Dear ladies and gentlemen, a very warm welcome to Merck's 2021 Capital Markets Day. My name is Constantin Fest, and I'm Head of Investor Relations here at Merck. It's great to see so many of you joining the 2nd fully virtual Capital Markets Day, and we highly appreciate your interest in Merck. As usual, let me start with the legal note. Next to the disclaimer on Page 2, please note that this event will be recorded both by audio and video.
If you have any questions or concerns about that, please feel free to contact the IR team. Please also note that all participants in Darmstadt comply with current COVID-nineteen regulations. Turning to the agenda for today. We will start with a presentation by Belen Garrio, our group's CEO followed by the presentation by Markus Koonert, our group's CFO. Right after that, we have reserved time for Q and A with Belen and with Markus.
The second part of our Capital Markets Day will consist of deep dive sessions on each of our 3 business sectors. These will include a short presentation by the respective sector CEO followed by a Q and A with key members of the respective management teams. In terms of logistics, please note that we have one dial in for all sessions. And for the Q and A, please note that in the interest of fairness and to give as many of you as possible And with that, let me directly hand over to Belen to kick off the event. Belen, over to you.
Thank you, Konstantin, and a very warm welcome to Merck's 2021 Capital Markets Day from both Marcus and I here on the stage As well as on behalf of our colleagues of the Executive Board and all their team hosting the afternoon sessions. Of course, we would have preferred to meet you in person, as usual, prior to the pandemic because this is my first Capital Markets Day, as you know, but rest assured, we are equally excited that once again, as Konstantin said, many of you are joining this fully virtual event. Just recently, we had the chance to discuss our strong H1 performance with many of you. Today, we would like to build on this By sharing our plans and priorities for the years to come, what are the implications for the midterm outlook And of course, our key drivers of growth. I will start with a high level perspective of the group And then present our updated strategy, while Marcus will follow with a more detailed view of the financials.
Later today, as also Konstantin mentioned, our sector CEOs, Peter, Matthias and Kai, Together with their teams, we'll provide you with an even deeper insight into our 3 business sectors. So let's get started. Here you have the agenda for the presentation. If I had to cut it short, This is what I would like you to take away from today's event. Merck is a unique company.
It's a globally diversified Leading science and technology company, excellently positioned to capitalize on some of the most important growth trends of the 21st century. Based on our strong innovation platform, we now aim to accelerate Our science and technology leadership and to mobilize for growth through focused and disciplined capital allocation. Continued long term orientation as part of our DNA will be reinforced By stepping up our sustainability efforts, we will place even greater emphasis on organizational agility, Diversity and inclusion and cost discipline. The combination of talent and a high impact Driven culture will power our growth, and my management team and I are firmly committed To further unleash in the tremendous potential of our organization, take Merck to the next level by successfully executing our plans I'm turning this vision into reality. Today, we would like to give you additional reasons to believe, Reasons to believe in our ability to deliver long term efficient growth and To generate sustainable value, thus, for our owners, for our shareholders and for the society at large.
Having said this, let's dive straight into Chapter 1. Let me briefly remind you of our very unique and compelling position to capture the key growth trends today and in the future. Over the recent years, we have established a highly solid position, resulting from highly mindful portfolio choices. All our end markets are growing structurally above global GDP, And our focused markets are growing at an even faster rate. We have strengthened Our capabilities and shaped our culture to earn the right to win in high growth segments, And we will continue to do so even more vigorously going forward.
The priority investment focus will be in our so called big three, Namely process solution, new health care products, our launches and semiconductor solutions. And more about this later and, of course, in the afternoon sessions. Let me also highlight That COVID-nineteen pandemic is not only a source of near term upside for certain parts of our business. It is also a structural accelerator of important trends that we serve and technologies That we have the ability to shape. Think of novel modalities such as mRNA, cell biology, Think of digital and data in a world that has only started appreciating the value of virtual interaction, Whether in private or professional settings with customers, suppliers or important stakeholders like you, all of you here today.
I am stating the obvious if I say the world has changed and is not going to return to any new The developments around us are further crystallizing the tremendous potential of our unique setup with leading positions in the fastest growing science and technology markets. As you are very well aware, we operate 3 business sectors: Health Care, Life Science and Electronics. All of them are exposed to highly attractive macro trends. And as illustrated here on the slide, they are just Not the sum of stand alone businesses with a bright growth outlook. They are much more than the sum of the parts.
Our business holds the promise of becoming increasingly interconnected as we look forward to the future To support and to boost each other, to be further diversified and synergistic at the same time. In Healthcare, we are working at the forefront of enabling personalized medicine for chronic diseases like cancer, Multiple sclerosis and our fertility portfolio helps many couples to realize the dream of having children. In Life Science, we support our customers in speeding up scientific breakthroughs I'm providing better access to health care by making precision research simpler, analysis more accurate And the development and production of medicines more efficient. In Electronics, we are advancing digital living With our materials and solutions, we are poised to improve the way we generate access, Store, process and display information everywhere around us. And based on this strong setup, We benefit and we are expecting to benefit increasingly from this global and unique diversification, Both within and across our business sectors as well as in terms of end markets, End customers and multiple geographies.
At the same time, The macro trends that we serve are becoming increasingly interconnected as well from a technology perspective, In turn, providing us with potentially attractive intersectional opportunities. No matter what the future looks like, Our portfolio is at the core of what will drive societal change, and it is A uniquely relevant combination to enable human progress, our purpose. Our globally diversified business Provide us with a very solid foundation for continued strong performance In the longer term. And speaking about the longer term, we are convinced that accelerating Our science and technology leadership will be a must in order to unleash our growth potential. Disease prevention, personalized medicine and a rapidly growing number of treatment options suggest That we will live longer and healthier more than ever before.
This is great news. We will also likely experience unprecedented level of connectedness and augmentation. So the question is how and when will we get there? What Will allow us as a company to push the boundaries of human progress today And become a reality tomorrow. Of course, we don't have a crystal ball.
However, we do believe that several innovation fields will make a huge difference, including biotech, Next generation chips or human machine interfaces, Leveraging the knowledge and expertise across several disciplines is going to be also Key to harnessing disruptive technologies or participating in adjacent fields. Our leading positions across 3 business sectors, which are at the heart of The future's potential put us in a sweet spot to scout new trends and to drive key innovation. One example is our new bioelectronics innovation field, where we recently announced 2 collaboration combining our expertise across medicines and drug delivery with the neurostimulation technologies of our partners. Another example which is known to you is our Clean Meat project. Here, we are pulling together our know how in Health Care and in Life Science and have also established early 2 strategic partnerships already.
Looking ahead, we will focus on expanding our internal innovation capabilities and making our internal R and D model more productive While further strengthening our growth network with industry leaders, Startups and obviously with academia. Important vehicles in this context RDM Venture Funds with hubs in Europe, in the U. S, in China and in Israel As well as the Global Innovation Center here at our global headquarters in Darmstadt. As you can see on this slide, we have chosen the Innovation Center as the background For the introduction of our new strategic framework. So bringing together what I have already said, our direction is very clear.
We aim to mobilize for growth with a stringent focus on the big three To continue our successful journey of efficient growth, accelerated science and technology leadership will build the frame, Endorsing innovation as the key driver of sustainable value creation. How will we achieve this? Well, through focused and highly disciplined capital allocation based on a systematic And very well structured approach that puts the enterprise view At the center. We will continue to be guided by our share values and step up our sustainability efforts, Consistent with our long term orientation as a family owned business with a proud legacy of over 3 50 years. Finally, we will put even more emphasis on leadership and culture, Organizational agility, diversity and inclusion and cost efficiency To fully unleash the potential of this great organization.
Moving on to Chapter 2. At group level, our growth ambition can be summarized to 20 5 by 20 5. This means we are confident that we will be able to deliver sales of about €25,000,000,000 by 2025. Please note that this will largely come from our organic business, including only modest Contributions from potential bolt on M and A. As we have repeatedly said, for the moment, we don't see the need for large transformational moves Anne will stay on focus around complementary small to medium sized deals As more likely.
In fact, and I have said this many times before, We are operating already in a very solid position of strength. We face major organic growth potential across Organic growth has already accelerated and will be further boosted this year by significant COVID related business, Especially in Life Science. While still difficult to predict, we assume that these COVID related tailwinds Will fade over time. Nonetheless, we expect to add over €1,000,000,000 in Sales per year organically, and this includes 2021 every year or starting in 2021, every year Through 2025, on more than €5,000,000,000 in total, which translates into a group organic Sales CAGR of around 6%. From a portfolio perspective, about 80% of that growth will stem from the big three.
The rest of the business We'll also continue to grow. And thinking even longer term, we have good reasons to be confident That our growth story will further unfold in the second half of the decade. As in the past, We are not providing explicit guidance on margins. However, we are Firmly committed to efficient growth. And efficient growth goes 1 step beyond profitable growth.
It means that we aim to very diligently manage every coastline With a goal to combine attractive near term earnings growth with sustainable long term value maximization. The growth that we promised will be fueled by targeted and disciplined investment In a magnitude never seen before. In total, we are ready to invest over €30,000,000,000 in CapEx, In R and D and in M and A over the period between 2021 2025. This represents an increase of over 50% compared with the prior 5 year period. Of course, actual spending on M and A or in licensing is highly dependent on opportunities.
You know that. However, I can tell you that our deal pipeline is nicely filled and that we will be ready to move when time comes. In contracts, our R and D and CapEx plans are very, very tangible. We have publicly announced Several significant projects in key growth portfolios already, such as single use assemblies, filtration An antibody drug conjugates, and you will definitely hear more from us moving forward. Today, I would like to spend some time taking you through what is our investment decision making frame.
Given the size of our business and the numerous growth opportunities in front of us, we need a very well structured approach To strategic capital allocation, and this is going to be now even more important than before. My colleagues on the Executive Board and I Are determined to ensure that decisions are taken first at the right level and that the trade offs are considered with a very accurate level of detail. Hence, instead of looking at sector or product level, We focus at enterprise planning units. As can be seen on the chart You have in front of you, we have more than 20 such planning units in total, with about half of them Within the scope of the big three, the chart is only for illustrative purposes, and you will understand that we are not going to share any details About what is behind the individual planning units. What I can say is that the size of the enterprise planning units Can be different.
For example, depending on the strategic relevance, impact of future growth And that the number can evolve over time. More importantly, our plans foresee to allocate over 70% of our total investment between 2021 2025 to planning units within the scope of the big three, Our key growth engines. And Marcus, in his presentation, will talk a bit more about portfolio roles And the financial framework that we have for strategic capital allocation, further adding to the high quality approach that we pursue. So let me now move on to the updated view on the midterm outlook By business sector, starting with Life Science. 1 of the most frequently asked Questions we receive about Life Science these days is what is the outlook in the context of COVID?
What has Change and what does it mean for your growth profile. As the chart indicates, The Life Science market has witnessed a significant boost from COVID. In the early days of the pandemic, The base market was pulled back by the lockdown effects. You know that. That is significantly reduced lab activity, especially in academia.
However, this was more than offset by businesses related to COVID diagnostics, To COVID vaccines and to COVID therapeutics. Since the middle of last year, the base market has started to progressively recover. And by now, activity levels are largely back to precrisis levels. In the medium term, we expect the base market to emerge on an even slightly higher growth trajectory. With our model suggesting growth in a range of 5% to 7% versus the 5% to 6% prior to the pandemic.
Important drivers include the arrival of novel modalities and The rising demand for services. Getting back to COVID, demand related to diagnostics Has recently peaked and is set to fade with rising vaccination rates. At least this is our assumption. Demand related to vaccines remains high. And while it should eventually fade as well, The outlook is highly dependent on virus mutations and on the potential need for booster shots, Which, by the way, have already started.
Rest assured, we are preparing for Alternative scenarios, numerous scenarios and that we, most importantly, will supply what is needed. So turning to the outlook for our Life Science business. In essence, The message is stronger for longer reloaded. We are absolutely committed to fully capitalize The tremendous potential on this highly promising business. Yes, we are not a process solution pure play, But our business model will be shaped to operate as such.
We will invest More than ever before, we will expand our capacity and our network significantly to be able to fuel the growth of our industry leading Folios, especially in bioprocessing. We will aggressively scale up our Service offering across traditional and novel modalities, including mRNA, and we plan to complement Our offering and capabilities by targeted bolt on M and A. Research and Applied will be selectively strengthened, and those remain vital to our diversified portfolio And not only for cash or resilience, but more importantly, for innovation and Trend scouting. Our focus on innovation, digital and rapidly evolving markets in APAC, Especially China will increase significantly. And I encourage You to join Matthias and his team for even deeper insights in the afternoon session.
In his presentation, Marcus We'll also speak more about the composition of growth and what are our assumptions around COVID-nineteen. But above all, we reiterate our bullish stance on Life Science And remain confident in continued above market growth. Dash, Despite the expected negative effects from fading COVID business, We also raised our midterm guidance further to an organic sales CAGR to Going from 7% to 10%. Now turning to Healthcare. Let me start with a brief comment on the market trends.
