LID.L Regulatory News (LID)

29 April 2014

LIDCO GROUP PLC

("LiDCO" or the "Company" or the "Group"))

Final Results

LiDCO (AIM:LID), the hemodynamic monitoring company, announces its audited Final Results for the year ended 31 January 2014, a year characterised by strong growth in UK sales as more NHS hospitals adopt fluid and level of consciousness monitoring and a move into profitability.

Financial Highlights

· Total revenue up 20% to £8.63m (2012/13: £7.21m)

· LiDCO product revenue (excluding third party products) up 25% to £6.87m (2012/13: £5.49m)

· LiDCO disposables revenue up 33% to £5.15m (2012/13: £3.88m) - now 75% of LiDCO product revenues

· UK revenue (excluding third party sales) up 37% to £4.40m (2012/13: £3.20m)

· Gross profit up £1.08m to £5.90m (2012/13: £4.82m)

· Maiden profit before tax* £0.28m (2012/13: £0.34m loss)

· EBITDA* of £1,151,000 (2012/13: £515,000)

· Earnings per share 0.15p (2012/13: 0.07p loss)

· Cashflow positive with cash of £2.37m at period end (2012/13: £2.06m)

*before share based payments 

Operational Highlights

· 303 monitors installed (2012/13: 276); 120 surgical monitors (2012/13: 77) installed in the UK

· Disposable unit sales up 23% to 60,857 (2012/13: 49,413), with surgical disposables up 39%

· UK surgical disposables unit sales up 59% to 23,570 (2012/13: 14,855)

· EU and US approvals for LiDCOrapidv2 with Unity Software including continuous non-invasive blood pressure monitoring

· Grant of patent in US and Japan for LiDCOrapid graphical user interface

· Growing body of evidence supports increasing clinical use of hemodynamic monitoring technology

Commenting on the results Terry O'Brien, Chief Executive Officer, said: "We start the new financial year with a solid platform to deliver further growth. The business is now profitable and cash generative and we hold a strong market position with our clinically proven, cost effective and patented core technology. This has been most clearly demonstrated in the strong take up of LiDCO monitors by the NHS over the last year. This bodes well for future performance as we see the benefit of increasing disposable usage from a growing base of installed monitors.

"We believe that LiDCO monitors have the potential to become the 21st century standard for the fluid and hemodynamic monitoring of high-risk patient populations in hospitals and we expect 2014 to be another strong year of growth for the Company."

The Company presentation will be available from today on the LiDCO website: www.lidco.com.

STRATEGIC REPORT

Introduction

The last year has seen considerable achievements against our objectives. The business is now profitable, cash generative, has a strong net cash position and will be debt free by the end of the current financial year. Growing sales have been underpinned by a mounting body of clinical evidence that demonstrates both the clinical and cost effectiveness of our technology. EU and US approvals were obtained for LiDCOrapidv2 with Unity software and were followed by a publication from the Association of Anaesthetists of Great Britain and Ireland ("AAGBI")1 recommending the use of multi modal monitoring technology such as provided by the LiDCOrapidv2 monitor.

The best and clearest endorsement of our products is the increasing use of LiDCO monitors by clinicians. Worldwide, disposable unit sales were very significantly up (23%) with around 60,000 surgical and intensive care patients being monitored with our technology. Strong growth in surgical disposables was the main driver. Growth of the surgery business is important, as a key performance indicator for the business is the growth in unit sales of surgical disposables. Domestically we clearly benefited from the increasing adoption of fluid monitoring within the NHS in England. As you will see below, the number of UK surgical disposables sold grew by 59% to 23,570 units from 14,855 units the previous year - a clear sign of the increasing use of our technology in the NHS.

Financial Review

Revenues

Total revenues for the year increased 20% to £8.63m (2012/13: £7.21m) including sales of third party products of £1.77m (2012/13: £1.73m). Revenues from LiDCO's own product sales increased by 25% to £6.87m (2012/13: £5.49m), driven by a particularly strong performance in the UK. Total UK sales (excluding third party sales) increased by 37% to £4.40m (2012/13: £3.20m), with UK surgical disposables sales up 41% to £3.44m (2012/13: £2.44m).

