Qiagen NV (QGEN) 2004 Q4 法說會逐字稿

I am Solveigh Mahler, Director Investor Relations at QIAGEN. With me on the call are QIAGEN's CEO, Peer M. Schatz, and QIAGEN's CFO, Roland Sackers. The conference call will cover a 20 minute presentation followed by a Q&A session. We will be using a presentation during the conference call, which can be downloaded from the Investor Relations section of our home page at www.qiagen.com.

During the call we will be making forward-looking statements. Such forward-looking statements are subject to risks and uncertainties. For the description of such risks 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.

Yes, thanks Solveigh, and thanks for joining us the guests who are here in the room, and to those joining herein by telephone. It was a great quarter, this fourth quarter 2004. It was a great way to end the year 2004, and a great way to go into the new year 2005. We had guided for revenue in the range of $93m to $95m. We exceeded that guidance, came in at $95.5m in sales. Organically driven, organically fueled, a great top line performance.

The EPS had been guided for between $0.09 and $0.10, we came in at $0.11. The fourth quarter -- and again, we report on US GAAP figures, if we would reported on Cash EPS it would have been $0.16 per share in the fourth quarter. Powered by organic growth and innovation, our market in technology leadership is clearly expanding.

We're extremely strong now moving in 2005, with $227m in the bank and a strong cash flow to fuel our growth going forward. It's really a great basis to start the new year - we're delivering. It's been a reliable performance. It's exceeding targets in 2005 and we're very much looking into this new year. In terms of our revenue distribution our consumables, which are about 87% of our sales, showed 18% organic growth year-over-year. Instruments showed 16% growth year-over year, with the highlights clearly being the BioRobot that had been growing about 30%, compared to the same period in 2003. The sales of Robots under OEM are a small proportion of that. So great proportion of our instrumentation were growing at a very high growth rate.

In terms of geographic distribution - similar to what we saw in previous periods. The United States clearly in a great growth trajectory. We are seeing about 18% growth in the US, in Europe about 15% growth, and Japan about 14%. Japan and Europe will have currency impacts and Roland will be talking about those in a minute.

Now if we look at 2004, it was a really great year. We had some tremendous progress over the course of the last few quarters. We exceeded targets, we beat our estimates - both on the revenue and also on the EPS line. And we're clearly accelerating momentum, not only strategically but also operationally. The Company is a strong and focused engine. Our operational excellence is very clear from the numbers and also from the milestones that we saw in previous periods.

It's a lean and fully integrated operation. Our relocations, our concentrations, our leveraging the infrastructure going forward, also as well. We are fully compliant with all regulatory requirements, with all quality requirements running programs. Certainly ISO compliant, GMP compliant on a lot of our facilities, running programs such as 6Sigma, and so on, and that's not only from a few quarters but for quite a long time.

There's a complete and global SAP integration - CRM, logistics IT are at state-of-the-art quality. We're paving the way into regulated, molecular diagnostics. After a decade of investment, we're seeing here now substantial traction. We think we have a great and a winning strategy, and are executing on our path.

In 2004 we clearly had a year where we went on a growth strategy in terms of planning, and we're now implementing it. We're 1 company, we're 1 mission. We've created detailed plans in 2004. We've focused on pre-analytical solutions as our core focus area, and we align strategy with tactics from sales and marketing. New -- We have a new customer alignment in sales and marketing and we'll talk about that a little bit in a minute

First, in leadership and marketing - we're clearly revamping that area quite significantly. And the kick-off of 2005, in which we communicated our strategic directions and our plans to the broad organization has been a tremendous success, and one of the most exciting kick-offs since a very long time.

Innovation has been absolutely here at QIAGEN, as QIAGEN really lives and breathes innovation and science. What we introduced in 2004 were new cross-departmental innovation teams, where we generate a company within companies, that in a very entrepreneurial spirit with clear budget responsibilities and target responsibilities, created exciting plans for the future.

And they are really great plans in terms of growth rate as well. Going forward we are clearly seeing a very strong growth trajectory for the Company, not only over the near-term but also with the long-term. There are about to 30 products introduced in 2004, an extremely full product pipeline for 2005 and 2006.

In 2004 alone we added 290 patents to our portfolio. The acquisition of Molecular Staging, absolutely within our core expertise, and a lot of you have been testing this product today with great excitement as I hear. This acquisition has been a huge success in our customer base, and also in terms of new ideas that it's generated for great products going forward.

Our M&A pipeline is extremely attractive. We're a focused company. We can put a lot of traction into targets going forward, and we think that there is going to be a great string of opportunities, also looking into the future. So clearly an extremely focused strategy combined with our innovation - we think that's a great combination to take this Company into the next growth phase.

2004 - clearly organic growth upsides that we have and process excellence combined, should allow us to look into a great situation in 2005. We think we have a better portfolio than a year ago. We clearly cut out some parts of the organization; sold off our old [indiscernible] business; discontinued a lot of product lines and development programs about a year ago. And we're extremely razor sharp focused right now, taking this Company into a real change in capabilities in consistent, repeatable processes to create growth.

There's an extremely strong basis here at the Company. It is not a company that has clearly seen a lot of corners come together. We are an extremely culturally stable company. There's a continuous process of optimization. I'm going to talk about some of the programs that we have going on. Especially in the IT area, we're introducing SAP business warehouse upgrades, and e-commerce integration for these types of tools and technologies, which really makes us state-of-the-art in these areas as well.

QIAGEN's talent potential - our employees are absolutely key to the Company. We introduced at the beginning of this year a new performance enhancement system, that are identifying key performers and they're taking them on a development path, and also a career-planning path going forward. QIAGEN's clearly seen as the preferred employer for these types of employees, as we have a very clear profile going forward, and their path of development can be defined on the very long-term.

Global competence network - we're increasingly working globally, integrating a lot more globally in terms of R&D but also in terms of sales and marketing. So we think culture stability and improved processes are a great combination for us moving into this new year.

