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77471 DELTEX COVER 15/4/08 10:00 Page 2 · PDF filesurgical patients arises as a direct...
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77471 DELTEX COVER 15/4/08 10:00 Page 2
Deltex Medical is the market leadingdeveloper of minimally-invasivehaemodynamic monitoringsolutions.
The Company’s Cardiac function monitor, the
CardioQ™ is used on patients undergoing
surgery and in many patients in intensive care
to monitor and optimise the heart’s
performance. Using the CardioQ has been
proven to help patients get better, quicker.
Clinical studies have repeatedly demonstrated
that haemodynamic optimisation results in
significant reductions in the length of hospital
stay of between 30% and 40%.
Deltex Medical expects that haemodynamic
optimisation will become a global standard of
care for patients at risk from haemodynamic
compromise.
77471 PRE 15/4/08 10:29 Page ii
report and accounts 2007 1
Financial Highlights
● Turnover increased by 18.7% to £4,168,000 (2006: £3,511,000), with growth in all key territories
● UK surgical probe sales up over 50%
● USA probe sales up nearly 50%
● Recurring orders from key International distributors up 45%
● Gross margin improved to 70.0% from 66.3%
● Operating loss after investment in gearing up for next stage of growth £2,223,000
(2006: £2,014,000)
● Cash of £763,000
● Next phase of US expansion to be financed by £666,667 of committed new equity capital
from a US development fund at 22.0p per share
Operating Highlights
● CardioQTM established as a standard of care in fast-track surgery in two key London
teaching hospitals
● UK surgical probe sales overtook intensive care probes sales in the second half
● CardioQ at the top of the UK NHS innovation agenda
● Rapid implementation recommended by UK health minister
● First physician payments made under new reimbursement regime in USA
● Largest and most successful implementation project ever undertaken completed in USA
● Colorectal surgeons in Spain embark on the largest audit of CardioQ in fast-track surgery
● Probe manufacturing capacity doubled
● New “I2” awake patient probe launched – significantly expanding opportunity
Contents
Financial and Operating Highlights 1
Chairman’s Statement 2
Operating Review 10
Directors and Advisers 13
Directors’ Report 14
Independent Auditors’ Report 19
Consolidated Income Statement 20
Consolidated Statement of
Recognised Income and Expense 20
Consolidated Balance Sheet 21
Consolidated Statement of Cash Flows 22
Notes to the Financial Statements 23
Reconciliation of Group Balance Sheet 46
Explanations of reconciling items from
UK GAAP to IFRS 48
Independent Auditors’ Report – Parent 49
Company Balance Sheet 50
Notes to the Company
Financial Statements 51
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Deltex Medical made significant progress in 2007, achieving sustained and accelerating growth in each of its key
markets. Revenue for the Group increased by just under 19% from £3,511,000 in 2006 to £4,168,000.
Sales of disposable probes which amounted to £3,185,000 accounted for 76% of total revenue. In the second half
of the year in the UK, our home market, sales of surgical probes overtook those for intensive care for the first time.
The UK surgical probe business grew by approximately 55% over 2006.
Cash at the year-end and operating losses for the period were in line with expectations at £763,000 and £2,223,000
respectively. Cash consumption for the year was also in line with the Company’s expectations as the Company
started to reconfigure its operations in anticipation of its next phase of growth.
Group Summary
Deltex Medical’s CardioQTM oesophageal Doppler monitor (ODM) is changing the way doctors care for patients
having major surgery or who are in intensive care. Scientific evidence of the highest quality from independently
conducted, randomised controlled clinical trials, is being translated into routine clinical practice in leading hospitals
around the world and as a consequence patients are recovering from their surgery faster and leaving hospital
sooner and in better health than they otherwise would do.
The weight of evidence supporting the routine use of the CardioQ is so overwhelming that a US Government-
commissioned technology assessment published early in 2007 stated that its use in surgery leads to a “clinically
significant reduction in major complications”, “a clinically significant reduction in the total number of complications”
and “to a reduction in hospital stay”. The evidence supporting each of these conclusions was considered to be
“strong”. Strong in the setting of a formal technology assessment is defined as: “Evidence supporting the qualitative
conclusion is convincing. It is highly unlikely that new evidence will lead to a change in this conclusion”.
Based on this technology assessment, the US Government agency responsible for healthcare for the elderly and the
poor, the Centers for Medicare and Medicaid Services (CMS), determined that use of the CardioQ was “reasonable
and necessary” and that the proven benefits warranted doctors being paid (“reimbursed”) for using it in Medicare
and Medicaid patients. Already, private insurers are following the CMS lead and are reimbursing doctors that
manage their patients using the CardioQ.
In the UK, two world-renowned London teaching hospitals have made use of the CardioQ routine practice (that is,
a standard of care) within their enhanced surgical recovery programmes for patients having major bowel surgery.
Similar care packages are being developed for other major surgical procedures performed at these hospitals. Many
other hospitals, district general and large teaching institutions alike, are working towards implementation of surgical
care packages that incorporate routine use of the CardioQ.
Doctors and healthcare administrators around the world are increasingly aware of the potential health and economic
benefits of wide-scale adoption of the CardioQ in their hospitals. Our primary role is to facilitate implementation of
the CardioQ as a standard of care through a programme of structured education, training and post-implementation
support that enables doctors to help their patients recover more fully and more quickly from their surgery and
hospital managers to provide a better quality of care more efficiently and more cost effectively.
The CardioQ helps patients by enabling doctors to reduce the complications that arise from a medical condition that
is common to almost all patients having surgery and many others in intensive care or arriving in the accident and
emergency department. This condition is known as hypovolaemia - a reduction in circulating blood volume - and in
surgical patients arises as a direct consequence of the combined effects of pre-operative starvation, the anaesthetic
agents used to put the patient to sleep and the blood and fluid losses associated with the surgical procedure itself.
Hypovolaemia means that the body struggles to get sufficient blood to the tissues and vital organs which are
consequently starved of essential oxygen. This can cause medical complications including peripheral and major
organ failure, which if not dealt with quickly can lead to severe compromise or even death.
The body compensates for developing hypovolaemia through the sequential shut down of the circulatory system
and diversion of blood to critical organs. This helps to maintain blood pressure at normal levels and preserve oxygen
delivery to those organs at the expense of other systems. The CardioQ uses disposable ultrasound probes placed in
the oesophagus to measure real-time blood flow which is an earlier and much more sensitive indicator of changes in
circulating blood volume than blood pressure. This allows the doctor to detect and deal rapidly with the early stages
Chairman’s Statement
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of hypovolaemia before it becomes a clinical problem. In contrast, blood pressure-based monitoring systems,
however sophisticated, are unable to detect hypovolaemia until it is so severe that the body’s compensatory
mechanism begins to fail, at which point the patient is in a critical condition.
Trading Results
Sales 2007 2007 2007 2007 2007 2007 2006 2006 2006 2006 2006 2006
Probes Monitors Probes Monitors Other Total Probes Monitors Probes Monitors Other Total
units units £’000 £’000 £’000 £’000 units units £’000 £’000 £’000 £’000
Direct markets
UK CardioQ 25,730 60 2,041 398 135 2,574 24,075 53 1,837 324 124 2,285
UK SupraQ – 3 – 60 – 60 – 14 – 280 – 280
UK total 25,730 63 2,041 458 135 2,634 24,075 67 1,837 604 124 2,565
USA 7,075 12 518 63 6 587 4,760 11 349 58 5 412
Spain 520 9 50 85 1 136 110 – 12 – – 12
Distributor markets
Europe 9,400 25 436 102 6 544 5,515 6 264 25 11 300
Far East &
Latin America 4,240 36 140 122 5 267 4,730 15 170 51 1 222
46,965 145 3,185 830 153 4,168 39,190 99 2,632 738 141 3,511
Sales
Revenue for the Group in 2007 was £4,168,000 compared to £3,511,000 in 2006, an increase of almost 19%.
Revenue derived from sales of disposable probes was ahead by 21% over the prior period (2007: £3,185,000;
2006: £2,632,000). These results demonstrate continued strong growth in demand and uptake of the CardioQ’s
offering.
Revenue generated from sales of CardioQ monitors was up by 68% from £458,000 in 2006 to £770,000 in 2007,
with a notable increase in larger, multiple monitor installations as hospitals seek to implement use of the CardioQ
as a standard of care in major surgical procedures and in intensive care.
The Company continued its policy of selling SupraQs to hospitals willing and able to undertake research into
establishing potential markets for this wholly non-invasive technology as part of the the development programme.
Excluding SupraQ sales, Group sales grew by 27% year on year.
Cash
Cash on hand at the end of the period was £763,000. Cash consumption in the second half of the year and the
underlying rate of cash burn going into 2008 were in line with the Company’s plans. The sales growth delivered in
the Company’s key markets equated to an increase of an average £64,000 per month in the revenue run-rate: these
increases in invoiced sales translate in due course into larger regular cash in-flows. Over the year the Company
made a small number of selective increases in the underlying cost base (i.e. the normalised run-rate of costs): net
of areas where the Company reduced its cost base, these increases were considerably lower than the increase in
the underlying revenue run-rate, meaning the Company made significant continued progress towards eliminating
its underlying cash burn. After taking account of the cash needed to fund the remaining underlying cash burn, the
Company continued to use the remaining cash available to it to invest in development projects and one-off items
aimed at creating longer term value.
Despite this continued reduction in underlying cash burn, total cash consumption before financing was £2,231,000,
£529,000 higher than in 2006 (£1,702,000).
Cash consumption included a net increase in working capital of £302,000 and expenditure on a number of key
projects aimed at positioning the Company for its next phase of growth. These included the costs of developing
and launching the new I2 range of probes; developing the next generation monitor, the CardioQ-ODMTM, which is to
be released shortly; extending the clean room in which we build probes so as to double its capacity; developing and
building prototypes of the next generation SupraQ monitor; bringing in-house the first of a series of sub-assembly
processes as the Company moves towards increased automation of probe manufacture and undertaking a project
to totally redesign the probe ultrasound componentry to make it more suited to mass production as well as
continuing the trend towards increased margins.
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The Directors expect to continue to invest in these and other important medium and long-term projects over time
depending on the cash and other resources available to the Company at any given point.
The Company announces today that it has accepted an irrevocable undertaking from Nexus Medical Partners II, LP
to subscribe for 3,030,303 ordinary shares of 1p each at a price of 22.0p per share to raise £666,667. The funds to
be invested are specifically for use in expanding the US market, including the hiring of additional management and
field staff in key locations to manage and support the growing demand for the Company’s products. The funds are
managed by Nexus Medical Partners on behalf of a US State Government to promote economic development.
The undertaking has been accepted by the Company subject to appropriate approvals being obtained at the
Company’s forthcoming Annual General Meeting and assumes no material adverse changes in the Company’s
business prior to the shares being issued. Ed Snape, a non-executive director of Deltex Medical, is also a principal
of Nexus Medical Partners.
The shares will rank pari passu with the existing issued shares of the Company. This allotment is conditional on the
appropriate authorities being received at the next general meeting of the Company. Following the issue of these
new shares, subject to no changes, the Company will have a total of 95,931,956 ordinary shares in issue. This total
includes an allotment of 413,746 new ordinary shares which are also subject to approval at the next general meeting
of the Company as announced on 25 January 2008. Application will be made for these shares to be admitted to
trading on the Alternative Investment Market.
Operating results
Operating losses for the year were £2,223,000 compared to £2,014,000 in 2006. As well as the impact of the one-off
longer term investment projects noted above, this operating result is after a number of non-cash accounting charges,
including £328,000 for share based payment, £244,000 charges in respect of research work undertaken by hospitals
under barter arrangements and movements on all provisions of £89,000.
Markets
Deltex Medical sells its products directly to hospitals, using its own team of sales people and clinical trainers in the
United Kingdom, the United States of America and in Spain. Early in 2008 we took the first step towards establishing
a “direct” presence in Germany, taking in-house responsibility for sales and training while engaging the help of a
distributor for regulatory and logistical support. In all other territories we work with a network of distributors which
we support through a small UK-based sales and clinical training team.
Our goal is to achieve market leadership in the provision of systems for haemodynamic management through
successful sales operations in each of the UK, USA, France, Germany and Japan – the leading healthcare markets
in the world today – and become recognised as a leading global medical technology company through innovation
both in technology and in delivering that technology to the end user.
United Kingdom
Sales of CardioQ monitors specifically for use in operating theatres were ahead of the prior year despite the UK
NHS focusing its efforts on restricting spend in March in response to political pressure to produce a surplus at the
year-end. Sales of surgical probes in 2007 reflected the accelerating adoption of routine use in the operating theatre
and in particular as part of emerging enhanced recovery surgical care protocols. In the second half of the year
surgical probe sales volumes overtook intensive care probe volumes for the first time.
In 2007 we sold 14,415 surgical probes compared to 10,440 in 2006, an increase of 38% in the number of patients
treated. The underlying increase in surgical probe sales run-rate, the amount of probes sold each month, over the
course of the year was in excess of 50% – a remarkably strong performance in a very difficult market.
In the UK critical care market, the Company saw a decline in its probe sales of approximately £128,000. This was
caused primarily by a trend amongst UK doctors to try to keep patients awake and spontaneously breathing as
much as possible while in intensive care. The I2 probe range launched in September 2007 has meant the CardioQ
can now be used on those patients in intensive care who are now awake but would previously have been sedated.
Despite this fall in probe volumes the CardioQ remains the cardiac output monitoring technology of choice in a
majority of UK intensive care units: indeed the Company expects the forthcoming results of a survey of critical
care units in England and Wales to show that the Company has further extended its leading position in this market.
Chairman’s Statement continued
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During 2007 use of the CardioQ has been established as part of the written standard treatment protocols in
colorectal surgery at two of London’s most important teaching hospitals: University College London Hospital (UCLH)
and St Thomas’ Hospital. The CardioQ has played a central role in the success to date of the “ESTREP” enhanced
recovery programme jointly developed between surgeons at the two sites. After six months ESTREP had already
delivered reductions in average lengths of hospital stay of nearly a half for colorectal surgery. Both sites are in the
process of rolling the ESTREP programme out into other surgical disciplines.
Applying a similar programme to that developed at UCLH and St Thomas’ Hospital, surgeons and anaesthetists from
Darent Valley hospital in Kent have seen material reductions in length of hospital stay and the time patients take to
get back to normal function after major bowel surgery. Patients treated using a combination of minimally invasive
surgical techniques and the CardioQ in the context of an enhanced recovery programme left hospital on average
after five days and reported themselves feeling fully recovered after a further seven days: a total of 12 days. By
contrast patients treated with open surgery, no CardioQ and outside the enhanced recovery programme only left
hospital after an average of 11 days (compared to an NHS average of 13 days), before needing another 29 days
to feel fully recovered from the surgery: a total of 40 days. This means that on average a patient treated under this
new surgical protocol is “back to normal” (i.e back at work) before the average patient in the NHS has even been
discharged from hospital. While the CardioQ is only responsible for some of this transformational change, it is better
supported by clinical evidence than either enhanced recovery techniques or laparoscopic surgery and the cost of
treating a patient with the CardioQ is only a fraction of the cost of laparoscopic surgery.
Despite the many practical issues facing UK doctors and healthcare managers wishing to implement routine use
of any new medical device technology as a standard of care we have seen consistent and sustained growth in our
operating theatre business since its launch in 2003 and the Directors believe that ours has been the fastest growing
new broad application technology in NHS hospitals since at least 2003.
It is the Directors’ opinion that the success of our efforts in growing this business on the basis of both compelling
clinical and economic stories has resulted in the CardioQ being chosen as a “trailblazer” technology for two new
initiatives established by the Department of Health and the NHS – the Centre for Evidence-based Purchasing and
the National Technology Adoption Hub.
The Centre for Evidence-based Purchasing (CEP) aims to evaluate new technologies and determine their merit
based on objective analysis of published clinical data through a process of technology assessment similar to that
undertaken on oesophageal Doppler monitoring in the USA by the Agency for Health Research and Policy (AHRQ).
It is anticipated that CEP will become the medical device equivalent of the National Institute for Health and Clinical
Excellence (NICE) and that its recommendations will drive accelerated uptake of proven technologies within the
NHS. CEP has commissioned a technology assessment of oesophageal Doppler monitoring from the Health
Economic Research Unit at Aberdeen University and is expected to publish its recommendations in 2008. The
Aberdeen report is currently scheduled for publication in October and CEP have indicated that their own report
may be published earlier than this.
In parallel with the CEP initiative, the Department of Health and NHS established the NHS National Technology
Adoption Hub in 2007. This body aims to examine and recommend ways to overcome the practical issues that
slow the implementation of proven new medical technologies at the operational level within the NHS. The mission
of the NTAH is:
“…to work directly with the NHS at a clinical, managerial and procurement level to identify and overcome the barriers
to adoption for innovative technologies which have already demonstrated clear benefits to patients and will improve
system efficiency.”