Revenue in the US continues to reflect the transition of sales to our direct sales force from the third party distribution arrangements prevailing for most of the previous year. As a consequence, direct sales in the US have grown significantly, nearly tripling to £0.86m (2012/13: £0.29m). Whilst this remains lower than the combined direct and distribution sales in the US seen in the previous year of £1.1m, these sales represent higher margins than those achieved through the previous distribution model. Elsewhere, export sales, excluding the US increased by 35% to £1.61m (2012/13: £1.19m).

Gross profit & margin

Overall gross profit increased by 22% to £5.90m (2012/13: £4.82m). The gross profit margin, excluding third party products, reduced slightly from 82% to 81%, affected by some low margin sales to distributors aimed at encouraging the adoption of non-invasive technology and to refresh the installed customer base of older LiDCOplus monitors. Future profitability will be driven mainly by the margins achieved on our disposable products and these have remained steady with margins of 86% on LiDCOplus sensors and 95% on LiDCOrapid Smartcards. The margin achieved on the sale of third party products was 20%.

Overheads

Total overheads increased by £619,000 to £5.66m. The comparative period benefited from the write back of £123,000 of share-based payment charges relating to the expiry of share warrants. Excluding share-based payment charges, overheads increased by £479,000 (+9%) to £5.12m.

Compared to the previous year, there was an increase in US sales costs of £386,000 relating to the recommencement of a direct sales effort, which was partially offset by a reduction in general sales management costs. In addition during the year the Group undertook a review and re-organisation of its customer services department resulting in non-recurring costs of approximately £100,000. The average headcount (excluding non-executive directors) increased from 40 to 43. Near term increases in headcount will be largely sales related.

Earnings

The Group made an operating profit of £235,000 (2012/13: £217,000 loss). As noted above, the comparative period benefited from a write back of share-based payment charges. Before share-based payment charges, the Group made an operating profit of £295,000 (2012/13: loss £297,000), an improvement of £592,000 over the previous year.

After the net finance expense of £18,000 (2012/13: £42,000) the Group made a profit before tax of £217,000 (2012/13: £259,000 loss).

Depreciation and amortisation for the year of £856,000 (2012/13: £812,000) is effectively reduced by the release of £158,000 (2012/13: £158,000) of deferred income relating to the three year sale and leaseback of monitors, giving adjusted depreciation and amortisation of £698,000 (2012/13: £654,000). Using the adjusted value, EBITDA for the year increased by 114% to £933,000 (2012/13: £437,000). Earnings were 0.15p per share (2012/13: 0.07p loss per share).

Although the Group made a profit before tax, it benefits from research and development tax credits of £83,000. The Group has a deferred tax asset of £4.8m, recognition of which will be considered when the trend of profits is established.

Cash flow, borrowings & cash balances

During the year the business generated a net cash inflow before financing of £0.51m (2012/13: outflow £1.51m).

The Group's only significant borrowings relate to a sale and leaseback arrangement commenced in January 2012, whereby the Group sold a number of placed monitors and then leased them back on a three year financing lease basis. Capital repayments in the period in respect of this lease amounted to £190,000. The remaining balance on this lease is £175,000, which will be repaid in monthly instalments during the current year.

Cash balances at 31 January 2014 amounted to £2.37m (31 January 2013: £2.06m).

Property, plant and equipment

There was a net increase in property, plant and equipment in the year of £10,000 with additions of £342,000 offset by deprecation of £332,000. The most significant additions are in respect of medical monitors that comprise monitors used for demonstration purposes, clinical trials and development in addition to placed monitors on long term loan to hospitals in the UK and USA for active use where the hospital pays for disposables. As noted below, there has been an increase in the number of monitors placed compared with the previous year and we expect this pattern will continue.

