Trinity Biotech PLC (TRIB) 2009 Q1 法說會逐字稿

Good morning. My name is Sade and I will be your conference operator today. At this time, I would like to welcome everyone to the Trinity Biotech first-quarter 2009 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Ronan O'Caoimh, I hand the call to you.

Thank you, Sade, and good afternoon here from Dublin. This is Ronan O'Caoimh, CEO of Trinity Biotech. I am joined by Rory Nealon, Chief Operations Officer, and by Kevin Tansley, Chief Financial Officer. What we propose to do today is that Kevin will bring you through the results for quarter one, after which Rory will talk to you about our Destiny Max FDA submission and our TRI-Stat CLIA waiver submission, after which time I will run you through the results for the quarter and the sales and marketing of the Company. At the end of which time we will hand back for a question-and-answer session.

So if I could ask Kevin to go ahead please.

Thank you, Ronan. Before I take you through the financials, I am obliged to point out the provisions of the Safe Harbor code. Specifically this presentation contains certain forward-looking statements including statements concerning plans and objectives of management, expectations about future financial performance and strength, economic and market conditions, and market positioning and opportunity. These statements are neither promises nor guarantees but are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated, including those identified in our most recent report on SEC Form 20-F and other periodic reports and registration statements filed with the SEC.

You should not place undue reliance on any such forward-looking statements which are current only as of today. You should not expect that these forward-looking statements will be obtained or supplemented as a result of change in currency or otherwise, and Trinity Biotech disclaims any obligation to do so.

Today I will take you through a review of the income statement for quarter one, the key movements in the balance sheet from the end of 2008 to date and finally, the major cash flow movements during the quarter.

Starting with our revenue performance, you will note from the press release and analysis of our revenues broken down by our key product areas of Clinical Laboratory and Point-of-Care. Looking at the total revenues, you will note that this quarter's revenues are $31.1 million and this compares to $34.2 million in quarter one of last year. However, adjusting for currency movements, revenues in quarter one would have been $32.2 million on a constant currency basis. Consequently we can see -- we've seen a decline of 3.5% again on a constant currency basis.

Breaking this down further, Clinical Laboratory revenues, which consists of our hemostasis, infectious diseases, and clinical chemistry product lines, have declined by 8.7% whilst on the other hand, our Point-of-Care revenues have increased by over 43% quarter-on-quarter. Rather than get into the detail on these and other movements, I will move on to our gross margin performance and Ronan will shortly take you through a more detailed analysis of this quarter's revenues.

Our gross margin for the quarter was approximately 46%, which is in line with the gross margin achieved in quarter one 2008. However, if we compare the gross margin to more recent quarters, we see that it represents an improvement on the 45% in quarter two and 44% in quarter three and four of last year. This improvement comes from a combination of cost savings and a more favorable US dollar/euro exchange rate.

As you can see from the press release, if we exclude servicing costs which many companies do in our sector, our gross margins would have been over 50%.

Moving onto our indirect expenses, our R&D expense has decreased on $1.85 million to $1.78 million during the quarter, a decrease of nearly 4%. On this basis, R&D expenditure now equates to approximately 5.7% of revenues. Again this quarter, our selling, general and administrative expenses of $9.6 million have come in lower than the comparable period last year of over $12 million, thus representing a decrease of over 20%.

This caption is where you are seeing the impact of a number of factors. Firstly, it includes the impact of the cost-saving measures that we announced in late 2008 and which are now largely implemented. Secondly, we have benefited from the more favorable exchange rates which are currently prevailing. The average euro/dollar exchange rate this quarter was 1.31, which compares to 1.50 in quarter one of last year.

Finally, we're also seeing lower depreciation amortization charges in this caption of approximately $0.5 million and this is attributable to the impairment charge that we took in quarter four 2008. Assuming that exchange rates stay at current levels, we can expect SG&A costs for the quarters ahead to remain significantly lower than last year, so in some quarters we may see slight increases due to the timing of marketing and other expenditure.

Moving onto our net financial costs, these have continued to decline and in fact are less than half of what they were in quarter one 2008. Again, this is due to a combination of factors. The most significant factor is obviously the significantly lower interest rates in the US, which I would like to remind all listeners that all of our bank debt is currently denominated in US dollars.

