Deltex Medical : Annual Report and Accounts 2023

HIGHLIGHTS

Financial

• Successfully completed the restructuring of the business and achieved annualised cost savings of approximately £1.0 million
• Revenues of £1.8 million (2022: £2.5 million), primarily reflecting the impact from unexpected delays in releasing the new TrueVue monitor and difficult market conditions
• Adjusted EBITDA of £(0.9) million (2022: £(0.6) million)
• £1.89 million fundraise completed in August 2023 with net proceeds successfully used to strengthen the balance sheet and implement the Group's restructuring plan
• Achieved a 31% reduction in overheads (excluding exceptional costs) to £2.0 million (2022: £2.9 million). The annualised reduction in overheads is expected to be c. £1 million
• Gross cash expenditure on research and product development by the Group (excluding the effect of grants or capitalisation of product development) amounted to £0.6 million (2022: £0.8 million). The net amount, having taken into account grants, was £0.4 million (2022: £0.7 million).
• Cash in hand at 31 December 2023 of £0.7 million (2022: £0.5 million)

Business / commercial activities

• Launch of the new TrueVue monitor in the UK and the EU with encouraging interest levels from existing legacy monitor users and orders now increasing, suggesting a large potential replacement market
• Markets in the Middle East, Asia and South America also being targeted for the new TrueVue monitor where Europe's CE mark is recognised, with preparatory work also underway for local regulatory approvals
• Work started on the FDA 510(k) premarket regulatory filing for the new TrueVue monitor which, when approved, will enable sales into the USA which are expected to start in 2025
• Good progress in securing production efficiencies associated with the manufacture of the new TrueVue monitor
• Ongoing successful development work on a new non-invasiveDoppler-based haemodynamic monitoring device incorporating Deltex Medical's core oesophageal doppler monitoring ("ODM") technology with a substantial addressable market
• Implementation of new lower cost and more efficient digital marketing strategies in line with the Group's new "zero-based budgeting" approach
• Have met the operational and internal financial targets agreed by the Board for the first quarter and the outlook is positive

Commenting on the results, Nigel Keen, Chairman of Deltex Medical, said:

"2023 was a difficult year for the Group; however, we have successfully refinanced the business and reduced our cost base substantially and I am pleased to be able to report that 2024 has started well."

"We also launched the new TrueVue monitor and see a significant upgrade and replacement market."

"Good progress is being made on a new, easy-to-usenon-invasive device which sits on the same platform as Deltex Medical's core ODM technology."

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Real-time oesophageal Doppler haemodynamic monitoring:

improves patient outcomes; increases hospital throughput

CHAIRMAN'S STATEMENT

Introduction

We are pleased to report that we successfully completed the restructuring of the Group's business as well as achieving annualised cost savings of approximately £1.0 million. We have since met the operational and internal financial targets agreed by the Board for the first quarter of the year and the outlook is positive.

Notwithstanding 2023 initially being a difficult year for Deltex Medical, 2023 saw a number of key milestones achieved by the Group, including the successful turnaround of the business.

Deltex Medical faced three principal challenges which together contributed to the Group needing to carry out a fundraise, details of which were announced by Deltex Medical on 14 July 2023 (the "Fundraise"). These challenges comprised:

• a continuing slow pick-up in activity levels post the end of the Covid-19 pandemic;
• extended lead times for certain specific components needed to complete the new TrueVue monitor development, largely related to post Covid-19 supply chain issues. This resulted in the slippage of the launch date for the new TrueVue monitor; and
• delays in orders and the award of a national tender for haemodynamic monitoring with one of the Group's Latin American distributors which had been expected to have strong short-term prospects for cash generation.

The Fundraise has enabled the Group to turnaround its business with the result that:

• the cost base of the Group has been significantly reduced, bringing down the cashflow breakeven point substantially;
• lower cost and more efficient digital marketing techniques have been adopted which are expected to help drive incremental revenues albeit with smaller salesforces in the UK and USA; and
• the new TrueVue monitor was completed and launched in the UK and Europe, as well as global markets that recognise the EU's 'CE mark', in November 2023.

