Ladies and gentlemen, thank you for standing by. I'm Natalie, your Chorus Call operator. Welcome, and thank you for joining the STRATEC conference call regarding today's announcement for the full year 2021 financial results. Throughout today's recorded presentation, all participants will be in listen-only mode. I would now like to turn the conference over to Marcus Wolfinger, CEO of STRATEC. Please go ahead.
Yeah. Thanks, Natalie, and good afternoon in Europe, ladies and gentlemen, and good morning in the United States. Thanks for getting up so early for us. Before I go into the presentation regarding our 2021 results, please allow me to mention some housekeeping stuff.
Actually, you can download that presentation either within that portal how you can see it online or download it from our website. I think I don't need to read you through the safe harbor statement, obviously covering forward-looking statements, which will or will not be updated. As always, I'll try to split this presentation into three major segments, followed by the Q&A session.
First of all, I would like to give you an overview, and then followed by some financial details and certainly trying to give you an outlook, which is probably one of the most important things on the one hand side, but certainly regarding 2022, certainly one of the most difficult things, particularly in the light of the events of the past two years.
Group sales went up by 16.7% year-over-year in constant currencies, leading to revenues of about EUR 287 million as compared to EUR 150 million in 2022. This represents a double-digit growth rate in all segments and all operating divisions and throughout all applications.
I think it's worth mentioning, and I would like to highlight that again, that at the beginning of the pandemic, certainly application segments like hematology and, in particular, immunohematology showed some weaker developments, but we saw a nice catch-up effect, particularly in 2021, as far as hematology and immunohematology was concerned.
I think it's worth mentioning already at this point, and I will dive into details later on, that I would like you to perceive Q4 as probably a negative outlier overall. I'll, like I said, dive into details why, and particularly in the light of the nice development in quarter one of 2022 with a solid top-line growth, and a good margin development despite strong comps.
I would like you to compare later on the results of Q1 2022 with Q4, as mentioned, to be perceived as a negative outlier. Adjusted EBIT margin improved by 220 basis points. Again, I would like to highlight that this is all comparing to an already super strong year, 2020. Insofar, we are really proud that we delivered those results.
Operating cash flow nearly doubled year-over-year, after EUR 31 million in 2020 to EUR 63 million in 2021. The board and the supervisory board are going to suggest the dividend increase by EUR 0.05 from EUR 0.90 in 2020 to EUR 0.95 in 2021. This is certainly subject to the approval of the annual general meeting.
Besides several market launches we had in the last quarters, I would like to highlight two. Certainly, on the Smart Consumables side, we launched for a North American partner, a consumable which is addressing one of the fastest-growing segments in clinical diagnostics and has really the potential to become one of the growth drivers over the next years, showing disproportionate growth in our recurring revenues business with smart consumables and certainly driving the margin there.
As I mentioned several times, we believe that our smart consumable segment will not only be the fastest-growing within the STRATEC Group, but even the most aggressive from an EBIT margin perspective.
The second thing I would like to highlight is certainly our CLIA platform, which has the real potential to become a game changer.
It's the first Chemiluminescence immunoassay platform, which is on the one hand side, an open platform, which means open to several partners, allowing smaller companies to become members of a very narrow and elite group of companies offering closed system solutions in the Chemiluminescence immunoassay arena, closed towards the end customers like the users in the lab.
Open between us and them that several customers could use the same instrument, but actually that our partners could combine forces and commonly with a common menu approach the end customers where really forces can be joined, as mentioned before, and the menus with different strengths, eliminating weaknesses in the menu through this combination of an offering combined between two of our partners towards one common end customer on the basis of the same platform.
CLIA could really become a game changer, and we have a number of customers lining up, a number of already executed contracts, in terms of supply agreements as well as evaluation agreements. Very, very nice development here. Next point is certainly that we have several products in the ramp-up phase and more products to come in the next 12 months.
That's actually important. As always, I would like to give you a little bit of an overview, is that when we are talking launch, this doesn't necessarily mean that we will already see meaningful contribution in our PNL in the consecutive year.
I think it is important to understand that if we provide our partners with the next generation of an instrument or consumable, this typically means that our partners still have to go through a phase of clinical trials and approval, then certainly launch, which usually doesn't happen worldwide. In parallel, typically, they launch in different geographical regions and have a staggered approach.
