("LiDCO" or the "Company" or the "Group")
LiDCO (AIM: LID), the hemodynamic monitoring company, announces its audited Final Results for the year ended 31 January 2016.
· Revenue of £7.59m (2014/15: £8.27m) down 8% largely due to a number of monitor sales slipping into the current financial year
· LiDCO product revenue (excluding third party products) of £5.96m (2014/15: £6.63m)
· Gross margins (excluding third party products) of 81% (2014/15: 82%)
· Surgical disposables revenue down 5% to £3.21m (2014/15: £3.39m)
· Critical Care disposable revenue up 2% to £1.61m (2014/15: £1.58m)
· Loss before tax* of £0.34m (2014/15: profit £0.33m)
· Loss per share of 0.21p (2014/15: earnings 0.18p)
· Debt free with cash at year-end of £1.59m (2014/15: £1.51m)
* before exceptional item and share-based payments
· Year of transition with Matthew Sassone appointed Chief Executive Officer in August 2015
· Awarded a five year purchasing agreement by MedAssets, a US based group purchasing organisation working on behalf of a large 38 hospital healthcare group
· 160 monitors sold/placed (2014/15: 267); 137 surgical monitors (2014/15: 210)
· Surgical disposable unit sales 39,975 (2014/15: 44,758)
· ICU disposables unit sales up 5% to 16,777 (2014/15: 15,903)
· Master Distribution Company appointed to manage South East Asia and Australasia
· Sales to Japanese distributor re-commence after two years
After year end
· Launch of new LiDCOunity hemodynamic monitor in Europe
· Awarded a NHS Supply Chain Framework Agreement for LiDCO products
· Appointed second Master Distribution Company to manage Sub-Sahara Africa
· Renewed five year commercial agreement with Argon Medical to distribute their pressure monitoring products in UK & Ireland (see separate RNS Reach)
· Chinese Food and Drug Administration (CFDA) has formally approved the LiDCOrapidv2 for commercial sale in China
Commenting on the results Matthew Sassone, Chief Executive Officer, said:
"I have been in the role now for eight months and I am pleased with the progress we have made in implementing the building blocks for future growth. Our main challenge going forward is not one of validation for our technology, but rather execution and ensuring that we have the resources to expand our product sales into the many countries where adoption of advanced hemodynamic monitoring is now occurring. We are making good progress with the strategy laid out in October 2015 and have plans to expand our commercial efforts to achieve significant top line growth."
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LiDCO Group Plc |
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Matt Sassone (CEO) |
Tel: +44 (0)20 7749 1500 |
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Paul Clifford (Finance Director) |
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finnCap |
Tel: +44 (0)20 7600 1658 |
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Geoff Nash / Emily Watts (Corporate Finance) |
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Stephen Norcross (Corporate Broking) |
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Walbrook PR Ltd |
Tel: 020 7933 8780 or lidco@walbrookpr.com |
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Paul McManus (Media Relations) |
Mob: 07980 541 893 |
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Lianne Cawthorne (Media Relations) |
Mob: 07584 391 303 |
The Company presentation will be available from today on the LiDCO website: www.lidco.com.
STRATEGIC REPORT
Introduction
The Group has spent the year focusing its sales resource seeking to progress the global opportunities for the LiDCO technology. Although sales for the financial results for 2015/16 were lower than expected, underlying this there have been a number of activities that we believe will drive future growth for the Group. The fundamentals of our high margin recurring disposable business model are strong, the global market for hemodynamic monitoring continues to grow, and the Group is both cash generative and debt free. The focus for LiDCO now is how we best address expansion beyond our core UK market.
Since taking over as Chief Executive Officer in August 2015, we have been working on the strategic initiatives outlined at the interim stage, which can be grouped under the following headings:
· Geographical expansion
· Commercial focus
· Maintain our technology leadership
· Focus on specific market applications
Geographical expansion
Geographical expansion is the greatest driver of future growth and in the last year we have made a significant step forward in the largest and fastest growing market for our technology, the USA. In October 2015 LiDCO was awarded a five year purchasing agreement by MedAssets on behalf of a large US healthcare group that serves 10 million people each year in 38 hospitals across eight US states. To address this and the other growing opportunities we have plans in place to progressively add to our direct sales force.
In our distributor markets, significant progress has been made in creating the infrastructure needed to transition our business to a more repeatable and sustainable model. Our internal resources will manage distributors in the territories with the greatest mid to long term market opportunities and we will utilise master distribution companies to manage those distributors that we feel will be better served by a more local presence. As part of this more tailored approach to distribution management we have selected markets within Europe, the Middle East and Asia where we have identified strong growth opportunities and are investing together with our partners in promotional activities to further market development. Linked to this we are aiming to gain registration in a number of key countries in 2016/17. As the world's second largest hemodynamic monitoring market, Japan is strategically important to us and I am pleased that after two years without sales of either monitors or disposables we have begun to receive new orders.