Since its launch, a number of existing users of the Group's oesophageal Doppler monitoring technology have shown strong levels of interest in the new TrueVue monitor with orders now increasing. In parallel, good progress has been made by the Group in relation to streamlining the manufacturing processes associated with the new monitor.

Financial results

Group revenues for the year ended 31 December 2023 decreased by 28% to £1.8 million (2022: £2.5 million) primarily reflecting difficult market conditions and the delayed launch to the new TrueVue monitor. These issues collectively adversely affected the sales of the Group's single-use disposable ODM probes which declined to £1.4 million (2022: £1.8 million).

As a proportion of total Group revenues, direct sales into the USA and UK remained broadly unchanged at 50% (2022: 51%).

Deltex Medical's European customers have been aware of the expected launch of the new TrueVue monitor and during the year became increasingly reluctant to purchase the previous generation monitor. As a result, monitor revenues reduced by 52% to £258,000 (2022: £537,000).

The reduction in activity levels also adversely affected overhead recovery in the Chichester production facility, resulting in the Group's gross margin reducing to 63% (2022: 74%).

Overheads, excluding exceptional costs, decreased by 31% to £2.0 million (2022: £2.9 million). The exceptionals of £366,000 largely related to restructuring costs, namely reducing the Group's

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will enable us to sell the new monitor into the US market.

We are continuing to drive forwards the development of our new non-invasive device. We believe the new device will be used in clinical areas not served well by our existing products and will therefore allow us to sell into significantly larger markets.

We continue to focus on optimising the commercial opportunities associated with a small number of significant tenders, including in Latin America, where we believe that Deltex Medical's ODM technology has strong opportunities to take market share.

After a tough 2023, I am pleased to be able to report that 2024 has started well and we are much encouraged for the future.

Nigel Keen

Chairman

27 March 2024

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Real-time oesophageal Doppler haemodynamic monitoring:

improves patient outcomes; increases hospital throughput

BUSINESS REVIEW

Overview

Deltex Medical is a world leader in high accuracy oesophageal Doppler monitoring, via its TrueVue platform, which allows real-time monitoring by clinicians of a patient's haemodynamic status.

More than twenty peer-reviewed, randomised controlled trials have demonstrated that an ODM- driven haemodynamic protocol can result in statistically significant reductions in post-operative complications such as acute kidney injuries, resulting in lower costs for hospitals due to shorter patient length-of-stay. The use of the ODM technology is good for patients. It also increases throughput and capacity for hospitals, which should help reduce the backlog in elective surgery, which is a particular issue in the United Kingdom.

Deltex Medical's technology was originally developed in a London ICU to assist with the treatment of acutely unwell critical care patients. Over time demand for the Group's high fidelity ODM-based haemodynamic monitoring technology has migrated from the ICU to the OR, particularly for complex elective surgical procedures; however, there are now signs of increasing interest from ICUs in the ODM technology.

Before the Covid-19 pandemic, approximately 80% of the Group's revenues were associated with elective surgical procedures in ORs. The near-complete cessation of elective surgery during the pandemic was highly disruptive to Deltex Medical's commercial activities, particularly in the UK and the USA, where the Group sells its technology to hospitals directly.

Although, post-pandemic, elective surgery has restarted around the world, medical device sales teams, including Deltex Medical's, are still experiencing more restricted levels of access to ORs and ICUs than they enjoyed pre-pandemic.

Launch of the new TrueVue monitor

After a number of years in development, the Group released its new TrueVue monitor onto the market in November 2023. The development of the new device had taken longer than expected as a result of disrupted supply chains during, and for some time after, the Covid-19 pandemic.

The new monitor has been designed to act as a platform for a range of complementary technologies, including a new, novel non-invasive device that the Group is also developing.

Orders for the new TrueVue monitor are increasing which is encouraging. There is a substantial domestic and international replacement and upgrade market, which it is anticipated will drive orders in the short to medium term. In addition, the Group expects to see probe orders increasing based on new monitor equipment sales.