Growth in oncology, our largest therapeutic area, continues to be highly attractive. And the movement towards Precision Medicines remains fully intact. At the same time, Cost pressure is rising across the industry. And pricing, we are expecting pricing to be likely more volatile. Against this background, we are confident in growing our Healthcare business sector further Based on our strong track record and a solid position in key therapeutic areas, We are at the forefront of driving innovative models of treatment personalization, Satya's in fertility.
We have developed a long term strategy in oncology with a diversified clinical portfolio. Our globally diversified footprint in terms of R and D, manufacturing and Commercial provides us with significant competitive advantages. For example, we have limited exposure To the U. S. Pricing reforms.
We can react quickly to local market trends, And we enjoy the benefits of a broad spectrum of payer types. Our overall R and D strategy is evolving further. We continue to explore different assets, but intend To be significantly more focused in terms of therapeutic areas. As such, we are moving From correlated to distinct and correlated risks. The variety of pathways that we Explore will be supported by new modalities, and we will focus on market segments where we can really make a difference And have the ability to win.
And the licensing of Sevina Pan is a great example in this context. Or think about our focused approach when it comes to the development of other later stage assets Such as evobrutinib and tepotinib. Commercially, we continue to build on a highly resilient portfolio of established products, And we will further drive the uptake of recent launches, such as Mavenclad, such as Bavencio And of course, tepotinib. To sum it all up, we are introducing our new midterm financial ambition for Healthcare today. This calls for organic sales growth in the mid single digits and will be supported Not only by our confidence in the trajectory of established products and recently launched products, But also by risk adjusted contributions from pipeline assets.
Longer term, Optionality could be even more compelling. And Peter and the health care team will be delighted To provide you with additional color on key initiatives later today. Moving into Electronics. Here, the environment couldn't be more vibrant. Major technology trends such as 5 gs, big data and the Internet of Things are on the rise and will inevitably continue to drive exponential data growth.
This data will need to be generated, processed, stored and interacted With one way or another requiring semiconductors and displays in countless applications And implying strong and sustainable demand for our solutions for the electronics industry. You have seen that semiconductor companies and governments around the world Half announced €1,000,000,000 of investments in the field, which provides clear evidence for Further acceleration of our end markets. Following the very successful turnaround of our electronic business sectors, We are in a very solid position to capitalize on these promising opportunities. I would qualify this as Excellent, excellently positioned. Not least, thanks to the very successful acquisition of Versum.
And thanks to that, we have established one of the broadest and most relevant portfolios in the industry. We are firmly committed To fully capitalizing on the potential of semiconductor solutions as one of our key growth engines, We are enabling breakthrough technologies in high value areas of wafer processing, helping our customers make Smaller, faster, more energy efficient and more sustainable devices. Together with our customers, we are pioneering in exciting areas such as the high throughput experimentation For novel wafer processing materials and big data and artificial intelligence projects that will allow us to Pours once again the boundaries of quality and innovation in the materials space. Overall, our focus have She shifted from building a platform to executing on growth, and we will significantly accelerate our investment An innovation in full sync with the plans of our customers. Kai and his team We'll today providing you with additional details on how we will achieve this During the afternoon session.
But to make a long story short, if anything, our excitement for the outlook of electronics Has also further increased. As such, we are raising our midterm guidance and now expect organic sales growth In a range of 3% to 6% for the whole sector. So now let me move to the final chapter of this introduction today, Covering what I consider to be fundamental enablers of our performance. I firmly believe that our culture and the way we operate as an organization will be vital for continued success. Different dimensions need to go hand in hand.
And while Marcus will cover a bit more on processes and systems, Let me speak about our operating model and our people and talent strategy. Our pioneering concepts For flexible and remote working, which we have implemented already before the pandemic, have paid off extremely well. Obviously, during the pandemic, even better because we were very well prepared. And we are now accelerating new principles to further leverage our Positive experience in terms of employee performance and employee motivation and engagement. We continue to work to cut hierarchy levels, micro teams And bureaucracy overall to enable faster decision making and to drive increasing organizational agility As key accommodating factors of growth, the Board and our HR teams are increasing Efforts to attract new talent in accordance with our expansion plans, including different skill sets, Such as data scientists and geographically placed in regions of growing importance for our growth, Such as the U.
S. And China. We are also putting extra emphasis on continuous learning and development of our managers to further strengthen our Leadership culture. The focus will be on driving encouragement, empowerment and accountability. And the focus will be on creating a working environment to foster innovation and also an environment Where our people can thrive.
Above all, our people strategy is deeply rooted in a commitment to increasing diversity, equity and inclusion. Allow me to address this important topic a little bit further. Diversity, Equity and Inclusion contribute To our financial ambition, I consider that to be a competitive advantage, contributes to our talent objectives and enrich Our purpose. We need people with different cultural backgrounds thinking, talking and leading differently, Most importantly, post COVID, the more diverse our human capital is, The better we can address the current and the future challenges to make a positive difference in people's lives. We have made great progress on several fronts and have set ourselves new ambitions for the Near future.
This will be supported, of course, by a range of initiatives and led by a newly appointed Chief Diversity, Equity and Inclusion Officer. The proportion of women in leadership roles already increased to 35% by the end of last year, And we are now aiming for gender parity by 2,030. Achieving this We'll come with different challenges across the different industries that we operate. However, we are prepared to tap into the growing Thanks to our excellent geographic footprint, we can leverage local talent and diversity across racial and ethnic minorities In key markets to better understand our customers. And as such, we aspire to increase the share of underrepresented Ethnic colleagues in leadership positions in the U.
S. From 20% to 30% and the share of nationals from Asia, Latin America, Middle East and Africa in leadership roles from 16% to 30%, both by 2,030. Beyond our aspiration to foster specific types of diversity and equity, we will continue to accelerate efforts to create a truly inclusive culture All our employees, this means that through to 2026, all our leaders will be participating in programs which will help them reflect On how they can live more inclusively. Diversity is an expression of flexible structure and forward looking behavior. And the same is true for sustainability.
The world is facing numerous societal and environmental challenges, and we as a company are fully committed To mitigating issues today and turning them into opportunities for the future as best as we can. Almost a year ago, We introduced new strategic sustainability goals built on what we have achieved and aimed at delivering much more in the coming year. 1st, in 2030, we will advance human progress for more than 1,000,000,000 people globally through sustainable science and tech. 2nd, by 2,030, we will integrate sustainability into all our value chains. And last but not least, by 2,040, we will achieve climate Neutrality and significantly reduce our resource consumption.
Earlier this year, we introduced concrete Targets for reducing greenhouse gas emissions, water and waste. And in May, our general Assembly approved the new executive board compensation system, which will be directly linked to ESG. Meanwhile, we make progress in developing a set of suitable KPIs for external reporting, and Marcus will certainly update you On the ongoing and upcoming rollouts, I am absolutely convinced that accelerating our science and tech leadership will be the key enabler Of our positive impact on society and the environment. Sustainability not only guides our behavior in our day to day operation. Our stakeholder interaction and the development of our people is a key element of our R and D roadmap across all business sectors.
And this means that more and more of our products and technologies will directly mitigate ESG risk or contribute To solving more of the greatest sustainability issues that we face, resulting in mutual benefits For society, the environment and importantly, our business performance. So let me Conclude by summarizing my key message for you today. We are operating this company From a position of strength, solid strength, we aim to accelerate our science and technology leadership to mobilize For long term efficient growth, we are significantly boosting our investment based on a very well Structured approach for capital allocation with a clear focus on driving further innovation around the big three pillars. Last but not least, we will put greater emphasis on culture and leadership and sustainability as key enablers of our performance. Rest assured, we are absolutely committed to executing our plans with vigor, And we are highly confident to deliver on our ambitious goals, taking Merck to the next level and creating sustainable value.
Thank you very much for your attention, and I look forward to reconnecting with all of you during the question and answer session. And with this, please, Markus, come to the stage to continue the discussion.
Good morning, everybody. Warm welcome also from my side to this year's Capital Markets Day, And I'm here actually to provide you the financial perspective on what Belen has just outlined. So I think Belen has given you a nice overview On the priorities, what we plan to do actually where we put our bets in order to mobilize our company for growth In the next couple of years. So the financial perspective, actually, I want to focus a little bit on performance and efficient growth. That is actually, as you know, nothing new for us.
After the investment year 2018, we have We've geared our organization, our company strongly towards profitable growth, as you know. And as Belen has explained, The notion of efficient growth is relatively similar to profitable growth, but however, with a different Twist with a very strong focus on costs. Actually, from my point of view, there are Three aspects which I want to mention here to highlight a little bit this performance and efficient growth priority. On the one hand, And that will be tackled later in the presentation. Strategic capital allocation will become more important than ever.
The reason is, as you know, in the past, we have been engaged in big transformational acquisitions. The current situation going forward will likely call more For a string of pearls approach, which makes strategic capital allocation decisions more multifaceted and also in a way more complex. So we will dive into that. The second aspect, which is a little bit different is, I would say, an even stronger Outward perspective. I would summarize this in a short sentence saying, success only starts when and where We beat competition.
And thirdly, as Belen outlined, strong focus on costs but also on cash and capital. Also this, we will tackle later in the presentation, and that is basically the agenda which we dive into over the next 25 to 30 minutes. Let's jump into the topic and start with capital allocation. In the last couple of years, We were basically very often or almost, yes, I would say quite regularly facing the challenge that we have more growth opportunities And I can tell you this challenge is more true than ever. So that means the ever repeating question, where do we get the best bang for our buck, also very relevant over the next years to come.
The good thing is that we are looking into the future from a position of strength, And that has actually 2 very concrete implications. One is the already mentioned focus more on smaller bolt on acquisitions over the next couple of years rather than one big transformational move simply because we don't need it at this point in time. And secondly, and that is a direct consequence out of that, we want to strengthen all of our 3 businesses going forward. So having this in mind, let's have a look on how concretely we do strategic capital allocation. You can see on the slide the metrics On the x axis, market attractiveness.
On the y axis, capabilities and competitive positioning. So what we have been doing is actually we have segmented our portfolio in So called enterprise planning units, as Belen said. And those enterprise planning units are actually guiding, driving our decisions in the future For the allocation of capital, we have had 2 things in mind. First of all, the enterprise planning units Need to exhibit all the necessary the important characteristics of the businesses. So it's a kind of steering unit in our portfolio.
And secondly, also, it needs to reflect the appropriate level Or aggregation where we as an executive board still want to engage ourselves. And as Benen explained, sector level is way too highly aggregated, But I think it's quite obvious that we would also not involve ourselves on the level of single products, yes? So that led to the enterprise planning units. And the 3rd aspect that we should have in mind is when looking on strategic capital allocation decisions based on these enterprise planning units, That we need to keep the cash flow balance for the company. That means we have to have a balanced picture between Enterprise planning units where we invest and, on the other hand, those who generate cash and to finance our investments.
So in a nutshell, when we look on the portfolio of enterprise planning units, We can say we have currently a strong and well positioned portfolio. That was also, I think, evidenced In the most recent corona crisis. Secondly, from let's say, we look on it from a rating perspective, We have also very, very clear advantages of our 3 pillar structure of 3 distinctly different business sectors, which simply gives us More financial headroom when it comes to financing growth opportunities. And thirdly, when we look on it from a guardrails perspective, We can say we are very satisfied with this 3 pillar structure, and that means do not expect over the next couple of years that we are going to divest One of our sectors, but also do not expect that we are adding a 4th leg to the company. Of course, I mean regular portfolio reviews, as you know it from us, we will do from time to time.
Moving on to the next slide and shedding a little bit light on what kind of concrete actions Do the portfolio roles trigger? So what does it concretely mean when it comes to strategic capital allocation? You can see here on this slide that we have 4 categories actually in the portfolio: invest for growth and invest for leadership, manage So as Belen already said, the big 3 are predominantly Rooted in the invest for growth and invest for leadership categories. And the most important characteristic of these brackets is they are Eligible for M and A money, and they are also eligible for, so to say, bigger CapEx investments. Bigger means which Goes beyond just maintaining the asset base.
Additionally, obviously, we have much higher expectations when it comes to top line growth. And at least for the invest for growth bucket, we would be willing, at least for a certain period of time, to compromise a little bit on margin, although goes without saying that over a long period of time, all of our businesses have to earn their cost of capital. When we look on the manage for cash bracket, so why I'm not supposed to give you a lot of details which Enterprise Planning units are in which bracket? I think it is not too difficult to guess that, for example, parts of our base business in Health Our liquid crystals are located in that bracket. And here, the focus is on, let's say, moderate growth, But strongly on margins and on cash flow.
And those businesses located there, they are not really eligible for M and A money. I would say opportunistic acquisitions are thinkable in rare circumstances, but only when they provide an excellent financial profile. But it also does not mean that we are not investing there at all. Of course, we want to keep the engine running, so that means maintenance CapEx, of course, It's being done in those businesses. And last but not least, briefly, the evaluate sector is reserved For businesses that we are consider partnering, that we are considering for divestment or where we have a, for example, a turnaround job to do.