Intangible assets

Expenditure on intangible assets in the period was £723,000 (2012/13: £1,015,000) of which £621,000 (2012/13: £848,000) was spent on product development with a further £102,000 (2012/13: £167,000) spent on clinical trials and product registration. The product development expenditure included the final technology licence payment relating to the non-invasive technology. With the exception of the significant expenditure on the LiDCOrapidv2 with Unity software during the last two years, expenditure on product development has been fairly level, averaging £360,000 in the previous five years. We expect product development expenditure of less than £500,000 in the current financial year.

Inventory

Inventory was reduced by £220,000 during the year. As noted in the results to 31 January 2013, the Group was holding a larger than normal inventory of monitors to mitigate against the effect of end of life notices issued by the manufacturers on some monitor components. Although we expect inventory levels to further reduce in the current financial year, the Group relies on a number of single source key suppliers and strategically maintains high levels of inventory in respect of such suppliers.

Operational Review

We saw good progress across the Company in the year with revenue from LiDCO products up 25%. We are particularly pleased with the excellent progress made in the UK, where LiDCO product revenues have grown by 37%, as well as the increase seen in our total export revenues which were up by 8% in the period. Our main geographical targets remain the UK, the US and Japan, reflecting the value of these three territories in the worldwide hemodynamic monitoring market.

During the period a total of 303 monitors (2012/13: 276 monitors) were sold or placed, with total disposable unit sales up 23% to 60,857 (2012/13: 49,413). In revenue terms this translated into an increase of 7% in revenues from monitors to £1.43m (2012/13: £1.34m) and total disposable revenues (excluding third party products) of £5.15m, up 33% (2012/13: £3.88m). Total disposable revenues now represent 75% of total LiDCO product revenues (2012/13: 71%).

UK

The success of the last year is characterised by growing sales in our home UK market. Sales of LiDCO products grew strongly over the year, particularly in the high-risk surgical area, as NHS hospitals fulfilled local commissioning requirements that NICE* and CQUIN* requirements for fluid monitoring were provided for a growing number of targeted high-risk surgery patient populations. Total UK revenues for LiDCO disposable and monitor products increased by 37% to £4.40m (2012/13: £3.20m). UK disposable revenues, excluding distributed third party products, increased by 40% to £3.44m (2012/13: £2.44m).

We achieved our largest ever increase in the installed base with a total of 139 monitors (2012/13: 91) installed. The increase in the proportion of placed monitors noted at the interims has continued with capital sales of 63 monitors and 76 placed monitors. The installed base of LiDCOrapid surgery monitors increased by 120 to 345 and importantly includes 78 LiDCOrapidv2 monitors equipped with the non-invasive module launched in February 2013. Unit sales of surgery disposables increased by 59% to 23,570 (2012/13: 14,855) driven by the non-invasive technology, the larger installed base and average use increasing from 5.1 to 5.7 disposables per monitor per month.

UK sales in 2013/14 benefited from the immediate sales related to the launch of the LiDCOrapidv2 and the NTAC*/CQUIN initiatives. Increasingly we are seeing greater acceptance generally of the benefits derived from better monitoring and intra operative fluid management. We expect to see another year of strong growth in the UK surgery business with our ICU business remaining steady. The surgery business will be driven forward by the combined full year effects of the 120 monitors established in 2013/14, new monitor installations and the effects of the CNAPTM non-invasive monitoring option to broaden card usage per hospital. While these factors should continue to generate sales in 2014/15, we will also adopt a wider strategic approach to UK sales that includes targeting new hospital customers who wish to take advantage of the wider applicability of our new multimodal non-invasive monitor.

US

Following the purchase back from our US distribution partner of the installed base of surgery monitors in late 2012, it has been necessary to re-establish a direct US sales force. Initial priorities were to assess the status of LiDCOrapid monitor installed base, identify the major and medium surgical use accounts and restore the surgical monitor sales pipeline. In parallel the sales team was expanded and were progressively focused on the growth of disposable sales into our LiDCOrapidv11 installed base. We bolstered the sales team with the addition of two clinical specialists and now have a sales and clinical educator team of five.

