Final Results

Deltex Medical Group PLC 07 April 2008 Deltex Medical Group plc Preliminary results for the year ended 31 December 2007 7 April 2008 - Deltex Medical Group plc ('Deltex Medical' or 'Company'), the UK's leading haemodynamic monitoring company, today announces its preliminary results for the year ended 31 December 2007. Financial Highlights •Turnover increased by 18.7% to £4,168,000 (2006: £3,511,000), with growth in all key territories •UK surgical probe sales up over 50% •USA probe sales up nearly 50% •Recurring orders from key International distributors up 45% •Gross margin improved to 70.0% from 66.3% •Operating loss after investment in gearing up for next stage of growth £2.2million (2006: £2.0million) •Cash of £763,000 •Next phase of US expansion to be financed by £666,667 of committed new equity capital from a US development fund at 22.0p per share Operating Highlights •CardioQ(TM) established as a standard of care in fast-track surgery in two key London teaching hospitals •UK surgical probe sales overtook intensive care probes sales in the second half •CardioQ at the top of the UK NHS innovation agenda •Rapid implementation recommended by UK health minister •First physician payments made under new reimbursement regime in USA •Largest and most successful implementation project ever undertaken completed in USA •Colorectal surgeons in Spain embark on the largest audit of CardioQ in fast-track surgery •Probe manufacturing capacity doubled •New 'I2' awake patient probe launched - significantly expanding opportunity Nigel Keen, Chairman of Deltex Medical, said: 'Deltex Medical made significant progress during 2007 in all its key markets, with major milestones in market development achieved in the USA. 'The momentum driving sales growth in 2007 has been maintained into 2008 and the first quarter of 2008 has seen a number of significant events that will enable the Company to sustain and build upon 2007's progress throughout 2008. Not least of these is the first reimbursement of doctors for use of the CardioQ in operating theatres in the United States.' For further information, please contact:- Deltex Medical Group plc 01243 774 837 Nigel Keen, Chairman njk@deltexmedical.com Andy Hill, Chief Executive ahill@deltexmedical.com Ewan Phillips, Finance Director eap@deltexmedical.com Gavin Anderson & Company 0207 554 1400 Deborah Walter dwalter@gavinanderson.co.uk Robert Speed rspeed@gavinanderson.co.uk Stuart Macaulay smacaulay@gavinanderson.co.uk Charles Stanley Securities Nominated Advisors 020 7149 6000 Philip Davies philip.davies@csysecurities.com Russell Cook russell.cook@csysecurities.com Notes for Editors Deltex Medical manufactures and markets the CardioQ monitor, which uses disposable ultra-sound 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, 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 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 ultra-sound signal. By using this technology, the CardioQ provides clinicians with the ability to optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been proven to improve the speed and quality of patient recovery and reduce hospital stay. There are already around 1,500 CardioQs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 90 clinical publications on the use of the CardioQ 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 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 of between 30 and 40 per cent for a wide range of patients. The SupraQ is 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 in a similar format and is used for taking snapshots or monitoring over short periods. Chairman's Statement Deltex Medical made significant progress in 2007, achieving sustained and accelerating growth in each of its key markets. Revenue for the Group increased by just under 19% from £3,511,000 in 2006 to £4,168,000. Sales of disposable probes which amounted to £3,185,000 accounted for 76% of total revenue. In the second half of the year in the UK, our home market, sales of surgical probes overtook those for intensive care for the first time. The UK surgical probe business grew by approximately 55% over 2006. Cash at the year-end and operating losses for the period were in line with expectations at £763,000 and £2,223,000 respectively. Cash consumption for the year was also in line with the Company's expectations as the Company started to reconfigure its operations in anticipation of its next phase of growth. Group Summary Deltex Medical's CardioQ(TM) oesophageal Doppler monitor (ODM) is changing the way doctors care for patients having major surgery or who are in intensive care. Scientific evidence of the highest quality from independently conducted, randomised controlled clinical trials, is being translated into routine clinical practice in leading hospitals around the world and as a consequence patients are recovering from their surgery faster and leaving hospital sooner and in better health than they otherwise would do. The weight of evidence supporting the routine use of the CardioQ is so overwhelming that a US Government-commissioned technology assessment published early in 2007 stated that its use in surgery leads to a 'clinically significant reduction in major complications', 'a clinically significant reduction in the total number of complications' and 'to a reduction in hospital stay'. The evidence supporting each of these