Trinity Biotech PLC (TRIB) 2010 Q2 法說會逐字稿

Good morning and welcome to the Trinity Biotech second-quarter 2010 financial results conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this conference is being recorded. I would now like to turn the conference over to Joe Diaz.

Thank you, Amy and thank all of you for joining us today to review the financial results of Trinity Biotech for the second quarter of fiscal year 2010, which ended on June 30, 2010.

As the conference call operator indicated, my name is Joe Diaz. I am with Lytham Partners. We are the financial relations consulting firm for Trinity Biotech.

With us on the call representing the Company today are Mr. Ronan O'Caoimh, Chief Executive Officer and Mr. Kevin Tansley, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of today's release, you can retrieve it off the Company's website at trinitybiotech.com or numerous other financial websites on the Internet.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements.

The words believe, expect, anticipate, estimate, will and other similar statements of expectation identify forward-looking statements. The forward-looking statements contained herein are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein.

Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, but not limited to, the results of research and development efforts, the effect of regulation by the United States Food and Drug Administration and other agencies, the impact of competitive products, product development commercialization and technological difficulty and other risks detailed in the Company's periodic reports filed with the Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

With that said, let me turn the call over to Kevin Tansley, Chief Financial Officer of Trinity Biotech. Kevin?

Thanks, Joe. Today, I'll take you through the results for quarter two, including a review of the income statements and the key balance sheet and cash flow movements for the quarter. However, before I do so, I would like to point out that the divestiture of our Coagulation productline is reflected in this quarter's financial statements. This transaction closed with an effective date of April 30 and so from an income statement point of view, you are seeing one month with Coagulation and two months without. From a balance sheet perspective, it is more straightforward as the June balance sheet represents the post-divestiture position.

I will now take you through the income statement for the quarter and we'll start with our revenue performance. This quarter's revenues are $22.6 million and this compares to $32.3 million for the same period last year; hence a decrease of 30%. However, as can be seen, the main contributory factor has been the 61% fall in Coagulation revenues reflecting the inclusion of only one month sales.

Point-of-care revenues have fallen from $5.9 million to $4 million and this is partly reflecting the very strong sales experienced in quarter two last year and also the credit-related issues that we have been experiencing in relation to one key customer where we have decided to hold back sales.

Our ongoing clinical laboratory revenues showed a slight reduction of 5.9% falling from $15.1 million to $14.2 million. However, these two figures are not directly comparable due to foreign exchange and the impact of selling through a distributor in the UK, France and Germany following the Coagulation divestiture. If we were to exclude these two factors, we would have actually achieved modest organic growth during the quarter. I won't give any further revenues at this stage as Ronan will pick up this more later on in the call.

Moving on to gross margin, you will see from the income statement that our gross margin for the quarter is 49.3%, which is 3.7% higher than the equivalent period last year. As I indicated on the last call, this improvement was expected as Coagulation had the lowest growth margin amongst all of our productlines. Given quarter three will represent the first full quarter without Coagulation, we can expect a slight improvement then also.

Moving on to our indirect expenses, our R&D expenses this quarter have fallen from $1.8 million to $1.2 million, which is a reduction of 33%. Again, this is attributable to the Coagulation divestiture. Looking at selling, general and administrative expenses, we see the same factor at play. In this case, the fall was from just over $9 million to $6.8 million representing a decrease of 25%.

Moving on next to our net financing costs, we are seeing a considerable change this quarter. The divestiture proceeds have contributed to a substantial increase in interest income; meanwhile, the repayment of all our bank debt at the end of April has reduced our interest expense to a third of what it had been in 2009. The impact of these two factors has been to transform a net interest charge of $348,000 into a net interest income of $152,000 this quarter.

This quarter, we are also showing two nonrecurring items. Firstly and by far the most significant is the profit made on the sale of Coagulation, which amounts to over $47 million. This represents the book profit on the sale. An alternative way at looking at this is to compare the sale proceeds of $90 million to the $52 million we paid for the bioMerieux, Sigma and Biopool acquisitions.

Looking at it this way, the profit on the sale will be $38 million and this does not take into account the profits that we would have made over the years from the Coagulation business. Either way, it is a very substantial profit and confirms our belief that we achieved a very good price.

