ICON PLC (ICLR) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2007 Icon earnings conference call.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Mr. Ciaran Murray, Chief Financial Officer. Please proceed, Sir.

Good day, ladies and gentlemen. Thank you very much for joining us on the call today where we are going to cover the quarter ended September 30, 2007. With me today on the call I have Dr. John Climax, our Chairman, and our Chief Executive Officer Peter Gray.

Before I hand the call over to John I would just like to note that this call is webcast. There are slides available and the comments will follow the slideshow.

I'm now going to make the customary statement in relation to forward-looking statements. Certain statements in today's call may constitute forward-looking statements concerning the Company's operations, performance and actual condition and prospects. Because such statements involve known and unknown risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Today's commentary refers to our quarter 3 ending September 30, 2007. Please note that in the following commentary the financials for both the current and the prior quarter and any reference to margin is after we have taken a charge of stock compensation expense and the effect on diluted shares due to the adoption of SFAS 123R.

With that, I would like to have the call over to John.

Thank you, Ciaran. Good day, ladies and gentlemen. We are very pleased to report another excellent performance by Icon for Quarter 3.

The group's net revenue grew 38% over the comparable quarter last year from $120 million to $166 million, of which 53% was earned in the U.S. and 47% in Europe and rest of the world. Excluding the impact of DOCS which we acquired on July 12, the organic growth rate was 32%.

Year-to-date net revenue was up 37.8% from $326 million to $450 million. Operating income for the quarter after taking the SFAS stock compensation charge of $1.4 million was $18.7 million, representing a 48% increase over the same quarter last year.

Year-to-date operating income after taking the SFAS stock compensation charge of the $4 million was $49.5 million, representing an increase of 45% over the prior year.

Group operating margins expanded for the quarter to 11.2%, up from 10.4% in the same quarter last year and 10.9% last quarter. Year-to-date the group operating margins rose to 11% from 10.5% in the prior year.

The core margin in our clinical business for the third quarter rose to 11.6%, up from 11.3% in Quarter 2. Our Central Laboratory business continued to grow its operating margins, reaching 7% in Quarter 3 on revenue of $13.8 million, compared to a margin of 5.6% on revenues of $12.8 million in the same quarter last year. Year-to-date our Central Laboratory has achieved operating margins of 6.5% on revenue of $39.8 million, compared to a margin of 1.6% on revenues of $33.7 million in the nine months ended September 2006.

Net revenue rose to $14.5 million from $10.1 million last year, representing 43.7% growth. EPS grew from $0.35 per share to $0.49 per share, a 40% increase. The effective tax rate for the quarter was 22%. Year-to-date, net income increased to $40.1 million from $26.9 million last year, representing 48.8% growth. EPS grew from $0.94 per share last year to $1.35, a 43.6% increase. The effective tax rate for the year-to-date was 22% compared with 26% last year.

Cash flow provided by operating activities was $0.6 million in the quarter. We spent $19.2 million on capital expenditure, of which $11.9 million related to the expansion of our Dublin facility. To date, we have invested $45 million in the development and anticipate that we will spend another $23 million to complete the project by the end of 2008.

During the quarter, we also invested $40.2 million in the acquisition of DOCS International, our new European contract clinical staffing business. Year-to-date, cash flow from operations was $19.9 million and capital expenditure was $49.7 million.

At September 30, 2007, net cash and short-term investments less debt amounted to $27.7 million, compared to $91.1 million at the end of quarter 2 and $97.9 million at the end of December 2006.

The DSOs at the end of September were 65 days compared to 53 days at the end of quarter 2 and 53 days at the end of December 2006.

Gross business awards for the quarter was $246 million. Cancellations were $16 million or 6% of gross awards. Accordingly net business wins were again strong at $230 million, compared with $157 million for the same quarter last year. This represents an increase in net awards of 46.5% and a strong book-to-bill of 1.4.

