Trinity Biotech PLC (TRIB) 2010 Q4 法說會逐字稿

Good morning and welcome to the Trinity reports fourth-quarter 2010 financial results conference call. All participants will be in a 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 Mr. Joe Diaz. Mr. Diaz, please go ahead.

Thank you, Amy, and thank all of you for joining us to review the financial results for Trinity Biotech for the fourth quarter and the year ended December 31, 2010. As Amy indicated, my name is Joe Diaz; I'm with Lytham Partners. We're the investor relations consulting firm for Trinity Biotech.

With us on the call representing the Company today are Ronan O'Caoimh, Chief Executive Officer; and 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 in 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 sites 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 those 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 United States 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 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 Ronan (technical difficulty), Chief Executive Officer of Trinity Biotech. Ronan?

Thanks, Joe, and welcome to our conference call. I'm joined here by Kevin Tansley, our Chief Financial Officer. Kevin is going to bring you through the results for the quarter and the year, after which I will talk about our revenue performance over the past quarter, and after which we will open the call to a question-and-answer session. So I'd like to hand you over to Kevin.

Today I'll take you through the results for quarter four, including a review of the income statements, the key balance sheet and cash flow movements for the quarter. As this is quarter four, I'll also make some comments on the financial performance of the Company for the financial year 2010.

I will now take you through the income statement for the quarter; I'm going to start with our revenue performance. Ronan will take you through this in more detail a little later on, but at this stage are like to point out that the revenues for the quarter were $19.2 million, of which $3.5 million related to Point-of-Care and $15.7 million related to Clinical Laboratory.

Moving on next to gross margin, you'll see from the income statement that our gross margin for this quarter is 50.8%. This compares very favorably with 44.5% in quarter four 2009. As you will see, this improvement of 6.3% is due to the impact of the divestiture of our coagulation product line. Historically, because of significant instrument element, coagulation had been the product line with the lowest gross margin, and now that this is no longer a feature we are seeing a rise in gross margins. A better comparison would be to look at quarter three's gross margin, which, at 50.6%, is broadly in line with this quarter.

Moving onto our indirect expenses, our R&D expense this quarter has fallen from $1.9 million to $853,000. This is a reduction of 56%. Meanwhile, our selling, general and administrative expenses have decreased from $8.2 million to $5.4 million, representing a decrease of 34%. Obviously, in both of these cases the principal factor has been the coagulation divestiture. So, again, I will compare for quarter three, as it is a more direct comparison.

Compared to quarter three 2010, R&D expenses have increased by approximately 12.5 (technical difficulty), thus reflecting the increased level of R&D activity being undertaken. And from an SG&A point of view, this has decreased from 5.7 (technical difficulty) for quarter three to 5.4 million (technical difficulty), which is a reduction of 5.2%. This was achieved even after taking into account the increased fees in relation to the restructuring of the balance sheet in advance of the share buyback.

Moving on next to our net financing costs, this quarter we have net financing income of $491,000, which is slightly up from quarter three but compares to a net financing charge of $259,000 for the same period last year. The move from a financing charge to financing income reflects the interest income being earned on the coagulation divestiture proceeds and on the cash being generated from operations.

Meanwhile, the repayment of all of our bank debt has reduced our interest expense significantly, and the remaining interest expense relates to equipment lease financing, which will reduce as we repay the outstanding balances. The tax charge this quarter amounts to $408,000, which represents an effective tax charge of 10%.

Our operating profit for the quarter was $3.58 million, which represents a small increase over the $3.49 million earned in the equivalent period last year. Whilst the increase is not large, what is significant is that this is the first quarter that our post-divestiture operating profits have been greater than pre-divestiture levels.

As I have also been making comparisons with quarter three so far, I will point out that operating profits are up by 9.5% this quarter versus quarter three. From an operating margin perspective, we are seeing a substantial improvement from 11.3% to 18.6% year on year.

Profit after tax increased from $3.3 million to $3.7 million over the same period, an increase of 12.3%, and this is reflected in the higher EPS for the quarter, which has moved from $0.155 to dollars and $0.171 per share.

As I had mentioned earlier, given it's quarter four I will make some comment on the full-year results before I move off the P&L. In particular, I would like to mention our EPS performance. We achieved a 13.6% increase in 2010 as a whole compared to 2009, moving from $0.565 per share to over $0.64. This obviously excludes the impact of nonrecurring items, principally the divestiture of coagulation which, if that were taken into account, would have resulted in an EPS of $2.85.

We also saw considerable growth in both profit after tax and profit before tax, which increased by 14.9% and 15.3%, respectively.

Now let's talk about our balance sheet, where I will explain the significant movements through the end of September 2010. Property, plant and equipment increased by almost $500,000 during the quarter, and this was due to additions of $700,000 being offset by a depreciation charge of approximately $200,000 for the quarter. During the same period, our intangible assets have increased by $1.1 million. This is attributable to additions of $1.4 million on development projects, and this has been partially offset by an amortization charge of 0.3.

