Final Results

RNS Number : 9910B

Deltex Medical Group PLC

11 March 2014

 



Deltex Medical Group plc

Results Summary for the year ended 31 December 2013

11 March 2014 - Deltex Medical Group plc ("Deltex Medical", "Group" or "Company"),the global leader in oesophageal Doppler monitoring (ODM), today announces its audited results for the year ended 31 December 2013.

Key performance measures

·      Surgical probe revenues up 24% to £5.5m (2012: £4.5m)

o  UK up 26%

o  USA up 13%

o  International up 26%, in particular France, up 37%

·    Overall probe revenues up 20% to £6.3m (2012: £5.3m)

·    Gross profit on probes up 20% to £4.8m (2012: £4.0m)

·      Strong performance in H2 with profit of £0.3m before non-cash and US market development

·      Net monitor income less costs flat at £0.4m

·      Cash loss before US market development cost of £0.3m (2012: £1.1m)

·      Cash position increased 119% to £1.5m (2012: £0.7m)

Operating Highlights

·      Significant development in US market

o  3 additional dedicated trainer accounts in US hospitals

o  Medicare & Medicaid physician payment

·      Ten additional dedicated trainer accounts in UK hospitals

·      Establishment of Deltex Medical Canada as jointly owned subsidiary

·      Further developments in research collaboration with Premier Inc.

·      Four implementation research sites agreed within US market development project

Statutory results

·      Revenue up £0.4m to £7.2m (2012: £6.8m)

·      Revenue excluding barter income up £0.8m

·      Combined probe and monitor gross margin 72% (2012: 71%)

·      Operating loss of £2.1m (2012: operating loss of £2.1m) after US market development costs of £0.6m (2012: £0.1m)

Current Developments

·      Marketing and distribution agreement with Uscom Ltd

·      Targeted dissemination of research data from Premier collaboration: pipeline expanding

·      Launch of new training aide, ODM patient simulator

Nigel Keen, Chairman, commented:

"Deltex Medical is in an exciting phase in its development. We have made significant progress in growing the business. Our products have market leadership positions in those territories where we have moved from market creation into market development. Further territories are now moving more rapidly than before towards the market development stage including the key US market which has progressed significantly further than we anticipated at the start of 2013. Profits from these growing operations will allow us to build the business more quickly in the years to come delivering sustainable value for our shareholders."

For further information, please contact:-

Deltex Medical Group plc	01243 774 837 [e-mail]
Nigel Keen, Chairman
Ewan Phillips, Chief Executive
Paul Mitchell, Finance Director
Nominated Adviser & Joint Broker
Arden Partners plc	020 7614 5900
Chris Hardie
Joint Broker
Zeus Capital Limited	020 7533 7727
Dominic Wilson John Goold
Financial Public Relations
Newgate Threadneedle	020 7653 9850
Graham Herring
Caroline Evans-Jones
Heather Armstrong

Notes for Editors

Deltex Medical manufactures and markets CardioQ-ODMÔ Oesophageal Doppler Monitoring ('ODM') systems. ODM is the only technology to measure blood flow in the central circulation in real time. Minimally invasive, easy to set up and quick to focus, the technology generates a low-frequency ultrasound signal, which is highly sensitive to changes in flow and measures them immediately. Randomised, controlled trials using Doppler have demonstrated that early fluid management intervention will reduce post-operative complications, reduce intensive care admissions, and reduce the length of hospital stay.

The CardioQ-ODM has two distinct established clinical applications: firstly, to guide fluid management during surgery and secondly, to monitor cardiac output in critical care settings.

Surgical market

In March 2011 the National Institute for Health & Clinical Excellence ('NICE') recommended that CardioQ-ODM be considered for use in patients undergoing major and high risk surgery and in high risk patients undergoing intermediate risk surgery. NICE estimated the applicable number of such patients in the NHS in England alone to be over 800,000 each year. CardioQ-ODM has been shown to be effective in both elective and emergency surgery and with both general and regional anaesthetics. This recommendation was specific to CardioQ-ODM and was based on the robust evidence base that supports its use.

Subsequent to the NICE guidance, the NHS in England announced its selection of ODM as a high impact innovation to be rolled out across the system fully, at pace and scale with significant financial penalties starting in the NHS 2013/14 financial year ending 31 March 2014.

The NICE evaluation and recommendation confirms that the potential global market for CardioQ-ODM in surgery includes tens of millions of patients, even if confined to developed health economies: the most conservative estimate of the potential value of the market opportunity Deltex Medical has created is in excess of £1 billion per annum. The Company's core focus is on building market leading positions in this surgical market, both geographically and by type of surgery.

Critical care market

In critical care settings, well-equipped hospitals will often have more than one cardiac output monitoring technology available. In this environment, ODM's strengths are that it is quick to set up, easy to use, safe, low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. The potential market for cardiac output monitoring in critical care is a fraction of the size of that for intra-operative fluid management.

Through the 2012 launch of the CardioQ-ODM+, Deltex Medical has added the Pulse Pressure Waveform Analysis ('PPWA') approach to monitoring cardiac output to ODM functionality. Doing this has improved Deltex Medical's offer for monitoring applications as well as providing doctors and nurses with a choice of clinical strategies appropriate to individual patients in different clinical settings.

Company goal

Our goal is to make oesophageal Doppler monitoring (ODM) a standard of care for patients in both these markets. We believe that, in most modern health systems, it is essential to have a robust evidence base of both clinical benefit and cost effectiveness in order to achieve system-wide adoption of a new medical technology. Deltex Medical is one of the very first medical technology companies to have completed the investment necessary to build such an evidence base: as a result, use of ODM during surgery has the proven potential to deliver both clinical and economic benefits that are material at each of patient, hospital and system level.

