Preliminary Results

DawMed Systems PLC 20 March 2008 20 March 2008 DAWMED SYSTEMS PLC ('Dawmed' or the 'Company') PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2007 The Board of Dawmed Systems plc ('Dawmed' or 'the Company'), the AIM listed medical devices company, which designs, manufactures, sells and services healthcare decontamination equipment and associated consumables used by NHS Trust hospitals, private hospitals, clinics and Primary Care practitioners, is pleased to present the Preliminary Results for the Company for the year ended 30 September 2007. CORPORATE KEY POINTS - AERclens sales substantially increased; - Clinic sales were increased by 22%; - Wassenburg sales were decreased, but now substantially increasing; - Company's in-house research and development department continues to design new products and modifications to existing equipment; - Support Services Department continues to perform well; - Largest contract to date secured in East Kent Hospitals NHS Trust; - Significant increase in level of business achieved so far in current year; and - Return to profitability in current year in sight. FINANCIAL KEY POINTS - Total turnover for the year was £4.98m; - Gross profit was £1.89m; - EBITDA loss was £314,000; - Operating loss was £500,400; and - Net loss after interest and taxation was £577,500; Commenting on today's announcement, Kevin Gilmore, Executive Chairman of Dawmed, said: 'I am pleased to report that your Company has achieved some noteworthy su ccesses during the first half of the current year and has enjoyed the largest order book in its history. Particularly notable in these successes has been the award of a major contract for the East Kent Hospitals NHS Trust, in respect of which an RNS Announcement was made on 4 March 2008. Notwithstanding that the year ended 30 September 2007 was an extremely difficult one for the Company, the current year has started with a great deal more optimism and the Board is hopefully looking forward to a return to profitability in the current year.' --ENDS-- Enquiries: Dawmed Systems PLC Tel: 01608 682244 Kevin M Gilmore, Executive Chairman Mob: 07785 396666 Beaumont Cornish Limited Tel: 020 7628 3396 Roland Cornish Bishopsgate Communications Limited Tel: 020 7562 3350 Dominic Barretto For further information please visit Dawmed's websites at www.dawmed.com and at www.gvmc.net/DAWMED_IR/index.html. Chairman's Statement I present the Preliminary Results for the year ended 30 September 2007. These disappointing results are the consequence of a period of considerable financial constraints on expenditure on both capital and revenue supplies laid upon the NHS by the Government. This scenario was forecast as a possibility in the 'Outlook and Future Prospects' section of my Statement in the Company's Annual Report & Accounts 2006. I referred again to these restrictions on spending in the Interim Report for the six months ended 31 March 2007 and it is regrettable that the forecast proved to be accurate. Notwithstanding your Company's extremely difficult year, I am pleased to report that since the end of the financial year, the Company has achieved a significant increase in the level of business. During the period of spending restrictions, many hospitals were forced to delay many capital projects, such as the replacement of washer disinfectors, until funds became available. Throughout this time, the Company maintained its high level of support and contact with NHS Trusts to ensure that it would be well placed to secure new business when appropriate funding was secured. Since the end of the financial year, funding has been released for a substantial number of major projects and your Company has been successful in securing many of these contracts. I am also pleased to report that during the year the legal proceedings, which the Company's operating subsidiary company, Dawmed International Limited, inst igated against a trade debtor, were settled out of Court on a full, final and sa tisfactory basis. Dawmed International Limited received an appropriate compensa tion payment for the breach of contract. I can further report that a sa tisfactory ongoing relationship has been established with the said trade debtor for an extended period of two years until 2012. This important achievement was announced on 25 June 2007. Financials Total turnover for the year was £4.98M, a fall of 2% from the previous year. Sa les of the AERclens machine increased substantially during the year and the Clinic machine also experienced an increase in sales of 22%. Activities in Support Services remained static in the year, whilst sales of spare parts continue to generate steady growth of 13%. Sales of Wassenburg machines decreased over the previous year as a result of the continued delays by the NHS in placing orders due to the spending restrictions imposed by central government. Sales of chemicals declined by 12% following the renegotiation and extension of a long term contract. The effect of the reduction in turnover combined with increased competition, increasing costs and a change in product mix have contributed to a decline in gr oss profit