2012 Reportaccounts

Report & Accounts
2012
CardioQ-ODM Global Initiatives
UK
NHS decision to adopt CardioQODM at pace and at scale currently in implementation phase Minimum requirements for uptake of Intra-Operative Fluid Management across the NHS in England is a major development for the Company NHS Innovation Review 2011: - CardioQ-ODM prioritised as part of 2012-13 implementation NICE medical technology guidance on CardioQ-ODM: - Recommended for use on over 800,000 patients - In comparisons with other technologies, CardioQ-ODM is found to be dominant National Condential Enquiry into Patient Outcome and Death: - Call for the implementation of NICE guidance on CardioQ-ODM NHS Supply Chain: - Tender awarded for CardioQ-ODM and new product, CardioQ-ODM+
USA
Premier Inc.: - First phase of collaboration substantially completed British Embassy reception, Washington - Enhanced Recovery using CardioQ-ODM presented to a number of influential policy makers Reimbursement - National coverage for ODM, following AHRQ Technology Assessment
France
Clinical guidelines: - Clinical guidelines for fluid management currently in development by professional bodies
Canada
Whole hospital system implementation underway. Initial audit demonstrating good outcomes of approximately 40% reduction in length of hospital stay
Sweden
National drive for adoption of enhanced recovery surgical programme launched
Spain
Spanish Government Health Technology Assessment: - Recommended CardioQ-ODM in colorectal surgery Spanish Government Health Technology Assessment: - Conducting worlds largest randomised multi-centre trial using CardioQ-ODM in urological, gynaecological, abdominal, and trauma surgery
Peru
Results from randomised controlled trial into emergency laproscopic surgery presented at World Anaesthesia Congress demonstrating significant outcome benefits
Report and Accounts 2012 | 1 Deltex Medical Group plc
Highlights
Financial
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Current developments
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Sales up 7.5% to 6.8m 0.7m growth from sales of surgical probes Faster growth in surgical probe sales in main markets UK up 24% (2011: 16%) Europe up 18% (2011: down 10%) USA up 10% (2011: down 15%) Cash used in operations reduced by 0.2m to 1.1m UK operation generated over 1 million of cash Operating loss increased by 0.7m to 2.1m after effects of: 1.1m of non-cash costs (2011: 0.7m) 0.3m loss of margin on launch sales to distributors of CardioQ-ODM+ 0.4m investment in completing marketing materials upgrade and R&D projects Cash of 0.7m; 2.5m new equity raised in January to fund US market development project
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Major market development project established in USA with Premier Inc Implement ODM & enhanced recovery in up to five hospitals Disseminate implementation programme to >50% of US hospitals within two years Working with NHS hospitals which plan to increase CardioQ-ODM usage significantly Implementation of NICE guidance on CardioQ-ODM Introduce dedicated trainer model into UK super-users Installed base of new CardioQ-ODM+ over 150 and growing Surgical probe sales growth in early 2013 in all direct markets
Contents
Highlights Chairmans Statement 1 2 4 8 13 14 15 22 23 24 25 26 27 58 59 60
Operating
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Operating Review Financial Review Directors Secretary and Advisers Directors Report Independent Auditors Report Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Independent Auditors Report Company Balance Sheet Notes to the Financial Statements
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ODM the only intra-operative fluid management monitoring technology selected as a high impact innovation by the NHS NHS implementation plan launched in December 2012 CardioQ-ODM the only intra-operative fluid management monitor recommended by NICE Excellent results from Premier pilot programme at Duke University Hospital, North Carolina Swedish enhanced recovery roll-out: 50% per annum probe growth over last two years First health system in Canada to roll-out ODM and enhanced recovery CardioQ-ODM+ incorporating Pulse Pressure Waveform Analysis launched
2 | Report and Accounts 2012 Deltex Medical Group plc
Chairmans Statement
Deltex Medicals goal is to make Oesophageal Doppler Monitoring (ODM) a standard of care in both major surgery and in critical care. Achieving this will create a major international business that generates substantial amounts of cash and profits sustainable over many years. In 2012 we made substantial progress towards achieving this goal. Our products are gaining traction and were being used in some 20% or more surgical patients by the end of the year than at the start in countries including the UK, USA, France, Scandinavia and Canada. In addition, the launch of the CardioQ-ODM+ monitor has also given us a considerable technological and competitive edge in critical care. Group sales grew overall by 474,000 up 7.5% to 6,777,000. This growth was achieved because more doctors in more hospitals around the world used our probes more often to manage their patients fluids during surgery. Doing so reduced the frequency and severity of post-operative complications suffered by those patients thereby improving the quality of the care delivered and lowering its cost. Growth rates increased in key markets: UK surgical probes grew 477,000 (24%: 2011 growth rate 16%); European surgical probes grew 126,000 (18%: 2011 fall of 10%); US surgical probes grew by over 20% in the second half and overall by 74,000 (10.5%: 2011 fall of 15%). Further underlying growth in surgical probe sales in other export markets was masked by changes in distributor stock holdings resulting in a net fall of 128,000: thus sales of probes to our Canadian distributor were less than half those in 2011 despite the distributors sales to end users more than doubling. Sales of disposable surgical probes are now Deltex Medicals largest source of revenue. Over the last decade they have grown by more than twenty-fold from under 0.2m in 2002 to circa 4.5m in 2012. Over the same period, they have grown from about one-tenth of group revenues to around two-thirds. In the UK, where we have been amongst the fastest growing major new medical technologies over the last decade, our probes are still only used in about one in twenty-five of those patients where their use is recommended by the National Institute for Health and Clinical Excellence (NICE), giving us a clear opportunity for substantial future growth. The UK sales operation accounted for over half our 2012 surgical probe revenues and already generates well over 1 million of cash a year, hence we expect this trend to translate into increasingly strong cash-flow. In December 2011, the NHS in England announced its selection of ODM as a high impact innovation to be rolled out across the system fully, at pace and at scale. Details of the initial implementation plan and targets for the 2013/14 NHS financial year were finalised late in December 2012 and give us additional opportunities for accelerated growth. Other markets, such as France and Scandinavia, are close behind the UK in terms of acceptance of ODM as a standard of care. In January, we announced a major collaborative research project with Premier Inc (Premier) aimed at accelerating significantly the creation of a mass market for our products in the USA. The two year project will entail: the implementation of CardioQODM in colorectal surgery in three to five Premier hospitals within an enhanced recovery surgical programme; tracking by Premier of the patient and economic consequences; development by Premiers clinical change experts of a scalable changes management package; and promotion of this package amongst Premiers network which comprises approximately half the hospitals in the USA. This collaboration with Premier follows excellent results emerging from a preliminary pilot project undertaken with Premier and Duke University Hospital: preliminary data showed substantial reductions in hospital costs and, although the pilot will not complete until later in 2013, we incurred circa 100,000 in 2012 to reflect the substantive progress made. To prepare further for future US growth we are working on a number of initiatives to make the existing pathways for physician reimbursement for use of ODM both more certain and simpler. Where established locally at adequate levels of $80 per patient or higher, physician reimbursement has been associated with achieving our best levels of growth in the USA.
Gross margins were 71% overall and over 80% in direct markets. We have maintained or improved gross margins on probe sales over the last four year in all our markets while sacrificing margin on monitor sales to support momentum in building the installed base at a time of severe restrictions in capital budgets in most developed health systems. In December 2012 we discounted substantially the first sales of over 100 CardioQ-ODM+ monitors to our distributors to enable them to start to seed key hospital accounts with these new monitors from the start of 2013. We estimate that this launch exercise resulted in a one-off margin reduction of circa 300,000 (4% of the full year gross margin). We expect gross margins to improve over time as higher margin probe revenues continue to generate a greater share of total revenues. Operating expenses increased by 951,000 (16%) and operating losses increased by 676,000 to 2,078,000. This increased loss is after charging 1,069,000 of non-cash costs (2011: 670,000) which includes 540,000 (2011: 270,000) of noncash clinical trial costs. 417,000 of these trial costs were written off in the first half for projects which we have put on hold for the time being as we refocus our efforts in the short term on research projects aimed at more immediate returns. Cash used in operations was 243,000 lower than in 2011 at 1,094,000. During 2012 we invested circa 400,000 in completing projects to bring the CardioQ-ODM+ to market and to upgrade our product marketing messages and materials. In 2013 we plan to leverage growth off a cash cost base, excluding costs directly attributable to the US Premier project, broadly similar to that in 2012. However, we do intend to implement modest increases in our cost base to support opportunities in hospitals to increase further surgical probe growth rates, based primarily around our proven dedicated trainer model. Cash at 31 December was 667,000 (2011: 752,000) and since the year-end we have raised circa 2.5 million, before expenses, in new equity funds to support the Premier collaboration and provide an element of additional working capital headroom. Excluding the planned and funded investment in the Premier collaboration, the traction established in multiple markets in 2012, together with a tightly controlled cost base, position the company to move more rapidly towards consistent operating cash generation. Trading in the early part of 2013 has been satisfactory with surgical probe sales ahead of 2012 in all our
direct markets and sales to distributors on plan. The UK growth in 2013 to date has been achieved against particularly strong growth in the early part of last year and there are encouraging signs that a number of NHS hospitals are planning to increase significantly their use of our products. We have been encouraged by the highly positive reception of the second generation CardioQ-ODM+ released late in December 2012. More than 100 of these monitors which combine flow (ODM) and pressure (Pulse Pressure Waveform Analysis) modalities in the same device have already been installed in hospitals, mostly in the UK and Continental Europe, where they are being used in both critical care and surgery. Deltex Medical has entered the next phase in its development as we move from the market creation phase into market development in the UK with a number of other European countries set to follow. We have additionally put in place a process to accelerate significantly the creation of a mass market for our products in the USA. Our surgical probe business has traction in important markets and growth rates improved substantially in 2012 in our key markets. Current momentum leveraged off a tightly controlled cost base will move the business towards regular cash generation in the near future and a number of opportunities are emerging to drive accelerated profitable growth over a prolonged period.
Nigel Keen Chairman 25 March 2013
Operating Review
During 2012 Deltex Medical strengthened further its global market leading position in oesophageal Doppler monitoring (ODM)
Overview
During 2012 Deltex Medical strengthened further its global market leading position in Oesophageal Doppler Monitoring (ODM). ODM benefits substantial numbers of patients, the largest group being patients undergoing major surgery where it is the only technology proven to both reduce post-operative complications suffered by patients and to reduce lengths of hospital stay. ODMs value is being recognised increasingly by clinicians and healthcare administrators. ODM during surgery can be implemented successfully into routine clinical practice on a wide scale because it is a simple procedure that is easy to learn, quick to perform and applicable in almost all patients. Deltex Medical generates revenues from the sale of single patient disposable probes, the sale of monitors and from providing maintenance and support services. In addition to sales for cash, it also sells a small number of monitors most years under barter arrangements in return for hospitals undertaking specific clinical research. Sales of probes are the best indicator of the level of uptake of ODM and therefore the long term value created by the Group as they increase as more doctors start to treat more patients. The mix of Deltex Medicals revenues has changed markedly over time with sales of surgical probes now being comfortably the largest source of revenue. Revenue stream Surgical probes
Critical care probes
sold monitors have meant fewer hospitals purchasing monitors and pressure on pricing. To maintain momentum behind growth in the high value, high margin probe annuity revenue stream we have moved towards new business models in direct markets whereby we own a greater proportion of the installed base of monitors in operating theatres and, where appropriate, we have supported our distributors to make similar transitions. As a consequence, reduction in margin on monitor sales combined with increased amortisation charges for our fleet of installed monitors have caused a small decline in overall gross margin to 71% (2011: 72%). We expect this trend to reverse and gross margins to improve over time as high margin probe sales continue to grow and monitor utilisation increases. Gross margin was over 80% in all direct markets. In 2012 the recurring revenue streams of probes and maintenance contributed 87% of cash sales with sales of surgical probes comprising 70% of cash sales compared to 36% in 2008 and 10% in 2002. We expect the higher growth rates achieved and achievable in surgical probe sales to lead to higher overall growth rates as they contribute higher proportions of total revenues.
Markets
The CardioQ-ODM has two distinct established clinical applications: firstly, to guide fluid management during surgery and secondly, to monitor cardiac output in critical care settings.
2012 m 4.5 0.8 0.8 0.3 6.4 0.4 6.8
2008 m 1.8
2.0
2002 m 0.2
1.1
Monitors Maintenance etc Cash sales Research barter sales Total revenue
1.1 0.2 5.1 0.1 5.2
0.5 1.8 1.8
Surgical market
Deltex Medicals key focus is on the developing market for intra-operative fluid management using ODM during surgery. In 2011 NICE recommended that CardioQ-ODM be considered for use in patients undergoing major and high risk surgery and in high risk patients undergoing major surgery. NICE
Since 2009, restricted capital budgets in most of the markets where we, or our distributors, traditionally
estimated the annual number of such patients in the NHS in England alone to be over 800,000, just over 1,600 patients per year for each 100,000 of population. This equates to tens of millions of patients globally and an evolving market opportunity in excess of 1 billion per annum. The Companys core focus is on building market leading positions in this surgical market, both geographically and by type of surgery. Deltex Medical has considerable competitive advantages in the emerging market for intra-operative fluid management: a technology, ODM, that measures blood flows precisely in the central circulation; patient management algorithms driven by changes in what is directly measured; a comprehensive evidence base of both clinical and economic benefit across multiple types of surgery; positive clinical meta-analyses and government sponsored systematic reviews; a NICE recommendation and recognition as a key component of modern enhanced recovery approaches to surgery. Clinical evidence is an essential pre-requisite to both wide clinical acceptance and systematic adoption of a new medical technology. To date seventeen studies using ODM during surgery have been published in peer reviewed clinical journals and these demonstrate overwhelmingly that ODM improves patient outcomes and reduces costs of care. By contrast, there are now ten published studies using competing technologies, but not one of these has yet shown clinical or economic benefits equivalent to ODM. This is unsurprising given the growing body of published studies shows that no other technology is able to detect reliably the small changes in blood flow detected by ODM. This is particularly important during surgery when patients haemodynamics are often volatile.
ODM+ monitor early in 2012 and, more importantly, a substantial upgrade to it in December. The CardioQODM+ incorporates the most common competing technology, Pulse Pressure Waveform Analysis (PPWA), into our established ODM platform. PPWA has attractions as a technology for monitoring patients over long periods in critical care settings, but it has been hampered by the need for users to recalibrate it frequently with more precise measurements of cardiac output. This is needed to compensate for PPWAs inability to detect reliably changes in compliance in the vascular system. Recalibration methodologies have traditionally been cumbersome, invasive, expensive and imprecise leading to a tendency for insufficient or inadequate recalibration to be actually carried out. Using ODM as a calibration technique means that PPWA can be recalibrated in seconds rather than minutes, at no additional cost and more precisely than previously: it also means that doctors and nurses can intervene using ODM functionality when the monitored parameters indicate this may be beneficial or necessary.
United Kingdom
Deltex Medical built on its market leading position in the UK surgical market in 2012. The Company maintained its position amongst the market leaders in critical care. UK revenues overall grew by 336,000 (9%), driven by a 470,000 (24%) increase in surgical probe sales, offset by a 77,000 (9%) decline in critical care probes and a 65,000 (10%) decline in monitor revenues. We sold 84 monitors (2011: 61) in the UK in the year at lower average selling prices than in 2011 as we reduced the price of the CardioQ-ODM monitors. The UK surgical installed base of monitors increased by 96 units (18%) to 615 and the critical care installed base increased by 27 units (9%) to 311. By the end of the year the total UK installed base of 926 monitors included 49 CardioQ-ODM+ monitors. The 24% growth rate in UK surgical probes was half as fast again as the 16% growth rate achieved in 2011. Our probes were used to treat over 33,000 patients in the UK with just under 30,000 of these used in the NHS in England, representing only 3.5% of those patients where use of CardioQ-ODM is recommended by NICE. The minimum target set by the NHS for the year ending 31 March 2014 is for each NHS Trust to be using some form of intra-operative fluid management technology on at least 80% of their share of 77,560 major surgery patients, i.e. a minimum of 62,000
Critical care market