In September 2013 we announced that we had received clearance from the US Food and Drug Administration ('FDA') for sales of the CNSystems' continuous non-invasive blood pressure monitoring ('CNAPTM') module with the LiDCOrapidv2monitor and Unity software. LiDCO's Unity software allows the connection to the LiDCOrapidv2 of modules to co-display CNSystems' continuous non-invasive blood pressure monitoring with Covidien's depth of anesthesia parameter ('BISTM'). The Company estimates that 3.4 million patients are suitable for peri-operative hemodynamic monitoring in the US. With FDA clearance now received, the commercial opportunity for LiDCO to gain presence in the non-invasive monitoring market in the US is substantial.

Total revenue for the year was £857,000 (2012/13: £1.1m). Due to the transition to direct sales there are no like-for-like comparisons with the previous year. In this first full year of direct sales we installed 23 surgical monitors and sold 5,650 surgical disposables. Importantly, sales were profitable (before unallocated central costs). Going forward, we expect the US sales of surgical disposables to grow significantly in 2014 as our sales and education sales force starts to impact disposable use in existing accounts, install new monitors and upgrade existing accounts to the new non-invasive options.

In parallel with our direct sales effort, we continue to explore national and regional distribution and licensing arrangements in the US to help access this market.

Japan

Nihon Kohden, a pioneer and global market leader in monitoring technology, was appointed in August 2012 as the exclusive distributor for the LiDCOrapid monitor and disposable kit in Japan. Nihon Kohden collaborates with LiDCO and its existing partner Argon Medical Devices, to market and sell LiDCOrapid products in Japan. Sales of the LiDCOrapid disposable kit (including Argon's blood pressure transducer) are reimbursed in the Japanese market. Japan is the second largest market for hemodynamic monitoring in the world after the US. Our product is being progressively rolled out by Nihon Kohden to its extensive Japanese sales network consisting of over 1,000 direct sales staff in over 120 branch offices. It is still early days in the roll out. Japan is a conservative market and one in which use of hemodynamic monitoring is still largely restricted to intensive care patient populations. Our strategy for Japan is to work with our Japanese partners to establish the LiDCO brand name in Japan while introducing and actively marketing the concept of proactive use of the LiDCOrapid monitor to reduce complications in high-risk surgical populations.

At this stage revenue comparisons are still affected by stocking orders variances between the periods with revenue for the year being £269,000 (2012/13: £332,000), down due to a small reduction in monitor sales. Disposables sales made to our partners were steady, however, importantly underlying sales of disposables to hospitals grew during the period. We expect to make further progress with the Japanese business during this year and are pursuing registration of the LiDCOrapidv2 with Unity software non-invasive blood pressure module option. Overall, our partners are working hard with us to establish LiDCO in Japan and we are cautiously excited about the prospects in this important territory.

Continental Europe

We were pleased to see a significant increase in revenues from our European distributors after the cut backs in healthcare expenditure we have seen in recent years. Total sales increased 54% to £959,000 (2012/13: £622,000) with monitor sales of 49 units (2012/13: 19 units) and disposables up 14% to 10,650 units (2012/13: 9,350 units).

We attained CE marking in February for the LiDCOrapidv2 with Unity software and the period saw the first sales through our European distributor network. We are focusing on helping existing distributors to build a sustainable growing disposable income from their installed base of monitors. The LiDCOrapidv2 upgrade option should help distributors improve frequency of use and hence revenue per monitor. The new product has attracted interest from a number of potential distribution partners and new distributors were appointed in Italy, Romania and Serbia. We recorded good progress in 2013/14, despite a lack of growth in many European economies, however we remain cautious about sales prospects in continental Europe in our planning.

