Final Results

Deltex Medical Group PLC 01 April 2003 1 April 2003 Deltex Medical Group plc Preliminary results for the year ended 31 December 2002 Deltex Medical Group plc ('Deltex Medical'/'Group'/'Company'), the AIM listed haemodynamic monitoring company, announces its results for the year to 31 December 2002. Highlights • Sales increased by 38% to £1.8m (2001: £1.3m) • Loss for financial year reduced to £2.9m (2001: £3.3m); 2002 loss includes exceptional item of £0.2m • CardioQ installed base rose 39% to 841 units (2001: 605 units) • £0.8m subscribed from major shareholders and new investors to continue rapid expansion • £2.0m net cash at year-end (2001: £5.6m) - net cash usage is reducing due to sales growth and careful management of existing resources • Increasing recognition both of the medical and economic benefits of haemodynamic optimisation, and of the solutions offered by Deltex Medical's technology • Significant acceleration of sales since the adoption of direct sales effort by in-house team for the UK market from 1 July 2002 • Use of CardioQ system expanded to include operating theatres, as well as intensive care units • Single use probes, DP6 and DP12, for specific surgical procedure use, launched in December 2002; two additional DP products, DP240 and pDP, developed in 2003 • Andy Hill appointed as Chief Executive, January 2003, and Daniel Bretonneau appointed as Sales Director in July 2002 • Current trading in line with expectations. Chairman, Nigel Keen, commented: '2002 was a year of significant progress for Deltex Medical. We strengthened our management team, increased our manufacturing capacity to meet growing demand and launched new products designed specifically to provide solutions needed by our customers. We have focused the Company's sales and marketing approaches on communicating and implementing the many benefits of our proprietary systems. 'The budgetary pressures on most healthcare systems around the world are such that a technology with proven economic benefits so significantly in excess of cost merits the full attention of healthcare decision makers. 'Because of the significant progress made since 2002, the Board believes that Deltex Medical now meets each of the required criteria in its key markets and has the necessary resources in place to take advantage of the growing acceptance of haemodynamic optimisation and its benefits for large numbers of patients in operating theatres, intensive care units and accident and emergency departments. This will enable us to deliver increasing and sustainable value to our shareholders.' Enquiries Deltex Medical Group plc Nigel Keen, Chairman nigel.keen@deltexmedical.com 01243 774 837 Andy Hill, Chief Executive andy.hill@deltexmedical.com 01243 774 837 Ewan Phillips, Finance Director ewan.phillips@deltexmedical.com 01243 774 837 Financial Dynamics Stephanie Highett/Francetta Carr stephanie.highett@fd.com 020 7831 3113 Notes for Editors Deltex Medical primarily develops, assembles and markets a cardiac function monitor and therapy guidance device, the CardioQ ('CardioQ'/'Monitor'). The CardioQ incorporates the Company's proprietary software and a small diameter, easy-to-use, minimally invasive, disposable oesophageal probe that is used for transmitting and receiving an ultra-sound ('Doppler') signal. By using this Doppler technology, the CardioQ provides clinicians with the ability to haemodynamically optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been scientifically proven to improve the speed and quality of patient recovery and reduce hospital stay. There are already over 800 CardioQs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 75 clinical publications on the use of the CardioQ which have repeatedly:- * validated the results of the Monitor against known standards for measuring cardiac output, demonstrating that the technology works * proved that the CardioQ works in a wide range of surgical procedures * demonstrated that the Company's technology provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays by an average of 30 to 40 per cent for a wide range of patients. The Company is also currently developing a number of new products:- * the SupraQ - a monitor based on the CardioQ technology but using a completely non-invasive probe; the prototype is being prepared for clinical testing * the NeuroQ - a monitor designed to measure blood flow in the brain; the new prototype is in preparation for clinical trials. Chairman's statement Group overview The human body provides oxygen to all its principal organs through the circulation of blood around the system. In critically ill patients or when individuals are involved in a traumatic event it is vital that the clinician is given information to ensure that this blood circulation is continuing properly ('haemodynamic optimisation'). If the oxygen supply is not maintained for any extended period ('haemodynamic compromise') the patient either takes longer to recover, does not recover completely or does not recover at all. Similarly, patients who undergo routine moderate and major surgery are at risk of complications and extended hospital stay due to haemodynamic compromise. This is because all surgical patients are denied fluid and food for a period prior to their operation ('nil by mouth'); during the operation they are treated with anaesthetic agents that affect the body's ability to compensate for