Good morning, ladies and gentlemen in the United States and good afternoon in Europe. Welcome to the Presentation regarding our 9M disclosures. Before I dive into the details, I would like to mention some housekeeping things. First of all, you can download the following presentation either through the portal you're currently viewing it, or you can actually download it from our website. Certainly, I don't need to walk you through our safe harbor statement. As always, I would like to split this presentation into four major segments, the first three being presentation and then Q&A. I would like to start with an overview and then certainly the financial review. I would like to update our outlook.
As you probably saw, about three weeks ago, we have disclosed the German mandatory stock exchange announcement called Ad- hoc disclosure, where we have first of all disclosed our 9M figures, as well as amended our financial guidance. The actual data is actually fully in line with our preview at the time. Nothing materially new. First of all, sales up by about 30% at constant currency to EUR 225 million. The organic year-on-year growth in Q3 is at 16.7%, which is actually way higher than expected. On the other side, certainly we see that the performance in Q3 on a standalone basis is not as high as it has been in the first two quarters. An expected situation and still very satisfying.
Like I already said, still way north of our expectations at the beginning of the year and actually at the end of the first six months of 2021. The adjusted EBIT margin has improved by almost 600 basis points to an EBIT margin of 21.6%. Operating cash flow, super satisfying, representing 267% of last year's comparable and of the 9M figures of 2021, and amounting to EUR 50 million.
We had a couple of new market launches, nice achievements of development milestones, nice additional agreements and a very, very strong pipeline in both, actually, contracted projects as well as projects which are not yet contracted, but with good prospects that this is gonna happen soon. We clearly see a catch-up effect. Yeah, we probably talked about that already, that like at the beginning of 2020, we had some nice contract executions. But then the pipeline became slightly thinner, obviously, as our customers focused a lot on their corona business and literally threw everybody within those companies on the side of the business which had or has corona exposure, which made it a bit difficult for us.
We clearly see that focus shifted, the people are getting back to their regular work. We see nice progress of those projects which are seeing ongoing development activities, and the same thing applies for new things which have obviously been pushed out during corona. We had a nice launch of our smart consumables business, very attractive in one of the fastest-growing market segments of clinical diagnostics for a leading North American partner. We got another partner to our proprietary immunoassay platform called CLIA. That's actually no surprise. I already mentioned it in a couple of occasions that partners are really lining up here. It's a novel business approach and actually helps a lot of mid-size companies to maneuver themselves into a situation where they can cooperate nicely.
Like I said before, we have a number of players lining up in different stages of the contractual situation. Some of them only performing feasibilities, only by means of on their path towards contract execution, and some actually already initially selling Analyzer Systems together with their proprietary chemistry. Second part of the presentation, financial review. I already talked about some of the figures on a nine-month basis, 25% up in sales. 60, north of 60% up in EBITDA margin about 560 basis points up. Adjusted EBIT margin, same progression here. We clearly see that this goes down until the very bottom line.
Adjusted EBIT, about, which is based on the fact that our adjustment, particularly PPA, is declining for the acquisitions being made in 2016. Adjusted EBIT up 73% and linear progression here with adjusted EBIT margin up by 590 basis points, leading to net income of EUR 40 million, representing a growth of about 70%. Basic EPS up by 93%, amounting to EUR 3 coming from EUR 1.55 last year, which was already a very strong year. I just wanna make that point. Nice progression overall.
If you see the chart, certainly we would like to discuss the contributors, nine months up by and already mentioned about 26% to EUR 225 million, which represents about 30% on a constant currency basis, driven by a couple of factors. I think it's still worth mentioning that our molecular systems still see nice demand, and we see a nice recovery of the routine test application in laboratories throughout the field, hematology, immune hematology, and certainly even those Immunoassay Analyzer Systems which have or had no corona exposure are showing nice growth. On the same side, we clearly see that we had a very strong growth of our installed base, started already 2019, but certainly making nice progress in 2020 and 2021.
