Press Release

24 April 2012

 

LIDCO GROUP PLC

 

("LiDCO" or the "Company")

 

Preliminary Results with maiden profits

for the twelve months ended 31 January 2012

 

LiDCO (AIM:LID), the hemodynamic monitoring Company, today announces its audited Preliminary Results for the twelve months ended 31 January 2012.

 

Financial Highlights

·	Total revenue increased by 14% to £7.12m (2010/11: £6.24m)
·	Disposables revenues up 36% to £5.02m representing 70% of total revenues
·	Gross profit up 13% to £4.75m (2010: £4.22m. Significant margin improvement on LiDCO products to 76% (2010/11: 68%).
·	Operating loss reduced by 90% to £49,000 (2010/11: £0.50m)
·	Maiden profit after tax of £15,000 and EBITDA of £0.61m
·	Cash balance of £1.55m (2010/11: £1.40m)
·	Earnings per share of 0.01p (2010/11: Loss per share 0.22p)

 

Operational Highlights

·	364 monitors installed in the period (2010/11: 524) with the installed base up 9% to 2,189 units (rolling 7 year basis). LiDCOrapid represents 72% of the installed monitor base
·	UK revenues including Argon up 57% to £3.70m (sensors up 5%, LiDCOrapid Smartcards up 47%)
·	NHS drive in England for full adoption of intra operative hemodynamic monitoring
·	Japanese registration and supply and UK distribution agreements signed with Argon Medical in the year
·	Agreement signed with ICU Medical in July 2011 appointing LiDCO as UK distributor for ICU products and providing worldwide access to certain LiDCO IPR
·	Licensing agreement for continuous non-invasive blood pressure technology signed with CNSystems Medizintechnik AG in January 2012
·	Multi-parameter monitor project combining depth of anesthesia and non-invasive blood pressure progressing well
·	European patent for the LiDCOrapid graphical user interface accepted for grant

 

Commenting on the results Terry O'Brien, Chief Executive, said: "The Board is pleased to announce our maiden profit after tax.  The period under review has been one of substantial progress. In our domestic market the use of our technology for high-risk surgical fluid management market advanced considerably. We expect the NHS push for the full adoption of hemodynamic monitoring in up to 750,000 more patients per annum to continue to drive forward our UK sales over the next few years. Further afield, we are particularly pleased to have licensed ICU Medical to use our technology in the new hemodynamic monitor they are developing and to have appointed Argon in Japan, which is the world's second biggest market for hemodynamic monitoring. With all of these elements in place, we look forward to a further year of progress and the launch of our combined depth of anesthesia and non invasive blood pressure products later in this year."

 

 

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

- Ends -

 

For further information, please contact:

 

LiDCO Group Plc
Terry O'Brien (CEO)	Tel: +44 (0)20 7749 1500
Paul Clifford (Finance Director)
Theresa Wallis (Chairman)	www.lidco.com

 

finnCap
Geoff Nash / Henrik Persson   Stephen Norcross (Broking)	Tel: +44 (0)20 7600 1658 www.finncap.com

 

Media enquiries:

Abchurch
Adam Michael / Joanne Shears / Jamie Hooper	Tel: +44 (0) 20 7398 7719
jamie.hooper@abchurch-group.com	www.abchurch-group.com

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

With sales growing, a maiden profit after tax, corporate partnerships expanded and mainstream adoption planned for the NHS in England, last year was our most productive since joining AIM. 

 

The combination of marginally increasing administration expenses (by 2%), improvements to product margins and revenue growth of 14% resulted in a maiden profit after tax of £15,000. The majority of our revenue (70%) now comes from a growing recurring disposable income stream. This was an excellent performance given the background of another year of very mixed economic conditions in some of the markets where our products are sold. 

