Macro­economic and Sector-Specific Environment

According to the latest World Economic Outlook published on January 30, 2023, the International Monetary Fund (IMF) states that the current economic challenges will continue to slow down the global economy on a broad basis and more sharply than previously expected. Global inflation continued to rise significantly during 2022 and led to a cost-of-living crisis in many regions. Inflation is forecasted to have reached its peak in late 2022, but it is expected to remain elevated for longer than initially anticipated due to ongoing supply shortages and rising energy and food prices. The inflation pressure triggered a tightening of monetary and financial conditions together with a significant appreciation of the U.S. dollar. Further challenges to the global economy include, among others, China’s recovery of private consumption and investments in its real estate sector, climate change, tight labor markets in many countries, as well as geopolitical tensions including the war in the Ukraine, the re-alignment of energy supplies and the recent deterioration in China-U.S. relations threatening international trade and policy cooperation.

According to the latest IMF forecasts, global gross domestic product (GDP) growth slowed from 6.2% in 2021 to 3.4% in 2022. The slowdown of economic activity is visible across all economies. Advanced economies registered a growth of 2.7% (2021: 5.4%) while emerging markets and developing economies saw growth of 3.9% (2021: 6.7%). The GDP of the United States grew significantly slower with 2.0% (2021: 5.9%). The euro area recorded a GDP growth of 3.5% in 2022 (2021: 5.3%). The emerging economies of Asia registered a growth of 4.3% (2021: 7.4%). The strongest growth driver was India with 6.8% (2021: 8.7%). The GDP growth of China slowed down to 3.0% after initial recovery from the impacts of the pandemic in 2021 with 8.4% growth. As part of the advanced economies, the GDP of Japan grew by 1.4% (2021: 2.1%).

Our organic sales growth was above the IMF’s global growth expectations in 2022 at 6.4%. It was supported by all regions. Europe accounted for the highest share of Group-wide growth with 42.3%, followed by Asia-Pacific with 24.2%, North America with 17.8%, Latin America with 12.3% and the Middle East and Africa with 3.4%.

The overall growth was predominantly driven by the Life Science business sector, despite declining Covid-19 tailwinds in 2022. Healthcare and Electronics also contributed positively to the organic sales growth. All business sectors supported growth in Europe and Latin America. Growth in the Asia-Pacific region was principally the result of operations in the Healthcare and Life Science business sectors while growth in North America was driven by the Life Science and Electronics business sectors.

Life Science

Our Life Science business sector is a leading global supplier of products, tools, and services for research laboratories, pharma and biotech production, and industrial and testing laboratories. As production of vaccines, treatments, and tests for the Covid-19 pandemic decline from their peak, robust underlying growth of the core (non-Covid-19) market results in a sustained strong outlook.

According to the market research firm Frost & Sullivan, the market for laboratory products, which is relevant to our Science & Lab Solutions business unit, grew 4.4% in 2022 (2021: 10.4%). Given strong core demand but anticipated declining demand for Covid-19 applications compared with strong previous support from additional Covid-19 revenues, the market is expected to grow in the mid-single digits longer term.

In the pharma and biotech production market, in which our Process Solutions and Life Science Services business units are active, demand is driven by the development and manufacture of therapeutics and vaccines. According to IQVIA, the end market for biopharmaceuticals grew by 14.3% in 2022 (2021: 12.0%) to € 452 billion (or 35.4% of the global pharmaceutical market). Monoclonal antibodies (mAbs), currently the leading area of biopharmaceuticals, continued to develop positively in 2022 with the number of molecules in phase 1 or 2 development growing by 7.7% (2021: 12.6%). This deceleration in year-over-year growth reflects a normalization from pandemic-era peaks in phase 1/2 pipeline growth for mAbs, viral gene therapies, and other recombinant proteins. For mAbs, year-over-year growth in the early-stage clinical pipeline remains similar to pre-pandemic rates (average 8.8% annual growth from 2018-2020).

Healthcare

In its latest study from September, the pharmaceutical market research firm IQVIA forecasts growth of 6.7% in 2022 (2021: 8.9%) for the global overall pharmaceutical market. With continued recovery from the Covid-19 pandemic, the pharmaceutical market is expected to see still high growth rates benefitting from accelerated approval pathways and increased access to innovative drugs globally. This is balanced by increasing cost containment measures driving biosimilar and generics uptake as well as stricter price reviews and prescription controls.

