Interim Results - Replacement

Deltex Medical Group PLC 25 September 2007 Deltex Medical, interim results released today, September 25th - RNS: 4106E Please note that there is a transposition error in the Financial Highlights summary on the cover page which accompanies today's interim results statement. The second bullet point referring to the reduction in operating loss should read 'Operating loss reduced 13% to £1.179 m' and not 'Operating loss reduced to £1.719 m' as released. There are no other changes to the release. Deltex Medical Group plc Interim results for the six months ended 30 June 2007 25 September 2007 - Deltex Medical Group plc ('Deltex Medical' or 'Company'), UK's leading haemodynamic monitoring company, today announces its results for the six-month period ended 30 June 2007. Financial Highlights • Turnover up 26% to £1.914m • Operating loss reduced 13% to £1.179m • Net cash £1.782m, reducing rate of burn Operating Highlights • CardioQ unit sales strongly ahead • Recurring revenues 80% of total sales • Second generation I2 probe launched and CardioQ reengineered for volume scale-up • Medicare approval driving North American sales enquiries • Deltex Medical positioned for continued and sustainable growth in key markets Nigel Keen, Chairman of Deltex Medical, said: 'There is a growing recognition of and interest in the benefits that the CardioQ can bring to patients, whether through Targeted Volume Management alone as a standard of care or as a core component of new care packages such as fast-track or enhanced recovery surgery programmes. Deltex Medical has made considerable progress towards the CardioQ being acknowledged and accepted as the global standard of care for fluid management. We expect this progress to continue and to fuel sales growth for the foreseeable future.' 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 020 7554 1400 Deborah Walter dwalter@gavinanderson.co.uk Robert Speed rspeed@gavinanderson.co.uk Charles Stanley Securities, Nominated Advisor 020 7149 6457 Philip Davies philip.davies@csysecurities.com Chairman's Statement Group Summary The use of CardioQ in surgery, to monitor and manage patients' circulating blood volume, is proven to speed and assist recovery, whilst reducing the requirement for both routine and emergency post- operative admissions to intensive care. In short, patients go home sooner and are less likely to face readmission. Published clinical trial evidence shows that CardioQ-guided Targeted Volume Management should be considered a standard of care in all major surgery and that CardioQ should be an integral part of routine critical care procedures. All patients undergoing surgery are at risk from serious and potentially life-threatening complications caused by a reduction in circulating blood volume. This condition, known as hypovolaemia, results from the combined impact of pre-operative fasting, the effects of the anaesthetic and the blood lost during the surgical procedure. In many respects hypovolaemia is similar to severe dehydration. The complications this condition causes arise because the reduced circulating blood volume is unable to carry sufficient oxygen to the major organs and tissues. All of these are at risk from failure as a consequence of the resultant oxygen deprivation. The CardioQ directly measures blood flow in the main vessel delivering blood from the heart to the body - the aorta - with every beat of the heart. Changes in blood flow are much earlier and more sensitive indicators of changes in circulating blood volume than changes in blood pressure which are frequently relied upon to guide fluid replacement; the body's natural compensatory mechanism strives to maintain blood pressure at 'normal' levels, even in the presence of severe hypovolaemia. The technology of oesophageal Doppler monitoring (ODM), in which the CardioQ is the world leader by far, is unique in allowing doctors to exploit this immediacy in detecting changes in a patient's status. This enables the doctor to intervene quickly and safely where necessary using a combination of specialised fluids and drugs, before the hypovolaemia becomes serious and potentially life threatening. The technique of optimising a patient's haemodynamic status by giving the right amount of the right fluid at the right time, is variously known as haemodynamic optimisation, goal directed therapy or Targeted Volume Management. 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 12,455 26 976 173 66 1,215 11,745 26 886 146 59 1,091 USA 3,405 8 239 39 1 279 2,245 2 165 5 2 172 Distributor markets International 7,135 31 309 105 6 420 5,410 7 221 23 8 252 --------------------------------------------------------------------------------------------------- 22,995 65 1,524 317 73 1,914 19,400 35 1,272 174 69 1,515 --------------------------------------------------------------------------------------------------- Sales During the six months ended 30 June 2007, the Company continued to deliver growth in all three of its sales territories and achieved an overall increase in sales of 26% compared to the six months ended 30 June 2006 (£1,914,000: 2006 £1,515,000). UK sales continued the positive trend of recent years and the growth in sales to our International markets