Trinity Biotech PLC (TRIB) 2010 Q3 法說會逐字稿

Hello and welcome to the Trinity Biotech third-quarter 2010 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 event is being recorded. I would now like to turn the conference over to Joe Diaz. Please go ahead.

Thank you, Amy, and thank all of you for joining us today to review the financial results for Trinity Biotech for the third quarter of fiscal year 2010 ended September 30, 2010. As the conference call operator indicated, my name is Joe Diaz; I'm with Lytham Partners, we're 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; Mr. Kevin Tansley, Chief Financial Officer; and Mr. Rory Nealon, Chief Operating 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 the release you can retrieve it off the Company's website at TrinityBiotech.com or numerous financial websites on the Internet. Before we begin with prepared remarks we submit for the record the following.

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.

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 US Food and Drug Administration and other agencies; the impact of competitive products, product development, commercialization and technological difficulties; and other risks detailed in the Company's periodic reports filed with the SEC.

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 revision to these forward-looking statements. With that said, let me turn the call over to Ronan O'Caoimh, Chief Executive Officer of Trinity Biotech. Ronan?

Thank you. Good afternoon, everybody, good morning. Firstly Kevin Tansley will bring you the results and then I will do a brief sales and marketing review after which time we'll open the call to a question-and-answer session. So, over to Kevin.

Thanks, Ronan. Today I will take you through the results for quarter three, including a review of the income statement and the key balance sheet and cash flow movements for the quarter. Before I do so I would just like to point out that the divestiture of our coagulation product line occurred on the 30th of April this year.

So this is the first full quarter from an income statement point of view you're seeing without coagulation. From a balance sheet perspective it's more straight forward as the June balance sheet represented the post divestiture position and is built directly comparable with the September 30 balance sheet.

I will now take you through the income statement for the quarter and we'll start with our revenue performance. Ronan will deal with this in more detail later on in the call, but just to point out that this states that revenues for the quarter were $18.7 million which consists of $4.2 million for point of care and $14.5 million for clinical laboratory. Just to reiterate what I said earlier, there are no coagulation revenues this quarter.

Moving on to gross margin. You will see from the income statement that our gross margin for this quarter is 50.6%, this compares to 45% in quarter three 2009 and hence is an improvement of 5.6%. As mentioned on the last call, this an improvement was expected as quarter three represents the first full quarter without coagulation, which in the past had the lowest gross margin amongst all of our product lines.

Moving on to our indirect expenses. Our R&D expenses this quarter have fallen from $1.2 million to $758,000; this is a reduction of 59%. Meanwhile our SG&A expenses have also fallen, in this case from $8.7 million to $5.7 million, representing this time a decrease of 34%. In both cases the principle factor has been the coagulation divestiture, though we have continued also to keep very tight control on our levels of expenditure.

Moving on next to our net financing cost, we see a net financing income of $445,000 this quarter, this compares to the net financing charge of $289,000 for the same period last year. This turnaround is due to substantial increase in interest income due to interest earned on the coagulation divestiture proceeds which have since been further augmented by strong operational cash flows.

Meanwhile the repayment of all of our bank debt at the end of April has reduced our interest expense significantly. This quarter we are showing a nonrecurring item of $587,000; this principally relates to a certain working capital adjustment associated with the divestiture of coagulation such as agreeing on the amount of liabilities and the carrying value of receivables transferred to Stago. And in accordance with the sale agreement and due to the judgmental nature of these calculations it was only possible to finalize these amounts in the period following the deal.

Taking through to count these adjustments, the total reported -- total reported profits on the coagulation divestiture is now $46.8 million, this compares to $47.4 million which was previously announced. The tax charge for this quarter amounted to $206,000, which represents an effective tax charge of about 7%. This brings our operating profits for the quarter to close to $3.3 million which compares to $3.7 million in the equivalent period last year.

