Stratec SE (SBS) Earnings Call Transcript & Summary

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

Yes. Thank you, Emma, and good afternoon in Europe and good morning in the United States. Welcome to our full year 2020 financial results discussion. I think I don't need to walk you through our text regarding forward-looking statements, and that's why I want to dive directly into the presentation. As always, we are intending to split this presentation into 4 major segments. I would like to show you the results of 2020 in an overview, then I would like to have a financial review with you together, then certainly, at this point, because I think that the 2 top items are actually fairly clear. Certainly, I want to discuss the outlook and the contributor to the outlook. And after that, we would actually love to have a discussion or question-and-answer session with you at the end of this presentation, which can be downloaded, you'll find some supplementary data. At a glance, a very busy year so a very busy slide. To get you an overview, first of all, certainly, it's worth mentioning that, obviously, we had some tailwinds from COVID-19. Some of our customers, actually, the majority of our customers are working with their capabilities, mainly testing to contain the pandemic. And we are actually proud that we could actually help them to do that, to fulfill their road, to at least partly satisfy the additional demand. So not everything, which worked out positively in 2020, it's COVID-19-related. There are actually a couple of other elements, which worked out fairly well. And certainly, some other elements, which didn't work out in the expected manner. I would like to discuss this with you when we are discussing the details of the revenues. Top line development growth of 18.4% nominally, a 16.8% revenue growth in constant currency. So we can actually check the box of guidance, which was guided from 14% to 18%. So we are slightly above that, but I think that's not new. We already confirmed in the last quarter and even before that we will most likely end up pretty close towards the upper edge of the already amended guidance after the guidance increase we performed in summer last year. Same thing for EBIT, increased by 42.6% year-over-year to EUR 41.7 million. Adjusted EBIT margin is up by 300 basis points but still to include the share appreciation rights with a negative impact of 210 basis points year-over-year to 16.7% EBIT margin after 13.7% in the year 2019. Let me say from the perspective of utilizing the capacities we built in '18, '19 and '20, I would say the 2020 EBIT margin is actually closer to a normalized level than the exceptional year of 2019. And please bear with me just recapping that 2019 was very development heavy, development -- high development milestones are, in most of the cases coming along with a lower margin. So I would actually describe the 2019 margin as exceptionally low, so again, check the box for the guidance. We guided 15.5% to 16.5%, and we are actually -- we achieved slightly north of the upper edge. Some things which really worked out nicely. So we managed a significant extension in the production of a molecular diagnostics analyzer instrument for a North American partner, already started in Q1 2020. Although I would like to say that Q1 was literally free of the tailwinds coming from COVID. Then we achieved the CE clearance for our KleeYa platform, then BD actually received FDA clearance for our common FACSDuet system. We started serial production within our smart consumables business unit for a partner in the field of flow cytometry. And certainly, we achieved significant progress in DIATRON’s next-generation hematology analyzer. Again, we just picked out more or less randomly, but obvious things in each of our business units. I would actually say we had some years where the operational development decoupled from the development activities and so on. So I would actually say that 2020, although we had some tailwinds coming from COVID, the operational end of the business like milestone and so on worked out fairly well. We'll suggest a dividend of EUR 0.90 after EUR 0.84 last year. This would mean the 17th consecutive dividend increase after the first dividend payment back in 2004. Now diving into the detailed financial review. So the -- actually, I would like to flag that -- and we have to see that we had some significant revenues and capacities built in the course of the year, which means the sales growth we showed on a full year's basis is obviously an average figure of the capacities and outputs we had, let me say, ramped up after quarter 1 through quarter 2, 3 and 4. And certainly, the run rate of the relevant instruments in quarter 4 was way higher than just comparing things in quarter 2. So certainly, going forward, if we are talking about how to satisfy the additional demand still coming in from our customers, we have to assume a run rate of Q4. And that's why I want to highlight the actual development in Q4, not just on a full year basis. So again, sales nominally up by 16.8%, Q4 isolated on a year-over-year comparison by 27%. Adjusted EBITDA from EUR 38 million up to about EUR 52 million in the -- which represents about 34%. Same thing applies for Q4, same area. Adjusted EBIT margin so definitely not driven by Q4, but