High degree of utilization as well as still growing installed base of instruments is leading to strong Service Parts and Consumables sales. I think we put that on that slide. It's still mentioning that. It's worth mentioning that we saw some further growth acceleration in Q3, and that's actually with this very little data we have and with that high degree of uncertainties, that's actually something we expect to continue for the remainder of the year and certainly for the next several quarters, that we see acceleration here, very much based on that, strong growth rates we saw over the past, let me say, eight quarters, in installed base. Certainly the newly launched instruments, and when I'm saying newly, it's really difficult to say that doesn't mean the last quarter.
I'm really addressing those Analyzer Systems which have been launched over the past three years, where our customers are not yet selling the instruments at full pace because they are not yet approved in all the relevant geographies, and our customers do not yet have their full menu on the instrument, which only allows them then to work, to cooperate with some customers using the menu, which is not yet comprehensive. That's why we see nice growth here, that our customers are going into new territories or bringing new panels and new assays on those instruments, which is then typically leading to acceleration on the growth with that new instrument. When I'm referring here to a newly launched product, I don't wanna address those which have been launched a quarter or two ago.
I'm really talking about those instruments which have been launched right before Corona or during Corona. Adjusted EBIT margins and adjusted EBIT nine months. The adjusted EBIT up by 73% to about EUR 49 million and adjusted EBIT margin on a level of 21.6%. A lot of effects actually generating some nice tailwinds here. Obviously, economies of scale and the product mix, we have already discussed that. Product mix by means of not only instruments of higher complexity, certainly instruments like breaking down instruments versus other business. That's actually something where we are expecting some slight headwinds in the Q4 .
That the contribution of revenue recognition coming from development, typically coming along with a lower margin, will generate some of the headwinds we are expecting in Q4. Certainly the product mix is important to understand. Again, it's not just instrument, it's within instruments and then certainly instruments versus development. I've just mentioned that an instrument versus consumables and service parts, all in all a favorable development for the company's margin progression. Certainly the Efficiency Enhancement program continues to pay dividends here, which had been initiated back in 2018, which was four to five years program. Still ongoing measures which have been implemented back then are actually, like I said before, still paying dividends.
Certainly we have a lower burden from stock appreciation rights as compared to the previous year, where this was actually a very strong position of headwinds. Here we see some nice positive effect coming from the SARs as well. Cash flow overall very satisfying position. Literally we have almost tripled our operating cash flow. Investing activities on the same level. Financing activities reduced the debt of the company, so generating a nice free cash flow after nine months of about EUR 35 million, which certainly allows the company some room to maneuver here. Cash and cash equivalents again nice development, 20% higher than last year. Equity ratio literally no changes here.
As mentioned before, we reduced the net debt of the company by about EUR 20 million, which is, let me say, something which has nothing to do with the actual operating cash flow. It's just a means of those debt positions which are easier to be touched during those times and where it makes tactical sense to not touch them. Allow me to get to the outlook now. Financial guidance, allow me to reiterate what we only amended two or three weeks ago. Constant currency sales is expected to grow at least by 16%. The adjusted EBIT margin should be around 19%-20%.
The EBIT margin in 2020 was on a level, again, with a very strong year, was on a level of 16.7%. Investment in tangibles and intangible assets should be between 6% and 8%. Again, strongly coming back from the last years where we had a lot of real estate activities. I think it's again worth mentioning that we still see very, very high volatilities in the demand of our customers regarding Analyzer Systems and consumables and actual service parts. We still see. I have actually the impression, if I'm talking to my people, that the situation continues to get worse with the global supply chains.
It's unbelievable what kind of additional activities are required to really fill the supply chain and make sure that we don't have supply interruptions, which is not unavoidable, but certainly so far, we managed it nicely that if we go down with a certain production line that our supply chain management people managed to get the parts in, that we were only down like for a week or two. It's like what I said before. When I'm talking to my people here, I have the impression that the situation gets actually worse from week to week, rather than what the actual people working in global supply chains are trying to tell us that the situation starts to improve. We don't see that yet.
We see a situation which gets actually worse. We have built some or have made some risk offsets here, particularly as far as supply chain costs are concerned, which is already incorporated in our guidance for the remainder of this year. The focus for the next quarters is definitely to execute on the current development pipeline and launch pipeline. I mentioned that a couple of times before. Certainly, we have to distinguish between things which are already contracted and things which where we have already started development or feasibility work, and to get those contracts executed. Actually, we are expecting product launches over the next 12 months for a minimum of two of our molecular solutions and other solutions.