The other nonrecurring item is a reorganization charge at $300,000 relating to our HIV manufacturing operations. This organization will yield benefits going forward; however, these will not begin until early 2011.

As you will see, the tax charge for the period consists of two elements and is only $40,000 a quarter. First, there is a charge of $394,000, which relates to trading activities and this represents an effective tax rate of 10.8%. This is offset by a tax credit of $354,000 in relation to the divestiture. Notwithstanding the very substantial profit on the sale, we do not expect to have to make any tax payments on this profit; however, a tax credit arises in relation to deferred tax balances, which are now being unwound following the sale.

Our operating profit for the quarter amounts to over $3.5 million, which compares to $3.8 million in the equivalent period last year. Again, the key factor here is the Coagulation divestiture. From an operating margin perspective, we are seeing an improvement from 11.9% to 15.5%.

In terms of profit after tax, we have seen an increase from $3 million to $3.3 million over the same period, which is an increase of 8.7%. Meanwhile, EPS for the quarter is over 7% higher at $0.155 per share. Obviously, the growth in profitability figures I have just quoted are excluding the impact of the nonrecurring items.

On the last call, we indicated that post-divestiture profits will be between 100% and 110% of pre-divestiture levels and even though this does not represent the first full quarter without Coagulation, we do believe that the EPS of $0.155 this quarter is very much consistent with that expectation.

Now to talk about our balance sheet. Firstly, I want to reiterate what I said earlier in that the June balance sheet represents the position post the divestiture of Coagulation and this accounts for the significant movements that you are seeing since March. The principal movements for property, plant and equipment were additions of just over $300,000. That is a similar amount of depreciation and $6.8 million of assets transferred to Stago. Principal assets transferred related to our factory in Germany and a substantial amount of plant and equipment from our Irish manufacturing operation.

The reduction in intangible assets can be explained as follows -- additions of $1.3 million being offset by amortization of $400,000 and again assets divested of $12.2 million. In this case, the divested assets mainly consist of capitalized development costs in such projects as Destiny Max and intangible assets arising on acquisitions such as customer lists.

Moving onto inventory next, you will see that inventory has fallen very substantially from over $40 million to $18 million. Of this decrease, all but $400,000 relates to inventory transferred to Stago. The fact that the decrease in inventory is disproportionately large compared to the size of the Coagulation business illustrates the inventory intensive nature of that business given the requirement to hold considerable quantities of spare parts and sequestered products.

Trade and other receivables increased by over $8 million to $28.6 million. However, $11.25 million of this increase relates to the portion of deferred consideration due to be received from Stago in May 2011. Thus, in real terms, we are seeing a reduction of approximately $3.1 million in debtors. Just to point out the noncurrent portion of the deferred consideration is contained in other assets.

Finally in relation to working capital, our trade and other payables have actually increased this quarter by approximately $0.5 million. This is a temporary phenomenon associated with the divestiture and we can expect this to reduce next quarter.

Finally, in relation to the balance sheet at the end of June, I would like to mention our cash position. Obviously, we are seeing significant movements here. Our cash balance has moved from $6.2 million to $50 million and with the exception of a small amount of leasing, all of our interest-bearing debt has now been repaid.

I'll now move on to discuss our cash flows for the quarter. In addition to the transformational impact of the receipt of the divestiture proceeds on our cash position, we are also very pleased with the cash generated by the business during this quarter. We have seen a very strong increase in cash generated from operations, which has increased from $4.2 million to $5.9 million, which is an increase of almost 40% and from a free cash flow perspective, this has doubled going from $2.2 million to $4.4 million over the same period.

Before I wrap up, I would like to reiterate some key points which point to the financial strength of the Company. The Company has now demonstrated a consistent pattern of strong and growing earnings. This earnings pattern has not been impacted by the Coagulation divestiture and we are now a much leaner organization in terms of cost base and the level of fixed assets and working capital. We have eliminated all of our bank debt and we have cash and guaranteed deferred consideration, which amounts to close to $3.50 per share. And finally, we are now generating significant cash from operations and strong free cash flows. I will now hand back to Ronan.