the dehydration caused by the nil by mouth regime; and are further compromised through blood loss and evaporation from the wound during the surgical procedure. Deltex Medical has developed and proven a cardiac function monitoring system, the CardioQ, which it manufactures and markets. The CardioQ monitor uses Doppler ultrasound technology to provide clinicians with information to allow them to ensure that critically ill patients and those undergoing moderate and major surgery are haemodynamically optimised. The data is provided through a disposable probe which is inserted into the patient's oesophageous through the mouth or nose. Using this data the doctor is able actively to intervene to manage the patient's fluid status with the goal of achieving, then maintaining haemodynamic optimisation. Clinical studies have repeatedly shown that using the CardioQ provides significant health and economic benefits by helping to reduce post-operative complications and length of hospital stays by more than 35% on average for a wide range of patients. Whilst the CardioQ is today used principally with sedated patients, Deltex Medical is currently developing devices which will extend the use of the system to unsedated patients. This will allow the clinician to ensure that the patient is haemodynamically optimised from the time that he or she arrives in the healthcare system, be that at the site of an accident or on admission to hospital, through to discharge of the patient from the hospital. Deltex Medical's opportunity and its goal is to make haemodynamic optimisation guided by the CardioQ a standard of care in operating theatres, intensive care units and accident and emergency departments worldwide. This will provide doctors with information to enable them to guide therapy which will help them make their patients better, quicker. Trading results 2002 was a year of significant progress for Deltex Medical. We strengthened our management team, increased our manufacturing capacity to meet growing demand, launched new products designed specifically to provide solutions needed by doctors and focused the Company's sales and marketing approaches on communicating and implementing the many benefits of our proprietary systems. In the year ended 31 December 2002, Deltex Medical increased sales by 38% to £1.8 million. Underlying this was a 28% increase in the number of Single Patient Probes ('SPP') sold. We sold 201 CardioQ monitors in the year and saw the installed base of CardioQs increase by 39% to 841. The net loss before taxation for the year amounted to £3.1 million, a reduction of £0.2 million compared to 2001 or £0.4 million after exceptional items. This reflects both the increased contribution from sales as they continue to build and changes we have made to our cost base to ensure we focus our resources on those markets where the clinical and healthcare environment is suitable for the accelerated adoption of our technology. Cash at the end of the year was £2.0 million (2001: £5.6 million). This was in line with our expectations. After taking into account the payment in the early part of 2002 of liabilities outstanding at the end of 2001, and £300,000 spent in the second half of the year on one-off items which were necessary to position the Group for sustainable future growth, we were using cash at an average rate of £225,000 per month for the year as a whole. This included the increased spending in the second half arising as we invested in building our UK and international sales and clinical training teams, upgraded our systems and expanded our probe manufacturing capacity. Tight control of our overheads and increasing revenues from our rapidly growing installed base of CardioQ in hospitals has meant that our monthly net cash usage was reducing as we entered 2003 and has continued to reduce subsequently. A key strength of Deltex Medical's business model is that, as the business grows and becomes more established into hospital protocols, the Group generates increasing amounts of cash from recurring probe orders each month. In order to provide additional cash resources to continue this rapid expansion, we have received commitment from our major shareholders and new investors to subscribe to £0.8 million in new equity. We will call an Extraordinary General Meeting of Shareholders to pass the resolution necessary to allow the Company to issue these new shares. This has been set out in more detail in a separate announcement issued today. Probe utilisation and installed base During 2002, we increased our installed base from 605 units to 841 and we sold 24,000 of our SPP used in intensive care, up from 18,000 in the previous year. On 1 July 2002 we took back the distribution of our products in the UK. Our distributor had done well in introducing the CardioQ in the UK and we felt that we could build on that base more effectively by controlling our own sales effort using our established sales model which has been shown to be effective. Consequently a major thrust for us during the period has been the establishment of our own field sales force and team of clinical trainers in the UK building on the small team we have had in place for some time to support our UK business. This has resulted in our recruiting five additional sales people and seven additional nurse specialist clinical trainers in the UK. This development has already dramatically increased the