 

During the past year we signed significant distribution and licensing agreements with Argon, ICU Medical and CNSystems Medizintechnik. These are all important commercial collaborations, aimed at increasing disposable income flow while significantly improving our major market reach. The retrofit nature of our non-invasive blood pressure option should significantly increase disposable income in both our existing and future LiDCOrapid monitor installed base. 

 

The evidence for making hemodynamic monitoring of high-risk surgery patients routine is compelling. In our domestic market we are starting to see a strong push emerge from the National Health Service (NHS) for country wide adoption. In December 2011 the NHS Improvement and Efficiency Directorate published its report Innovation, Health and Wealth. This report sets out actions to drive towards full adoption of advanced fluid and hemodynamic monitoring of surgery patients. We expect that this project will start from May 2012,  and that hospitals will be encouraged to monitor more patients with a mixture of payment incentives coupled with the requirement to comply or explain.  Ultimately, as detailed in the report of December 2011, this could result in the monitoring of an additional 750,000 patients per annum and a saving to the NHS of £400 million a year. We expect other countries to adopt similar approaches. Advanced hemodynamic monitoring looks set to become an integral part of delivering effective care to the majority of high and moderate risk surgical patients.

 

The economic background and emerging drivers of adoption

As a substantial part of the world's economy continues to attempt to recover from the global economic crisis, healthcare expenditure growth can no longer be automatically assumed. Increasingly, budgetary constraints will rouse demands for healthcare efficiency savings. In the UK, NHS hospitals are expected to deliver efficiency savings in the region of £15 billion over the three years to March 2014. Despite economic headwinds, the cost of treating an ageing population in the "developed" world ensures that there will continue to be a growing demand for medical devices as part of treatments that are evidence-based and proven to be cost effective. Around 250 million major surgical procedures are performed worldwide annually, resulting in about 12.5 million patients with surgical complications (Pearse et al., 2011). The traditional methods of monitoring fluid, blood volume and oxygen delivery are notoriously inefficient and fail to accurately predict those patients who need, and will respond to, fluid therapy. In marked contrast, treatment guided by advanced hemodynamic monitoring has been shown to better maintain fluid volumes and ensure adequate blood flow and tissue viability. Use of these parameters has significantly reduced operative complications (Lobo et al., 2011). Advanced hemodynamic monitors greatly assist with therapeutic decision-making and more accurately guide appropriate fluid and drug interventions. Through their use, anesthetists and surgeons can provide greater consistency of care for the higher risk surgery patients.

 

Worldwide sales for the new generation of minimally invasive hemodynamic monitors and disposables have grown to a substantial level already worth circa US$200 million per annum. In the UK, programs are active in encouraging adoption and providing tariff payment enhancements; systematic adoption of hemodynamic monitoring is just starting to happen on a much larger scale. There is a growing realization that the major surgery hemodynamic monitoring market is capable of reaching a recurring revenue business of approximately US$860million per annum (Pearse et al., 2006). If a totally non-invasive monitor were available, the number of eligible patients and associated revenues could more than double.

 

LiDCO's route to the worldwide market

Smaller technology companies have to find an efficient and economic way to access the global market. It is almost impossible, both financially and logistically, for the Company to sell directly to the USA and Japanese markets.  Recognizing this market access challenge, LiDCO has chosen to export via third parties. This means that we sell through independent distributors in the smaller territories and through bigger medical device corporations in the major markets.

 

Registration in Japan of the LiDCOrapid monitor and disposables commenced in 2011 and the registration review is well advanced and entering its final stage. Our best estimate is that this will conclude within the next few months. We have appointed Argon Medical Devices ("Argon") as our partner in this important territory and have signed heads of agreement with an additional major monitor sales organization in order to fully access the Japanese market, which is the second biggest market for hemodynamic monitoring in the world. Minimally invasive hemodynamic monitoring is becoming well established in Japan and the Board believes that the Japanese hemodynamic monitoring high-risk surgery market has a potential market value of US$285 million per annum.