Gross business awards for the year-to-date were $755 million. Cancellations were $72 million or 10% of gross awards. Net business wins were $683 million compared to $494 million in the nine months ended 2006. This represents an increase in net awards of 38% and a book-to-bill of 1.5.

As a result our total backlog at the end of September was $1.13 billion, a 38% increase over the last year. Of this backlog, we expect $542 million to be earned in the next four quarters, a coverage of approximately 76% of expected revenues.

We are delighted with Icon's performance to date in 2007. Revenues, operating income and net income all grew strongly and business wins continued to be buoyant. As a result we have strong confidence in the outlook for the remainder of 2007 and we are raising our guidance. Accordingly, we now believe that revenue for the year will be in the range of $615 million to $625 million with EPS in the range of $1.82 to $1.85.

I would like again to thank -- take this opportunity to thank our 5,400 staff in 33 countries for the consistent contribution to our continuing success. Thank you.

Can we now have the first question, please?

(OPERATOR INSTRUCTIONS). John Kreger of William Blair.

Can you give us your latest thinking on 2008? Are you prepared to give us any outlook today and if not when do you expect to give formal guidance?

We are not going to give you any enlightenment on 2008 today. Last year we did a guidance call in mid-December and that is currently our plan although we haven't finalized the date for that. That's the sort of timeframe in which we are planning to talk about (inaudible).

And what are your latest thoughts on the ability of the lab to continue to show margin improvement? And any comments on the new bookings success for the lab in the quarter?

Yes. The bookings in the lab picked up significantly in the quarter. They booked $24 million of new -- of mass new business in the quarter which gets them back to the kind of area we want them to be in. In terms of margin progress, we are continuing to believe that the lab will make progress in the quarters ahead. We continue to be confident that they can achieve margins of between 14 and 15%.

In order to achieve that they need to get the revenues to a quarterly run rate of somewhere between $18 million and $20 million a quarter; and I think it is probably going to take us at least another year to 18 months to see them get to that level. But they are continuing to make progress in the bookings this quarter as, they say, signals that they are firmly that where we want them to be in that regard. And that should give them the backlog going forward that will help drive the revenue growth.

Thanks and one last question. Given your break growth this year, any parts of your infrastructure that are starting to run up against constraints? Any key bottlenecks in your organization at this point?

I'm thinking carefully before I give you a glib answer to that. But the short answer is no. Obviously our revenue growth is always driven or needs to be driven by headcount growth. We added 270 people in the quarter just ended. So we've continued to hire and are continuing to achieve our targets in terms of hiring people to meet our needs. So we don't feel we're hitting any bottlenecks there.

And in the lab business, there's plenty of capacity in that business as you have seen, I think, from your visit to Long Island. In Dublin we are going to have to expand the lab, but that is part of the reason why we have been expanding the facility here overall and over the next few months the lab will get additional space as we vacate it and move into some of the new space we've created.

So, no, there's no bottlenecks that we see at this point.

Dave Windley of Jefferies & Co.

Congratulations on another good quarter.

I was hoping you could perhaps break down your revenue -- geographic revenue mix one more step by giving us a sense of how big the non-European part of rest of world is at this point?

It's obviously -- it's been growing faster than the rest of the organization. As everyone knows, the search for patients has brought us and all of the competition and all of our customers to places that we wouldn't have thought of going 10 years ago. The exact number, I don't have. But revenues outside of what is traditionally known as Europe and that goes as Far East as Russia and outside of United States is somewhere between 8 and 9% of our overall revenues, I believe.

John, would you confirm that?

I would say it is in that 8 to 10 range, yes.

A year ago, David, that would have been probably around 5%. So as we have grown rapidly it has grown even more rapidly.

And, Peter, in terms -- could you possibly characterize where would be the geographies where -- that you recalled very fast-growing but relatively established whether you called that from a headcount critical mass or having kind of peers to profitability level and then where would be kind of the bleeding-edge from the geography standpoint where you are still sub-mass but obviously rapidly growing?

