LID.L Regulatory News (LID)

LIDCO GROUP PLC

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

Final results

Results to 31 January 2020

LiDCO (AIM: LID), the hemodynamic monitoring company, announces its audited Final Results for the year ended 31 January 2020 ("FY20"). The Group has achieved strong year-on-year growth in sales of LiDCO products with the development of a strong recurring revenue base through its Software as a Service ("SaaS") High Usage Programme ("HUP") business model.

Financial highlights

· LiDCO product revenue (excluding third-party products) up 19% to £7.36m (FY19: £6.19m)

· Total revenue increased by 3% to £7.55m (FY19: £7.32m)

· HUP revenues of £1.9m up 101% (FY19: £0.9m)

· Gross margin increased to 65.2% (FY19 restated1: 58.7%) due to larger proportion of high-margin LiDCO product revenues

· Adjusted EBITDA2 improved by £1.20m to positive £0.04m (FY19: loss £1.16m). H2 positive adjusted EBITDA2 of £0.23m (H2 FY19: EBITDA loss of £0.34)

· Adjusted loss before tax2 of £1.12m (FY19: loss £1.99m)

· Loss and total comprehensive expense for the year of £1.03m (FY19: £1.94m)

· Loss per share of 0.42p (FY19: 0.80p)

· Net cash outflow before financing of £0.15m (FY19: £1.51m). Net cash inflow in H2 of £0.17m (H2 FY19: outflow of £0.34m)

· Debt free with cash at year-end of £1.36m (FY19: £1.72m)

1 restated for re-classification of certain labour and overhead costs (see note 1 to the financial statements)

2 adjusted for share-based payments

Operational highlights

· As at 31 January 2020, global contracted base of 286 HUP monitors (FY19: 164), generating total annualised contracted license revenues of £2.2m (FY19: £1.4m) an increase of 57%

· In FY20 annualised license revenues represented 30% of the Group's total revenues (FY19: 23%). An estimated further 9% (FY19: 9%) of revenues were also underpinned by contractual agreements

· Exports increased 44% to £3.8m (FY19: £2.6m)

· In FY20, sales outside the UK represented just over half (FY19: 43%) of LiDCO product sales

· Regulatory approval and successful launch of latest monitor in China

· New exclusive distributors signed in Poland, Saudi Arabia, Chile, Argentina, Mexico & Venezuela

· US Distribution agreement with Xavant

· Strengthened Board with the appointment of Tim Hall as CFO in March 2019 and of James Wetrich as Non-executive Director in August 2019

Post year end

· Significant increased demand as a result of COVID-19 with 195 monitors sold to date, predominantly to the UK market, compared with 219 monitors sold in the whole of FY20

· Board expects that sales in the three months ending 30 April 2020 will significantly exceed total sales of £3.5m achieved in H1 FY20

· Registration for latest monitor received in Colombia

· Leases signed for new administration office and manufacturing facility, as well as contract to outsource cleanroom activities.

Matt Sassone, Chief Executive Officer, commented: "The recently closed financial year was one of strong growth, during which we continued to build our installed base of monitors and associated recurring revenues.

"I am incredibly proud of how the team has responded to the COVID-19 outbreak. Their determination to help those affected and support the frontline healthcare workers has been outstanding.

"The biggest threat from COVID-19 is the danger of severe respiratory illness resulting in admission to intensive care. We have seen around the world that in those acute cases where patients do not respond quickly to ventilatory treatment in intensive care, many develop sepsis which can lead to multiple organ failure and ultimately death.

"Although no clinical studies have been conducted involving patients with COVID-19, clinical studies have demonstrated that the use of LiDCO's technology in the treatment of sepsis significantly improves outcomes and reduces mortality1.

"Given the response to the COVID-19 pandemic, we have seen a significant uplift in sales to the UK, Europe and China as intensivists aim to give the best possible care to affected patients. This comes after a strong year of growth in FY20, when we continued to build our base of recurring revenues."