was underpinned by increases in sales to hospitals by our distributors. In the USA, the world's largest potential market for our products, there were clear signs of accelerating sales growth, with sales enquiries and requests for training support at record levels. During the period, over 80% of sales were recurring revenue from probe sales and monitor maintenance with increased probe revenue accounting for nearly two-thirds of the increase in total Group sales. Sales in the early part of the second half have been encouraging and have continued to be ahead of 2006 in all markets. Sales in the UK grew by 11% in total, with probe sales ahead of the first half of 2006 by just over 10%. This growth rate was lower than the trend of probe growth (in excess of 20% per annum) since the Company started selling direct in the UK in July 2002. This was as a direct result of sustained political pressure on NHS hospitals to cut spending and 'balance the books' in the last three months of the NHS financial year and in March in particular. Sales growth in the first five months of the new NHS financial year, commencing April, has seen a return to the previously established trend level. Clinical demand for the CardioQ continues to grow far more rapidly than actual sales in the UK and this is expected to underpin ongoing future growth. Distributor-led international sales in the first half of the year reflected the changes to our trading relationships with our distributor partners that we implemented in the first half of 2006 to reduce probe stock holding and move to a more regular monthly orders basis. Underlying probe sales in the international region have been encouraging, with significant progress made in key territories. Our largest distributor, who drives our business in France, has increased monthly probe orders from 230 at the end of the first half of 2006 to 380 going into the second half of 2007. International sales, including monitors, increased by 67% over the six months ended 30 June 2006: the growth in probe sales was just under 40%, reflecting both the changes in ordering patterns and underlying increased usage by hospitals. In the USA, where we have a small and focused sales/clinical training team, we have seen a strong increase in the interest in Targeted Volume Management using the CardioQ and this has been further accelerated since the publication of a strongly positive US government-funded review ('technology assessment') of the large body of literature relating to haemodynamic management using ODM. As a direct result of this increase in interest we have seen the rate of sales growth accelerating in the USA since the end of the first half of 2006, a trend that has continued throughout and beyond the first half of 2007. Overall sales in the USA were up over 60% compared to the first six months of 2006. Financials The Company has adopted International Financial Reporting Standards (IFRS) for the first time in these interim accounts and has accordingly restated comparative figures for both the six months ended 30 June 2006 and 31 December 2006. The changes are explained in the notes; the main change involves capitalising and amortising product development costs in accordance with IAS 38 'Intangible assets'. Operating losses for the period were £1,179,000 compared to £1,350,000 in the prior period, a reduction of £171,000. The way the Company has estimated and accounted for certain costs, together with the timing of a number of one-off costs (for example sponsorship of individual clinical meetings, accrual of sales team bonuses, recognition of clinical research costs, timing of share based payments and SupraQ research and development costs) mean that it is likely that more than half of the eventual full year administrative costs are recognised in the first half of the year, whereas sales are normally higher in the second half of the year. Cash at 30 June 2007 was £1,782,000 after net cash outflow from operating activities of £1,049,000 in the six months ended 30 June 2007. In line with the pattern of operating losses, cash consumption during the half year has been affected by a number of investment and one-off costs. In addition, the Company has made a limited number of focused increases to its cost base in all its key sales territories, in particular the USA, as well as increasing its R&D expenditure. This increase is as a result of significantly increased investment in the next generation oesophageal probes and CardioQ monitors as well as progress with the SupraQ. The underlying cash burn, the difference between regular monthly revenues and regular monthly costs, is reducing as sales volumes grow and the sales growth necessary to eliminate the remaining underlying cash burn is comfortably achievable from well qualified, target or existing customer accounts in our main markets. In the meantime, we will continue to invest in individual projects that fall outside the underlying cost base dependent on the resources available and the anticipated returns from the project. Markets UK In the UK, our most developed market, sales are ahead of prior year for each of our product areas - probes, monitors and maintenance contracts. Sales in March were adversely affected by NHS hospitals aggressively