However, from an operating margin perspective (inaudible) seeing a substantial improvement moving from 11.8% to 17.4%. In terms of profit after tax, we've seen an increase from $3.1 million to $3.5 million over the same period which is an increase of 14.7%. And meanwhile our EPS for the quarter is over 13% higher at $0.0165 per share. The growth and profitability figures I've quoted are excluding the impact of the small nonrecurring item that I mentioned earlier on.

I would like to remind listeners that at the time of the divestiture of the coagulation product line we predicted that post-divestiture profits will be in the range of 100% to 110% of pre-divestiture levels. Our quarter two results indicated that this would be the case. However, we had to wait until this quarter, being the first quarter without coagulation, to prove this and are happy to say that we have.

Now to talk about our balance sheet. I'll explain the significant movement since the end of June 2010. Property, plant and equipment have increased by $200,000 during the quarter and this is due to additions of $400,000 being offset by a depreciation charge of approximately $200,000. During the same period our intangible assets increased by approximately $1 million and in this case it's mainly attributable to the addition of $1.3 million on development projects and this has been partially offset by amortization charges of $0.3 million.

Moving on to inventory next. You will see that inventory has increased by approximately $700,000 during the quarter. This represents an increase of 4%. This is mainly due to timing issues relating to purchasing and production and is within the normal level of fluctuation that we can expect to see quarter on quarter.

(inaudible) and other receivables have fallen by $1.2 million in the last three months and the total of $27.3 million this principally made up of the short-term portion of deferred consideration from Stago which amounts to $11.25 million, which we are due to receive in quarter two next year, and trade receivables, which are currently at about 62 days.

Finally in relation to working capital, our trade and other payables have increased this quarter by $650,000. The level of payables can be expected to fluctuate significantly quarter on quarter depending on the timing of payments and the level of fluctuations this quarter can be considered within a normal range.

I will now move on to discuss our cash flows for the quarter. The cash balance this quarter has moved to just over $50 million to almost $53.8 million, which is an increase of $3.8 million. This consists of $4.9 million of cash generated from operations, net interest received of $347,000 and both of these can be partly offset by capital expenditure of approximately $1.5 million. This gives free cash flow for the quarter of close to $3.8 million which represents more than a 77% increase over quarter three 2009.

We are now generating over $1 million per month which shows that we are converting our strong earnings into cash. As mentioned in the press release, our cash balances plus the first consideration, which is bank guaranteed, is now equivalent of approximately $[3.60] per share. So, in summary, the Company is now in a very healthy financial position with growing earnings and strong cash flows. I'll now hand back to Ronan.

Thank you, Kevin. I'm going to review our revenue performance for the quarter and then open the conference call to a question-and-answer session. Our point of care revenues for the quarter were $4.2 million compared with $3.9 million last year, which is an 8% increase. US HIV revenues were up 4%, which we believe constitutes a strong performance when considered against the background of reduced spend on HIV programs at the individual state level around the United States and when compared also with the performance of our competitors.

Our HIV revenues in Africa increased 12% on the corresponding quarter. While we concede that this business can fluctuate significantly on a quarter-by-quarter basis, we are pleased with this performance particularly given that there were no shipments to our big African customer with whom we have been having credit issues. We continue to believe that these credit issues will resolve. Our business development pipeline is very encouraging with significant growth expected in Uganda, Zambia and Mozambique.

Moving on to our clinical laboratory business, which comprises infectious disease and diabetes. We generated sales in the quarter of $14.5 million compared with $15.9 million in the prior year quarter, which is a reduction of 8.9%. This entire reduction is explained by two factors. Firstly, the average dollar rate in quarter three of this year was 1.31, whereas the average rate last year was 1.42.

And then secondly, when we sold the coagulation business to Stago we closed down our direct selling operations in France and in Germany. We have appointed distributors into these two markets and obviously their distribution margin serves to reduce our revenues. In the UK a similar situation prevails in the short term where Stago distributes for us while we transition to a scaled down direct sales model.