The second factor contributing to a decrease in this caption has been the level of our debt. As you will see from the balance sheet, our total level of interest-bearing debt has now fallen to $34.1 million, which is a fall of nearly $4 million over the last 12 months.

Regarding the tax charge, this quarter's effective tax rate is just over 9%. This is lower than in previous quarters, where it has tended to average in the mid teens. The lower effective rate this quarter is as a result of us benefiting from the utilization of tax losses in certain jurisdictions. However, I do expect the effective tax rate to revert to more normal levels in the coming quarters. It should be pointed out that a large element of our tax charges actually defer tax as opposed to current tax payable.

Our operating profits for the quarter amounts to over $3 million, which compares favorably to the $1.8 million that we reported in quarter one of last year. The increase is attributable to our lower indirect cost base which has declined significantly quarter-on-quarter for the reasons I just outlined.

From a profit after tax point of view, we have seen an increase from $1 million to $2.5 million over the same period. This equates to an increase in earnings per share of $0.12 versus $0.055 per ADR.

Now let's talk about our balance sheet. Starting with our property, plants and equipments, the movements since the beginning of 2009 is largely explained by the combination of the additions of $700,000 as offset by depreciation and foreign exchange movements of $1.1 million. Of the PPE additions this quarter, approximately half came from instrument placements.

Our goodwill and intangible assets have increased by $1.2 million since the beginning of the year and this is mainly attributable to additions of $1.8 million on development projects this quarter, which in turn then has been offset by amortization of approximately $0.5 million. The major development projects remain Destiny Max as we currently prepare for our launch in the US later this year, and TRI-Stat, which is currently undergoing its CLIA trials.

Moving on to inventory next, inventory has fallen by approximately $1.3 million for the quarter. This reduction is consistent with our policy of seeking to reduce our inventory balances and we have mentioned this on a number of previous calls.

Our trade and other receivables balance, which comprises trade receivables from customers and also prepayments, that has seen a reduction since the year-end also, which largely is partially reflective of lower revenue this quarter. However, from a debtor days perspective, our trade receivables have remained constant and our currency standing at approximately 63 days. We will continue to monitor our receivables balance closely as we are seeing a slowdown in collections in some markets this year; however fortunately, this has been offset by improved collections in other markets.

Finally in relation to working capital, our trades and other payables have fallen by $4.3 million this quarter. This is largely due to the timing of some large payments during the quarter. In addition, we have also paid off the final elements of redundancy costs that were announced in late 2008 however, we expect that in future quarters this number will reverse significantly and revert back to more normal levels and thus obviously release significant amounts of cash.

Finally on the balance sheet, I would like to address our bank debt. Interest-bearing debt at the end of March stood at $34.1 million, a reduction of over $2 million compared to year-end. This is explained by the repayment of $2.1 million of bank debt made at the start of this quarter.

Before I finish, I would like to discuss our cash flows. You will se that we have included a brief cash flow statement in our press release this quarter. Our cash balance for the quarter decreased from $5.2 million to $2.6 million and as you can see from this cash flow statement, this movement has been explained by the following items. Cash from operations before working capital movement of $4.1. This then has partially offset by working capital movements of $1.8 million. And within this $1.8 million is a significant decrease in our trades repayables which I mentioned earlier and which we expect to reverse in future quarters.

Offsetting this is the improvements that we have seen in our accounts receivable and inventory balances, again which I mentioned earlier. Total capital expenditure, which includes PPE and development costs during the quarter was $2.5 million. Finally, the other major principle item we are seeing again is the repayment of bank debt of $2.1 million.

Based on this, you can see that our free cash flow for the quarter was slightly negative coming in at approximately $450,000. However, this is very much a factor for this quarter only. With regard to meeting our next bank repayments of $3.2 million, which is due in early July, we are confident that we will be in a position to do so.

In quarter two, stronger revenues due to seasonal factors, the continued impact of cost savings, our reversion to more normal payable levels, and substantial grant proceeds that we are due to receive from the Irish government will contribute significantly stronger cash flows in quarter two.