In selecting CardioQ as one of its first ever wave of projects, the NTAH project selection panel initially considered
a list of 24 technologies put forward by a variety of NHS bodies including CEP, NICE, UKHTA (the UK Government’s
health technology assessment agency), the NHS National Innovation Centre and the NHS Institute for Innovation and
Improvement. After an initial review these technologies were reduced to a shortlist of six technologies from which
the first wave of four was selected after comprehensive due diligence. The CardioQ was the only technology used
for hospital in-patients to be selected.
The NTAH plans to project manage and audit implementation projects with three NHS Trusts with a view to
producing guidance on effective implementation of the CardioQ for other NHS Trusts to follow. In March 2008, the
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first of these Trusts, the Whittington in London, purchased four additional monitors in order to expand significantly
its CardioQ usage in operating theatres. Of the three sites, the Whittington is both the smallest hospital and the
most established existing CardioQ user.
Since the year end UK sales have continued to demonstrate strong growth, with sales of both CardioQ monitors
and probes comfortably ahead of the corresponding months in 2007. Sales of probes for use during surgery
have continued to grow at the rates experienced in 2007 and sales of probes into critical care units have also
been satisfactory. The Company’s pipeline continues to grow strongly.
United States of America
The United States of America is the largest healthcare market in the world and is a strategic imperative for any
medical technology company with aspirations to be truly global player. Once a medical technology is proven and
approved for sale, the single most important factor for success in this market is physician reimbursement – the
payment to the doctor using the technology for the effort and expertise involved. It is important to note that
physician reimbursement is wholly unrelated to payment to the manufacturer for the technology, which is dealt
with by the hospital.
In 2007 sales of probes were almost 50% higher than in the prior year (2007: 7,075 units; 2006: 4,760 units). Our
most successful hospital start-up to date, in San Diego, California, where we tested our new US implementation
model, was an important contributor to this growth.
Sales of probes in the USA in 2007 was a reflection of changes in clinical practice driven by a wider acceptance
and understanding of the published clinical data. The ability to claim reimbursement for use of the CardioQ is
anticipated to accelerate future adoption, but had no impact on sales in 2007.
In mid-2007 the US Government body responsible for the provision of healthcare to the elderly and the poor, and
the “bellwether” for reimbursement that private insurance companies invariably follow – the Centers for Medicare
and Medicaid Services (CMS) – published a memorandum stating that the use of oesophageal Doppler monitoring
in surgical patients requiring fluid optimisation and for cardiac output monitoring of ventilated patients in the
intensive care unit would be reimbursed.
The breadth of this coverage determination is a testament to the wealth of clinical data supporting the use of the
CardioQ reviewed by the US government Agency for Health Research and Quality and published as a technology
assessment early in 2007 as part of the reimbursement decision process.
Physician reimbursement is dependent upon three elements: firstly, the procedure must be recognised by CMS as
being reasonable and necessary for its patients in order to be reimbursable (“covered”); secondly, the procedure
must have a reference code allocated to it to allow processing through the reimbursement system and; thirdly, the
code must be allocated a value that is then translated into dollars in the physician’s pocket once the claim is
processed by regional CMS payer.
Conservatively, this coverage determination is applicable to some 5,000,000 patients every year in the USA and
represents a major milestone for Deltex Medical.
Since the year end the Company has been notified by a small number of clinicians that they have received
reimbursement from private health providers and that the vast majority of such payments have been towards the
top of the range of physician expectations. First claims have been filed with CMS by physicians from a number
of hospitals, although the Company has not yet been notified of any payments actually made.
Early in 2007 we began working with one of the largest groups of anaesthetists in the US who were seeking to
establish use of the CardioQ as a standard of care in surgery and in intensive care. This group provides services
to 12 acute surgical hospitals in southern California and is responsible for the care of around 50,000 patients each
year having surgery who could benefit from management using the CardioQ.
Through our new implementation model, pioneered in the USA, we were able to take the first of the group’s hospitals
from zero usage to treating around 25% of its major surgical patients (more than 100 patients each month) in eight
Chairman’s Statement continued
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weeks of focused, multidisciplinary education and training. During the training process we hired a dedicated clinical
trainer to provide ongoing support at the hospital and we have continued to see probe usage grow in both surgery
and in intensive care. Early indications are that physician reimbursements recently made by key private insurers will
further increase usage over time.
Early in 2008 we embarked on the roll out the education phase of the implementation model to the next two hospitals
serviced by the anaesthetic group. Monitors have been delivered to the second hospital ahead of formal training
being undertaken.
It is our expectation that we will see the percentage of patients treated using the CardioQ in each of these sites
expand as reimbursement in CMS patients is finalised with the regional CMS contract payer.
Already we are seeing an interest in expanding adoption in existing hospitals and a marked increase in interest from
new hospitals wishing to embark on a programme to make use of the CardioQ standard clinical practice.
International
Sales in our international markets were significantly ahead of those in 2006 as the benefits of our programme to
restructure key distribution arrangements continued. Growth has been sustained in each of our key international
territories with overall underlying growth of around 30% year on year.
Direct International Markets
Through our new direct sales operation in Spain we have been working with the head of the Spanish Society of
Surgeons to establish use of the CardioQ as a standard of care in colorectal surgery. This pilot project involves
seven key hospitals undertaking an audit of patient outcomes under a care protocol based on the University
College London Hospital and St Thomas’ Hospital’s ESTREP programme. The results of this audit are expected to
be presented to the national colorectal surgery meeting in Spain late in 2008. If the results of the audit mirror those
seen elsewhere, the surgeons leading the project have informed the Company that they expect to see the protocol
established as standard practice across Spain where in excess of 200 hospitals perform colorectal surgery.
In January 2008 we changed our distribution arrangements in Germany and established a small semi-direct sales
operation. In the semi-direct model a third-party distributor provides logistics and customer services, regulatory
and tender management support, while Deltex Medical is responsible for all sales, marketing and clinical training.
Our focus in Germany in 2008 is the continued development of relationships with key anaesthetists, surgeons
and hospital administrators and establishing use of the CardioQ as a protocolised standard of care in one of
the country’s leading teaching hospitals ahead of a wider rollout in 2009.
Since the year-end the Charite hospital in Berlin, one of the largest teaching hospitals in Europe, has embarked on
a programme of evaluation and small, focused clinical trials intended to establish the best way to incorporate routine
use of the CardioQ into a range of surgical procedures at the hospital.
Distributed International Markets
We continue to work with distributors in all the other international markets and have seen particularly encouraging
results since our decision to move the key distributors on to monthly ordering patterns for probes following a stock
reduction exercise undertaken the first half of 2006.
The run-rate of probes sold across those territories on monthly ordering schedules increased over the year from
550 to 800 probes per month.
We have only focused minimal time and effort on the Japanese market because, although we have had approval
to sell for some time, the level of reimbursement negotiated by our former distributor (in this case to the hospital
to cover the cost of the probe) was inadequate. In 2007 we secured our right to sell in Japan in our own name
and will return to this market as and when it is appropriate and feasible to do so.
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Clinical Publications
Meta analysis
The technique of meta-analysis (a systematic scientific review which considers related evidence as a whole)
underpins many of the conclusions of Health Technology Assessments (HTAs). It is also used heavily by doctors
within clinical circles to determine technologies and interventions which should be established as standards of care.
The first independent meta-analysis of the randomised controlled clinical outcome trials of ODM was undertaken
by an eminent group of UK doctors and its results were first presented in September 2006. It concluded that ODM
reduces post-operative complications and reduces length of hospital stay by an average of nearly three days.
The results of this review were presented at a number of important clinical meetings over 2007 and the Directors
understand that the authors intend to submit it to a leading medical journal for publication in 2008.
In January 2008, a second meta-analysis, undertaken by doctors in New Zealand, was published which concluded
that ODM “use for monitoring and optimisation of flow-related haemodynamic variables improves short-term
outcome in patients undergoing major abdominal surgery”. This meta-analysis has just been published in the
journal Anaesthesia and is therefore the first meta-analysis to be published in a leading peer-reviewed journal.
In March 2008, a third meta-analysis was published in a peer-reviewed journal. This meta-analysis was conducted
by doctors from the departments of surgery and anaesthesia at the Cambridge University Hospitals NHS Trust.
The analysis examined results from the four previously published randomised controlled clinical trials into the use
of ODM in abdominal surgery that involved a total of almost 400 patients.
The authors reported that use of ODM in abdominal surgery, based on the pooled data analysed, resulted in
significantly fewer post-operative complications and a consequent significant reduction in length of hospital stay.
The Directors are not aware of any randomised controlled study, either published or pending publication, which
shows any technology other than ODM to have been used successfully to direct fluid administration during surgery
to improve patient outcomes and reduce hospital lengths of stay. Alternative approaches to haemodynamic
monitoring use derived rather than direct measurements of blood flow and are unable to report changes in flow
either as quickly or as sensitively as ODM.
In July 2007 in his report “A Framework for Action”, prepared for Healthcare for London a consultation group led by
London’s 31 NHS Primary Care Trusts, Professor Sir Ara Darzi (now Lord Darzi, a UK Government health minister)
noted of the CardioQ:
“Seven randomised trials have shown simple use of cheap ultrasound technology to reduce length of stay
consistently by 2-3 days in elective abdominal surgery. The evidence is clear here and changes should be rapidly
implemented”.
Research and Development
Our research and development efforts in 2007 focused on two key areas: providing a monitoring solution for the
conscious patient and an upgrade of the CardioQ monitor.
The conscious patient solution has two elements, the SupraQ, a wholly non-invasive monitor for intermittent spot-
checking of cardiac function and the new I2 range of oesophageal probes.
The second generation SupraQ project continues to make good progress and will enter the clinical evaluation phase
of its development later in 2008, subject to finalisation of clinical protocols and ethics committee approval at the
investigating hospital.
The I2 probe allows doctors to extend the use of the CardioQ beyond patients who are under general anaesthetic
or deeply sedated to those who are fully awake. Originally intended for short-term post-operative management of
patients waking up after surgery, the probe has proven so well tolerated that its use has been extended successfully
to fully conscious patients in a variety of clinical settings, including major surgery under spinal anaesthesia, the
accident and emergency department and on the ward.
Chairman’s Statement continued
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In the second quarter of 2008 we will launch the CardioQ-ODM, an upgraded version of the CardioQ, in the UK and
key international markets. We anticipate submitting a request for approval to sell this new monitor in the USA to the
US Food and Drug Administration (FDA) during the second quarter of this year.
The new lighter-weight CardioQ-ODM upgrades a number of key components and allows us to take advantage
of newer technologies that provide faster processing capabilities, larger memory capacity, easier and faster data
downloading and better screen resolution. The software interface has been refined to offer improved ease of use,
customisable screen layouts and a series of tools to help doctors target patient therapy more effectively.
Board membership
In May 2007 Peter Smedvig chose not to stand for re-election to the Board of Directors after many years of valuable
service to the Company. Today we are able to announce that Julian Cazalet will be joining the Board of Directors
effective 7 April 2008. Julian recently retired after 34 years at Cazenove, a leading UK investment bank, where he
advised many listed companies and acted in the flotation of a number of new companies on the London Stock
Exchange. Most recently he was Managing Director – Corporate Finance at JPMorgan Cazenove.
Prospects
Deltex Medical made significant progress during 2007 in all its key markets, with major milestones in market
development achieved in the USA. The momentum driving sales growth in 2007 has been maintained into 2008
and the first quarter of 2008 has seen a number of significant events that will enable the Company to sustain and
build upon 2007’s progress throughout 2008. Not least of these is the first reimbursement of doctors for use of
the CardioQ in operating theatres in the United States.
Routine use of the CardioQ represents the translation of evidence-based medicine into evidence-based practice –
the goal of all developed healthcare systems around the world. The publication of independently conducted
analyses of the overwhelming body of evidence supporting the use of oesophageal Doppler-guided haemodynamic
management can only accelerate the adoption of the CardioQ.
We remain confident in our ability to deliver increasing and sustainable value for our shareholders as we help more
and more hospitals establish use of the CardioQ as a standard of care for all patients undergoing major surgery or
in intensive care and as we develop new and innovative ways of providing the unique benefits of Doppler-guided
haemodynamic management to all patients who need it, wherever they may be in the healthcare system.
Nigel Keen
Chairman
15 April 2008
report and accounts 2007 9
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Margins
Gross margins in 2007 increased to 70.0% from 66.3% in 2006, reflecting sales price increases, manufacturing
efficiencies and the mix of sales between products and markets.
The Company has achieved steady growth in margins since 2001 when gross margins were 46%. Future increases
in sales volumes should enable the Company to further develop its margins as it continues to take advantage of
manufacturing and purchasing economies of scale.
During 2006 the Company moved the majority of its recurring International probe business with distributors on to
a monthly standing order basis, thereby allowing it considerably greater certainty in probe production planning
and scheduling. As a result, the Company was able to build 41% more probes in 2007 than in 2006 without any
significant increase in labour or overhead.
The Company has made considerable progress on a number of projects aimed both at reducing the unit production
costs of probes and at automating some of the more labour intensive processes in their manufacture. The Company
anticipates that automation of probe manufacture will better position it to be able to meet future rapid increases in
demand: it should also entail a number of design changes to the probes which will allow the Company to further
strengthen its intellectual property position. During the second half of 2007, the Company extended the clean room
used for probe manufacture in order to double its capacity.
Sales
The Company’s focus throughout 2007 remained on promoting and supporting routine probe consumption with a
view to delivering sustainable increases in probe run rates at doctor, hospital, regional and national levels in all
its key markets. The Company constantly assesses and reviews the ways in which it supports its products to ensure
both that it maximises the return on its resources and that early adoption of its technology is firmly rooted into
customers’ practice.
In addition to progress with sales of the CardioQ-ODM system in 2007, the Company completed a small number of
transactions on a barter basis aimed specifically at opening up new markets.
● In the UK two non-invasive SupraQ monitors were sold to the Freeman Hospital in Newcastle for evaluation of
patients in the hours immediately prior to surgery and at pre-operative assessment clinics which take place in
the weeks before a patient’s operation: the Freeman is one of the Company’s top ten CardioQ-ODM accounts
and a leading proponent and practitioner of enhanced recovery programmes for major abdominal surgery. A
further SupraQ monitor was sold to a leading hospital in South-West England for use in studies in accident and
emergency on patients presenting prior to major trauma surgery. A major London teaching hospital acquired six
CardioQ-ODM monitors for use during surgery and, in return, is working closely with the Company to implement
the pilot phase of a radical redesign of its approach to managing patients requiring emergency surgery to
repair broken hips and to assess its clinical and cost effectiveness: outcomes after emergency hip repair
surgery are generally poor across Europe and an integrated enhanced recovery type programme with CardioQ-
ODM at its heart would be extremely beneficial to the Company in establishing its technology as a standard of
care for major orthopaedic surgery.
● A small group of the most eminent colorectal surgeons in Spain acquired eight monitors for use in an audit of
the impact of an enhanced recovery programme in Spain. The programme is based around the ESTREP
processes jointly developed and implemented for colorectal surgery at University College London Hospital and
St Thomas’s Hospital, both of which specifically require oesophageal Doppler guided fluid management during
surgery. The Spanish surgeons are looking to replicate the impressive results achieved at these two major
London teaching hospitals and present them to the national annual meeting of Spanish colorectal surgeons
in November. The Company believes that the surgeons leading this project have the stature necessary to
lead wide-scale implementation of their eventual recommendations for enhanced recovery programmes
across Spain.
● In January 2007, the Company sold six monitors and 150 probes to the US military for use in clinical trials in
Iraq. Although no results have yet been disclosed from the trials the Company understands that the doctors
conducting the trial have found limited utility for the CardioQ in treating US military personnel as their body
armour tends to mean most severe injuries are to the head and neck. However, the doctors have indicated high
satisfaction with the probes in treating civilian casualties.
Operating Review
report and accounts 200710
77471 PRE 14/4/08 20:46 Page 10
● In August 2007 the Company entered into a barter deal with one of the prestigious US teaching hospitals. In
return for the loan of monitors and provision of 300 probes, the hospital is undertaking two trials into the use of
the CardioQ on obese patients during surgery. Successful outcomes are expected to lead to accelerated uptake
of the CardioQ in the hospital itself as well as establishing the need for oesophageal-Doppler guided fluid
management to become a standard of care in obese patient surgery. Under its normal terms for undertaking
research, the hospital would have charged the Company at least $0.5 million, but it agreed to the Company’s
barter proposal because of the high enthusiasm to undertake new research into a patient group whose
anaesthetics are very difficult to manage.