Despite the challenges of the UK market, judging our performance versus our peers we feel encouraged that we can exploit the opportunities for our technology by focusing our unique product on specific patient groups and further expanding our market share.
Commercial focus
I have reviewed the commercial focus of the business since my appointment and in the short term we have focused on tight control of overheads whilst delaying any further significant investment in sales and marketing resources and activities. We are however progressively investing in improving the way we promote ourselves globally. We have made a significant management change in the UK, realigned our sales incentives globally and are now focusing our sales efforts with a more traditional style of pipeline management.
Technology leadership
Turning to technology, I am pleased to announce that in March 2016 we launched our latest monitor, LiDCOunity, in the UK and Europe, and we received approval from the USA's FDA in the same month. LiDCOunity combines the full suite of LiDCO technology into one product, offering our customers the ability to use one monitor and one disposable for the whole acute care patient pathway. This is a unique differentiator and maintains our technology leadership position.
Specific market application focus
When focusing on specific market applications, the fundamentals of the global market remain unchanged. It has been estimated that up to 230 million anesthetic procedures are performed each year in the world with a death rate in the region of 4% and a significant number of patients developing post-operative complications. Most post-operative complications are related to an imbalance between oxygen delivery and oxygen consumption. LiDCO's technology when used in high-risk patients in both intensive care and surgical settings as part of goal-directed hemodynamic therapy has been repeatedly shown to improve patient outcomes through the optimisation of cardiac output and oxygen delivery to tissues preventing situations of hypoperfusion.
Given the compelling results from studies utilising hemodynamic monitoring, it is not surprising that interest in the identification and better treatment and monitoring of high-risk surgery patients continues to grow globally, albeit constrained by healthcare budgets in some territories. Within this large market we are focused on specific segments where there is either the strongest clinical evidence (for example: emergency laparotomy) and/or where the uniqueness of our offering differentiates us from the competition (for example: sepsis).
With the implementation of these key strategic initiatives, combined with a growing global market, we foresee 2016/17 as being a year of solid sales growth, but recognise that our greatest opportunity for future growth will be to reinvest profits in the business for the medium term.
Financial Review
Revenues
Total revenues for the year were £7.59m (2014/15: £8.27m) including sales of third party products of £1.63m (2014/15: £1.64m). Generally, global markets were challenging with regard to capital monitor sales which accounted for the majority of the reduction in LiDCO product sales. Further comment on revenues by territory is provided below.
Gross profit and margin
With the gross profit margin from LiDCO product sales being similar to last year at 81% (2014/15: 82%) overall gross profit fell in tandem with LiDCO product revenue to £5.14m (2014/15: £5.73m). The gross margin achieved on the sale of third party products remained constant at 20%.
Overheads
Total overheads (before exceptional costs) increased marginally to £5.56m (2014/15: £5.49m). There were exceptional costs of £163,000 relating to the recruitment of the new CEO, Matt Sassone together with an element of overlap costs during the handover period with Dr. Terry O'Brien.
As noted in the interim statement there was a re-structuring of the UK sales force during the year, reducing the UK sales management infrastructure and sales costs in the second half and we now consider these to be at a suitable level for the UK. Geographical expansion remains the greatest driver of our future growth and we expect to progressively increase sales resources in the US in the current year. The average full time equivalent headcount (excluding non-executive directors) was unchanged at 44 employees.
Earnings and tax
The Group made an adjusted loss before tax (adjusting for an exceptional item and share-based payment charges) of £343,000 (2014/15: profit £326,000). After charging those items and receiving the benefit of £168,000 of research and development tax credits, the Group made an overall loss for the year of £416,000 (2014/15: profit £343,000) equating to a loss per share of 0.21p (2014/15: earnings per share 0.18p).
The Group has a potential unrealised deferred tax asset of £4.80m, recognition of which will be considered when a sustained trend of profits is more established.
Cash flow, borrowings and cash balances
Despite the loss during the year, the Group remained cash generative with a year-end cash balance of £1.59m (2014/15: £1.51m) and the business remains both well-funded and debt free. The Group expects to be cash generative in the current financial year.
Property, plant and equipment
There was a net decrease in property, plant and equipment in the year of £148,000 with additions of £163,000 offset by depreciation of £307,000. The most significant additions continue to be £127,000 of medical monitors that comprise placed monitors on long term loan to hospitals in the UK and USA for active use where the hospital pays for disposables together with monitors for demonstration purposes and clinical trials. The placed monitors attract a premium on the price of disposables to compensate for the cost of providing and servicing these monitors.