conclusions was considered to be 'strong'. Strong in the setting of a formal technology assessment is defined as: 'Evidence supporting the qualitative conclusion is convincing. It is highly unlikely that new evidence will lead to a change in this conclusion'. Based on this technology assessment, the US Government agency responsible for healthcare for the elderly and the poor, the Centers for Medicare and Medicaid Services (CMS), determined that use of the CardioQ was 'reasonable and necessary' and that the proven benefits warranted doctors being paid ('reimbursed') for using it in Medicare and Medicaid patients. Already, private insurers are following the CMS lead and are reimbursing doctors that manage their patients using the CardioQ. In the UK, two world-renowned London teaching hospitals have made use of the CardioQ routine practice (that is, a standard of care) within their enhanced surgical recovery programmes for patients having major bowel surgery. Similar care packages are being developed for other major surgical procedures performed at these hospitals. Many other hospitals, district general and large teaching instutions alike, are working towards implementation of surgical care packages that incorporate routine use of the CardioQ. Doctors and healthcare administrators around the world are increasingly aware of the potential health and economic benefits of wide-scale adoption of the CardioQ in their hospitals. Our primary role is to faciliate implementation of the CardioQ as a standard of care through a programme of structured education, training and post-implementation support that enables doctors to help their patients recover more fully and more quickly from their surgery and hospital managers to provide a better quality of care more efficiently and more cost effectively. The CardioQ 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 used to put the patient to sleep 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. The body compensates for developing hypovolaemia through the sequential shut down of the circulatory system and diversion of blood to critical organs. This helps to maintain blood pressure at normal levels and preserve oxygen delivery to those organs at the expense of other systems. The CardioQ uses disposable ultrasound probes placed in the oesophagus to measure real-time blood flow which is an earlier and much more sensitive indicator of changes in circulating blood volume than blood pressure. This allows the doctor to detect and deal rapidly with the early stages of hypovlaemia before it becomes a clinical problem. In contrast, blood pressure-based monitoring systems, however sophisticated, are unable to detect hypvolaemia until it is so severe that the body's compensatory mechanism begins to fail, at which point the patient is in a critical condition. Trading Results Sales 2007 2007 2007 2007 2007 2007 2006 2006 2006 2006 2006 2006 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 CardioQ 25,730 60 2,041 398 135 2,574 24,075 53 1,837 324 124 2,285 UK SupraQ - 3 - 60 - 60 - 14 - 280 - 280 ----------------------------------------------------------------------------------------------------- UK total 25,730 63 2,041 458 135 2,634 24,075 67 1,837 604 124 2,565 USA 7,075 12 518 63 6 587 4,760 11 349 58 5 412 Spain 520 9 50 85 1 136 110 - 12 - - 12 Distributor markets Europe 9,400 25 436 102 6 544 5,515 6 264 25 11 300 Far East & Latin 4,240 36 140 122 5 267 4,730 15 170 51 1 222 America ----------------------------------------------------------------------------------------------------- 46,965 145 3,185 830 153 4,168 39,190 99 2,632 738 141 3,511 ----------------------------------------------------------------------------------------------------- Sales Revenue for the group in 2007 was £4,168,000 compared to £3,511,000 in 2006, an increase of almost 19%. Revenue derived from sales of disposable probes was ahead by 21% over the prior period (2007: £3,185,000; 2006: £2,632,000). These results demonstrate continued strong growth in demand and uptake of the CardioQ's offering. Revenue generated from sales of CardioQ monitors was up by 68% from £458,000 in 2006 to £770,000 in 2007, with a notable increase in larger, multiple monitor installations as hospitals seek to implement use of the CardioQ as a standard of care in major surgical procedures and in intensive care. The Company continued its policy of selling SupraQs to hospitals willing and able to undertake research into establishing potential markets for this wholly non-invasive technology as part of the the development programme. Excluding SupraQ sales, Group sales grew by 27% year on year. Cash Cash on hand at the end of the period was £763,000. Cash consumption in the second half of the year and the underlying rate of cash burn going into 2008 were in line with the Company's plans. The sales growth delivered in the Companies key markets equated to an increase of an average £64,000 per month in the revenue run-rate: these increases in invoiced sales translate in due course into larger regular cash in-flows. Over the year the Company made a small number of selective increases in the underlying cost base (i.e. the normalised run-rate of costs): net of areas where the Company reduced its cost base, these increases were considerably lower than the increase in the underlying revenue run-rate, meaning the Company made significant