25th Sep 2007 07:03
Deltex Medical Group PLC25 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 forthe 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 CardioQcan bring to patients, whether through Targeted Volume Management alone as astandard of care or as a core component of new care packages such as fast-trackor enhanced recovery surgery programmes. Deltex Medical has made considerable progress towards the CardioQ beingacknowledged and accepted as the global standard of care for fluid management.We expect this progress to continue and to fuel sales growth for the foreseeablefuture." For further information, please contact:- Deltex Medical Group plc 01243 774 837Nigel Keen, Chairman [email protected] Hill, Chief Executive [email protected] Phillips, Finance Director [email protected] Gavin Anderson & Company 020 7554 1400Deborah Walter [email protected] Speed [email protected] Charles Stanley Securities, Nominated Advisor 020 7149 6457Philip Davies [email protected] Chairman's Statement Group Summary The use of CardioQ in surgery, to monitor and manage patients' circulating bloodvolume, is proven to speed and assist recovery, whilst reducing the requirementfor both routine and emergency post- operative admissions to intensive care. Inshort, patients go home sooner and are less likely to face readmission.Published clinical trial evidence shows that CardioQ-guided Targeted VolumeManagement should be considered a standard of care in all major surgery and thatCardioQ should be an integral part of routine critical care procedures. All patients undergoing surgery are at risk from serious and potentiallylife-threatening complications caused by a reduction in circulating bloodvolume. This condition, known as hypovolaemia, results from the combined impactof pre-operative fasting, the effects of the anaesthetic and the blood lostduring the surgical procedure. In many respects hypovolaemia is similar tosevere dehydration. The complications this condition causes arise because thereduced circulating blood volume is unable to carry sufficient oxygen to themajor organs and tissues. All of these are at risk from failure as a consequenceof the resultant oxygen deprivation. The CardioQ directly measures blood flow in the main vessel delivering bloodfrom the heart to the body - the aorta - with every beat of the heart. Changesin blood flow are much earlier and more sensitive indicators of changes incirculating blood volume than changes in blood pressure which are frequentlyrelied upon to guide fluid replacement; the body's natural compensatorymechanism strives to maintain blood pressure at 'normal' levels, even in thepresence of severe hypovolaemia. The technology of oesophageal Doppler monitoring (ODM), in which the CardioQ isthe world leader by far, is unique in allowing doctors to exploit this immediacyin detecting changes in a patient's status. This enables the doctor to intervenequickly and safely where necessary using a combination of specialised fluids anddrugs, before the hypovolaemia becomes serious and potentially life threatening.The technique of optimising a patient's haemodynamic status by giving the rightamount of the right fluid at the right time, is variously known as haemodynamicoptimisation, 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 £'000DirectmarketsUK 12,455 26 976 173 66 1,215 11,745 26 886 146 59 1,091USA 3,405 8 239 39 1 279 2,245 2 165 5 2 172DistributormarketsInternational 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 delivergrowth in all three of its sales territories and achieved an overall increase insales 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 toour International markets was underpinned by increases in sales to hospitals byour distributors. In the USA, the world's largest potential market for ourproducts, there were clear signs of accelerating sales growth, with salesenquiries and requests for training support at record levels. During the period, over 80% of sales were recurring revenue from probe sales andmonitor maintenance with increased probe revenue accounting for nearlytwo-thirds of the increase in total Group sales. Sales in the early part of thesecond half have been encouraging and have continued to be ahead of 2006 in allmarkets. Sales in the UK grew by 11% in total, with probe sales ahead of the first halfof 2006 by just over 10%. This growth rate was lower than the trend of probegrowth (in excess of 20% per annum) since the Company started selling direct inthe UK in July 2002. This was as a direct result of sustained political pressureon NHS hospitals to cut spending and 'balance the books' in the last threemonths of the NHS financial year and in March in particular. Sales growth in thefirst five months of the new NHS financial year, commencing April, has seen areturn to the previously established trend level. Clinical demand for theCardioQ continues to grow far more rapidly than actual sales in the UK and thisis expected to underpin ongoing future growth. Distributor-led international sales in the first half of the year reflected thechanges to our trading relationships with our distributor partners that weimplemented in the first half of 2006 to reduce probe stock holding and move toa more regular monthly orders basis. Underlying probe sales in the internationalregion have been encouraging, with significant progress made in key territories.Our largest distributor, who drives our business in France, has increasedmonthly probe orders from 230 at the end of the first half of 2006 to 380 goinginto the second half of 2007. International sales, including