Sales and distribution costs
Sales and distribution costs increased by £339,000 from £2,186,000 in 2006 to £2,525,000 in 2007.
The increase in sales and distribution costs reflects: two additional sales and clinical training staff in the USA to
support growth in key strategic accounts; the full year impact of expansion of the international sales force
undertaken in 2006; an additional clinical trainer in the UK to support the progress made in London and a further
additional clinical trainer dedicated to maintaining the Company’s market leading position in the UK critical care
cardiac output monitoring market. The Company has continued to support relevant clinical meetings in Europe and
the UK and has expanded the range of such meetings to ensure it closely identifies with the evolution of enhanced
recovery programmes.
Deltex Medical continues to focus the majority of its marketing efforts on low cost, high impact activities which
clearly communicate the clinical benefit of haemodynamic optimisation to doctors and the economic benefit to all
those involved in the hospital purchasing decision. In the UK, the Company’s most mature market, these activities
are supported by a focused Public Relations campaign which has succeeded in raising the profile of the Company’s
technology per se and its unique role in enhanced recovery programmes amongst clinicians, health service
managers and policy makers.
Each of the clinical and economic cases for using the CardioQ continues to grow stronger with each new clinical
trial, each new “real world” evaluation or audit, each new case study and, more recently, each new meta-analysis
or health technology assessment. The Company seeks to tailor the message to the clinical and economic
circumstances of each territory, or segment of territory in which it is active. At the same time, the Company is
seeking to position the clinical benefits of its products within the priorities of groups of leading international doctors.
Administrative expenses
Administrative expenses increased by £418,000 from £1,916,000 in 2006 to £2,334,000 in 2007. This reflects
increased charges for a number of non-cash costs including £82,000 in respect of share-based payments (2007:
£328,000; 2006: £246,000) and £241,000 increase with respect to the charge for clinical trials and evaluations set-up
through barter arrangements (2007: £244,000; 2006: £3,000).
Over the last five years the proportion of administrative expenses relating to sales and marketing activities has
increased significantly, with all the Company’s senior managers having a considerable degree of customer facing
sales and marketing responsibility.
Research and development
Research and development (R&D) costs increased by £41,000 from £241,000 in 2006 to £282,000 in 2007. R&D
costs include only spend through the Company’s R&D team and is considerably supplemented both by senior
manager and field team time and input.
During the second half of 2007 the Company launched two new probe variants: the l2S and the l2P which are
designed respectively for intra-operative and peri-operative oesophageal Doppler guided fluid management. The
l2S probes provide monitoring for up to six hours, the l2P for up to 24 hours. In March 2008 the Company formally
launched the 72 hour l2C probe designed for intensive care use either for oesophageal Doppler guided fluid
management or for cardiac output monitoring. The l2 range of probes are significantly softer than the Company’s
traditional range of probes meaning they are well tolerated both by patients waking up with a probe in situ, or having
a probe placed while awake: however, unlike previous soft probes, the l2 probes retain the rapid insertion and
focusing characteristics of the stiffer traditional probes.
report and accounts 2007 11
77471 PRE 14/4/08 20:46 Page 11
In the intensive care unit, where the CardioQ-ODM is frequently used more to monitor cardiac output than to
actively guide fluid management, there are a number of alternative technologies which are positioned as ‘minimally
invasive’ cardiac output monitors. While the CardioQ-ODM is categorised as ‘minimally invasive’ for regulatory
purposes, it is the only established cardiac output monitoring technology which does not involve cutting the patient
or the insertion of catheters into the patient’s vascular system. The new l2 probes mean that the Company can
clearly differentiate the safety and ease of use of its products through live demonstrations on their managers
and field staff at clinical meetings.
In March 2008, the Company announced the launch of a significantly upgraded version of the CardioQ monitor
called the CardioQ-ODM. In late 2008 or the first half of 2009, subject to satisfactory results from clinical trials and
the appropriate regulatory approvals, the Company expects to be in a position to launch its first fully commercialised
version of the wholly non-invasive SupraQ together with a single-patient disposable SupraQ probe. The geographical
spread and timing of this launch will also depend on the Company’s cash resources at the time and its assessment
of the likely rate of uptake of the SupraQ.
Balance sheet and cashflow
Stock at 31 December 2007 was £441,000, an increase of £58,000 over the year (2006: £383,000). In 2006 the
Company completed a programme to reduce its own stock levels as well as those of certain of its distributors.
As a result the Company’s production schedules in 2007 were more closely tied to sales volumes than ever before
and, as anticipated, the Company’s stock levels have increased broadly in line with sales growth. In addition,
towards the end of 2007, the Company embarked on a programme to build the final batches of CardioQ monitors
and start manufacture of the new CardioQ-ODM version.
Increased levels of production to meet higher sales volumes and the planned final build of the CardioQ version
of monitor meant that trade creditors increased from £373,000 to £443,000 over the year.
Net trade receivables increased by £204,000 to £866,000 at 31 December 2007 (2006: £662,000) primarily as a
result of significantly increased monitor sales to distributors in the final quarter of 2007, but also reflecting strong
sales of probes and monitors in all territories. As a result of this increase in debtors, the Company was able to
increase its borrowing under its working capital facility by £110,000 to £407,000. This facility allows the Company
to borrow against its UK receivables and certain of its receivables from distributors relating to sales under monthly
standing orders. The amount available at any one time is tending to increase as UK and International sales continue
to grow. In the light of higher sales volumes in the USA, the Company has entered discussions with its bankers
aimed at introducing a similar facility in respect of US receivables.
The £86,000 increase in prepayments and accrued income to £711,000 at 31 December 2007 is mostly attributable
to net movements in the Company’s rights to data from studies it has funded through barter transactions: these will
be written off in future years as the work is done by the hospitals involved. This approach to clinical trials is a highly
effective way for the Company to support important research in hospitals at reasonably low cost and for very low
amounts of cash: the value of data generated from this and other, separately or independently funded research,
is expected to be many times the amount of the Company’s cash costs.
Details of the Company’s cash flow during 2007 and of its cash balances are given in the Chairman’s statement
on pages 3 to 4.
The Company is configured to reach the break-even point through continuing growth from sales as its products
become established as standards of care. To maximise the long term value it creates for shareholders the Company
needs to balance short term goals against the objective of maintaining and exploiting its first-mover advantage in
the major new global potential markets created by changes to patient care enabled by its innovative technology.
The future rate of adoption of its products is uncertain as is the optimal means of supporting this adoption in certain
key target markets. Therefore, the Company regularly reviews its strategic options and its financing arrangements to
reflect the circumstances encountered from time to time.
Andy Hill
Chief Executive
15 April 2008
Operating Review continued
report and accounts 200712
77471 PRE 14/4/08 20:46 Page 12
Non-executive directors
Nigel Keen MA FCA
Chairman, aged 61
Nigel has been involved with Deltex Medical since 1988,
and chairman since 1996. He is also non-executive
chairman of Axis-Shield plc, The Laird Group plc and
Oxford Instruments plc. Nigel is also a non-executive
director of Bioquell plc. Nigel is the chairman of the
Remuneration Committee and the Audit Committee.
Dr Edwin Snape MSc PhD
Vice-chairman, aged 68
Ed has been connected with Deltex Medical for over
10 years and vice-chairman since 1999. He is currently
Chairman of Memry Corporation, a director of Callisto
Pharmaceuticals and has extensive experience in
medical device and life sciences business in the USA
and Europe.
Dr George Flouty MD
Aged 63
George joined the Deltex Medical Board in July 2000.
He has 24 years experience in the pharmaceutical
and medical devices industries and was a Medical
Director at Pfizer’s Global Pharmaceutical Group until
retiring in 2001.
Julian Cazalet MA FCA
Aged 60
Julian Joined the Board in April 2008. He was until
December 2007 a Managing Director – Corporate
Finance of JPMorgan Cazenove. After graduating
in Economics from Cambridge, he qualified as a
Chartered Accountant with Whinney Murray before
joining Cazenove in 1973. He became a Partner in
1978. From 1989 he worked in Corporate Finance,
firstly in Equity Capital Markets and subsequently
advising listed companies. He is a Director of
Herald Investment Trust plc and of The White Ensign
Association Limited.
Professor Sir Duncan Nichol
Aged 66
Duncan has been an influential figure in the provision
of acute health services in the UK throughout his
career. He worked for the NHS for nearly 30 years in
a number of senior management roles and was Chief
Executive from 1989 to 1994. Duncan is also currently
a non-executive director of Synergy Healthcare plc,
the AIM listed provider of healthcare support services
to the NHS and, from 1994 until 2002, he was a
non-executive director of BUPA, the UK based health
insurance and private hospital group.
Executive directors
Andy Hill BSc MBA
Chief Executive, aged 45
Prior to joining Deltex Medical, Andy was responsible
for establishing the European businesses of a number
of early stage US medical technology companies.
Andy joined the Board in October 2002 and was
appointed Chief Executive in January 2003.
Ewan Phillips MA ACA
Finance Director, aged 43
Ewan joined Deltex Medical in August 2001. He has
a background in corporate finance.
Secretary and Advisers
Company secretary and registered office
Paul Mitchell BSc ACA
Terminus Road
Chichester
West Sussex PO19 8TX
Tel: +44 (0) 1243 774837
Fax: +44 (0) 1243 532534
www.deltexmedical.com
Company registered number: 3902895
Nominated adviser and broker
Charles Stanley Securities
25 Luke Street
London
EC2A 4AR
Independent auditors
PricewaterhouseCoopers LLP
Savannah House
3 Ocean Way
Ocean Village
Southampton
SO14 3TJ
Solicitors
Eversheds
85 Queen Victoria Street
London
EC4V 4JL
Principal bankers
The Royal Bank of Scotland plc
62-63 Threadneedle Street
PO Box 412
London
EC2R 8LA
PR advisers
Gavin Anderson & Company
85 Strand
London
United Kingdom
WC2R 0DW
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
report and accounts 2007 13
Directors and Advisers
77471 PRE 14/4/08 20:46 Page 13
The directors present their report and the audited financial statements for the year ended 31 December 2007.
Business review and principal activities
The Group’s principal activities during the year were the manufacture and marketing of oesophageal Doppler
haemodynamic monitoring systems.
The results for the Group show a loss for the financial year of £2,188,000 (2006: loss of £1,994,000) and sales of
£4,168,000 (2006: £3,511,000). Net cash used in operating activities for 2007 was £2,129,000 (2006: £1,545,000).
A detailed review of the Group’s performance, financial results and future development is contained within the Chairman’s
Statement on pages 2 to 9 and in the Operating Review on pages 10 to 12. Subsequent events are detailed in note 27.
Principal risks and uncertainties
The Group’s strategy has been and continues to be the establishment of haemodynamic optimisation using the
CardioQ as a standard of care firstly in the Group’s home market of the UK, then secondly in the USA and other
major markets for medical technology both through direct sales and marketing and, where appropriate, through
distribution partnerships. The Group regularly reviews its strategic options and financing arrangements to reflect
circumstances encountered from time to time.
The directors have therefore identified the following as being principal risks and uncertainties facing the Group:
● Changes in the rates of adoption of the Group’s products in key markets;
● The availability to the Group of resources, including cash to pursue it’s strategy.
The Group has established internal controls to assess the impact or potential impact of actual or potential
developments affecting these risks. In addition, to more accurately understand more accurately the rate of
adoption in those territories where the Group does not sell direct to hospitals, distributor stockholdings were
reduced during 2006, and trading relationships with distributors in almost all major markets changed so that they
order products on a monthly basis. These changes have enabled the Company to better monitor rates of adoption
and improve the working capital management. Further details of cash management are given in the Chairman’s
Statement on pages 3 and 4.
A faster than expected change in the adoption of the Group’s products could expose the Group to supply chain
and production capacity risks. In addition, supply chain disruptions such as delays or losses of inventory also
present a potential risk to the Group’s ability to progress its strategic aims. The Group mitigates these risks through
effective supplier selection, management and procurement practices. Furthermore, scaleable production plans have
been developed to ensure that the Group is able to react to any significant changes in the rate of adoption of the
Group’s technology.
Key performance indicators
At this stage of its development, the Group’s two key performance indicators are probe sales and the underlying
cash burn rate (i.e. the difference between normalised run-rates for revenues and costs).
The directors regularly monitor the Group’s progress by reference to these two key performance indicators. A summary
of the progress made against these indicators during the year ended 31 December 2007 is set out below.
Probe sales
Probe sales increased by £553,000 in 2007 from £2,632,000 to £3,185,000.
Rates of regular probe consumption by hospitals at the end of 2007 were higher in each of the UK, USA, Spain and
the international distributor business than at the start of the year. Further details of probe sales are given in the
Chairman’s Statement on pages 3 to 7 under the heading Trading Results.
Underlying cash burn rate
The underlying cash burn rate is based around management’s estimate of the normalised levels of sales and costs: it
increases if the Group changes its cost base or working capital profile and decreases as the Group’s sales grow.
The underlying cash burn at the start of 2006 was estimated at approximately £50,000 per month. During the year the
Group increased its costs in a number of areas. After taking into account increases in sales, the underlying cash rate at
the end of 2007 was estimated at approximately £45,000 per month with further progress made since the end of the
year. Further details of the underlying cash burn are given in the Chairman’s Statement on pages 2 to 9 in the section
headed “cash” and in the Operating Review on page 12.
In addition to these key performance indicators, the directors also regularly monitor progress in a number of other
areas including actual cash flows, working capital balances, including stock levels and debtor collections, sales and
other transactions involving monitors, progress with research and development projects and with clinical studies.
Dividends
The directors do not recommend payment of a dividend (2006: £nil).
Directors’ Report for the year ended 31 December 2007
report and accounts 200714
77471 PRE 14/4/08 20:46 Page 14
Research and development
The Group has an active research and development programme aimed at regularly updating and further improving
existing products and, in the longer term, broadening the range of the Group’s products. The amount charged to the
Income Statement in 2007 was £282,000 (2006: £241,000). The amount capitalised as an intangible asset in 2007
was £101,000 (2006: £90,000).
Financial risk management
The Group’s financial instruments comprise some cash and various items, such as trade receivables and trade
creditors that arise directly from its operations.
It is, and has been throughout the year under review, the Group’s policy that it shall not undertake any trading in
financial instruments.
The board reviews and agrees policies for managing liquidity, interest rate and exchange rate risks. The policies
have remained unchanged throughout the year and are summarised below:
Liquidity risk
The Group’s cash position is principally managed to ensure that sufficient funds are available to meet liquidity
requirements. In addition the Group has in place and makes use of an invoice discounting facility with its bankers to
supplement working capital needs. From time to time, additional funding is raised to allow the Group to invest in its
strategic projects to develop the business in its chosen markets.
Currency risk
The Group has an overseas subsidiary in the USA and as a result the Group’s sterling balance sheet can be
affected by movements in the US dollar/sterling exchange rates.
The Group also has transactional currency exposures. Such exposures arise from sales and purchases by operating
units in currencies other than the unit’s functional currency. However, given the size of the Group’s operations, the
costs of managing exposure to currency risk exceed any potential benefits and therefore the Group does not
engage in any hedging in respect of currency risks. The directors will revisit the appropriateness of this policy
should the Group’s operations change in size or nature.
Credit risk
The Group is exposed to credit related losses in the event of non-performance by counterparties in connection with
financial instruments. The Group takes actions to mitigate this exposure by ensuring adequate background on credit
risk is known about counterparties prior to contracting with them and through selection of counterparties with
suitable credit ratings.
Directors and their interests
Biographical details of the directors are given on page 13.
The directors who served during the year were:
Non-executive Executive
Nigel Keen (Chairman) Andy Hill
Dr Ed Snape (Vice-chairman) Ewan Phillips
Sir Duncan Nichol
Dr George Flouty
Peter Smedvig (retired 3 May 2007)
Julian Cazalet (appointed 7 April 2008)
In accordance with article 77 of the Company’s Articles of Association, Sir Duncan Nichol, Nigel Keen and
Ewan Phillips retire by rotation at the forthcoming AGM and each one, being eligible, offers himself for re-election.
In accordance with article 73 of the Company’s Articles of Association, Julian Cazalet retires and being eligible,
offers himself for re-election.
None of the directors had a material interest in any contract of significance to which the Company, or its
subsidiaries, was a party during the financial year.
Directors’ interests 31 December 31 December
2007 2006
Nigel Keen 4,255,114 4,255,114
Dr Edwin Snape 3,256,399 3,256,399
Dr George Flouty 343,984 343,984
Sir Duncan Nichol 108,961 108,961
Andy Hill 179,334 172,486
Ewan Phillips 977,156 767,156
9,120,948 8,904,100
9.86% 11.12%
Amounts in italics relate to percentage of issued share capital at 31 December 2007 and 31 December 2006.