Doctors and nurses caring for patients in critical care settings want to be able both to monitor the haemodynamic status of patients over prolonged periods and to intervene using drugs and fluids to optimise the patients circulating blood volume. ODMs strengths in such settings are that it is quick to set up, easy to use, safe, low cost and the ideal technology for a patient in crisis requiring rapid or frequent intervention. As a pure monitoring technology in critical care, ODM works best when embedded into routine nursing protocols to ensure optimal probe focusing. We have increased significantly our technology for use in critical care through the launch of the CardioQ-
Operating Review continued

patients in the year or 7.5% of patients covered by the NICE guidance. These minimum targets are backed up by potentially harsh financial penalties for non-compliance as hospitals failing to achieve targets locally will fail to pre-qualify for 2.5% of their standard NHS revenues. The impact of these targets is likely to vary in different regions of England due to significant variation in current levels of uptake: in 2012 compliance with NICEs guidance was as high as 6.7% in the South-East but as low as 1.5% in the Midlands. Our focus in better penetrated hospitals and regions is to support compliance with the totality of NICE guidance, whereas in later adopters, the focus is on compliance with minimum standards. The launch of the CardioQ-ODM+ means that we are the only supplier to offer a single intra-operative fluid management product which is able to guide accurately all the various fluid management algorithms which have been studied in trials to date. While we expect the majority of hospitals to choose the lower priced CardioQ-ODM monitors because of the substantial weight of clinical evidence in favour of Doppler guided fluid management, we are seeing demand for the CardioQ-ODM+ in those hospitals where some clinicians prefer a choice of fluid management strategy. we exited the year generating combined net margins, after the cost of the dedicated trainers, worth circa $500,000 per annum on sales worth circa $800,000 per annum. We are working with a number of hospitals with a view to introducing a dedicated trainer when appropriate. In January 2013 we announced that we had entered into, and raised equity capital to support, the second phase of a major collaboration with Premier, a major purchasing and quality improvement organisation owned by US hospital systems. The programme will result in the implementation of CardioQ-ODM in up to five US hospitals and, in return for fees payable to Premier, give Deltex Medical access to Premier`s patient outcome and hospital cost data, Premiers clinical change management and quality improvement expertise as well as a scalable implementation programme for other hospitals to follow and, ultimately, Premiers extensive networks of hospitals and health policy makers. Deltex Medical is undertaking this collaboration with Premier with the objectives of:
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accelerating the creation of a significant market for its products in the USA both through increasing the number of deeply penetrated hospitals and through generating high quality evidence of clinical and economic benefit specific to US health systems;
United States of America

Sales in the USA were 91,000 (13%) ahead of 2011, with a 74,000 (10%) increase in probe sales: probe sales comprised 97% of total sales in the USA where our normal model is to place monitors free of charge in return for higher probe prices. This result marked a return to growth after a difficult year in 2011 when hospital activity was hit by adverse macro-economic conditions. All the 2012 probe growth was achieved in the second half of the year: we achieved over 20% growth in the second half and 30% in the final quarter. Our business model in the USA is based around developing accounts to the stage where they are using around 50 or more probes a month and then deploying a dedicated clinical trainer to drive further and deeper growth. Based on fourth quarter runrates in our two most developed hospital accounts
increasing the rate of sales growth that the Company would otherwise expect to achieve in the USA during the next two years; and
establishing by the end of the collaboration period (expected to occur in late 2014 or early 2015) a substantial pipeline of QUEST and wider Premier alliance hospitals committed to adopting CardioQODM following the implementation models developed with Premier.
The clinical acceptance of the importance of intraoperative fluid management in determining patients outcomes after surgery in the USA is generally some way behind that in the UK and Europe but there are clear signs of increasing interest from clinicians in leading hospitals.
International
Distributors service export markets, with the exceptions of those in the USA and Spain, with support from a small team of our own staff. Sales to distributors in 2012 totalled 1,849,000, an increase of 54,000 (3%) over 2011. Monitor revenues increased by 62,000 and probe revenues fell by 14,000. The decline in probe revenues was the net effect of a 114,000 increase in sales to European distributors and a 128,000 fall in probe sales to distributors in the Rest of the World. Changes in the sales mix meant the average selling price for probes was 51 compared to 55 in 2011 and 51 in 2010. The average selling price of monitors to distributors was 3,391 compared to 3,699 in 2011 and 4,235 in 2010, reflecting the pricing pressure on capital equipment in most markets as well as our decision to accelerate the build up of an installed base of the new CardioQODM+ monitor by offering substantial discounts to distributors to accompany the December 2012 release. Distributor stocking patterns can obscure underlying growth in adoption of our products. Thus, while probe sales to our Canadian distributor more than halved in 2012, the distributors sales of probes to customers more than doubled. Our largest distributor outside Europe is in Peru where probe growth was at the lowest rate for some years as a result of a four month doctors strike. This has now been resolved and the distributor reports that momentum is returning. Our Peruvian distributor operates a successful dedicated trainer model in major hospitals and we expect positive results from a first major study of CardioQ-ODM to drive further adoption in Peru and South America. In Continental Europe our distributors report surgical probe sales growth in more developed markets including France, Scandinavia, Austria and Italy with good progress in markets which are less versed in the need for haemodynamic management such as Germany. New clinical guidelines are expected to be published in France shortly after a number of delays to date. In Sweden where CardioQ-ODM is increasingly recognised as the standard of care and is being pushed out as part of a national drive on enhanced recovery surgical programmes, our distributor has seen end user growth of around 50% per annum over the last two years. We sold 114 CardioQ-ODM+ monitors to international distributors in December 2012 subsequent to completing a substantial upgrade to
the product. Since the year end, we have been supporting the installation of many of these monitors into hospitals around the world with highly positive feedback in both critical care and surgical settings.
Research and Development

Our key focus in 2012 was on the release in December of the CardioQ-ODM+ monitor combining full ODM functionality with Pulse Pressure Wave Analysis (PPWA). Feedback to date shows that doctors already value highly the unique choice of clinical strategies that the CardioQ-ODM+ gives them in various clinical settings. Our priorities in 2013 and beyond are on: completing a substantial upgrade of the monitor platform; improving further the handling capacities of our probes; starting manufacture of our new simulator mannequins for education and training support; investigating and integrating other haemodynamic monitoring technologies that offer supplementary applications to our existing products and developing commercially viable non-invasive Doppler signal acquisition solutions.
Prospects
We have started 2013 with confidence. Our products are independently validated as delivering better care, better health and lower costs which puts them in the sweet spot of evolving health policy in many developed health economies. In the UK our technology is being prioritised by the NHS as a high impact innovation and we are making good progress towards creating similar opportunities in a growing number of major overseas markets. Our products have traction in a number of key markets and we see increasing opportunities to accelerate further existing growth rates.
Ewan Phillips Chief Executive 25 March 2013
Financial Review
The Companys surgical probe range now accounts for 66% of total sales.
Trading performance
Revenues for the year grew by 474,000 to 6,777,000 (2011: 6,303,000). All of this increase is a result of growth in the Companys surgical probe range, which now accounts for 66% (2011: 63%) of total sales. The recurring nature of this surgical probe business and the high margins achieved are expected to drive the Companys profitability and cash as the rate of adoption continues to accelerate. Detailed market information is given in the Operating Review on pages 4 to 7. However, broadly the Companys sales can be split into two different areas, surgical probes and other products. The surgical probe business has grown from just under 10% of sales in 2007 to 66% in 2012. Other products (to the left of the line in fig 1.) include monitor sales and probes sold for use in critical care. Due to increasing constraints on capital budgets and a change in practice towards minimising sedation of patients in critical care, these areas have remained broadly flat at 2,300,000 (2011: 2,391,000).
Gross margins were 71%, slightly lower than in 2011 (72%). Gross margins are affected by a number of factors including; contribution received from sales (after raw material costs), charges relating to amortisation of loan units to hospitals and production costs. Raw material costs have largely remained stable, with any increases being offset by changes in components, suppliers or other production savings. The average sales price of the Companys surgical probes in its direct markets of the UK, USA and Spain have remained stable and continue to generate gross contributions of over 80%. Gross margins continue to be affected by changes to margins achieved on monitors as a result of a decision in 2011 to aggressively discount monitors in response to constrained hospital capital budgets and thereby maintain expansion of the installed base. In addition, as a result of the Companys accounting treatment for monitors placed in hospitals on loan, there is expected to be a short term pressure on margin from amortisation charges whilst the proportion of the installed base owned by the Company continues to grow. However, as utilisation of the installed base grows we would expect the overall margins to recover and increase. Administrative expenses increased by 223,000 to 2,235,000 (2011: 2,012,000). This movement includes an increase in clinical trial charges of 282,000 to 540,000 (2011: 258,000) offset by a 50,000 reduction in the charges for provisions to
Fig 1. 2012 sales m
3,000 (2011: 53,000). Clinical trial costs increased as trial costs were written off in the first half for projects which were put on hold as efforts are refocused in the short term on research projects aimed at more immediate returns. Sales and distribution costs have increased by 571,000 to 4,103,000 (2011: 3,532,000). Sales and distribution costs have increased by 571,000 to 4,103,000 (2011: 3,532,000). The difference is primarily as a result of an increase of c300,000 in employee costs, including higher performance bonuses, which are based on probe sales growth than in 2011 as well as additional spend in marketing activities during the period of approximately 250,000,. This includes the substantial completion of a programme of additional marketing investment, started in 2011, aimed at upgrading our marketing messages and materials. Further detail on the increase in Research and Development charge by 157,000 from 396,000 to 553,000 is given below. Operating losses increased by 676,000 to 2,078,000 (2011: 1,402,000). Operating expenses increased by 951,000 to 6,891,000 (2011: 5,940,000). Of the 6,891,000 operating costs, 1,517,000 (2011: 1,170,000) relates to non-cash items including accounting charges for share-based payment, depreciation and amortisation of fixed assets and intangibles.
investments increased intangible assets by 472,000 (2011: 347,000) during the year. The net book value of capitalised R&D at the end of the financial year was 1,076,000 (2011: 724,000). On release of the product, the capitalised costs are charged to the Consolidated Statement of Comprehensive Income over the life of the product in accordance with the Companys accounting policy as described in note 1. In 2012, this charge increased by 60,000 to 120,000 (2011: 60,000) primarily reflecting full year charges in respect of the US version of the CardioQEDM. A reconciliation between total costs incurred and the amount charged to the Consolidated Statement of Comprehensive Income as described above is given below: 2012 000 Total incurred for research and development: Cash Clinical trial amortisation Total Less: amount capitalised Add: amortisation of amounts previously capitalised Research and development charged to Statement of Comprehensive Income 553 396 120 60 768 137 905 (472) 526 157 683 (347) 2011 000
Research and development

Towards the end of 2011, we recruited new engineers to help accelerate the development and release of new products. In March 2012 the initial release of the CardioQ-ODM+ was made. Following positive customer feedback, this product was further developed during the year with version 2.0 having been released in December 2012. This product is explained further in the Operating review. Alongside development of the CardioQ-ODM+, the R&D team has been working on a number of projects for release in 2014 and beyond. International Accounting Standard 38 requires the capitalisation of development costs relating to future products as an intangible asset. The value of these
This increase in investment (before capitalisation) of R&D over the past five years is shown below:
Non cash revenue and costs

In order for the reader to better understand the effect of non-cash items on the Companys profitability and
Financial Review continued

cash flow, alternative performance measures are provided on the Consolidated Statement of Comprehensive Income and Note 23, Notes to the Cashflow Statement. The larger non-cash items are explained in more detail below. specified contractually between the other party and the Company at the balance sheet date. Total costs amortised during the year with respect to clinical trials amount to 540,000 (2011: 270,000). The amount of clinical trial cost is dependent on the level of progress that the projects have made during the year.
Non cash revenue

In recent years the Company has completed a number of transactions on a non-cash basis aimed specifically at opening new market opportunities through focused research aimed at generating clinical and/or economic evidence of the benefits of the Companys products in specific circumstances. In 2011, the total non-cash revenue associated with these projects was 500,000. During 2012, specific projects were initiated using the CardioQ-ODM+ monitor at key research sites in the UK and Europe. These sites have committed to providing essential data essential to the Company for the further development of this product and its market potential in return for ownership rights of the monitors. The non-cash revenue associated with this project in 2012 was 448,000. The value of the projects although difficult to quantify is considered to be substantially more than the 448,000 recognised. The split of revenue between cash and non-cash over the past five years is as follows: ():
Share based payments

Share based payments are charged to the Consolidated Statement of Comprehensive Income in accordance with IFRS2, where the value of the award (as calculated using the Black-Scholes method) is charged over the vesting period of the option (see note 21 for further detail). Share based payments arise as a result of: Grant of options to employees Grant of options to distributors or consultants The Company has three Employee Share Option Plans. The original plan was set up in March 2000, but has now expired with regard to the issue of new awards. A new scheme, for which authority was obtained at the AGM held in April 2011, was approved by HM Revenue & Customs in September 2011 and first awards were made from it shortly thereafter. In addition to these schemes, share options are also granted to employees under the Companys Enterprise Management Incentive Scheme (EMI). The EMI scheme allows the Company to make tax efficient awards to certain employees, whilst preserving its cash resources. For the years ended 31 December 2011 and 31 December 2012, performance bonuses to UK based employees were satisfied using options awarded under the EMI scheme. The total share based payment charges for 2012, including bonus accruals, was 583,000 (2011: 386,000). This increase in charge is a reflection of an increase in performance bonuses of 62,000 and a full year of share option charge from the September 2011 issue. The 2011 issue was greater than normal as it included share option awards that would have been made in 2010 had a scheme been in place at the time.
Non-cash costs Clinical trial and other costs