Certainly M&A remains an important part of the company's growth and diversification strategy. I mentioned last time that we have ongoing activities here. I definitely want to manage expectations. We are not applying high pressure, or on the other side, we are super demanding. I think it's worth mentioning that we from our side stopped the process at a certain point in the last quarter. Like I said before, we are very, very selective here. We have high prerequisites, and we want to stick to our standards in order to, if we do M&A, that we really buy quality and certainly trying to avoid to pay moon prices.
On our deal pipeline, regarding new development and manufacturing agreement, we, like I said initially, that we definitely see a catch-up effect of things which were activities were very calm and quiet over the last, let me say, five or six quarters. We definitely see a recovery effect. One of the core focus is definitely to manage that transition from the pandemic mode into the post-pandemic mode and to really set the priorities, where we definitely see that this is a process where the majority of our partners, being slightly ahead of the market already started that process like six months ago and are already talking about their activities which are non-COVID related. We definitely are in a similar situation that we started that process like six to nine months ago.
It's definitely like a mode change where we have to manage expectations among our partners, among our employees, among our suppliers, have to reset priorities, have to be very cautious regarding costs, and so on. It's definitely a meaningful change in the mindset we have to support here within the relevant stakeholders, as mentioned before. Certainly we have to restore pre-pandemic efficiency, and I'm sure you're learning that from some of our customers and partners as well.
That certainly in times where, let me say speed and pace, was a priority above costs and above efficiencies, we definitely have to get back into a mode where we are considering efficiencies, cost cautiousness and so on, and can no longer afford to just say, timing goes over everything, inventory doesn't care and so on. That's certainly something we are trying to address very carefully and step by step, but it is a process and we have to go down that path. That gets me to the end of the presentation, and I would like to hand back to Stuart, who will explain us how we could start the Q&A session. Thank you so far.
Thank you, Marcus. Ladies and gentlemen, at this time we begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch tone 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. First question is from the line of Oliver Reinberg from Kepler Cheuvreux. Please go ahead.
Oh, yeah. Hi, Oliver Reinberg from Kepler Cheuvreux. Marcus, three questions, if I may. The first one on COVID. There's basically one client who obviously has seen a kind of major support from that. I was just trying to get a feeling how to think about the mix of this client next year. Basically, instrument sales may decline, so there may be kind of replacements for highly utilized systems, but obviously probably less new install base building. While obviously the kind of high install base is driving the kind of demand for consumables from this kind of specific client. Can you just talk about to what extent you've already seen this kind of mixed shift towards consumables or is this only to come?
Can you probably just comment this quarter what the percentage sales contribution from spare parts and disposable was? Second question, can you just, I mean, we obviously had the kind of new impressive data from the new antiviral pills, Paxlovid, but also from Merck. Any thoughts in terms of how this could influence a demand for COVID testing? Then the last question, just on inflation. You touched on it partly, but can you provide a bit more color, like what kind of incremental costs do you currently see in terms of material, logistics, probably also personnel expenses, and how this will affect margin next year? Thanks so much.
Yeah. Thanks, Oliver. Thanks for that variety of questions. Super interesting questions. You know, it is super difficult for us to assess the potential behavior of our customer. You know, during COVID and just compiling some data, which is actually public data, is that some of our customers are actually disclosing data by means of how much revenue do they generate per instrument in a common year. We definitely saw some customers which have tripled or quadrupled revenues per instrument during 2020.
Here it comes that, like if you are in a situation where the actual value of the overall business relationship between a customer of STRATEC and the actual end customer, the laboratory, shrinks from like 15% down to 5%, where you really can say is, "How do I actually use the instrument? Do I service the instrument or do I just place a new instrument next to the existing instrument in order to make sure that those capacities are always available?" That's why it's super hard for us to say is, how many of those instruments which were used on a 24/7 basis by our customers during those super high demands, like between November and March, November last year till March this year, where all capacities have been used by 100%.
