Half Yearly Report

RNS Number : 9936S

Deltex Medical Group PLC

21 September 2010

 



Deltex Medical Group plc

Interim results for the six months ended 30 June 2010

21 September 2010 - Deltex Medical Group plc ("Deltex Medical" "Company" or "Group"), the global leader in oesophageal Doppler monitoring ("ODM"), today announces its results for the six-month period ended 30 June 2010.

Financial Highlights

·      Sales up 13% (H1 2010 £2.9m; H1 2009 £2.6m)

·      Operating expenses reduced by 7% to £2.8m

·      Operating loss reduced by 46% to £0.6m

·      Operating cash outflows before movements in working capital reduced by 30% to £0.6m

Operating Highlights

·      Growth driven by probe sales in key target markets:

o  UK surgical probe sales up 16%, overall probes up 4%

o  US probes up 35%

o  Probes to European distributors up 39%

·      NHS quality and efficiency programmes creating opportunities for CardioQ-ODM roll-out

·      Draft NICE guidance on CardioQ-ODM expected in Q42010.

·      $34,000 a month minimum probe contract with largest US account

·      Two more hospitals signed up to Spanish government sponsored audit

·      Improved performance probes introduced globally

Nigel Keen, Chairman of Deltex Medical, said:

"Deltex Medical made substantial progress in the first half of 2010 with sales growth rates continuing to recover from global recession, with the strongest probe sales growth coming from our key markets. Higher sales at better margins on a reduced cost base meant the Company consumed less cash before movements in working capital and is on track to pass the cash break-even point in the second half with only modest further sales growth.

Deltex Medical is building a solid base from which to create shareholder value over a prolonged period. The robust evidence base of both the clinical and cost effectiveness of our products mean we are very well positioned to create and exploit opportunities for accelerated growth as health systems focus increasingly on improving outcomes and reducing costs."

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 5917

Chris Hardie                                                      [e-mail]

Matthew Armitt                                                  [e-mail]

Kreab Gavin Anderson                                    020 7074 1800

Deborah Walter                                                  [e-mail]

Robert Speed                                                    [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 over 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

Overview

Deltex Medical made further progress in all key markets during the first half of 2010. Revenues rose by 13% to £2,934,000; gross margins increased by 1% and operating expenses were reduced by 7% (£225,000) to £2,811,000. The operating loss was reduced by 46% (£501,000) to £597,000.

Over three quarters of the revenue increase came from probe sales which were 14% ahead of the first half of 2009 overall, with growth being seen in each of our areas of primary focus: revenues from surgical probes in the UK were 16% ahead; US probe revenues were 35% ahead; Spanish probe sales were more than doubled and sales of probes to European distributors were 39% ahead.

Before working capital movements, cash used in operations was £242,000 (30%) less than in the first half of 2009. Our current cash cost base remains more than 15% below its 2008 level and expenses have consistently been kept below budgeted levels throughout the year to date. Only modest continued sales growth is needed for the Company to pass the cash break-even point during the second half of 2010 and probe sales have continued to grow since 1 July.

During the period the Company spent £277,000 increasing inventory levels to position it better to support increased demand. Cash at 30 June 2010 was £573,000 and the Directors are confident that the Company has sufficient cash resources to pass the break-even point.

Markets

Our goal is to make oesophageal Doppler monitoring (ODM) a standard of care for patients undergoing major surgery and in intensive care. ODM improves a patient's experience through reducing post-operative complications and enhancing the speed of their recovery. Crucially, as developed healthcare systems increasingly focus on improving outcomes from healthcare providers as a means to reduce overall healthcare costs, a robust evidence base of both clinical benefit and cost effectiveness already supports system-wide implementation of ODM.