Moving on to give you a little bit more flavor on, let's say, the strategic capital allocation Decisions we have already taken, the approach that is likely over the next couple of years. So first of all, I want to start with the statement that On the back of very swift deleveraging after the Versum acquisition, we have been able to digest this move over the last 2 years, And that has led to an ADAPT TO EBITDA ratio now well below factor 2. And let's say, If we would be doing nothing in terms of M and A until end of 2022, a financial headroom In the high single digit €1,000,000,000 So quite comfortable starting position. I also want to reiterate again that we are and will be committed also in the future To a conservative financial policy, that means we do not walk away from the clear prerequisite That we want to maintain a strong investment grade credit rating at all times. So having said this, still, when we look on our 3 most important spend buckets, namely M and A, R and D spend and CapEx.
We will in order to Powered to foster our future growth, we will significantly ramp up the spend to more than 50% Or by more than 50% in the time period 2021 to 2025 compared To the time period 2016 to 2020. At the same time, following a focused approach behind our capital spend, As Belen already outlined, more than 70% of our capital allocation will go to the so called Big 3. If we look a little bit more into the details, what is in front of us. On M and A, I think I made my point just to reiterate once more That we will continue with M and A activity, but more bolt ons, more a string of pearls approach rather than A big transformative acquisition in the future. In terms of R and D, I think it is pretty clear.
If we are a science a leading science and technology company, innovation is amongst the thing that matters most to us. So that means R and D will play A critically important role going forward. We will continue to spend the major part of our R and D investments in Healthcare, obviously. So to increase R and D productivity on the one hand, on the other hand, also to build and further develop our pipeline. In Life Science, R and D efforts are mostly behind developing robust tools for gene, Cell and viral therapies and at the same time, enhancing our lipids portfolio further in nonviral delivery.
And in electronics, Belen already mentioned it, it is mostly enabling smaller, faster And more sustainable devices going forward. And last but not least, looking on CapEx, I mean, all of you know That there are plenty of unprecedented growth opportunities, especially at the moment in Life Science and in Electronics, On the back of the dynamics of COVID-nineteen, so where we are actually aiming To ramp up our footprint in the CDMO and CTO space, for example, there are a lot of opportunities And also to support our customers in the semiconductor industry who are currently investing 1,000,000,000 So if we want to remain a strategic supplier, we need also now to ramp up our capacities. All this will lead To an increase in our CapEx spend from currently a level of roundabout €1,500,000,000 to relatively Soon in the future to a level of SEK 2,000,000,000 where we expect to stay over the next couple of years. So Moving to a little bit more to the cost and efficiency part. Belen has elaborated on the people topics And on our operating model going forward.
I would focus a little bit more here on processes and systems. When we look on performance and Efficient growth. We believe that organizational agility is a prerequisite to keep costs under control And ultimately then, to deliver against our ambition of efficient growth. When we look a little bit On the slide here, we are not definitely not starting from 0. We have a proven track record By or driven or built up by big transformational programs, think about the Bright Future program in electronics, the recently Started Thrive program in health care, think about successful integrations after big acquisitions.
So We have gained a lot of experience over the last couple of years. What matters when we look on this topic? It is continuous simplification and harmonization with a global I mean, with 3 distinctly different sectors with a global footprint, we have a certain degree of complexity, And simplification and harmonization will drive cost efficiencies going forward. At the same time, we are moving away step by step from A functional view on our company more to end to end processes. We are leveraging new innovative technologies, Smart process automation as one keyword.
We have more than 100 robots, meanwhile, for example, in several finance areas under service or in service. And last but not least, also important to mention, quality or service improvements and cost reductions, cost efficiencies It's not a contradiction at all. And when saying this, I want to move to the next slide and explain a little bit Our journey in MBS. MBS stands for M. A.
C. Business Services, and it is basically our shared services backbone of the company. It is a journey we have embarked on in 2016, and it has, for example, already a proven Track record of delivering savings over the last couple of years. Against the baseline, the cost baseline of 2016, our ambition is To deliver €80,000,000 savings, of which we will have achieved 95 percent to €76,000,000 by the end of this year. I was, over quite a time, really optimistic that we cracked the idea also.
But unfortunately, here, the COVID-nineteen restrictions, especially when it comes to a lot of transformation projects that have to be done, has delayed the schedule a little bit so that we will Complete the €80,000,000 most likely by next year. We have seen at the same time personnel cost reductions by more than 20%, Almost 1,000 people shifting to our global shared service centers, which are located in Manila and the Philippines, In Breslau, in Poland, in Montevideo, in Uruguay, and we have also a center of an IT center of excellence In Bangalore, plus some onshore centers in our big locations in the headquarters in Darmstadt, in Boston and in China, The main driver of the efficiencies in an early phase of shared services, obviously, is labor arbitrage, but we are meanwhile already in Phase 2 Where efficiency come from further harmonization, automation and increased focus on end to end processes, what I already mentioned, Plus, the utilization of new technologies and ultimately also extending the service scope beyond Finance, procurement and HR, which are currently in scope of shared services to other group functions and potentially also In an, let's say, MBS 2.0 maybe at a later point of time, possibly also to the businesses.
When we look on cost consciousness on the next slide, Important to note that it is much, much more than just a single cost reduction program. We really want to anchor Cost consciousness and diligent cost management in our culture as part of our DNA. And let me outline 4 factors here, 4 different aspects. First of all, we are tackling basically with our cost, I would say, review and management efforts, A spend base of roundabout €5,000,000,000 So that is a big ticket item. And let's say, careful and diligent management of that to redirect funds and resources, 2 initiatives that are really supporting our growth.
At the same time, In this context, we have to mention COVID-nineteen. Why? Because on the one hand, It was fortunate for us that we have started this more diligent approach much more diligent approach to costs When COVID-nineteen came on us, because simply some of the work was already done, we were not starting from scratch When imposing or having to implement all the COVID-nineteen restrictions, we have to deal with since almost 2 years now. So At the same time, we have also observed that with the necessities that come along with COVID, We are finally in certain, let's say, cost items much, much more radical than we ever thought we could be. And that is at the same time a big opportunity for the future because you can rest absolutely assured that Belen and myself, We are super vigilant and super attentive that we would not easily switch back to pre COVID cost levels, But leverage the learnings, leverage the experiences from the pandemic in order actually to start into the future from a very different A much lower cost base than what we had in the past.
Very importantly, also here is the cultural aspect. From my point of view, there are 2 success factors to make this effort sustainable. 1 is Transparency. If when you want to have individual accountability, you need to be able to trace cost developments into the Most granular wrinkles of our organization. We have made a big step, big progress here, introducing, for a global cost object hierarchy this year, which allows us now to track costs and responsibilities, responsibilities on a very Granular level.
At the same time, what is also learning of the past couple of years, if you want to see behavioral changes, You have to anchor this into processes and systems. Only then you will be able to check behavior and to push the organization in a certain direction. And of course, we have solid proof points. I mean, euros 400,000,000 savings basically, as I said, admittedly supported by COVID-nineteen, But that is a big plus point driving also margins on top of the strong growth that we currently see. Main strong contributors here, categories like or cost items like, for example, travel and entertainment, Services and professional fees, communication and events, but also spends like marketing or warehousing and logistics.
Moving on to the outlook. H2 outlook or let's say, the entire year 21, as we have guided, in August, will be a good year. We have seen very strong growth in the 1st 6 months, Driven also by strong business dynamics from COVID-nineteen, and we will see also a good H2, however, lower growth rates. And that is not very surprising if you just remember that the COVID-nineteen recovery basically started In June last year, so we already had a pretty strong H2 in 2020. If we look on this a little bit more in detail and per sector, Let me summarize yes, let me summarize what is coming.
So in H2, Please keep in mind that the growth in Healthcare will be a little bit lower than the first half, 1st of all, because the comparables are much, much tougher and secondly, because H1 was benefiting from onetime milestone payments. So for example, for the Bavencio renal approvals in Europe and in Japan, but also from the onetime Lilly effect, So the supply agreement where we had the major part of the CHF 90,000,000 in total, namely roundabout CHF 50,000,000 in the second quarter And another roundabout €30,000,000 we had in Q4 2020, which means it increases our comparable basis in the second half of this year. In Life Science, the story is relatively short, namely a declining tailwind from COVID-nineteen, as Belen has already elaborated on. And in Electronics, actually, we foresee a pretty good, very strong second half of the year with even a little bit more growth dynamic Then in the first half of the year, on the back of a very strongly performing semiconductor business, remember Q1, the start into the year was a little bit softer And now also DS and S strongly delivering in the second half of the year. I make a short expose to our ESG targets and KPIs.
Before then, I will finalize the presentation with the financial perspective on the midterm outlook on the 3 sectors. On ESG, Here are a couple of topics which we are working on. Let me just mention a few of them. First of all, Still ongoing analysis of the requirements. On the let's say or having in mind a very dynamic Environment when it comes to stakeholder requirements on the one hand, but also activity from regulators And lawmakers, yes?
So we are we see a very dynamically changing environment, and we need to be up to our toes In order, let's say, to get the latest developments and also to adapt our action plans and strategy forward to the latest developments. What we are currently building up is a data platform that is super important actually to fulfill in the future the necessary ESG reporting And also to be able to get the most important KPIs for reporting, but also for business steering on a Systems based or from a systems based platform. I mean, imagine you would have to drag everything what is relevant in the ESG G context permanently with manual efforts out of our systems all over the world, that would be a big hassle. So we need a database In order to have a kind of automated reporting and steering. At the same time, and I'll come to that on the next slide a little bit more in detail, We will include sustainability metrics in our executive board compensation.
And last but not least to mention, Also, business steering in the future will be influenced by ESG metrics. Just think about 2 examples. 1 is We need to include ESG criteria, for example, into our due diligence approaches when it comes to M and A, And we need to find a way to incorporate ESG considerations, metrics, targets When it comes to, for example, decision making on CapEx projects, just two examples. On the next slide, you see for the first time KPIs, which we consider relevant, on the one hand, to achieve our 3 targets that Belen has outlined in her presentation But also on the other hand, to do business during, to report and finally also a combination of those KPIs We'll actually be then or find entry into the sustainability KPI that we will use in the future For executive board remuneration. We will publish this KPI for executive board remuneration latest At the AGM 2022 latest.
So now we move to the outlook for the 3 sectors, starting with Life Science. Belen has already made the pledge, 7% to 10% organic sales growth, continuously ahead of market and also a slight upgrade to From where we were coming from, the main driver, one of the big three, not a big surprise, Process Solutions With an 80% contribution to this 7% to 10% organic sales CAGR over the next Couple of years. The main drivers will be products for traditional modalities, so mainly for monoclonal antibodies. And here, we need capacity investments and network expansions as already outlined. We also want in the future to build scale In services for other modalities and monoclonal antibodies, that means we will be moving from a focus on monoclonal antibodies Now to a more multimodality game in the future with focus besides monoclonal antibodies on High potency APIs, antibody drug conjugates, viral vectors and, of course, Based on the recent breakthroughs also on mRNA.
And also, we will be templating products for novel modalities going forward. Applied and research are supposed after a temporary COVID boom, at least in Research Solutions, To return over time to the historical growth trends and to deliver low single digit and mid single digit growth, respectively. On Healthcare, the major growth driver over the next couple of years will be our new product pipeline our new products from the pipeline. In, let's say, the nearer future, it will be the usual suspects, Mavenclad, Parenzo, tepotinib in the more distant parts Of the midterm guidance, so in the later years until 2025, new products, think about Our BTK programs, so evobrutinib, on the one hand, bezuzatib, to be mentioned and also Xevinapant, which is supposed To contribute strongly beyond 2025. And last but not least, looking on electronics.
Here, the message is we are moving from transformation to executing growth. We have built our platform over the last couple of years. Now we are ready to harvest basically the fruits. Just a couple of proof points Our successful development, Bright Future transformation is close to being completed. We are delivering all of the savings, But earlier than planned, we are very well on track regarding the Versum acquisition integration.
We have built A strong, attractive growing portfolio with basically 10 almost equally sized portfolio units. The major part of this, so 6 out of that 10, located in Semiconductor Solutions, which will drive our growth going forward. We will see accelerated CapEx spend, as mentioned, and we have managed well we have stabilized display and managed well The turnaround in Surface Solutions. So all that will lead to a 3% to 6% CAGR going forward, Supported by a new growth program that we are just about to start in electronics, which is called LevelUp. Display solutions We'll see continuously a low single digit decline over the next couple of years.
And until 2025, we will see it, let's say, on the way, The turning point when finally OLED growth will be overcompensated overcompensating liquid crystals decline and will bring also display back to growth And surface, post COVID, supposed to grow low single digit. With that, Just a few words as executive summary. Our finance priorities will help us To accelerate our science and tech leadership, we are starting from a position of strength. We will be executing clearly defined enterprise portfolio unit roles in order to secure a targeted strategic capital allocation Approach, we will be very disciplined going forward, continue to be disciplined, and we will further work on our cost structures By leveraging organizational agility and also we'll add this focus also on cash And capital in order to maximize our financial value creation over the next couple of years. Thank you very much.
And back to Konstantin.
