28th Jun 2007 07:01
DawMed Systems PLC28 June 2007 For Immediate release 28 JUNE 2007 DAWMED SYSTEMS PLC INTERIM RESULTS The Board of Dawmed Systems plc ('Dawmed' or 'the Company'), the AIM listedmedical devices company which designs, manufactures, sells and serviceshealthcare decontamination equipment used by NHS Trust hospitals, privatehospitals, clinics and Primary Care practitioners, today announces InterimResults for the six months to 31 March 2007. KEY POINTS •Legal proceedings which the Company's operating subsidiary company, Dawmed International Limited, instigated against a trade debtor have been settled out of Court on a full, final and satisfactory basis after the half year end; •The Clinic WDD has shown substantial improvement in both sales turnover and gross profit generated; •A supply agreement was signed during the period with a subsidiary of a substantial European organisation for an own-label version of the Clinic; •New traceability system, known as the Dawmed "DCTS", has been launched to enhance all of the Company's operational products; •Awareness of the Opticlens, the WDD system for the decontamination of delicate rigid metal instruments used in ophthalmic and neurological surgery, is increasing with keen interest being shown in the UK and Europe; •Despite NHS expenditure restrictions, the re-alignment of the business and introduction of new products has allowed your Company to maintain a realistic level of activity in the period; and •The balance of shareholders' funds at 31 March 2007 was £632,200 compared with £1,160,000 at 31 March 2006, reflecting mainly the loss caused by the breach of contract by the trade debtor. Commenting on today's announcement, Kevin Gilmore, Executive Chairman of Dawmed,said: "Notwithstanding the distortions to these results caused by the trade debtor'sbreach of contract and the NHS's financial restrictions, the emphasis for thefuture continues to be the further implementation of the Company's nowestablished strategy for sales growth and profitability from the higher marginbusiness elements in the UK, the pursuit of export business to increase turnoverand to reduce the dependence upon the NHS, the expansion of the new arrangementsto provide manufacturing benefits of lower costs, higher margins and greatercompetitiveness, and the continuous utilisation of the skills base andexperience of our loyal and contributory staff." --ENDS-- Enquiries: Dawmed Systems Plc Tel: 01789 740010Kevin Gilmore, Executive Chairman Mobile: 07785 396666 Beaumont Cornish Limited Tel: 0207 628 3396Roland Cornish Bishopsgate Communications Limited Tel: 0207 562 3350Dominic BarrettoMaxine Barnes For further information please visit Dawmed International Limited's website at www.dawmed.com Chairman's Statement for the six month period ended 31 March 2007 I present the unaudited Interim Results for the six months ended 31 March 2007,which have been achieved in a period of considerable financial constraint onexpenditure on both capital and revenue supplies within the NHS. This scenariowas forecast as a possibility in the "Outlook and Future Prospects" section ofmy Statement in the Company's Annual Report & Accounts 2006. Post Period Update of Legal Proceedings I am pleased to report that since the end of the period, the legal proceedingswhich the Company's operating subsidiary company, Dawmed International Limited,instigated against a trade debtor have been settled out of Court on a full,final and satisfactory basis. Dawmed International Limited has received asatisfactory compensation payment for the breach of contract. I can also reportthat a satisfactory ongoing relationship has been established with the saidtrade debtor for an extended period of two years until 2012. This importantachievement was announced on 25 June 2007. The proceeds of the settlement will be included in the Annual Report & Accountsfor the year ended 30 September 2007, because the compensation payment wasagreed after 31 March 2007. Financials In June 2006, the Secretary of State for Health stated "By the end of March nextyear, we will return the NHS as a whole to financial balance, and of course Iwill be held to account for that". This statement, and the subsequent actions toachieve it, has led to health authorities across the country being unable toimplement their planned levels of expenditure on new and/or replacementequipment in order to meet the government imposed objectives. Understandably,these spending restrictions have had a substantial adverse effect on the resultsof your Company. However, despite these restrictions, the re-alignment of thebusiness and introduction of new products has allowed your Company to maintain arealistic level of activity in the period. Turnover for the period of £2,288,700 was 12% lower than the same period lastyear. However, despite this reduction in turnover, the