amount of time spent presenting the CardioQ system to doctors and nurses. Feedback from the UK market since July clearly reinforces that there is considerable demand for the haemodynamic monitoring solution which the CardioQ offers. Furthermore we believe that the market will be considerably expanded by the introduction of lower cost applications of the technology such as that provided by our new range of probes. Since the launch of the CardioQ in 1999 the majority of regular use in hospitals has been in intensive care; operating theatre use has been limited mostly to patients whose treatment also involves a spell in intensive care. The most common condition treated using the CardioQ is hypovolemia, a deficiency in circulating fluid volumes. The body reacts to hypovolemia by seeking to maximise the delivery of blood to the most vital organs, meaning that peripheral systems and less essential organs such as the gut are compromised. Unpleasant and often severe medical complications frequently arise in patients whose haemodynamic status has been compromised by hypovolemia, meaning that patients often stay in hospital longer and make less complete recoveries than they would have done had their fluid status been monitored and optimised. The dehydration caused by the 'nil by mouth' regime together with the effects of anaesthetic drugs and the trauma caused by surgery itself each combine to contribute to the fact that every patient undergoing surgery under general anaesthetic is liable to suffer from hypovolemia to some degree. While fitter, younger people undergoing relatively minor procedures can probably withstand this with minimal adverse consequence, virtually all older or less healthy patients or those undergoing moderate to high risk surgery would benefit, often considerably, from having their haemodynamic status monitored and optimised during surgery. As more doctors accept the benefits of haemodynamic optimisation guided by the CardioQ in surgery as evidenced by the many clinical papers that have been published, there are very substantial opportunities to grow our user base. In July 2002 we launched the Multi Patient Probe ('MPP') in the UK. The MPP allows the doctor to re-use the probe up to six times, thereby lowering the cost of use for each of these patients. We found that many doctors wanted to use the CardioQ to haemodynamically optimise their patients in the operating theatre, but feedback showed that there would be an even greater demand in the UK for a single use probe to be used during an operation at a cost per procedure similar to that of the MPP. To make this lower price possible and therefore to give us access to significantly higher volumes of users, we have refined our system to emphasise length of time of access to the clinical knowledge embedded in the CardioQ. This approach has resulted in the development of a range of probes (the DP range) which provide access to the system for a set time - for example the DP6 lasts six hours and is recommended for use in less complex moderate to high risk surgery and the DP12 lasts twelve hours and is recommended for use in longer duration surgery such as more serious cardiac procedures. Both the DP6 and DP12 probes were launched ahead of schedule in the UK on 18 December 2002, since when we have sold nearly 1,200 probes. We are currently introducing these products in more than half of the major NHS hospitals in the UK; over a quarter of the major NHS hospitals are already CardioQ users. In addition we are beginning to receive our first enquiries from privately owned UK hospitals. Since the year end we have developed two additional new probes: • The DP240 - an alternative to the 10 day duration SPP, the DP240 is indicated for nasal as well as oral insertion (as are all other probes in the DPn series); and • The pDP - a single use paediatric probe for use with our proprietary paediatric nomogram. The pDP is currently being evaluated for both operating theatre and intensive care use in five of the six major childrens' hospitals in England. Our current research and development efforts include a number of projects to allow common usage of our system on unsedated patients. We will shortly start trials of softer oesophageal probes for nasal insertion on awake patients and are planning a multi-centre evaluation of the SupraQ for later in 2003. The SupraQ is a wholly non-invasive device which works by measuring the flow of blood in the aorta with a probe placed on the supra-sternal notch at the base of the throat. A clinical trial which commenced in 2002 using the SupraQ to monitor patients undergoing Caesarean Sections is generating positive feedback. Overseas markets United States of America Throughout 2002, we made significant progress in implementing our strategy in the USA. We have focused our small clinical educator sales team on developing a small number of key accounts. We also made substantial progress in achieving our longer term objectives in the USA with the publication of another major study showing significant benefits from the CardioQ technology and, since the year end, have received a positive response from the American Medical Association to our application for reimbursement coding. In June we reduced the US administrative overhead burden and upgraded our field team to meet the skill set profile we have now identified as most successful. The team achieved