Thanks, Kevin. I will review our revenue performance and our R&D activity before opening to a question-and-answer session where we will also be joined by Rory Nealon, our Chief Operating Officer. Our point-of-care revenues for the quarter were $4 million compared with $5.9 million for the corresponding quarter last year. Our US HIV revenues are up 4% on the corresponding quarter of last year, but as usual we have experienced fluctuation in our African HIV business.

Our overall HIV annual sales are approximately $18 million, which would indicate that you would expect quarterly sales of about $4.5 million. So the sales for this quarter of $4 million are below this, but consistent with the type of fluctuation we get in Africa. Our pipeline for future quarters in Africa is encouraging with strong growth in Uganda, Zambia and Mozambique anticipated.

Our growth continues to be retarded by our credit concerns in our previously largest African market. As I indicated in our last conference call, these issues are resolving themselves, but while sales have recommenced, they are at a low level until our credit issues are fully resolved. However, in summary, overall, the trajectory of both our US and African HIV business is upward.

Moving on to our clinical laboratory business, which comprises infectious disease and diabetes, they generated sales in the quarter of $14.2 million compared with $15.1 million in the corresponding quarter last year, which is a drop of 5.9%. However, as we stated in our press release and as Kevin has just indicated, when you take into account the loss revenue this quarter, when we sold our direct selling operations in France and Germany and moved to a distributor model and also when you take into account lower dollar revenues outside of the US because of strengthening dollar, the overall performance of the operation was a 2% organic growth for the quarter for this clinical laboratory business.

In infectious disease, we had a good Lyme quarter. We are gathering momentum with the placement of TSX Instruments in the USA and our registration of our product range in Brazil is nearing completion. This Brazilian business will generate significant 2011 revenues for us.

And we have increased our investment in business development in our Fitzgerald business and so far this year have sourced catalog and are promoting in our catalog and website almost 1000 new monoclonal and polyclonal antibodies, giving us a total of 11,000 antibodies. Sales at Fitzgerald were strong this quarter despite a virtual collapse in flu antibody sales this quarter due to overstocking in the industry.

Our diabetes business has performed strongly again this quarter. Our new PDX instrument should be completed in quarter four of this year as we have previously indicated. On the last conference call, I said that we were hoping to announce a distributor deal with a large European diabetes distributor within a matter of weeks, unquote. That is for the PDX instrument.

The delay has been outside of our control, but we are confident of the deal progressing and immediate revenues accruing from the date of launch of the instrument in quarter four, at which point we will CE Mark the instrument. At the same time, we will file with the FDA for approval and with the Chinese and the Brazilian authorities. We believe that this instrument into which we have invested over $4 million over the past two years will enable us to significantly increase our A1c marketshare worldwide.

Now during the last conference call, we outlined our R&D strategy going forward and indicated that we would be investing significantly in developing lateral flow infectious and other point-of-care products. We have now put in place the R&D teams, primarily in San Diego, but also in Ireland and are currently working on nine new products.

We are developing an HIV p24 antigen test, which will enhance our current HIV antibody test offering primarily for the African market. We are developing a quantitative latter flow D-dimer test. I will remind you that we are permitted under the terms of our deal with Stago to continue to compete in the point-of-care coagulation market, which is a $300 million market growing at 11% annually.

We are developing three products in the infectious disease enterics area, namely Giardia, C. difficile A and B and Cryptosporidium. And finally, in the infectious disease area, we are developing a further four tests, namely flu A and B, HSV which is herpes, syphilis and strep pneumonia. With the exception of the flu tests, all of the other tests 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. Then onto these new products will commence in 18 months time and will serve to enhance our organic growth rate. At this time, if I could maybe hand back for questions to Joe.

Okay, thank you, Ronan. Amy, if you can give instructions for the Q&A.

(Operator Instructions). Matt Dolan, ROTH Capital Partners.

Hi, guys. Good morning. This is actually Matt Palmer stepping in for Matt Dolan today. Thanks for taking the questions.

Hi, Matt. How are you?

Good. Let's see, so first of all, going forward, do you expect any disruption to your base business from the Coag spin-out? And if not, what type of underlying growth rate is a reasonable assumption for your ongoing clinical lab business?

