Stratec SE (SBS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the STRATEC conference call regarding today's announcement of the H1 2020 financial results conference call. [Operator Instructions] And I would now like to turn the conference over to Marcus Wolfinger, CEO of STRATEC. Please go ahead, sir.

Yes. Good morning in the United States and good afternoon in Europe and the U.K. Ladies and gentlemen, welcome to our H1 conference call. Before we start, I would like to mention some housekeeping stuff. I think it makes no sense to walk you through the safe harbor statement. I just want to mention that you can download this presentation either from the web client you're probably sitting in front of or from our homepage later on. It is quite common, the structure of this presentation will be split into 5 major segments. I would like to get you an overview of what actually happened in H1, then some financial details. Then, I would like to get you an outlook, particularly for the next, let's say, 2 quarters, but actually, we would like to look into 2021 as well, followed by the Q&A session. And certainly, at the end of the presentation, you will find some supplementary data. So sales is up by about 10% year-over-year to about EUR 120 million, which represents roughly 9% in constant currency. I think it's worth mentioning and we'll probably stress that a couple of times in the course of this presentation that we saw a huge shift particularly comparing H1 2019 to H1 2020 between actual analyzer system sales, including consumables and maintenance and service parts sales versus the development-heavy H1 of 2019. That's why analyzed systems actually up by north of 30%. Same thing, which is mainly related to the very positive development as far as product mix is concerned, and again, it's not only the product mix within the analyzer systems and consumable-heavy activities. It's a matter of fact, and I mentioned that a couple of times in the past that the revenues -- recognized revenues for development typically come along with a lower bottom line margin. And that's why that shift in the product mix more towards products and consumables and analyzer systems generated nice development as far as our EBIT and EBIT margin is concerned. That's where we are up in the EBIT margin by about 360 basis points to an H1 EBIT margin of 15.4% after 12.8% in H1 2019. Again, I think it's worth mentioning that we have been very, very early in the game, in the implementation of measures to counteract supply chain risks and to secure the health of our employees, which is definitely a priority. Actually, within the past 3 and 2 weeks, we actually have, again, increased the measures like a higher ratio of people who are now -- who actually have been sent out in the home office, returned back in July, but now have been sent out again, more shift work in manufacturing and so on and so forth, all those successful measures we undertook in March, April and May, and parts of those measures have been reimplemented now these days. Actually, we found -- we achieved very important milestones as far as development is concerned. I think it's obvious and probably most companies will report that, but particularly those activities which require hands-on activities, in our case, it's testing of devices or releasing of devices between us and our customers, like checking the fulfillment of shipment or performance criteria of prototypes of validation units, certainly has been postponed during the lockdown. That's why we saw actually slower-than-expected development here. However, I think we are on a good track, partly already catching up. I think if we are looking into the rear-view mirror in a couple of quarters from now, we will probably see some 3 to 4 months delays in the product launches, which has been caused by COVID. But I think we are really in a good shape to tackle that and to limit this minor damage to delays of 3 to 4 months caused by the lockdown. We have actually executed some agreements in the meantime in different stages, and we have further very promising late-stage negotiations ongoing. And again, I think it's worth mentioning that this is actually things which will contribute to the growth of the company in 5, 6 and 7 years. Those elements which will contribute to the growth of the company in 2021, 2022, 2023 are already contracted for years now. Number of employees actually acceleration faster than expected. If you are following what I said at the end of 2019, at the beginning of '20, that we probably said we want to be a bit more careful as far as employee growth is concerned by means of that after the years of way north of 10% growth in headcount, we thought that we could limit the growth in headcount to about 3% to 7%, depending on how many contracts -- new contracts we get in and actually their order of magnitude. But I think it's -- again, it's worth mentioning that part of that growth is actually related to the hiring activities and to temporaries, which have been hired during the COVID crisis. And actually, a part of that growth is actually related to our earnings enhancement program with deepening the manufacturing depth. In Hungary, we have hired north of 100 people. And again, that's just to increase the contribution of subassemblies