Rest of World

Like Europe, we saw a similar growth in sales from our distributors, albeit from a low base with total sales increasing 61% to £379,000 (2012/13: £235,000). Sales were predominantly from the Middle East, China and Brazil. We expect to make further distributor appointments in the emerging markets and expect good growth from these territories going forwards.

Details of the Company's performance, in terms of revenues and unit sales by key geographies, are given in the tables below:

Revenues performance by product and key geographies

The most significant component of the revenue labelled as "Other" above is monitor service contracts in the UK which increased 23% to £196,000 (2012/13: £160,000).

Unit sales performance by category in key geographies

Global markets

We estimate the global revenue opportunity for minimally invasive and non-invasive hemodynamic monitoring disposables to be potentially about $2 billion per annum and estimate current revenues at about $300m. The priority markets for LiDCO are the UK, US and Japan with the latter two being the world's first and second largest markets by size (estimated at $650m and $480m respectively) representing a total of around 5 million high risk surgery patients per annum.

New products launched

During the year we registered and launched in the EU and USA our new integrated non-invasive multi modal monitor - the LiDCOrapidv2 with Unity software. This product initiative provides customers with two additional non-invasive monitoring options - continuous arterial blood pressure and depth of anesthesia. LiDCO's technology now addresses a far bigger market. The multimodal nature of the LiDCOrapidv2 further distinguishes us from the competition, allowing the customer choice regarding the degree of invasiveness while adding the option of continuous brain function monitoring. Patients can now benefit from continuous blood pressure and hemodynamic monitoring at any stage of their treatment and in all of the hospital locations where such care is required. We estimate that this non-invasive capability has doubled the potential size of the market opportunity for sale of our products which is now projected to be capable of growing to $2 billion per annum in disposables sales.

Patents

Underpinning our technology and revenue streams are strong patents that provide us with a protectable product and market position. Our development team continues to take the initiative in advances in physiological signal processing and intelligent graphical user interfaces. We were pleased to report progress in the patent portfolio during the year, with patent grants regarding our unique monitor user interfaces in two of our key markets - the US and Japan.

Clinical evidence & support

Technologies introduced into mainstream practice have to be shown to be both clinically and cost effective. We believe new technology will be adopted more quickly and widely if proven to be affordable. Ultimately, use of the technology ideally would be incorporated into recommended standards of care. Accordingly I have been delighted to report in a number of announcements the excellent progress demonstrating LiDCO's effectiveness and the incorporation of multimodal monitoring into professional standards published by the AAGBI.

In May we announced that our new monitor, the LiDCOrapidv2 with Unity software, was used as part of an enhanced recovery programme ('ERP') for patients undergoing major bowel cancer surgery at Ashford and St Peter's Hospital. As a result of the programme, the hospital reported that patients returned home following surgery almost a week earlier than previously. Then, in June, the Royal Surrey County Hospital published a paper showing that an ERP that included goal directed fluid therapy ('GDFT') monitored by the LiDCOrapid system, reduced the length of stay by three days for patients undergoing open liver resection2. Post-operative complications were reduced from 27% to 7% resulting in a significant improvement in patient short-term quality of life.

In January of this year, researchers at King's College Hospital London reported the outcome of a trial of 120 high-risk elderly vascular surgery patients3. Multimodal monitoring with the LiDCOrapid monitor, combined with depth of anesthesia, was used as part of a pre-emptive hemodynamic strategy to optimally deliver anesthesia, drugs and fluids. These high-risk patients had a predicted mortality rate of 9%, the mortality rate of the LiDCO monitored patients was much lower at 0.8% (one patient). The authors reported that multimodal monitoring "reduces dramatically the requirement for post-operative high dependency management of the patient." Post-operatively, only a small number of patients (10) needed to be taken to a costly high dependency unit with the majority of patients being able to be nursed post-operatively on less costly general wards, lowering the hospital's expenditure on post-operative care. January also saw the publication of the AAGBI guidelines for the perioperative care of the elderly in and around surgery. An increasing number of elderly patients are undergoing surgery and it is critical that they receive the right monitoring to reduce costs, mortality and complication rates. The AAGBI guidelines included recommendations for the simultaneous measurement and monitoring of several physiological parameters - these included continuous arterial blood pressure, hemodynamic response to fluids and depth of anesthesia. The LiDCOrapidv2 monitor with Unity software can be used to invasively (using an arterial line), or completely non-invasively (without insertion of an arterial line) monitor these three recommended parameters. The use of LiDCO's multimodal monitor (LiDCOrapidv2) allows the hospital to provide this necessary advanced level of care to all high-risk elderly patients without the use of invasive catheters.