1 Hata J, Stotts C, Shelsky C, Bayman E, Frazier A, Wang J, Nickel E (2011) Reduced mortality with non-invasive hemodynamic monitoring of shock. J Crit Care vol 26 (2):224. E1-8

The Company presentation and 2019/20 Annual Report and Accounts will be available from today on the LiDCO website: www.lidco.com.

About LiDCO Group Plc

LiDCO is a supplier of a new generation of non-invasive and minimally invasive hemodynamic equipment to hospitals used to monitor the amount of blood flowing around the body and ensure that vital organs are adequately oxygenated. LiDCO's products facilitate the application of hemodynamic optimisation protocols for high risk patients in both critical care units and in the operating theatre.

Increasingly clinical studies have shown that the optimisation of patients' hemodynamic status in high risk patients produces better outcomes and reduced hospital stay. LiDCO's computer-based technology, developed originally at St Thomas' Hospital in London, has been shown to significantly reduce morbidity and complications, length of stay and overall costs associated with major surgery. There are now over 250 clinical studies and a growing body of evidence to satisfy purchaser requirements for clinical and cost effectiveness1.

LiDCO's proprietary and patent-protected products are designed to address the large and growing hemodynamic monitoring market opportunity, which the Board has estimated to be worth up to $2 billion per annum. The Group generates revenues principally through the sale of single-use disposables and / or the sale of usage licenses into a growing installed base of LiDCO-enabled monitors. LiDCO also provides first-class training and education to its customers, which helps entrench its technology with users and reduce hospitals costs, and to support the sustainability of the Group's recurring income.

1 See http://www.lidco.com/education/clinical-papers/ for further details.

STRATEGIC REPORT

Chairman's statement  

On behalf of the Board, I am pleased to present the Company's Annual Report and Accounts for the year ended 31 January 2020 (FY20).

The Group has continued to make headway with its differentiated High Usage Programme ("HUP") business model which has grown to a £2.22m recurring revenue base in two and a half years since launch in July 2017. HUP contracts are typically long-term with annual payments in advance. This gives good cash generation as well as better forward visibility of related revenues. In FY20 the number of monitors under HUP increased 74% to 286 (31 January 2019: 164) worth £2.22m (31 January 2019: £1.38m) of annualised revenues.

LiDCO product revenues for FY20 were up 19% to £7.36m (FY19: £6.19m), in line with management expectations. The growth in LiDCO product revenues more than outweighed the expected reduction in low margin third-party product sales. As a result, total revenues (including third-party products) were up by 3% to £7.55m (FY19: £7.32m). The increased proportion of higher margin LiDCO product revenues led to an increase in overall gross margin.

The 19% growth in FY20 LiDCO product sales reflects growth in all regions compared with the prior year. LiDCO product sales grew by 28% in the USA to £1.77m (FY19: £1.38m), by 1% in the UK to £3.58m (FY19: £3.56m) and sales outside of the Company's direct markets were up 60% to £2.01m (FY19: £1.26m). The significant growth outside the UK included £0.42m growth in China from the launch of the new monitor and, as a result, in FY20, sales outside the UK represented just over half (FY19: 43%) of LiDCO product sales.

The Group recorded a positive adjusted EBITDA (adjusting for share-based payments) in the year of £0.04m (FY19: adjusted EBITDA loss of £1.16m).

In the second half of the year there was a net cash inflow of £0.17m, compared with a net cash outflow in H1 of £0.53m. The balance sheet remains strong with cash balances at 31 January 2020 of £1.36m (2019: £1.72m) and the Company remains debt free.

During the year, the Board was strengthened with the appointment, on 11 March 2019, of Tim Hall as Chief Financial Officer and Company Secretary and, on 15 August 2019, Jim Wetrich as Non-executive Director. Tim is a Chartered Accountant with extensive finance leadership within the med-tech sector and Jim brings a wealth of experience in the US healthcare industry having worked both in the medical device and healthcare provider sectors.

