Deltex Medical Group plc. Interim results for the six months ended 30 June 2006

Transcription

1 Deltex Medical Group plc Interim results for the six months ended 30 June September 2006 Deltex Medical Group plc ( Deltex Medical or Company ), the AIM listed haemodynamic monitoring company, today announces its results for the six-month period ended 30 June Financial Highlights Turnover increased by over 20% in direct markets 25% increase in gross profit 1,241,000 in new equity raised after expenses (including 585,000 announced in this results statement) Operating Highlights Growth in sales of disposable probe continues to drive increases in revenue Faster growth seen in high volume operating theatre market Strongly positive, surgeon-led trial in colorectal surgery published in the British Journal of Surgery Meta-analysis of clinical trial data reports three day reduction in length of stay Acquisition of TECO oesophageal Doppler business European distribution restructured preparing the Company for the next stage of development in these markets For further information, please contact:- Deltex Medical Group plc Nigel Keen, Chairman Andy Hill, Chief Executive Ewan Phillips, Finance Director investorinfo@deltexmedical.com Gavin Anderson & Company Deborah Walter Marie Cairney Jodie Reilly Charles Stanley Securities Philip Davies

2 Notes for Editors Deltex Medical manufactures and markets the CardioQ monitor, which uses disposable ultrasound probes inserted into the oesophagus to determine the amount of blood being pumped around the body circulating blood volume. Reduced circulating blood volume is known as hypovolaemia, which leads to insufficient oxygen being delivered to the organs. This causes medical complications including peripheral and major organ failure which can lead to death. Hypovolaemia, which is akin to severe dehydration, affects virtually every patient having surgery because of the combined effects of pre-operative starvation, the impact of the anaesthetic agents and trauma from the surgery itself. Using fluids and drugs, guided by the CardioQ, to optimise the amount of circulating blood significantly reduces post-operative complications allowing patients to make a faster, more complete recovery and return home earlier. 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 signal. By using this technology, the CardioQ provides clinicians with the ability to haemodynamically optimise critically ill patients and those undergoing routine moderate to major surgery through the controlled administration of fluid and drugs. Haemodynamic optimisation has been scientifically proven to improve the speed and quality of patient recovery and reduce hospital stay. There are already over 1,250 CardioQs currently in use in hospitals worldwide and distribution arrangements are in place in over 30 countries. In addition, there are currently more than 90 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.

3 Chairman s Statement Group Overview 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 monitors the flow of blood leaving the heart with every beat as it happens and consequently can detect any reduction in circulating blood volume early and in real-time. This allows the doctor to intervene quickly and safely to correct the situation, 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 in this way, by giving the right amount of the right fluid at the right time, is known as haemodynamic optimisation or Targeted Volume Management (TVM). The CardioQ plays an important part in improving the efficiency and productivity of the healthcare system. Using the CardioQ to monitor and manage the patients circulating blood volume during surgery helps them to recover more fully and more quickly. Using the CardioQ means that fewer patients need to go to intensive care and those that do stay there for shorter periods. Patient journeys through the hospital become more predictable because fewer patients unexpectedly need intensive care support. Clinical evidence of the highest quality supports our assertion that TVM should be a prerequisite for all patients having major surgery as well as part of routine care for post-operative or critically ill patients in critical care units. Trading Update Sales Probes Monitors Probes Monitors Other Total Probes Monitors Probes Monitors Other Total units units units units Direct markets UK 11, ,091 10, USA 2, , Distributor markets Europe 2, , Far East & Latin America 3, , , , ,515 19, , ,410 Trading results in the first half of 2006 reflect the Group s continued progress overall and in each of the UK, USA, Far East and Latin America together with the restructuring of our distribution arrangements in all our more significant European markets. Based upon the growth in the use of the CardioQ we have seen since our change to direct sales in the UK, we undertook an audit of our European distributor business. In certain markets where opportunities have arisen, we have put in place direct sales support. Elsewhere, we have moved the majority of our key distributors on to monthly probe orders. Not only has this given us far better visibility of the effectiveness of local marketing, it has also allowed us to improve our production planning and manufacturing flows. The restructuring has been successful in reducing substantially the levels of probe stocks held by distributors. Going forward, it means that underlying increases in use of the CardioQ will be more quickly evident in the Company s sales. Turnover in the UK and USA, where we sell direct to the end-user, increased by over 20% in the period. Sales for the Group as a whole were ahead by 105,000 (7%) compared to the first half in 2005, after the impact of restructuring our commercial relationships with our key distribution partners in Europe. First half sales to distributors in continental Europe were 151,000 lower than in 2005 at

