Deltex Medical Regulatory News (DEMG)

20 September 2021

Deltex Medical Group plc

("Deltex Medical" or the "Group")

Interim results to 30 June 2021

Deltex Medical Group plc (AIM: DEMG), the global leader in oesophageal Doppler monitoring, today announces its unaudited interim results to 30 June 2021.

HIGHLIGHTS

Financial

§ revenues of £1.1 million (2020: £1.2 million)

§ unchanged adjusted EBITDA loss of £242,000 (2020: loss of £241,000)

§ 8% improvement in loss before taxation of £0.5 million (2020: loss of £0.6 million)

§ cash at hand on 30 June 2021 of £0.6 million (2020: £0.6 million)

§ standby debt facility of £0.5 million put in place; currently undrawn

Commercial

§ as expected, trading was challenging in H1 as, pre-COVID-19, 80% of Group revenues were generated from elective surgery which continues to be severely disrupted

§ preliminary encouraging signs of probe sales increasing month on month, albeit from a low level, correlated with higher elective surgery rates around the world

§ US probe revenues remain at reduced levels reflecting, among other things, continuing impact on elective surgery due to COVID-19-related disruption

§ increased investment by 'payers' to reduce the backlog of elective surgery should help the Group's trading performance in the future

§ strong performance by the international division in the first half is expected to carry on into the second half

Nigel Keen, Chairman of Deltex Medical, said:

"We always expected the first half to be challenging as COVID-19 continues to delay significantly elective surgical procedures around the world; however, we are encouraged by the increases in quarterly probe sales since the beginning of the year."

"We expect activity in the second half to be stronger than in the first half due to increased levels of elective surgery around the world and continuing stronger performance by our international division."

"The significant disruption to the global supply chain of electronic components has been widely reported and is extremely frustrating. It is in marked contrast to the success of the product development work carried out by our engineering team on the new monitor."

For further information, please contact:

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").

Notes for Editors

Deltex Medical manufactures and markets haemodynamic monitoring technologies which are primarily used in critical care and general surgical procedures. Deltex Medical's proprietary oesophageal Doppler monitoring ("ODM") (TrueVue Doppler) measures blood flow velocity in the central circulation in real time. Minimally invasive, easy to set-up and quick to focus, the technology generates a low-frequency ultrasound signal which is highly sensitive to changes in blood flow and measures such changes in 'real time'. Deltex Medical is the only company in the enhanced haemodynamic monitoring space to have built a robust and credible evidence base demonstrating both the clinical and economic benefits of its core technology: TrueVue Doppler. This technology has been proven in a wide range of clinical trials to reduce complications suffered by patients after surgery and consequently can save hospitals money.

Deltex Medical's TrueVue System on the CardioQ-ODM+ monitor platform now provides clinicians with two further advanced haemodynamic monitoring technologies. TrueVue Impedance is an entirely non-invasive monitoring technology which transmits low magnitude, high frequency electrical signals through the thorax and measures the changes to this signal when the heart pumps blood. TrueVue PressureWave uses the peripheral blood pressure signal analysis to give doctors information on changes in the circulation and is particularly suited to monitoring lower risk or haemodynamically stable patients. The next generation TrueVue monitor is targeted for release in H1 2022.

Group goal

Haemodynamic management is now becoming widely accepted as a vital part of the anaesthesia protocols for surgical patients, as well as treating ventilated intensive care patients, including ventilated COVID-19 patients. Consequently, the Group's focus is on maximising value from the opportunities associated with: the CV-19 pandemic; the elective surgery backlog; and the higher profile of haemodynamic monitoring which has arisen from the recent consolidation in the sector. The Group aims to provide clinicians with a modern, next generation, single 'haemodynamic workstation' platform which offers them a range of technologies from simple to sophisticated to be deployed according to the patient's clinical condition as well as the skill and expertise of the user. Doing this will enable the Group to partner with healthcare providers to support modern haemodynamic management across the whole hospital.

The Group is currently in the implementation phase of achieving this goal in a number of territories worldwide, operating directly in the UK and the USA, and via agreements with approximately 40 distributors overseas.

Chairman's statement

Financial results

Revenues for the six months ended 30 June were £1.1 million (2020: £1.2 million) reflecting subdued activity in the first half due to low levels of elective surgical procedures across the majority of the territories into which the Group sells. Unlike 2020, where activity levels were at pre-pandemic levels in the months of January and February, the whole of the first half of 2021 was adversely affected by COVID-19 and the associated reduced volumes of elective surgery.