continued progress towards eliminating its underlying cash burn. After taking account of the cash needed to fund the remaining underlying cash burn, the Company continued to use the remaining cash available to it to invest in development projects and one-off items aimed at creating longer term value. Despite this continued reduction in underlying cash burn, total cash consumption before financing was £2,231,000, £529,000 higher than in 2006 (£1,702,000). Cash consumption included a net increase in working capital of £302,000 and expenditure on a number of key projects aimed at positioning the Company for its next phase of growth. These included the costs of developing and launching the new I2 range of probes; developing the next generation monitor, the CardioQ-ODM(TM), which is to be released shortly; extending the clean room in which we build probes so as to double its capacity; developing and building prototypes of the next generation SupraQ monitor; bringing in-house the first of a series of sub-assembly processes as the Company moves towards increased automation of probe manufacture and undertaking a project to totally redesign the probe ultrasound componentry to make it more suited to mass production as well as continuing the trend towards increased margins. The Directors expect to continue to invest in these and other important medium and long-term projects over time depending on the cash and other resources available to the Company at any given point. The Company announces today that it has accepted an irrevocable undertaking from Nexus Medical Partners II, LP to subscribe for 3,030,303 ordinary shares of 1p each at a price of 22.0p per share to raise £666,667. The funds to be invested are specifically for use in expanding the US market, including the hiring of additional management and field staff in key locations to manage and support the growing demand for the Company's products. The funds are managed by Nexus Medical Partners on behalf of a US State Government to promote economic development. The undertaking has been accepted by the Company subject to appropriate approvals being obtained at the Company's forthcoming Annual General Meeting and assumes no material adverse changes in the Company's business prior to the shares being issued. Ed Snape, a non-executive director of Deltex Medical, is also a principal of Nexus Medical Partners. The shares will rank pari passu with the existing issued shares of the Company. This allotment is conditional on the appropriate authorities being received at the next general meeting of the Company. Following the issue of these new shares, subject to no changes, the Company will have a total of 95,931,956 ordinary shares in issue. This total includes an allotment of 413,746 new ordinary shares which are also subject to approval at the next general meeting of the Company as announced on 25 January 2008. Application will be made for these shares to be admitted to trading on the Alternative Investment Market. Operating results Operating losses for the year were £2,223,000 compared to £2,014,000 in 2006. As well as the impact of the one-off longer term investment projects noted above, this operating result is after a number of non-cash accounting charges, including £328,000 for share based payment, £244,000 charges in respect of research work undertaken by hospitals under barter arrangements and movements on all provisions of £89,000. Markets Deltex Medical sells its products directly to hospitals, using its own team of sales people and clinical trainers in the United Kingdom, the United States of America and in Spain. Early in 2008 we took the first step towards establishing a 'direct' presence in Germany, taking in-house responsibility for sales and training while engaging the help of a distributor for regulatory and logistical support. In all other territories we work with a network of distributors which we support through a small UK-based sales and clinical training team. Our goal is to achieve market leadership in the provision of systems for haemodynamic management through successful sales operations in each of the UK, USA, France, Germany and Japan - the leading healthcare markets in the world today - and become recognised as a leading global medical technology company through innovation both in technology and in delivering that technology to the end user. United Kingdom Sales of CardioQ monitors specifically for use in operating theatres were ahead of the prior year despite the UK NHS focusing its efforts on restricting spend in March in response to political pressure to produce a surplus at the year-end. Sales of surgical probes in 2007 reflected the accelerating adoption of routine use in the operating theatre and in particular as part of emerging enhanced recovery surgical care protocols. In the second half of the year surgical probe sales volumes overtook intensive care probe volumes for the first time. In 2007 we sold 14,415 surgical probes compared to 10,440 in 2006, an increase of 38% in the number of patients treated. The underlying increase in surgical probe sales run-rate, the amount of probes sold each month, over the course of the year was in excess of 50% - a remarkably strong performance in a very difficult market. In the UK critical care market, the Company saw a decline in its probe sales of approximately £128,000. This was caused primarily by a