Interim Results

Deltex Medical Group PLC 29 September 2003 29 September 2003 Deltex Medical Group plc Interim Results Deltex Medical Group plc ('Deltex Medical'/'Group'/'Company'), the AIM listed haemodynamic monitoring company announces its results for the six month period ended 30 June 2003. Highlights • Sales increased by 38% to £1.1m (2002: £0.8m) • Losses for the period of £1.7m (2002: £1.4m), reflecting increased investment in key UK and European markets • Sales in UK and Europe more than doubled to £0.8m (2002: £0.3m) • Over 1,500 new operating theatre probes sold in the UK • 42 patients per day in the UK using a CardioQ - up 90% on previous year (30 June 2002: 22 patients a day) • Strong penetration of operating theatre markets in UK and France with similar strategies evolving in other European territories • US FDA 510K approval granted for updated CardioQ system and FDA on-site inspection successfully completed • Cash burn rate reducing, with cash at the period end of £1.8m, in line with expectations and which should, on current plans, be sufficient to see the Company to profitability • Professor Bennett, leading expert in haemodynamic optimisation and intensive care medicine, appointed as consultant • Current trading in line with expectations. Chairman, Nigel Keen commented: 'The launch, at the end of 2002, of a new range of disposable probes (the DP series) specifically designed to provide a monitoring solution for patients undergoing surgery, has significantly increased the market opportunity for the Company. In clinical trials, use of our technology in the operating theatre has been demonstrated to reduce hospital stay by up to 42% by significantly reducing complications. Helping patients to get better, quicker through the use of our technology offers the National Health Service in the UK and other healthcare providers around the world the opportunity to improve access to healthcare through efficiency gains and reduced costs. 'Throughout our key European markets in France, Italy and Spain momentum is growing as - in conjunction with our distributor partners - we roll out the market development strategies derived from our UK experience. We have had particular success in securing penetration into operating theatres in France and anticipate seeing this success repeated in other key markets including Spain and Italy. 'We are confident that Deltex Medical is well positioned to support doctors in delivering the clinical benefits of haemodynamic optimisation to their patients and as a result we will deliver long-term 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 Charles Stanley & Company Ltd Philip Davies philip.davies@charles-stanley.co.uk 020 7953 2000 Russell Cook russell.cook@charles-stanley.co.uk 020 7953 2000 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 ultrasound ('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 nearly 1,000 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 The human body provides oxygen to all its 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' or 'hypovolaemia') the patient either takes longer to recover, does not recover completely or does not recover at all. Hypovolaemia is one of the most common causes of complications and extended hospital stay that affects patients undergoing surgery or who are in need of intensive care. Similarly, patients who undergo routine surgery, although seemingly fit, are at risk of complications and extended hospital stay due to hypovolaemia. 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's CardioQ cardiac function monitor and the range of disposable probes used with it enable doctors to detect and deal with hypovolaemia. The CardioQ uses Doppler ultrasound technology to provide the clinician with the data required to intervene to manage the patient's fluid status to achieve and then maintain haemodynamic optimisation. This data is provided through a probe which is inserted into the patient's oesophagus through the mouth or nose. The Company's technology is increasingly being adopted as a 'standard of care' and as a result of use of the CardioQ, more and more patients around the world are able to leave hospital earlier and healthier. Overall sales for the group in the six months to 30 June 2003 increased by 38% to £1.1 million compared to £0.8 million for the same period in 2002. Losses for the period amounted to £1.7 million, an increase of £0.3 million on the loss recorded for the same period last year. This increase arose from the additional investment required to bring in-house the UK sales and clinical trainer teams from 1 July 2002 and to strengthen our European sales force in the second half of 2002. This investment has enabled us to more than double sales across the UK and Europe compared to the same period in 2002. The rate of cash burn increased in the second and third quarters of 2002 as we made this investment but started to fall in the final quarter of 2002. It continued to fall in the first half of 2003, with operating activities absorbing £1.4 million of cash in the half