manufactured in our own factories in order to have a continuous growth in our gross margin. And that was actually very helpful in this situation as well because I think this was a nice contributor that we actually managed the risks in the supply chain by having a certain growing depth in our manufacturing depths. Now getting to the financial review. As mentioned before, sales up by about 10% in H1. On a quarterly basis, it's actually 1.3%. I think it's worth mentioning that end of last year, beginning of this year, we actually planned for negative growth in quarter 2, which is mainly related to the really, really development-heavy Q2 in 2019. But again, I'll stress that in the course of this presentation later on. Adjusted EBITDA, growing by 35%. Adjusted EBITDA margin, up by 370 basis points to slightly south of 20%. Then, the adjusted EBIT, again, up 43%. I think this clearly shows the actual activities as far as development is concerned and the amortization in this regard. The difference between EBIT and EBITDA is mainly related to that. Then, we have same thing like in the EBITDA margin, the adjusted EBIT margin, up by 360 basis points to an EBIT margin of 15.4%. I think, again, it's worth mentioning that this compares to 12 -- an 11.8% EBIT margin in H1 2019. We actually do have 2 effects here. The first effect is that certainly economies of scale in a planned manner. You probably remember the discussions we had in '18 when we were prepared for growth, but unfortunately, couldn't grow the top line to the extent possible that we had shrinking EBIT margins derived from the fact that we had to invest and had to bring this organization into conditions to adopt that growth. I think with the economies of scale we are showing in the first and second quarter here, I think this is the proof that this company has the potential to get back into old EBITDA and EBIT margin strengths we had like in 2017 or earlier. Typically, we have a fairly back-end loaded EBIT margin strengths. We can expect the same thing to happen. Allow me to dive into details when we talk about our guidance. But already, at this point, actually, we see some -- the same effects in H2 like we have commonly, like an EBIT margin-heavy second half of the year. But again, I'll touch base on that in the course of the discussions regarding the amendments to our guidance. Then, all other margin factors actually up like net income, up by 50%. EPS, up by 50%. And then very much as a derivative, EPS, up by 110%, which is related to mainly the low tax rate because the acceleration we saw in -- slightly, already, in Q1, but mainly in Q2 of 2020 is actually related to the manufacturing of instruments, which are mainly manufactured in countries with lower-than-average tax rates. Now discussing the sales, and I think you can see that after that weak year 2018, we are fully back on track. We had very strong growth, and already mentioned, 30% with analyzer systems, north of 20%, with service parts and consumables. We clearly saw huge demand, and I think in this case, it makes sense to break down where the revenue streams are actually coming from. We definitely saw huge additional demands in 2 of our product lines mainly molecular diagnostic systems for -- in the COVID sense mainly for genetic testing. And then certainly, as far as our immunoassays in here mainly chemiluminescence immunoassays or for antibody screen, antibody testings, are actually seeing huge additional demands. We have a nice growth in our hematological business lines. And actually, even within our smallest product lines like clinical chemistry, we saw a nice development and growth here. The only thing, which is actually running flat or slightly negative is immune hematology. But the same thing, as we discussed it already in our Q1 call, the very same thing actually materialized in Q2. Certainly, and I think it's again worth mentioning and you already saw that certainly, that we have significantly lower amount of development revenues due to this extraordinary strong previous or prior year comparison basis where we had a huge milestone for a product launch in H1. And I would again like to take this opportunity to complain about IFRS 15. I think for a company of our size and our shape and our business model, particularly with very long-lasting development activities over several years, very development-heavy companies, we definitely see a huge decoupling between actually -- the actual development activities in the company and recognized revenues. I think, again, worth mentioning that within this first 6 months of 2020, we had an increase of about 12% for contracted development hours, which is the vast majority of all development activities and a growth of 8% in noncontracted development hours. However, the recognized revenues in H1 compared to H1 is significantly lower, which again proves this theory of decoupling very much related to international financial reporting standards Paragraph 15. Sales by operating divisions, and I think I already mentioned that. Analyzer systems, up by 30%. Spare parts and mainly consumables, up by about 20%. And again, I think it's worth mentioning that you probably hear that from companies in the peer as well that about 30% to 40% of, just picking out one example, of all