trend amongst UK doctors to try to keep patients awake and spontaneously breathing as much as possible while in intensive care. The I2 probe range launched in September 2007 has meant the CardioQ can now be used on those patients in intensive care who are now awake but would previously have been sedated. Despite this fall in probe volumes the CardioQ remains the cardiac output monitoring technology of choice in a majority of UK intensive care units: indeed the Company expects the forthcoming results of a survey of critical care units in England and Wales to show that the Company has further extended its leading position in this market. During 2007 use of the CardioQ has been established as part of the written standard treatment protocols in colorectal surgery at two of London's most important teaching hospitals: University College London Hospital (UCLH) and St Thomas' Hospital. The CardioQ has played a central role in the success to date of the 'ESTREP' enhanced recovery programme jointly developed between surgeons at the two sites. After six months ESTREP had already delivered reductions in average lengths of hospital stay of nearly a half for colorectal surgery. Both sites are in the process of rolling the ESTREP programme out into other surgical disciplines. Applying a similar programme to that developed at UCLH and St Thomas' Hospital, surgeons and anaesthetists from Darent Valley hospital in Kent have seen material reductions in length of hospital stay and the time patients take to get back to normal function after major bowel surgery. Patients treated using a combination of minimally invasive surgical techniques and the CardioQ in the context of an enhanced recovery programme left hospital on average after five days and reported themselves feeling fully recovered after a further seven days: a total of 12 days. By contrast patients treated with open surgery, no CardioQ and outside the enhanced recovery programme only left hospital after an average of 11 days (compared to an NHS average of 13 days), before needing another 29 days to feel fully recovered from the surgery: a total of 40 days. This means that on average a patient treated under this new surgical protocol is 'back to normal' (i.e back at work) before the average patient in the NHS has even been discharged from hospital. While the CardioQ is only responsible for some of this transformational change, it is better supported by clinical evidence than either enhanced recovery techniques or laparoscopic surgery and the cost of treating a patient with the CardioQ is only a fraction of the cost of laparoscopic surgery. Despite the many practical issues facing UK doctors and healthcare managers wishing to implement routine use of any new medical device technology as a standard of care we have seen consistent and sustained growth in our operating theatre business since its launch in 2003 and the Directors believe that ours has been the fastest growing new broad application technology in NHS hospitals since at least 2003. It is the Directors' opinion that the success of our efforts in growing this business on the basis of both compelling clinical and economic stories has resulted in the CardioQ being chosen as a 'trailblazer' technology for two new initiatives established by the Department of Health and the NHS - the Centre for Evidence-based Purchasing and the National Technology Adoption Hub. The Centre for Evidence-based Purchasing (CEP) aims to evaluate new technologies and determine their merit based on objective analysis of published clinical data through a process of technology assessment similar to that undertaken on oesophageal Doppler monitoring in the USA by the Agency for Health Research and Policy (AHRQ). It is anticipated that CEP will become the medical device equivalent of the National Institute for Health and Clinical Excellence (NICE) and that its recommendations will drive accelerated uptake of proven technologies within the NHS. CEP has commissioned a technology assessment of oesophageal Doppler monitoring from the Health Economic Research Unit at Aberdeen University and is expected to publish its recommendations in 2008. The Aberdeen report is currently scheduled for publication in October and CEP have indicated that their own report may be published earlier than this. In parallel with the CEP initiative, the Department of Health and NHS established the NHS National Technology Adoption Hub in 2007. This body aims to examine and recommend ways to overcome the practical issues that slow the implementation of proven new medical technologies at the operational level within the NHS. The mission of the NTAH is: '...to work directly with the NHS at a clinical, managerial and procurement level to identify and overcome the barriers to adoption for innovative technologies which have already demonstrated clear benefits to patients and will improve system efficiency.' In selecting CardioQ as one of its first ever wave of projects, the NTAH project selection panel initially considered a list of 24 technologies put forward by a variety of NHS bodies including CEP, NICE, UKHTA (the UK Government's health technology assessment agency), the NHS National Innovation Centre and the NHS Institute for Innovation and Improvement. After an initial review these technologies were reduced to a shortlist of six technologies from which the first wave of four was