Final results for the year ended 31 July 2012

Ultrasis, the provider of interactive health care services, announces its audited financial results for the year ended 31 July 2012 (the "Final Results"):

  • Revenues of £1,069,000, a decrease from £2,839,000 in 2011 caused by the continued difficult trading conditions in the UK market.
  • Total operating costs decreased by 11 per cent. to £2,471,000 from £2,769,000 in 2011, attributable to cost reduction measures taken during the year.
  • Loss before tax of £1,413,000 (2011: profit before tax of £26,000), reflecting the fall in revenues to the extent that this was not offset by cost savings.
  • Cash reserves of £1,284,000 (2011: £2,368,000).
  • Launch of Beating the Blues ("BtB") to the US market where we secured some early contract wins and are developing a strong revenue base for the future in this market.
  • Commenced research trial with West China Hospital (the largest hospital in the country) which provides over two million outpatient appointments per year.

Statement from Chairman and Chief Executive:

The difficult economic climate continues to present challenging trading conditions. In our core market, the UK's NHS, budgetary responsibility, within the new commissioning structures, will not formally be in place until April 2013. Whilst there is a crescendo of rhetoric from Ministers supporting improvements in Mental Health provision this is not yet translating into purchasing by GP practices or provision via Improving Access to Psychological Therapies ("IAPT") services. This situation (hopefully to be resolved once the new commissioning process is in place) continues to have a severe, adverse, impact on the Company's sales in the UK.

That said, the NHS remains an important market for us where Beating the Blues ("BtB") has been proven to be a cost effective solution to address the growing numbers of people suffering from anxiety and depression disorders. The recent recommendation on treating people with both physical and mental health problems - co-morbidity - identifies a new need and opens a wider market for our products. In Northern Ireland usage continues to grow.

Our international business channels are progressing in line with our partners' business plans. We have substantial, and growing, usage in New Zealand and the Netherlands. We have also entered other markets with key partners in Canada, Malta and China, where a research trial of BtB is commencing at West China hospital in Chengdu to establish the clinical benefits of the programme and identify cultural adaptations required to offer BtB to the wider Chinese population.

In January 2011 we formed a partnership with University of Pittsburgh Medical Center ("UPMC") to address the USA, the largest healthcare market, and through our joint venture, USquared Interactive launched a US version of BtB in November 2011. Early contract wins include several behavioural health providers, military installations and, more recently, BlueCross BlueShield of South Carolina. This is a major step forward in Ultrasis' integration into the US market and our intention is to use this as a beachhead to address the other Blue Cross/Blue Shield Companies and other large healthcare insurers.

US revenues are starting to flow, but it will take further effort in the coming year to consolidate these and maximise their potential as a significant contribution to the Group's future income stream.

Outlook

We do not envisage the economic climate improving in the short term. While there is a possibility of securing significant contract gains in either the UK or international markets, it is our judgment that the forthcoming year is unlikely to deliver significant income growth. So, we will continue to protect our core income, to control costs and to lay the foundations for long-term revenue growth especially in international markets where we are seeing increasing support for the use of BtB.

Gerald Malone
Chairman

Nigel Brabbins
Chief Executive

Chief Executive's Review:

Operational

UK market

NHS

The two years since the election have been a particularly difficult time for the NHS, with a long period of debate and delay over the implementation of the health care reforms. These were finally written into legislation in March 2012, formalising the demise of Primary Care Trusts ("PCT"s) and the creation of the new GP-led commissioning structures and procedures. These delays and the consequent impact on commissioning has disrupted the contracting process and impacted considerably on the sales of BtB within the NHS.

We have commented on this "pause" in expenditure previously and, whilst renewal of contracts already in place has continued, new business has been in short supply. We hope that as budgetary responsibility transfers to the new commissioning groups ("CCG"s) in April 2013 and GPs has greater autonomy over expenditure that the selection of BtB as a cost effective treatment for anxiety and depression will resume.