limiting spending in an attempt to 'balance the books'. March was the first time in 29 consecutive months where sales of probes in the UK were not ahead of the corresponding month in the prior year. Sales of probes have, however, returned to being ahead of the corresponding month in the prior year in each of the five completed months since March and probe sales in June and July were, respectively, our second and third best months for probe sales ever. Probe usage has continued to grow most strongly in the operating theatre, whether for stand-alone Targeted Volume Management or as a core element of 'fast-track' or 'enhanced recovery' protocols currently being implemented by a number of our key customer hospitals. Our increasingly strong relationships with surgeons are a key factor in the development of this area of our business and we expect these new integrated approaches to surgical patient care, with use of the CardioQ as a central component, to become standard practice over the coming years. In April, University College London Hospital (UCLH), one of the UK's most important teaching hospitals announced its plan to implement routine use of the CardioQ as it started to roll out an enhanced recovery programme across most major surgical disciplines. Preliminary feedback is that the pilot phase of this programme, and a similar one at another major London teaching hospital have generated impressive results. These results are expected to be made public in the coming months. We are collaborating on a number of initiatives within the NHS and the Department of Health that are looking at ways to accelerate adoption of innovative, evidence-based medical technologies. We anticipate being able to announce progress on at least one of these projects before the end of the year. The second half of the year has started well and we expect this improvement in sales to be further enhanced by the recently announced release of a new range of oesophageal probes, the I2 range. These new probes will allow doctors to extend the use of the CardioQ into a broader group of patients than previously possible. The I2 range of probes can be tolerated by patients waking from their anaesthetic or having surgery under regional anaesthesia with only mild sedation and without general anaesthetic. They can also be used with patients that are fully conscious in intensive care or on the ward. USA Our strategy for the USA is to develop a value proposition and scalable sales model that can be tailored to each of the key healthcare provider systems that operate in this market. Once we have in place a representative number of users in each system we will consider establishing a partnership arrangement with a major US-based medical technology company as a means to scale up our field presence and further accelerate market penetration. Reimbursement, the payment of physicians for their time and the skill required to use a particular technology, is generally acknowledged as the single most important step in accelerating wide-scale market adoption of any medical technology in the USA. There are three principle elements to reimbursement. Firstly, the tax-funded US government body responsible for healthcare for the elderly and poor - the Centers for Medicare and Medicaid Services (CMS) - has to deem that a procedure should be 'covered' for reimbursement. Secondly, the procedure has to be allocated a procedure code and, thirdly, the code has to be assigned a value, based on the work and skill required to undertake the procedure. The physician then bills the payer each time he uses the technology. Private healthcare providers almost invariably follow the reimbursement decisions of CMS, normally assigning higher values per procedure than CMS. In February 2007 the US government Agency for Health Research and Quality (AHRQ) published a comprehensive review of the clinical trial data associated with ODM. This formal technology assessment was commissioned by CMS and concluded that ODM-guided fluid management during surgery reduced both the number of major complications after surgery and the total number of complications as well as shortening hospital stay. Furthermore, the evidence for these conclusions was deemed to be 'strong' - in this context strong evidence 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'. In March, based on the AHRQ technology assessment, CMS deemed use of ODM to guide fluid administration in any surgical patient requiring fluid optimisation or any patient on a breathing machine ('ventilated') in intensive care to be 'reasonable and necessary' and therefore would be covered for reimbursement in these clinical settings. The CardioQ is the only ODM available in the USA today. This decision means that any doctor using the CardioQ in surgery or intensive care can now bill CMS for reimbursement. Regional paying organisations ('carriers'), acting on behalf of CMS, will initially negotiate rates of reimbursement with local users. International Following the decision early in 2006 to reduce overall stock levels across our distributor partners and move them on to monthly standing order patterns, we have seen encouraging signs of growing usage in a number of key territories. Our aim in working with our distributors