There has been also a lot of new and exciting product introductions, that we also announced through various press releases, and I'll just focus on a couple of them. First, in January 2005 we launched the Qproteome product line - created overnight a leadership in protein sample preparation. This has been a program that we've been working on for a long time. It is a combination of alliances - there are about 6 alliances that we've been working on.

There was 1 product launched in almost stealth mode for about 12 months, where we test marketed the acceptance for these types of products with great success, and we launched the full suite. It's one of the biggest product launches QIAGEN has ever made in a very long time, at least. And we think that this is going to play very well to the systems biology developments that we're seeing increasingly in the markets.

Second new announcement that we had in the last few weeks, was an announcement with Protedyne. Protedyne is an extremely successful provider of ultra-high throughput instrumentation platforms. These are room-filling instruments that can fully automate complex molecular biology, or diagnostic processes. And we've developed a partnership some time ago which we now expanded, and also invested in this company.

And are also now exclusively marketing their platform for use with QIAamp chemistries, for use mostly in molecular diagnostic environments where very high throughputs of DNA purification is performed. So we have a complete automation product line. This is absolutely key in clinical research and diagnostics. The consumables have to be merged with automation, for a complete and integrated solution to be successful.

This is an example of how we are looking at our franchise. We licensed a technology which we think is extremely interesting yesterday. The technology is called Haplotype Specific Extraction. We licensed it from a company called Generation Biotech. It was developed at Princeton University as well. This technology allows the separation of chromosomes as higher organisms, or so-called diploids, where they have 2 copies of the chromosome. And the fact that these chromosome overlap make it often very difficult to read mutation on the DNA.

So by separating these 2 strands and creating a separate strand - basically the 1 copy that came from the mother and the 1 copy that came from the father, simplistically spoken - we can read where the mutation exactly is. And very often it is absolutely key to understand under which strand the mutation is present. And this sounds very simple but this is a huge need in molecular diagnostics, where increasingly DNA mutations are being looked at for diagnostic purposes.

This has been test-marketed again by us. We test-marketed it under a different brand for some time in a very confined market, with great success. It was test-marketed in HLA in 2004, and we now will be launching it for broader genotyping applications in the near future.

A few words on the customer segment dynamics we expect to see in 2005. Academic research market is about 45% of our sales, a huge value of standards as research globalizes. People are looking for the ability to share the data, they're looking for the ability to compare data, and they don't want to be confused by different tools and technologies used.

We are a standard interface by comparable to something like a USB port on a computer almost. We can basically link and make comparable data that is then generated in different sites. We're meeting new guidelines and regulations which are also moving, even in the academic markets. We're addressing new disciplines of science.

So science is-- or molecular biology is not any more confined to molecular biology or biochemistry. We're moving into different areas of research work, traditionally these types of applications have not been used, and systems biology absolutely a trend at the moment, where QIAGEN is a key supplier. And by the fact that we are now also allowing dual use kits, and same touch-and-feel kits for, let's say, proteins and nucleic acids. We're playing to that theme very well.

In the Pharma and Biotech market, about 35% of our sales. We established a very professional selling organization there with new, focused selling teams into Pharma and Biotech, with great success already in the second half of 2004. We're following the dissemination of life sciences. So molecular biology again here is not only used in pre-clinical research, but is also going into areas like toxicology and other areas where we are following the chain of science.

Science is disseminating into different areas, and Pharma and Biotech as well. Clinical research - we're expanding our leadership through a regulatory vision. Through the ability to support our customers and hold their hand, both in pre-clinical research, in clinical research, and into diagnostic applications.

The translation of research absolutely a key. But the fact that we're allowed to give that vision from pre-clinical research into diagnostics, we're allowing people to translate their research in a more efficient way into fast throughout drug development.

New regulations - clearly the PGX guidelines, as the FDA has been, or will now soon put them out again in a further draft, are big pluses for QIAGEN. They're driving change as people are looking for standards.

Diagnostics - 20% of our sales - also here a tremendous potential, tremendous momentum as well. We have been in this market since 1992, we started when the industry started, now we're seeing great growth. After a decade, or more than a decade, of investing in this space, we're seeing tremendous opportunities emerge but also tremendous tangible growth. We're extremely focused in that space.

We have over $70m in sales to molecular diagnostic accounts, and this is the pre-analytical solutions. These are our purification or handling or stabilization technologies that we're providing into molecular diagnostic accounts. We're delivering, there's a major, regulated product pipeline coming out in 2005, as we saw in 2004.

We're expanding - we've expanded the GenoVision HLA range into one of the fastest growing HLA ranges in this market. And here's some extremely interesting data that we're putting out to you, really for the first time, even though this data's been available. We've been investing in the States. Clearly it's a market that has been in development over time, but QIAGEN today has over 100 clinical trials, where we are part of the activity that is being performed here in terms of diagnostic product development in the regulatory pathway.

In terms of pre-analytics alone, there's 50 clinical trials involving pre-analytics. We're investing - we have over 15 partners in diagnostics. There're numbers more that we talk to and deal with in certain ways but we have about 15 partners - over 15 partners in diagnostics that we are working with. We are clearly a very, very well-established leader in this space.

It's a market which is in early stage development. We have a tremendous basis to take the Company going forward, as explosive growth is expected from this industry over a very long period of time. We are investing as well in terms of a focused sales effort. Not only have we created clear OEM and partnering strategies in this space, we've also created a separate sales and marketing force in the United States, specifically addressing molecular diagnostic accounts.

And we're also investing in terms of being active in terms of regulatory, or also even in terms of public relations initiatives that are going on. We also announced yesterday we joined the Personalized Medicine Coalition, which is an exciting coalition with a great mission in this exciting area of personalized medicine.

So we're setting standards in this space, this is what we're about. We've been investing and here you just see a few numbers, how actively we are actually investing in this space.