Thank you, Markus. This means that now we will be ready to begin the question and answer session. As a reminder and in the interest of fairness And to give as many of you as possible the opportunity to ask questions right now, we kindly ask you to limit yourself to 1 question per person. And with that, let me directly hand back to Sergey, our operator for the day in order to kick off the Q and A. So over to you, Sergey.
Thank you.
Thank you. We will now begin our question and answer Matt Weston, Credit Suisse. Please go ahead.
Thank you very much for the detailed introduction. My question is on your commitment to add more than EUR 1,000,000,000 a year in sales organically. It looks like in 2022, this could be very challenging given, based on your previous comments, we should Clansy, you're losing somewhere between EUR 300,000,000 €400,000,000 of COVID sales. You lose EUR 70,000,000 Erbitux to Lilly, EUR 100,000,000 GSK upfront and I think 50,000,000 Bavencio bladder milestone. So my question is, in 2022, that would suggest you need €1,500,000,000 to get to the growth commitment, and I just don't know where that's coming from.
Can you help me?
Markus, Yes. Matthew, thanks for the question. So it comes or it's supposed to come from A further ramp up of our new products, Mavenclad and Barenzio, which are supposed to drive health care growth like in the past To overcompensate for some onetime effect that might be missing going forward, in Life Science, We will see, let's say, in 2022, I would say, a COVID-nineteen tailwind, which is, ballpark wise, Nearly close to the same level to what we have seen in 2021. Plus, don't forget, we have also seen a nice acceleration In our base business, which we expect actually to continue and to see also in 2022 and In Electronics, we have the strong growth trend dynamic in Semiconductor Materials plus the DS and S business, Which will drive the growth in that sector. So putting all this together, we are confident.
I mean, it won't be a walk in the park, that's for sure, but we are confident that we can reach this ambition even also in 20 '22.
Thank you. If I could just have
a quick follow-up to understand then. It would seem that you've changed Your guidance around the COVID effect. So previously, I think, Belen, you said SEK 1,000,000,000 this year moving to at least SEK 700,000,000 in 2022. It now suggests that you can do meaningfully better than the at least EUR 700,000,000 in 2022 and that will be quite
Matthew, we haven't changed our guidance for Life Science. We said at least EUR 700,000,000 Incremental sales in Process Solutions, not COVID sales only. Remember, Our growth in Process Solutions is driven by our core business and COVID equally. And the outlook that we have presented earlier this morning is Integrating the numbers that we have mentioned before.
Just to reiterate, Ma'am For process. Yes. The SEK 1,000,000,000 that we have given is all in. So that means it's processed around about SEK 900,000,000 And also more than €150,000,000 roundabout in research. In process for 2022, we said Something more than SEK 700,000,000.
And I also said it's not exactly the same. It is in the same range. So it might be relatively close.
Many, many thanks indeed. I look forward to this afternoon.
Thank you, Matthew.
The next question comes from Peter Verdult from Citi. Please go ahead.
Thank you, Peter. We can't all be in downstairs, Philippe, but thank you for the presentation. Marcus or Belen, realize you probably don't want to be put on the spot With respect to margins, so I'll frame my question as follows. You've highlighted your revenue outlook. Consensus is around €7,500,000,000 of EBITDA In 2025, that implies a broadly sort of flat margin to what you are going to do In 2021, so that seems to allow for investments in the business, perhaps margins at Life Science easing a little.
But is it right to think that the spirit the way we should interpret it is that it very much leaves risk to the upside given your comments on driving efficient growth? So I'm just trying to push my luck and to see how far you're willing to discuss the margin outlook midterm. Thank you.
Peter, thank you so much. You know that we are not going to guide on margins. We have never done it before. If you combine growth expectations, Which is our main goal at this time towards the coming years With a stringent cost management in which we already have a significant track record, We see opportunities. When I speak about efficient growth, I take it a notch ahead of profitable growth because we are already operating on profitable growth.
So for me, Efficient growth, and I am very confident that we are extremely well placed to deliver on that, means that profitable growth is not enough. Basically, we will manage every coastline of the P and L to keep it Very efficiently driven. But of course, As you rightly said, we need to feel growth at the same time. So I mean, I already gave A perspective of where are we investing, how much investment is behind growth. So up to 70% of our investment is behind the 80% expected growth of the big three.
And I am Very relaxed that we will continue on a good trajectory and deliver efficient growth.
Thank you. Our next question comes from Vimal Kapadia from Bernstein. Please go ahead.
Well, great. Thank you very much for taking my questions and thanks for the presentation. So I just wanted to ask a little bit about M and A and your bolt on strategy. Within Life Sciences and semis in particular, which parts of the value chain or what skill set do you think Merck is actually missing that ideally you would like to bolster? We're actually happy with 2 of the 3 big growth drivers,
and those businesses are more about internal investment, Jeff highlighted already today. Thank you.
Thank you, Wimal. Look, we are not looking at M and A to fill gaps, right? We are looking at M and A to drive growth, Right. So that is the frame guiding us. And therefore, you could expect that we are Enhancing our service business and really looking for opportunities and targets that will actually fit The strategic frame that I have already presented during the introduction, Marcus, I don't want to I don't want I don't know if you want to add anything.
But keep in mind that we are not filling gap, right? We are absolutely aware that driving Life Science growth and delivering on those growth expectations We'll require organically, I'm talking now about the organic piece, we'll require that we prepare the organization to deliver on that growth. And This is something that is a top priority for the board, right? When it comes to M and A, no gap filling, simply growth Contribution, additional growth contribution on what you have seen.
Okay, great. Thanks very much.
Our next question comes from Michael Luchten from UBS. Please go ahead.
Thank you very much, and thank you for the presentation. My question is on payback period. I guess this is more Marcus. Marcus, you've grown the top line since 2018 all in Excluding currencies, by about 8% for the year, I think. And now the investments are going up by 50% across CapEx, R and D And the like.
And the growth is 6% going forward. So when I think about this from a return on capital perspective, Is that CapEx or sort of investment increase a reflection of a slight underinvestment over the last few years? Always the capital intensity increasing going forward such that the growth that you get from the incremental investment Will it just be lower than it has been in the past? Thank you.
Let me speak a bit of the extra date perspective, and I'll let Marcus to deal with the financial piece. Look, Our CapEx investment, once again, is mainly dedicated to Expanding capacity for Life Science, mainly process, mainly single use, mainly filtration and other modalities And then new technologies, both life science and electronics. And a smaller Intensity in Healthcare, which, of course, is more driven by R and D. So that is basically the reason why We have significantly stepped up our CapEx investment once again to be able deliver on the growth expectations that we have promised this morning, return.
Yes. Maybe two comments to add to that. First of all, Michel, do not forget That we are also, let's say, in the years now, 2021 to 2025, are laying the foundation for strong growth beyond 2025. Yes. So that means we always have a kind of mismatch over time because investments come earlier than the returns.
That is one thing. The second thing is when we look on our midterm financial projections, Return on capital employed as well as economic value added both play a major role in our considerations. So We would not enter into an investment plan by when this would mean that we would be reducing return on capital employed Or EVA. Acquisitions is a little bit a different story because then you always have a jump in capital employed And a, let's say, spruumfix, yes, decline in EVA as well as in ROCE. But when we look on organic growth plans, They are accompanied by an increasing return on capital going forward for the company and for the savers.
Thank you. The next question comes from Richard Vosser from JPMorgan.
Just going back on the M and A. If we think about the contribution You mentioned from M and A to your sales growth target for each division. Should we expect in the M and A to take The growth to the top end of those ranges, with the middle more an organic level of growth. Yes. Belen, you mentioned a small contribution from M and A, but how should we put that in perspective to the growth?
Thank you, Richard. I'm not going to give you the exact breakdown, but assume that the majority of what we have presented this morning is coming from organic sales. The very high majority, very modest contribution from potential bolt on M and A.
Yes. I mean, just make the math, Richard, yes? So the guidance for this year is 19 point something, yes? So In 2025, we aim at being at 25,000,000,000 and we say each and every year more than €1,000,000,000 plus from organic. That doesn't leave you a big gap actually as a residuum, and that obviously has to be filled With M and A, and don't forget, we have one variable included, which nobody of us can foresee today, which is currency, yes?
So that is that's not a precise guidance. It's an ambition that we want to achieve in 2025 with organic growth as a major contributor by far.
Cool. Thank you.
Thank you.
The next question comes from Gary Stivendron from Exane BNP Paribas. Please go ahead.
Great. Thank you for taking my question. I should come back on M and A as well. So when you talk to M and A and bolt ons, just wondering how much of A consideration, it is in maintaining kind of a balance between the 3 divisions, really particularly considering that looking at larger M and A longer term, Life Sciences is now quite large within the group. Thank you.
Thank you. Thank you for your question. I already hinted A bit during the introduction that we are going to be extremely disciplined To focus our M and A investment on around the big three. So Are we going to equally distribute? No.
This is not coffee for all, right? So it's going to depend on how much value we create with what Opportunity. And of course, as I said, I feel very comfortable With the deal pipeline that we have at this time in the company, and we will make choices according to The very rigorous process that I have sketched during the introduction, looking at Enterprise planning units rather than sectors. And of course, forget about it. This is not going to be allocating equally to each and every sector, but rather driven by what is Who is the winner in terms of or which one is the winner in terms of the value creation when we look at this at the planning unit level?
Thank you. The next question comes from Luisa Hector from Derenberg. Please go ahead.
Well, good morning. Thank you for taking my question. I wanted to come back to the sales guidance And sort of explore your relative level of confidence in achieving the guidance by division And what the key risks would be to of a disruption that would mean you didn't achieve That level of growth. And I noticed that you had that little footnote on the Life Science with some guidance to The growth rate sort of with and without COVID in 2025, I wonder if you could just expand on that a little bit, please. Thank you.
Luisa, thank you for the question. I think we have Marcus has elaborated on the Growth contribution. I mean, we are I said during my introduction, we are bullish on our Life Science Outlook, we have reflected that on our increased guidance. We are Confident and encouraged by the signals that we are receiving in 2021 Coming out of our launches in all geographies. And when we look at the very vibrant Semiconductor segment, when our customers are investing, €1,000,000,000 we are once again confident that this is going to be Realizing, I mean, 80% of the growth we have presented comes from these 3 pillars.
So if you look back, right, I feel reasonably confident that our core business in Healthcare will continue to Behave as we have communicated before, that our core business in Life Science will continue to grow. And that in Electronics, we are going to be mainly driven by semiconductors. With the liquid crystals Business, display business, declining in the range we have said. So all put In the analysis, I feel reasonably confident that we are very well placed. And we have a track record, right?
So Marcus, anything to add?
Just that I'm as confident as you
share my confidence. Yes.
So equal levels of confidence across the victory?
Equal level of confidence across the VIX 3.
Yes.
You mean yes, that's what I meant.
Yes. Yes. Super. Thank
you. The next question comes from Falko Friedrichs from Deutsche Bank. Please go ahead.
Thank you. Good morning, everyone. My question is on the investments And that 50% increase over the planning period, could you briefly summarize for us what that means in absolute terms? And out of this absolute amount, what would be the split between OpEx and CapEx? And then a brief follow-up for Markus.
I think you mentioned that this EUR 2,000,000,000 CapEx spend in 2023 is something we should also assume for the years thereafter. And did I understand that correctly?
Go ahead.
Yes. So thanks, Feike, for the question. So when we look on the 3 spend buckets, M and A is, in a way, a placeholder because we don't yet exactly know
How this
is going to play out. CapEx, you can think about some CHF 20,000,000,000 from 2016 to 2020, Raising to SEK 30,000,000,000 from roundabout ballpark, yes, from 2021 to 2025. In R and D, we think about further increasing spend numbers in absolute terms, But declining ratio in percent of sales and the €2,000,000,000 CapEx bucket, You will see or we will see already quite a significant ramp up to a level relatively close to the EUR 2,000,000,000 in 2022, but then a much more flattened development over then than the coming 3 years from 2022 to 2025.
Excellent. Thank you.
Our next question comes from Shashin Jain from Bank of America. Please go ahead.
Good morning. Thanks for taking my question and thanks for the presentation. Just one question on the Life Science guide. It's clearly been conservative over the last year, understandable given the uncertainty. I just wanted to understand better What is included within the CHF 700,000,000 floor for 2022 and the new low-tomidteens process guide and what is upside As we think about mRNA modalities beyond COVID, such as flu, and you mentioned the initial receipt of booster jabs, so just want to clarify what's in and what remains upside.
Thank you.
Sachin, I think you will have the chance to look At the Life Science outlook with a lot of granularity today with the team. But we have been Speaking very often, including in the last quarterly call on this topic, and we have already acknowledged That based on the expectations That have been communicated to the market in terms of vaccine doses and boosters. We have we are expecting at least EUR 700,000,000 for our Life Science business. And I don't know exactly how much is this this is coming from COVID, but we can assume it's
The 700 plus is COVID saving for process.
Exactly. It's COVID it's got 700 COVID sales for process in 2022. So we have Assume that the vaccines doses will be as communicated, right, And forecasted as such. And yes, small quantity for boosters as well.
Yes. But that's important, small quantity. So we have not Included in that forecast, let's say, a massive ramp up of the big booster programs all over the world. That is not included. If this comes, that would present a further upside from our today's perspective.