The Company is currently in the implementation phase of achieving this goal in a number of territories worldwide and there are already around 3,000 CardioQ-ODM systems in use in hospitals worldwide. Distribution arrangements are in place in over 30 countries.

Chairman's Statement

Deltex Medical's goal is to make Oesophageal Doppler Monitoring ('ODM') a standard of care in both major surgery and in critical care in healthcare markets throughout the world. Achieving this will create an international business that generates substantial profits and cash. We have made good progress towards achieving this goal in 2013.

Our products are gaining traction both in countries, such as the UK, France, Sweden and Peru where we have market leading positions and are focused on market development and in evolving markets for haemodynamic monitoring and management including the USA, Canada, Spain and Germany where our focus is more on market creation. Traction in these markets generates a high quality, high margin revenue stream with opportunities for substantial growth as a result of increased usage of our single patient use disposable probes.

Proforma results

Surgical probe revenue growth in 2013 was £1,055,000 (24%) generating a £793,000 increase in gross profit on probes which has resulted in a £776,000 reduction in the loss before non-cash and US market development costs from £1,062,000 in 2012 to £286,000 in 2013. This is a key indicator of the Company's ability to generate cash from trading and this KPI was £302,000 positive in the second half of the year.

	Full year 2013 £'000	Full year 2012 £'000
Probe revenue
Surgical probes	5,509	4,454
Critical care probes	788	811
	----	----
Total probe revenue	6,297	5,265
	----	----
Cost of sales- probes	(1,542)	(1,303)
	----	----
Gross profit probes	4,755	3,962
	----	----
Monitor and sundry income
Sundry income	35	2
Net monitor income less costs*	379	401
	----	----
	414	403
Cash costs	(5,455)	(5,427)
	----	----
Loss before non-cash and US market development	(286)	(1,062)
	----	----
Non- cash
Clinical research income	-	448
Costs	(1,213)	(1,415)
	----	----
Loss before US market development costs	(1,499)	(2,029)
US market development costs	(599)	(49)
	----	----
Operating loss	(2,098)	(2,078)
	----	----

	2013 £'000	2012 £'000
*Net monitor income less costs comprises:
Revenue from monitors sold	668	838
Maintenance revenue	87	120
Cost of sales - monitors	(201)	(419)
Amortisation cost of placed monitors	(175)	(138)
	----	----
Total	379	401
	----	----

Cash costs were controlled tightly and less than 1% higher than in 2012 at £5,455,000 (2012: £5,427,000). Net monitor income was £22,000 (5%) lower than in 2012 at £379,000 (2012: £401,000). During 2013, we sold an additional 133 monitors and placed over 200, increasing our installed base at the year end to around 3,000 units. .

Total cash at 31 December 2013 was £1,459,000, £1,000 lower than at the interim on 30 June 2013. The movement on the cash balance in the second half reflects working capital movements as well as the investment of £306,000 in our US market development project.

Statutory results

Revenue as reported in the Consolidated Statement of Comprehensive Income increased by £394,000 to £7,151,000. This reflects an increase in surgical probe sales of £1,055,000, offset by a reduction in monitor sales of £170,000 and clinical research income of £448,000.The operating loss was £20,000 higher than in 2012 at £2,098,000 (2012: £2,078,000). Compared to the £776,000 reduction in the loss before non-cash and US market development costs this reflected the net effects primarily of: £599,000 US market development costs incurred on our collaboration with Premier Inc (2012: £49,000); a £448,000 reduction in Clinical Research Income following our decision to seek to retain title to monitors placed with hospitals for research purposes; and a £202,000 reduction in total non-cash costs to £1,213,000 (2012: £1,415,000). The Company expects the substantial majority of the US market development costs to be completed during 2014 and 2015 and that most of the remaining balance of £264,000 prepaid costs relating to previous Clinical Research Income to unwind over 2014.

UK Market

Deltex Medical has a strong market leading position in UK intra-operative fluid management ('IOFM') and has the largest surgical installed base with a presence in the majority of hospitals in the UK treating a considerable numbers of patients. CardioQ-ODM is the only IOFM technology recommended by the National Institute for Health and Care Excellence ('NICE'). Surgical probe revenues grew by 26% to £3,094,000 on a 22% increase in volumes to 40,690 units (2012 revenue £2,452,000 and 33,355 units).

Since mid-2012 we have been focusing the majority of our clinical support resources on those hospitals looking to implement IOFM in depth. In particular we are looking to migrate such accounts to our dedicated trainer programme which comprises the allocation of a dedicated clinical trainer at a level appropriate to the scale of planned implementation followed up by enhanced account management including regular reporting and audit support. We entered 2013 with two UK dedicated trainer accounts, added two more in the first half and a further six in the second half. We currently have 12 dedicated trainer accounts established, together with an expanding pipeline of additional potential accounts of over 20 hospitals.

Our UK sales and clinical support operation generated net cash of over £1.5m in 2013, circa £0.3m more than in 2012. We believe that our focus on increasing the number of dedicated trainer accounts will maintain our market leadership, maximise return on investment and strongly increase cash generation. This in turn will allow us to reinvest incremental cash generated in the UK into markets which are known to provide the opportunity for rapid growth in adoption of beneficial medical technologies such as ODM.

The NHS in England announced in December 2011 its selection of ODM as one of six high impact innovations to be adopted at pace and scale. Implementation of this decision has been weak to date: targets set for implementation were barely above the trajectory already established and no sanctions have been imposed against the significant numbers of hospitals who failed to achieve these low initial targets. The Company believes that there is considerable scope for the NHS to drive accelerated ODM adoption and that, if it does so effectively, it will lead to substantial patient benefits and cost savings to the NHS. The NHS is expected to announce its updated plans for high impact innovations, such as ODM shortly.