again, here, we are comparing to an already high EBIT margin of 2019, which contributed positively to the overall EBIT margin of 2019. So again, average development here in Q4, same thing applies. For EBIT and EBIT margin. Q4 EBIT margin, 19.1%, which is actually slightly higher than our expectations. But again, I'll dive later on into our risk assessment, particularly for H2 of 2021, and you'll see how we got to that point in 2021, particularly after Q4 of 2020. Adjusted basic earnings up by about 40%. EPS up by about 76%, mainly driven by the lower tax rate in the adjustment. Now coming to the financial review as far as sales is concerned. Yes, you can see that our exceptional year of 2018, then a certain catch-up effect in '19 and then certainly, higher-than-expected growth in 2020. We had some very strong additional demands for -- in a majority of our product so particularly in immunoassays and here mainly in chemiluminescence immunoassays and in molecular diagnostics, it's certainly a result of the pandemic. We discussed that already in the course of '20 that we temporarily had some weaknesses in some of the segments. In diagnostics, we are serving like at the beginning of the pandemic, certainly in immune hematology, not the [indiscernible] side but blood grouping side of immune hematology and certainly, in hematology and clean chem as well to a certain extent, coming over the year. But actually, nothing which didn't pick up. I certainly want to discuss one element, which actually already addresses the question. If this is happening, like an expected development in certain areas in way higher-than-expected areas, why did you grow with a certain growth rate. And that's fairly important for us. We have to see that, particularly the newer instruments, those ones being launched in '19/'20 didn't show the expected growth rates, which is mainly driven by the priorities and prioritization of our partners. So let me get you an example. Our partners certainly served those customers, [indiscernible], Which already had a certain instrument of a kind, the reason is that the qualification process of a laboratory for a new instrument certainly takes longer. They have to drive, they have to compare results generated by an instrument. It's about service technician training. It's about user training. It's about input and output qualification. That's why our customers certainly prioritize with existing instruments to serve existing customers in order to certainly help to ramp up testing volume, particularly for their COVID-19 exposure and affected instruments. So long story short, some of those customers then certainly de-prioritized those instruments which are new, which would mean for a lot of customers, new instruments. So we cannot yet say that if an instrument A is placed instead of an instrument B that instrument B outperformed by a given percentage, matter of fact, it certainly cannibalized the sales of instrument A of probably the same family. So I think it is important to understand that not all what comes on top is COVID-related. Certainly, it's related to the fact that some of our customers actually de-prioritize things. Talking about re-prioritization. It's obvious that our customers did the very same thing that they focused all their resources on their COVID exposure and COVID-exposed business, which obviously led to certain delays for development projects. And here, we can -- so nothing material. I just want to make that point. It is important to understand that we would expect, at this point, in some projects, a delay of probably 3 months, which is mainly related to the fact that in certain phases of a project like during assay integration, it certainly makes perfect sense if our technicians are meeting with the scientists in a common lab to do integration. And if this has to happen remotely at 2 places in the world, certainly, it leads to certain delays. Again, I want to say it's nothing which is material at this point, but it's certainly worth mentioning is we can literally report this throughout our entire portfolio of development projects, particularly for those projects, which are in certain, let me say, hands on phases. So early stage or late-stage doesn't matter that much. But like I said, those projects, which are in a certain phase, it's important to mention that. Then certainly, something which limited our growth is a significantly lower amount of recognized development revenues. Again, high basis in the previous year, particularly in Q '19. And this is typically the point where I'm complaining about IFRS 15 leading at least in Stratec development to higher volatilities and a total decoupling of the performance of our development department to the recognized revenue. That's IFRS 15. We have to stick to those rules. I would say that the rules we applied earlier are more conservative, more transparent, more predictable and actually less volatile. However, this is IFRS 15. So diving into the details, regarding the relevant operational divisions. So certainly, coming from an instrument sales, the majority of the growth actually taking place here up by 39.8% by 42% actually on a constant currency level. As you can see, service parts and consumables didn't pick up that much, which is actually, again, mainly related to the priorities of our customers. So