The costs associated with these projects are initially capitalised and subsequently amortised over the length of the clinical trials or projects with regard to the amount of progress that has been carried out as
Financial income and expenditure

Financial income in the year remained in line with 2012 at 1,000 (2011: 1,000) primarily as a result of the continued low interest received on cash balances. Finance costs decreased by 5,000 to 118,000 (2011: 123,000) reflecting a full year decrease in the interest rate charged on the convertible loan note from February 2011.
Sales are normally higher in the second half of the year than the first half both because of underlying growth trends and because of higher than usual orders from International distributors as they agree their marketing programmes for the following year: in both 2012 and 2011 the Company achieved circa 20% of the years sales in December. The chart below shows the contribution in cash sales and cash expenditure comparing the first half of 2012 with the second half.
Sales vs expenditure ()
3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 H1 2012 Sales Expenditure H2 2012
Taxation
Under the UK Governments Research and Development tax credit scheme, the Company will claim approximately 102,000 relating to R&D in 2012 (2011: 103,000).
Earnings
The reported net loss for the year was 2,093,000 (2011: 1,421,000). With a weighted average number of shares of 148,243,393 (2011: 136,698,498), the basic loss per share was 1.4p (2011: 1.0p).
Cash flow and liquidity

Cash at 31 December 2012 was 667,000 (2011: 752,000). Actual cash at the year end was adversely affected by circa 300,000 due to agreements with two of our distributors to reschedule some of the debts owed. This was due to specific issue in their countries, which temporarily affected their businesses, we remain satisfied that the debt will be recovered. Reported net cash used in operating activities decreased by 243,000 to 1,109,000 (2011: 1,352,000). Restated to exclude non-cash items, the net cash used before movements in working capital increased by 277,000 to 1,009,000 (2011: 732,000). In April 2012, the Company placed 6,057,693 shares to raise approximately 1,500,000 after expenses. This money was used to enable the Company to have sufficient working capital to react to increased orders from the UK NHS. In January 2013, the Company placed 13,157,895 shares to raise approximately 2,400,000 after expenses. This money was raised to fund a collaboration with Premier Inc and provide an element of additional working capital headroom as described in the Chairmans statement on page 3. The Company continues to employ an invoice discounting facility in it management of cash and working capital. At 31 December 2012, the amount of funds drawn down under the facility totalled 724,000 (2011: 723,000).
We expect our cash costs in 2013, excluding costs directly attributable to the US Premier project, to be broadly similar to those in 2012. Based on this cost base, the Company would need to generate revenues of approximately 7.2m on an annualised basis to be cash generative, excluding the Premier project. However, we do intend to implement modest increases in our cost base to support opportunities in hospitals to accelerate the surgical probe growth rate over and above those rates needed to be cash generative, based primarily around our proven dedicated trainer model.
Balance Sheet
The Groups non-current assets at 31 December 2012 totaled 1,576,000 (2011: 1,041,000) consisting principally of plant and equipment including CardioQ-ODM monitors on contracted loan to customers 404,000 (2011: 250,000) and capitalised development costs 1,076,000 (2011: 724,000). The increase in capitalised development costs relates to the investment in new products which are aimed to be released over the coming years. Net current assets decreased by 651,000 to 1,690,000 (2011: 2,341,000). In anticipation of the expected demand from the NHS, where affordable, the Company has continue to maintain increased inventory levels to ensure that such demand can be met at relatively short notice. This has led to a direct impact on the year-end inventory, which has increased, by a further 51,000 to 963,000 (2011: 912,000): the investment in stockholding is further reflected in the 154,000 increase in monitors
Financial Review continued

on contracted loan to customers above. Trade and other receivables have increased by 117,000 to 2,935,000 (2011: 2,818,000). This comprises an increase of approximately 209,000 from the International business and 22,000 from the US business which was offset by a reduction from the UK of 48,000. There was a further reduction in clinical trial prepayments of 92,000. Current liabilities increased by 746,000 to 2,989,000 (2011: 2,243,000) primarily as a result of the disclosure change from non-current to current of 374,000 relating to US loan repayable in May 2013. Further increases in current liabilities relate to amounts due to suppliers in respect of increased manufacturing volumes over 2012 towards the end of the year, bonus accruals and deferred income relating to managed care contracts of 366,000. Non-current liabilities decreased by 365,000 to 1,161,000 (2011: 1,526,000) The majority of this decrease being the reclassification of the US loan to current liabilities. The closing share price at the end of the financial year was 23.50p, compared with 24.55p at the beginning of the year. The highest and lowest prices recorded in the financial year were 29.50p and 21.00p respectively. At 31 December 2012, shareholders funds stood at 2,105,000 an increase of 249,000 over 2011 (1,856,000).
Probe sales
Probe sales increased by 465,000 in 2012 from 4,800,000 to 5,265,000. Rates of regular probe consumption at hospitals at the end of 2012 were higher than at the start of the year in the majority of our key target markets including the UK, USA and France. Further details of probe sales are given in the Operating Review on pages 4 to 7.
Underlying cash burn rate

The underlying cash burn rate is based around managements estimate of the normalised levels of sales and costs: it increases if the Group increases its cost base and decreases as the Groups sales grow. During 2011, the Company decided to increase its cost base for investment purposes only, investing in both research and development and marketing activities, 2012 reflecting the full year cost of these investments. The underlying cash burn at the end of 2011 was calculated at approximately 50,000 per month. During 2012, following additional investment in Research and Development and marketing, the underlying cash burn has been calculated as being approximately 75,000 per month. This excludes investment in the Premier project, which is not considered to be part of underlying costs. The difference between underlying and actual cash burn is also affected by changes in the Groups working capital profile. In addition to these key performance indicators, the following areas are also regularly monitored and where necessary appropriate action is taken; actual cash flows, working capital balances (including inventory levels and receivable collections), sales and other transactions involving monitors and progress with research and development projects and with clinical studies.
Key performance indicators

At this stage of its development, the Groups 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 Groups progress by reference to these two key performance indicators. A summary of the progress made against these indicators during the year ended 31 December 2012 is set out below.
Paul Mitchell Finance Director 25 March 2013
Directors
Non-executive directors
Nigel Keen MA FCA FI ET Chairman Nigel has been involved with Deltex Medical since 1988, and Chairman since 1996. He is also the Non-executive Chairman of Bioquell plc, Laird plc and Oxford Instruments plc. Nigel is the Chairman of the Remuneration Committee and the Audit Committee. Dr Edwin Snape MSc PhD Vice-Chairman Ed has been connected with Deltex Medical for over ten years and Vice-Chairman since 1999. He is currently a Director of Sultan Scientific Limited, Myoscience Inc., Spectra Analysis Instruments, Inc. and Lab 21 Limited. He has over 30 years experience investing in medical devices and life sciences businesses in the USA and Europe. Julian Cazalet MA FCA Julian joined the Board in April 2008. He was until 2007 a Managing Director Corporate Finance of JPMorgan Cazenove. After graduating in Economics from Cambridge, he qualified as a Chartered Accountant 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 Chairman of Herald Investment Trust plc and a Director of Charles Taylor plc, Private Equity Investor plc and of a number of charities. Professor Sir Duncan Nichol 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 was the Deputy Chairman of the Christie NHS Foundation Trust from 2008 to 2012 and is currently Chairman of the Countess of Chester NHS Foundation Trust. Duncan is also currently a Non-executive Director of Synergy Healthcare plc, a provider of healthcare support services to the NHS and the first Chairman of the UK Academy for Healthcare Science.
Executive directors
Ewan Phillips MA ACA Chief Executive Ewan joined Deltex Medical as Group Finance Director in August 2001 with a background in corporate finance. He took on responsibility for UK sales in October 2002 and was appointed managing director of the UK subsidiary in November 2005 before being appointed Chief Executive in September 2009. Paul Mitchell BSc FCA Finance Director Paul joined Deltex Medical in August 2002 as Financial Controller, after qualifying as a Chartered Accountant with PricewaterhouseCoopers. In November 2004 he was appointed Company Secretary and was appointed Finance Director in September 2009.
Secretary and Advisers

Company secretary and registered office
Paul Mitchell BSc FCA Terminus Road Chichester West Sussex PO19 8TX Tel: +44 (0) 1243 774837 Fax: +44 (0) 1243 532534 www.deltexmedical.com Company registered number: 3902895
Principal bankers
The Royal Bank of Scotland plc 6263 Threadneedle Street PO Box 412 London EC2R 8LA
Financial PR advisers
Kreab Gavin Anderson 85 Strand London WC2R 0DW
Nominated adviser and broker

Arden Partners 125 Old Broad Street London EC2N 1AR
Registrars
The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Independent auditors
PricewaterhouseCoopers LLP 9 Greyfriars Road Reading Berkshire RG1 1JG
Solicitors
Laytons 2 More London Riverside London SE1 2AP
Directors Report
For the year ended 31 December 2012
The directors present their report and the audited consolidated financial statements for the year ended 31 December 2012. The directors who served during the year and up to the date of signing the financial statements are disclosed on page 13.
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Changes in the rates of adoption of the Groups products in key markets. The availability to the Group of resources, including cash, to pursue its strategy. Exposure to political risks in certain territories.
Business review and principal activities

The Company is the ultimate holding company of a group of subsidiary undertakings (the Group) engaged in the research, development, manufacture and sale of oesophageal Doppler haemodynamic monitoring systems (ODM). The Company is required to set out in this report a fair view of the business of the Group during the financial year ended 31 December 2012, the position of the Group at the end of the financial year and a description of the principal risks and uncertainties facing the Group. This information, together with the Groups research and development activities and likely future prospects are reviewed in the Chairmans Statement on pages 2 and 3, the Operating Review on pages 4 to 7, and the Financial Review on pages 8 to 12.
The Group has established internal controls to assess the impact or potential impact of actual developments affecting these risks. The Group has developed internal forecasting and reporting tools that are used to manage carefully cash flow, production scheduling and stock holdings. A faster, or slower than expected change in the adoption of the Groups 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 Groups ability to progress its strategic aims. The Group mitigates these risks through effective supplier selection, management and procurement practices.
Key performance indicators

At this stage of its development, the Groups 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). See Financial Review for details on page 12.
Results and dividends

The results for the year are shown in the Consolidated Statement of Comprehensive Income on page 23. The directors do not recommend payment of a dividend (2011: Nil).
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 Groups products. The amount charged to the Consolidated Statement of Comprehensive Income in 2012 was 553,000 (2011: 396,000). The amount capitalised as an intangible asset during 2012 was 472,000 (2011: 347,000), see note 10. Further information is given in the Operating Review on pages 4 to 7 and the Financial Review on pages 8 to 12.
Principal risks and uncertainties

The Groups strategy has been and continues to be the establishment of ODM-guided fluid management using the CardioQ-ODM as a standard of care firstly in the Groups 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 the principal risks and uncertainties facing the Group:
Financial risk management

The Groups financial instruments comprise some cash and various items, such as trade receivables, trade payables and borrowings, that arise directly
Directors Report continued

from its operations. It is, and has been throughout the year under review, the Groups policy that it does not undertake any trading in financial instruments. The Board reviews and agrees policies for managing liquidity, interest rate, exchange rate risks, credit risks and capital risks. The policies have remained unchanged throughout the year and are summarised below: known about counterparties prior to contracting with them and through selection of counterparties with suitable credit ratings and monitors its exposure to credit risk on an ongoing basis. The Group is also exposed to credit related losses and territory specific credit risk in the event of nonperformance by counterparties in connection with financial instruments. The maximum credit risk exposure at the balance sheet date is represented by the carrying value of financial assets and there are no significant concentrations of credit risk. For banks and financial institutions, only independently rated parties with a minimum rating of A are accepted. As at the date of signing the financial statements all cash and cash equivalents are held with institutions with an A rating as per Standard & Poors.
Liquidity risk
The Group is managed to ensure that sufficient cash reserves and credit facilities are available to meet liquidity requirements. The Group has available to it an invoice discounting facility with the Groups 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. Management monitors rolling forecasts of the Groups liquidity reserves which comprises undrawn invoice discounting facilities and cash and cash equivalents on the basis of expected cash flows.
Interest Rate Risk

The Group has both interest-bearing assets and interest-bearing liabilities. The Groups policy is to seek the highest possible return on interest-bearing assets without bearing significant credit risk, and to minimise the rate payable on interest-bearing liabilities. The Group places its cash balances on deposit at floating rates of interest. Surplus cash balances are placed on short-term deposit (less than three months). No interest rate swaps are used. Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow risk that results from borrowing at variable rates. At this time, the majority of the Groups borrowings attract floating rates of interest and therefore the Groups principal interest rate risk is a cash flow risk.
Currency risk
The Group has overseas subsidiaries in the USA and Spain and as a result the Groups sterling balance sheet can be affected by movements in the US dollar/euro/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 units functional currency. However, given the size of the Groups 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 Groups 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
Capital risk
The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern in order to provide future returns to shareholders and benefits for other stakeholders and to maintain optimal capital structure.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. The
Boards policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
Directors interests
31 December 2012 No. Nigel Keen Dr Edwin Snape Sir Duncan Nichol Ewan Phillips Julian Cazalet Paul Mitchell 5,898,547 1,216,338 722,416 1,309,773 3,617,882 176,496 12,941,452 8.57% 31 December 2011 No. 5,759,660 1,116,338 647,416 1,309,773 3,527,882 148,704 12,509,773 8.80%
Amounts in italics relate to percentage of issued share capital at 31 December 2012 and 31 December 2011. Dr Edwin Snape is a principal of Nexus Medical Partners II, L.P. Nexus Medical Partners II, L.P. loaned approximately $518,518 to the Companys US subsidiary in 2008 by way of an unsecured loan note repayable after five years. Interest on the loan note is to be charged at 4% per annum with all interest rolling up for settlement on redemption. Details of the share options of those directors who served during the year are as follows:
At 1 January 2012 No. Ewan Phillips 2001 Executive Share Option Scheme 60,000 120,000 400,000 400,000 400,000 500,000 500,000 1,000,000 583,333 52,083 213,881 235,962 342,857 510,638 43,478 31,250 34,884 690,104 20,270 13,636 507,692 11111 6,660,068 33333 Granted during 2012 No. 500,000 277,174 11111 777,174 33333 Exercised 2012 No. 11111 33333 At Lapsed 31 December 2012 2012 No. No. (60,000) 11111 (60,000) 33333 120,000 400,000 400,000 400,000 500,000 500,000 1,000,000 500,000 583,333 52,083 213,881 235,962 342,857 510,638 43,478 31,250 34,884 690,104 20,270 13,636 507,692 277,174 11111 7,377,242 33333 Exercise price 0.25 0.15 0.24 0.2075 0.295 0.185 0.1275 0.1725 0.24 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Exercise period from 27-Nov-05 28-Oct-06 12-Oct-07 28-Mar-09 29-Jun-10 30-Jun-11 12-Jun-12 28-Sep-14 10-Oct-15 Exercise period to 26-Nov-12 27-Oct-13 11-Oct-14 27-Mar-16 28-Jun-17 29-Jun-18 12-Jun-19 27-Sep-21 10-Oct-22
2011 Executive Share Option Scheme EMI Scheme*
24-Mar-04 27-Oct-13 15-Mar-05 11-Oct-14 15-Mar-07 19-May-16 27-Mar-08 28-Jun-17 07-Apr-08 29-Jun-18 12-Jun-09 12-Jun-09 30-Dec-09 30-Dec-09 24-Mar-10 24-Mar-20 25-Jun-10 25-Jun-20 13-Oct-10 13-Oct-20 23-Dec-10 23-Dec-20 19-Apr-11 18-Apr-21 28-Sep-11 27-Sep-21 10-Oct-12 09-Oct-22