These additions relate to the work that has been carried out in finalizing our new A1c instrument and in developing our new Point-of-Care product range.

Moving onto inventory next, you'll see that inventory has decreased by approximately $1.2 million during the quarter. This represents a decrease of 6.3%, and this is due to normal timing issues relating to purchasing and production. We can expect to see an inventory fluctuation quarter on quarter. And if you recall from the previous quarterly call, we had seen a modest increase that time.

Trade and other receivables have fallen by $1.8 million to $25.5 million in the last three months. These receivables consists of two main elements. Firstly, there is the short-term portion of deferred consideration, which we are due to receive in quarter two this year; and secondly, trade receivables, which have improved to 58 days compared to 62 days in the previous quarter.

This improvement in collections has contributed to the fall in receivables, but it is also due to the unwinding of certain transitional arrangements with Stago, which had the effect of temporarily increasing the level of both our receivables and payables since divestiture. This is also the main reason why we are seeing a corresponding fall in the level of payables, which have fallen from $12.8 million to $11.4 million.

We will now move on to discuss our cash flows for the quarter. The cash balance has moved from just over $53.8 million to $58 million (technical difficulty) an increase of $4.2 million in the quarter. This consists of $6.3 million of cash generated from operations and net interest received of $330,000. This has been partially offset by capital expenditure of $2.2 million.

We also fully repaid a very small bank facility of $149,000 during the quarter, thus leaving a small amount of leasing as the only interest-bearing debt in the Group. This gives us free cash flows for the quarter of close to $4.4 million, which represents an increase of more than 81% over quarter four 2009. We are continuing our trend of generating over $1 million per month, which shows that we are converting our strong earnings into cash. Some of these (technical difficulty) will be used for our new annual dividend and the share buyback.

But Ronan, who I will now hand back to, will deal with these items in more depth later on.

Thanks, Kevin, and 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 $3.5 million compared with $3.7 million in the prior quarter, which is a drop of 4%. US HIV revenues were flat compared with the prior year, which we believe constitutes a reasonable performance when considered against the background of reduced spend on HIV programs at the individual state level and also when compared with the performance of our competitors.

Our HIV revenues in Africa were 6% lower than the corresponding period of last year. While we had indicated in the past that there could be significant fluctuations on a quarter-by-quarter basis in this African business, the situation in this particular quarter was that a number of large shipments shipped immediately after year end rather than prior to year end. We therefore expect a strong quarter one in Africa this year. Our business development pipeline is very encouraging with significant growth anticipated in Uganda, Mozambique and Zambia during the year.

Moving onto our Clinical Laboratory business, which comprises both infectious disease and diabetes, generated sales in the quarter of $15.74 million, which can when compared with quarter four of 2009 is flat and which, compared with quarter three of 2010, represents an increase of 8.2%. We are pleased with this performance in the context of the following factors. Firstly, when we sold the coag business last April and we closed down our direct selling operation in France and Germany. We have appointed distributors in these markets. And obviously, their distribution margin serves to reduce our revenues.

Secondly, sales in our Life Science division, which is Fitzgerald, were $700,000 lower than the corresponding quarter last year, rising almost entirely from the collapse of flu antibody sales following overstocking by companies during the H1N1 swine flu pandemic

And thirdly, as you know, we hold virtually 100% of the US Lyme Western Blot market, and as a result of the lower incidence of Lyme disease, sales are significantly lower this year than the corresponding period of last year.

In light of these factors, the performance of our core infectious disease and diabetes business has been strong during the quarter and has generated an 8.3% year-on-year growth rate. In infectious disease, the US has performed strongly, and we continue to successfully place [TSX] instruments which run our broad range of reagents.

China continues to perform strongly, and we are continuing with the registration of additional products. During this week we received Brazilian registration for Toxoplasma, rubella, cytomegalovirus, herpes and syphilis, and our Brazilian distributor will immediately commence selling these products on his large installed instrument base.

And we have experienced strong growth, over 10%, in our diabetes business during the quarter, particularly in the US and China. However, the major development for the Company this quarter has been the deal with (technical difficulty) [Menarini] which we announced last month, who have become an exclusive distributor of our new Premier PDx instrument. This is a hugely significant development for Trinity, as Menarini holds 40% of the European HbA1c market (technical difficulty) installed base of instruments right across Europe (technical difficulty) served in almost all European countries by a direct selling operation. The intention is to now place our new Premier PDx instrument into the labs as the existing instruments are retired.