COVID-19 genetic testing runs over STRATEC instruments using consumables from some of our peers, which I think brings a nice business to us and them. And I think actually, those companies contributing to actually kind of keep this pandemic controlled are playing an important role, and that's why we are fairly proud about our contribution and the contribution we bring towards our customers in order to defend the pandemic. The only of "negative" development we saw in H1 was actually the development and services, which are actually halved. For the remainder of the year, we do not expect that situation, and we think we can slightly catch up. However, on a full year's basis, you will definitely not achieve the level we showed on a full year's basis in 2019. Now breaking down the operating division as a percentage of sales. I think we are showing more a regular situation in H1 '20 as compared to H1 '19 with north of 50% analyzer sales. Nice development as far as our spare parts and consumables are concerned and about which has been the ratio in the past, like between 10% and 50%, not the 22% we showed in H1 '19 and probably could assume the same development in the future as well with more like on an average basis over the next quarters. Same thing applies for the adjusted EBIT and adjusted EBIT margin development. In H1, EBIT, up by 43% to EUR 18 million. Adjusted EBIT margin, 15.4%, as mentioned before. The margin expansion had mainly those already mentioned, contributors mainly economies of scale and positive scaling effects coming from the product mix, certainly our earnings initiated in 2018. Our positive contributors, negative contributors are actually stock appreciation rights, pardon me, with, from my perspective, unexpected high negative margin effect of about 200 basis points. Now by operating divisions -- sorry, now in the segment performance, nice development again in the sales of instruments, with 80% -- with 3% growth, instruments segment, coming from about EUR 82 million now to EUR 84.5 million. Then, certainly Diatron, up by 35% coming from EUR 20 million now EUR 28 million. And again, I think it's worth mentioning that this is related to that small instruments, which would typically be instrumentation products from an OEM perspective are reported under Diatron, but nice development in Diatron as well with new product launches, very nice development as far as consumables and reagents are concerned. So an overall, a very satisfying approach here. Smart consumable with a very back-end loaded year. In 2020, we are actually very positive that on an isolated basis, this segment will be breakeven by the end of the year, will actually be in line with the plannings. Instrumentation-wise, again, this is where, last year, we had those extraordinary high development activities and recognized revenues. That explains why this is a growth of 3%. This will certainly go further north in the course of the remainder of the year and certainly, the stock appreciation rights are attributable in the segment as well. On the Diatron end, very strong growth with molecular and veterinary diagnostics products and certainly scale effects in the very, very strong product mix. Cash flow. I think you've probably learned this from other companies. Although all parameters are showing in the right direction, cash flows are not developing as expected, which is mainly related to delayed payments. However, if we are comparing the situation to the end of Q1 and the end of Q1, we see very positive trends and particularly, if we see very high, like accounts receivable at the end of Q2, we certainly saw a nice relief already in the course of Q3. That's why we are very positive to -- although the trends are very positive, we expect to see further positive trends at the end of Q3 and towards the end of the year. Giving an outlook. Financial guidance is already discussed. We have amended our top line guidance coming at the beginning of the year from high single digit. Then, after Q1, low double-digit growth, now to more that we said that we want to increase by 14% to 18% fairly wide bandwidth. I think it is, again, worth mentioning that certainly, we assessed each and every potential risk scenario and that's why we put it that right. We are actually fairly positive that we will see the company in this corridor with positive developments in the -- during the remainder of this year. And as already mentioned, we are now looking into forecasts and orders, which are extended into H1 of 2021, where we see an unbroken demand, which makes us very positive for the remainder of this year and for the beginning of next year with a growing degree of transparency. However, we had to put certain risk scenarios into consideration. Same thing applies for the adjusted EBIT and EBIT margin after a forecasted margin of around 15% and a very positive development in the first 6 months and unbroken trends. Still, increasing economies of scale. We are very positive to see an adjusted EBIT margin of around 15.5% to 16.5% compared to 2019 with 13.7% with, again, typically back-end loaded EBIT margin and EBIT development, like what we typically see. Again, very positive scaling effects and certainly, even better product mixes. And again, I think it is important to understand that