Trinity Biotech PLC (TRIB) 2009 Q4 法說會逐字稿

Good day and welcome to the Trinity Biotech fourth-quarter 2009 financial earnings conference call. All participants will be in listen-only mode. (Operator Instructions).

I would now like to turn the conference over to Ronan O'Caoimh. Please go ahead sir. are O'Caoimh Ronan O'Caoimh:

Thank you very much. Good afternoon and welcome to our conference call. And I am joined here in Ireland by -- sorry, my name is Ronan O'Caoimh, CEO, and I am joined by Rory Nealon, our Chief Operations Officer and by Kevin Tansley, our Chief Financial Officer.

And what we are going to do this afternoon is Kevin is first going to bring you through the results for quarter four and for the year and after I am going to talk to you about the sale of our coagulation business to Stago, after which we will open a question and answer session which Rory, Kevin, and myself will deal with.

So if I could hand over to you now, Kevin.

Thanks 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 objections 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 any undue reliance on any forward-looking statements which are currently only -- are current only as of today. You should not expect that these forward-looking statements will be updated 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 the results for quarter 4 including a review of the income statement and the key balance sheet and cash flow movement for the quarter.

Starting with our revenue performance, you will see in the press release an analysis of 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 $30.8 million in this compares to $34 million in quarter 4 of last year hence reduction 9.5%. Wherever adjusting for currency movements, revenues in quarter 4 would have been $35.1 million so on a constant currency basis the decrease would have been 12.2%.

Moving on to gross margin. You will see from the income statement that our gross margin for this quarter is 44.5% which is almost [1]% higher than the equivalent period last year. This improvement is largely due to cost savings implemented during the year.

As I've mentioned on previous calls, a lot of our competitors calculate gross margin before servicing costs and other results (inaudible) the same our gross margin would improve to 48.5% this quarter.

Moving onto our indirect expenses, our R&D expenses this quarter have increased marginally to $1.9 million which is a rise of approximately 4% compared to quarter 4 of 2008. And this increase this quarter was mainly due to a weakening of the US dollar versus the euro.

From a selling, general, and administrative expenses point of view we have continued our trend of reducing indirect costs. Taking the last four quarters, the SG&A charge have gone from $9.6 million in quarter 1 to $9 million in quarter 2, $8.7 million in quarter 3 and now $8.2 million this quarter.

Quarter on quarter, this represents a reduction of 27%, which was obviously very substantial and reflects the impact of our continued costcutting efforts. In fact this is the first quarter when we are seeing the full impact of the rationalization of our French sales on US finance functions. Which is also cheap despite an adverse movement to trial present in US dollar euro exchange rates quarter on quarter.

Moving onto our [net] financing costs, these have also continued to reduce. The charge in quarter 4 was $263,000 which compares to $455,000 for the same period last year, or a reduction of 42%. As in previous quarters this is due to a combination of lower debt levels as we continue to pay down our debt, plus the benefit of lower interest rates.

Moving onto the tax charge, this quarter there's a small negative tax charge of $32,000 which arose due to our profits arising in jurisdictions where we had tax losses available and also due to deferred tax movements. The effective tax rate for 2009 is just over 8% compared to an effective rate for 2008 of 14% after adjusting for the effect of once-off charges in 2008.

This year's effective tax rate is better than our expected long-term rate as we continue to utilize tax losses carrying forward from previous years.

Our operating profit for the quarter amounted to over $3.5 million which represents an increase of 58% over the comparable figure of $2.2 million, which we reported in 2008. This brings the operating margin for the quarter to 11.3%, which is consistent with the operating margin for the year as a whole.

From a profit after tax point of view we have seen an increase from $1.5 million to over $3.3 million over the same period, which is an increase of 121%. Similarly EPS for the quarter has more than doubled, increasing from $0.07.1 to $0.15.5.

Before moving away from the P&L I would like to briefly comment on the full year results, notwithstanding that revenues were lower than in 2008. We have seen a dramatic increase in earnings. Full-year EPS of $0.565 was over double what was achieved in 2008 and well in excess of market expectations.