Julian Cazalet was appointed to the Board on 7 April 2008 at which time he owned 1,250,000 1p ordinary shares.
report and accounts 2007 15
77471 PRE 14/4/08 20:46 Page 15
Details of the share options of those directors who served during the year are as follows:
At 1 Granted At 31 Exercise Exercise Exercise
January during December Price period period
2007 2007 Lapsed 2007 £ from to
Andy Hill
2001 Executive
Share Option
Scheme 200,000 – – 200,000 0.25 27 November 2005 26 November 2012
200,000 – – 200,000 0.15 28 October 2006 27 October 2013
400,000 – – 400,000 0.24 12 October 2007 11 October 2014
400,000 – – 400,000 0.2075 28 March 2009 27 March 2016
– 400,000 – 400,000 0.295 29 June 2010 28 June 2017
EMI Scheme 333,333 – – 333,333 0.01 24 March 2004 27 October 2013
156,739 – – 156,739 0.01 15 March 2005 11 October 2014
154,085 – – 154,085 0.01 15 March 2007 19 May 2016
– 314,615 – 314,615 0.01 27 March 2008 28 June 2017
1,844,157 714,615 – 2,558,772
Ewan Phillips
2001 Executive
Share Option
Scheme 100,000 – – 100,000 0.25 7 November 2004 6 November 2011
60,000 – – 60,000 0.25 27 November 2005 26 November 2012
120,000 – – 120,000 0.15 28 October 2006 27 October 2013
400,000 – – 400,000 0.24 12 October 2007 11 October 2014
400,000 – – 400,000 0.2075 28 March 2009 27 March 2016
– 400,000 – 400,000 0.295 29 June 2010 28 June 2017
EMI Shares 583,333 – – 583,333 0.01 24 March 2004 27 October 2013
156,739 – – 156,739 0.01 15 March 2005 11 October 2014
259,225 – – 259,225 0.01 15 March 2007 19 May 2016
– 235,962 – 235,962 0.01 27 March 2008 28 June 2017
2,079,297 635,962 – 2,715,259
3,923,454 1,350,577 – 5,274,031
All shares and options at 31 December 2007 and 31 December 2006 related to ordinary 1p shares.
Included in the 4,255,114 (2006: 4,255,114) shares of Nigel Keen are 589,700 (2006: 589,700) 1p ordinary shares
where Nigel Keen’s sole interest is as a trustee and executor of the Pauline Thomas Charity Will Trust. Mr Keen has
no beneficial interest in the shareholding of the trust.
At 31 December 2007 Mr Keen was a director of Cygnus Venture Partners Limited, a company which advised
certain shareholders who owned 1,064,599 1p ordinary shares (2006: 1,064,599 1p ordinary shares).
Dr Edwin Snape owns 376,474 1p ordinary shares (2006: 376,474) and is a director of New England Partners which,
with associated companies, owns 2,879,925 1p ordinary shares (2006: 2,879,925 1p ordinary shares).
None of the directors had a material interest at any time during the year in any contract of significance, other than a
service contract, with the Company or any of its subsidiaries.
Directors remuneration
The remuneration paid to the directors was:
Salary 2007 2006
and fees Bonus Benefits Pension Total Total
£ £ £ £ £ £
George Flouty 18,000 – – – 18,000 18,000
Andy Hill 220,000 – 7,500 1,800 229,300 225,948
Nigel Keen 25,000 – – – 25,000 25,000
Duncan Nichol 18,000 – – – 18,000 18,000
Ewan Phillips 165,000 – 7,500 6,723 179,223 149,955
Peter Smedvig
(retired 3 May 2007) 6,200 – – – 6,200 18,000
Ed Snape 18,000 – – – 18,000 18,000
470,200 – 15,000 8,523 493,723 472,903
Throughout the year ended 31 December 2007, all amounts in respect of fees payable in respect of Nigel Keen’s
services as Chairman were made to Imperialise Limited, a company of which Mr Keen is the sole director and the
majority shareholder. Mr Cazalet was appointed on 7 April 2008 and therefore is not included in the above table.
Directors’ Report continued
for the year ended 31 December 2007
report and accounts 200716
77471 PRE 14/4/08 20:46 Page 16
Directors’ bonus
Discretionary bonuses have been awarded retrospectively to executive directors, in respect of work carried out in
the year up to 31 December 2006, through an Enterprise Management Incentive Scheme which allowed the
directors concerned to sacrifice an element of their entitlement to cash bonuses in return for share options
exercisable at the nominal value of 1p per ordinary share.
Period covered Number of options Exercise price
£
Andy Hill January 2006 to December 2006 314,615 0.01
Ewan Phillips January 2006 to December 2006 235,962 0.01
These bonuses have been charged to the Income Statement in accordance with IFRS2 “Share based payments”.
Details of the service contracts of the executive directors at 31 December 2007 are set out in the table below:
Andy Hill Ewan Phillips
Commencement date 31 October 2002 11 September 2001
Notice period Six months Six months
Aggregate remuneration £220,000 salary, car allowance, £165,000 salary, car allowance,
discretionary bonus, pension discretionary bonus, pension
contribution of 4% of salary contribution of 4% of salary
Compensation on early termination None None
Non-competition Standard restrictions on soliciting Standard restrictions on soliciting
customers or suppliers or working customers or suppliers or working
for competing businesses for for competing businesses for
12 months 12 months
Major interests in shares
The following are beneficial interest of 3% or more of which the Directors have been notified in accordance with
Chapter 5 of the Disclosure and Transparency Rules, of the Company’s ordinary share capital, the only class of
voting capital, at 15 April 2008:
Number of % of issued
ordinary shares share capital
Charles Stanley & Co. Limited 4,851,121 5.24
Barclays plc 4,753,431 5.14
Nigel Keen 4,255,114 4.60
Close Brothers Group 3,389.111 3.66
New England Partners 2,879,925 3.11
Charitable and political donations
No donations were made by the Company or Group during the year for political or charitable purposes.
Creditor payment policy
The Group seeks to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has
provided the goods and services in accordance with the agreed terms and conditions. The average time taken to
pay purchase invoices by the Company during the year cannot be calculated as invoices received relating to the
Company’s activities were settled on its behalf by subsidiaries. The average time taken by fellow subsidiaries to
satisfy liabilities was 60 days (2006: 90 days).
Going concern
The Board has a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future and accordingly continues to adopt the going concern basis in preparing the financial
statements as detailed in note 1.
Disclosure of information to auditors
As far as each of the directors are aware, there is no relevant audit information of which the Group’s auditors are
unaware; and they have taken all the steps that they ought to have taken as directors in order to make themselves
aware of any relevant audit information and to establish that the Groups auditors are aware of that information.
Auditors
PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution concerning their
re-appointment will be proposed at the Annual General Meeting.
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Directors’ responsibilities
The directors are responsible for preparing the annual report and the financial statements in accordance with
applicable laws and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors have prepared the group financial statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union. In preparing these financial statements, the directors have
also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). The parent
company financial statements have been prepared under UK GAAP. The financial statements are required by law
to give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the
group for that period.
In preparing those financial statements the directors are required to:
● Select suitable accounting policies and then apply them consistently.
● Make judgements and estimates that are reasonable and prudent.
● State that the financial statements comply with IFRSs as adopted by the European Union and IFRSs issued
by the IASB.
● Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group
will continue as a going concern.
The directors confirm that they have complied with the above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any
time the financial position of the company and the group and to enable them to ensure that the financial statements
comply with the Companies Act 1985 and, as regards the group financial statements, article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the company and the group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the group website, www.deltexmedical.com.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
Annual General Meeting
The Notice convening the Annual General Meeting, which will take place at 11:30am on Tuesday 13 May at
Radisson Edwardian Grafton Hotel, 130 Tottenham Court Road, London W1T 5AY, accompanies this report.
By order of the board
Paul Mitchell
Company Secretary
15 April 2008
Directors’ Report continued
for the year ended 31 December 2007
report and accounts 200718
77471 PRE 14/4/08 20:46 Page 18
We have audited the group financial statements of Deltex Medical Group Plc for the year ended 31 December 2007
which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of
Cash Flows, the Consolidated Statement of Recognised Income and Expense and the related notes. These group
financial statements have been prepared under the accounting policies set out therein.
We have reported separately on the parent company financial statements of Deltex Medical Group Plc for the year
ended 31 December 2007.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the group financial statements in accordance with
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set
out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has
been prepared for and only for the company’s members as a body in accordance with Section 235 of the
Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the group financial statements give a true and fair view and whether the
group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4
of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is
consistent with the group financial statements. The information given in the Directors’ Report includes that specific
information presented in the Chairman’s Statement and the Operating Review that is cross referred from the
Business Review section of the Directors’ Report.
In addition we report to you if, in our opinion, we have not received all the information and explanations we
require for our audit, or if information specified by law regarding director’s remuneration and other transactions
is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited
group financial statements. The other information comprises only the Chairman’s Statement, the Operating Review
and the Directors’ Report. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend
to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the group financial statements. It also includes an assessment of the significant estimates
and judgments made by the directors in the preparation of the group financial statements, and of whether the
accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial
statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our
opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements.
Opinion
In our opinion:
● the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European
Union, of the state of the group’s affairs as at 31 December 2007 and of its loss and cash flows for the year
then ended;
● the group financial statements have been properly prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation; and
● the information given in the Directors’ Report is consistent with the group financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Southampton
15 April 2008
report and accounts 2007 19
Independent Auditors’ Reportto the members of Deltex Medical Group plc
77471 PRE 14/4/08 20:46 Page 19
2007 2006
Note £’000 £’000
Revenue 2 4,168 3,511
Cost of sales (1,250) (1,182)
Gross profit 2,918 2,329
Administrative expenses (2,334) (1,916)
Sales and distribution costs (2,525) (2,186)
Research and development costs (282) (241)
(5,141) (4,343)
Operating loss 3,4 (2,223) (2,014)
Finance income 6 33 8
Finance costs 6 (21) (11)
Loss before taxation (2,211) (2,017)
Tax on loss 7 23 23
Loss for the year 22 (2,188) (1,994)
Loss per share – basic and diluted 9 (2.5p) (2.6p)
Consolidated Statement of Recognised Income and Expensefor the year ended 31 December 2007
2007 2006
£’000 £’000
Exchange differences taken to reserves 8 (9)
Loss for the year (2,188) (1,994)
Total recognised expense for the year (2,180) (2,003)
Consolidated Income Statementfor the year ended 31 December 2007
report and accounts 200720
77471 PRE 14/4/08 20:46 Page 20
2007 2006
Note £’000 £’000
Assets
Non-current assets
Property, plant and equipment 10 37 47
Trade and other receivables 14 20 52
Intangible assets 11 190 91
Total non-current assets 247 190
Current assets
Inventories 13 441 383
Trade and other receivables 14 1,570 1,241
Current income tax recoverable 14 47 45
Cash and cash equivalents 763 418
Total current assets 2,821 2,087
Total assets 3,068 2,277
Liabilities
Current liabilities
Borrowings 16 (407) (297)
Trade and other payables 17 (1,204) (1,160)
Provisions for other liabilities and charges 18 (77) (50)
Total liabilities (1,688) (1,507)
Net assets 1,380 770
Equity
Share capital 22 925 800
Share premium 22 16,423 14,086
Capital redemption reserve 22 17,476 17,476
Other reserves 22 1,342 1,014
Translation reserve 22 (1) (9)
Retained earnings/(deficit) 22 (34,785) (32,597)
Total equity 1,380 770
The financial statements on pages 20 to 48 were approved by the Board of Directors on 15 April 2008 and were
signed on its behalf by:
N J Keen
E A Phillips
report and accounts 2007 21
Consolidated Balance Sheetat 31 December 2007
77471 PRE 14/4/08 20:46 Page 21
2007 2006
£’000 £’000
Cash flows from operating activities
Operating loss (2,223) (2,014)
Depreciation of property, plant & equipment 38 49
Amortisation of intangibles 2 2
Loss on disposal of fixed asset (1) –
Impairment of trade acquisition – 62
Earnings before interest, tax, depreciation and amortisation (2,184) (1,901)
Cost of equity settled share schemes 328 246
Operating cash flows before movements in working capital (1,856) (1,655)
Decrease in inventories 41 73
Decrease in debtors (293) (307)
Increase in creditors (50) 307
Increase in provisions 27 16
Cash used in operations (2,131) (1,566)
Interest paid (21) (11)
Income taxes received 23 32
Net cash used in operating activities (2,129) (1,545)
Cash flows from investing activities
Purchase of property, plant & equipment (29) (12)
Acquisition of trade – (62)
Capitalised development expenditure (101) (90)
Interest received 28 7
Net cash used in investing activities (102) (157)
Cash flows from financing activities
Issue of ordinary share capital 2,613 1,491
Expenses in connection with share issue (151) (43)
Proceeds from increase in borrowings 110 78
Repayment of obligations under finance leases – (6)
Net cash generated from financing activities 2,572 1,520
Net increase/(decrease) in cash and cash equivalents 341 (182)
Cash and cash equivalents at beginning of the year 418 606
Effect of exchange rate fluctuations on cash held 4 (6)
Cash and cash equivalents at end of the year 763 418
Consolidated Statement of Cash Flowsfor the year ended 31 December 2007
report and accounts 200722
77471 PRE 14/4/08 20:46 Page 22
1. Principal accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
General information
These financial statements are the consolidated financial statements of Deltex Medical Group plc, a public limited
company registered and domiciled in the United Kingdom and its subsidiaries (“the Group”). The address of the
registered office is Deltex Medical Group plc, Terminus Road, Chichester, PO19 8TX, registered number 3902895.
Basis of reporting
The Group previously prepared its annual financial statements in accordance with United Kingdom Accounting
Standards (UK GAAP). These financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRIC interpretations endorsed by the European Union (EU) and with those parts
of the Companies Act 1985 applicable to companies reporting under IFRS. The Group’s transition date for IFRS is
1 January 2006, and the disclosures required by IFRS 1 concerning the transition from UK Accounting Standards
to IFRS are given in note 28.
(a) Standard, amendments and interpretations effective in 2007International Financial Reporting Standards (IFRS)IFRS 7, “Financial instruments: Disclosures”, and the complementary amendment to IAS 1, “Presentation of
financial statements – Capital disclosures”, introduces new disclosures relating to financial instruments and does
not have any impact on the classification and valuation of the Group or Company’s financial instruments, or the
disclosures relating to taxation and trade and other payables.
International Financial Reporting Interpretations Committee (IFRIC)IFRIC 8, “Scope of IFRS 2”, requires consideration of transactions involving the issuance of equity instruments,
where the identifiable consideration received is less than the fair value of the equity instruments issued in order to
establish whether or not they fall within the scope of IFRS 2. This standard does not have any impact on the Group
or Company’s financial statements. The Company already applies an accounting policy which complies with the
requirements of IFRIC 8, refer to note 21.
(b) Standards, amendments and interpretations effective in 2007, but not relevant The following standards, amendments and interpretations to published standards are mandatory for accounting
periods beginning on or after 1 January 2007 but they are not relevant to the Group or Company’s operations:
International Financial Reporting Standards (IFRS)IFRS 4, “Insurance contracts”
International Financial Reporting Interpretations Committee (IFRIC)IFRIC 7, “Applying the restatement approach under IAS 29, Financial reporting in hyper-inflationary economies”
IFRIC 9, “Re-assessment of embedded derivatives”
IFRIC 10, “Interim financial reporting and impairment”
(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not beenearly adopted by the Group and CompanyThe following standard has been published and is mandatory for the group’s accounting periods beginning on or
after 1 January 2009, but the Group has not early adopted it:
International Financial Reporting Standards (IFRS)IFRS 8, “Operating segments” (effective from 1 January 2009) is not expected to have a significant impact on the
Group’s reporting of segmental information.
International Financial Reporting Interpretations Committee (IFRIC)IFRIC 11, IFRS 2 Share-based payment – Group and Treasury Share Transactions is applicable from 1 January
2008 and does not have an impact on the Group’s operations.
(d) Interpretation to existing standards that are not yet effective and not relevant for the Group and Company’soperationsThe following interpretations to existing standards have been published and are mandatory for the Group and
Company’s accounting periods beginning on or after 1 January 2008 or later periods but are not relevant to the
Group’s operations:
International Financial Reporting Standards (IFRS)IFRS 3 (revised), Business Combinations and IAS 27, Consolidated and Separate Financial Statements
International Financial Reporting Interpretations Committee (IFRIC)IFRIC 12, “Service concession arrangements”
IFRIC 13, “Customer loyalty programmes”
IFRIC 14, International Accounting Standard 19, “The limit on a defined benefit asset, minimum funding
requirements and their interaction.”
report and accounts 2007 23
Notes to the Financial Statementsfor the year ended 31 December 2007
77471 NOTES 15/4/08 17:23 Page 23
1. Principal accounting policies continued
First – time adoption of IFRS
The Group’s transition date for IFRS is 1 January 2006. Comparative data for 2006 has been restated to conform to the
new accounting policies set out below. The new policies reflect exemptions from restating certain financial information
as permitted under IFRS 1 “First – time Adoption of International Financial Reporting Standards”. The exemptions taken
by the Group are stated below:
● IFRS 3 “Business Combinations” has been applied prospectively from 1 January 2006 and consequently
acquisitions prior to the date of transition to IFRS have not been restated.