is to replicate the successes we have seen in our direct markets of the UK and USA by providing clinical, technical and sales support in the field wherever it is cost-effective to do so. Our strategy is to create a network of key users around the world who will act to advocate routine use of the CardioQ for Targeted Volume Management both in their own country and at international clinical meetings. Our two most successful distributors are in France and Peru. In both cases the distributors have replicated as closely as possible the approach to education and support that we employ in the UK and in the USA. In Germany we are working with one of the largest teaching institutions to implement Targeted Volume Management as a standard of care in all major surgical procedures. At this centre we are supporting a programme of education, undertaken by a CardioQ-trained physician who is based at the hospital and is charged with the development and implementation of clinical protocols that support routine usage. The temporary 'embedding' of a trainer on site, an approach developed in major hospitals in the USA, may become the model of choice in larger teaching hospitals if it proves successful in the distributor setting. Operations In response to the acceleration in sales growth over the course of the second half of 2006 and the first half of 2007, the Company has embarked on a series of projects both to increase our manufacturing capacity and to achieve significant manufacturing cost reductions. The projects include the automation of the manufacture of the most costly sub-assembly in the probe, the streamlining of certain steps in probe manufacture and bringing in-house certain routine processes that currently extend the time taken to produce finished probes. Additionally, we are close to completing an upgrade of the CardioQ monitor, which will allow improved ease of use and greater manufacturing flexibility. Research and Development Our R&D activity has continued to focus on finding improved monitoring solutions for use in the conscious patient. This work stream has two components, the continued improvement of the oesophageal probe range to expand significantly the population of patients who can benefit from the use of the CardioQ and the development of a wholly non-invasive monitor for rapid assessment of a patient's haemodynamic status. In response to feedback from customers we have developed a range of oesophageal probes that can be used in patients after they wake up from their anaesthetic after surgery or in patients having surgery under regional anaesthetic with minimal sedation or in fully conscious patients. These new probes are much softer than the traditional range of probes, yet retain their handling and focusing characteristics. The probes are branded as Instant Intervention ('I2') probes to reflect the unique ability of the CardioQ technology to allow immediate intervention as haemodynamic changes happen. The Company launched the I2 probes earlier this month by demonstrating their use on members of the senior management team at the annual conference of the Association of Anaesthetists of Great Britain and Ireland. The I2 probes make the benefits of Targeted Volume Management available to almost every patient having surgery or being treated in a critical care setting. Earlier in 2007 we showcased prototypes of our wholly non-invasive monitor, the SupraQ, at a meeting in London. This second generation product uses a new approach that is expected to reduce the effect of anatomical variation on signal acquisition and be a material step-forward towards making the SupraQ a commercially viable mass-market device. We are in advanced negotiations with a major London Teaching Hospital with a view to it undertaking a programme of clinical evaluation and trials of this new device. We expect their work to start during the second half of 2007. Clinical Research Following from the publication of an influential randomised clinical trial in bowel cancer surgery, doctors from the Freeman hospital in Newcastle presented data on those patients in the trial that underwent laparoscopic (minimally invasive or key-hole) bowel surgery. These results which were presented at the American Society of Colon and Rectal Surgeons meeting held in St Louis in June showed that use of the CardioQ for Targeted Volume Management significantly improved outcomes during laparoscopic surgery, even though this approach itself already minimises blood losses. Patients treated with the CardioQ were able to tolerate food significantly earlier (2 vs. 3 days), had significantly fewer post-operative complications (6% vs. 38%) and were able to go home three days earlier (4 vs. 7 days) than those having laparoscopic surgery alone. In the USA, a leading group of surgeons and anaesthetists have begun enrolling patients in a randomised clinical trial that will examine the clinical and economic impact of different fluid types used in colorectal surgery. Fluid delivery will be guided by the CardioQ using the same protocol for each fluid type given. The aim of this trial is to establish a fluid management protocol, incorporating the CardioQ, that can be adopted as an element of the US government-funded Surgical Care Improvement