gross profit margin hasremained reasonably stable at 43.0%, which, in the current market conditions,compares not unfavourably to the margin of 45.8% that was achieved in the sameperiod in 2006. The combination of NHS spending cuts and the delayed release by Wassenburg ofits pass-through washer-disinfector into the UK market resulted in the sales ofWassenburg equipment falling to a disappointing level. However, I am pleased toreport that this situation has been offset to some extent by growth in othersections of the Company's business. In particular, there has been a substantialimprovement in the turnover and gross profit generated by the Clinic product. In spite of its undoubted popularity with end user customers in ENT ("Ear, Noseand Throat") Departments of hospitals, sales of the AERclens product have beenless than anticipated. This product has become a direct victim of NHSexpenditure cuts, resulting in ENT Departments having to continue to useunsatisfactory manual and other non-validated methods of attempted cleaning anddisinfection of small flexible and rigid endoscopes. Moderate growth has been experienced in Support Services and reasonablysubstantial growth in the allied areas of Spares and Chemicals supplies haveboth been in line with the Board's expectations. Total operating costs before depreciation and excluding finance charges, haveincreased by 22.6% over the same period last year. This increase was as plannedand reflects the costs that are necessary to provide the appropriateinfrastructure for the Company following the re-alignment of its business. Theprincipal area of this additional expenditure is the employment cost associatedwith expanding the direct sales force and Support Services manpower. Earnings after finance charges, but before interest, taxation, depreciation andamortisation ("EBITDA") were negative to the extent of a loss of £301,900. Theresulting operating loss of £411,300 and the net loss before and after tax forthe half year of £440,000 were both consequential mainly upon the breach ofcontract by the trade debtor (since settled as referred to above) and to alesser extent upon the depressed NHS market. The balance of shareholders' funds at 31 March 2007 was £632,200 compared with£1,160,000 at the same date last year, reflecting the losses in the period asdescribed above. Department of Health Notwithstanding the past NHS financial constraints, it is encouraging that theHealth Act 2006 introduced a "Code of Practice for the Prevention and Control ofHealth Care Associated Infections" ("Code of Practice") which was issued by theDepartment of Health on 1 October 2006. This highlights the growing importanceof efficacious decontamination of reusable surgical and diagnostic deviceswithin the NHS and private healthcare sectors. The Code of Practice lays down, inter alia, that each NHS body, eg. a hospital,must employ a DIPC (Director of Infection Prevention and Control) and/or a"Decontamination Lead". The duties of these employees include responsibility forsetting policies on decontamination of reusable medical devices, such assurgical and diagnostic instruments, as well as the acquisition and maintenanceof decontamination equipment with which to wash, disinfect and/or sterilisethem. It is also their role to carry out risk assessments of all relatedprocedures to ensure compliance with current guideline standards, whichincludes, inter alia, the means to track the decontamination processes in orderto ensure, not only that such processes have been carried out effectively, butalso that the processing equipment employed enables identification of eachpatient on whom the reusable medical devices have been used. The implementation of the Health Act 2006 is policed and monitored by theHealthcare Commission, a "healthcare watchdog" which employs commissioners whoserole is to visit NHS establishments and scrutinise existing procedures andpolicies, particularly in connection with "Health Care Associated Infections".The Healthcare Commission has the power to issue specific instructions, which inextreme circumstances may include the cessation of clinical procedures if thedecontamination policies/equipment in place could cause a health risk topatients or staff. Your Board welcomes the new Healthcare Act and is confident that theimplementation of its Code of Practice will have a beneficial effect on theCompany's business. Products and Services In the Annual Report & Accounts for the year ended 30 September 2006, I gave afull description of the main characteristics and applications of the Company'srange of washer-disinfectors ("WD") for chemical disinfection andwasher-disinfector-dryers ("WDD") for thermal disinfection. All these productscontinue to enjoy the high level of post installation revenue from the SparesSales and Support Services departments that form an integral part of