Preliminary Results

RNS Number : 6172I

Deltex Medical Group PLC

16 March 2010

 

Deltex Medical Group plc

Preliminary results for the year ended 31 December 2009

16 March 2010 - Deltex Medical Group plc ("Deltex Medical", "Group" or "Company"),the global leader in oesophageal Doppler monitoring (ODM), today announces its preliminary results for the year ended 31 December 2009.

Financial Highlights

Full year:

·      Sales increased by 8% (2009: £5.6m; 2008: £5.2m)

·      Gross margin improved to 75% from 72% in 2008

·      Operating loss reduced by £1.1m (2009: £1.5m; 2008 £2.6m) before £0.6m of exceptional costs

·      Cash consumed by operations halved before one-off payments relating to exceptional items (2009: £1.2m; 2008 £2.4m)

·      Cash at 31 December 2009 of £1.5m

Second half:

·      Sales increased by 9% (H2 2009: £3.04m; H2 2008: £2.78m)

·      Operating expenses reduced by 24% before exceptional items (H2 2009: £2.65m; H2 2008: £3.47m)

·      Operating loss before exceptionals reduced by 74% (H2 2009: £0.37m; H2 2008: £1.43m)

·      Cash consumed by operations before payments relating to exceptional items reduced by 63% (H2 2009: £0.45m; H2 2008: £1.22m)

Operating Highlights

·      Streamlined production processes

·      Improved quality systems and strengthened supply chain management.

·      Improved ease of use of CardioQ-ODM

·      Increased focus on marketing in the USA

·      Implementation guide published by NHS National Technology Adoption Centre since year end

Nigel Keen, Chairman, commented:

"Deltex Medical is entering an exciting phase in its development. Robust clinical evidence, health economic benefit and convergence with key health policy objectives are becoming vitally important pre-requisites of success for developers of innovative medical technologies. Deltex Medical is well positioned to deliver sustainable increases in shareholder value through generating returns on the investments it has made to develop a compelling case in all these areas.

"We made considerable progress in the second half of 2009 with growth in probe sales, particularly in the final quarter, starting to recover from the slow-down in the first half: this momentum has continued in the early part of 2010. Compared to the second half of 2008, Deltex Medical delivered higher sales at better margins on a substantially reduced cost base, thereby consuming significantly less cash."

For further information, please contact:-

Deltex Medical Group plc                                01243 774 837

Nigel Keen, Chairman                                         [e-mail]

Ewan Phillips, Chief Executive                            [e-mail]

Paul Mitchell, Finance Director                            [e-mail]

Nominated Adviser & Broker

Arden Partners plc                                           020 7614 5900

Chris Hardie                                                      [e-mail]

Matthew Armitt                                                  [e-mail]

Kreab Gavin Anderson                                    020 7074 1800

Robert Speed                                                    [e-mail]

Deborah Walter                                                  [e-mail]

Notes for Editors

Deltex Medical manufactures and markets the CardioQ-ODMÔ system. CardioQ-ODM changes the way doctors care for surgical patients allowing them to recover faster and leave hospital sooner and in better health than they otherwise would do. The performance of the system has been validated through independently conducted, randomised controlled clinical trials and is being translated into routine clinical practice in leading hospitals around the world.

CardioQ-ODM comprises a monitor and a single patient disposable probe. The probe is placed into the oesophagus through either the mouth or nose and the tip positioned facing the adjacent descending aorta. A low frequency ultrasound signal, generated by the monitor, is bounced off the blood travelling down the aorta and the Doppler principle is used to determine the velocity of the blood flow, expressed in distance per cardiac cycle - 'Stroke Distance'. The monitor also calculates the amount of time that blood is flowing down the aorta as a proportion of a cardiac cycle - 'Flow Time'.

The monitor uses a validated proprietary nomogram to extrapolate volumetric data (Stroke Volume, Cardiac Output etc) from the directly measured flow velocity. The nomogram utilises the patient's age weight and height, effectively to estimate the size of the aorta in which the velocity of the flow is being measured. Crucially this means that any reported relative change in Stroke Volume is absolutely identical to the relative change in the directly measured flow velocity variable of Stroke Distance. CardioQ-ODM immediately and reliably identifies even very small changes in the blood flow velocity allowing doctors to intevene earlier and on smaller changes than with any other approach.