4 111,000. Group sales growth, excluding continental Europe, was 22%, the same rate as achieved in our largest market, the UK. Operating losses of 1,397,000 were 119,000 higher than in the corresponding period in 2005, after a number of one-off items. The main one-off items related to the restructuring of our continental European business and costs incurred with the purchase and integration of the TECO business which we acquired in January of this year. We continue to keep a tight rein on our cost base while making limited additional investments to pursue our core business development objectives. We will continue to invest in new programmes based on their merit and the availability of the funds necessary to pursue them. We have adopted FRS 20: Share-based payments for the first time in these interim accounts, resulting in a charge in the period of 95,000. We have restated the 2005 comparatives for the first half of 2005 to include an additional charge of 164,000 and restated the full year 2005 comparatives to include a further charge of 97,000 resulting in a total charge for the year of 261,000. The cumulative effect on reserves is shown in other reserves. The Board believes that share options are an important tool to incentivise and retain the quality of managers and staff necessary for the Company to succeed in its objective of making the CardioQ an international standard of care and it therefore intends to continue to use them as an important part of its remuneration strategy. Total net cash outflow from operating activities in the six months ended 30 June 2006 was 867,000 and included the costs associated with the TECO acquisition and its subsequent integration as well as the restructuring of our continental European distributor business. The underlying cash burn averaged 88,000 per month, an improvement over the corresponding period last year. The underlying monthly cash burn was 25,000 higher than achieved in the second half of 2005 due to reduced receipts from our continental European distributors as we went through the restructuring process and to the limited expansion in our cost base. Now that our major distributors are placing regular monthly orders, the Group is well positioned to continue the trend of reducing the underlying monthly cash burn towards the break-even point. Today we announce the placing of 2,988,750 new ordinary shares of 1p each at 20p per share to raise 585,000 with an institutional investor after expenses in new equity capital. Application will be made for the new shares to be traded on AIM and it is expected that dealings will commence on 4 October Following the issue of these new shares the Company has a total of 79,687,313 ordinary shares in issue. This capital will be used to fund a UK and continental European campaign to promote the results of the recently published Freeman hospital randomised controlled trial and the meta-analysis, we recently announced. The Company had cash available at 30 June 2006 of 522,000. Taking into consideration the cash available, the bank facility in place, the new equity finance referred to above and on the basis of current cash utilisation and anticipated growth in sales, the Directors remain confident the Company has adequate cash resources to see it through to profitability. Markets UK UK sales were 197,000 ahead of the corresponding period in 2005, an increase of 22%. We recorded increased sales in each of our three revenue streams of probes, monitors and maintenance contracts. The largest contributor to growth continues to be sales of disposable probes, which increased by 149,000 (20%). On average we sold 1,958, probes per month in the first half and were successful in maintaining a steady growth profile: June was the twentieth consecutive month and September will be the twenty-third where UK probe sales were higher than in the corresponding month the year before. March was our best ever month and June the second best for UK probe sales. Probe growth has also continued in the intensive care environment where the CardioQ, based on a recent independent study, is the UK s most popular haemodynamic monitor. We have been selling probes designed specifically for use in operating theatres since early 2003 and it is now clear that the growth rate is significantly greater than that in intensive care. In the UK NHS