the overallbusiness. The Clinic WDD, designed for use mainly in the primary care sector,predominantly dentistry, continues to show good growth in this important market.In particular, a supply agreement was signed during the period with a subsidiaryof a substantial European organisation for an own-label version of the Clinic.The Board believes that this represents a significant breakthrough into anexport market with substantial future potential. The AERclens total system for the decontamination of both small flexible andsmall rigid nasendoscopes used in Ear, Nose and Throat ("ENT") Departments ofHospitals comprises both the AERclens Chemical WD for flexibles and the AERclensThermal WDD for rigids. It is a fully automated and compliant total system withfull traceability and validation providing an innovative solution for adifficult decontamination problem. Each of these two products and the combinedtotal system have been well received by ENT Departments. Awareness of the Opticlens, the WDD system for the decontamination of delicaterigid metal instruments used in ophthalmic and neurological surgery, isincreasing with keen interest being shown in the UK and Europe. Business in the secondary care Endoscopy Departments of Hospitals using largeflexible endoscope WDs is benefiting from your Company's introduction of theWassenburg Dry 300 sterile drying/storage cabinet. This equipment complementsthe range of Wassenburg space-saving and "pass-through" WDs. A new traceability system, known as the Dawmed "DCTS", has been launched toenhance all of the Company's operational products. This addition to theCompany's product portfolio is viewed by the Board as a significant developmentfor the future. Remainder of the Year and Future Prospects The new export department has been formed and became operational on 1 April2007. The Board considers this to be a particularly important aspect for thefuture growth of your Company, which will exploit the overseas potential for theCompany's products whilst at the same time reducing the reliance upon the NHS inthe domestic market. Following the initial export penetration announced lastyear, discussions are ongoing for further distributorship arrangements, whichyour Board is hopeful of concluding in the foreseeable future. I am pleased to report that the Company has now put in place, through signedagreements, the specific arrangements to reduce manufacturing costs in the firsthalf of next year. These arrangements will provide your Company with theopportunity to achieve higher margins and to benefit both domestic andinternational sales efforts. I am also pleased to report that the penetration into the market place of theClinic, WDD continues to expand and is beginning to achieve the momentum thatyour Board previously anticipated. Sales of this product in the domestic marketare growing and, as mentioned above, the export potential is being activelypursued with some success already in place and further potential in the mediumterm. In the UK, the Directors understand that the Department of Health is due torelease its final requirements for the decontamination of dentistry instrumentsthrough a Health Technical Memorandum ("HTM") later this year or early nextyear. The HTM is expected to highlight the use of automatic washer-disinfector-dryers such as the Clinic WDD for the effective cleaning,disinfection and drying of dental instruments prior to sterilisation to be thepreferred, if not an essential part of the infection control process. Such arequirement would bring the decontamination of dentistry instruments into linewith the HTM 2030 standards that are already practised in the successfuldecontamination of surgical instruments in secondary care hospitals. It iswidely recognised that the use of automatic washer-disinfector-dryers (such asthe Clinic WDD) is the most efficient method to achieve pre-sterilisationcleaning and disinfection. Your Company is therefore well positioned to benefitfrom the anticipated guideline that the Directors understand is to be given toall dental practices. Whilst sales of the AERclens system in the UK have suffered from the past NHSfinancial cuts, the level of interest from ENT Departments of hospitals has beensuch that your Board is confident that significant UK sales will result from theinitial high level of interest. In addition, discussions are ongoing with anumber of international companies with the intention of developing sales ofthese products in the international market. The level of business in the large WDD Division is improving in the second halfof the year with interest and more importantly, orders, for the Wassenburgpass-through flexible endoscope washer-disinfector and the Dry 300 sterilestorage/dryer cabinet. The Board is confident that the range of products and services that is offeredby your Company will allow the second half of