Are they replacing those instruments because although they are fairly young, do they replace those instruments although they are aged and life cycled already or are they applying service activities in order to continue to use those instruments? That's why it's super difficult for us. I think I mentioned that in the course of the presentation that we are actually expecting that certainly instrument revenues will come down and probably we see some product lines with declining numbers. On the other side is that our customers are switching back into a more cost-conscious mode where it makes perfect sense to focus activities into field service activities, to refurbish or recondition instruments in the field or send them back to us in order to recondition those instruments, and that's what we are all expecting.
I would actually, from a gut feeling perspective, I would say that we are facing nicely growing effects in our spare parts and maintenance parts and service parts business, and in parallel see some product lines which have the risk that they might slightly decline in the course of 2022. I'm afraid I cannot get you the data like breakdown between consumables, disposables, spare parts and actual instruments revenues, as we don't report that on a quarterly basis. I think it's worth mentioning, and I think I did that already, that compared to last year's FY, we see some nice tailwinds from that. I would expect growth rates coming from that business on a FY basis.
Regarding the new corona treatments and new abilities to treat corona patients, expecting that if we talk to our customers, they certainly, it's tough for them, and I already mentioned that as well, to distinguish between the actual demands and catch-up effects and so on. What everybody expects is that if the corona levels are high, like what we are currently seeing in the German-speaking world of Europe and in Eastern Europe with super high rates of new cases, like if such treatment happens, then obviously it comes along with new testing activities and confirmatory testing on a molecular basis and so on. From an overall perspective, I would actually see this as more on a tailwind basis rather than a headwind basis. I hope I answered all your questions, Oliver.
The last one was on inflation. Any kind of color headwinds for material logistics?
Yeah, sorry. At this point, we think we have our cost of goods based upon long-term agreements fairly well under control. We have some suppliers coming back to us that their cost base has actually exploded. We are trying to keep this away from our customers, but cannot entirely keep it away from our customers. At this point, I think it's more like on a logistical cost basis where we see that we are spending a lot of money and certainly in human resources allocation that, let me say, that we had to reallocate people that our procurement and logistics people are doing way more on that end of what they actually should do and are actually not focusing on activities they should do, which is all unfruitful.
At this point, tackling the overall cost increase is literally impossible as the basis changes every week. What I would really like to say is that it is really meaningful, and in some cases you cannot actually apply that to our entire input. In some cases, we see some price increases here and there. We have very little of those cases. You read in the newspaper that some input costs have been like on a 10,000% level of where they used to be last year. We don't have those situations, but what we definitely see is that some of our suppliers are actually coming back with 10, 15, 20% price increases. We are trying to keep that under control for the time being. We manage that.
We have those long-term agreements with our suppliers. Again, it's really worth mentioning that this is not the end of the cost base, which really is causing headaches this time. It's actually availability and additional logistical costs and additional efforts internally which are really causing problems. So far, we managed to keep the situation under control that if we were lacking parts or sub-assemblies or modules, that this was only like for a week or two. We did pre-manufacturing and couldn't ship the instruments up until we got those parts we were lacking for those sub-assemblies or modules, then finalized the activities, like I mentioned that already, which is at this point causing a lot of headaches in terms of punctual availability, but not overall availability.
Super helpful. Thanks very much, Marcus.
Thank you.
Next question is from the line of Jan Koch from Deutsche Bank. Please go ahead.
Hi, Marcus. Thanks for taking my questions. I've got also three. Starting with your new 2021 guidance, could you help us to better understand the moving parts which will impact your performance in Q4, especially on the margin? The midpoint of your new guidance implies an EBIT margin of around 11% in the coming quarter. What needs to happen that you actually reach this level? In relation to this, what are your expectations for Q4 in terms of product mix? If I look at the current PCR COVID testing volumes in Europe and in the US, it looks like that they are largely in line with Q3 or even a bit higher.
Combined with the rising COVID incident rates, which you just mentioned and the upcoming winter months, your customers must feel the need to increase their inventories or did that already happen in Q3? Lastly, I noticed that you slightly changed your wording, and now expect a large molecular project to be launched in 2022. I think last time you said you expect the project to be launched in the H1 of 2022. Any update here would be helpful.
Jan, thanks very much for your question. I was just making notes.
Okay.