In addition, we will supply the HbA1c reagent to run on instrument. The development of the instrument is now complete following three years' work and a $4 million investment at our Kansas City plant. The instrument is currently undergoing clinical trials in three locations in the United States, and we expect these to be complete and -- completed and the instrument CE Mark in April. Simultaneous with CE Marking, we'll be submitting a 510(k) application to the FDA and also filing in both Brazil and China. Menarini will commence placing the instrument following the CE Mark approval next month.

Moving on, seeing that last month we acquired Phoenix Biotech for a price of $2.5 million. It's a company based in Toronto and has the only FDA approval for a total antibody syphilis [at both] IgG & IgM, the only test in the world to [do] that. We paid two time sales, and our incremental revenues will be $1 million. That's because we previously had a nonexclusive US distribution agreement with them.

The product, we believe, has immense potential both in the United States and around the world. It will serve to reinvigorate our light infectious disease business. We are currently moving production to our plant in Jamestown, which is only a 2.5 hour drive away, and this should be complete in the next three months.

Moving on to R&D, we are making great progress in the development of our new range of rapid Point-of-Care infectious disease products in San Diego. To remind you, those products are flu, [AMB], strep, pneumonia, herpes 2, syphilis, Clostridium difficile (inaudible), Cryptosporidium and, lastly, HIV dual antibody antigen test. And we confidently expect to file our first FDA submissions before Christmas this year.

Just moving on to the share buyback, we had discussed this on the last call, and I'm happy to be able to report that all of the legal hurdles have now been cleared. However, we have been in a closed period since receiving the necessary authorizations from the Irish court, which was [up] last month, and we have not been in a position to commence the program.

It is our intention to start buying back shares this quarter. However, in so doing, we will need to adhere to the SEC rules which govern such transactions. For example, we will not be allowed to open the market or trade during the last 30 minutes of trading. We will not be permitted to bid higher than the last purchase or highest independent bid. Also, we will be restricted to a daily limit on the number of shares we can buy back. This daily limit will be 25% of the average daily volume over the previous four weeks' trading, so basically 25% of the volume.

The Company will operate an ordered buyback program which will be reviewed by the Board on a frequent basis, depending on the market conditions at that time. Finally, in carrying out the program, we will be using the services of ROTH Capital Partners.

Lastly, I want to discuss the dividend issue. As this year's results have shown, Trinity has now entered into a phase whereby it can expect to earn solid, reliable and, indeed, growing profits in the years ahead. As a result, the Board of the Company has determined that now is an appropriate time to commence a dividend policy. We are proposing to pay a 2010 final dividend of $0.10, approval for which will be sought at our AGM, which will be held in May. I would like to point out that, going forward, we intend to pay a dividend once a year. The rationale for paying an annual dividend once a year is to limit the amount of administration fees that will be paid. These are higher than normal because of the ADR structure which operates for foreign companies.

In addition, we point out that for all non-Irish residents, or for US residents principally, but all non-Irish residents, the dividend will be paid gross. So there will be no withholding of Irish tax and there will be no withholding of US tax.

So thanks very much, and if I could now open up to a question-and-answer session?

(Operator instructions) Matt Dolan, ROTH Capital Partners.

Hi, guys. Congrats on the quarter, thanks for taking the call. First question -- on 2011, I know you have indicated in the past that you hope to push towards double-digit growth. Can you walk us through how the revenue line progresses from here, specifically (technical difficulty) as it relates to what you put up in Q4? I know you mentioned the underlying business was growing about 8%.

And then, secondly, what you are anticipating from PDx out of Europe to help get you towards those levels.

In terms of revenue, our goal is double-digit revenue growth. I mean by that, I mean basically 10% or more. So that's our goal. In broad terms, it would bring us from $73 million to $80 million, and that's what we believe we can achieve and will achieve. I think that would translate into double-digit earnings growth as well, basically going from $0.64, which was what we achieved this year, to $0.70-something.

In terms of PDx, I am reluctant to give you a number, but I would say to you that we have signed with Menarini a distribution agreement which provides for minimum purchases by them. I don't think they would thank me for talking about them on the airwaves, but there are minimum purchases there, which will mean that the volume of business that we do with them will be significant and material in terms -- in the context of our size.

Do those minimums increase over the course of the agreement?

I don't want to go into the detail of that, but there are onerous minimums going forward.

Okay --

I think what I should just say -- just on that, Matt, I would point out that Menarini have 40% of the European market. I mean, they have a dominant presence. They love our instrument, and they are going to -- it is their intention to meticulously maintain their market share and to, on the retirement of the existing instruments, to replace them with ours.

That should basically mean, over the passage of time, that Trinity Biotech should end up with basically a dominant market share of the European market across the whole European Union, across this well over 28 countries that are covered by this agreement.

And then secondly, for Kevin, cost control was pretty impressive in the quarter. Looking back, it looks like you have more than doubled your free cash flow in 2010 versus 2009. Can you just walk us through your calculations for operating spend and how that plays into your free cash flow this year as well?

