Good morning, ladies and gentlemen. I'm Nikhil Gondalia, and I'm a member of the J.P. Morgan Investment Banking Healthcare team. This morning, we have Achim presenting, CEO of Tecan. Over to you.
Thank you very much, and good morning from my side, and yeah, thank you for your interest in this update on Tecan. Before I go into the presentation, as always, please acknowledge our safe harbor statement. You'll find the materials also downloadable on the J.P. Morgan website. Now, we continue to live through quite dynamic times, and we, as a company, are certainly seeing specific trends and macro environments that facilitate and fuel our growth trajectory. So when looking at maybe four examples, we see and continue to see investments in biological discoveries, and we've seen an explosion of biological knowledge addressing more specific disease types around the world.
Second part is we see increasingly growing in some areas, but also aging population, which means we see the demand and the pull of innovation into the healthcare system for scalable and affordable healthcare solutions that address the need for economy at scale, but also the deployment of technologies that are utilized in mitigating healthcare costs. The other factor that we see in our world is that we see the shortage of labor is playing increasingly into the needs of productivity and cost saving of laboratories that we are serving around the world. On the other side, we see massive investments in novel treatments and novel modalities to treat patients. We see that, of course, now from the history of small to large molecules, we see that now moving into areas like cell and gene therapy and modern and more innovative medical procedures.
Now, nevertheless, all these novel treatments and novel options need scale, and they need to reach patients economically and not just technically, otherwise, innovation falls short. And lastly, we see a kind of unprecedented rush of digital solutions and deployment, including tools like AI, also in our space, that is offering new approaches for prevention, diagnosis, treatments, and treatment monitoring over time. So in all, in all, we see very good investment and rising investment horizon, specifically in diagnostics and prevention. Now, Tecan comes in as a company that drives innovation to scale, and this is, you know, what we do throughout our company history. We firstly see innovation accelerate discovery with our solutions. So we see a lot what's coming down the pipeline of potentially interesting innovation solutions.
We then move these innovations into the preclinical space. So we help the adoption of solutions in the preclinical space into compliant solutions that can fit the FDA footprint, and then we deliver those clinical solutions at scale on a global basis, improving patient outcomes around the world on an economic sector. Now, we have a very strong track record of performance over the last 10 years. As you see on this slide, we have a long, substantial period of organic sales growth that is outpacing the overall average growth rate of the underlying end markets. We have made six bolt-on acquisitions, predominantly in the space of reagents and consumables, and we have made one transformative deal with the acquisition of Paramit in 2021, that now also gives us access to the medical devices market.
We have seen a very strong growth based on increased global demand for lab automation in key application areas, obviously also including the COVID rush to PCR testing and sequencing, but also since 2021, as I said, we are benefiting from growth in the medical devices area. Our profitability has grown slightly faster than the revenue profile, which allowed us and continues to allow us to reinvest into the company, both from an organic perspective, but also from an inorganic perspective going forward.
So when I look now at 2023, and we have published preliminary revenue results for 2023, and we will update on the rest of the financials in March of this year, we have seen quite substantial underlying sales growth in local currencies in our full year, and also very strong performance in the second half. Now, underlying means that we are extrapolating and normalizing for the exceptional effects of COVID-related revenues, as well as what we call pass-through revenues, where we are charging and invoicing elevated inflationary costs to our clients. And if you normalize them out, we arrived at 6.3% underlying growth. And looking at the divisions, both came in quite strongly, and the growth profile in Life Sciences around 4.9%, and the Partnering Business came in at around 7.4%.
In all, in local currencies, when you then include the comparative basis of COVID and pass-through revenues, we achieved minus 1.3%, and the second half 1.0% positive growth all in. Now, when I just quickly reiterate, Tecan, for those who don't know the company that well, we are, you know, as I said, and well-illustrated, driven and benefiting from certain macroeconomic trends that fuel our business model and our strategy. We are in business for more than four decades. We have been founded 42 years ago and have ever since been a leader in laboratory automation and robotic solutions, serving the life sciences, diagnostics, and pharma markets, and with the acquisition of Paramit, we then expanded also in the medical devices, or we specified as medical mechatronics market segment.