As you know, we have virtually 100% of the line -- of the US Lyme Western Blot market. This quarter sales were $600,000 less than the corresponding quarter last year arising from the severe winter last year. In Fitzgeralds, sales this quarter were $900,000 lower than the corresponding quarter last year arising almost entirely as a result of the collapse of the flu antibody sales business following overstocking by companies due to the sudden collapse last year of the H1N1 swine flu.

So in light of these two factors, i.e., a $900,000 reduction in our Fitzgeralds new antibody sales and $600,000 less Lyme sales, in light of these factors the performance of the bulk of the -- the balance and bulk of the infectious disease business and of the diabetes business has been very strong with both giving double-digit organic growth.

In infectious disease the US has performed strongly where we are adopting an aggressive policy of placing [TSX] instruments which run our broad range of reagents. We got Chinese FDA approval during quarter two of our Toxoplasma, rubella, cytomegalovirus and herpes tests and have been surprised at the high level of sales achieved by our excellent distributor in our first operating quarter there.

We are currently registering sexually transmitted disease and autoimmune tests also in China and it should take about another nine months to get to approval. So we're very, very encouraged with the progress and possibilities in China.

And we see Brazil as a big opportunity and we are nearing the end of the registration process there which has been ongoing. We believe that our excellent distribution partner there will be very successful with our products range.

Moving on to diabetes, we have had a really good quarter achieving, as I've already said, double-digit organic growth. Our two principle markets, being the US and China, both performed strongly. Our new PDX diabetes instrument, which will replace the old PDQ, and into which we have invested $4 million in development, will complete and launch during this current quarter.

On the previous two conference calls I indicated that a distribution deal for the PDX with a very, very large European distributor was imminent. And it is still imminent; we are confident of it progressing. The announcement, however, will be (inaudible) with the launch of the instrument and CE marking which will happen towards the end of this quarter. Revenue should accrue immediately following the launch.

At the same time as that launch we will file with the US FDA, with the Chinese FDA, and with the Brazilian regulatory authorities. We believe that this instrument will enable us to significantly grow our A1c market share internationally worldwide.

And so that completes what I wanted to say on that. And at this point in time, if I could hand back to the operator for a question-and-answer session, please.

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

Hi, guys, good morning. First question, I wanted to look at the P&L in a little more detail. Considering this is your first quarter without coag, can you walk us through the gross margin and operating expense structure that we saw this quarter and how you expect those lines to progress now that the divestiture is complete?

Yes, Matt, no problem. Kevin here. Obviously you're picking up on the fact that you're seeing the best gross margin for a long time for us here at 50.6 percentage, probably isn't around where I would have thought it would be. I see that staying in and around that level; I think we may get slight improvements going forward on us, but for the next quarter I anticipate it being around the 51%, that type of level, maybe slightly higher.

In terms of the rest of the P&L as you goes down through it, we've now sort of reached the post coag era as such and the cost should stay in and around that level. I don't expect growth; we may be able to take a small amount of additional expenditure out. But it will be at similar levels to this going forward.

Okay, great. That's helpful. And then thinking about the top line as we enter 2011, you'll have PDX coming online, it sounds like the point of care test will be more a contributor a year after that. I think on the last call we talked about getting the Company towards double-digit growth. Can you give us any kind of thoughts on timing as to when you could start to see that acceleration in your organic growth rate?

I believe -- I mean, I explained earlier that with the exception of Lyme and this new antibody business that we actually did achieve double-digit growth. So I do believe that we're very close to that and that we can continue with that. I gave some indications of some of the business development opportunities that we were pursuing just to give people a flavor for it.

I mean, I think the difference is that the Company was very dispersed in the past and a lot of our effort was going into coagulation. I mean, now we're very focused on point of care, infectious disease and diabetes and it's a simpler business. We've also allocated additional sales and marketing resources, I think that's very important. We've added people in Africa, we've added people internationally.