Intangible assets
Expenditure on intangible assets in the period was £493,000 (2014/15: £635,000) of which £419,000 (2014/15: £540,000) was spent on product development with a further £74,000 (2014/15: £94,000) spent on new product registration, predominantly in respect of Japan and China. Expenditure on product development included the new LiDCOunity monitor, HL7 connectivity and enhancements around the PulseCOTM algorithm.
Inventory
Inventory was reduced by £180,000 in the year. Although we expect inventory levels to reduce further in the current financial year, traditional rates of inventory turn cannot always be applied to the Group as it relies on a number of single-source key suppliers and strategically maintains high levels of inventory in respect of such suppliers.
Operational Review
Revenue performance by product and key geographies
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Year to Jan 2016 |
Year to Jan 2015 |
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Monitors |
Disposables |
Other |
Total |
Monitors |
Disposables |
Other |
Total |
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£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
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LiDCO product |
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UK |
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279 |
2,983 |
322 |
3,584 |
610 |
3,045 |
297 |
3,952 |
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US |
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86 |
976 |
9 |
1,071 |
161 |
929 |
14 |
1,104 |
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Japan |
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9 |
26 |
- |
35 |
3 |
- |
- |
3 |
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Europe |
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145 |
572 |
15 |
732 |
290 |
591 |
18 |
899 |
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ROW |
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265 |
264 |
7 |
536 |
259 |
406 |
3 |
668 |
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784 |
4,821 |
353 |
5,958 |
1,323 |
4,971 |
332 |
6,626 |
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3rd party product |
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UK |
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- |
1,635 |
- |
1,635 |
- |
1,641 |
- |
1,641 |
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Total revenue |
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784 |
6,456 |
353 |
7,593 |
1,323 |
6,612 |
332 |
8,267 |
The most significant component of the revenue labelled 'Other' above is monitor service contracts in the UK which were £256,000 (2014/15: £243,000).
Unit sales performance by category in key geographies
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Unit sales |
Year to Jan 2016 |
Year to Jan 2015 |
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LiDCO products |
Monitors |
Disposables |
Monitors |
Disposables |
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(incl placed monitors) |
Units |
Units & Use |
Units |
Units & Use |
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Surgery products |
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UK |
48 |
22,965 |
73 |
24,410 |
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US |
31 |
6,885 |
37 |
7,065 |
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Japan |
- |
500 |
- |
- |
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Europe |
29 |
6,895 |
37 |
7,210 |
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ROW |
29 |
2,730 |
63 |
6,073 |
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Surgery total |
137 |
39,975 |
210 |
44,758 |
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ICU products |
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All territories |
23 |
16,777 |
57 |
15,903 |
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Total |
160 |
56,752 |
267 |
60,661 |
During the period a total of 160 monitors (2014/15: 267 monitors) were sold or placed, with total disposable unit sales of 56,752 (2014/15: 60,661). Revenue from sales of monitors was £0.78m (2014/15: £1.32m). Surgical disposables units and revenue were down 11% to 39,975 units (2014/15: 44,758) and £3.21m (2014/15: £3.39m) respectively. Sales of intensive care disposable units rose from 15,903 to 16,777 units with revenue of £1.61m (2014/15: £1.58m). The changes by territory are shown on the table above. Total disposable revenues (including third party products) represented 85% of total product revenues (2014/15: 80%) and their product margin contribution represent 84% (2014/15: 87%) of total administration costs before exceptional costs.
UK
Sales in the UK market (excluding third party products) were £3.58m (2014/15: £3.95m) and including third party Argon products were £5.22m (2014/15: £5.59m). Sales were affected by delayed capital purchases as customers' budgets were restricted, resulting in capital purchases being £0.33m lower than prior year. A number of monitor sales slipped into the current financial year. The last few years' purchases of disposables have been impacted by both changes to, and the introduction and then withdrawal of, central incentives for NHS hospitals to procure hemodynamic monitors and disposables. We believe the final effects of this have now washed through. Revenues from surgical disposables were down 3% whilst units declined 6% to 22,965 (2014/15: 24,410) but overall our UK surgery business remained flat. Our ICU disposable sales were also stable but a drop of £0.38m in ICU monitor sales resulted in overall UK sales declining. Despite our domestic market being a challenging environment, we remain confident that there are opportunities in the UK by focusing our technology on specific patient groups and expanding our market share further.
Our surgery products were awarded a national NHS framework agreement for the first time and we expect the forthcoming launch of the LiDCOunity monitor to bolster our ICU revenues. In addition we made changes to our UK sales structure to drive stronger pipeline management and focus on the opportunities available to gain further market share.
US
In the US we sell direct via a small sales force whilst exploring ways to increase our access to this large and growing market. Overall the US business declined slightly to £1.07m (2014/15: £1.10m) as we focused our efforts early in the year on winning a significant purchasing agreement which impacted on our first half performance. However, in the second half we returned to a double digit year-on-year growth rate and in October 2015 LiDCO was awarded the above-mentioned five year purchasing agreement by MedAssets, a US based group purchasing organisation acting on behalf of a large US healthcare group. This major healthcare group serves 10 million people each year in 38 hospitals across eight US states. Whilst this agreement did not provide revenue in the financial year 2015/16 we expect it to make a material contribution to our business moving forward.
