Good morning, everyone. Thank you for your time. Today, we're here for STRATEC company presentation, led by the CEO of the company, Marcus Wolfinger. Marcus, over to you.
Yeah, good morning, everyone, and Artem, thanks very much for the intro. Welcome to the presentation of STRATEC. This presentation actually includes forward-looking statements. Let me get you an overview of what we do, where we are, and where we intend to be. We are a leading supplier of automated solutions and consumables to the diagnostics industry and to the life science industry. Actually, we design and manufacture instrumentation and consumables on the basis of our own technology and intellectual property rights. However, we do what we call design to requirements. By means of that, together with our customers, we walk through an intensive process of trying to find out what the market actually needs and what kind of technologies are to be applied, leading to a specific product of the customer and the end user.
The end customer actually perceive this product as a product of our customer, not as a product of STRATEC. We have three decades of experience, particularly in the highly regulated space, which certainly is perceived as a huge entrance hurdle for everyone else, and we feel really comfortable in these processes, which are to be applied in order to get products to the market in a regulated environment. STRATEC has about 1,500 employees. About 50%, are actually working in R&D, which really shows how lean this organization actually is. Although nine out of ten decision-makers in our industry are sitting in the United States, we are still a European company, but certainly forty percent of our products are actually ending up in the States.
Like I said before, nine out of ten decision-makers, even if the companies of our customers are bearing a European name, the decision-makers are actually sitting in the United States. Core manufacturing is actually in Switzerland and Hungary. We do final assembly and final testing at the headquarters in Germany. And certainly, we have operations in Austria, where our main consumable activities are taking place and in the United States. Certainly, an important figure to assess our role in this industry is how many instruments are actually in the space. At this point, we have about 15,000 medium to high-throughput analyzers out there, high complexity, typically floor-standing instruments.
So if you are familiar with this industry, you would see that this actually brings us in a size which is comparable to the really big companies in the diagnostic space. Certainly, we do not show the revenues because actually our customers, they have a razor-razorblade business model, and they generate the revenues, their revenues, with their biochemistry running on the instrument. However, from a placement perspective, we are really a big among the big ones. 15,000 medium- to high-throughput analyzers and more than 40,000 low-throughput analyzers, mainly desktop analyzer systems. Compound annual growth rate since the IPO, more than 25 years ago, is top line 14%. At this point, we are a EUR 270 million company in revenues.
At this point, we generate about 50% of our revenues with the analyzer systems, about 30% with service parts, maintenance parts, and consumables. This is our, I would say, small razor, razorblade business model. Although only 50%, sorry, only 30% of our revenues are generated with consumables and service parts, more than 50% of our earnings are actually generated by this source of revenues. About 15% is development and services. This is actually fairly volatile because it's very much related to the relevant stage of the relevant programs. We are a dividend paying company. We raised the dividend 19 times, 19 consecutive times over the past years. We put a couple of instruments on that slide because actually some of those instruments may look familiar to you.
This is actually instruments we have launched over the past 15 years. Certainly, we can only show those instruments which are already on the market and where we have the permission of our customers as, again, the end customers perceive these instruments as the instruments of our customers, although they bear STRATEC technology. We did the design, and we are in charge of manufacturing. Again, I'm often enough talking only about instruments. Certainly, in the strategy of the company, consumables, and in particular, smart consumables, are playing a very important role, not only driven by the fact that this is actually the razor blades.
It's actually, in the meantime, perceived as by our customers as the real differentiator that we can not only offer the design services, the specifications process, and the design of the instruments, and certainly the manufacturing, but even the integration of the biochemistry on the consumable, the integration of the consumable on the instrument, and offer the combination as a service. We absolutely take our Environmental, Social, and Governance role very important. We put some of the elements on that slide. To describe the unique position in our industry, I think it's very important to describe the product lifecycle of our products and who brings what to the table.