So we're very focused. We have many business opportunities and we believe that we can go immediately into double-digit growth and are clearly aided by the PDX instrument, which is actually on the point of being launched 2000 -- and then obviously 2012 we start getting the benefit of point of care instruments. But as we stand we're in an organic growth position.

So we're very confident going forward. We see China and Brazil in particular as very strong markets with huge potential for us. I mentioned we were surprised, maybe the (inaudible) word should be kind of staggered by the level of our -- actually what happened once we achieved registration in China. It could've taken us two years to get registration, it's been a long hard process. But it's looking like it will be worthwhile. And bear in mind that that was only the first four products out of a total of 30 that we hope to register there.

So, it's safe to say you're looking for double-digit growth next year?

Absolutely, yes. So if you regard sales this year in around 73, yes, 80 point something will give us -- give us double-digit, that's what we'd be targeting.

Okay. One other question for Kevin. The other income line, I'm not sure if you called this out, but it was a meaningful number in the quarter and did impact your bottom-line results. What was in that and what should we think about for other income going forward?

Yes, that's a fair point, Matt. There's a few things in there; we've got some premises that we sublet that we've grown out of in the past that we continue to have and we get some income on that, that will continue long-term. But the main items in there are certain services that we were providing for Stago since the transition of coag. That will reduce in quarter four and will reduce again in quarter one down to quite modest levels. We will expect to get some savings in terms of how we provide for those costs. So the impact on the P&L will be relatively neutral as they disappear.

So how much will those reduce by going --?

I see that figure coming down to -- I mean, you see the figure there of other operating income in 2009 was real -- closer to $150,000, I see it being around $100,000, maybe even lower. But I see there are costs associated with providing those services, which will --.

On a quarterly basis, $100,000?

Of that order, yes.

Okay. And then finally on the buyback, considering the amount of time and effort required to get one in place, do you have any idea of your expectations for the size of that program assuming it goes through?

Maybe I'll take this opportunity of just giving you an update on the buyback and deal with that. Just to go back on it, (inaudible) companies it's only possible to do a share buyback if a company has distributable reserves. Because of the impairment charges recognized that a company in 2007 in 2008, which you remember were mark to market adjustments, we have no such reserves. As a result in order to facilitate the buyback we were required to restructure our balance sheet by transferring share premium to reserves. And this required a two-step process.

Firstly the Company was required to get approval for its restructuring from its shareholders at a specially convened EGM. As you know, this took place on the 30th of November and approval was received. That was approved.

The second step then is a bit more complex, it involves obtaining similar approval from the Irish courts, which will involve two court hearings. The first of these hearings has been scheduled to take place on the 10th of November in the Irish High Court with a second hearing a few weeks later. In the period between the two hearings we will have to advertise that we are undertaking this exercise in the national media in both the United States and Ireland.

That by the way is a paper meeting (inaudible) not TV. The purpose of these advertisements is to allow any party, principally creditors, who feel that they may be disadvantaged by the reduction in share premium to come forward and make their case to the court. We wouldn't anticipate there to be very much of that.

So I'd like to point out that while we're confident that we will get approval that we've requested from the court, it is by no means a certainty. There's a possibility that approval will not be given, albeit slight, thus preventing our ability to undertake a share buyback. Alternatively the court may decide to limit the amount of reserves that are being created which would have the effect of restricting the extent of any buyback.

Again, that's a possibility -- rather than a possibility. This will only become known once the court makes its decision. If the process proceeds and expected approval is likely to be granted in late December, thus allowing the buyback to commence then or more realistically in the new year.

In terms of how much we buy back, that's a more difficult question to answer at this moment in time. Firstly we must wait and see to what extent the Irish Courts have given their approval, bearing in mind that they could decide to give a limited amount.

And secondly, assuming approval is granted, we will then need to consider how the stock is trading at the time, in particular the price and volumes. And doing so we will clearly be taking advice from our broker whom we've appointed for this purpose which is Roth Capital Partners. Maybe that answers the question.

