Interim Results

Deltex Medical Group PLC 30 September 2004 30 September 2004 Deltex Medical Group plc Interim Results for Six Months Ended 30 June 2004 Deltex Medical Group plc ('Deltex Medical'/'Group'/'Company'), the AIM listed haemodynamic monitoring company, announces its results for the six month period ended 30 June 2004. Financial Highlights • Trading in line with expectations • Probe sales up by 25% in UK and by 67% in Continental Europe • 500,000 working capital facility agreed with Company's bankers • Net cash outflow for the period halved to £718,000 (2003: £1,435,000). Cash at £370,000 supplemented from receipt of £500,000 through exercise of option and placement of shares by Evolution Securities • Current cash plans indicate cash on hand sufficient to see the Company to profitability Operating Highlights • NHS hospital Chief Executive reports expected savings of £1,000,000 per annum from phase one implementation of CardioQ(TM) as a standard of care • Discussions ongoing with other NHS Trusts regarding adoption of CardioQ(TM) • Hospital implementation audit started in the US; results expected by the end of the year • Results from a government funded clinical trial in Worthing show both clinical and economic benefits • Wholly non-invasive haemodynamic monitoring system, SupraQ(TM), to enter clinical validation in H2 2004 • Focus on key markets with both cash and costs under control • Positive outlook for remainder of 2004 Chairman, Nigel Keen commented: 'In the first half of 2004 we have made significant progress towards our goal of establishing haemodynamic optimisation, using the CardioQ(TM) system, as a standard of care in moderate and major surgery. 'Our focus now is on putting in place the key building blocks to accelerate adoption of our technology in the UK, Continental Europe and in the US. Feedback from doctors and healthcare managers alike suggests that we may have reached the 'tipping point' on the road to mass adoption.' For further information, please contact:- Deltex Medical Group plc 01243 774 837 Nigel Keen, Chairman nigel.keen@deltexmedical.com Andy Hill, Chief Executive andy.hill@deltexmedical.com Ewan Phillips, Finance Director ewan.phillips@deltexmedical.com Financial Dynamics David Yates david.yates@fd.com 0207 831 3113 Lucy Briggs lucy.briggs@fd.com Notes for Editors Deltex Medical manufactures and markets the CardioQ(TM) monitor, which uses disposable ultrasound probes inserted into the oesophagus to determine the amount of blood being pumped around the body - 'circulating blood volume'. Reduced circulating blood volume is known as hypovolaemia, which leads to insufficient oxygen being delivered to the organs. This causes medical complications including peripheral and major organ failure which can lead to death. Hypovolaemia, which is akin to severe dehydration, affects virtually every patient having surgery because of the combined effects of pre-operative starvation, the impact of the anaesthetic agents and trauma from the surgery itself. Using fluids and drugs, guided by the CardioQ(TM), to optimise the amount of circulating blood significantly reduces post-operative complications allowing patients to make a faster, more complete recovery and return home earlier. The CardioQ(TM) incorporates the Company's proprietary software and a small diameter, easy-to-use, minimally invasive, disposable oesophageal probe that is used for transmitting and receiving an ultrasound signal. By using this technology, the CardioQ(TM) provides clinicians with the ability to haemodynamically optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been scientifically proven to improve the speed and quality of patient recovery and reduce hospital stay. There are already over 1,250 CardioQsTM currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 100 clinical publications on the use of the CardioQ(TM) which have repeatedly:- • validated the results of the Monitor against known standards for measuring cardiac output, demonstrating that the technology works • proved that the CardioQ(TM) works in a wide range of surgical procedures • demonstrated that the Company's technology provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays by an average of 25 to 40 per cent for a wide range of patients. Chairman's Statement Introduction Deltex Medical's CardioQ(TM) monitor uses disposable ultrasound probes inserted into the oesophagus through the mouth or nose to determine the amount of blood being pumped around the body - 'circulating blood volume'. Reduced circulating blood volume is known as hypovolaemia and means insufficient oxygen is delivered to the organs. This causes medical complications including peripheral and major organ failure which can lead to death. Hypovolaemia, which is similar to severe dehydration, affects virtually every patient having surgery because of the combined effects of pre-operative starvation, the impact of the anaesthetic agents and trauma from the surgery itself. Guided by the CardioQ(TM) and using fluids and drugs to optimise the amount of circulating blood, doctors can significantly reduce post-operative complications allowing patients to make a faster, more complete recovery and return home earlier. Over 100 clinical papers have been published on the CardioQ(TM), showing that it is safe, accurate, reliable, easy to use and highly effective. Because all patients who are optimised feel better after surgery than those who are not, and because many of