Now let's talk about our balance sheet. I will now explain the significant movements from the end of September 2009 to the end of 2009. Property, plants, and equipment remained stable during the quarter, due to additions of $600,000 being largely offset by the depreciation charge in the quarter.

Of the additions approximately half relate to instruments placed with customers.

During the same period, our intangible assets increased by almost $2,000,000. This is mainly attributable to $2.4 million of expenditure and development projects which is broadly in line with the quarterly run rate for 2009. But that in turn has been partially offset by amortization charges of $0.4 million.

Moving onto inventory next, you would see that the inventory has decreased by approximately $2.1 million for the quarter. And this reflects our continued efforts to control the level of inventory as part of a greater working capital management strategy.

Trade and other receivables have fallen by almost $3.3 million in the last three months. But this has been partially driven by lower revenues. We have seen a significant improvement in [debtor] days from 65 days at the end of September to 57 days at the end of December. 57 days is close to the lowest ever achieved by the group and it is comforting to see that the debtors returning to this level or in the slowdown in payments experienced in early 2009.

Finally in relation to working capital, trade and other payables have decreased by $4.1 million this quarter and the level of payments can be expected to fluctuate significantly quarter on quarter depending on the timing of payments, but also tends to be linked from movement in our receivables.

Finally on the balance sheet I would like to mention our bank debt. The year end is still at $29.5 million and since then, we have made a further loan repayment of $2.4 million which has now brought our level of buying debt down to $27.1 million.

We will now move on to discuss our cash flows for the quarter. Our cash balances for the quarter increased from $3.7 million at the end of September to $6.1 million at the end of December.

As you can see from the cash flow statement in the press release, this movement is mainly explained by the following items. Cash from operations which consists of operating (inaudible) plus depreciation, amortization and other non-cash items of $5.3 million and this has been partially offset by working capital movements of $0.5 million in total cash spend on capital expenditure during the quarter of $2.4 million. And that is a combination of a TP addition and capitalized development costs.

These combined give a free cash flow for the quarter of $2.4 million.

I will now hand back to Ronan.

Thanks Kevin. We announced today that we have entered into a binding agreement for the sale of our worldwide coag business to Stago International Affairs for a price of $90 million.

The consideration will be paid as follows. That's $67.5 million on closing which we expect will be 30 April of this year. $11.25 million at the end of April 2011 and another $11.25 million at the end of April 2012.

No conditions or earn-out provisions will apply to this deferred element of the consideration which is supported by a bank guarantee. A further $5 million will be released to working capital following the collection of accounts receivable and what will happen here is as we have retained ownership of accounts receivable and accounts payable and will realize a net $4 million -- excuse me I said $5 million -- I meant that $4 million when these are closed out.

In total the proceeds will therefore be $90 million plus $4 million is $94 million. Our debt, as Kevin just said, is down to $27 million and we have cash on hand of $6 million. So our net debt at the moment is $21 million.

So we will move from a net debt position of $21 million to a net cash position of $73 million or $3.50 per share although obviously $22.5 million will come in in 10, 12 and 24 months as I outlined.

And Stago will take over two of the Irish fact -- two of the Irish buildings which are leased and 170 Irish employees will transfer. Stago has given undertakings to remain in Ireland and intend to invest in upgrading the plant.

They will also take ownership of the Lemgo, Germany plant where all employees will transfer and will continue instrument manufacturing there. They will take over the UK, German and French sales and marketing companies, including all leased buildings and virtually all of the employees.

Going forward, Trinity will continue to sell direct to the UK. In France, we will sell our clinical chemistry products direct and will also sell direct to the Megalabs which are Serva and Biomass, where we have a significant Western [blast support seller] business.

And which we will refer -- the rest of the business which is quite a small amount of business to a distributor model in France.

In Germany, we will sell clinical chemistry direct with the balance through distributors. In the USA, 33 of our sales and marketing staff will transfer to Stago and these are all directly involving coag sales and service.

We will remain direct in the USA, fully committed with the sales and marketing staff of 60 people. They will continue to sell our HIV product, our infectious disease range, where our line is a 90% market share, our clinical chemistry products and our diabetes A1c products. Selling all three items and placing new instruments.