US market

Our strategy in the USA is to develop a small number of hospital accounts where our products are embedded broadly and deeply into routine usage across major surgery; to then broaden the base of customers, utillising the experience gained from this strong base of profitable accounts with the goal of positioning the business for national roll-out of ODM. The Board believes that such a roll-out will be expedited if a small number of these initial hospital accounts are able to demonstrate credibly the clinical and economic benefits of implementing ODM. The Company therefore initiated a US market development project in 2013, building on pilot work undertaken with Premier Inc. and Duke University Hospital in 2011 and 2012. Premier, through a network of subscribing hospital members, manage a large database of hospital outcomes and costs enabling both assessment of clinical practice and outcomes in the USA. This analysis is relatively low cost and has direct impact on change programmes such as the implementation of ODM. Premier have demonstrated their ability to disseminate amongst their members data highlighting variations in outcomes and related variations in practice as a platform for quality improvement programmes amongst their members together with the results of such programmes.

We have made significant progress in implementing this strategy in 2013 and are encouraged by the pace at which the market opportunity is growing:

·      We have moved from two to five established dedicated trainer accounts. These five accounts delivered well over 100% of the £99,000 total probe revenue growth in 2013 (13%) with four of them averaging over 50% growth

·      We have a growing pipeline of other potential dedicated trainer accounts from our existing geographic focus areas

·      We have seen a step-up in interest from a number of leading teaching hospitals around the country generating further pipeline expansion

·      We are further increasing the pipeline through targeted programmes to disseminate the currently available results and products from our US market development investment

·      We have signed our first partnership agreement with an anaesthesia services group (professional partnerships that contract to provide anaesthesia services to hospitals) and are supporting their addition of ODM into the care services they offer

·      In April 2013 ODM became the first technology for over a decade where Medicare (the US governmental entity which reimburses healthcare costs to certain categories of US patients) makes extra payments to doctors nation-wide for its use

·      Hospital systems focusing efforts on how to improve outcomes and reduce costs to compete post Obamacare and the Affordable Healthcare Act (US governmental focus on providing healthcare to a greatly expanded population of US nationals)

·      Sharp increase in the focus of the US anaesthesia profession on demonstrating its value to patients and healthcare systems in relationship to escalating healthcare costs across the USA.

We have made excellent progress with our collaboration agreement with Premier Inc's Research Services division. We entered this to accelerate the creation of a mass market opportunity for our products in the USA. To date the project has defined an approach to enhanced recovery specifically for the USA; demonstrated a material level of savings from its implementation at a leading teaching hospital and highlighted substantial variation in fluid management practice across the USA and possible links to variations in outcome.

We have agreed with Premier to expand the outcome and fluid variation part of the project as this is proving to be a very powerful tool to highlight that there is a major clinical problem in the USA to which we have a proven solution. We have already used the available preliminary variation data successfully to support pipeline expansion. Publication of the variation data in a peer review journal will allow Premier, under their independence governance rules, to disseminate the findings to their membership. Premier has agreed to support the preparation of a manuscript suitable for submission to appropriate journals.

We have expanded the hospital implementation analysis part of our US market development project to include leading teaching hospitals which are not members of the Premier system but which have similar capability to demonstrate the benefits of ODM implementation in major and high risk surgery. We believe this will deliver further high value outputs and accelerate the goals of our Premier collaboration. We are in the implementation phase with the first such hospital, are supporting initial training in two more, agreeing a mid-year start date with a fourth to allow them to collect base data prior to implementation. We are in discussion with a small number of additional hospitals to participate in the programme (which includes strategically important Premier members) and aim to develop these accounts into fully fledged dedicated trainer accounts over time while also producing compelling evidence to aid pipeline recruitment.

As a result of the progress made in 2013 we believe that the Company may be able to build a bigger platform for expansion sooner than previously envisaged. The degree of clinical acceptance of the benefits of ODM may also reach a level suitable for wider national roll-out of its use across the USA sooner than previously estimated.

International markets

International probe revenues increased by 26% to £1,537,000 (2012: £1,223,000) on a 23% increase in units sold to 28,795. We made continued progress in the majority of our markets and all our main focus markets including Scandinavia and Peru. Probe sales to our French distributor increased 37% reflecting strong underlying growth in probe usage coinciding with highly supportive clinical guidelines from the national anaesthesia professional body. We acquired 51% of the Canadian business for ODM through the establishment of our first jointly owned subsidiary and are monitoring closely progress with this approach to accelerating growth. After several years of investment in market creation projects in Spain, including support for a major government funded multi-centre randomised clinical trial; we expect the nature and scale of the resulting market development opportunity to emerge during 2014.

Prospects

Deltex Medical is in an exciting phase in its development. We have made significant progress in growing the business. Our products have market leadership positions in those territories where we have moved from market creation into market development. Further territories are now moving more rapidly than before towards the market development stage including the key US market which has progressed significantly further than we anticipated at the start of 2013. Profits from these growing operations will allow us to build the business more quickly in the years to come delivering sustainable value for our shareholders.

Nigel Keen

Chairman

11 March 2014

Operating Review

Overview

During 2013 Deltex Medical further strengthened its global market leading position in oesophageal Doppler monitoring (ODM). ODM benefits substantial numbers of patients, the largest group being patients undergoing major surgery and is the only technology proven both to reduce post-operative complications suffered by patients and to reduce lengths of hospital stay. ODM during surgery can be implemented successfully into routine clinical practice on a wide scale as it is a simple procedure that is easy to learn, quick to perform and applicable in almost all patients.

