Qiagen NV (QGEN) 2004 Q1 法說會逐字稿

Good day ladies and gentlemen. Welcome to your Qiagen First Quarter 2004 Earnings conference call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the call over to your host, Solveigh Mahler. Ma'am you may begin.

Thank you very much Liana. Good morning and hello everybody. Thank you very much for joining Qiagen's First Quarter 2004 Earnings Conference call. I am Solveigh Mahler, Manager of Investor Relations at Qiagen. With me on the call are Peer Schatz, Qiagen's CEO, and Roland Sackers, the company's CFO.

The conference call will cover a 20-minute presentation followed by a Q and A session. We will be using a presentation during the of the conference call, which can be down loaded from the investor relations section of our home page at www.qiagen.com. We understand that many people have time restrictions. Therefore please limit yourself to only two questions during the Q and A session. The time of the conference call is set at one hour. If you have any additional questions or need any further information, please don't hesitate to contact us after the call, as always we will be more than happy to answer all your questions and provide you with any information you might need.

During the call we will be making forward-looking statements. Such forward-looking statements are subject to risk and uncertainties. For the description of such risk and uncertainties, please refer to the discussions and reports that Qiagen has filed with the US Securities and Exchange Commission. Now, I would like to hand over to Peer Schatz. Peer?

Yes, thanks Solveigh. Yes, good morning and good day and welcome to Qiagen's First Quarter Conference call. We are very pleased to be with you here today to share with you an update on our performance in this first quarter, which is very positive and also the positive developments that we see for the rest of the year.

Revenues started very well in 2004. We exceeded our guidance and came in at $96.1 million in sales. Gross margin remained quite strong despite the negative currency impact and operating margin was in as expected. Income was inline, despite negative currency also here and EPS came in on the high end of the guidance. Now, where did this come from? We clearly saw a very strong growth in consumables in this first quarter. 24% organic growth year-over-year, a very strong growth rate driven by innovation, by our strong product line and especially also driven by the re-emergence of growth in the United States markets, mainly driven through the pharmaceutical industry.

We are building on a very strong pipeline as well in this consumables sector and we will show you some examples a bit later in the presentation.

The synthetic nucleic acids business was flat year over year, however within that business, there are dramatic differences. We are clearly moving into higher margin product in the synthetic nucleic acid business as we had been talking about also in prior conference calls, sacrificing some low margin sales for very high growth and high profitability sales such as array radiolical sets or siRNA products. In fact, the growth in our siRNA products is very high. We are really talking a three digit range here, which clearly also has been changing the mix within that synthetic nucleic acid product area.

Instruments are typically very weak in the first quarter. Instrumentation is not typically a product that is purchased in the first quarter. This has to do with the way budgets are allocated at our customers and how approval processes go through. So, we are quite confident also for the rest of the year in this instrumentations business.

If we look at the consumables business again, a 24% year over year growth, clearly 78% of our sales are consumable products. They are products for the handling, the separation and the purification of nucleic acid, are all organic growth. We did not have any acquisitions that tainted this growth rate in this period. So clearly. a very good growth path. We think within this life science supply industry, this one of the strongest organic growth rates within all segments.

As always, you see a long term growth pattern here, of all of these-- of all of these product lines. You clearly see a very stable and strong growth in the consumable sector that hovers around the 20% line, currency adjusted. There is a lit bit of higher fluctuation there but clearly a very stable product area, very high growth as well. The instrumentation product have a little bit or have significantly higher volatility within a year, but are clearly also showing a good trend and synthetic nucleic acids, a smaller product line, which is also more volatile.

Our geographic product mix shows you that the United States is today at 45% of our global sales. Europe is at about 40. This also has certainly to do with currency but we are clearly seeing stronger growth rate still in Europe and also in Japan compared to the United States. However the growth rates in North America have picked up very significantly on the back of a increasing demand especially from the pharmaceutical industry, which is showing an almost linear very strong upward trend in terms of its growth rates now for about three quarters in a row. So we are very confident also that this trend can continue for the rest of the year.

Clearly still however, the United States is at a lower growth rate still as Europe, even currency adjusted the growth rate is - North America is still lower than Europe. But again we are quite hopeful that this growth is turning around in the United States and we will continue to drive growth in 2004 at or may be even exceeding our current expectation.