By this year, I'm presuming you mean 2011. Yes; we have been very successful, obviously, in reducing our indirect costs. Obviously, a large part of that is the impact of the coag divestiture, plus we've continued to bring it down since the second quarter of this year.

I see us keeping the level of costs under control. I don't expect us to show massive reductions. Our main objective at this stage is to show growth in our top line, hence improve providing gross profits and therefore allowing that to feed to the bottom line. That's what's going to give us our double-digit EPS growth. So I see our indirect costs as being broadly steady through 2011.

Okay, great, that's helpful, and then two more quick ones -- with the buyback authorized now and assuming, obviously, the right price, Ronan, what are you generally thinking in terms of the magnitude of this program? Maybe you can just help us [understand] (technical difficulty) how much of your cash you are expecting to dedicate to it.

All right, Matt. I suppose, as I mentioned earlier in the call, we are adhering to the SEC rules, which impose certain price and volume restrictions on buying back the Company shares. And I think the Board would be reviewing the level of purchases, which we will make on a frequent basis. When considering this, the Board will be particularly considerate of what the price the shares have been trading at during the immediate preceding period, and also, I suppose, the volumes. It's difficult to tell exactly what these conditions would be going forward, and hence obviously there's a need for frequent review.

So I'm sure you can appreciate, I'm not in a position to be overly prescriptive on the number of shares which will be bought back, as this is very much dependent on future market conditions and price, etc. I suppose, to give you an extreme or a ridiculous example, the number of shares which we would buy back would be, presumably, very different if the price were $2 or, alternatively, if the price were $20.

So I suppose what I would say is that basically on the next conference call and on each conference call we would obviously update you on how many shares have been purchased. But I don't really want to go any further than that at this moment, if you don't mind.

Okay, and then the last one is on the pipeline with OraSure going through the regulatory process in the US for their OTC HIV program, can you maybe just update us? It's been a while since we talked about it. Update us on your stance on that opportunity. Is that something you also intend to pursue?

I think we would not pursue it. We made the decision a number of years ago that we would not pursue this market. We are not convinced as to its size, and we are not convinced really that -- we're not convinced as to its size, and I suppose we didn't really think it was worth spending the kind of money that would have to be spent on the trials, which are very complex and awkward, you know, to -- in pursuing this.

And when you take all of those factors into account, and then the counseling factors, we didn't think that the market opportunity merited the investment. That was our view and that has continued to be our view. If we should be proven wrong, we could always alter our approach here, you know. But for the moment that would be our view and we would maintain it.

Okay, thanks for all the time, I appreciate it.

Neal Goldman, Goldman Capital Management.

First of all, on the relationship with Stago, is that now ended in terms of services you are providing to them, or that will continue?

No; it will continue. There are certain aspects of the relationship that were short-term and some which are long-term. So the long-term ones which will continue for a number of years. The short-term ones are nearly done at this stage. They're petering out over the next couple of months, but there will still be an ongoing relationship for a number of years. Yes.

And those services are a profit center for us or base --

Yes, we make a modest profit on it. It's not hugely lucrative. And to be honest, they provide services for us as well, and it's not usually lucrative the other way around. It was more mutually beneficial that certain activities remain with us and certain activities will be carried out by them for us. So it's more for convenience purposes rather than, necessarily, profitability.

On the 10% top-line growth to that $80 million, I would assume the margins would be significantly higher. So it would be a 15% plus bottom-line growth; right?

Yes, I think that's reasonable, yes. I think that, if you got 10% -- if we get double digits, if we got 10% revenue growth, we would get more than 10% EPS growth.

Which would take you closer to $0.75 for this new year?

It would certainly be better than (inaudible).

Okay. What is going to be your normalized tax rate going forward?

The normalized tax rate going forward, Neal, I will expect to increase. You will have noticed earlier on in the year we paid no tax, despite the fact that we made a huge profit on the divestiture of coag. An unfortunate byproduct of that is we have used up a lot of the losses that we have around the world, particularly in the US. So I expect the effective rate to increase somewhere into the midteens level. So it may take a little bit of time to get up there, but it will be midteens.

Okay, eventually? All right.

Yes, well, sooner [rather than] -- I expect to see it sometime in 2011, but it may not quite up in the first couple of quarters. We still have a certain amount of losses left to [bolster that]. No, the expectation is an increase going forward.

I think the difference is the tax charge will remain much the same, but the difference is going to be that we are going to be paying it now, as opposed to (technical difficulty) in the past it would be deferred.

Okay. So you're accruing it, so it doesn't change your, quote-unquote, reported numbers. It's just your cash flow numbers?

Yes. Basically, yes, we have been having a tax charge, but we haven't been paying tax. Now we will be paying tax. I think the charge will go up somewhat, but the charge will go up somewhat because we didn't have to take deferred taxes and certain losses. I won't go into the intricacies of that, but now, Ronan's correct, we will be paying more tax going forward and that will have a knock-on effect on the tax rate.