● Cumulative translation differences on net investments in foreign subsidiaries have been set at zero at the date
of transition to IFRS.
Basis of consolidation
The consolidated financial statements have been prepared under the historical cost convention.
The consolidated income statement and balance sheet include the financial statements of the parent company and
all of its subsidiaries. All intra group transactions, balances, income and expenses are eliminated on consolidation.
Revenue recognition
Revenue is measured at the fair value of the consideration receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of discounts, VAT and other sales related taxes and
exclude intercompany sales.
● Monitor and probe revenueRevenue on monitors and probes is recognised at the point when substantially all of the risks and rewards of
ownership are transferred to the customer; normally this is on despatch. In respect of service contracts and
other agreements for ongoing support, revenue is recognised in equal monthly instalments over the period of
the contract to match the benefits to the customer.
● Clinical trial dataWhere goods are exchanged for trial data, the exchange is treated as revenue under a barter transaction. The
revenue is measured at fair value of the trial data or at the fair value of the goods supplied, where the fair value
of the trial data cannot be reliably measured.
● Operating leasesWhen assets are leased out under an operating lease, the asset is included in the balance sheet based on the
nature of the asset. Lease income is recognised over the term of the lease on a straight-line basis.
Segmental reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are subject to risks and returns which
are different from those of segments operating in other economic environments.
For reporting purposes, the results of the Group are allocated between three reporting business segments which
operate in specific market areas and are as described in note 2. The Group accounting policies are applied
consistently across the three business segments. Head office and other costs, which cannot be fairly allocated,
are shown separately.
Foreign currency translation
The functional and presentational currency for the parent company is UK Pounds Sterling. Group companies use
their local currency as their functional currency. Transactions denominated in currencies other than the functional
currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date, with any gains or losses being included in the net profit or loss of the period. Exchange
differences arising on non-monetary assets and liabilities are recognised directly in equity.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for
the period. Exchange differences arising, if any, are dealt with through the Group’s reserves, until such a time as
the subsidiary is sold whereupon the cumulative exchange differences relating to the net investment in that foreign
subsidiary are recognised as part of the profit or loss on disposal in the Income Statement. However, cumulative
exchange differences arising prior to 1 January 2006 remain in equity as permitted by IFRS 1 (see note 28).
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate. The group has elected to treat goodwill and fair value adjustments
arising on acquisitions before the date of transition to IFRS as Sterling denominated assets and liabilities.
Notes to the Financial Statements continued
for the year ended 31 December 2007
report and accounts 200724
77471 NOTES 14/4/08 21:30 Page 24
1. Principal accounting policies continued
Derivative financial instruments and hedging activities
Derivatives are initially held at fair value on the date a derivative contract is entered into and are subsequently
remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the item being hedged.
Gains and losses accumulated in equity are included in the Income Statement when the foreign operation is partially
disposed of or sold.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method less provision for impairment. A provision for impairment of trade receivables is established when there
is objective evidence that the group will not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount
of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the
Income Statement within “sales and marketing”. When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against
“sales and marketing costs” in the Income Statement.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation in respect of a past event and
it is probable that settlement will be required of an amount that can be reliably estimated. Provisions are measured at
the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest expense.
A provision for national insurance that may become payable on share option gains is calculated based on the closing
share price.
Property, plant and equipment
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. The cost of purchased
assets includes the original purchase price together with any incidental expenses of acquisition. The cost of assets
produced by the Group includes an appropriate element of production overhead costs.
Depreciation is calculated so as to write down tangible fixed assets to their estimated realisable values, by equal
annual instalments over their expected useful economic lives at the following rates:
Leasehold property and improvements five years
Plant and machinery three to five years
Research and development equipment two years
Machines loaned to customers three years
Motor vehicles four years
Fixtures, fittings and equipment three to five years
Estimated residual values and useful lives are reviewed annually and adjusted where necessary.
Intangible fixed assets
Goodwill
Goodwill, arising from the purchase of subsidiary undertakings, represents the excess of the fair value of the
purchase consideration over the fair value of the net assets acquired.
Goodwill is recognised as an asset and reviewed for impairment annually or where there are indications that the
carrying value may not be recoverable. Any impairment is recognised immediately in the Income Statement and
is not subsequently reversed.
Research and development expenditure – internally generated
Costs for self-initiated research and development activities are assessed as to whether they qualify for recognition
as internally generated intangible assets. Apart from complying with the general recognition requirements and
initial measurement of an intangible asset, qualification criteria are met only when technical as well as commercial
feasibility can be demonstrated and cost can be measured reliably. It must also be probable that the intangible
asset will generate future economic benefits and that it is clearly identifiable and allocable to a specific product.
Further to meeting these criteria, only such costs that relate solely to the development phase of a self-initiated
project are capitalised. Any costs that are classified as part of the research phase of a self-initiated project are
expensed as incurred. If the research phase cannot be clearly distinguished from the development phase, the
respective project related costs are treated as if they were incurred in the research phase only.
report and accounts 2007 25
77471 NOTES 14/4/08 21:30 Page 25
1. Principal accounting policies continued
Amortisation is calculated so as to write down the value of the intangible assets by equal annual instalments over
their expected useful economic lives at the following rates:
Monitors five years
Probes five years
Impairment of fixed tangible assets and intangible assets excluding goodwill
At each balance sheet date the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of any impairment loss. The recoverable amount
is the higher of the asset’s value in use and its fair value less costs to sell. Value in use is calculated using cash flow
projections for the asset (or group of assets where cash flows are not identifiable for specific assets) discounted at the
Group’s cost of capital.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense in the Income Statement, unless the relevant asset is carried at a revalued amount, in
which case the impairment loss is treated as a revaluation decrease.
Retirement benefit costs
Retirement benefit costs are accounted for in accordance with IAS 19 (amended).
The Group provides pension arrangements to the majority of full time UK employees through a money purchase
(defined contribution) scheme. Contributions and pension costs are based on pensionable salary and are charged as
an expense as they fall due. The Group has no further payment obligations once the contributions have been paid.
The Group maintains a deferred contribution Salary Reduction Simplified Employee Pension Plan (“SARSEP”) for US
employees which allows eligible employees to have a percentage of their before tax compensation contributed to an
Individual Retirement Account. Under the terms of SARSEP, the Group may make discretionary contributions on behalf
of the employees that are charged to the Income Statement in the year in which they are payable. There are no post
retirement obligations in respect of this scheme payable by the Group.
Investments
Investments are stated at cost less any provisions for diminution in value.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in, first out basis.
Work in progress and finished goods are included on a basis appropriate to the state of completion of the various
individual items taking account of production materials and components together with an appropriate share of directly
attributable labour and overheads. Net realisable value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete, slow-moving
or defective items where appropriate.
Finance and operating leases
Costs in respect of operating leases are charged to the Income Statement on a straight-line basis over the lease term.
Where fixed assets are financed by finance lease agreements, which transfer to the Group substantially all the benefits
and risks of ownership, the assets are treated as if they had been purchased outright and are included in tangible
fixed assets. Such amounts are written off over the period of the lease. The capital element of the finance lease
commitment is shown as obligations under finance leases. The finance lease payments are treated as consisting of
capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest
element is charged to the Income Statement on a straight line basis over the lease term.
Clinical and other trials
The cost of trialling for clinical, economic and other purposes to support the Group’s sales and promotional activity, or
the cost of purchasing the rights to the use of the data arising from such trials, is written off as the trial is delivered.
Current and deferred taxation
The tax expense represents the sum of current tax and deferred tax. Tax is recognised in the Income Statement except
to the extent that it relates to items recognised in equity in which case it is recognised in equity.
The current tax is based on taxable results for the year calculated using tax rates that have been enacted or
substantially enacted by the balance sheet date.
Deferred tax is provided using the balance sheet liability method on temporary differences between the carrying
amounts of assets and liabilities in the financial statement and the corresponding tax bases used in the computation of
taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business combination) of other assets or liabilities in a
transaction that affects neither the tax profit nor the accounting profit.
Notes to the Financial Statements continued
for the year ended 31 December 2007
report and accounts 200726
77471 NOTES 14/4/08 21:30 Page 26
1. Principal accounting policies continued
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it
is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the
asset is realised. Tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current liabilities and when the deferred income taxes relate to the same fiscal authority.
Share based payments
The Group awards directors, employees and certain of the Company’s distributors and advisors equity-settled share-
based payments, from time to time, on a discretionary basis. In accordance with IFRS2 “Share–based payments”,
equity settled share-based payments are measured at fair value at the time of grant. Fair value is measured by use
of Black Scholes model. The fair value determined at the grant date of the equity–settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that
will eventually vest. The options are subject to vesting conditions of up to six years, and their fair value is recognised
as an expense with a corresponding increase in “other reserves” equity over the vesting period. The proceeds received
net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium
when the options are exercised.
The fair value of the equity-settled share-based payment is re-charged by the Group company to the subsidiary
operating company at fair value. The expense is therefore recognised in the subsidiary operating company, with the
equity reserve being recognised in the Group company.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand and deposits held at call with banks.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value
is recognised in the Income Statement over the period of the borrowing using the effective interest method.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
Significant judgements
In the process of applying the Group’s accounting polices, management has made a number of judgements, none
of which are considered to have a significant effect on the amounts recognised in the financial statements.
Basis of preparation
In common with many companies of its size and which are at its stage of development, the directors manage carefully
the Group's limited resources to develop the opportunities open to it without overstretching the funding capabilities of
the business.
The funds the Group has available to it are provided both by the results of its commercial activities and through the
new funding provided to it by the capital markets and the Group drives its development of the market in keeping with
this level of funding, having sufficient flexibility in its cost structure to tailor expenditure to accord with income levels.
In preparing these financial statement the directors have reviewed projected cash flow forecasts for the next year from
the date of the approval of these financial statements. This review indicates that the Group is expected to continue
trading at current levels as a going concern on the basis of increasing net cash inflows from sales over expenditure
of the Group.
The Directors believe it appropriate to prepare the financial statements on the going concern basis.
report and accounts 2007 27
77471 NOTES 14/4/08 21:30 Page 27
2. Business and geographical segments
For management purposes, the Group is currently organised into three operating divisions UK, USA and International.
These divisions are the basis on which the Group reports its primary segment information.
The principal activities of each segment are as follows:
● the UK division employs a direct sales team in the marketing, sales and support of the Group’s CardioQ monitor
and associated probes within the UK territory;
● the USA division employs a direct sales team in the marketing, sales and support of the Group’s CardioQ monitor
and associated probes with the USA territory;
● the International division supports distributors in selected territories to promote the marketing, sales and support
of the CardioQ and its associated probes these territories. This division is also responsible for the Group’s direct
sales operation in Spain.
The segment results for the year ended 31 December 2007 are as follows:
UK USA International Unallocated Total
£’000 £’000 £’000 £’000 £’000
Total segment revenue 2,892 587 947 – 4,426
Inter segment revenue (258) – – – (258)
Group revenue 2,634 587 947 – 4,168
Segment/operating result 379 (52) (210) (2,340) (2,223)
Finance income 33
Finance costs (21)
Loss before taxation (2,211)
Tax on loss 23
Loss for the financial year (2,188)
The segment results for the year ended 31 December 2006 are as follows:
UK USA International Unallocated Total
£’000 £’000 £’000 £’000 £’000
Total segment revenue 2,699 412 534 – 3,645
Inter segment revenue (134) – – – (134)
Group revenue 2,565 412 534 – 3,511
Segment/operating result 316 64 (466) (1,928) (2,014)
Finance income 8
Finance costs (11)
Loss before taxation (2,017)
Tax on loss 23
Loss for the financial year (1,994)
Revenue includes £264,000 (2006: £373,000) of sales under barter transactions.
Unallocated costs include those costs that cannot be split between segments, including expenditure on research and
development and clinical trials.
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would
also be available to unrelated third parties.
Notes to the Financial Statements continued
for the year ended 31 December 2007
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77471 NOTES 14/4/08 21:30 Page 28
2. Business and geographical segments continued
The segment assets and liabilities at 31 December 2007 and capital expenditure are as follows:
UK USA International Unallocated Total
£’000 £’000 £’000 £’000 £’000
Assets 777 178 470 1,643 3,068
Liabilities 235 44 45 1,364 1,688
Capital expenditure – – – 29 29
Assets Liabilities
£’000 £’000
Segment assets/liabilities 1,425 324
Unallocated:
Intangible assets 190 –
Tangible fixed assets 34 –
Taxation receivable 47 –
Prepayments and accrued income 642 –
Cash and cash equivalents 730 –
Borrowings – 407
Trade and other payables – 880
Provisions – 77
3,068 1,688
The segment assets and liabilities at 31 December 2006 and capital expenditure are as follows:
UK USA International Unallocated Total
£’000 £’000 £’000 £’000 £’000
Assets 679 165 314 1,119 2,277
Liabilities 220 28 43 1,216 1,507
Capital expenditure – – – 13 13
Assets Liabilities
£’000 £’000
Segment assets/liabilities 1,158 291
Unallocated:
Intangible assets 91 –
Tangible fixed assets 43 –
Taxation receivable 45 –
Prepayments and accrued income 561 –
Cash and cash equivalents 379 –
Borrowings – 297
Trade and other payables – 869
Provisions – 50
2,277 1,507
Segment assets consist primarily of inventories and trade and other receivables. Unallocated assets comprise primarily
of intangible assets, tangible fixed assets, prepayments and accrued income and cash and cash equivalents.
Segment liabilities primarily comprises accrued income and employee costs. Unallocated liabilities comprise trade and
other payables, provisions and other borrowings.
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2. Business and geographical segments continued
The following table provides an analysis of the Group’s sales by revenue stream.
2007 2007 2007 2007 2006 2006 2006 2006
Probes Monitors Other Total Probes Monitors Other Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Analysis of turnover
by destination
Direct markets
United Kingdom 2,041 458 135 2,634 1,837 604 124 2,565
United States of America 518 63 6 587 349 58 5 412
Spain 50 85 1 136 12 – – 12
Distributor markets
Rest of Europe 436 102 6 544 264 25 11 300
Rest of the World 140 122 5 267 170 51 1 222
3,185 830 153 4,168 2,632 738 141 3,511
It is not practicable to split the assets and liabilities between the different revenue streams.
3. Auditor remuneration
Services provided by the group’s auditor and network firms.
During the year the group (including its overseas subsidiaries) obtained the following services from the group’s auditor
at costs as detailed below:
2007 2006
£’000 £’000
Audit services
– Fees payable to company auditor for the audit of parent company
and the consolidated accounts 20 20
Non- Audit services
Fees payable to the company’s auditor and its associates for other services
– The audit of company’s subsidiaries pursuant to legislation 45 42
– Other services pursuant to legislation 8 –
– Accounting advice 8 –
– Company secretarial services – 1
81 63
4. Expenses by nature
The following items have been charged/(credited) in arriving at operating loss:
2007 2006
£’000 £’000
Changes in inventories of finished goods and work in progress 74 (6)
Raw materials and consumables used 968 943
Employee benefit costs 3,159 2,816
Other employee costs 442 347
Depreciation, and amortisation charges (note 10, 11) 40 51
Net research and development expenditure (exc. employee costs) 244 169
Clinical trial costs 303 3
Operating lease commitments – land & buildings 84 99
Foreign exchange loss 12 17
Charge in respect of service costs settled by award of share options
(excluding employees) 9 12
Write down of investments – 62
Distributor re-organisation costs – 60
Meeting and other PR costs 281 286
Professional and consultancy fees 441 449
Other costs 334 217
Total cost of sales, distribution costs and administrative expenses 6,391 5,525
Notes to the Financial Statements continued
for the year ended 31 December 2007
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5. Employees
The average monthly number of persons including executive directors by function was as follows:
2007 2006
Number Number
By activity
Sales and marketing 29 22
Production 12 13
Office and management 12 11
Research and development 1 2
54 48
2007 2006
£’000 £’000
Staff costs (for the above persons)
Wages and salaries paid to employees 2,526 2,300
Social security costs 255 233
Other pension costs – defined contribution plans 50 45
Share based payments 328 238
3,159 2,816
Director’s emoluments2007 2006
£ £
Aggregate emoluments 460,200 438,696
Sums paid to third parties for directors’ services 25,000 25,000
Contributions to directors’ personal pension schemes 8,523 9,207
493,723 472,903
Benefits are accruing to two (2006: two) directors under personal pension plans.