We decided to introduce a new slide here in this presentation because we are getting a lot of questions where our products go into. And there are really two answers for that. One defines the revenue segments by customer groups. You see here a big slice of academic customers, pharmaceutical customers, smallest slice of biotech customers and about 20% of our sales going into diagnostics. Now, these diagnostic customers typically do diagnostics, as you see on the right hand side of this slide. The diagnostic slide is about 20% of our sales as well, also it is defined by research areas. Now it gets a little bit more difficult. Some academic customers do clinical research, some do pre-clinical research, some do basic research. It's very difficult to define very often depending by the customer group. But we could approximately see this split that you see here in the right hand side, about half of our products going to pre-clinical research could be a little bit less and the clinical research segment is actually growing quite significantly.

The diagnostics business continues to grow very well and especially interesting and also a very recent news that came out last week on - from a very eminent research institutes in Boston, claim that there are clearly very high correlations between genetic mutations and the efficacy of drugs. This is obviously a great thing for the diagnostic industry as suddenly new opportunities are becoming much more aware. These were already trends that had been around for quite some time that people were talking about but we're starting to see now the first breakthroughs based on technologies that are available today to allow people to make these correlations.

So, clearly some of these events around Arisa, there are many other such developments that are going on, are driving the diagnostic business in addition to the testing that is associated for instance with infectious diseases such as viruses or bacteria.

And along those lines, we are launching a lot of products in the diagnostic area this year as well. In the first quarter, we have launched a, quite a landmark product as well. A second CE Mark product for diagnostic use, certified for diagnostic use, which now purifies virus nucleic acid from blood. This is clearly a very important application that people work with for instance, to diagnose diseases such as HIV and Hepatitis.

We launched a few weeks ago the first product, the fist ever approved product - CE approved product - for the purification of genomic DNA from blood. This is now the second one and clearly very important pillars of our diagnostic pipeline going forward which you see in the next slide. This is just a small excerpt of some of the planned CE and FDA approved launches over the next few months. Some of the highlights that we will probably see, especially an automation product, there are actually a few in the pipeline and the first pre-analytics products as well that will have approvals for broad IBDU. So clearly, a lot happening in this diagnostic phase as well.

A few more updates from our pipeline. A few months ago, you probably saw the release that we entered into a collaboration with Thermo Electron, which is a very reputed instrument manufacturer; they have some great technology for instrumentation of the handling of magnetic particles. Now Qiagen has a broad and leading technology portfolio for the use of magnetic particles for nucleic acid purification. and these products were now launched, a mere 6 to 9 months after we entered into this collaboration. Where we now are combining Qiagen consumable products with these systems that we purchase from Thermal. They are branded here as you see also with the Qiagen brand and sold on to customers.

These are very vast systems in the case of the right or left hand product very fast but still very inexpensive systems. And the product on the right is actually a very small tabletop system for nucleic acid purification, very inexpensive. It's less close than the product that we call the so-called BioRobot M series - the products that came out of our acquisition of, a couple of years ago. But they are much faster and smaller and therefore address a different customer segment.

Second, a very interesting product that we launched, actually this week and which is a very innovative product and a product that is currently seeing a lot of culture demand is - our so-called target platform, which automates certain very complex steps that are required prior to going into microarray analysis such as an accumetrics gene chip system.

So, you see here that the sample stabilization, the sample purification is now followed by a target preparation step that actually includes a lot of DNA and RNA purification expertise and only then, after these steps are performed, can a microarray analysis be performed.

This is a very highly visible product launch. It is technologically quite challenging. We are by far the first in the market with a full complete and validated system and the launch was a great success this week. It's based on a BioRobot 8000 platform. So a product that we launched a couple of years ago and this is a new application, has some new hardware features on it as well.

A lot of product launches also on the highly dynamic area of siRNA. The launches typically are now, in this first quarter surrounding the bioinformatics aspect. We launched a lot of sets that basically combine a lot of different siRNA products, that knock out specific gene associated (inaudible) or GPCR or other types of indications and these products are quite novel and innovative due to the bioinformatics that went into them.

The second bioinformatics position that we were able to create a leadership in was - came out of our relationship with Novartis. Novartis has a tremendously powerful design tool that has algorithms to design siRNA products and while traditionally siRNA products are very often comparable to using a shotgun in a dark room, these products - these algorithms are so precise that we are able to offer satisfaction guarantees for siRNA products, that is clearly something very, very advantageous to customers using siRNA.

