Interim Results
Deltex Medical Group PLC
25 September 2007
25th September 2007
Deltex Medical Group plc
Interim results for the six months ended 30 June 2007
25 September 2007 - Deltex Medical Group plc ('Deltex Medical' or 'Company'),
UK's leading haemodynamic monitoring company, today announces its results for
the six-month period ended 30 June 2007.
Financial Highlights
• Turnover up 26% to £1.914m
• Operating loss reduced 13% to £1.719m
• Net cash £1.782m, reducing rate of burn
Operating Highlights
• CardioQ unit sales strongly ahead
• Recurring revenues 80% of total sales
• Second generation I2 probe launched and CardioQ reengineered for volume
scale-up
• Medicare approval driving North American sales enquiries
• Deltex Medical positioned for continued and sustainable growth in key markets
Nigel Keen, Chairman of Deltex Medical, said:
'There is a growing recognition of and interest in the benefits that the CardioQ
can bring to patients, whether through Targeted Volume Management alone as a
standard of care or as a core component of new care packages such as fast-track
or enhanced recovery surgery programmes.
Deltex Medical has made considerable progress towards the CardioQ being
acknowledged and accepted as the global standard of care for fluid management.
We expect this progress to continue and to fuel sales growth for the foreseeable
future.'
For further information, please contact:-
Deltex Medical Group plc 01243 774 837
Nigel Keen, Chairman njk@deltexmedical.com
Andy Hill, Chief Executive ahill@deltexmedical.com
Ewan Phillips, Finance Director eap@deltexmedical.com
Gavin Anderson & Company 020 7554 1400
Deborah Walter dwalter@gavinanderson.co.uk
Robert Speed rspeed@gavinanderson.co.uk
Charles Stanley Securities, Nominated Advisor 020 7149 6457
Philip Davies philip.davies@csysecurities.com
Chairman's Statement
Group Summary
The use of CardioQ in surgery, to monitor and manage patients' circulating blood
volume, is proven to speed and assist recovery, whilst reducing the requirement
for both routine and emergency post- operative admissions to intensive care. In
short, patients go home sooner and are less likely to face readmission.
Published clinical trial evidence shows that CardioQ-guided Targeted Volume
Management should be considered a standard of care in all major surgery and that
CardioQ should be an integral part of routine critical care procedures.
All patients undergoing surgery are at risk from serious and potentially
life-threatening complications caused by a reduction in circulating blood
volume. This condition, known as hypovolaemia, results from the combined impact
of pre-operative fasting, the effects of the anaesthetic and the blood lost
during the surgical procedure. In many respects hypovolaemia is similar to
severe dehydration. The complications this condition causes arise because the
reduced circulating blood volume is unable to carry sufficient oxygen to the
major organs and tissues. All of these are at risk from failure as a consequence
of the resultant oxygen deprivation.
The CardioQ directly measures blood flow in the main vessel delivering blood
from the heart to the body - the aorta - with every beat of the heart. Changes
in blood flow are much earlier and more sensitive indicators of changes in
circulating blood volume than changes in blood pressure which are frequently
relied upon to guide fluid replacement; the body's natural compensatory
mechanism strives to maintain blood pressure at 'normal' levels, even in the
presence of severe hypovolaemia.
The technology of oesophageal Doppler monitoring (ODM), in which the CardioQ is
the world leader by far, is unique in allowing doctors to exploit this immediacy
in detecting changes in a patient's status. This enables the doctor to intervene
quickly and safely where necessary using a combination of specialised fluids and
drugs, before the hypovolaemia becomes serious and potentially life threatening.
The technique of optimising a patient's haemodynamic status by giving the right
amount of the right fluid at the right time, is variously known as haemodynamic
optimisation, goal directed therapy or Targeted Volume Management.
Trading Results
Sales 2007 2007 2007 2007 2007 2007 2006 2006 2006 2006 2006 2006
Probes Monitors Probes Monitors Other Total Probes Monitors Probes Monitors Other Total
units units £'000 £'000 £'000 £'000 units units £'000 £'000 £'000 £'000
Direct
markets
UK 12,455 26 976 173 66 1,215 11,745 26 886 146 59 1,091
USA 3,405 8 239 39 1 279 2,245 2 165 5 2 172
Distributor
markets
International 7,135 31 309 105 6 420 5,410 7 221 23 8 252
---------------------------------------------------------------------------------------------------
22,995 65 1,524 317 73 1,914 19,400 35 1,272 174 69 1,515
---------------------------------------------------------------------------------------------------
Sales
During the six months ended 30 June 2007, the Company continued to deliver
growth in all three of its sales territories and achieved an overall increase in
sales of 26% compared to the six months ended 30 June 2006 (£1,914,000: 2006
£1,515,000).