The US market is where we see the greatest opportunities for growth globally. This reflects a greater drive to adopt Enhanced Recovery After Surgery ('ERAS') and Perioperative Surgical Home programmes ('PSH'), both of which include proactive management of patients' hemodynamic status. Logistically, market access is our greatest challenge and we continue to investigate regional distribution partnerships together with increasing our direct sales team. To better exploit the MedAssets agreement and other opportunities we recruited an additional sales person in the current financial year.
We expect another driver of growth to come from our royalty license agreement with ICU Medical, which has an existing installed base of invasive catheter-based cardiac output monitors. ICU Medical have completed development of, and submitted a 510(k) to the USA FDA for, their new hemodynamic monitor (Cogent) that incorporates our technology. We expect to start receiving a royalty income from sales of both monitors and disposables by ICU Medical in the second half of 2016, after they launch their new monitor in the USA.
Japan
Sales of the LiDCOrapid disposable kit (including Argon's blood pressure transducer) are reimbursed in the Japanese market, which is the second largest market for hemodynamic monitoring in the world after the USA. Nihon Kohden was appointed in August 2012 as the exclusive distributor for the LiDCOrapid monitor and disposable kit in Japan. Nihon Kohden collaborates with LiDCO and its other partner Argon Medical Devices, to market and sell LiDCOrapid products in Japan.
After two years without sales of either monitors or disposables following a large order in January 2014, we have recommenced selling disposables to our partners in Japan. Japan is a conservative market and our partners are growing end user sales but need to counter a highly embedded competitor. Monitor sales to our distributor have recommenced in the new financial year and we expect disposable sales to continue in line with in-market sales now that their inventory has reduced.
During 2015/16 we achieved the registration of the LiDCOrapidv2 software with non-invasive blood pressure module in Japan. This enables us to expand our offering and the recent awarding of a procedural reimbursement when using non-invasive hemodynamic monitoring enables us to target an additional patient population.
Continental Europe
Sales in Europe were £0.73m (2014/15: £0.89m) with monitor sales of 31 units compared with 50 units last financial year. At the interims I spoke about moving to more sustainable and repeatable sales within our distributor markets. Looking forward we see opportunities for growth in northern Europe driven by a greater awareness of the perioperative benefits of using hemodynamic monitoring. In addition we are looking to expand into new markets, for example Turkey where we are in the process of applying for local reimbursement.
Rest of World
In the previous year 2014/15, sales grew strongly due to a significant sale to our Chinese distributor on the expectation of receiving registration for our products in 2015. LiDCO, like many other medical device manufacturers experienced long delays in the Chinese registration process and we eventually received the approval to start selling our products in March 2016. Sales in ROW were £0.54m (2014/15: £0.69m). Excluding the sale to our Chinese distributor in 2014/15, sales grew by 16%.
Since November 2015 we have appointed master distribution companies for South East Asia, Sub-Sahara Africa and Canada. Due to the high margin of our products we can afford to work through partners that will manage groups of distributors on our behalf, enabling us to manage a greater number of distribution partners without increasing direct sales resource.
We anticipate demand from China, India and the Middle East in 2016/17 and are working with our distribution partners to drive greater awareness of ERAS and perioperative fluid management principles.
New Products
In March 2016 we launched our latest monitor LiDCOunity at the International Symposium on Intensive Care and Emergency Medicine ('ISICEM'). LiDCOunity is a '3 in 1' hemodynamic monitor that combines the full suite of LiDCO technology into one offering. The advanced monitoring system adapts to patients' changing acuity levels and enables our customers to have seamless monitoring from the Emergency Department to the Operating Room to the Intensive Care Unit to the other High Dependency Units. LiDCOunity has the flexibility to offer non-invasive, minimally invasive and calibrated hemodynamic monitoring all on one platform, meeting our customers' needs as their patient's well-being evolves.
The LiDCOunity combines all the best features of LiDCO's products and represents a flexible multi-modal monitor that further distinguishes the Company's products from the competition, allowing the customer choice regarding the degree of invasiveness while continuing to offer the option of continuous brain function (depth of anesthesia) monitoring. Patients can now benefit from continuous hemodynamic and non-invasive blood pressure monitoring at any stage of their treatment and in all of the hospital locations where such care is required.
We received the registrations for LiDCOunity in Europe and the USA in February 2016 and March 2016 respectively. This meant we were not able to realise any sales in the financial year 2015/16, although we expect the product to make a contribution in the current financial year.