actually, it's more than likely, but I cannot quantify that, that in the years to come, mainly because of the higher utilization and the higher installed base that service parts and consumables will accelerate way more than instrument sales in 2020, like on an average basis. So we would actually expect this as certainly, let me say, a backup source of earnings growth in the future. I already mentioned development and services. If we break that down again, coming as a percentage of sales. So again, I would say, to a little bit exceptional years, 2019 certainly being super development heavy, 2020 on a normalized level, top line growth coming from instrument and from a percentage of sales coming from service parts, certainly slightly but really only slightly lower-than-expected on the development end. Adjusted EBIT and EBIT margin. Fiscal year's adjusted EBIT margin up by north of 40% year-over-year to EUR 41.7 million. Adjusted EBIT margin now at 16.7%. Margin expansion of over 300 basis points, certainly attributable to the economies of scale we are seeing here. And let me say, in the same, talking positive scaling and product, we have positive sales and product mix effects. And again, we already discussed that in the past a couple of times, it's important to understand that in the unexceptional weak year 2018, we didn't decelerate our activities to continue with the development products, which will be launched between 2019, or were launched in 2019 and '20, but mainly will be launched in 2020, 2021 and 2022. So no deceleration here, high investments, lower operational leverage. And then certainly, the capacities in our factories which we have already built in '18 and '19. So I would actually say this is a more normalized level. And I was already trying to describe that. Economies of scale and nice scaling effects coming here by utilization of the capacities. Then certainly, our earnings improvement initiative, mainly seen in the DIATRON segment, is materializing through an increase of the manufacturing debt, certainly very targeted. So only in high complex subassemblies and only in subassemblies, which are border line to be manufactured in order to achieve the relevant qualities. We took them back into Stratec manufacturing. And we are now starting to harvest the better amortization of fixed costs and to covering the earnings previously generated by some of our suppliers in our own value chain, which is actually showing nice effects in the DIATRON segment, which is mainly in charge for this part of the expanded development -- manufacturing that. Headwinds, actually by the stock appreciation rights already early in the year, with a negative margin effect of about 210 basis points. Segment performance. I already -- I'm sorry, already trying to describe that in the previous 10 minutes. So sales and instruments up by 14%. Adjusted EBIT margin, mainly coming from economies of scale, adjusted EBIT and adjusted EBIT margin nicely up even more in the DIATRON segment, very much coming from the strong growth of our molecular and veterinary diagnostics products, but certainly as a matter of fact, an outperformance in DIATRON coming from recurring revenues mainly coming from the hematological tests we are offering in this segment. Just to remind you, in the hematological segment, some of the necessary reagents and tests, but mainly the reagents are coming from STRATEC or DIATRON, respectively, whereas in our segments where we are serving the market of immunoassays and molecular diagnostics along with hematology -- with immune hematology, sorry. Our partners are in charge for the test, some of the plastic consumables are obviously coming from us, but mainly the instrument and the software and other elements like maintenance parts are coming from us. Smart consumables, again, weaker, slightly weaker than expected, but very much coming from a timing effect and the mutually agreed postponement of common development project with a partner, again, mutually accepted. Cash flow development, very nice operational cash flow, operating activities, sorry, up by 50%, around about investment activities from EUR 27 million down to EUR 22 million, mainly coming from our real estate activities and certainly financing activities in due course. Cash flow and equivalents, up by 65% on a year-end basis, equity ratio comparison kept net debt slightly up, which is driven by financing activity. So again, I would like to walk you through. We had a very, very strong development in H2 in a predictive manner. We already discussed that in our H1 call that we are expecting a significant improvement. All those negative elements regarding cash flow where were triggered in H1, like building inventory and switching from just-in-time manufacturing into more warehousing just to guarantee supplies and to decrease volatilities in the availability of parts and subassemblies and manufacturing. Then certainly, a reduction of our high investment spendings due to significant capacity expansion at our headquarters slightly reduced over the year and -- so far. And we got back to that point that we already drove back investment ratio to 10.2% of sales, where we guided for 10% to 12%. But again, already in the course of the year, we said that we would most likely end up at the lower edge of this forecasted