The latter I would say is India. A lot of people are talking about India. There's a lot of expectations that India will grow significantly in the years ahead in terms of its participation in clinical research. But I think it is still very much early days in India and we would say it's small but growing rapidly.

Latin America would probably be an area we've been advised as reasonably well established but continuing to grow rapidly. And Asia, such as -- at places such as Korea, Taiwan, that part of Asia is also -- we are reasonably well established there but growth there continues to be very rapid as well.

Moving to Central Lab quickly, your revenue accelerated a little bit from somewhat of a plateau over the last three quarters. Is that a function of a couple of projects ramping up or layering more into the backlog or what might we attribute that to?

Well I think we've been saying to you that we (inaudible) volumes and kits coming back had been showing signs of picking up. So it is a function of that.

Part of the plateau was the call projects where the kits had gone out had failed to deliver the kit back as quickly as we had expected and I think some of that is now working its way through the system. So those kits are coming back and that is helping to drive up the income in kit volume which in turn impacts the revenues in a meaningful way.

And I wouldn't figure it on any particular projector projects. It is particularly based, but it is a function of us having been slower in getting kits back to over some of the preceding quarters.

Then last question falling on John's infrastructure question. On the labor front could you characterize -- you know, characterize the labor market but more specifically are you seeing labor rate inflation accelerate at all? Is it still a function of -- well, I guess -- are you able to pass labor rate inflation through to the client or does labor rate inflation not really accelerate yet?

Obviously, in times of high demand and in particular geographies you can have labor rate inflation to some degree. But there is nothing particularly worrying happening in any of the major geographies as far as we are concerned.

Our business model and I think that of our competitors has always been that we pass through labor rate increases to our clients. That can some buying sometimes be a mismatch there in that the opportunity to pass them through or push them through to clients doesn't always perfectly synchronize with when you are having to give raises to your employees.

But you're talking about maybe a six- to nine-month gap or lag at worst, but that is as much as it would be. But in all of our contracts with all of our clients, we have inflationary increases built into our rates. But we anticipate there will be increases. Sometimes the increases are a little higher than we anticipated. We correct that in due course when there's a next opportunity to do so.

Thank you for that. Congratulations.

Alex Alvarez of Goldman Sachs.

Just also wanted to follow-up on John's last question and you guys have obviously been putting up some phenomenal growth for quite some time now so you are to be congratulated for that. I think along the lines that John was trying to get to, what's kind of the sustainability of this growth? And perhaps talking more about the impact on management, on your hiring staff and just the infrastructure in general, would people in intensive business like this there must be challenges that come with growing the business at these types of rates. Any color you could shed there would be great.

I suppose it's a fairly -- it's a pretty broad-based question you ask there. I think we've prided ourselves at Icon in trying to build infrastructure ahead of the curve and we've talked about this on previous calls. The depths of the management team here, I think, is pretty good and we've spent a lot of time over the years in building in a deep and very experienced management team that positioned us well to cope with what's now been in excess of 30% growth for the last 10 years, I think. I think we had one year where it fell below that in that ten-year period.

So I think we're very conscious of the fact that we need to build our infrastructure to meet those kind of challenging growth rates. I think we have successfully done so.

I felt I am being flip here but we are not finding it an issue to be honest. And as I said we hired 270 people across the organization in the last quarter with 60 some offices around the world. When you break that down into the numbers of people going into each office, it's relatively modest in most cases.

We are very comfortable. The answer I am giving you is we are very comfortable with the infrastructure we have and our ability to absorb at this level of growth. As you can see, our CapEx has picked up over recent times -- partly because of the expansion of our facility here in Dublin, but also because we are continuing to invest in the systems, specifically the IT systems that support our growth as well.