All right, thanks.

Ian Hunter, Goodbody Stockbrokers.

Good afternoon, gentlemen. You seem to have answered in detail every line on the P&L except one, so I might as well ask about that. I see your tax level was fairly low this quarter. I'm just wondering what rate you would see coming through into the fourth quarter and into the full year 2011?

I'll take that, Ian, if I can, Kevin here. Even though the tax charge is low we're fortunately benefiting from some additional credits that the Irish government have granted in relation to R&D activity, so hence we're able to take a credit against the normal expense there, so it's slightly artificially low. Traditionally speaking it would have been low double-digit previously.

We anticipate the Company has similarly low levels in quarter four and maybe a little bit higher. And then after that in 2011 I can see it climbing somewhat. We have had traditionally a lot of losses in our US subsidiaries carrying forward, but those losses now are expiring, particularly as we used them all up with the gain that we recognized in relation to the coag divestiture. I see it going up in 2011 rather than necessarily in 2010, quarter four. So we're probably seeing 10%, sort of 12% to 15% maybe being the long-term kind of rate we can look at.

Yes, okay, thanks so much for that. Ronan, you were discussing the potential of the new markets in China and Brazil. And you mentioned that you got the first four products into China. Is it possible to give us a timeline? I know you said it was (inaudible) for the other 26 that you have in the system. Are they already in the system or is it things that are going to be coming through over the next two to three year period?

Well, the autoimmune range and the sexual transmitted diseases are in the pipeline already and then we will go beyond that. But again, I don't want to mislead people because the [toxil tort] range would be big sellers in China whereas some of the other products wouldn't necessarily sell at the same sort of levels. But having said that, I mean we do regard China now as a significant opportunity.

I'm not going to say what we did in the quarter in there, but it was very significant, surprisingly so. And really, I mean the bottom line is that in Europe and in the US we've had it move to random access and that move isn't as far developed in China, so it is a very, very significant opportunity here for a (inaudible) based test, you know?

Yes.

And the scale of it I think has somewhat surprised us. So we're very upbeat about this. But again, I just need to remind you that the quantum of work involved in registering in the United States is very significant, it's much, much more onerous than with the US FDA. Because the Chinese undertake their own trials as well and anyway it's just much, much, much more significant than the standard 5-10K. So it's a massive amount of work, so it takes time and really you have to do it in batches.

Okay. And maybe if I could move to another geography now (inaudible). You've seen good growth there in the quarter in Africa. And you're signaling it's Uganda, Zambia and Mozambique and not your troublesome customer. Is there any -- can you see yourself moving into other areas in Africa as well? Is there a program for that, or are you going to be concentrating on these three countries and trying to drive more growth?

No, I mean we're present -- we're present in virtually every country in Africa. I mean, bear in mind every country in Africa uses two tests, one for screening and one for confirming. And there are only three manufacturers in Africa, which is (inaudible) if you want to call them that, Standard Diagnostics, (inaudible) and ourselves. So we're very broadly geographically spread.

And in every instance you either fundamentally are -- simplistically you're either the screener, the confirmatory or the tiebreaker, whatever decreasing amounts of business depending on which of those you have. And so we are everywhere.

Having said that, we have allocated additional resources in terms of feet on the ground into our African effort. And I think we're beginning to get payback on that. Bear in mind we are the only FDA approved product that serves the US -- that services the African market in any real sense. And so we have that status, we sell at the highest price and we are very much regarded as the gold standard in Africa.

I think we've tested many millions of people over the years. So we're highly regarded within that market, but we're always working hard on developing and then we do believe that we will benefit significantly as the -- inevitably the spend on this HIV problem in Africa increases as supported by, for example, President Bush's PEPFAR program where the US taxpayers are putting $10 billion a year into dealing with this problem in Africa.

