Trinity Biotech plc — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. The filing is an annual Form 20-F, not a quarterly report. Financial statements are presented in U.S. dollars, rounded to thousands, and prepared under IFRS as issued by the IASB and adopted by the EU. The ADSs trade on NASDAQ under TRIB; each ADS represents four Class A ordinary shares.
Business context
Trinity Biotech develops, manufactures and markets approximately 850 diagnostic products for clinical laboratories and point-of-care testing in approximately 100 countries. Products address infectious diseases, HIV, diabetes and hemoglobin disorders, autoimmune diseases, blood-bank screening, clinical chemistry and laboratory services. The Group also supplies raw materials to life-science and research customers.
- 2017 revenue by customer geography: Americas $59.5 million, Asia/Africa $27.1 million and Europe $12.5 million.
- Manufacturing and sales remain concentrated in the Americas, while growth opportunities include diabetes, autoimmune laboratory services, African HIV testing and new point-of-care products.
- The Cardiac point-of-care operation in Sweden was discontinued following withdrawal of the Meritas Troponin premarket submission; it generated no revenue.
Key financial metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $99.1 million | $99.6 million | (0.5%) |
| Gross profit | $41.9 million | $43.5 million | (3.7%) |
| Gross margin | 42.3% | 43.7% | (140 bps) |
| Operating loss | $(37.7) million | $(39.8) million | Improved $2.2 million |
| Loss from continuing operations | $(38.7) million | $(38.6) million | Broadly unchanged |
| Loss from discontinued operations | $(1.6) million | $(62.0) million | Improved $60.4 million |
| Net loss attributable to owners | $(40.3) million | $(100.6) million | Improved $60.4 million |
| Basic loss per ADS | $(1.86) | $(4.38) | Improved |
| Net cash generated by operations | $9.3 million | $10.2 million | Down $1.0 million |
Excluding the $41.8 million impairment and inventory-related charges, management reported operating profit of approximately $4.1 million in 2017 versus $8.3 million in 2016. Continuing-operations profit before the impairment charge was approximately $3.1 million. These are non-IFRS-style adjusted figures presented by management and should not be treated as reported GAAP or IFRS results.
Cash flow, liquidity and debt
- Cash and cash equivalents were $23.6 million at December 31, 2017, compared with $77.1 million in 2016. An additional $34.0 million was classified as short-term investments, producing total cash and short-term investments of $57.6 million.
- Operating cash flow was $9.3 million. Investing cash outflow was $16.2 million, including $10.2 million of capitalized intangible-development expenditure and $4.8 million of property, plant and equipment purchases.
- Financing cash outflow was $12.6 million, including $7.8 million for share repurchases and $4.6 million of interest payments on exchangeable notes.
- The Group had $115 million principal amount of 4% senior unsecured exchangeable notes due April 1, 2045. The carrying value of the notes was $93.0 million, with a first holder put date of April 1, 2022. Total borrowings, including finance leases, were approximately $93.8 million based on the filing’s market-risk disclosure.
- Net current assets were $91.4 million and shareholders’ equity was $65.2 million at year-end, down from $108.7 million in 2016.
- Management stated that existing cash resources and operating cash generation should support operations for at least the next 12 months, while noting that future liquidity depends on revenue, product launches, development spending, capital expenditures and working-capital management.
Material changes versus the prior comparable period
- Revenue was essentially flat, but gross margin declined because of a less favorable geographic and product mix, greater Asian distributor sales at lower margins and foreign-exchange effects.
- Clinical laboratory revenue fell 1.1%, point-of-care revenue fell 0.8%, while laboratory-services revenue increased 5.4%. HbA1c revenue increased 15%; infectious-disease and clinical-chemistry revenue declined 14%.
- Americas revenue declined 3.4%, largely due to lower U.S. infectious-disease and HIV sales. Asia/Africa revenue increased 6.4%, driven by African Uni-Gold HIV and Asian/Middle Eastern HbA1c demand. Europe was broadly flat.
- Research and development expense increased 12.2% to $5.7 million, primarily due to higher regulatory costs. SG&A increased 6.2% to $32.2 million.
- The Group recorded $41.8 million of non-cash impairment and provisioning charges: $29.7 million against goodwill and intangible assets, $10.4 million against property, plant and equipment, and $1.7 million against prepayments. The impairment review identified a potential total loss of $85.6 million across six cash-generating units, but only $41.8 million was recorded under the IAS 36 allocation rules.
- One-time costs included approximately $0.9 million related to flood damage at the Kansas City facility and $0.5 million for settlement of a license royalty dispute.
- The Group repurchased 5.4 million ordinary shares, or 1.34 million ADS equivalents, for approximately $7.5 million. No dividends were paid, consistent with the dividend suspension announced in 2016.
Outlook, commentary and risks
The filing does not provide formal numerical revenue or earnings guidance. Management expects to continue investing in product development and regulatory approvals, including an HIV screening test, HbA1c instruments, a next-generation Lyme test, Uni-Gold enhancements and G6PDH testing. Estimated remaining completion costs for principal development programs totaled approximately $9.0 million in the project table, with target completion dates from 2018 to 2019.
- Key execution risks include regulatory clearance, clinical-study results, product commercialization and market acceptance.
- The diagnostic market is highly competitive and subject to pricing pressure, customer consolidation and technological obsolescence.
- Revenue depends substantially on distributors in approximately 100 countries, government-funded public-health programs and uninterrupted operation of manufacturing facilities and third-party suppliers.
- FDA, CLIA, healthcare fraud-and-abuse, privacy, laboratory licensing and other regulatory requirements could result in delays, recalls, fines, operating restrictions or loss of market access.
- Goodwill, intangible assets and capitalized development costs remain significant and depend on subjective discounted-cash-flow assumptions. Management disclosed sensitivity to revenue growth and discount-rate changes that could produce additional impairment.
- Foreign-exchange exposure is material, particularly to the euro, Brazilian real, Canadian dollar and sterling. No forward foreign-exchange contracts were outstanding at year-end.
- A January 2018 subsequent event added a 15-year Amherst, New York lease guaranteed by the Company, with average annual rent of approximately $422,000 and expected construction costs of approximately $1.0 million after landlord allowances.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2017.
Most important facts for investors to verify
- Whether operating performance before impairments can recover from the $4.1 million adjusted operating profit reported for 2017, given declining gross margin and rising R&D and SG&A costs.
- The sustainability and deployment of the $57.6 million cash and short-term-investment balance relative to the $115 million exchangeable-note principal, the April 2022 put feature and ongoing development spending.
- The assumptions supporting the carrying value of $64.8 million of goodwill and intangible assets and the risk of further impairment.
- Regulatory progress and commercialization timing for the HIV screening, HbA1c, Lyme and other development programs.
- Trends in U.S. infectious-disease and HIV revenue, African Uni-Gold HIV demand, HbA1c growth and autoimmune laboratory services.
- The effect of distributor pricing, geographic mix and currency movements on the 42.3% gross margin.
- Potential dilution from 10.7 million outstanding options at December 31, 2017 and conversion or other settlement features of the exchangeable notes.
- The terms and economic significance of related-party leases and executive-service arrangements involving directors and their affiliates.