Indeed as you can easily appreciate, our reversion to the previous levels of payables alone will generate more than enough cash to make the next repayment. Furthermore with the impact of stronger revenues, a lower cost base, and control over working capital during the remainder of the year, will also enable us to meet the next repayment again which falls due in early 2010.

There is one other matter which I would like to deal with before I hand back to Ronan. As many of you already know, our AGM is due to take place next week on Friday, May 8. All shareholders should have received their documentation at this stage. Bank of New York Mellon, who managed our ADR program for us, have informed us that the closing date for voting is 5 p.m. Eastern time tomorrow -- i.e., April 30. I would just like to remind all shareholders of that date and obviously management will encourage all shareholders to participate in the voting of that meeting.

I will now hand back to Rory, who will give more -- give information on R&D activity.

Thank you, Kevin. I'm first going to give you a quick update on the status of our TRI-Stat CLIA trials and then our FDA submission on our Destiny Max.

As you are aware, TRI-Stat is a doctor's office instrument designed to measure hemoglobin A1c, also known as glycated hemoglobin which is a measure of a patient's average blood sugar control over the last two to three months and as such the key tool in determining whether diabetics are sticking to their treatment program.

As a result, the American Diabetics Association now recommends that all diabetics have their A1c measured at least four times per annum. This recommendation combined with the prevalence of diabetes means that the demand for A1c testing is expanding rapidly.

Just remind you, the key benefits of our test include both its ease-of-use and the absence of a need for refrigeration, thereby reducing the time to run each test. Also most importantly, it is an interference-free product, otherwise known as boronate affinity technology, which means that the result will be more accurate and the test result will not be affected if there are hemoglobin variance present. These are the key differentiating factors versus our competition.

To give you the latest update, TRI-Stat is in the midst of its CLIA trials with approximately 50% of the testing complete and the pace of testing has in fact picked up significantly in recent days. Being candid, up to now the pace of testing has been a little slow for our liking in large part due to the interference of spring break in the United States and most of the testers in the various clinical sites being on vacation, which is unfortunately beyond our control.

Completion of the testing will take a few more weeks to complete, at which point we will immediately submit our CLIA application to the FDA. You will recall from our last conference call that we only have to get 360 patient samples, which in itself does not sound like a lot but unfortunately we are required to get them relatively evenly spread across low, normal, and high A1c patients and that has to be the case in each individual clinical site.

Getting the lows and highs, which represent patients who are not yet being treated for diabetes is obviously what takes that little bit of extra time.

Before concluding on TRI-Stat, I'll remind you of the potential profitability of this product. The market price to a distributor is somewhere in the region of $3.50 per test and based on these levels of pricing, Trinity will be expecting to make margins north of 65% per test.

To move on to the Destiny Max, you will recall that we obtained our CE Mark in December of last year and have since been selling multiple instruments in a number of countries throughout the world including the UK, Ireland, France, Holland, Italy, Germany, and Japan. We are also hoping to land another PO from an eighth country by close of business today.

The latest update on the FDA submission that it is very much going to plan and we do expect to have FDA approval at the end of quarter two as previously outlined. Following on from our submission to the FDA, we received a short set of queries and are currently working through these. Specifically, there were four queries, three of which are effectively completed and are ready for submission and a fourth of which we are still working on.

This fourth and last query is related to proving the equivalence between fresh and frozen blood on our instrument. This in itself is not a cause of concern to us in that both practices are widely used within the industry. In fact, there are papers from the likes of the CLSI, our Clinical and Laboratory Standards Institute, which in fact touts the equivalence between both fresh and frozen.

We are currently conducting many trials to prove this equivalence to the FDA across the four different measurement modes on the instrument. To date, two of these four, namely mechanical and optical, are complete and in fact prove the equivalent between fresh and frozen and the remaining two, namely immunoturbidimetric and chromogenic, we believe will be completed in the second half of May, at which time we will immediately submit the responses to all queries to the FDA.