selected after comprehensive due diligence. The CardioQ was the only technology used for hospital in-patients to be selected. The NTAH plans to project manage and audit implementation projects with three NHS Trusts with a view to producing guidance on effective implementation of the CardioQ for other NHS Trusts to follow. In March 2008, the first of these Trusts, the Whittington in London, purchased four additional monitors in order to expand significantly its CardioQ usage in operating theatres. Of the three sites, the Whittington is both the smallest hospital and the most established existing CardioQ user. Since the year end UK sales have continued to demonstrate strong growth, with sales of both CardioQ monitors and probes comfortably ahead of the corresponding months in 2007. Sales of probes for use during surgery have continued to grow at the rates experienced in 2007 and sales of probes into critical care units have also been satisfactory. The Company's pipeline continues to grow strongly. United States of America The United States of America is the largest healthcare market in the world and is a strategic imperative for any medical technology company with aspirations to be truly global player. Once a medical technology is proven and approved for sale, the single most important factor for success in this market is physician reimbursement - the payment to the doctor using the technology for the effort and expertise involved. It is important to note that physician reimbursement is wholly unrelated to payment to the manufacturer for the technology, which is dealt with by the hospital. In 2007 sales of probes were almost 50% higher than in the prior year (2007: 7,075 units; 2006: 4,760 units). Our most successful hospital start-up to date, in San Diego, California, where we tested our new US implementation model, was an important contributor to this growth. Sales of probes in the USA in 2007 was a reflection of changes in clinical practice driven by a wider acceptance and understanding of the published clinical data. The ability to claim reimbursement for use of the CardioQ is anticipated to accelerate future adoption, but had no impact on sales in 2007. In mid-2007 the US Government body responsible for the provision of healthcare to the elderly and the poor, and the 'bellwether' for reimbursement that private insurance companies invariably follow - the Centers for Medicare and Medicaid Services (CMS) - published a memorandum stating that the use of oesophageal Doppler monitoring in surgical patients requiring fluid optimisation and for cardiac output monitoring of ventilated patients in the intensive care unit would be reimbursed. The breadth of this coverage determination is a testament to the wealth of clinical data supporting the use of the CardioQ reviewed by the US government Agency for Health Research and Quality and published as a technology assessment early in 2007 as part of the reimbursement decision process. Physician reimbursement is dependent upon three elements: firstly, the procedure must be recognised by CMS as being reasonable and necessary for its patients in order to be reimbursable ('covered'); secondly, the procedure must have a reference code allocated to it to allow processing through the reimbursement system and; thirdly, the code must be allocated a value that is then translated into dollars in the physician's pocket once the claim is processed by regional CMS payer. Conservatively, this coverage determination is applicable to some 5,000,000 patients every year in the USA and represents a major milestone for Deltex Medical. Since the year end the Company has been notified by a small number of clinicians that they have received reimbursement from private health providers and that the vast majority of such payments have been towards the top of the range of physician expectations. First claims have been filed with CMS by physicians from a number of hospitals, although the Company has not yet been notified of any payments actually made. Early in 2007 we began working with one of the largest groups of anaesthetists in the US who were seeking to establish use of the CardioQ as a standard of care in surgery and in intensive care. This group provides services to 12 acute surgical hospitals in southern California and is responsible for the care of around 50,000 patients each year having surgery who could benefit from management using the CardioQ. Through our new implementation model, pioneered in the USA, we were able to take the first of the group's hospitals from zero usage to treating around 25% of its major surgical patients (more than 100 patients each month) in eight weeks of focused, multidisciplinary education and training. During the training process we hired a dedicated clinical trainer to provide ongoing support at the hospital and we have continued to see probe usage grow in both surgery and in intensive care. Early indications are that physician reimbursements recently made by key private insurers will further increase usage over time. Early in 2008 we embarked on the roll out the education phase of the implementation model to the next two hospitals serviced by the anaesthetic group. Monitors have been delivered to the second hospital ahead of formal training being undertaken. It is our expectation that we will see the percentage of patients treated using the CardioQ in each of these