The new TrueVue monitor has been designed with production engineering input in order to reduce the prime costs of the equipment as well as enhance its overall reliability. Good progress has been made with reducing the labour hours required for each of the sub-assemblies as the Group streamlines its manufacturing processes. Overall, the gross margin on the new TrueVue monitor is expected to be higher than the previous unit, although price points vary significantly between direct sales into the UK (as well as, post launch, the USA) and overseas sales to distributors.

Work has started on assembling the necessary documents required for the 510(k) premarket regulatory submission to the US FDA. It is planned that the FDA filing process should be completed in 2025 and sales of the new monitor into the US market should follow shortly thereafter.

Non-invasive device

Deltex Medical's current ODM device is principally used on sedated patients: typically those admitted to ICUs or being operated on within ORs. The resultant haemodynamic data derived from the ODM technology is extremely accurate and has been shown in some 24 published randomised controlled trials to be associated with significantly improved patient outcomes and reduced costs to hospitals as

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a result of shorter hospital stays. However, limiting the use of this technology just to patients in ICUs and ORs self-evidently reduces the size of the addressable market and constrains the Group's revenues.

The new non-invasiveDoppler-based haemodynamic monitoring device that the Group is developing is designed to use the same underlying oesophageal Doppler haemodynamic monitoring technology which is supported by a large body of published literature. However, a different, novel design will enable the technology to be used non-invasively and thus on a much larger patient population.

Although this new non-invasive device is still in the development phase, the Group is working on the basis that it should ultimately end up representing a form of digital haemodynamic stethoscope. This will give healthcare workers, from doctors to nurses across a range of departments, immediate access to high quality, real time haemodynamic data for patients. In turn, these data are anticipated to give rise to improved and more rapid treatment of patients throughout a hospital or other clinical care- giving facility such as the emergency services or a primary care doctor's office.

Deltex Medical believes that this new, non-invasive device, with a substantially larger addressable market, represents a significant opportunity for the Group to drive substantial profitable growth.

In parallel with working on the technical development aspects of this new, novel non-invasive technology, Deltex Medical is carrying out structured 'voice of the customer' discussions with prospective hospital-based users to determine how best to launch, and charge for, this new non- invasive ODM technology. Discussions with a number of the Group's international distributors suggest that there could be significant overseas market demand when this new device is launched.

Three principal divisions: UK, USA and International

Deltex Medical's commercial activities are structured across three divisions: the UK; the USA and International.

The Group has faced difficulties in driving its commercial activities back to those levels seen pre the Covid-19 pandemic in its two direct sales territories of the UK and the USA. Many hospitals have imposed significant restrictions on salespersons or clinical educators accessing ORs or ICUs. Once any hospital stops using Deltex Medical's ODM technology, it can take time and significant resources to re-instigate the use of the technology as the clinical staff change rapidly and new staff need to be trained on the use of ODM.

Deltex Medical has also been restricting expenditure on sales and marketing activities in the UK and USA in advance of the launch of the new monitor.

One way in which the Group has been seeking to mitigate the impact of its reduced sales and marketing spend, as well as the impact of greater restrictions on sales teams meeting hospital-baseddecision-makers in person, is by increasing the use of digital marketing materials. The Group is adopting a number of digital marketing techniques as well as training via the launch of its online Deltex Medical Academy.

The Group monitors closely per user probe revenues. Internal analyses demonstrate that only small increases in per (hospital) account probe purchases, or the successful adoption of the ODM technology by a small number of new, high-volume users, should drive the Group to positive cashflow.

There remains a substantial, and increasing, backlog in elective surgery as a result of the Covid-19 pandemic. In the UK the adverse effects of this backlog on patients have been exacerbated by a number of strikes by NHS healthcare workers. This backlog represents both an opportunity and a challenge for the Group. For example, there are powerful arguments, supported by the published evidence base, that the use of Deltex Medical's TrueVue technology increases patient throughput in a hospital and improves patient outcomes, thereby helping to reduce the size (and associated cost) of the backlog. Conversely, there is some anecdotal evidence that certain NHS hospitals, under pressure to reduce the backlog, are reluctant to promote the adoption of new and/or different technologies.

Following the launch of the new TrueVue monitor, Deltex Medical has now notified all UK hospitals

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