 

Our relationship with Argon brings additional benefits to both parties. In March 2011 we were appointed by Argon as the exclusive distributor for certain of their critical care disposable products in the UK. We started selling these products in June 2011. Sales have grown well and now provide an additional regular monthly disposable income and profit contribution. LiDCO has a substantial and effective sales and distribution presence in the UK hospital market that can be further leveraged in this way.

 

In the USA we continue to work closely with the Respiratory and Monitoring division of our US distribution partner Covidien. Considerable efforts are being made by Covidien to promote LiDCOrapid products through sales activities, sponsored workshops and satellite symposia. Covidien has achieved its monitor sales minimums in the first two years of our collaboration. We are working closely with them and their US customers to further develop the US market for surgical hemodynamic monitoring. We have a license from Covidien to include their depth of anesthesia parameter into our monitor. The progressive engagement of Covidien's large sales force, coupled with our closer collaboration through parameter integration, should help foster the relationship and help drive sales over the next few years.   

 

Revenue and trading

Revenues were up by 14% to £7.12 million (2010/11: £ 6.24 million), with particularly good growth seen in disposable income now at  £5.02 million (2010/11: £3.68 million). The seven year adjusted installed monitor base rose to 2,189 units (610 LiDCOplus; 1,579 LiDCOrapid) up by a net 188 (9%) units in the year. LiDCOrapid monitors have become the majority (72%) of our installed base just over three and a half years since launch.  Although the installed base grew the number of monitors sold was less than in the prior year (364 vs. 524). The majority of this shortfall reflected lower monitor sales to Covidien (185 vs. 300) - the consequence of the unfavorable phasing of orders across the period. LiDCOrapid disposable sales in the US were similarly affected by the order phasing. We have now agreed regular quarterly shipments of monitors and disposables that will even out variances for comparisons made across periods. Sales to Europe were steady with overall growth being held back by lower sales to some southern European territories. LiDCO disposable income outside of the USA of £2.89 million was up 17% and was predominantly driven by LiDCOrapid Smartcard sales which were overall up a very commendable 107% to 17,750 units. Looking ahead we expect sales in the UK, Middle East, USA (Covidien), Japan and northern and eastern Europe to progress during 2012, particularly for the LiDCOrapid business.

 

During the year the Company entered into an agreement to distribute Argon's critical care product lines in the UK.  Handling Argon's and later ICU Medical's product sales in the UK allows us to offer a more comprehensive offering to customers. Sales over the eight months of Argon's products were £1.21 million and, although at a lower margin than our own products, provided income that helped offset the effect on profitability and cash flow of the order phasing differences seen during the period with Covidien. Argon sales are projected to increase significantly in 2012/13, as we will be reporting a full year's revenue augmented with organic sales growth.

 

Markets

 

UK

Overall sales revenue growth was 57% to £3.7 million (2010/11: £2.36 million).  Argon distribution revenue was £1.2 million (2010/11: nil). Monitor sales/placements in the period were higher at 66 units and monitor revenue was £471,000 (2010/11: 61 units; £500,000). LiDCO disposable revenue was £2,024,000 up 12% (2010/11: £1,800,000). Sensor (12,310 units) and Smartcard (8,735 units) were up 5% and 47% respectively, the latter reflecting strong growth in the high-risk surgery market segment of our business. Revenue from LiDCO disposables grew to 81% of total LiDCO product revenues (2010/11: 76%). The push by the NHS in England for full adoption of hemodynamic monitoring in surgery should help with more systematic use and wider adoption. We expect to be able to offer customers our new software with depth of anesthesia and the non-invasive blood pressure module towards the end of 2012 in the UK. Given the drive for adoption of intraoperative fluid and hemodynamic management and widening of the patient populations suitable for our products, the Board expects revenues to grow well in our domestic market during 2012. In particular we are expecting good sales growth of our LiDCOrapid and Argon distribution businesses.