them avoid complications which would otherwise keep them in hospital, the clinical benefit translates into shorter hospital stays. The results of randomised controlled trials published in peer review journals show reductions in length of hospital stay for CardioQ(TM) patients of 25% to over 40% across a range of surgical specialities. Thus, adopting use of the CardioQ(TM) empowers hospitals both to improve the quality of care they give and the efficiency with which they give it. The efficiency benefits, proven to be delivered through the effective implementation of the CardioQ(TM) as a standard of care, allow the hospital to choose to: • Increase capacity; or • Reduce costs; or • Redeploy existing resources to meet local priorities. Results Group sales in the six months to 30 June 2004 were in line with our expectations at £1,133,000 compared to £1,079,000 for the same period in 2003. This increase in sales is underpinned by strong growth in probe sales to both our core UK and European markets and even stronger growth in underlying probe consumption in hospitals in these markets. We made good progress in several European countries and for future development of the US market. Sales performance in the rest of world (RoW) territories has continued to decline as we concentrate our resources in those territories such as Europe where we see more opportunity for early growth. The loss for the period was £2,100,000, after an exceptional charge of £650,000 relating to the cost of data collection associated with the previously announced hospital post-procurement audit projects that began in the first quarter of 2004. Without this non-recurring charge, the loss would have been £219,000 lower than the £1,669,000 loss in the corresponding period in 2003. The net cash outflow before financing was halved to £718,000 from £1,435,000 in the corresponding period in 2003. The cash balance at 30 June 2004 was £370,000. Since the period end the Company has received £500,000 from Evolution Securities after they exercised the 2,000,000 million share options they had been granted in 2001 at the time of the Company's listing on AIM, the final 300,000 options having been exercised yesterday at 25p per share and we have recently put in place a £500,000 working capital facility with the Company's bankers. The additional 300,000 new ordinary shares have been placed with investors and will be admitted to trading on AIM on 5 October 2004. Following this, there will be 63,701,957 ordinary shares in issue. The Group's net monthly cash burn rate has reduced significantly over the last two years both as sales have grown and costs have been controlled so as to focus on key markets and products. Markets UK In the UK, which is our most developed market, sales increased by 27% in the period to 30 June 2004 to £718,000 compared to £564,000 in the same period in 2003. Sales of probes increased by over 25% from 6,650 units in the first half of 2003 to 8,376 units in the same period in 2004 although underlying usage was significantly higher than this as key hospitals involved in the management audit projects continued to use probes purchased at the end of 2003. These hospitals have only recently begun to re-order probes for current use. We estimate that the number of patients per day in the UK being treated with a CardioQ(TM) in June was 84, up from 55 in December and 42 last June. Our primary focus in the UK is to accelerate the drive towards haemodynamic optimisation, using our equipment, becoming a standard of care for all moderate and major surgical procedures. Feedback from hospitals undertaking audits of the impact of adopting the CardioQ(TM) on a wide-scale basis and the continuing stream of supportive clinical trials supports the Board's view that Deltex Medical has turned a crucial corner in its development. The question for UK hospitals is no longer to be 'if' they should adopt the CardioQ(TM) on a wide- scale, but 'when'. Continental Europe Volumes of probes sold increased by 47% over the prior period from 2,855 to 4,202 units as we focused on supporting and training users of monitors sold in the last quarter of 2003. Price increases agreed with distributors in 2003 meant that probe revenue increased by 67% to £174,000 with a corresponding improvement in margins. The trend to higher probe volumes from installed monitors is a direct consequence of implementing the operating theatre focused sales strategy developed in the UK and demonstrates that doctors and hospital managers are able to deliver similar clinical and economic improvements in our key European territories to those seen in the UK. Overall, sales in Continental Europe for the period to 30 June 2004 were £249,000, slightly behind sales for the same period in 2003 at £264,000. USA Our strategy in the USA has been to manage down the cost of our presence in this market while consolidating our position in key hospitals. In the first half of 2004 we have made considerable progress towards using our understanding of the economic and clinical drivers behind changes in standards of care to drive progress. We are using the models developed in the UK to enable us to move the first groups of hospitals using the CardioQ(TM) towards adopting the system as a standard of care. Sales for the period were slightly behind those in 2003 at £133,000 and £159,000 respectively; this fall is almost entirely due to lower sterling revenues on a weaker dollar as probe volumes and dollar revenues