investment ratio. Net debt/EBITDA ratio of 1.6, very healthy, leaving enough room in our balance sheet to take advantage of each and every upcoming situation may be significant growth with a development and research project or in-licensing or even M&A. Update on COVID, I just want to pick out some of the element. So certainly, we have a significant proportion of the genetic COVID-19 testing is performed on instruments, which have been developed and are manufactured by Stratec. So we are in essence of centralized lab testing for antigen testing, allow me to mention one point, which is important to understand. We are fairly positive about the utilization of our equipment and further growth, not just talking about -- not just talking to our customers, even from perspective of that those quick test and self tests are typically lateral flow. Based test has so no instruments needed. That's what we see is that those instruments in the market, and Stratec has no exposure at all into those very small instruments, so running like one test every 30 minutes or one test per hour. This instrumentation and this testing format is certainly cannibalized by those lateral flow antigen tests where we really see a nice and stable development in the centralized testing, particularly in the molecular testing, but the antigen testing is centralized as well. Additional demand, and I mentioned that for lab-based antigen test and certainly antibody tests. And certainly an unprecedented demand and very strong orders. The business performance for H1 is actually -- we have these orders in the book for H1, very, very strong. We foresee nice growth, not only in Q1 compared to Q1 of 2020, where -- let me say, the positive effect of COVID into our instrumentation business wasn't very high so actually almost zero, but even in Q2, we are expecting a nice growth. Various factors set to influence H2 demand level. So we already mentioned that a couple of times. We see high replacement potential triggered by the high utilization level of our installed base, as you probably know, the majority of our instruments, particularly those ones for the clinical labs, those ones for blood banks are actually designed to stay for about 3 to 5 years in such a laboratory with a utilization of about 5 to 6 lab shifts of probably 6, 7 hours a day. Now the majority of these instruments are used 24/7, leading to earlier warrantee. That's actually why we foresee a nice uptake over the next years in our service parts and maintenance parts business coming along with a nice number of instruments. So this year or next year, which are actually replacing instruments, which have only been sold in 2019 and early 2020. Then certainly, we have a nice uplift of serological and other testing like -- sorry for the stupid example, but it's so obvious if you went to the doctors with fever and respiratory symptoms like 2 years ago and like in case you had a flu, actually, in most of the countries, no test was performed, you get ibuprofen and you rest into bed like for a week or 10 days. If the same symptoms, respiratory symptoms are indicated now, you will not only get a COVID test, you will get a full panel of respiratory tests and certainly under those aspects, which are currently in the press called long-COVID, certainly other [ origin ] tests, which means we are not coming from 0 test to 1 test, we are coming from 0 test to probably 10, 15, 2010 from a long-term, which is helping our customers to utilize the equipment and it's helping us to maintain with those instruments on the growth rate. And then certainly, we are expecting a nice catch-up potential from the non-COVID related products as discussed before, those ones which were deprioritized by our customers in 2020 instruments, which were foreseen to have their initial ramp-up curve in 2020. Then certainly, the longer-term dynamics, I don't want to talk too much about perception. So everybody is discussing if an antigen test is better than a molecular test and so on. So it's an overall change in the dynamics about the perception in this industry. Then certainly, we already see that the development budgets are reallocated more back into this, what we call infectious diseases. Panels, which haven't been or woke for the last 10 years, so elements like oncology or prenatal screening and those elements were certainly more hip. But we definitely already see within our customers reallocation of development budget and certainly coming from the governmental grants, the same thing to happen. Nice renaissance of decentralized testing. I'm not saying that this is the end of point of care testing to the contrary. What I'm saying is that the quality of the results coming from centralized labs is actually an obvious observation. Now those instrument based point-of-care test. And again, I'm not talking about those some of our customers mention as point-of-care already performing 10, 15 tests an hour. This is not the definition of small point of care. I'm talking about those instruments running a test in 30 minutes. And certainly, they see a severe decline because of operational leverage, because of high-cost, because of the same results driven by a quick test or by a self-test. And we definitely see that in this pandemic, the lateral floated are now out very fast, faster than expected from