UK sales continued the positive trend of recent years and the growth in sales to
our International markets was underpinned by increases in sales to hospitals by
our distributors. In the USA, the world's largest potential market for our
products, there were clear signs of accelerating sales growth, with sales
enquiries and requests for training support at record levels.
During the period, over 80% of sales were recurring revenue from probe sales and
monitor maintenance with increased probe revenue accounting for nearly
two-thirds of the increase in total Group sales. Sales in the early part of the
second half have been encouraging and have continued to be ahead of 2006 in all
markets.
Sales in the UK grew by 11% in total, with probe sales ahead of the first half
of 2006 by just over 10%. This growth rate was lower than the trend of probe
growth (in excess of 20% per annum) since the Company started selling direct in
the UK in July 2002. This was as a direct result of sustained political pressure
on NHS hospitals to cut spending and 'balance the books' in the last three
months of the NHS financial year and in March in particular. Sales growth in the
first five months of the new NHS financial year, commencing April, has seen a
return to the previously established trend level. Clinical demand for the
CardioQ continues to grow far more rapidly than actual sales in the UK and this
is expected to underpin ongoing future growth.
Distributor-led international sales in the first half of the year reflected the
changes to our trading relationships with our distributor partners that we
implemented in the first half of 2006 to reduce probe stock holding and move to
a more regular monthly orders basis. Underlying probe sales in the international
region have been encouraging, with significant progress made in key territories.
Our largest distributor, who drives our business in France, has increased
monthly probe orders from 230 at the end of the first half of 2006 to 380 going
into the second half of 2007. International sales, including monitors, increased
by 67% over the six months ended 30 June 2006: the growth in probe sales was
just under 40%, reflecting both the changes in ordering patterns and underlying
increased usage by hospitals.
In the USA, where we have a small and focused sales/clinical training team, we
have seen a strong increase in the interest in Targeted Volume Management using
the CardioQ and this has been further accelerated since the publication of a
strongly positive US government-funded review ('technology assessment') of the
large body of literature relating to haemodynamic management using ODM. As a
direct result of this increase in interest we have seen the rate of sales growth
accelerating in the USA since the end of the first half of 2006, a trend that
has continued throughout and beyond the first half of 2007. Overall sales in the
USA were up over 60% compared to the first six months of 2006.
Financials
The Company has adopted International Financial Reporting Standards (IFRS) for
the first time in these interim accounts and has accordingly restated
comparative figures for both the six months ended 30 June 2006 and 31 December
2006. The changes are explained in the notes; the main change involves
capitalising and amortising product development costs in accordance with IAS 38
'Intangible assets'. Operating losses for the period were £1,179,000 compared to
£1,350,000 in the prior period, a reduction of £171,000. The way the Company has
estimated and accounted for certain costs, together with the timing of a number
of one-off costs (for example sponsorship of individual clinical meetings,
accrual of sales team bonuses, recognition of clinical research costs, timing of
share based payments and SupraQ research and development costs) mean that it is
likely that more than half of the eventual full year administrative costs are
recognised in the first half of the year, whereas sales are normally higher in
the second half of the year.
Cash at 30 June 2007 was £1,782,000 after net cash outflow from operating
activities of £1,049,000 in the six months ended 30 June 2007. In line with the
pattern of operating losses, cash consumption during the half year has been
affected by a number of investment and one-off costs. In addition, the Company
has made a limited number of focused increases to its cost base in all its key
sales territories, in particular the USA, as well as increasing its R&D
expenditure. This increase is as a result of significantly increased investment
in the next generation oesophageal probes and CardioQ monitors as well as
progress with the SupraQ. The underlying cash burn, the difference between
regular monthly revenues and regular monthly costs, is reducing as sales volumes
grow and the sales growth necessary to eliminate the remaining underlying cash
burn is comfortably achievable from well qualified, target or existing customer
accounts in our main markets. In the meantime, we will continue to invest in
individual projects that fall outside the underlying cost base dependent on the
resources available and the anticipated returns from the project.
Markets
UK
In the UK, our most developed market, sales are ahead of prior year for each of
our product areas - probes, monitors and maintenance contracts. Sales in March
were adversely affected by NHS hospitals aggressively limiting spending in an
attempt to 'balance the books'. March was the first time in 29 consecutive
months where sales of probes in the UK were not ahead of the corresponding month
in the prior year. Sales of probes have, however, returned to being ahead of the
corresponding month in the prior year in each of the five completed months since
March and probe sales in June and July were, respectively, our second and third
best months for probe sales ever.
Probe usage has continued to grow most strongly in the operating theatre,
whether for stand-alone Targeted Volume Management or as a core element of
'fast-track' or 'enhanced recovery' protocols currently being implemented by a
number of our key customer hospitals. Our increasingly strong relationships with
surgeons are a key factor in the development of this area of our business and we
expect these new integrated approaches to surgical patient care, with use of the
CardioQ as a central component, to become standard practice over the coming
years.