Like I said, we are very confident this instrument is going to get FDA approval and will open up the very significant US market for us. In relation to the US market, it is worth pointing out that we have been pre-marketing this instrument for a period time and the reaction from the ground has been truly excellent. Specifically, we have heard comments like this is the most impressive instrument I have ever seen. You've addressed every single one of my concerns with positive results, and this instrument is a winner.

Now Ronan is going to take you through an overview of the sales profile for the quarter.

Thank you. During quarter one, our sales as Rory said, were $31.1 million compared to $32.2 million in the first quarter of 2008 on a constant currency basis, a drop of $1.1 million or 3.4%, 3.5%. On an overall basis, $700,000 of this decrease rolls in our antigen and antibodies supply company, which is called Fitzgerald, where sales dropped from $3.1 million on the same quarter last year to $2.4 million this quarter. This decrease arises despite the fact that we have suffered no loss of a significant customer.

What is happening is that average order sizes are 20% smaller than previously. This is a phenomenon that just arose really around the month of November, start of December. So order sizes are 20% smaller than previously as diagnostic manufacturing companies try to reduce their inventory levels and research institutions purchase smaller volumes than previously. We are negotiating a number of large supply contracts with some diagnostic companies and are hopeful of recovering much of the lost revenue in coming quarters.

Going back to the overall reduction of 3.5% in our revenues breaks down into an increase in our HIV sales of 43.3% and a decrease in our clinical laboratory sales of 8.7%. Dealing firstly with Point-of-Care, which represents HIV sales in the US and in Africa, the 43% increase sounds dramatic. In reality, the Point-of-Care performance in the quarter was solid and slightly in excess of our budget. The 43% increase reflects rather a weak quarter one of 2008 rather than the wonderful quarter one of this year.

Given that African sales are inevitably paid for by donors, there can be distinct fluctuations in the volume of sales that can significantly distort our results on a quarter-by-quarter corner recorder basis. As I said, our sales in Africa performed ahead of expectations during the quarter and the fundamentals of the business are sound and we know that our product is regarded as the best quality product available on the market with an instantly recognizable brand. Along with one competitor product, we both dominate the market and with ever increasing funding from PEPFAR and other programs, the HIV spend in Africa will inevitably continue to increase.

Moving onto our clinical laboratory business, as I said, we saw a decline in this business from $28.9 million to $26.4 million, which is a decrease of $2.5 million or 8.7% when we compare this quarter with the same quarter last year. I have already explained that $700,000 of this decrease relates to Fitzgerald. The balance of the decrease is explained by the reduction in our hemostasis business, which as we have explained in the past, arises due to the fact that the old MDA base needs to be replaced by the new Destiny Max instrument, which has just been approved in Europe and awaits FDA approval, as Rory has just explained.

As we all know, this business has been in decline over the past two years while the roll out of the new Destiny Max instrument has been awaited.

During our last conference call for our year-end results six weeks ago, we indicated that our hemostasis business had suffered a decline during 2008 of just under 5%. On a positive note, our hemostasis sales in quarter one have exceeded our quarter four 2008 sales in hemostasis, and I think that's the key point. We need to arrest the decline in the hemostasis business and that's happening.

Having launched Destiny Max in Europe, at the end of December, we placed 15 new Destiny Max instruments during quarter one. Given that it is always very difficult to place the first instruments in any country and given that evaluations can take a lot of time and also given that an FDA approval carries a lot of QDots around the world; given all these factors, we are very pleased with placing 15 instruments in the first quarter.

As Rory has already indicated, we are confident of getting FDA approvals. He said by the end of the quarter but actually we would be disappointed if it takes quite as long. But we believe that that event will significantly help us in our efforts to place Destiny Max instruments around the world. Going back to the point about the QDots of having an FDA approval.

As Rory has also indicated, Destiny Max is already being evaluated throughout the US and we have received a very enthusiastic response across the country. Given these factors, we believe that we can maintain hemostasis sales levels at or marginally below their 2008 sales levels and for their growth of business as we place more instruments in the market. As I have said in the past, the hemostasis business which has declined over the past two years is the component of Trinity with the greatest organic growth potential for the future.