These are just a few highlights, though on the next slide, you see further new product launches that came out of our R&D teams. There are a lot of smaller products on there but clearly, some of them are very important. For instance, the first one the magatrack virus mini kit, which is a novel magnetic particle chemistry that we developed in association with various reagents, has a tremendously powerful nucleic acid purification expertise for virus nucleic acids from various samples. It is used in for instance, on our BioRobot M platforms or for instance, also on our BioSprint series that we just launched recently.

The third products you see here are QIAGEN Tissue, or disrupt tissues, which are very complex material product that is going into purification step. So, you see a lot of product associated with the sample preparation, the pre-treatment, the handling, the stabilization of product and clearly full in line with our core mission.

The next slide shows you some pictures of our site here in Maryland. We clearly see that these relocations that we did in the last few months are being perceived very well. We are significantly increasing our efficiency by having marketing teams located now in this new facility. These moves have been very seamless. The teams are working very hard now to put further success to our mission.

The next slide, just a brief update. In the first quarter, we also completed our team the executive committee as we call it, The team of 10 managers that are the most senior decision making body here in Qiagen. We added in January, Noel Doheny, many of you have already met him, a 25-year diagnostics industry veteran and a tremendous asset for Qiagen, so promising diagnostic business.

In addition, Tom Schweins joined us, ex BCG. A great contribution, is helping us focusing our resources even further and building bases for a long-term vision. This industry is really about thinking ahead, many years ahead very often and he is an absolutely important asset for us to make this happen. And last but not least, Wolfgang Fries HR. Few things are really more important than very efficient and effective HR management. Wolfgang brings to us a global experience. He has worked around the globe in various countries and this is going to be a very important for us going forward as people are the most important pillar of success. With that I would like to hand over to Roland for - discussion of the financial.

Yes. Thanks Peer. I would like to give you a snap shot on the first quarter financial of the Qiagen. We had a very successful first quarter. Our revenue growth was 21% and our revenues calculated to $96 million; this was clearly above our guidance we gave in our February guidance call.

Operating income margin came in line with our guidance at 20% of revenue. Earnings per share actually, we were on the higher end of our guidance with 8 cents per share. Our revenues increased up to 96 million, 21% up compared to first quarter of 2003. However, operating income margin excluding relocation and restructuring charge, which I will state a little bit later ends up to $90 million, which was an increase by 8%. Also our net income excluding relocation restructuring charges increased by 14% compared to the third quarter of 2003.

Splitting up our revenues in different segments, we had a very strong consumable business. Our consumable business grew by about 24% quarter over quarter. Even excluding currency impact, our consumable business increased by 15%. Our consumable business is about 80% of the total Qiagen revenue. The instrument business grew about 11% quarter over quarter and had a flat growth weight compared to the fourth quarter Q 2003, But if you know the first quarter as always a pretty slow instrument on quarter, on what we expect in going forward, I think is that we are still in line with our guidance.

Oligo business actually was very exciting as INA business with a 3 digit growth rate, INA business and which saw a slightly decrease in the custom Oligo business. The other business or the business we call other, this include our sequencing and contact production business had a great growth rate on 93% compared to the 1st quarter of 2003, that is of course a small part of our business. So overall, we increased our revenues by 21%, quarter over quarter and excluding currency impact by 12%.

The driver of Qiagen success is clearly our very strong and solid consumable business. 80% of our business is our consumable business and has been a very solid growth rate over the last quarter. This also what we saw in the first quarter is what we expect clearly going forward.

Looking on some key figures out of our P&L in the first quarter 2004, our gross margin and a 66% on a constant currency with 67% of revenue, this was an increase of 17% compared with the first quarter of 2003. Also the operating income increased by 8% excluding relocation of restructuring charges. So what you clearly see and there is something what I want to speak up on the next slide is, Qiagen has some currency challenges. So of course what you know is that we have some benefit from a weak US dollar, on the revenue side. But of course, we also have a lot of our cost of sales and operating cost in Europe, so we have also some challenges under cost of sale and operating cost in Europe.. But overall, if the revenue under Euro currency exchange rate increased by 20%, our EBIT margin is only at 30.3%.

Looking in our cash flow statement, we had a very strong net cash flow in the third quarter. Our net cash flow increased by 50% up to approximately $10 million, compared to $6 million in the first quarter 2003. Our CAPEX declined to approximately 3 million is mainly due to our big investment we made in the last years and which of course are now paying off.