our end, cannibalizing those small point-of-care instruments but as a matter of fact, leading to a nice growth of centralized antigen test and very specially on a special grade, certainly molecular testing. If you see traveling activities within Europe, if you're crossing border, you literally have to show the result of a molecular test not being older than 48 hours, which have to be generated by the relevant machine. We definitely see an increase in sustainable public investments. So all in all, we see very little risk. And short- and midterm, some very nice tailwinds and I think an overall change in the dynamics of the perception of diagnostics testing in the next 10 years. Financial guidance. And again, we can discuss this in the Q&A session. How do we see things. We have guided on a constant currency basis, a sales growth of at least, and I can only reiterate, at least mid single-digit percent range. Adjusted EBIT margin after the 16.7% in 2020 to 17% to 18% with some potential, and I already mentioned some of the potentials here. And then bringing down the investments, tangible and intangible assets, combined to around 6% to 8% of sales, again, after those years where we have invested heavily, mainly in real estate. We are now getting back into those elements where we are investing into the tools and tricks and development tools for our development programs and other hardware tools like injection molding tools for our development projects, which is in the order of regular case. I think going forward with any additional activity, 6% to 8% is a good assumption. I would like to make the point already. Overall, the company has most recently witnessed increase of order forecast for the second 6 months of the year 2021. Due to the additional -- and typically, in our forecast, we already apply a certain risk assessment to the forecast given by our customers. In this particular case and very much driven by the uncertainties related to the pandemic. These increases have not been incorporated into the above financial guidance. I would like to make that very clear. It's a risk assessment we performed. Focus for 2021 and beyond. Nothing materially changed here. We have to still manage the challenges coming from the pandemic, first and foremost, certainly, the health of our employees is super important. We have an extraordinary high home-office ratio. We have undertaken different measures at different sites in order to contain all the impacts we had. And so far, let me touch wood, things worked out fairly well. We clearly showed the effectiveness of the measures taken. Then certainly, we want to deliver on the still growing demand from our customers to build their capacities. It's obvious that in some areas, our customers still have not yet built the capacities they could, and we are obviously helping them. And then certainly, we are still mitigating and managing the supply chain risks, which means up until now, we haven't switched back into just-in-time manufacturing, more manufacturing on demand. We are still warehousing things, which is leading to higher-than-expected inventories. And certainly, working capital, not just coming from revenue growth, but certainly from inventory as well. It's not yet where we want to be. But again, we are trading supply safety supplied to our customers against inventory, and I think this is okay. Certainly, we want to bring forward all our development programs, and I can only reiterate my statements made in the past. It's super important to meet and hit development milestones, not just to satisfy the market launch activities and time to market activities of our customers, it's super important to make sure that these development resources can then be put into other development programs where they are planned. So let me say, delays on one end may affect delays on the other end as well. That's why hitting development milestones is super important. We have mentioned a couple of times, the next-generation molecular program for one of the dominant players here. That's certainly be the next bigger thing. We have some market launches in between, but that's certainly the milestone we should keep in mind for the activities and for the growth potential of Stratec for the next 5 to 10 years. Other products, very packed and dense development pipeline with big projects, but certainly, this is a project which has a certain degree of importance for Stratec. Focus on potential M&A activities, with a solid balance sheet, that's certainly something we continue to discuss. I would like to make the point that we didn't stop M&A activities after the 2 acquisitions back in 2016. But due to a variety of reasons, we didn't perform any acquisition in the meantime. But again, we keep our eyes open, and that's certainly on the agenda. And then certainly, to bring those projects into the safe harbor, which are currently under negotiations, where we have performed feasibilities studies, where we are negotiating contracts, where we are developing the specifications for such product. And again, 2 of those bigger things are in the final stage of negotiation. And I'm hoping that we can report positive results here in the next 6 months. This gets me through the end of the presentation, I would like to hand back to Emma, and she will explain us how Q&A works today.

