LID.L Regulatory News (LID)

LIDCO GROUP PLC

("LiDCO" or the "Company")

Preliminary Results

for the twelve months ended 31 January 2013

LiDCO (AIM:LID), the hemodynamic monitoring Company, today announces its audited Preliminary Results for the twelve months ended 31 January 2013.

Financial Highlights

*EBITDA is loss from operations before charges for depreciation and amortization

Operational Highlights

Post year-end

Commenting on the results Terry O'Brien, Chief Executive Officer, said: "The Board is pleased that considerable advances have been made in LiDCO's product development during the period, as well as in growing revenues and continuing to develop our global footprint with expansion into Japan. The UK environment is becoming increasingly supportive of fluid monitoring, which the Board is greatly encouraged by. We expect significant sales growth in 2013, driven by higher levels of sales in the UK, our stronger position in the US, and our first full year of LiDCOrapid sales in Japan.

"The Board anticipates updating shareholders on profitable growth in 2013."

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

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CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

I am pleased to report the results of a very productive twelve months where we have grown revenues, launched a new product that doubles our addressable market to a $2 billion recurring revenue opportunity, and commenced sales of LiDCOrapid into the Japanese market. We reinforced our position in the US through acquiring the installed base of 230 monitors; raised £2.21 million (net), part of which funded the US purchases; saw further clinical data published showing that LiDCOrapid improves patient outcomes; and have been active in further securing a global intellectual property portfolio to protect our technology. We are also seeing in the UK strong commitment and progress towards an NHS objective of doubling the number of surgical patients receiving fluid monitoring.

Our new product development has been achieved at considerable pace - we have completed this project on budget, within twelve months and produced a product that is truly innovative. LiDCO believes that the LiDCOrapidv2 with Unity Software is game-changing in that now all surgery patients can be non-invasively monitored, allowing the user to achieve optimal blood pressure and fluid management, while simultaneously finely titrating the level of anesthesia. We will initially market our new integrated monitor to address the 10 million high-risk surgical patients worldwide that would benefit most. Our customers are already energized about both the surgical use and the potential utility of the product beyond surgery, into what could prove to be widespread use in non-surgical settings. We will explore these additional applications and expect in time these could add considerably to what we see as the current market opportunity.

In February of this year we announced the registration and launch in Europe of the new LiDCOrapidV2 monitor with Unity Software. This is the world's first non-invasive multi-parameter monitor specifically designed for continuous non-invasive blood pressure, fluid and consciousness monitoring of high-risk surgery patients. We believe our innovative monitor sets a new standard through displaying in an integrated fashion a number of the more recent advances in peri-operative care monitoring. Through the addition of the non-invasive option our technology can now be used in many more locations within the hospital. Initial customer response to the product has been extremely encouraging and sales have been made to both UK and European hospitals. First generation LiDCOrapid customers can access the technology through a software upgrade and addition of the non-invasive and level of consciousness modules. Our expectation is that the additional utility that the LiDCOrapidv2 brings will significantly increase disposable revenues from both existing and new customers.

During the period we have achieved registration, reimbursement and the first monitor sales into the world's second biggest market for hemodynamic monitoring - Japan - for the LiDCOrapid. We are only the second technology to achieve cardiac output reimbursement in Japan and also announced during the year that we had signed a strong Japanese distribution partner, Nihon Kohden.

Furthermore, in protecting our intellectual property, we were delighted to report last month that the Japanese Patent Office had granted a patent protecting the Graphical User Interface ("GUI") of the LiDCOrapid monitor in Japan. The distinctive display of hemodynamic parameters by LiDCO's GUI makes the touch-screen monitor unique and easier to interpret than traditional displays. This GUI forms the structure of the screen displayed by the new LiDCOrapidv2 with Unity software. A patent protecting our LiDCOrapid GUI was granted in the EU in September 2011 and is currently pending in the US. We vigorously pursue patent protection and have a number of other patents pending that we believe cover both core aspects of our signal processing technology and the integration and display of additional parameters in the LiDCOrapidv2.

The US is our largest export territory and represents our second largest installed base of monitors and disposable sales (after the UK). Having reviewed sales progress in the US, we felt that although our distribution partner, Covidien, had made some progress, they were unwilling to give the LiDCO products sufficient dedicated sales time to achieve their contractual minimum purchase obligations. After discussion, we agreed to continue working collaboratively with Covidien on an OEM licensing relationship, with LiDCO integrating Covidien's level of consciousness technology into the LiDCOrapidV2.