Since its formation in May, the UK coalition government has confirmed that the QIPP programme ('Quality, Innovation, Productivity and Prevention') is central to the goal of delivering at least £5 billion a year of efficiency savings in the NHS by 2014. Subsequently it has confirmed that the national Enhanced Recovery Partnership Programme will continue as a key initiative under QIPP: the recently published Department of Health guide "Delivering Enhanced Recovery: Helping patients to get better sooner after surgery" highlights the pivotal role of intra-operative fluid management and ODM in enhanced recovery programmes. A number of hospitals and regions have started the planning required to implement enhanced recovery programmes in the coming months and the Company expects introduction of these programmes to lead to increased probe sales.

In January the NHS National Technology Adoption Centre ('NTAC') published a comprehensive guide to the NHS on how to procure and implement ODM effectively into routine practice based on its experiences working with three NHS hospitals. The Company is aware of a number of localised initiatives to use this guide as a template to expand use of CardioQ-ODM in England and two Strategic Health Authorities have awarded grants to hospitals specifically to support this activity.

The coalition government has also now confirmed that the Department of Health's December 2009 National Innovation Procurement Plan will be rolled out as part of QIPP. Support to each of the English regional health organisations in how to procure and implement proven new medical technologies is being provided by NTAC and the Company believes its products are well positioned to be selected by one or more regions for wider implementation in the first phase of the roll-out.

The National Institute for Health and Clinical Excellence ('NICE') has established the Medical Technologies Advisory Committee ('MTAC') to issue guidance to the NHS on medical technologies with a particular emphasis on those which both improve health outcomes and reduce costs. MTAC selected the Company's CardioQ-ODM for early review and is scheduled to publish final guidance by early 2011, with draft guidance expected within weeks.

While momentum has been growing behind centrally driven initiatives in the UK which could transform the Company's UK business, NHS hospitals' capital budgets have been severely constrained. The Company has continued to expand the installed base by lending monitors to selected hospitals with a view to later purchase or conversion to a managed care service contract. Over fifty CardioQ-ODM monitors have been placed so far this year and these are expected to contribute probe sales growth in the second half.

In the USA, the focus of our work in a small, but growing, number of key US hospitals is to demonstrate ways in which ODM helps deliver the twin goals of improving health outcomes while reducing costs. We expect success stories to start to come out from some of these accounts in the next six to twelve months and that these will drive sales growth within the hospitals' own networks as well as building the case for system-wide adoption of CardioQ-ODM on a national scale. Our largest US account, following a successful implementation project starting in 2007, entered into a contract in May for not less than 200 probes a month, worth at least $34,000 a month in sales. We are pursuing a number of new opportunities for such structured implementation projects in influential hospitals.

In Spain, we have made progress in both our main strands of work. The ten hospitals participating in a surgeon-led project to implement enhanced recovery in colorectal surgery are building a robust body of evidence that their protocols, in which CardioQ-ODM is mandatory, are delivering the best clinical outcomes and shortest lengths of hospital stay in the country: the programme leaders expect further interested hospitals to adopt the protocols in the short to medium terms. The other strand comprises implementation audits of CardioQ-ODM across major classes of surgery sponsored by government comparative effectiveness research agencies. We have now secured orders from the second and third participating hospitals and have expanded the number of sponsor agencies from one to three.

Our International distributor business saw substantial probe sales growth in Europe, with half broadly attributable to the growing uptake of our products in clinical use and half to the adverse effects in 2009 of widespread hospital and distributor destocking. Monitor sales to the Middle-East were strong and we have made early progress in a number of newer markets including India.

Operations

We have introduced substantial product improvements that make the CardioQ-ODM easier to use. These product enhancements improve signal screening to reduce interference on the monitor and make probe handling and focusing considerably easier.

Conclusion

Deltex Medical made substantial progress in the first half of 2010 with sales growth rates continuing to recover from global recession, with the strongest probe sales growth coming from our key markets. Higher sales at better margins on a reduced cost base meant the Company consumed less cash before movements in working capital and is on track to pass the cash break-even point in the second half with only modest further sales growth.

Deltex Medical is building a solid base from which to create shareholder value over a prolonged period. The robust evidence base of both the clinical and cost effectiveness of our products mean we are very well positioned to create and exploit opportunities for accelerated growth as health systems focus increasingly on improving outcomes and reducing costs.