Beyond that you've got the Gates Foundation, the Clinton Foundation, the World Health Organization, the World Bank, the Welcome Foundation, the Japanese government, the European Union, so a lot of dollars going into it. And basically it's only -- we're one of only three tests in essence that operate in this market.

That's great. Thanks very much.

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

Hi, guys. I just have a couple of questions, most of them have been answered already. Just in light of the strong quarter, (inaudible) change your guidance for the full year 2010 and just maybe you could give us the totals going into next year? And just, is there an update on the -- some of your other products in the pipeline specifically taking TRIstat?

I'll just deal with the guidance for a moment. I mean we did $0.15 in quarter one, $0.155 in quarter two, $0.165 in quarter three -- which is $0.135, $[0.31], that's 47 I think. And we were indicating I think 57 to 63. So, I suppose if we were to, for example to match and quarter for what we did in quarter three we would have exceeded all of the expectations. Just in terms of, I think in times of, Rory --.

Maybe I'll the TRIstat (inaudible). As you heard us say before, TRIstat is already both FDA 5-10K approved and it's also CE marked. But a CLIA waiver has been deemed to be very important by our potential distributors and obviously that's what you're inquiring about. I don't know if you know, but unfortunately CLIA waivers are a little bit hard to come by these days. And as you review the CLIA waiver section of the FDA website for waived products, you notice very few waivers in our particular space in recent time.

I think I said on recent conference calls, one particular player told that us it can in fact take up to two years to get a CLIA waiver. So it's a difficult thing to get through, but we're plugging away at it. And in the meantime we will continue to try and push the process along and are hoping, in fact, to have a meeting with the FDA in the coming weeks about it. So maybe more news than none.

Okay, thank you.

Brian Marckx, Zacks Investment Research.

Hi, guys. What was the foreign-exchange impact in the quarter?

I think it was $500,000, we moved to (inaudible), as I mentioned, so I think it was 1.31 to 1.42 with the averages. So to reduce our revenue by $500,000.

The --.

Does that answer it?

I'm sorry.

Does that answer the question, $500,000.

Yes, yes it does. Thank you. The implied interest rate that you are earning looks pretty impressive. Can you tell us where the cash is invested?

Yes, we're earning close to 3%, which obviously is a very good rate of interest. The funds are invested in a number of Irish Banks at present, which, as you probably know, are government guaranteed and obviously fall within the EU framework and Euro zone framework also. So it is a very good rate, but we believe obviously the funds are very safe given the government guarantee and the backing of the EU.

Okay. I just had one quick one, a follow-up on the TRIstat question. The plans for the European launch, is that -- do you expect that before the CLIA waiver or what are your expectations there?

Ronan here (inaudible), Brian. Yes, we're currently looking for a European partner. [The product] is FDA approved and CE marking itself is a self regulation system. So CE marking can be done at any moment. But we will -- what we will probably -- if we can get a European distributor over the line we'll immediately CE mark.

What we've got to do in the course of the next two or three months is we've got to commence registration in China where we already do upwards of $2 million -- well yes, between China and Thailand -- excuse me, in Taiwan, virtually $2 million. So we've got a wonderful distributor there and we've got to basically -- and he's got a very significant and solid base. So he's very anxious to get the product. So we're about to commence the registration process there.

And similarly in Brazil where we have a wonderful distributor who is our infectious disease distributor and in fact was previously a very, very successful coag distributor for us. He is about to take the TRIstat also or is going to take it. So it's just a matter of getting all of the paperwork ready for registration.

So what I envisage happening is that the course of the next probably three months that we would have commenced registration in China and in Brazil for TRIstat. We will continue to -- I can't say what's going to happen in Europe because we clearly need a partner there, we don't have one yet. And then obviously in the USA we continue with the FDA CLIA process which, as Rory said, is very depressing in terms of how long it's taking. So I think that's basically our TRIstat strategy.