year, £0.3 million less than the £1.7 million absorbed in both the comparative period and the second half of 2002. As at 30 June 2003, cash in hand was £1.8 million, in line with expectations. The Company's current plans show that this should be sufficient to see the Company to profitability. In the UK, which is our principal market, approximately 42 patients every day were being monitored by the Company's products at the end of June 2003, compared with 22 a year earlier. Over the same period the installed base of CardioQ monitors in the UK had increased by over 80% to 248. In December 2002 we launched a range of dedicated operating theatre probes in the UK. Since then approximately half of the CardioQ monitors installed have been in operating theatres and we have sold over 1,500 of the new operating theatre probes. Our intensive care business has continued to grow steadily and this, combined with the early penetration of the operating theatre market, shows that the Company's technology is becoming increasingly accepted in the UK. Hospitals are frequently setting up monthly orders for their probe requirements which demonstrates that use of the Company's technology is becoming part of the day-to-day routine of clinical practice. Additionally, the shift away from ad-hoc purchasing creates smoother, more predictable trading patterns which is helping to improve our operational efficiency. The emphasis on operating theatres and the move to monthly orders have also been a major contributing factor to the success seen in the European territories. In France, the next most developed market after the UK, we have worked extensively with our distributor to implement this strategy which has been successful in the UK. This has led to an increase in the CardioQ installed base and an associated increase in probes sales. We are in the process of rolling out similar strategies in other European markets. Sales in the US remain stable at £0.2 million. This follows the shift to a focused strategy that concentrates on broader adoption within the existing user base whilst clinical acceptance is being developed and reimbursement for users by healthcare providers is being sought. In the other countries in the world in which we are active, sales in the first half of 2002 represented the build up of initial stocks in the territories. Since then, our distributors have been working to develop their markets with the resultant depletion of these stocks. These activities are beginning to bear fruit, an example being that the first half of 2003 saw approval for reimbursement to users being granted in Korea and probe orders have now been received from the distributor. In the first quarter of the year Deltex Medical raised £1.3 million before costs, by way of the placing of 18,858,499 new ordinary shares. This, has enabled us to increase penetration in our key markets, accelerate the development of products that can be used in conscious patients and ensure appropriate resources are in place to exploit the potential that exists for the use of our products globally. Major Developments The launch, at the end of 2002, of a new range of disposable probes (the DP series) specifically designed to provide a monitoring solution for patients undergoing surgery, has significantly increased the market opportunity for the Company. Use of our technology in the operating theatre has been demonstrated in clinical trials to reduce hospital stay by up to 42% by significantly reducing complications. Helping patients to get better, quicker through the use of our technology offers the National Health Service in the UK and other healthcare providers around the world the opportunity to improve access to healthcare through efficiency gains and reduced costs. Our UK sales, marketing and clinical training teams enable the Company to work closely with doctors and nurses. This has allowed us to develop strategies and materials that support doctors in the difficult and frequently frustrating process of obtaining the necessary funds to purchase innovative products such as the CardioQ. These strategies are also being tailored and rolled out across our international network of distributors. The medical device industry is highly regulated. Regulatory bodies across the world aim to ensure that medical products meet rigorous standards for safety and performance. Medical device manufacturers therefore require quality assurance and regulatory affairs teams of a high calibre who can ensure that the Company and its products comply with the many and varied regulatory requirements that are specific to individual markets or regions. Primarily Deltex Medical has to meet the requirements of European CE marking and the US Food and Drugs Administration (FDA). Forthcoming changes in the regulatory system for CE marking have meant that we have invested significantly in upgrading our quality systems to ensure continued compliance once the changes come into effect at the end of this year. Additionally, the US FDA recently inspected the Company for compliance. The outcome was positive