In April, University College London Hospital (UCLH), one of the UK's most
important teaching hospitals announced its plan to implement routine use of the
CardioQ as it started to roll out an enhanced recovery programme across most
major surgical disciplines. Preliminary feedback is that the pilot phase of this
programme, and a similar one at another major London teaching hospital have
generated impressive results. These results are expected to be made public in
the coming months.
We are collaborating on a number of initiatives within the NHS and the
Department of Health that are looking at ways to accelerate adoption of
innovative, evidence-based medical technologies. We anticipate being able to
announce progress on at least one of these projects before the end of the year.
The second half of the year has started well and we expect this improvement in
sales to be further enhanced by the recently announced release of a new range of
oesophageal probes, the I2 range. These new probes will allow doctors to extend
the use of the CardioQ into a broader group of patients than previously
possible. The I2 range of probes can be tolerated by patients waking from their
anaesthetic or having surgery under regional anaesthesia with only mild sedation
and without general anaesthetic. They can also be used with patients that are
fully conscious in intensive care or on the ward.
USA
Our strategy for the USA is to develop a value proposition and scalable sales
model that can be tailored to each of the key healthcare provider systems that
operate in this market. Once we have in place a representative number of users
in each system we will consider establishing a partnership arrangement with a
major US-based medical technology company as a means to scale up our field
presence and further accelerate market penetration.
Reimbursement, the payment of physicians for their time and the skill required
to use a particular technology, is generally acknowledged as the single most
important step in accelerating wide-scale market adoption of any medical
technology in the USA.
There are three principle elements to reimbursement. Firstly, the tax-funded US
government body responsible for healthcare for the elderly and poor - the
Centers for Medicare and Medicaid Services (CMS) - has to deem that a procedure
should be 'covered' for reimbursement. Secondly, the procedure has to be
allocated a procedure code and, thirdly, the code has to be assigned a value,
based on the work and skill required to undertake the procedure. The physician
then bills the payer each time he uses the technology. Private healthcare
providers almost invariably follow the reimbursement decisions of CMS, normally
assigning higher values per procedure than CMS.
In February 2007 the US government Agency for Health Research and Quality (AHRQ)
published a comprehensive review of the clinical trial data associated with ODM.
This formal technology assessment was commissioned by CMS and concluded that
ODM-guided fluid management during surgery reduced both the number of major
complications after surgery and the total number of complications as well as
shortening hospital stay. Furthermore, the evidence for these conclusions was
deemed to be 'strong' - in this context strong evidence is defined as 'Evidence
supporting the qualitative conclusion is convincing. It is highly unlikely that
new evidence will lead to a change in this conclusion'.
In March, based on the AHRQ technology assessment, CMS deemed use of ODM to
guide fluid administration in any surgical patient requiring fluid optimisation
or any patient on a breathing machine ('ventilated') in intensive care to be
'reasonable and necessary' and therefore would be covered for reimbursement in
these clinical settings. The CardioQ is the only ODM available in the USA today.
This decision means that any doctor using the CardioQ in surgery or intensive
care can now bill CMS for reimbursement. Regional paying organisations
('carriers'), acting on behalf of CMS, will initially negotiate rates of
reimbursement with local users.
International
Following the decision early in 2006 to reduce overall stock levels across our
distributor partners and move them on to monthly standing order patterns, we
have seen encouraging signs of growing usage in a number of key territories.
Our aim in working with our distributors is to replicate the successes we have
seen in our direct markets of the UK and USA by providing clinical, technical
and sales support in the field wherever it is cost-effective to do so. Our
strategy is to create a network of key users around the world who will act to
advocate routine use of the CardioQ for Targeted Volume Management both in their
own country and at international clinical meetings. Our two most successful
distributors are in France and Peru. In both cases the distributors have
replicated as closely as possible the approach to education and support that we
employ in the UK and in the USA.
In Germany we are working with one of the largest teaching institutions to
implement Targeted Volume Management as a standard of care in all major surgical
procedures. At this centre we are supporting a programme of education,
undertaken by a CardioQ-trained physician who is based at the hospital and is
charged with the development and implementation of clinical protocols that
support routine usage. The temporary 'embedding' of a trainer on site, an
approach developed in major hospitals in the USA, may become the model of choice
in larger teaching hospitals if it proves successful in the distributor setting.
Operations
In response to the acceleration in sales growth over the course of the second
half of 2006 and the first half of 2007, the Company has embarked on a series of
projects both to increase our manufacturing capacity and to achieve significant
manufacturing cost reductions. The projects include the automation of the
manufacture of the most costly sub-assembly in the probe, the streamlining of
certain steps in probe manufacture and bringing in-house certain routine
processes that currently extend the time taken to produce finished probes.