LiDCO re-assumed direct responsibility for LiDCOrapid sales and subsequently purchased back the remaining inventory, the US monitor installed base, and their associated high margin disposable sales income. These distribution changes inevitably negatively affected US sales in the second half. We are now growing our own direct US sales force to drive sales growth through increasing disposable use and establishing additional accounts. Our expectation is that we will further improve our market access for US sales of the LiDCOrapidv2 through the appointment of one or more distribution partners, and we are progressing discussions with a number of parties.

In the UK, the surgical monitoring market continues to grow strongly. We are delighted to report excellent progress with surgical disposables revenue growth of 79% over the prior year. This growth is expected to continue as, over the next twelve months, the NHS in England is committed to driving adoption and is providing payment incentives aimed to double the numbers of surgery patients receiving fluid monitoring.

Furthermore, in November new guidance from the UK's National Institute for Health and Clinical Excellence ("NICE") recommended the use of level of consciousness monitors during general surgery for higher risk surgery patients. Such technology is now accessible through the new LiDCOrapidv2 monitor, which uses Covidien's Bispectral Index ("BIS™"). BIS was highlighted in the NICE report as showing the strongest evidence of clinical benefit.

This recommendation built on the previous guidance from NICE and the Commissioning for Quality and Innovation ("CQUIN") payment framework, both of which support intra-operative fluid management monitoring for high risk surgery patients. The LiDCOrapidv2 with Unity software is therefore a single monitor solution that satisfies both NICE recommendations and CQUIN requirements for high risk surgery patients. Combining these features into a single monitor makes use of the LiDCOrapidv2 highly appealing compared to our competitors' older, single parameter technologies.

The main territories for us are the UK, which we believe is the fastest growing market for surgical monitoring in Europe, and the major export markets of the US and Japan. The global market for hemodynamic monitoring disposable sales into the high risk surgery patient population represents a potential recurring revenue stream of $2 billion per annum. We believe that our technology is now best-in-class and capable of taking a very significant share of this growing surgical monitoring market.

Worldwide, hospitals are coming under increasing pressure to adopt fluid management monitoring, as it both increases the quality of healthcare provision, and reduces the costs of post-operative care. As LiDCO's technology can now be used completely non-invasively, it has become a more broadly applicable and easy way of delivering such care.

The last 20 years have seen the emergence of a number of other complementary monitoring parameters that are increasingly used in surgical and intensive care settings. Going forward LiDCO strongly believes the convergence of all of these parameters into an integrated monitor capable of simultaneous and integrated display is a fast developing and key customer requirement.

As such it is our intention to continue with our strategy of converging additional parameters into the LiDCOrapidV2 platform - thus allowing other important modalities to be monitored through a common hardware platform and co-displayed for greater impact. Our next target parameters are those that when integrated should enhance the utility of our monitor in both cardiac surgery and for the monitoring of shock and sepsis patients.

Alongside the integration of multiple parameters, the use of less invasive hemodynamic monitoring has generated a hard-to-refute body of clinical evidence regarding cost effectiveness that underpins ever wider non-invasive clinical usage. Now available with a simple to use non-invasive option, we believe that LiDCOrapidV2 will find ever wider applications, both in and outside of surgery, and we hope will become commonplace in the management of any patient requiring acute care.

The introduction of LiDCOrapidV2 providing a non-invasive, multi-parameter monitoring platform is a significant technological advance. We expect this will result in these measurements taking an increasingly strong role in the anesthetic management of a much larger population of high-risk general surgical patients. Even wider scale adoption of LiDCO's technology will, we believe, significantly improve clinical outcomes for high risk patients undergoing surgery, while providing major cost savings to hospitals.

Revenue and trading

Revenues for the full year were £7.21 million (2011/12 £7.12 million). LiDCO received no license fees during this financial year (2011/12: £540,000) therefore excluding license fees, product revenues increased by approximately 9% - driven by a strong performance in the UK. Top line revenue growth was negatively affected by the disruption around the distribution changes in the US (referred to above). We also had to see out a degree of destocking by distributors in the EU. Both the US and EU territories are expected to return to growth in 2013 together with increasing revenue contribution from Japan. Sales in the UK are expected to continue to grow strongly, particularly in high risk surgical monitoring as more hospitals comply with NICE and CQUIN requirements for fluid and level of consciousness monitoring.