Usually, our partners do not launch with a comprehensive menu. They typically launch with their most important test on the instrument, which typically means that between the actual commercial availability of a product and meaningful contribution to the growth of STRATEC, we see kind of a staggered approach lasting two to three years. Therefore it's very rewarding because typically when we sell those platforms for at least 12-15 years.
We made further progress on implementing our ESG strategy. Just picking out two examples, greenhouse gas emissions, Scope 1 and 2 could be reduced by more than 60% compared to the 2019 level. In August 2021, we signed the UN Global Compact. This gets me to the second section of this presentation.
As mentioned before, we grew on a constant currency basis by 16%, nominally by about 15%. Q4, as already mentioned, we showed some decline in commercial activities, particularly top line, but bottom line certainly as well. Like I said, I'll dive into the details within the next few slides. Adjusted EBITDA on a full year basis up by 28%.
Adjusted EBITDA margin coming from 20.8% to now 23.2%, up by 240 basis points. That goes through to all the margin and earnings KPIs. It's about the same level growth of between 25% and 30%, leading to basic earnings per share under IFRS growth by about 40%.
As already mentioned, some negative contributors in Q4, mainly supply chain activities, but like I said, I'm going to dive into the details in that slide now coming. As already mentioned, constant currency growth 16.7%, leading to EUR 287 million, double-digit organic growth rate in all segments, all operating divisions in all applications.
Certainly we see the support by the ramp up of our very young product portfolio. I think it's worth mentioning that looking into our product portfolio, it's obvious that at this point we only have three products which are at the end of their relevant maturity phase. Two of them already the next generation programs are under development supported by the customer with new contracts.
Actually in one of those cases, we had a competitive takeaway as well. It's not just that we are working on the replacement, but we see some growth coming from the new products and again, on top competitive takeaway of a sister product to the product we already offer.
Certainly, sales in all relevant areas and applications up, particularly very strong growth rates in molecular diagnostics. I'll dive into details that we are about to launch two further molecular families. We got a third one on board, which will be launched then in 2023 or early in 2024.
Obviously, molecular diagnostics being one of the growth drivers of the company, but certainly immunohematology with, as already mentioned, a product where we are currently developing the next generation. Something which is definitely not the focus of STRATEC, where we inherited the clinical chemistry product line from Diatron and made some major amendments to the products there, which is currently leading to growth. As mentioned, certainly ClinChem is not one of the focus areas.
Q4 2021 certainly impacted by customer lead times. We haven't seen any significant tailwinds from like Omicron, but I think it's worth mentioning that we are actually a little bit worried that top line growth constraints for 2022 will be mainly caused by the input side rather than by the demand side coming from our customers.
We had to push a development program which was actually margin-heavy, which doesn't happen that often. The recognition of the Development and Services sales has been, in some cases, pushed and deferred into Q1 of 2022. On the other side, we see certain delays in Q1 2022 already, which means we certainly had a higher than usual level of backorder at the end of the year.
Certainly this already goes into 2022 as well. I fear we will see the same situation throughout the entire year, 2022. As mentioned, a little bit worried that the growth constraints, if we see any, will be caused by the input side rather than by the demand coming from the customer.
Like I said, this higher than usual level of order backlog is something which, particularly for 2022, has the potential to become the new normal rather than the exception, what we saw in Q4 of 2021. Diving into the breakdown from segments compared between the different segments. Certainly worth mentioning that the Service Parts and Consumables showed very strong development.
On the other hand side, obviously instruments here mainly driven by our molecular portfolio as well as by our Immunohematological portfolio, and nice growth rates in the immunoassay section as well. Development and Services a little bit weaker in 2021. As always, I'm complaining at this point about IFRS 15.
This has nothing to do with the actual performance of the development and service department. This is just about recognizing revenues. I think we will have a different picture in 2022, and again, mainly driven by certain delays in the recognition of revenues coming from Development and Services in 2020, and now pushed into 2021.
Again, more sustainable things that we will see some staggered delays and that's why we believe that particularly as far as development and the order backlog situation, that we will have an increased level for the entire year, 2021. Now talking about a percentage of sales, comparable picture between 2020 and 2021.