Certainly, as an OEM supplier in partnering business, our partners are in charge for maintaining the brand, the brand and maintaining the market access, and certainly, the majority of our customers are bringing the reagents in the cooperation. In the plastic consumable, it's kind of a split that the majority of our legacy customers have legacy consumables, and we certainly integrate those legacy consumables even on next-generation instruments. In all those newer cases where we bring first-generation instruments to the market, where there is a new consumable to be designed, we often do that. We are certainly in charge for the software and the analyzer system design and the manufacturing of the analyzer system.
Like I said, at this point, we have about 10,000 active analyzer systems out there, and those analyzer systems are built on the wide range of our experience and intellectual property rights, and we have that huge technology pool. This is not only important to maintain our position in this industry and making sure that we find a setup together with our customers, that the customer cannot simply walk away and have the instrument manufactured by somewhere by somebody else, probably at a better price point. We certainly offer product life cycle responsibilities that from day one on, we get a very reliable solution to the market based upon technologies which are proven and on the one hand side, but which are certainly perceived by the end customer as very innovative.
On the other side, we certainly continue to be in charge to keep the product not only a reliable product, but a young product over the entire product life cycle. Towards the end, where everybody is facing obsolescence issue, we continue to be in charge and manage the that process as well until the actual sunset of the instrument, which is a very, very long product life cycle. If you would talk to our customers about their actual challenges, they would certainly bring that up as the number one topic is actually product life cycle management.
The first couple of years are easy, but as soon as we are facing the first discontinuation, where you have to assess if warehousing is the right path forward or a redesign to keep the instrument young, then certainly our role becomes more and more important. On that slide, you can see kind of a simulation of run rates. The first 2-4 years, we have that development phase, then approval phase. The actual hockey stick only kicks in after 6-7 years with very steep ramp-up curves. Then for a period of 5-7 years, the growth cycle maintains intact, and we have a 5%-10% growth rate with our customer. In the last third of the product life cycle, the run rate goes down until actual sunsetting.
Even if the last instrument is sold, we typically sell the consumables and the maintenance parts for another 5-10 years. This is a very long-lasting cooperation with our customers, and actually, we are very proud, as in the majority of all cases when our customers went through such a product life cycle with us, that we actually got the deal for the development and the manufacturing of the next generation product as well. This actually shows that we are not only firm in our place, where we do the design and the manufacturing of instruments and consumables, but the deep understanding of the automation aspects and automatability aspects of the tests running on those instruments is certainly a predicate for us and definitely helps us to maintain such a deep relationship with our customers. Breakdown.
So certainly, I would say literally there is no spot in the diagnostics industry and the adjacent life science industries where we cannot be in charge for the automation. However, if you would talk to our customers about our actually, our actual areas of expertise, certainly they would bring up some of those areas we have listed here. Certainly molecular is one of those areas, particularly point-of-care devices in the multiplexing space, but high-throughput analyzer system, this is where today, after COVID-19, where we see that a lot of the point-of-care analyzer systems are not actually showing the trends.
However, in the more centralized space, volume is coming back, the demand of the actual end customers is coming back, and in so far, we see higher placement rates already here, although we had a highly saturated market during and after COVID-19. On the immunoassay space, certainly, random access is the keyword, fitting into today's modern workflows, where not the majority or the bulk of the samples are coming in only during a three-hour window of the day, where continuously samples are loaded in the instrument, and the instrument spits out results, one after the other.
Certainly, all being integrated in what the industry calls track systems, so highly automated analyzer systems, where you do not load the samples on the instrument manually, but the instrument, the actual track systems in the laboratories are feeding the majority of our instruments today. Certainly, hematology and other routine testing, in our case, we certainly have a worldwide business in immunoassay, sorry, in hematology. Another very important point is actually specialties and focus areas. So here, certainly, immune hematology, hematology, immune hematology, and complex sample processing is definitely an area which is perceived by our customers as an expertise of STRATEC. So back in the day, certainly, complex sample processing was an easy one.
In the meantime, particularly for tissue handling and other areas like tissue handling, sample prep is actually 90% of the work in the laboratory and only 10% is the readout. That's why complex sample processing is perceived as one of the areas of STRATEC expertise. In this pie charts, you can see where actually the music plays for STRATEC at this point from a revenue and from an earnings perspective. Certainly immune diagnostics and molecular are those areas more and more important, certainly immune hematology being perceived as those areas where no innovation took place. However, the companies are showing solid growth rates, and they are all forced to bring next-generation instruments to the market. This is at this point a very interesting area for STRATEC.