Included in the above figure is an amount paid to the employing company of a non-executive director for the services
of that director of £25,000 (2006: £25,000).
Highest paid director2007 2006
£ £
Aggregate emoluments 227,500 224,241
Contributions to directors’ personal pension schemes 1,800 1,707
229,300 225,948
6. Finance income and costs2007 2006
£’000 £’000
Finance income
Bank interest receivable 28 8
Other interest receivable 5 –
33 8
Finance costs
Finance lease interest payable – 1
Finance interest payable 21 10
21 11
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7. Taxation2007 2006
£’000 £’000
Current tax:
Payable R&D tax credit (23) (23)
Adjustment for prior periods – –
Total current tax and tax on loss on ordinary activities (23) (23)
The taxable receipt for the year is lower than the standard rate of corporation tax in the UK of 30% (2006: 30%)
applied to the Group’s loss on ordinary activities before tax.
The tax differences are explained below:
2007 2006
£’000 £’000
Loss on ordinary activities before tax (2,211) (2,017)
Loss on ordinary activities multiplied by the standard rate
in the UK 30% (2006: 30%) (663) (605)
Effects of:
Expenses not deductible for tax purposes 95 75
Difference between depreciation charges and capital allowance claims (1) 3
Losses carried forward 624 522
Tax rate on difference on receivable research and development tax credit (13) (15)
Higher tax rates of overseas losses (65) (3)
(23) (23)
Deferred tax
At 31 December 2007, the Group had an unrecognised potential deferred tax asset of £10,942,000 (2006: £10,360,000)
representing accumulated trading losses carried forward which are available against future profits and depreciation
in excess of capital allowances of £18,000 (2006: £19,000) and share option charges of £192,000 (2006: £100,000).
During the year, as a result of the change in UK Corporation Tax rates, which will be effective from 1 April 2008,
deferred tax balances have been remeasured. All deferred tax relating to temporary differences is expected to
reverse after 1 April 2008 and has therefore been measured at the tax rate of 28% as this is the tax rate that will
apply on reversal.
8. Net foreign exchange losses2007 2006
£’000 £’000
Foreign exchange 12 17
9. Loss per share
Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares issued during the year. The Group had no dilutive potential ordinary shares in
either year, which would serve to increase the loss per ordinary share. Therefore there is no difference between the
loss per ordinary share and the diluted loss per ordinary share.
The loss per share calculation for 2007 is based on the loss of £2,188,000 and weighted average number of shares
in issue of 87,737,746. For 2006 the loss per share calculation was based upon the restated loss of £1,994,000 and
weighted average number of shares in issue of 74,181,000.
Notes to the Financial Statements continued
for the year ended 31 December 2007
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77471 NOTES 14/4/08 21:30 Page 32
10. Tangible fixed assets
Property Fixtures, Machines
plant and fittings and loaned to
equipment equipment customers Total
£’000 £’000 £’000 £’000
Cost
At 1 January 2006 348 237 260 845
Exchange – (3) (10) (13)
Additions 8 5 – 13
At 31 December 2006 356 239 250 845
Additions 11 18 – 29
Disposals (2) (9) – (11)
At 31 December 2007 365 248 250 863
Depreciation
At 1 January 2006 326 180 254 760
Exchange – (2) (9) (11)
Charge for the year 17 30 2 49
At 31 December 2006 343 208 247 798
Charge for year 7 29 2 38
Disposals (1) (9) – (10)
At 31 December 2007 349 228 249 826
Net book value
At 1 January 2006 22 57 6 85
At 31 December 2006 13 31 3 47
At 31 December 2007 16 20 1 37
Depreciation expense of £3,000 (2006: £6,000) has been charged in cost of goods sold, £Nil (2006: £3,000) in research
and development and £35,000 (2006: £40,000) in administrative expenses.
The net book value of tangible fixed assets includes amounts of £Nil (2006: £Nil) in respect of assets held under finance
leases. The depreciation charge for the year relating to assets held under finance leases was £Nil (2006: £7,000).
11. Intangible assets
Research and
Development
£’000
Cost
At 1 January 2006 8
Additions 90
At 31 December 2006 98
Additions 101
At 31 December 2007 199
Amortisation
At 1 January 2006 5
Charge for year 2
At 31 December 2006 7
Charge for year 2
At 31 December 2007 9
Net book value
At 1 January 2006 3
At 31 December 2006 91
At 31 December 2007 190
Amortisation of £2,000 (2006: £2,000) has been included in research and development in the Income Statement.
report and accounts 2007 33
77471 NOTES 14/4/08 21:30 Page 33
12. Subsidiary undertakings
Details of the Group’s principal trading subsidiaries are set out below. In all cases the holding is 100% of the
ordinary shares:
– Deltex Medical Limited incorporated and operating in Great Britain, manufactures and markets medical devices;
– Deltex Medical Holdings, Inc incorporated and operating in the United States of America, markets and sells medical
devices in the USA which are manufactured by the Group in the UK;
– Deltex Medical, Espana, incorporated and operating in Spain, markets and sells medical devices in Spain which are
manufactured by the Group in the UK.
13. Inventories
2007 2006
£’000 £’000
Raw materials and consumables 117 133
Work in progress 38 34
Finished goods 286 216
441 383
There is no material difference between the book value and the replacement cost of the inventories shown. Based on
inventory holdings and sales history, no specific or general provisions for obsolete or slow moving inventory (2006: £Nil)
is considered necessary.
14. Trade and other receivables2007 2006
£’000 £’000
Amounts falling due within one year:
Trade receivables 922 674
Less: provision for impairment of trade receivables (76) (64)
Trade receivables – net 846 610
Corporation tax recoverable 47 45
Other debtors 13 6
Prepayments and accrued income 711 625
1,617 1,286
Amounts falling due after more than one year:
Trade receivables 20 52
1,637 1,338
All non-current receivables are due within two years (2006: three years) from the balance sheet date.
Trade receivables that are less than two months past due are not considered impaired. As of 31 December 2007,
trade receivables of £191,000 (2006: £230,000) were more than two months past due but not impaired. These relate to
a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade
receivables is as follows:
2007 2006
£’000 £’000
Up to two months 137 127
Two to six months 24 –
More than six months 30 103
At 31 December 191 230
Notes to the Financial Statements continued
for the year ended 31 December 2007
report and accounts 200734
77471 NOTES 14/4/08 21:30 Page 34
14. Trade and other receivables continued
As of 31 December 2007, specific trade receivables of £76,000 (2006: £64,000) were impaired and provided for.
Based on the payment profile of the Group’s debtors, it is not considered necessary to provide a general provision
for bad debts. The ageing of these receivables is as follows:
2007 2006
£’000 £’000
Over six months 76 64
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
2007 2006
£’000 £’000
Pounds 486 386
Euros 253 208
US Dollars 127 68
At 31 December 866 662
Movement on the group provision for impairment of trade receivables are as follows:
2007 2006
£’000 £’000
At 1 January 64 66
Provision for receivables impairment 62 –
Receivables written off during the year as uncollectible (50) –
Unused amounts reversed – (2)
At 31 December 76 64
The creation and release of provision for impaired receivables have been included in sales and marketing costs in the
income statement. Amounts charged to the allowance account are generally written off, when there is no expectation
of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned
above. The group does not hold any collateral as security.
15. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity
of three months or less. The carrying amount of these assets approximates their fair value.
report and accounts 2007 35
77471 NOTES 14/4/08 21:30 Page 35
16. Borrowings
Borrowings comprise an amount of £407,000 (2006: £297,000) representing the cash drawn down under an invoice
discounting facility. The amount outstanding under this facility is secured by way of a fixed charge over the Group’s
UK and a proportion of the International trade debtors. Amounts drawn down under the facility are repayable within
90 days from the end of the month of invoice.
The facility is subject to six months notice on either side and is not subject to annual review.
The directors consider the carrying value of the borrowings approximates to their fair value.
The carrying amounts of the group’s borrowings are denominated in the following currencies:
2007 2006
£’000 £’000
Pounds 302 242
Euros 105 55
407 297
As at 31 December the Group had £37,000 (2006: £Nil) undrawn under the above facility.
17. Trade and other payables
2007 2006
£’000 £’000
Trade creditors 443 373
Obligations under finance leases – 1
Other tax and social security payable 103 98
Other creditors 127 171
Accruals and deferred income 531 517
1,204 1,160
The directors consider that the carrying amount of trade payables approximates to their fair value.
18. Provision for other liabilities and charges
2007 2006
£’000 £’000
At 1 January 50 34
Charged to the Income Statement 27 16
At 31 December 77 50
The above provision relates to national insurance that may become payable on share option gains and is included as a
non-current liability.
Notes to the Financial Statements continued
for the year ended 31 December 2007
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77471 NOTES 14/4/08 21:30 Page 36
19. Pension obligations
The Group operates a defined contribution pension scheme for its UK employees. The assets of the scheme are
held separately from those of the Group in independently administered funds. The Group also maintains a defined
contribution Salary Reduction Simplified Employee Pension Plan (“SARSEP”) for US employees. Under the terms of
the SARSEP, the Group may make discretionary contributions on behalf of the employees. The pension cost
represents the contributions paid and payable by the Group to these schemes and in aggregate amounted to
£50,000 (2006: £45,000).
20. Called up share capital
Authorised 2007 2006
£’000 £’000
6,587,546,210 ordinary shares of 1 pence each 65,875 65,875
Called up, allotted and fully paid 2007 2006
£’000 £’000
92,487,907 1p ordinary shares (2006: 80,057,125) 925 800
The movement in the Company’s issued share-capital during the year is as follows:
During the year, the Company issued 899,437 1p ordinary shares pursuant to the exercise of options. The Company
also placed 11,133,192 1p ordinary shares with institutional and other investors. In addition a total of 398,153 1p
ordinary shares were issued to certain of the Company’s advisors who elected to take shares in lieu of cash payment
for their services to the Company.
Employee options
Current and former employees of the Group hold options to subscribe for shares in the Company. The following table
sets out movements in share options during the year:
Employee share options Executive Enterprise
Share Management
Option Incentive
Scheme Scheme Total
No. No. No.
At 1 January 2007 4,434,188 2,105,343 6,539,531
Additions 1,570,000 716,108 2,286,108
Exercised (5,000) (84,437) (89,437)
Lapsed (120,000) (40,000) (160,000)
At 31 December 2007 5,879,188 2,697,014 8,576,202
All options relate to one 1p ordinary share.
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77471 NOTES 14/4/08 21:30 Page 37
20. Called up share capital continued
As at 31 December 2007 the following options to subscribe for ordinary shares of 1p each were outstanding under
employee share schemes:
Number of shares Exercise price Exercise period Exercise period
£ from to
Current Employees
16,016 1.07 4 December 2001 3 December 2008
12,012 1.07 12 May 2002 11 May 2009
43,043 2.20 12 January 2003 11 January 2010
74,000 1.00 5 April 2004 4 April 2011
167,000 See note (a) 7 November 2004 6 November 2011
0.25
14,000 See note (a) 19 March 2005 18 March 2012
0.25
544,000 See note (a) 27 November 2005 26 November 2012
0.25
572,000 See note (a) 28 October 2006 27 October 2013
0.15
958,334 See note (b) 0.01 24 March 2004 27 October 2013
1,382,000 See note (a) 12 October 2007 11 October 2014
0.24
394,998 See note (b) 0.01 15 March 2005 11 October 2014
1,376,000 See note (a)
0.2075 28 March 2009 27 March 2016
627,574 See note (b) 0.01 15 March 2007 19 May 2016
1,548,000 See note (a)
0.295 29 June 2010 28 June 2017
716,108 See note (b) 0.01 7 April 2008 28 June 2017
8,445,085
Number of shares Exercise price Exercise period Exercise period
£ from to
Former Employees
32,032 1.07 18 June 2001 17 June 2008
68,068 1.07 4 December 2001 3 December 2008
11,011 2.20 12 January 2003 11 January 2010
6,006 2.20 7 February 2003 6 February 2010
14,000 0.24 12 October 2007 11 October 2014
131,117
8,576,202
Notes:
(a) Options exercisable subject to the criterion set by the board that the shares of Deltex Medical Group plc should
have outperformed the FTSE Techmark MediScience Index between the date of grant and the date of exercise
of the option.
(b) Enterprise Management Incentive Scheme
Other options
Options, other than employee share options are as follows:
As at 1 Lapsed Exercised As at 31 January during the in the December Exercise Exercise Exercise
2007 period period 2007 price period PeriodNo. No. No. No. £ from to
Company contractor (1) 20,000 – – 20,000 0.25 19 March 2005 18 March 2012
Actamed Limited (1) 120,000 120,000 – – 0.25 1 July 2004 30 June 2007
Company distributors (2) 500,000 – – 500,000 0.2125 31 July 2004 31 December 2008
Company distributors (2) 400,000 – – 400,000 0.20 4 May 2005 31 December 2008
Company distributors (2) 800,000 – 800,000 – 0.175 3 May 2006 15 December 2007
Company distributors (2) 250,000 – – 250,000 0.19 13 October 2008 12 October 2015
2,090,000 120,000 800,000 1,170,000
(1) Options are exercisable in whole on any one occasion during the exercise period.
(2) Options are exercisable in part or in whole at any time during the exercise period.
All options relate to one 1p ordinary share.
Notes to the Financial Statements continued
for the year ended 31 December 2007
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77471 NOTES 14/4/08 21:30 Page 38
21. Share based payments
The Group has two share option schemes: the Deltex Medical Group plc Approved Share Option Scheme and the
Deltex Medical Group plc Enterprise Management Incentive plan (“EMI”).
Options granted under the Approved Share Option Scheme are at the market price on the date of grant. Options
granted under the EMI scheme are granted at 1p per option.
Details of share options outstanding during the year for the Approved Share Options Scheme is as follows:
2007 2006
Number of Weighted Number of Weighted
share average share average
options exercise price options exercise price
No. (in £) No. (in £)
Outstanding at the beginning of the period 4,434,188 0.284 3,372,188 0.323
Granted during the period 1,570,000 0.295 1,419,000 0.208
Forfeited during the period (120,000) 0.291 (357,000) 0.394
Exercised during the period (5,000) 0.150 – –
Expired during the period – – – –
Outstanding at the end of the period 5,879,188 0.287 4,434,188 0.284
Exercisable at the end of the period 2,955,188 0.320 1,674,188 0.320
The options outstanding at 31 December 2007 had a weighted average exercise price of 28.7p (2006: 28.4p), and a
weighted average remaining contractual life of 84 months (2006: 88 months). On 29 June 2007, options were granted
with an estimated fair value of 13.0p per share and £204,100 in aggregate. On 28 March 2006, options were granted
with an estimated fair value of 13.0p per share and £184,470 in aggregate.
The inputs into the Black-Scholes model are as follows:
June March
2007 2006
Fair value at measurement date 13.0p 13.0p
Share price 29.50p 20.75p
Exercise price 29.50p 20.75p
Expected volatility 48.00% 62.10%
Expected option life
(expressed as weighted average life used in the modelling) 4 years 6 years
Risk free interest rate 5.76% 4.48%
Details of share options outstanding during the year for the EMI Scheme is as follows:
2007 2006
Number of Weighted Number of Weighted
share average share average
options exercise price options exercise price
No. (in £) No. (in £)
Outstanding at the beginning of the period 2,105,343 0.01 1,665,071 0.01
Granted during the period 716,108 0.01 734,546 0.01
Forfeited during the period (40,000) 0.01 (232,535) 0.01
Exercised during the period (84,437) 0.01 (61,739) 0.01
Expired during the period – – – –
Outstanding at the end of the period 2,697,014 0.01 2,105,343 0.01
Exercisable at the end of the period 2,697,014 0.01 1,353,332 0.01
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21. Share based payments continued
The options outstanding at 31 December 2007 had a weighted average exercise price of 1p (2006: 1p), and a
weighted average remaining contractual life of 90 months (2006: 94 months). On 29 June 2007, options were with
an estimated fair value of 29.0p per share and £205,148 in aggregate. On 19 May 2006 options were granted with
an estimated fair value of 18p per share and £132,218 in aggregate.
The inputs into the Black-Scholes model are as follows:
June May
2007 2006
Fair value at measurement date 29.0p 18.0p
Share price 29.50p 18.75p
Exercise price 1.0p 1.0p
Expected volatility 48.2% 49.0%
Expected option life
(expressed as weighted average life used in the modelling) 3 years 3 years
Risk free interest rate 5.76% 4.48%
Where appropriate, for both schemes, the expected volatility has been based on historical volatility over a period
of the same length as the expected option life and ending on the grant date. Where the historic period is shorter
than the expected option life, volatility has been measured over the maximum amount of time historic information
can be obtained.