Intra-operative individualised Doppler guided fluid management entails insertion and focusing of the probe to obtain a baseline reading, giving a small (200 to 250 ml) fluid challenge directly into the vascular system and seeing if Stroke Volume (or Stroke Distance) increases by more than 10%. If the increase is more than 10%, repeat fluid boluses are administered until such time as the increase is less than 10%: after this no further fluid is given unless Stroke Volume falls by more than 10% - the process is designed to achieve and maintain the individual patient's optimal Stroke Volume. CardioQ-ODM is also used during surgery to guide administration of vaso-active agents such as inotropes.

The CardioQ-ODM helps patients by enabling doctors to reduce the complications that arise from a medical condition that is common to almost all patients having surgery and many others in intensive care or arriving in the accident and emergency department. This condition is known as hypovolaemia - a reduction in circulating blood volume - and in surgical patients arises as a direct consequence of the combined effects of pre-operative starvation, the anaesthetic agents and the blood and fluid losses associated with the surgical procedure itself. Hypovolaemia means that the body struggles to get sufficient blood to the tissues and vital organs which are consequently starved of essential oxygen. This can cause medical complications including peripheral and major organ failure, which if not dealt with quickly can lead to severe compromise or even death.

There are already nearly 2,000 CardioQ-ODMs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 200 clinical publications on the use of the CardioQ-ODM which have repeatedly:-

·    Validated the results of CardioQ-ODM against known standards for measuring cardiac output

·    Proved that CardioQ-ODM works in a wide range of surgical procedures

·    Proved that CardioQ-ODM delivers 50% or more reductions in post-operative complications and 25% or more reductions in length of hospital stay: better care at lower cost.

The SupraQÔis an entirely non-invasive device which uses an ultrasound probe held at the base of the patient's neck to track the flow of blood in the aorta; it presents the same data as the CardioQ-ODM in a similar format and is used for taking snapshots or monitoring over short periods.

Chairman's statement

Deltex Medical continued to make progress in all its key markets during 2009 with revenues rising by 8% to £5,640,000. Gross margins increased from 72% to 75% and operating expenses (before exceptional items) were reduced by £625,000 (10%) to £5,689,000. The operating loss before exceptional items was reduced by £1,091,000 (43%) to £1,463,000. After exceptional charges of £555,000 the total operating loss was £2,018,000.

In the first three quarters of 2009 growth was constrained in all our key markets as hospitals reacted to the impact of the global recession by cutting or deferring investment. However, we saw a return towards more normal levels of customer confidence from September and achieved record quarterly probe sales in all business segments in the final quarter. Growth in probe sales has continued in 2010.

Cash used in operations was £711,000 less than in 2008 at £1,701,000, a reduction of almost £1,200,000 after taking account of one-off payments relating to exceptional items. Our plans for 2010 include only a small number of specific increases in our cost base and the effect of these is more than offset by savings made in recent months. Our current total cost base is circa £1,200,000 (16%) a year lower than at its peak and our cash cost base circa £1,500,000 (21%) a year lower. In the second half of 2009 gross profit was higher than cash costs accruing and only modest further sales growth is needed until the Company passes the cash break-even point.

The concept of 'Quality' in modern healthcare is that providing better quality care to patients often results in such care being less expensive and therefore healthcare systems looking to reduce costs should focus efforts on improving quality of care. Quality agendas are emerging as central to health policy in a number of countries including the UK, USA, and Spain where we have a direct sales operation and are underpinned by requirements for evidence of clinical and cost effectiveness of new medical technologies, treatments and processes. The Board believes the Group has both the evidence base and the clinician advocacy to benefit from implementation of these policies.

Our goal is to make oesophageal Doppler monitoring (ODM) a standard of care for patients undergoing major surgery and in intensive care. To achieve system-wide adoption of a new medical technology in most developed health economies, we believe it is now essential to have robust evidence of both clinical benefit and cost effectiveness. ODM is one of the first new medical technologies to be supported by such an evidence base; it has the proven potential to deliver material clinical and economic benefits at system level.

The 2009 publication of a UK government health technology assessment on ODM was followed in January 2010 by the publication of the NHS National Technology Adoption Centre's ('NTAC') 'How to Why to' guide for ODM. This gives hospitals clear guidance on how to implement ODM effectively and has raised the profile of ODM at a time when the NHS is actively considering wider adoption of new medical technologies proven to both improve the quality of care and reduce costs. The NHS has already recommended that "NHS acute trust chief executives may wish to consider how this technology [ODM] can be rapidly implemented into relevant care pathways" and a number of national and local NHS Quality initiatives may provide catalysts for accelerated adoption of ODM.