In terms of customer geography, clearly looking into 2005 in interpreting 2004, there have been different trends. In North America, we saw the academic market segment, and I'm almost comparing to the priors - so 2004 compared to 2003 an 2005 comparing it to 2004. We've seen a pretty solid, academic market growth included our budget discussion, in terms of absolute growth, and various budgets that people look at.

But for us it's mostly dissemination and home brew conversion which is for us to take this Company into -- or grow this Company also in the academic sector. In Europe, academic markets in 2004 were extremely weak, mostly driven by countries such as Germany that had budget difficulties. We expect a stabilization of that in 2005. Again, there are big differences, so you have very fast growth rates in some countries and some countries were quite slow.

We are certainly gaining market share in other countries but this is an overall academic market budget issue. And the same we also saw in 2 --in Asia in 2004, mostly driven by Japan where some changes in the budgets environment were quite significant, and led to much slower growth in 2004. We did come out with growth in 2 -- in Japan in 2004 but clearly was much lower than in prior years, and in 2005 we see a stabilization of that again

Pharma/Biotech in the US - very strong in 2004, should continue on that similar path in 2005, and Europe a slight improvement expected as well. In Japan or Asia as well. In diagnostics we're seeing very fast growth, and again here in some countries we actually might see an uptake, based on our selling efforts and our partnerships kicking in.

So again, I think summarizing academia, we're seeing our products disseminating into new areas. There's also new budgets available. In Pharma and Biotech we're seeing a growth being back. Pharmacogenomics, toxicogenomics translation or medicine theranostics - these are just not -- these are not just buzz words, these are for real, and people are looking for tools like we provide to enable them and use those spaces.

Applied testing - such as forensics, veterinary, food testing, biodefense. These are clearly areas that are growing very rapidly. One of the largest suppliers, certainly in our space and our focus there, we are by far the largest supplier in any of these areas. And have been seeing great growth and also expect great growth in 2005. And diagnostics with an expanding menu, we expect more momentum.

In terms of geographic distribution, clearly in the United States about 50% of our sales. We have about 210 people in sales and marketing in the United States - a hugely focused sales force, all in one product area, all around one mission. Mid-teens growth in 2005 expected. We've seen Europe with about 40% of our sales, and about 270 people in sales and marketing. Low-teens growth in 2005, so slightly lower than the United States. Mixed again, some countries faster, some countries slower.

And in Asia, where we have about 10% of our sales, and a sales and marketing force of about 50 people, and that's going to expand. We see low-teens growth in 2005 as well, mostly driven by Japan.

Now we changed our sales and marketing effort significantly during 2004. We are now looking at customer-directed selling. We have specialized salespeople in different market segments, and we have specialists on certain application areas, or certain products areas that back them up So we've created, I think, for this new environment in molecular biology a great channel, that should also show an effect in 2005. And clearly they are all on one clear and focused mission, so they're selling pre-analytical solutions.

The outlook into 2005 shows that we clearly feel very confident about 2005, based on what we've delivered in 2004, and based on what we've built in 2004 that will show in 2005. We expect revenues to grow organically 14%. Now again, this is a significant number and I know we all have to tier with different sectors but this is a substantial organic growth rate. 2% growth expected from smaller acquisitions that we have been looking at.

Operating income we expect about 28% growth in that area, and an EPS about 26% growth, in that range. The market trends - that we will continue to see as growth in Pharma and Biotech grows north of 15%, and MDx market continue to grow by growth north of 30%. Public funding continues robust growth, a growth of north of 8%. The acceleration that we expect in 2005 is driven by a solid and organic top line growth, with strong cash flow and strong EPS expansion.

And we see upside opportunities. Yes, we see upside opportunities through - again, there're obviously no acquisitions built in into this. There is a great degree of activity at the Company with the clear defined mission, as we have the acquisition opportunities we think will also be quite enhancing. And continued improvement also in Japan could be an upside that everybody's hoping for.

In terms of growth by product category, you see here that the expected growth in 2005 in consumables is quite significant. So, the growth is clearly driven by consumable growth. We see a nice uptake in Instruments as well, a 12% growth. Again, these are cumulative consumable generators.

Others which is only 2% of our sales. There are some fluctuations in that but that's less meaningful. There are about 35 new consumable products planned in 2005, all within our core space. Instruments includes sales also to diagnostic partners. As you know, there has been some diagnostic partners that are introducing their products now in 2005. And again in 2004, a lot of Others offering were discontinued as part of our strive for focus.

Now in terms of outlook, what we're looking for. We're looking for excellent financial performance. We're looking on delivering in 2005 and expanding returns. We're expecting a faster organic growth rate, an organic rate which is stellar and one of our -- one of its kind almost in the life science supply industry. We're looking at increasing market and technology lead. There's a tremendous amount of innovation kicking in 2005 and we're looking forward to that happening.

We want to leverage our existing leadership which is very clear, and we want to focus the Company on the future. But clearly change is a constant and we want to be lean and mean, and take this Company also into the next dimension of life science suppliers. With that I'll hand over to Roland for a discussion on the financials.

Thank you Peer. Let me take you through some of the key financial highlights for the fourth quarter 2004, and also for the fiscal year 2004. Then I will give you an overview on our guidance for the year 2005. Our guidance we gave on August 3 called for fourth quarter 2004 revenues between $92m and $95m, and earnings per share between $0.09 and $0.10.

We exceeded our revenue guidance with Q4 revenues of $96m, and exceeded our earnings per share guidance with $0.11 per share. Q4 was, therefore, another very successful quarter for QIAGEN. During 2004 we increased our guidance 2 times, and yet we're still able to at least increase our guidance, and also exceeded it.

On the next slide you can see that we increased net sales for the fourth quarter by 13% up to $95.5m, from $84.9m for the same period in 2003, excluding for comparability revenues related to the DNA business unit, which has sold at end of Q2. Reported operating income for the fourth quarter 2004 increased 38% to $22m from $16m in 2003.