Deltex Medical generates revenues from the sale of single patient disposable probes, from the sale of monitors and from providing maintenance and support services. Sales of probes are the best indicator of the level of uptake of ODM and therefore the value created by the Company. Probe sales increase as more doctors start to treat larger number of patients. We have adopted a presentation of our results which highlights our performance against key performance indicators (KPIs).

	2013 £'000	2012 £'000	2011 £'000	2010 £'000	2009 £'000	2008 £'000	2007 £'000	2006 £'000	2005 £'000	2004 £'000
Probe revenue
Surgical	5,509	4,454	3,719	3,174	2,425	1,855	1,417	1,038	750	459
Critical care	788	811	1,081	1,421	1,656	2,016	1,768	1,594	1,529	1,490
Total probe revenue	6,297	5,265	4,800	4,595	4,081	3,871	3,185	2,632	2,279	1,949
Gross profit - probes	4,755	3,962	3,562	3,393	3,077	2,716	2,184	1,670	1,432	1,250
Monitor and sundry income	414	403	476	849	852	965	468	284	335	338
Cash costs	(5,455)	(5,427)	(5,165)	(4,732)	(5,353)	(5,446)	(4,472)	(3,913)	(3,581)	(3,998)
Loss before non - cash costs and US market development	(286)	(1,062)	(1,127)	(491)	(1,424)	(1,765)	(1,820)	(1,959)	(1,813)	(2,411)

Pro- forma results since 2004. Split of surgical and crtical care probes from 2004 - 2009 are based on management estimates re export markets.

Since 2009 the Company has focused its resources on the larger and rapidly growing surgical market opportunity where it can achieve higher returns on investment: surgical probe revenues in 2013 were £3,654,000 (circa 300%) higher than in 2008 whereas cash costs in 2013 were only £9,000 (under 0.2%) higher than in 2008. The decline in critical care probe revenues is a result of changes in practice in intensive care medicine whereby far fewer patients are kept unconscious thereby requiring cardiac output monitoring than previously. The Company now only actively supports the critical care market in the UK which has been stable since mid-2012.

Markets

The CardioQ-ODM has two distinct established clinical applications: firstly, to guide fluid management during surgery and secondly, to monitor cardiac output in critical care settings.

Surgical market

Deltex Medical's key focus is on intra-operative fluid management using ODM during surgery. The National Institute for Health & Clinical Excellence ('NICE') recommends CardioQ-ODM in patients undergoing major and high risk surgery and in high risk patients undergoing lower risk surgery. NICE estimates their guidance applies to over 800,000 NHS surgical patients a year in the NHS in England. This equates to tens of millions of patients globally and an evolving market opportunity worth well over £1 billion per annum. The Company's core focus is on building market leading positions in this surgical market as it develops.

Deltex Medical has considerable competitive advantages in the emerging market for intra-operative fluid management: ODM, a technology that measures blood flows precisely in the central circulation; proven patient management algorithms driven by changes in a directly measured physiological parameter; a comprehensive evidence base of both clinical and economic benefit across multiple types of surgery; positive clinical meta-analyses and government systematic reviews; NICE recommendation and recognition as a key component of modern 'enhanced recovery' approaches to surgery.

ODM has the widest applicability by far of any intra-operative fluid management ('IOFM') technology with the fewest clinical contra-indications. Deltex Medical has developed and proven effective clinical support programmes which enable hospitals to implement ODM deeply and broadly into routine practice. We have developed our dedicated trainer clinical support programmes for hospitals implementing our products at scale. These programmes support the rapid and sustainable adoption of ODM through provision of a dedicated trainer, enhanced account management, implementation audit support and regular progress reporting against local adoption metrics. Established dedicated trainer accounts are highly profitable and generate high rates of growth.

Critical care market

Doctors and nurses caring for patients in critical care settings want to be able both to monitor the haemodynamic status of patients over prolonged periods and to intervene using drugs and fluids to optimise the patient's circulating blood volume. ODM's strengths in such settings are that it is quick to set up, easy to use, safe, low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. The CardioQ-ODM+ launched in 2012 combines ODM with the most common competing technology for cardiac output monitoring, Pulse Pressure Waveform Analysis ('PPWA'). PPWA devices are suited more to monitoring than guiding intervention as they are unable to detect reliably certain types of haemodynamic change without frequent, traditionally cumbersome, recalibration. The CardioQ-ODM+ has substantial competitive advantages over other PPWA devices as it can be recalibrated using ODM very precisely and very quickly at no additional cost. The CardioQ-ODM+ allows instant switching from PPWA monitoring mode to ODM flow mode to guide intervention.

United Kingdom

Deltex Medical has built on a strong market leading position in the UK surgical market in 2013 and has maintained its position as a market leader in the mature critical care market.

UK surgical probe revenues grew by 26% during the year just ended compared to 24% growth in 2012 and 16% growth in 2011. We entered 2012 with two dedicated trainer accounts, increased this to four at the half year and have now increased this to ten at year end with two more added to date in 2014. . In addition we have a dedicated trainer account pipeline of over 20 hospitals and in the next twelve months, expect to promote a substantial proportion of these to dedicated trainer status as well as to add additional accounts to the pipeline. We plan to support the majority of these accounts through focused deployment of our existing clinical trainer resources. In total we sold surgical probes to over 80% of NHS hospitals in 2013.

We sold 40,690 surgical probes in the UK in 2013, an increase of 7,335 (22%). Critical care probe consumption was flat with revenues 3% lower than 2012 at £788,000.