In the USA there is broad consensus that the health system needs to deliver better outcomes at lower costs. The focus of our work in a small, but growing, number of key US hospitals is to demonstrate to clinicians, administrators and policymakers ways in which ODM helps deliver this goal in practice. In Spain, after a number of delays in starting projects designed by one of the main regional health technology assessment agencies, the first participating hospital bought probes in December 2009 and has started using them to treat patients. Since the year end a further three hospitals have committed to participate. In France, our distributor is supporting a large evaluation by one of the largest hospital purchasing groups of the clinical and economic benefits of CardioQ-ODM.

Deltex Medical is entering an exciting phase in its development. Robust clinical evidence, health economic benefit and convergence with key health policy objectives are becoming vitally important pre-requisites of success for developers of innovative medical technologies. Deltex Medical is well positioned to deliver sustainable increases in shareholder value through generating returns on the investments it has made to develop a compelling case in all these areas.

We made considerable progress in the second half of 2009 with growth in probe sales, particularly in the final quarter, starting to recover from the slow-down in the first half: this momentum has continued in the early part of 2010. Compared to the second half of 2008, Deltex Medical delivered higher sales at better margins on a substantially reduced cost base, thereby consuming significantly less cash.

Nigel Keen

Chairman

16 March 2009

OPERATING REVIEW

Overview

During 2009 Deltex Medical strengthened its position as the global market leader in oesophageal Doppler monitoring (ODM). There is growing recognition from both clinicians and health policy makers that ODM can benefit substantial numbers of patients, the largest group being patients undergoing moderate or major surgery, typically at least one per cent of the population of a developed country each year. ODM during surgery is a simple procedure that is easy to learn and quick to perform meaning that its benefits can be readily implemented into routine clinical practice.

2009 trading performance was affected by the global recession which caused hospitals to delay investment decisions and de-stock meaning that, in the first eight months of the year, the momentum behind the Company's established growth record temporarily stalled before starting to recover in the final quarter. Despite this Deltex Medical increased its sales by 8%, improved its gross margins from 72% to 75% and reduced its operating loss by £536,000. Before exceptional items the Company reduced each of its operating loss and its operating cash consumption by over £1,000,000.

In addition the Company made significant strides in a number of areas necessary to maximise its potential to create value. We have increased our manufacturing efficiency and capability through streamlining our production processes and quality systems and have strengthened our supply chain management. We have made the CardioQ-ODM even easier to use through improvements to the monitor's ability to screen out electrical interference and through re-engineering the disposable probes to improve further their focusing and handling capabilities. We have sharpened our marketing messages to ensure proper differentiation of our products and their evidence base and upgraded our website content. In the second half of 2009 we started a targeted programme in the USA to promote the clinical, economic and health policy implications of system-wide adoption of ODM.

Trading results

Sales

Sales                    2009       2009       2009         2009       2009       2009       2008       2008       2008       2008         2008      2008

                                    Probes Monitors   Probes   Monitors     Other     Total    Probes     Monitors    Probes   Monitors     Other     Total

                                       units      units      £'000        £'000       £'000      £'000       units         units      £'000       £'000      £'000      £'000

Direct markets

UK                               29,290          53     2,430        391        172     2,993   28,880          82     2,359        614        164     3,137

USA                              6,220            2        655          12            6        673     6,495          12        507          65            6        578

Spain                                605            -          69             -            -          69        890             -        102             -             -        102

Distributor markets

Europe                          9,895        104        594        599          18     1,211   12,170          80        661        309            8        978

Rest of world                7,930        102        333        355            6        694     5,500          49        242        194            4        440

                                    53,940        261     4,081     1,357        202     5,640   53,935        223     3,871     1,182        182     5,235

Revenue for the group in 2009 was £5,640,000 compared to £5,235,000 in 2008, an increase of 8%. Revenues in the second half of 2009 were £3,040,000, £440,000 ahead of the first half and £263,000 ahead of the second half of 2008.

Revenue derived from sales of disposable probes was ahead by 5% at £4,081,000 compared to £3,871,000 in 2008. Recurring revenue streams, probe sales plus monitor service and maintenance, accounted for 76% of total Group revenues. Following a poor first quarter, group probe sales were ahead of the corresponding period in each of the second, third and fourth quarters, with record quarterly probe sales in each of the UK, USA and International business segments in the fourth quarter. Almost all of the increase in probe sales came in the second half, mostly in the final quarter.

Sales of CardioQ-ODM monitors were ahead by £175,000 at £1,357,000 (2008: £1,182,000) despite a £223,000 (36%) decline in UK monitor revenue as many NHS hospitals delayed capital expenditure in response to the recession and the expectation of future budget restrictions. Monitor sales to International distributors increased by £451,000 (90%) to £954,000 (2008: £503,000).