sites expand as reimbursement in CMS patients is finalised with the regional CMS contract payer. Already we are seeing an interest in expanding adoption in existing hospitals and a marked increase in interest from new hospitals wishing to embark on a programme to make use of the CardioQ standard clinical practice. International Sales in our international markets were significantly ahead of those in 2006 as the benefits of our programme to restructure key distribution arrangements continued. Growth has been sustained in each of our key international territories with overall underlying growth of around 30% year on year. Direct International Markets Through our new direct sales operation in Spain we have been working with the head of the Spanish Society of Surgeons to establish use of the CardioQ as a standard of care in colorectal surgery. This pilot project involves seven key hospitals undertaking an audit of patient outcomes under a care protocol based on the University College London Hospital and St Thomas' Hospital's ESTREP programme. The results of this audit are expected to be presented to the national colorectal surgery meeting in Spain late in 2008. If the results of the audit mirror those seen elsewhere, the surgeons leading the project have informed the Company that they expect to see the protocol established as standard practice across Spain where in excess of 200 hospitals perform colorectal surgery. In January 2008 we changed our distribution arrangements in Germany and established a small semi-direct sales operation. In the semi-direct model a third-party distributor provides logistics and customer services, regulatory and tender management support, while Deltex Medical is responsible for all sales, marketing and clinical training. Our focus in Germany in 2008 is the continued development of relationships with key anaesthetists, surgeons and hospital administrators and establishing use of the CardioQ as a protocolised standard of care in one of the country's leading teaching hospitals ahead of a wider rollout in 2009. Since the year-end the Charite hospital in Berlin, one of the largest teaching hospitals in Europe, has embarked on a programme of evaluation and small, focused clinical trials intended to establish the best way to incorporate routine use of the CardioQ into a range of surgical procedures at the hospital. Distributed International Markets We continue to work with distributors in all the other international markets and have seen particularly encouraging results since our decision to move the key distributors on to monthly ordering patterns for probes following a stock reduction exercise undertaken the first half of 2006. The run-rate of probes sold across those territories on monthly ordering schedules increased over the year from 550 to 800 probes per month. We have only focused minimal time and effort on the Japanese market because, although we have had approval to sell for some time, the level of reimbursement negotiated by our former distributor (in this case to the hospital to cover the cost of the probe) was inadequate. In 2007 we secured our right to sell in Japan in our own name and will return to this market as and when it is appropriate and feasible to do so. Clinical Publications Meta analysis The technique of meta-analysis (a systematic scientific review which considers related evidence as a whole) underpins many of the conclusions of Health Technology Assessments (HTAs). It is also used heavily by doctors within clinical circles to determine technologies and interventions which should be established as standards of care. The first independent meta-analysis of the randomised controlled clinical outcome trials of ODM was undertaken by an eminent group of UK doctors and its results were first presented in September 2006. It concluded that ODM reduces post-operative complications and reduces length of hospital stay by an average of nearly three days. The results of this review were presented at a number of important clinical meetings over 2007 and the Directors understand that the authors intend to submit it to a leading medical journal for publication in 2008. In January 2008, a second meta-analysis, undertaken by doctors in New Zealand, was published which concluded that ODM 'use for monitoring and optimisation of flow-related haemodynamic variables improves short-term outcome in patients undergoing major abdominal surgery'. This meta-analysis has just been published in the journal Anaesthesia and is therefore the first meta-analysis to be published in a leading peer-reviewed journal. In March 2008, a third meta-analysis was published in a peer-reviewed journal. This meta-analysis was conducted by doctors from the departments of surgery and anaesthesia at the Cambridge University Hospitals NHS Trust. The analysis examined results from the four previously published randomised controlled clinical trials into the use of ODM in abdominal surgery that involved a total of almost 400 patients. The authors reported that use of ODM in abdominal surgery, based on the pooled data analysed, resulted in significantly fewer post-operative complications and a consequent significant reduction in length of hospital stay. The directors are not aware of any randomised controlled study, either published or pending publication, which shows any technology other than ODM to have been used successfully