Deltex Medical Regulatory News (DEMG)

Deltex Medical Group plc

("Deltex Medical", "the Company" or "the Group")

Pre-close update for the year ended 31 December 2014

14 January 2015 - Deltex Medical Group plc, the global leader in oesophageal Doppler monitoring ("ODM"), today announces an update on its trading performance for the year ended 31 December 2014.

Highlights

USA

· 20% US surgical probe revenue growth on constant currency basis for year (14% in sterling terms).

· Two new US territories established in H2 2014 with two more planned in H1 2015. Above trend growth from the three longest established US territories.

· Three new US dedicated trainer accounts post evaluation are completing their procurement processes and are due to start in early 2015, which would take the total US dedicated trainer accounts to nine.

UK

· UK surgical probe revenue down 20%. As previously advised, NHS hospitals have responded to the NHS cash crisis by de-stocking.

o The financial position of the NHS has resulted in more extreme de-stocking in H2 with emergency government funding not reaching frontline providers.

· UK sales and marketing operation refocused for 2015

o Improved net margins anticipated via shift to remote e-learning and simulation programmes for basic clinical training.

o Increased operational efficiency anticipated as a result of Deltex Medical distributing complementary third party products.

o Focus on clinician led quality improvement programmes.

· NHS Supply Chain, which has access to central government funds, has purchased 60 monitors to allow NHS hospitals to progress implementation of ODM technology in 2015. This order is the Company's largest single monitor sale ever.

International

· Overall International surgical probe revenue down 29% with a small number of anticipated major orders not completed.

· 5,000 probe shortfall (£0.2m) from Peru due to clinical staff strike. Shipments are expected to resume in 2015 to service existing established accounts and the growing installed base.

· Canadian hospital system tender result worth £0.3m expected December 2014 slipped into 2015.

· 2013 sales benefited from £0.4m stocking orders to our South Africa distributor.

· In France, our largest export market, constant currency revenues from the sale of probes to our distributor increased by 17%. In response to strong end user sales, the distributor's standing monthly probe order has been increased by over 40% from January 2015.

· International monitor sales volume up 75% from 71 to 124 units.

Cash

· Cash at 31 December of £2.9m; cost reductions put in place since the beginning of the year will reduce the annual cost base by £0.85m, all in our UK based operations. Further UK operational changes implemented to reduce 2015 planned cost run-rate by a further £0.2m.

Statutory results

Group sales for statutory reporting purposes are expected to be circa £6.5 million (2013: £7.2 million). The Company expects the shortfall in sales against market forecasts to result in losses being approximately £1.2 million higher than market expectations.

The Company plans to announce its results for the year ended 31 December 2014 in the week of 9 March 2015.

Nigel Keen, Chairman of Deltex Medical, commented:

"Our US expansion plans are on track with growing interest in our products and new territories coming on stream. Our products are also performing well in certain overseas markets such as France, with long term market development projects expected to come together in 2015 in Spain and Canada.

"We have responded to the likelihood of the NHS facing several years of financial challenge by changing the focus of our UK training towards digital platforms and emphasising marketing strategies to support clinically led quality improvement programmes. In addition we are adding complementary products to our portfolio to sell alongside ODM.

"Whilst we have been disappointed that the NHS has failed to achieve the policy objectives set out in its Innovation Health and Wealth plan, issued as part of the UK government's growth agenda, recent activities with NHS Supply Chain confirm that NHS leadership continues to recognise that improving the quality of care with ODM is important.

"These changes to our UK business will reduce our operating costs and strengthen the business to reflect the changed market conditions in the NHS.

"Taking measures to protect the profitability of our UK business after annualised cost reductions of over £1 million, allows us to reinforce the focus of our resources on our US expansion and product development plans which remain on course."

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Notes for Editors

Deltex Medical manufactures and markets CardioQ-ODMÔ Oesophageal Doppler Monitoring ('ODM') systems. ODM is the only therapy to measure blood flow 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 flow and measures them immediately. Randomised, controlled trials using Doppler have demonstrated that early fluid management intervention will reduce post-operative complications, reduce intensive care admissions, and reduce the length of hospital stay.

The CardioQ-ODM has two distinct established clinical applications: firstly, to guide fluid management during surgery and secondly, to monitor cardiac output in critical care settings.

Surgical market

In March 2011 the National Institute for Health & Clinical Excellence ('NICE') recommended that CardioQ-ODM be considered for use in patients undergoing major and high risk surgery and in high risk patients undergoing intermediate risk surgery. NICE estimated the applicable number of such patients in the NHS in England alone to be over 800,000 each year. CardioQ-ODM has been shown to be effective in both elective and emergency surgery and with both general and regional anaesthetics. This recommendation was specific to CardioQ-ODM and was based on the robust evidence base that supports its use.

Subsequent to the NICE guidance, the NHS in England announced its selection of ODM as a high impact innovation to be rolled out across the system fully, at pace and scale.

The NICE evaluation and recommendation confirms that the potential global market for CardioQ-ODM in surgery includes tens of millions of patients, even if confined to developed health economies: the most conservative estimate of the potential value of the market opportunity Deltex Medical has created is in excess of £1 billion per annum. The Company's core focus is on building market leading positions in this surgical market, both geographically and by type of surgery.

Critical care market

In critical care settings, well-equipped hospitals will often have more than one cardiac output monitoring technology available. In this environment, ODM's strengths are that it is quick to set up, easy to use, safe, low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. The potential market for cardiac output monitoring in critical care is a fraction of the size of that for intra-operative fluid management.

Through the 2012 launch of the CardioQ-ODM+, Deltex Medical has added the Pulse Pressure Waveform Analysis ('PPWA') approach to monitoring cardiac output to ODM functionality. Doing this has improved Deltex Medical's offer for monitoring applications as well as providing doctors and nurses with a choice of clinical strategies appropriate to individual patients in different clinical settings.

Company goal

Our goal is to make oesophageal Doppler monitoring (ODM) a standard of care for patients in both these markets. We believe that, in most modern health systems, it is essential to have a robust evidence base of both clinical benefit and cost effectiveness in order to achieve system-wide adoption of a new medical technology. Deltex Medical is one of the very first medical technology companies to have completed the investment necessary to build such an evidence base: as a result, use of ODM during surgery has the proven potential to deliver both clinical and economic benefits that are material at each of patient, hospital and system level.

The Company is currently in the implementation phase of achieving this goal in a number of territories worldwide and there are already over 3,000 CardioQ-ODM systems in use in hospitals worldwide. Distribution arrangements are in place in over 30 countries.