The answer first, Matt, is, no, we don't expect any disruption whatsoever. I mean clearly in France and Germany, we have had to put in place distributors and we are doing that or have done that. Stago, for a couple of the productlines, are distributing for us on a transitional basis, but we have more or less finalized our distribution agreements there. So I see no disruption really beyond that in terms of the divestiture.

As you know, in the UK, we are largely continuing to distribute directly and in the USA, we still have 66 people directly involved in sales and marketing. So beyond that, I see no disruption whatsoever.

In terms of our organic growth rate for the clinical laboratory business, you will notice that we said that, after you take into account -- in fact, we are going direct to Germany and France and you take into account currency, because remember the dollar has strengthened, we achieved organic growth of 2% for this quarter compared to the corresponding quarter last year.

In terms of moving forward, we believe we can grow that towards and into double-digit growth due primarily to the fact that we are launching our PDX instrument. As I have indicated, we have more or less over the line with an excellent European distributor. We are more or less over the line with a very good US distributor. We have very, very high quality distributors in both China and Brazil, all really, really anxious to take this instrument. That instrument alone is going to give us a lot of organic growth.

Beyond that in infectious disease, we are experiencing good Lyme growth. We have good Bordetella sales in France, which continue to grow. We are launching our entire infectious disease range in Brazil, which I mentioned that briefly earlier, which will give us organic growth in Brazil -- which gives significant growth in Brazil. Our Chinese distributor just continues to outperform themselves; it's a stunning distributor.

So I think if you take all those things into account, we are confident of moving beyond that. Also just to mention that our DSX instrument is doing very well in the USA. So in the US, our infectious disease business continues to grow also.

So I think if you take them all into account, we would expect, anticipate hitting into double digits. And then the plan really is that in late 2011, start of 2012 the new point-of-care products are kicking in and obviously at that point, we can enhance that growth rate significantly.

That's helpful. Thank you. And maybe just turning to the point-of-care revenues, HIV in North America you mentioned was up 4%. I was wondering if you could break out the portion of revenue on a dollars basis in that segment that comes from the US. And secondly, how has that trended in the past and maybe add a little bit more color on when you expect the OUS sales to improve, particularly in Africa.

It's not so much that we don't want to tell you, but it is more for competitive reasons that we haven't in the past actually basically told exactly what our US sales are compared to our African sales. I think that gives us some advantage competitively. So if you don't mind, I won't do that.

What I can say is that, over the last five years, five years since we got FDA approval, we have grown our US sales from zero up to $8.5 million, $8 million at this time. And we have achieved, I think off the top of my head -- if you worked that out, it is sort of like 35% annual growth from recollection.

Now this year, we are not going to get that. We are going to get growth. Is it going to be 10%? Something like that. And the reason that that is happening is just basically that there is a lessening of spend by the various state authorities in the United States. And I think if you look at our competitors, you will have noticed that their -- I think the last quarter -- I haven't seen their linked quarter yet for this quarter, but they were down 6%. So basically, there is a tightening of spend in the USA and therefore, I think our growth rate is more modest.

In terms of dealing with Africa, I mentioned the fact that, in our principal market in Africa, we are fundamentally shipping very, very little. We were running at a rate of $3 million a year. We are shipping very little because of all those credit issues that we have spoken about. Those issues are easing and they are resolving themselves, but it is going to take a bit longer.

In the meantime, we have been growing our business in other countries and I mentioned Uganda, Mozambique in particular a moment ago. In overall terms, I think as soon as we can resolve the credit issues, I think that we will return to a very strong growth trajectory in Africa just from a kind of a logical basis.

If you think about it, there are really only three participants in the African HIV -- three significant participants in the African HIV market and we are well-positioned there. We are highly regarded as a confirmatory test. And in the context of the awful problems in Africa, it almost makes common sense that our revenues will grow and should grow.

And indeed will do so in the context of, for example, President Bush's PEPFAR program, which pours $10 billion a year into African aid into context of Buffett's and Gates' foundations and the Clinton Foundation. And UNESCO, the United Nations World Bank, the Japanese, the European Union. There's huge money going in there and I think it is only going to go in one direction. We are the only FDA-approved product that actually sells there and given that our main competitors aren't FDA-approved, we are very highly regarded as the kind of the confirmatory test of choice in that market.