Additionally, we are close to completing an upgrade of the CardioQ monitor,
which will allow improved ease of use and greater manufacturing flexibility.
Research and Development
Our R&D activity has continued to focus on finding improved monitoring solutions
for use in the conscious patient. This work stream has two components, the
continued improvement of the oesophageal probe range to expand significantly the
population of patients who can benefit from the use of the CardioQ and the
development of a wholly non-invasive monitor for rapid assessment of a patient's
haemodynamic status.
In response to feedback from customers we have developed a range of oesophageal
probes that can be used in patients after they wake up from their anaesthetic
after surgery or in patients having surgery under regional anaesthetic with
minimal sedation or in fully conscious patients. These new probes are much
softer than the traditional range of probes, yet retain their handling and
focusing characteristics. The probes are branded as Instant Intervention ('I2')
probes to reflect the unique ability of the CardioQ technology to allow
immediate intervention as haemodynamic changes happen.
The Company launched the I2 probes earlier this month by demonstrating their use
on members of the senior management team at the annual conference of the
Association of Anaesthetists of Great Britain and Ireland. The I2 probes make
the benefits of Targeted Volume Management available to almost every patient
having surgery or being treated in a critical care setting.
Earlier in 2007 we showcased prototypes of our wholly non-invasive monitor, the
SupraQ, at a meeting in London. This second generation product uses a new
approach that is expected to reduce the effect of anatomical variation on signal
acquisition and be a material step-forward towards making the SupraQ a
commercially viable mass-market device. We are in advanced negotiations with a
major London Teaching Hospital with a view to it undertaking a programme of
clinical evaluation and trials of this new device. We expect their work to start
during the second half of 2007.
Clinical Research
Following from the publication of an influential randomised clinical trial in
bowel cancer surgery, doctors from the Freeman hospital in Newcastle presented
data on those patients in the trial that underwent laparoscopic (minimally
invasive or key-hole) bowel surgery. These results which were presented at the
American Society of Colon and Rectal Surgeons meeting held in St Louis in June
showed that use of the CardioQ for Targeted Volume Management significantly
improved outcomes during laparoscopic surgery, even though this approach itself
already minimises blood losses. Patients treated with the CardioQ were able to
tolerate food significantly earlier (2 vs. 3 days), had significantly fewer
post-operative complications (6% vs. 38%) and were able to go home three days
earlier (4 vs. 7 days) than those having laparoscopic surgery alone.
In the USA, a leading group of surgeons and anaesthetists have begun enrolling
patients in a randomised clinical trial that will examine the clinical and
economic impact of different fluid types used in colorectal surgery. Fluid
delivery will be guided by the CardioQ using the same protocol for each fluid
type given. The aim of this trial is to establish a fluid management protocol,
incorporating the CardioQ, that can be adopted as an element of the US
government-funded Surgical Care Improvement Programme (SCIP).
In France, a group of investigators led by Dr Cholley has begun patient
enrolment in the largest trial of the CardioQ ever conducted. The Fractale
multicentre randomised controlled trial involves doctors from sixteen major
French hospitals. The trial compares outcomes (including mortality) in patients
having emergency hip surgery after both one month and one year, using the
CardioQ for Targeted Volume Management with those achieved using the current
standard of care.
A number of other trials, expected to demonstrate further the CardioQ's unique
value, are in advanced planning or already under way in a number of areas
including trauma surgery, obstetrics and urological surgery.
Prospects
Deltex Medical is positioned for continued and sustainable growth in each of its
key markets. The introduction of physician reimbursement has greatly increased
the potential for prolonged accelerated growth in the key US market.
The Company is investing in product development aimed at expanding further the
markets for its technology. It is also investing in projects to allow it to meet
anticipated increases in short and medium term demand as well as to exploit
opportunities to increase margins through manufacturing efficiencies as
production levels increase.
There is a growing recognition of and interest in the benefits that the CardioQ
can bring to patients, whether through Targeted Volume Management alone as a
standard of care or as a core component of new care packages such as fast-track
or enhanced recovery surgery programmes.
Deltex Medical has made considerable progress towards the CardioQ being
acknowledged and accepted as the global standard of care for fluid management.
The Directors expect this progress to continue and to fuel sales growth for the
foreseeable future, thereby significantly enhancing shareholder value.