Reported net income including charges increased 76% to $15.8m from $9m in 2003, and reported diluted earnings per share increased 83% to $0.11, from $0.06 in the comparable period in 2003. Reported figures for the fourth quarter of 2004 includes relocation and restructuring cost, in line with previous guidance. Excluding the effect of these charges, the result in Q4 2004 in comparison to Q4 2003 were as follows.

Operating income increased 6% to $22.6m from $21.3m. Net income increased 26% to $16.4m, and diluted earnings per share increased 22% to $0.11, from $0.09 the year before.

On slide 22, you see that overall revenues growth was driven by an 18% strong organic growth on our consumer business, which represents nearly 87% of our overall revenues. Guarantees represent approximately 5% of the increase. This exclude the large siRNA bulk transaction in Q4 2003, which we announced at this time. We see clear indications that demand from pharmaceutical customers is still improving.

A major growth driver to the consumer business continued to be molecular diagnostics, which is showing increased penetration of existing test and launches of new tests for infectious diseases and cancer.

Instrument revenues grew 18% from Q4 2003 to Q4 2004. Instrument sales consist of sales of BioRobot systems and sales of instruments to third parties, mostly diagnostic companies, so-called OEM sales. We have seen very strong sales of our BioRobot system with a growth rate of approximately 30%, while on the other hand we also have seen that some of our OEM partners have moved their orders into the year 2005.

Our Others segment includes services as -- such as plasma DNA contract production for gene therapy customers. These represent less than 2% - only a small proportion of our overall revenues. Clearly we have carried through with our commitment to focus on our core business.

On slide 23 we demonstrate that not only -- that we not only deliver top line success this quarter but we also increased our operating income by 38%. Based on constant currencies, QIAGEN's operating margin improved by 37% to 24% of net sales. This is another significant improvement in our operating margin. Excluding one-time changes and based on constant currencies, our operating margin achieved 25%.

Net income as reported improved by 76%, 74% with constant currencies, which demonstrates that any advantage or disadvantage in currency fluctuations relative to the US dollar, has not had a significant impact on our net income. This is the result of the natural hedge of QIAGEN, which has solid operations in Europe and in the US. EPS as reported, and with constant currencies, increased by 83% to $0.11 per share.

On the next slide we show that for the fiscal year 2004, QIAGEN's revenues increased 17% to $360m, excluding for comparability revenues related to the DNA business unit, which was sold at the end of Q2. Including the 6 months of DNA business in 2004, we increased our revenues to $381m. Excluding charges, operating income increased 19% to $90m, and our net income growth rate was very solid at 23%, increasing to $57.3m.

Earnings per share, excluding these charges, increased 22% in the 12 months of 2004 to $0.39 per share, up from $0.32 during the same period of 2003. This exceeded our guidance of $0.36 to $0.38 per share for the fiscal year 2004.

Hedge rate is down by 2% points this year. Some of the reason for this is a favorable of reaching of our profit on a country level; the tax deductibility of most of our charges in 2004; and since QIAGEN produced some acquired loss carried forward over the year.

On slide 25 we show that in fiscal year 2004 our consumer business, which accounts for approximately 87% of our total revenues, grew by 18% - excluding currency by 12%. Our Instrumentation business grew by 16%, driven by very strong sales of our BioRobot system, where we have seen growth rates above 30%. In the business we call Others we summarize our contract production and [indiscernible] services, which accounts for also in a yearly basis for less than 2%.

We continue to demonstrate increasing operation profitability and expect this to continue going forward. This is a very positive momentum and to action for the Company as a whole.

On slide 27 you will see that QIAGEN has a very solid cash position. It's more than 20 -- $225m in cash. This strong cash flow and cash position gives us the ability to act quickly to technology opportunities and accretive acquisitions.

Slide 28 shows how QIAGEN continues to show strong, positive cash flow. Our net cash flow for the year is $97.4m. Our net cash flow margin has increased to 26%. This includes more than $20m paid in 2004 for taxes related to the year 2001-2003, which were accrued in prior years but paid out in 2004.

Looking at our free cash for the year 2004, we see a very strong increase. However, if we add the tax payment related to prior years, we actually have a very exciting increase of more than 61% year-over-year. On average we are managing our taxes a lot more efficiently and expect to see further improvements in the future.

One of our key strategies in expanding our positive cash flow position is active management of inventory levels, and days filled in account receivable. You see in this a slight increase in our DSO but we believe this a more seasonal impact, for no change in the general, it is a very positive trend. Inventory days continue to decrease - currently down to 172 days which we believe is a very positive trend, and we continue to go -- for going forward.

On slide 31 you can see that QIAGEN is a truly international company, with a strong presence of more than 350 employees in our North American companies, including our US headquarters in Maryland. We have approximately 700 employees in our operational headquarter in Germany, and approximately 1,320 employees worldwide. The decrease in headcount from 2003 to 2004 is mainly related to the sale of the synthetic [indiscernible] business unit at end of Q2.

In addition, I would like to add that QIAGEN reports under the highest appropriate governance standards. We have to comply not only with NASDAQ code, we also have to comply with Dutch code and German corporate governance code. And, of course, we have to also to comply with the [indiscernible].

So a few words regarding our 2005 guidance. We certainly value all the effort put forward by our investors and our analysts, to understand QIAGEN business. In 2005 we expect an increase of up to 16% in comparable revenues, from $360m up to $414m to $422m. 2004 revenues from the [indiscernible] business sold at the end of Q2 2004 is excluded for comparability.

On the same basis, our operating margin is expected to increase approximately 28% to between 24% and 26% of net sales. We clearly see some upside potential but are, on the other hand, investing in growth. Currency could decrease the relative value and percent of the operating margin, as it has done in Q4 but absolute numbers in US dollars are not expected to change.

Could -- Currency could have some smaller impact on 2005, about $0.0l on this high US dollar value -- on the US dollar levels, which could see increase by $0.01. 2005 earnings per share anticipated to range from $0.44 to $0.47, an impressive increase of 26%.