if we are saying product mix, it doesn't necessarily mean the mix between analyzer systems and consumables. This perspective actually includes the consideration of that recognized revenues are coming along with lower margins than nice margins on the analyzer systems and even higher margins on our consumables and maintenance parts. For the remainder of the year and for the beginning of 2021, we still see high investments in tangible and intangible assets of around 10% and 12% -- 10% to 12%, which is mainly related to our construction activities, which will be concluded by the end of the year. And so we see that the investment ratio compared to revenues will nicely decline from then on with considerable activities from 2021 onwards. The focus for the remainder of the year and certainly for the first 6 months of 2021, but actually already looking into full year 2021, we certainly want to continue to manage the challenges arising from the COVID-19 pandemic. Again, first priority, the health of our employees. Then, certainly, to deliver the orders. And again, I think we discussed it already in the course of our H1 call is that order income from that perspective is not that relevant because this is actually an interactive process that if our customers are seeing higher demands, then we certainly check our manufacturing capacities and check with our suppliers about incoming goods and then report that back to our customers, and they only order what they actually get. It helps us and them to track actually the orders way better than if they would just throw their demands on our table, and we deliver what we can. It's about managing expectations, actually. So we still see that the extra orders for the COVID-19-related business will actually drive the second half of the year and then certainly we want to mitigate and manage any supply chain risks. Like after a few uncertainties, as far as supply chain was concerned in the like in -- mainly in March and April, the situation improved here and there. But again, it is important to understand that we still have huge issues. And you know how difficult it is if you have a bill of material, which is as complex of a car that if only 2 or 3 parts are missing, supply chain is in trouble, and we still have that situation that we have uncertainties in the supply chain, particularly if products have their routes in Asia or the United States. Again, we became better. We started to refill the supply chain, which has been bought empty. However, we have to live with the fact that we continue to have uncertainties, which is mainly caused by the extra demand coming from COVID and not by the demand we actually planned as far as instrument manufacturing and consumables manufacturing was concerned at the beginning of the year. So pre-pandemic, this is not a part of the supply chain, which is complicated to be managed. I'm really talking about those extra demands. Then, again, certainly, it is important to understand that the EBIT contribution of our smart consumables segment is important for us, and it's on our radar screen. We have a couple of products, which will drive that business and bring that business forward in 2021, 2022. Even if the EBIT contribution and sales contribution of that segment is minor at this point, it is important to understand that this is a very strategical segment for STRATEC, long-lasting development activities. Things are on track as far as those development activities are concerned. So there is no doubt that this is going to be a very important segment for STRATEC in the future like from 2020 to 2021 -- 2020 to 2021 on. Then certainly, we want to drive working capital efficiencies and improve our cash flow dynamics. We already discussed that in the cash flow segment. Then, as always, things are coming together, if you don't expect them and vice versa. So we have a nice lineup of executed or almost executed new development agreements, which means we have to squeeze those activities through the company with a huge additional demand as far as development activities are concerned. And we have to line up and again to manage expectations. Then certainly, the achievement of development targets is not just important in order to bring the product to the market, but to get those developers and other resources released from existing development project in order to bring them into new development projects, in order to grow or to continue to stay on that growth track after 2024, 2025. Certainly, we bring forward our efficiency gains. The majority of the earnings improvement has already been implemented and again increasing manufacturing depth. As far as our subassembly business is concerned, we discussed it already when I mentioned the headcount growth, particularly in Hungary, where the majority of those activities are actually covered. And certainly, our ERP system implementation, which went live January 1, 2019, we're in the initial phase. It's certainly the focus to keep the system running. But I think in the meantime, we are heavily working on the potential efficiency gains coming from the implementation of the state-of-the-art ERP and development system. This gets me to the end of the presentation. I would like to hand back to Emma. She'll explain us how to commence the Q&A.