The fair value of the equity-settled share-based payment is re-charged by the Group company to the subsidiary
operating company at fair value. The expenses is therefore recognised in the subsidiary operating company, with
the equity reserve being recognised in the Group Company.
22. Statement of changes in equity
Retained
Share Share Capital Other Translation earnings/
capital premium redemption Reserve reserve (deficit)
£’000 £’000 £’000 £’000 £’000 £’000
At 1 January 2006 726 12,712 17,476 768 – (30,603)
Shares issued during the year 74 – – – –
Premium on shares issued
during the year – 1,417 – – – –
Issue expenses – (43) – – –
Loss for the financial year – – – – (1,994)
Credit in respect of service cost
settled by award of options – – – 246 – –
Exchange movements taken
to reserves – – – (9) –
At 31 December 2006 800 14,086 17,476 1,014 (9) (32,597)
Share issued during the year 125 – – – –
Premium on shares issued
during the year – 2,488 – – – –
Issue expenses – (151) – – – –
Loss for the financial year – – – – – (2,188)
Credit in respect of service
cost settled by award of options – – – 328 – –
Exchange movements taken
to reserves – – – – 8 –
At 31 December 2007 925 16,423 17,476 1,342 (1) (34,785)
The cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, is
£6.4 million (2006: £6.4 million).
Notes to the Financial Statements continued
for the year ended 31 December 2007
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23. Commitments
(a) Operating lease commitments
At 31 December 2007 the Group had future aggregate minimum lease payment commitments for land and buildings
and vehicles, under non-cancellable operating leases as follows:
2007 2007 2006 2006
Land and Land and
Buildings Other Buildings Other
£’000 £’000 £’000 £’000
Expiring within one year 62 12 62 8
Expiring within two to five years 104 14 163 2
166 26 225 10
(b) Clinical trial support
The Group has contracted for, but not incurred an additional £50,000 with regard to clinical trial support at the
balance sheet date.
24. Financial risk management
The Group’s financial instruments comprise some cash and various items, such as trade debtors and trade creditors
that arise directly from its operations.
It is, and has been throughout the period under review, the group’s policy that no trading in financial instruments shall
be undertaken.
The board reviews and agrees policies for managing liquidity, interest rate and exchange rate risks. The policies have
remained unchanged throughout the year and are summarised below:
Liquidity risk
The Group is principally managed to ensure that sufficient equity funds are available to meet liquidity requirements.
The Group also has available to it an invoice discounting facility with the Group’s bankers to supplement working
capital needs.
Currency risk
The Group has overseas subsidiaries in the USA and as a result the Group’s sterling balance sheet can be affected
by movements in the US dollar/sterling exchange rates.
The Group also has transactional currency exposures. Such exposures arise from sales and purchases by operating
units in currencies other than the unit’s functional currency.
At 31 December 2007, if the currency had strengthened by 10% against the US dollar with all other variables held
constant, post-tax loss for the year would have been £21,000 (2006: £3,000) lower. Equity would have been
£21,000 (2006: £3,000) lower.
The Group does not engage in any hedging in respect of currency risks.
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24. Financial risk management continued
Credit risk
The Group is exposed to credit related losses in the event of non-performance by counterparties in connection with
financial instruments.
The Group takes actions to mitigate this exposure by ensuring adequate background on credit risk is known about
counterparties prior to contracting with them and through selection of counterparties with suitable credit ratings.
Interest rate and currency profile of financial assets and liabilities
The interest rate and currency rate profile of financial assets and liabilities of the Group as at 31 December 2007 was:
2007 2007 2007 2007 2006 2006 2006 2006
Floating Fixed Nil Floating Fixed Nil
Rate Rate Rate Total Rate Rate Rate Total
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Financial assets
Sterling 1,195 – – 1,195 712 – – 712
Euros 340 – – 340 278 – – 278
US dollar 154 – – 154 141 – – 141
1,689 – – 1,689 1,131 – – 1,131
Financial liabilities
Sterling 1,551 – 77 1,628 1,427 1 50 1,478
Euros 12 – – 12 11 – – 11
US dollar 51 – – 51 18 – – 18
1,614 – 77 1,691 1,456 1 50 1,507
The Group places its cash balances on deposit at floating rates of interest. Surplus cash balances are placed on short
term deposit (less than six months). No interest rate swaps are used.
Financial liabilities principally comprise the Group’s borrowings under an invoice discounting facility with the Royal
Bank of Scotland and trade creditors. All interest is payable at floating rate of 2.5% above LIBOR.
In 2006, the fixed rate financial liabilities comprised finance leases with a weighted average fixed interest rate of 9.12%
over a weighted average term of 2 months.
Borrowing facilities
During 2004 a £500,000 invoice discounting facility with the Company’s bankers was negotiated, £407,000 of this
facility had been drawn down at 31 December 2007 (2006: £297,000), £37,000 remained undrawn (2006: £Nil).
Amounts drawn down under this facility are repayable within 90 days from the end of the month of invoice. This
is an ongoing facility.
Fair value of financial assets and liabilities
There is a close approximation between the book values and the fair values of the Group’s financial assets and
liabilities. Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction
between willing parties, other than a forced or liquidation sale, and excludes accrued interest.
Primary financial instruments held or issued to finance the Group’s operations as at 31 December 2007 were:
Financial liabilities maturity
2007 2006
Less than Less than
1 year 1 year
£’000 £’000
Borrowings (407) (297)
Trade and other payables (1,132) (1,062)
(1,539) (1,359)
Notes to the Financial Statements continued
for the year ended 31 December 2007
report and accounts 200742
77471 NOTES 14/4/08 21:30 Page 42
24. Financial risk management continued
Financial assets and liabilities by category
2007 2006
Loans and Loans and
receivables receivables
£’000 £’000
Assets as per balance sheet
Trade receivables 922 674
Cash and cash equivalents 763 418
Total 1,685 1,092
Other Other
financial financial
liabilities liabilities
Liabilities as per balance sheet
Borrowings 407 297
Summary of methods and assumptions
Cash balances and short term borrowings Fair value approximates to the carrying amount because of the
short maturity of these instruments.
Long term borrowings The fair values of fixed rate liabilities have been calculated by
discounting cash flows at prevailing interest rates.
Currency exposures on monetary assets
The tables below show the extent to which members of the Group have monetary assets and liabilities in currencies
other than their local currency. Foreign exchange differences on re-translation of these assets and liabilities are taken
to the Income Statement.
Net foreign currency monetary assets
US Dollars Euros Total
£’000 £’000 £’000
2007 – functional currency
Sterling 62 345 407
2006 – functional currency
Sterling 65 270 335
Net foreign currency monetary liabilities
US Dollars Euros Total
£’000 £’000 £’000
2007 – functional currency
Sterling 6 8 14
2006 – functional currency
Sterling 1 11 12
report and accounts 2007 43
77471 NOTES 14/4/08 21:30 Page 43
25. Related party transactions
Transactions within the group are not disclosed as all such transactions have been eliminated on consolidation.
Directors’ interests in the share capital of the Company are disclosed on page 15.
The following transactions were carried out with related parties:
Key management compensation
2007 2006
£’000 £’000
Aggregate emoluments 821 816
Sums paid to third parties for directors’ services 25 25
Contributions to directors’ personal pension schemes 17 16
863 857
In addition to the above is an amount of £282,000 (2006: £205,000) charged to the Income Statement with respect to
IFRS2 “Share based payments” for key management.
26. Contingent liabilities
The directors are not aware of any contingent liabilities.
27. Subsequent events
Conditional placing
On April 7 2008, the Company announced that it had accepted an irrevocable undertaking from Nexus Medical
Partners II, LP to subscribe for 3,030,303 ordinary shares of 1p each at a price of 22.0p per share to raise £666,667.
The funds to be invested are specifically for use in expanding the US market, including the hiring of additional
management and field staff in key locations to manage and support the growing demand for the Company’s
products. The funds are managed by Nexus Medical Partners on behalf of a US State Government to promote
economic development.
The undertaking has been accepted by the Company subject to appropriate approvals being obtained at the
Company’s forthcoming Annual General Meeting and assumes no material adverse changes in the Company’s
business prior to the shares being issued. Ed Snape, a non-executive director of Deltex Medical, is also a principal
of Nexus Medical Partners.
The shares will rank pari passu with the existing issued shares of the Company. This allotment is conditional on the
appropriate authorities being received at the next general meeting of the Company. Following the issue of these new
shares, subject to no other changes, the Company will have a total of 95,931,956 ordinary shares in issue. This total
includes an allotment of 413,746 new ordinary shares which are also subject to approval at the next general meeting of
the Company as announced on 25 January 2008. Application will be made for these shares to be admitted to trading
on the Alternative Investment Market.
Notes to the Financial Statements continued
for the year ended 31 December 2007
report and accounts 200744
77471 NOTES 14/4/08 21:30 Page 44
28. Explanation of transition to IFRS
For all periods up to and including 31 December 2006 the Group prepared its financial statements in accordance with
UK GAAP.
In preparing these financial statements, the Group has started from an opening balance sheet as at 1 January 2006,
the Group’s date of transition to IFRS, and made those changes in accounting policies and other restatements required
by IFRS.
When a company adopts IFRS for the first time it is generally required to present comparative data as though IFRS had
always been applicable. However, the standard which covers the initial introduction of IFRS, IFRS 1: First-time adoption
of International Financial Reporting Standards, allows companies to take advantage of a number of exemptions from
restating historical data in order to simplify the transition process.
Business Combinations
The Group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations that
took place prior to the transition date. Consequently goodwill arising on business combination before the transition
date remains at its previous UK GAAP carrying value of £Nil, as at the date of transition.
Cumulative translation differences
IAS 21 The Effects of ‘Changes in Foreign Exchange Rates’ requires annual translation differences arising on
the opening net assets and net profit or loss of each foreign subsidiary to be treated as a separate component
of shareholders’ equity, and the cumulative net surplus/deficit for each subsidiary carried forward and added
to/subtracted from any gains/losses on the future disposal of that subsidiary. Deltex Medical has taken the option
to set these cumulative gains/losses at zero as at the date of transition to IFRS. Any gains and losses recognised
in the income statement on subsequent disposals of foreign operations will therefore include only those translation
differences arising after 1 January 2006, the IFRS transition date.
The analysis below shows a reconciliation of net assets and profit as reported under UK GAAP at 1 January 2006 to
the revised numbers under IFRS as reported in these financial statements.
report and accounts 2007 45
77471 NOTES 14/4/08 21:30 Page 45
IFRS
UK effect
GAAP (Note a) IFRS
£’000 £’000 £’000
Assets
Non-current assets
Property, plant and equipment 85 – 85
Trade and other receivables 99 – 99
Intangible assets – 3 3
Total non-current assets 184 3 187
Current assets
Inventories 443 – 443
Trade and other receivables 908 – 908
Current income tax recoverable 59 – 59
Cash and cash equivalents 606 – 606
Total current assets 2,016 – 2,016
Total assets 2,200 3 2,203
Liabilities
Current liabilities
Borrowings (219) – (219)
Trade and other payables (871) – (871)
Provisions (34) – (34)
Total liabilities (1,124) – (1,124)
Net assets 1,076 3 1,079
Equity
Share capital 726 – 726
Share premium 12,712 – 12,712
Capital redemption reserve 17,476 – 17,476
Other reserves 768 – 768
Translation reserve – – –
Retained earnings/(deficit) (30,606) 3 (30,603)
Total equity 1,076 3 1,079
Reconciliation of Income Statementfor the year ended 31 December 2006
UK
IFRS
GAAP
effect
IFRS(Note b)
£’000 £’000 £’000
Revenue 3,511 – 3,511
Cost of sales (1,182) – (1,182)
Gross profit 2,329 – 2,329
Net operating expenses (4,431) 88 (4,343)
Operating loss (2,102) 88 (2,014)
Financial income 8 – 8
Financial expenditure (11) – (11)
Loss on ordinary activities before taxation (2,105) 88 (2,017)
Tax on loss on ordinary activities 23 – 23
Loss for the financial year (2,082) 88 (1,994)
Reconciliation of Group Balance Sheetat 1 January 2006
report and accounts 200746
77471 NOTES 14/4/08 21:30 Page 46
IFRS
UK effect
GAAP (Note c) IFRS
£’000 £’000 £’000
Assets
Non-current assets
Property, plant and equipment 47 – 47
Trade and other receivables 52 – 52
Intangible assets – 91 91
Total non-current assets 99 91 190
Current assets
Inventories 383 – 383
Trade and other receivables 1,241 – 1,241
Current income tax recoverable 45 – 45
Cash and cash equivalents 418 – 418
Total current assets 2,087 – 2,087
Total assets 2,186 91 2,277
Liabilities
Current liabilities
Borrowings (297) – (297)
Trade and other payables (1,160) – (1,160)
Provisions (50) – (50)
Total liabilities (1,507) – (1,507)
Net assets 679 91 770
Equity
Share capital 800 – 800
Share premium 14,086 – 14,086
Capital redemption reserve 17,476 – 17,476
Other reserves 1,014 – 1,014
Translation reserve – (9) (9)
Retained earnings/(deficit) (32,697) 100 (32,597)
Total equity 679 91 770
report and accounts 2007 47
Reconciliation of Group Balance Sheetat 31 December 2006
77471 NOTES 14/4/08 21:30 Page 47
a) Explanation of effects of IFRS on the Group balance sheet at 1 January 2006
1 January
2006
£’000
Total equity under UK GAAP 1,076
Research and development reclassification 3
Total equity under IFRS 1,079
b) Reconciliation of loss and recognised income and expense of the Group for the year ended 31 December 2006
31 December
2006
£’000
Loss after tax under UK GAAP (2,082)
Research and development expenditure reclassification 88
Loss after tax under IFRS (1,994)
c) Explanation of effects of IFRS on the Group balance sheet at 31 December 2006
31 December
2006
£’000
Total equity under UK GAAP 679
Research and development reclassification 91
Total equity under IFRS 770
d) Explanation of effects of IFRS on the 2006 Group cash flow statement
The impact on the cash flow is minimal, as the conversion from UK GAAP to IFRS comprises non-cash adjustments.
There are changes to the order in which items are presented, but these have no overall financial impact. The IFRS
adjustments are mainly reflected between the different categories of working capital.
Explanations of reconciling items from UK GAAP to IFRS
report and accounts 200748
77471 NOTES 14/4/08 21:30 Page 48
We have audited the parent company financial statements of Deltex Medical Group plc for the year ended 31 December
2007 which comprise the Balance Sheet and the related notes. These parent company financial statements have been
prepared under the accounting policies set out therein.
We have reported separately on the group financial statements of Deltex Medical Group Plc for the year ended
31 December 2007.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the parent company financial statements in accordance
with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice)
are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the parent company financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been
prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985
and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether
the parent company financial statements in accordance with the Companies Act 1985. We also report to you whether in
our opinion the information given in the Directors’ Report is consistent with the parent company financial statements. The
information given in the Directors’ Report includes that specific information presented in the Operating Review that is cross
referred from the Business Review section of the Directors’ Report.
In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received
all the information and explanations we require for our audit, or if information specified by law regarding directors’
remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it is consistent with the audited parent
company financial statements. The other information comprises only the Chairman’s Statement, Operating Review and
the Director’s Report. We consider the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
parent company financial statements. It also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the parent company financial statements, and of whether the accounting policies are
appropriate to the company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements to
be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation of information in the parent company financial statements.
Opinion
In our opinion:
● the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally
Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2007;
● the parent company financial statements have been properly prepared in accordance with the Companies
Act 1985; and
● the information given in the Directors’ Report is consistent with the parent company financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Southampton
15 April 2008
report and accounts 2007 49
Independent Auditors’ Reportto the members of Deltex Medical Group plc
77471 NOTES 14/4/08 21:30 Page 49
2007 2006
Note £’000 £’000
Fixed assets
Investments 4 26,422 26,422
Current assets
Debtors:
amounts falling due within one year 5 16 31
amounts falling due after more than one year 5 3,480 1,424
Cash at bank and in hand 651 266
4,147 1,721
Creditors:
amounts falling due within one year 6 (183) (135)
Net current assets 3,964 1,586
Net assets 30,386 28,008
Capital and reserves
Called up share capital 7 925 800
Share premium account 9 16,423 14,086
Capital redemption reserve 9 17,476 17,476
Other reserves 9 1,342 1,014
Profit and loss account 9 (5,780) (5,368)
Equity shareholders’ funds 10 30,386 28,008
These financial statements were approved by the board of directors on 15 April 2008 and signed on its behalf by:
N J Keen
E A Phillips
Company Balance Sheetat 31 December 2007
report and accounts 200750
77471 NOTES 14/4/08 21:30 Page 50
1. Principal accounting policies
These financial statements have been prepared under the historical cost convention, and the accounting policies set
out below, all of which have been applied consistently throughout the year and in accordance with applicable United
Kingdom accounting standards.