2021 Q4 performance is actually a difficult thing. I think we were trying to get across that we were still fairly cautious. Reason is that, mainly with the supply chain situation, but certainly with the activities of our customers, we definitely see some customers which have increased the frequency where they are collecting internal forecasts from their relevant geographical regions, and they are certainly discussing this forecast with us. We definitely see like an up and down in the forecast, which is provided by our partners. I actually think I mentioned that already.
I want to avoid a situation where our partners are ordering something and we are producing those things which over hours probably cannibalizing other things, and our partners are not actually selling those instruments, and other partners are actually waiting for some things, and we are not shipping that.
That's why it's a clear must for us to keep a balanced situation, and to make sure that we are not just trying to sell something because our partners ordered it where we keep the flexibility to say, "Okay, if you don't need it, we are actually willing to transfer orders from Q4 into Q1 or Q2 of next year in order to kind of balance and flatten the overall manufacturing activities of STRATEC," which is certainly, particularly from a margin perspective, a solution which is beneficial to not only our partners but certainly to us as well. On the other side, we are still considering increasing and growing activities as far as supply chain activities are concerned, where we definitely will have to pay extra things.
You, I'm sure you know all those horror stories that, like, air transportation for cargo tripled or quadrupled within 12 months and so on and so forth. We definitely have to be super cautious. We have given a minimum guidance, so we kept some flexibility even in that wording. You're right, we did the same math. Q4 has to come out on an EBIT margin of 11%, that we only meet the lower edge of our guidance, which is unlikely to happen on the other side. We want to be super careful, and we want to leave enough flexibility. Product mix comes back to the same situation.
We know that some of our customers were starting to regain inventory levels, particularly on the immunoassay side and on the molecular side, and that we definitely see that they have a nice outflow of those products, which makes us believe that the demands will continue to grow. Talking to our customers, we definitely see that their projection over the past quarters have always been too conservative and that the actual demand then later on was higher than initially expected. It's again like between a rock and a hard place to say will this continue in Q4 and Q1? What we definitely see is that the initial outlooks given from our partners for Q1 and Q2 next year have been positively amended in the meantime.
Again, particularly in favor of the more centralized solutions rather than compared to the more decentralized solutions, which makes us believe that the situation and the product mix contributing positively to the margin will continue to be the same for the next quarters as compared to the, let me say, last five to six quarters. You're right that we changed the wording in regards to the market launch of an important molecular instrument to one of our customers, which has nothing to do with the actual launch planning. This, the product launch has always been at this narrow bandwidth between H1 and H2, and we just want to be on the safe side in order to manage expectation. Launch will take place in 2022, that's what we are convinced of.
Question is, just in what kind of countries, with what kind of manure, what we expect coming from the expected behavior of that customer is that we will always already see some significant sales contribution already in 2022. I think it is important to understand that, and please bear with me, that certainly the years like 2023, but particularly 2024, will be more exposed and more earnings and revenue contribution of the overall strategic revenues coming from that instrument will only happen then, which is the nature of such new instrument placements. I already mentioned that in the course of that call that our customers typically, though, are not in a position to launch instruments in parallel in all their geographical regions and with a comprehensive menu. Both things have to happen.
Follow-up launches in certain regions and follow-up launches of further parts of the menu being available on an instrument. That then contributes typically in the years three, four, five, six to those disproportionately high growth rates with new instruments. I hope that answers your question, Jan.
Yeah, it does. Thanks.
Thank you.
As a reminder, if you'd like to ask a question, please press star followed by one on your touch tone telephone. Next question is from the line of Odysseas Manesiotis from Berenberg. Please go ahead.
Hi there, Marcus. Thanks for taking my questions. So first of all, taking into account your ongoing negotiations and new launches in the near term, do you expect that these will entirely mitigate any normalization in COVID demand going into 2022? And second part to this question, from a profitability perspective, how did this compare to your COVID-related revenues? And a small second one, following from Jan's question on the Q4 potential supply chain disruptions, could you please quantify your impact expectations on both the sales and profitability level embedded in your Q4 guidance? Thank you.