[Operator Instructions] First question comes from the line of Igor Kim with Bankhaus Lampe.

Congratulations with the good results. I've got a couple of questions. The first one is on your guidance regarding EBIT margin, the new range of 15.5% with the lower end. Isn't it a little too conservative, given that in the first half of the year, you already made 15% in terms of EBIT margin? And as you said, the business is back-end loaded and on top of that, smart consumables should pick up in the second half of the year. Or is there something what I should consider that make you put this lower end of the 15.5% for the full year margin? That's the first question. And the second question. I think previously, you said that you expect fairly strong third quarter driven by coronavirus tests and then rather normalization in the fourth quarter. So how is your expectation regarding the dynamic between the third and the fourth quarter? Should both of them equally strong and then normalization should come first in early next year? So if you could give a bit of a color, it would be helpful.

Yes, you got -- thanks very much for those 2 questions. Actually, both are -- actually, even for me, extremely interesting to answer those. First, talking about EBIT margin. No, I wouldn't say that there are any specific adverse effects we would have to flag here. I think 2020 is probably just not a normal year. And it's probably fair to say that COVID-19 has some -- at least to some extent already distorted the normal seasonality by means that our H1 was already quite strong and stronger than usual. I really do not want to use the term not conservative or conservative in regard to our guidance. I think it's already a balanced approach in an environment where we have a very dynamic development and still considerable uncertainties. And we want to make sure that we cover this still exist uncertainties and that we discount them adequately with the lower end of our guidance. Certainly, and again, I already mentioned that we are -- that we're trying to incorporate certain risk scenarios. So again, I think it is too early to say is this too conservative or is it conservative. I think this is a discussion, which has to be dealt with, I think, after Q3 when we really see how the coronavirus development in Europe and the United States could be handled and what we definitely see. Regarding your second question, yes, actually, I thought that we would see more a normalization after Q3 than in Q4, particularly as far as our molecular instruments are concerned, and then probably partly positively offset by analyzer systems which are more like on a chemiluminescence immunoassay basis like for antibody screening. To the contrary, we see still growing demands for some of our product lines. If you are looking into forecast in orders for Q4 and for Q1 and Q2 of 2021, we still see unbroken or even further accelerating demands for our molecular analyzers. On top, when we said that we expect actually, as far as our immunoassay business is concerned, only substitutional business because our customers are utilizing their already huge installed base. We actually see here a positive trend as well, partly in our spare parts and maintenance parts business, which is reflecting high utilization of analyzer systems in the market, but certainly that our customers and the end customers are preparing to increase capacities here as well. So in overall, like even if it's fair to say in a pandemic situation, a nice development as far as revenues and demands are concerned, however, we are trying together with our customers to address those needs. And obviously, our customers and their lab customers see unbroken demands, already leading us into at least the first half of the year 2021. That was a fairly comprehensive answer, sorry for that, but very interesting questions. Thanks.

The next question comes from the line of Jan Koch with Deutsche Bank.

I have 2, please. Firstly, regarding your service parts. If the utilization of one of your large molecular systems increases by 100%, let's say, from 35% to 70%, what would that mean for your service parts? Would the sales increase of 50% be a fair assumption? And secondly, Hologic mentioned recently that you have doubled your production capacity of the Panther instrument. How long do you expect to need the additional capacity? Any color on your expectation for 2021 would be great.

Yes. Jan, thanks very much for the question. Discussing spare parts is -- service parts and maintenance and consumables is a very difficult thing. Particularly as for the sake of making life easy, we typically are compiling isolated data from 3 smaller segments into what we call service parts consisting out of spares and then maintenance parts and lastly actual consumables. Consumables, in our case, being mainly plastic parts with a [ 1 to end ] ratio to the test performed on the instrument. It's difficult to discuss this because certainly, we have to see that our customers already have stock and in the first instance, typically take advantage of the stock they have and are then trying to refill. Certainly, it is way too early, and we definitely have higher order income for service parts mainly maintenance parts, but consumables as well, as we have with instruments is and we have with any other segment in the group. So this may actually lead to further acceleration. At the end, it comes down to availability and probably, you saw that some of our peers reported already shortage. If you're looking into the plastic-providing companies, they are already like on a 24/7 basis. So this will actually -- this has the potential to become a bottleneck in the next 12 months. On the other side, I think you brought that up, trying to find sensitivity of spares and consumables and maintenance parts as a percentage of sales. So I think in -- I probably 3 or 4 years back, we provided sensitivity analysis to show the correlation here. And the outcome was that for every 100 basis points we see in growth of our service parts business, we see about a positive EBIT margin contribution of about 80 basis points. We shouldn't actually take this into the future, particularly after the acquisition of Diatron back in 2016, where the actual contribution of maintenance parts, service parts and actually reagents is higher as a percentage of sales but lower in the margin of the products. We certainly see some dilution here, but I think I can positively confirm that there is a high sensitivity of utilization then, as a derivative of that, higher contribution of service part sales and as a derivative of that, higher EBIT margin of the company. And as mentioned before, already although mentioning that the service parts contribution as a percentage of sales is in the area of 34%, 35%. Certainly, the contribution to the earnings of the company is higher. I hope that makes sense, Jan. Sorry. Jan just mentioned, we didn't discuss the capacities. I think we actually shouldn't discuss figures, which have been mentioned by our partners. So for our molecular lines, particularly manufactured in Switzerland, Germany and Hungary, we had huge increases. And thanks to the flexibility of some of our suppliers, we do not -- we are not only -- in STRATEC, we are not the only covering the growth of capacities. We are managing a complex network of suppliers, typically supplying on a manufacturing scale, which is higher than on a parts level like on a subassembly level. Certainly, capacities are then determined by trained personnel, where we already started to increase training activities and could actually take advantage of that situation already like in June as soon as the qualification metrics of our personnel in manufacturing fitted the needs. And certainly last but not least, capacities as far as test equipment and test fixtures are concerned. And again, we already started to increase capacities from March and this all fitted nicely together, helping us to really start with accelerating supplies out of Switzerland and Hungary mainly in the months of May, but mainly June. So like breaking down the activities in the second quarter. Again, certainly already a very back-end loaded situation, and we continue to expect the positive trend coming here from those activities we undertook at the beginning of Q2 and started -- and only started to materialize at the end of Q2.