Nigel Keen
Chairman
25 September 2007
Consolidated income statement
for the six month period ended 30 June 2007
Unaudited Unaudited Unaudited
Half year Half year Full year
to to to
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
Revenue 1,914 1,515 3,511
Cost of sales (585) (503) (1,182)
---- ---- ----
Gross profit 1,329 1,012 2,329
Net operating expenses (2,508) (2,362) (4,343)
---- ---- ----
Operating loss (1,179) (1,350) (2,014)
Financial income 4 4 8
Financial expenditure (10) (4) (11)
---- ---- ----
Loss before taxation (1,185) (1,350) (2,017)
Tax on loss 11 11 23
---- ---- ----
Loss for the financial period (1,174) (1,339) (1,994)
========= ========= =========
Loss per share - basic and diluted (1.4p) (1.8p) (2.6p)
========= ========= =========
The above results all relate to continuing operations. The loss on ordinary
activities before taxation and the loss for the period has been computed on the
historical cost basis.
*Restated to reflect the adoption of IFRS
Consolidated statement of recognised income and expense
for the six month period ended 30 June 2007
Unaudited Unaudited Unaudited
Half year Half year Full year
to to to
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
Exchange differences taken to reserves (11) (3) (9)
Loss for the period (1,174) (1,339) (1,994)
---- ---- ----
Total recognised expense for the year (1,185) (1,342) (2,003)
========= ========= =========
Consolidated Balance Sheet
at 30 June 2007
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
Assets
Non - current assets
Property, plant and equipment 28 64 47
Trade and other receivables 34 73 52
Intangible assets 155 50 91
---- ---- ----
Total non-current assets 217 187 190
Current assets
Inventories 448 427 383
Trade and other receivables 1,366 904 1,241
Current income tax recoverable 34 33 45
Cash and cash equivalents 1,782 522 418
---- ---- ----
Total current assets 3,630 1,886 2,087
---- ---- ----
Total assets 3,847 2,073 2,277
---- ---- ----
Liabilities
Current liabilities
Borrowings (280) (231) (297)
Trade and other payables (1,242) (1,093) (1,062)
Current income tax liabilities (86) (72) (98)
Provisions (94) (50) (50)
---- ---- ----
Total liabilities (1,702) (1,446) (1,507)
---- ---- ----
Net assets 2,145 627 770
---- ---- ----
Equity
Share capital 925 767 800
Share premium 16,423 13,466 14,086
Capital redemption reserve 17,476 17,476 17,476
Other reserves 1,112 863 1,014
Translation reserve (20) (3) (9)
Retained earnings (33,771) (31,942) (32,597)
---- ---- ----
Total equity 2,145 627 770
---- ---- ----
*Restated to reflect the adoption of IFRS
Consolidated Statement of Cash Flows
for the six month period ended 30 June 2007
Unaudited Unaudited Unaudited
Half year Half year Full year
to to to
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
---- ---- ----
Cash flows from operating activities
Loss before taxation (1,179) (1,350) (2,014)
Depreciation of property, plant &
equipment 23 26 49
Amortisation of intangibles 1 1 2
Impairment of trade acquisition - - 62
---- ---- ----
Earnings before interest, tax,
depreciation and amortisation (1,155) (1,323) (1,901)
Cost of equity settled share schemes 98 95 246
---- ---- ----
Operating cash flows before movements
in working capital (1,057) (1,228) (1,655)
Decrease in inventories 17 21 73
(Increase)/decrease in debtors (107) 91 (307)
Increase in creditors 78 281 307
Increase in provisions 44 16 16
---- ---- ----
Cash generated by operations (1,025) (819) (1,566)
Interest paid (10) (4) (11)
Income taxes received 22 - 32
---- ---- ----
Net cash used in operating activities (1,013) (823) (1,545)
---- ---- ----
Cash flows from investing activities
Purchase of property, plant &
equipment (4) (5) (12)
Acquisition of trade - - (62)
Capitalised development expenditure (65) (48) (90)
Interest received 4 4 7
---- ---- ----
Net cash used in investing activities (65) (49) (157)
---- ---- ----
Cash flows from financing activities
Issue of ordinary share capital 2,613 825 1,491
Expenses in connection with share
issue (151) (30) (43)
Proceeds from increase/(decrease) in
borrowings (17) 12 78
Repayment of obligations under finance
leases (1) (3) (6)
---- ---- ----
Net cash generated from financing
activities 2,444 804 1,520
---- ---- ----
Net increase/(decrease) in cash and
cash equivalents 1,366 (68) (182)
Cash and cash equivalents at beginning
of the period 418 606 606
Effect of exchange rate fluctuations
on cash held (2) (16) (6)
---- ---- ----
Cash and cash equivalents at end of
the period 1,782 522 418
========= ========= =========
*Restated to reflect the adoption of IFRS
Notes to the Interim Statement
for the six month period ended 30 June 2007
1. Basis of preparation
The Group's previous financial statements have been prepared under UK Generally
Accepted Accounting Principles (UK GAAP). For the financial year ended 31
December 2007, the Group will prepare its annual consolidated financial
statements in accordance with IFRS as adopted by the European Union (EU) and
implemented in the UK.