5 there are about 750,000 patients undergoing surgery where clinical evidence has already established that TVM should be the new standard of care, although only a small proportion are being treated using these new approaches. USA Sales in the USA were 172,000 compared to 153,000 in the first half of 2005, an increase of 12%. Revenue from the sale of disposable probes accounted for 165,000 or 96% of the total first half sales in the USA. The growing interest in haemodyamic management in the USA is suggested by the fact that we have recently seen a step up in the number of quotations to customers for CardioQ. Quotation requests are now evenly split between the operating theatre and intensive care environments, reflecting the increasing interest in the concept of TVM among US anaesthetists in the operating theatre. Our strategy in the USA continues to be to work with a small number of influential hospitals, allied to key healthcare providers, in order to tailor our sales message and value proposition to suit their specific needs. These providers are either publicly funded through government programmes (such as the military and Veterans Administration) or privately through insurance (for example, the Health Maintenance Organisations). In parallel to these sales activities, we have been engaged in discussion with the US government agency responsible for assessing the need for and setting the level of medical technology reimbursement. Distributed Markets Continental Europe, Far East and Latin America Continental Europe Our focus in Europe in the first half of 2006 has been to restructure our approach to our distributors in the key countries. The goals for this change are twofold; firstly, to move the leading distributors on to monthly standing orders to meet their on-going sales need and, secondly, to make it easier for us to see the impact of local sales initiatives and training programmes. Taken together, this approach gives us much greater flexibility to tailor our distribution strategy to better match opportunities as and when they arise and at lower cost. It also gives us better visibility of end-customer activity, allowing better manufacturing planning. The costs associated with this initiative are included in the one-off items referred to earlier in this statement. We are currently seeing month-on-month increases in the overall level of probes being delivered against standing orders since the inception of this strategy. Far East and Latin America While distributor support in the Far East and Latin American countries continues mostly to be provided on a remote, telephone support basis, increased sales into Peru have warranted one fieldbased support visit by the international sales and clinical training team. Sales in Peru are now second only to those into France in our distributed markets and our Peruvian distributor has been successful in translating our core sales message and value proposition into valuable sales tools in his territory. A number of territories are pursuing approvals for hospital reimbursement for the probes and these initiatives represent a significant opportunity to increase sales of both probes and monitors in the Far East and Latin American countries. We will continue to manage these distributors using the remote support strategy, making infrequent in-country support visits only where the chances of an early return on the associated investment is assured. Research and Development The primary focus of our research and development activity remains those awake patients who are either having surgery, usually under regional anaesthesia administered via the spine, or who are awake elsewhere in the hospital, at risk from hypovolaemia and currently unable easily to benefit

6 from the use of oesophageal Doppler monitoring. Whilst awake patients in the operating theatre represent only a relatively small part of our target market, these patients would benefit from TVM. At present, our awake patient probe is only used in a small number of patients undergoing surgery under spinal anaesthesia and our aim is to increase uptake through making small changes to the handling characteristics of the current awake patient probe to make it easier to place. The SupraQ suprasternal monitor is intended for use on those patients where a wholly non-invasive Doppler ultrasound-based awake monitoring solution is preferred; for example, on the hospital s general wards, in the outpatient department or Accident and Emergency Departments or at the site of a road traffic accident. Early versions of the SupraQ have been used in a number of clinical trials over the last four years with good results, as previously reported. The Medway hospital is currently awaiting internal approval to begin formal research with the SupraQ which is expected to begin in the coming months. The SupraQ relies upon seeing the main artery leaving the heart (the aorta) through an anatomical window at the base of the patient s throat the suprasternal notch. From this point there are no structures that might obstruct the ultrasound signal. The handheld transducer is orientated towards the aorta and the device is able to measure aortic blood flow and provide the same clinical data as the CardioQ. In the first half of this year our engineers developed a new, prototype ultrasound platform for the SupraQ and this has shown promising results in early (non-clinical) testing. It is hoped that we will be able to use this new approach to make the device easier to use in a routine clinical environment. Clinical Papers There has been a significant increase in the time devoted in major international clinical meetings to haemodynamic management and a corresponding increase in the number of clinical trials presented and published in the first half of the year. We announced on 31 August that The British Journal of Surgery had published the first surgeon-led, double-blinded, randomised controlled clinical trial in colorectal surgery from the Freeman hospital, Newcastle-Upon-Tyne. Doctors at the hospital, under the leadership of Mr Alan Horgan, a consultant colorectal surgeon, demonstrated that use of the CardioQ meant that patients were fit for discharge earlier, suffered significantly fewer complications, did not require unplanned intensive care support and were able to tolerate food significantly earlier than patients treated traditionally. Following publication of this trial, Mr Horgan and Dr Sophie Noblett, the lead author of the trial paper, were invited to present their results to an audience of over 600 international colorectal surgeons at the first European Society of Coloproctology (ESCP) conference in Lisbon. Response to the presentation and a subsequent symposium on fast track surgery that included a talks on the impact of the adoption of CardioQ as a standard of care in colorectal surgery at the Freeman hospital and at Worthing hospital was well received and generated a great deal of interest on the Deltex Medical exhibition stand. On September 18 we reported on a trial being undertaken at a major children s hospital. This trial will include 200 patients and look at the efficacy of the CardioQ as a cardiac output monitor in babies and small children in the paediatric intensive care unit. On 26 September we reported on the presentation by Dr Mark Hamilton of an independently conducted, systematic review (a so-called meta-analysis ), of the available clinical data on oesophageal Doppler monitoring (this review excluded the Freeman data above as it was submitted before the results were made public). This analysis concluded that use of the CardioQ significantly reduces length of stay following major surgery. This reduction is a direct consequence of patients suffering fewer post-operative complications. A meta-analysis tests the weight of the body of evidence surrounding the use of a technology or technique and, if its conclusions are positive, it is generally accepted that the technology or technique should be adopted for routine use. On 26 September we announced the presentation of a trial conducted in Grenoble, France that demonstrated the utility of the CardioQ in patients undergoing major spinal surgery.