Moving onto infectious disease, this business with the exception of Fitzgerald performed well during the quarter. Our broad range of (inaudible) infectious disease products are selling extremely well throughout the United States in smaller laboratories, where we continue to grow our market share.

Then our clinical chemistry division performed strongly during the quarter, with growth of 4% over the prior year period. The major focus for us has been the neonatal variant market, where we continue to make gains at the expense of the dominant player. So far we have won four states and are running evaluations in 12 further states.

Finally to our TRI-Stat product, HbA1c product, as Rory has indicated, we are confident of a successful CLIA waived FDA approval. As Rory said, it is just coming to the end of the trials. It takes three or four weeks for that and they take 90 to 120 days after that, so we're looking at August, September, I really, really believe. So the next four or five months we should be approved there. We are now concentrating our efforts on securing a partner both in the United States and in Europe for the marketing of this product into the doctor's office and the Point-of-Care markets.

Finally in summary, we are reasonably satisfied with the quarter and you need to bear in mind that quarter one is always our lowest revenue quarter. As an example, we sell no Lyme tests in quarter one and bear in mind that we do $8 million a year of Lyme.

Our infectious disease business, our HIV Point-of-Care business, and our Clinical Laboratory -- our clinical chemistry businesses are performing strongly. And most importantly, as I've already indicated, we believe that we have stopped the decline in the hemostasis business. We may suffer some minor contraction this year in hemostasis but it should be very, very minor.

In the current economic climate, you have to bear in mind it is difficult to get hospitals to commit to spending on new instruments, but the reaction so far to the Destiny Max has been so positive as to make us extremely confident even in this difficult economy.

You will have noticed that we are now beginning to get the benefit of our careful attention to our cost base and bear in mind, this review of costs is ongoing. We are confident of delivering stronger earnings per share in the quarters ahead off a lower cost base and a higher revenue base.

So thank you very much. And at this point if I could hand back to Sade for the question and answers.

(Operator Instructions) Matt Dolan, Roth Capital.

Good morning. First question on the Point-of-Care side. Did you tell us how the US is performing? And if not, how are you doing there? And between the US and Africa, what is kind of your growth outlook for all of this year 2009?

Matt, this is Ronan. We don't separate the two, as you know, in the past. So if you don't mind I won't do that. I'll just say Point-of-Care in the States defined this quarter from recollection I thought we got 25% last year in the States. I'm just not 100% sure that number is 25% growth and we would be confident of exceeding that this year again.

Somewhat more modest in our projections for Africa. As you know, we had issues there. Last year we were concerned. But certainly very much what we've done in quarter four in Africa, and what we have done in quarter on, bearing in mind the level of our Nigerian orders, the orders we got in a new contract that we won last quarter, remember the one I was unable to actually name. I think that all of the basically that our African business is doing extremely well and we are confident that we will achieve our budgets.

Okay, and then you mentioned kind of the seasonality of your business as lime starts to kick in here. How should we look at 2009 overall? I know you've got a little bit of a currency headwind, which I think we talked about it about $10 million on the top line. On a constant currency basis, is this something that -- can we look a kind of a flat year on a growth rate perspective, not including the currency issue?

Yes, I think -- I mean we haven't been -- we don't give guidance as such, but I think in the current economic circumstances and also given the fact that our coagulation business was in significant decline or reasonably significant decline, I think at constant currency constant revenue results for the year given the -- what we've done on the cost side of things would result in an extremely strong EPS number that [I am obviously afraid] to say.

But that would be considered aggressive I guess is what you're saying?

It would certainly greatly exceed what you are indicating, Matt.

Yes, I understand. And then on the Destiny Max side, you've got 15 instruments. How much -- I guess how much pent up demand do you have and do you still think you can exceed 100 placements this year? And kind of bring that back to this revenue conversation, how much of that is reliant on Destiny Max?

Well, not -- the answer to your question is yes, we believe that we will do 100 instruments. We have place 15 of the -- we have placed 15 around the world in the first quarter and you multiply that by four, you get 60 and we always were hoping for about 40 in the States. We have a lot of pent up demand in the States.