Since the year end, the COVID-19 pandemic has spread around the world and has had two key impacts on LiDCO:

(i) There has been a spike in demand for hemodynamic monitoring equipment from many existing customers, with substantial short-term heightened demand from UK hospitals and an increased demand in a number of other countries, including a small number of monitors sold in Wuhan, China. However, as yet, there has been no increase in demand from customers in the US despite it being the country with the highest number of COVID-19 cases.

(ii) Normal activities have been disrupted by most employees having to work from home, with the exception of production staff. The restrictions on travel and the focus of customers on tackling COVID-19 have prevented normal business development and commercial activities other than training.

The Board has prioritised the health, safety and well-being of the Group's employees and essential support for our customers. The Board is grateful that its employees and suppliers have responded admirably to the challenge of meeting the sudden spike in demand from the many LiDCO customers which recognise the clinical benefits of advanced hemodynamic monitoring of patients in intensive care.

I would like to also take this opportunity to thank shareholders, employees, customers and partners for their support during the year. Despite the short-term challenges around the world as a result of the COVID-19 pandemic, we continue to look forward with confidence.

Peter Grant

Chairman

20 April 2020

Chief Executive's report

The Group's strategy is to expand geographically from its leadership position in its home UK market by gaining market share with its differentiated business model and market leading technology. In the year ended 31 January 2020 good progress was made with this expansion with sales outside the UK representing just over half (FY19: 43%) of LiDCO product sales.

A large part of the growth has come from the continuing transition to LiDCO's differentiated Software as a Service (SaaS) model, the High Usage Programme (HUP), which has the potential to substantially increase the adoption of hemodynamic monitoring and provide greater forward visibility of revenues and cash flows. Through this transition the Board believes that the Group will be positioned for sustained growth in the medium term.

HUP is differentiated from its main competitors by not having a charge per patient use, which encourages hospitals to use hemodynamic monitoring more widely by removing concerns about budgetary constraints. Numerous studies have shown that the use of hemodynamic monitoring improves patient outcomes, reduces length of stay and healthcare costs. The Board believes that these benefits provide healthcare providers with a strong justification to adopt the HUP model.

LiDCO's differentiated SaaS model is focused on attracting the larger more established users of hemodynamic monitoring to convert to LiDCO technology and for the Company's larger existing customers to extend the adoption of hemodynamic monitoring to a wider patient base.

The University of Texas MD Anderson Cancer Center in Houston USA recently presented at American Society of Anaesthesia Practice Management Conference. They clearly demonstrated that switching to LiDCO's HUP offering reduced costs by 68% whilst the number of patients treated with hemodynamic monitoring increased by 33%. The authors summarised "applying this value-based marketing strategy to provide our protocolized hemodynamic monitoring within our ERAS [Enhanced Recovery After Surgery] pathways has enabled greater access of the technology to our surgical patients and improved their outcomes while simultaneously reducing costs."

The USA is the largest market for hemodynamic monitoring, representing nearly half of the current global market by value. The Board believes that the USA market offers the Group the greatest opportunity to grow and this has been the main focus of investing in an expanded local commercial presence. Whilst highly competitive and with a long sales cycle, early indications are that the market is responding well to LiDCO's differentiated pricing approach.

 As at 31 January 2020 the Group had a total global installed base of 286 HUP monitors (31 January 2019: 164 units) generating £2.27m (31 January 2019: £1.38m) of annualised revenues.

The Board has identified a number of key geographies where it believes that the Company can gain a more significant market share. The Group is investing with carefully selected partners to achieve the necessary registrations in these markets and develop promotional activities that will increase LiDCO's market penetration and widen the adoption of hemodynamic monitoring.

OUTLOOK 

The Group has seen a spike in demand for hemodynamic monitoring equipment from existing customers, with substantial short-term heightened demand from UK hospitals and an increased demand in a number of other countries, including a small number of monitors sold in Wuhan, China as a direct response to the COVID-19 virus outbreak. Based on orders received to date and the Group's recurring revenue base, the Board expects that sales in the three months ending 30 April 2020 will exceed total sales of £3.5m achieved in H1, FY20 and the sales budget for H1 FY21.