Operating results

The operating loss before exceptional items decreased by £1,091,000 (43%) from £2,554,000 in 2008 to £1,463,000 in 2009. This substantial reduction was a product of the increase in revenue, improved margins and reduced operating costs.

Gross margins increased to 75% in 2009 from 72% in 2008 and continues an unbroken trend in improvement since 2001 when gross margins were 46%. The Group's long term target is to achieve and sustain gross margins of 80% or better.

Operating costs, excluding exceptional items, were 10% lower than in 2008 at £5,689,000 after reductions of £127,000 in administrative expenses, £359,000 in sales and marketing costs and £139,000 in research and development costs. These reductions were achieved through rigorous cost control aimed at accelerating profitability but without affecting the long term market penetration potential of ODM.

In the second half of the year operating expenses (excluding exceptional items) were £821,000 lower than in the second half of 2008 at £2,653,000 and, combined with a £244,000 increase in gross profit, this contributed to a £1,065,000 reduction in operating loss before exceptional items from £1,430,000 in the second half to 2008 to £365,000 in the second half of 2009.

Operating costs included £799,000 of non-cash items (2008: £910,000) including charges for share-based payment, depreciation and amortisation. To move through break-even and into profitability the Company aims to generate sufficient contribution from revenues firstly to cover cash costs, then all reported costs. In the second half of 2009, the Group demonstrated substantial progress towards the first of these with gross margin of £2,288,000 over £100,000 ahead of cash costs accruing of £2,174,000 excluding exceptional items.

Exceptional charges totalling £555,000 comprised a number of items relating to former employees including payments in lieu of notice and settlement of two separate pieces of employee litigation against the Company; in both cases the legal advice received recommended settlement at a reasonable level despite the strength of the Company's case because of the risks and costs of potentially long drawn out judicial processes in overseas jurisdictions. The total loss for the year was £569,000 lower in 2009 than 2008 at £1,988,000.

Cash

Cash at 31 December 2009 was £1,480,000.

Total cash consumed by operations during 2009 was £1,701,000. Excluding cash expenditure related to exceptional items, cash consumed by operations, was £1,240,000, a reduction of £1,172,000 from 2008: nearly two-thirds of this reduction was achieved in the second half of the year where cash consumed by operations was £450,000 compared to £1,215,000 in the second half of 2008. Lower cash consumption was achieved both through higher sales and reduced costs while the Company continued to control carefully its working capital.

During the year the Company issued £1,000,000 in convertible loan notes and raised a further £1,900,000 after expenses through a placing of new ordinary shares. In addition the Group's bankers have agreed to increase the maximum amount available under the Group's working capital facility by £250,000 from £500,000 to £750,000.

The Directors are confident that the Company has sufficient cash to see it through to profitability on its current plans as only modest further growth in sales is necessary to achieve cash flow neutrality.

Markets

There are currently two established but distinct clinical applications for the CardioQ-ODM: firstly, to guide fluid management before, during and after surgery and, secondly, to monitor cardiac output in critical care settings.

Individualised Doppler guided fluid management using the CardioQ-ODM is increasingly recognised as a core component of optimal intra-operative care for large numbers of patients undergoing moderate or major surgery or high risk surgical patients. The potential market includes patients likely to be under general or large regional anaesthetic for an hour or more, patients undergoing surgery that involves access to a body cavity, expected significant blood loss or laparoscopic (keyhole) surgery involving insufflation of the abdomen. CardioQ-ODM works as well in awake as in unconscious patients.

The Company estimates the annual potential usage in a developed country to be over 1% of the total population. For example, government records show approximately 550,000 procedures a year in the NHS in England where evidence already indicates benefit from CardioQ-ODM during surgery, compared to a population of circa 50 million. This estimate excludes all paediatric surgery, adult major surgery where there is not yet evidence of benefit such as emergency caesarean section and all surgery performed outside the NHS. To date, CardioQ-ODM has been shown to deliver benefit in every type of surgery in which its use has been evaluated.

In critical care settings, well-equipped hospitals will often have more than one cardiac output monitoring technology available. In this environment, ODM's strengths are that it is quick to set up, easy to use, safe, relatively low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. The market for cardiac output monitoring is several times smaller than that for intra-operative fluid management. While there has been a global trend towards increasing numbers of critical care beds, emerging practice is likely to restrict the growth of this market. For example many critical care patients were traditionally immobilised in intensive care with the sedatives used causing haemodynamic instability; current thinking on best practice is to keep critical care patients awake and mobile as much as possible thereby reducing the clinical need for cardiac output monitoring.