So yes, we think we will do our 100 and in terms of what impact that 100 will have in one particular year in our revenue base, it would probably more serve us to stabilize it than increase it, because in many instances after you are replacing an existing instrument, although not always. But even if it was all new business, if you placed 100 instruments and you do $15,000 a year, that's $5 million and you (inaudible) average placed them in the middle of the year, it would be an incremental $2.5 million.

But bear in mind that maybe 60%, 70% of what you'd get would actually be replacing existing instruments. So a large -- a lot of what we are doing initially would be stabilizing the existing revenue base rather than actually growing it.

Okay, very good. And then two for Kevin. On the gross margins in the quarter, that was a nice sequential improvement even though Point-of-Care was I guess fairly consistent as a percentage of sales. Is that mostly currency related and is that something that's a sustainable level going forward?

Matt, it's -- to a significant extent, probably the cost savings above the line we don't -- there isn't a huge impact on the currency side because we have a natural hedge between the revenues and the costs. A certain amount of our revenues are in euros and a certain amount of our costs, so they match to a large degree. Cost savings would be the major factor I would attribute the improvement to.

Okay. Then finally, can you walk through the debt repayment cash flow concept here over the next few months? You've got a payment coming up in July and you had $2.5 million of CapEx in the last quarter, generated $2.5 million from operations. So how should we think of that and your ability to generate cash from operations there?

Yes, as I mentioned in my presentation there, we did reduce our trade payables very significantly during the quarter. It all tended to fluctuate quite a lot depending on the timing of certain payments. As it happened this quarter, it just seemed to be quite extreme. We had a number of very large payments coming together and we had things like all of those fees which only ever happen in quarter one and also with the remnants of the redundancy costs that we had to pay coming out of the end of last year. So I see that reversing. I don't see us for example having to fund working capital this quarter.

Therefore, you are going to see -- in fact it will actually probably be a positive as we get back to more normal creditor levels, in which case you are seeing all of the EBITDA pretty much dropping straight to cash, adding on whatever benefits we're going to get on the working capital. The CapEx side at the 2.5, 2 point level would roughly probably be in and around may be slightly lower in quarter two. And therefore if you take that combined with I'd say the improved cash in the operations before CapEx, you are going to generate significant amount of cash.

A further factor which we haven't seen in quarter one will be a significant amount of ground payment in quarter two which we approximately would -- I did say I'm estimating about $800,000 but could be as high as $1 million if not more.

Okay, great.

(multiple speakers) I think we are in good shape to make our payment in terms of the end of quarter two. It's actually very early quarter three, $3.2 million. So --

Okay, thanks a lot. Congrats on the earnings. Thanks.

Neal Goldman, Goldman Capital Management.

Good afternoon, guys. What are those grants for? You know the $800,000 you are talking about?

When we bought the (inaudible) business, we had to build a factory here and move production into a new factory. And so we negotiated with the Irish government for a total grant package of about $3 million. And that's being paid now gradually.

Okay, in terms of the quarterly seasonality, the second quarter typically is how much higher than the first quarter?

About $2 million. Really all our quarters are fairly close but quarter one because it has zero Lyme components -- I know there's other factors, but because of that principle reason, it tends to be the lowest revenue quarter.

Okay, basically on that incremental $2 million, if your CapEx is down, you have all the redundancy costs eliminated, you should bring down at least approximately $800,000 to the bottom line, right, incrementally? Does that sound about right?

On the increased sales, you're going to earn at least sort of mid 40%, so there's probably more really in the sense that our cost base is already in place and is a reasonably fixed cost base, So incremental $2 million will yield I would anticipate in excess of $1 million.

Okay. So after tax let's call it $900,000 or almost another $0.09 a share. I mean the second quarter could be substantially higher than this first quarter just announced, correct?

Yes. I mean on that basis, yes, Neal, I wouldn't disagree at all.

Okay and from a cash standpoint if we earn let's say $1 million incremental on top of what was our $2.5 million in the first quarter -- I mean -- (multiple speakers)

Neal, it's Ronan here. If you look at the last page of our release, for the first time we have put in (inaudible) tax risk, we have put in a consolidated statement of cash flows. You see that basically our operating cash flows were actually $4.1 million, $4.081 million if you see that number. It was just that $1.7 million of it got used up in working capital and Kevin has pointed out that we don't see that repeating.