[Operator Instructions] So the first question comes from the line of Oliver Metzger with Commerzbank.

The first one is quite a general one on testing volume. It's where more and more comments that corona will -- coronavirus will remain despite all the vaccination campaigns and some booster shots are needed. So if you look in, let's say, 6 months when the most vaccination process is done. So where do you see the level of testing in this context compared to the current level? The second question is on the outlook. So your corona summary on Slide 13 describes basically all [ sort that is ] corona-related to drivers. However, the guidance on the top line doesn't look overly aggressive. So could you elaborate a little bit more on the risk factors, which might have prevented you from not issuing a higher floor for your top line guidance, please?

Yes. Thanks, Oliver. So it is super, super difficult for us to try to tackle the actual future testing volume because there are so many contributors. And even what we are doing is certainly, we are trying to talk to our customers about their expectations. They actually are talking to their customers. And I'm hearing often enough from the C-suite of our customers that they don't get precise answers from the laboratories, how should they give me a precise answer and that makes that thing so complicated. We talked a lot about at the beginning -- or let me say, in summer last year, we talked a lot about what happens if vaccination starts to kick in. Will people still be infectious if they are vaccinated or will vaccination replace testing? The clear answer is no. We see some plateauing for molecular tests in the United States, but on a very high level. We see a certain increase of volume of molecular tests in Europe. You are absolutely right that there is an ongoing discussion about mutations and effectiveness of vaccination and testing will not decline. So I think a solid expectation would be to assume that for a certain period of time, we will remain on a high level. As far as testing, probably here and there, some continuous growth, but I think it is important to understand that -- and I mentioned that before, and it's really super important to understand that, that when the testing volume increased between, let me say, spring and fall last year, our customers serve their existing accounts as a first priority. Reason is they didn't have to qualify those accounts. They didn't have to train those accounts. Service technicians were already there. One of the bottlenecks we saw in instrument placement last year was definitely service technicians. So they served with first priority, their existing customers. And so there is an already ongoing catch-up effect that now our customers can go into those laboratories who needed instruments but didn't get instruments so far, increasing instrument sales and increasing volume. So at this point, again, I would expect a solid expectation. A solid basis of tests. We have to see that long-COVID is coming in, certainly, panels are coming in, panels to include respiratory symptoms and-non respiratory symptoms in the same panel. So again, we see some very nice tailwinds coming from that effect. And then regarding our guidance. Yes, you're right. Our guidance is not super aggressive. So every year, we typically conclude our budgeting process around autumn towards the end of the year. Based on orders and forecasts we receive from our customers, and this is actually contract individuals. So we have some orders from customers for 6 months, 12 months, others forecast for 6 months and then orders and so on. So it's really contract individual, very much derived from the forecasting system our partners are entertaining. In this budgeting process, we already make some risk adjustments, particularly for the order forecast, which reach further into the future. And where our customers obviously have some higher flexibility to make adjustments over time. As said, we do this every year, there is nothing unusual with it. However, it's probably fair to say that our risk adjustment for this year has been way higher compared to a normal year, particularly given the uncertainties caused by the pandemic. So this budget is the base of our guidance. However, since the end of the budgeting process, and I mentioned that in the presentation already, particularly in, let me say, February and March, we have already received several -- and in some cases, really significant upward revisions of those forecast in orders for certain products, which are taking us forward into Q3 and 4. In a normal year, such revisions would have been incorporated into our guidance, no doubt. However, this year, we decided to not do this due to a higher degree of cautiousness we want to apply, particularly on the back of last year's high-growth rates and particularly in the year of what happened in 2018 when we saw significant shifts in the activities of our customers. I think quantifying the magnitude of the received upward revision would only give you an idea of the potential upside, but clearly it would neglect the potential downsides, which are probably more difficult to tackle or to be tackled and to quantify for this year. So if these orders, I've mentioned before, come through, there is clearly some upside in our guidance, top line and margin-wise, but from today's perspective, I think it is sensible to be prudent under the uncertainties regarding H2 of 2021.