to £1.89M, a decrease of 21% on the previous year. In line with these market conditions, the overall gross margin percentage has also decreased from 47% to 38%. The expenditure on total overheads was £2.79M, an increase of 10% over the pr evious year. This increase is attributable to a 14% increase in sales and ma rketing costs as the Company has sought to increase turnover and develop the market for new products, a 55% increase in Support Services overheads as the department has been strengthened to meet anticipated growth and a 15% increase in administration staff costs. Whilst these increases have had an adverse impact upon the results for the year ended 30 September 2007, your Board believes that this investment in infrastructure is necessary to achieve the greatest return from the anticipated improvement in UK healthcare sector procurement. The compensation received as settlement from the dispute with the trade debtor amounting to £396,100 is shown in other operating expenses (net). Earnings after finance charges but before interest, taxation, depreciation and amortisation ('EBITDA') were a loss of £314,000 compared with a profit of £108,100 in the prior year. The operating loss for the year was £500,400 compared with a loss in the pr evious year of £129,300. This shortfall is fundamentally the result of the difficult trading conditions during the year caused by the restrictions on spending within the NHS. The net loss after interest and taxation was £577,500 compared with a net loss after interest and taxation of £87,800 in the previous year. The balance sheet showed shareholders' funds of £513,600 at 30 September 2007, a reduction of £549,600 in the year reflecting the net loss incurred after share b ased payments are offset. The working capital position altered in line with the results for the year. Net current assets fell by £424,800, cash balance reduced by £509,600 to £5,200 and net debt at the year end had increased from a position of no net debt to £1,015,000. Products and Services The Support Services Department continues to perform well, with the recruitment of additional field engineers continuing in the current year to support the large and growing installed base of machines. The geographical spread of the service engineer team ensures that the department continues to maintain full and efficient UK coverage. The performance of the 'Clinic' washer disinfector dryer continues to develop and is showing good growth prospects. In particular, I am pleased to report that the Group has appointed an international distributor during the year and has also secured a significant contract for the manufacture of a 'badged' product for another medical device supplier. Awareness of the decontamination requirements for nasendoscopes, primarily for use by ENT (Ear, Nose and Throat) departments of hospitals, continues to develop and is raising the profile and level of enquiries for the AERclens washer disinfector. Your Board believes that the AERclens will become a major contributor to the future growth of the business. Although sales of Wassenburg products during the year suffered a decline as a result of the aforementioned restrictions in NHS funding that delayed many capi tal projects, orders for these machines have shown a substantial increase since the year end. The introduction during the year of the Wassenburg Dry300 drying and storage cabinet has been successful with numerous units being sold in the year. The continued emphasis on providing customers with a fast delivery time for spare parts, combined with the provision of technical expertise and assistance in addressing customers' needs, has again provided steady and profitable growth year on year. Enhanced Product Portfolio Existing medical device products and new medical device products which were introduced in the period, now comprise the following wide range: •'Clinic' bench top washer disinfector dryer ('WDD') system for the decontamination of surgical and dentists' instruments- providing washing, thermal disinfection and drying for use in NHS hospitals, all NHS and private dentists, clinics and other Primary Healthcare practitioners abroad; • 'AERclens Chemical' washer disinfector ('WD') system for the complete decontamination of small flexible nasendoscopes - providing washing and chemical disinfection for use in all NHS and private ENT Departments of hospitals and in Clinics and consulting rooms; •'AERclens Thermal' WDD system for the decontamination of small rigid metal nasendoscopes - providing washing, thermal disinfection and drying for use in all NHS and private ENT Departments of hospitals and in NHS and private Clinics and consulting rooms; •'OPTIclens' WDD system for the decontamination of delicate rigid metal ophthalmic surgical instruments - providing washing, thermal disinfection and drying for use in all NHS and private Ophthalmic Departments of hospitals and in NHS and private Clinics; •Data Capture Traceability System ('DCTS') is a new product designed to collect and store data from the Clinic, AERclens and OPTIclens products; •Wassenburg original space-saving WD for the complete decontamination