And from -- what are you spending now a year on R&D, like this year?

We would've capitalized about $5.9 million this year, as a whole, in R&D. And, as you know, from the P&L we would have expensed a further $4.6 million.

So it's a $1.3 million going forward swing, so that was this past year?

The past year. So (inaudible) in connection to 2010.

Okay, then going forward, what would be your R&D spending and your depreciation and amortization of it?

The R&D spend going forward -- we'd capitalize something of the same order, somewhere between $5.5 million and $6 million. And there would be a further about $3.3 million through the P&L. (multiple speakers) amortization on that still isn't significant because we are not amortizing all elements of our spend, our past spend (inaudible) order of that $1.3 million.

Okay, great, great, great job, guys.

Mike Jolin, Heartland.

Congratulations on the quarter, Ronan. Just a real brief question on the Point-of-Care -- now, the shipments that were booked in the early part of this quarter -- was that -- any color there as to magnitude of those shipments? Was it greater than $500,000?

I think you just about hit the number.

Okay.

Mike, yes, about $500,000. So basically we have a strong quarter one in HIV, in Africa.

Okay.

I also will -- I was just trying to really get across is the situation is that basically in the African context you've got a lot of variability, and sales don't tend to conform to a 13-week time line. They go all over the place (technical difficulty), and that happened again this quarter. What I think we want to get across is that the business is performing strongly and that our business development pipeline is looking good for the year.

Okay, great, that's all that I had; you've answered everything else. Thanks.

We are seeing a number of questioners on the list, but we're not hearing anything.

Dan Mendoza, Prospect Capital Advisors.

Hi, I've got a handful of questions. Can you -- on PDx, you mentioned that they've got a 40% market share. Can you give us a sense of how big the market is and maybe what their installed base of instruments?

I'm just conscious of not wanting to irritate my partner by giving market-sensitive information here. But what I would say is that the market is about $120 million in Europe. But if you come across from there -- and typically an instrument will do about $8000 a year worth of reagent. So, you know -- but I think it would be improper for me to disclose Menarini's instrument placement numbers for Europe.

Okay. How long does an instrument -- what's kind of a typical life period for an instrument? Just trying to get a sense for what the replacement cycle (multiple speakers) --

Five to six years. So basically, what has happened here is that the existing supplier may try to retain some market share or try and gain some market share, maybe, in the bigger markets. But Menarini would be reasonably confident of holding the lion's share of what they have. And over the passage of time, you would hope that in five to six years' time that we would have a very big market share, maybe not quite 40% but maybe an awful lot of it.

Right, makes sense, that's helpful. And then, just hoping that you might be able to provide a little bit more color into the geographic breakdown of revenue. Particularly interested in how big your business is in Brazil and China.

In Brazil, it's small at the moment. It's growing, but it's small. So we are talking about $1 million, thereabouts. In China, it's significant. We're talking about $5 million at this time, but growing and really growing both in diabetes and in infectious disease.

Any plans for you, Ronan or Rory, to get in front of investors in the next couple of months in the US?

Actually, funny -- I thank you for the joke. We are presenting at the ROTH conference on, I think -- is it Monday the 12th at 12.30 in LA, just outside LA -- Newport Beach, I think, at the ROTH conference. So that's, I think, Monday the 12th. It's 10 days from now.

So we do that, and then we meticulously work our way around the states, I suppose, maybe six times a year, six or seven times a year. We probably hit New York three times a year, and then we do the Midwest and then we do the West Coast. So be glad to contact you and arrange to visit you on our next trip.

Very good, and actually one more question, if I may. Any thoughts to complying with the SEC and doing one of those corporate 10b5 plans that enable you to buy stock right throughout the quarter instead of having to stop in blackout periods?

That's something we will be giving consideration to going forward. I think, as Ronan said, we will keep monitoring very closely what we can do going forward. This is the first time we have just been given the permission to do it, so we weren't able to put such a plan in place prior to this quarter, but that's something we would look to doing and we would be working with our partner, Roth, in relation to that.

Okay, very good, thanks and congratulations.

(Operator instructions) Jack Gorman, Davy.

I just have two questions, please, guys. Firstly, if you could maybe give us some color on your long-term outlook for gross margins, plainly above 50% on the last two quarters. Just wondering what scope there is for upside to that, not in the short term but over time.

And, secondly, on R&D spending, Kevin, I think you mentioned in and around $6 million capitalized, and I think maybe in total about $9 million to $10 million in spend. Can you just give us even a broad sense of what you would have spent that on during 2010 and, I suppose, how that may change (technical difficulty) in terms of the shape of that spend in 2011? Thanks.

Just before we answer those questions, could I just clarify something or just correct something. I said a moment ago in response to a question that we would be presenting at the ROTH conference on Monday, 12 March. And of course, I'm wrong there; it's actually Monday, 14 March, 12.30, at the ROTH conference, just to clarify that.