Definitely, data management and services are becoming more important in the overall setup, in the cooperation with our customers. If we are discussing growth, we are typically discussing two areas of growth. One, is actually the innovation, brought to the table by our customers, where our next-generation instruments, have to be developed, as certain generations are aged or lifecycled, or new tests, are to be placed in an environment, and our customers are extending their business there.
Certainly, this is what we call the innovation angle, but certainly at this point, as the majority of all instruments hitting the market at this point are designed on the basis of technologies of our customers, often through our customers, and they continue to be in charge for manufacturing, certainly in an outsourcing setup, but they continue to own the design. That's why we see the second source of growth of STRATEC is this continuously growing trend of outsourcing, that often enough next generation instruments to be brought to the market by our customers can no longer be designed and manufactured in-house. This is definitely one of the areas of growth. The STRATEC is still an outsourcing solution provider, and certainly, 50% of the future growth of the company will come from outsourcing.
I already mentioned that strong recurring revenue base of STRATEC at this point, certainly driven by maintenance parts. In our industry, everything which gets in touch with biological material needs to be replaced from time to time. However, the growing proportion of consumable, where there is a one-to-end relation of the test performed and of the instrument and the plastic part which are running on the instrument, is becoming a more and more important role. On this slide, you can see some of the examples of more what we call classic consumables, but certainly the smart consumables, often microfluidic being concerned, and several process steps on those consumables taking place. And then certainly another aspect which is entirely underestimated in our industry is definitely serviceability, particularly for smaller instrument.
The cost of service are playing a material role, and whenever we can manage to push out service cycles in those instruments where the tasks of field service engineers can be handled by the user themselves, that's certainly an area where we can improve the total cost of ownership, which are seen as a material element of success by our customers in such a setup. We put the install base and the growth of the install base on that slide. Certainly as the challenges we have been facing in 2023, and certainly for a certain proportion of 2024, are actually related to the material growth of the install base and through a certain saturation which happened during COVID-19 in certain market segments, particularly in molecular.
During COVID, 4, 5, up to 10 times more instruments have been sold than typically annual run rates. This certainly, certainly during COVID-19, the utilization of this equipment was extremely high. As the number of tests came materially back after COVID-19, our customers have to grow in those shoes in order to utilize the equipment which has been sold during COVID-19. At this time, considering the leads of our customers, the inventory levels of our customers, and the utilization of the equipment, which we clearly see through spare and maintenance part sales per instrument, shows us that there will be a phase in 2024 where the instruments will still be utilized, and the market demand will not break through in sales by STRATEC.
However, mid this year, we are expecting that the sales will come back to a level as it has been before COVID-19. Again, installed base of Diatron, you, you see a similar development, although the Diatron business is offering small solutions and actually one of the COVID-19 affected instruments, a molecular instrument, is manufactured in our Diatron facility in Hungary. Again, breakdown, and we believe we can grow about 100 basis points over time per year in service parts and consumables. Certainly, and I would like to mention this at this point, we will never become a plain vanilla razor-razor blade business model.
However, we believe that over time, we can maintain that 50% sales of instrument, a growing proportion of service parts and consumable sales, and certainly the development and services will shrink slightly, certainly not from an effort perspective, but certainly from a percentage of sales perspective. This is a list of our customers. Those ones indicated in dark blue are actually our today's customer. It's a list of the top 20 players in this industry. I think this slide shows again our role in this industry as we can check 15 out of the 20 boxes here. It looks like for, from our perspective, as a high saturation.
However, there are customers of STRATEC within this slide where we do one out of 30 or one out of 40 programs, so there is still room enough to grow within our existing customer base. We put some of the innovation leaders in this industry. So actually, it's our goal to not only work with the leading companies, with the blue-chip companies in this space, but certainly with the innovation leaders as well, because this is actually driving technology, and this is actually driving the perception of STRATEC, as that we can handle the innovation leaders in this industry as well. I don't want to spend too much time on those slides with historical data.