Markets breakdown

Global markets

The priority markets for LiDCO at this time are the UK, US and Japan. The latter two are the world's first and second largest markets by size (estimated at $650m and $420m respectively) representing a total of around 5 million high risk surgery patients per annum.

UK markets

In our domestic UK market sales continued to grow strongly, up by 33% to £4.93 million (2011/12: £3.70 million). This was the result of increases in both our third party distributed revenues (up £520,000) and excellent growth in both LiDCO monitors and disposables sales (up £651,000). Total (surgery and critical care) UK disposable unit sales increased 29% from 21,045 to 27,155 units and sold/placed LiDCOrapid monitors were up 57% at 77 (2011/12: 49 units). Growth of unit sales of surgical disposables was particularly significant at 70% up on the prior year, a reflection of both the increased installed base and average use up from 4.7 to 5.1 disposables per month. LiDCOplus monitor sales/placements of 14 units were marginally lower than the prior year (2011/12: 17 units), however disposables units were stable at 12,300 with sales value up 10% to £1.47 million (2011/12; £1.33 million).

UK market dynamics

The NHS drive for adoption of fluid monitoring looks set to continue to underpin growth in our surgery monitoring business. In the UK around 40,000 patients a year currently undergo surgery with the guidance of hemodynamic and fluid monitoring technologies. Under its latest initiatives, the NHS is seeking to increase this figure to 80,000 patients per year starting in April 2013, with the eventual aim of managing up to 800,000 patients a year. The Company expects to see significant growth in the UK in 2013 for the LiDCOrapid and the LiDCOrapidv2 product range, with our intensive care LiDCOplus business showing more modest increases.

US markets

In the US LiDCO has now acquired the existing LiDCOrapid customer base from Covidien and has taken back direct responsibility for the sales and marketing of all LiDCOrapid products. Product sales of £1.10 million were down from £1.49 million in 2011/12; this was predominantly as a consequence of the previously announced change in distribution arrangements to direct sales. LiDCOrapid sales were disrupted for several months in the latter part of the year. Revenue comparisons between the periods are further complicated by greater stocking orders taken into inventory by the distributor in the prior year. However, the underlying sales into hospitals across the period, shows a better and clearer picture. Disposable unit sales of smartcards increased by 8% to 6,095 (2011/12: 5,630). Prior to the change to direct sales the monthly run rate was growing and standing at 550 per month compared to 480 per month in the same period in 2011.

US market dynamics

The installed base of LiDCOrapid monitors in the US now stands at 230 units in 70 hospitals. This is a substantial installed base and one that is equivalent to our installed base in the UK into which we sold 14,855 disposables last year. The disposables sold in the US as noted above were 6,095.

Having assessed the US LiDCOrapid business, we believe there is an immediate opportunity to grow use rates and revenues in the existing installed base through providing more in-service support to existing customers. In order to do so we are increasing our own US sales and nurse educator presence and expect to see significant sales growth in 2013 both through increasing monthly disposable use rates and also incrementing the installed base. We continue to have discussions with potential distribution partners for the US market, who are appropriately positioned and resourced to implement the sales model developed in the UK, which is focused on increased and wider adoption of the LiDCOrapid monitors, to drive disposables consumption.

Continental Europe

The Company also has an active sales and marketing program in Europe. Sales were down 27% in this territory to £622,000 (2011/12: £853,000). This was anticipated as European states, especially those in southern Europe, have cut back healthcare expenditure at the governmental level. In detail, this was reflected as lower monitor unit sales (19 vs. 60 in 2011/12) coupled to a lower average transfer price for disposables. Despite the financial pressures, total unit disposable sales were down only slightly to 9,350 (2011/12: 9,445) due to a fall-off in critical care sensor disposable sales. Encouragingly, surgery disposable units were up 14%. Although this was not a growing market last year, we do expect growth going forward starting this year. Our distributors have substantially destocked during the year and have shown strong interest in committing to upgrading to the new LiDCOrapidv2 monitor.