Nigel Keen

Chairman

21 September 2010

Consolidated Statement of Comprehensive Income

for the six month period ended 30 June 2010

		Unaudited	Unaudited	Audited
		Half year to	Half year to	Full year to
		30 June	30 June	31 December
		2010	2009	2009
		£'000	£'000	£'000
Revenue		2,934	2,600	5,640
Cost of sales		(720)	(662)	(1,414)
		----	----	----
Gross profit		2,214	1,938	4,226
Administrative expenses		(939)	(1,179)	(2,919)
Sales and distribution costs		(1,697)	(1,631)	(3,070)
Research and development costs		(175)	(226)	(255)
		----	----	----
		(2,811)	(3,036)	(6,244)
		----	----	----
Operating loss		(597)	(1,098)	(2,018)
Analysed as:
Operating loss before exceptional items		(597)	(1,098)	(1,463)
Exceptional items		-	-	(555)
		----	----	----
Operating loss		(597)	(1,098)	(2,018)
Financial income		1	1	2
Financial expenditure		(67)	(88)	(114)
		----	----	----
Loss before taxation		(663)	(1,185)	(2,130)
Tax on loss		25	5	142
		----	----	----
Loss for the financial period		(638)	(1,180)	(1,988)
Exchange differences taken to reserves		(36)	25	(16)
		----	----	----
Other comprehensive income for the period, net of tax		(36)	25	(16)
		----	----	----
Total comprehensive income for the period		(674)	(1,155)	(2,004)
		=========	=========	=========
Loss per share - basic and diluted		(0.5p)	(1.2p)	(1.9p)
		=========	=========	=========

The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the period has been computed on the historical cost basis.

 

Consolidated Balance Sheet

at 30 June 2010

		Unaudited	Unaudited	Audited
		30 June	30 June	31 December
		2010	2009	2009
		£'000	£'000	£'000
Assets
Non - current assets
Property, plant and equipment		176	200	232
Trade and other receivables		327	326	326
Intangible assets		269	140	263
		----	----	----
Total non-current assets		772	666	821
Current assets
Inventories		800	627	492
Trade and other receivables		2,297	1,520	2,037
Current income tax recoverable		75	11	148
Cash and cash equivalents		573	523	1,480
		----	----	----
Total current assets		3,745	2,681	4,157
		----	----	----
Total assets		4,517	3,347	4,978
		----	----	----
Liabilities
Current liabilities
Borrowings		(519)	(362)	(526)
Trade and other payables		(1,281)	(1,142)	(1,271)
		----	----	----
Total current liabilities		(1,800)	(1,504)	(1,797)
Non current liabilities
Borrowings		(1,342)	(1,380)	(1,304)
Provisions for other liabilities and charges		(39)	(73)	(78)
		----	----	----
Total non-current liabilities		(1,381)	(1,453)	(1,382)
		----	----	----
Net assets		1,336	390	1,799
		----	----	----
Equity
Share capital		1,303	1,017	1,269
Share premium		20,052	18,229	19,974
Capital redemption reserve		17,476	17,476	17,476
Other reserves		2,498	2,138	2,399
Translation reserve		(25)	52	11
Retained earnings		(39,968)	(38,522)	(39,330)
		----	----	----
Total equity		1,336	390	1,799
		----	----	----

 

Consolidated Statement of Changes in Equity

for the six month period ended 30 June 2010

 

 

 