At the same time, travel and marketing costs have been substantially reduced as a result of the various restrictions around the world.

These factors combined mean that the Board expects that the Group will benefit from strong cash inflows in the first half of the year.

A proportion of COVID-19 patients develop complications like sepsis and need intensive care, and there is significant clinical evidence that the use of advanced hemodynamic monitoring leads to improved outcomes for such patients. On this basis, the Board expects that the base of recurring revenues from HUP and consumables should continue to be earned at levels achieved in the latter part of FY20 and there may be an increased awareness in healthcare systems and at government level of the importance of advanced hemodynamic monitoring.

Whilst there are initial signs that normal activities in China may be beginning to resume, it remains difficult to predict the length and depth of the global impact of COVID-19 on the Group's markets, distributors and customers and hence the net effects on management's expectations for the full year cannot readily be estimated at this stage.

However, given the recurring revenue base (which represented three-quarters of total Group sales in FY20) and the strong revenue generation in the first three months of the year, the Board remains confident that LiDCO will be well placed when markets return to normal.

OPERATIONAL REVIEW

Revenue performance by product and key geographies 

Note: excluding the discontinued third-party sales in respect of the terminated low-margin Merit Medical distribution contract for Argon products, recurring revenues in FY20 represented 75% of sales (FY19: 81%).

HUP performance and recurring revenues

LiDCO continues to make progress with its HUP offering, since its launch in July 2017, with revenues recognised in the year growing at 101% to £1.87m (FY19: £0.93m). At 31 January 2020 the Group had a total global installed base of 286 HUP monitors (31 January 2019: 164 units) generating £2.22m (31 January 2019: £1.38m) of annualised revenue.

In FY20 annualised license revenues represented 30% of the Group's total revenues. An estimated further 9% of revenues were also underpinned by contractual agreements which normally roll forward on a continuing basis.

The remaining recurring revenues, primarily from the sale of disposables (including smart cards) represented 36% of the Group's total revenues.

Total recurring revenues in FY20 represented 75% of the Group's total revenues.

The growth of the HUP business is illustrated in the following table:

UK

In the UK, LiDCO has made good progress with converting its largest customers to the HUP business model. The Company first evaluated this approach with its largest UK account in January 2018 and, encouragingly, the customer was able to treat more patients and has increased its investment in hemodynamic monitoring. Following this success, the Company has now converted eight of its largest customers to multi-year HUP contracts, meaning that the Company has annualised UK HUP contracts worth £0.77m. When combined with the value of contracted per patient disposable usage, the UK now has 50% of its recurring revenues covered by long-term contracts.

Despite the challenging NHS procurement environment, in FY20, the Company has maintained its UK revenues. LiDCO also remains the UK market leader. Demand for capital monitor purchases increased 32% to £0.50m (FY19: £0.38m) whilst recurring revenues declined 2% to £3.04m (FY19: £3.11m). The decline of recurring revenues was impacted by the effect of customers destocking the traditional per patient disposables ahead of converting to HUP.

As expected, there was a significant reduction in low margin third-party product sales, due to the previously announced termination of the low-margin Merit Medical distribution contract for Argon products. As a result, third party sales declined 83% to £0.19m (FY19: £1.13m). The Company has sourced a number of complementary third-party products and LiDCO now distributes Maicuff, Antmed and Xavant products in the UK.

USA

As the business grows its installed base of HUP monitors it is generating strong year-on-year growth of license fee revenues. As a result, recurring revenues in the USA grew by 26% to £1.59m (FY19: £1.27m). Overall US sales increased by £0.39m to £1.77m (FY19: £1.38m) due to the increase in recurring revenues and a 62% increase in monitor sales to £0.17m (FY19: £0.10m) as the local sales team sought access to customers' capital funds in order to accelerate the purchasing process.

Since 31 January 2019, the US installed base of HUP monitors has increased to 156 units (January 2019: 95 units) with an annualised contract value of £1.28m (January 2019: £0.80m) representing the second year of over 50% year-on-year growth.