Thank you. And then on MR
and A modalities beyond COVID, just what's assumed there and what's upside? Thank you.
MR and A modalities, Sachin, can you say again? Beyond COVID
Other than COVID.
Beyond COVID, in the So
just for example, if we see MR and A Hey, Helene, can I go on?
Sorry, I didn't hear you well. No, no, absolutely. We have we the forecast is assuming Mostly vaccine and small quantity of boosters, no other therapeutic areas, if this is what you mean.
That's very clear. Thank you.
Thank you.
The next question comes from James Quigley from Morgan Stanley. Please go ahead.
Hello. Thanks for taking my question. I've got one on the EPU structure. So where are What are the key benefits of an EPU structure? And how deep does it go?
Is it more of a board management tool? Or are there individual Units or areas within the business actually managed that way? And then are the managers Within those EPUs, are they compensated on an EPU basis or more of a divisional basis? And then What's how are you going about extracting synergies between EPUs? Or is it a case that each EPU is stand alone so there wouldn't be that much in terms of synergy?
Thank
you. Right. So what I mentioned in the intro is we have the Going below sector and even business units allows us to better understand the trade offs And make better strategic capital allocation decisions. That's basically the point. So We don't look at the sector.
We don't use the sector exclusive view for making our capital allocation decisions. See much more benefits on actually isolating the planning unit and Integrating the strategic importance of that planning unit, mainly the contribution to growth And what the potential inorganic move will bring over the baseline. So That's basically the high level perspective. As I mentioned to you, we have 20 planning units and half More or less half of those are associated to the big three pillars that we have been discussing this morning. So I don't know if you want to add anything to that, Marcus.
But to us, it's really giving us the chance to be more strategic And to do not be biased in a way, right, by the sector view, but rather by the strategic importance Of the specific planning unit and the increasing value creation that we can generate over a baseline scenario.
Maybe just one thing to add. There is individual accountability behind the enterprise planning unit, so we can Catch the people who are running the EPUs. On the other hand, there are, of course, let's say, when certain EPUs are belonging to one sector, There are synergies on the one hand, but also, let's say, common cost basis, etcetera, which we cannot easily Fully allocate to the EPUs, yes? So that's also important to note.
But it's definitely it Tas, you have to disconnect this from I mean, this is not an organizational topic. So several planning units Can be led by the same leader, and some of our leaders can be accountable for several planning units. So disconnect that from the operating model.
Our next question comes from Daniel Wendorff from ODDO BHF. Please go ahead. Yes, good morning, everyone, and thanks for taking my question. It's Also a follow-up question on M and A. Can you imagine at all that there might be a once in a lifetime opportunity which would require A bigger investment?
If yes, would this be considered at all? Or can you just simply say from the pipeline you see from your portfolio, we just don't see that there is a once in a life no, life once in a lifetime opportunity visible for you. So any More color, whether you can really completely exclude big M and A would be appreciated.
Look, I said for the moment, we believe that we are well placed. We have to invest On increasing the productivity of our internal innovation, and we see opportunities to accelerate growth, Potentially accelerate growth beyond what we have communicated to bolt on M and A. That's basically The frame that we are using today, are we open to something bolder? I mean, we are always open to something bolder if the opportunity comes, Right. But at this time, we don't believe that this is the right time, right?
And it's not because of Cash constraints or anything like this is because we are very well placed for growth. We are very, very, very well placed To drive the growth of the company to the years to come. But if the opportunity presents, We will definitely we look actually at bolder options.
The next question comes from Rosie Turner from Barclays. Please go ahead.
Hi. Thanks very much for taking my question. I just wondered if we could actually talk a bit more about sustainability. You certainly have one of the most Impressive profiles in that area amongst the companies that I cover. And just what
are your specific targets In
terms of those going into management variable compensation, and I wonder if it's possible to give us an idea of kind of what percentage of variable
Indeed, since 2018, The board compensation in the profit sharing component It's actually integrating sustainability and diversity, including diversity objectives. As of Next year, the weight as of 2022, the weight of sustainability in this Component of profit sharing in the board compensation will be further enhanced. So the answer is yes.
Great. Thanks very much.
Thank you. Ladies and gentlemen, we have time for an additional very short round of questions. The next question comes from Simon Baker, Redburn. Please go ahead.
Thank you for the presentation, and thank you for taking my question. It's been a comprehensive review of the business, but one word that hasn't been mentioned today It's dividend. So I wonder if you could give us an update or refresher on the dividend policy, particularly in light of comments you've made about CapEx and then particularly in M and A going forward, how Dividend payment fits into the broader picture. And then one just very small point of clarification. On M and A, I assume that means net M and A, net of any divestments that you should make over the period.
Thanks so much.
Yes.
Thanks, Simon. On dividends, the Update is that there's no update actually. So that means our dividend payment policy will not change going forward. We stick to a corridor of 20% to 25% of EPS pre to be paid out as dividends also in the coming years.
M and A?
The second part of the question, Simon, please, M and A, can you please?
Yes. When you're we're talking within the €30,000,000,000 the M and A element, is that M and A net of any divestments, any receipts from divestments. So it's not a gross figure.
The EUR 30,000,000,000, Simon was CapEx, not
It's CapEx. We haven't communicated any M and A investment.
It's Yes. No, no. But I'm sorry. Let me clarify. When you talk about The investment in M and A, CapEx and R and D, should we think of the M and A part of being M and A minus any divestment gains?
Look, Obviously, if we would ever plan to make a divestment, I would say, Yes, this would be net. But we are for the time being, we are not planning any of this. So you should consider this as M and A without any impact without the impact of any divestiture at this time.
Great. Thank you very much.
Thank you. And as there are no further questions in the queue, I would like to hand the call back over to
Thank you, Sergey. Good, ladies and gentlemen, this concludes the first part of our 2nd fully virtual Capital Markets Day. We look very much forward to welcoming you back after the lunch break for the second part. This will include deep dives into our 3 business sectors hosted by the respective sector CEOs and their management teams. We will start with Healthcare at 1 p.
M. CET, followed by the Life Science deep dive at 2 p. M. And then Electronics at 3 p. M.
And with this, over to you, Belen, for any closing remarks of the morning session. Belen?
Well, first of all, thank you, Konstantin. And most importantly, thank you to all of you for participating today and for your continued Interesting in our company. First, I hope you really found the session Productive and useful for you. It was a bit long. Remember, we wanted to update you today on Multiple dimensions, and I hope that captured your interest.
But most importantly, I really encourage All of you to join the afternoon session with the health care teams and Peter, with the life science teams and Matthias And of course, with the electronics team, St. K. I, so that you can get deeper insights into our 3 business sectors. As a global leading science and tech company, I believe that we are uniquely positioned to capture these Macro trends that have accelerated after COVID or within COVID and post COVID. And we are absolutely committed to deliver on the growth aspirations that we have share with you today and continue to create value for our owners, For our employees, for our investors and for the society at large.
So we will stay in touch. I look forward to seeing all of you during the coming conferences, Quite a few in September, and this will give me the chance to continue to further build on the messages Yes, that you have seen today during my first Capital Markets Day. Thank you very much, and I look forward to meeting
Dear, ladies and gentlemen, welcome to the Healthcare session as part of Merck's virtual Capital Markets Day 2021. As a reminder, all participants will be in listen only mode. I now hand you over to Constantin West, Head of Investor Relations. Please go ahead, sir.
Thank you, Sergey. Dear ladies and gentlemen, a very warm welcome back to the Merck 2021 Capital Markets Day. My name is Constantin Fest. I'm Head of Investor Relations here at Merck, and we are now ready to start the afternoon sessions of this day. And now we have the Healthcare deep dive session, which is starting with the presentation of Peter Guenter, CEO of Healthcare, directly followed by a Q and A with Peter and his top management team.
Please also note that we have a legal disclaimer, which you should see on your screens right now. With this, I'd like to directly hand over to Peter to kick off this afternoon. Over to you, Peter.
Well, thank you very much, Konstantin, and also from my side, a very warm welcome to Merck's 2021 Capital Markets Day. I'm delighted to kick off the 2nd part of the day with the first deep dive session on health care. For today's event, I'm also joined by members of my Health Care Executive Committee. It goes without saying that we all are excited And well prepared to give you an update on our health care strategy, and we're really looking forward to a lively Q and A session. So let me take a few minutes to walk you through our strategy update first.
Having now been with Merck for 8 months, I'm excited to zoom in how focused leadership will drive long term growth. This morning, we introduced mid single digit Medium term guidance for Healthcare. Let me underline that also beyond 2025, Healthcare is very well positioned For long term growth, the foundation is what we refer to as the established portfolio. We define this as all our commercialized products except the recent launches, namely Mavencio, Mavenclad and TETMETCO. This established portfolio is highly resilient.
It has a broad geographical footprint And it's based on deep local market understanding. We are prepared for continued growth enabled by a diversified manufacturing network Around the globe and with biologics accounting for a substantial part of that portfolio. Looking at our recent launches, We will further drive the uptake of Bavencio, Mavenclad and Tepmetco. I will come back to these three assets in a moment. Turning to our late stage development pipeline.
Evobrutinib in MS and ksevina pant in cis eligible and cis ineligible All patients are exciting. This is about being smart and focused, building on strong proof of concepts In TAs, Merck understands best. But now let's move on to fertility. Some of you might be surprised right now. Speaking about potentials and proof of concepts on the previous slide and then covering fertility first, well, I must admit That it didn't take me long after joining Merck to realize what a gem we have in our portfolio.
Basically, it's pretty straightforward. We are solid market leaders in a market That continues to generate consistent growth. 2020 was the exception, clearly impacted short term by COVID. The fertility market is driven by structural tailwinds such as an increasing prevalence, An improving awareness and finally, also a better access to treatments. Building on Gonal F, We will further strengthen our leadership position, supported by Pergoveris, the only recombinant FSH plus LH in the market.
However, we will not limit ourselves to treatment options alone. Strengthening our leadership position requires a holistic view. We are at the forefront of driving innovative models of treatment personalization. The Philips partnership we announced at the beginning of the year It's a great example in that regard. Now let's turn to neurology.
Another great example of leadership It's our commitment to MS. Merck is pioneering patient benefit in MS for more than 30 years. It all started with Rebif, our platform therapy that still holds a significant share of the interferon market. Then we launched Mavenclad. Mavenclad is a one of a kind MS treatment that has already More than 30,000 patients globally and is well positioned for future growth.
It is the only high efficacy treatment Shown to demonstrate full antibody responses to COVID-nineteen vaccines. As we all know, The MS field is becoming increasingly competitive. However, let's remember that today, even with the most effective therapies, 50% of MS patients still continue to have ongoing disease activity, which brings me to evobrutinib, Our internally discovered BTK inhibitor. Evobrutinib has 1st in class potential And it's designed for best in class efficacy, designed for high and constant BTK occupancy, Impacting immune cells in both the CNS and the periphery. I mentioned to you earlier That we will sharpen our profile.
Especially within oncology, you are going to see an evolution towards us Building, defining and consolidating what we call focused leadership positions. What do I really mean by that? Bavencio has changed the standard of care in metastatic UC With a significant opportunity for further growth as the global rollout continues. Also, We are looking into opportunities to further strengthen Bavencio in that space with novel combinations. Then think about MET driven tumors.
Our TEP Medical launch demonstrates our ability To develop and commercialize precision medicines in oncology. With the foundation for expansion In MET Amplified Tumors, postagrisso, where I can tell you we are recruiting very well. Last but not least, we will expand our leadership in head and neck. Xevinepant As a novel mode of action with a strong proof of concept in a large segment with high unmet need that is complementary to Erbitux, Xevi Napanz will build on our heritage, expertise and long standing commitment to the head and neck cancer community. We are absolutely committed to realizing the full potential of our asset here.
Let's now move to our pipeline, and let me comment On selected growth drivers in early and mid stage, most of you will recall That we touched on our antibody drug conjugates during our R and D update call in 2020. With M1231 this year, we brought the 1st bispecific ADC into the clinic, plus We have a pipeline of next generation ADCs in our discovery portfolio. With bersosertib, We have a leading investigational ATR inhibitor in our pipeline. It's being evaluated in more than a dozen of studies, Including a collaboration with the NCI. Bursosertib is part of our scientific efforts in DDR And one of the strategic pillars of our oncology pipeline.
TLR7eight inhibition, also referred to as enpaturam, It's a novel pathway with many potential avenues in the autoimmune and auto inflammatory space. We have evidence that Enpatoran has the right profile to address significant unmet need in CLE and SLE. As you can imagine, I would love to go on as I'm truly excited about our pipeline. However, My management team is sitting here as well, eagerly awaiting your questions. So in that regard, I would love to invite you to join us On November 22 for our R and D deep dive.
You'll have the chance to hear and talk to us about the full pipeline And get an update on our research and development strategy going forward. So what are my key messages? Our Healthcare business at Merck is unique. It's unique due to its combination. Significant additions from our pipeline are augmenting rather than substituting a solid established portfolio.
