No. of Recommendations: 5
The Business

Trinity develops, manufactures and markets diagnostic test kits used for the clinical laboratory and medical office segments of the diagnostic market. These test kits are used to detect infectious diseases, sexually transmitted diseases, blood coagulation disorders and autoimmune disorders. They market over 500 different diagnostic products in approximately 80 countries.

They are an Irish company that trades in the US as an ADR. For most of their existence they have been in the $1 to $2 range, only recently climbing to around $7 on the news of a rapid HIV test for use mainly in Africa. Aids in Africa is epidemic and the market large. In addition to growing through R&D, Trinity has made six acquisitions of diagnostic businesses. Three of these acquisitions have been of Enzyme Immunoassay businesses, two were hemostasis businesses and the sixth was a specialty clinical chemistry business. In October 2000, the Company also subscribed for 33% of the share capital of HiberGen Limited ("HiberGen"), an Irish-based genomics company. Through these acquisitions and new products added through in-house research and development, Trinity now has a comprehensive portfolio of over 500 products, including 14 rapid tests.

It seems they should be a better company than they are. They are barely above penny stock territory and have not made great gains in increasing EPS over the past 5 years. In 1999, diluted EPS was $0.17, in 2000 it dropped to $0.12 with a large increase in the number of shares. Now in 2003, it is at $0.139, which is better than 2002, but not as good as
1999. Revenue and net income have grown especially in 2002 and 2003. The stock price has also appreciated 3 to 4 fold in 2003. The question is, does Trinity benefit shareholders?


In November 2002, Trinity acquired the specialty clinical chemistry product line from Sigma Diagnostics for a total consideration of US$4.4M

In August 2002, Trinity Biotech purchased the hemostasis division of Sigma Diagnostics for a total consideration of US$1.4m.

In December 2001, Trinity acquired the assets and goodwill of the Biopool hemostasis business for a consideration of US$6.4m.

In October 19, 2001 Trinity acquired the assets and goodwill of the Amerlex hormone business of Ortho Clinical Diagnostics for a consideration of US$0.9m.

On October 2, 2000, the Company acquired 33% of the ordinary share capital of HiberGen for a total consideration of US$1.4m. On July 2, 2001 the Company increased its shareholding in HiberGen to 40% at a cost of US$0.3m. On April 3,2002 the Company increased its shareholding to 42.9% by the acquisition of a further 165,000 Ordinary Shares in HiberGen Limited. The consideration of US$201,874 was satisfied by the issue of 156,189 'A' Ordinary Shares in Trinity Biotech plc.

In December 2000, Trinity acquired the assets and goodwill of Bartels Inc ("Bartels"), for a consideration of US$9.5m comprising US$3.2m in stock, US$0.4m in the form of a promissory note and the balance of US$5.9m in cash.

In March 2000, Trinity acquired all the outstanding share capital of MarDx Diagnostics Inc. (MarDx) of Carlsbad, California for a consideration of US$4.2 million.

The acquisitions appear to be increasing the revenue and earnings of Trinity. The company has had to take on debt to pay for these, but have repaid some and their debt load is not unreasonable.

Officers and Compensation

The salaries and bonuses are reasonable and the CEO has been with the company since inception. The CFO retired in 2002.

Performance Defined
Director Salary/ related contribution Total
US$ Benefits bonus pension 2002

Ronan O'Caoimh 303,675 70,175 48,092 421,942

Brendan Farrell 224,068 50,125 23,699 297,892

Maurice Hickey 191,110 31,339 13,186 235,635

Jim Walsh 224,554 50,125 9,729 284,408

943,407 201,764 94,706 1,239,877

I would characterize the compensation and bonuses as in line with the scope of the business.This aspect of the business is aligned with shareholder interest.


This segment of the business is not what I would call shareholder friendly. There are almost 9 million options outstanding and that represents 22% of total shares outstanding. The exercise rate was low the last two years. Only 12,000 were exercised in 2002. However, this year, all options are in the money and many more may be exercised. The company already suffers from extreme dilution, which hurts the EPS. They would appear much better today if they had not issued such a steep increase in shares in 2000. Combine that with the fact they have not repurchased any shares in 5 years and you get a company that is seriously diluting shareholder value. They are not a bad business. Their number of shares issued has outpaced their earnings and that could be made worse by the large number of outstanding options.