We are operating in two very highly synergistic business units, where we inherently implemented the opportunity to transition solutions from the non-regulated spaces into the regulated FDA-relevant spaces. And I will give you a little bit more detail later on. We are operating a quite intense and expansive global sales and service network, where we're constantly looking also at opportunities to increase our footprint in sales and service reach. And in 2024, we will be going direct, for example, in South Korea, which was one of the reasons that have shown more sustainable growth over the past periods, in addition to the regions where we are already direct. We are headquartered in Switzerland, where the predominant administrative functions are.
But with the acquisition of Paramit, by now we achieved a distribution of R&D and operational footprint that is representative of one-third in the U.S., one-third in Europe, and one-third in Asia, which we believe is a very good and solid basis for continued organic growth, but also offers us very good capabilities for additional inorganic acquisitions. Company size is around 3,500 employees, and we are listed at the Swiss Stock Exchange, fully floated. And yeah, this is just in a nutshell, what Tecan is. We are, like I said, operating in two business units, and maybe just a little bit of detail, you know, how you see us in the market. When I look at the life sciences business, this is where you find our products under the Tecan brand name.
We are a leader in laboratory automation, but also constantly enhance our footprint on reagents, consumables, software, and services. Life sciences makes up approximately 43% of our business profile, and we are serving the life sciences research markets through applications that are called genomics, proteomics, and cell and tissue applications in the space of research, drug discovery, and what I would call the pre-FDA or the CLIA LDT market segment, where we're scaling solutions with substantial lab service providers and specific reference test laboratories. So the end market split in life science is approximately 50% in life sciences and 50% in these lab service provider environments around CLIA LDT.
Now, by contrast, our partnering division is probably less visible to the outside world because this is where we're operating a Tecan Inside model, working with partners around the world on specific development of solutions, either through supply of distinct components that they use in their own R&D world, or we take over the entire design, development, and manufacturing of systems in the diagnostic space, but also in the medical space right now. This is approximately 57% of what we do, and like I said, pretty well differentiated with a range of solutions that are ranging from manufacturing to engineering. And typically, we are also embedding background IP in these solutions, which gives us a very good, if you want, profitability profile and the ability to grow margins on the partnering side as well.
We are represented in the partnering business around 50% in in vitro diagnostics, 20% in life science research and applied markets, and around one-third in the medical segment. Now, when you look at Tecan, we are obviously serving a variety of end markets and customers. So when you look at this slide, you see on the left-hand side that we are very engaged with clients from academia and clinical research, from biotech pharma, genetic testing and reference labs, as well as direct clinical clients. On the right-hand side, you see that we are mastering and catering to the core applications and growth applications that we call out as most substantial in potential for us to grow and differentiate also competitively.
They include genomic applications, protein analytics, as well as cell and tissue and analytical work, and now also medical applications in the medical mechatronics space. As we think about these kind of, if you want, progression of innovation from research to the clinic, I would just like to take a couple of recent examples in partnerships and new products that we've launched to illustrate that journey from early innovation all the way into the regulated IVD and medical market segments, and how we are differentiating also from maybe other companies in this space. Before I go into these examples, however, let me just quickly illustrate why it's so advantageous to operate these connected business units and what we're gaining from this.
So as we think about life sciences research market, this is, for the example of next-generation sequencing, the area where innovation started to happen. And we get typically called in when innovation needs scale. So our lab automation solutions deliver scale and, eliminate human error out of the equation and allow, research to prosper more rapidly. So this is a very important segment that is served through our life sciences business. And then what typically happens, and sequencing is a great example for this, if there is clinical value and the reimbursement potential demonstrated, then typically these workflow solutions are picked up by lab service providers or specific testing labs that industrially scale up these workflows.
So in the middle part, you see what we call lab-developed tests, and this is in the world of sequencing, where we moved from single instrument deployments and research into now industrial-scale automation of sequencing workflows using dozens of instruments and vast amount of consumables to cater to these kind of scale-up business models. What we also gain from this is that we see the potential of the migration into the clinic, because in this segment of the LDT CLIA market we engaged in, we see clinical validity and reimbursement potential being proven. And then it's very-...
common that we then approach and get approached on the in vitro diagnostic side to develop with a partnership model through our partnering division, systems that are then sample-to-answer. They are closed systems, and they are branded and commercialized under brand names of our OEM partners. Now, again, just going back to this layout of illustrations, so connecting the genomics application space with diagnostic applications in the reference testing environment, we have commercialized now for quite some time a solution that we call Fluent GX, which is a bespoke program and system offering a unique capability of ease of use and industrialization of workflows, including sequencing in this case. And this for sequencing applications is used for extraction of nucleic acids, but also the preparation of libraries for RNA and DNA sequencing.