Okay. And in terms of your R&D spending that is tied to the Destiny Max, you said it was down in this quarter but still high. What is it going to be in the second quarter?

Our intangible spend, which is essentially capitalized development expenditure will probably continue on at roughly -- slightly lower than in the current quarter. In the current quarter, the actual spend was about $1.7 million, so it will be probably in the region of $1.5 million to $1.7 million.

Okay, but even there, let's call it $100,000 incremental plus the working capital benefit plus the grants, you are going to generate close to $7 million plus this quarter in cash, it looks like. Or EBITDA, I should say.

Yes, our EBITDA will -- depending on how you calculate it, we will probably be in terms of EBITDA -- you are talking an extra $1 million on top of the $4 million we did this year, about $5 million of EBITDA. If you are taking the working capital movements on top of that, then you are getting awful close to your $7 million.

And the grants, so I mean it's not even an issue about the cash flows in terms of payment of the debt (inaudible)?

They were confident we would meet our payments. We are keen to point out that there were certain factors in quarter one which won't persist for the rest of the year. Yes, you are right. You picked up on the points there. It turns around significantly in quarter two to enable us to make that payment.

Well, that was a very good quarter given the tough environment and I look forward to continuing improvement. Thank you.

Jack Gorman, Davy.

Great, thank you. I have two questions please, if I may. Firstly to Ronan, just in terms of Destiny Max, and you mentioned that the targets for 2009 in terms of your confidence that 100 or over 100 instruments will be placed, I'm just wondering if you can give us a little bit more color on that, Ronan? In terms of what you said previously as regards the split between you and replacement, I think you said maybe roughly 30% new, 70% replacement. Do you stick with that kind of split? And what would it have been like in the Q1, the Q1 performance of the 15 placements?

Thanks, Jack. Just mentioning, we are hearing a lot of static here. I don't know, Sade, if you can do anything about that.

Yes, sir. Just one moment.

Thank you, but I will now answer that question anyway. I will continue. Jack, I think 70/30, 75/25 is approximately where it's at. In fact for the first 25 instruments, it probably would've been more -- for the first 15 instruments that we placed, it probably would've been more like I'd say 60% new and 40% replacement. That was just because it was -- we were placing in the distributed territories. But we are virtually a very small [MDA] base, all right? There was only three that went into the UK, where we have a big MDA base.

But I really -- I suppose what I'm saying is in the US and in the UK, where we have a very large MDA base, we will be having -- we do a lot of placement work. In France and Germany and the rest -- and the distributed territories there will be a greater number of new business in place in Destiny Max. In most cases, it will be actually new business. So my 70/30 is an estimate. First quarter in fact it is 60/40. I think maybe 70/30 actually new business.

Okay, actually just to add in with two additionals or the one if you don't mind. Just on TRI-Stat, first question one, is how have you progressed in terms of a marketing partner for TRI-Stat? Question two, is reverting back to your December announcement on cost savings and your cost reduction plans, I know you mentioned at that time the impact on PBT would be approximately $1.4 million in Q1. Kevin, I'm just wondering if that's actually how it occurred in the end?

Yes, I'll take that question, Jack, before the TRI-Stat one. I mean as I said there just earlier, we pretty much have yielded all the cost savings that we expected and so the $1.4 million has been achieved at this stage. Just to reiterate Ronan's point, we are continuing to look for further savings as the year goes on. We haven't just stopped at the $6 million level.

Okay, and just in terms of the TRI-Stat question -- yes, right, we are clearly -- we clearly don't have distribution into the Point-of-Care doctors off the market. We need to find partners. We can't market this product ourselves and we have made reasonable progress, significant progress I would call it in Europe and we have made not significant progress in the United States if I was really frank about it. We are at an earlier stage there.

The issue for us is I suppose to be honest with you having basically announced an FDA approval and not got it CLIA waived, I think it's difficult to get the attention of the very, very big companies until such time as we actually have got the product approved or we have successfully [piece] of the CLIA trials. So there's a little bit of plan to stand back and wait but CLIA is doing that in the case of US potential partners. In Europe, we are well progressed.