Japan & Rest of World

The LiDCOrapid monitor and associated disposable products were launched in Japan in August 2012 after obtaining registration and reimbursement. Japan is the second biggest market after the US for minimally-invasive hemodynamic monitoring and has the highest disposable pricing with a reimbursement of $420 per patient monitored. After Edward's Vigileo/FloTrac, LiDCOrapid is the second product to be granted reimbursement. LiDCO's commercial partners in Japan are Argon and Nihon Kohden. Nihon Kohden has 120 branch offices and around 1,000 sales representatives and is a potent sales organization in Japan. Nihon Kohden also sells BIS™ (level of consciousness monitoring) for Covidien and has rights to sell the combined monitor (LiDCOrapidv2 with Unity Software) when registered. Eighty LiDCOrapid monitors and 2,000 disposables were sold during the period. This year will mark our first full year of trading and we expect good commercial progress will be made. We hope to be submitting the LiDCOrapidv2 with Unity Software and BISTM option for Japanese registration later this year. Approval is anticipated in the second half of 2014. During the year a patent was granted in Japan for the LiDCOrapid monitor graphical user interface. This is important as the structure of the monitor screen is novel and is used in our multi-parameter LiDCOrapidv2 monitor. Product sales to Japan in the year were £330,000 (2011/12; £44,000)

Product sales to the ROW territories including Japan were up 8% to £564,000 (2011/12: £523,000). Monitor sales units were strong with 99 units sold (2011/12: 50 units) and monitor revenue up 12% £265,000 (2011/12: £236,000) - reflecting higher sales of the lower priced LiDCOrapid monitors (97 compared with 35 in the prior year). Sensor/Smartcard sales revenue was up by 4% to £299,000 (2011/12: £287,000). No license fees were paid during the period. Moving forward we are building sales capability through distribution partnerships in the Middle East and we recently signed a distributor for China.

Business Review - Summary Table

Regional sales performance summary

UK

US

Continental Europe

Japan and Rest of World

FINANCIAL REVIEW

Operating results 

Overall turnover increased by 1% to £7.21m (2011/12: £7.12m) with an excellent performance in the UK more than mitigating the £390,000 reduction in US product sales caused by the change in sales and marketing arrangements in that region. . Details of sales performance by region are provided above. The Group made a loss after tax of £117,000 (2011/12: profit £15,000) but remained comfortably EBITDA positive at £595,000 (2011/12: £609,000). The loss per share was 0.07 pence (2011/12: earnings 0.01 pence). Cash at the year-end was £2.06m

Revenues from the sales of LiDCO disposables increased by 6% to £3.88m (2011/12: £3.65m) with a notable increase of 79% in revenue from UK surgery disposables. and excluding license fees, overall revenues increased by 10%. License fees are normally received in respect of significant corporate distribution or licensing arrangements and are irregular. No such fees were received in the year (2011/12: £540,000).

During the year a total of 276 monitors (2011/12: 364 monitors) were sold or placed including 91 (2011/12: 66) sold or placed in the UK. The 7 year rolling base of sold/placed monitors at the year-end was 2,312 (2011/12: 2,189). Some of the monitors sold to distributors are for demonstration use and evaluation purposes.

Unit sales of LiDCOrapid smartcards rose by 1% overall with a 70% increase in the UK offset by a 57% drop in US sales. In the UK total disposable unit sales of sensors and smartcards increased by 29%. In the UK where the Group has detailed usage information, the average use rates for surgery disposables increased to 5.1 (2011/12: 4.7) uses per monitor per month with individual hospital use as high as 19 smartcards per monitor per month.

Gross profit margins (which are calculated before any allocation of overheads) remain high. The margin across all LiDCO products (i.e. excluding third party product sales) increased during the period from 80% to 82%. Future profitability will significantly depend on margins achieved on disposables and these have remained high during the year. Margins achieved on LiDCOplus sensors remained steady at 86% and LiDCOrapid smartcards increased slightly to 95% (2011/12: 94%).

The overall gross profit increased by £74,000 to £4.82 million. The loss of margin resulting from the lack of license fees and the reduction in LiDCO based product sales, was offset by the margin from additional third party product sales and negligible Med One cost of sales compared with £227,000 in the comparative period. The overall gross margin remained static at 67%.

Total overheads increased by £242,000 (5%) to £5.04m (2011/12: £4.80m). Sales and marketing costs increased by £198,000 including the costs of re-engaging direct sales representation for the LiDCOrapid in the US. During the year there was a write back of £123,000 of share-based payment charges as a result of the lapse of share warrants granted to the former US distributor.

The operating loss increased by £168,000 to £217,000. As a result of a three year sale and leaseback arrangement taken out in January 2012, the Group incurred net interest costs of £42,000 (2011/12: income £4,000). After net tax credits of £142,000 (2011/12: £60,000) the Group made a small loss after tax of £117,000 (2011/12: profit £15,000).

Taxation

The Group continues to benefit from research and development tax credits which may be recovered in cash while the Group makes an operating loss. The Group has a deferred tax asset of £4.8m although this has not been recognised in the accounts as it is not considered to meet the criteria laid down in IAS 12.

