Trinity Biotech plc

Good morning, everyone, and welcome to the Trinity Biotech Q2 2021 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Joe Diaz with Witham Partners. Sir, please go ahead.

Thank you, Jamie. And thanks to all of you for joining us today to review the financial results of Trinity Biotech for the second quarter of 2021, which ended on June 30, 2021. Joining us on today's call is Ronan O'Keefe, Chairman and Chief Executive Officer of Trinity Biotech, and John Gillard, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Before we begin, I must inform you that statements made in this conference call may be deemed forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include but are not limited to those set forth in the risk factor section of our annual report on Form 20F filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. With that said, I will now turn the call over to John Gillard, CFO of Trinity Biotech, for a review of the results of the quarter. And he'll be followed by Chairman and CEO Ronan O'Quive for an update on sales, marketing, and revenue. John, please proceed.

Thank you, Joe. Good morning, everyone. Thank you for joining. As Joe mentioned, I will now take you through the results for Q2 2021. You will notice from our press release that a non-cash impairment charge has been recognized this quarter and is discussed in the press release. I will give further details on that charge later in the call. The income statement metrics I will quote, exclude the impact of that impairment charge. Starting with revenues, total revenues for the quarter were $25.8 million, compared with $16 million in Q2 2020. As Joe pointed out, and is our typical approach, Ronan will discuss revenues in further detail later on the call. As such, I will move on to discuss other aspects of the income statement. Gross margin for the quarter was 42.7%, which is broadly similar to the 42.9% achieved in Q2 2020. The small decline in overall margin is driven by a lower comparative margin from VTM products, partially offset by a higher margin from our core products in Q2 2021 when compared to Q2 2020. As ever, our gross margin remains susceptible to product mix changes, geographic spread, currency fluctuations and product level variations. Other operating income increased from $2,000 in Q2 2020 to $2.9 million in Q2 2021. This income relates to loan funding received in 2020 under the U.S. government's Paycheck Protection Program. Four Paycheck Protection Program loans received by the company in 2020, totaling $2.9 million, were forgiven during quarter two 2021 and have therefore been recognized as income this quarter. These four loans were treated as short-term liabilities at March 31st, 2021. Moving on to R&D expenditure, this decreased slightly to $1.1 million compared to $1.2 million in Q2 2020. Meanwhile, SG&A costs have increased from $5 million in Q2 2020 to $6.3 million in Q2 2021. It is important to note that SG&A expenses were unusually low in Q2 2020 due to the furloughing of employees as a result of the pandemic. Government payroll supports related to COVID-19, which are not available in 2021, and other cost savings. In addition, Q2 2021 SG&A costs reflect increased professional fees, plus additional sales and marketing team costs reflecting the expansion of our international sales and marketing team. These result in an operating profit for Q2 2021 of $6.3 million compared to $500,000 reported in Q2 2020, an increase of $5.8 million. This increase in operating profit is primarily driven by increased revenues and the forgiveness of the Paycheck Protection Programme loans, partially offset by higher SG&A expenses and a slightly lower margin. Moving on to financial expenses. This includes the quarterly cash interest cost for exchangeable notes of $1 million and $200,000 relates to notional finance charges associated with lease facilities. These notional finance charges are required by the relevant accounting standards IFRS 16. You will note that there is also non-cash financial net income of $900,000, which is made up of accretion interest of $100,000 in the accounting carrying value of the exchangeable notes less than 1 million fair value adjustments to derivatives embedded in the exchangeable notes as required by the relevant accounting standard. Profit after tax, before impairments, one-off items and non-cash financial expenses was $4.4 million compared to a loss of $800,000 in Q2 2020. As in prior and as set out in the press release, we quote earnings per edior, effectively our equivalent of EPS, on standard basis, and also before the impact of impairments, one-off charges, and non-cash financial items. Using that modified measure, earnings per ADR have increased to 21.2 cents from a loss of 3.6 cents in Q2 2020, while diluted earnings per ADR have also increased, in this case, to 20.3 cents from 1 cent in Q2 2020. I will now provide you with more information on the aforementioned impairment charge of $6.1 million. This charge results from the accounting standard-driven impairment review we are required to carry out under IFRS. There are a number of factors taken into account in calculating the impairment, including the company's period end share price, calculation of the company's cost of capital, and future projected cash flows from individual cash-generating units in the business. In addition, the company examines individual project costs for indicators of impairment. The non-cash impairment charge of 6.1 million has been recognized against the following assets. Intangible assets, $3.9 million, property, plant, and equipment of $1.9 million, and current assets of 300,000. I will now move on to talk about the significant balance sheet movement since the end of March 2021. There was a decrease in property, plant, and equipment of $2.1 million Additions in this quarter were $400,000, and this was offset by depreciation of $600,000 and the aforementioned impairment charge of $1.9 million. In the same period, our intangible assets decreased by $2.3 million. This was made up of additions of $1.8 million, offset by an amortization charge of $200,000 and an impairment charge of $3.9 million. Moving on to inventories, you would have seen we have decreased These have decreased by 2.9 million and now stand at 34.7 million. In Q1 2021, we reduced the level of production of our PCR viral transport media, VTM, in line with projected demand, and this is the main reason for the reduction in retreat this quarter. Meanwhile, trade and under-receivables have increased by 0.5 million to 15.4 million, reflecting slightly lower cash collections. Our trade and other payables reduced by 9.6 compared to March 2021. This reduction was mainly driven by the aforementioned forgiveness of the PPP loans and a reduction in trade creditors and accruals that the company paid VTM suppliers for previously supplied raw materials. By reducing the level of purchases of raw materials to reflect the reduced demand for new VTM orders as the quarter continues. You will see from the balance sheet that we have presented the exchange of a note's liability and the related embedded derivatives within current liabilities. Previously, this has been recorded within non-current liabilities. The reason for the change this quarter is because the notes have a put option on 1 April 2022. As the company does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period, the accounting standards require us to show the exchange note as a current liability as at June 2021. Finally, I will discuss our cash flows for the quarter. Cash generation from operations during the quarter was $1.3 million. Non-operating cash outflows during the quarter included capital expenditure of $2.2 million and payments for property leases of $0.7 million. In addition, the company paid $2 million of interest on exchangeable notes. Overall, this resulted in a cash balance of $28.6 million at the end of Q2 2021. Thank you. I will now hand over to Ronan who will bring you through our revenues.