After the year end, in March we saw the publication of a cost effectiveness analysis4 from clinicians at St George's Hospital, London. These doctors have been delivering goal directed therapy (GDT), using the LiDCOplus monitor, for high-risk surgery patients in the postoperative period for the last 8 years. In the short-term, GDT decreased costs by £2,631 per patient and by £2,134 per hospital survivor. In the long term, GDT was projected to prolong quality-adjusted life expectancy by 9.8 months and to bring incremental cost savings of £1,285 per patient. The cost-effectiveness analysis concluded that the implementation of GDT is both clinically sound and cost-effective, commenting that additional monitoring expense can be offset after less than two months when 100 patients per year receive GDT through savings due to reduced costs accrued from a reduction in complication rates and hospital length of stay.

Outlook

We start the new financial year with a solid platform to deliver further growth. The business is now profitable and cash generative and we hold a strong market position with our clinically proven, cost-effective and patented core technology. This has been most clearly demonstrated in the strong take up of LiDCO monitors by the NHS over the last year. This bodes well for future performance as we see the benefit of increasing disposable usage from a growing base of installed monitors.

With much of the business costs now covered by predictable income from higher margin disposable sales there is a great opportunity to drive further profit growth through additional monitor sales in our key markets, the completion of distribution and licensing arrangements in the US, further geographical expansion in the Far East and Middle East, and increasing usage within our existing customer base by widening the application of our monitors, particularly in locations where our non-invasive technology is best suited.

We believe that LiDCO monitors have the potential to become the 21st century standard for the fluid and hemodynamic monitoring of high-risk patient populations in hospitals and we expect 2014 to be another strong year of growth for the Company.

How we create value: our business model

LiDCO is a UK-based manufacturer and supplier of monitoring equipment and associated single patient use disposables to hospitals. LiDCO monitors are "platform" in design, which means that they can be easily and cost-effectively upgraded to add both new software features and new parameters by the addition of USB connected modules. Our technology, coupled to our low cost manufacturing and product sourcing skills, combine to produce a highly differentiated, patent protected monitor with a recurring income stream from the sale of high margin single patient use disposables.

Our monitors continuously display a number of crucial physiological parameters that include: arterial blood pressure, the effects of anesthesia on the level of consciousness of the brain, the requirement for intravenous fluids and the amount of blood and oxygen supplied to the body's tissues and organs. We provide this crucial data via an easy to interpret monitor user interface that helps clinicians and nurses ensure that vital organs are adequately perfused and that patients are not over anesthetised or sedated.

Historically, hemodynamic monitoring was invasive in nature requiring the insertion of invasive central catheters and for that reason was only available to a restricted number of the high-risk patients that could potentially benefit. LiDCO's technology does not require the insertion of central catheters and now can be used completely non-invasively and in both ventilated and non-ventilated patients.

Our customers are acute care physicians and nurses working in major hospitals that care for emergency and high-risk patients. Hospitals are migrating away from the use of invasive technologies to the use of less invasive monitoring, which has been shown to be cost effective and improve outcomes. Use of LiDCO monitors in high-risk patients in both intensive care and surgical settings has been shown to reduce complications, length of hospital stay and improve quality of life.

The key features of our business model are as follows:

· We have developed a new generation of hemodynamic monitoring products that are designed to address a developing disposable market opportunity - estimated to be potentially $2 billion per annum.