Non-invasiveness is becoming an increasingly important feature of medical technologies in key target countries such as the USA and the Company is continuing to explore ways to build on this technology and further develop our offering.
Over the year we continued to upgrade our software to add additional features and functionality. All new LiDCO monitors are now compatible with HL7, the industry standard electronic medical record communication language, adding further connectivity between our devices and hospital information systems.
Intellectual Property
Underpinning our technology and revenue streams is a strong brand and patent position. Patent cover provides us with a protectable product and strong market position. Wherever possible we take the initiative in developing and protecting our advances in physiological signal processing and intelligent graphical user interfaces. We are pleased to report that we have submitted further patent applications that enhance our core PulseCOTM algorithm.
Clinical evidence and support
For medical technologies to be introduced into mainstream practice, increasingly their use has to be shown to be both clinically and cost effective.
During the year a number of important clinical papers were published supporting the use of LiDCO technology:
1. A research group in Australia evaluated the performance of minimally invasive cardiac output monitors to detect blood loss in volunteers subjected to blood removal of 2.5% blood volume aliquots to a total of 20% blood volume removed. The devices tested were LiDCO's LiDCOrapid, Edwards' Vigileo FloTracTM, and the USCOM and Deltex CardioQTM Doppler based devices. A statistically significant difference from baseline stroke volume (a measure of the circulation ability to fill the heart effectively) was detected quickest by the LiDCO device after only 2.5% blood loss, compared to the other devices where blood loss was detected less quickly - the USCOM device detected after three times as much blood had been lost (7.5%), Deltex CardioQTM and Edwards FloTracTM devices detected after five times as much blood had been lost (12.5%). It is not possible to detect blood loss early enough using the traditional monitoring parameter of blood pressure. The precision to detect small changes in blood volume status is valuable in many clinical settings therefore earliest detection must be the goal. Through this excellent comparative study, LiDCO monitors have been shown to be the quickest at detecting blood loss. This performance gives our customers the best chance of avoiding excessive blood loss and guiding fluid replacement. Reference: Evaluation of the utility of the Vigileo FloTracTM, LiDCOTM, USCOM and CardioQTM to detect hypovolaemia in conscious volunteers: a proof of concept study. Reference: Anaesthesia 2015, 70, 142-149.
2. A meta-analysis analysing the effect of GDHT (Goal Directed Hemodynamic Therapy) in adult non-cardiac surgery patients. The authors analysed the results of 10 randomised controlled trials involving 1,527 patients undergoing elective and emergency surgery. The authors concluded (with high statistical significance p< 0.001) that the use of GDHT with minimally invasive monitoring decreases post-operative complications and that "potential cost savings resulting from GDHT were substantial." An additional conclusion from the meta-analysis was that it is better to perform perioperative therapy than to restrict it to the postoperative period. Reference: Journal of Clinical Anesthesia 2016, 28, 105-115
3. A randomised study investigating the effectiveness of goal-directed fluid therapy (GDFT) with the LiDCOrapid system on mothers and their babies who have been selected for caesarean section. It is critical in this group of patients to adequately manage hypotension and the effects of poor perfusion on the unborn child. The study concluded that LiDCOrapid-guided GDFT can reduce the incidence of maternal hypotension and vasopressor requirement during operation, with a subsequent decrease in the incidence of neonatal adverse events. Reference: Journal of Obstetrics & Gynaecology Research 2015, 41, 1547-1555
4. As a follow on from the OPTIMISE study, a multi-centre trial in the UK aimed at improving surgical outcomes by optimising cardiovascular management through goal-directed fluid therapy, published in the Journal of the American Medical Association, a cost-effectiveness analysis was undertaken using the data from this multi-centre randomised trial that recruited patients from 17 hospitals in the UK. The cost-effectiveness analysis used information on health-related quality of life (QoL) at randomisation, 30 days, and 6 months combined with information on vital status to report quality-adjusted life years (QALYs). Each QALY was valued using the National Institute for Health and Care Excellence (NICE) recommended threshold of willingness to pay (£20,000 per QALY) in conjunction with the costs of each group to report the incremental net monetary benefits (INB) of the treatment algorithm versus usual care. The research showed that using a conservative estimate the size of the NHS patient population eligible for this type of treatment was 270,503 over a five-year period and that the savings that could be achieved were £65 million. In addition for high-risk patients undergoing major gastrointestinal surgery, the use of a peri-operative, cardiac output guided hemodynamic therapy was associated with an average cost reduction and is likely to be cost effective at the threshold recommended for the UK by NICE. Reference: Sadique et al. Perioperative Medicine 2015
5. An editorial published in the World Journal of Surgery examined survival after emergency surgery and what can be learned from enhanced recovery after surgery programmes. The paper comments on the quiet revolution in the delivery of elective surgical care through evidence-based perioperative pathways, otherwise termed enhanced recovery after surgery (ERAS) highlighting the significant reductions in postoperative complications, length of stay (LOS) and an improvement in long term survival rates. However it points out that the challenge is that emergency general surgical operations carry a mortality rate at least ten times higher than many similar elective procedures. The editorial highlighted a recent study by Huddart et al that demonstrated a significant reduction in mortality for patients undergoing emergency laparotomy. This quality improvement project across four large hospitals in the UK applied the simple principles of evidence-based medical care and quality improvement methodology, which included goal-directed fluid therapy. Reference: World Journal of Surgery 2016 DOI 10.1007/s00268
Outlook
Having been in the role now for eight months I am pleased with the progress we have made in implementing the building blocks for future growth. Our main challenge going forward is not one of validation for our technology, but rather execution and ensuring that we have the resources to expand our product sales into the many countries where adoption of advanced hemodynamic monitoring is now occurring. We are making good progress with the strategy laid out in October 2015 and have plans to expand our commercial efforts to achieve significant top line growth.