I still don't perceive this as normalized. I think long-term development and service activity should be north of 10%, whereas we foresee nice growth rates in the service parts and consumables, particularly because of the installed base, which was growing nicely in 2020 and 2021. Adjusted EBIT and EBIT margin up by 30% to EUR 54 million. An adjusted EBIT margin achieved a level of 18.9% in line with guidance.
If we make the analysis of the margin expansion of 220 basis points year-over-year, certainly it's worth mentioning that we achieved a nice degree of economies of scale, particularly coming from our most important product lines. Certainly positive sales and product mix here. We have different levels of positive contribution. On the one-hand side, it's certainly typically the revenues recognized in development are coming along with weaker margins.
So a lower percentage of sales coming from development obviously means a higher contribution from the products with typically higher margins. That's one of the layers. Then certainly higher contribution from margin-heavy instruments like higher throughput instruments in the immunoassay and immunohematology space, but obviously molecular products as well.
Nice contribution from nice growth rates on the more complex consumable side, leading to a higher to a better margin mix. Certainly from an overall perspective, the growing contribution from consumables and maintenance parts and service parts just growing about 100 basis points as a percentage of sales, but certainly looking into the sensitivity analysis is contributed by 70-80 basis points on the EBIT margin.
Which is certainly showing the nice earnings profile in those product categories. We had a lower burden from stock appreciation rights, which helped to drive margin. On the other side, certainly a tight supply situation with materially rising input costs. I would like to dive into the details later in the course of this presentation.
Looking into the segments. Here, certainly the biggest segment of business unit Instrumentation with a nice performance, 2021, with an EBIT margin slightly under the group, but nice top line growth as well in constant currency about 16.2%. Very nice development in our Diatron business unit.
Very strong growth here with hematology, mainly on the veterinary side, showing nice growth rates, but certainly the smaller molecular products, which are manufactured by our Diatron business unit, showing nice growth rates as well. The turnover situation and obviously several times described our smart consumables business unit, with again, nice top line and the turnover on the EBIT side.
We believe that, with all those new products which have been launched and will be launched in the periods to come, that, this turnaround, is a sustainable situation. As we already mentioned in the course of the acquisition back in 2016, we believe that, in the next years, more consumables will be, EBIT margin accretive, which certainly means a lot.
On the cash flow side, certainly nice development here as well, almost double in operating cash flows, and free cash flow, or more than tripled. I think it's again, worth mentioning that we nicely managed our leverage ratio, almost half. As I've already mentioned, cash flow from operating activities in 2021 almost doubled.
On the other side, we nicely managed our investment ratio, which was significantly higher over the past two years, which has nothing to do with investments into product development or investments in tools associated to products. The past two years were actually driven by real estate activities, mainly at the headquarters in Birkenfeld, where we significantly increased capacities for development and prototyping activities.
The next step will definitely be in manufacturing, but at this point, we believe that the growth, which is foreseen to happen in the next three to four years, can be covered with our current capacities, and only then new investments will become necessary. Now talking about the outlook with our financial guidance.
As mentioned before, certainly 2022 is most likely one of the most difficult years in terms of predictability and transparency. Talking to our customers and trying to find out what their customers actually believe, we find a very heterogeneous picture. Some of our customers actually believe that we will see further meaningful coronavirus, others don't.
Our planning assumptions are actually not really considering a high follow-up business coming from Corona. On the other side, we do not believe that we will see that a lot of the instruments will become less engaged as they have been in the past years. On the one hand side, certainly our sales forecast is to match the previous year's level on a constant currency basis.
We have ramped up our very young product portfolio. I think it's worth mentioning that a lot of the products which have been launched in 2017, 2018, 2019 have been put on the back burner by our customers during Corona and are now seeing this phase where we believe that they get into those heuristic effects.
All in all, certainly the LIAISON XS, diving into details later on, for DiaSorin, certainly an important product for Becton Dickinson and other products which will be launched. On the EBIT margin side, I think it's worth mentioning that, although we are certainly an important contributor for our customer as far as their coronavirus testing business is concerned, it certainly we are not dependent on that.
We saw that some of our customers already reported a nice recovery effect in immunoassay, and I mentioned a couple of times now, immunohematology, certainly hematology picking up nicely. Our customers are supplementing their menus on the molecular side, and that's why we are actually not super worried.