At 1 January 2012 No. Paul Mitchell 2001 Executive Share Option Scheme 12,000 28,000 100,000 100,000 125,000 125,000 125,000 300,000 150,000 Granted during 2012 No. At Lapsed 31 December 2012 2012 No. No. (12,000) 28,000 100,000 100,000 125,000 125,000 125,000 300,000 150,000
Exercised 2012 No.
Exercise price 0.25 0.15 0.24 0.2075 0.295 0.185 0.1275 0.1725 0.24 0.01
Exercise period from 27-Nov-05 28-Oct-06 12-Oct-07 28-Mar-09 29-Jun-10 30-Jun-11 12-Jun-12
Exercise period to 26-Nov-12 27-Oct-13 11-Oct-14 27-Mar-16 28-Jun-17 29-Jun-18 12-Jun-19
2011 Executive Share Option Scheme EMI Scheme*
28-Sep-14 27-Sep-21 10-Oct-15 10-Oct-221 10-Oct-12 09-Oct-22
93,478 93,478 11111 11111 11111 11111 11111 1,065,000 93,478 (12,000) 1,146,478 33333 33333 33333 33333 33333 All shares and options at 31 December 2012 and 31 December 2011 related to ordinary 1p shares. * Enterprise Management Incentive Scheme
Directors remuneration
The remuneration paid to the directors was: Salary and fees Cash Equity settled settled Benefits Julian Cazalet Nigel Keen Paul Mitchell Duncan Nichol Ewan Phillips Ed Snape 86,520 185,000 1111 271,520 3333 24,000 33,333 11,500 24,000 24,000 1111 116,833 3333 7,500 7,500 1111 15,000 3333 2012 Total 24,000 33,333 108,980 24,000 199,900 24,000 1111 414,213 3333 Salary and fees Cash Equity settled settled 86,520 185,000 1111 271,520 3333 24,000 33,333 8,112 24,000 24,000 1111 113,445 3333 2011 Total 24,000 33,333 105,593 24,000 199,900 24,000 1111 410,826 3333
Pension 3,460 7,400 1111 10,860 3333
Benefits 7,500 7,500 1111 15,000 3333
Pension 3,461 7,400 1111 10,861 3333
Throughout the year ended 31 December 2012, all amounts in respect of fees payable regarding Nigel Keens services as director were made to Imperialise Limited, a company of which Mr Keen is the sole director and the majority shareholder.
Enterprise Management Incentive Scheme awards

The Companys 2003 Enterprise Management Incentive Scheme (EMI Scheme) allows directors and employees who have earned performance related bonus payments under the terms of their employment to sacrifice their entitlement to cash payment in return for share options at nominal value. The EMI Scheme also allows directors and employees to make similar sacrifices in respect of accrued salary. Ewan Phillips has elected to sacrifice the whole (45,000) of the performance bonus awarded by the Companys Remuneration Committee in respect of the year ended 31 December 2011 and his entitlement to 18,750 of salary in respect of the period from 1 October 2011 to 31 December 2012. Paul Mitchell has elected to sacrifice the whole (13,000) of the performance bonus awarded by the Companys Remuneration Committee in respect of the year ended 31 December 2011 and his entitlement of 8,500 of salary in respect of the period from 1 January 2012 to 31 December 2012. As a result awards of options under the EMI Scheme are as follows: Number of options Ewan Phillips Paul Mitchell 277,174 93,478 Exercise price 0.01 0.01
These have been charged to the Consolidated Statement of Comprehensive Income in accordance with IFRS 2 Share based payments.
Details of the service contracts of the executive directors at 31 December 2012 are set out in the table below: Ewan Phillips Commencement date Notice period Aggregate remuneration Compensation on early termination Non-competition 11 September 2001 Six months 200,000 salary, car allowance, discretionary bonus, pension contribution of 4% of salary None Standard restrictions on soliciting customers or suppliers or working for competing businesses for 12 months 3 September 2009 Six months 106,520 salary, car allowance, discretionary bonus, pension contribution of 4% of salary None Standard restrictions on soliciting customers or suppliers or working for competing businesses for 12 months
Paul Mitchell Commencement date Notice period Aggregate remuneration Compensation on early termination Non-competition
Ewan Phillips has elected to sacrifice 15,000 (2011: 15,000) of the aggregate remuneration reported above in lieu of share options. In addition, Paul Mitchell elected for 11,500 (2011: 8,112) of the aggregate remuneration reported above to be settled through equity issue during the year. A further 8,500 was also sacrificed in lieu of share options.
Directors indemnities
As permitted by the Companies Act 2006, the Company has indemnified the directors in respect of proceedings brought by third parties and qualifying third party indemnity insurance was in place throughout the year and up to the date of approval of the financial statements.
Equity issue
Details of equity issues in the year and since the year end are set out in notes 20 and 27.
Charitable and political donations

No donations were made by the Company or Group during the year for political or charitable purposes (2011: Nil).
Major interests in shares

The following are beneficial interests of 3% or more, of which the directors have been notified in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the Companys ordinary share capital, the only class of voting capital, at 25 March 2013: Percentage of issued share capital 8.78% 7.94% 6.52% 4.10%
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 Companys activities were settled on its behalf by subsidiaries. The average time taken by fellow subsidiaries to satisfy liabilities was 58 days (2011: 60 days).
Number of ordinary shares BlackRock, Inc. 14,418,216 Legal and General Investment Management Limited 13,038,386 Herald Investment Management Limited 10,709,190 Nigel Keen 6,687,547
Going concern
The Group meets its day-to-day working capital requirements through a combination of operational cash flows, an invoice discounting facility and the raising of additional finance if required. The directors

have examined detailed budgets and forecasts until 31 December 2014. This review indicates that the Group has sufficient liquidity to continue as a going concern. Further details of Groups cash flows are given in the Chairmans Statement on pages 2 and 3, the Operating Review on pages 4 to 7, the Financial Review on pages 8 to 12 and the Directors report on pages 15 to 21 and the Basis of preparation note on page 34. The Board has a reasonable expectation that the Group will have 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.
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state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the group and parent company financial statements respectively; prepare the Group and parent Company financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent Company will continue in business.
Directors responsibilities
The directors are responsible for preparing the Annual Report and the Group and parent financial statements in accordance with applicable law 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 (IFRSs) as adopted by the European Union, and the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Company law the directors must not approve the financial statements unless they are satisfied that they 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 these financial statements, the directors are required to:
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The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent Companys transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the parent 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 Company and Group website, www.deltexmedical.com. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Disclosure of information to auditors

In the case of each director in office at the date the Directors Report is approved, that: (a) so far as the director is aware, there is no relevant audit information of which the Companys auditors are unaware; and (b) he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Companys auditors are aware of that information.
select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent;
Independent auditors
The auditors; PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution concerning their reappointment will be proposed at the Annual General Meeting.
Annual General Meeting

The notice convening the Annual General Meeting, which will take place on 30 April 2013 at 11.00am at Laytons, 2 More London Riverside, London SE1 2AP, accompanies this report. By order of the Board Paul Mitchell Company Secretary 25 March 2013
Independent Auditors Report

to the members of Deltex Medical Group plc
We have audited the Group financial statements of Deltex Medical Group plc for the year ended 31 December 2012 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Directors Report to identify material inconsistencies with the audited financial statements, If we become aware of any apparent material misstatments or inconsistencies we consider the implications for our report.
Opinion on financial statements

In our opinion the Group financial statements:
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give a true and fair view of the state of the Groups affairs as at 31 December 2012 and of its loss and cash flows for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006.
Respective responsibilities of directors and auditors