Some key figures on our balance sheet, inventory debt. Inventory debt are inline with our expectation with 184 days in the first quarter 2004 and we still expect that it will meet our guidance at the end of the year 2004. Compared to the first quarter of 2003, we are down from 215 days to 184 days. The DSO accounts receivable outstanding are slightly up by two days to 65 days but in line with our expectations. And we also believe that it is still in our guidance that is in the 60's.

Some final growth in our employee status as of March 31 2004, Qiagen employs approximately 1550 people worldwide. As you see, the majority are in US and Germany and is a slight decrease to the first quarter 2003, our high efficient and motivated sales and employee force, I think its basis of our success going forward and we will see this will be a pretty scaling number all over the year. OK, with this, I would like to hand over to Solveigh Mahler.

OK. Thanks Roland and operator, I think we can open the Q & A session.

[OPERATOR INSTRUCTIONS]. Our first question is coming from Sam Williams of Lehman Brothers. Your line is live.

Good afternoon. Thanks for taking my question. Couple of questions. First, on the instruments, you obviously told about the volatility there and if we go back to your guidance at the beginning of the year, you were talking up 39% local currency for the year; you did 3% local currency this quarter. Just want to get an idea, do you still an idea, because now you are going to have to be - something like a 45% growth in Q2, Q3, Q4, to make that target. And actually, may be you won't need that, because your consumables is going very well anyway, but just give us an idea of what gives you confidence that you can do that and also can you just confirm, have you actually launched those new two new instruments for use with the Kingfisher technology. I couldn't quite pick up with the guys, you launched them and what other instruments will you be launching during the course of the - and then may be I could get back to my second question.

At - the instrumentation products are typically products that are - we start getting leads when the new budgets are approved. And so in January, you start getting a lot of leads and a lot interest for these products. Our revenue recognition policy for our instrumentation products is such that we only recognize revenue when the product is shift and installed. So there is typically a lead-time of at least four to six weeks after the product was ordered, because we do not recognize revenue without a written sign off from the customers. This is a very conservative policy, but I think it's appropriate. We do expect that the instrumentation demand as seen off some previous years, starts picking up and especially in the latter half of the year, some instrumentation companies do somewhere at the range of 40% of their annual sales or at least the third and the fourth quarter. So, it's very, very heavily secured toward the second half of the year. So, we are clearly based also on our prior experience expecting a stronger second half and a pick up there.

We are-we have launched the target product this week, actually the official launch happened in various locations, the customers were thrilled from what they saw. We think it's going to be a great product. The Kingfisher products that were developed in almost the record speed, these products are officially being launched now in the next few weeks, we had a pre-launch, a few days ago, also with a very strong feed back from our customers and these were meeting some very critical needs that the market has.

So, based on new product introduction and based on typical seasonality of instrumentation products, we feel that the automation product line while the projection as we all we said, we are clearly expecting ambitious things from the automation groups here. We think that their numbers are doable on the consumable product line if you see from the first quarter, clearly as we also said, this was one that we feel very comfortable with and we already moved well ahead of our estimates in this first quarter and we'll see how the two business individually plan out at the end, but we feel quite comfortable that we do not have to change anything at this point of time.

OK, thanks but and then the second question is on currency. Just on that slide that you discussed slide 27, I think it is, so do I take it that what you are saying is strengthening Euro actually had a negative impact on the EBIT?

Yes, Peer, I would take this question. Yes of course, just given you an example, major part of R&D facilities and of course, R&D expenses are borne in Germany because they are doing 90% of our - 80 to 90% of our R&D activities are held in Germany. So, of course, the 20 Euro has a certain impact on our operating expenses.

And what about your cogs, what happens there if you have a 20% increase in the Euro against-

It is also a slightly negative impact on the currency of course; we also have a facility in Germany as well as in the US. And we are very close to a natural hedge, but we have a slight overhaul here in Germany. So, the auto slides margin impact on all of the currency.

OK.

The company is very well hedged than, we have revenues and expenses pretty well matched but we still have a slight Euro overhang as we all said as of about 10% of sales. It's approximately that there are various amplifiers in there that move in one or the other direction but it can be a role of farm. So if you have a move in one direction, the expenses move against it and that is actually not that on the bottom line. I think it's an extremely good hedge compared to most of the industries as we are probably may be going forward to see a strengthening of the dollar. Some of the short term EPS gains that we are driven by currency of a lot of players that are based in manufacturing in the Untied States could turn around and Qiagen however is very well hedged on the bottom line to continue to show the earnings growth even in a more volatile currency scenario going forward. We do have a slightly negative impact at the moment however because of the increasing value of the year all.