I think the width of the corridor provided on the EBIT margin side shows that the relevant product mix is not super clear at this point. We are receiving forecasts from our customers. All in all, I would say that it shows sustainably high demands in all those areas. On the other side, certainly we have to deal with the rising input costs, which can be partly passed on to our customers when we are about to undertake those steps.
Certainly we see a more normalized product mix. We're expecting higher contributions from immunoassays in 2020, too, higher contribution from newly launched products, and certainly higher contribution from our maintenance parts business and service parts business, and certainly consumables on the other side. Definitely a more normalizing level on the molecular products.
Investments in tangible and intangible assets combined of around 6%-8%, which is about 200-300 basis points lower than in the previous year, so actually meaningful. As already mentioned, our budget scenario is fairly conservative. We were trying to not undertake any aggressive assumptions as far as our coronavirus business is concerned, and here mainly molecular, but also immunoassays as well.
Therefore, we had an extraordinarily high level of more conservative assumptions as well as higher risk adjustment than normal and like what happened in the past. Just getting you a COVID-19 update. This is the perspective of the market as far as we talk to our customers, a collection of statements and assumptions and expectations. I think it's obvious that COVID-19 pandemic has driven 2020 and 2021 from a market growth perspective.
We and our customers believe that we get back into a more historical growth rate scenario for the years to come of about 4%-6% overall diagnostics. Certainly certain market segments like molecular or like point of care testing, like smart consumables with significantly higher growth rate.
I think a fair assumption on an average basis is to assume 4%-6%. Certainly we have this high comparison basis to the surge in COVID testing, where the volumes might adversely affect market growth rates in 2020 and 2023. I think STRATEC is in a very special situation in order to cover this effect nicely.
I'll dive into details on the next slide. We see a return to those historical market growth rates as soon as we have reached this new baseline, this new plateau, where we believe the testing volume and therefore instrument demands and instrument replacement cycles and so on, will be significantly higher. Again, a new plateau.
Certainly we have to see that most likely there will be further infection waves, but most likely with way steeper ramps. That's what we at least saw during Omicron, but shorter durations. Therefore we expect that the end customers will actually cover that to higher spare capacity levels to be held by the labs in order to cover those peaks.
This doesn't mean it's a continuous higher demand, but certainly higher replacement rates. Instruments were used on a 24/7 basis, which means we see higher wear and tear, shorter replacement cycles, high investments into product maintenance and support. All those aspects are covered fairly conservatively in our guidance. STRATEC is in a very, I believe, in a very specific and in a very special situation, well-positioned.
In contrast to the overall markets, we see no negative pricing effects. We, on the one hand side, didn't contribute super positively from the high pricing environment some of our customers saw. We stick to our prices to the extent possible, and that's why we expect to not be affected negatively. Certainly, the majority of our customers gain further market share, actually locking down accounts.
We believe that they will continue to be on that track as soon as COVID-19 testing gets more into regular approval pathways rather than those emergency approvals. End customers will become more selective in terms of competitive pricing, approval and so on. I think this is already an ongoing process. STRATEC and its customers being well-positioned here.
Certainly the overutilization of the equipment, and I mentioned that before, is already now triggering a significant replacement potential. We already see at this point that we are replacing instruments which have only been sold at the beginning and mid of the year in 2020.
Like I said, overutilization leading to way faster wear. Yes, the instruments are typically, particularly the equipment which is not used in blood banks, is designed to run like seven, eight lab shifts a week for a period of five to seven years. We already see this material wear and tear. Certainly the nice growth of the install base is driving our Service Parts and Consumables business.
We already see this in Q1 of 2022, and I already mentioned not only nice top line growth, but certainly better than expected margin development. We definitely see that some of our customers nicely managed to see nice recovery as far as their, the breakdown of their menu, the tests available on the instruments are concerned.
A lot of them managing to get more with this installed base, which is way bigger than it used to be pre-pandemically. That they managed to move certain esoteric tests more on the screening or into screening formats, and still labor shortages leading to higher degree of automation.
On top, I mentioned that in passing in the course of the presentation already, we saw some customers which were really focusing with all resources available into those businesses with corona exposure. Those newly launched instruments like the LIAISON XS with DiaSorin or BD FACSDuet or even our CLIA had been pushed on the back burner and is now starting to see new focus, and we see a nice pickup in the demands here as well.
