TRIB

Business Context and Reporting Period

Company: Trinity Biotech plc
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2009
Accounting Standards: International Financial Reporting Standards (IFRS)
Reporting Currency: US Dollars (USD)

Trinity Biotech is an Irish-based developer, manufacturer, and marketer of medical diagnostic products for clinical laboratory and point-of-care segments. The company operates globally with manufacturing facilities in Ireland, Germany, and the USA. In 2010, the company signed an agreement to sell its worldwide coagulation business to Diagnostica Stago for US$90 million.

Key Financial Metrics (Year Ended Dec 31, 2009)

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased by 10% (US$14.2 million) compared to 2008. This was driven by an 11% decline in Clinical Laboratory revenues (specifically coagulation products due to instrument base reduction and currency effects) and a 5% decline in Point of Care revenues (due to credit issues with a major HIV customer in Africa).
• Profitability Turnaround: The company returned to profitability with a net profit of US$11.8 million, compared to a net loss of US$77.8 million in 2008. The 2008 loss was heavily impacted by a non-cash impairment charge of US$85.8 million and restructuring expenses of US$2.1 million. Excluding these one-off charges, 2009 operating profit increased by 70% on a like-for-like basis.
• Cost Reduction: Selling, General, and Administrative (SG&A) expenses decreased significantly (excluding 2008 impairments) due to a cost reduction program, headcount reductions, and favorable exchange rates. SG&A excluding share-based payments and amortization fell 23%.
• Geographic Performance: European revenues declined 26% due to currency weakness and coagulation instrument erosion. Americas revenues declined 3%, while Asia/Africa revenues declined 5%.

Guidance, Outlook, and Risks

• Coagulation Divestiture: The company agreed to sell its coagulation business for US$90 million, expected to close in Q2 2010. This transaction includes the transfer of 320 employees and significant assets.
• Product Pipeline: The company launched the Destiny Max coagulation instrument (FDA approved) and the TRIstat point-of-care system for HbA1c. Development continues on a new HPLC instrument for HbA1c testing.
• Liquidity: Management believes it has sufficient funds to support operations for at least the next 12 months through cash resources, operating cash flow, and existing bank facilities (US$48.3 million facility).
• Key Risks:
  • Currency Fluctuation: Significant exposure to the Euro/USD exchange rate, as expenses are largely Euro-denominated while revenues are primarily USD-denominated.
  • Regulatory Approval: Success depends on obtaining and maintaining FDA and other regulatory approvals for new products.
  • Competition: Highly competitive market with larger competitors (e.g., Roche, Abbott, Siemens).
  • Customer Concentration: Reliance on distributors and specific institutional customers; loss of significant customers could impact results.

Investor Verification Checklist

• Coagulation Sale Closure: Verify the closing of the US$90 million sale to Diagnostica Stago and the resulting cash impact.
• Recurring Profitability: Confirm that the 2009 profit is sustainable without the benefit of the massive 2008 impairment reversal and cost-cutting measures.
• Currency Hedging: Review the effectiveness of the company's hedging policy against the Euro, given the mismatch between USD revenues and Euro expenses.
• Inventory Provisions: Monitor the allowance for slow-moving and obsolete inventory, which stood at US$12.6 million (24.3% of gross inventory) at year-end.
• Debt Covenants: Note that the company was in breach of a bank covenant regarding EBITDA in 2009, though it was waived by the banks. Verify ongoing compliance.