As explained more fully in the Directors Responsibilities statement set out on page 20, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Companys members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.
Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Chairmans Statement, the Operating Review, the Financial Review and Directors Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.
Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
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certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.
Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Chairmans Statement, the Operating Review, the Financial Review and
Other matter
We have reported separately on the parent Company financial statements of Deltex Medical Group plc for the year ended 31 December 2012. Miles Saunders (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading
25 March 2013
Consolidated Consolidated Statement Group Balance of Comprehensive Sheet Income
for the year ended 31 December 2012 Note Revenue Cost of sales Gross profit Administrative expenses Sales and distribution costs Research and development costs 4 4 4 2 4 2012 000 6,777 (1,964) 4,813 (2,235) (4,103) (553) (6,891) Operating loss Finance income Finance costs Loss before taxation Tax credit on loss Loss for the financial year Other comprehensive expenses Exchange differences taken to reserves Other comprehensive expense for the year, net of tax Total comprehensive loss for the year Loss per share basic and diluted 8 7 22 22 4 6 6 (2,078) 1 (118) (2,195) 102 (2,093) (11) (11) (2,104) (1.4p) 2011 000 6,303 (1,765) 4,538 (2,012) (3,532) (396) (5,940) (1,402) 1 (123) (1,524) 103 (1,421) (14) (14) (1,435) (1.0p)
The notes on pages 27 to 57 form an integral part of these consolidated financial statements. Alternative performance measures (note 1) 2012 000 Adjusted operating loss Operating loss including non-cash items Share-based payments, including accruals Equity settled costs Net non-cash clinical trial credits Depreciation and amortisation Net (decrease)/increase in provisions, including receivables Sundry non-cash charges/(credits) Adjusted operating loss before non-cash items (2,078) 583 270 (45) 297 (51) 15 (1,009) 2011 000 (1,402) 386 182 (387) 191 305 (7) (732)
These supplementary disclosures do not form part of the Consolidated Statement of Comprehensive Income.
Consolidated Balance Sheet
at 31 December 2012 Note Assets Non-current assets Property, plant and equipment Intangible assets Trade and other receivables Total non-current assets Current assets Inventories Trade and other receivables Current income tax recoverable Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Borrowings Trade and other payables Total current liabilities Non-current liabilities Borrowings Provisions for other liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Share premium Capital redemption reserve Other reserves Translation reserve Retained deficit Total equity 20, 22 22 22 22 22 22 15 18 2012 000 2011 000
9 10 13
463 1,076 37 1,576
309 724 8 1,041 912 2,818 102 752 4,584 5,625
12 13 14
963 2,935 114 667 4,679 6,255
15 17
(1,123) (1,866) (2,989) (996) (165) (1,161) (4,150) 2,105 1,510 23,659 17,476 3,792 (20) (44,312) 2,105
(743) (1,500) (2,243) (1,359) (167) (1,526) (3,769) 1,856 1,421 21,901 17,476 3,286 (9) (42,219) 1,856
The notes on pages 27 to 57 form an integral part of these consolidated financial statements. The financial statements on pages 23 to 57 were approved by the Board of Directors on 25 March 2013 and were signed on its behalf by: N J Keen Chairman Deltex Medical Group plc (3902895) P J Mitchell Finance Director Deltex Medical Group plc (3902895)
Consolidated Statement of Changes in Equity
for the year ended 31 December 2012 Capital redemption reserve 000 17,476
Note Balance at 1 January 2011 Comprehensive income Loss for the year Other comprehensive income Exchange movements taken to reserves Total comprehensive expense for the year Shares issued during the year 20, 22 Premium on shares issued during the year 22 Issue expenses 22 Credit in respect of service costs settled by award of options 22 Balance at 31 December 2011 Comprehensive income Loss for the year Other comprehensive income Exchange movements taken to reserves Total comprehensive expense for the year Shares issued during the year 20, 22 Premium on shares issued during the year 22 Issue expenses 22 Credit in respect of service costs settled by award of options 22 Balance at 31 December 2012 22 22
Share capital 000 1,320
Share premium 000 20,116
Other reserves 000 2,890
Translation reserve 000 5
Retained deficit 000 (40,798) (1,421)
Total equity 000 1,009 (1,421)
22
101 1,421
1,838 (53) 21,901
17,476
396 3,286
(14) (14) (9)
(1,421) (42,219) (2,093)
(14) (1,435) 101 1,838 (53) 396 1,856 (2,093)
22
89 1,510
1,832 (74) 23,659
17,476
506 3,792
(11) (11) (20)
(2,093) (44,312)
(11) (2,104) 89 1,832 (74) 506 2,105
The notes on pages 27 to 57 form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 December 2012 Note Cash flows used in operating activities Net cash used in operations Interest paid Income taxes received Net cash used in operating activities Cash flows used in investing activities Purchase of property, plant and equipment Capitalised development expenditure Interest received Net cash used in investing activities Cash flows generated from financing activitites Issue of ordinary share capital Expenses in connection with share issue Proceeds from increase in borrowings Effect of exchange rate fluctuations on borrowings Repayment of obligations under finance leases Net cash generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Exchange losses on cash and cash equivalents Cash and cash equivalents at end of the year 23 2012 000 (1,094) (105) 90 (1,109) 2011 000 (1,337) (112) 97 (1,352)
9 10 6
(346) (472) 1 (817)
(194) (346) 1 (539)
22
1,921 (74) 29 (25) (4) 1,847 (79) 752 (6) 667
1,939 (53) 70 (4) (4) 1,948 57 699 (4) 752
The notes on pages 27 to 57 form an integral part of these consolidated financial statements.
Notes to the Financial Statements
Principal accounting policies The principal accounting policies adopted in the preparation of these consolidated 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). Deltex Medical Group plc is listed on AIM, a market of that name operated by the London Stock Exchange Plc. The address of the registered office is Deltex Medical Group plc, Terminus Road, Chichester, PO19 8TX, registered number 3902895. Basis of reporting The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), with interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, with exception of fair value accounting for share based payments, and on a going concern basis as discussed in more detail under the 'Basis of Preparation' section of this note. The following standards, amendments to standards and interpretations which have been endorsed by the EU have been adopted with effect from 1 January 2012 or as stated below. No changes to previously published accounting policies or other adjustments were required on their adoption.
l l
Amendments to IFRS 7, Financial Instruments: Disclosures on transfers of assets Amendment to IAS 1, Financial statement presentation regarding other comprehensive income
Accounting standards not yet effective Certain new standards and amendments to existing standards have been published that are mandatory for future accounting periods, subject to EU endorsement. Those which the Group has not adopted early and effective date (periods beginning) are as follows:
l l l l l l l
IFRS 9, Financial instruments 1 January 2015 IFRS 10, Consolidated financial statements 1 January 2014 IFRS 11, Joint arrangements 1 January 2014 IFRS 12, Disclosures of interests in other entities 1 January 2014 IFRS 13, Fair value measurement 1 January 2014 IAS 27 (revised 2011), Separate financial statements 1 January 2014 IAS 28 (revised 2011), Associates and joint ventures 1 January 2014
None of these are expected to have an impact on the Group. Basis of consolidation The consolidated financial statements 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. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.They are de-consolidated from the date that control ceases and consistent accounting policies are used across the Group.
Notes to the Financial Statements continued
Principal accounting policies continued 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 excludes intercompany sales.
l
Monitor and probe revenue Revenue on monitors and probes is recognised at the point when substantially all of the risks and rewards of ownership are transferred to the customer; for UK customers normally this is when the goods are accepted at the customers specified delivery address and for International customers this is normally on dispatch.. Clinical trial data Where 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. The corresponding asset is recorded as a prepayment (see clinical and other trials accounting policy). Managed care service contracts Where contracts exist which provide for a specified number of probes over a period of time for a total contract fee, revenue is recognised on a per probe basis. Variations between this percentage of completion accounting and the monthly contract fee charged is recognised as deferred or accrued income on the balance sheet. Other service contracts 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.
Operating segments An operating segment is a component of an entity that engages in business activities for which discrete financial information is available. For reporting purposes, the results of the Group are allocated between four operating segments which equate to specific geographical areas and are as described in note 2. Head office and other costs, which cannot be fairly allocated, are shown separately. The Group has a single group of related products and services, being the supply of monitors and probes and related services. Segment information is provided on the basis of geographic areas where we have direct operations and distributor markets, which is the basis on which the Group Chief Operating Decision Maker manages its worldwide activities. The Chief Operating Decision Maker is the executive Board. Revenue is attributed to the UK, USA and Spain as being the countries where the sale is made through our direct operations. All other revenue, which is derived from sales to distributors, is classified as International. Whilst Spain does not meet the quantitative criteria for disclosure as a separate segment, it is expected to become a significant contributor to the Groups performance in future years as the Group expands its opportunities in this country. Consequently the Group has chosen to include Spain as a reportable segment as it is felt that such information would be useful to the users of the financial statements. Segment operating result is the measure of segment profit/(loss) and comprises gross profit, selling and general administrative expenses. Research and non-capitalised development costs, other net operating income/(expense), as well as other net financial income/(expense) are not allocated in calculating the segment operating result.
Principal accounting policies continued Foreign currency translation The functional and presentation 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 nonmonetary assets and liabilities are recognised directly in equity. On consolidation, the assets and liabilities of the Groups 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 Groups 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 Consolidated Statement of Comprehensive Income. However, cumulative exchange differences arising prior to 1 January 2006 remain in equity as permitted by IFRS 1. 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. Compound financial instruments Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, or subject to certain conditions at the option of the Group and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry. 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 end of the reporting period. 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 may be impaired. The amount of the provision is the difference between the assets 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 Consolidated Statement of Comprehensive Income within sales and distribution costs. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against sales and distribution' costs in the Consolidated Statement of Comprehensive Income.
Principal accounting policies continued 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 Property, plant and equipment is 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. Depreciation is calculated so as to write down property, plant and equipment to their estimated realisable values, by equal annual instalments over their expected useful economic lives at the following periods: Leasehold property and improvements Plant and equipment Machines loaned to customers Fixtures and fittings five years or to the end of the lease period if less three to five years five years three to five years
Estimated residual values and useful lives are reviewed annually and adjusted where necessary. Machines loaned to customers In order to support key accounts and increased probe usage, monitors may be placed on long-term loan with customers. Where these monitors are expected to be placed for a period longer than 12 months, the monitors are transferred at book value to property, plant and equipment and depreciated over five years. Where monitors are placed on a short-term loan of less than 12 months and it is expected that the monitors will be sold thereafter, the monitors are included within inventories and a provision for refurbishment cost is charged to the Consolidated Statement of Comprehensive Income. Intangible assets 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 allocatable 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. Amortisation is calculated so as to write down the value of the intangible assets by equal annual instalments over their expected useful economic lives of five years. The costs in respect of trialling for clinical, economic and other purposes is not considered to be research and development expenditure. The accounting policy for this is detailed below.
Principal accounting policies continued Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for maturities greater than 12 months after the balance sheet date. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the statement of comprehensive income when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process. Borrowing costs are recognised as an expense when incurred. Impairment of property, plant and equipment and intangible assets At each Balance Sheet date the Group reviews the carrying amounts of its property, plant and equipment 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 assets 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 Groups 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. Retirement benefit costs 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 Consolidated Statement of Comprehensive Income in the year in which they are payable. There are no post-retirement obligations in respect of this scheme payable by the Group. 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 Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. Where property, plant and equipment 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 property, plant and equipment. Assets held under finance leases should be depreciated over the lower of the useful lives and the term of the lease. The capital element of the finance lease commitment is shown as obligations under finance leases within borrowings. 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 Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term.
Principal accounting policies continued Clinical and other trials The cost of trialling for clinical, economic and other purposes to support the Groups 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. At each Balance Sheet date any asset relating to prepaid clinical and other trials, or prepayments recognised from barter transactions, are assessed for impairment and where necessary an impairment loss is recognised as an expense in the Consolidated Statement of Comprehensive Income. Prepaid clinical and other trials amounts are included within prepayments and accrued income in trade and other receiveables in the Consolidated Balance Sheet. Current and deferred taxation The tax expense represents the sum of current tax and deferred tax. Tax is recognised in the Consolidated Statement of Comprehensive Income 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 date liability method on temporary differences between the carrying amounts of assets and liabilities in the financial statements 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. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is not 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 Companys distributors and advisers equity-settled share-based payments, from time to time, on a discretionary basis. In accordance with IFRS 2 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 a BlackScholes 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 Groups 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. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with a corresponding adjustment to equity. The fair value of the equity-settled share-based payment is recharged 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.
Principal accounting policies continued Cash and cash equivalents Cash and cash equivalents includes cash in hand and deposits held with banks with a maturity of less than three months. 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 Consolidated Statement of Comprehensive Income 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, assumptions and estimates In the process of applying the Groups accounting policies, the directors have made a number of judgements. In addition, the preparation of financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of 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 the directors best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The key assumptions at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
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Clinical trial data The Group exchanges goods for trial data and this exchange is treated as revenue under a barter transaction. These represent non-cash transactions. Where the fair value of the trial data cannot be reliably measured, the clinical trial cost is measured at the fair value of the goods being supplied. The determination of this fair value involves some judgement of what is an appropriate comparable sales value. The timing of completion of the trials is estimated at the start of the trial, and the prepaid costs split accordingly between non-current and current assets. However, unforeseen future events may adversely impact on the value and timing of the trials which would result in potential impairments or changes in balance sheet classification of the assets.
Valuation of share-based payments In order to determine the value of share-based payments, management are required to make an estimation of the effects of non-transferability, exercise restrictions and behavioural considerations. Fair value is measured by use of a BlackScholes model and the inputs are set out in note 21.
Principal accounting policies continued