Certainly a super strong outsourcing trend. Nice recovery here. I mentioned that several times during the past two years that particularly at the beginning of the pandemic, that customers focused from our perspective a little bit too much into those businesses with COVID exposure and left new developments a little bit aside.
Now we see a very strong pickup. I think it's worth mentioning that besides the two molecular systems we will be launching in the next 12 months, that we got a third molecular instrument on board and several other programs. Nice pipeline effects as well, which will then see the market in 2024, 2025, 2026.
I think it's worth mentioning that from a development performance perspective, we never spent so many hours in development either, into the what we always call the small R part to develop our background technology. But certainly those customers' product, which is the big D, like the small r, the big D from R&D. We see a nice effect here as well as far as our pipeline is concerned.
The company never spent so many hours in development as over the past two quarters. Focus in 2022 and beyond. Certainly executing on the current development and launch pipeline. This is not only a question of getting the systems to the market, but actually allowing the company to take new development activities on board and to release those development resources from existing products into new products and getting products to the market and see those nice ramp ups I was just describing.
Certainly M&A remains a part of the company's growth and diversification strategy. Certainly diversification is a material thing for us. Although it doesn't look like that we are undertaking a lot of M&A activities after the last transaction on that end we did was actually in 2016.
However, we have a team sitting on that. We are continuously looking into activities. At this point we are looking into two different companies, and here I would give it a higher chance than in the past that we will find something suitable for acceptable prices pretty soon.
Again, this is a very binary thing, but I think it's worth mentioning that we are undertaking those activities. I think one of the core focuses is definitely the United States. The majority of our customers are sitting in the United States. So far, we nicely managed to take care and to service those customers, even from Europe. Eight out of 10 decision-makers in our industry are sitting in the United States.
Therefore, certainly with the repatriation of manufacturing, the United States is obviously becoming something which is growing in importance and therefore our activities on the M&A front are certainly US-centric. Certainly the next aspect is execute on the deal pipeline. We brought a lot of things on board.
We are performing several feasibility studies and are negotiating several contracts, so we wanna actually push those things across the finish line. We have to implement countermeasures in order to tackle the supply chain issues we have. I wanna be very honest, and I was trying to be that. For us, the situation gets even worse rather than better.
We are putting a lot of effort to tackle the situation, but it means definitely on the one hand side, higher costs for supply chain and higher costs for input products on the one hand side and a lot of inefficiencies and frustration in manufacturing, closing product lines because certain raw materials or pre-materials are not available, ramping it up a week later and so on.
It's definitely a frustrating situation that we are in a situation that we can only confirm orders towards our customers as soon as we have all the materials in which is a difficult situation. So far, we haven't had any material interruptions in our manufacturing. However, we are actually adding up as far as delays are concerned.
It was easier for us if customers showed additional demand to satisfy those additional demands within a two to three month period of time. In the meantime, we are talking six to nine months to ramp up manufacturing lines and so on. Like I said, it's definitely if we see constraints, it's more on that end rather than on the demand end.
That all gets me to the point that we want to restore pre-pandemic efficiencies throughout the company, that with a home office and other activities, certainly things which took us a day or two to cycle something is now taking us a week. Definitely we have to catch up as far as efficiency is concerned.
I think we are on a good way to, on the one hand side, tackle that nicely, on the other hand side, showing enough flexibility to manage all the situations coming up. Then certainly, manage the transitions to post-pandemic priorities, which means, accelerating development, delivering on time, having that wide scope of, all those different application areas, and a little bit less focus on molecular.
Although three of the probably 10 products which will come to the market in the next, three to four years are molecular, which means, in the future, we will continue to increase, molecular products, as a percentage of sales, no doubt about that. This gets me to the end of the presentation, and I would like to hand back to Natalie now, who will explain to us how to ask questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two.
If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from the line of Oliver Metzger from Oddo BHF. Please go ahead.
Good afternoon. It's Oliver from ODDO BHF. First question is on guidance on top line. You elaborated about some headings coming from lower COVID-related sales and also high base. You mentioned also the high order backlog. In the past, you commented also on higher equipment sales due to the high wear and tear on the diagnostic instruments over the past two years, also about the potential for a big customer.
Now you also mentioned the more conservative stance, which was also the case in 2021. Last year, just to get a better perception on, like, last year, your guidance was conservative, and basically with the upside risk, it came through quarter-on-quarter. Now you also mentioned it's more conservative.