In total, 320 employees will transfer. And all their rights and benefits under their existing employment contracts will be honored by Stago. Although our coagulation revenues have decreased over the past three years, with the launch of the new Destiny Max instrument, that level of decrease had reduced during the past year and we were confident that we would succeed in growing our market share over the coming years.

However coag is a tough and complex market. And our success was not guaranteed and indeed cynics or realists, depending on your perspective, would say that it is very difficult to take significant market share away from Beckman Coulter or Siemens.

So we felt that the price, which represents over 100% of our average market capitalization over the past three months, was a good one and made sense for shareholders and represented good shareholder value. And following the transaction, which will reduce our revenues by 40%, we expect annualized revenues of $72 million.

Despite this, maybe surprisingly, our goal is to achieve EPS of between 90% and 100% of existing levels.

Put another way we have now disposed of the part of our business which was declining in sales. The rest of the business -- HIV line, infectious disease, [Fitzgerald], clinical chemistry and HbA1C are all growing.

Just to mention one thing there. If you look at the quarter 4 sale, you will notice that our HIV cells in Africa are low and they clearly damaged the quarter greatly. And as you will be familiar with, we have a situation where our HIV sales in Africa oscillate wildly and that happened in quarter 4 when we had a weak quarter.

But I think what you need to remember is that -- and just to mention also -- I think Kevin mentioned, that the reason, one of the reasons sales were so low in this particular quarter was we didn't ship to a particular customer because of credit issues. And they have now been resolved and we've commenced shipping again in quarter 1.

But the important point is our HIV revenues are trending upward. But despite that we do have these -- basically our HIV sales don't tie in very helpfully with a 13-week reporting cycle. But going back our -- the rest of our business, basically, if you exclude the coag, HIV line, infectious disease, (inaudible) clinical chemistry and A1c are growing.

We will therefore immediately recommence an organic revenue growth part and this will be reflected in successive quarters.

Following the transaction, we will continue to develop our laboratory infectious disease business through the addition of private menu and instrument placements. In the diabetes A1c laboratory market we expect significant increase placement signing the launch of our new PDX instrument about which we are extremely excited.

And that launch is expected during quarter 3 of this year.

However, our primary focus going forward will be on point of care, specifically I've identified three areas [we will be involved] in. Firstly, infectious disease, which is a $450 million market growing at 14% per annum.

Infectious disease, our focus will be on STDs or sexually transmitted diseases. Specifically on HSV typing, syphilis, HIV P 24 test which is an HIV antigen test and chlamydia. We also want to focus on [antarex] -- specifically on the CDFA and B [rapid] test and in respiratory on flu, flu [AMB] test and OSV.

All of these tests will be qualitative lateral flow tests and for which very importantly we hold the necessary Inverness medical licenses. With the exception of flu and RSV which are primarily also used in doctors' offices, all of the other point of care tests that I have mentioned sell in the hospital laboratory and sexually transmitted disease clinics, where we have strong distribution with our existing sales and marketing team. Therefore, we can comfortably market these products side by side with our existing infectious disease laboratory products.

Over the past 18 months, we have increased our point of care R&D spend in Dublin and are developing a range of new points of care tests. Following this transaction today we will significantly increase that level of activity in Dublin. And we will also now open point of care R&D facility in Carlsbad, something we actually were planning in any event.

But so we are actually in the process of doing that as we speak. We have actually recruited a number of individuals.

And the second point of care market that we want to be involved in and we wish to participate in is the $300 million point of care coag market which is growing at 11% annually. Under the terms of the deal with Stago, we are free to participate in this point of care market where we have significant expertise. And we will now develop a quantitative lateral flow D-dimer test as a starting point in our coag menu.

And the third point of care market that we wish to participate in is the HbA1C diabetes market, which is valued at $300 million and growing at a rate of 10%. Our trial set diabetes HbA1C rapid system has been FDA approved, as you know, and is currently awaiting a clear waiver about which I have no news incidentally. But we are waiting and hoping.

The combination of the TRI-stat and the new PDX instrument positions us very strongly in this high-growth market.

In summary the sale of the coag division enables us to eliminate our debt, to reach a position where we have got $3.50 per share and in cash after deferred payments are received. It gives us a tax-free profit on the sale of the coag business.