Like I said, you probably need to consider a hall with dozens of these instruments running 24/7, doing these reference test services around non-invasive prenatal testing, hereditary cancer tests, genetic profiling of tumors, cell-free DNA testing, and so on. So it's a quite important segment for us being able to serve these platforms, and very important to recognize these are Class 1 medical devices that we commercialize as open systems. So our clients can modify them as these applications tend to then sometimes also evolve in the hands of these testing labs.
Now, flipping to what I said earlier, the regulated market environment, we're very happy to say that we were very successful to use that experience of these reference labs and the clear markets to now also attract quite a wide range of partners on the in vitro diagnostic side, where we have developed and already started commercialization and ramp up of a bespoke sample-to-answer IVD next-generation sequencing system. Again, just as one example of an application workflow, and this is, you know, what we've done in partnership with one of the leading in vitro diagnostic companies. Unfortunately, I cannot name the name due to confidentiality reasons, but it's one of the leading in vitro diagnostic companies.
They're using this in combination with their software and reagent capabilities to address markets in oncology, for example, where they're looking and deploying this for liquid biopsy and solid tumor sequencing approaches, for you know, detection of primary tumors, but also the monitoring of response of treatments over time through response treatment monitoring. Now, maybe just shifting gears to another application area or sample preparation area that is in very high demand and growing very rapidly. And this is, you know, touching, as you can see, the what we would call the multi-omics world. So this is not limited to genomics, proteomics, and cell and tissue work.
It spans the entire world from research all the way now already into the clinical space, from service providers into the IVD space, and it's very appealing to technically all the customers we're serving. The example I'm talking about is called Phase Separator, a technology that accelerates and makes liquid biopsy a lot more productive and accessible to a wide range of applications. So this is where we are dealing with whole blood samples and separating plasma from cells to facilitate downstream analytical processes. Around utilization cases are oncology, neurology, and metabolic disorders, and clearly, the downstream applications and workflows that we're facilitating with this Phase Separator liquid biopsy approach are in these spaces of genomic applications, including sequencing, but also PCR, mass spectrometry, and single-cell analytical processes.
So it's just one of these examples where we have created a kind of AI-driven software tool that we use on our platforms to basically facilitate the wide adoption and continuous, you know, increase in productivity, efficiency, and accuracy for this growing application space. Now, going into, you know, in, another field of engagement is also that we are, of course, looking at genomics as one of our most, if you want, exciting spaces of expansion and growth, and there we are constantly also looking out for new modalities and new innovation, you know, workflows that are coming into this space. And again, when you connect now genomics with early research and customers from research all the way into reference testing labs, we're very proud of the partnership that we signed with Oxford Nanopore.
Again, just one of, you know, many partnerships that we have, but a very important one that now opens up, you know, the world of long-read sequencing in a fully integrated system that we are developing for Oxford Nanopore using, and I think it's called in the Oxford Nanopore world, the Turbid system, that is leveraging the MinION system as a kind of initial sequencing platform, but it's open to also host other and more advanced sequencing systems as we evolve with this platform towards also clinical applications. Now, maybe shifting gears a little bit to other application areas, and again, this is just meant to give you a kind of a feel and a flavor on our kind of breadth of engagement.
And this is now connecting, as you can see, proteomics with in vitro diagnostics in the clinical setting, and this is an example that I've chosen from the blood cancer diagnostic world. Again, the partnership through our OEM programs with The Binding Site, a company that is now also part of the Thermo Fisher environment, where we created for The Binding Site the first MALDI system for blood-based cancer diagnostics, with the big advantage of the system compared to previous methods that is ultimately significantly more sensitive and offers clinicians earlier options to detect and treat multiple myeloma or generally monoclonal gammopathies and diseases in this space.
So again, just one of the examples where, as you can see in these pictures, we are technically using, in most of these examples, very common platforms and technologies to realize these workflows. Now, lastly, just a comment and to round it up, I don't want to go into too many specific details, but just kind of illustrating our engagement level in the medical devices space. With the acquisition of Paramit, we now very actively moved into this segment, which is, you know, from an addressable market as big as life science and diagnostic combined in our reading.