7 These new publications contribute to the unique and already overwhelming body of evidence and clearly demonstrate that patients undergoing moderate and major surgery are at risk if they are denied TVM using the CardioQ. Prospects We believe that the overwhelming body of clinical evidence and the opportunity for improved efficiency and cost-effectiveness of care delivery that use of the CardioQ affords means that Deltex Medical is set to provide better care for patients and continued, sustainable growth and greater value for our shareholders. Nigel Keen Chairman 28 September 2006

8 Consolidated Profit and Loss Account for the six month period ended 30 June 2006 Half year to Half year to Full year to 30 June 30 June 31 December As restated As restated Turnover 1,515 1,410 3,042 Cost of sales (503) (603) (1,076) Gross profit 1, ,966 Net operating expenses (2,409) (2,085) (3,740) Operating loss (1,397) (1,278) (1,774) Net interest Loss on ordinary activities before taxation (1,397) (1,272) (1,771) Tax on loss on ordinary activities Loss for the financial period (1,386) (1,259) (1,749) ========= ========= ========= Loss per share - basic and diluted (1.9p) (1.8p) (2.5p) ========= ========= ========= 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 2006 Half year to Half year to Full year to 30 June 30 June 31 December As restated As restated Loss for the financial period (1,386) (1,259) (1,749) Currency translation differences in foreign currency net investment (3) 6 9 (1,389) (1,253) (1,740) ========= ========= =========

9 Consolidated Balance Sheet at 30 June June 30 June 31 December As restated As restated Fixed assets Tangible assets Current assets Stocks Debtors Amounts falling due within one year Amounts falling due after more than one year Cash at bank and in hand ,959 1,898 2,115 Creditors: Amounts falling due within one year (1,396) (1,032) (1,089) Net current assets ,026 Total assets less current liabilities ,111 Creditors: amounts falling due after more than one year - (5) (1) Provision for liabilities and charges (50) (38) (34) ,076 ========= ========= ========= Capital and reserves Called up share capital Share premium account 13,466 12,201 12,712 Capital redemption reserve 17,476 17,476 17,476 Other reserves Profit and loss account (31,995) (30,119) (30,606) Equity shareholders funds ,076 ========= ========= =========

10 Consolidated Cash Flow Statement for the six month period ended 30 June 2006 Half year to Half year to Full year to 30 June June December Net cash outflow from operating activities (867) (821) (1,263) Returns on investments and servicing of finance Interest received Finance lease interest (1) (1) (3) Finance interest (3) - (3) Net cash inflow from returns on investments and servicing of finance Taxation Capital expenditure Purchase of tangible fixed assets (5) (3) (17) Net cash outflow for capital expenditure (5) (3) (17) Net cash outflow before financing (872) (818) (1,277) Financing Other borrowings Capital element of finance lease rentals (3) (3) (7) Issue of ordinary share capital Expenses in connection with share issue (30) - (10) Net cash inflow from financing Decrease in net cash during the period (68) (742) (609) ========= ========= =========