So as I say, we are pretty comfortable with where we are and our ability to continue to support these kinds of growth rates. Although we've been clearly on the right course saying that we do expect the growth rate to slow down a little. Excluding the box acquisition as John pointed out in his comments the growth rate was 32% this quarter. That's down a little bit on the previous quarter and again on the quarter before that.

So we are seeing the growth rate beginning to decelerate a little. We think it will come down into the 20s in the course of 2008 and we are not giving 2008 guidance here; but the trend would suggest that the growth rate will flow into the 20s during 2008.

Thanks for all those details. Turning to the margins there was a nice sequential margin improvement in the clinical development businesses. Kind of round despite pretty strong hiring. Is there anything you can shed there in terms of what drove that improvement this quarter?

Yes we've been -- again we have been pretty open in saying that there were parts of the clinical business that we felt could perform better. And we specifically have talked about our Phase I business and Japan, as areas where there was room for good improvement. Both of those made good improvements in the quarter which flowed through into that margin step-up we saw. They've still got a ways to go, both of them.

But it's nice to see that they've made progress and that it's coming through in the margin number.

Just one last one for me. What was the FX impact on revenue in the quarter?

Ciaran, would you like to take that?

Yes. It was a couple of million. About 2.9.

Okay. Thank you.

Douglas Tsao of Lehman Brothers.

I just wanted to start off on the increase in DSOs; seems to be pretty dramatic this last quarter and the cash flow is obviously -- I imagine that key driver of the cash flow being well below the net income number. So I was wondering if you could just provides more details around that?

It doesn't seem to be pretty dramatic. It is actually pretty dramatic. I think you have to look back at the pattern of our DSO and our cash flow as well and back in quarter 1, we saw that we had negative cash flow from operations of about $2.7 million in quarter 2 that was positive to the tune of $22 million in quarter 3. It is still positive albeit just $600,000.

The principal driver behind that is the pattern of our DSO. If you look back quarter 2 and quarter 4 tend to be better quarters for us in terms of DSO. So you seek a strong cash flow in those quarters and then it reverses a little bit in Q1 and Q3.

So we would have expected DSO to be a little bit worse than our Q2 number of 53 days. If you look back, September of last year it was 57 days and I've often said, it was worse than we expected.

We look at three elements of DSO and three very distinct and separate elements. The first one is the DSO on our billed accounts receivable and we use that as a measure of our collections efficiency, and our terms and conditions. This quarter we had 53 days in our billed DSO which is about the average. So there was no deterioration there.

The second element then is our unbilled accounts receivable. Obviously we can't bill things that where a project hasn't hit a milestone and looking at Q3, again, there was a slight disimprovement of a couple of days but nothing in particular that would cause any level of concern.

So then we focused on the third element of our DSO and that's the level of payments on account and we saw that we didn't get anywhere near the level of payments on account that we saw over the last number of quarters. So the deterioration there actually cost us about seven days.

So if we had it for the same payment and account proportion that we had in September of last year at the end at Q3 we would have reported 58 days as opposed to 57 then. So that is really the area where we are focusing our attention; and the payments on account are linked to contracts and in times of high business awards and contract activity, people are negotiating around contracts and there, the collection of any advanced payments can be lumpy. So it is very hard to forecast.

So we are looking at that to see whether it's an issue associated with lumpiness and we are looking at it to see if whether there's any other factor driving it. But at this stage we are very much in the analysis mode. We know it lies in the payments and that we will kick it about and have a look at that over the next couple months. It is one quarter so until evidence to the contrary shows, we will treat it as a blip and do our analysis and see what's driving it.

Great. Thanks. And then, Peter, you referenced an addition -- a headcount addition of 270. How much of that was in the DOCS International acquisition or were does those include (multiple speakers)

Including the DOCS International acquisition that is the organic headcount (multiple speakers). International added about 350 people separately.

Okay. Then I was just wondering in terms of the new business wins which were very good this quarter, what -- are you seeing any sort of changes in (inaudible)? It's for the composition in terms of 3-D studies instead of label expansion studies versus new product registration studies?