2005 quarterly guidance is as follows on slide 34. In the first quarter we will achieve revenues of up to $97m, and earnings per share of approximately $0.09. In the second quarter we expect an increase in revenues up to $103m, with earnings per share of $0.10 to $0.11. In the third quarter we expect revenues between $107m and $109m, and earnings per share between $0.11 and $0.13. And in the fourth quarter, the anticipated revenues of between $111m and $113m, with earnings per share between $0.13 and $0.14 per share.

On slide 35 you see that the main driver for our group rate is continued strong organic growth in our consumable business. We expect that as we have seen in the past a growth rate of approximately 17% for the year 2005. We have experienced very strong demand from all pharmaceutical and diagnostic customers. This business in applied testing is increasing very nicely. In addition we will launch more than 35 new products in 2005, some of which will provide significant new dimension of user benefit for our customers.

In the Instrumentation business, we expect an increase of 12% in revenues for the full year, mainly driven by sales of our BioRobot and some sales to our OEM partners. Others revenue will continue to remain insignificant to QIAGEN, as we continue to business focus that we pursued aggressively in 2004.

On the next slide you'll see that QIAGEN's quarter-to-quarter profitability has improved significantly over the last 2 years. We will continue our track record of improving both margins and EPS. We believe that we can further improve margins over the next 3-4 years by at least 1-2 percentage points year-over-year.

Slide 37 demonstrates that 1 of the reasons for our strong cash flow is the actual management of our working capital. We decreased our inventory days from 205 days in 2002 to 173 days in 2004, and believe that we could further decrease this down to 165 days within the next 12 months. Our DSO increased slightly in 2004 to 67 days but is still below the industry average of approximately 70 days. We believe that this is a temporary increase, and expect our DSO to decrease to 63 days again.

We expect to invest approximately 9% of sales into research and development in 2005, in order to continue our history and culture of innovation. QIAGEN'S leading innovation is committed to creating indispensable solutions to our customers. CapEX will also increase for this reason to 6-7% of revenues. Depreciation is expected to be flat of approximately 6% of revenues.

Slide 39 shows clearly that over the last 2 years we have increased our operating margin to 24% of net sales. If you even calculate it on constant currencies, up to 25%. We believe that we can reduce our administration expenses down to 9% of revenues, mainly driven by new efficiency programs and economies of scale.

10 years ago we introduced SAP as our global ERP system. We have expanded it every year to the point that we now believe we have one of the best, worldwide ERP systems, capable of generating state-of-the-art reports and information for management.

Several years ago we also introduced to our worldwide CM system, to deliver in part information on market and customer trends. We believe that our CM system did also help us to scale our sales and marketing expenses. We expect to spend approximately 22-23% of revenues for sales and marketing in 2005.

QIAGEN has a strong basis on the right hand side of the balance sheet. In August 2004 we raised $150m at an interest rate of 1.5%, and a premium of more than 40%. With this we secured the favorable financing word for at least the next 7 years without dilution to our shareholders.

Along with our strong operating cash flow, this financing gives us the ability to act quickly when we should focus for -- when see focused acquisition possibilities that can create additional value for QIAGEN and our shareholders. With this I would like to hand over to Solveigh.

Yes. Thank you very much Roland. We are now looking forward to answering your questions. As you know, QIAGEN is linking this conference call to an analyst meeting, which takes place simultaneously here in Germany, here in our European headquarters. So that's where I would like to start the Q&A session, we're starting in Hilden.

The first question comes from Erica Whittaker, Merrill Lynch.

Thanks Solveigh. I just have a question about your anticipated growth of European sales, the mid-teens in '05. Because I think if you look at constant currency growth in the fourth quarter in Europe, it looks like it was flat or possibly declining. Is that right? Is that correct or -- then I'm just wondering what the basis for the seemingly higher growth for the entire year in '05, what's driving that?

If you look on constant currency growth which for the year 2004 and also for the fourth quarter 2004, you see that on a constant currency basis growth rate was actually lower, 2 digit lower, so around 10%. Japan was actually a little bit lower -- less. But you see actually -- we have seen actually a very nice trend.

As you know, Japan started with a negative growth rate in our second quarter, increased a little bit during the third quarter, and improved also in another step in the fourth quarter. But it's still not there where it should be. But also now going to the year 2005, we believe that Japan will improve and we will -- going to see the growth rate pretty soon. On Europe for the fourth quarter, again in constant currency, it was around 10%.

The reason, Erica, why that was off was because we have substantial presence, also in the UK, in Switzerland and in Norway, for instance, and where the currencies moved against the euro. So the euro obviously had a big swing but there are also other currencies that factor in there. So we did have double digit growth in Europe.

The next question comes from Aaron Geist, Robert Baird.

Thank you Solveigh. You're forecasting a little bit of operating margin compression in the first couple of quarters, with operating margin expansion to back out in 2005. Can you talk a little bit about the difference in your expectation between the fourth quarter of 2004 and the first quarter of 2005, in terms of revenue product mix versus operating expenses?

Yes, of course. What we expect for the first 2 quarters in 2005 is, first of all, a slightly shift in product mix, and to see a slightly higher portion of Instruments than usual in the first part of the year. And second, what we also expect is that clear economy of scale impact -- going to impact more in the second half of the year, with larger sales volumes.

Can you talk about your tax rate expectation for 2005? You talked a little bit about synergies and efficiencies, where do you anticipate tax rate for the full year?

Tax rate is, of course - fluctuation in tax rate is, of course, mainly driven by 2 topics. 1 topic is, of course, origin of revenue, of profit, on a country basis. I don't expect a huge shift overall as you can see on our guidance as well. The second driver, which is something what is very -- probably uncertain is driven by acquisitions and the taxability of acquisition costs. So if you exclude potential acquisition, I would probably calculate the tax rate of 37% for the year.