The team continues to work through a strong pipeline of prospective HUP customer opportunities, but the Board recognises that the greatest limiting factor to faster growth is the size of our commercial presence in the market. The current strategy is to invest on a self-funded basis, but the Board continues to consider when the time would be right to increase investment in this important market.

Continental Europe

Revenues in Europe grew by 35% to £0.63m (FY19: £0.47m) driven by strong license fee revenues as a number of HUP contracts entered the second year of their term. Over the last few years, the Company has been focused on rebuilding its business in Europe by signing new distributors. Whilst efforts to gain share in the largest European markets has been slower than desired, new markets such as Poland show good promise.

LiDCO has a strong position in a few selected markets within Europe and continues to work on expanding its presence in some of the larger countries in the region by partnering with the appropriate distributors. The Board recognises the challenges of finding the right distributor in the largest European countries and is prepared to consider investing in direct operations where the business case for doing so is appropriate.

Rest of World

Strong growth in China and Japan contributed to LiDCO's business in Rest of World markets growing 75% to £1.38m (FY19: £0.79m). In November 2019, the Company announced that following approval by the Chinese Food and Drug Administration of the LiDCOrapidv3 monitor in July 2019, its distribution partner, Beijing Gloryway Medical Co., Ltd had launched the product at the 27th Annual Meeting of the Chinese Society of Anesthesiology. The Company received a number of orders in preparation for the launch and was able to fulfill some immediate demand in the year.

Sales to Japan grew 31% to £0.41m (FY19: £0.31m) as the business continued to build market share in the world's second largest hemodynamic market, having appointed a new distributor two years ago.

LiDCO continues to invest in geographical expansion, during the year applying for several regulatory registrations in key target markets in South East Asia and Latin America, which are expected to benefit future years. New exclusive distributors were signed during the year in Saudi Arabia, Chile, Argentina, Mexico and Venezuela.

Product Developments

During the year the Company through its own resources and utilising external contractors further developed the graphical user interface of its monitors to add additional clinical guidance, improved start-up processes and further customisation for individual customers. Significant progress was made in expanding the software licencing functionality to incorporate more commercial modes and flexibility.

As a result of the work commenced during 2019, the Company anticipates launching improved non-invasive monitoring in 2020. The main new features with this latest software development include:

· faster set-up, significantly reducing the time to start monitoring, meaning that clinicians can be monitoring their patients in less than a minute;

· automatically recognising if an incorrect sensor size is attached;

· ensuring an error-free application that gives notice to the user if finger sensor size does not fit; and

· improved signal optimisation, for more reliable short- and long-term blood pressure tracking, featuring a new automated signal quality check that analyses blood pressure on a beat-to-beat basis to ensure better tracking of quick blood pressure changes.

Change of Premises

The landlord of the Company's premises at Orsman Road, in North London, wishes to redevelop the site and as a result of this the Company has entered into a new lease agreement for the residual period of the lease that has benefits to both parties. Under the terms of the new lease LiDCO is incentivised to leave the premises before the end of the lease on 23 June 2021 and may terminate the lease from 23 June 2020 on a month's notice. Leases have recently been signed on new premises both for the administration functions, which are moving to serviced offices near to central London, and for the logistics and production activities which are moving to a facility in North London. Management aim to vacate the existing premises by 23 June 2020 in order to maximise the compensation received, however the COVID-19 pandemic may delay the planned timetable.

Linked to the move the Company has entered into an agreement to outsource the clean room activities currently performed at its Orsman Rd facility.

FINANCIAL REVIEW

Revenues

LiDCO product revenues for the year ended 31 January 2020 increased by 19% to £7.36m (FY19: £6.19m) driven by strong export growth. Sales of third-party products declined by 83% to £0.19m (FY19: £1.13m) as anticipated following termination of the low-margin Merit Medical distribution contract for Argon products. Overall sales increased by 3% to £7.55m (FY19: £7.32m).

In the year ended 31 January 2020 recurring revenues equated to 75% of LiDCO product sales (FY19: 81%).