That's helpful. Thank you. And lastly, I was hoping you could provide a little bit more color on the PDX product, specifically around your expectations for timing and maybe a little bit more on information on the regulatory process and how quickly we could see these partners actually come to fruition and start and launch the product?

There are four principal markets that we see for this. There is the US, there is Europe, there is China and there is Brazil. In Europe, we, as I have indicated, we are virtually over the line with one of the biggest players in the market. I think that is going to bring us significant business. I am a bit disappointed that we didn't have the announcement before this conference call, but I think you can expect it fairly shortly.

The instrument is an excellent one. Maybe, Rory, you will talk something about it, its attributes. But it is excellent, state-of-the-art and certainly this distributor in Europe is very anxious to get his hands on it. And I think that to some extent would vindicate its quality.

In terms of the USA, we have a partner, which isn't -- we haven't actually just got the freedom to announce who it is at this moment in time, but that partner is very committed to it. And then in Brazil and China, we also have two very committed partners with whom we have existing business relationships.

So in terms of getting the product to market, we believe the product will be ready on the November 1. At that moment, we can under the self-regulatory process of CE Marking Europe, we can register the product ourselves, self-regulation. And at that moment, our partner will start selling.

That very same day, we will submit to the FDA, which will take 120 days, maybe 150. And then on that very same day, we will submit to the Brazilian and also the Chinese authorities. I mean bear in mind, we are already doing $3 million a year in China with our distributor with (inaudible) [children's], an instrument that was developed 15 years ago. So they await this instrument very anxiously. China is going to take about a year. Brazil is going to take about nine months, but this is a real winner, this product.

Maybe just to touch on the key competitive advantages of it, it is faster, so it is about one-third quicker than the two principal competitor instruments. It is what is called interferon 3, which the competitor instruments aren't. In other words, it is not affected by the presence of hemoglobin variants in the sample.

The software will be genuinely leading edge, touchscreen, easy to use and we have proven we can do that already with the Destiny Max in our old Coag days. And lastly, it will be modular. In other words, it will be plug-and-play. The customers themselves will be able to pull out for example pumps or ovens or whatever and replace them thereby significantly reducing the cost of servicing the instrument in the field. And they are just the four key advantages, but they are very, very important advantages.

That's very helpful. Thank you for taking the questions.

Ian Hunter, Goodbody Stockbrokers.

Good afternoon, gentlemen. Ronan, in your prepared remarks, you mentioned Brazil and in one or two of the answers today, the previous questions of Brazil has come in. I am just wondering whether you could maybe draw it all together and give us an idea of what is actually happening in the Brazilian market, what your exposure to the market is at the moment, what your plans are for the next two or three years to kind of drive that and how you are doing. I mean I realize now you are maybe going through a distributor agreement, etc. but maybe just give us an update on that.

Well, we have an excellent distributor in Brazil called [Med Labs]. We had built a very big business with them in Coagulation. He was previously the TPC distributor. So high-quality operation employing more than 100 people and we have been a significant part of his business. We have a very good relationship with him. He will be distributing -- he is currently registering our infectious -- so we were doing a lot of business with him on Coag and we are doing very little business at this moment.

He is basically registering all of our infectious disease products where he has an existing business. And I think he intends transferring that to us and then beyond that in Coagulation -- in A1c, he is very committed to the PDX as well and also indeed to Tri-Stat and so registration will proceed as quickly as possible with that. So really that summarizes it.

Fundamentally he will be taking all our infectious disease products and all our -- I'm sorry -- and is very committed also to taking our point-of-care products as they come free. He will be one of the biggest distributors in Brazil. I mean I think everybody knows that Brazil is a very strong market, experiencing wonderful growth and it is very much a country for the future.

I appreciate that, Ronan. Maybe on the other side of things, last quarter, you said the issues have been resolved with your key customer -- this key customer in the HIV market, etc. in Africa. Yet again, it has appeared though in this quarter as well. I am just wondering what the progress is going to be. Is this going to be rolling over for the next few quarters or are you getting to some resolution, firstly?

And then secondly, I see maybe you are trying to replace the revenue from there from other countries, etc. and I am wondering the progress on that so that in the end maybe this won't become a key customer, etc. and not so important when reporting numbers on a quarterly basis.