As of September 30, 2003 the following options were outstanding:


Number of 'A' Ordinary Range of
Shares Subject Exercise Price
to Option per Share

Total Options Outstanding 8,677,498 US$0.81-US$5.00

Price Range

The range of prices is interesting. They have been as low as $0.47 and recently ere trading at over $7 on the news of FDA approval of their rapid HIV test. However, they have since lost some of the gains on no news. Perhaps it is shareholder wariness? The business has been volatile re: price and some may have been anxious to lock in gains on the rise in response to good news. Perhaps the current price is more reflective of the actual benefit to revenue and earnings represented by the HIV test.

ADS's Class B
High Low High Low

1998 $2.56 $0.47 $0.63 $0.28
1999 $2.47 $1.16 $0.12 $0.03
2000 $7.59 $1.69
2001 $3.22 $0.97
2002 $1.86 $0.89
High Low

Quarter ended March 31 $2.44 $1.25
Quarter ended June 30 $3.50 $2.09
Quarter ended September 30 $4.01 $2.26
Month Ended
December 31, 2002 $1.38 $1.28
January 31, 2003 $1.65 $1.25
February 28, 2003 $1.97 $1.52
March 31, 2003 $2.44 $1.77
April 30, 2003 $2.83 $2.09
May 31, 2003 $2.73 $2.20
June 30, 2003 $3.50 $2.36
July 31, 2003 $3.45 $2.31
August 31, 2003 $3.65 $2.26
September 30, 2003 $4.01 $3.11

They also managed to trade above $7 in 2000, but fell off steeply in 2002--fairly volatile.

Balance Sheet Ratios

2002 2001 2000 1999 1998
Current ratio 2.08 2.31 2.70 1.39 1.00
Quick Ratio 0.31 0.42 0.43 0.22 0.07

Accounts receivable growth 62.34% -3.75% 11.11% 7.46%
DSO 87.74 80.65 138.01 336.02 36.74
Days Inventory on hand 325.15 383.84 392.24 266.73 253.47
Day Payable Outstanding 293.28 296.71 269.66 308.85 385.28

ROA 5.60% 1.82% 7.14% 10.89% --
ROE 7.99% 2.49% 8.78% 21.30% 17.81%
ROIC 8.28% 7.90% 11.23% 15.16% 4.51%
Fixed asset turnover 5.25 6.18 5.40 5.55 2.76
Debt to equity 12.30% 13.88% 4.20% 49.13% 67.12%
Debt to capitalization 10.95% 12.19% 4.04% 32.94% 40.16%
Book value 1.53 1.39 1.35 0.76 0.52
Cash per share 0.14 0.13 0.11 0.10 0.05
Working capital 20 16.6 16.8 5.6 --
Non Cash Working Capital 15.55 12.65 14 5.7 --
Cash Conversion Cycle 119.62 167.78 260.59 293.90 -95.07

A mixed picture
**DSO has increased since 2001, but is much improved over 2000 and 1999
**The cash conversion cycle is long--almost 4 months and accounts receivable rose significantly faster than revenue
**Returns on assets, equity and capital are low--not shareholder friendly
**Debt is manageable

Income Statement Ratios

2002 2001 2000

Retained profit for the financial period 4,896,911 2,367,277 4,124,410

Basic earnings per ordinary share (US cents) 12.08 5.86 11.11

Diluted earnings per ordinary share (US cents) 11.73 5.76 10.47

2002 2001 2000 1999 1998
Gross Profit 49% 51% 48% 44% 34%
Operating Margin 13% 6% 18% 18% 13%
Net Margin 10% 4% 16% 19% 11%
Growth in Revenue 40% 25% 14% 13%
Growth in Net Income 257% -71% -2% 88%
Growth in COGS 46% 18% 6% -5%

**Good margins
**Double digit growth in revenue--good acquisitions
**EPS somewhat disappointing. It grew in 2002 after a disastrous 2001. But not much gain over 2000 and in 1999 EPS was around 17¢. They are losing ground here.