11 Notes to the Interim Statement for the six month period ended 30 June Basis of preparation The financial information for the six months ended 30 June 2006 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 These are consistent with those set out in the audited financial statements for the year ended 31 December 2005, with the exception of the treatment of share option costs where FRS 20 has now been adopted. The financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act The Group awards directors, employees and certain of the Company s distributors equitysettled share-based payments, from time to time, on a discretionary basis. In accordance with FRS 20 Share based payments, equity settled share-based payments are measured at fair value at the time of grant. Fair value is measured by use of Black Scholes based model. The fair value determined at the grant date of the equity settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group s estimate of the number of shares that will eventually vest. The options are subject to vesting conditions of up to six years, and their fair value is recognised as an expense with a corresponding increase in other reserves equity over the vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Further information regard the adoption of FRS 20 is given in note 8 to the interim financial information. 2. Turnover The Group s activities consist solely of the manufacture and marketing of medical devices. By origin, all sales are United Kingdom sales. Half year to 30 June 2006 Half year to 30 June 2005 Audited Full year to 31 December 2005 Probes Monitors Other Total Probes Monitors Other Total Probes Monitors Other Total Analysis of turnover by destination Direct Markets United Kingdom , , ,898 United States of America Distributor Markets Rest of Europe Far East & Latin America , ,515 1, ,410 2, ,042 ======= ======== ======= ======= ======= ======== ======= ======= ======= ======== ======= ======= 3. Loss per share The loss per share calculation for the six months to 30 June 2006 is based on the loss for the period of 1,386,000 and weighted number of shares in issue of 74.2 million. The loss per share calculation for the year to 31 December 2005 is based on the loss for the financial year of 1,749,000 and weighted average number of shares in issue of 70.4 million. The loss per share calculation for the six month period ended 30 June 2005 was based upon the loss for the period of 1,259,000 and weighted average number of shares in issue of 69.5 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.

12 4. Reconciliation of movements in shareholders funds Half year to 30 June 2006 Half year to 30 June 2005 Full year to 31 December 2005 As restated As restated As restated Opening shareholders funds 1,076 1,994 1,994 Increase in share capital during the period Premium on shares issued, net of costs Loss for the financial period (1,386) (1,259) (1,749) Credit in respect of service costs settled by award of share options Exchange difference taken to reserves (3) 6 9 Closing shareholders funds ,076 ======== ======== ======== 5. Called up share capital 1 pence ordinary shares ,698,563 1p ordinary shares 767 ======= During the period the Company placed 3,505,263 1p ordinary shares with institutional and other investors and a further 232,746 1p ordinary shares to non-executive directors in respect of fees due to them. In addition a total of 362,696 1p ordinary shares were issued to certain of the Company s advisors who elected to take shares in lieu of cash payment for their services to the Company. On 28 September 2006, the Company placed with an institutional investor 2,988,750 1p ordinary shares. 6. Reconciliation of operating loss to net cash outflow from operating activities Half year to 30 June 2006 Half year to 30 June 2005 Full year to 31 December Operating loss (1,397) (1,278) (1,774) Depreciation on tangible fixed assets Decrease in stocks Decrease/(increase) in debtors (189) Increase in creditors Costs associated with share option scheme Foreign exchange differences 2 (4) (2) Increase in provisions Net cash outflow from operating activities (867) (821) (1,263) ======= ======= =======

13 7. Reconciliation of movement in net cash 1 January Cash flow Exchange 30 June 2006 movement Net cash Cash at bank and in hand 606 (68) (16) 522 Other borrowings (219) (12) - (231) Finance leases (7) 3 - (4) 380 (77) (16) (287) ======= ======= ======= ======= 8. Prior year adjustment Following the adoption of FRS 20, Share-based payments the Group s reserves have been restated. The fair value of the share-based payments debited to the profit and loss reserve and credited to other reserves were 507,000 in respect of periods ending on or before 31 December The profit and loss account for the year ended 31 December 2005 was debited with a charge of 164,000 in the six months to 30 June 2005 and a further 97,000 for the full year to 31 December 2005 resulting in the total charge for the year of 261,000. The profit and loss account for the six months to 30 June 2006 includes a charge of 95,000 in respect of share based payments. 9. 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.