were virtually flat. Our work with the Veterans Administration Hospital System (VA) in helping undertake a pilot audit of the impact of the wide scale use of our equipment shows early promise and has replicated the sorts of reductions in length of stay seen in the UK. We expect to present the final data towards the end of 2004 to members of the VA senior management team with a view to expanding implementation to further VA sites in 2005. Rest of World The rest of world (RoW) territories (primarily those in the Far East and South America) continued to perform slowly in the first half of 2004 with sales of £33,000 compared to £92,000 in the same period in 2003. Measures to limit investment in these territories begun in 2003 were completed at the end of June 2004 and the decision taken to withdraw in-country support completely from 1 July 2004. Existing distributors will continue to work towards overcoming the barriers to the adoption of haemodynamic optimisation in their respective countries and Deltex Medical will continue to provide support remotely. Major Developments The Medway Maritime Hospital NHS Trust ('Medway') became the first hospital in the UK to implement and audit the impact of the wide scale use of Deltex Medical's CardioQ(TM) system. This project, undertaken by anaesthetists and surgeons and actively supported by the Trust Chief Executive, was wholly funded by the Trust. Over a four month period a number of patients undergoing moderate and major surgery were haemodynamically optimised using the CardioQ(TM) system. The project team analysed the average length of time patients stayed in the hospital after surgery and compared it to data collected from patients undergoing similar procedures prior to the implementation of routine haemodynamic optimisation under the guidance of the CardioQ(TM). This analysis showed that use of the CardioQ(TM) shortened the average hospital stay across a wide range of surgical procedures by more than three days. The Medway Chief Executive has since stated: 'We have used the CardioQ(TM) in around 200 operations in the last four months and have had very good results. It has improved quality of care for patients as they are healthier when they leave theatre, need less post-operative care and get home quicker. 'In addition to improving patient experience it improves efficiency and saves the Trust a considerable amount of money. We are able to treat more patients because they stay in hospital for shorter times. It is a win, win situation. 'The saving of about £1 million a year is the equivalent of the running costs of a ward for a year.' This £1 million saving is from the limited phase one implementation of the CardioQ(TM). Significantly greater savings are expected as implementation is broadened across the hospital. This result confirms that the clinical and economic benefits seen in the highly controlled clinical trial environment can be reproduced in the real, day-to-day world of clinical practice in a typical UK district general hospital. The result also demonstrates that the investment in routine haemodynamic optimisation pays for itself quickly and many times over. Since completion of the Medway audit project in September we have commenced discussions with the Chief Executives and Finance Directors of a number of selected other NHS Trusts. One further Trust has already committed to purchase sufficient CardioQ(TM) monitors to initiate adoption of the CardioQ(TM) as a standard of care. Last December, five Trusts undertook to implement wide scale use of CardioQsTM in ten hospitals and to perform data collection exercises which we agreed to help fund. All of these projects are still ongoing and, unlike Medway, are yet to produce data in formats we could publish. However the anecdotal feedback from doctors, nurses and others responsible for patient care has been almost universally positive. In addition, all the data received to date from each Trust about the impact of the CardioQ(TM) on in-patient journeys supports the conclusion that routine use of the CardioQ(TM) will reduce hospital stays by an average of at least two days per patient. Four of the five Trusts involved, which together operate eight hospitals, have already ordered more probes. The fifth Trust operates four hospitals and has only implemented the CardioQ(TM) in two of these initially; we are now working towards implementation with the other two hospitals in the Trust. The insight we gained into the difficulties of both implementing new technologies and measuring their benefit in the NHS has been applied in further developing our implementation support programmes. The effectiveness of these improvements has been demonstrated by our success at Medway. In May in Europe we launched a new CardioQ(TM) monitoring system dedicated for use on babies and young children. The CardioQPTM and its dedicated probe the KDP is the first minimally invasive monitoring solution for use in babies from 3kg in weight. This new development enables doctors safely to monitor and manage the frequently volatile haemodynamic status of this very vulnerable group of patients. In the first half of the year we completed the regulatory documentation and translation work involved in bringing to market in Europe probe variants previously only available in the UK and began to market some of these in key European territories. In July 2004 we announced that Professor Sir Duncan Nichol had been appointed to the Board as a