Okay, great. Thanks, guys. The rest of my questions were answered already.

Neal Goldman, Goldman Capital Management.

Is your R&D staff in San Diego fully staffed now and operational?

Neal, Ronan here. Yes, we'd say 90% installed. But you're going to see an increase in our R&D spend in the next quarter, so there's only part of that in for some of the quarter. But 90% there yet, virtually all in place. Lab turning two people under offer, but just working out their notice.

And on a long-term basis what should your R&D spend be, again whether it's capitalized or expensed, on an annual basis going forward?

$4.5 million to $5 million.

Okay. And where is the focus on this new group in San Diego, where are they going to be doing the R&D on?

Well, the products that they're working on are -- the products they're working on -- flu, strep, pneumonia, syphilis, (inaudible), p24 which is an HIV antigen test, and [HFC] herpes -- [HFC] which is herpes 1-2, herpes typing test.

And these all are all lateral flow technology?

Every single one of those is lateral flow, they're all lateral flow, all quantitative -- all qualitative, which basically means that you can -- it's a yes/no answer rather than a reading -- a number. All eye read with the exception of flu, which would probably be fluorescence read.

And I assume your assumption is these will start having an impact in 2012 in terms of product offerings?

Yes. I mean, on average all those projects are three months on -- they're three months into the process. And typically, and I don't want to oversimplify, but typically we would say 18 months, two man, three man years, two people 18 months each per product. That's a bit of a simplification, but it gives you a flavor for it.

Okay, one last question. And again, not this year, next year, whatever. On a longer-term basis, as we get to that $100 million sales level, what sort of pretax margin should we be able to achieve in this company given increasing point of care and high-margin business, what would be the target goal next years out? I'm not trying to hold you to a timeframe.

Neal, 20%. I know we -- what do we do this $17.6 million --?

An operating margin of mid-17 for the quarter, yes.

Yes, so we did an operating margin of $17.6 million, but I think we hope to get to 20%.

Okay.

That's very much what we want to do.

So about an 18% after tax assuming a 10% tax rate type of thing going at that level?

Yes.

Okay, and that would exclude --?

That (multiple speakers) [includes] interest and commodity.

Excludes interest and also would exclude any benefit from a major share buyback if we can do that? Okay. Great, guys. Thank you.

Kurt Wiese, William Blair.

Thanks for taking my question. Is $3 million to $4 million in free cash flow sustainable on a quarterly basis?

Kurt, Ronan here and I've (inaudible) Kevin. Yes, I believe so. I mean, just to remind yourself, last quarter we announced we had $3.43 per share in cash, this quarter we have $3.60. So it's $0.17 by 21 million shares, whatever, it's $3.6 million. And our profit for the quarter I think was $3.5 million -- $3.5 million by post-tax profit. So I mean, you can see what we're doing. Our profitability we're converting it into cash. But I know that doesn't quite answer your question.

Yes, I think it is sustainable, absolutely. I mean, I've indicated that the R&D spend will increase somewhat, but I believe our margin will improve slightly as we move out. I mean, we're still in this sort of a transition period here at the moment, we don't have all of our production efficiencies, we're still moving people around between factories, we're still -- there are issues anyway.

You can imagine, we had three factories in Dublin and one there is a coag factory. So there's been a lot of complexity relating to the separation of the operations. I think when things settle down we believe we can get to that 20% operating margin. So I think basically we can swallow the extra R&D spend basically and I think we can maintain that level of profit at this level of revenue.

Great, thank you.

But clearly, Kurt, to go beyond that, I mean we are anticipating a 10% organic growth rate and clearly that will be reflected in this half's numbers.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Ronan O'Caoimh for any closing remarks.

Really just to say thank you very much indeed. And thank you for your support and attention and it's going to be a longer period before we have our next conference call obviously because it's quarter for and we go through the audit process. So we hope to talk to you at the end, I think end of February, maybe first few days of March. So thank you very much indeed and bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.