The developments at a regional level follow the described trend. EMEA (Europe, Middle East and Africa) grew 7.5% in 2022 (2021: 7.7%) with the EU5 growing at 7.3% (2021: 8.2%). North America grew 7.0% (2021: 7.8%) with the United States recording the same growth rate of 7.0% (2021: 7.8%). In absolute terms, the pharmaceutical market in the United States remains the biggest and most important market by far. Latin America achieved double-digit growth of 16.5% (2021: 24.9%) followed by the Asia-Pacific region (excluding China and Japan) with 8.6% growth (2021: 11.4%). China is an exception with an assumed negative growth of -1.8% in 2022 (2021: 7.6%) driven by regional and local lockdowns due to Covid-19 and continued extension of price regulations (for example, volume-based procurement) despite increasing access to innovative products and enlarged healthcare infrastructure.

Not only the growth of the pharmaceutical sector as a whole, but also the market development for biotechnologically produced active ingredients is relevant to our business. As previously stated, the market volume for biological pharmaceuticals totaled approximately € 452 billion in 2022 (2021: approximately € 396 billion) according to IQVIA, thus continuing the increase in market share of recent years. These products accounted for 35.4% of the global pharmaceutical market in 2022 (2021: 33.6%). The most important market for biological pharmaceuticals remains the United States, with a 63.2% share of global biopharmaceutical market volumes.

The developments in the therapeutic areas of relevance to the Group saw differing trends in the reporting year. The global market for type 2 diabetes excluding the United States and Russia followed the growth trend of previous years and accelerated growth, achieving 18.3% in 2022 (2021: 10.8%). The therapeutic area of infertility grew 4.9% in the reporting year (2021: 28.7%) after a significant recovery in 2021 from the pandemic in which, for example, clinics were partially closed. Colorectal cancer further declined by -1.2% in 2022 (2020: -16.4%) due to biosimilar penetration. The growth trend in the market for multiple sclerosis therapies improved compared with the previous year level of 2.0% (2021: -3.4%), as new product launches counteracted the effect of market decline due to generic competition.

Electronics

The semiconductor industry is the most important market for our business with materials, solutions and services for the production of integrated circuits (Semiconductor Solutions). In particular, the growth in demand for semiconductor materials depends mainly on the wafer area produced for semiconductors. The silicon wafers required as raw materials are used as an indicator to estimate the demand for semiconductor materials overall. According to the global industry association SEMI, the area of delivered silicon wafers grew by 4.9% in 2022, after strong growth in 2021 (14.1%). While demand for electronic devices is normalizing after the Covid-19-induced investment and upgrade cycle in 2020 and 2021, the ongoing trend of digitization and the required digital infrastructure (network, servers, 5G) continues. Semiconductors are a key component for many applications including communications, consumer electronics, automotive, transportation, clean energy, aerospace, and defense.

Driven by the aforementioned acceleration of digitization and the corresponding exponential data growth, there is a continuing need for semiconductors across all device end-markets. The high demand for and importance of semiconductors is clearly visible in the recent slow easing of the global chip bottleneck shortage and their geopolitical relevance. For this reason, all major chip manufacturers increased and accelerated their investment plans for new fabs and additional capacities. Combined with ongoing technology upgrades, these investments will lead to rising demand for innovative materials. Our targeted semiconductor materials market is expected to have a strong long-term growth, with some cyclicality.

With our Liquid Crystals business, we are a leading producer of liquid crystal mixtures for the display industry. After the Covid-19-induced “stay at home boom” the display industry is undergoing demand normalization. The market research company OMDIA (forecast Q3 2022) forecasts a market decline in 2022. In the medium to long term, liquid crystals will continue to play a key role in the display industry in the future. OLED technology, for which we are also one of the leading material suppliers, is becoming increasingly important in high-end display applications.

The markets for automotive coatings and cosmetics are crucial to our Surface Solutions business. According to LMC, a leading global provider of automotive forecasts, global automobile production grew by 6.4% in 2022 after 3.0% growth in 2021 and a strong dip in 2020. The market is expected to continue with 4.8% growth in 2023, reaching 2019 production volumes in 2024. Underlying drivers include an ongoing latent global demand related to Covid-19 and a reduction in supply chain problems of recent years. China continues to be one of the most important markets. The market for cosmetics and care products showed a continuing, very strong development with an overall growth of 15.8% in 2022 (2021: 4.6%) following the dip in 2020. After the negative effects of Covid-19 regarding lockdowns and social distancing and increased trade conflicts between the United States and China last year, Euromonitor, a leading global provider of market research, expects the market growth to be sustainable at ~4-6% per year until 2026.