Next question comes from the line of Michael Heider with Warburg Research.

I have actually 4 questions. First one is on your Diatron segment. Can you just reconfirm that the very strong growth of 36%, this is also COVID-driven? Did I get that correctly? Because I originally thought that's more a STRATEC business. Then, secondly, again, on Hologic, I mean, you touched it, but they are actually expecting less shipments in the rest of the year and whereas you actually expect an acceleration, if I understood you correctly. So maybe you can comment on that. Then, can you give us an idea of how many systems you have delivered so far? And what is your planning for the full year? And then lastly, I think was still in Q1 where you were talking about that you are expecting to see maybe a dip in 2021. And if I have listened to your comments now, I think you don't effect that anymore. Is that correct?

Yes, Michael. Thanks very much for the question. Can you please repeat your fourth question? I think I had like a bumpy line.

Yes. I think, just in the Q1 call, you were still expecting to see a dip, a slight dip in the industry because probably the COVID environment would just be a temporary effect. And if I listen to you now, I think you don't expect that anymore. So you see a continuation of strong demand.

Yes. So again, Michael, thanks very much for the question. Got your fourth question, in the meantime, as well. Diatron segment, as mentioned before, the core business of Diatron is definitely hematology and clinical chemistry. Both segments developed nicely in Q2 and in H1 of 2020. As mentioned before, in the last years, we were trying to take advantage of the core competency in manufacturing of the Diatron business unit and of the STRATEC instruments business unit. So in a nutshell, more OEM-style business, higher throughput analyzers to be manufactured within the STRATEC instrument business unit and smaller instruments, more of the private label deals. And a very few of the shelf analyzer systems to be manufactured in the Diatron business unit. And certainly as part of our molecular business for -- insofar, COVID-19 related is manufactured in Diatron. I don't want to talk to success of Diatron smaller. Very successful in its core business, but on top extra business coming from COVID-19 molecular testing instruments. I think this is just a -- the Hologic comments and our comments regarding Panther shipments is just a disconnect in the language. Definitely, we are in a back-order situation, which will come on top, then certainly, Hologic has the necessity to keep a certain number of stocks, and I think we are just comparing our shipments towards Hologic and Hologic shipments to their customers. And then definitely, we are reporting. The Panther Fusion is one instrument, and the Panther, on a stand-alone basis, is another instrument, again, which is just wording. I think we are in line with the communication of Hologic regarding the demand for the remainder of the year and for the first 9 months, actually, I just saw the forecast in the orders yesterday, for the first 6 months orders and for the 3 months to follow with the forecast. Your last question, and I was trying to answer this in the course of the comments we had and the question 3 we had from Igor, is actually when we discussed Q1 figures, I had the perspective that molecular testing might decline in Q4 and in the chemiluminescence immunoassay testing or other immunoassay testing mainly correlated to antibody screening activities might then actually pick up. However, the observation was that immunoassay business picked up way earlier than expected and molecular business seems to be stable, actually in some areas accelerating. But if we see the negative trends in the pandemic that we already had lower infection rates in Europe. Now we have, again, higher infection rates. The fact that the U.S.A. up until now didn't manage to tackle the pandemic and actually we expected a comparable development like we had in Europe in May and June. I think this is actually causing that the perspective had to change from an overall perspective. If you're discussing those overall developments with experts of the industry, we see the very same development. Actually, nobody expects a significant decline prior to the flu season in the western world in 2021. And then certainly, we are discussing the utilization of the equipment available then where we again see some positive trends with certain screening methods where currently the price ratio didn't fit nicely where the experts actually believe that infectious diseases testing will see a renaissance after like 10 fairly weak years where the majority of the development budgets within the big research companies and academical research and funded research where the allocation moved more towards oncological research. And actually, the entire industry sees that there will certainly be a refocusing and a renaissance in the development budgets for infectious diseases and vaccination.