The Group's date of transition to IFRS was 1 January 2006 at which date the
Group prepared its opening IFRS balance sheet. The financial information for the
6 months ended 30 June 2007 is unaudited and has been prepared in accordance
with the Group's accounting policies based on IFRS standards that are expected
to apply for the financial year 2007. The financial information for the 6 months
ended 30 June 2006 has been restated under IFRS and is also unaudited. The Group
has not applied IAS 34, Interim Financial Reporting, which is not mandatory for
UK Groups, in the preparation of these interim financial statements.
The interim financial information has not been audited and does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The Group's statutory accounts for the year ended 31 December 2006, prepared
under UK GAAP, have been delivered to the Registrar of Companies. The report of
the auditors on these accounts was unqualified and did not contain a statement
under Section 237(2) or (3) of the Companies Act 1985.
2. Research and development
Research costs are charged against income as incurred. Development costs are
capitalised as intangible assets, in particular when it is probable that future
economic benefits will flow to the Group. Such intangible assets are amortised
on a straight-line basis over the period of the expected benefit, and are
reviewed for impairment at each balance sheet date. Other development costs are
charged against income as incurred since the criteria for their recognition as
an asset are not met.
Costs for self-initiated research and development activities are assessed
whether they qualify for recognition as internally generated intangible assets.
Apart from complying with the general recognition requirements for and initial
measurement of an intangible asset, qualification criteria are met only when
technical as well as commercial feasibility can be demonstrated and cost can be
measured reliably. It must also be probable that the intangible asset will
generate future economic benefits and that it is clearly identifiable and
allocable to a specific product.
Further to meeting these criteria, only such costs that relate solely to the
development phase of a self-initiated project are capitalised. Any costs that
are classified as part of the research phase of a self-initiated project are
expensed as incurred. If the research phase cannot be clearly distinguished from
the development phase, the respective project related costs are treated as if
they were incurred in the research phase only.
3. Cumulative translation differences
'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annual
translation differences arising on the opening net assets and net profit or loss
of each foreign subsidiary to be treated as a separate component of
shareholders' equity, and the cumulative net surplus/deficit for each subsidiary
carried forward and added to/subtracted from any gains/losses on the future
disposal of that subsidiary. The Group has taken the option to set these
cumulative gains/losses at zero as at the date of transition to IFRS. Any gains
and losses recognised in the income statement on subsequent disposals of foreign
operations will therefore include only those translation differences arising
after 1 January 2006, the IFRS transition date.
4. Results by geography
Segment information is presented in the consolidated interim financial
statements in respect of the Group's geographical segments, which are the
primary basis of segment reporting. The geographical segment reporting reflects
the Group's management structure.
Segment results include items directly attributable to a segment as well as
those, which can be allocated on a reasonable basis.
Six months to 30 June 2007
UK USA International Total
£'000 £'000 £'000 £'000
Segment revenue External 1,345 279 420 2,044
Intersegment (130) - - (130)
---- ---- ---- ----
Group revenue 1,215 279 420 1,914
---- ---- ---- ----
Segment result 195 (11) (93) 91
---- ---- ---- ----
Unallocated
costs:
Research and
development (119)
Share option
charges (98)
Other central
costs (1,053)
----
Operating loss (1,179)
Financial
income 4
Financial
expense (10)
----
Loss before taxation (1,185)
Tax on loss 11
----
Loss for the financial
period (1,174)
----
Six months to 30 June 2006 (restated)
UK USA International Total
£'000 £'000 £'000 £'000
Segment revenue External 1,137 172 252 1,561
Intersegment (46) - - (46)
---- ---- ---- ----
Group revenue 1,091 172 252 1,515
---- ---- ---- ----
Segment result 104 47 (192) (41)
---- ---- ---- ----
Unallocated
costs:
Research and
development (149)
Share option
charges (95)
Other central
costs (1,065)
----
Operating loss (1,350)
Financial
income 4
Financial
expense (4)
----
Loss before taxation (1,350)
Tax on loss 11
----
Loss for the financial
period (1,339)
----
Twelve months to 31 December 2006 (restated)
UK USA International Total
£'000 £'000 £'000 £'000
Segment revenue External 2,699 412 534 3,645
Intersegment (134) - - (134)
---- ---- ---- ----
Group revenue 2,565 412 534 3,511
---- ---- ---- ----
Segment result 534 80 (404) 210
---- ---- ---- ----
Unallocated
costs:
Research a
development (241)
Share option
charges (246)
Other central
costs (1,737)
----
Operating loss (2,014)
Financial
income 8
Financial
expense (11)
----
Loss before taxation (2,017)
Tax on loss 23
----
Loss for the financial
period (1,994)
----
5. Loss per share
The loss per share calculation for the six months to 30 June 2007 is based on
the loss for the period of £1,174,000 and weighted number of shares in issue of
82,918,000. The loss per share calculation for the year to 31 December 2006 is
based on the loss for the financial year of £1,994,000 and weighted average
number of shares in issue of 76,537,000. The loss per share calculation for the
six month period ended 30 June 2006 is based on the loss for the period of
£1,339,000 and weighted average number of shares in issue of 74,181,000.