I remind you we bought the coag business from bioMerieux for $45 million. And not many years ago we bought the BioPool business for $9 million and have earned a lot of profit from it since.

But in total at $54 million and we are selling today for $90 million. It gives us in simplistic terms, I think the actual accounting profit will be less because it would be greater because of movements in them in goodwill, but basically in simplistic terms $90 million minus $54 million gives you a profit of $36 million and tax-free under the Irish tax regime.

In addition, this transaction gets us immediately back to organic revenue growth. It removes a piece of the business which was declining in sales terms. And so we immediately are in a situation of growing our revenues.

And in addition and it will have only a minor impact on our profitability. As I said we are confident of achieving to a 90 and 100% of last year's earnings per share. The deal means that we can now concentrate on a high growth -- on the high-growth point of care sector.

We previously realistically didn't have the capital to do so. I mentioned that we had increased our level of activity, but not by any means to the extent that we had wished.

In addition, this deal -- part of this deal, we keep a royalty-free license to all the IP and know-how relating to the point of care applications of the coag business that we have just sold. As I mentioned we are going ahead with the D-dimer test immediately.

And as part of this deal, we eliminated the dollar/euro imbalance which has crucified us over the past number of years.

And finally this deal gives us the financial resources to pursue our strategy.

So thank you very much. If I could have back these to the moderator for questions.

(Operator Instructions). Matt Dolan of Roth Capital Partners.

Hello. Congratulations on the announcement. First question on a pro forma business assuming the deal closes, what -- if you strip out the coag can you give us the growth rate of clinical lab excluding coag or -- put it another way can you tell us what the decline in coag was in 2009?

No. If you don't mind, we are not going to give you the decline in coag last year and even in deference to the purchasers. What I will say is that I will say that we achieved in terms of the rest of the business -- HIV, infectious disease, Fitzgerald and HbA1C -- we achieved modest single -- single-digit growth in that component of the business.

Okay. So the rest of the business was up. Great.

And then, Kevin, can you give us an idea of gross margins without coag or what was coag doing? Somehow to just calibrate what your gross margin will now look like.

I think that the gross margins will end up probably somewhere in the low 50%. Coag was our lowest gross margin business so the (multiple speakers) tends to be higher. The low 50s.

Okay. And Ronan, was this a competitive transaction or were there other buyers considered?

I'll just answer the question by saying that we feel that our market capital, our average market capital over the last three months was probably 80, 81 to -- $81 million or $82 million and at 90 -- in excess of -- effectively $94 million represented very, very good value and a good deal for shareholders.

It was a tricky transaction to transact. Clearly we were very committed to coag and any perception among our own staff or in the market that we were contemplating selling it would have been detrimental. So we were -- just to say it was a tricky transaction. If you don't mind, I would like to answer that question that way. And we got a very good price.

Fair enough. With respect to your US sales force, I'm not sure if you anticipate having holes in your coverage geographically speaking as you transfer reps to Stago. Do you expect to fill any uncovered areas now in the US or how should we think about that?

That won't arise because we are only losing -- we are only basically handing this transferring over to Stago, people who are specifically involved in coag. So we had actually specialist coag reps. We have eight specialist coag reps and then we had 22 generalist reps and the 22 remaining. So there is no impact. There is no detrimental impact.

In fact, realistically, our journalist reps would have been spending a lot of their time on coag and handing on leads, etc., etc. to the specialists. So now they can concentrate exclusively on the rest of the range.

So in fact, our coverage in essence will strengthen. Will be more concentrated.

Okay and then on HIV. Talking about this customer, just to clarify -- did you book that business now in Q1 in 2010? Or is that business that we should expect to hit this year or are they -- where do you stand with the customer that you have had credit issues with?

That's a customer we didn't share for the second half of 2009 through it all (inaudible). The situation has improved there. They had a substantial balance with us which they have reduced significantly and we have recommenced just this quarter shipping to them again. Not quite at the same rate as we would have in the past, but I expect that to grow in the future. So yes, the situation there has improved considerably.