 

USA

Sales to the USA of £1,788,000 were down by 24% (2010/11 £2,359,000).  This was principally due to timing/phasing differences of bulk orders to Covidien (for both monitors and disposables) which affected comparisons across the two periods.  In the prior year we had five bulk orders, compared with only three in the last reporting period.  Monitor sales were down from £748,000 to £575,000,with disposables down to £923,000 (2010/11: £1,207,000). Revenues were  affected to a lesser extent by reduced sales of disposables in the older LiDCOplus sensor intensive care accounts where a number of these accounts have transitioned to the LiDCOrapid monitor instead.  Sales to Covidien are predicted to grow this year following the move to more regularly spaced bulk order shipments.

 

Continental Europe

Total revenue in Continental Europe was steady at £853,000 (2010/11: £859,000).  Monitor sales revenue was £279,000 (2010/11: £320,000) and disposables sales were up by 6% to £574,000 (2010/11: £539,000).  Strong growth in sales of LiDCOrapid disposables was seen with units up by 83% to 4,455 units. Sales prospects in Europe remain quite challenging in some southern territories. In the countries where economies are stronger and we have successful distributors we expect to see continued progress. 

 

Rest of World

Total revenues were up 17%. In June 2011 the Company signed an agreement in Japan with Argon Medical Devices as previously noted above. Outside of Japan, we have made good progress in both the Middle East and Brazilian markets.

 

Business Review - Summary Table

 

	Year to 31 Jan 2012	Year to 31 Jan 2011	Increase/ (decrease)	Increase/ (decrease) %
Revenue by type (£'000)
-     Monitors	1,565	1,953	(388)	(20%)
-     LiDCO Disposables	3,811	3,681	130	4%
-     Third party disposables -     License Fees	1,206   540	0   603	1,206   (63)	(10%)
- Total Revenues	7,122	6,237	885	14%
Monitors (Units)	364	524	(160)	(31%)
Sold	353	515	(162)
Placed	11	9	2
Sensor, Smartcard and Fee per Use Sales (Units)	50,595	47,938	2,657	6%
Monitor Base (7 year net)	2,189	2,001	188	9%

 

 

Regional sales performance summary

 

UK

·	Total revenue up 57% to £3,701,000 (2010/11: £2,356,000)
·	Monitor units sold: 66 with monitor revenue of £471,000 (2010/11: 61 units; £500,000)
·	Sensor and Smartcard revenue £2,024,000 up 12% (2010/11: £1,800,000)
·	Sensor (12,310) and Smartcard (8,735) unit sales up 5% and 47% respectively
·	Third party disposable sales £1,206,000 (2010/11: nil)
·	Other income nil (2010/11: £55,000)
·	LiDCO disposables as a percentage of LiDCO product sales: 81% (2010/11: 76%)

 

USA

·	Total revenue down 24% to £1,788,000 (2010/11: £2,359,000)
·	Revenue fall predominantly due to unequal phasing of Covidien bulk orders
·	Monitor revenue down 23% to £575,000 (2010/11: £748,000)
·	Sensor, Smartcard and fee for use sales down 24% to £923,000 (2010/11: £1,207,000)
·	Licence fee income of £290,000 (2010/11: £404,000)

 

Continental Europe     

·	Total revenue steady at £853,000 (2010/11: £859,000)
·	Monitor sales units 60 with revenue of £279,000 (2010/11: 75 units; £320,000)
·	Sensor/Smartcard sales revenue £574,000 (2010/11: £539,000)
·	Sensors/Smartcard units 9,445 vs. 7,230 up 31%, sensors up 4%, Smartcards up 83%

 

Rest of World & Licence Fee Income

·	Total revenue up 17% to £780,000 (2010/11: £664,000)
·	Monitor sales units 50 vs. 83, with revenue down £240,000 (2010/11: £385,000)
·	Sensor/Smartcard sales revenue up by 115% to £290,000 (2010/11: £135,000)
·	Sensors/Smartcard units 5,700 vs. 1,435 up 297%, sensors down 7% Smartcards up 2021%
·	Licence fee income of £250,000 (2010/11: £144,000)