Cash, financing and working capital

The net cash outflow before financing activities in the period was £1.56 million (2011/12: £582,000) compared with a loss after tax of £117,000. As noted in the annual report to 31 January 2012, expenditure on intangible assets increased significantly as a result of the continuous non-invasive blood pressure module and Unity software development. External expenditure including technology licenses for this development in the year was £564,000. The product was launched in February 2013 and residual development and licensing costs in the year to January 2014 are expected to be circa £200,000.

As also noted in the results to 31 January 2012, larger than normal forward orders of monitors had to be placed in order to mitigate against the effect of end of life notices issued by the manufacturers on some monitor components. The Group's software is written specifically to work with the existing hardware platform, allowing back integration into the installed base. It was therefore considered necessary to ensure that the Group had an unchanged hardware platform for the next few years. As a result of these forward orders and the buy-back of the customer base and inventory from its former US distributor, inventories increased in the year to £922,000. Remaining outstanding forward orders for monitors amount to £220,000 and will be received in the year to January 2014. Inventory levels should thus fall in the current financial year.

In November 2012 the Group issued 17,423,000 new ordinary shares at 13.5 pence per share in a placing and subscription to both new and existing investors, including management raising £2.21 million net of costs. Some of the proceeds have been used to buy back inventory and the installed base of monitors from the former US distributor. The additional funds will also allow the Group to accelerate the retro-fit of its UK installed base of LiDCOrapid monitors with the new product, to strengthen the Group's balance sheet and position the Group so as to be able to better pursue other growth opportunities as and when they arise. In addition, a further 1,997,000 shares were issued in respect of share options exercised during the year for a total of £225,000.

Net cash balances at 31 January 2013 amounted to £2.06 million (2011: £1.34 million).

Product Development

We are very excited about the distributor and customer reception for our recently developed and launched new LiDCOrapidv2 with Unity Software. This is the first monitor in the world to be designed specifically for multi-parameter monitoring of both depth of anesthesia and fluids for patients undergoing high risk surgery. This development allows the connection of two modules to the LiDCOrapidv2 allowing the co-display of Covidien's depth of anesthesia parameter (BIS™) and CNSystem's continuous non-invasive blood pressure monitoring (CNAP™). We have registered this product for sale in Europe and have FDA approval for sale of the new Unity software and depth of anesthesia module option. We expect the non-invasive blood pressure option (LiDCO CNAP™ module) to also be available for sale in the US market around the summer of 2013.

New development activities for 2013 include the language localization of the new Unity Software and clinical evaluation of additional parameters for integration into the LiDCOrapidv2 monitor. The new Unity Software has been structured in such a way that more measurements can be added quickly and cost effectively. We are particularly interested in parameters whose addition will give enhanced utility not only in the high risk surgery market but also in the cardiac surgery arena and shock / sepsis patients. We will keep investors appraised on progress and expect to be able to announce more details of further parameter integration later this year.

Looking to other development projects these will include an update to the LiDCOplus software that will bring the operating system up to date and will improve ease of use and connection to third party monitors. LiDCOview, our easy-to-use graphical display of historical LiDCOplus and LiDCOrapid hemodynamic data, is a unique research tool that is used for the review of historical data for research and education purposes. This will also be updated with the addition of BIS™ (depth of anesthesia) to the download, analysis and display. Both projects will be completed and released in the next few months.

Outlook

We expect significant sales growth in 2013, driven by higher direct sales revenues in both the US and the UK, a full year of sales in Japan and a return of sales growth in the EU. Our new widely applicable LiDCOrapidv2 monitor with non-invasive and level of consciousness options will contribute significantly to our revenues. Costs and margins will be kept under control. The Board anticipates further growth in 2013 and expects to be both cash generative and profitable.

Terry O'Brien

Chief Executive Officer

22 April 2013

CONSOLIDATED comprehensive INCOME STATEMENT

For the year ended 31 January 2013

CONSOLIDATED Balance Sheet

At 31 January 2013

consolidated Cash flow Statement

For the year ended 31 January 2013

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 January 2013

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 22 April 2013. 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 2012 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 2013 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 2012 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 earnings per share for the year is based on a loss after tax of £117,000 (2011/12: Profit £15,000) and weighted average number of shares in issue of 179,433,811 (2011/12: 174,084,000). The dilutive effect of share options in 2011/12 is considered immaterial for reporting purposes.

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 will be available 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.

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