My last question. You talked about an OEM backlog for Instrumentation carried into 2005. Can you talk about when you anticipate placing those instruments, and for what diagnostic test those instruments are going to be used for?

We -- As you know, we don't officially disclose customer names except for very rare examples. But this is a woman's health application which is expected in 2005 to be -- to do this in an automated format. So -- but again, these are small numbers and we expect that probably in the first half of the year.

The next question comes from [Alexander Grosch, Kalemic Bank].

Thank you. Questions about your guidance. 1 is, on page 33, you mention an equity compensation which is excluded from your EPS guidance, and this would start in Q3 2005. It's below there. Could you please explain what that is about? And the second question relating to the operating margin. Do you expect further contra relocation, acquisition and so on and if so, how much will that be? Thank you.

Starting with the easier question which was the second question. We finalized our relocation and restructuring of our North American sales and marketing activities, so we don't anticipate at this time any further charges related to this topic.

The first topic is regarding the new US GAAP statement on accounting on stock options, which is now due FSB123(ph), which is going effective on July 3. And it actually has a value, as you can see also, a very immaterial impact to QIAGEN if you compare to all other companies, impact of -- actually a non-cash impact of 1-2% for 6 month -- for the period of 6 months in 2005. It's actually a small impact of [inaudible - line interference] and might be [inaudible - line interference] is getting down -- is getting less. It's almost [inaudible - line interference] the dollar. So this is the maximum what we're going to expect.

In 2006 for the full year, actually it will be again less than we have seen it for 6 months. So I think if you compare this with other companies which haven't sales at the moment, you will see available -- stable increase in our EPS.

Can I just confirm that in 2006 it will be also only just $0.01 or $0.02 or even less?

For the 12-month period.

Yes, okay.

The next question comes from Daniel Wendorff, WestLB.

Yes, thank you. Actually I have 2 questions regarding your outlook for 2005. You said that you would expect revenues to grow at 16% and that still contains 2% from the small acquisitions. Is that related to small acquisitions done in 2004? And the second question is, at what currency translations do you base that guidance? Thank you.

I'll take the first one, you take the second one, Roland. The first 1 is related to - we did acquire Molecular Staging in 2004, so that will be consolidated for the first time full year 2005. We did have some intermediary sales in 2004 but we officially launched the product in 2005. So that's the major impact, that's the difference between organic and reported growth rate expected.

And to your question on currency. There are budgeted sales on revenue(ph). It is most important to change it $1.30. Actually, so if US dollar is actually getting stronger than it is at the moment, we probably see a slightly increase in our EPS, where we got a large increase by putting -- getting us up to $0.48.

The next question comes from Richard Parkes, ING.

Just a quick question on siRNA sales. Will you -- Could you have any significant orders in the fourth quarter? And also, going forward in terms of your consumables guidance for 2005, you're looking at 17% growth. I think siRNA sales are now moving into that line with the recognize in [indiscernible] for 2004. If you break that out, what would the current of that 17% guidance suggest for '05?

Okay. The impact of siRNA revenue is as a very nicely growing component of our revenue, but as an overall percentage of our sales not huge. We're talking a few percent of our sales. So even if the growth rates were very high, it would maybe add 1% over our overall growth rate, maybe 1.5%. So that's about the range that we see there. We are -- When we are looking at siRNA however, actually more as an inter-related product, and we look at growth rates also flanking products, at least as much as siRNA duplex.

Okay, with this I would like to hand over to the operator for some questions coming from the telephone. Holly?

Thank you ma'am. The floor is now open for questions. [OPERATOR INSTRUCTIONS]. Our first question is coming from Sam Williams of Lehman Brothers.

Hello, good afternoon. Thanks for taking the question. Actually the sound isn't that good so you may have answered some of these already, so apologies in advance. Did you mention, Peer, an actual sales figures for pre-analytics products in 2004? I thought you might have but I could be mistaken. I'll carry on because I've got a few questions [indiscernible].

And then I wondered if you could -- just trying to quantify the one-off siRNA revenue that your -- the order that you had in Q4 2003. How one-off is that, and I'm trying to get an understanding here because -- presumably this -- those one-off orders are the kind of business that you're going to keep pursuing within the siRNA business? So if you can help us understand that? And then just to understand the currency assumptions in your 2005 guidance - that's one for Roland.

Okay. Hi Sam. No, the audio was fine. The pre-analytics number was not given here unfortunately, I know. But as you know, we have a policy of not splitting out individual numbers as our business is so homogenous, that we believe that this is information we should protect. We did, however, disclose that the growth rate of pre-analytics is 50% plus, and that the products that we're using in combination with BD, the so-called protocols, are also showing a very fast growth rate.

But we didn't give an absolute number but, if you just look at these growth rates and compare them with some of the estimates that are out there, you'll clearly see it's on a good path.

Okay.

On your second question, Sam, this anabiotic(ph) deal which we delivered in the fourth quarter 2003, was actually also announced in the press release in the fourth quarter of 2003. So think(ph) when it was available, and this was a one-time deal, so we haven't any other particular(ph) during 2004 on siRNA.

To your third question on currencies. The main currency which is the most important for you is US dollar which is -- the budget is done by $1.30 rate.

I'm sorry the rate is?

$1.30.

$1.30.

$1.30.

Okay, perfect, thanks.

Thank you. Our next question is coming from Brian White of Deutsche Bank.

Good afternoon. You may mentioned this in the call but I missed it but did you mention what percentage of growth in 2005 [indiscernible] you expect to come from new products? And then secondly on Qproteome sample handling. I get the impression you believe this opportunity could be of the same kind of magnitude of the nucleic acids handling business.

So I wondered if you could remind us just how long it took to achieve the market share that you have in the nucleic acid business? Just to give us some idea of how long it might take to realize the same kind of revenue growth in the Qproteome space. Thanks.

Okay, Brian, I'll take a stab. If I answer in a different direction, we have some difficulty on the audio. Number 1, percent of new products - we are going to launch north of 25 products in 2005. Some -- There are smaller families in there, so depending on how you count them it can go a little bit higher.