I understood that correct, one last question. Your new guidance if you like $398 to $493 million. That what you expect still based on exchange rates as of January, is based on average exchange rates in January, is that correct?

Yes, this is based on the figures we are just dealing with at the moment. That's where you are right.

OK, thank you very much.

Thanks Sam.

Thanks you. Our next question is coming from Peter Welford of Merrill Lynch.

Hello, I was ask one at a time, as well and my first question is I'm slightly confused with your comments about the gross rates in North American and outside North America. You say North America is now growing nearly 12% and is up 45% at sales. If I back out the remainder of that, I get the organic growth outside North America is actually almost the same or below that of North America, when you back out currency. Could you possibly just talk about that for a little bit?

We get a growth rate in Europe, which is slightly higher but what we look at is not a quarter over quarter growth rate internally, what we look at here internally is actually the daily growth rate because we had in the first quarter, many depending on how for instance, Easter falls or other holidays falls, there are quite significant differences from country to country. So, when we look at our daily growth rates, we are still significantly higher, a few percentage points higher in Europe than what we are in the United States. And don't forget Europe is not Europe but Europe is Europe and Asia, and if you back out all of these another 45%, as you just described so you clearly also have some impacts from Asia there.

OK and second question if I can is Invitrogen are talking about new products they introduced in the first quarter for DNA purification that they say are faster than existing products and also say they have got strong synthetic alegoes (ph), that grow for thing as well, could you just comment on sort of the competitive environment you are seeing from competitors in the market at the moment?

I think there are a number of companies in the DNA purification area of a --very few that are north of a couple of million dollars and so - its basically it's a matter of judging a product correctly if you look at that product, let say silica membrane product what is basically a product that has been around for about 15 years from other companies, non proprietary and it is a product that you can buy from other sources.

So if you look at the speed, the speed comparisons were actually done with ion exchange product that you would not use for a purification. It's a good - it could be a good product and you know, I think it basically is something that is OK for the companies have products in this area. That is not a problem for us, we think it is just very powerful to have a standard in the market and this is something that I going forward is always being very clear to customers. Invitrogen and like technologies have always had DNA or RNA purification products, so there is nothing new about that as well as there are also other companies out there but, in this area standards and also technology leadership is valued very much by customers.

OK, Thanks.

Thank you, our next question is coming from Derik de Bruin of UBS.

Thank you, could you give me some idea on the growth rates of molecular diagnostics and micro related products relative to the rest of the pipeline?

In the molecular diagnostic sector, its very different from country by country and it's is also very volatile as it is still you know, a smaller part of our sales and also has to do with bulk shipments, lets say to OEM partners or to major diagnostic reference laboratories that typically are purchasing cycles that were they purchase large volumes in come cases.

We are growing about three times faster in the diagnostic business compared to the overall growth of the company and it's a little bit higher in the US, a little bit lower in Europe, a little bit lower in Asia and about in the middle in Europe, so we are not giving more detailed numbers on that I think that's very important information. But it is clearly, its much faster than the overall growth of the company. It is also faster than the industry growth in this early times of the industry, there is still a lot of manual methods using off the shelf chemicals and we clearly have a substitution still even in this diagnostic sector, but with some other recent developments, again in this diagnostics base, we are clearly seeing our first products moved out into the market for HPV.

We are seeing our products move out, additional new products entrance in this year, we are seeing a lot of add products in the also pharmaco-genomics area and there are actually be quiet a few product launches, very interesting product launches this year in the molecular diagnostic base that will just add one by the next and there by drag growth quiet significantly for years to come.

OK and ultimately what you see that you currently 20% of business is diagnostics related, where do you see that going on the future?

Its clearly going to be a larger part of our business going forward. We have various business plans. We clearly have 7 year plans in this area that show different scenarios. The scenario, that you know, the bullish scenario could be extremely exciting and immediately make this turn Qiagen into a diagnostic supplier in a few years and the majority of our sales coming from that. You know, we could see a slower growth in the industry due to regulatory issues and other issues that potentially impede a very fast growth. It's a more unlikely scenario but we would probably guide for something in between that.