This gives us confidence in our solid growth outlook. With this, thank you very much for your attention, and I'm looking forward to your questions. Over to you, Konstantin.
Thank you, Peter. And with this, we are now ready to transition to the question and answer part of this sector deep dive. We are now having on the panel for this Q and A Peter Guenter, CEO of Healthcare, who is joined by Deni Barzohar, Head of Development Peterhalle, Head of Research Andrew Patterson, Chief Marketing Officer Chris Round, Head of North America as well as Andreas Stikler, Head of Healthcare Controlling, Strategy and Business Development. Please again be mindful of limiting yourself to one question per person as this will allow more of all of you to ask questions in the first place. And I would like now to hand it over to our operator of the day, Sergey, in order to start the Q and A.
Over to you, Sergey.
Thank you. We will now begin our question and answer Vimal Kapadia, Bernstein. Please go ahead.
Great. Thanks very much for taking my question. Can I just ask about TEP Metco, please? So having recently launched in the METex14 indication, I'm just curious how you actually think about the contribution of this indication and really in relation to the EGFR MET amplification opportunity. How much of a contributor is the second indication to 2025?
And is it fair to suggest That actually could be a bigger contributor than METEX14. Just trying to get a sense of excitement between the two indications. Thank you.
Yes. Thanks. It's Peter speaking. Thanks a lot for your question. It's clear for us that the MET ex-fourteen skipping is only a first step And hopefully, what's going to be a long and fruitful journey for Tepmetco, but I would ask perhaps Danny to provide some insights On the clinical development side.
And Andrew, you could comment on the size of the opportunity in the respective segments. Danny?
So thanks, Peter. It's a very good question because I think that you answered it. Just to give you a little bit of a flavor of what we're talking about, TEPO, in terms of how we made an advancement so far in MetEx14, We have achieved approvals in Japan, U. S, Switzerland, Brazil, Canada, Taiwan, if I'm not mistaken. And the follow is currently under review by the Europeans European authorities.
Now it is the stepping stone, METIX14, And we have very strong data across all lines of therapy, once daily administration, Safety and tolerability, which is clearly competitive and a clear upside for the usage of liquid biopsy. So Whichever indication or setting that we will use at Medco in oncology, These will be an advantage, a clear advantage. The biggest potential is in metamplification as a resistance mechanism to EGFR mutated Post EKIs, mainly osimertinib. Andrew will give you some more details about the size of the opportunity. We have a great proof of concept for that in InSight 1 study.
And as Peter said, InSight 2, which addresses this population, is moving forward very nicely. Other avenues may include moving the METex14 forward To maybe adjuvant or even neoadjuvant, something that we are seriously looking into, as well as very, very interesting proposals for IO combinations in metastatic lung with MET overexpression. So there is a variety, quite a broad variety of opportunity beyond MET ex-fourteen And a very high potential. And this without even mentioning the potential in MET amplification in other Tumors outside of lung or other resistance mechanisms to other THK inhibitors. So I guess that in a couple of months in the R and D Day, we'll be able to give more flavor about our thinking.
I'll hand it over to Andrew.
Yes. Thanks, Danny, and thanks for the question. I guess, in the interest of time, I'll be very brief. You're absolutely right. The EGFR mute met amplified population, certainly post Tagrisso, we see as a much, much bigger opportunity, possibly around Two times the size of the Metex ON-fourteen opportunity.
And so yes, we see great opportunity There and as Danny has explained, we see these two indications as being beachheads perhaps for further opportunities in different tumor types.
Great. Thank you very much. Sorry, just can I just ask one quick follow-up or clarification? You mentioned liquid biopsy in your comments. Am I incorrect in saying that your main competitor in Metex14 also has an ability to use a liquid biopsy not made in house, but Am I incorrect in saying that?
Or just if you could clarify, that would be great.
Yes. Catmantinib, I don't believe, has that as part of their label. So we have that as a unique feature within our label.
Correct.
Perfect. Great.
Thank you so much. The next question comes from Peter Verdult from Citi. Please go ahead.
Thank you. Pete Verdult, Citi. Just one big picture question for Peter, please, on capital allocation and prioritization. Obviously, you're highlighting your internal assets, but I just wanted to understand how much of a priority is further in licensing To perhaps buttress that mid- to late stage pipeline, I realize it's more than a shots on goal. But in terms of where your mines are, are you very focused On just the internal assets that you have today developing?
Or are you equally prioritizing further in licensing as you've done already? Just a sort of capital allocation question as it relates to the pipeline.
Yes. Thanks for the question, Peter. So even if you have hopefully, it came through The enthusiasm of our internal pipeline and the internal capabilities, of course, we do remain also very active in screening the external field In any other, let's say, high value, big very good strategic fit that would complement Further our portfolio. And I think I also said it at one of the earlier earnings calls, I think saving account is really a case in point. It is An asset with a very, very strong proof of concept in Phase 2, so cutting an overall survival prolongation, Very, very, very strong data.
It's an indication that fits us like a hand in a glove. It's a field that we know extremely well. And it is also a field where we go Really well. And it is also a field where we go a little bit away from those super platforms where the competitive intensity is just enormous, Right. And if we would come across similar opportunities, whether that is in oncology, whether that is in NNI, We will very, very looking at it.
And of course, we have a pipeline of opportunities that we are screening as we speak. And Andreas is also on the call, who is not only the CFO, but also Head of BD. So Andreas, perhaps you can add a little bit to my comments.
Yes. Thanks, Peter. Actually, not too much to add. I think you covered it. De risk assets, if we come across some, we would definitely look at them.
And I think also selectively, maybe in earlier stages, if there are things that are fitting well to our areas of expertise or to our portfolio,
Our next question comes from Gary Stivendron from Exane BNP Paribas. Please go ahead.
Great. Thank you. Thanks for the question. Just a high level, when listening at Slide 44, where you provide that overview of top line growth, it looks like kind of the recent launches barring green begins to Only modestly declined beyond 2025. So I was hoping you could just update us on your latest thoughts on kind of the Maisonclad IP protection and the severity of erosion thereafter.
And also just generally your confidence that you can maintain that top line growth through this period as that chart seems to suggest. Thank you.
Yes. Thanks for the question. So on the Mavenclad IP situation, I'll zoom in first on that and I'll take it a little bit broader afterwards. First of all, the U. S.
Expiry is by the end of 2026, so October 2026. As you know, we have filed for a PTA, a PTE. We were unsuccessful in the first instance. We're going to appeal. And we do believe we have strong reasons to prevail.
In Europe, situation is a little bit different. So we have data protection Until the end of 2020 sorry, until August 2027. And there, we have already obtained For some countries and some important countries like, for example, Italy, France or Spain, an SPC, which covers us until 2,030, Right. And of course, obviously, for the other EU countries where we haven't obtained it yet, those SBCs are pending. Now we have been cautious in our forecasting, and we have indeed modeled in a typical LOE Sales erosion for those countries where we haven't yet obtained either an SPC either for the U.
S. Patent term extension. So I think what you see on this chart is relatively cautious and could lead to some upside if indeed we prevail In those SPC extensions or PTE appeal procedure. Now what is very important is, of course, the sustainability of the franchise. It's clear that we have high hopes on evobrutinib and that evobrutinib will, of course, Take the relay of Mavenclad at a certain point in time.
I mentioned to the or I hinted to the fact that there is still a need in MS. And perhaps, Danny, it would be opportune now that we're talking about MS that you give a little bit of an update on The recruitment of our Phase III trials for evobrutinib.
Thanks, Peter. I think that the recruitment on evobrutinib, Which I will allude to is also a part, at least in our opinion, as per the exciting profile of that this drug has. As we said at the beginning, we did design it with the intention to be best in class, and It also has a quite a high likelihood also to be 1st in class, and I will allude to that. Oral drug, fully covalent, brain penetrant and with a very strong proof of Concept that showed on the extension annualized relapse rate in the ballpark range of anti CD20s. This is very exciting.
This is very exciting because it gets to the brain and also acts on cells which are responsible for progression. All of these attributes, including the data that we shared about brain penetrance, about neurofilaments, about the fact that The drug does not deplete B cells. It switches them off. So you can get your immune system back by far faster as compared to anti CD20s. Made this drug very, very attractive in terms of the randomized controlled trials that we are running all over the world.
And I think that we are likely to be in a position in a couple of weeks from now to terminate recruitment of something like 2,000 patients worldwide. So this puts us in a very strong position, I'm sure, in terms of the race for bringing an oral BTK inhibitor to patients.
Our next question comes from Michael Loehrten from UBS. Please go ahead.
Thank you very much.
If I could just follow-up on the last
I understand the points you're making about the potential differentiation of Evergreen. Hi, Bobby. It is a field where there's quite a few of them in development and a Fair proportion of your medium term trajectory on the top line does depend on Iverrutinib. So do you think there is sort of a need for an insurance policy should this field go in a slightly different way? Or are you actually confident enough in the profile Such that you can let MS go the way it's going and you can refocus your Effort be that in licensing, be that organic onto the leadership in oncology?
Thank you.
Yes. Thanks for the question, Michael. I'll So I'll then perhaps Andreas and Danny, you may chime in. I think you're totally right to say that if you look at the NNI portfolio, we have 2 assets in clinical development, right? We have evobrutinib and we have empateran.
In oncology, we'll have seen not only, but also due to the addition of Xelena Band, bringing into the clinic, a late stage clinic now, bersosertib, bringing into the clinic Our ADC, bringing it to the clinic and also expanding PEP Medical, we have discussed it. It is a fact That we have more optionality as it stands today in oncology as compared to, call it, And an eye on neurology. So we are definitely very actively looking at opportunities, not necessarily in MS, But in adjacent fields, where we could really put our experience, our deep knowledge of those markets to work With potential additional external opportunity screening. And Andreas, I'm sure you will want to expand a little bit on that.
Yes. Thanks, Peter. I think we are indeed active, not only in oncology, but also looking at that field that Peter just described. We see A good fit regarding capabilities and also from a subscriber base in some areas. And So yes, we are open.
And what is important for us is that we really find the right asset with the right characteristics. And that goes back to what we said earlier, right? We want We have derisked assets that have shown already certain clinical data that allows us really to place a confident path here. So That's the focus. And if you come across the right opportunities, then I think we are willing to execute.
Thank you.
The next question comes from Florent Cespedes from Societe Generale. Please go ahead.
Good afternoon. Thank you very much for taking my questions. Florent Cespedes from Societe Generale. Quick one on Fertility. As now it is, let's say, at the beginning of your slide deck, your thoughts on this area.
Do you have a new strategy? Or do you intend to put more resources behind this business? And is it an area where you could pursue some acquisition? Thank you.
Yes. Thanks for the question, Florent. And indeed, The fact that I started with fertility is not a coincidence because we do believe it is a gem we have in our portfolio. There are structural tailwinds to that market, which I explained in my speech, so I will not repeat myself. And I can also tell you that the fertility franchise, which is, of course, specialty care, obviously, is also in the remit of Andrew as Chief Marketing Officer next to the oncology franchise and the NNI franchise.
So it shows that, of course, we take it seriously. We are looking at a couple of potential opportunities also in R and D, but let's say the jury is still out on that. And I think that perhaps, Danny and Andrew, you could comment a little bit on how you feel about The both the fit and the size of the opportunity, what we're talking about here. So maybe Andrew, perhaps you can start.
Yes. No, that would be great. Yes, so I think we're obviously very, very happy with the progress we see Of the fertility business, over the course of the last year and also over the course of the last quarter, we see some really strong growth Both in the market, but we also see development in terms of our share. Over the Course of the pandemic, I think we've tried to really focus on ensuring continuous supply to customers, which has not always been easy And certainly has been difficult for some of our competitors. As well as that, I think we have a great portfolio of products It really stretches across the continuum of treatment for patients and allows physicians to really tailor their treatment experience.
The other thing that's really important within the strategy is we have a family of pens that allow for injection Within the home setting, which, of course, during the pandemic has been really, really important. If we think a bit a little bit more to the future, Peter mentioned the Philips collaboration in his introduction, and I think that's really important for us as well. We see the A trend towards home monitoring of treatments even before the pandemic. And since the pandemic, that has only been Sped up. And I think this collaboration will help us really look into possibilities of home monitoring of treatment outcomes.
And hopefully, we can bring further innovation to the market through that collaboration and hopefully have a significant impact On clinical outcomes as well. Danny, anything to add?
Nothing to add to that.
Nothing to add to that. I think that
you said it all. I will just use different words. Thanks.
The next question comes from Matt Weston from Credit Suisse. Please go ahead.
Thank you. It's a question about 2022. And I know we've already seen this morning that no one wants to be Margins, but you have a great deal of moving parts in your P and L in Healthcare for 2022 With the loss of the GSK upfront, the loss of the Bavencio bladder milestone income and then also the Lilly supply deal on Erbitux, Can you just at least give us in broad pictures what levers you think you have in your P and L For the next few years to try and drive the accelerating productivity that was such a feature of the message this morning, Given that I think Belen, when she was CEO of pharma, had pulled
a lot of
productivity levers already.
Well, thanks for the question, Matthew, and I would ask Andreas to give it a try.