The fundamentals of the business and the global market for the technology remain strong. LiDCO's offering has been shown to be safe, effective and unique. With the launch of LiDCOunity we continue to demonstrate how we will remain a technology leader in the field of hemodynamic monitoring.
We foresee 2016/17 as being a year of sales growth and cash generation. Whilst we expect to be profitable, we will continue to invest in the business to achieve the substantial growth opportunities that we believe are available with our proven and patented technology.
How we create value: our business model
LiDCO is a UK-based manufacturer and supplier of monitoring equipment and associated single patient use disposables to hospitals. LiDCO monitors are 'platform' in design. This means they can be easily and cost-effectively upgraded to add new software features and parameters by the addition of USB-connected modules. Our technology, coupled with our low cost manufacturing and product sourcing skills, combine to produce a highly differentiated, patent-protected monitor with a recurring income stream from the sale of dedicated high margin single patient use disposables.
Our monitors continuously display a number of crucial physiological parameters including arterial blood pressure, the effects of anesthesia on the level of consciousness of the brain, the requirement for intravenous fluids and the amount of blood and oxygen supplied to the body's tissues and organs. We provide this crucial data via an easy-to-interpret monitor user interface which helps clinicians and nurses ensure vital organs are adequately perfused and that patients are not over-anesthetised or sedated.
Historically, hemodynamic monitoring was invasive in nature, requiring the insertion of invasive central catheters. For this reason, it was only available to a restricted number of the high-risk patients that could potentially benefit. LiDCO's technology does not require the insertion of central catheters and can be used completely non-invasively and in both ventilated and non-ventilated patients.
Our customers are acute care physicians and nurses working in major hospitals caring for emergency and high-risk patients. Hospitals are migrating away from invasive technologies towards the use of less invasive monitoring, which has been shown to be cost-effective and improve outcomes. Use of LiDCO monitors in high-risk patients in both intensive care and surgical settings has been shown to reduce mortality, complications, length of hospital stay and improve quality of life.
The key features of our business model:
· We have developed a new generation of hemodynamic monitoring products designed to address a developing disposable market opportunity - internally estimated to be potentially $2 billion per annum.
· Our disposable products are produced in high volume with low cost manufacturing processes and have a high margin.
· Sales of our products are supported with a growing body of evidence to satisfy purchaser requirements for clinical and cost effectiveness.
· We generate revenues principally through the sale or licensing of the sale of single-use disposables into a growing installed base of LiDCO-enabled monitors.
· We protect our disposable income stream through having patented products with high levels of proprietary intellectual property which are subject to on-going development.
· We provide first-class training and education to our customers. This helps entrench our technology and reduce hospitals costs, with a focus on providing LiDCO with a sustainable recurring income.
Delivering our objectives: our strategy
Our strategy is to build shareholder value through the commercialisation of LiDCO monitoring systems and associated disposables. Excellence in product design, manufacturing and sales and marketing are at the core of our values. Our products are patent protected and supported by a growing body of data showing their clinical and cost-effectiveness. Our technology is not only usable in traditional locations such as the intensive care and surgery departments, but also in any area of the hospital where high-risk patients require such monitoring. Hospitals acquiring our compelling hemodynamic platform monitors can transition from traditional invasive catheter-based monitoring to LiDCO's minimally or non-invasive monitoring in high-risk patients, thereby reducing complications and lowering costs and length of stay.
It is our strategy to derive revenue growth predominantly from increasing use of our technology and high margin disposables into a growing installed base of LiDCO-enabled monitors.
Geographical expansion is key to LiDCO's capacity to address the worldwide opportunity for sales of our technology. Our sales and distribution model has three elements. Firstly, we have direct sales into hospitals in the UK and USA. Elsewhere we sell via distribution partners. Our depth of margin on disposable sales allows us to attract quality specialist distribution partners on an exclusive and non-exclusive basis, plus where necessary work through master distribution organisations to manage our distributors on our behalf.