monitors, increasedby 67% over the six months ended 30 June 2006: the growth in probe sales wasjust under 40%, reflecting both the changes in ordering patterns and underlyingincreased usage by hospitals. In the USA, where we have a small and focused sales/clinical training team, wehave seen a strong increase in the interest in Targeted Volume Management usingthe CardioQ and this has been further accelerated since the publication of astrongly positive US government-funded review ('technology assessment') of thelarge body of literature relating to haemodynamic management using ODM. As adirect result of this increase in interest we have seen the rate of sales growthaccelerating in the USA since the end of the first half of 2006, a trend thathas continued throughout and beyond the first half of 2007. Overall sales in theUSA were up over 60% compared to the first six months of 2006. Financials The Company has adopted International Financial Reporting Standards (IFRS) forthe first time in these interim accounts and has accordingly restatedcomparative figures for both the six months ended 30 June 2006 and 31 December2006. The changes are explained in the notes; the main change involvescapitalising 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 hasestimated and accounted for certain costs, together with the timing of a numberof one-off costs (for example sponsorship of individual clinical meetings,accrual of sales team bonuses, recognition of clinical research costs, timing ofshare based payments and SupraQ research and development costs) mean that it islikely that more than half of the eventual full year administrative costs arerecognised in the first half of the year, whereas sales are normally higher inthe second half of the year. Cash at 30 June 2007 was £1,782,000 after net cash outflow from operatingactivities of £1,049,000 in the six months ended 30 June 2007. In line with thepattern of operating losses, cash consumption during the half year has beenaffected by a number of investment and one-off costs. In addition, the Companyhas made a limited number of focused increases to its cost base in all its keysales territories, in particular the USA, as well as increasing its R&Dexpenditure. This increase is as a result of significantly increased investmentin the next generation oesophageal probes and CardioQ monitors as well asprogress with the SupraQ. The underlying cash burn, the difference betweenregular monthly revenues and regular monthly costs, is reducing as sales volumesgrow and the sales growth necessary to eliminate the remaining underlying cashburn is comfortably achievable from well qualified, target or existing customeraccounts in our main markets. In the meantime, we will continue to invest inindividual projects that fall outside the underlying cost base dependent on theresources 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 ofour product areas - probes, monitors and maintenance contracts. Sales in Marchwere adversely affected by NHS hospitals aggressively limiting spending in anattempt to 'balance the books'. March was the first time in 29 consecutivemonths where sales of probes in the UK were not ahead of the corresponding monthin the prior year. Sales of probes have, however, returned to being ahead of thecorresponding month in the prior year in each of the five completed months sinceMarch and probe sales in June and July were, respectively, our second and thirdbest 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 anumber of our key customer hospitals. Our increasingly strong relationships withsurgeons are a key factor in the development of this area of our business and weexpect these new integrated approaches to surgical patient care, with use of theCardioQ as a central component, to become standard practice over the comingyears. In April, University College London Hospital (UCLH), one of the UK's mostimportant teaching hospitals announced its plan to implement routine use of theCardioQ as it started to roll out an enhanced recovery programme across mostmajor surgical disciplines. Preliminary feedback is that the pilot phase of thisprogramme, and a similar one at another major London teaching hospital havegenerated impressive results. These results are expected to be made public inthe coming months. We are collaborating on a number of initiatives within the NHS and theDepartment of Health that are looking at ways to accelerate adoption ofinnovative, evidence-based medical technologies. We anticipate being able toannounce 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 insales to be further enhanced by the recently announced release of a new range ofoesophageal probes, the I2 range. These new probes will allow doctors to extendthe use of the CardioQ into a broader group of patients than previouslypossible. The I2 range of probes can be tolerated by patients waking from theiranaesthetic or having surgery under regional anaesthesia with only mild sedationand without general anaesthetic. They can also be used with patients that arefully conscious in intensive care or on the ward. USA Our strategy for the USA is to develop a value proposition and scalable salesmodel that can be tailored to each of the key healthcare provider systems thatoperate in this market. Once we have in place a representative number of usersin each system we will consider establishing a partnership arrangement with amajor US-based medical technology company as a means to scale up our fieldpresence and further accelerate market penetration. Reimbursement, the payment of physicians for their time and the skill requiredto