l
Trade receivables recoverability Judgements have been made in respect of various overseas territories in which the Company operates in order to assess the recoverability of receivables from these territories.
Research and development Costs for research and development activities are only capitalised as intangible assets if the qualification criteria are met. These criteria are met only when the technical as well as commercial feasibility can be demonstrated and cost can be measured reliably. The amounts capitalised represents the Groups estimate of what costs have met this criteria. There is a risk that the intangible asset will not generate the required future economic benefits and therefore could result in potential impairments.
Alternative financial measures The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) financial measures, which are not defined by IFRS. The directors use these measures in order to assess the underlying operational performance of the Group and as such these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in these Financial Statements. (a) Adjusted operating loss beneath the Consolidated Statement of Comprehensive Income This is defined as operating loss before non-cash charges to the Consolidated Statement of Comprehensive Income. A reconciliation of the operating loss to the adjusted operating loss is shown beneath the Consolidated Statement of Comprehensive Income. Adjusted operating cash flow before movement in working capital This is defined as the operating cash flow before movement in working capital which relates to cash transactions only. Therefore any non-cash working capital elements have been removed. A reconciliation of the adjusted operating cash flow before movement in working capital to the operating cash flow before movement in working capital is shown beneath the Notes to the Consolidated Statement of Cash Flows (note 23).
(b)
Basis of preparation In common with many companies of its size and which are at its stage of development, the directors manage carefully the Groups 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 secured lending 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. As noted in the Directors Report, in preparing these financial statements the directors have reviewed detailed budgets and cash flow forecasts until 31 December 2014. This review indicates that the Group has sufficient liquidity to continue as a going concern. The directors believe it is appropriate to prepare the financial statements on the going concern basis.
Operating segments For management purposes, the Group is currently organised into four operating segments: UK, USA, Spain and International. These segments are the basis on which the Group reports its segment information. The principal activities of each segment are as follows: the UK segment employs a direct sales team in the marketing, sales and support of the Groups monitors and associated probes within the UK territory; the USA segment employs a direct sales team in the marketing, sales and support of the Groups monitors and associated probes within the USA territory; the Spanish segment employs a direct sales team in the marketing, sales and support of the Groups monitors and associated probes within the Spanish territory; the International segment supports distributors in selected territories to promote the marketing, sales and support of the Groups monitors and its associated probes within these territories.
The reportable segment results for the year ended 31 December 2012 are as follows: UK 000 Total segment revenue Inter segment revenue Revenue from external customers Segment operating result Finance income Finance costs Loss before taxation Tax credit on loss Loss for the financial year Included within the segment operating results are the following significant non-cash items: UK 000 Depreciation and amortisation Share based payments, including accruals Receivables provision Amortisation of clinical trial costs Capitalisation of clinical trial costs Total 79 194 (368) (95) USA 000 10 26 36 International 000 12 90 (74) (80) (52) Spain Unallocated 000 000 38 1 25 64 158 272 403 833 Total 000 297 583 (49) 403 (448) 786 4,757 (688) 4,069 1,239 USA 000 801 801 (573) International 000 1,849 1,849 257 Spain Unallocated 000 000 58 58 (144) (2,857) Total 000 7,465 (688) 6,777 (2,078) 1 (118) (2,195) 102 (2,093)
Operating segments continued The reportable segment results for the year ended 31 December 2011 are as follows: UK 000 Total segment revenue Inter segment revenue Revenue from external customers Segment operating result Finance income Finance costs Loss before taxation Tax credit on loss Loss for the financial year Included within the segment operating results are the following significant non-cash items: UK 000 Depreciation and amortisation Share based payments, including accruals Receivables provision Amortisation of cilnical trial costs Capitalisation of clinical trial costs Total 45 143 1 (340) (151) USA 000 43 (2) 41 International 000 5 46 246 (140) 157 Spain Unallocated 000 000 15 1 (20) (4) 83 198 113 394 Total 000 191 386 247 113 (500) 437 3,910 (177) 3,733 1,143 USA 000 710 710 (556) International 000 1,795 1,795 309 Spain Unallocated 000 000 65 65 (153) (2,145) Total 000 6,480 (177) 6,303 (1,402) 1 (123) (1,524) 103 (1,421)
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. The reportable segment assets and liabilities at 31 December 2012 and capital expenditure are as follows: UK 000 Assets Liabilities 1,772 404 USA 000 504 355 International 000 1,309 105 Spain Unallocated 000 000 168 25 2,502 3,261 Assets 000 Segment assets/liabilites Unallocated: Intangible assets Property, plant and equipment Taxation receivable Prepayments and accrued income Other receivables Cash and cash equivalents Borrowings Trade and other payables Provisions 3,753 1,076 55 114 674 583 6,255 Total 000 6,255 4,150 Liabilities 000 889 2,031 1,070 160 4,150
Operating segments continued The reportable segment assets and liabilities at 31 December 2011 and capital expenditure are as follows: UK 000 Assets Liabilities 1,667 262 USA 000 257 265 International 000 1,092 83 Spain Unallocated 000 000 215 20 2,394 3,139 Assets 000 Segment assets/liabilites Unallocated: Intangible assets Property, plant and equipment Taxation receivable Prepayments and accrued income Other receivables Cash and cash equivalents Borrowings Trade and other payables Provisions 3,231 724 57 102 802 1 708 5,625 These assets/liabilities are allocated based on the operations of the segment and the physical location of the asset. Segment assets consist primarily of inventories and trade and other receivables. Unallocated assets comprise primarily of intangible assets, property, plant and equipment, prepayments and accrued income, cash and cash equivalents and taxation receivable. Segment liabilities primarily comprise deferred income and accrued employee costs. Unallocated liabilities comprise trade and other payables, provisions and other borrowings. The following table provides an analysis of the Groups sales by revenue stream. 2012 2012 Probes Monitors units units Direct markets UK 40,695 USA 7,020 Spain 472 Distributor markets Europe 14,485 Rest of world 8,420 71,092 *UK probe sales are split: 2012 Units Surgical Critical care 33,355 7,340 40,695 2012 000 2,452 811 3,263 2011 Units 27,545 8,070 35,615 2011 000 1,982 888 2,870 84 2 1 2012 2012 Probes Monitors 000 000 3,263 779 55 613 16 3 2012 Other 000 193 6 2012 Total 000 2011 2011 Probes Monitors units units 61 2 2011 2011 Probes Monitors 000 000 2,870 705 43 678 22 2011 Other 000 185 5 2011 Total 000 3,733 710 65 Total 000 5,625 3,769 Liabilities 000 630 1,983 989 167 3,769
4,069 35,615 801 6,465 58 385
73 120 280
781 387 5,265
261 393 1,286
10 17 226
1,052 11,150 797 10,480 6,777 64,095
90 70 223
667 515 4,800
322 270 1,292
6 15 211
995 800 6,303
Auditor remuneration During the year the Group (including its overseas subsidiaries) obtained the following services from the Companys auditors at costs as detailed below: 2012 000 Audit services Fees payable to Company auditors for the audit of the parent Company and the consolidated financial statements Other services Fees payable to the Companys auditors for other services The audit of the Companys subsidiaries pursuant to legislation Other tax services pursuant to legislation 2011 000
21
20
60 81
58 3 81
Expenses by nature 2012 000 Changes in inventories of finished goods and work in progress Raw materials and consumables used Employee benefit costs Other employee related costs Depreciation and amortisation charges Net research and development expenditure (excluding employee costs) Net clinical trial costs Operating lease charge Foreign exchange loss Charge in respect of service costs Audit and accountancy Meeting and other PR costs Professional and consultancy fees Marketing strategy Premier project Other 95 1,475 4,272 656 297 9 590 87 48 151 297 418 226 49 185 8,855 2011 000 255 1,338 3,737 615 191 29 317 87 54 2 117 223 528 50 162 7,705
Employees The average monthly number of persons, including executive directors, by function was as follows: 2012 Number By activity Sales and marketing Production Office and management Research and development 37 17 16 5 75 Employee benefit expense Wages and salaries Social security costs Other pension costs defined contribution plans Share-based payments 2012 000 3,291 330 68 583 4,272 Directors emoluments Aggregate emoluments Sums paid to third parties for directors services Contributions to directors personal pension schemes 2012 370,020 33,333 10,860 414,213 Benefits are accruing to two (2011: two) directors under personal pension plans. Included in the above figure is an amount paid to the employing company, Imperialise Limited, of a non-executive director for the services of that director of 33,333 (2011: 33,333). Highest paid director 2012 192,500 7,400 199,900 2011 192,500 7,400 199,900 2011 Number 33 14 15 4 66 2011 000 3,004 273 58 422 3,757 2011 358,520 33,333 10,861 402,714
Aggregate emoluments Contributions to directors personal pension schemes
There were no director share sales during 2012. In 2011 share sales during the period related to shares in lieu of 21,650 bonus and salary entitlement sacrifice, resulting in a net gain of 16,657. Exercisable at 1p per share, the gross gain was 44,259. No shares were sold by the highest paid director during the year (2011: nil).
Finance income and costs 2012 000 Finance income Bank interest receivable Finance costs Finance lease interest payable Interest payable on loan notes Facility and loan arrangement fees 1 1 1 93 24 118 2011 000 1 1 1 100 22 123
Taxation credit on loss 2012 000 Current tax: Research and development tax credit Adjustment in respect of prior years Total current tax and tax on loss on ordinary activities (114) 12 (102) 2011 000 (102) (1) (103)
The taxable receipt for the year is lower than the effective rate of corporation tax in the UK of 24.5% (2011: 26.5%) applied to the Groups loss on ordinary activities before tax. The tax differences are explained below: 2012 000 Loss before taxation Loss multiplied by the standard rate in the UK 24.5% (2011: 26.5%) Effects of: Expenses not deductible for tax purposes Difference between depreciation charges and capital allowance claims Losses carried forward Tax rate on difference on receivable research and development tax credit Higher rates of overseas losses Adjustments in respect of prior years (2,195) (538) 124 43 529 (141) (131) 12 (102) 2011 000 (1,524) (404) 105 32 338 (83) (90) (1) (103)
The standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012. Accordingly, the companys profits for this accounting period are taxed at an effective rate of 24.5% and will be taxed at 24% in the future. Deferred tax At 31 December 2012, the Group had an unrecognised potential deferred tax asset of 11,034,000 (2011: 12,343,000) representing accumulated trading losses carried forward which are available against future profits, depreciation in excess of capital allowances of 89,000 (2011: 54,000) and share option charges of 361,000 (2011: 371,000). The Finance Act 2011 was substantively enacted on 26 March 2012 and 3 July 2012 and included legislation to reduce the main rate of corporation tax from 26% to 24% with effect from 1 April 2012. A further reduction to 23% with effect from 1 April 2013 has also been enacted. Closing deferred tax balances have, therefore, been valued at 23% (2011: 25%) as this is the tax rate that will apply on reversal. The March 2012 Budget Statements also included proposals for further reductions of the main rate of corporation tax by 1% per annum to 22% on 1 April 2014. These changes had not been substantively enacted at the balance sheet date and, therefore, the effects of these are not included in these financial statements. Loss relief is available indefinitely.
Basic and diluted loss per share The loss per share calculation is based on the loss of 2,093,000 and weighted average number of shares in issue of 148,243,393. For 2011 the loss per share calculation was based upon the loss of 1,421,000 and weighted average number of shares in issue of 136,698,498. Whilst the company is loss-making the diluted loss per share and the loss per share are the same.
Property, plant and equipment Leasehold property and improvements 000 Cost At 1 January 2011 Exchange Additions Disposals At 31 December 2011 Exchange Additions Disposals At 31 December 2012 Accumulated Depreciation At 1 January 2011 Exchange Charge for the year Disposals At 31 December 2011 Exchange Charge for the year Disposals At 31 December 2012 Net book value At 1 January 2011 At 31 December 2011 At 31 December 2012 228 228 5 233 Plant and equipment 000 444 31 475 (1) 35 509 Fixtures and fittings 000 55 55 (1) 54 Machines loaned to customers 000 535 (4) 163 694 (11) 306 (51) 938
Total 000 1,262 (4) 194 1,452 (13) 346 (51) 1,734
205 10 215 10 225
405 24 429 29 458
55 55 (1) 54
358 (11) 97 444 (8) 138 (40) 534
1,023 (11) 131 1,143 (9) 177 (40) 1,271
23 13 8
39 46 51
177 250 404
239 309 463
Depreciation expense of 149,000 (2011: 107,000) has been charged in cost of sales, 8,000 (2011: 4,000) in research and development, nil (2011: nil) in sales and distribution and 20,000 (2011: 20,000) in administrative expenses. The net book value of property, plant and equipment includes amounts of 15,000 (2011: 7,000) in respect of assets held under finance leases. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and in the current year within cost of sales in the income statement.
10
Intangible assets Development Expenditure 000 Cost At 1 January 2011 Additions At 31 December 2011 Additions At 31 December 2012 Accumulated amortisation At 1 January 2011 Charge for the year At 31 December 2011 Charge for the year At 31 December 2012 Net book value At 1 January 2011 At 31 December 2011 At 31 December 2012 560 347 907 472 1,379
123 60 183 120 303
437 724 1,076
Amortisation of 120,000 (2011: 60,000) has been included in research and development in the Consolidated Statement of Comprehensive Income. Amortisation is charged on a straight-line basis over five years, and commences when the product related to the development expenditure is available for use. 11 Subsidiary undertakings Details of the Group's trading subsidiaries are set out below. In all cases the direct holding is 100% of the ordinary shares: Deltex Medical Limited, incorporated and operating in the United Kingdom (UK), manufactures and markets medical devices. Deltex Medical SC 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. Deltex Medical, GmbH, incorporated and operating in Germany, markets medical devices in Germany which are manufactured by the Group in the UK. Deltex Medical GmbH is itself a 100% owned subsidiary of Deltex Medical Limited and is currently dormant.
During the year, Deltex Medical (Chichester) Limited was liquidated as the entity was dormant.
12
Inventories 2012 000 Raw materials and consumables Work in progress Finished goods 154 43 766 963 Based on inventory holdings and sales history, no specific or general provisions for obsolete or slow-moving inventory (2011: nil) are considered necessary. 2011 000 198 82 632 912
13
Trade and other receivables 2012 000 Current: Trade receivables Less: provision for impairment of trade receivables Other receivables Prepayments and accrued income Non-current: Trade receivables Prepayments and accrued income 2,277 (248) 2,029 906 2,935 37 37 2,972 2011 000 2,143 (297) 1,846 972 2,818 8 8 2,826
All non-current receivables are due within two to five years (2011: two to five years) from the Consolidated Balance Sheet date. Trade receivables that are less than two months past due are considered recoverable. As at 31 December 2012, trade receivables of 119,000 (2011: 143,000) were more than two months past due but not impaired. These related 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: 2012 000 Two to four months overdue Four to eight months overdue More than eight months overdue At 31 December 6 98 15 119 2011 000 47 39 57 143
13
Trade and other receivables continued As of 31 December 2012, specific trade receviables of 248,000 (2011: 297,000) were impaired and provided for. The ageing of these receivables was as follows: 2012 000 Over six months overdue 248 2011 000 297
Included in the 248,000 provision above is an amount brought forward of approximately 200,000 provided against receivables from the Middle East. The carrying amounts of the Groups trade receivables are denominated in the following currencies: 2012 000 Pounds Euros US dollars At 31 December Movements on the Group provision for impairment of trade receivables are as follows: 2012 000 At 1 January Provision for receivables impairment Receivables written off during the year as uncollectible At 31 December 297 25 (74) 248 2011 000 241 153 (97) 297 635 903 528 2,066 2011 000 662 669 523 1,854
The creation and release of provision for impaired receivables have been included in sales and distribution costs in the Consolidated Statement of Comprehensive Income. 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 amounts of trade and other receivables approximate their fair value. The maximum exposure for trade and other receivables 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. 14 Cash and cash equivalents Cash and cash equivalents comprise solely of cash in hand held by the Group.
15
Borrowings 2012 000 Current borrowings Invoice discounting facility Other loans Finance lease Non-current borrowings Other loans Finance lease 724 394 5 1,123 989 7 996 2,119 Invoice discounting facility The amount shown represents the cash drawn down under an invoice discounting facility; 1,000 remained undrawn (2011: 1,000). 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 receivables. Amounts drawn down under the facility are repayable from the end of the month of invoice. This is an ongoing facility and is separated into three accounts being Sterling, US$ and Euro currencies. The facility is subject to six months' notice on either side. Other loans 1,009,000 of the amount shown relates to Loan Notes, of which 989,000 are repayable in full on 27 February 2014 being five years from the date of issue although they may be repaid in whole or in part at the Company's discretion in certain circmstances. If such repayment is made the Company will issue the Loan Notes holder with warrants over 8 million 1p ordinary shares each at a price of 12.5p. The Loan Notes are convertible into 8 million 1p ordinary shares in the Company ('Ordinary Shares') at the effective price of 12.5p, being a premium of 26.6% over the share price at close of business on 26 February 2009. The Company can also enforce conversion if the ordinary share price is equal to or exceeds 37.5p for any period of 90 consecutive days. The Loan Notes are unsecured and interest is payable at 10.5% per annum for the first two years and at 7.5% above LIBOR thereafter. This loan note represents a compound financial instrument under the disclosure requirements of IAS 32 'Financial Instruments - Presentation'. The directors have assessed the portion which would be classified as equity, rather than debt and have concluded that the amount is not material to cause the instrument to be disclosed seperately between its equity and debt components. The remaining 374,000 of the amount shown relates to a US dollar loan made in the US to the Group's US subsidiary. It is repayable on 31 May 2013 and bears interest calculated on the simple method at 4% per annum. The interest is repayable on the maturity date. The loan is not secured on the assets of the Group. The directors consider the carrying value of the fixed rate borrowings approximate to market rate and the floating rate borrowings are at market rate and therefore these borrowings approximate to their fair value. Borrowings in foreign currencies The carrying amounts of the Groups borrowings are denominated in the following currencies: 2012 000 Pounds US dollars Euros 1,445 462 212 2,119 2011 000 1,453 478 171 2,102 2011 000 723 20 743 1,359 1,359 2,102
15
Borrowings continued The average effective interest rates paid were as follows: 2012 % Invoice discouting facility Sterling Euro Dollar Other loans - US Dollar loan Loan note Finance leases Borrowings are held under both fixed and floating rates as follows: 2012 000 Fixed rates Finance leases Other loans Floating rates Invoice discounting facility Other loans 12 374 724 1,009 2,119 2011 000 378 723 1,001 2,102 3.00 3.63 3.63 4.00 8.00 25.00 2011 % 3.00 4.00 3.63 4.00 8.00 n/a
16
Obligations under finance leases 2012 000 Within one year In the second to fifth years inclusive Less future finance charges Present value of lease obligations Less: amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months, but less than 5 years 7 8 15 (3) 12 (5) 7 2011 000
Two finance leases of 15,000 were secured during 2012 for purchase of capital equipment; 12,000 of the finance lease remained owing at 31 December 2012 and is secured on the capital equipment purchased. Lease obligations are denomminated in UK sterling. 17 Trade and other payables 2012 000 Current liabilities Trade payables Tax and social security payable Other payables Accruals and deferred income 969 169 55 673 1,866 2011 000 729 153 57 561 1,500
Trade payables are non-interest bearing and on average have 30 to 60 day settlement terms. The directors consider that the carrying amount of trade payables approximates to their fair value.
18