The Group had no dilutive potential ordinary shares in either period, which
would serve to increase the loss per ordinary share. Therefore, there is no
difference between the loss per ordinary share and the diluted loss per ordinary
share.
6. Research and development
Total research and development spend by the group is as follows:
Unaudited Unaudited Unaudited
Half year Half year Full year
to to to
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
Total spend on research and
development during the period 183 196 329
Less: amount capitalised (65) (48) (90)
Add: amortisation of amounts
previously capitalised 1 1 2
---- ---- ----
Research and development charged to
income statement 119 149 241
---- ---- ----
7. Statement of changes in shareholders' equity
Unaudited Unaudited Unaudited
Half year Half year Full year
to to to
30 June 30 June 31 December
2007 2006* 2006*
£'000 £'000 £'000
Opening shareholders' funds 770 1,079 1,079
Increase in share capital during
the period 125 41 74
Premium on shares issued, net of
costs 2,337 754 1,374
Loss for the financial period (1,174) (1,339) (1,994)
Credit in respect of service costs
settled by award of share options 98 95 246
Exchange difference taken to
reserves (11) (3) (9)
--- --- ---
Closing shareholders' funds 2,145 627 770
======== ======== ========
*As restated for IFRS
8. Called-up share capital
1 pence
ordinary shares
£'000
92,471,639 1p ordinary
shares 925
=======
During the period the Company placed 11,133,192 1p ordinary shares with
institutional and other investors and a further 398,153 1p ordinary shares to
certain of the Company's advisors who elected to take share in lieu of cash
payment for their services to the Company. A further 883,169 1p ordinary shares
were issued as a result of the exercise of share options.
9. Explanation of transition to IFRS
For all periods up to and including 31 December 2006 the Group prepared its
financial statements in accordance with UK GAAP.
In preparing these financial statements, the Group has started from an opening
balance sheet as at 1 January 2006, the Group's date of transition to IFRS, and
made those changes in accounting policies and other restatements required by
IFRS.
When a company adopts IFRS for the first time it is generally required to
present comparative data as though IFRS had always been applicable. However, the
standard which covers the initial introduction of IFRS, IFRS 1: First-time
adoption of International Financial Reporting Standards, allows companies to
take advantage of a number of exemptions from restating historical data in order
to simplify the transition process.
Business Combinations
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations that took place prior to the transition date.
Consequently goodwill arising on business combination before the transition date
remains at its previous UK GAAP carrying value of £Nil, as at the date of
transition.
Cumulative translation differences
'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annual
translation differences arising on the opening net assets and net profit or loss
of each foreign subsidiary to be treated as a separate component of
shareholders' equity, and the cumulative net surplus/deficit for each subsidiary
carried forward and added to/subtracted from any gains/losses on the future
disposal of that subsidiary. Deltex Medical has taken the option to set these
cumulative gains/losses at zero as at the date of transition to IFRS. Any gains
and losses recognised in the income statement on subsequent disposals of foreign
operations will therefore include only those translation differences arising
after 1 January 2006, the IFRS transition date.
10. Principal changes arising from the transition from UK GAAP to IFRS
Research and development
Under UK GAAP, all internal expenditure on development was expensed in the
period when incurred. Under IFRS, development costs must be capitalised if
certain criteria are met. The retrospective application of IAS 38 'Intangible
Assets' has resulted in £3,000 being recognised as development expenditure in
the IFRS opening balance sheet. Capitalisation and the amortisation of
development expenses in the six months to 30 June 2006 resulted in a credit to
the profit and loss account of £47,000 and a further credit of £41,000 for the
full year to 31 December 2006 resulting in a total credit for the year of
£88,000. The profit and loss account for the six months to 30 June 2007 includes
a credit of £64,000 in respect of capitalisation and the amortisation of
development expenditure during this period.