Programme (SCIP). In France, a group of investigators led by Dr Cholley has begun patient enrolment in the largest trial of the CardioQ ever conducted. The Fractale multicentre randomised controlled trial involves doctors from sixteen major French hospitals. The trial compares outcomes (including mortality) in patients having emergency hip surgery after both one month and one year, using the CardioQ for Targeted Volume Management with those achieved using the current standard of care. A number of other trials, expected to demonstrate further the CardioQ's unique value, are in advanced planning or already under way in a number of areas including trauma surgery, obstetrics and urological surgery. Prospects Deltex Medical is positioned for continued and sustainable growth in each of its key markets. The introduction of physician reimbursement has greatly increased the potential for prolonged accelerated growth in the key US market. The Company is investing in product development aimed at expanding further the markets for its technology. It is also investing in projects to allow it to meet anticipated increases in short and medium term demand as well as to exploit opportunities to increase margins through manufacturing efficiencies as production levels increase. There is a growing recognition of and interest in the benefits that the CardioQ can bring to patients, whether through Targeted Volume Management alone as a standard of care or as a core component of new care packages such as fast-track or enhanced recovery surgery programmes. Deltex Medical has made considerable progress towards the CardioQ being acknowledged and accepted as the global standard of care for fluid management. The Directors expect this progress to continue and to fuel sales growth for the foreseeable future, thereby significantly enhancing shareholder value. Nigel Keen Chairman 25 September 2007 Consolidated income statement for the six month period ended 30 June 2007 Unaudited Unaudited Unaudited Half year Half year Full year to to to 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 Revenue 1,914 1,515 3,511 Cost of sales (585) (503) (1,182) ---- ---- ---- Gross profit 1,329 1,012 2,329 Net operating expenses (2,508) (2,362) (4,343) ---- ---- ---- Operating loss (1,179) (1,350) (2,014) Financial income 4 4 8 Financial expenditure (10) (4) (11) ---- ---- ---- Loss before taxation (1,185) (1,350) (2,017) Tax on loss 11 11 23 ---- ---- ---- Loss for the financial period (1,174) (1,339) (1,994) ========= ========= ========= Loss per share - basic and diluted (1.4p) (1.8p) (2.6p) ========= ========= ========= 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. *Restated to reflect the adoption of IFRS Consolidated statement of recognised income and expense for the six month period ended 30 June 2007 Unaudited Unaudited Unaudited Half year Half year Full year to to to 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 Exchange differences taken to reserves (11) (3) (9) Loss for the period (1,174) (1,339) (1,994) ---- ---- ---- Total recognised expense for the year (1,185) (1,342) (2,003) ========= ========= ========= Consolidated Balance Sheet at 30 June 2007 Unaudited Unaudited Unaudited 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 Assets Non - current assets Property, plant and equipment 28 64 47 Trade and other receivables 34 73 52 Intangible assets 155 50 91 ---- ---- ---- Total non-current assets 217 187 190 Current assets Inventories 448 427 383 Trade and other receivables 1,366 904 1,241 Current income tax recoverable 34 33 45 Cash and cash equivalents 1,782 522 418 ---- ---- ---- Total current assets 3,630 1,886 2,087 ---- ---- ---- Total assets 3,847 2,073 2,277 ---- ---- ---- Liabilities Current liabilities Borrowings (280) (231) (297) Trade and other payables (1,242) (1,093) (1,062) Current income tax liabilities (86) (72) (98) Provisions (94) (50) (50) ---- ---- ---- Total liabilities (1,702) (1,446) (1,507) ---- ---- ---- Net assets 2,145 627 770 ---- ---- ---- Equity Share capital 925 767 800 Share premium 16,423 13,466 14,086 Capital redemption reserve 17,476 17,476 17,476 Other reserves 1,112 863 1,014 Translation reserve (20) (3) (9) Retained earnings (33,771) (31,942) (32,597) ---- ---- ---- Total equity 2,145 627 770 ---- ---- ---- *Restated to reflect the adoption of IFRS Consolidated Statement of Cash Flows for the six month period ended 30 June 2007 Unaudited Unaudited Unaudited Half year Half year Full year to to to 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 ---- ---- ---- Cash flows from operating activities Loss before taxation (1,179) (1,350) (2,014) Depreciation of property, plant & equipment 23 26 49 Amortisation of intangibles 1 1 2 Impairment of trade acquisition - - 62 ---- ---- ---- Earnings before interest, tax, depreciation and amortisation (1,155) (1,323) (1,901) Cost of equity settled share schemes 98 95 246 ---- ---- ---- Operating cash flows before movements in working capital (1,057) (1,228) (1,655) Decrease in inventories 17 21 73 (Increase)/decrease in debtors (107) 91 (307) Increase in creditors 78 281 307 Increase in provisions 44 16 16 ---- ---- ---- Cash generated by operations (1,025) (819) (1,566) Interest paid (10) (4) (11) Income taxes