United Kingdom

Between 2003 and 2008 the Company's UK probe revenue grew at an average of 18% per annum, while in 2009 it increased by 3% (£71,000) over 2008 (2009: £2,430,000; 2008: £2,359,000). This growth in probe sales is the net effect of a 18% growth in operating theatre probes and a smaller decline in critical care probes, reflecting the trend both towards less cardiac output monitoring in critical care and greater individualised Doppler guided fluid management during surgery. Sales of CardioQ-ODM monitors in the UK in 2009 were 36% lower than in 2008 (2009: £391,000; 2008: £614,000) with volumes the lowest since 2005. Overall UK sales were £144,000 (5%) lower than in 2008.

Both the slower growth in probe sales and decline in monitor sales were directly linked to NHS hospitals responding to the recession and the promise of future budget restrictions by scaling back capital expenditure, restricting revenue expenditure and de-stocking where possible; almost all the reduction in monitor sales came after the 1 April 2009 start of the new NHS financial year.

While there were positive signs of a return to more normal rates of growth in probe sales in the latter part of 2009, with record quarterly probe sales in the final quarter, it is not clear when or if NHS Trusts might release funds to purchase the large numbers of monitors in our sales pipeline. The Company has responded to the likelihood that NHS capital budgets will be severely constrained for the foreseeable future by introducing new bases of supply through managed care service contracts. Under these the Company supplies monitors, maintenance and training with the hospital committing to a minimum level of probe consumption over a period of three years or more. Probe revenue increased by 50% in 2009 during the first full year of the first such contract at our largest account in the UK.

Probes sales in both January and February 2010 have been ahead of the corresponding months in 2009 and in February 2010 the Company generated more revenue from monitor sales in the UK compared to the corresponding month a year previously for the first time in over a year.

In January 2010 the NHS National Technology Adoption Centre (NTAC) published its comprehensive 'How to Why to' guide on introducing individualised Doppler guided fluid management into the NHS. This guide sets out how to overcome the barriers to CardioQ-ODM adoption experienced in the NHS and includes the results of implementation projects at three hospitals. The focus of this project was on delivering greater productivity through delivering the already proven improvements in quality of clinical care: the key finding was that each of the participating hospitals were able to implement CardioQ-ODM effectively into routine practice and thereby reduce post-operative lengths of hospital stay by an average of four days per patient across a wide range of surgical procedures. They were able to generate further cost savings through reducing use of invasive lines, reducing re-operation rates and reducing re-admission rates.

Senior NHS management have already highlighted NTAC's guide to all NHS Trust chief executives with the recommendation that they consider implementing ODM. NTAC's guide was also highlighted in a recent report by the government Office of Life Sciences.

United States of America

Sales in the USA were £95,000 (16%) ahead of 2008, driven by a £148,000 (29%) increase in probe sales: probe sales comprised over 97% of total sales in the USA where our normal model is to place monitors free of charge in return for higher probe prices. While there was some benefit from the strengthening US dollar, we have continued to expand our business at more attractive prices than achieved historically. Average unit selling prices in local currency were $165 per probe in 2009 compared to $122 in 2005.

We successfully grew our business in all our geographical focus areas and entered 2010 with projects under way at several hospitals which are aimed at generating robust examples of the clinical and economic benefits of CardioQ-ODM in US clinical settings. Our largest account in the USA increased probe spend by over 50% in the year, clearly establishing itself as our largest single account in the world. There have been positive signs of increased uptake in hospitals in the same group since the year end and probe sales in January and February 2010 across the USA continued the growth profile demonstrated by record quarterly probe sales in the final quarter of 2009.

Our objective in the USA is to achieve system-wide adoption of the CardioQ-ODM to guide fluid management during moderate and major surgery. Our strategy is to work with a small number of reputable hospitals to develop the sales and customer service models necessary for deep and broad penetration of individualised Doppler guided fluid management within them while also working centrally to raise awareness of both the clinical and health economic opportunities created by the advances in care enabled by CardioQ-ODM.