to direct fluid administration during surgery to improve patient outcomes and reduce hospital lengths of stay. Alternative approaches to haemodynamic monitoring use derived rather than direct measurements of blood flow and are unable to report changes in flow either as quickly or as sensitively as ODM. In July 2007 in his report 'A Framework for Action', prepared for Healthcare for London a consultation group led by London's 31 NHS Primary Care Trusts, Professor Sir Ara Darzi (now Lord Darzi, a UK Government health minister) noted of the CardioQ: 'Seven randomised trials have shown simple use of cheap ultrasound technology to reduce length of stay consistently by 2-3 days in elective abdominal surgery. The evidence is clear here and changes should be rapidly implemented'. Research and Development Our research and development efforts in 2007 focused on two key areas: providing a monitoring solution for the conscious patient and an upgrade of the CardioQ monitor. The conscious patient solution has two elements, the SupraQ, a wholly non-invasive monitor for intermittent spot-checking of cardiac function and the new I2 range of oesophageal probes. The second generation SupraQ project continues to make good progress and will enter the clinical evaluation phase of its development later in 2008, subject to finalisation of clinical protocols and ethics committee approval at the investigating hospital. The I2 probe allows doctors to extend the use of the CardioQ beyond patients who are under general anaesthetic or deeply sedated to those who are fully awake. Originally intended for short-term post-operative management of patients waking up after surgery, the probe has proven so well tolerated that its use has been extended successfully to fully conscious patients in a variety of clinical settings, including major surgery under spinal anaesthesia, the accident and emergency department and on the ward. In the second quarter of 2008 we will launch the CardioQ-ODM, an upgraded version of the CardioQ, in the UK and key international markets. We anticipate submitting a request for approval to sell this new monitor in the USA to the US Food and Drug Administration (FDA) during the second quarter of this year. The new lighter-weight CardioQ-ODM upgrades a number of key components and allows us to take advantage of newer technologies that provide faster processing capabilities, larger memory capacity, easier and faster data downloading and better screen resolution. The software interface has been refined to offer improved ease of use, customisable screen layouts and a series of tools to help doctors target patient therapy more effectively. Board membership In May 2007 Peter Smedvig chose not to stand for reelection to the board of directors after many years of valuable service to the Company. Today we are able to announce that Julian Cazalet will be joining the board of directors effective 7 April 2008. Julian recently retired after 34 years at Cazenove, a leading UK investment bank, where he advised many listed companies and acted in the flotation of a number of new companies on the London Stock Exchange. Most recently he was Managing Director - Corporate Finance at JPMorgan Cazenove. Prospects Deltex Medical made significant progress during 2007 in all its key markets, with major milestones in market development achieved in the USA. The momentum driving sales growth in 2007 has been maintained into 2008 and the first quarter of 2008 has seen a number of significant events that will enable the Company to sustain and build upon 2007's progress throughout 2008. Not least of these is the first reimbursement of doctors for use of the CardioQ in operating theatres in the United States. Routine use of the CardioQ represents the translation of evidence-based medicine into evidence-based practice - the goal of all developed healthcare systems around the world. The publication of independently conducted analyses of the overwhelming body of evidence supporting the use of oesophageal Doppler-guided haemodynamic management can only accelerate the adoption of the CardioQ. We remain confident in our ability to deliver increasing and sustainable value for our shareholders as we help more and more hospitals establish use of the CardioQ as a standard of care for all patients undergoing major surgery or in intensive care and as we develop new and innovative ways of providing the unique benefits of Doppler-guided haemodynamic management to all patients who need it, wherever they may be in the healthcare system. Nigel Keen Chairman 7 April 2008 Consolidated Income Statement for the year ended 31 December 2007 Unaudited Unaudited Unaudited Unaudited 2007 2007 2006 2006 £'000 £'000 £'000 £'000 Revenue 4,168 3,511 Cost of sales (1,250) (1,182) ------- ------- Gross profit 2,918 2,329 Administrative expenses 2,334 1,916 Sales and distribution costs 2,525 2,186 Research and development costs 282 241 ------ ------ ----- ------- (5,141) (4,343) ------- ------- Operating loss (2,223) (2,014) Finance income 33 8 Finance costs (21) (11) ------- -------- Loss before taxation (2,211) (2,017) Tax on loss 23 23 ------- -------- Loss for the year (2,188) (1,994) ======= ======== Loss per share - basic and diluted (2.5p) (2.6p) ======= ======== Consolidated statement of recognised income and expense for the year ended 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000 