· Our disposable products are produced in high volume with low cost manufacturing processes and have a high margin.

· Sales of our products are supported with a growing body of evidence to satisfy purchaser requirements for clinical and cost effectiveness data.

· We generate revenues principally through the sale or licensing of the sale of single use disposables into a growing installed base of LiDCO-enabled monitors.

· We protect our disposable income stream through having patented products with high levels of proprietary intellectual property and are subject to on-going development.

· We provide first-class training and education to our customers. This helps entrench our technology and reduce hospitals costs, thereby providing LiDCO with a sustainable recurring income.

Delivering our objectives: our strategy

Our strategy is to build shareholder value through the commercialisation of the LiDCO monitoring systems and associated disposables. Product design, manufacturing and sales and marketing excellence are at the core of our values. Our products are patent protected and supported by a growing body of data showing their clinical and cost effectiveness. Our technology is not only usable in traditional locations such as the intensive care and surgery departments, but also in any area of the hospital where high-risk patients require such monitoring. Hospitals acquiring our compelling hemodynamic platform monitors can transition from traditional invasive catheter based monitoring to higher volume use of LiDCO's minimally or non-invasive monitoring in high-risk patients reducing complications and lowering costs and length of stay.

It is our strategy to derive revenue growth predominantly from increasing use of our technology and high margin disposables into a growing installed base of LiDCO-enabled monitors. This is achieved by adding further functionality to the monitor, the development of USB-enabled modules and by increasing the size of the worldwide monitor installed base.

Having multiple sale and distribution options is key to LiDCO's capacity to address the worldwide opportunity for sales of our technology. Our sales and distribution model to the market has three elements. Firstly, we have direct sales into hospitals in the UK and USA. Elsewhere we sell via distribution partners. Our depth of margin on disposable sales allows us to attract quality specialist distribution partners on an exclusive and non-exclusive basis. Our direct sales experience in the UK and USA has allowed us to develop a distribution business and sales model. In effect this forms a distributor "franchise". Finally, our core technologies are patented and have been licensed in part on a non-exclusive basis to a major corporate partner in the US in return for future royalty payments. We continued to explore further arrangements to help access the US market.

Measuring our performance: KPIs

The following KPIs are some of the indicators used by management to measure performance during the year:

Business objectives

Our financial objectives are to continue to profitably grow the business with cash generation. Revenue growth is expected to predominantly come from increased sales of our surgical disposables. We expect growth of surgical disposable sales in both of our direct markets of the UK and USA and also in the distribution territories. Clearly, one factor central to growth this year in the UK, Europe and the USA will be how we maximise the impact of the LiDCOrapidv2 both in the existing surgical monitor installed base and in acquiring new hospital accounts. Work is already in place seeking to expand use into new hospital areas, for example emergency medical and non-elective surgical patients. These are exciting high volume new applications where our technology is capable of improving outcomes and reducing costs.

Our corporate collaborations are an important element of our business. There are a number of these in place ranging from OEM module licensing-in (Covidien and CNSystems), distribution provisions (Nihon Kohden and Argon) through to royalty-based licensing-out arrangements (ICU Medical). We expect to see these commercial relationships developing further during the year and having an increasing positive impact on revenue.

During the year we will be further developing the marketing and educational support materials for use of our product in the peri-operative arena. We expect that 2014 will see the publication of additional clinical effectiveness data supporting use of LiDCO's technology in products designed to optimise the body's circulation.

Overseas, we are targeting opening new distributor accounts in a number of the fast growing emerging markets. Following on from approval of the LiDCOrapidv2 for sale in the USA and Europe, we are now pursuing the registration of the new software and non-invasive blood pressure and brain monitoring modules in both Japan and China.