Recognition of the important impact of haemodynamic management on surgical outcomes in the USA has for many years been behind that in the UK and Europe, however, there are clear signs of this changing with haemodynamic management featuring more prominently on the agendas of clinical meetings for anesthesiologists and surgeons. At the same time the importance of providing better quality healthcare at low cost is now recognised across the US political spectrum: regardless of the outcome of current healthcare reform legislation, it appears highly probable that comparative effectiveness research (health technology appraisal as developed in the UK by the National Institute for Health and Clinical Excellence (NICE)) will increasingly be bedded into US healthcare reimbursement policy. As ODM already has in place the first broad application US national reimbursement coverage determination to be genuinely evidence-based as well as the required standard of evidence base in the form of a US government funded health technology assessment, the Company is well placed to exploit such developments at both pilot and subsequent roll-out phases.

Progress with translating the US reimbursement policy into practice since the Centers for Medicare and Medicaid Services (CMS) national coverage determination in 2007 has been slow with a clear reluctance on behalf of many of CMS's agents to spend to save. In the second half of 2009 we adopted a more sophisticated approach to supporting reimbursement into actual practice than the more traditional approach followed previously, including increased engagement with both policy makers and local CMS decision makers. Two major national private insurers have already published unequivocal instructions to physicians on how to gain reimbursement for using CardioQ-ODM.

International - direct

After the UK and USA, Spain is the third country in which we sell direct to hospitals rather than through a distributor. The direction of healthcare policy in Spain in recent years has been highly conducive to the CardioQ-ODM offer of evidence-based medicine providing better quality care at lower cost. We are pursuing parallel routes towards system-wide adoption of the CardioQ-ODM during surgery: one clinician-led, the other led by the government agencies responsible for recommending treatments based on health technology assessment.

A group of leading colorectal surgeons are pioneering the introduction of enhanced recovery surgical care bundles in Spain. During 2009, analysis of the results of the implementation of their 14 step programme led them to declare CardioQ-ODM as one of four mandatory steps within the programme due to its demonstrably high impact on patient outcome.

Health technology assessment in Spain in divided between five regional government agencies. Throughout the latter part of 2008 and during 2009 we have worked closely with one of these agencies to support a multi-centre implementation project of CardioQ-ODM across major surgical disciplines. The start of this project was considerably delayed due to uncertainty as to who should pay for our products, data collection and analysis. These delays were exacerbated by the impact of recession on the Spanish economy. However, the first participating hospital purchased probes in the final quarter of 2009 and is now reporting satisfactory progress in treating patients. Since 31 December 2009, three other hospitals have confirmed their commitment to participate in the project and we have reached agreement with one of the other agencies that hospitals in their region can also take part.

Sales in Spain during 2009 were £69,000, a fall of £33,000 compared to 2008. We expect sales to remain 'lumpy' in the short term until either or both of wider roll-out of enhanced recovery surgical protocols and government agency recommendation for wide-scale uptake of ODM.

Since 2007 our work in Germany has been on a semi-direct basis with our staff building relationships with opinion setting clinicians at key hospitals and our distributor providing regulatory and logistical support. This approach has successfully laid the foundations for increased uptake of CardioQ-ODM in Germany in the future on purely clinical grounds. Structural barriers in the German healthcare system to the system-wide adoption of technologies like ODM; whose economic benefit comes through reducing length of hospital stay, are unlikely to be addressed by healthcare reform for several years.

International - distributors

The Group has an active relationship with distributors in over 25 countries, with the ten largest accounting for over 80% of total sales through distributors. These ten cover territories in Europe, Latin America, Australia and the Far East.

Sales to distributors totalled £1,905,000, an increase of £487,000 (34%) over 2008. Most of this increase, £451,000, came from sales of monitors, with the remainder from a small increase in probe sales during the year. Probe sales suffered a slight fall in the first half of the year as a result of general de-stocking by distributors and a temporary drop in probe sales to our French distributor as a result of a six month gap in supplies to their largest customer group due to early fulfilment of the maximum probe volumes under a three year contract. Probe sales in the second half of the year returned to normal patterns and were 20% higher than in the second half of 2008 with the highest ever quarterly probe sales in the final quarter.

Major monitor sales included 40 CardioQ-ODMs in the first half of the year to our French distributor to enable it to support an evaluation by the same large purchasing group with the earlier contract issues. These sales were recognised under a barter arrangement. In the second half of the year we fulfilled an order for 50 CardioQ-ODMs from one of our Middle-Eastern distributors, with over the half the monitors subject to an underlying order from the country's health ministry.

Research and Development

Our research and development ('R&D') activities are focused in two areas: firstly, the further development of our CardioQ-ODM monitors and probes with a particular objective of making them even easier to use in an ever broadening range of settings and applications; secondly research into and development of complementary and new products.