received 22 - 32 ---- ---- ---- Net cash used in operating activities (1,013) (823) (1,545) ---- ---- ---- Cash flows from investing activities Purchase of property, plant & equipment (4) (5) (12) Acquisition of trade - - (62) Capitalised development expenditure (65) (48) (90) Interest received 4 4 7 ---- ---- ---- Net cash used in investing activities (65) (49) (157) ---- ---- ---- Cash flows from financing activities Issue of ordinary share capital 2,613 825 1,491 Expenses in connection with share issue (151) (30) (43) Proceeds from increase/(decrease) in borrowings (17) 12 78 Repayment of obligations under finance leases (1) (3) (6) ---- ---- ---- Net cash generated from financing activities 2,444 804 1,520 ---- ---- ---- Net increase/(decrease) in cash and cash equivalents 1,366 (68) (182) Cash and cash equivalents at beginning of the period 418 606 606 Effect of exchange rate fluctuations on cash held (2) (16) (6) ---- ---- ---- Cash and cash equivalents at end of the period 1,782 522 418 ========= ========= ========= *Restated to reflect the adoption of IFRS Notes to the Interim Statement for the six month period ended 30 June 2007 1. Basis of preparation The Group's previous financial statements have been prepared under UK Generally Accepted Accounting Principles (UK GAAP). For the financial year ended 31 December 2007, the Group will prepare its annual consolidated financial statements in accordance with IFRS as adopted by the European Union (EU) and implemented in the UK. The Group's date of transition to IFRS was 1 January 2006 at which date the Group prepared its opening IFRS balance sheet. The financial information for the 6 months ended 30 June 2007 is unaudited and has been prepared in accordance with the Group's accounting policies based on IFRS standards that are expected to apply for the financial year 2007. The financial information for the 6 months ended 30 June 2006 has been restated under IFRS and is also unaudited. The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK Groups, in the preparation of these interim financial statements. The interim financial information has not been audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Group's statutory accounts for the year ended 31 December 2006, prepared under UK GAAP, have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 2. Research and development Research costs are charged against income as incurred. Development costs are capitalised as intangible assets, in particular when it is probable that future economic benefits will flow to the Group. Such intangible assets are amortised on a straight-line basis over the period of the expected benefit, and are reviewed for impairment at each balance sheet date. Other development costs are charged against income as incurred since the criteria for their recognition as an asset are not met. Costs for self-initiated research and development activities are assessed whether they qualify for recognition as internally generated intangible assets. Apart from complying with the general recognition requirements for and initial measurement of an intangible asset, qualification criteria are met only when technical as well as commercial feasibility can be demonstrated and cost can be measured reliably. It must also be probable that the intangible asset will generate future economic benefits and that it is clearly identifiable and allocable to a specific product. Further to meeting these criteria, only such costs that relate solely to the development phase of a self-initiated project are capitalised. Any costs that are classified as part of the research phase of a self-initiated project are expensed as incurred. If the research phase cannot be clearly distinguished from the development phase, the respective project related costs are treated as if they were incurred in the research phase only. 3. Cumulative translation differences 'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annual translation differences arising on the opening net assets and net profit or loss of each foreign subsidiary to be treated as a separate component of shareholders' equity, and the cumulative net surplus/deficit for each subsidiary carried forward and added to/subtracted from any gains/losses on the future disposal of that subsidiary. The Group has taken the option to set these cumulative gains/losses at zero as at the date of transition to IFRS. Any gains and losses recognised in the income statement on subsequent disposals of foreign operations will therefore include only those translation differences arising after 1 January 2006, the IFRS transition date. 4. 