and the inspector highly complimentary of the Company, its systems and the team involved. In March 2002 we filed an upgraded application to the US FDA to bring our prior approval up to current best practice in the light of these recent changes in regulatory procedures. The US FDA recently confirmed that our upgraded application has been approved. Unusually, the approval was granted on the application's first pass through the system and this confirms the quality of the CardioQ system on a global level. We are delighted to be able to announce that Professor David Bennett has joined Deltex Medical as a consultant. Professor Bennett is a world-renowned expert in haemodynamic optimisation and widely regarded as a key instigator of intensive care medicine in the UK. David brings with him a wealth of experience and insight that will prove invaluable in helping us to develop focused solutions that meet the needs of our customers and their patients. Kemp Coady, who has been a non-executive director of the Company since he ceased to be Chief Executive in April 2002, has stepped down from the board with immediate effect. We thank him for his contribution and wish him well in his future career. Research and Development Recently our Research and Development team completed the first phase of a project to develop the 'electronic heart' of our future monitor systems, bringing with it many benefits in terms of ease of use, performance and ergonomics. The device has now been successfully bench tested and the first clinical evaluations are scheduled to be completed before the year-end. In addition, we are making progress in developing both a softer probe that is more comfortable for use on conscious patients and the wholly non-invasive monitoring system, SupraQ Both of these products have entered their clinical evaluation phase. The pDP, a single use paediatric probe for use with our proprietary paediatric nomogram, is currently being evaluated for both operating theatre and intensive care use in five of the six major children's hospitals in England. Prospects The evidence gathered through feedback from doctors in the United Kingdom shows that haemodynamic optimisation can act as the catalyst for a very significant improvement in the management of patients on their journey through the hospital, whether undergoing surgery or in need of intensive care. Clinicians in a number of hospitals have developed proposals for the wide-scale use of our products in their practice - typically these proposals would involve even our most established users consuming more than ten times the volume of probes than they use at present. However, resources in the National Health Service are constrained and we therefore have to help convert this high level of demand for our products by providing support to clinicians to help them obtain funding for these programmes. In conjunction with leading doctors in the UK we are actively developing high level programmes to make the benefits of improved care available to a wider number of patients in the UK operating theatres. The aim of these programmes is to unlock central NHS funds for doctors who currently want to, but are denied access to such systems . The speed at which we can pursue these opportunities and the rate of acceleration over and above current growth that we can achieve will depend upon the resources available to us. Throughout our key European markets in France, Italy and Spain momentum is growing as - in conjunction with our distributor partners - we roll out the market development strategies derived from our UK experience. We have had particular success in securing penetration into operating theatres in France and anticipate seeing this success repeated in other key markets including Spain and Italy. We are confident that Deltex Medical is well positioned to support doctors in delivering the clinical benefits of haemodynamic optimisation to their patients and as a result we will deliver long-term value to our shareholders. Nigel Keen Chairman 29 September 2003 Consolidated profit and loss account for the six month period ended 30 June 2003 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2002 £m £m £m Turnover 1.1 0.8 1.8 Cost of sales (0.5) (0.5) (0.9) ---- ---- ---- Gross profit 0.6 0.3 0.9 ---- ---- ---- Net operating expenses (2.3) (1.8) (4.1) ---- ---- ---- Operating loss (1.7) (1.5) (3.2) Interest receivable and similar income - 0.1 0.1 ---- ---- ---- Loss on ordinary activities before taxation (1.7) (1.4) (3.1) Tax on loss on ordinary activities - - 0.2 ---- ---- ---- Loss for the financial period (1.7) (1.4) (2.9) ===== ========= ========= Loss per share - basic and diluted (3.8p) (3.7p) (7.8p) ===== ========= ========= The above results all relate to continuing operations. The loss on ordinary activities before taxation and the loss for the period has been computed on the historical cost basis. Statement of group total recognised gains and losses for the six month period ended 30 June 2003 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2002 £m £m £m ---- ---- ---- Loss for the period (1.7) (1.4) (2.9) Currency translation differences in foreign currency net investment 0.1 (0.1) (0.1) ---- ---- ---- (1.6) (1.5) (3.0) ===== ===== ==== Consolidated balance sheet at 30 June 2003 Unaudited Unaudited Audited 30 June 30 June 31 December 2003 2002 2002 £m £m £m Fixed assets Tangible assets 0.2 0.3 0.3 ---- ---- ---- Current assets Stocks 0.7 0.5 0.7 Debtors 0.9 0.5 0.9 Cash at bank and in hand 1.8 3.8 2.0 ---- ---- ---- 3.4 4.8 3.6 Creditors: Amounts falling due within one year (1.1) (0.7) (1.0) ---- ---- ---- Net current assets 2.3 4.1 2.6 ---- ---- ---- Net assets 2.5 4.4 2.9 ==== ==== ==== Capital and reserves Called up share capital 0.6 3.7 3.7 Share premium account 9.6 8.6 8.6 Merger reserve 1.8 1.8 1.8 Profit and loss account (26.9) (23.8) (25.3) Capital redemption reserve 17.4 14.1 14.1 ---- ---- ---- Equity shareholders' funds 2.5 4.4 2.9 ==== ==== ==== Consolidated cash flow statement for the six month period ended 30 June 2003 Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2002 £m £m £m ---- ---- ---- Net cash outflow from operating activities (1.4) (1.7) (3.4) ---- ---- ---- 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 - (0.1) (0.2) ---- ---- ---- Net cash outflow for capital expenditure - (1.7) (0.2) ---- ---- ---- Net cash outflow before financing (1.4) (1.7) (3.4) ---- ---- ---- Financing Issue of ordinary share capital 1.3 - - Expenses in connection with share issue (0.1) - - ---- ---- ---- Net cash inflow from financing 1.2 - - ---- ---- ---- Decrease in net cash during the period (0.2) (1.7) (3.4) ===== ===== ==== Notes to the interim statement for the six month period ended 30 June 2003 1. Basis of preparation The financial information for the six months ended 30 June 2003 is not audited but has been prepared in accordance with generally accepted accounting principles in the UK. The accounting policies adopted are those which will be applied in the financial statements for the year ended 31 December 2003. These are consistent with those set out in the audited financial statements for the year ended 31 December 2002. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. 2. Turnover The Group's activities consist solely of the manufacture and marketing of medical devices. By origin, all sales are United Kingdom sales. Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2002 £m £m £m Analysis of turnover by destination United Kingdom 0.6 0.2 0.7 United States of America 0.2 0.2 0.4 Rest of Europe 0.2 0.1 0.4 Rest of the World 0.1 0.3 0.3 ---- ---- ---- 1.1 0.8 1.8 ==== ==== ==== 3. Loss per share The loss per share calculation for the six months to 30 June 2003 is based on the loss for the period of £1.7 million and weighted number of shares in issue of 43.5 million. The loss per share calculation for the year to 31 December 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. The loss per share calculation for the six month period ended 30 June 2002 was based upon the loss for the period of £1.4 million and weighted average number of shares in issue of 36.9 million. The Group had no dilutive potential ordinary shares in either period, which would serve to increase the loss per ordinary share. Therefore there is no difference between the loss per ordinary share and the diluted loss per ordinary share. 4. Reconciliation of movements in shareholders' funds Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2000 £m £m £m Opening shareholders' funds 2.9 5.9 5.9 Increase in share capital during the period 0.2 - - Premium on shares issued, net of costs 1.0 - - Loss for the financial period (1.7) (1.4) (2.9) Exchange difference taken to reserves 0.1 (0.1) (0.1) --- --- --- Closing shareholders' funds 2.5 4.4 2.9 ==== === === 5. Called-up share capital 10 pence Deferred 1 pence ordinary shares 9 pence shares ordinary shares £m £m £m At 1 January 2003 3.7 - - 24 April 2003 conversion of each 10 pence ordinary share into one 9 pence deferred share and one 1 pence ordinary share (3.7) 3.3 0.4 25 April 2003 issue of 11,642,567 1 pence ordinary shares - - 0.1 12 May 2003 issue of 7,215,929 1 pence ordinary shares - - 0.1 Cancellation of all deferred shares - (3.3) - --- --- --- At 30 June 2003 - - 0.6 ======= ======= ======= 6. Reconciliation of operating loss to net cash outflow from operating activities Unaudited Unaudited Audited Half year to Half year to Full year to 30 June 30 June 31 December 2003 2002 2002 £m £m £m Operating loss (1.7) (1.5) (3.2) Depreciation on tangible fixed assets 0.1 0.1 0.3 Decrease in stocks - 0.2 - Increase in debtors - (0.1) (0.4) Increase/(Decrease) in creditors 0.2 (0.4) (0.1) --- --- --- Net cash outflow from operating activities (1.4) (1.7) (3.4) ======= ======= ======= 7. Reconciliation of movement in net cash 1 January Cash flow Exchange 30 June 2003 2003 movement £m £m £m £m Net cash Cash at bank and in hand 2.0 (0.2) - 1.8 --- --- --- --- 2.0 (0.2) - 1.8 ======= ======= ======= ======= 8. 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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