the year to show an improvementover the less than anticipated performance in the first half, but is unlikely toachieve an improvement over last year's results. Notwithstanding the distortions caused by the trade debtor's breach of contractand the NHS financial restrictions, the emphasis for the future continues to bethe further implementation of the Company's now established strategy for salesgrowth and profitability from the higher margin business elements in the UK, thepursuit of export business to increase turnover and to reduce the dependenceupon the NHS, the expansion of the new arrangements to provide manufacturingbenefits of lower costs, higher margins and greater competitiveness, and thecontinuous utilisation of the skills base and experience of our loyal andcontributory staff. Kevin M Gilmore Executive Chairman 28 June 2007 INDEPENDENT REVIEW REPORT TO DAWMED SYSTEMS PLC Introduction We have been instructed by the company to review the consolidated profit andloss account for the six months to 31 March 2007, the consolidated balance sheetat 31 March 2007, the consolidated cashflow statement for the six months ended31 March 2007 and the notes to the interim statement for the six months ended 31March 2007 and we have read the other information in the interim statement andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for thecompany for the purpose of their interim statement and for no other purpose. Wedo not, therefore, in producing this report, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or intowhose hands it may come save where expressly agreed by our prior consent inwriting. Directors' responsibilities The interim statement, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the Interim Statement in accordance with the AIMMarket Rules which require that the accounting policies and presentation appliedto the interim figures must be consistent with those that will be adopted in thecompany's annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom, as if thatBulletin applied. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the financial information andunderlying financial data and based thereon, assessing whether the disclosedaccounting policies have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly, we do notexpress an audit opinion on the financial information Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2007. BAKER TILLY UK AUDIT LLPChartered AccountantsCity PlazaTemple RowBirminghamB2 5AF 28 June 2007 Unaudited Consolidated Profit and Loss Account for the half year ended 31 March 2007 Unaudited Restated 6 months to Unaudited 31 March 6 months to 2007 31 March £'000 2006 £'000----------------------------- ---------- ---------- TURNOVER 2,288.7 2,611.7Cost of sales (1,304.9) (1,414.8)----------------------------- ---------- ----------Gross profit 983.8 1,196.9Administrative expenses (1,395.1) (1,157.0)----------------------------- ---------- ----------OPERATING (LOSS)/PROFIT (411.3) 39.9Interest receivable and similar income 4.3 9.0Interest payable and similar charges (33.0) (23.2)----------------------------- ---------- ----------(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (440.0) 25.7----------------------------- ---------- ----------Taxation - (7.6)(LOSS)/PROFIT FOR THE HALF YEAR (440.0) 18.1----------------------------- ---------- ----------BASIC (LOSS)/EARNINGS PER SHARE (see Note 1) (2.15p) 0.09p----------------------------- ---------- ----------DILUTED (LOSS)/EARNINGS PER SHARE (see Note 1) (2.15p) 0.09p----------------------------- ---------- ---------- Notes to the unaudited Interim Statement 1. The calculation of basic (loss)/earnings per share is basedupon the loss of £440,030 (2006: profit £18,036) and on 20,463,292 shares (2006:20,463,292 shares), being the weighted average number of shares in issue duringthe period. Since the exercise price of the 2,396,676 share options is above the averagefair price for the six months ended 31 March 2007, the diluted loss per share isequivalent to the basic loss per share. For the six months ended 31 March 2006 the diluted earnings per share is basedupon the profit of £18,036 and on 20,469,100 shares. The 160,000 options issuedon 8 February 2006 are dilutive since the exercise price is below the averagefair price for the period. The remaining 2,236,676 share options have exerciseprices above the average fair price for the period and are therefore notdilutive. 2. Earnings before interest, tax, depreciation and amortisation("EBITDA") amount to a loss of £301,900 and consist of the Operating Loss of£411,300 (2006: profit £39,900) less depreciation and amortisation charges of£109,400 (2006: £108,200). 3. The accounting information presented does not constitutestatutory accounts and has not been audited. 