Do you want to take the (multiple speakers) --

I'll take the gross margin question first, Jack. Obviously, we've seen the step change up from the mid-40s to 50.6% and 50.8% in the last two quarters, so we're seeing the effect of the mix there. I do expect us to have a slight increase during 2011. I don't see us going significantly above that, however; it might be into the 51%. 52%, I think, might be a big ask.

Over time, as we get our Point-of-Care range out, and after the initial period with placements of instruments, we can see further growth [plus], as it will be some time out because we will go through a period of instrument placements which will temporarily bring it -- or suppress the growth.

So think of it in terms of the order of where it is at the moment, into the 51%s. What will be of interest to us at the moment is trying to get our operating margin up, and we are targeting getting it to the 20% level during 2011.

You had a second question, which was in relation to R&D. And I think your question was in relation to where we had been spending the money in 2010. Is that --

Yes, and maybe whether it will change or how it will change in 2011.

There are two elements to our R&D spend. One is the capitalized element which is for projects which have reached a certain stage, which are beyond feasibility stage, principally, and therefore have met the criteria for capitalization. So we will still be adhering to that policy. And as a result, the mix will be broadly similar in terms of what we will capitalize and what we will spend on those type of projects, the capitalizable ones. However, what will change is the type of projects.

Our big spends in 2010 were on projects like the PDx, which is now [in] the development phase of which is effectively concluded at this stage. So we are going to be seeing lower expenditure in relation to it. Earlier in the year, we still would have had some coag expenditure including on the Destiny Max, the final phases of it and upgrades to it. What we will be seeing that replaced by is the development expenditure we'll have on our Point-of-Care products, principally in the West Coast of the US, where we have built up our team there.

So broadly speaking, roughly the same type of structure in terms of quantities and mix between capitalized and not capitalized, but it's just a different range of products.

All right, Kevin, can I just have one follow-up, if I may, on gross margins? Can you just give me a sense of what kind of gross margin you would typically expect on the Point-of-Care product as opposed to the kind of margin that you get on your blended group?

Yes. We had hoped to get of the order of about 55% to 60% on the point of care. It will obviously depend, once -- we will have to wait and see, once we launch particular products. But we would hope, of that order, because that's what we will (multiple speakers) --

As you migrate your business further and further towards point of care, that should be reflected in gross margin?

It will. And what will counteract that is, because for the (inaudible) of PDx we will be placing substantial numbers of instruments with -- those instruments will tend to go out at low gross margin. So you've got two opposing forces, so we'll get the benefit on the Point-of-Care side, but it will be somewhat depressed in the early years of PDx.

Yes, understood, thanks guys.

Richard Keim, Kensington.

It looks like a great quarter. I got on this call very late; I'm going to hear most of it on the replay. But quick question on Phoenix -- I think it was announced that you add $1 million of sales from Phoenix, as it is now; is that correct?

That's -- yes, that's right.

Taking away the stuff you've already done with them. How about profits? Is that a profitable business, and how profitable is it? If you've answered that before, I apologize.

I don't know how necessarily profitable it was for them, if you know what I mean because -- not particularly. But what we are doing here, Dick, is we were already selling about $250,000 -- we were buying $250,000 of product from them and selling it for $500,000, basically. And we got to like the product, and our customers were very excited about it because it's very unusual. And of course, we only had nonexclusive rights throughout the United States.

So what we did was we've got a deal, basically, which gives us control of things. We're not taking any employees. We are basically -- we've bought the business, and we are taking -- moving production from Toronto down to Jamestown, which is only a couple of -- two hours away (technical difficulty) half done even as we speak. And we are now marketing the product and gradually it will become the exclusive [within] the United States. And we think it's a big opportunity. And of course now we can register it abroad and bring it there.

So that's what we are doing. And the actual incremental sales that we derive as a consequence of this is, like their sales were $1.25 million. So the incremental sales for us will be an extra $1 million. We paid to times revenue for it. (technical difficulty) get really strong growth out of it.

And at long last, to answer your question, how profitable will it be? It will be decently profitable as soon as we get it transferred in because, of course, the incremental cost for us to manufacture one extra enzyme immunoassay Microtitre Plate line isn't very high. So it can work very well for us.

Basically we were making 40 products in the factory. Now we are going to be making 41 kind of thing, you know. It's not going to really need any extra heads.

To run your normal profit margins into it moving forward?

Yes, but from and incremental kind of marginal costing point of view, it would actually contribute better than that, if you know what I mean.

Okay, thank you.

Randy Saluck, EOS Mortar Rock Capital.

A couple quick questions, a little bit different because I didn't hear any real questions on the buyback and the dividend policy. And if I did, I must have missed them. But first of all, how did you set your dividend? What was the thinking there at sort of a 1% yield? And then I want to ask you about the buyback.