I think at this point in time, it is clearly something that is a wild card within our business that - there are companies in the space that do less revenues in molecular diagnostics than we do and are valued higher than we are. So in other, clearly there are opportunities seen in this business that are dramatically higher than what we are willing to project at this point in time. If you talk to the diagnostics industry or if you read the research reports, you clearly can see that in a few years, we would probably going to have someone in the range of few hundred million assays being performed and we want to be a big part of that.

And one final question, if we look at the operating margins, if we look at the SG&A, the R&D and what was the percentages sales this quarter relative to your guidance in the first quarter - in the fourth quarter, I mean do you still see the operating margin being above 23% and - what numbers currently came in?

I think it's most important to say that we were exactly online with our guidance on the EPS as well as also in the high end of the EPS and actually in line on the operating income side. So you know that I think that forecast is as good as you can get it, it's a few week towards the end of the quarter, as we gave guidance and mid February. So that said, we currently at this point in time, do not see any need to change any thing significantly, we are definitely seeing negative impact on the currency side, as you know, can make a few tens of a percent or so in terms of rounding that easily could be an impact, so we guided for 9 to 10 cents you know, it could be 9 may be 10 you know, this is a range that we feel very comfortable with and the same on the top line.

Yes, just polish on that, what you seen in the first quarter is and the in line with our guidance, we guided 20% and we are in line with 20% and we saw a very weak US dollar in the first quarter, January and February, it was about 128 in exchange, so I think it is something what we have to have in mind and we have large operational expenses, north of course, south of course, in Europe, so it had an impact but what we see is also - what we are in Q2 expect is it is something what is building our guidance what second quarter and we also still absolutely our guidance for the remaining part of the year.

Great, thank you very much.

Thank you our next question is coming from Quinten Lay (ph) of Robert W. Baird.

Congratulation on the nice quarter, one question I had with instruments sales picking up, anticipated to pick up in the back half of the year. Could you talk about the impact on your gross margins for the second half of the year because I noticed in Q1 you had gross margins about 66% and your guidance for the full year was about 66%?

Of course, as I mentioned before, first of all we believe that the gross margins going forward for the year between 66 and 67% is something what we really achieved. Of course we saw an influence again on the currency between Euro and the US dollar of course we had larger manufacturing operations here than in Germany, but things I think it will still be slightly impacted more on the warning side and something between 66 and 67% going forward for the year is definitely what we are expecting.

And then on SIR&A, it sounds like you had an another very nice quarter of growth. Is it that most of the growth coming from volume or is there also has there been any pricing increases as well?

Now the market is clearly in a very early stage in SIR&A and the prices-I think there are two ways to look at SIR&A, one is the price of the Duplex itself and those prices clearly are still showing very, very attractive margins and potentially as the market grows bigger well some of the margin will move towards a higher volume. And this going forward I think, is less important for us to focus on the synthetic RNA molecule itself.

We are seeing pricing changes in the market, which are moving in one or the other direction. So, there are different marketing bumbles that are coming out where duplexes are combined for instance in various ways and the pricing on these combination products that are like using a shotgun basically, they are giving some pricing advantages and disadvantages. There are differences in purity and so; right now we are seeing a differentiation, which is driving pricing. So, it's not clear to say that there is an overall move or pricing trend, which is clear.

The prices - I would not expect the prices to increase in the siRNA space. I think the values are going to come from differentiation. And, therefore very, very important are these algorithms and bioinformatics behind some of these products and in bioinformatics, Qiagen clearly has within a very short period of time created a very significant market leadership and the DNA-oligo space for the array oligo sets that are highly profitable and since many years we have kept up and expanded that leadership and design very similar bioinformatics expertise also through the relationships, we are now putting into the siRNA space to distinguish the product in terms of quality and thereby also attract a higher value.

Thank you.]

Thank you. [OPERATOR INSTRUCTIONS]. We do have a follow up question coming from Peter Welford of Merrill Lynch.

Hi yeah, I just - on the guidance; I just talking a little bit. Wouldn't we see a talk a little bit more about the operating margin expansion during the course of the year? What really is driving that, sort of generally in terms of you know is it sales and marketing, is it R&D you know what you think is the driver. Clearly gross margin is not going to be a driver during the course of the year?