of large flexible endoscopes providing washing and chemical disinfection for use in NHS and private Hospital Endoscopy Departments in the UK; •Wassenburg 'pass through' WD similar to the Wassenburg original space sa ving WD, but for use in NHS and private Hospital Endoscopy Departments which have sufficient accommodation for a 'Dirty Room' and an adjacent 'Clean Room', in the wall between which the WD is located; •Wassenburg 'Dry 300' - a storage/drying cabinet providing a daytime and overnight sterile environment for large flexible endoscopes for use in NHS and private Hospital Endoscopy Departments in the UK Outlook and Future Prospects As I have previously commented, your Company has been operating in a prolonged period of severe spending restrictions that were imposed on the NHS by central government. One of the main impacts of these restrictions was that many capital projects, including replacements of endoscope reprocessing equipment such as the AERclens and Wassenburg products, were delayed. However, since the end of the year a number of NHS Trusts have allocated funding to allow some of the delayed capital projects to proceed as well as some new projects. As a result, your Company has been involved in submitting public tenders and private quotations for these projects on a markedly increased scale. I am pleased to report that your Company has achieved some noteworthy successes during the first half of the year and has enjoyed the largest order book in its history. Particularly notable in these successes has been the award of a major contract for the East Kent Hospitals NHS Trust, in respect of which an RNS Announcement was made on 4 March 2008. The contract is one of the largest contracts that Dawmed International Limited h as ever undertaken and covers four hospitals over a wide area of East Kent. The whole project is underway and is anticipated to be completed by the end of April 2008. This significant contract is a complete 'turnkey' project comprising the supply, installation, testing and validation of all of the decontamination equipment referred to above, combined with the total responsibility for carrying out all of the enabling building works to accommodate the equipment. The level of enquiries being dealt with for the second half of the year give some confidence that the period of NHS draconian spending cuts may be over and that a more normal period of activity will prevail. As your Board predicted, the level of interest and consequent orders for the AERclens products are increasing. In view of this, the Directors believe that the AERclens products will become an important contributor to the current year's overall performance. Sales of the Clinic continue to improve and will benefit in the current period from a full year's revenue from the international distributor and the 'badged' product for another medical device supplier. An agreement has also been reached to source certain components for the Clinic from overseas, which are now flowing and will lead to an improvement in the margin for this product. The signing of a Memorandum of Understanding between your Company and Schulke & Mayr GmbH (the Germany based operating subsidiary company of Air Liquide, a world leader in medical and industrial gases and chemicals with particular interest in healthcare markets) for the sales, installations and servicing of the AERclens washer disinfector decontamination equipment in Germany and Austria, is regarded by your Board as a particularly important step forward in the implementation of its strategy to increase its export business in Europe and beyond. The drive to develop a substantial level of exports is continuing. In collaboration with the University of Leeds under a Knowledge Transfer Partnership, the Company has a full time post graduate who is investigating the European market for its products and identifying potential distributors. The markets in which the Company operates continue to be competitive and demanding. In addition, product innovation and value for money are rightly demanded by customers, in consequence of which the Company's in-house research and development department continues to design new products and modifications to existing equipment. On behalf of the Board and the shareholders, I would again like to express thanks to all of our employees for their continued participation in and dedication to the long term success of the Company. Notwithstanding that the year ended 30 September 2007 was an extremely difficult one for the Company, the current year has started with a great deal more optimism and the Board is hopefully looking forward to a return to profitability in the current year. Kevin M Gilmore Executive Chairman 20 March 2008 Dawmed Systems plc CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 September 2007 2007 Restated £ 2006 £ TURNOVER 4,976,158 5,077,316 Cost of sales (3,085,990) (2,673,102) ------------- ------------- Gross profit 1,890,168 2,404,214 Other operating expenses (net) (2,390,558) (2,533,549) ------------- ------------- OPERATING LOSS (500,390) (129,335) Profit on disposal of fixed assets - 65,445 Interest