Investments
Investments are stated at cost less any provisions for diminution in value.
Deferred taxation
Deferred taxation is recognised on a full provision basis for timing differences between the recognition of gains and
losses in the financial statements and their recognition in the taxation computation. Deferred tax is measured at the
average tax rates that are expected to apply in the period in which the timing differences are expected to reverse
based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. A deferred
tax asset is only recognised if it is considered more likely than not there will be suitable profits against which the
underlying timing difference can be reversed. Deferred tax is measured on a non-discounted basis.
Foreign currency translation
Foreign currency assets and liabilities are translated into sterling at the rate of exchange ruling at the balance sheet
date. Transactions in overseas currencies are translated at the rate of exchange ruling on the date of the transaction
or at a contracted rate if applicable. Any gains or losses arising during the year have been dealt with through the
profit and loss account.
Pension costs
The Company provides pension arrangements to its executive directors through the directors, defined contribution
personal pension schemes. Contributions and pension costs are based on pensionable salary and are charged as an
expense as they fall due. The Company has no further payment obligations once the contributions have been paid.
Share based payments
The Company awards directors, employees and certain of the Group’s distributors and advisors equity-settled share-
based payments, from time to time, on a discretionary basis. In accordance with FRS20 “Share–based payments”,
equity settled share-based payments are measured at fair value at the time of grant. Fair value is measured by use
of Black Scholes model. The fair value determined at the grant date of the equity–settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the number of
shares that will eventually vest. The options are subject to vesting conditions of up to six years, and their fair value
is recognised as an expense with a corresponding increase in “other reserves” equity over the vesting period.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value)
and share premium when the options are exercised. Provision for National Insurance payable on such gains is
recognised in accordance with UITF25.
The fair value of the equity-settled share-based payment is re-charged by the Company to the subsidiary operating
company at fair value. The expense is therefore recognised in the subsidiary operating company, with the equity
reserve being recognised in the Group Company.
Related party transactions and cash flow statement
The Company is the ultimate parent undertaking of the Deltex Medical Group and is therefore included in the
consolidated financial statements of that Group, which are publicly available. Consequently the Company has taken
advantage of the exemptions from preparing a cash flow statement under the terms of FRS1 (Revised 1996) “Cash
Flow Statements” and the exemptions under FRS 8 “Related Party Disclosures” relating to the disclosure of transactions
with other Group companies.”
2. Loss for the year
As permitted by Section 230 of the Companies Act 1985 the Company has elected not to present its own profit and
loss account for the year. Deltex Medical Group plc reported a loss for the financial year ended 31 December 2007
of £412,000 (2006: £525,000).
report and accounts 2007 51
Notes to the Company Financial Statements for the year ended 31 December 2007
77471 NOTES 14/4/08 21:30 Page 51
3. Directors emoluments
The remuneration of the non-executive directors was as follows:
2007 2006
£ £
Aggregate emoluments 60,200 72,000
Sums paid to third parties for directors’ services 25,000 25,000
Contributions to directors’ personal pension schemes – –
85,200 97,000
There are no (2006: Nil) benefits accruing to directors under personal pension plans.
Included in the above figure is an amount paid to the employing company of a non-executive director for the services
of that director of £25,000 (2006: £25,000).
All executive directors in office at the year-end receive their emoluments from Deltex Medical Limited, a subsidiary
undertaking of the Group. Their services to the Company are incidental to their services to the Group as a whole.
The average number of non-executive directors by function was as follows:
2007 2006
No. No.
Administration 4 5
The company had no additional employees other than the directors.
4. Investments
2007 2007 2007 2006 2006 2006
Investments Loans Investments Loans
in subsidiary to subsidiary in subsidiary to subsidiary
undertakings undertakings Total undertakings undertakings Total
£’000 £’000 £’000 £’000 £’000 £’000
At 1 January 846 25,576 26,422 844 25,576 26,420
Additions – – – 2 – 2
At 31 December 846 25,576 26,422 846 25,576 26,422
Loans to subsidiary undertakings in the amount of £25,576,000 relates to long term balances with Deltex Medical
Limited and Deltex Medical Holdings, Inc. The directors consider that these balances are intended to be, for all
practical purposes, permanent equity and do not expect them to be repayable in the foreseeable future. These loans
have therefore been treated as part of Deltex Medical Group plc net investment in these subsidiaries, with exchange
difference arising on the long term balance with Deltex Medical Holdings, Inc. being dealt with as adjustments to
reserves. Balances since 1 January 2006 have been treated as long term debtors, as the directors believe the amounts
loaned to subsidiary undertakings are likely to be repaid within ten years.
Details of the Company’s principal trading subsidiary undertakings are set out below. In all cases the holding is 100%
of the ordinary shares:
● Deltex Medical Limited incorporated and operating in Great Britain, manufactures and markets medical devices;
● Deltex Medical Holdings, Inc incorporated and operating in the United States of America, markets and sells
medical devices in the USA which are manufactured by the group in the UK;
● Deltex Medical, Espana, incorporated and operating in Spain, markets and sells medical devices in Spain which
are manufactured by the group in the UK.
Notes to the Company Financial Statements continued
for the year ended 31 December 2007
report and accounts 200752
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5. Debtors
2007 2006
£’000 £’000
Amounts falling due within one year:
Other debtors 6 6
Prepayments and accrued income 10 25
16 31
Amounts falling due after more than one year:
Loans to subsidiary undertakings 3,480 1,424
3,496 1,455
6. Creditors: amounts falling due within one year
2007 2006
£’000 £’000
Other creditors 87 79
Accruals and deferred income 96 56
183 135
7. Called up share capital
Authorised 2007 2006
£’000 £’000
6,587,546,210 ordinary shares of 1 pence each 65,875 65,875
Called up, allotted and fully paid 2007 2006
£’000 £’000
92,487,907 1p ordinary shares (2006: 80,057,125) 925 800
The movement in the Company’s issued share-capital during the year is as follows:
During the year, the Company issued 899,437 1p ordinary shares pursuant to the exercise of options. The Company
also placed 11,133,192 1p ordinary shares with institutional and other investors. In addition a total of 398,153 1p
ordinary shares were issued to certain of the Company’s advisors who elected to take shares in lieu of cash payment
for their services to the Company.
Employee options
Current and former employees of the Group hold options to subscribe for shares in the Company. The following table
sets out movements in share options during the year:
Employee share options
Executive Enterprise
Share Management
Option Incentive
Scheme Scheme Total
No. No. No.
At 1 January 2007 4,434,188 2,105,343 6,539,531
Additions 1,570,000 716,108 2,286,108
Exercised (5,000) (84,437) (89,437)
Lapsed (120,000) (40,000) (160,000)
At 31 December 2007 5,879,188 2,697,014 8,576,202
All options relate to one 1p ordinary share.
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77471 NOTES 14/4/08 21:30 Page 53
7. Called up share capital continued
As at 31 December 2007 the following options to subscribe for ordinary shares of 1p each were outstanding under
employee share schemes:
Number of shares Exercise price Exercise period Exercise period
£ from to
Current Employees
16,016 1.07 4 December 2001 3 December 2008
12,012 1.07 12 May 2002 11 May 2009
43,043 2.20 12 January 2003 11 January 2010
74,000 1.00 5 April 2004 4 April 2011
167,000 See note (a) 7 November 2004 6 November 2011
0.25
14,000 See note (a) 19 March 2005 18 March 2012
0.25
544,000 See note (a) 27 November 2005 26 November 2012
0.25
572,000 See note (a) 28 October 2006 27 October 2013
0.15
958,334 See note (b) 0.01 24 March 2004 27 October 2013
1,382,000 See note (a) 12 October 2007 11 October 2014
0.24
394,998 See note (b) 0.01 15 March 2005 11 October 2014
1,376,000 See note (a) 28 March 2009 27 March 2016
0.2075
627,574 See note (b) 0.01 15 March 2007 19 May 2016
1,548,000 See note (a) 29 June 2010 28 June 2017
0.295
716,108 See note (b) 0.01 7 April 2008 28 June 2017
8,445,085
Former Employees
32,032 1.07 18 June 2001 17 June 2008
68,068 1.07 4 December 2001 3 December 2008
11,011 2.20 12 January 2003 11 January 2010
6,006 2.20 7 February 2003 6 February 2010
14,000 See note (a) 12 October 2007 11 October 2014
0.24
131,117
8,576,202
Notes:
(a) Options exercisable subject to the criterion set by the board that the shares of Deltex Medical Group plc should
have outperformed the FTSE Techmark MediScience Index between the date of grant and the date of exercise of
the option.
(b) Enterprise Management Incentive Scheme.
Other options
Options, other than employee share options are as follows:
As at 1 Lapsed Exercised As at 31 January during the in the December Exercise Exercise Exercise
2007 period period 2007 price period PeriodNo. No. No. No. £ from to
Company contractor (1) 20,000 – – 20,000 0.25 19 March 2005 18 March 2012
Actamed Limited (1) 120,000 120,000 – – 0.25 1 July 2004 30 June 2007
Company distributors (2) 500,000 – – 500,000 0.2125 31 July 2004 31 December 2008
Company distributors (2) 400,000 – – 400,000 0.20 4 May 2005 31 December 2008
Company distributors (2) 800,000 – 800,000 – 0.175 3 May 2006 15 December 2007
Company distributors (2) 250,000 – – 250,000 0.19 13 October 2008 12 October 2015
2,090,000 120,000 800,000 1,170,000
(1) Options are exercisable in whole on any one occasion during the exercise period.
(2) Options are exercisable in part or in whole at any time during the exercise period.
All options relate to one 1p ordinary share.
Notes to the Company Financial Statements continued
for the year ended 31 December 2007
report and accounts 200754
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8. Share based payments
The Group awards directors, employees and certain of the Company’s distributors and advisors equity-settled share-
based payments, from time to time, on a discretionary basis, in accordance with FRS20 “Share-based payments”.
The terms and conditions of all awards and grants made since 7 November 2002 are as follows:
Number of Contractual
Employees instruments Vesting life of
Grant date Plan entitled granted conditions option
June 2007 Enterprise All UK employees 716,108 Exercise after 10 years
Management date of next
Incentive Scheme preliminary
announcement
following issue of
award
June 2007 Executive Share All employees 1,570,000 Three years of 7 years
Option Scheme service plus
satisfaction of
performance
conditions
May 2006 Enterprise All UK employees 734,546 Exercise after 10 years
Management date of next
Incentive Scheme preliminary
announcement
following issue of
award
March 2006 Executive Share All employees 1,419,000 Three years of 7 years
Option Scheme service plus
satisfaction of
performance
conditions
December 2005 Unapproved Certain of the 800,000 None 1 year
options Group’s distributors (renewed)
October 2005 Unapproved Certain of the 250,000 None 1 year
options Group’s distributors (renewed)
February 2005 Unapproved Certain of the 400,000 None 1 year
options Group’s distributors (renewed)
October 2004 Executive Share All employees 1,475,000 Three years of 7 years
Option Scheme service plus
satisfaction of
performance
conditions
October 2004 Enterprise All UK employees 460,215 Exercise after date 10 years
Management of next preliminary
Incentive Scheme announcement
following issue of
award
December 2003 Unapproved Certain of the 1,000,000 None 1 year
options Company’s (renewed)
distributors
October 2003 Enterprise All UK employees 1,583,333 Exercise after 10 years
Management date of next
Incentive Scheme preliminary
announcement
following issue of
award
October 2003 Executive Share All employees 764,000 Three years of 7 years
Option Scheme service plus
satisfaction of
performance
conditions
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8. Share based payments continued
Executive Share Option Scheme
June March October October November
2007 2006 2004 2003 2002
Fair value at
measurement date 16.0p 13.0p 18.0p 11.0p 19.0p
Share price 29.50p 20.75p 28.0p 15.0p 8.0p
Exercise price 29.50p 20.75p 28.0p 15.0p 25.0p
Expected volatility 48.00% 62.10% 70.40% 84.40% 90.00%
Expected option life
(expressed as weighted
average life used in the
modelling) 4 years 6 years 6 years 6 years 5 years
Risk free interest rate 5.76% 4.48% 4.73% 5.03% 4.57%
Enterprise Management Incentive Scheme
June May October October
2007 2006 2004 2003
Fair value at measurement date 29.0p 18.0p 27.0p 14.0p
Share price 29.50p 18.75p 28.0p 15.0p
Exercise price 1.0p 1.0p 1.0p 1.0p
Expected volatility 48.2% 49.0% 32.20% 84.40%
Expected option life
(expressed as weighted average life
used in the modelling) 3 years 3 years 2 years 4 years
Risk free interest rate 5.76% 4.85% 4.63% 4.97%
Distributor Options
December October February December
2005 2005 2005 2003
Fair value at measurement date 4.0p 11.0p 5.0p 11.0p
Share price 17.5p 19.0p 20.0p 21.25p
Exercise price 17.5p 19.0p 20.0p 21.25p
Expected volatility 48.60% 56.30% 42.90% 93.40%
Expected option life
(expressed as weighted average life
used in the modelling) 1 year 6 years 2 years 2 years
Risk free interest rate 4.20% 4.40% 4.60% 4.33%
Where appropriate, the expected volatility has been based on historical volatility over a period of the same length as
the expected option period and ending on the grant date. Where the historic option life is shorter than the expected
option life, volatility has been measured over the maximum amount of time historic information can be obtained. The
options have been valued using the Black Scholes model.
The fair value of the equity-settled share-based payment is re-charged by the Group company to the subsidiary
operating company at fair value. The expenses is therefore recognised in the subsidiary operating company, with
the equity reserve being recognised in the Group Company.
Notes to the Company Financial Statements continued
for the year ended 31 December 2007
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9. Reserves
Profit
and loss
Other Share Capital account/
reserves premium redemption (deficit)
£’000 £’000 £’000 £’000
At 1 January 2007 1,014 14,086 17,476 (5,368)
Premium on shares issued during the year – 2,488 – –
Issue expenses – (151) – –
Loss for the financial year – – – (412)
Credit in respect of service costs settled by
award of share options 328 – – –
At 31 December 2007 1,342 16,423 17,476 (5,780)
10. Reconciliation of movements in shareholders funds
2007 2006
£’000 £’000
Opening shareholders’ funds 28,008 26,839
Increase in share capital during the year 125 74
Premium on shares issued, net of costs 2,337 1,374
Loss for the financial year (412) (525)
Credit in respect of service costs settled by award of share options 328 246
Closing shareholders funds 30,386 28,008
11. Ultimate parent company
There are no shareholders with overall control of the Company as at 31 December 2007 or 31 December 2006.
12. Related party transactions
Exemption has been taken under FRS 8 from disclosing related party transactions between the Company and its
subsidiary undertakings.
The directors of Deltex Medical Group plc had no material transactions with the Company during the year, other than
as a result of service agreements. Details of the directors’ remuneration are disclosed in the Directors’ Report in the
Consolidated Financial Statements on pages 15 to 17.
13. Contingent liabilities
The directors are not aware of any contingent liabilities.
14. Subsequent events
Conditional placing
On April 7 2008, the Company announced that it had accepted an irrevocable undertaking from Nexus Medical
Partners II, LP to subscribe for 3,030,303 ordinary shares of 1p each at a price of 22.0p per share to raise £666,667.
The funds to be invested are specifically for use in expanding the US market, including the hiring of additional
management and field staff in key locations to manage and support the growing demand for the Company’s
products. The funds are managed by Nexus Medical Partners on behalf of a US State Government to promote
economic development.
The undertaking has been accepted by the Company subject to appropriate approvals being obtained at the
Company’s forthcoming Annual General Meeting and assumes no material adverse changes in the Company’s
business prior to the shares being issued. Ed Snape, a non-executive director of Deltex Medical, is also a principal
of Nexus Medical Partners.
The shares will rank pari passu with the existing issued shares of the Company. This allotment is conditional on the
appropriate authorities being received at the next general meeting of the Company. Following the issue of these new
shares, subject to no other changes, the Company will have a total of 95,931,956 ordinary shares in issue. This total
includes an allotment of 413,746 new ordinary shares which are also subject to approval at the next general meeting of
the Company as announced on 25 January 2008. Application will be made for these shares to be admitted to trading
on the Alternative Investment Market.
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Shareholder Notes
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report and accounts 2007 59
Shareholder Notes
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Shareholder Notes
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Deltex Medical Group plc
Terminus Road
Chichester PO19 8TX
United Kingdom
Tel: +44 (0) 1243 774837
Customer Service: 0845 085 0001
Fax: +44 (0) 1243 532534
www.deltexmedical.com
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