Yes, sure. Hi, Matthew. Thanks for the question. So if you start with the top line maybe, so I think we indeed, we have this special effect with urban types this year. And at this point, we don't expect that for next year.
But we have our innovative portfolio, of course, growing. And don't forget China. I mean, China is expected to grow again next year. This year, we have this phase where we are rebasing based on the VBP impacts we saw last year. But as of next year, we expect that business to grow again.
So I'm quite confident that we will show Nice sales growth next year. On the other elements in the P and L, I mean, you heard this morning more efficient growth. So we really take that seriously. We learned during the pandemic that the business can be driven in a different way very successfully. And so we will definitely apply those learnings.
And that, I think, is basically what we now capture under efficient growth. So you will see leverage when you compare OpEx Growth with our sales growth. And regarding other levers, I mean, you remember that transformation program that we started last year, And that's still ongoing and making nice progress, and it really contributes nicely and will contribute also Going forward, at least next year, to improving our P and L. You mentioned then some of The non recurring income items, GSK upfront, Bavencio milestone, and indeed, those are items that won't repeat next year And that will definitely be something that will impact our EBITDA margin. So I think those are the main components and how
I would look at them.
Does that answer your question?
It does. Thank you. If I'm allowed to follow-up, it does raise one question. I totally understand the concept of efficient growth, and I completely understand that you have learned a lot during COVID that means that you can Deliver a lot of your messages cheaper. The challenge that I have is that assumes that your competitors will also not Revert back to history of face to face SG and A and a lot of spending.
You're in a lot of very competitive markets, whether it's In IO with Bavencio, whether it's in MS or Fertility, how can you be sure that You won't have to significantly increase your spending if your competitors do the same.
Andreas, can you give it a try again?
Yes. I would say, I think the answer is that indeed, we have to be very And so when we talk about a new launch, there indeed, share of voice is very critical. And there, we have to carefully watch what our competitors are doing And match it, yes, in order to really have sufficient share voice. But we have also other businesses that are quite established, where we
have a strong market position.
I think you mentioned some. And here, I think, yes, we can be different and still be successful depending on the geography Depending on the type of business, whether it's Fertility, whether it's Klukufas or Concorde, which as you know is still growing nicely in many parts of the world.
I would say that we have also Chris as Head of North America, and he has the finger on the bones every day, obviously. And perhaps, Chris, you can share a couple of insights with us How, let's say, the go to market model has evolved, has structurally changed and what you think will come back of the old world and what We'll definitely not come back of the old world.
Yes. I think we're definitely moving into more of a hybrid sort of setting Around the world where we're going to keep the efficiency gains that we've had from things like congresses and the dissemination of data Remote meetings, remote advisory boards, all of these things are both efficiency improvements and effectiveness improvements, and we're not going to lose those. But I'd also repeat what Andreas said. Around the launches, I think we've demonstrated that we will compete and we'll stand up the resources necessary to have the impact The products deserve and will ensure that whatever the environment is that we're operating in that we're bringing the right power to bear To maximize on those opportunities. But there are loads of areas where we're going to be much more efficient going forward than we have been Pre COVID, for sure.
The next question comes from Luisa Hector from Berenberg.
I'd love to hear a little more about what is attracting Thank you to the antibody drug conjugates and what advantages you think you could offer from your next Generation. Thank you.
Yes. Thanks, Luisa, for the question, and I'll defer to Jan Peter to answer that question.
Yes. Thanks. So first, you have seen the first entry into the clinic, a bispecific MUG1 EGFR antibody now in dose escalation. The advantage that we are expecting here is higher selectivity. You may know EGFR ADCs brought by competitors in the clinic were Not successful based on toxicity.
We believe based on preclinical data that we have to target both antigens with this ADC2B To deliver the payload, to internalize the payload, and that's true for cancer cells. There are some cells, normal cells that express both targets, But those are polarized sales, and they express a target on different sides of the sales surface. So that we cannot target them luckily because we believe that It's a safety improvement, and we will see this pretty soon. The beauty here is that the proof of concept is probably during dose escalation in Phase 1. So a validation very near term, and then we have a broad pipeline of bispecifics behind it.
We have a second technology platform. It's a proprietary payload linker technology. We leased the payload very, very specifically only after internalization. We believe there we have a safety advantage even So the ADC is now in clinical development, the secondary renination ADCs. Most importantly, it's a DNA damaging payload, And that combines very well with our DDR portfolio.
You set the DNA damage very selectively in the cancer cells via our ADCs, And then you prevent repair by our DDR portfolio. So we believe best in class in terms of combinability With DDR, but also if you think about IO, there's another upside potential there. So very contingent also here. We have the first preclinical development of the 2nd platform and the same goes through here, we will see the clinical validation very early on during the Phase I dose escalation.
We will now take our next question from James Quigley from Morgan Stanley. Please go ahead.
Thank you for taking my questions. So I've got one on Bavencio in bladder. So the chart on Chart 6 Shows all the chart on Slide 6 shows sort of a gradual increase in platinum chemotherapy. So can you give us sort of an idea All the dynamics there, is that purely just driven by the use of Bavencioven as a maintenance therapy? Or are there other sort of effects?
So is there potentially the pandemic effect that could be having some impact on use of platinum based vegemines that could lead that to Pull back as we've managed out of the pandemic. And then just more broadly, the EUR 500,000,000 or the EUR 500,000,000 or so peak sales And target that you said before for the venture in bladder, are you still confident about that? Or have things changed given what you've seen
Yes. Thanks, James. I'll defer the question to Andrew. Andrew, you can go ahead.
Yes, perfect. And Chris, feel free to chip in on any specifics on the U. S. In terms of platinum use, I think we feel that the availability of Bavencio in first line maintenance Has been the key driver around that increase. And we've seen that in the U.
S. Increase from about 50% Up to more than 70% in every market where we have launched, whether that be Germany, we're also seeing something very similar in France. We're seeing that dynamic play out. So that's sort of independent of launch time lines. I think we remain extremely confident from what we've seen in the early launches both in the U.
S. And in Europe, where not only are we being able to change the standard of care, so More platinum use upfront, more use of first line switch maintenance, getting to around 50% Of all regimens having now first line switch maintenance and a very, very high proportion of those where Bavencio Is used. So I think we remain very, very confident from what we've seen both in the U. S. And in the early launch markets in Europe.
Chris, anything to add more on the U. S. Side?
No. I think you've said it. I mean, I think the fact that the chemotherapy use has gone up, the platinum use gone up is a direct consequence of our data. And I think it's important to recognize this is, I mean, a really high bar for anyone to try and match For any competitor to try and match. And so we're seeing the adoption of this maintenance treatment Continue to progress and we'll continue going forward.
And I suspect we're still very confident in whatever targets we've put out. There's nothing to say We're not going to get to that €500,000,000
Thank you. If I can, quick follow-up on The stay time on maintenance of patients, I think the PFS was about sort of 4, 5 months or 6 months from the data. What are you seeing In the real world setting into how long patients are staying on maintenance therapy?
Thanks. Yes, it's early days. Obviously, certainly in the launch in Europe to make too much of an assumption at this point. Yes. I think we stick by what we saw
in the clinical studies regarding PFS.
Great. Thank you.
Where the PFS, by the way, I heard you're saying 5 to 6 months, but I recall that the PFS was more in the range of 7 to 8 months, I recall correctly. Is that correct, Danny?
Yes. The clinical trial suggested around 6. In the real world, we see slightly more, but it's in the same range.
We will now take our last question from Richard Vosser from JPMorgan. Please go ahead.
Hi, thanks for taking my question. Just a question on R and D spend. I think your budget at the moment is about 1.6, 1.7 For 2021, when we're thinking about the cost savings that You're bringing to bear on maybe SG and A or and other areas. Are you going to reallocate those to R and D? And Also, I mean, clearly, there's for the overall group and Healthcare, increased investment has been the theme.
Where is that R and D budget going to go? And what programs, I suppose, I know you've highlighted a few, But there's also a finalization of programs and reduction of those spends. So Yes. How should we think about that budget and the allocation of spend? Thanks.
Yes. Richard, thanks a lot for the question. I'll ask Andreas to open that. And then, Danny, you may chime in here.
Yes. Pleasure. Danny is slightly biased, so I will start. So if you look at our last couple of years, I mean, our R and D spend hasn't grown much, and that's actually also what I would see in the foreseeable Future. And you mentioned some of the effects, right?
We have cost items that go down, think about And Maurizio, our winter first and we have other items that go up like evaputinib or Xevina plant. So I think there's a good balance at the moment. It will Grow probably at a very moderate level. But having said that, it's turned out to be a few opportunities. So if we see a great internal opportunity, if we We'll definitely have the room to also to increase a bit more, but that will be really selective if we see the right For the time being, assume moderate, very, very moderate low growth and continuous improvement as a percentage of sale.
Penny, what
is it now? Yes.
Just to add maybe 3.5 sentences. Thank you, Andreas. The pipeline Today, when we look at it from the exabinapant perspective, tepotinib perspective, DDR portfolio, Which is a beast as itself, a good beast. It's full of opportunities and, as you can imagine, also of permutations. So to Andreas' We will, of course, do what really makes sense and what we are we feel very comfortable that we have a strong proof of concept that will drive us forward.
Now it's very important for us also to be cognizant of how we do things. If you look back for a second, you can see us growing for almost No submissions and approvals to several ones in the last past 3 years 3, 4 years. So as you can imagine, this has required us to make some changes In how we work, looking at our processes, our speed and particularly our ability to use our own data and advanced analytics to make our programs Run with higher probability of success, kill early when you need to kill early and move quickly. So the engine is definitely getting a booster these months.
Thanks very much. Thank you. Ladies and gentlemen, thank you for your questions. The next session will start at 2 p. M.
Please stay on the line or use the same dial ins for all sessions. Dear, ladies and gentlemen, welcome to the live science session as part of Merck's Virtual Capital Markets Day 2021. As a reminder, all participants will be in listen only mode. I now hand you over to Constantin Vest, Head of Investor Relations. Please go ahead, sir.
Dear ladies and gentlemen, a warm welcome back to the 2nd session of this afternoon, And this one is for Life Science. We are now having the presentation of Matthias Reinse, CEO of Life Science, which will be directly followed by a Q and A with Matthias and selected members of his top management team. With this and without any further delay, I would like directly to hand over to Matthias to kick it off. Over to you, Matthias.
Thank you, Constantin. Good afternoon, and welcome from my side as well. Thanks for spending the next 45 minutes with us. I've now been at the helm of Merck's Life Science business for 6 months, and I've had the chance to interact with many stakeholders, Both internally and externally, and I'm impressed and intrigued by our ability to advance scientific progress An important role we play together with our customers to support millions of patients worldwide with our products, Services and innovations. Obviously, this includes our intensive engagement and the response to COVID-nineteen, But it goes way beyond that, too.
It's a pleasure and a privilege for me to lead this dynamic business. And together with an excellent management team, I'm really excited to take it to the next level of performance To create sustainable value for shareholders, customers and employees. So let's start with a perspective on our markets. You heard from Belen and Markus this morning, COVID is a major driver for our industry, And we are participating strongly in the upside. This comes on top of very sound underlying dynamics and momentum.
So the growth rates you see on this chart are those for the underlying base business, that means excluding COVID, And they represent an attractive and very robust market favored by very strong and sustainable trends. We see growth supported by all important dimensions: portfolio, customers and geographies: Process Solutions, the pharma segment and China clearly stand out in that respect. And those are the areas where we already have a strong exposure. They will play a major role Also in our growth strategy going forward. So take biologics, for example.
We continue to be at the forefront of innovation In manufacture of monoclonal antibodies, pioneering a template upgrade to an intensified, connected and continuous process. While mAbs will undoubtedly remain a backbone of industry growth, we will clearly benefit from our early support of novel modalities. Bio and gene therapies, ADCs and nucleic acid therapies will gain significant importance, And we are well positioned to capitalize on these emerging opportunities. Other important developments, such as digital, Demand for local supply and increased outsourcing are also very favorite drivers for us. So with that market context, I would now like to walk you through our strategic framework that will guide our actions And resource allocation going forward.
I'll start with a summary first and then provide some additional color afterwards. Our priorities are clear. We will continue to strengthen our excellent core business, and we will expand in high growth segments. So starting with the core, our near term focus will be on increasing productivity to better meet the massive surge in demand For many of our offerings related to COVID, on top of strong momentum supporting other lifesaving therapies, We have launched several additional initiatives over the last months to further maximize the output of our existing assets. We have also taken decisive action to add physical capacity and expand our network regionally To enable the growth of key portfolios, leverage customer intimacy and hedge business risks.
In parallel, we will continuously optimize our go to market approach. A major milestone in this respect Was the successful launch of a powerful upgrade of our industry leading e commerce platform just a few months ago. So moving to the right side of the chart, the expansion in high growth segments. So starting with new business models, We will scale our service offering significantly in the coming years. We will also expand in the software component in our holistic offering.