[Operator Instructions] Next question comes from the line of Michael Healy with Berenberg.

Just a few maybe clarification points here, Marcus, if that's okay. Just in terms of your order book and visibility, it sounds like you've pretty good visibility into the second half of 2021. If you can just confirm that. And as we approach the sort of flu season and the potential of maybe a second wave coming, does your capacity may limit the instruments you can make in the latter half of this year, and is that a problem for you? In terms of the headwinds that you mentioned maybe in previous quarters, have you experienced many of these headwinds that you were kind of more fearful about earlier on in the year? Or have you managed to better mitigate against some headwinds that could occur in the future, should COVID return? And in terms of sort of longer-term view on the margin progression, I guess, we've got a much higher installed base now for molecular instruments and your immunoassay instruments, too. So is it fair to assume that we can expect the margins sort of to be supported in the coming years? And does your mid-term margin aspiration come forward a little bit based on the increased installed base that we've seen in the last quarter?

Yes. Michael, thanks very much for your questions. Yes, I think like with the assumptions you made in the questions, you are right in each case. So we have -- and again, I think, and I was trying to mention that earlier in the call that a perspective of the order book doesn't make too much sense because our customers are only ordering what we actually confirmed as available capacities. And we continue to actually increase capacities. I think we feel way more comfortable if we have some, let me say, spare space as far as utilization of our capacities are concerned. And I think it's obvious that in this situation, we were really driving capacities to the edge possible and, in some cases, actually driving on 100% capacity utilization. Again, we are growing with our capacities, and that's why I think that actually, capacity constraints are, at this point, no longer causing headaches. The only -- and I was trying to address that before, the only concerns we have is actually deeper in the supply chain where just as a typical example where a supplier is already utilizing on a 24/7 basis a tool where the manufacturing of a new tool takes like 8 or 9 months where it doesn't make any sense to start now because the additional capacities will only be available as soon as we are really expecting that the utilization of the capacities is not that dramatic anymore. You are absolutely right. We saw some risks for headwinds early in the year, which declined nicely. However, we have to see that like still in the United States and in Europe, necessary -- only necessary surgeries are made, which is actually reflected in the development of our immune hematological business. However, I think the concerns we had when we talked last in April or May this year nicely declined were nicely managed by our team. So we definitely made progress. Long term -- and we talked about installed base and the correlation to our consumables and spare parts business. We definitely see positive trends here. However, we've already remember the situation we had back in 2017, if I'm remembering correctly, is that although the installed base was growing nicely, but the utilization came back, the utilization of the equipment in the laboratories that we certainly have to see the correlation of our consumables and spare parts sales as a ratio to the utilization and the installed base and the complexity. But generally, if I'm actually adding up all those contributors, I would see a rather positive development and negative development by means of long-term high utilization, growing installed base and the utilization, particularly with those analyzer systems, which have a higher complexity and in so far a higher consume of consumables and maintenance parts. So I would say the long-term trend is actually causing nice additional tailwinds. So I hope that answers your questions, Michael.

We have a follow-up question from Jan Koch, Deutsche Bank.