The Coalition Government continues to speak of an aspiration to elevate mental health to an equivalent importance as physical health, but this is not being translated into action at the patient level. The investment in IAPT is well documented, but so is the fact that IAPT provision is sporadic, its geographical coverage uneven and where it is available the patient, in many cases, is not being offered the treatment choices that were promised when IAPT was set up.

Numerous recent reports continue to highlight the growing trends in the number of people suffering with anxiety and depression, exacerbated by these difficult economic times and the increased dependence on anti-depressants. The scale of the opportunity remaining for BtB, as a key element in providing GPs with a cost effective, readily available and scalable solution is, therefore, undiminished.

We are pursuing opportunities with our wellbeing product offering, "GetFit", building on the successes achieved with LA Fitness, Legal and General and PPC Worldwide. The rate of market penetration has been disappointing due to the multiplicity of competing products in the sector and cost pressures. Interest remains high in the wellbeing space, a number of opportunities are currently under discussion and we continue to reshape our offering to ensure it remains competitive.

Northern Ireland

The Northern Ireland Department of Health has recently renewed its contract with Ultrasis to maintain the provision of BtB through all GP practices in Northern Ireland. The initial usage of BtB started slowly in Northern Ireland as GPs started offering the computer delivered treatment and logging patients on at the practice. As familiarity improved, so did the number of patients taking up BtB and the numbers are now increasing each month.

Usage of BtB should continue to build, encouraged by the recent support of the new Health Minister, Edwin Poots, who visited Mount Surgery, Belfast, on World Mental Health Day, 10 October 2012. Mr. Poots reaffirmed the Government's commitment to the National Mental Health strategy and the use of BtB as an integral part of that strategy to treat anxiety and depression. It was reported that 72 per cent. of people experiencing mild to moderate depression who have used BtB required no further treatment.

International market

United States

USquared Interactive, our Joint Venture Company with UPMC, headquartered in Pittsburgh, entered the market with the newly created US version of BtB in November 2011. Already we are seeing momentum build in the US, where our sales and marketing activity has resulted in good coverage in respected publications and representation at several key opinion-leading conferences. We are also experiencing considerable early success with some notable contract wins - the most significant of which is the recent announcement of a contract with Blue Cross Blue Shield of South Carolina, making BtB available to all of its 1.8 million members through its behavioural health provider, Companion Benefits Alternatives ("CBA").

The Blue Cross and Blue Shield Association is a national federation of 38 independent, community-based and locally operated Blue Cross¬ģ and Blue Shield¬ģ companies. The 38 Blue Cross and Blue Shield companies offer healthcare coverage in all 50 states, the District of Columbia and Puerto Rico, and cover nearly 100 million Americans. Nationwide, more than 96 per cent. of hospitals and 91 per cent. of professional providers contract with Blue Cross and Blue Shield companies ‚?? more than any other insurer. Gaining a foothold in this marketplace is a significant achievement for USquared.

The changing landscape in US HealthCare On March 23, 2010, President Obama signed the Affordable Care Act into law, putting in place comprehensive reforms that will extend access to affordable health coverage, providing new initiatives to improve health outcomes, streamline the delivery of health care and reduce overall costs.

We believe that USquared Interactive is well positioned to benefit from these changes. BtB meets many of the requirements of the Affordable Care Act and exemplifies how it is possible to deliver accessible and affordable care without compromising on quality outcomes. US health care providers and insurers are looking for innovative technology-based solutions that can help them to meet the requirements of the new legislation. Whilst this transformation will not happen overnight we are working to make sure that provider and policy makers are aware of the potential added value that BtB offers and that we are well-positioned to capitalise on the opportunity.

Research Overview The pilot project with the Veterans Association in Michigan, announced in January 2012, is nearing completion, and whilst the results are not yet collated, we are pleased to report that the project was well received by both patients and clinical staff and that early indications are that we achieved both high completion rates and demonstrated clinical benefit.

National Institute of Mental Health Research Funding We are delighted to have been able to work with three research teams in the US to secure National Institute of Mental Health of America ("NIMH") funding, totaling approximately US$6 million, for projects involving the use of BtB US. This will help us to further prove the benefits of CCBT.