Group	Share capital	Share premium	Capital redemption	Other Reserve	Translation reserve	Retained deficit	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2009	1,017	18,229	17,476	2,138	52	(38,522)	390
	---	---	---	---	---	---	---
Comprehensive income
Loss for the period	-	-	-	-	-	(808)	(808)
Other comprehensive income
Shares issued during the period	252		-	-	-	-	252
Premium on shares issued during the period	-	1,752	-	-	-	-	1,752
Issue expenses	-	(7)	-	-	-		(7)
Credit in respect of service cost settle by award of options	-	-	-	261	-	-	261
Exchange movements taken to reserves	-	-	-	-	(41)	-	(41)
	---	---	---	---	---	---	---
Total comprehensive income for the period	252	1,745	-	261	(41)	(808)	1,409
	---	---	---	---	---	---	---
Balance at 31 December 2009	1,269	19,974	17,476	2,399	11	(39,330)	1,799
	---	---	---	---	---	---	---
Comprehensive income
Loss for the period	-	-	-	-	-	(638)	(638)
Other comprehensive income
Shares issued during the period	34	-	-	-	-	-	34
Premium on shares issued during the period	-	78	-	-	-	-	78
Issue expenses	-	-	-	-	-	-	-
Credit in respect of service cost settle by award of options	-	-	-	99	-	-	99
Exchange movements taken to reserves	-	-	-	-	(36)		(36)
	---	---	---	---	---	---	---
Total comprehensive income for the period	34	78	-	99	(36)	(638)	(463)
	---	---	---	---	---	---	---
Balance at 30 June 2010	1,303	20,052	17,476	2,498	(25)	(39,968)	1,336
	=========	=========	=========	=========	=========	=========	=========

Consolidated Statement of Cash Flows

for the six month period ended 30 June 2010

		Unaudited	Unaudited	Audited
		Half year to	Half year to	Full year to
		30 June 2010	30 June 2009	31 December 2009
		£'000	£'000	£'000
		----	----	----
Cash flows from operating activities
Operating loss		(597)	(1,098)	(2,018)
Depreciation of property, plant & equipment		44	27	55
Capitalisation of clinical trial costs		(319)	(273)	(272)
Amortisation of clinical trial costs		105	6	158
Exchange gain on clinical trial costs		-	-	(7)
Amortisation of intangibles		19	40	40
Exchange (gain)/loss on fixed assets		(12)	7	5
Loss on disposal of fixed assets		30	-	-
		----	----	----
Earnings before interest, tax, depreciation and amortisation		(730)	(1,291)	(2,039)
Cost of equity settled share schemes		99	429	690
Equity settled services		67	56	124
		----	----	----
Operating cash flows before movements in working capital		(564)	(806)	(1,225)
(Increase)/decrease in inventories		(277)	(52)	75
(Increase)/decrease in debtors		(68)	373	(321)
(Decrease)/increase in creditors		(13)	(175)	(23)
(Decrease)/increase in provisions		(39)	-	5
		----	----	----
Cash used in operations		(961)	(660)	(1,489)
Interest paid		(56)	(36)	(68)
Income taxes received		98	-	-
		----	----	----
Net cash used in operating activities		(919)	(696)	(1,557)
		----	----	----
Analysed as:
Net cash used in operating activities before exceptional items		(829)	(696)	(1,096)
Exceptional items		(90)	-	(461)
		----	----	----
Net cash used in operating activities		(919)	(696)	(1,557)
		----	----	----
Cash flows from investing activities
Purchase of property, plant & equipment		(6)	(54)	(112)
Capitalised development expenditure		(25)	(20)	(143)
Interest received		1	1	2
		----	----	----
Net cash used in investing activities		(30)	(73)	(253)
		----	----	----
Cash flows from financing activities
Issue of ordinary share capital		26	2	2,025
Expenses in connection with share issue		-	-	(108)
Proceeds from increase/(decrease) in borrowings		7	887	1,002
Effect of exchange rate fluctuations on borrowings		17	-	(36)
Expenses in connection with new borrowing		-	(45)	(44)
Repayment of obligations under finance leases		(4)	(2)	(5)
		----	----	----
Net cash generated from financing activities		46	842	2,834
		----	----	----
Net (decrease)/increase in cash and cash equivalents		(903)	73	1,024
Cash and cash equivalents at beginning of the period		1,480	475	475
Effect of exchange rate fluctuations on cash held		(4)	(25)	(19)
		----	----	----
Cash and cash equivalents at end of the period		573	523	1,480
		=========	=========	=========

Notes to the Interim Statement

for the six month period ended 30 June 2010

1.         Basis of preparation

Deltex Medical Group plc (the Company) is a company incorporated in England and Wales. The condensed Group half year financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group). They have been prepared in accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2009.