The amount of revenue invoiced but not yet recognised at 31 January 2020 increased by 47% to £1.23m (FY19: £0.84m). This relates primarily to HUP licenses and is recorded on the balance sheet as deferred income.

Further comment on revenues by territory is provided in the operational review.

Gross profit and margin

The Board has decided that it would be more accurate and consistent with the reporting of other company results if certain labour and direct overhead costs were reported within cost of sales rather than administration expenses. The prior year figures have been adjusted to reflect this change and details of this adjustment that reduces both gross profit and administration costs are shown in note 1 to the financial statements.

Gross profit on LiDCO product revenues increased by 21% to £4.91m (FY19: £4.07m) as a result of the strong sales growth and an increase in gross margin to 66.8% (FY19: 65.8%). The improvement in gross margin occurred despite the provision for obsolete/damaged stock having doubled to £0.37m (FY19: £0.18m) and was primarily due to labour and overhead cost efficiencies. Gross profit on third-party sales decreased to just £8,000 (FY19: £224,000) due to the reduction in third-party sales and costs relating to the termination of the Merit distribution contract.

Overall gross profit increased by 14% to £4.92m (FY19: £4.30m) and the gross margin increased to 65.2% (FY19: 58.7%).

Overheads

Overheads before share-based payments decreased 4% to £6.03m (FY19: £6.29m). The decrease was primarily due to cost reductions implemented in the second half of FY19 that are reflected in a reduction in the average number of employees during the year to 44 (FY19: 50).

Share-based payments resulted in a charge of £96,000 (FY19: £143,000).

EBITDA

The Group recorded a positive adjusted EBITDA (adjusting for share-based payments) in the year of £0.04m (FY19: EBITDA loss of £1.16m), an increase of £1.20m of which £0.22m came from the introduction of IFRS 16 "Leases".

Earnings and tax

The Group made an adjusted loss before tax (adjusting for share-based payments) of £1.12m (FY19: £1.99m). After charging for share-based payments and receiving the benefit of £0.19m of research and development tax credits, the Group made a net loss for the year of £1.03m (FY19: £1.94m), equating to a loss per share of 0.42p (FY19: 0.80p).

Cash flow, borrowings and cash balances

The positive adjusted EBITDA along with reductions in working capital of £0.71m (primarily decreases in stock and increases in deferred income) and an R&D tax credit receipt of £0.19m resulted in a net cash inflow from operating activities of £0.95m (FY19: outflow of £0.51m). Net cash used in investing activities increased by 10% to £1.10m (2019: £1.00m) as the Group invested in a new ERP system and net cash outflow from financing activities increased to £0.20m (FY19: £nil) as a result of the adoption of IFRS 16, details of which are shown in note 1 to the financial statements. Overall net cash reduced by £0.36m in the year to £1.36m at the year end (FY19: £1.51m reduction to £1.72m).

In the second half of the year the Group made an adjusted EBITDA of £0.23m (H2 2019: EBITDA loss of £0.34) and increased net cash by £0.17m (H2 2019: decrease of £0.34m).

The Group remains debt free and the Board continues to believe that LiDCO retains the appropriate strength in its balance sheet to deliver incremental growth.

Property plant and equipment

Investment in property, plant and equipment in the year decreased by £0.04m to £0.31m (FY19: £0.35m). Medical monitors, which comprise of HUP monitors, those on loan to hospitals purchasing agreed levels of disposables each year, and those being used for demonstration purposes or in clinical trials, continued to be the largest area of investment in the year totaling £0.26m (FY19: £0.32m).

Intangible assets

Expenditure on intangible assets in the period increased by £0.14m to £0.79m (FY19: £0.65m) of which £0.52m (FY19: £0.59m) was spent on product development, £0.21m (FY19: £nil) on computer software and a further £0.06m (FY19: £0.06m) on new product registrations in overseas territories. Most of the product development expenditure was to develop version 2.05 of the LiDCOunity software utilised in LiDCO's hemodynamic monitors, which will be launched later this year. This software contains new tools and enhancements to the graphical user interface to improve the user experience and ensures compatibility with the latest continuous non-invasive arterial pressure ("CNAP") module due to be launched later in 2020.