The upside risk you consider to your guidance, if you compare it to 2022 to 2021, this upside risk, is it similar from a relative perspective? Or do you just think now basically the guidance we're giving now is conservative, but from a relative perspective, we cannot raise or we will not raise the guidance during the course of 2022 to a similar extent. It's a more bigger question.
The second one is from the back orders. You mentioned back orders. There's new normal situation. How to think about this midterm? Could you imagine that this might be a topic in 2022 and corresponding in 2023 or 2024 might lead to some additional push?
Yeah, thanks, Oliver. Thanks for that question. Actually, I think it's a little bit too early to talk about increasing the guidance at that very day when you issue a guidance. Again, I think it's worth mentioning again that from, in terms of predictability, transparency, and other factors, making a guidance more firm or less firm, I think 2022 is most likely the most difficult year over the past five years for STRATEC and most likely within the next five years to come.
Like I said, at this point, we didn't factor in and didn't bake in further meaningful waves like we saw with Omicron in Q4. As mentioned, we are fairly positive as far as the ramp-up curves of new products are concerned. One of our
No, actually both of our molecular customers of those instruments and consumables which will be launched in the next 12 months, actually issued press releases covering that. Both are actually in their clinical, so this is not a design risk anymore, and that's why we are actually positive.
I think I mentioned it a couple of times, if we are looking into the details on trying to break down revenues, one could easily say that picking out 80% or 85% of STRATEC's revenues with products which have been launched, let's say, longer than 24 months ago. We exactly know the market demands. We know how well our customers are positioned. We see their forecasts.
I would say for those 85%, we could give easily a corridor guidance and narrowing down to probably 2% or 3% ± for the next three to four years. The actual unpredictability is particularly driven by the newer products, where we don't know when those products will actually hit the market, how aggressive are our customers to sell those products, how comprehensive is the menu they will launch the products with, what will be their primary markets, and how good will the end customers assume certain technologies.
However, taking into consideration that particularly in 2022, the dependency towards molecular products and immunoassay products will not be as high as it used to be in 2020 and 2021, makes our guidance actually, on the one hand side, conservative, on the other side, certainly less fragile, in terms of what are the different contributors in order to fulfill that guidance.
At this point, like I said, we want to defend the reputation to be a cautious company in terms of guidance. I think we have built that track record after 2018, and that's certainly something we want to maintain. On the other side, the width of the earnings guidance shows that we are not entirely sure about the revenue breakdown.
Like I said, there are a couple of choices for our customers, like replacing equipment which has been worn down over the past two to three years with new equipment or putting them actively into maintenance cycles. On the one hand side, instrument sales would go up. On the other side, maintenance and spare parts would go up.
That's why we perceive this as on the one hand side conservative guidance with certain upside potential. Order backlog, I think I mentioned it a couple of times, is something which worries us. We ended up with a higher than usual order backlog at the end of 2021.
Looking into the situation in Q1 with a high degree of certainty, we will end up with a back order situation of similar level at the end of Q1. We hope that we can start to work that down. Lead times are significantly going up, not only on the input side, even on the output side. I fear that we will have a comparably high back order situation throughout the entire year 2022.
We hope and we have some indications that this might get better in 2023. However, the automotive supplier industry, which is a lot of those companies are sitting pretty close to where we are actually headquartered, and we have good contact into those companies.
I think those companies are actually worried that this is something which will continue to attend the activities of the companies in the next 24 months and will not just vanish in the next 12 months. That's what we actually see here. I hope that answers your question.
Okay, thank you very much.
Next question is from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oh, yeah, thanks for taking my question. Marcus, I'd like to dive a bit into supply chain, which is obviously the dominating topic. I mean, if we start with material costs, that's a big input cost of EUR 145 million. Is there any kind of insight you can share? What is your assumption for the like for like pricing development for this kind of material cost base?
And also, to what extent has the pricing here gotten worse in the last six weeks? And then secondly, on personnel costs, first question is, really, I was impressed to see that personnel costs remained relatively stable in 2021 year-over-year for both 2022 and 2023. Third item, if I may, on logistics, how significant is actually this item in terms of total cost?
Because you highlighted it in the press release as a moving part on your margin line. Then the final question, if I may. Obviously, to pass on this kind of cost headwinds, pricing is a key theme. Can you just talk about what is a reasonable assumption for a price increase across your portfolio once all is being implemented, and then what share of implementation do you stand today? Thank you.