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. Six months to 30 June 2007 UK USA International Total £'000 £'000 £'000 £'000 Segment revenue External 1,345 279 420 2,044 Intersegment (130) - - (130) ---- ---- ---- ---- Group revenue 1,215 279 420 1,914 ---- ---- ---- ---- Segment result 195 (11) (93) 91 ---- ---- ---- ---- Unallocated costs: Research and development (119) Share option charges (98) Other central costs (1,053) ---- Operating loss (1,179) Financial income 4 Financial expense (10) ---- Loss before taxation (1,185) Tax on loss 11 ---- Loss for the financial period (1,174) ---- Six months to 30 June 2006 (restated) UK USA International Total £'000 £'000 £'000 £'000 Segment revenue External 1,137 172 252 1,561 Intersegment (46) - - (46) ---- ---- ---- ---- Group revenue 1,091 172 252 1,515 ---- ---- ---- ---- Segment result 104 47 (192) (41) ---- ---- ---- ---- Unallocated costs: Research and development (149) Share option charges (95) Other central costs (1,065) ---- Operating loss (1,350) Financial income 4 Financial expense (4) ---- Loss before taxation (1,350) Tax on loss 11 ---- Loss for the financial period (1,339) ---- Twelve months to 31 December 2006 (restated) UK USA International Total £'000 £'000 £'000 £'000 Segment revenue External 2,699 412 534 3,645 Intersegment (134) - - (134) ---- ---- ---- ---- Group revenue 2,565 412 534 3,511 ---- ---- ---- ---- Segment result 534 80 (404) 210 ---- ---- ---- ---- Unallocated costs: Research a development (241) Share option charges (246) Other central costs (1,737) ---- Operating loss (2,014) Financial income 8 Financial expense (11) ---- Loss before taxation (2,017) Tax on loss 23 ---- Loss for the financial period (1,994) ---- 5. Loss per share The loss per share calculation for the six months to 30 June 2007 is based on the loss for the period of £1,174,000 and weighted number of shares in issue of 82,918,000. The loss per share calculation for the year to 31 December 2006 is based on the loss for the financial year of £1,994,000 and weighted average number of shares in issue of 76,537,000. The loss per share calculation for the six month period ended 30 June 2006 is based on the loss for the period of £1,339,000 and weighted average number of shares in issue of 74,181,000. 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. 6. Research and development Total research and development spend by the group is as follows: Unaudited Unaudited Unaudited Half year Half year Full year to to to 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 Total spend on research and development during the period 183 196 329 Less: amount capitalised (65) (48) (90) Add: amortisation of amounts previously capitalised 1 1 2 ---- ---- ---- Research and development charged to income statement 119 149 241 ---- ---- ---- 7. Statement of changes in shareholders' equity Unaudited Unaudited Unaudited Half year Half year Full year to to to 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000 Opening shareholders' funds 770 1,079 1,079 Increase in share capital during the period 125 41 74 Premium on shares issued, net of costs 2,337 754 1,374 Loss for the financial period (1,174) (1,339) (1,994) Credit in respect of service costs settled by award of share options 98 95 246 Exchange difference taken to reserves (11) (3) (9) --- --- --- Closing shareholders' funds 2,145 627 770 ======== ======== ======== *As restated for IFRS 8. Called-up share capital 1 pence ordinary shares £'000 92,471,639 1p ordinary shares 925 ======= During the period the Company placed 11,133,192 1p ordinary shares with institutional and other investors and a further 398,153 1p ordinary shares to certain of the Company's advisors who elected to take share in lieu of cash payment for their services to the Company. A further 883,169 1p ordinary shares were issued as a result of the exercise of share options. 9. Explanation of transition to IFRS For all periods up to and including 31 December 2006 the Group prepared its financial statements in accordance with UK GAAP. In preparing these financial statements, the Group has started from an opening balance sheet as at 1 January 2006, the Group's date of transition to IFRS, and made those changes in accounting policies and other restatements required by IFRS. When a company adopts IFRS for the first time it is generally required to present comparative data as though IFRS had always been applicable. However, the standard which covers the initial introduction of IFRS, IFRS 1: First-time adoption of International Financial Reporting Standards, allows companies to take advantage of a number of exemptions from restating historical data in order to simplify the transition process. Business Combinations The Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations that took place prior to the transition date. Consequently goodwill arising on business combination before the transition date remains at its previous UK GAAP carrying value of £Nil, as at the date of transition. Cumulative translation differences 'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annual translation differences arising on the opening net assets and net profit or loss of each foreign subsidiary to be treated as a separate component of shareholders' equity, and the cumulative net surplus/deficit for each subsidiary carried forward and added to/subtracted from any gains/losses on the future disposal of that subsidiary. Deltex Medical has taken the option to set these cumulative gains/losses at zero as at the date of transition to IFRS. Any gains and losses recognised in the income statement on subsequent disposals of foreign operations will therefore include only those translation differences arising after 1 January 2006, the IFRS transition date. 10. Principal changes arising from the transition from UK GAAP to IFRS Research and development Under UK GAAP, all internal