Well, I think you didn't hear the earlier part of the call.

I missed part of the call, and I want to make sure that I understand capital allocation.

Well, I'll tell you, rather than go through it all again, do you want to call us afterwards? It's probably not fair to everybody else, is it?

That's fine. And what about in terms of buybacks? We could have a capital allocation call, but I'm glad that you are planning on buying back stock because it's very cheap. And I was wondering what your thinking is in terms of how aggressive you would be and how much you would do and stuff like that.

I answered that exact question before.

Well, I'll call you --

I don't want to be rude, but I'll deal with what I suppose is, I'm sure, if everybody else will forgive me repeating. Clearly, we have to adhere with the SEC rules. We can't buy -- we can't be first into the mark -- we can buy for the first half-hour, we can't be the last trade, we can't uptick and we can only by 25% of -- relatively speaking, in simplistic terms -- we can only buy, basically, 25% of the volume. And we don't have huge volumes. So I'll just make those points.

I think that from time to time the Board will have to consider what we will do in the context of market conditions, of price and volume, particularly of price. So I think that what will happen here is that we have made arrangements for the Board to do that review on a very regular basis, and then we will obviously act on their instructions. We have appointed ROTH Capital Partners to actually perform the buyback. And I said earlier, by means of a ridiculous example, that clearly it is difficult for me or for the Board to actually determine as a matter of absolute fact how much it will buy back because, clearly, it will have to be determined by market conditions. And as a ludicrous example, presumably your buyback behavior would be different if the price were $2 than if it were $20.

Sure. Well, I apologize for asking it again (multiple speakers) I just missed the early part of the call.

I know that's [fake], but (multiple speakers) how I can answer it any better than that, you know.

Well, then I'll just say since -- I'll have to go back and listen to it again, because I missed that. But I appreciate that, and it's a good use of capital, given how cheap your stock is.

Caroline Corner, MLV.

Congratulations on the quarter. Just a couple of things -- you had mentioned that you are moving Phoenix manufacturing to Jamestown. Do you have any other plans for manufacturing (technical difficulty) consolidation for your other sites?

I just lost the last sentence there. I think what you asked was -- actually, I don't know what you asked. Would you just repeated? Sorry.

Yes, I'll repeat it. You mentioned that you are moving Phoenix to Jamestown. Do you have any other manufacturing consolidation plans?

No, we really don't have. (inaudible) we think we have three very efficient plants at this moment in time. And I know in the United States, I think, for a Company of our size it may seem like a lot. But, for example, in San Diego we have a plant that really do two things there. We manufacture our Lyme Western Blot, and it's a very tricky, very complex manufacturing process, and it's done very, very well there. And we've had no problems with the quality of product over a decade.

And in addition to that, of course, we do our R&D. And of course, I think that in San Diego -- San Diego is somewhat unique in the sense that it has available a lot of really, really experienced point-of-care research and development people. So that's the justification for there.

In Kansas City, we do the diabetes business. And again, you have an embedded group of really, really expert people who like living in Kansas City. If we tried to move and take, for example, consolidation in Jamestown, which might make some sense economically, but unfortunately it wouldn't make sense ultimately, economically, because the wheels might come off the product and because a lot of people wouldn't want to move, etc.

And then the third plant is, of course, the one we have in Jamestown, which is also our logistics center base for the United States. And there we can have a (technical difficulty) loyal, top quality workforce who are expert in plate manufacturing.

So basically we have experts in each area. And people don't move that easily, and you would run the risk basically of all sorts of quality problems if you were to do that move. I can tell you some of this from bitter experience because part of our history has been one of acquiring plants and maybe closing them and consolidating them. And believe me, it's -- in the business we're in, that can be very risky.

So, anyway, the answer in a word is no, no further consolidation plans.

And since we're setting up for another share buyback and all of your plans going forward seem to be based around organic growth, can you (technical difficulty) in terms, give us some idea of what you think is a reasonable cash (technical difficulty) you need from your operations, how much cash you think you should have at any given time?

You are breaking up there, and -- did you hear the question, Kevin?

No.

You broke up too much; I'm sorry.

Could you please repeat the question, again, I'm very sorry.

Sorry, I'll repeat it again. Can you give me a ballpark number for how much cash you think you needed to maintain operations as far as you are in front of a buyback and your growth plans are organically based? How much cash do you think you need to maintain operations?

Well, we are cash generative, so we are generating cash at a rate of $1 million a month. So I don't know. Does that mean -- I don't know. Does that mean we need? I don't know, really, if that's your question.

So you could do a pretty significant buyback, then?

Yes, absolutely, yes.

Who do you see as your major competitors for the PDx product in the EU? I know you are sensitive around talking about the Menarini discussion. But can you just lay out the competitive landscape of little bit as to just what you're competitive strengths are?