In 2009 we significantly improved the CardioQ-ODM's monitor's ability to screen out interference from noise generated by other medical devices and 'dirty' electrical supplies encountered occasionally in some export markets: we are embedding these improvements into our monitor specification and upgrading monitors installed in hospitals where necessary. We have also significantly improved the handling characteristics of the probe by re-engineering a key component. Both these improvements have been well received by both existing and potential customers.

We continue to develop the totally non-invasive SupraQ monitor in-house and plan to accelerate bringing this to market once the Company is trading cash positively.

Prospects

We have started 2010 with considerable confidence. We have momentum and growing sales in all our key target markets, a lean and effective cost base, improving margins and a large number of well qualified prospects for expansion. We have products that are proven to have high impacts on both clinical and economic outcomes and, now, independent validation that they can be implemented into routine practice to deliver these benefits on a scale that is material at a healthcare system level.

A legacy of the global recession is likely to be that developed healthcare systems will accelerate efforts to provide better quality care at lower costs: recent increases in health spending increasingly look unsustainable. There are already encouraging signs that health policy in several countries will encompass system-wide implementation of medical technologies that improve outcomes and reduce costs, but only if supported by a robust and substantial evidence base. CardioQ-ODM is one of only very few potentially high impact medical technologies to have such an evidence base.

Sales to date in 2010 are ahead of 2009 and have been generated on a reduced cost base. We are therefore delivering continuing reductions in cash consumption by operations and further progress towards profitability.

Ewan Phillips

Chief Executive

16 March 2010

Consolidated statement of comprehensive income

for the year ended 31 December 2009

                                                                                                              Unaudited         Unaudited

                                                                                                                       2009                 2008

                                                                                                                      £'000                £'000

Revenue                                                                                                          5,640                5,235

Cost of sales                                                                                                  (1,414)              (1,475)

Gross profit                                                                                                    4,226                3,760

Administrative expenses                                                                                  (2,919)              (2,667)

Sales and distribution costs                                                                             (3,070)              (3,253)

Research and development costs                                                                        (255)                 (394)

                                                                                                                     (6,244)              (6,314)

Operating loss                                                                                              (2,018)               (2,554)

Analysed as:

Operating loss before exceptional items                                                            (1,463)              (2,554)

Exceptional items                                                                                              (555)                      -

Operating loss                                                                                                (2,018)              (2,554)

Finance income                                                                                                     2                    13

Finance costs                                                                                                   (114)                  (22)

Loss before taxation                                                                                        (2,130)             (2,563)

Tax on loss                                                                                                        142                      6

Loss for the year                                                                                           (1,988)              (2,557)

Other comprehensive income

Exchange differences taken to reserves                                                                 (16)                   28

Other comprehensive income for the year, net of tax                                      (16)                    28

Total comprehensive income for the year                                                    (2,004)              (2,529)

Loss per share - basic and diluted                                                                      (1.9p)                (2.6p)

Consolidated balance sheet

at 31 December 2009

                                                                                                              Unaudited         Unaudited

                                                                                                                       2009                 2008

                                                                                                                      £'000                £'000

Assets

Non-current assets

Property, plant and equipment                                                                             232                  180

Intangible assets                                                                                                263                  160

Trade and other receivables                                                                                 326                  328

Total non-current assets                                                                                   821                  668

Current assets

Inventories                                                                                                         492                  681

Trade and other receivables                                                                              2,037               1,593

Current income tax recoverable                                                                            148                     6

Cash and cash equivalents                                                                               1,480                  475

Total current assets                                                                                       4,157                2,755

Total assets                                                                                                   4,978                3,423

Liabilities

Current liabilities

Borrowings                                                                                                        (526)                (497)

Trade and other payables                                                                                (1,271)              (1,499)

Total current liabilities                                                                                 (1,797)              (1,996)

Non - current liabilities

Borrowings                                                                                                     (1,304)                (370)

Provisions for other liabilities and charges                                                              (78)                  (73)

Total non - current liabilities                                                                       (1,382)                  (443)

Total liabilities                                                                                             (3,179)               (2,439)

Net assets                                                                                                      1,799                   984

Equity

Share capital                                                                                                   1,269                1,004

Share premium                                                                                              19,974               18,110

Capital redemption reserve                                                                              17,476               17,476

Other reserves                                                                                                 2,399                 1,709

Translation reserve                                                                                               11                      27

Retained deficit                                                                                             (39,330)             (37,342)

Total equity                                                                                                   1,799                    984