considerable success in increasing probe revenues from targeted key accounts. Europe Sales in Europe progressed, with strong growth in Italy and France where the CardioQ is longer established. We increased our European team in the second half of the year to allow us to concentrate on working with our distributor partners to roll-out our successful UK sales and marketing models tailored to local conditions, the key emphasis is to work towards having appropriate clinical education and training programmes in place and to position the CardioQ for high volume use in operating theatres as well as specialist applications in intensive care units. Far East and Latin America We have continued our efforts in a number of developing markets particularly in the Far East and Latin America. In many countries in these regions, the potential of haemodynamic optimisation guided by the CardioQ to significantly reduce hospital stays is attractive politically as well as medically as it allows more people access to hospital medicine than might otherwise be the case. The response to our newly developed marketing strategies has been very positive both from our distributors and local administrators. Deltex Medical is well positioned in many of these markets with good quality, thoroughly trained distributors and we now have the ability to be flexible in deciding our level of investment according to the availability of returns from our efforts. Key Achievements During the year we accelerated the evolution of Deltex Medical from its past heavy emphasis on research and development which was needed to introduce the CardioQ and get it clinically accepted through to a more customer focused sales and marketing led business. Our key achievements during this period have been to: • Increase manufacturing capacity and efficiency by installing and commissioning a new clean room at our facility in Chichester; • Increase significantly our UK market presence by bringing distribution in our home market back in-house from 1 July 2002, recruiting and training five additional sales people and seven additional clinical trainers; • Sharpen our focus on working effectively with our key distribution partners in Europe by strengthening our international sales and clinical training team; • Increase the number of staff with primarily customer-facing roles from under a third to over a half and significantly increase the focus of the remainder to provide customers with the solutions, support and service they need; • Install and implement new communications, financial, customer relationship management, human resource and planning systems; • Upgrade our quality systems and recruit a dedicated regulatory affairs and quality assurance manager; • Redesign our marketing materials to emphasise the substantial benefits of the CardioQ technology to all stakeholders whether patients, medical staff or healthcare managers; • Re-organise our management structures to flatten reporting lines and clearly define team and personal responsibilities. The effectiveness of these changes is demonstrated by the substantial and accelerating increase in our user base and by the way in which we were able to launch the DP6 probe into the UK market ahead of schedule. Board and organisational changes In April 2002 Kemp Coady stepped down as Chief Executive and I took his place. Kemp has stayed on the Board as a non-executive Director. Andy Hill, who originally started working with us in June 2002 to oversee the transition to selling direct in the UK, joined the Board as Chief Operating Officer in October and was appointed Chief Executive in January 2003, since when I have reverted to serving as non-executive Chairman. Andy has over 16 years experience in the medical devices industry, initially in sales and sales management and for the last few years in general management setting up the European operations of a number of early stage high growth US medical device businesses. Daniel Bretonneau, who has been in charge of international sales since 1999, was promoted to the Board as Sales Director in July 2002. Prospects The first few months of 2003 have seen Deltex Medical continue to build on the momentum generated throughout 2002. Demand for our products is growing strongly in our traditional intensive care market and there is very positive response to our new range of operating theatre solutions. We have already started working with a number of doctors on programmes designed to move their hospitals towards full adoption of the CardioQTM in operating theatres and intensive care units over the next year to 18 months. It has taken a long time for acceptance of the concept of haemodynamic optimisation to reach this stage where such major investments by hospitals have become feasible. The budgetary pressures on most healthcare systems around the world are such that a technology with proven economic benefits so significantly in excess of the initial investment and ongoing cost merits the full attention of healthcare decision makers. We believe that there are a number of determinants of success for an innovative medical device business in making its products become a standard of care. The key ones are: • Supportive clinical data; • Physician motivation to change patient management; • Ease of use; • Short learning curve; • Compelling cost/benefit ratio; • Regulatory and reimbursement approval; and • Patient acceptability. Deltex