use a particular technology, is generally acknowledged as the single mostimportant step in accelerating wide-scale market adoption of any medicaltechnology in the USA. There are three principle elements to reimbursement. Firstly, the tax-funded USgovernment body responsible for healthcare for the elderly and poor - theCenters for Medicare and Medicaid Services (CMS) - has to deem that a procedureshould be 'covered' for reimbursement. Secondly, the procedure has to beallocated 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 physicianthen bills the payer each time he uses the technology. Private healthcareproviders almost invariably follow the reimbursement decisions of CMS, normallyassigning 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 thatODM-guided fluid management during surgery reduced both the number of majorcomplications after surgery and the total number of complications as well asshortening hospital stay. Furthermore, the evidence for these conclusions wasdeemed to be 'strong' - in this context strong evidence is defined as 'Evidencesupporting the qualitative conclusion is convincing. It is highly unlikely thatnew evidence will lead to a change in this conclusion'. In March, based on the AHRQ technology assessment, CMS deemed use of ODM toguide fluid administration in any surgical patient requiring fluid optimisationor any patient on a breathing machine ('ventilated') in intensive care to be'reasonable and necessary' and therefore would be covered for reimbursement inthese 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 intensivecare can now bill CMS for reimbursement. Regional paying organisations('carriers'), acting on behalf of CMS, will initially negotiate rates ofreimbursement with local users. International Following the decision early in 2006 to reduce overall stock levels across ourdistributor partners and move them on to monthly standing order patterns, wehave 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 haveseen in our direct markets of the UK and USA by providing clinical, technicaland sales support in the field wherever it is cost-effective to do so. Ourstrategy is to create a network of key users around the world who will act toadvocate routine use of the CardioQ for Targeted Volume Management both in theirown country and at international clinical meetings. Our two most successfuldistributors are in France and Peru. In both cases the distributors havereplicated as closely as possible the approach to education and support that weemploy in the UK and in the USA. In Germany we are working with one of the largest teaching institutions toimplement Targeted Volume Management as a standard of care in all major surgicalprocedures. At this centre we are supporting a programme of education,undertaken by a CardioQ-trained physician who is based at the hospital and ischarged with the development and implementation of clinical protocols thatsupport routine usage. The temporary 'embedding' of a trainer on site, anapproach developed in major hospitals in the USA, may become the model of choicein 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 secondhalf of 2006 and the first half of 2007, the Company has embarked on a series ofprojects both to increase our manufacturing capacity and to achieve significantmanufacturing cost reductions. The projects include the automation of themanufacture of the most costly sub-assembly in the probe, the streamlining ofcertain steps in probe manufacture and bringing in-house certain routineprocesses 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 solutionsfor use in the conscious patient. This work stream has two components, thecontinued improvement of the oesophageal probe range to expand significantly thepopulation of patients who can benefit from the use of the CardioQ and thedevelopment of a wholly non-invasive monitor for rapid assessment of a patient'shaemodynamic status. In response to feedback from customers we have developed a range of oesophagealprobes that can be used in patients after they wake up from their anaestheticafter surgery or in patients having surgery under regional anaesthetic withminimal sedation or in fully conscious patients. These new probes are muchsofter than the traditional range of probes, yet retain their handling andfocusing characteristics. The probes are branded as Instant Intervention ("I2")probes to reflect the unique ability of the CardioQ technology to allowimmediate intervention as haemodynamic changes happen. The Company launched the I2 probes earlier this month by demonstrating their useon members of the senior management team at the annual conference of theAssociation of Anaesthetists of Great Britain and Ireland. The I2 probes makethe benefits of Targeted Volume Management available to almost every patienthaving surgery or being treated in a critical care setting. Earlier in 2007 we showcased prototypes of our wholly non-invasive monitor, theSupraQ, at a meeting in London. This second generation product uses a newapproach that is expected to reduce the effect of anatomical variation on signalacquisition and be a material step-forward towards making the SupraQ acommercially viable mass-market device. We are in advanced negotiations with amajor London Teaching Hospital with a view to it undertaking a programme ofclinical evaluation and trials of this new device. We expect their work to startduring the second half of 2007. Clinical Research Following from the publication of an influential randomised clinical trial inbowel cancer surgery, doctors from the Freeman hospital in Newcastle presenteddata on