During the year we increased the UK surgical installed base by 162 monitors to 777. Including 333 critical care monitors, the total UK installed base was 1,110 at the end of the year. We generated £243,000 of monitor revenues in the year against a backdrop of continuing severe restrictions on NHS capital budgets. The CardioQ-ODM+ launched late in 2012 has been well received in both critical care and surgery and comprised 21% of the total UK installed base at 31 December 2013.

Growth in the second half of 2013 was to some extent helped by the NHS's stated intention to implement ODM fully at pace and scale in order to realise the improvements in patient outcomes and cost savings proven with ODM. Some doctors seeking to implement ODM have found it easier than previously to engage NHS managers in some hospitals, but this has not been universal. Central to the NHS's implementation plan is the requirement that all NHS hospitals should achieve a minimum level of IOFM adoption in order to pre-qualify for the 2.5% of their revenues available under CQUIN financial incentive schemes. The NHS has, however, not enforced this and has not sanctioned any NHS body for failing to adopt IOFM or any other of the six targeted high impact innovations which were scheduled for adoption by the NHS at the same time as the requirement for ODM use was put in place. The NHS has indicated it is dissatisfied with the progress made with ODM/IOFM adoption to date and intends to change its approach, particularly with regard to financial incentives. It plans to replace the CQUIN pre-qualification approach with an alternative, but is yet to announce details of its new plan for high impact innovations.

The NHS approach to implementation of ODM has caused considerable confusion to potential users as it allows hospitals to adopt IOFM technologies other than ODM without prior evaluation as to whether the alternative technologies chosen, are able to deliver similar benefits. As the results of new clinical trials are published, it is becoming increasingly clear that only ODM will deliver the clinical and economic benefits which led the NHS to choose to adopt ODM in the first place. The Board believes that the new information coming from these clinical trials will create opportunities for the Company to increase further its market leading position in IOFM in the UK.

United States of America

Probe revenues in the USA increased by £99,000 (13%) to £878,000. Growth in the USA was held back by a fall in the number of people undergoing major surgery. Hospital associations estimate this fall to have been circa 12% nationally and it was 18% in our largest account where probe sales were 320 units (12%) lower than 2012. This decrease is expected to be temporary as people adjust to considerably higher excess payments on their health insurance plans following the recession and the enactment of 'Obamacare'. 2013 is expected to be the first year since the Second World War when healthcare expenditure fell as a percentage of US GDP.

We increased the number of dedicated trainer accounts in the USA over the year from two to five and these five accounts generated 845 additional probe unit sales in total including the 320 unit fall at our largest account for the reason described above: growth from the other four dedicated trainer accounts was over 50% in total (1,165 probes) and all five accounts are expected to generate considerable growth in 2014 and beyond.

In the USA, clinical acceptance of the importance of accurate fluid management during surgery has been considerably behind Europe. However, we have seen signs of a significant acceleration in interest throughout 2013 with a further step-up already evident in 2014. In the current year we have already received enquiries about ODM implementation from a number of leading hospitals, all major teaching institutions new to the use of ODM, as well as further expansion of our pipeline from our existing geographical focus areas. Our objective for 2014 is to convert a good proportion of this pipeline of hospitals into further dedicated trainer accounts and to penetrate further hospitals in those healthcare systems where we have already established a dedicated trainer account. Broadening our base in this way will provide a platform for national roll-out of ODM when the interest in fluid management starts to spread from academic medical centres into general hospitals throughout the USA.

There are a number of factors both generic to IOFM and specific to ODM which are helping to drive this rising tide of clinical acceptance in the USA:

·      Gathering momentum behind the spread of enhanced recovery surgical programmes where IOFM is one of the core components

·      Hospitals actively seeking ways to improve outcomes and reduce costs to remain competitive post Obamacare and the introduction of the Affordable Healthcare Act

·      The US anaesthesia profession leadership's growing recognition of the need for anaesthetists to demonstrate high added value within modern surgical approaches

·      ODM becoming in April 2013 the first additional procedure for over a decade for which Medicare (the taxpayer funded health insurance scheme for the over 65s) has agreed to make extra payments to anaesthetists nationally in the USA

·      Growing recognition that the wide unexplained variation across the USA in the amount of fluid given to patients undergoing surgery is indicative of a major addressable quality of care problem

Deltex Medical's research collaboration with Premier Inc is central to our strategy to accelerate creation of a major market opportunity for our products in the USA. The project made excellent progress in 2013with a number of key milestones achieved:

·      Completion of pilot phase with Duke University Hospital which showed: substantial (circa 40%) reductions in length of hospital stay from enhanced recovery in colorectal surgery using ODM; hospital cost savings of over $5,000 per patient; additional realisable cost savings from significant reductions in readmissions and re-operations

·      Completion of a nationally applicable clinical protocol for enhanced recovery for colorectal surgery with elements, including IOFM, applicable to all major surgery

·      Completion of a burden of illness study from Premier's clinical database showing significant unexplained variations in outcomes after major surgery across a large number of patients across the USA

·      Completion of a further burden of illness study identifying large unexplained variation in fluid administration both on the day of surgery (addressable by ODM) and in the post-operative period (addressable both by ODM and broader enhanced recovery principles).