non-executive director. Duncan Nichol has been an influential figure in the provision of acute health services in the UK throughout his career. He has worked for the NHS for nearly 30 years in a number of senior management roles and was Chief Executive of the NHS from 1989 to 1994. We are delighted to have him as part of our team and look forward to drawing on his expertise to help us to refine further our innovative approach to partnership working with the NHS. Research and Development Our Research and Development effort in the six months to 30 June 2004 has focused on accelerating the development of a wholly non-invasive approach to haemodynamic monitoring. The SupraQ(TM) system enables doctors to measure the same haemodynamic parameters as the CardioQ(TM), without the need for a probe to be inserted into the patient's oesophagus via the mouth or nose. The device uses a small probe held at the base of the patient's throat to 'see' the flow of blood in the body's principal blood vessel and obtain the data required to haemodynamically optimise them. Being able to determine a patient's haemodynamic status non-invasively and in almost any environment represents an enormous opportunity to improve patient care across a very broad range of clinical applications. The SupraQ(TM) complements the CardioQ(TM) as it provides doctors and nurses with a 'snapshot' of a patient's haemodynamic status, enabling them to determine clinical need quickly and safely, often leading to the placement of an oesophageal probe. Prospects Trading in the first half of 2004 has been according to the Board's expectations and we look forward to the second half with confidence. The first six months of the year have focused on putting in place the building blocks for continued growth in the key markets of the UK and Continental Europe. Further clinical trial results and management-led audit data confirming the clinical and economic benefits of the CardioQ(TM) are expected in the second half of the year. We believe that the results from 'real-world' evaluation of our technology represent the 'tipping point' for accelerating the adoption of haemodynamic optimisation as a standard of care in routine moderate and major surgery. There can only be two reasons to purchase a new medical technology; to improve patient care or to improve efficiency in care delivery. The CardioQ(TM) demonstrably does both of these things and in doing so its routine use represents a real opportunity for health care professionals across the world to provide better care for more patients within the economic constraints placed upon them. We remain confident that Deltex Medical is positioned to support doctors and hospital managers in delivering the clinical and economic benefits of haemodynamic optimisation to their patients and as a result we will deliver long-term value to our shareholders. Nigel Keen Chairman 30 September 2004 Consolidated profit and loss account for the six month period ended 30 June 2004 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Turnover 1,133 1,079 3,084 Cost of sales (533) (492) (1,222) --------- --------- --------- Gross profit 600 587 1,862 --------- --------- --------- Net operating expenses - ongoing (2,056) (2,273) (4,287) - exceptional (650) - - --------- --------- --------- (2,706) (2,273) (4,287) --------- --------- --------- Operating loss (2,106) (1,686) (2,425) Interest receivable and similar i*ncome 6 17 29 --------- --------- --------- Loss on ordinary activities before taxation (2,100) (1,669) (2,396) Tax on loss on ordinary activities - - 4 --------- --------- --------- Loss for the financial period (2,100) (1,669) (2,392) ========= ========= ========= Loss per share - basic and diluted (3.4p) (3.8p) (4.7p) ========= ========= ========= The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the period has been computed on the historical cost basis. Statement of group total recognised gains and losses for the six month period ended 30 June 2004 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 --------- --------- --------- Loss for the period (2,100) (1,669) (2,392) Currency translation differences in foreign currency net investment 2 50 (55) --------- --------- --------- (2,098) (1,619) (2,447) ========= ========= ========= Consolidated balance sheet at 30 June 2004 Unaudited Unaudited Audited 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Fixed assets Tangible assets 155 246 191 --------- --------- --------- Current assets Stocks 604 681 572 Debtors 810 929 1,953 Cash at bank and in hand 370 1,819 1,093 --------- --------- --------- 1,784 3,429 3,618 Creditors: Amounts falling due within one year (1,287) (1,146) (1,059) --------- --------- --------- Net current assets 497 2,283 2,559 --------- --------- --------- Net assets 652 2,529 2,750 ========= ========= ========= Capital and reserves Called up share capital 617 561 617 Share premium account 10,381 9,641 10,381 Merger reserve 1,776 1,776 1,776 Profit and loss account (29,598) (26,925) (27,500) Capital redemption reserve 17,476 17,476 17,476 --------- --------- --------- Equity shareholders' funds 652 2,529 2,750 ========= ========= ========= Consolidated cash flow statement for the six month period ended 30 June 2004 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 --------- --------- --------- Net cash outflow from operating activities (780) (1,452) (2,960) --------- --------- --------- Returns on investments and servicing of finance Interest