Yeah, Oliver, that's a super complex question. Let me put it that way. On the input side, we definitely see throughout the entire input base. You know, in, we certainly have those frame contracts with our suppliers for different commodity sub-assemblies, modules, and everything what we do, and certainly they run out over time, and our customers are certainly trying to implement the catch-up effect.
I would say all in all, throughout the entire base, we see price increases of a minimum of 5%-10%, whereas certainly logistics costs are manageable from a sheer volume perspective, but we see significant increases. So just picking out one example, which may sound stupid, but you'll see where I'm coming from.
In some of our products, we actually use sea freight, particularly for the long, predictable demands. In the meantime, we have to completely move into air transportation because sea freight duration, particularly as far as timelines are concerned, are getting more and more unpredictable.
If we manage to get a product, we use sea freight to the United States within a six-week period of time. It may now take between three months and actually six months, which is unacceptable. On the other side, it brings up costs. Partly, those costs can be forwarded to our customers. Particularly, those costs on the inbound side can actually not be passed on to our customers, but are actually critical. Like I said, manageable, but very much driven by the significant increases.
For a limited period of time, we are expecting a very meaningful and significant increase. Throughout the entire input base, we are actually assuming a minimum of 5%-10% price increase, which still is probably below average in our industry. The way how we could pass on those additional costs to customers is actually contract dependent.
In some cases, it means negotiations. In some cases, it means proof of cost increases and so on. Again, I think it's again worth mentioning that from a contractual perspective, we have ownership over the background IP rights to those products, which means our partners, on the one hand side, we are dependent to their sales activities, and we can only be successful if our partners are successful.
On the other hand, certainly our customers cannot move on if they just don't like higher prices. I think in this situation, nobody can actually offer better pricing than we actually do. That's why I think this is a solvable situation.
All in all, I would say that higher prices on the input side are occurring about three to six months earlier than we could pass those higher costs on to our customers, which was particularly affecting earnings in Q4. As I already mentioned in the course of that call, already Q1 showed some nice progress here. Getting back to your personnel cost question.
Again, we have some significant growth here on the one-hand side in our planning assumptions, not only in terms of salary increases over the next 12 months, but certainly massive hiring. I mentioned that again a couple of times in the course of the presentation that we won a lot of new projects.
Certainly we got several products to the market, which helped us to allocate existing developers and existing development resources into new products. On the other hand side, we definitely see the necessity to grow on the development side as well in terms of spend development hours, and that's certainly something which can only be covered by new hirings.
Therefore, we have to consider on the one hand side, labor cost increases caused by new hirings and certainly, and that's actually more an approach over the next 24 months, an overall personnel cost increases, in order to continue to stay an attractive employer.
Okay. Is there any chance to get an indication for like-for-like personnel cost increase? Is it just 1% more than normal or?
Actually, like I said, we have made certain planning assumptions, but I think it is a little bit too early to talk about that.
Okay. Any idea what is the total cost of logistics per year or last year?
Like I said, logistics costs, and again, it's a little bit difficult to describe the situation very much driven by the fact that in most of the cases we are actually shipping Ex Works or the like, which means outbound is partly covered by our customers, and we just cover the additional costs through logistical measures like smaller shipments in smaller bikes and so on.
I would say all in all, about EUR 5 million to EUR 7 million. The majority of the increases on the outbound side cannot be forwarded to our customers and none of the increases on the inbound side, which makes the overall situation so difficult.
Super. Just to clarify, I understood you correctly, you basically see roughly 5%-10% price increase across your entire input cost. The price increase that you also like to pass on is also in the magnitude of 5%-10%. Was that correct?
Not the latter. That's only subject to individual negotiations.
Probably less than 5%-10% is what you can increase in price yourself.
Actually, it might be product and contract dependent, and certainly it is dependent on the fact when we managed the last price increase cycle. I cannot answer that o n a generic level. I think some products will not be affected at all, and some products will be affected on a higher level.
Understood. I have some other questions, but I hope back in the queue. Thanks, Marcus.
Thanks, Oliver.
The next question is from the line of Jan Koch from Deutsche Bank. Please go ahead.