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

I've got 2 as well, please. Firstly, coming back to your new sales guidance for 2021. I understand that it is difficult to predict how the current pandemic will evolve in 2021. But it would be great if you could give us an update on your current order backlog. How did that develop over the last few months? And were you able to reduce the backlog in 4Q and Q1 2021? And secondly, one of your largest customers announced on its last earnings call a few weeks ago that it plans to launch the second-generation platform of a small molecular analyzer system in 2022. Are there any reasons why you shouldn't be involved in this project? And if no, could you share your expectations for this project, especially in light of the long-term need for COVID-19 testing?

Yes, thanks very much for the question. I think it is important to understand our process that it wouldn't make any sense to give you the amount of increase of order book comparing December 31, 2020, comparing that to the quarter before or the year before, it doesn't make any sense. Reason is that and again, fairly complicated stuff is typically, we have a process established with our customers, just making sure that they can prioritize things and that we can prioritize things where our customers are in the first step, reporting their demand. We are checking that demand against the availability of resources, material, material planning, supply chain and all the effects, which are limiting to potentially address all the demand and needs of our customers. Then we loop back that actual capacities, and our customers are then only ordering based on what we have looked back. And in so far, the order book or the back order situation doesn't represent the overall demand. It only represents the deviation of what we promised to what we could actually ship. What I can tell you at this point is that -- and I mentioned that before, probably only on [indiscernible], that if you look into the capacities available, certainly, the capacities we had in March or April, were significantly lower as well as the output compared to December. Now certainly, the run rate going forward is the December or even higher January and February output run rates, which are actually the run rate for certain instruments, I would take into consideration for full year 2021. And again, that -- a matter of fact is that those capacities are utilized by forecast or actually by actual orders from our customers, so that it is fair to assume that the run rate we have built in Q4 are actually those run rates, which are to be assumed at least for quarters 1, 2, if we are looking into those most recent developments, and I've mentioned that in my previous answer, even taking forward into Q3 and 4. Then talking about the -- further molecular program of one of our existing customers. We are about to freeze development for the project you have mentioned, Jan, it's the next-generation product. And again, you know I'm always trying to avoid to classify instruments into certain clusters. Some would actually use the word point-of-care for that instrument because the instrument is used in de-centralized environment generating about 10, 15 results within a 30-minute period of time. I wouldn't actually consider this as a point-of-care instrument. But people love standards, people love to classify things. So it's in the bucket of point of care, but that's certainly not affected by like those rapid tests or those self tests I mentioned before. So a very attractive product. We actually are expecting 2 things: nice growth rates here. Currently, the growth is determined by both our output capabilities and capacities as well as by the output capacities and capabilities of the test format coming from our customer. We are growing. They are growing things. So we are expecting a nice growth rate. But actually, this is a typical example where I would already -- and I don't have the precise data yet, where I'm already assuming that in the year 2022, 50% of the output is replacing instruments, which has been only sold in '18, '19 and '20 because the high degree of utilization is leading to an earlier wear and tear. I hope that makes sense for you.

[Operator Instructions] The next question comes from the line of Michael Healy of Berenberg.

Just a couple of questions from me today. I'm wondering if you can share with us in a normal year, what is your mix of revenues from molecular diagnostic instruments or perhaps what it was in 2020? And maybe your thoughts on what this could be in 2021. And then just couple of questions on the smart consumables and the development of that through the year, it's loss-making again this year. And is that mainly due to COVID-19 headwinds? And is the expectation for this division to be profitable in 2021? And just a question on your M&A appetite. You mentioned it there, it's on the agenda and you're looking around. Can you share your thoughts on maybe what areas could be interesting for you. And I appreciate you might not do that for obvious reasons, but maybe just your thought process. And also what leverage you'd be happy for the business to go to maybe fund an acquisition?