I think -- I mean the short answer is not seeing any changes that we've noted our business development people are commenting upon. So no is the very short answer.

Do you keep track of the work in your backlog? What percent is the registration study versus 3-D?

Yes. We certainly would. We would certainly be aware of the registration study versus others.

And can I ask what that percentage is?

We don't track the percentage. We just -- we highlight those studies that are registration studies. I haven't tracked the percentage per se though.

Broadly our revenues break down 20% Phase I; Phase II, 60%; Phase III, 20% 3-B4. Sometimes it's difficult to determine whether something is a three or a 3-B. That line can be quite blurred. So doing too much analysis on what is or isn't in 3 or what should or shouldn't be in 3 is not necessarily a good use of everyone's time.

Then just sort of the question for you is, it seems from a lot of the comments from the major pharmaceutical industries that this sort of pain threshold for them seems to have stepped up a little bit. I was just wondering if end your conversations with your client base this is causing anything -- any of the dynamics of your business to change?

Again, there's nothing in the last quarter or in the last year even that would suggest there's any major shift taking place. There are always interesting dialogues taking place between ourselves and our clients. And I suppose if there was a macro trend we would say that there are an increasing number of -- and we are talking about the large pharmas here -- there are an increasing number of the large pharmas that are examining their whole strategy in relation to development work and outsourcing and thinking about how they can do it better and use outsourcing more effectively.

So yes there's, definitely, over the last year or more there is definitely analysis or thinking going on in the large companies about how this might change or might develop over time. But I would characterize them as part of the normal strategic thinking of any business. I wouldn't say that there is anything game-changing taking place as such.

Great. Thank you for the questions and congratulations on the quarter.

[Jack Gorman] of [Davey].

Well done on the quarter, guys. Two quick questions for you if you don't mind. I think you mentioned earlier the potential review run rates that you require in labs to be meeting those midteens margins. I think you mentioned $18 to $20 million in revenues on a quarterly basis.

Do you have the capacity to deal with that level of quarterly run rate in the U.S.? And obviously in light of what you are doing in terms of the Dublin expansion?

Yes we do. Again I think you have been to the Pavilion Long Island as well capacity lies. Very comfortable there. We do need some additional space in Dublin, but we are in the process of planning to put that in place in the coming year.

Okay, that's great. My second question is just relating to DOCS. It's been in there for a couple of months. Just wanted to see if you could give us more flavor on whether you are happy with it so far? Is it [vetted] in well and more particularly what your own investment plans are for that business over the coming 12 months or so?

I suppose -- I'm hardly going to say to you that we are not happy with it after two months. We are happy with it. It has met its goals in the quarter ended September. We've [owed it] for most of the quarter. We continue to be pleased with what we have seen. It's continuing to show the kind of growth that we expected it will show.

As you know in acquiring it -- I guess this was obvious to everyone, indicating that it was going to be earnings neutral in 2007 for us. That clearly indicated that its margins are below the kind of margins that we aspire to as a company.

The plan in 2008 is that those margins will increase significantly as more volume goes through the infrastructure they've created there. So that's -- the challenge for DOCS will be really in 2008 to push the volume through and to achieve that improvement in margin. But everything we have seen so far is supportive of the business plan and we are pretty comfortable with how it is progressing.

And, Peter, are you planning to expand the existing infrastructure over the course of '08?

Yes I mean -- and when we talk about infrastructure I suppose we are talking about additional offices which is a relatively low capital spend. It's, again, not unlike our own business. It is leasing some office space and putting a few people on the ground.

Yes, we would intend to probably open one or two additional offices into the Eastern European area in 2008. But those -- the budgets are being worked on at the moment. The plans are being developed currently. So I won't preempt all of that, but would expect that there would be some additional investment, but relatively modest investment.

Ian Hunter of [Goodbody Stockbrokers].