I have one follow-up question on serology test, please. Many diagnostic companies have realized that the demand is currently much lower than initially expected. Do you think this could change in 2021 following the launch of a successful vaccine?

Well, actually, as mentioned before, if our customers are reporting serology demands, they are acting under the consumption, and we have to see that -- again, I need to start from a different perspective. Molecular testing in an infectious disease setup, which includes, among others, genetic testing and immunoassay testing and chemiluminescence immunoassay testing, certainly, the capacities available for immunoassays are way higher. And I don't know the exact figure, but I would actually say still 80% immunoassays and only 20% molecular, which means the extraordinary high demands which have been seen in the molecular testing are actually caused by lower capacities available. Then, we have to see that our customers -- so if you think about the natural behavior of typical customers, they would certainly, in a first instance, try to take advantage of the capacities available in serology, and they are not actually reporting instrument sales. They are reporting assay sales, which has been weaker, which means that they were trying to tackle the extraordinary high needs for serological testing through their installed base. And from that perspective, I think an assumption of a 30% growth was realistic at the time. We never assumed that for our immunoassay business because we said based upon the fact that our customers are trying to take advantage of the already existing installed base and only in a second instance of new analyzer systems placed, we will probably see a growth of unplanned growth of probably 10%, 15%, which seems to be realistic. So I think we are comparing the lower-than-expected assay sales with higher-than-expected instrument sales from us. I hope that makes sense.

Next question comes from the line of Udo Scheffler with TENESO Europe.

Yes. First of all, congratulations for such a positive result related in a real negative global situation regarding COVID impact. And my question is related to the in vitro instruments. And I understood that you told that the COVID-19 impacts had a good increase of the customer demands. And the question is, how is the split of your instrument customers? Would you say that it's equalized or is a just 1 or 2 customers, which has a high gravity in the demand? That is one question regarding the H1. And the second part is regarding H2. Do you see an outlook, which is similar to the H1 results regarding the COVID requirements of your in vitro instruments' needs? Is that visible? Or how do you see that?

Yes. Thanks for the question. So I think in the course of the last calls, it became very obvious that it is difficult to comment the comments of our customers and to talk about demands, run rates, quantities of instruments. So [ we'll then ship to ] and buy some customers which are not reporting the extraordinary high demands quantified. I think some of our customers as being public companies are talking about that. We already talked about Hologic or DiaSorin. But certainly, there are some other customers, which are taking either immunoassay analyzer systems or molecular instruments from STRATEC. So I think in total, we are talking about, I would say, 7 or 8 different customers. As a combination, already pre-pandemic attributable for probably and again, rough guess, 60%, 70% of our revenues. So I think very much as a derivative of our focus of molecular testing and immunoassay testing, both brand to be used for infectious diseases and serological testing products in that situation that the majority of our customers are seeing extraordinary high demand. So which means it's not related to a single customer or to 2 customers, but certainly, like from an order of magnitude perspective is, and I'm not telling you any secrets here, with our 2 customers, Hologic and DiaSorin already being #1 and #2 in our revenue streams, the majority of the extraordinary high demands are coming from those customers. But like I said, down to number 7, 8 on our customers' revenue or percentage of sales list, we see additional demand here as well. And like I said before, after Q1, we were a bit worried that this is only like something which particularly extraordinary high demand in molecular testing. I was a bit worried that the high demands will slightly decline in Q4. And again, I think I already mentioned that in the course of the call that we -- if we are adding up most recent data, we expect an unbroken trend in some areas, actually growing trend in particularly in Q3 and 4 of 2020 and then leading us with the same run rates into Q1, Q2 2021. I hope that makes sense.

Yes. And just the remaining point would be that is then more European-driven or global-driven?

It's actually globally driven.

There are no further questions registered at this time. I would like to hand back to Marcus Wolfinger for closing comments.

Yes. Again, thanks very much, Emma. Ladies and gentlemen, thanks very much for your interest. This concludes the H1 conference call from STRATEC. If -- like if we see further questions coming up in the next few days or even later, do not hesitate to call us. We are certainly willing to bring as much light into the dark as possible. Again, thanks very much for your interest, and have a good day. Thanks. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.