Then, last one, Ronan, on this -- on the point of care pipeline is there any timeline we could ascribe to some of these debts? The D-dimer or --?

It is going to take some time. I mean, I mentioned that we had increased our level of activity over the past 18 months. So we are reasonably well advanced on a number of the projects. But realistically it is going to take some time. But certainly D-dimer we are just commencing as we speak. So if you are looking probably 18 months there.

But some of the -- I mean, for example, we just launched a Legionella Urinary Antigen reaction test which is doing very well. And that has just come out of R&D over the last six months. So we expect companion products fairly quickly.

But I think our big spend is restarting now and therefore you should be seeing results of that in about 18 months.

Great. Thanks.

With a trickle in the meantime.

Yes. Thank you.

Ian Hunter of Goodbody Stockbrokers.

Good afternoon, gentlemen. I appreciate this is a fairly good deal that you've got here, the price you got it. But my question is why do the deal now? I'm thinking that your sales have paid for the development and launch of Destiny Max and have taken all the risk up front, etc.

And I was just wondering, is this something that has been bubbling under the surface for a while? Or has this deal come to light over a short period of time because of Destiny Max?

It's fair to say that it's come together in the last few months. And given you are right, the enterprise of the deal would be very hard for us to turn it down, given the price relative to the market capital.

Would you be able to give us an idea of who approached whom or is that --?

We don't want to actually go into that if you don't mind. Is it relevant?

I don't know. I was just thinking it was a bit of background there. Okay. Appreciate you now have have cash, etc., and you are talking about your primary focus and the point of care, etc.

I'm just wondering, are you looking at it mainly as organic growth through your R&D facilities? Or would you be also looking for some acquisitions in certain areas? And if so I mean what kind of areas would you be looking at and what criteria would you be running over the potential acquired assets?

I think at this time we are looking primarily to organic growth. We -- as I mentioned we have -- I mean, we have over 20% of the world market in HIV. We clearly know -- we know how to develop the tests and manufacture them.

We've got the distribution now, which I went through particularly the United States. We've got the -- something that very few companies have which is a very, very broad latter flow license. The only material exclusion is pregnancy and cardiac and so we have the expertise. We have the distribution and we now have the resources.

So I -- we really see ourselves going into a phase of organic growth. I think we find ourselves in a situation where even within our infectious disease business, toward significant organic growth potential within our [VLK] flu range and basically reworking those products from DF -- from IFA to DFA.

There's huge organic growth potential within point of care and there's tremendous organic growth potential clearly within both point of care and laboratory for the HbA1C market. So it's there to develop.

Truthfully, I think while we also had coag, we were probably very broadly spread. It's a complex business. I think we can probably -- I think be more effective now in concentrating on a more manageable menu.

Okay, that's great. Maybe just my last question now on housekeeping. I mean -- your guidance, your revenue seemed to be down about 40%, but EPS potentially flat. Are we looking here now at a fairly large pullback in energy and aid because I'm presuming R&D is going to take a long maybe similar to previous quarters and I was wondering what the impact maybe being on the interest income line and what your tax guidance might be going forward?

Yes, I would say the interest income will [shrink] quite considerably. So as you can see there, roughly, our quarterly spend there on interest expense was about $0.25 million. Probably going to eliminate entirely and, obviously, depending on deposit rate we can see some really very -- (technical difficulty) year.

The second part of that question.

The other one was tax guidance.

Tax guidance. We have been utilizing a lot of our losses over the last couple of years. And as we say, been very successful in keeping our effective rate down. I do expect that to drift off some loss in future periods because if those losses disappear we will get the same benefits. I think we are going to be going to drift back up toward the teens in relation to tax.

Midteens. Okay. Maybe just a daft little question at the end. I did note that you said that there were a couple of buildings -- two Irish buildings were going over to Stago and I'm starting I -- have you got [silties] now for the remaining business? In Ireland?

There are four buildings here in Ireland being sold. The older two as you know them are going across and the most recent modern one and the office building are staying with Trinity.

Okay.

Just to come back to your previous question about R&D and the R&D there are two separate R&D teams. One for coag and one for the rest of the business. The coag one goes across to Stago. So the absolute amount of R&D spend will come down, but as a percentage it shouldn't be too dissimilar.