I think, first of all, going into the large pharma strategy you are talking about on development work and outsourcing. I am just wondering whether they've had any feedback yet from big large and biotech on what they would see the potential impact of the new legislation in the U.S. on the Phase 3-D, Phase IV, safety longer-term studies?

Or whether there are going to be an increase in volume of what coming through on that side of the business?

(inaudible) would appreciate the comment that we're waiting for Godot. The legislation is passed. The FDA now has more bite than it had previously and I think our clients are waiting to see what the FDA will do from here.

A number of investors that I've met over the last quarter were speculating that there would be some retrospective effect that the FDA would push back and look at some of the compounds that have gone on in the market the last number of years and look for postmarketing surveillance studies for those. I'm less convinced that they will do that. I'm more inclined to believe that as new compounds are approved, they will begin to mandates safety studies for those new compounds and that is how the effect will emerge.

Therefore it will be slow and incremental. That's a guess. I don't had any insight or information or insight or knowledge here, but our own internal view. I was talking to our registry's people earlier this week and their view would be that it's unlikely there would be a big bonus of additional work created through introspection, but rather that we will see incremental activity in the months and years ahead.

So I hope that's answering your question.

Yes no. That's fine I can see that's maybe going on a slow burner. Just maybe more prosaically I am just wondering whether you can give us a breakdown on the net new business wins as to whether there was any atypical contract sizes or links out there or if that was just a normal link. And maybe just give us an update on what you now consider the normal size of contract and timing of such contracts?

Sure. Yes, well, the normal size of contract probably in the order of 3 -- $2 million to $5 million, let's say. There are increasingly -- when we talk about registration studies and going back to an earlier question -- some of the registrations studies that we see are certainly much larger today than they used to be and you are talking about studies that are in the value of in excess of $10 million and $20 million to do those studies. We are seeing an increasing -- obviously we are seeing an increasing number of those.

In the course of this quarter there were three major projects that would be over $10 million in value, which was set relatively low in the previous two quarters we had. We had more large projects, but again we don't see anything significant to (inaudible) in our pipeline of opportunities is very strong with a lot of pretty significant size opportunities.

And what would the split of the business be been between your clients and the terms of big pharma, pharma and the biotech sector?

Year-to-date, large pharma represents about 45% of our awards and biotech represents about 33% and sort of midsize pharma represents about 22%, 23%. I hope that adds up to 100.

[Eric Coldwell] of Robert W. Baird.

Most of my questions have been addressed but I would like to follow up on I think it was Alex's question. Late stage margin did or the clinical margin did a little bit better than we had thought which is impressive given the headcount increases as well as the acquisition of DOCS. I believe last quarter you suggested that DOCS would come in at about a 6% operating margin to begin; and I believe that was inclusive of the amortization burn on the non-cash merger related intangibles.

Is that statement still accurate? And if so does that suggest that your clinical business is in fact showing some additional leverage at this point?

And the short answer to that is yes. DOCS is included in that clinical segment. Yes, we did indicate that the margins would be around 6 are 7% in DOCS, excluding any burn of intangibles. So, yes, the underlying improvements in the clinical margin is actually better than just that which is apparent because of the DOCS effect.

So the DOCS 6 to 7% operating margin excluded amortization. John, could you give us the amortization related to the acquisition?

No, not at this point.

Final question is, relates to the Singapore lab and I'm sorry if I missed this but could you just give us an update or -- I'm sorry your Central Lab. Could you give us an update on what you're seeing there, what the status of that facility is?

In Singapore?

I'm sorry. I might have misspoken, but you've made an investment in the newer lab and (multiple speakers).

Yes that's correct. In Singapore we've invested there earlier on this year. We took additional space in the same building where we have our clinical business. We have a very small number of people there, who are effectively managing logistics, taking in the kits and distributing the samples appropriately. We are not actually doing any testing in that facility as of yet.