Further development work will continue to focus on optimising the LiDCOrapidv2 to maintain our initiative in non-invasive multi modal monitoring by further refining our products. We expect to launch a number of software upgrades during the year. After our financial year end we launched the new version of LiDCOrapidv2 Unity software - version 2.03. This was launched in March at the 34th ESICEM Meeting in Brussels. This new version of the Unity software added further functionality that significantly reduces the equipment's set-up time and number of steps. Additionally, all LiDCO monitors are now compatible with the newly released Philips IntelliBridge patient data interface. IntelliBridge connects to LiDCO monitors via a specific Philips Intellibridge module and cable. In combination these new features make the LiDCOrapidv2 system even easier to use and importantly integrates the data into the hospital's patient information system.

Longer term we expect to enhance our products by integrating additional parameters into the LiDCOrapid platform. We are currently assessing a number of promising opportunities which would benefit from our expertise in integrating parameters via USB modules and the associated product registrations. Our agile software development allows us to fast track the integration of new parameters. We look to add parameters that make sense from a physiological monitoring point of view to complement our existing displays. Our product strategy is to continue to grow the significance of the LiDCO monitor in terms of more comprehensive monitoring of the acute care patient.

Terry O'Brien

Chief Executive Officer

28 April 2014

Glossary of terms

NICE - National Institute for Health and Care Excellence

CQUIN - Commissioning for Quality & Innovation

NTAC - NHS Technology Adoption Centre (now part of NICE)

Clinical papers referenced in text:

1. The AAGBI Guidelines can be found here: http://onlinelibrary.wiley.com/doi/10.1111/anae.12524/full

2. Jones C, Kelliher L, Dickinson M, Riga A, Worthington T, Scott M J, Vandrevala T, Fry C H, Karanjia N and Quiney N. Randomized clinical trial on enhanced recovery versus standard care following open liver resection. Br J Surg 2013 Jul;100(8):1015-24. Doi: 10.1002/bjs.9165

3. Green D, Bidd H, Rashid H. Multimodal intraoperative monitoring: An observational case series in high risk patients undergoing major peripheral vascular surgery

International Journal of Surgery (2014) 1-6 doi.org/10.1016/j.ijsu.2013.12.016

4. Ebm C, Cecconi M, Sutton L, Rhodes A (2014) A Cost-Effectiveness Analysis of Postoperative Goal-Directed Therapy for High-Risk Surgical Patients DOI: 10.1097/CCM0000000000000164

CONSOLIDATED comprehensive INCOME STATEMENT

For the year ended 31 January 2014

CONSOLIDATED Balance Sheet

At 31 January 2014

consolidated Cash flow Statement

For the year ended 31 January 2014

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 January 2014

NOTES TO THE FINANCIAL STATEMENTS

1. NATURE OF THE FINANCIAL INFORMATION

These financial statements have been prepared in accordance with the principle accounting policies adopted by the Group, International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations (IFRIC) as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under and were approved by the Board on 28 April 2014. They are presented in sterling, which is the functional currency of the parent company and the Group. The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

These results are audited, however the financial information does not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The financial information for the year ended 31 January 2013 has been derived from the Group's statutory accounts for that year, as filed with the Registrar of Companies. The auditors' report on the statutory accounts for the year ended 31 January 2014 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Group's financial statements for the year ended 31 January 2013 which can be found on the Group's website.

2. EARNINGS PER SHARE

The earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.The basic earnings per share for the year is based on a profit after tax of £299,000 (2012/13: Loss £117,000) and weighted average number of shares in issue of 193,831,249 (2012/13: 179,433,811). The diluted earnings per share is based on the above calculation adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. Share options are regarded as dilutive when, and only when, their conversion would decrease earnings or increase the loss per share. The diluted earnings per share is based upon a weighted average number of shares of 194,178,425.

3. DISTRIBUTION

Copies of this statement will be available for collection free of charge from the Company's registered office at 16 Orsman Road, London N1 5QJ. An electronic version of this announcement and the Annual report and accounts will be available today on the Company's website, www.lidco.com. Copies of the Annual report and accounts will be posted to shareholders in May together with the notice of the Annual General Meeting.