 

 

FINANCIAL REVIEW

Operating results 

 

Turnover increased by 14% to £7.12 million (2010/11: £6.24 million). Operating losses decreased significantly by 90% to £49,000 (2010/11: £498,000). The Company produced its maiden profit after tax of £15,000 (2010/11: Loss £390,000) and earnings per share of 0.01p (2010/11: Loss 0.22 pence). Exports fell by 12% to £3.42 million (2011/12: £3.89 million) largely the result of reduced sales to the US caused by the phasing of orders to Covidien. Exports represented 48% of turnover.

 

During the year a total of 364 monitors (2010/11: 524 monitors) were sold or placed.  The seven year installed base of monitors at the year end was 2,189 (2010/11: 2,001) representing a net increase in the year of 9% or 188 monitors.  The installed base includes demonstration and evaluation monitors sold to distributors. The monitors sold/placed in the year comprised 310 LiDCOrapid monitors (2010/11: 474) and 54 LiDCOplus monitors (2010/11: 52) including 11 (2010/11: 9) being placed.

 

Recurring revenues from the sales of LiDCO disposables, service contracts and fees for use increased by 4% to £3.81 million (2010/11: £3.68 million). Including third party disposables, recurring revenue increased by 36% and represented 70% (2010/11: 59%, though it should be noted there were no third party disposable sales last year) of total revenues. The number of LiDCO disposables sold increased by 6% to a milestone 50,595 (20010/11: 47,938).

 

The average product margin across all LiDCO products after external procurement costs increased during the period from 76% to 80%. This was largely the result of mix variance compared with the prior year with an increased proportion of disposable sales and licence revenue, which have a higher margin than monitor sales. Future profitability will significantly depend on margins achieved on disposables and these have remained high during the year.  Margins achieved on LiDCOplus sensors remained steady at 86% and LiDCOrapid Smartcards increased marginally to 94% (2010/11: 93%).

 

Unit sales of LiDCOrapid Smartcards rose by 9% overall. Excluding the US where there were reduced sales caused by the phasing of orders, Smartcard unit sales increased by 107%. In the UK, total disposable unit sales increased by 20% with Smartcards increasing by 47%. In the UK where we have detailed usage information, the average use rate remained steady at 4.7 uses per monitor per month but with use in some hospitals as high as 20 uses per monitor per month.

 

Total overheads increased by £85,000 (2%) compared with the previous year.

 

Taxation

 

Although the Company continues to benefit from research and development tax credits the receipt of these in cash is reducing as the Company approaches profitability and the credit of £60,000 this year is likely to be the last received in cash.  The Company has a deferred tax asset of £5.3 million although this has not been recognised in the accounts.

 

Cash, financing and working capital

 

To mitigate against the effect of end of life notices being issued by manufacturers on some monitor components, the Company placed larger than normal forward orders for monitors as noted in last year's financial statements. This resulted in an increase in inventories during the year of £302,000. It is anticipated that these forward monitor orders will be absorbed into normal trading in 2013. This increase in inventories together with shorter-term working capital movements and an increase in fixed assets resulted in a net cash outflow before financing activities of £582,000 (2010/11: £433,000).

 

In January 2012, the Company entered into a sale and leaseback financing arrangement in respect of 77 upcharge monitors in the UK resulting in a cash inflow of £518,000 repayable in equal installments over three years. These funds are to finance the costs for licensing and development of the continuous non-invasive blood pressure technology project with CNSystems Medizintechnik AG, which was announced on 9 January 2012, and the increase in inventory. Cash balances at 31 January 2012 totalled £1,553,000 (2010/11: £1,404,000). Cash net of the overdraft facility was £1,341,000 (2010/11: £1,404,000). The Board anticipates that this will be sufficient to see the Company through to profitability and positive cash flow.