Hi, Marcus. Thanks for taking my questions. I have also three, please. Can you share your thoughts on the many moving parts for the first quarter of 2022? You briefly touched on that at the beginning of the call. I understand that you shipped some orders from Q4 into the first quarter and that you should benefit from the Omicron wave also in the first quarter, and that some of the price discussions you recently had should start to kick in as well.
What should we expect here in terms of revenue and earnings? I know it's a bit too early to speak about specific numbers, but if you could compare that with Q1 2021, that would be helpful. Secondly, on your smart consumables business.
If I look at the margin in the second half, it turned negative again following a strong first half. Can you provide more detail from this? You quickly touched on the margin potential of this business. Could you speak a bit about the phasing of the margin expansion over the coming years you expect? Finally, a broader picture question, are you planning to provide a medium term output at some point in time? If yes, when would be a good time for you doing that in your view?
Yeah, thanks, Jan. Thanks for those questions. Actually, definitely it's a little bit too early to talk about Q1 2022 compared to 2021. I think again, it's worth mentioning that particularly the growth in Q1 2021 was extraordinary high, although we already had those high comps, and now we are facing even higher comps.
However, at this point, looking into the forecast of the quarter, we see nice top line development and growth and on top an even better margin progression compared to Q1 of 2021. That's some of the factors which doesn't actually even consider ramp up of existing product lines which have been launched in 2018, 2019.
It doesn't take into consideration those early product sales for 2020 with the new molecular lines where we are now starting to sell higher numbers of early series units and so on. I think it's actually, like I said, important to mention that the tail end of this year has the potential to become even better. Smart consumables margin.
Quietly. I'll put you on mute for just a second.
Yeah, I'm back. Sorry. I was just checking a figure. smart consumables margin, Jan, you were right. that the margin in the second half of the year dropped again, which is actually related to certain ramp-ups in manufacturing. I think it is important to understand that after the acquisition of smart consumables back, which was the Sony DADC BioSciences business back in 2016, we slightly modified the business model of smart consumables.
At the time, the company was focused on early-stage, well-funded companies, startups, Bay Area-based, Boston area-based companies so that the revenue contribution from development activities were fairly high. As a company which makes its money with serial manufacture of injection molded products. Certainly it was on the one-hand side a certain paradigm shift.
On the other hand side, I think, kind of natural progression to move that business closer towards the blue-chip companies in the IVD space or in translational research or for cell manipulation, and all those businesses.
I think we managed that transition fairly nicely. It's still a phase where the company has to lift heavy investments. On the other side, we see that we are getting into serious manufacturing for a variety of products, and that makes us believe that this turnover situation on the one-hand side is sustainable.
Certainly, let me say, the breakdown of revenues coming from services like getting heavier on the systems manufacturing side and getting a little bit weaker on the side of recognized revenues for development activities is certainly an important factor to be mentioned.
Long term, I think, Jan, we stick to that statement, and I can only reiterate, we will definitely come up with a longer term guidance in the course of that year. It will not surprise you that we stick to what we always said, that we are aiming long term on a compound annual growth rate basis for high single-digit growth rates.
We have several products in the pipeline, which might trigger effects that we might adjust that more towards the top end, like, low double-digit growth rate. But actually our long-term statement is in that area.
I think this is something which can be digested organically, where the market is there, where we have the customers lining up, where we have the means and measures to cover this with our existing, background technologies, to arrange that shift, from diagnostic solution exclusively more maneuvering the company into areas like translational research on the one hand, like, with.
There are a number of other applications where with existing technologies and existing applications, we see areas of growth on the one hand and diversification on the other hand.
Great. Thank you.
In the interest of time, we have to stop the Q&A session. I hand back to Marcus Wolfinger for closing comments.
Yeah, thanks very much, Natalie, and thanks very much. I think when referring to the Q1 2022 forecast regarding bottom line development, I was actually referring in comparison to the 2020 margin because this leaves us on a more comparable scenario. The 2021 margin in Q1 was fairly high.
That's why I was referring to 2020, which gives us a better comparison basis. I just wanna make that point very clear. Probably I didn't express myself in a proper manner. This actually gets us to the end of our 2021 financial results disclosure. If you have any follow-up questions, please do not hesitate to call our investor relations department. Thanks very much and I would like to wish you a good day. Thanks everybody.
Ladies and gentlemen, the conference is now concluded. You may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.