Medical believes that it now meets each of these criteria in its key markets and has the necessary resources in place to take advantage of the growing acceptance of haemodynamic optimisation and its benefits for large numbers of patients in operating theatres, intensive care units and accident and emergency departments. We are confident this will enable us to deliver increasing and sustainable value to our shareholders. Nigel Keen Chairman 1 April 2003 Consolidated profit and loss account for the year ended 31 December 2002 2002 2001 Note £m £m Unaudited Audited Turnover 1 1.8 1.3 Cost of sales (0.9) (0.7) ---- ---- Gross profit 0.9 0.6 ---- ---- Net operating expenses (4.1) (4.0) ---- ---- Operating loss (3.2) (3.4) Interest receivable and similar income 0.1 0.1 Interest payable and similar charges - - ---- ---- Loss on ordinary activities before taxation (3.1) (3.3) Tax on loss on ordinary activities 0.2 - ---- ---- Loss for the financial year (2.9) (3.3) ======= ======= Loss per share - basic and diluted (7.8p) (17.4p) ======= ======= The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the financial year have been computed on the historical cost basis. Statement of Group total recognised gains and losses for the year ended 31 December 2002 2002 2001 £m £m Unaudited Audited Loss for the financial year (2.9) (3.3) Currency translation differences in foreign currency net investment (0.1) 0.1 ---- ---- (3.0) (3.2) ===== ===== Consolidated balance sheet At 31 December 2002 2002 2001 £m £m Unaudited Audited Fixed assets Tangible assets 0.3 0.4 ---- ---- Current assets Stocks 0.7 0.7 Debtors 0.9 0.4 Cash at bank and in hand 2.0 5.6 ---- ---- 3.6 6.7 Creditors: amounts falling due within one year (1.0) (1.2) ---- ---- Net current assets 2.6 5.5 ---- ---- Net assets 2.9 5.9 ==== ==== Capital and reserves Called up share capital 3.7 3.7 Share premium account 8.6 8.6 Merger reserve 1.8 1.8 Profit and loss account (25.3) (22.3) Capital redemption reserve 14.1 14.1 ---- ---- Equity shareholders' funds 2.9 5.9 ==== ==== Consolidated cash flow statement for the year ended 31 December 2002 2002 2001 Note £m £m Unaudited Audited Net cash outflow from operating activities 3 (3.4) (2.4) ---- ---- Returns on investments and servicing of finance Interest received 0.1 0.1 ---- ---- Net cash inflow from returns on investments and servicing of finance 0.1 0.1 ---- ---- Taxation 0.1 - Capital expenditure Purchase of tangible fixed assets (0.2) (0.3) ---- ---- Net cash outflow from capital expenditure (0.2) (0.3) ---- ---- Net cash outflow before financing (3.4) (2.6) ---- ---- Financing Issue of ordinary share capital - 5.3 Expenses in connection with share issue - (1.1) ---- ---- Net cash inflow from financing - 4.2 ---- ---- (Decrease)/increase in net cash in the year (3.4) 1.6 ===== ==== Notes to the preliminary statement for the year ended 31 December 2002 1. Nature of the financial information The financial statements for Deltex Medical Group plc have yet to be signed for the year ended 31 December 2002. The financial information set out in the announcement does not constitute the Company's statutory accounts for the year ended 31 December 2002 or 31 December 2001. The financial information for the year ended 31 December 2001 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2002 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General meeting. The preliminary results have been prepared in accordance with applicable accounting standards. The particular accounting policies adopted are the same as those adopted in the financial statements for the year ended 31 December 2001, except for Deferred Taxation which is now accounted for in accordance with FRS19 : Deferred Tax. The adoption of the new standard did not result in a prior year adjustment, nor did it have an impact on the taxation charge for the period ended 31 December 2002. 2. Turnover The Group's activities consist solely of the manufacture and marketing of medical devices. By origin, all sales are United Kingdom sales. 2002 2001 £m £m Unaudited Audited Analysis of turnover by destination United Kingdom 0.7 0.5 United States of America 0.4 0.3 Rest of Europe 0.4 0.3 Rest of the World 0.3 0.2 ---- ---- 1.8 1.3 ===== ===== 3. Operating Cashflow 2002 2001 £m £m Unaudited Audited Operating loss (3.2) (3.4) Depreciation on tangible fixed assets 0.3 0.4 Exchange differences - (0.1) Decrease in stocks - 0.2 Increase in debtors (0.4) (0.1) (Decrease)/Increase in creditors (0.1) 0.6 --- --- Net cash outflow from operating activities (3.4) (2.4) ===== ===== 4. Dividends The directors do not recommend payment of a dividend (2001: nil). 5. Loss per share The loss per share calculation for 2002 is based on the loss for the financial year of £2.9 million and weighted average number of shares in issue of 36.9 million. For 2001 the loss per share calculation was based upon the loss of £3.3 million and weighted average number of shares in issue of 18.7 million. The Group had no dilutive potential ordinary shares in either year, which would serve to increase the loss per ordinary share. Therefore there is no difference between the loss per ordinary share and the diluted loss per ordinary share. 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. This information is provided by RNS The company news service from the London Stock Exchange

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