Our core technologies are patented and we see licensing our technology as another way to access the market. We have licensed our algorithm on a non-exclusive basis to a major corporate partner in the US in return for future royalty payments. We continue to explore further arrangements to access the US market and plan to use the incremental revenue streams from our licensing arrangement to fund more direct resources in this attractive market.
Measuring our performance: KPIs
The following KPIs are some of the indicators used by management to measure performance during the year:
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Key performance indicators |
Year to January 2016 |
Year to January 2015 |
|
Revenue growth of LiDCO surgery products |
(5%) |
(2%) |
|
Revenue growth of LiDCO ICU products |
(18%) |
(6%) |
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LiDCO product revenue per FTE employee |
£137,000 |
£152,000 |
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Monitors sold/placed in the year |
160 |
267 |
|
Unit sales/use of surgery disposables |
39,975 |
44,758 |
|
Gross profit margin on LiDCO products |
81% |
82% |
|
Disposable margin as % of overheads |
84% |
87% |
Business objectives
Our financial objectives are to continue to profitably grow the business with cash generation. Revenue growth is expected to derive principally from increased sales of our surgical disposables. We expect the greatest growth of surgical disposable sales in the USA and key identified markets in the distribution territories. We expect the launch of LiDCOunity to expand use into all areas of the patient care continuum. This new product will help us reassert ourselves in the critical care segment as well as target new areas like obstetrics, emergency medical and surgery applications, where recent clinical publications have highlighted how our technology is capable of improving outcomes and reducing costs. Targeting specific patient care pathways is how we focus our activities on the greatest opportunities in our direct markets of the UK and the USA.
Our corporate collaborations are an important element of our business. There are a number of these in place, ranging from OEM module licensing-in (Medtronic and CNSystems), distribution provisions (Nihon Kohden and the recently renewed agreement with Argon) through to royalty-based licensing-out arrangements (ICU Medical).
In the current year we will focus on improving our digital presence as we recognise our customers rely on this for large parts of purchasing or post-purchase support. A new website is planned that will provide improved education for users and highlight the application of our technology in multiple clinical settings.
Geographical expansion is key to exploiting the opportunities in this growing market. We are aiming to expand our presence in the US as well as register our technology in a number of key markets including China, Saudi Arabia, Canada, Turkey and South Korea.
We launched our new product LiDCOunity at the 36th International Symposium on Intensive Care and Emergency Medicine (ISICEM) in Brussels in March 2016. We continue to invest to ensure that we retain our technology leadership position and dedicate resources to our next generation platform. Our next generation will look to add further tools that improve clinical decision making as well as catering for both the expert and novice user. At the foundation of our product development strategy is the objective of enabling our technology to be used along every step of the emergency or elective patient's care pathway.
Matthew Sassone
Chief Executive Officer
11 April 2016
CONSOLIDATED comprehensive INCOME STATEMENT
For the year ended 31 January 2016
|
|
Note |
Year ended 31 January 2016 £'000 |
Year ended 31 January 2015 £'000 |
|
Revenue |
|
7,593 |
8,267 |
|
Cost of sales |
|
(2,455) |
(2,535) |
|
Gross profit |
|
5,138 |
5,732 |
|
Administrative expenses
Operating (loss)/profit, before exceptional cost and share based payment Exceptional cost Share based payment charge |
|
(5,718)
(345) (163) (72) |
(5,489)
331 - (88)
|
|
Operating (loss)/profit |
|
(580) |
243 |
|
Finance income |
|
3 |
7 |
|
Finance expense |
|
(1) |
(12) |
|
(Loss)/profit before tax |
|
(578) |
238 |
|
Income tax |
|
162 |
105 |
|
(Loss)/profit and total comprehensive (expense)/income for the year attributable to equity holders of the parent |
|
(416) |
343 |
|
(Loss)/earnings per share (basic and diluted) (pence) |
2 |
(0.21) |
0.18 |
CONSOLIDATED Balance Sheet
At 31 January 2016
|
|
2016 £'000 |
2015 £'000 |
|
Non-current assets |
|
|
|
Property, plant and equipment |
931 |
1,079 |
|
Intangible assets |
1,869 |
1,789 |
|
|
2,800 |
2,868 |
|
Current assets |
|
|
|
Inventory |
1,939 |
2,119 |
|
Trade and other receivables |
2,480 |
2,818 |
|
Current tax |
168 |
123 |
|
Cash and cash equivalents |
1,587 |
1,509 |
|
|
6,174 |
6,569 |
|
Current liabilities |
|
|
|
Trade and other payables |
(1,482) |
(1,596) |
|
Deferred income |