This is where we are leveraging similar expertise and capabilities compared to what I explained before, in engaging in development and manufacturing of complex medical products with a high robotic and/or custom electronic components. You find us, you know, for example, in leading robotic surgery solutions, in patient monitoring solutions, in cardiovascular controllers, home hemodialysis systems, and telemedicine devices. So again, a very wide range of technologies and applications that we're supporting through our capabilities, specifically, in Morgan Hill and Penang, Malaysia. Now, maybe just trying to kind of summarize and wrap up what I said so far. So as I've tried to illustrate, we are engaged in many disease area types like oncology, metabolic disorders, reproductive health, hereditary disorders.
Infectious, of course, was one of the key kind of areas, we engaged in, in COVID and before COVID and after COVID, but also cardiovascular. We're doing this by focusing our workflow solutions on the underlying applications that I also tried to illustrate, that are represented by genomics, proteomic applications, cell and tissue work, and the anti-medical applications. Now, you could now say, well, is there not a very complex environment? So how do we avoid getting, you know, too complex and maybe kind of wound up in portfolios that are not eating up kind of all our life science lifecycle management budgets? So one of the things that we focused on for quite some while, which I also believe is one of the strongest competitive differentiations of Tecan, is software.
So what we've done, we have created a software architecture that allows us to cater to all the application areas that I mentioned before, with technically any type of hardware configuration that we want to deploy in this space. So this software is so modular that it can work with very high industrial scale workflow hardware solutions, but can also go down to near patient and very small benchtop solutions. And as you know, you know, there's a lot of momentum right now, not just scaling these kind of testing modalities in central labs, but also increasingly moving nearer to patients, particularly as some of these digital solutions come to fruition and allow more integrated work on the medical data side.
But this modularity aspect on hardware and software gives us the opportunity to use a common R&D and operational footprint in many different application areas, covering both the life sciences and the partnering world. Now, lastly, you know, I mentioned quite a few times how important our digital footprint is and our digital capabilities. So we are kind of focusing our digital efforts on one side, on software architecture, as I explained it, and driving modularity and making sure that we can very rapidly develop, very cost efficiently and very confidently, solutions that can cater not just to the research, but also to the regulated IVD markets. And we focus our software solutions, and we commercialize quite a few products in the area of service and fleet management so far.
I'm very happy to also announce today that we are also now engaging very actively with an entire new suite of software solutions around lab orchestration. So this is the area where we're offering now software solutions to boost personnel and equipment effectiveness by orchestrating the entire lab workflow from set of experiment, including also hardware and configurations in these labs that are not necessarily coming from Tecan. So this is a creation of an open ecosystem that will allow us to be the front and center of application method development, for example, for research and pharma labs, as we go through the journey of increased desire of increasing efficiency of lab personnel, and also deploying methods into personnel that is not necessarily highly trained.
This means, you know, I think for us, a very exciting addition to our software suite and something you can expect we continue to build out over time as we go. Now, lastly, I would just like to conclude, you know, with the, you know, statement that we are looking at sustainability as an integral part of our strategy and our, you know, way we operate the company. I'm very proud to just, you know, point you to some of the achievements. Recently, you get a lot more flavor of what we do from our annually published sustainability report. But just to highlight that we've just been validated with our submission on the Science Based Targets initiative, very important milestone for us to now continue to reduce our carbon footprint.
On the social side, very proud that we recertified as a great place to work in many global locations. Again, our kind of effort to become the employer of choice in our industry. And then on governance, this is, you know, as you can expect, as a kind of, you know, a professional, globally scaled company, we're focusing you know, inherently on many processes that we want to improve and scale up, particularly as we're now increasing our global footprint into Asia, as well. Now, as a summary, you know, I just hope I could transport the message that we, as a company, have a very long, successful history in scaling healthcare innovation in many application areas. We have exposure to very attractive end markets in life sciences, in the diagnostics, and in the medical field.
And I can also say, looking back at 2023, being exposed and a key player in this kind of wider array of market segments has been a source of quite good resilience in times where maybe some sub-markets are less predictable than in previous periods. So this is something we believe we can benefit also going forward. We're offering a full spectrum of solutions, from accelerating the discovery of novel medications all the way to personalized diagnosis methods and treatment. Ultimately, also offering entirely new options for prevention and early detection of diseases, as I tried to illustrate in the blood case example.