The reported gross margin was 64% (2020: 65%). In the first half of 2019 the gross margin was 76%. The comparatively lower gross margin in 2021 reflects lower activity levels and reduced manufacturing-related recoveries in the first half.

Adjusted EBITDA, which comprises the operating loss adjusted for depreciation, amortisation, equity-settled non-executive directors' fees, share-based payments and certain other items, was unchanged year-on-year with a loss of £(242,000) (2020: £(241,000)).

Overheads at £1.4 million (2020: £1.3 million) were broadly the same. Prior year overheads were reduced by a one-off credit relating to receipt of a £117,000 payment in relation to the termination of a third-party distribution agreement.

Other operating income increased to £0.2 million (2020: £49,000), principally reflecting increased COVID-19-related furlough payments.

Loss before taxation was an 8% improvement on prior year at £0.5 million (2020: £0.6 million).

Cash at hand on 30 June 2021 was £0.6 million (2020: £0.6 million).

New standby debt facility

There are preliminary but encouraging signs that based on, among other things, a quarterly analysis of probe unit sales, the Group is beginning to see an increase in activity from the low levels seen at the beginning of the year.

The Board believes that activity levels should continue to rise in the second half as elective surgery begins to increase around the world. There are substantial backlogs in elective surgical procedures in all the territories into which the group, directly or indirectly, sells into. These backlogs represent a significant and growing issue for governments and healthcare 'payers'.

The principal risk to the continuing increase in elective surgical procedures currently appears to be the spread of the delta variant of COVID-19, particularly among individuals who have not been fully vaccinated. Some intensive care units in hospitals in the southern states of the USA are reported to be full with COVID-19 patients and as a result elective surgery has been cancelled in these hospitals. There are also reports of COVID-19 patient hospitalisation levels starting to increase in certain hospitals in the UK. As a result, the Board believes that there is a significant degree of uncertainty as to the likely trajectory of increases in elective surgery and hence associated uncertainty with the likely increases in Group revenues.

Since the start of the pandemic, the Group has been managing its cash resources extremely carefully. This has included reducing working capital by reducing its stock levels and trade debtors. Given the uncertainties relating to COVID-19 hospitalisation rates it is not possible to predict how quickly or reliably levels of elective surgery will climb and hence predict with a high degree of certainty increased TrueVue probe revenues. Accordingly, the Board has been considering carefully likely demands for cash mindful that cash at hand was £0.6 million at the 30 June, 2021 and has considered a number of funding options. The Board has entered into an agreement with Imperialise Limited, a company controlled by Nigel Keen for a £0.5 million standby loan facility (on arm's length commercial terms) until 31 December, 2022 in the event that the Group experiences increased demands for cash during this period. The Company will only draw down on the facility if necessary.

The interest rate on the facility is 8% per annum, and it is unsecured. The facility is repayable in full on or before 31 December 2022.

Nigel Keen is a director of both Imperialise Limited and Deltex Medical, and accordingly, this transaction constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. The independent directors, being Andy Mears, Natalie Wettler, Julian Cazalet, Mark Wippell, Christopher Jones and Tim Irish, having consulted with the Company's nominated adviser, consider that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned.

Commercial activities

Before the pandemic, 80% of the Group's probe sales were associated with elective surgery. As a result, the Group's probe-related revenues have been severely adversely affected by COVID-19.

Deltex Medical sells directly into the UK and US healthcare markets. In these markets it is seeing widely varying levels of demand for its probes from existing customers. In most areas where demand is lower, this appears to reflect the existence of COVID-19 'hot spots' which reduce the number of available critical care beds and result in a reduction in elective surgical procedures. Even when the number of COVID-19 patients reduces in a hospital's critical care unit(s), it can take some time for elective surgery levels to be increased substantially.

The Group has good data, particularly from the US, which show that an experienced and successful clinical educator can drive demand for its probes from existing customers. The converse is also true: where Deltex Medical is unable to gain access for its clinical educators to a customer, there is often a concomitant reduction in probe demand. Accordingly, customer access remains a key driver for the Group's commercial success. The Group is continuing to experience differing levels of access for its clinical educators and trainers, depending on each hospital's policy in respect of visits by third party vendors.

Due to the public 'payer' status of the National Health Service, the size of the backlog of elective surgical procedures in the UK is extremely politically sensitive. Recent reports suggest that there are some 5.5 to 6 million cases awaiting elective surgery. The UK Government has recently announced tax increases to finance substantially higher ongoing levels of funding for the NHS to address this backlog. The allocation of this funding should be positive for the Group's financial performance into 2022 and beyond.