What we have is, we have four different operating expense sectors that we can look at research and development and there the answer is pretty clear that we are a research and development driven company. Now that's not going to be an area of significant operating margin, say increases. We are in the sales area as well as also in the marketing area, clearly seeing economy of scales. We are building the company in preparation of the market improvement we are seeing right now is you know these things have to be prepared very well and we are moving into these developments very well prepared and the third are that you could look at or the fourth area you could look at is administration. And in all the areas if you compare, of the latter three areas if you look at where we are in terms of a percentage of sales numbers, it is pretty evident that going forward, we do have significant operating margins expansions. If you look at other companies that are our size or larger you will clearly see that there is a downward trend on the sales and marketing side as well as also on the admin. side and there are a few percentage points in each.

OK Thanks.

Thank you. Our next question is coming from Karen Rossbremer (ph) of Shaker Investments.

Yeah. I am sorry. I didn't quite catch the comments about the DSO that it turned up sequentially you know we just hoping to get a little color on that?

Thanks for pointing that to me. I think on the DSO of course there is a slight increase in 2 days to 65days or to have that in mind we still have a very significant call for especially in also in Europe and some countries for example like Italy where you have of course a very high DSO rate and in average actually above 200 days and this is something-of course we have a pretty high growth rate driving out of your overall DSO rates. So, if you have this in mind and know an increase of 2 days is really not significant for Qiagen and is also something of the typical scene across quarter. So, I think going forward for the year we will see that decrease again.

Karen Rossbremer OK Thank you very much.

Thank you. We have a follow up question coming from Derik de Bruin Of UBS

Hi I just -- wondering the other miscellaneous income was, the 415,000?

The miscellaneous income is a mix of several positions it is, I think it includes also some smaller gains we had on financial activity and I think it is a majority part of it, its nothing really a large amount its several smaller numbers adding up.

I mean when you look at the total other income do you see that as a positive or negative for the year?

I think it is something as being more positive OK.

OK. Thank you.

Thank you. Our next question is coming from Daniel Wendorff of West LB.

Yes, Thanks for taking my question. Actually I have two questions one, concerning maybe I got that earlier on your growth rate in the instruments segment which you projected for 2004. Wasn't that at reported currencies at 39%?

The guidance we gave in the beginning of the year was under the assumption that the currency that we use for the guidance would also be reported currency. So, that could be a currency impact on instrumentation products, current year. But at this point in time I think we would just stick with the same currency used in the guidance session.

And thanks and second one would be concerning the underlying growth rate going forward in Europe and I think you said its slightly above the growth the rate in the United States and how do you except that going forward? Will you stay at a round level of 13, 14% or --?

That a good question. Clearly you're based in Germany and as you know in Germany there had been pretty significant budget delays in this first quarter. So I didn't really want to go in to it too much but it's correct that you point this out. In the first quarter in Germany we didn't see significant delays in budget that led to delays on some purchasing in Germany and our revenues in Germany were quite week and Germany has a significant portion of the European numbers. So this is why we clearly see that the European gross rate could actually be more positive in the remaining quarters of the year.

It is very complex if you go in to some of these academic sectors country by country they have different dynamics' and the vibes you here Germany also in the press and the public and also talking to people who are dependent on these funding sources and also peoples who are responsible for them, you clearly see that there are significant boost excepted in funding going in to life science over the next few quarters as well. So you know every country is very different and in this first quarter Europe was a little bit weaker than we had excepted and the US was little bit higher than we had excepted but as we came in very well on the top line in terms of our guidance that level of detail is clearly very important to interpret trends but overall we see that panning out actually as we speak and certainly on the full year basis.

Thank you

Thank you and our next question is coming from Karlhand Schuneman (ph) of Metzler and Frankfurt. (ph)

Yeah hello, out there, this is Karlhand Schuneman speaking for Metzler. I have a short question concerning the tax at the end provision for income taxes where you see a - from my point of view very strong swing from first quarter 2003 to this year's first quarter, can you comment on this please?

Absolutely. As been -- due to while off course there was relocation and restructuring charges and else in the first quarter 2003 where some charges related to the closure of our Ciagen genomics facility and the difference is really the deductible of some of these charges on the tax side, so you should take all with tax rate is actually on the decrease level

So it's all on the deductibility or non-deductibility on these expenditure.

Yeah

OK, thanks

Thank you, at this time we have no further questions. Are there any closing comments?

OK there are no further question I would like to close the conference call by thanking you all for participating. We hope to welcome you again on our second quarter result conference call on Tuesday, August 2nd 2004. If you have any additional questions, please do not hesitate to contact us. We will be more than happy to provide you with all the information just you might need. Again thank you very much and have a nice day. Bye, bye.