In April 2012 Dr. Bruce L. Rollman, MD MPH, Professor of Medicine, Psychiatry, and Clinical and Translational Science at the University of Pittsburgh Medical School, was awarded a US$2.6 million grant by NIMH to undertake a four year study of BtB US. The research will evaluate the effectiveness of BtB US in primary care and Dr. Rollman believes the study findings are likely to impact the way certain mental health conditions are managed in primary care in the US.

Dr. Jesse Stewart from Indiana University was also funded by NIMH in June 2012 for an innovative research grant looking at the benefits of BtB within late-life depression and to reduce the risk of coronary artery disease ("CAD"). The research will continue until 2014.

Dr. Paula R. Sherwood, RN, PhD, CNRN, FAAN and her team from the University of Pittsburgh School of Nursing have recently been awarded a National Institutes of Health research grant totalling US$3 million. This innovative research will look at the benefits of providing BtB and other web and telephone interventions to care givers to identify how best to help them cope with the stress of providing care to their loved ones.

Marketing Activity We were delighted that BtB figured prominently in the California HealthCare Foundations ("CHCF") publication titled 'The Online Couch'. This white paper was written by health economist Jane Sarasohn-Kahn and was widely circulated by CHCF resulting in several significant business opportunities.

We have also presented and attended at several important events and conferences to help raise the profile of BtB in the US. These include the 42nd National Mental Health and Addictions conference, the 'Open Minds' Information Technology conference and the International Employee Assistance Professionals Association conference.

As well as selling to commercial providers and HealthCare Insurers we believe that BtB has the potential to provide improved access to people who receive their mental health care from state-funded services. We are currently in advanced discussions in two large US states with a view to delivering demonstration projects designed to introduce BtB to their underserved populations.

Canada

In May, following a short pilot, we were pleased to announce our entry to the Canadian market with a new partner, Organisational Health Incorporated ("OHI"). OHI is an independent Canadian health-management company supplying health and wellness solutions to employers, unions and professional bodies and will be making BtB available to its customer base as part of its new "workplace mental health strategy".

Recognising the economic and social burden of mental illness, the Mental Health Commission of Canada will soon release voluntary workplace mental health standards entitled, "Psychological Health and Safety in the Workplace". Through their new initiatives, OHI aims to be the trusted partner in delivering solutions to create and foster the type of healthy work environment envisioned by these guidelines. Given the mounting research findings, this environment will clearly be key to the on-going health of Canadian organisations.

New Zealand

Ultrasis and its partners, Medtech Global and Opening Doors, have just entered the third and final year of the contract with the Ministry of Health to provide BtB to all GP practices in New Zealand. The Ministry of Health has commenced a review of the initial outcomes of the service to help inform them prior to completion of the contract renewal process in late 2013.

The service delivered on Medtech's GP desktop portal "Manage my Health" has been well received since launch and proved an excellent and seamless way of patients completing their initial sign-on to BtB at the GPs surgery. The patient then has access and is ready to logon and start the program on return home.

In his address to the Australian National Suicide Prevention Conference in Sydney, Australia on 12 October 2012, the Hon Peter Dunne, Associate Minister of Health, spoke of the current suicide prevention initiatives and of the increased funding that has allowed greater access to talking therapies and co-ordinated packages of care for patients. Since February 2011, people with mild and moderate mental health problems have also been using e-therapy tools, such as the computerised cognitive behavioural therapy tool, BtB. In helping people in the primary care system we can ensure New Zealand nationals have the support they need early on.

Australia

In April 2012 the Department of Health and Ageing ("DoHA") announced its eMental Health strategy. This is intended to improve the availability of interventions for mental health for Australians, delivered via an online portal which would direct patients to the most appropriate intervention for their symptoms. DoHA put out a call for parties interested in being a provider, to submit their tenders by 15 May 2012. Ultrasis submitted a tender jointly with Medtech Global, following the successful program in New Zealand. Medtech already provides many GP practices in Australia with health records software to their desktops.