The investment in computer software related to the purchase of enterprise resource planning (ERP) software to replace several old existing systems. The new ERP system went live on 1 February 2020 and in due course is expected to improve levels of management information and increase back office efficiency.

Inventory

Inventory was reduced by £0.34m in the year to £1.55m (FY19: £1.88m) with £0.19m of the reduction arising from an increase in the provision for obsolete or damaged stock. Although inventory levels may reduce further in the current financial year, traditional rates of inventory turn cannot always be applied to the Group as it relies on several single-source key suppliers and strategically maintains high levels of inventory in respect of such supplies.

BUSINESS MODEL, STRATEGY AND PERFORMANCE

How LiDCO creates value: the Group's business model

LiDCO is a UK-based manufacturer and supplier of hemodynamic monitoring equipment. LiDCO monitors are 'platform' in design. This means they can be easily and cost-effectively upgraded to add new software features and parameters by the addition of USB-connected modules. LiDCO technology, coupled with its low-cost manufacturing and product sourcing skills, combine to produce a highly differentiated, patent-protected monitor with a recurring income stream either from the sale of dedicated high margin single patient use disposables and/or usage licenses.

LiDCO monitors continuously display a number of crucial physiological parameters including arterial blood pressure, the effects of anaesthesia 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. This crucial data is provided via an easy-to-interpret monitor user interface which 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. For this reason, it was only available to a restricted number of the high-risk patients that could potentially benefit. Although that option is available with LiDCOplus, LiDCO's other technology does not require the insertion of central catheters and can be used completely non-invasively and in both ventilated and non-ventilated patients.

LiDCO's end users are acute care physicians and nurses working in major hospitals caring for emergency and high-risk patients. Hospitals are migrating away from invasive technologies towards 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 mortality, complications, length of hospital stay and improve quality of life.

The key features of LiDCO's business model:

LiDCO has developed a new generation of hemodynamic monitoring products designed to address a large and growing hemodynamic monitoring market opportunity - internally estimated to be potentially $2 billion per annum.

• The Group generates revenues principally through the sale of single-use disposables and/or the sale of usage licenses into a growing installed base of LiDCO-enabled monitors.

• Sales of LiDCO's products are supported by over 250 clinical studies and an ever-growing body of evidence to satisfy purchaser requirements for clinical and cost effectiveness.

• The Group protects its recurring revenue income stream through having patented products with high levels of proprietary intellectual property which are subject to ongoing development.

• LiDCO provides first-class training and education to its customers. This helps entrench the Group's technology and reduce hospitals costs, with a focus on providing LiDCO with a sustainable recurring income.

Delivering the Board's objectives: strategy

The Board's strategy is to build shareholder value through the commercialisation of LiDCO monitoring systems and associated high margin recurring revenues. Excellence in product design, manufacturing and sales and marketing are at the core of the Group's values. LiDCO's products are patent protected and supported by a growing body of data showing their clinical and cost-effectiveness. The Group's 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 hemodynamic platform monitors can transition from traditional invasive catheter-based monitoring to LiDCO's minimally or non-invasive monitoring in high-risk patients, thereby reducing complications and lowering costs and length of stay.

Geographical expansion is key to LiDCO's capacity to address the worldwide opportunity for sales of our technology. The Group's sales and distribution model has three elements:

• Direct sales into hospitals in the UK and USA.

• Outside of the Group's two direct markets, sales are via distribution partners. The depth of margin on disposable sales allows LiDCO to attract quality specialist distribution partners on an exclusive and non-exclusive basis. In addition, where appropriate, the Group sometimes work through regional master distribution organisations to manage distributors on its behalf.

• LiDCO's core technologies are patented and the Board sees licensing the Group's technology as another way to access the market. The LiDCO algorithm has been licensed on a non-exclusive basis to a major corporate partner in the USA in return for future royalty payments.