The Board has decided to keep sales and marketing spend in the USA at a low level until it is clear that US hospitals are opening up and prepared to accept clinical educators back onto their premises. The Board believes that, on balance, the risk of higher levels of US sales and marketing spend not generating a concomitant increase in revenues represents a more substantial risk than waiting for the US market to recover before increasing the Group's investment in US sales and marketing expenditure.

The Group's international division has been the success story of the first half, particularly in the second quarter. It has seen significantly higher activity levels, with notably stronger levels of demand from France. The Board believes that these higher levels of demand will continue into the second half, and other international territories should also start to experience increases in demand as the levels of elective surgery climb around the world. However, international territories which have seen very high levels of COVID-19, such as Peru, continue to generate reduced demand for Deltex Medical probes at the current time.

New product development

Deltex Medical's engineering teams have made good progress in the first half on the design and development of the new monitor which will significantly improve the functionality and usability of the Group's probes and other non-invasive haemodynamic monitoring technologies.

Unfortunately, the widely reported significant lengthening of lead times for a number of key components manufactured overseas, especially electronics, has adversely affected the timetable for the product launch of the new monitor. Given this significant uncertainty over component availability, the launch of the new monitor has now been re-scheduled for the first half of 2022. This component-related slippage means that it will no longer be possible for the Group to generate revenues from the new monitor this year.

Current trading and prospects

As expected, trading has been depressed during the first half and during the summer months with COVID-19 restrictions in place in many of our territories, particularly in the USA; however, trading is beginning to improve, albeit from low levels. For example, for the past four months we have seen month-on-month increases in probe revenues. We also expect probe revenues to continue to improve through to the end of the year.

Our production facility has been on part-time furlough for the majority of the year; however, the production teams are now back full time as demand for TrueVue Doppler probes increases. It is encouraging to see our Chichester facility fully operational once more.

Deltex Medical's probe sales are strongly correlated with elective surgery levels around the world, and as the number of elective surgical procedures continue to increase so there should be a concomitant increase in probe sales. The two principal risks relating to this increase in probe sales comprise: (i) any further, substantial COVID-19 outbreaks which cause reductions in elective surgery; and (ii) the lack of appropriate access for the Group's clinical educators to its existing customer base.

Probe sales in the USA remain at reduced levels and there is significant upside to Group revenues if we can successfully increase activity levels in our US accounts as the pandemic abates and elective surgery levels start to climb in US hospitals.

The lack of availability of the new monitor has constrained the Group's ability to generate significant equipment-related revenues this year which will have an adverse impact on expected revenues this year.

Nigel Keen

Chairman

20 September 2021

Condensed Consolidated Statement of Comprehensive IncomeFor the period ended 30 June 2021

Condensed Consolidated Balance Sheet

As at 30 June 2021

Condensed Consolidated Statement of Changes in Equity for the period ended 30 June 2021 (unaudited)

Condensed Consolidated Statement of Changes in Equity for the period ended 30 June 2020 (unaudited)

Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2020 (audited)

Condensed Consolidated Statement of Cash Flows

For the period ended 30 June 2021

Notes to the condensed consolidated interim financial statements

1. Reporting Entity

Deltex Medical Group plc is a company that is domiciled in the United Kingdom. It is incorporated in England and Wales (Company Number 03902895) and its registered office is at Terminus Road, Chichester, PO19 8TX, United Kingdom. These condensed consolidated interim financial statements (Interim Financial Statements) as at and for the period ended 30 June 2021 comprise the Company and its subsidiaries (together referred to as 'the Group'). The Group is principally involved with the manufacture and sale of advanced haemodynamic monitoring technologies.

2. Basis of accounting

These interim financial statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting', and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2020 (Annual Report & Accounts 2020). They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position.

These condensed consolidated interim financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The summary of results for the year ended 31 December 2020 is an extract from the published consolidated financial statements of the Group for that year which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The Independent Auditors' Report on the Annual Report & Accounts for 2020 was unqualified, however, it did draw attention to the impact of COVID-19 on the Group by way of emphasis, but the opinion was not modified, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

These condensed consolidated interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2020 and are expected to be applied in the preparation of the financial statements for the year ending 31 December 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

These condensed consolidated interim financial statements were approved by the Board of Directors and approved for issue on 20 September 2021.