All right. Thanks very much.

Jack Gorman of Davy.

Thank you. Hello. Well done. Looks like a great deal. Some of my questions have been answered already but just wanted to clarify on a couple of small things.

Firstly I think, Kevin, you mentioned a little earlier to one of Matt's questions about modest single-digit growth or perhaps it could be Ronan answered that. Just wanted to know whether that was relating to revenue on a like for like basis or operating profit?

No revenue.

And would you have a kind of a broad guidance on operating profit, Ronan?

I think we gave it. We've said that we think we would do between 1900% of EPS this year.

What, no, I'm sorry in terms of 2009 growth on the year on year basis if you stripped out coag?

I don't have that right off the top of my head.

No problem. Don't worry. I can catch up on that.

It is difficult to do because, remember, we would've -- we ran the coag as an integral part of the entire business. It's not like it -- it was not like it had separate books, you know?

Of course. Of course. Okay. Two other questions and, firstly, I think, Kevin, you may have mentioned the FX impact in terms of the rebalance of that now. Just wanted to get a broad sense of what the geographic splash of revenues and costs will be as you go forward.

And, lastly, on strategy or strategic direction, plenty of your focus is as you say on point of care and a lot of your R&D is going to be focused on that going forward. If you look at the business [X X] coag, are there any elements of existing business that you'd see to be I suppose noncore or you maybe won't be devoting as much R&D to over the short to medium term?

Yes. Just to deal with that. We believe that everything that we have is core and we are not contemplating the sale of any part of the business. For example, I know that we had recruited [William Blair] who worked with us on this still, but so that assignment is now complete and finished. And they are no longer on the payroll as such.

So I know it's onward and upward now. No sale.

Okay.

On your FX query there, Jack. I think you recall the exposure we had was roughly about $1.5 million a month [plot] which you've got an $18 million gap between our euro revenues and euro costs. Euro costs being the greater number. Obviously by virtue of the fact that our German operations will be moving over to Stago and a significant element of our Irish work force, which is obviously (inaudible) moving across.

We virtually eliminated that mismatch now. So while we still have some euro costs left, we still have some euro revenue. And hence, I think going forward from a profit loss point of view, you won't see FX being a significant factor. It may end up -- it will impact the individual line albeit it will all wash through P&L.

Yes, okay, that's great. Thanks.

[Kurt Weasey] of William Blair.

Thanks for taking my question. I have two questions actually. Given that you will still be earning about $0.50 post the transaction and will have no debt, how do you plan on deploying that cash to drive further shareholder value?

And then secondly, the lateral flow patents or technology, what did that originally cost you? Thanks.

Just to [handle] the second question first. The lateral flow license didn't -- we didn't pay a fee on it. It was a complicated enough transaction. And there was a history of litigations -- it was active litigation and as part of a settlement, we received some money and also received the license.

But it was, actually, it was -- there wasn't a -- we didn't actually pay like an in -- we didn't pay a fee for it. So it was part of a settlement.

In terms of how we would use the cash, I think what this does for us is, bear in mind it is going to take two years for it all to come in, but what this cash does for us is, I think it is eliminating our debt. And I think it gives us the resources to move forward with confidence.

We can invest in point of care as we feel we need to. We can involve ourselves in strategic partnerships. We can make acquisitions of technologies if that makes sense. And I think in extreme is possibly look at some acquisitions. But it is not in our plans at the moment.

So we will see ourselves moving forward primarily by way of what means of organic growth.

(Operator Instructions). [Bob Sjoberg] of First Associates.

You had made mention and I don't want to beat this to death, but you made mention about the sale of the coag business having a minor impact on your earnings per share. But I'm still a little confused about your statement "our goal is to achieve the earnings-per-share of between 90 and 100% of existing levels."

Does that existing level -- are you talking about the $0.56.5 that you made in 2009?

Yes. That is exactly what we mean. The 90 to 100% of that, yes.

That does clarify that. And then, excuse me, what were your extraordinary items in 2009 again?

There was none. At the end of 2008 there was a goodwill write-off, remember, because of the low share price but nothing in 2009.