 

Expenditure on intangible assets in the year of £453,000 was broadly similar to the previous year. This will increase significantly during 2012/13 as a result of the continuous non-invasive blood pressure technology project noted above. Expenditure on plant property & equipment was £292,000 (excluding the effect of the sale and leaseback of the upcharge monitors). Of this £211,000 was in respect of medical monitors used for demonstration purposes, upcharge and clinical trials and product development.

  

PRODUCT DEVELOPMENT

Hemodynamic monitoring is a key part of an effective surgical care pathway for high-risk surgery patients. Better outcomes can be achieved through more balanced fluid, drug and anesthetic use in patients.  Research will continue to further refine and quantify the most effective approaches for treating these high-risk surgery patients.  LiDCO is the sole hemodynamic monitoring technology used in two of the world's biggest multi-center trials of their kind: OPTIMISE (in the UK) and MOnIToR (in the USA).  Both trials are progressing well with 371 patients recruited in the MOnIToR trial and over 400 in the OPTIMISE trial.

 

In September 2011, the Company was informed by the European Patent Office of the intention to grant our European patent protecting the novel Graphical User Interface (GUI) features that we believe help make the LiDCOrapid unique and easy to use.  The broadening of our patented intellectual property into the display is a significant development.  We are delighted that key aspects of our software can be protected in this way and have also applied for additional patent protection for developments that will be part of our multi-parameter software. 

 

Parameter convergence pathway for high-risk surgery 

LiDCO is committed to monitor integration and parameter convergence that will realize the full potential for our PC monitor hardware platform. We believe that customers require total monitoring solutions i.e. complete products that can replace the multiple existing single parameter monitors, and that convergence creates more effective monitoring devices. The new LiDCOrapid software, that is currently being developed, will allow the connection of two modules that effectively integrate Covidien's depth of anaesthesia and CNSystem's non-invasive blood pressure technology. The non-invasive blood pressure module will provide continuous data from a simple to use dual finger sensor. Combined hemodynamic and depth of anesthesia monitoring will help anesthetists limit and control the fall in blood pressure and blood flow seen after anesthetic induction. The technology will be quick to set-up, completely non-invasive and usable in the more than 80% of surgery patients who do not have an existing arterial blood pressure catheter. The addition of this technology potentially doubles the number of major surgery patients suitable for fluid and hemodynamic monitoring and should increase disposable use in both the existing and future installed base of LiDCOrapid monitors. It has been estimated that the addition of non-invasive blood pressure monitoring could take the worldwide major surgery market potential to approximately 10.5 million patients per annum with a potential disposable revenue stream of US$1.72 billion per annum. 

 

Intensive care 

Regarding the Company's intensive care product, the LiDCOplus, we expect to significantly update the monitor software (v 4.02).  This will involve updating the operating system, adding the arterial line blood pressure module option and further improving ease of use and calibration methodology.  

 

Outlook

This has been an exciting and very productive year, and with our broadening corporate partnerships we are very well placed for the future.  The increasing levels of adoption within the NHS, along with our planned expansion into Japan, together with the forthcoming product developments give us confidence for 2012 and beyond.

 

Terry O'Brien

Chief Executive Officer

23 April 2012

 

CONSOLIDATED comprehensive INCOME STATEMENT

For the year ended 31 January 2012

 

 

	Year ended 31 January 2012 £'000	Year ended 31 January 2011 £'000
Revenue	7,122	6,237
Cost of sales	(2,372)	(2,021)
Gross profit	4,750	4,216
Administrative expenses	(4,799)	(4,714)
Loss from operations	(49)	(498)
Finance income	4	8
Loss before tax	(45)	(490)
Income Tax	60	100
Profit/(loss) and total comprehensive income/(expense) for the year attributable to equity holders of the parent	15	(390)
Earnings/(loss) per share (basic and diluted) (pence)	0.01	(0.22)

 

 

All transactions arise from continuing operations.

 

There were no items of other comprehensive income for the financial year.