Typically in the first year of a product introduction you typically have 6 figures in sales. So you see that it's not going to be in the tens of millions of dollars typically within the first year. In the second year is where it typically starts ramping up. I would say that 2005, but especially 2006, are going to be years where we're clearly going to see a very, very strong pipeline, and there will also be a lot of visibility on that as they come closer.

If you look at the launch of the Qproteome line which was your second question. Qproteome was a product line that we actually developed over 18 months and through a number of different relationships, and came out with a bang. It's a very substantial breadth and it's also here even only the tip of the iceberg, so there's more to come.

In terms of market opportunity for fractionation only, it's about a $35m market growing at a very high growth rate at the moment. And where we see the sweet spot is the integration with the nucleic acid handling, or sample handling capabilities that we have in general, as fractionation is also being looked at more and more. For instance, bio market discovery or other areas.

So, how big is that product line going to be? Very similar if we launch now in January, and there're 9 product areas in there. It will be a little bit bigger than the normal 6 digit number but it's not going to be like 2% of our sales in 2005.

Okay, and just finally in terms of the product introductions. Do you expect them to be rolled out throughout the year or the second half loaded, or what can we expect?

Well, I think new product introductions are really at the essence of QIAGEN. Every year we have new product introductions of a certain number, and I think 2005 and 2006 will be better than previous years. But typically -- Well if we assume that they're a little bit better, you'll have a small emphasis on Q3 and Q4.

But again, even if with 35, 40 products kicking in - even with major new Instrumentation products. Like for instance in 2004 we introduced the Target Prep system, which is a $200,000 platform used for GeneChip analysis to do the sample preparation and target preparation. This platform, even as successful as it was - and it was a huge success, it generates -- it takes a long time for it to generate 1% of our sales.

We are very diversified company and any individual product takes at least 2-3 years, of course, before it goes over, let's say, 2% of our sales.

Okay, that's great. Thanks Peer.

Thanks.

Thank you. Our next question is coming from Quentin Wui(ph) of Bears.

Good afternoon. Question about the recent M&A activity in the space. Could you talk a little bit about the impact to QIAGEN on the [indiscernible] acquisition of Dynel(ph)?

Well, it's not our policy to comment on other competitors. I think we -- Well it's our policy, sorry, to not comment on our competitors. We -- In general I think there're different models out there that people can have, and we think that our model of a razor sharp focus, and a lean muscle is extremely important in this phase of change going forward.

We feel extremely confident that we have by far the best technologies in this space, and by far emphasized that there's not really any customer benefit that anybody else can provide, that we cannot provide better. So, this is something that is driving us but we don't benchmark us. We're 20 times larger than anybody else, we can't benchmark ourselves and other companies in this space. We have to benchmark ourselves on our own targets, and they're clearly also very high in terms of innovation and quality in 2005 and thereafter.

So I think there is -- it's good to have competition. We have competitors as well out there, and to have competition always is healthy for an industry, and I think it's a free world.

And then with respect to the sales and marketing infrastructure build-out for your clinical diagnostics area. Will that be predominantly US-focused or will it be US, Europe and Asia?

The diagnostics sales or?

Yes, the diagnostics sales.

The diagnostics sales force is starting off as a US initiative - that's where we started, as it is by far the largest market. It's headed out of the US, our diagnostics headquarters are in the US, and we'll clearly see how that develops. The markets are different in the US, they're more large -- they're large and more homogenous, and we're going to see how that develops going forward.

But first feedback has been very, very positive. To have a clear message and focus salespeople is very powerful. We do have sales specialists also in Europe and Japan, and this structure's worked very well, and we'll see how the markets develop there.

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

Hi. Thanks very much for taking the question. I've actually got 3 although 2 of them are clarification. The first 1 is on the sales in the fourth quarter. I just wonder if you could confirm that the percentage of sales in North America in the fourth quarter was around 46%, and that was also growing around 18% in the fourth quarter in North America?

Secondly, just on the G&A, you're targeting 9-10%. Does that, therefore, mean you think you can keep below the $10m that we've seen over the past few quarters now? And finally, just on the account receivables days. They have been rising, as you said, over the past few quarters. So what gives you confidence you can bring them down now towards the end of the year, given the trend at the moment seems to be for [indiscernible] days an addition per quarter?

What was the last one, I didn't catch it, sorry? Wonder probably if you can help me again. I can't feel -- one of the reasons why the DSO is so high in the fourth quarter, it's actually 2 reasons. 1 is, of course, the holidays at the end of December, so we had closed our accounting [indiscernible], actually our accounts receivable department for some days. And in addition, we had a very strong December, so there is something what we see as a seasonal trend.

And we -- If you're looking on, for example, taking the Q3 number, well DSO days were at 65 days. We feel quite comfortable that we can bring it down to 63 days. In addition, we also introduced last year the new collection software. We're going to roll it out also during 2005 on a worldwide basis. So this also is something that will help us in collecting our receivables down to 63 days.

But I think important is also, 67 days is nothing really when it is outstanding. If you're looking on another peer companies, you see that more than ever the industry average is around 70 days. So we are still quite in the zone. And the same question was on administration, as a percentage of sales?

No, it was just that G&A's been around $10m for the past 2 quarters. I just wondered, do you think you can keep it at those levels rather than the $10m or $11m we saw in the early part of last year?

Yes, I feel quite comfortable that also going into 2005 and beyond, we'll see our G&A in terms of sales which is 9% and 10%. We, for instance, have invested a lot in infrastructure over the last couple of years. We can nail a lot of utilization out of it, and just by increasing sales there is no need for the [indiscernible] at the moment for me to hire new finance people, HR people and so on.

So I think for the next couple of years we are quite comfortable with our G&A expense level. Your Q4 question on the sales was percentage of sales in the US. Since the growth rate was actually up 80% and for the year percentage was 46%.