The results from the assessment of those applications were due to be announced and successful submissions confirmed by June 2012. This has now been delayed whilst DoHA analyse the levels of existing program expenditure and the extent to which this is either committed or uncommitted from the current budget. This means there will be a pause in this grant program and we await further updates.

China

In July we announced that Ultrasis had entered into a research partnership with the Mental Health Services Department of West China Hospital, West China School of Medicine Sichuan University, Chengdu, Sichuan Province. The initial research phase should be completed by Autumn 2013.

The partnership is aimed at establishing the benefits of using BtB to alleviate mild and moderate depression and anxiety within the Chinese population and identifying any cultural adaptation required to develop a Chinese-specific version of the program for the Chinese market. West China Hospital is the largest hospital in China, has in excess of 4,000 beds and delivers over 2.5 million out-patient appointments per year.

China has a population of nearly 1.35 billion people and accounts for almost 20 per cent. of the world's population. The Chinese Government is positively addressing, at national and provincial levels, the need to provide psychological therapy services to its population, Cognitive Behavioural Therapy being already a well-established form of treatment in the country's mental health services. The World Health Organisation estimates that mental illness will increase in prominence, to account for 17.4 per cent. of all illness in China, by 2020.

The research programme is a significant development for Ultrasis and BtB. More important is the potential it offers to build a credible base from which to address the largest market (by population) in the world. The potential for computerised CBT to help reform China's mental health treatment system is enormous.

Netherlands

Psy Health Direct, the Joint Venture between Medic Info (a joint venture of two of the Netherlands largest health insurers) and Innohealth, our joint venture partner, launched on the Dutch market in the first quarter of 2012. www.Psyhealthdirect.nl was established to take advantage of the Dutch Government's objective of saving EU 600 million on mental health care expenditure. Psyhealth offers BtB and other low cost e-health solutions to GPs, primary and secondary care, mental health institutions and employers.

These cost saving initiatives are delaying decision making in primary and secondary care in the Netherlands and delaying wide scale rollout of BtB Psyhealth are making positive progress with GP regional groups in solving these issues and releasing funding to bring BtB to their patients. They are also making good progress with BTB in the corporate client market. Our relationship remains strong and Psyhealth is confident of achieving targets for e-health and BtB.

Product developments

BtB 2.0

We are currently developing with USquared Interactive, a new iteration of BtB US. The next generation of BtB US will see significant structural and technical changes to the existing program and enable it to work across mobile phones and tablets. It will provide a new platform for us to be able to efficiently create new versions of the program to respond to major customer needs and more readily add new content to broaden its use in to other chronic health conditions.

Optimi

The OPTIMI project terminates on December 31st 2012. Ultrasis' role in this project was to develop a stress program for students and pilot test on students. The work, predominantly led by Dr. Abigail Millings, Senior Psychologist, has demonstrated that the program reduces stress in undergraduates taking exams and symptoms of depression in post-graduates. We have also demonstrated that the Ultrasis Insomnia program (Insomnia Relief) helps students suffering from poor sleep. These results are important as student health services are a potential important market opportunity for Ultrasis products.

Outlook

The Board will continue its policy of international development with partners that are specialists in their own market, therefore securing relationships that facilitate long term growth and profitability. We will continue to protect shareholders' interests and maintain good stewardship of available finance. The Board maintains the belief that, despite the challenging economic environment, the long term outlook for the Company's future is positive.

Financial

Revenues

The principal activity of the Group is the provision of interactive healthcare products and services dedicated to the improvement of health, wellbeing and personal performance. Revenue from licences to access the Group's products and associated maintenance and support contracts is recognised pro-rata over the duration of the agreement in line with IAS 18 Revenue. Invoiced sales in excess of revenue recognised are held in the balance sheet under "Deferred revenue".

The Group's had total recognised revenues of £1,069,000 (2011: £2,839,000).

Revenue generated in the UK was £866,000 (2011: £1,675,000) reflecting both the difficult trading conditions in the UK market and the completion of the rollout of BtB in Northern Ireland which buoyed the 2011 revenue.