The degree of variation in fluid administration was far greater than anticipated by Premier, ourselves and the clinical experts advising the collaboration. As a consequence of the results of the project to date and the broader positive developments pointing towards more rapid creation of a mass market for ODM, Premier have agreed to our proposals to re-balance the future work programme.  We now plan to:

·      Expand the database interrogation phase of the project through the first quarter of 2014 to understand better the variation in fluid administration and assess its association with the variation in key surgical outcomes previously identified

·      Submit abstracts to present key findings at the pre-eminent US surgical and anaesthesia clinical meetings in 2014 as well as select international meetings

·      Compile manuscript for publication of the key results in a leading peer review clinical/healthcare journal (target Q4 2014)

·      Dissemination of variation data to Premier members after publication. Prior to this and to the extent feasible prior to publication, Deltex Medical and selected clinical experts will be able to utilise the data

·      Narrowing the focus of future analysis projects to the implementation of intra-operative fluid management rather than enhanced recovery and broadening the scope to multiple surgical disciplines rather than just colorectal

In view of the rapid expansion of our pipeline amongst leading teaching hospitals we are seeking to support generation of clinical and economic data on the implementation of ODM in a small number of similar teaching hospitals which are not subscribers to Premier's databases, as long as they are able to deliver similarly robust data in a timely manner at modest cost. We have already installed monitors, completed initial training and commenced implementation in one such hospital, are doing the initial training at two further sites, agreed scope and a second quarter start in a fourth and are discussing proposals with a small number of other hospitals in our pipeline, including Premier members. We expect to spend less on this phase of our US market development project than envisaged a year ago and to generate higher probes sales sooner from such sites than was envisaged under the original plan. We are redeploying some of the resources saved to promote the burden of illness results prior to their publication. As part of this, we are sponsoring, through UK Trade & Investment, a series of events across the USA aimed at highlighting to select leading hospitals UK successes with enhanced recovery and ODM in the context of the Premier variation data. A first round of events in February on the West Coast of the USA was well received and is expected to help us accelerate several hospitals through the pipeline as well as add several high quality accounts to the pipeline.

International

Distributors service the majority of export markets with support from a small team of our own sales and clinical support staff.

Probe revenues in our International markets increased by 26% to £1,537,000 (2012: £1,223,000) on a 23% volume increase to 28,795.

The biggest absolute growth came from France where the national anaesthesia professional society published clinical guidelines highly favourable to ODM during the year. We sold 9,000 probes to our distributor in 2013, up 2,440 (37%) on 2012. We believe that we are one of two IOFM market leaders in France with a strong leadership position in the Paris area. Late in 2013 we agreed to extend our distributor's contract for a further four years based on a business plan which includes increased investment in clinical support and increased targeting of hospitals outside Paris. At the start of 2014 our French distributor won a four year tender renewal allowing it to supply CardioQ-ODM products to the Assistance Hopitaux Publique de Paris ('AHPP'). AHPP is the public hospital system of the city of Paris and its suburbs. It includes over 40 hospitals and is linked to the University of Paris.

In Canada we acquired 51% of the business from our distributor to establish our first jointly owned subsidiary in an international market. We are participating in a tender in the hospital system where we are best established which, if successful, will provide a platform for growth in Western Canada.  Doctors at one of Eastern Canada's leading teaching hospitals are approximately half way through a trial of ODM within their enhanced recovery programme which, assuming good results, will position our products strongly as enhanced recovery gains traction in Canada. Canadian sales totalled £20,000 in 2013 comprising end user sales in the last few weeks of the year. In prior years Canadian sales comprised of bulk sales to our distributor which were £197,000 in 2012 and £245,000 in 2011. We expect our experience in Canada to determine the extent to which we seek further joint ventures in other markets going forward.

We have a small direct sales and clinical support operation in Spain which has been focused for several years on two strands of work: one to support the inception of enhanced recovery approaches to surgery; the other a government funded multi-centre randomised controlled trial of ODM in multiple types of major surgery with the first results due to be presented in June 2014. We expect both strands to influence heavily Spanish clinical guidelines for IOFM and enhanced recovery which are being developed in 2014. Subject to agreeing commercially satisfactory working capital arrangements in the difficult Spanish economic environment we hope to be positioned for major expansion going into 2015.

We achieved satisfactory growth in probe sales in a number of territories where we are more established including Austria, Scandinavia, Peru and Germany. The CardioQ-ODM+ has generated considerable interest in a number of markets including Germany, where the Charite Hospital in Berlin continues to publish a series of trials highlighting the clinical benefits of ODM and where clinical guidelines for IOFM are in the early stages of development.

International monitor sales totalled £394,000 compared to £657,000 in 2012 reflecting a change in our focus towards generating high quality, recurring probe revenues rather than one off monitor sales. As a result the largest order for monitors in the year was for 25 monitors following a tender win in South Africa which was followed by probe stocking orders as the monitors were installed.

Operations

We have sustained our high investment in R&D with total expenditure in 2013 of £583,000. We are developing a new monitor platform incorporating a modern graphical user interface, increased connectivity and enhanced signal acquisition for both flow and pressure parameters. We plan to launch this new platform in 2015.

This year we have launched the first generation ODM training simulator and are working with a small number of leading academic institutions in the UK, France, Germany and the USA to incorporate this into clinical simulation training and education programmes. We are also embedding use of the simulator into our general and dedicated training programmes with the twin aims of decreasing the learning curve for new ODM users and maximising the productivity of our clinical support teams.

We are six months into a two year project to streamline probe manufacturing processes, increase probe margins and further enhance probe handling characteristics. This project is expected to create opportunities for substantial margin improvements.

Prospects

We have started 2014 with confidence. Our products are independently validated as delivering better care, better health and lower costs which puts them in the "sweet spot" of evolving health policy in increasing numbers of developed health economies. We have market leading positions and increased growth rates in the more developed markets for our products and have momentum in the roll-out of our dedicated trainer programme as more hospitals start to adopt at scale. The cash generated from our high quality probe revenue streams is transforming the Company's financial position and opportunities for near term accelerated growth are increasing in the USA.