I think the thing we wanna get across is that our business model with high allocation on a relatively low number of customers of revenues, is actually showing that from time to time, we have to take those hits, which is very much related to the market condition or very much related to actual, the phasing of projects. However, when we had such a dip, and there were always good reasons, we came out stronger. We have been in this spot where we are this year, and we will be in this spot again. I can guarantee you that, I can guarantee that to you, hopefully not within the next ten years. We have been here before. We will be here again. However, we came out stronger. Same thing applies, for net income. Same thing applies, for the actual margin.
Again, I think it's worth mentioning that as a dividend-paying company, we always increase the dividend over those past 19 years since we started paying dividends. Short course on our 9-month figures, we are back 10% on a planned level as compared to 2022 figures. We are about to catch up. Again, I mentioned that before, that the sales performance at this moment is mainly affected by the excess molecular diagnostic capacity, which have been built during the pandemic. We believe that the market demand will break through in the second half of the year, and certainly, the inventory levels of our customers and actually of the end customers, will return to a solid level.
End customers, actually, they have the shelf life issue, so here we almost have the guarantee that the demand is breaking through these days already. For instruments, it's a little bit more volatile, as mentioned. In all our areas of expertise, like in immunoassay or hematology, we haven't had that overcapacities. This only affects our molecular business. We are generating healthy growth and healthy cash flow. Sales guidance is sales to be expected slightly short of 2022 and, again, adjusted EBIT in the area of 10%-12%. We have confirmed that guidance only a couple of weeks ago, so I think this is beyond any doubt that we'll hit that point.
Focus for 2024 is certainly to make sure that we execute on our earnings improvement plan and to restore pre-pandemic efficiency levels. One of the core challenges of 2024 will definitely be managing working capital, particularly inventory levels, where we certainly have some obligations towards our suppliers and have a high level of inventory, which will make efficiency gains on the operational side in 2024 a real challenge. We are working on that. We are pushing our organization and our environment very hard. However, the majority of the efficiency gains from the operations from the operational side will not become effective in 2024. However, we have huge plans for 2024.
Then certainly, there were a variety of instruments which have been pushed on the back burner by our customers during COVID-19, and the interest by the end customers, the labs, the customers of our customers, is rising. We have a variety of instruments which were standing in the shadow during COVID-19 which are now picking up. We have a super nice launch pipeline and a super nice pipeline of instruments which have only recently been launched. And please bear with me, have that slide in mind, that during the first years, we have low sales until our customers can offer a comprehensive menu, until those instruments are sold worldwide and not only in certain territories.
And then the hockey stick kicks in, and we have these expectations for a number of instruments, like our digital PCR solution with one of the leaders, and certainly one of our flow cytometry solutions, and that the ramp-up phase is only kicking in these days. Then certainly a super nice lineup of deals in our development pipeline, some of them being contracted, some of them being in a pre-contractual stage. We want to execute on that and then certainly address and realize the opportunities from the local manufacturing demand.
Some of our customers have plans to establish manufacturing in China together with us, and actually, as a learning experience, during and right after the supply crisis, after COVID-19 and at the end of COVID-19, that certainly operations in the United States is becoming more and more important for the entire industry. Not only that the decision makers are here, certainly they are expecting us to have operations in the United States. And then certainly, obsolescence management is one of the core things. Some of the suppliers, like, in microelectronics, actually used the pandemic to clear their product portfolio, which is causing huge issues, issues in the industry.
That's why definitely, on the development side, obsolescence management and actually keeping our customers on board to play an important role in this, obsolescence management by means of financing and discussing next generation instrument, is one of the core tasks we see in 2024. This gets me to the end of the presentation, and I would like to hand over to Artem to kick off Q&A. Thank you.
Thank you very much, Marcus.
Yeah. Thanks, everyone.