Yes. Thanks, Michael. Excellent. So in a normal year, and I'm talking about euros, not placements. We have about a 50-50 split of molecular versus immunoassays. However, please bear with me and now talking about placements. So if we are increasing in placements at the same degree of percentage, certainly, the higher-priced molecular instruments are then leading to higher -- way higher euro sales. In a -- I would actually say, long term, probably molecular diagnostics will outperform immunoassay, which is just a matter of regular cost is that when we saw clinical chemistry with lower testing prices and then ELISA tests with lower testing prices. It's actually paying a tribute to the need of higher sensitivities, higher specificities, higher multiplexing degrees that people are moving up in the value chain. So over the past 10 years, certainly, immunoassay was outgrowing, and I'm talking about chemiluminescence immunoassay, often called CLIA outperforming ELISA testing format. We see more state of the art microarray-based immune hematological instruments outperforming the previous instruments, which were using higher sample volumes. And the same thing applies now for molecular diagnostics. So long term, certainly, price is coming slightly back leading to different panels on the molecular side. Certainly, the quality -- sensitivity and specificity derived from molecular testing format. I would say, long term, certainly, the growth rate within Stratec of molecular formats is outperforming the immunoassays. Consumables, and here I'm literally only talking about timing effects. When I'm saying that we expected a slightly better results for our consumables business unit in the year 2020. And again, mainly coming from timing effects, it's only slightly headwinds coming from COVID, but certainly, there are some, but I would say the majority is coming from a mutually accepted postponement of a meaningful development project, which was just pushed out by 3, 4 months. I mentioned that before and getting over the cliff from 2020 into 2021. So I would actually -- I can already get you some confirmation here that 2021 will be a way better year from a margin perspective for our smart consumables business year-end as compared to 2020. Talking about M&A. Now I mentioned that we keep our eyes open. Our goal here is clearly to address a couple of things. There are certain areas which are causing our customers' headaches, which are not a core competency of our customers, but have to be done in order to successfully get an instrument into highly regulated markets or a system consisting out of our instruments, partly -- our consumables, partly our customers' consumables. Certainly, the testing formats coming from our customers. And we did that very well in the past, if I may say that, to assume more and more workload of our customers, which is leading to 2 effects, certainly a bigger value proposition. And we expect it actually to happen in the consumables, smart consumables business unit in the future, particularly for microfluidic consumables, for very complex consumables. There was only a very, very weak outsourcing trend over the past 10 years when this was actually a very new technology, but we see -- we clearly see here acceleration. That's certainly an area we are looking into. But all in all, I would say the majority is actually coming from areas where we think they are noncore for our customers, where our customers think they are noncore for them, where they are probably losing money. But we know if we are specializing, if we are achieving economies of scale by offering this value offering to a variety of different customers, it may actually contribute positively to Stratec's top line and bottom line development. I hope this makes sense without diving too much into details and disclosing our full strategy, but it's actually priority #1, not stepping on our customers' toes. Priority 2, doing things which help our customers to get instruments faster to the market, more reliable to the market at a lower total cost of ownership for them. And certainly helping to play an even more important role in that value chain in diagnostics, translational research in those areas of life sciences where higher volume of instrument sales is generating the required volumes for Stratec and required economies of scale.

Great. But just a quick one on the leverage then. Would you be willing to use debt to facilitate this transaction here? Or what sort of level would you be comfortable?

I see. Sorry, I missed that. So certainly, like, I would say, a healthy assessment. So certainly, our customers, if they are starting a new cooperation with us, they are certainly assessing Stratec's economical capabilities, which means we should continue to act as a very stable partner financially, economically, technologically. And that's why certainly, let me say, a ratio of, let me say, north of 3 would certainly get us into a more unhealthy situation. So I think currently, 1.6 leverage to EBITDA is healthy. I would still consider -- and you know we had this very nice cash flows. And I'm sure we will continue with good cash flow development in 2021, this taken into consideration. We want to continue to act as a reliable partner for our partners, which includes, let me say, not a degree of leverage, which is not driven to the edge.

So at this time, there are no further questions. I'll hand back to Marcus Wolfinger for closing comments.

Thanks, Emma. So ladies and gentlemen, this concludes the discussions of our financial results for 2020. I would like to thank you for your interest in Stratec, if you have any remaining questions, even now, do not hesitate to call us or to address Jan through his IR department, and we are certainly there for you to answer your questions. Thanks very much, and please stay safe, stay healthy. 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.