Well, I mean, we are always trying to grow the business in any event. So we would be trying to grow the business irrespective of what was happening in this particular country, if you know what I mean. But just in terms of dealing with this particular country, I mean you would have to be very careful. I mean we were looking at a bad debt write-off. We are not looking at it anymore, but we are just treading carefully, if you know what I mean to put it like that. And maybe not taking any credit risk at the moment, but so -- it just takes a bit of working out.

I think it is probably -- if you don't mind, I won't go too much more into it than that, but I do expect given the changes we want to make that this will resolve itself and that we will actually recover that and we will return to the levels of business that we previously were at. But this would involve basically elimination of credit risk.

Okay, that's fine. Thanks very much.

(Operator Instructions). Aiden O'Donnell, Davy Stockholder.

Hi, Ronan; hi, Kevin. Just have a couple of questions, if I may. Just to touch back on the HIV customer in Africa, Ronan, you just mentioned that, at the peak, you were shipping about 3 million units. Do you envisage getting back towards that sort of level at any point? Then if you could maybe just give us some color on trading since the end of the quarter and how maybe the Lyme season has been progressing.

And finally, just given the nice healthy cash balance on your balance sheet and good cash flow generation, have you any thoughts on your uses of cash, maybe specifically thinking about dividends or stock buybacks? And if you could give us some color on that, it would be great.

Just in terms of Lyme, the Lyme season is doing okay. It's probably a little bit slow. The other questions -- before I deal with the cash --.

Your first question -- repeat the question again. You talked about use of cash and Lyme, but before we get to the cash, what was the first one?

Yes, just in relation to the HIV customer in your main African market, you said that 3 million units was a peak level. In terms of where you are now, is that a level you think you can get back to?

Yes. By the way, it's actually $3 million, not 3 million units.

$3 million, it's 2 million units. Yes, we hope to get back there, we hope to get back there and we think we have found a way of doing so. But it will probably take up to a year before we get back up to that level of activity. So just today with the issue -- as I said, Lyme was okay, but slowish.

In terms of then cash, just to deal with that, given where we are at our share price and I suppose in response to requests from shareholders, the Board has considered doing a share buyback. And we have examined the benefit of this and having done so, we expect to announce the commencement of the process to allow such a buyback to take place in the coming weeks. At the current share price, I think it makes sense given the earnings per share benefits.

However, there is one procedural complication that I need to make you aware of. Under Irish company law, in order for a company to buy back its shares, it must have sufficient distributable reserves. As things stand today, Trinity does not have sufficient reserves and hence is not in a position to immediately begin buying back shares. So to remind you that our lack of reserves is due to the significant impairment charge that we took in 2008. I will remind you, at that time, we had a very low share price and the auditors came in and said they had to do a virtual mark-to-market writedown. So we ended up with this big $80 million write-down.

So in order to remedy this situation, we will be required to apply to the Irish courts for permission to redesignate some or all of our share premium account as reserves. This is a relatively simple, and also time-consuming, process and a little bit expensive. As a first step, we will be required to hold an extraordinary general meeting of the Company seeking approval of this redesignation. Given the required notice period for such a meeting, I expect that this will take place in September.

This will then be followed by a court hearing in the Irish High Court in October, which will hopefully culminate in court authorization being granted by mid-November of this year. I say hopefully and this is an important point. It is not a certainty that the Irish Courts will grant us permission. We have taken counsel's advice on the matter and given the strong cash position of the Company, we have been advised that there is a very, very high likelihood that we will be granted such a permission. However, the risk, however slight, remains that it is possible that we would be told no. We regard that though as a small risk.

Regarding the nature and extent of the buyback, I will have more information for you when we formally give notice of the EGM. However, in summary, we consider that it does make sense in the current environment. If you exclude our cash of $3.50 per share, the Company is currently trading at a PE multiple of only 4 and a buyback will clearly enhance earnings per share.

Just to mention that, in the meantime, we are doing everything we can to improve the shareprice. We have conducted a number of roadshows in an effort to attract new shareholders and strengthen the price. I think that may answer the question.

Okay, thanks, Ronan.