(116) |
(121) |
|
|
(1,598) |
(1,717) |
|
|
|
|
|
Net current assets |
4,576 |
4,852 |
|
|
|
|
|
|
|
|
|
Net assets |
7,376 |
7,720 |
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
Share capital |
971 |
971 |
|
Share premium |
27,798 |
27,798 |
|
Merger reserve |
8,513 |
8,513 |
|
Retained earnings |
(29,906) |
(29,562) |
|
Total equity |
7,376 |
7,720 |
|
|
|
|
consolidated Cash flow Statement
For the year ended 31 January 2016
|
|
Year ended 31 January 2016 £'000 |
Year ended 31 January 2015 £'000 |
|
(Loss)/profit before tax |
(578) |
238 |
|
Finance income |
(3) |
(7) |
|
Finance expense |
1 |
12 |
|
Depreciation and amortisation charges |
720 |
732 |
|
Share-based payments |
72 |
88 |
|
Decrease/(increase) in inventories |
180 |
(68) |
|
Decrease/(increase) in receivables |
338 |
(679) |
|
Decrease/(increase) in payables |
(114) |
46 |
|
Decrease in deferred income |
(5) |
(153) |
|
Income tax credit received |
117 |
65 |
|
Net cash inflow from operating activities |
728 |
274 |
|
Cash flows from investing activities |
|
|
|
Purchase of property, plant & equipment |
(163) |
(363) |
|
Purchase of intangible assets Proceeds on the sale of equipment |
(493) 4 |
(635) - |
|
Finance income |
3 |
7 |
|
Net cash used in investing activities |
(649) |
(991) |
|
Net cash inflow/(outflow) before financing |
79 |
(717) |
|
Cash flows from financing activities |
|
|
|
Finance expense |
(1) |
(12) |
|
Repayment of finance lease |
- |
(175) |
|
Issue of ordinary share capital |
- |
40 |
|
Net cash outflow from financing activities |
(1) |
(147) |
|
Net increase/(decrease) in cash and cash equivalents |
78 |
(864) |
|
Opening cash and cash equivalents |
1,509 |
2,373 |
|
Closing cash and cash equivalents |
1,587 |
1,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 January 2016
|
|
Share capital £'000 |
Share premium £'000 |
Merger reserve £'000
|
Retained earnings £'000 |
Total equity £'000 |
|
At 1 February 2014 |
969 |
27,760 |
8,513 |
(29,993) |
7,249 |
|
Issue of share capital |
2 |
38 |
- |
- |
40 |
|
Share-based payment expense |
- |
- |
- |
88 |
88 |
|
Transactions with owners |
2 |
38 |
- |
88 |
128 |
|
Profit and total comprehensive income for the year |
- |
- |
- |
343 |
343 |
|
At 31 January 2015 |
971 |
27,798 |
8,513 |
(29,562) |
7,720 |
|
Issue of share capital |
- |
- |
- |
- |
- |
|
Share-based payment credit |
- |
- |
- |
72 |
72 |
|
Transactions with owners |
- |
- |
- |
72 |
72 |
|
Loss and total comprehensive expense for the year |
- |
- |
- |
(416) |
(416) |
|
At 31 January 2016 |
971 |
27,798 |
8,513 |
(29,906) |
7,376 |
NOTES TO THE FINANCIAL STATEMENTS
1. NATURE OF THE FINANCIAL INFORMATION
These financial statements have been prepared in accordance with the principle accounting policies adopted by the Group, International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations (IFRIC) as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under and were approved by the Board on 11 April 2016. They are presented in sterling, which is the functional currency of the parent company and the Group. The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.
These results are audited, however the financial information does not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The financial information for the year ended 31 January 2015 has been derived from the Group's statutory accounts for that year, as filed with the Registrar of Companies. The auditors' report on the statutory accounts for the year ended 31 January 2015 was unqualified and did not contain statements under section 498 of the Companies Act 2006.
The accounting policies used in completing this financial information have been consistently applied in all periods shown. These accounting policies are detailed in the Group's financial statements for the year ended 31 January 2015 which can be found on the Group's website.
2. EARNINGS PER SHARE
The earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. The basic earnings per share for the year is based on a loss after tax of £416,000 (2014/15: profit £343,000) and weighted average number of shares in issue of 194,174,908 (2014/15: 194,174,908). The diluted earnings per share is based on the above calculation adjusted to allow for the issue of shares on the assumed conversion of all dilutive options. Share options are regarded as dilutive when, and only when, their conversion would decrease earnings or increase the loss per share. The diluted earnings per share is based upon a weighted average number of shares of 194,174,908.
3. DISTRIBUTION
Copies of this statement will be available for collection free of charge from the Company's registered office at 16 Orsman Road, London N1 5QJ. An electronic version of this announcement and the Annual report and accounts will be available today on the Company's website, www.lidco.com. Copies of the Annual report and accounts will be posted to shareholders later this month together with the notice of the Annual General Meeting.