The reconciliation between UK GAAP and IFRS for the Group's loss, income
statement, balance sheet and total equity are presented below:
Unaudited Unaudited
Half year Full year to
to 30 June 31 December
2007 2006
£'000 £'000
Loss after tax under UK GAAP (1,386) (2,082)
Research and development 47 88
--- ---
Loss after tax under IFRS (1,339) (1,994)
--- ---
Unaudited Unaudited
Half year Full year to
to 30 June 31 December
2007 2006
£'000 £'000
Total equity under UK GAAP 577 679
Research and development 50 91
--- ---
Loss after tax under IFRS 627 770
--- ---
Reconciliation of unaudited income statement for the 6 months ended 30 June 2006
IFRS
UK GAAP effect IFRS
£'000 £'000 £'000
Revenue 1,515 - 1,515
Cost of sales (503) - (503)
---- ---- ----
Gross profit 1,012 - 1,012
Net operating expenses (2,409) 47 (2,362)
---- ---- ----
Operating loss (1,397) 47 (1,350)
Financial income 4 - 4
Financial expenditure (4) - (4)
---- ---- ----
Loss on ordinary activities before
taxation (1,397) 47 (1,350)
Tax on loss on ordinary activities 11 - 11
---- ---- ----
Loss for the financial period (1,386) 47 (1,339)
========= ========= =========
Reconciliation of unaudited income statement for the year ended 31 December 2006
IFRS
UK GAAP effect IFRS
£'000 £'000 £'000
Revenue 3,511 - 3,511
Cost of sales (1,182) - (1,182)
---- ---- ----
Gross profit 2,329 - 2,329
Net operating expenses (4,431) 88 (4,343)
---- ---- ----
Operating loss (2,102) 88 (2,014)
Financial income 8 - 8
Financial expenditure (11) - (11)
---- ---- ----
Loss on ordinary activities before
taxation (2,105) 88 (2,017)
Tax on loss on ordinary activities 23 - 23
---- ---- ----
Loss for the financial period (2,082) 88 (1,994)
========= ========= =========
Reconciliation of unaudited balance sheet at 30 June 2006
IFRS
UK GAAP effect IFRS
£'000 £'000 £'000
Assets
Non - current assets
Property, plant and equipment 64 - 64
Trade and other receivables 73 - 73
Intangible assets - 50 50
---- ---- ----
Total non-current assets 137 50 187
Current assets
Inventories 427 - 427
Trade and other receivables 904 - 904
Current income tax recoverable 33 - 33
Cash and cash equivalents 522 - 522
---- ---- ----
Total current assets 1,886 - 1,886
---- ---- ----
Total assets 2,023 50 2,073
---- ---- ----
Liabilities
Current liabilities
Borrowings (231) - (231)
Trade and other payables (1,093) - (1,093)
Current income tax liabilities (72) - (72)
Provisions (50) - (50)
---- ---- ----
Total liabilities (1,446) - (1,446)
---- ---- ----
Net assets 577 50 627
---- ---- ----
Equity
Share capital 767 - 767
Share premium 13,466 - 13,466
Capital redemption reserve 17,476 - 17,476
Other reserves 863 - 863
Translation reserve - (3) (3)
Retained earnings (31,995) 53 (31,942)
---- ---- ----
577 50 627
Total equity ---- ---- ----
Reconciliation of unaudited balance sheet at 31 December 2006
IFRS
UK GAAP effect IFRS
£'000 £'000 £'000
Assets
Non - current assets
Property, plant and equipment 47 - 47
Trade and other receivables 52 - 52
Intangible assets - 91 91
---- ---- ----
Total non-current assets 99 91 190
Current assets
Inventories 383 - 383
Trade and other receivables 1,241 - 1,241
Current income tax recoverable 45 - 45
Cash and cash equivalents 418 - 418
---- ---- ----
Total current assets 2,087 - 2,087
---- ---- ----
Total assets 2,186 91 2,277
---- ---- ----
Liabilities
Current liabilities
Borrowings (297) - (297)
Trade and other payables (1,062) - (1,062)
Current income tax liabilities (98) - (98)
Provisions (50) - (50)
---- ---- ----
Total liabilities (1,507) - (1,507)
---- ---- ----
Net assets 679 91 770
---- ---- ----
Equity
Share capital 800 - 800
Share premium 14,086 - 14,086
Capital redemption reserve 17,476 - 17,476
Other reserves 1,014 - 1,014
Translation reserve - (9) (9)
Retained earnings (32,697) 100 (32,597)
---- ---- ----
679 91 770
Total equity ---- ---- ----
11. Movement in Net debt
1 January Cash flow Exchange 30 June
2007 movement 2007
£'000 £'000 £'000 £'000
Net cash
Cash at bank and in
hand 418 1,366 (2) 1,782
--- --- --- ---
418 1,366 (2) 1,782
Other borrowings (297) 17 - (280)
Finance leases (1) 1 - -
--- --- --- ---
120 1,384 (2) 1,502
======= ======= ======= =======
12. Distribution of announcement
Copies of this announcement are being sent to all shareholders and will be
available for collection free of charge from the Company's registered office at
Terminus Road, Chichester, West Sussex, PO19 8TX.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
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