Neal Goldman, Goldman Capital Management.

Good morning or good afternoon, guys. Just two quick questions; one a follow-up to the last one. Will you have the same process in terms of a dividend payment?

Yes, we will have the same process. It all revolves around the notion of not having reserves in place and to get those reserves in place requires going to the Irish Court and so anything of that nature would require the same process and the same time.

Okay. The other -- and the last question would be how big is the PDX market today and who dominates it and what do you see as your potential in that market?

It is about a $200 million to $250 million market. The biggest player is Bio-Rad, the American company and then you have got two -- the next two are Tosoh and Arkray, two Japanese companies. And the other big player is Menarini in Europe who distributes Arkray's product. That is the market basically.

In terms of what we can take, we in reality have been just scratching around the edges of this market, doing a lot of variant work. We have an instrument at the moment which is sort of 15 years old and isn't really capable of taking on the market in a serious way. The new instrument can do that. We can seriously arrive in this market.

In terms of what kind of marketshare we can take, we are a bit reluctant to get involved in speculation, but just to make the point that, firstly, with the European distributor that we hope to sign up with, and that distributor has a decent marketshare in Europe already, so that will position us to take reasonable marketshare there.

With the party in the United States that we are dealing with, they also have great distribution and so I think we can take meaningful marketshare. Just a bit reluctant to indicate at what extent. But to some extent, I think the sky is the limit.

Okay. And in terms of -- since you are working with distributors -- let's say you had 10% of the market, pick a number, $20 million, what would be your margin on that?

Well, we would be working through a distributor, so they'd maybe get half that, so then we would have $10 million for the sake of argument if that were the case. Except that -- because typically -- well, maybe 45% for the distributor. But you have to remember that we would also have -- in the United States, we also have a direct salesforce. So in the United States, we will also continue to sell this product directly.

Okay. But what would be your operating margin on that $10 million conceptually with distributors?

Gross margin -- Neal, it's Rory here. Our gross margin would be north of the margin we are aiming for at the moment. In other words, be north of 50%. That business today, it varies depending on the product and whatnot, but it would be quite a bit north of 50%.

I think in the United States, it would be more like 70% and pricing is very tight in Europe and I think in Europe, it would be more like 50%.

Okay, great. Thank you.

(Operator Instructions). Joe First, First Associates.

I'm sorry, can you give me a little bit more background on this new instrument, exactly what it is, what it does?

Sure. It is a lab-based instrument. It can process -- there will be two, if you like, throughput levels. One is for 50 patient samples and the other is for 210 patient samples with negligible change to it. So it is designed for a hospital laboratory or a reasonably high throughput doctor's office.

It is also going to process just hemoglobin A1c. Although a second version of the instrument, and I know we haven't spoken to this yet, but a second version of the instrument down the road a number of quarters out will be able to also run our variant product on it. But for now, it is focused solely on hemoglobin A1c, which if you track what is going on and read literature from the American Diabetes Association, there is a move on to move away or move more away from glucose-based testing towards A1c testing.

For those of you who don't know, hemoglobin A1c gives a measure of the average glucose level in a patient's system for the last three months with a weighting towards the last 30 days. So it is very hard to [screw] with the doctor, okay? Whereas, with a glucose-based strip, if you go in and you are a good boy for the last 24, 48 hours, it is a little bit easier to convince the doctor otherwise. So it is very, very important in terms of the monitoring of diabetics and making sure they are sticking to their regime.

And I heard the marketing point to make is this one is better than competitors. So that looks very interesting.

Yes, I mean it is. Our current instrument, just to give you a simple example, our current 15-year-old instrument is a two-minute assay. The two main competitors are at 1.6 and 1.5 minutes and we are step-changing beyond that down to a one-minute assay. It doesn't sound a lot, but it does make a difference.

That's good. And my second question is the cash you have now, how are you investing that?

The cash is currently on deposit. It is earning quite a good rate of interest and it is actually government guaranteed, so it's very little risk associated with it.

Good. Thank you.

(Operator Instructions).

Okay, I think maybe we have -- if we don't have any more questions, we will close the call. Just to say thank you to everybody. Thank you for your support and we will talk to you next quarter. Good afternoon. Bye-bye.

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