As Marcus mentioned, we're happy to move to the Q&A. If you have any question, please raise your hand, and we'll give you a mic. Maybe we can just ask a few questions, not from the audience in the room. Marcus, first question is, your last year was obviously characterized by sharp decline in test volumes in molecular diagnostics market due to COVID, due to some capacities built up. But, could you give us an update on how its demand for MDx analyzers is currently developing? What are the current trends you observe in this market and in any other markets which are relevant, such as, I don't know, immunoassay, immunohematology?
Mm-hmm. Yeah, thanks, Artem, for bringing that up. It will take me a minute, so sorry for that. First of all, I typically forget at this point to mention that certainly we have to differentiate between molecular and everything else. Certainly during COVID-19, particularly our molecular franchise had super, super nice tailwinds, and a huge install base and huge capacities were built by our customers, certainly on the basis of high volume of COVID-19 tests. Everywhere else, like in immunoassay or immunohematology or in hematology, certainly it was volatile. So you probably remember phases where only planned surgeries took place and so on. This certainly led to volatilities in testing volumes in certain areas, but overall, it was a good and steady development, in some areas, even growth. So we have to differentiate between molecular and non-molecular.
It was certainly the goal to fill the capacities, which were built during COVID-19 by our customer, and a lot of our customer actually built many. Certainly, the high subsidy by the governments in placements of manufacturing capacities and of the actual payment of the actual instruments to be placed by the governments led to like a setup where our customers could bring tests to the market, where the volume of test was so high that there, there was actually no need to roll over, eventually, to roll over the cost for the infrastructure into the test. Which led our customer to a point where they said, "Okay, some tests which are only being used on a more esoteric level are now getting into more screening level." And our customer successfully managed that.
But actually, so we cannot talk about the molecular market in its entirety because some of our customer will actually report healthy developments, which is simply a derivative of the volume to be sold by our customer. However, in our case, as an infrastructure provider, we still have underutilized capacity. So if they manage to bring new tests out and utilize the existing equipment, they will certainly show some growth in their franchise selling molecular tests. However, for us, as the infrastructure was built during COVID-19, we are lacking sales of new instruments, and that's actually happening these days. However, instruments were heavily utilized, saw some extraordinary high wear and tear, so we cannot assume regular life cycles for those instruments which were used during COVID-19. We actually have to see some shortened life cycles.
At this point, we see slight pick-up in the demands of maintenance parts and service parts and consumables, which actually shows us that the end customer demand is going slightly up. We talk to our customers, and they are showing nice leads coming in, and that's why that makes us believe that we, in 2024, and I cannot say if this is gonna be June or April or August, but somehow mid this year, we are expecting that the demand from the end customer will not be satisfied by the instruments coming out of the warehouses from our customers, but will be breakthrough into strategic operations, and that our customers are getting to an acceptable inventory level, and that new instruments which will be placed will be filled up in the warehouses of our customers, instruments coming from us.
That's, actually our expectation in the molecular space. Certainly, again, exceptional situation. In one of our molecular instruments, we have a generation change, so obviously, we observe lower sales towards the end because the customers are cautious placing, previous generation instruments. And certainly, as soon as we are through that market launch phase, we are expecting, the customer to replace some of the instruments, in the customer's laboratory. So certainly, things which are overlapping on that degree are super tough to tackle.
Understood. Thank you very much, Marcus. Maybe, just checking, are there any questions in the room? Then maybe just one more question from me.
Please.
So you have launched a few new products and projects over the past few years, so maybe you can give us a quick update how they are ramping up. What's this you, like, expected growth and margin contribution from these projects?
Yeah. So certainly, it's tough for us, and we are definitely trying to avoid that, to talk about the programs on an individualized level. Certainly, as mentioned before, from an end customer perception, the instruments are seen as instruments coming from our customers, and it's actually one of the jobs of our customers to talk about expectations and to manage expectations in terms of sales. Because certainly us going into details like run rates could actually be reflected in sales of our customers. So that's why the majority of our customers being publicly traded companies, so we cannot disclose that information. However, it's certainly important to mention that over the past couple of years and these days, we have launched a variety of instruments.