Measuring the Group's performance: Key Performance Indicators (KPIs)

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

The KPIs are linked to the Group's strategic initiative of commercial expansion and measuring the success of its differentiated HUP pricing model. LiDCO product revenues were higher due to the transition to HUP, and success expanding sales outside of UK home market. LiDCO gross margin percentage improved due to labour and overhead cost efficiencies. The success of HUP in the US and the relaunch of LiDCO in China has positively influenced the regional revenue split. Recurring revenues grew 9% versus prior year but despite this the percentage of recurring revenue was reduced by growing capital sales as the team targeted capital funds in order to accelerate HUP conversions. HUP success was in the USA, UK and selected distributor markets.

CONSOLIDATED comprehensive INCOME STATEMENT

For the year ended 31 January 2020

The figures for the year ended 31 January 2019 have been restated for a change in the classification of certain expenses from administrative expenses to cost of sales. Further details of this restatement can be found in note 1 to the financial statements.

CONSOLIDATED Balance Sheet

At 31 January 2020

consolidated Cash flow Statement

For the year ended 31 January 2020

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 January 2020

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 IFRS and were approved by the Board on 20 April 2020. They are presented in Sterling, which is the functional currency of the parent company, and rounded to the nearest thousand pounds. 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 2020 has been derived from the Group's statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 January 2020 was unqualified and did not contain statements under section 498 of the Companies Act 2006.

Except as disclosed below, the accounting policies have been applied consistently throughout all periods presented in these financial statements. These accounting policies are detailed in the Group's financial statements for the year ended 31 January 2020 which can be found on the Group's website.

Changes in accounting policies - new IFRS

On 1 February 2019 the Group adopted IFRS 16 "Leases", which has been issued by the IASB to replace IAS 17 "Leases". The Group has used the "modified retrospective approach" to the implementation of IFRS 16 under which a lessee does not have to restate comparative information.

IFRS 16 changes lease accounting for lessees in that:

· lease agreements give rise to an asset representing the right to use the leased item and a liability for future lease payments. Previously under IAS 17, a liability was not recorded for future operating lease payments, which were disclosed as commitments;

· lease costs are recognized in the form of depreciation of the right to use asset and interest on the lease liability which will be discounted at either the interest rate implicit in the lease or, when this is not determinable, the expected incremental borrowing rate for the Group for the item under lease. Under IAS 17, operating lease rentals were expensed on a straight-line basis over the lease term within operating expenses; and

· net cash inflows from operating activities and payments classified within the cash flow from financing activities both increase, as, under IFRS 16, payments made at both the lease inception and subsequently are characterized as repayments of lease liabilities and interest. Net cash flows are not impacted by IFRS 16.

The adoption of IFRS 16 does not affect revenue recognition of the Group.

The Group's incremental borrowing rate was estimated at 4.0% for property and 5.9% for vehicles at the date of adoption of IFRS 16.

The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 February 2019.

The impact of the adoption of IFRS 16 on the Group consolidated balance sheet as at 31 January 2020 is shown in the table below.

The impact of the adoption of IFRS 16 on the Group consolidated comprehensive income statement, EBITDA and the Group consolidated cash flow statement are shown in the table below.

Changes in accounting policies - prior year reclassification

Previously the Group has reported labour and direct overhead costs related to the following activities within administration expenses:

· the production of manufactured products;

· the testing of bought-in products;

· the repair of products;

· goods inwards and warehousing of raw material and finished goods stock; and

· the assembly, packaging and dispatch of products.

The Board now considers that it would provide more meaningful information and be more comparable with the reporting of other companies if the labour and direct overhead costs related to these activities were reported within cost of sales. The impact of this change to the reported figures for the year ended 31 January 2019 is shown in the table below.

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 loss after tax of £1,029,000 (2019: loss £1,941,000) and weighted average number of shares in issue of 244,174,908 (2018: 244,174,908). 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. For FY20 and FY19 there were no differences between the basic and diluted loss per share amounts since the result was a loss and as a result, all potential shares from share options are anti-dilutive.

3. DISTRIBUTION

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 who have requested a hard copy with the notice of the Annual General Meeting.