeing that about ---+ this is the second quarter in a row we have actually seen that shift which is obviously one of the reasons we are actually seeing the increase in backlog in addition to the level loading.
So we are on about a two quarter trajectory at this point in time and that we made the note of it because it is at this point a change that we have not seen for probably the last year or so.
And then a follow-on on the international things, we are actually seeing some improvement in the pipeline in international but we think it is a little early to call it success so we are being cautious there.
But it at least seems that we have hit the bottom in international in general and now so we are seeing some positive things in the pipeline but we are not ready to declare victory there yet.
We do have some increases in our international business in our plan but they are modest in scope.
There is obviously currency effect.
I want to hold that aside, it is not a big, big number but there is a currency effect.
The second component is we are continuing to see the kind of growth rates we have and would expect to see in the AST business in the high single-digit kind of numbers both on the Synergy side and on the STERIS side or now you really have to characterize it as both on the US business and the O-US business.
So we are seeing that kind of growth and expect to continue to see that for the long-term which is why we are investing in growth capacity in those businesses.
In the linen business, we are not seeing that, we are seeing growth in the UK and actually shrinkage in the Netherlands side of the business so that is not a trivial piece of the business.
And then in the HSS business again, there is the growth in the UK international piece.
We have seen a bit of a slowdown, we do not think that in any way is integration related.
We think it is just the nature of the business at this point in time.
We do expect to see that growth rate pick up over time back to more traditional levels.
When you go to in the US, we are clearly going to be sorting between some of those businesses that is not as that is not as profitable as we would like and the businesses that are more profitable than we would like.
And so just like we have in the past for example in life science, sometimes it is better to shrink a little to grow your profit a little and we are going to be doing that so we can invest appropriately for the growth business that we see as a possibility on the US side.
I think at a high level that is the answer.
I don't think there is any significant disruption if you will as a result of the integration going forward.
I think it is absolutely fair to say for both companies that the 15 months we spent trying to figure out if we would get to come together clearly created ---+ we were both running two plans, what if we do and what if we don't.
And so in those businesses where there is more interaction both the AST business and the HSS businesses, there was some slow down or you had to do two things instead of one thing and so that 15 months we might have lost a little bit of ground on both sides of the business but I don't think it is significant and I don't think it will play significantly going forward.
So it is not something that gives me great concern.
Great questions, <UNK>.
Maybe I will walk three steps, try to break it into three questions.
One, the cost synergies.
Two, what we see in the major chunks of the business, and three, any differences in our views.
First, on the cost synergies, they always come out different from where they are than what we think but they are still coming out to the same number.
So whether it is this department or that department or this item or that item, we continue to feel that the $40 million is achievable.
I personally feel that may even be a little light if you give us a little longer time but we feel the $40 million is achievable.
Timing may not be exactly perfect and I will come back to the why on that a little bit.
The $20 million from this year and from last year let's call it and this year in total we fully expect that we will achieve that so we are not concerned about that at all.
The next year's worth, if some of it slid a little bit, it wouldn't surprise us.
We are getting into finding out that more and more, as is often the case a lot of central office type stuff is IT related and you can only do so many IT things at once.
And so we may have some delay in 2018 or 2019 but we are not talking significant numbers in our view at this point in time so we are not concerned about that at all.
Again, we do feel that we achieved the $40 million ---+ my personal expectation is we do a little better.
In terms of the ---+ so now moving on to that topic in terms of the three big buckets of integration.
The first is I will call it the central office kind of stuff, the relatively easy things that we have done and it is behind us and that is quick.
The longer term central office things are clearly more IT related and it is just work and they were anticipated taking longer time, they were all put out in the 2018 time period and they were predominantly put out any 2018 time period.
But there is a lot of work and we are going to work through it.
We think we will get there, no big surprises, no big deal but it might take us a little bit longer than we anticipated.
On the I will call it the two major business components, quite clearly the AST business that I have already indicated it was in my view and always has been my view that it was the easier integration in that basically you had a US business and an O-US business.
The people in the businesses have known each other, we have not been competitors and so they've known each other for a long time, they go to the same conferences, they do the same things.
So many of our people knew many of their people fairly well and we have a long-term leader in that business, Dan Carestio, who has been in our business for a long, long time, 15 to 16 years.
I may not be quite right but I am close and so that is going I think very well.
I think the upside there is even greater than we anticipated.
On the HSS business, clearly the laundry issues in the Netherlands that Richard Steeves has talked about now for a year or two is clearly there and we think it will continue and we have work to do to improve that.
And then in the US business, I have always felt that there is different people's views on how that is going to go.
I have always talked the nascent business I have always felt it is going to take time and I do still believe it is going to take time to have a material impact on the business.
But I think it is a very, very nice potential long-term opportunity so I don't know that there is a change there but clearly in terms of my view, it is very similar.
I'm trying to think through if there is anything else of significance in those three.
So if I were a betting person, the AST business probably gets a little quicker start than we might have thought and does a little better in the long-term.
The HSS business I think will do as well as we thought but it is going to take a little longer than we thought.
But orders of magnitude hopefully it will be in the same ranges.
And then the currency, probably the biggest issue is currency changed on us.
It was 18 months or now almost two years ago when we were putting this thing together and when we did the deal, the currency clearly changed on us.
The good news is that the deal was constructed in such a way that we paid a cash portion in pounds so we had a partial hedge against that currency change but that has clearly had an effect when you go through the operating segment.
But high-level, that is it.
I think as large integration goes, this one is going about as well as one should expect.
Yes, I would say that our priorities for cash remain the same as <UNK> talked about earlier; dividends, reinvesting in our organic business, M&A if the opportunity does exist or does come forthright.
Obviously we have had a little hiatus on doing any type of M&A activity but the pipeline is still strong and we are probably getting a little more active as we have Synergy under our belt now for the last five months.
And then debt repayment, as we have talked about, we have added that into our prioritization and again as I spoke earlier, we are at about 2.7 times debt to EBITDA and barring any other large M&A opportunities or acquisitions, we would think that over the next 18 to 24 months we would get that back down to more of a STERIS historic level.
Then obviously since we have included no dilution and assume no dilution and our FY17 plan, if nothing else we would try and recoup some of that dilution by potentially repurchasing some shares.
I would say that our combined depreciation and amortization is around $145 million, $150 million.
Obviously we have a significant amount of investments this year.
Those investments as you know and you have followed us for quite some time, we tend to over invest one year, under invest the next.
So I would say again for modeling purposes, I would still use that $150 million-ish as a good guide in total.