received 6 18 31 Interest paid - (1) (2) --------- --------- --------- Net cash inflow from returns on investments and servicing of finance 6 17 29 --------- --------- --------- Taxation 61 - 36 --------- --------- --------- Capital expenditure Purchase of tangible fixed assets (5) - (45) --------- --------- --------- Net cash outflow for capital expenditure - - (45) --------- --------- --------- Net cash outflow before financing (718) (1,435) (2,940) --------- --------- --------- Financing Issue of ordinary share capital - 1,320 2,161 Expenses in connection with share issue - (87) (132) Capital element of finance lease rentals - - (5) --------- --------- --------- Net cash inflow from financing - 1,233 2,024 --------- --------- --------- Decrease in net cash during the period (718) (202) (916) ========= ========= ========= Notes to the interim statement for the six month period ended 30 June 2004 1. Basis of preparation The financial information for the six months ended 30 June 2004 is not audited but has been prepared in accordance with generally accepted accounting principles in the UK. The accounting policies adopted are those which will be applied in the financial statements for the year ended 31 December 2004. These are consistent with those set out in the audited financial statements for the year ended 31 December 2003. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. 2. Turnover The Group's activities consist solely of the manufacture and marketing of medical devices. By origin, all sales are United Kingdom sales. Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 2004 30 June 2003 31 December 2003 Probes Monitors Total Probes Monitors Total Probes Monitors Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Analysis of turnover by destination Direct Markets United Kingdom 591 127 718 474 90 564 1,320 558 1,878 United States of America 133 - 133 154 5 159 337 20 357 Distributor Markets Rest of Europe 174 75 249 104 160 264 296 358 654 Rest of the World 22 11 33 57 35 92 136 59 195 ------- ------- ------- ------- ------- ------- ------- ------- ------- 920 213 1,133 789 290 1,079 2,089 995 3,084 ======= ======= ======= ======= ======= ======= ======= ======= ======= 3. Exceptional costs Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Post procurement audits 650 - - ========= ========= ========= As outlined in the 2003 Report and Accounts, the Group entered into agreements with several NHS Trusts under which the rights to the use of economic data was to be provided to the Group by these Trusts, after they carried out a post procurement audit, in return for grants from the Group. The clinical activity for these post procurement audits was substantially completed by the Trusts during the first half of 2004. Given the one-off nature of this expenditure and the amount of costs involved, the Directors consider it appropriate to identify the costs as exceptional. 4. Loss per share The loss per share calculation for the six months to 30 June 2004 is based on the loss for the period of £2,100,000 and weighted number of shares in issue of 61.7 million. The loss per share calculation for the year to 31 December 2003 is based on the loss for the financial year of £2,392,000 and weighted average number of shares in issue of 50.8 million. The loss per share calculation for the six month period ended 30 June 2003 was based upon the loss for the period of £1,669,000 and weighted average number of shares in issue of 43.5 million. The Group had no dilutive potential ordinary shares in either period, which would serve to increase the loss per ordinary share. Therefore there is no difference between the loss per ordinary share and the diluted loss per ordinary share. 5. Reconciliation of movements in shareholders' funds Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Opening shareholders' funds 2,750 2,915 2,915 Increase in share capital during the period - 189 275 Premium on shares issued, net of costs - 1,044 1,784 Loss for the financial period (2,100) (1,669) (2,392) UITF 17 charge associated with share options - - 223 Exchange difference taken to reserves 2 50 (55) -------- -------- -------- Closing shareholders' funds 652 2,529 2,750 ======== ======== ======== 6. Called-up share capital 1 pence ordinary shares £'000 At 1 January 2004 and 30 June 2004 617 ======= 7. Reconciliation of operating loss to net cash outflow from operating activities Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Operating loss (2,106) (1,686) (2,425) Depreciation on tangible fixed assets 41 94 186 (Increase)/decrease in stocks (29) (32) 77 Decrease/(increase) in debtors 1,049 (27) (1,029) Increase in creditors 262 199 27 Costs associated with share option scheme - - 223 Foreign exchange differences 3 - (19) -------- -------- -------- Net cash outflow from operating activities (780) (1,452) (2,960) ======== ======== ======== 8. Reconciliation of movement in net cash 1 January Exchange 30 June 2004 Cash flow movement 2004 £'000 £'000 £'000 £'000 Net cash Cash at bank and in hand 1,093 (718) (5) 370 -------- -------- -------- -------- 1,093 (718) (5) 370 ======== ========= ========= ======== 9. Distribution of announcement Copies of this announcement are being sent to all shareholders and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, West Sussex, PO19 8TX. This information is provided by RNS The company news service from the London Stock Exchange

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