Consolidated statement of cash flows

for the year ended 31 December 2009

                                                                                                              Unaudited         Unaudited

                                                                                                                       2009                 2008

                                                                                                                      £'000                £'000

Cash flows from operating activities

Operating loss                                                                                                (2,018)             (2,554)

Depreciation of property, plant & equipment                                                            55                    30

Capitalisation of clinical trial costs                                                                      (272)                   (70)

Amortisation of clinical trial costs                                                                         158                   171

Exchange gain on clinical trial costs                                                                       (7)                      -

Amortisation of intangibles                                                                                    40                     35

Exchange loss on fixed assets                                                                                5                      2

Earnings before interest, tax, depreciation and amortisation                                (2,039)              (2,386)

Cost of equity settled share schemes                                                                   690                   367

Operating cash flows before movements in working capital                                 (1,349)               (2,109)

Decrease/(increase) in inventories                                                                          75                  (190)

Increase in trade and other receivables                                                                (321)                  (426)

Decrease/(increase) in trade and other payables                                                  (111)                   227

Increase/(decrease) in provisions                                                                             5                      (4)

Cash used in operations                                                                                  (1,701)               (2,412)

Interest paid                                                                                                        (68)                    (22)

Income taxes received                                                                                             -                      47

Net cash used in operating activities                                                                 (1,769)                (2,387)

Analysed as:

Net cash used in operating activities before exceptional items                            (1,308)                 (2,387)

Exceptional items                                                                                              (461)                        -

Net cash used in operating activities                                                                 (1,769)                 (2,387)

Cash flows from investing activities

Purchase of property, plant & equipment                                                             (112)                    (171)

Capitalised development expenditure                                                                   (143)                       (5)

Interest received                                                                                                     2                       13

Net cash used in investing activities                                                                    (253)                    (163)

Cash flows from financing activities

Issue of ordinary share capital                                                                           2,237                   1,773

Expenses in connection with share issue                                                            (108)                        (7)

Proceeds from increase in borrowings                                                                1,002                      464

Effect of exchange rate fluctuations on borrowings                                                  (36)                         -

Expenses in connection with new borrowing                                                          (44)                          -

Repayment of obligations under finance leases                                                        (5)                        (4)

Net cash generated from financing activities                                                       3,046                    2,226

Net increase/(decrease) in cash and cash equivalents                                         1,024                     (324)

Cash and cash equivalents at beginning of the year                                               475                       763

Effect of exchange rate fluctuations on cash held                                                  (19)                         36

Cash and cash equivalents at end of the year                                                     1,480                       475

1   Nature of the financial information

The financial statements for Deltex Medical Group plc have yet to be approved for the year ended 31 December 2009. The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2009 or 31 December 2008. The financial information for the year ended 31 December 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2009 are expected to be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The preliminary results have been prepared in accordance with applicable accounting standards underInternational Financial Reporting Standards (IFRS).

2   Segmental information

The unaudited segment results for the year ended 31 December 2009 are as follows:

	UK £'000	USA £'000	International £'000	Spain £'000	Exceptional £'000	Unallocated £'000	Total £'000
Total segment revenue	3,362	673	1,905	69	-	-	6,009
Inter segment revenue	(369)	-	-	-	-	-	(369)
Group revenue	2,993	673	1,905	69	-	-	5,640
Segment/operating result	838	(340)	547	(181)	(555)	(2,327)	(2,018)
Finance income							2
Finance costs							(114)
Loss before taxation							(2,130)
Tax on loss							142
Loss for the financial year							(1,988)

Included within unaudited segment/operating result are the following significant non-cash items:

                                                       UK               USA               International                  Spain       Unallocated        Total

                                                   £'000             £'000                          £'000                  £'000              £'000           £'000

Depreciation                                      7                  26                                 3                        -                  59                 95

Share based payments                 233                  11                             143                        -                 303              690

Accrued equity settled bonuses     75                     -                               46                        -                  24              145

3   Dividends

The directors do not recommend payment of a dividend (2008: nil).

4   Loss per share

Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares issued during the year. The Group had no dilutive potential ordinary shares in either year, 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.

The loss per share calculation for 2009 is based on the loss of £1,988,000 and weighted average number of shares in issue of 105,393,193. For 2008 the loss per share calculation was based upon the loss of £2,557,000 and weighted average number of shares in issue of 96,849,319.

5   Distribution of the 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. Copies of the Report and Accounts for the year ended 31 December 2009 will be sent to shareholders in due course. Both this announcement and the Report and Accounts (when released) will be available to download from the Company's website free of charge at www.deltexmedical.com.

 

END

 

 

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