Nothing in 2009. Okay, great. Thank you very much. Keep up the great work.

[Mark Lipton] of [Lipton and Lipton Pension].

Good morning, everybody. You sort of answered a question that I had, but I wanted to follow up on it. And the question was basically in terms of funding the aggressive research and the new facilities, is that going to be done out of cash flow that has been freed from debt payment and interest? Or is it going to -- do you have a number in mind that you are going to delve into these reserves? Are they just there for confidence or have you thought about allocating up to 50% or 30% into new development?

That's not clear at this moment in time. I should also mention, clearly, that the Company will continue to generate cash flows. It is unclear at this moment but probably somewhere between $8 million and $10 million a year. In any event, right? So you know that that cash will be available obviously to invest also in our point of care development.

Okay, but you don't have any thought at this point in time of how much the $8 million to $10 million cash flow that you are getting will cover what you are planning for your -- the new direction?

No, I mean, I think I do believe that straight organic growth is unlikely to use that significant amount of cash. Significant leads you into the kind of money we are talking about at this moment in time. I think that will be more utilized in the area of strategic partnership and acquisition of technology, something like that.

Okay. Thank you.

[Matt Reiner] of [Adirondack Funds].

I had a question on -- you mentioned the gross margins being a little bit lower than the -- you know the rest of the businesses. What about on the operating line? Can you give us an idea of how the model changes on the operating expense line? I mean, was that business running at just above breakeven or where it stood on that basis?

Actually it's not possible to do that. You have to bear in mind that once we get down below the gross margin line, I mean the [bolus] to some extent but once you get down below in all of the sales force there was a lot of cross selling between -- amongst the various sale forces.

So the reality was we would never have split out our numbers even entirely by division or by product line.

But having said that, the coag business was profitable and albeit not significantly. So the reason we can get to between 90 and 100% of (inaudible) level of profit. For example it is helped by the fact that the elimination of interest expense and the introduction of interest income. For example would be helped -- would help in that process also.

Okay. Great. Thank you.

Jack Gorman. Davy.

Thanks for taking this supplementary and apologies for being pedantic on this. Just to go back to the guidance and the 90 to 100% of existing levels, just trying to think in terms of 2010.

If the deal closes, Ronan, on I think you said it was 30th of April or certainly that's the plan, how should we think of that 90 to 100%? Is that for the year beginning May 1 for argument's sake or should we think about it for full year 2010?

Yes. That's a very good -- that's a fair question and to be honest with you here, the reason we didn't put it in the press release is because possibly it would just complicate things and confuse people.

Yes. I mean clearly for the first four months our earnings-per-share would actually be higher. Right? So what I'm really saying in a sense -- or what I'm saying is is that we were doing $0.56 a share, right? And that we will go sort of 90% of that at least which is fifth --.

Sorry. What I'm trying to say is that our profit for the first four months will be higher, right? So when I talk about 90 -- when I talk about 90 to 100%, I am talking about on a quarterly basis from the moment of acquisition.

I see. Okay.

Therefore what I'm really saying is that I think we do 90% up in the quarter 3 for example when it's gone that we would be confident of doing (multiple speakers) (inaudible).

That's your, Ronan, that's your first full year post deal as opposed to 2010?

Yes. Right. So if you took -- we did $0.56.5 multiplied by 90% is whatever -- 51. $0.51. What we're saying is basically that we would be confident of doing a quarter of that in quarter 3 which is the first clear quarter.

Which is, I don't know, 13, 12, and 3/4 (inaudible).

Okay. That's perfect. I just wanted to --. Apologies for having to ask it but I just wanted to clear it up. (multiple speakers)

We hope to do 90 but we aspire to 100%.

Great. Thanks for clearing that up.

(Operator Instructions).

Right, Ryan, we don't seem to have any questions. Is that correct?

Correct. There are no questions at this time.

At this stage then, maybe if we could close the call. I would just to say thank you to everybody. We appreciate your attention and thank you very much. We will be speaking to you in a number of weeks because obviously it's not so long a way to the end of quarter one. So thank you and we will talk to you then. Bye-bye.

That does conclude today's teleconference. Thank you for participating. You may now disconnect.