receivable and similar income - 16,745 Interest payable and similar charges (77,127) (40,658) ------------- ------------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (577,517) (87,803) Taxation - - ------------- ------------- LOSS FOR THE YEAR (577,517) (87,803) ============= ============= LOSS PER SHARE (2.82)p (0.43)p ============= ============= DILUTED LOSS PER SHARE (2.82)p (0.43)p ============= ============= The operating loss for the period all arises from continuing operations. No separate Statement of Total Recognised Gains and Losses has been presented as all such gains and losses have been dealt with in the Profit and Loss Account. Dawmed Systems plc CONSOLIDATED BALANCE SHEET 30 September 2007 2007 2006 £ £ FIXED ASSETS Intangible assets 165,642 338,217 Tangible assets 103,365 83,040 ------------- ------------- 269,007 421,257 ------------- ------------- CURRENT ASSETS Stocks 1,062,003 719,827 Debtors 1,249,872 869,434 Cash at bank and in hand 5,156 514,781 ------------- ------------- 2,317,031 2,104,042 CREDITORS: Amounts falling due within one year (2,072,430) (1,434,671) ------------- ------------- NET CURRENT ASSETS 244,601 669,371 ------------- ------------- TOTAL ASSETS LESS CURRENT LIABILITIES 513,608 1,090,628 ------------- ------------- CREDITORS: Amounts falling due after more than one year - (27,451) ------------- ------------- NET ASSETS 513,608 1,063,177 ============= ============= Called up share capital 1,030,665 1,023,165 Share premium account 1,878,239 1,872,239 Merger reserve (350,520) (350,520) Profit and loss account (2,044,776) (1,481,707) ------------ ------------ SHAREHOLDERS' FUNDS 513,608 1,063,177 ============= ============= Dawmed Systems plc CONSOLIDATED CASHFLOW STATEMENT for the year ended 30 September 2007 2007 Restated 2006 £ £ Cash flow from operating activities (901,815) 52,588 ============= ============= Returns on investments and servicing of finance Interest received - 16,745 Interest paid (77,127) (40,658) ------------- ------------- (77,127) (23,913) ============= ============= Capital expenditure and financial investment Purchase of fixed assets (71,509) (98,302) Receipts from sale of fixed assets - 83,336 ------------- ------------- (71,509) (14,966) ============= ============= Financing Factoring and stock advances 269,188 (94,393) Finance leases (14,870) (5,606) Other loans 199,579 - ----------- ----------- 453,897 (99,999) ============= ============= Decrease in cash (596,554) (86,290) ============= ============= Reconciliation of operating loss to net cash flow from operating activities Operating loss (500,390) (129,335) Depreciation and amortisation charges 223,759 210,560 Movement in stocks (342,176) (213,663) Share based payment expense 27,948 16,892 Movement in debtors (380,438) 518,268 Movement in creditors 69,482 (350,134) ----------- ----------- Net cash flow from operating activities (901,815) 52,588 ============= ============= Dawmed Systems plc year ended 30 September 2007 Notes 1. The calculation of earnings per share is based upon the loss after taxation of £577,517 (2006 restated loss: £87,803) and on 20,513,292 shares (2006: 20,463,292 shares) being the weighted average number of ordinary shares in issue during the year. Since the exercise price of the 2,846,676 (2006: 2,396,676) share options is above the average fair price for the year and the prior year, the diluted earnings per share is equivalent to the basic earnings per share. 2. The Consolidated Profit and Loss Account and Balance Sheet information for the years ended 30 September 2007 and 30 September 2006 shown above has been extracted from the Statutory Accounts for those years on which the auditors gave an unqualified opinion and did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their opinion and did not contain a statement under S237(2) or (3) of Companies Act 1985 . Statutory Accounts for the year ended 30 September 2006 have been delivered to the Registrar of Companies. The Statutory Accounts for the year ended 30 September 2007 are due to be delivered to the Registrar following conclusion of the forthcoming Annual General Meeting. 3. The preliminary results are prepared on the basis of accounting policies set out in the most recently published set of annual financial statements except for the adoption of FRS20. During the year, the group adopted FRS 20 'share based payments'. The adoption of FRS 20 is a change in accounting policy which results in a prior year adjustment. The effect on the comparative figures is a reduction in the group's profit before tax for the year ended 30 September 2006 of £16,892. The share based payment reserve has been credited directly to retained profits rather than to a separate share options reserve and accordingly there is no impact on the balance sheet at the end of the year. A copy of this statement, which was approved on 20 March 2008, is available from the offices of Beaumont Cornish Limited, 5th Floor, 10-12 Copthall Avenue, London, EC21 7DE This information is provided by RNS The company news service from the London Stock Exchange

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