So going forward, you know, you can expect both business divisions being very busy with the launch of new products and new partnerships, and of course, that is the fuel that we have inherently to drive innovation and new products at scale. We continue to focus in our life sciences world on genomics, proteomics, and cell applications, and also continue to build out the recurring revenue profile of our business. In life sciences today, just for your benchmarking, we are approximately at 50% recurring revenues and 50% is CapEx-related instruments. We like our razors, but we also constantly add new blades, as we see these business models scale quite well in the applications that we're focusing on.
Lastly, in life sciences, focusing on the state-of-the-art digital ecosystem, as I tried to explain. On the partnering side, it's all around product launches and new partnerships. Yeah, building out also now the medical franchise, where we put a lot of time and effort into building out a differentiated sales and operational team that is going specifically into these medical accounts that came with the Paramit acquisition, but we identified as very important as future growth drivers. Lastly, you know... Yeah, it's all about, you know, future and where we see the markets going, and we see where we see Tecan growing.
and therefore, I would like to, again, go back to the track record that we demonstrated over the last 10 years and our conviction that with what we do and how we're engaging in these quite, you know, well-funded, exciting market segments, that we will be able to continue to outgrow the underlying market segments and deliver a mid- to high single-digit percent revenue growth over the midterm. And while we grow top line and we acquire top-line leverage, we are convinced that we can also improve the bottom line performance over time, with an average annual increase of the Adjusted EBITDA margin at around 30-50 basis points. So that's, of course, not kind of year by year, but this is what we're aiming at, kind of, and then have delivered historically over time.
So with this, I thank you very much for your attention, and if there's any more information or discussions you would like to have, here's the contact of our investor relations colleague, Martin Brändle. With this, yeah, happy to take any questions that you may have.
Perhaps one from me in that case. So you mentioned COVID revenues and kind of normalization over time.
Mm-hmm.
What, what are you planning for 2024?
Yeah, it is probably safe to assume that the COVID normalization is behind us. So that's why we call it still out in the 2023 results, because it was substantial in 2022 with the profile that I mentioned, but also the normalization of supply. So that's out, so COVID is technically out of the system. And also from an inflationary perspective, these pass-through revenues were revenues that we could charge specific sub-segments of our clients, invoicing them for the elevated material costs, as an indication that demand was very solid. On the other side, inflation was hitting us, particularly on the electronics and electronic sub-component side. But we've seen that greatly normalizing, which is why these what we call pass-through revenue part in 2023 already came down significant, and it was probably lower than what we expected.
These kind of areas, you know, are quite, I would say, back to normal or more normalized.
Thank you.
I have a question. So as you mentioned, there's a impacted by inflation, with increased cost of goods sold-
Mm-hmm
... and also probably we see that in the current macro situation, there might be a reduced in demand. So would you be considering offering some more economical solutions to your customers, to your clients?
I mean, well, one of our, I think, strength is that we do offer quite different levels of complexity and choices. So we offer kind of high-end configurations for automation, but you can also take that as a kind of modular system in a more stripped-down version, and then grow over time as you maybe your budgets increase on that very same platform. That's one of the advantages of modularity, that particularly in the research and pharma and in lab service provider field, you don't need to commit to the ultimate configuration. You can say, "I'll start with that part, and then I continue over time." But the benefit is you have already adopted the methods, your operators are familiar with the solution.
Like I said, we are already offering, particularly in the clinical space, very economic, also more near-patient solutions based on these kind of modular footprint that we have. But what you say is of course, very important and, you know, customers want to have a choice. But in probably in our world, particularly when I think about the regulated, kind of the in vitro diagnostic and medical fields, what we are seeing is a much kind of higher focus on quality, robustness, and cost of ownership than on the initial purchase price. Because most of our clients obviously run reagent rental models in the in vitro diagnostic world, so for them, uptime is everything that counts. We are very, very rarely debating kind of the specific discounts on systems.
It's mostly around what I said, can we offer software solutions that keep the lab in work 24/7? And this is what we learned in the COVID period, where, of course, this stress was super high and productivity was everything that mattered. So I think, yes, absolutely, but we can also offer now also different business models where we not necessarily sell everything on CapEx, but we can also... Because we have content, we have reagents, we have consumables, for selected accounts, we can offer also other options to maybe place instruments but then leverage reagent rental models in select areas. Okay.
I think that's all. So thank you very much.
Okay, thank you very much.