Provisions 2012 000 At 1 January Charged to the Consolidated Statement of Comprehensive Income Unused amounts reversed to the Consolidated Statement of Comprehensive Income At 31 December 167 9 (11) 165 2011 000 108 94 (35) 167
The above provision includes national insurance of 145,000 (2011: 142,000) that may become payable on share option gains on share options that are exercisable over the next one to ten years and is therefore included as a non-current liability. Also included above is a dilapidation provision of 15,000 (2011: 10,000) to return the UK property to the landlord at the end of the tenancy in a specified condition. 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 67,782 (2011: 58,000). 20 Share capital 2012 000 6,568,546,210 authorised ordinary shares of 1 pence each 65,685 2012 000 151,032,255 Called up, allotted and fully paid (2011: 142,099,365) The movement in the Companys issued share capital during the year is as follows: During the year, the Company issued 1,820,749 1p ordinary shares pursuant to the exercise of options. The Company placed 6,057,693 1p ordinary shares with institutional and other investors. In addition, a total of 622,768 1p ordinary shares at an average price of 25.37p were issued to certain of the Companys advisers who elected to take shares in lieu of cash payment for their services to the Company. A further 431,680 1p ordinary shares at an average price of 24.00p per share were issued to certain of the Companys directors who elected to take shares in lieu of cash payment for their services to the Company. 1,510 2011 000 65,685 2011 000 1,421
20
Share capital continued 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 Summary At 1 January 2012 Additions Exercised Lapsed Expired At 31 December 2012 All options relate to one 1p ordinary share. Further details of the above plans are given in note 21. As at 31 December 2012 the following options to subscribe for ordinary shares of 1p each were outstanding under employee share schemes: Exercise Exercise Exercise Number of price period period options from to Current employees 284,000 605,000 910,000 52,083 940,000 242,378 296,678 1,077,000 1,171,000 392,857 1,145,300 689,412 224,265 43,478 31,251 34,884 867,881 20,270 23,124 633,398 46,154 2,829,000 952,150 1,724,000 15,235,563 Notes: (a) Options exercisable subject to criterion set by the Board that the shares of Deltex Medical Group plc should have outperformed the FTSE Medical Equipment Supplies Sector between the date of grant and the date of exercise of the option. Enterprise Management Incentive Scheme. 0.15 0.01 0.28 0.01 0.2075 0.01 0.01 0.295 0.185 0.01 0.1275 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.1725 0.01 0.24 28-Oct-06 24-Mar-04 12-Oct-07 01-Mar-05 28-Mar-06 19-May-06 27-Mar-08 29-Jun-10 01-Jul-11 01-Mar-09 12-Jun-12 12-Jun-09 24-Mar-09 30-Dec-09 24-Mar-10 25-Jun-10 13-Oct-10 23-Dec-10 15-Apr-11 27-Sep-11 27-Sep-11 27-Sep-14 10-Oct-12 10-Oct-15 27-Oct-13 27-Oct-13 11-Oct-14 01-Oct-14 27-Mar-13 19-May-16 29-Jun-17 28-Jun-17 30-Jun-18 30-Jun-18 12-Jun-19 11-Jun-19 23-Mar-19 30-Dec-19 24-Mar-20 25-Jun-20 13-Oct-20 23-Dec-20 15-Apr-21 27-Sep-21 29-Sep-21 27-Sep-21 10-Oct-22 10-Oct-22 Executive Scheme Number 8,921,300 1,732,000 (192,000) (57,000) (324,000) 10,080,300 EMI Scheme Number 4,874,435 1,759,678 (1,455,150) (23,700) 5,155,263 Total Number 13,795,735 3,491,678 (1,647,150) (80,700) (324,000) 15,235,563
(b)
20
Share capital continued Other options At 31 December 2012 No. Company contractors(2) Company contractor(1) Company contractor(2) 252,000 250,000 100,000 602,000 (1) (2) Options are exercisable in whole on any one occasion during the exercise period. Options are exercisable in part or in whole at any time due during the exercise period. Exercise price 0.1875 0.215 0.235 Exercise period from 01-Mar-11 01-Nov-10 16-Apr-10 Exercise period to 28-Feb-18 31-Oct-17 15-Apr-17
All options relate to one 1p ordinary share. 21 Share-based payments The Group has three share option schemes; the Deltex Medical Group plc 2000 Approved Share Option Scheme, the Deltex Medical Group plc 2011 Approved Share Option Scheme and the Deltex Medical Group plc Enterprise Management Incentive plan (EMI). Options granted under the Approved Share Option Schemes are valued at the market price on the date of grant. Options are conditional on the employee completing three years service (the vesting period). The options are exercisable starting three years from the grant date, subject to the Group achieving certain performance conditions; the options have a contractual term of ten years. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Options granted under the EMI scheme are granted at 1p per option. Options are granted in lieu of cash for bonuses or salary obligations relating to past achievement; therefore there is no vesting period. The options have a contractual term of ten years. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Details of share options outstanding during the year for the Approved Share Options Schemes are as follows: 2012 Number of share options No. Outstanding at beginning of the year Granted during the year Lapsed during the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at end of year 8,921,300 1,732,000 (57,000) (192,000) (324,000) 10,080,300 5,527,300 2012 Weighted average exercise price (in ) 0.20 0.24 0.20 0.15 0.25 0.21 0.21 2011 Number of share options No. 8,602,300 3,095,000 (105,000) (2,450,000) (221,000) 8,921,300 4,827,000 2011 Weighted average exercise price (in ) 0.21 0.17 0.21 0.21 0.47 0.20 0.23
The options outstanding at 31 December 2012 had a weighted average exercise price of 20.6p (2011: 19.5p), and a weighted average remaining contractual life of 77 months (2011: 78 months). On 10 October 2012, 1,732,000 options were granted with an estimated fair value of 8.59p per share and 148,779 in aggregate.
21 Share-based payments continued The inputs into the Black-Scholes model are as follows: October 2012 Fair value at grant date Share price Exercise price Expected volatility Expected option life (expressed as weighted average life used in modelling) Risk-free interest rate Details of share options outstanding during the year for the EMI Scheme are as follows: 2012 Number of share options No. Outstanding at beginning of the year Granted during the year Lapsed during the year Exercised during the year Outstanding at the end of the year Exercisable at end of year 4,874,435 1,759,678 (23,700) (1,455,150) 5,155,263 5,155,263 2012 Weighted average exercise price (in ) 0.01 0.01 0.01 0.01 0.01 0.01 2011 Number of share options No. 4,435,477 1,934,753 (1,495,796) 4,874,434 4,874,434 2011 Weighted average exercise price (in ) 0.01 0.01 0.01 0.01 0.01 8.59p 24.0p 24.0p 47.80% 3.66 years 0.44%
The options outstanding at 31 December 2012 had a weighted average exercise price of 1p (2011: 1p), and a weighted average remaining contractual life of 79 months (2011: 83 months). On 20 March 2012, 565,743 options were granted with an estimated fair value of 23.50p per share and 132,950 in aggregate. On 10 October 2012, 1,193,935 options were granted with an estimated fair value of 23.0p per share and 274,605 in aggregate. Enterprise Management Incentive Scheme The inputs into the Black-Scholes model are as follows: October 2012 Fair value at measurement date Share price Exercise price Expected volatility Expected option life (expressed as weighted average life used in modelling) Risk-free interest rate 23.00p 24.00p 1.00p 23.70% 1 year 0.29% March 2012 23.50p 24.50p 1.00p 57.00% 1 year 0.45%
21
Share-based payments continued September 2011 Fair value at measurement date Share price Exercise price Expected volatility Expected option life (expressed as weighted average life used in modelling) Risk-free interest rate 16.30p 17.25p 1.0p 59.60% 1 year 0.55% April 2011 27.50p 28.50p 1.0p 55.00% 1 year 0.88% March 2011 17.50p 18.50p 1.0p 54.80% 1 year 0.88%
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 recharged 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. 22 Share capital and other reserves Share capital 000 At 1 January 2011 Share issued during the year Premium on shares issued during the year Issue expenses Loss for the financial year Credit in respect of service cost settled by award of options Exchange movements taken to reserves At 31 December 2011 Share issued during the year Premium on shares issued during the year Issue expenses Loss for the financial year Credit in respect of service cost settled by award of options Exchange movements taken to reserves At 31 December 2012 1,320 101 1,421 89 1,510 Capital Share redemption premium reserve 000 000 20,116 1,838 (53) 21,901 1,832 (74) 23,659 17,476 17,476 17,476 Other reserves 000 2,890 396 3,286 506 3,792 Translation reserve 000 5 (14) (9) (11) (20) Retained deficit 000 (40,798) (1,421) (42,219) (2,093) (44,312)
The Capital redemption reserve represents the nominal value of shares repurchased and then cancelled during the year ended 31 December 2001. The Other reserves represents the reserve for cumulative share-based payment charges since 1 November 2002. The translation reserve comprises foreign exchange differences arising since 1 January 2006 from the translation of the Group's net investments in foreign subsidiaries into sterling. The cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, is 6,400,000 (2011: 6,400,000).
23
Notes to the Consolidated Statement of Cash Flows 2012 000 Operating loss Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Exchange loss on property, plant and equipment Loss/(gain) on disposal of property, plant and equipment Share-based payments Operating cash flows before movement in working capital Increase in inventories Increase in trade and other receivables Increase in trade and other payables (Decrease)/increase in provisions Net cash used in operations (2,078) 177 120 3 11 506 (1,261) (51) (146) 366 (2) (1,094) 2011 000 (1,402) 131 60 (7) 396 (822) (339) (509) 274 59 (1,337)
Operating cash flows before movement in working capital Alternative performance measures Adjusted operating cash flow before movement in working capital Operating cash flow before movement in working capital Equity settled costs Net (decrease)/increase in provisions, including receivables Net non-cash clinical trial (credits) Sundry non-cash charges Adjusted operating cash flow before movement in working capital This supplementary disclosure does not form part of the Consolidated Statement of Cash Flows. 24 Commitments Operating lease commitments The Group leases land and buildings and various plant and machinery under non-cancellable operating lease agreements. The majority of lease agreements are renewable at the end of the lease period at the market rate. The lease expenditure charged to the Consolidated Statement of Comprehensive Income during the year is disclosed in note 4. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2012 000 No later than one year Later than one year and no later than five years 81 50 131 2011 000 81 123 204 2012 000 (1,261) 347 (46) (45) (4) (1,009) 2011 000 (822) 172 297 (387) 8 (732)
25
Financial Instruments The Groups financial instruments comprise some cash and various items, such as trade receivables and trade payables that arise directly from its operations. It is, and has been throughout the year under review, the Groups policy that no trading in financial instruments shall be undertaken. The Board reviews and agrees policies for managing liquidity risk, currency risk, credit risk, interest rate risk and capital risk. The policies have remained unchanged throughout the year and are summarised below: Liquidity risk The Group is managed to ensure that sufficient cash reserves and credit facilities are available to meet liquidity requirements. The Group has available to it an invoice discounting facility with the Groups 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. Management monitors rolling forecasts of the Groups liquidity reserves which comprises undrawn invoice discounting facilities and cash and cash equivalents on the basis of expected cash flows. Currency risk The Group has overseas subsidiaries in the USA, Spain and Germany and as a result the Groups sterling balance sheet can be affected by movements in the US dollar and euro exchange rates. The Group also has transactional currency exposures. Such exposures arise from sales and purchases by operating units in currencies other than the units functional currency. In general all overseas operating units trade and hold assets and liabilities in their functional currency. The Group does not engage in any hedging in respect of currency risks. 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 and monitors its exposure to credit risk on an ongoing basis. The Group is also exposed to credit related losses and territory specific credit risk in the event of non-performance by counterparties in connection with financial instruments. The maximum credit risk exposure at the balance sheet date is represented by the carrying value of financial assets and there are no significant concentrations of credit risk. See note 13 for further details. For banks and financial institutions only independently related parties with a minimum rating of A are accepted. As at the date of signing the financial statements all cash and cash equivalents are held with institutions with an A rating as per Standard & Poors. Interest Rate Risk The Group has both interest-bearing assets and interest-bearing liabilities. The Groups policy is to seek the highest possible return on interest-bearing assets without bearing significant credit risk, and to minimise the rate payable on interest-bearing liabilities. The Group places its cash balances on deposit at floating rates of interest. Surplus cash balances are placed on shortterm deposit (less than three months). No interest rate swaps are used. Interest rate risk comprises both the interest rate price risk that results from borrowing at fixed rates of interest and also the interest cash flow risk that results from borrowing at variable rates. At this time, the majority of the Groups borrowings attract floating rates of interest and therefore the Groups principal interest rate risk is a cash flow risk.
25
Financial Instruments continued Capital risk The Groups objectives when managing capital (ordinary shares) are to safeguard the Groups ability to continue as a going concern in order to provide future returns to shareholders and benefits for other stakeholders and to maintain optimal capital structure. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. The Boards policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of directors monitors the demographic spread of shareholders. The Board encourages employees to hold shares in the Company. This has been carried out through the Companys various executive share option plans. Full details of these schemes are given in note 21. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position and discusses these at regular Board meetings. There were no changes to the Groups approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Liabilities by maturity Financial Instruments principally comprise the Groups borrowings under an invoice discounting facility with the Royal Bank of Scotland, trade and other payables, net obligations under finance leases and long-term loans. In February 2009, the Group raised 1,001,000 before expenses by the issue of convertible loan notes to Amati Global Investors, a venture capital trust managed by Amati Global Partners LLP. The Loan Notes are repayable in full on 27 February 2014 being five years from the date of issue although they may be repaid earlier at the Companys discretion in certain circumstances. If such repayment is made the Company will issue the Loan Notes holder with warrants over 8 million 1p ordinary shares at a price of 12.5p per share. The Loan Notes are convertible into 8 million ordinary shares in the Company (Ordinary Shares) at the effective price of 12.5p, being a premium of 26.6% over the share price at close of business on 26 February 2009. The Company can also enforce conversion if the ordinary share price is equal to or exceeds 37.5p for any period of 90 consecutive days. The Loan Notes are unsecured and interest is payable at 10.5% per annum for the first two years and at 7.5% above LIBOR thereafter. Interest on the invoice discounting facility is payable at floating rate of 2.5% to 3.25% above LIBOR and on the long-term US subsidiary loan at a rate of 4% per annum. The table below summarises the Groups financial liabilities into the relevant maturity groupings based upon the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed are the undiscounted cash flows. Year ended 31 December 2012 Less than Between 1 Between 2 1 year and 2 years and 5 years 000 000 000 Borrowings Invoice discounting facility Other loans Finance lease liabilities Trade and other payables 724 394 5 1,866 2,986 989 7 996 Over 5 years 000
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Financial Instruments continued Year ended 31 December 2011 Less than 1 year 000 Borrowings Invoice discounting facility Other loans Finance lease liabilities Trade and other payables 723 20 1,500 2,243 Fair value of financial assets and liabilites There is a close approximation between the book values and the fair values of the Groups financial assets and liabilities. Fair value is the amount at which a financial instrument could be exchanged in an arms length transaction between willing parties, other than a forced or liquidation sale, and excludes accrued interest. Year ended 31 December 2012 Loans and receivables 000 Financial assets Trade and other receivables Cash and cash equivalents 2,066 667 2,733 Financial liabilities Trade payables Invoice discounting facility Other loans Finance lease liabilities Year ended 31 December 2011 Loans and receivables 000 Financial assets Trade and other receivables Cash and cash equivalents 1,854 752 2,606 Financial liabilities Trade payables Invoice discounting facility Other loans Finance lease liabilities Fair value through profit and loss 000 Fair value through profit and loss 000 Financial liabilities at amortised cost 000 1,695 724 1,383 12 3,814 Financial liabilities at amortised cost 000 1,397 723 1,379 3,499 Between 1 and 2 years 000 378 378 Between 2 and 5 years 000 981 981 Over 5 years 000
Total carrying amount 000 2,066 667 2,733 1,695 724 1,383 12 3,814
Total carrying amount 000 1,854 752 2,606 1,397 723 1,379 3,499
25
Financial Instruments continued Financial Instruments disclosure Financial assets and liabilities are measured at fair value according to the following three levels of fair value hierarchy. The levels of the fair value hierarchy and its application to our financial assets and liabilities are described below: Level 1: quoted prices in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data. All financial assets and liabilities are considered to be Level 3. The directors believe that there is no material difference between book value and fair value as at 31 December 2012. Sensitivities The following table details the Groups sensitivities to changes in sterling against the respective foreign currencies. The sensitivities represent managements assessment of the effect on monetary assets of the possible changes in foreign exchange rates. The sensitivities analysis of the Groups exposure to foreign currency risk at the year end has been determined based upon the assumpion that the increase in Euro and US dollar exchange rates is effective throughout the financial year and all other variables remain constant. An increase of 10% has been used as a maximum exposure expectation for exchange rate sensitivities. Sensitivity Euros US dollar 10% 10% Profit 000 (104) 49 2012 Equity 000 (104) 49 Profit 000 (85) 21 2011 Equity 000 (85) 21
The following table details the Groups sensitivity to changes of 1% in interest rates throughout the year, with all other variables remaining constant. 1% has been used as a maximum exposure expectation for interest rate sensitivities. Profit 000 Sterling Euros US dollar (6) (1) (1) 2012 Equity 000 (6) (1) (1) Profit 000 (10) (1) (1) 2011 Equity 000 (10) (1) (1)
26
Related party transactions The following transactions were carried out with related parties: Key management compensation Key management personnel comprise members of the management team as defined by IAS 24 Related Party Disclosures. 2012 000 Aggregate emoluments Sums paid to third parties for directors services Contributions to key managements personal pension schemes 703 33 22 758 Equity issue Dr Edwin Snape, a director of the Company, is principal of Nexus Medical Partners II, L.P. In April 2008, Nexus Medical Partners II, L.P. loaned $518,518 to the Companys US subsidiary by way of an unsecured loan note repayable after five years. Interest on the loan note is to be charged at 4% per annum with all interest rolling up for settlement on redemption. At 31 December 2012, accrued interest amounted to $89,878 (2011: $69,137). In addition to the above, there is an amount of 260,000 (2011: 236,000) charged to the Consolidated Statement of Comprehensive Income with respect to IFRS 2 Share-based payments for key management. Further details of directors interest in the Company are given in the Directors Report on page 17. Transactions within the Group are carried out on an arms length basis and not disclosed as all such transactions have been eliminated on consolidation. 2011 000 692 33 22 747
27
Events after the reporting period On 18 January 2013, the Company announced that it had placed 13,157,895 new ordinary shares of 1p each at a price of 19.00p per share to raise approximately 2.4 million after expenses. The proceeds of the Placing will be used to fund the second phase collaboration project with Premier Inc. (Premier). The programme will result in the implementation of CardioQ-ODM in up to five US hospitals and will involve the payment of fees to Premier. This will give Deltex access to Premiers patient outcome and hospital cost data, Premiers clinical change management and quality improvement expertise as well as a scalable implementation programme for other hospitals to follow and, ultimately, Premiers extensive networks of hospitals and health policy makers. Additional costs will be incurred by Deltex Medical in providing training staff and customer support consistent with its established account development models in the USA. Resulting from the above collaboration, the Company has a commitment of $1.6 million for the Premier project.
Independent Auditors Report