<Cash Flow Statement Ratios

2002 2001 2000 1999 1998
Total shares 41.3 40.42 40.37 30.31 27.84
Growth in Capex 26.09% -8.00% 66.67% -62.50%
Capex to operating cash flow 76.32% 41.07% 83.33% 39.47% -400.00%
Free cash flow 0.9 3.3 0.5 2.3 -3.8
Free cash flow per share 0.02 0.08 0.01 0.08 -0.14
Operating cash/Revenue 0.07 0.15 0.10 0.15

**Free cash flow positive
**Capex in danger of being difficult to cover with operating cash flow
**Operating cash flow to revenue not increasing

Selected Financials

Market Cap (intraday): 183.81M Small cap
Trailing P/E (ttm): 30.27 high
Forward P/E (fye 31-Dec-04) 23.68 high

Profit Margin (ttm): 10.37% stable
Operating Margin (ttm): 12.89%
Return on Assets (ttm): 7.26% low
Return on Equity (ttm): 10.20% low
Revenue Growth (lfy) 40.20%

Diluted EPS (ttm): 0.148 improved

Total Cash Per Share (mrq): 0.5
Total Debt (mrq) 20.00M manageable
Total Debt/Equity (mrq): 0.274

52-Week High (30-Dec-03): 6.72 on news of HIV test
52-Week Low (22-Jan-03): 1.25 volatile 82% decline and rise

Shares Outstanding: 41.03M

% Held by Insiders: 11.04% low
% Held by Institutions: 5.31% very low will it be discovered?


The following is the most recent issuance of convertibles. In the past 5 years there have been other convertibles issued and share dilution has occurred

In November 2002, the Company completed a private placement of US$2,500,000
principal amount of 5.25% convertible debentures (see Note 22). The debentures bear interest at a rate of 5.25% per annum and are convertible into Class 'A' Ordinary Shares of the Company at a price of US$1.50. Since the year end,these debentures have been converted into 1,666,667 Class 'A' Ordinary Shares of the Company.

In 1999 $3.5M were issued at 7.5%. This was converted into 1,041,667 Class A shares.

More Dilution?

Again the company issues shares to raise money. This is the reason it is so diluted now. It appears that it may get worse this year unless the company comes in with some solid revenue/earnings gains. It is disturbing to see shares passed out like this. It's like using a credit card and thinking it will never have to be paid off. Of course, the management doesn't suffer, the shareholders do.

News January 7 2004
Trinity Biotech today announced that it has entered into definitive agreements with a number of institutional investors for the private placement of an aggregate of approximately 5,294,118 of its ordinary shares at $4.25 per share for gross proceeds to the Company of approximately $22.5 million. Investors also will receive 5 year warrants to purchase an aggregate of approximately 1,058,824 ordinary shares at an exercise price of $5.25 per share, representing a 24% premium to the placement price.

In addition, the Company has granted to the investors the right to purchase up to an aggregate of 2,647,059 additional ordinary shares at $4.25 per share for a period of up to 30 days after the closing of the transaction. No additional warrants will be issued if this right is exercised.

"We are pleased to complete this financing" said Ronan O'Caoimh, C.E.O. "These funds are not required for normal corporate purposes. However, we continue to seek suitable acquisition opportunities and this strengthening of our balance sheet which results in cash balances in excess of $43m, combined with strong operating cashflows and unutilised banking facilities will allow us to target larger acquisitions than previously. We intend quickly turning this capability into accretive earnings per share acquisitions.

The securities to be issued in the private placement have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold without a registration statement or an exemption from registration. Trinity has agreed to file a registration statement covering the resale of the securities by the investors.


This is a very difficult business to value. The stock price has been volatile and it is currently trading significantly below previous highs. There is no apparent reason for the rapid decline that started two days after the high. It has steadily drifted down since then and it may be possible investors don't like the further dilution reflected in the new issuance of more shares.

I would not invest until management stops spending shareholder equity.

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