Exchange differences taken to reserves 8 (9) Loss for the year (2,188) (1,994) --------- --------- Total recognised expense for the year (2,180) (2,003) ========= ========= Consolidated Balance Sheet at 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000 Assets Non - current assets Property, plant and equipment 37 47 Trade and other receivables 20 52 Intangible assets 190 91 ---- ---- Total non-current assets 247 190 Current assets Inventories 441 383 Trade and other receivables 1,570 1,241 Current income tax recoverable 47 45 Cash and cash equivalents 763 418 ----- ----- Total current assets 2,821 2,087 ----- ----- Total assets 3,068 2,277 ----- ----- Liabilities Current liabilities Borrowings (407) (297) Trade and other payables (1,204) (1,160) Provisions for other liabilities and charges (77) (50) ------- ------- Total liabilities (1,688) (1,507) ------- ------- Net assets 1,380 770 ------- ------- Equity Share capital 925 800 Share premium 16,423 14,086 Capital redemption reserve 17,476 17,476 Other reserves 1,342 1,014 Translation reserve (1) (9) Retained earnings (34,785) (32,597) -------- -------- Total equity 1,380 770 -------- -------- Consolidated Statement of Cash Flows for the year ended 31 December 2007 Unaudited Unaudited 2007 2006 £'000 £'000 ----- ----- Cash flows from operating activities Operating loss (2,223) (2,014) Depreciation of property, plant & equipment 38 49 Amortisation of intangibles 2 2 Loss on disposal of fixed asset (1) - Impairment of trade acquisition - 62 ------ ------ Earnings before interest, tax, depreciation and amortisation (2,184) (1,901) Cost of equity settled share schemes 328 246 -------- ------- Operating cash flows before movements in working capital (1,856) (1,655) Decrease in inventories 41 73 Increase in debtors (293) (307) (Decrease)/increase in creditors (50) 307 Increase in provisions 27 16 ------- ------- Cash used in operations (2,131) (1,566) Interest paid (21) (11) Income taxes received 23 32 ------- ------- Net cash used in operating activities (2,129) (1,545) ------- ------- Cash flows from investing activities Purchase of property, plant & equipment (29) (12) Acquisition of trade - (62) Capitalised development expenditure (101) (90) Interest received 28 7 ------- ------- Net cash used in investing activities (102) (157) ------- ------- Cash flows from financing activities Issue of ordinary share capital 2,613 1,491 Expenses in connection with share issue (151) (43) Proceeds from increase in borrowings 110 78 Repayment of obligations under finance leases - (6) ------- ------- Net cash generated from financing activities 2,572 1,520 ------- ------- Net increase/(decrease) in cash and cash equivalents 341 (182) Cash and cash equivalents at beginning of the year 418 606 Effect of exchange rate fluctuations on cash held 4 (6) ------- ------- Cash and cash equivalents at end of the year 763 418 ========= ========= 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 2007. The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 31 December 2007 or 31 December 2006. The financial information for the year ended 31 December 2006 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies except for the restatement of comparatives for the first time adoption of International Financial Reporting Standards. 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 2007 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 under International Financial Reporting Standards (IFRS). All relevant financial comparatives for the year ended 31 December 2006 have also been presented on an IFRS basis. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The transition to International Financial Reporting Standards and the effect on the Company's results was previously announced with the 2007 interim results on 27 September 2007. 2 Turnover and segmental analysis The segment results for the year ended 31 December 2007 are as follows: Unaudited -------------------------------------------------------- -------------------------------------------------------- UK USA International Unallocated Total £'000 £'000 £'000 £'000 £'000 -------------------------------------------------------- Total segment revenue 2,892 587 947 - 4,426 Inter segment revenue (258) - - - (258) -------------------------------------------------------- Group revenue 2,634 587 947 - 4,168 -------------------------------------------------------- Segment/operating 379 (52) (210) (2,340) (2,223) result -------------------------------------------------------- Finance income 33 Finance costs (21) -------- Loss before taxation (2,211) Tax on loss 23 ------------------ Loss for the financial (2,188) year ------------------ 3 Dividends The directors do not recommend payment of a dividend (2006: 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 2007 is based on the loss of £2,188,000 and weighted average number of shares in issue of 87,737,746. For 2006 the loss per share calculation was based upon the restated loss of £1,994,000 and weighted average number of shares in issue of 74,181,000. 5 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. Copies of the Report and Accounts for the year ended 31 December 2007 will be sent to shareholders in due course. This information is provided by RNS The company news service from the London Stock Exchange

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