No material, instrument in terms of sales directory is actually leaving STRATEC's fleet or STRATEC's install base or STRATEC's product portfolio. So those things which are hitting the market are actually coming on top. I mentioned some programs like dPCR. I mentioned some programs like in flow cytometry, where we are in a super early stage of the product life cycle. The same thing applies for our consumables business, where we clearly see this trend from a high number of early-stage companies, which are typically taking lower volumes, more towards we call it blue-chip business, where market leaders are coping with us in order to develop and manufacture consumables. Again, here, same thing applies, early stage.
Just to apply some mathematics, for early-stage instruments, if the fleet of instruments is low, certainly the number of consumables is low, but like, bear with me, like if you are selling, if you are doubling instrument volume in year two, you are actually tripling or quadrupling the actual demand of consumables, and we are in that phase. That makes us believe that the contribution to sales from consumables will grow steadily over time, and that certainly helps us to progress our margin as well.
Thank you. Thank you very much. Checking any other questions from the room? Then maybe next question is, Marcus, could you please elaborate a bit more about your smart consumables business, and like, what is driving demand for them? What are the most promising market segments and applications for this business?
Yeah, no, thank you. Actually, I would say the variety of applications in our smart consumables business is definitely wider than in our instrumentation business. So we don't insist on manufacturing or developing instruments if we are designing smart consumables, and the same actually applies vice versa. So that allows us to go into other applications as well. I think the clear differentiator here is that we can really take advantage of the applications which are coming up. I think here outsourcing is a crucial thing. I mentioned about, and that actually very much is a derivative of the relevant market segment in instruments. The degree of outsourcing is like between 30% and 70%. On an average, we assume about 60% being in-house. And again, are we talking list prices?
It's a little bit difficult to tackle the actual volume of outsourcing. However, in the smart consumable space, the degree of outsourcing is way, way, way lower, only at the beginning. The market-leading companies using smart consumables partly see the work on those smart consumables as part of their expertise. However, we believe that the same thing, like in any other industry for second-generation products, will kick in. The companies will actually see their actual value lying in maintaining the brand, maintaining the customer access, but not necessarily being in charge for the technological supply and for product lifecycle management and for the design, the actual design work on those smart consumables. And often, like from a 30,000-foot perspective, people believe that smart consumables are only to be applied in point-of-care setups.
In order to drive specificity and sensitivity on more central, in more centralized environments, smart consumables will play a material role in the future as well. As well as, if therapies and diagnostics gets closer together, smart consumable will play a very important role. We have actually not only nice product, but nice plans and a nice lineup of customers and projects as well.
Thank you. Maybe just a follow-up question based on what you just addressed. So you are mentioned a couple of times during today's presentation, during the Q&A, strong trend on outsourcing.
Yeah.
But how it impacts overall STRATEC business and maybe strategy and your portfolio plans?
Yeah. No, actually, certainly we have to see that, as the market and the market access is owned by our customers. Certainly, although we go through a phase where we are lining up the requirements of the market, the requirements, the requirements of a product and the specifications of a product, which are actually brought in by our customer, and the technology owned and offered by STRATEC in order to make it a common program, definitely our strategy relies, on innovation in an area which is not perceived from the outside as really innovation, but, let's say safety in the results is definitely one of the areas. Driving dynamic range, of readouts and so on.
Like I said before, driving specificity and sensitivity of the application, safety, workflows, this is actually the area where we see our role in this industry, and often enough, we are discussing things with our customers. If they come up with like specifications where we say, "Hey, is this really needed? Like, this is only required by probably 5% of your customer. Is it really worth it to make an instrument or a setup so expensive, or which will take us another year to get it to the market?" We have this fruitful discussion, and our customer really appreciate our role of that. We do not only have skills in the engineering task and in the scientific task, but really understanding the drivers in the market is definitely very much appreciated by our customer. That's actually part of our role as well.
Understood. Thank you very much. Just checking, do we have any further question from the audience? Otherwise, I think we conclude the presentation. Thank you very much again, Marcus, for the very interesting overview.
Artem, thanks very much, and thanks, thanks, everyone in the audience. Thank you. Have a good day.