That's great. Thank you.

Thank you. Our next question is coming from Ivan Treysford(ph) of Cazenove.

Good afternoon. It's Ivan Treysford at Cazenove. Firstly, congratulations Peer and the team on a solid year's results.

Thanks.

Now I've actually got -- I've got 4 questions, and I'll just run through them. Firstly, Molecular Staging did you -- I understand that that was completed in the fourth quarter, and you've guided for $6m for 2005 incremental revenues. What revenues were booked from that acquisition in Q4? That's my first question.

Secondly, just more on working capital. I was wondering - you did very well this year, I was wondering if there's more upside there going into 2005, or if you think that all the improvements have been done? And also if you could give some cash flow figure? I wasn't able to find the net cash inflow/outflow from working capital. If you could provide it that would be great.

The third question is, if you'd targeted any amounts on acquisition, and how much you're planning to spend this year if there was any budget for that? That would be great. And also related to cash is, you've got a nice cash pile. I was wondering if you're unable to find big enough acquisitions to spend it on, if you've consider a more healthy redistribution of capital back to shareholders?

Okay, thanks. I think I got them - the 4 questions right. Good question [indiscernible]. We just launched the product late Q4, really just Q1. So the sales from kit products was negligible in the fourth quarter from Molecular Staging. The sales force basically has it in its hands since January.

In terms of the budget, or the cash situation, clearly we're not looking at acquiring because we have cash. We're looking for -- if there are opportunities that come up, then we do have the firepower. So if we look at this going forward and nothing would become available, then clearly there would be some redistribution back to shareholders, through buybacks or whatever. But I think at this point in time we actually see a great -- accretion opportunities within our core space. And -- so I don't think there's a need in the short-term.

As you saw, when we did the deal we just acquired Molecular Staging a few weeks later, and that was also clearly something that we had anticipate, and there's certainly some more to come in that space. For the working capital and cash flow, I'll hand over to Roland.

Thanks Peer. On the working capital, I think we can further improve our working capital. Giving you an example for this, taking our inventory days, we brought it down from 205 days now for the year end of 163 days -- 173 days. Now, 1 of the reasons why we believe we can even further take it down is separate accounting now in these 2 business.

In our implementation part, we now change our implementation element into build(ph) to customers, so we don't have any bio product(ph), or major part of bio product(ph) on stock. We build [indiscernible] is current(ph) customers going to the [indiscernible]. So the level of Instruments on [indiscernible] on our [indiscernible] stock(ph) but no additional ones in our [indiscernible] implementation(ph) product.

One reason to improve working capital but also leverage in our working capital as well. On the cash flow, we had a free cash flow of approximately $60m in 2004. We believe that we'll see a free cash flow in 2005 of between $80m and $90m.

That's great. Was there actually a cash flow impact on the working capital that you could disclose at this stage?

I'm sorry I didn't get it.

Sorry. Could you just -- could you -- Thank you very much for those answers, they were excellent. But could you just disclose the cash flow impact of your working capital for the full year?

The cash flow impact of working capital improvements on the full year? That's very difficult to quantify, I --

I will have to look it up and get them to call you again on this one.

Okay, thank you, that would be helpful.

So please [can we have] your last questions.

Thank you. Our next question is coming from Maykin Ho of Goldman Sachs.

Hi there. Most of my questions have been answered. I just have 2. The first 1 is on your 2005 revenue guidance. What is the biggest swing factor that might provide upside to your guidance? Number 1. Number 2, you mentioned that there are about 50 trials involving pre-analytics. Can you name 1 or 2 that might have the most potential impact on sales, if the results turn out to be positive?

Okay, thanks Maykin. First question on the revenue guidance where we're seeing most. Clearly, the -- if we would have developments on the downside, clearly there are -- we have are exposed to the normal risks on public funding freezes or things like that, that could have an impact. But increasingly we're also going into other budgets.

You could also see some major regulatory issues having an impact on the top line or potentially, on the positive side, you might see some much larger than acceptance of certain diagnostic applications, that immediately can generate a few million dollars of sales per application.

So I would say there is -- as always as we've known from the past, even with huge swings the deviations, or the predictability quarter, is actually quite narrow. So I don't really expect any. I think it is a solid and a conservative and acceptable target for 2005. In 2004 we were able to exceed, we'll see how we do in 2005.

In terms of the diagnostics, yes, there are about 100 clinical trials for diagnostic products that include QIAGEN, and about 50 that include pre-analytics. That's a huge number and if you look at the individual components in there that can immediately go into larger sales, there are a few high sellers in there. But I would feel uncomfortable in highlighting any one and putting a number behind it.

The goal of this was not to allow a spreadsheet to be done with the date(ph) behind, and an approval and a huge number of QIAGEN behind it. But just to give you a feel of the standardization that we're achieving in this diagnostic space.

I was not trying to get a number per se but really trying to get some idea of the magnitude. Looking at both 50% increase in sales, that type of trials, I'm talking really more incremental type.

Well, if -- as -- Well, we discussed before, there are clearly some diagnostic procedures and always describing [indiscernible] that went from a negligible amount after a regulatory change, or basically a product improvement -- introduction to a few million assays a year. And if you would [indiscernible] that and with a, let's say, $2.50 clip per prep against maybe $3.00, you clearly see that there is a significant opportunity for one individual assay, that is really introduced and comes to market on the right wave.

So, there are a lot of diagnostic products out there that do millions of assays a year. We were talking about respiratory diseases were 90m swabs are collected in the US, for instance, and having substantial impact. And small sectors of that swinging would obviously be quite attractive but right now it's very difficult for us to quantify this.

Thank you.

I would like to close this conference call by thanking you all for participating. We hope to welcome you again on our Q -- on our first quarter results 2005 conference call on Tuesday, May 2, 2005. If you have any additional questions, please do not hesitate to contact us. Again thank you very much and bye bye, have a nice day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. Thank you.