expenditure on development was expensed in the period when incurred. Under IFRS, development costs must be capitalised if certain criteria are met. The retrospective application of IAS 38 'Intangible Assets' has resulted in £3,000 being recognised as development expenditure in the IFRS opening balance sheet. Capitalisation and the amortisation of development expenses in the six months to 30 June 2006 resulted in a credit to the profit and loss account of £47,000 and a further credit of £41,000 for the full year to 31 December 2006 resulting in a total credit for the year of £88,000. The profit and loss account for the six months to 30 June 2007 includes a credit of £64,000 in respect of capitalisation and the amortisation of development expenditure during this period. The reconciliation between UK GAAP and IFRS for the Group's loss, income statement, balance sheet and total equity are presented below: Unaudited Unaudited Half year Full year to to 30 June 31 December 2007 2006 £'000 £'000 Loss after tax under UK GAAP (1,386) (2,082) Research and development 47 88 --- --- Loss after tax under IFRS (1,339) (1,994) --- --- Unaudited Unaudited Half year Full year to to 30 June 31 December 2007 2006 £'000 £'000 Total equity under UK GAAP 577 679 Research and development 50 91 --- --- Loss after tax under IFRS 627 770 --- --- Reconciliation of unaudited income statement for the 6 months ended 30 June 2006 IFRS UK GAAP effect IFRS £'000 £'000 £'000 Revenue 1,515 - 1,515 Cost of sales (503) - (503) ---- ---- ---- Gross profit 1,012 - 1,012 Net operating expenses (2,409) 47 (2,362) ---- ---- ---- Operating loss (1,397) 47 (1,350) Financial income 4 - 4 Financial expenditure (4) - (4) ---- ---- ---- Loss on ordinary activities before taxation (1,397) 47 (1,350) Tax on loss on ordinary activities 11 - 11 ---- ---- ---- Loss for the financial period (1,386) 47 (1,339) ========= ========= ========= Reconciliation of unaudited income statement for the year ended 31 December 2006 IFRS UK GAAP effect IFRS £'000 £'000 £'000 Revenue 3,511 - 3,511 Cost of sales (1,182) - (1,182) ---- ---- ---- Gross profit 2,329 - 2,329 Net operating expenses (4,431) 88 (4,343) ---- ---- ---- Operating loss (2,102) 88 (2,014) Financial income 8 - 8 Financial expenditure (11) - (11) ---- ---- ---- Loss on ordinary activities before taxation (2,105) 88 (2,017) Tax on loss on ordinary activities 23 - 23 ---- ---- ---- Loss for the financial period (2,082) 88 (1,994) ========= ========= ========= Reconciliation of unaudited balance sheet at 30 June 2006 IFRS UK GAAP effect IFRS £'000 £'000 £'000 Assets Non - current assets Property, plant and equipment 64 - 64 Trade and other receivables 73 - 73 Intangible assets - 50 50 ---- ---- ---- Total non-current assets 137 50 187 Current assets Inventories 427 - 427 Trade and other receivables 904 - 904 Current income tax recoverable 33 - 33 Cash and cash equivalents 522 - 522 ---- ---- ---- Total current assets 1,886 - 1,886 ---- ---- ---- Total assets 2,023 50 2,073 ---- ---- ---- Liabilities Current liabilities Borrowings (231) - (231) Trade and other payables (1,093) - (1,093) Current income tax liabilities (72) - (72) Provisions (50) - (50) ---- ---- ---- Total liabilities (1,446) - (1,446) ---- ---- ---- Net assets 577 50 627 ---- ---- ---- Equity Share capital 767 - 767 Share premium 13,466 - 13,466 Capital redemption reserve 17,476 - 17,476 Other reserves 863 - 863 Translation reserve - (3) (3) Retained earnings (31,995) 53 (31,942) ---- ---- ---- 577 50 627 Total equity ---- ---- ---- Reconciliation of unaudited balance sheet at 31 December 2006 IFRS UK GAAP effect IFRS £'000 £'000 £'000 Assets Non - current assets Property, plant and equipment 47 - 47 Trade and other receivables 52 - 52 Intangible assets - 91 91 ---- ---- ---- Total non-current assets 99 91 190 Current assets Inventories 383 - 383 Trade and other receivables 1,241 - 1,241 Current income tax recoverable 45 - 45 Cash and cash equivalents 418 - 418 ---- ---- ---- Total current assets 2,087 - 2,087 ---- ---- ---- Total assets 2,186 91 2,277 ---- ---- ---- Liabilities Current liabilities Borrowings (297) - (297) Trade and other payables (1,062) - (1,062) Current income tax liabilities (98) - (98) Provisions (50) - (50) ---- ---- ---- Total liabilities (1,507) - (1,507) ---- ---- ---- Net assets 679 91 770 ---- ---- ---- Equity Share capital 800 - 800 Share premium 14,086 - 14,086 Capital redemption reserve 17,476 - 17,476 Other reserves 1,014 - 1,014 Translation reserve - (9) (9) Retained earnings (32,697) 100 (32,597) ---- ---- ---- 679 91 770 Total equity ---- ---- ---- 11. Movement in Net debt 1 January Cash flow Exchange 30 June 2007 movement 2007 £'000 £'000 £'000 £'000 Net cash Cash at bank and in hand 418 1,366 (2) 1,782 --- --- --- --- 418 1,366 (2) 1,782 Other borrowings (297) 17 - (280) Finance leases (1) 1 - - --- --- --- --- 120 1,384 (2) 1,502 ======= ======= ======= ======= 12. Distribution of announcement Copies of this announcement are being sent to all shareholders and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, West Sussex, PO19 8TX. This information is provided by RNS The company news service from the London Stock Exchange

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