The half year results are unaudited. The financial information in this interim report does not constitute statutory accounts within the meaning of the Companies Act 2006. The summary of results for the year ended 31 December 2009 is an extract from the published consolidated financial statements of the Group for that period which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498 of the Companies Act 2006.

The half year financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2009.

2.         Revenue

Sales	2010	2010	2010	2010	2010	2010	2009	2009	2009	2009	2009	2009
	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	14,770	23	1,200	237	87	1,524	14,090	31	1,152	198	85	1,435
USA	3,350	0	394	0	2	396	2,775	2	291	12	3	306
Spain	760	5	91	57	0	148	260	-	33	-	-	33
Distributor markets
Europe	5,605	19	316	166	4	486	3,805	49	228	332	5	565
Middle East, Far East & Latin America	2,325	66	119	256	5	380	3,895	21	161	96	4	261
	26,810	113	2,120	716	98	2,934	24,825	103	1,865	638	97	2,600

3.         Results by geography

Segment information is presented in the consolidated interim financial statements in respect of the Group's geographical segments, which are the primary basis of segment reporting. The geographical segment reporting reflects the Group's management structure.

Segment results include items directly attributable to a segment as well as those, which can be allocated on a reasonable basis.

The segment results for the six months ended 30 June 2010 are as follows:

		UK £'000	USA £'000	International £'000	Spain £'000	Unallocated £'000	Total £'000
Total segment revenue Inter segment revenue		1,695 (171)	396 -	866 -	148 -	- -	3,105 (171)
Group revenue		1,524	396	866	148	-	2,934
Segment/operating result		433	(258)	254	(8)	(1,018)	(597)
Finance income							1
Finance costs							(67)
Loss before taxation							(663)
Tax on loss							25
Loss for the financial period							(638)

The segment results for the six months ended 30 June 2009 are as follows:

		UK £'000	USA £'000	International £'000	Spain £'000	Unallocated £'000	Total £'000
Total segment revenue Inter segment revenue		1,669 (234)	306 -	826 -	33 -	- -	2,834 (234)
Group revenue		1,435	306	826	33	-	2,600
Segment/operating result		302	(247)	167	(93)	(1,227)	(1,098)
Finance income							1
Finance costs							(88)
Loss before taxation							(1,185)
Tax on loss							5
Loss for the financial period							(1,180)

The 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 Inter segment revenue		3,362 (369)	673 -	1,905 -	69 -	- -	- -	6,009 (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)

Unallocated costs include those costs that cannot be split between segments, including expenditure on research and development and clinical trials.

Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

4.         Loss per share

The loss per share calculation for the six months to 30 June 2010 is based on the loss for the period of £638,000 and weighted number of shares in issue of 128,463,934. The loss per share calculation for the six month period ended 30 June 2009 is based on the loss for the period of £1,180,000 and weighted average number of shares in issue of 100,536,829.

The Group had no dilutive potential ordinary shares in either period, which would serve to increase the loss per ordinary share. Therefore, there is no difference between the loss per ordinary share and the diluted loss per ordinary share. 

5.         Called-up share capital

			1 pence ordinary shares
			£'000
130,273,003 1p ordinary shares			1,303
			=======

During the period, the Company issued 2,666,438 1p ordinary shares pursuant to the exercise of options. In addition a total of 301,583 1p ordinary shares at an average price of 12.09 pence per share were issued to certain of the Company's advisors who elected to take shares in lieu of cash payment for their services. A further 390,646 1p ordinary shares at an average price of 12.57 pence per share were issued to certain of the Company's directors who elected to take shares in lieu of cash payment for their services to the Company.

6.         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 or for download from the Company's website; www.deltexmedical.com.

 

END

 

 

IR BUGDCDXDBGGG