those patients in the trial that underwent laparoscopic (minimallyinvasive or key-hole) bowel surgery. These results which were presented at theAmerican Society of Colon and Rectal Surgeons meeting held in St Louis in Juneshowed that use of the CardioQ for Targeted Volume Management significantlyimproved outcomes during laparoscopic surgery, even though this approach itselfalready minimises blood losses. Patients treated with the CardioQ were able totolerate food significantly earlier (2 vs. 3 days), had significantly fewerpost-operative complications (6% vs. 38%) and were able to go home three daysearlier (4 vs. 7 days) than those having laparoscopic surgery alone. In the USA, a leading group of surgeons and anaesthetists have begun enrollingpatients in a randomised clinical trial that will examine the clinical andeconomic impact of different fluid types used in colorectal surgery. Fluiddelivery will be guided by the CardioQ using the same protocol for each fluidtype 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 USgovernment-funded Surgical Care Improvement Programme (SCIP). In France, a group of investigators led by Dr Cholley has begun patientenrolment in the largest trial of the CardioQ ever conducted. The Fractalemulticentre randomised controlled trial involves doctors from sixteen majorFrench hospitals. The trial compares outcomes (including mortality) in patientshaving emergency hip surgery after both one month and one year, using theCardioQ for Targeted Volume Management with those achieved using the currentstandard of care. A number of other trials, expected to demonstrate further the CardioQ's uniquevalue, are in advanced planning or already under way in a number of areasincluding trauma surgery, obstetrics and urological surgery. Prospects Deltex Medical is positioned for continued and sustainable growth in each of itskey markets. The introduction of physician reimbursement has greatly increasedthe potential for prolonged accelerated growth in the key US market. The Company is investing in product development aimed at expanding further themarkets for its technology. It is also investing in projects to allow it to meetanticipated increases in short and medium term demand as well as to exploitopportunities to increase margins through manufacturing efficiencies asproduction levels increase. There is a growing recognition of and interest in the benefits that the CardioQcan bring to patients, whether through Targeted Volume Management alone as astandard of care or as a core component of new care packages such as fast-trackor enhanced recovery surgery programmes. Deltex Medical has made considerable progress towards the CardioQ beingacknowledged and accepted as the global standard of care for fluid management.The Directors expect this progress to continue and to fuel sales growth for theforeseeable future, thereby significantly enhancing shareholder value. Nigel KeenChairman25 September 2007 Consolidated income statementfor 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 3,511Cost of sales (585) (503) (1,182) ---- ---- ----Gross profit 1,329 1,012 2,329Net operating expenses (2,508) (2,362) (4,343) ---- ---- ----Operating loss (1,179) (1,350) (2,014)Financial income 4 4 8Financial 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 ordinaryactivities before taxation and the loss for the period has been computed on thehistorical cost basis. *Restated to reflect the adoption of IFRS Consolidated statement of recognised income and expensefor 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 Sheetat 30 June 2007 Unaudited Unaudited Unaudited 30 June 30 June 31 December 2007 2006* 2006* £'000 £'000 £'000AssetsNon - current assetsProperty, plant and equipment 28 64 47Trade and other receivables 34 73 52Intangible assets 155 50 91 ---- ---- ----Total non-current assets 217 187 190 Current assetsInventories 448 427 383Trade and other receivables 1,366 904 1,241Current income tax recoverable 34 33 45Cash and cash equivalents 1,782 522 418 ---- ---- ----Total current assets 3,630 1,886 2,087 ---- ---- ----Total assets 3,847 2,073 2,277 ---- ---- ----LiabilitiesCurrent liabilitiesBorrowings (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 ---- ---- ---- EquityShare capital 925 767 800Share premium 16,423 13,466 14,086Capital redemption reserve 17,476 17,476 17,476Other reserves 1,112 863 1,014Translation 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 Flowsfor 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 activitiesLoss before taxation (1,179) (1,350) (2,014)Depreciation of property, plant & equipment 23 26 49Amortisation of intangibles 1 1 2Impairment 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 movementsin 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 307Increase 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 activitiesPurchase 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 activitiesIssue of ordinary share capital 2,613 825 1,491Expenses in connection with share issue (151) (30) (43)Proceeds from increase/(decrease) inborrowings (17) 12 78Repayment 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 beginningof the period 418 606 606Effect 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 Statementfor the six month period ended 30 June 2007 1. Basis of preparation The Group's previous financial statements have been prepared under UK GenerallyAccepted Accounting Principles (UK GAAP). For the financial year ended 31December 2007, the Group will prepare its annual consolidated financialstatements in accordance with IFRS as adopted by the European Union (EU) andimplemented in the UK. The Group's date of transition to IFRS was 1 January 2006 at which date theGroup prepared its opening IFRS balance sheet. The financial information for the6 months ended 30 June 2007 is unaudited and has been prepared in accordancewith the Group's accounting policies based on IFRS standards that are expectedto apply for the financial year 2007. The financial information for the 6 monthsended 30 June 2006 has been restated under IFRS and is also unaudited. The Grouphas not applied IAS 34, Interim Financial Reporting, which is not mandatory forUK Groups, in the preparation of these interim financial statements. The interim financial information has not been audited and does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.The Group's statutory accounts for the year ended 31 December 2006, preparedunder UK GAAP, have been delivered to the Registrar of Companies. The report ofthe auditors on these accounts was unqualified and did not contain a statementunder Section 237(2) or (3) of the Companies Act 1985. 2. Research and development Research costs are charged against income as incurred. Development costs arecapitalised as intangible assets, in particular when it is probable that futureeconomic benefits will flow to the Group. Such intangible assets are amortisedon a straight-line basis over the period of the expected benefit, and arereviewed for impairment at each balance sheet date. Other development costs arecharged against income as incurred since the criteria for their recognition asan asset are not met. Costs for self-initiated research and development activities are assessedwhether they qualify for recognition as internally generated intangible assets.Apart from complying with the general recognition requirements for and initialmeasurement of an intangible asset, qualification criteria are met only whentechnical as well as commercial feasibility can be demonstrated and cost can bemeasured reliably. It must also be probable that the intangible asset willgenerate future economic benefits and that it is clearly identifiable andallocable to a specific product. Further to meeting these criteria, only such costs that relate solely to thedevelopment phase of a self-initiated project are capitalised. Any costs thatare classified as part of the research phase of a self-initiated project areexpensed as incurred. If the research phase cannot be clearly distinguished fromthe development phase, the respective project related costs are treated as ifthey were incurred in the research phase only. 3. Cumulative translation differences 'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annualtranslation differences arising on the opening net assets and net profit or lossof each foreign subsidiary to be treated as a separate component ofshareholders' equity, and the cumulative net surplus/deficit for each subsidiarycarried forward and added to/subtracted from any gains/losses on the futuredisposal of that subsidiary. The Group has taken the option to set thesecumulative gains/losses at zero as at the date of transition to IFRS. Any gainsand losses recognised in the income statement on subsequent disposals of foreignoperations will therefore include only those translation differences arisingafter 1 January 2006, the IFRS transition date. 4. Results by geography Segment information is presented in the consolidated interim financialstatements in respect of the Group's geographical segments, which are theprimary basis of segment reporting. The geographical segment reporting reflectsthe Group's management structure. Segment results include items directly attributable to a segment as well asthose, 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 ---- ---- ---- ----Unallocatedcosts:Research and development (119)Share option charges (98)Other central costs (1,053) ----Operating loss (1,179)Financial income 4Financial 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 £'000Segment 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) ---- ---- ---- ----Unallocatedcosts:Research and development (149)Share option charges (95)Other central costs (1,065) ----Operating loss (1,350)Financial income 4Financial 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 £'000Segment 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 ---- ---- ---- ----Unallocatedcosts:Research a development (241)Share option charges (246)Other central costs (1,737) ----Operating loss (2,014)Financial income 8Financial 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 onthe loss for the period of £1,174,000 and weighted number of shares in issue of82,918,000. The loss per share calculation for the year to 31 December 2006 isbased on the loss for the financial year of £1,994,000 and weighted averagenumber of shares in issue of 76,537,000. The loss per share calculation for thesix 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, whichwould serve to increase the loss per ordinary share. Therefore, there is nodifference between the loss per ordinary share and the diluted loss per ordinaryshare. 