There really are -- as we speak, there are really only three significant participants in the HbA1c market, and they are, in the first place, Bio-Rad; in the second place, Tosoh, and in third place, Arkray. They are the manufacturers. Up to now, Menarini have been carrying the Arkray range. And now the new entrant to the market, really, is Trinity Biotech with its new instrument because traditionally our principal (technical difficulty) has been in the variant market, not in the mainline A1c market. So we see that as a really significant opportunity for Trinity, probably our most single exciting opportunity to become a significant main player in the mainline A1c market worldwide.

But remember that we have a plan also for the United States. We haven't announced it yet, but we are very close to a final deal with a big US distributor, and we would be basically distributing in the United States through him, but also through our own sales force. Remember, we have a comprehensive sales force in the United States.

So basically, what we are saying is that there are -- you have -- in Europe, you have Menarini, Tosoh and Bio-Rad. And in the United States, you have Bio-Rad, Arkray and Tosoh, and now us. All right?

(inaudible).

Thanks very much, [Catherine], you're really breaking up. I think there's one last question from Dan, and then we close the call. It's really running long, isn't it?

Dan Mendoza.

Just to follow up on the capital allocation questions, have you guys ruled out doing a Dutch tender? In terms of the buyback, you have highlighted some of the difficulties in terms of being able to buy back a meaningful amount of stock. I know there's some expenses involved. But why not pursue that as a way of being able to really return some of the capital to shareholders?

Dan, yes; we looked at that one. The Board looked at it and decided to take the approach that we are taking instead. You know?

Okay, and then I guess, on the dividend front, any consideration to paying a one-time dividend to, again, -- sort of in addition to the ongoing one?

Well, again, the Board looked at that and decided to take the approach that we are taking.

Okay. It seems like, as you pointed out, you are generating a lot of cash (technical difficulty) need as much as you've got on the balance sheet, and the steps taken so far don't really put that big of a dent in it, or are unlikely to put a big dent in the cash balance anytime soon. But I guess we've got to start someplace, I guess.

And then one last question -- any update on the CLIA waiver front? Are those not happening at the FDA these days, or any progress there?

The FDA, as I think you know, are very slow to give CLIA waivers at the moment. It seems it's getting more and more difficult to get them.

In the context of our CLIA waiver, it's been with the FDA now for 18 months. We continue to deal with the queries that have been raised by the FDA. We met the FDA in Washington in January. We are still awaiting their response to that submission, to our submission that we made at that stage. And (inaudible) their response will raise further issues or will ask for additional information or result in a grant, I simply can't predict, you know. So it's very slow, it's very slow and very frustrating.

On a positive note, in the meantime, we expect to commence the registration process in China, where we have a strong [A1c] (technical difficulty) and we continue to seek an EU TriStat partner also.

So the registration in China is for Tri-Stat?

Yes, we were just about to start it. We've just about reached agreement with our distributor to go at it, and he is committed to the idea. Yes, it's not signed, but it's just about ready. And that's a good distributor; he's doing $2 million already with us, on the A1c product. So an excellent distributor, and I'm actually going to China in about three weeks time to meet him, and I think we've signed it up then because, from his point of view, it's a big commitment in terms of the registration process there is so onerous. But I think he's on board.

And then what is the time frame for getting PDx into the market in the US?

In the US, the situation as we speak at the moment is that the development is complete. The trials are nearly finished. The minute the data is collected from the trials, we can file for -- and we will get our CE Mark. And we expect that in April. So we should get it within the next five, six weeks, within seven days after CE Mark.

So once we get the CE Mark, Menarini will take it and start moving it in Europe. Within seven days of the CE Mark we will file with the FDA for 510(k) on the product. And we have a distributor in the United States, basically, who is just about to be signed up. And in addition to that, the full weight of our sales force will go behind the placement of that instrument.

And instantly after that, basically, at the same moment we will commence registration process in China and probably in Brazil, a few weeks today. So really -- and obviously, there's other markets. For example, we do $1 million in Turkey, and we've been going in there as well. So in all our principal markets we will be rushing as quickly as we can to get registration.

Okay, very good. What's the time -- and how long does the 510(k) take to get through?

510(k) should be 90 to 120 days in the United States. Unfortunately, in Brazil, you are talking about nine months. And unfortunately, in China you're talking about 15 to 18 months, probably 18 months.

I didn't think it was possible to do slower than the FDA, but they --

Well, you see, they run their own trials as well. So it's that extra -- the Chinese FDA run a whole -- they actually run their own independent trials.

Okay, very good, thanks for your time, I appreciate it.

Thank you, okay I think at this stage, we had better close the conference call because this is actually probably a record for us. So thank you very much to everybody and talk to you again next quarter, which actually, I think, is about seven weeks. So thanks again. See you then. Bye-bye.

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