Ewan Phillips

Chief Executive

11 March 2014

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2013

		2013 Probes £'000	2013 Other £'000	2013 Total £'000	2012 Probes £'000	2012 Other £'000	2012 Total £'000
Probe revenue
Surgical probes		5,509	-	5,509	4,454	-	4,454
Critical care probes		788	-	788	811	-	811
Other revenue		-	854	854	-	1,512	1,512
		---	---	---	---	---	---
Total revenue		6,297	854	7,151	5,265	1,512	6,777
		---	---	---	---	---	---
Cost of sales		(1,542)	(440)	(1,982)	(1,303)	(661)	(1,964)
		---	---	---	---	---	---
Gross profit		4,755	414	5,169	3,962	851	4,813
		---	---	---	---	---	---
Administrative expenses				(2,145)			(2,186)
Sales and distribution costs				(3,940)			(4,103)
Research and development				(583)			(553)
US market development costs				(599)			(49)
				---			---
Total costs				(7,267)			(6,891)
Operating loss before costs of US market development costs				(1,499)			(2,029)
US market development costs				599			(49)
				---			---
Operating loss*				(2,098)			(2,078)
				---			---
Finance income				1			1
Finance costs				(120)			(118)
				---			---
Loss before taxation				(2,217)			(2,195)
Tax credit on loss				111			102
				---			---
Loss for the financial year				(2,106)			(2,093)
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Exchange differences taken to reserves				(31)			(11)
				---			---
Other comprehensive loss for the year, net of tax				(31)			(11)
				---			---
Total comprehensive loss for the year				(2,137)			(2,104)
				---			---
Total comprehensive loss for the year attributable to:
Owners of the parent				(2,145)			(2,104)
Non-controlling interest				8			-
				---			---
				(2,137)			(2,104)
				---			---
Loss per share basic and diluted				(1.3p)			(1.4p)
				---			---
*Operating loss is split:
Cash loss				(286)			(1,062)
US market development costs				(599)			(49)
Non -cash charges (net)				(1,213)			(967)
				---			---
Operating loss				(2,098)			(2,078)
				---			---

Consolidated Balance Sheet

at 31 December 2013

                                                                                                                       2013                 2012

                                                                                                                      £'000                £'000

Assets

Non-current assets

Property, plant and equipment                                                                             585                  463

Intangible assets                                                                                             1,502                1,076

Trade and other receivables                                                                                   10                    37

Total non-current assets                                                                                2,097                1,576

Current assets

Inventories                                                                                                         920                  963

Trade and other receivables                                                                              3,081                2,935

Current income tax recoverable                                                                            118                  114

Cash and cash equivalents                                                                               1,459                  667

Total current assets                                                                                       5,578                4,679

Total assets                                                                                                   7,675                6,255

Liabilities

Current liabilities

Borrowings                                                                                                     (1,284)              (1,123)

Trade and other payables                                                                                (1,855)              (1,866)

Total current liabilities                                                                                 (3,139)              (2,989)

Non - current liabilities

Borrowings                                                                                                     (1,028)                (996)

Provisions for other liabilities and charges                                                            (135)                (165)

Total non - current liabilities                                                                       (1,163)              (1,161)

Total liabilities                                                                                             (4,302)              (4,150)

Net assets                                                                                                      3,373                2,105

Equity

Share capital                                                                                                   1,709                1,510

Share premium                                                                                              26,440              23,659

Capital redemption reserve                                                                              17,476              17,476

Other reserves                                                                                                 4,217                3,792

Translation reserve                                                                                              (51)                  (20)

Retained deficit                                                                                             (46,426)            (44,312)

Equity attributable to owners of the Parent                                                   3,365                2,105

Non-controlling interest                                                                                           8                     -

Total equity                                                                                                   3,373               2,105

Consolidated Statement of Changes in Equity 

for the year ended 31 December 2013

 

Group	Share capital	Share premium	Capital redemption	Other Reserve	Translation Reserve	Retained deficit	Total	Non - controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2012	1,421	21,901	17,476	3,286	(9)	(42,219)	1,856	-	1,856
Comprehensive income
Loss for the year	-	-	-	-	-	(2,093)	(2,093)	-	(2,093)
Other comprehensive income
Exchange movements taken to reserves	-	-	-	-	(11)	-	(11)	-	(11)
Total comprehensive income for the year	-	-	-	-	(11)	(2,093)	(2,104)	-	(2,104)
Shares issued during the year	89	-	-	-	-	--	89	-	89
Premium on shares issued during the year	-	1,832	-	-	-	-	1,832	-	1,832
Issue expenses	-	(74)	-	-	-	-	(74)	-	(74)
Credit in respect of service cost settle by award of options	-	-	-	506	-	-	506	-	506
Balance at 31 December 2012	1,510	23,659	17,476	3,792	(20)	(44,312)	2,105	-	2,105
Comprehensive income
Loss for the year	-	-	-	-	-	(2,114)	(2,114)	8	(2,106)
Other comprehensive income
Exchange movements taken to reserves	-	-	-	-	(31)	-	(31)	-	(31)
Total comprehensive income for the year	-	-	-	-	(31)	(2,114)	(2,145)	8	(2,137)
Shares issued during the year	199	-	-	-	-	-	199	-	199
Premium on shares issued during the year	-	2,892	-	-	-	-	2,892	-	2,892
Issue expenses	-	(111)	-	-	-	-	(111)	-	(111)
Credit in respect of service cost settle by award of options	-	-	-	425	-	-	425	-	425
Balance at 31 December 2013	1,709	26,440	17,476	4,217	(51)	(46,426)	3,365	8	3,373