3. Use of judgements and estimates

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Although these estimates are based on the directors' best knowledge of the amount, event or actions, it should be noted that actual results may differ from those estimates.

The significant judgements and estimates made by the directors in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those disclosed in Annual Report & Accounts 2020.

4. RevenueThe Group's revenue disaggregated by primary geographical markets is as follows:

The Group's revenue disaggregated between the sale of goods and the provision of services is set out below. All revenues are recognised at a point in time.

The following table provides information about trade receivables and contract liabilities from contracts with customers. There were no contract assets at either 30 June 2021 or 1 January 2021.

The following aggregated amounts of transaction prices relate to the performance obligations from existing contracts that are unsatisfied or partially unsatisfied as at 30 June 2021:

5. Segment results

Performance and the allocation of resources are made on the basis of results derived from the sale of probes and monitors for which revenues and gross margins are regularly reported to the Group's Chief Executive Officer who has been identified as the Chief Operating Decision Maker (CODM). The CODM also monitors a profit measure described internally as 'adjusted earnings before interest, tax, depreciation and amortisation, share-based payments, non-executive directors' fees, as well as any exceptional items' (Adjusted EBITDA). However, this measure is reported at a Group level rather than an operating segment which is based on the nature of the goods provided rather than the geographical market in which they are sold.

The unaudited segment results for the six months ended 30 June 2021 were:

1. Managed care service revenue is categorised as probe revenue

2. Gross profit excluding the depreciation charge relating to monitors loaned to customers and production equipment

3. Other operating income is allocated within the corresponding expense categories

The unaudited segment results for the six months ended 30 June 2020 were:

1. Managed care service revenue is categorised as probe revenue

2. Gross profit excluding the depreciation charge relating to monitors loaned to customers and production equipment

3. Other operating income is allocated within the corresponding expense categories

The audited segment results for the year ended 31 December 2020 were:

1. Managed care service revenue is categorised as probe revenue

2. Gross profit excluding the depreciation charge relating to monitors loaned to customers and production equipment

3. Other operating income is allocated within the corresponding expense categories

The reconciliation of the profit measure used by the Group's CODM to the result reported in the Group's consolidated SOCI is set out below:

6. Dividends

The Directors cannot recommend the payment of a dividend (2020: nil) for 2021.

7. Tax credit on loss

The other gain amount for six months to 30 June 2021 of £25,000 (six months to 30 June 2020: £19,000) comprises tax income arising from the Research and Development Expenditure Credit scheme which is accounted for as a government grant.

8. Loss per shareBasic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares issued during the year.The loss per share calculation for six months to 30 June 2021 is based on the loss after tax attributable to owners of the parent of £525,000 and the weighted average number of shares in issue of 577,290,545.The loss per share calculation for six months to 30 June 2020 is based on the loss after tax attributable to owners of the parent of £584,000 and the weighted average number of shares in issue of 524,868,826.The loss per share calculation for the year ended 31 December 2020 is based on the loss after tax attributable to owners of the parent of £798,000 and the weighted average number of shares in issue of 526,448,659. While the Company is loss-making, the diluted loss per share and the loss per share are the same.

9. Inventories

Inventories at 30 June 2021 include the following finished Goods: 12,887 probes and 217 monitors.

10. Cash at bank

11. Net cash

12. Borrowings

13. Trade and other payables

14. Convertible loan note

The convertible loan note recognised in the Condensed Consolidated Balance Sheet is calculated as:

The convertible loan note falls due for repayment in February 2024. The convertible loan note is, at the option of the loan note holder, convertible at anytime into new ordinary shares of 1 penny each at a conversion price of 4 pence per share.

15. Share capital

During the six months ended 30 June 2021, there were no share issues or exercises of shares.

16. Exceptional items

Exceptional items comprised:

17. Seasonal fluctuations

Revenues in our Distributor markets are traditionally higher in the second half of the financial year due to the purchasing patterns of customers.

18. Foreign exchange rates

The following are the principal foreign exchange rates used in the preparation of the condensed consolidated interim financial statements:

19. Distribution of the announcement

Copies of this announcement are sent to shareholders on request and will be available for collection free of charge from the Company's registered office at Terminus Road, Chichester, PO19 8TX, United Kingdom. This announcement is available, free of charge, from the Company's website at www.deltexmedical.com

20. Cautionary statement

This announcement contains forward-looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by several risks and uncertainties that are inherent in any forward-looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be considered to be a profit forecast.