4. Copies of the interim report and accounts will be availablefor 30 days at the offices of Beaumont Cornish Limited, 5th Floor, 10-12Copthall Avenue, London, EC2R 7DE. Unaudited Group Balance Sheet as at 31 March 2007 Unaudited Unaudited 31 March 31 March 2007 2006 £'000 £'000----------------------------- ---------- ---------- FIXED ASSETS 347.2 462.9CURRENT ASSETSStock 661.4 352.0Debtors 1,112.6 1,651.8Cash at bank and in hand 64.7 608.3----------------------------- ---------- ---------- 1,838.7 2,612.1CREDITORS Amounts falling due within one year (1,544.3) (1,861.8)----------------------------- ---------- ----------NET CURRENT ASSETS 294.4 750.3----------------------------- ---------- ----------TOTAL ASSETS LESS CURRENT LIABILITIES 641.6 1,213.2----------------------------- ---------- ----------CREDITORS: Amounts falling due after more than oneyear (9.4) (53.2)----------------------------- ---------- ----------NET ASSETS 632.2 1,160.0----------------------------- ---------- ----------Called up share capital 1,023.2 1,023.2Share premium account 1,872.2 1,872.2Merger reserve (350.5) (350.5)Profit and loss account (1,912.7) (1,384.9)----------------------------- ---------- ----------SHAREHOLDERS' FUNDS 632.2 1,160.0----------------------------- ---------- ---------- Unaudited Consolidated Cashflow Statement for the half year ended 31 March 2007 Unaudited Restated 31 March Unaudited 2007 31 March £'000 2006 £'000----------------------------- ---------- ---------- Net cash (outflow)/inflow from operating activities (450.6) 162.4----------------------------- ---------- ----------Returns on investments and servicing of financeInterest received 4.3 9.0Interest paid (33.0) (23.2)----------------------------- ---------- ---------- (28.7) (14.2)----------------------------- ---------- ----------Capital expenditure and financial investmentPurchase of fixed assets (35.3) (54.7)Disposal of fixed assets - 34.8----------------------------- ---------- ---------- (35.3) (19.9)----------------------------- ---------- ----------FinancingFactoring and stock advances (83.0) (126.3)Finance leases (7.4) 5.2Other loans 154.9 ------------------------------ ---------- ---------- 64.5 (121.1)----------------------------- ---------- ----------(Decrease)/increase in cash (450.1) 7.2----------------------------- ---------- ----------Reconciliation of operating (loss)/profit to net cash(outflow)/inflow from operating activitiesOperating (loss)/profit (411.3) 39.9Depreciation and amortisation charges 109.4 108.2Share based payment expense 9.0 8.0Decrease in stocks 58.4 154.1Increase in debtors (243.2) (264.1)Increase in creditors 27.1 116.3----------------------------- ---------- ----------Net cash (outflow)/inflow from operating activities (450.6) 162.4----------------------------- ---------- ---------- Notes to the unaudited Interim Results 1. Accounting policies The accounting policies adopted by the Group are consistent with those disclosedin the Group's financial statements for the year ended 30 September 2006 exceptfor the adoption and impact of FRS 20. FRS 20: Share based payment The cost of equity settled transactions with employees is measured by referenceto the fair value at the date at which they are granted and is recognised as anexpense over the vesting period. In valuing equity settled transactions, noaccount is taken of any non-market based vesting conditions and no expense isrecognised for awards that do not ultimately vest as a result of a failure tosatisfy a non-market based vesting condition. None of the Group's equity settledtransactions have any market based performance conditions. Fair value for equity settled share based payments is estimated by use of theBlack Scholes pricing model. At each balance sheet date before vesting, the cumulative expense is calculatedbased on management's best estimate of the number of equity instruments thatwill ultimately vest taking into consideration the likelihood of achievingnon-market based vesting conditions. The movement in this cumulative expense isrecognised in the income statement with a corresponding entry in reserves. TheGroup has taken advantage of the transitional provisions of FRS 20 in respect ofthe fair value of equity settled awards so as to apply FRS 20 only to thoseequity settled awards granted after 7 November 2002 that had not vested before 1January 2006. 2. Reconciliation of movement in shareholders' funds Restated Unaudited Unaudited 31 March 31 March 2007 2006 £'000 £'000 (Loss)/profit for the period (440.0) 18.1Reserve movement arising from share based payment reserve 9.0 8.0------------------------------ --------- ---------- (431.0) 26.1Opening shareholders' funds 1,063.2 1,133.9------------------------------ --------- ----------Closing shareholders' funds 632.2 1,160.0------------------------------ --------- ---------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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