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 anddevelopment during the period 183 196 329 Less: amount capitalised (65) (48) (90)Add: amortisation of amountspreviously capitalised 1 1 2 ---- ---- ----Research and development charged toincome 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 1,079Increase in share capital during the period 125 41 74Premium on shares issued, net of costs 2,337 754 1,374Loss for the financial period (1,174) (1,339) (1,994)Credit in respect of service costssettled 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 withinstitutional and other investors and a further 398,153 1p ordinary shares tocertain of the Company's advisors who elected to take share in lieu of cashpayment for their services to the Company. A further 883,169 1p ordinary shareswere 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 itsfinancial statements in accordance with UK GAAP. In preparing these financial statements, the Group has started from an openingbalance sheet as at 1 January 2006, the Group's date of transition to IFRS, andmade those changes in accounting policies and other restatements required byIFRS. When a company adopts IFRS for the first time it is generally required topresent comparative data as though IFRS had always been applicable. However, thestandard which covers the initial introduction of IFRS, IFRS 1: First-timeadoption of International Financial Reporting Standards, allows companies totake advantage of a number of exemptions from restating historical data in orderto simplify the transition process. Business Combinations The Group has elected not to apply IFRS 3 Business Combinations retrospectivelyto business combinations that took place prior to the transition date.Consequently goodwill arising on business combination before the transition dateremains at its previous UK GAAP carrying value of £Nil, as at the date oftransition. Cumulative translation differences 'IAS 21' The Effects of Changes in Foreign Exchange Rates requires annualtranslation differences arising on the opening net assets and net profit or lossof each foreign subsidiary to be treated as a separate component ofshareholders' equity, and the cumulative net surplus/deficit for each subsidiarycarried forward and added to/subtracted from any gains/losses on the futuredisposal of that subsidiary. Deltex Medical has taken the option to set thesecumulative gains/losses at zero as at the date of transition to IFRS. Any gainsand losses recognised in the income statement on subsequent disposals of foreignoperations will therefore include only those translation differences arisingafter 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 theperiod when incurred. Under IFRS, development costs must be capitalised ifcertain criteria are met. The retrospective application of IAS 38 'IntangibleAssets' has resulted in £3,000 being recognised as development expenditure inthe IFRS opening balance sheet. Capitalisation and the amortisation ofdevelopment expenses in the six months to 30 June 2006 resulted in a credit tothe profit and loss account of £47,000 and a further credit of £41,000 for thefull 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 includesa credit of £64,000 in respect of capitalisation and the amortisation ofdevelopment expenditure during this period. The reconciliation between UK GAAP and IFRS for the Group's loss, incomestatement, 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 679Research 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 - 1,515Cost of sales (503) - (503) ---- ---- ----Gross profit 1,012 - 1,012Net operating expenses (2,409) 47 (2,362) ---- ---- ----Operating loss (1,397) 47 (1,350)Financial income 4 - 4Financial 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 - 3,511Cost of sales (1,182) - (1,182) ---- ---- ----Gross profit 2,329 - 2,329Net operating expenses (4,431) 88 (4,343) ---- ---- ----Operating loss (2,102) 88 (2,014)Financial income 8 - 8Financial 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 £'000AssetsNon - current assetsProperty, plant and equipment 64 - 64Trade and other receivables 73 - 73Intangible assets - 50 50 ---- ---- ----Total non-current assets 137 50 187 Current assetsInventories 427 - 427Trade and other receivables 904 - 904Current income tax recoverable 33 - 33Cash and cash equivalents 522 - 522 ---- ---- ----Total current assets 1,886 - 1,886 ---- ---- ----Total assets 2,023 50 2,073 ---- ---- ----LiabilitiesCurrent liabilitiesBorrowings (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 ---- ---- ---- EquityShare capital 767 - 767Share premium 13,466 - 13,466Capital redemption reserve 17,476 - 17,476Other reserves 863 - 863Translation reserve - (3) (3)Retained earnings (31,995) 53 (31,942) ---- ---- ---- 577 50 627Total equity ---- ---- ---- Reconciliation of unaudited balance sheet at 31 December 2006 IFRS UK GAAP effect IFRS £'000 £'000 £'000AssetsNon - current assetsProperty, plant and equipment 47 - 47Trade and other receivables 52 - 52Intangible assets - 91 91 ---- ---- ----Total non-current assets 99 91 190 Current assetsInventories 383 - 383Trade and other receivables 1,241 - 1,241Current income tax recoverable 45 - 45Cash and cash equivalents 418 - 418 ---- ---- ----Total current assets 2,087 - 2,087 ---- ---- ----Total assets 2,186 91 2,277 ---- ---- ----LiabilitiesCurrent liabilitiesBorrowings (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 ---- ---- ---- EquityShare capital 800 - 800Share premium 14,086 - 14,086Capital redemption reserve 17,476 - 17,476Other reserves 1,014 - 1,014Translation reserve - (9) (9)Retained earnings (32,697) 100 (32,597) ---- ---- ---- 679 91 770Total equity ---- ---- ---- 11. Movement in Net debt 1 January Cash flow Exchange 30 June 2007 movement 2007 £'000 £'000 £'000 £'000 Net cashCash at bank and in hand 418 1,366 (2) 1,782 --- --- --- --- 418 1,366 (2) 1,782Other 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 beavailable for collection free of charge from the Company's registered office atTerminus Road, Chichester, West Sussex, PO19 8TX. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Deltex Medical