Yeah, thanks very much. Yeah, like I said, ongoing negotiations is actually something which, although we have a packed development pipeline, we have some new products in a phase where we already commenced, let me say, development work at the very beginning. Certainly a lot of feasibility work, which is in such a phase typically generating slightly occurring headwinds for the margin. In such a phase, it only means cost and nothing else. I would say this is like an ongoing activity, and certainly this is something where we are not in a situation to balance activities. We definitely have to allocate our resources in phases where our customers are actually requesting such activities, and we are certainly following their processes here.
For the next couple of quarters, I would actually from those, let me say, feasibility work and initial development work, I would actually see no margin contribution, rather the exact opposite that we see some margin headwinds here coming from that angle. Like I said, from an overall perspective, that is not really meaningful. The profitability during COVID has nothing to do with like what happened in the relationship between our customers and their customers, like between the diagnostics companies and those Quest and Labcorp of the world, where it was more a question that the relevant governments actually secured the volume of testing and have guaranteed prices.
This is something where everybody should expect that this erodes away over time and we are getting more to a normalized situation, even taking into consideration that some of our actual testing volume is still based upon emergency approvals. Certainly if we are getting more in those market situations where some of our customers have testing procedures which went through regular approval features, like with CE mark or FDA clearance on a regular path, that certainly if the end customer has the choice of taking a test which has only emergency approval rather compared to regulatory approval, that this is an obvious choice and we have to consider all those activities.
Talking to our customers, we clearly see that the majority of our customers are actually doing the right things in order to get those things into more, a calm situation. From a profitability perspective, we had the clear policy to not try to take advantage of the situation, and we are trying to keep price and cost increases on the supplier side under control and the same thing in the relationship towards our customers. We could not entirely avoid it. We are trying to avoid it. That's why the profitability we are currently seeing is definitely based upon two major factors.
Certainly economies of scale. Although we have a huge growth rate, on a cost basis in terms of efforts, personnel costs, logistics costs, and so on, still, the positive contribution from economies of scale offsets those cost increases by a factor of two to three to four in some situations. I would like to make the point that the current profitability we see has nothing to do with trying to take advantage of the COVID situation. It's a volume thing on the one hand side, and certainly a product mix thing on the other hand side.
We actually are not able to quantify the additional costs because some of the logistics costs are actually rolled into the product, so it's super difficult to say if we are paying higher logistics costs because of smaller lot sizes shipped more often through channels. It's typically coming through sea freight from China and has now to be like air cargo. It is super tough to say, is this a price increase of the cost of goods of the product, or is this a price increase through logistics? Because at this point, I would say we are living like between 5%-15% per product line. But we have those long-term agreements.
We are only covering price increases as long as our suppliers are able to prove that their input side is increased as well, and they will drop back to established prices as soon as their pre-products are available on a normalized pricing level. That's what we are expecting. Like, even being pessimistic on that's what we are expecting for the next 12 months to happen. I hope that answers your question.
Yes, Marcus. Thank you. That's very clear. Just a small follow-up on your point on economies of scale. I mean, given that you hired several temporary employees this year, given the abnormal demand, how easy will it be for you to scale headcounts down in case overall demand is softer in 2022? I'm trying to get a sense of, would it be sensible to assume that your personnel costs here would decrease at the same rate as sales?
Yeah. I wouldn't expect that to happen. We actually generated a lot of over hours. We were working on two shifts, you know, with COVID and social separation and social distancing. At this point, I think we had a lot of additional costs on the same headcount basis. If you see our growth in headcount, it has not been disproportionately high as we see it is on a revenue basis. I think it's more a question of normalizing the activities of existing headcount. The thing we actually want to avoid. We haven't had so many temporaries, I just wanna make the point.
I think we can really be super happy with what happened in our supply chain and in our production, and I'm super grateful to those people who really did a lot of over hours and skipped holidays and so on and so forth. That's how we actually covered those additional demands.
Totally. That's very helpful. Thanks, Marcus.
Thank you.
There are no further questions at this time, and I would like to hand back to Marcus Wolfinger for closing comments. Please go ahead.
Again, thanks very much, Stuart. Thanks everybody for your interest, and thanks for your questions. This gets us to the end of the presentation, after our 9M disclosures. Allow me to wish you a good remainder of the week and a good afternoon. Please, continue to stay safe and stay healthy. Thanks very much. Bye-bye.