to the members of Deltex Medical Group plc
We have audited the parent company financial statements of Deltex Medical Group plc for the year ended 31 December 2012 which comprise the Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Opinion on financial statements

In our opinion the parent company financial statements:
l
give a true and fair view of the state of the companys affairs as at 31 December 2012; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.
Respective responsibilities of directors and auditors

As explained more fully in the Directors Responsibilities Statement set out on page 20, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the companys members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, 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.
Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors Report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements.
Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
l
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit.
Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent companys circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the group financial statements of Deltex Medical Group plc for the year ended 31 December 2012.
Miles Saunders (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading
25 March 2013
Company Balance Sheet
at 31 December 2012 Note Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve Other reserves Profit and loss account Total shareholders funds 8 11 11 11 11 12 10 5 6 2012 000 39,308 10 317 327 7 (138) 189 39,497 (989) 38,508 1,510 23,659 17,476 3,792 (7,929) 38,508 2011 000 37,001 12 558 570 (134) 436 37,437 (980) 36,457 1,421 21,901 17,476 3,286 (7,627) 36,457
The notes on pages 60 to 64 form an integral part of these financial statements. The financial statements on pages 59 to 64 were approved by the Board of Directors on 25 March 2013 and were signed on its behalf by: N J Keen Chairman Deltex Medical Group plc (3902895) P J Mitchell Finance Director Deltex Medical Group plc (3902895)
Notes to the Financial Statements
Principal accounting policies These financial statements have been prepared on the going concern basis under the historical cost convention and in accordance with the Companies Act 2006, 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. For further details on why the directors believe it is appropriate to prepare the financial statements on the going concern basis see Basis of preparation on page 34. Investments Investments are stated at cost less any provisions for impairment in value. At each balance sheet date the Company reviews the carrying amount of the investments 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 investments value in use and its fair value less costs to sell. Value in use is calculated using cash flow projections for the investments discounted at the Companys cost of capital. If the recoverable amount of the investment is estimated to be less than its carrying amount, the carrying amount of the investment is reduced to its recoverable amount. An impairment loss is recognised as a charge to the profit and loss account, unless the relevant investment is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Foreign currency translation Foreign currency monetary 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. Share-based payments The Company awards directors, employees and certain of the Groups distributors and advisers equity-settled share-based payments, from time to time, on a discretionary basis. In accordance with FRS 20 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 a Black-Scholes model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straightline basis over the vesting period, based on the Companys 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. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the profit and loss account, with a corresponding adjustment to reserves. 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 UITF 25. The fair value of the equity-settled share-based payment is recharged 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 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 on page 23 of the consolidated financial statements. The Company has taken advantage of the exemptions under FRS 8 Related Party Disclosures relating to the disclosure of transactions with other wholly owned Group companies.
Principal accounting policies continued Cash at bank and in hand Cash at bank and in hand includes cash in hand and deposits held with banks. Called up 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. Terms of loans to subsidiaries The Company uses its cash to fund the operations of its subsidiaries until such a time that the subsidiaries are in a position to return the monies to Group. These loans are interest free and have no fixed repayment date. Compound financial instruments Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, or subject to certain conditions at the option of the Group and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry. 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 end of the reporting period.
Loss for the year As permitted by Section 408 of the Companies Act 2006 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 2012 of 302,000 (2011: 423,000).
Auditor remuneration During the year the Company obtained the following services from the Companys auditors at costs as detailed below: 2012 Audit services Fees payable to Company auditors for the audit of the Company 20 20 2011 20 20
Directors emoluments The remuneration of the Non-executive directors was as follows: 2012 Aggregate emoluments Sums paid to third parties for directors services 72,000 33,333 105,333 There are nil (2011: nil) benefits accruing to directors under personal pension plans. Included in the above figure is an amount paid to the employing company, Imperialise Limited, of a Non-executive director for the services of that director of 33,333 (2011: 33,333). Remuneration, including Executive directors is disclosed on pages 18 and 19 of these Report and Accounts. 2011 72,000 33,333 105,333
Directors emoluments continued All Executive directors in office at the year end receive their emoluments from Deltex Medical Limited, a subsidiary undertaking of the Group. Except for financing activities, their services to the Company are incidental to their services to the Group as a whole. For further details, see page 18 of the Directors Report. The average number of Non-executive directors by function was as follows: 2012 Number Administration The Company had no additional employees other than the directors (2011: None). 4 2011 Number 4
Investments 2012 Investments in subsidiary undertakings 000 At 1 January Additions At 31 December 846 846 2012 Loans to subsidiary undertakings 000 36,155 2,307 38,462 2012 2011 Investments in subsidiary undertakings 000 846 846 2011 Loans to subsidiary undertakings 000 34,356 1,799 36,155 2011
Total 000 37,001 2,307 39,308
Total 000 35,202 1,799 37,001
The directors believe that the carrying value of the investments is supported by their future cash flows. There is no difference between cost and net book value of the investments. Loans to subsidiary undertakings in the amount of 38,462,000 relate 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 forseeable 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. During the year additional long-term debtor balances have been reclassified as long-term investments as this follows the substance of the transactions. Details of the Companys principal trading subsidiary undertakings are set out below. In all cases the holding is a direct holding of 100% of the ordinary shares: Deltex Medical Limited, incorporated and operating in the United Kingdom (UK), manufactures and markets medical devices. Deltex Medical SC, Inc. incorporated and operating in the United States of America (USA), 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. Deltex Medical, GmbH, incorporated and operating in Germany, markets and sells medical devices in Germany which are manufactured by the Group in the UK. Deltex Medical GmbH is itself a 100% owned subsidiary of Deltex Medical Limited.
During the year, Deltex Medical (Chichester) Limited was liquidated as the entity was dormant.
Debtors 2012 000 Amounts falling due within one year: Other debtors Prepayments 3 7 10 2011 000 5 7 12
Creditors: Amounts falling due within one year 2012 000 Other creditors Accruals 64 74 138 2011 000 65 69 134
Called up share capital See note 20 of the Consolidated Financial Statements on pages 47 to 49 for full details of the share capital and share schemes held.
Share-based payments See note 21 of the Consolidated Financial Statements on pages 49 to 51 for full details of the Companys share-based payments.
10
Creditors: Amounts falling due after more than one year 2012 000 Loan notes 989 2011 000 980
The amount of 989,000 (2011: 980,000) relates to Loan Notes that are repayable in full on 27 February 2014 being five years from the date of issue although they may be repaid earlier at the Companys discretion in certain circumstances. If such repayment is made the Company will issue the Loan Notes holder with warrants over 8 million 1p ordinary shares at a price of 12.5p per share. The Loan Notes are convertible into 8 million 1p ordinary shares in the Company (Ordinary Shares) at the effective price of 12.5p, being a premium of 26.6% over the share price at close of business on 26 February 2009. The Company can also enforce conversion if the ordinary share price is equal to or exceeds 37.5p for any period of 90 consecutive days. The Loan Notes are unsecured and interest is payable at 10.5% per annum for the first two years and at 7.5% above LIBOR thereafter.
11
Reserves Other reserves 000 At 1 January 2012 Premium on shares issued during the year Loss for the financial year Credit in respect of service cost settled by award of share options At 31 December 2012 3,286 506 3,792 Share Capital premium redemption account reserve 000 000 21,901 1,758 23,659 17,476 17,476 Profit and loss account 000 (7,627) (302) (7,929)
12
Reconciliation of movements in shareholders funds 2012 000 Opening shareholders funds Increase in share capital during the year Premium on shares issued during the year Issue expenses Loss for the financial year Credit in respect of service cost settled by award of share options Closing shareholders funds 36,457 89 1,832 (74) (302) 506 38,508 2011 000 34,598 101 1,838 (53) (423) 396 36,457
13
Ultimate controlling party There are no shareholders with overall control of the Company as at 31 December 2012 or 31 December 2011.
14
Related party transactions Exemption has been taken under FRS 8 from disclosing related party transactions between the Company and its subsidiary undertakings. Dr Edwin Snape, a director of the Company, is principal of Nexus Medical Partners II, L.P. In April 2008, Nexus Medical Partners II, L.P. loaned US$518,518 to the Companys US subsidiary by way of an unsecured loan note repayable after five years. Interest on the loan note is to be charged at 4% per annum with all interest rolling up for settlement on redemption. The directors of Deltex Medical Group plc had no other 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 17 to 19.
15
Events after the reporting period On 18 January 2013, the Company announced that it had placed 13,157,895 new ordinary shares of 1p each at a price of 19.00p per share to raise approximately 2.4 million after expenses. The proceeds of the Placing will be used to fund the second phase collaboration project with Premier Inc. (Premier). The programme will result in the implementation of CardioQ-ODM in up to five US hospitals and will involve the payment of fees to Premier. This will give Deltex access to Premiers patient outcome and hospital cost data, Premiers clinical change management and quality improvement expertise as well as a scalable implementation programme for other hospitals to follow and, ultimately, Premiers extensive networks of hospitals and health policy makers. Additional costs will be incurred by Deltex Medical in providing training staff and customer support consistent with its established account development models in the USA. Resulting from the above collaboration, the Company has a commitment of $1.6 million for the Premier project.
Where theres ow, theres life
CardioQ-ODM cor CardioQ-ODM cornerstone nerstone of your Protocol Enhanced Recovery Pr otocol
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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Report & Accounts

CardioQ-ODM Global Initiatives

Report and Accounts 2012 | 1 Deltex Medical Group plc

2 | Report and Accounts 2012 Deltex Medical Group plc

Report and Accounts 2012 | 3 Deltex Medical Group plc

Nigel Keen Chairman 25 March 2013

4 | Report and Accounts 2012 Deltex Medical Group plc

2012 m 4.5 0.8 0.8 0.3 6.4 0.4 6.8

1.1 0.2 5.1 0.1 5.2

0.5 1.8 1.8

Report and Accounts 2012 | 5 Deltex Medical Group plc

Critical care market

6 | Report and Accounts 2012 Deltex Medical Group plc

Operating Review continued

United States of America

Report and Accounts 2012 | 7 Deltex Medical Group plc

Research and Development

Ewan Phillips Chief Executive 25 March 2013

8 | Report and Accounts 2012 Deltex Medical Group plc

Fig 1. 2012 sales m

Report and Accounts 2012 | 9 Deltex Medical Group plc

Research and development

Non cash revenue and costs

10 | Report and Accounts 2012 Deltex Medical Group plc

Financial Review continued

Non cash revenue

Share based payments

Non-cash costs Clinical trial and other costs

Report and Accounts 2012 | 11 Deltex Medical Group plc

Financial income and expenditure

Cash flow and liquidity

12 | Report and Accounts 2012 Deltex Medical Group plc

Financial Review continued

Underlying cash burn rate

Key performance indicators

Paul Mitchell Finance Director 25 March 2013

Report and Accounts 2012 | 13 Deltex Medical Group plc

14 | Report and Accounts 2012 Deltex Medical Group plc

Secretary and Advisers

Nominated adviser and broker

Report and Accounts 2012 | 15 Deltex Medical Group plc

Business review and principal activities

Key performance indicators

Results and dividends

Research and development

Principal risks and uncertainties

Financial risk management

16 | Report and Accounts 2012 Deltex Medical Group plc

Directors Report continued

Interest Rate Risk

Report and Accounts 2012 | 17 Deltex Medical Group plc

2011 Executive Share Option Scheme EMI Scheme*

18 | Report and Accounts 2012 Deltex Medical Group plc

Directors Report continued

Exercised 2012 No.

Exercise period to 26-Nov-12 27-Oct-13 11-Oct-14 27-Mar-16 28-Jun-17 29-Jun-18 12-Jun-19

2011 Executive Share Option Scheme EMI Scheme*

28-Sep-14 27-Sep-21 10-Oct-15 10-Oct-221 10-Oct-12 09-Oct-22

Pension 3,460 7,400 1111 10,860 3333

Benefits 7,500 7,500 1111 15,000 3333

Pension 3,461 7,400 1111 10,861 3333

Enterprise Management Incentive Scheme awards

Report and Accounts 2012 | 19 Deltex Medical Group plc