(multiple speakers) your timeline, Ronan, but would you expect both of those regions to be tied up this year?

Yes, absolutely. Absolutely in the case of Europe and hopefully -- very much hopefully in the case of USA. But as I said, we are just not as progressed in USA. And just to remind you what Rory was saying, he's thinking about four weeks, but four weeks, Rory to the finalization of the CLIA trials. We are just basically waiting for -- still samples that is kind at the outer side of the spectrum fundamentally and then we will submit and we should be at 90 days, maybe 120 days with the FDA. So maximum 150 days.

Great, that's brilliant. Thanks for that.

(Operator Instructions) Killian Murphy, Goodbody Stockbrokers.

Just one quick question. Just looking through your 20-F, I see that you are taking legal action against some former shareholders. I was just wondering could you give us an update on how this is progressing?

All right, the background to this case is that you may remember that we bought -- Trinity bought the Primus business in mid-2005 from a group of shareholders and a 40% shareholder was Mr. Tom Reedy and then 60% was owned by principally two and one-third and a smaller third person. So basically we formed a view that -- we paid an extra amount, an earn-out amount depending on Primus's revenues for the full year of 2005. Under that clause, we paid out a substantial earn-out in early 2006.

However, we subsequently discovered that the revenues used to calculate this earnout had been overstated. And we were absolutely sure that that was the case. So we initiated legal proceedings to recover the over payment, which is I think $[512,000]. In fact, what's happened is we have agreed to a settlement with all of the shareholders with the exception of Mr. Reedy. So we have basically reached agreement with the 60% owners of the company but not with Mr. Reedy, who owned 40% of it. So they have agreed to pay us between $0.70 and $0.71 on the dollar.

It then comes to $217,000 as well as from our point of view, although we were 100% sure we were right, the cost of maybe securing the difference between 71 pence and the legal costs of and the time and the effort of going from 71 pence to 100 pence and the dollar just wasn't worth it, so we settled at 71 pence. But I think in fairness to us you can draw your own conclusions as to the strength of our case from the base of that outcome.

Meanwhile Mr. Reedy hasn't responded to the legal proceedings and I understand a default judgment is imminent against him on it unless he of course goes in and works (inaudible) to defend the case, which he hasn't done to date. So all proceedings are -- I think the court automatically does them. But that's ongoing at the moment. But anyway, so we settled with 60% and I think there is a check for $[207,000].

Okay, brilliant.

You can say the shareholder is 70%, 70 pence. Does that answer the question?

Yes, it does indeed. Thank you very much.

(Operator Instructions) [Bob Aye], [Merlin Lexus].

Kevin, what is the net amount of research and development expense that was capitalized in the quarter?

Sorry, Bob, (multiple speakers) There's static on this phone. Bob, I understood your question to be how much research and development costs were capitalized during the quarter and I think it would be about $1.7 million.

And how much is amortized from --?

About $500,000.

And that would be 1.2?

That's 1.2, Bob, yes. Sorry, apologies. There's a lot of static, but yes.

Okay, so if we are using US GAAP accounting, would it be the R&D expense, would it be about $3 million?

Again the static, Bob. Assuming you are trying to convert back into US GAAP accounting, in which case, yes, you would add back the $1.7 million, which would bring up your R&D up to the $3.5 million level. And then obviously then you would deduct off the amortization of about $0.5 million, which would bring it back down to about $3 million.

Okay, thank you.

But I think it's important -- I think, Bob, to pick up where I think you are coming from as well, and Kevin mentioned earlier, that Trinity Biotech spends 5% of its revenues in R&D. In fact, under US GAAP, that would be closer to 10%. Is that fair, Kevin?

Yes, yes, $3 million in the context of $31 million, yes.

Okay, thank you.

I think -- I don't know if they're any more questions but there's so much static on the line I apologize, I'm not sure what happened. I think we might close off the conference. Actually I don't see any more questions, so in that case, thank you very much indeed. And we look forward to talking to you on quarter two. Goodbye and thank you so much.

This concludes today's conference call. You may now disconnect.