Consolidated Statement of Cash Flows

for the year ended 31 December 2013

                                                                                                                       2013                 2012

                                                                                                Note               £'000                £'000

Cash flows used in operating activities

Net cash used in operations                                                        5                   (1,427)              (1,119)

Interest paid                                                                                                      (98)                  (105)

Income taxes received                                                                                        107                  90

Net cash used in operating activities                                                            (1,418)              (1,134)

Cash flows used in investing activities

Purchase of property, plant & equipment                                                             (364)                (346)

Capitalised development expenditure                                                                   (411)                (472)

Acquisition of subsidiary                                                                                    (174)                      -

Interest received                                                                                                     1                      1

Net cash used in investing activities                                                                    (948)                (817)

Cash flows generated from financing activities

Issue of ordinary share capital                                                                           2,698                1,921

Expenses in connection with share issue                                                            (111)                  (74)

Proceeds from increase in borrowings                                                                  580                    29

Repayment of obligations under finance leases                                                      (13)                    (4)

Net cash generated from financing activities                                                3,154                1,872

Net increase/(decrease) in cash and cash equivalents                                     788                   (79)

Cash and cash equivalents at beginning of the year                                               667                  752

Exchange losses on cash and cash equivalents                                                        4                    (6)

Cash and cash equivalents at end of the year                                               1,459                  667

1   Nature of the financial information

This Results Statement containing condensed financial information for the year ended 31st December 2013 is prepared in accordance with the accounting policies set out in the Annual Report 2013. New standards, amendments to standards or interpretations which were effective in the financial year beginning 1 January 2013 have not had a material effect on the group's financial statements.

This Results Statement does not constitute statutory accounts of the Group within the meaning of sections 434(3) and 435(3) of the Companies Act 2006. The full set of audited financial statements are available online at www.deltexmedical.com and will be sent out to shareholders with the AGM notice in due course. The balance sheet at 31st December 2012 has been derived from the full Group accounts published in the Annual Report 2012, which has been delivered to the Registrar of Companies. The report of the independent auditors for the year ended 31 December 2013 and 2012 were unqualified and did not contain a statement under section 498 of the Companies Act 2006.

2   Alternative financial measures

The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) financial measures, which are not defined by IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and as such these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in this Results Statement.

(a)  Proforma results - Chairman's statement
This presents our progress against key performance indicators: probe sales and margins, cash costs, net income from or cost of increasing the installed base, profit before and after non-cash items and profit before investment in the Premier project.

(b)  Adjusted operating loss beneath the Consolidated Statement of Comprehensive Income
This is defined as operating loss before non-cash charges to the Consolidated Statement of Comprehensive Income. Non-cash costs comprise Share based payments, equity settled costs, clinical trial charges arising from non-cash barter transactions and depreciation and amortisation. A reconciliation of the operating loss to the adjusted operating loss is shown beneath the Consolidated Statement of Comprehensive Income.

3   Revenue

Sales	2013	2013	2013	2013	2013	2013	2012	2012	2012	2012	2012	2012
	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	47,605	59	3,882	243	151	4,276	40,695	84	3,263	613	192	4,069
USA	7,676	3	878	31	4	913	7,020	2	779	16	6	801
Spain	725	-	78	-	1	79	472	1	55	3	-	58
Canada	170	1	3	17	-	20	-	-	-	-	-	-
Distributor markets
Europe	16,780	17	917	77	16	1,010	14,485	73	781	261	10	1,052
Far East & Latin America	11,120	53	539	300	14	853	8,420	120	387	393	17	797
	84,076	133	6,297	668	186	7,151	71,092	280	5,265	1,286	226	6,777

UK probes sales are split:

	2013 Units	2013 £'000	2012 Units	2012 £'000
Surgical	40,690	3,094	33,355	2,452
ICU	6,915	788	7,340	811
	47,605	3,882	40,695	3,263

4   Dividends

The directors do not recommend payment of a dividend (2012: nil).

5   Notes to the Consolidated Statement of Cash flows

                                                                                                                       2013                 2012

                                                                                                                      £'000                £'000

Loss before taxation                                                                                     (2,217)              (2,195)

Adjustments for:

Net finance costs                                                                                   119                    117

Depreciation of property, plant and equipment                                           217                   177

Amortisation of intangible assets                                                             109                   120

Effect of exchange rate fluctuations on borrowings                                    (22)                  (25)

Exchange loss on fixed assets                                                                    3                      3

Loss on disposal of fixed assets                                                                22                     11

Share based payments                                                                           425                    506

Operating cashflows before movement in working capital                          (1,344)              (1,286)

            Decrease/(increase) in inventories                                                            93                     (51)

            Increase in trade and other receivables                                                     (119)                 (146)

            (Decrease)Increase in trade and other payables                                        (27)                    366

            (Decrease)/increase in provisions                                                            (30)                     (2)

Net cash used in operations                                                                         (1,427)              (1,119)

6   Loss per share

Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares issued during the year. The Group had no dilutive potential ordinary shares in either year, which would serve to increase the loss per ordinary share. Therefore, there is no difference between the loss per ordinary share and the diluted loss per ordinary share.

The loss per share calculation for 2013 is based on the loss of £2,114,000 and weighted average number of shares in issue of 164,175,818. For 2012 the loss per share calculation was based upon the loss of £2,093,000 and weighted average number of shares in issue of 148,243,393.

7   Distribution of the announcement

Copies of this announcement are sent to shareholders on request and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, West Sussex PO19 8TX. Copies of the Report and Accounts for the year ended 31 December 2013 will be sent to shareholders in due course. Both this announcement, Report and Accounts and Results Presentation are available to download from the Company's website free of charge at www.deltexmedical.com.

 

END

 

 

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