Internationally generated revenue was £203,000, a decline from the £1,164,000 recognised in 2011. However 2011 revenue included a one off amount of $1,000,000 (£616,000) of income received from UPMC for the development of BtB US which was completed in 2011, plus the income recognised for the setup and first year of the three year contract in New Zealand.

Total invoiced sales for the year were £891,000 (2011: £2,714,000).

Research and Development Expenditure

The Group spent £87,000 on R&D during the year (2011: £192,000). The majority of R&D expenditure related to the three year OPTIMI project, which commenced February 2010 and is funded by an EU research grant that was awarded to a consortium of eleven participants in six countries.

The Group capitalised £21,000 of development costs (2011: £241,000). The decrease over the prior year was due to the work on the US version of BtB in 2011. Current year expenditure reflected updates to the Health Manager program.

Expenditure

Total operating costs for the year decreased by 11 per cent. to £2,471,000 from £2,769,000 in 2011. £235,000 of the current year's costs related to USquared Interactive, the Group's US based joint venture, making like for like costs for the year £2,236,000 compared to £2,769,000 in 2011; a 19 per cent. decrease.

Personnel costs, which make up the largest proportion of the Group's cost base, decreased to £1,555,000 from £1,847,000 in 2011. This reflected cost reduction measures taken by management and no bonuses or profit related pay awards being made in the current year.

Results

Operating losses for the year were £1,429,000, a decline from the prior year's operating profit of £26,000. Although management took steps to reduce overheads expenses, the largely fixed nature of the Group's cost base meant that the reduction in costs was insufficient to combat the decline in revenues. However, management continue to focus hard on cost reduction and containment whilst mindful of the need to retain a robust sales and IT platform on which to maintain the current business and ensure sufficient resource to provide for future growth.

A loss of £3,401,000 was transferred to reserves (2011: £50,000).

Taxation

In accordance with International Financial Reporting Standards ("IFRS") during the year ended 31 July 2009 the Group recognised deferred tax assets in respect of the Group's UK generated trading losses. In line with IFRS requirements these losses were derecognised in the current year .This has resulted in a charge to the Income Statement of £1,973,000. (2011: £76,000 which resulted from the revaluation of the deferred tax assets following the lowering of the rate of corporation tax).

The Group received a repayment of corporation tax in respect of R&D tax credits worth £16,000 of which £9,000 was recognised in the prior year. This was generated from its non-grant funded research activities which took place in 2011, the claim for which was completed in the current year.

Joint Venture

The Group's interest in its Joint Venture, USquared Interactive is consolidated using the proportionate consolidation method. The Group's consolidated balance sheet therefore includes £257,000 of assets that it jointly controls (2011:nil) and £169,000 (2011:£nil) of the liabilities for which it is jointly responsible. The Group's consolidated income statement includes £7,000 of income (2011:nil) and £235,000 of expenses (2011:nil) being the Group's share of USquared Interactive's loss for the year.

Cash

At the balance sheet date the Group had cash reserves of £1,284,000 (2011: £2,368,000) reflecting the cash items within the operating loss for the year.

Deferred revenue

The Group had deferred revenue balances of £705,000 (£883,000) available for release to the income statement in future period.

Going Concern

In assessing the Group's going concern position, the Directors have prepared working capital projections for the Group covering a period of eighteen months from the balance sheet date, which are based on a number of assumptions concerning the growth of the Group's revenue streams, the timing of those revenues and the level of costs. Whilst these projections show the Group to be a going concern for the foreseeable future, given the challenging trading conditions in the Group's UK markets, there remains some uncertainty over whether revenue assumptions are achievable and whether the group would be able to continue as a going concern. The directors have considered a range of options if the projections are not met. These actions may include a further reduction in the Group's cost base and may include the raising of additional funding. The directors are confident of being able to implement one or more of these actions and accordingly, they have prepared the financial statements under the going concern basis.

Nigel Brabbins
Chief Executive

See the full text of the Preliminary Report and Accounts for the year ending 31 July 2012.

The full Annual Report and Accounts for the year ending 31 July 2012 can be downloaded from the Annual Report and Accounts section.

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