Probably in 2008 we will begin to do some basic safety testing there. But right now what we have is effectively a hub for our lab that is taking in the kits coming in, and distributing the samples to the lab to the best location for them to be analyzed. We do use a local affiliate in Singapore for the basic safety work and the more esoteric work goes to New York, where we do the testing ourselves.

Great.

(multiple speakers) of investments there is relatively modest and the number of people there I think is less than six. I think it's five or six people there.

Then final question. At recent conferences and investor presentations you've been a little more aggressive talking about a number of add-on businesses that you would like to gain, either through buying or building. Can you give us any update on what the view is at this point in terms of either acquisition opportunities or greenfielded build out of additional services and/or geographies? And if there is anything in particular we should be looking for over the next 12 months that might be of particular interest?

You are going to embarrass me now by getting me talking about Phase I again and I'm zipped on that. We continue to be keen to complete a Phase I acquisition. We have unfortunately come very close but had a disappointment with our favorite one. The game is not over but it certainly has hit some choppy waters.

I'm not sure that I was -- I hope we weren't different in talking about our aggression in relation to other acquisitions. Our core strategy. Those continue to be organic growth and the strength of our organic growth I think says that is the sensible thing for us to do.

But that being said, the universe of interesting opportunities is quite rich at the moment; and so we are looking at a number of different things. I prefer not to comment specifically on any one. I have already got myself into enough hot water talking about Phase I over the last year and a bit.

So I won't get more specific than that other than to say there are additional opportunities out there at the moment. All of which are interesting to us in various sectors and we are looking at those. We've been pretty conservative in our acquisition activity in the last 10 years.

We don't feel compelled to make acquisitions and so we will be -- I think we will be prudent in relation to anything that we do do. And that's probably why the Phase I business has taken us this long. We have been very prudent and when we have seen some issues, we've tended to step back.

Well we can stand by that decision. Let me add my congrats on a good quarter.

Orla Hartford. NNCB.

Just to ask a question or two on the existing Phase I business. I was just wondering what the margin that you would expect to see in this business when it is profitable. Does it come close to the clinical average margins?

Yes, again, we have been -- I hope we have been reasonably open about this. We would expect Phase I business, a good Phase I business to achieve margins in excess of 15%. We have certainly seen in our searches for acquisitions in the U.S. we have seen many that make margins of between 15 and 20% and that is what we would aspire to in our Phase I business in due course.

We've had to make a number of steps to try and realign our existing Phase I business and happily this quarter at least we are back in the black. And we are making progress and hopefully we will continue to do so.

So just the phase on business is back in profits this quarter just to clarify?

Yes.

Yes. Just then in terms -- just from the Central Lab in terms of the investments that you are making in Central Lab (inaudible) in the U.S. where this year denote the occasional automation initiatives and that. Are those completed at this stage?

I'm not sure what you are referring to there.

All right. Just on the investor day, you know there was occasional information initiatives and IT systems, investments, and things like that and I was just wondering how they were going in the U.S.?

On the investor day we might have said prospectively that is where the lab -- those are areas of investment for the lab in the long-term future, but not during this year. Is that -- a new IT system that's in the planning stage in the lab and they may have referred to that. That still is in its early stages and it's likely to take a couple of years to implement the full IT system that they have planned.

The kit automation is something they planned to do longer-term as volumes rise. They haven't reached the volume yet where it is economically sensible for them to do that. So they are continuing to look at their processes around kits manufacturing and making sure that there are operating efficiently and getting efficiencies where they can. But there's no major capital investment, if that is what you're thinking of in kits automation at this stage. That's further down the road. That's probably a couple of years away yet.

(inaudible)

Yes.

You have no questions at this time. I would now like to turn the presentation back over to Dr. John Climax for closing remarks.

Thank you, ladies and gentlemen, for being on this call. We are delighted with Icon's momentum this year and we look forward with confidence to the remainder of 2007. Thank you again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.