These are all activities we already have built expertise in, but we will now scale it up to a much different level. The ongoing rollout of our BioPhoC platform, a first of its kind digital ecosystem For continuous bioprocessing, serves as a prime example, and we have plans in other areas as well. Finally, we will put much more emphasis on emerging regions, especially China and other parts of Asia. Our strategy aims at expanding our presence and addressing local market needs in this rapidly evolving life science hotspot. Our key strategic priorities will be complemented by an increased focus on innovation, Digital and with a strong lens on strategic capital allocation.
All of this will be supported by continuous strengthening of an investment into our foundational capabilities. So let's now take a quick look at how we apply this strategic approach To our 3 business units. So starting with our key growth engine, Process Solutions. So this Comprehensive slide captures some of the key elements of our growth in Process Solutions. So the circles on the left Represent the link to the strategic framework I just introduced.
Then the next vertical column connects to our evolving model, Which we have introduced before. So we are going from products for traditional modalities to services for all modalities To products for Nobel Modalities. And then in the middle, we highlight some of the key initiatives with some further explanation on the right. So let's start with the upper third, products for traditional modalities. We are expanding Our network and capacity significantly.
For example, you have heard us talking about doubling our output by year end for single use assemblies In Danvers, Massachusetts and for important filtration products in Jaffray, New Hampshire. However, This is just the beginning. We will add much more at both sides in the coming years. And in addition, We will ramp up existing plants in Wuxi, China and Cork Island, and we will also be adding new operations in Darmstadt and Molsheim, France. The strategic intent is to have a regionally well balanced capacity setup for single use and filtration offerings, Which positions us very strongly to capture the growth as well as a potential upside down the road.
So turning to the middle section, services for all modalities. We will significantly scale up our CDMO activities for mAbs, Biore vectors, ADCs and high potency APIs. To be clear, we are not investing in large stainless steel operations. Instead, we will focus on single use and other state of the art processes to improve Speed to market with our differentiated capabilities in development, manufacturing and testing. We will also venture and expand further into mRNA, combining our long standing expertise in lipids With the mRNA Manufacturing Technologies of Amtech, which we acquired earlier this year.
And for the 3rd element, products for novel modalities, let me highlight the innovation angle. We are the partner of choice Our customers when it comes to industrializing processes for novel modalities to enable commercial drug success. The recent launch of SYNTHETICAL2, a new high purity synthetic cholesterol product and key component for encapsulation of mRNA therapeutics is a great example, and the market uptake is showing great promise. Based on this well rounded strategy and distinct initiatives, we are confident That we will deliver on our upgraded Process Solutions guidance for lowtomidteens organic growth in the medium term. Turning to Research and Applied.
The middle column forms the connection to our strategic priorities with key initiatives for Research on the left And for Applied on the right. So let's start with Research Solutions. We will build on our podium positions in research chemistry consumables And capitalize on the evolving CRO market. For example, this includes deepening customer loyalty through scientific engagement And in terms of growth, our focus will be on tapping into attractive segments in research biology, Especially molecular and expanding further in APAC, especially China. For example, We will support nucleic acid workflows with novel products, and we will upgrade production materials and assays Supported by learnings from COVID.
In China, we see opportunities across both chemistry and biology, Mainly with pharma and academic customers, and we will drive further penetration in Tier 2 and 3 cities. China was also the 1st country to launch our upgraded e commerce platform featuring best in class B2C and mobile experience. Turning to applied solutions and starting with the core again. We will strengthen our industry leading lab water business through innovation, and we will expand our pharma 2C testing For Biologics and Novel Modalities, a strategic focus area in terms of growth will be our diagnostics offering. We aim to build on our leadership in materials by complementing our offering through SA development and contract manufacturing, Supporting customer innovation and time to market.
And here as well, we will drive further penetration in emerging markets like China To increase sales presence. And lastly, we will apply digital sales and marketing tools and incorporate digital aspects Into our product offering, be it through smart consumables and mobile analysis or data management solutions for efficient lab management. Above all, research and applied remain important parts of our portfolio, And we are confident to deliver growth in line with historical trends going forward. Before we go into the Q and A, I would like to briefly touch on key supporting pillars of our strategy. Accelerating our science and tech leadership will be critical to mobilize for growth.
So based on our large footprint, Both regionally as well as portfolio wise, we are uniquely positioned to identify new trends with more than 1,600,000 customer, whether in person or through virtual and e channels, provide us with excellent And first hand insights that can be translated into new and highly differentiated offerings. Like in many other industries, and evolve our internal capabilities to drive business value. For example, We use data science and AI tools to facilitate and automate decisions like supplier replenishment. We are developing digitally enabled products like Bio4C. We're accelerating digital engagement with customers, And we will continue to invest in our upgraded e commerce platform to enable new growth models.
To support our growth, we need to invest. Given the excellent growth opportunities in front of us, Our focus will be on organic growth with CapEx expected to increase to about €900,000,000 per year, And this is about 2.5x historic levels. And tying back in with what I just mentioned, We will also increase R and D as a percent of sales in the coming years to 5%. We will complement this with very targeted bolt on acquisitions focused on attractive technologies And capabilities in high value areas of our portfolio. So to sum it up, Our markets are highly attractive.
They are very robust with tremendous opportunities. And our strategic priorities are clear: Focusing on strengthening our core and expanding in high growth segments. Innovation in digital will be key enablers of growth And in line with our upgraded midterm organic sales growth target of 7% to 10%, and we will strategically allocate our resources To maximize sustainable value generation. At the end of the day, execution is critical, And this is what I will be focusing on together with my management team. And with this, let me hand it back to Konstantin and see you for the Q and A.
Thank you very much, Matthias. With this, we are now ready to transition to the question and answer session of the second deep dive of this afternoon. Again, as a reminder, please kindly limit yourself to 1 question per person. This will allow as much as possible as many as you to ask questions in the first place. I would now also like to introduce the panel of this Q and A session.
We have Matthias Zainzel, CEO of Life Science, joined by Andrew Balpin, Head of Process Solutions as well as Klaus Bischoff, Head of Research Solutions Jean Charles Veut, Head of Applied Solutions and Marc Horn, Head of Life Science Controlling. With this, I'd like to directly hand over to Sergey, our operator, in order to kick off the Q and A. Over to you, Sergey, please.
Thank you. We will now begin our question and answer Gary Stivendron, Exane BNP Paribas. Please go ahead.
Great. Thank you for the question. I just had a quick one on bioprocessing utilization rates, So could you just give us a sense of kind of the utilization rates you were operating at pre pandemic in bioprocessing? And whether there's any willingness to really operate with lower utilization rates going forward so that you kind of have some additional headroom you'd be able to take advantage of should there be any kind of Future spikes in the demand. Thank you.
Yes. Thanks for your question. It's Matthias here. I mean, as you may guess, I mean, currently, we are running Fallout utilized fully in our high bottleneck areas in single use, in filtration. And as I mentioned, we have a tremendous focus on increasing Existing output from those assets.
On top of that, we are building and rolling out capacity across the globe. So the way I will look at your question is we were running, I think, already pretty high pre pandemic. We are now filled out. And What I laid out before with the target of about $900,000,000 CapEx per annum, a lot of that going to process, That should allow us to capture our growth, which we outlined also in terms of the midterm guidance for Prosus, but also give us a bit of a headroom
Thank you.
Thank you. We will now take our next question from Wimal Kapadia from Bernstein. Please go ahead.
Great. Thanks very much for taking the question. So can I just ask a little bit about the composition Process solutions today across the 3 strategic focus buckets, so products for traditional modalities, products for novel modalities and then the services for both? And any context on how much of the division do each of these contribute today? And what could that look like in 2025?
Thank you.
Andrew, why don't you take it directly?
Sure. And thank you very much for the question. It's actually quite difficult Separate because many of the products that we have that are used in the production of traditional modalities are also applied in the manufacture Some of the novel modalities, but basically, it's a split. About 85% of our revenues today come from the sale of products And about 15% come from Services. Moving forward, the split between traditional modalities and novel modalities, obviously, As we develop and refine the portfolio, there will be more weight progressively to the novel modalities.
And like Advice from the service is a key initiative area for us, 15% today, but we expect that to become more significant in proportion to the rest of the portfolio moving forward. Thank you for the question.
Yes. Thanks, Andrew. Maybe just to build on that. We when we look at service, obviously, a lot around the CDMO, and we do have already a kind of a small CDMO business in different modalities, but we also have a very significant testing business unit, Brandon, Bio Reliance. So when we talk services, we expect and we are confident that we grow significantly in both aspects when we talk about services here.
Thanks for your questions. Thank you.
The next question comes from Michael Leuchten from UBS. Please go ahead.
Thank you very much. A clarification question, please, to Slide 3. So you're saying the Process Solution market, You see growth of 9% to 10%, if I understand it correctly. If I work your guidance backwards, If I look at your Life Sciences guidance overall until 2025 and I take out what you previously said about Applied and Research Solutions And then I also take out the COVID contribution in 2021 and the midpoint of your scenarios in 2025. Your implied Growth for Process Solutions seems to be about double the Process Solutions market.
That seems high. So I just wondered How did you tally? How does that Process Solutions market growth of 9% to 10% tallies with 17 or so percent that seems to be implied in your guidance.
Yes. Thank you. Let me maybe take it from the high level and Andrew can And add to that. I mean, from your general message, you're right, indeed. I mean, we are expecting and we are targeting to grow above market This is the market growth we have outlined here, which takes a holistic look at the Process Solution market.
And you also indeed backed out that the COVID impact, which we have built in our guidance, which is a bit of a fading over time. So why are we confident? A couple of things. Number 1, we are investing heavily into our Key bottleneck areas. We are currently capacity constraints, which is limiting our growth and has been limiting a bit our growth short term.
We are investing heavily in the high growth areas within that market. The market has certain areas which are growing higher, others are less growing. And with our very strong focus on novel modalities, on the testing element and on our upside potential in the emerging regions, That gives us the confidence to grow significantly above market. And again, Andrew, maybe you want to add?
Sure. And sort of when we talk about the difference in the actual sort of addressable market, I'd split it into 2 elements. 1 is really sort of structural elements of the market itself and then sort of new business models and market share. So if you think even just on the structural side, biosimilars becoming more and more significant. And with that, access to biologics From patients who historically haven't been able.
We've still got, I would say, originated drugs coming through To meet unmet marks, which will structurally change, recent announcement of the approval of an Alzheimer's drug, first time that's been addressed. And then things like the cell and gene therapy, where previously, these sort of genetic conditions were virtually a death sentence. Now there is opportunity of sort of hope for these patients. And again, they were untreatable. So all the cell and gene therapy stuff It's basically a structural shift in the market.
And then as we mentioned earlier, obviously, with our testing and our CDMO and our services, We believe, given our expertise in process development, in manufacturing, in the testing and the combined package that we can offer, I think, will resonate in the market, We expect the yield to take market share there. So just a slightly different uptick compared with what Madia said, but hopefully, that gives you a broader picture. Thank you.
Thank you. The
next question comes from Matt Weston from Credit Suisse. Please go ahead.
Thank you. My question is about R and D. So one of the key messages from this morning was the need to invest Significantly to drive future growth and innovation. Within Life Science, there's always been a significant investment in R and But it's not been a very material contributor to the Merck Group total spending. Now that Life Science, and particularly The Bioprocess business is becoming a much more dominant part of the business.
Can you outline what we should expect for divisional R and D going forward Over the coming years, I'm just very mindful that at the moment, we're seeing revenue accelerate very significantly because of COVID, But you're telling us that basically that revenue will be sustainable from other new income streams going forward. And so do you have to spend significantly more aggressively to secure that revenue?
Yes. Matt, it's Matthias here. Thanks for your question. I mean I provided in my speech kind of an indicative number, a target number of 5% of sales. So we are ramping up.
We're currently on the lower end of the 4 percentage range. So we will gradually move up to a more 5% of sales number In terms of, if you will, R and D spend for the entire business, and here again, we will focus then this R and D dollar on the bigger growth opportunities. And we will see opportunities, certainly, in Process Solutions, but there's also quite some opportunities in Applied and Research. We will never get to the level like my Peter colleague Peter Guenter has in pharma. But I think we are We will, over time, increase our spend, increase our efficiency, in other words, what do we get out of this spend, With a little bit more focused effort on some of the more needle moving areas, and we gave you a few examples, right?
Novel modalities, it's a tremendous growth opportunities. There are areas, as I said, and maybe, Jean Charles, you can step in here, give a few examples, where we see also products and digital And of coming together and giving us new opportunities. Maybe JC, you just want to share a few examples in your area.
Yes. Thank you, Matthias. Yes, if I may add, first of all, innovation is critical for our core business. It's part of our strategy. And to do so, I would like to mention that we have critical KPIs to track our innovation efficiency.
Well, I'm going to give some example, I. E, time to develop products. So usually between process, research and apply, It takes 2 to 5 years. We have also one KPIs where we are able now to measure our vitality index of our pipeline. And this Vitality Index has, in certain area, doubled over the last 3 years.
And talking about new product sales, We try to accelerate the percentage of sales coming from product launch over the last 3 to 5 years. And I would say most of our KPIs are green. Just to give you some example, we launched 2 years ago a MilliQ Connect for the laboratory business, and it's helped us To now debug system to fix system remotely, it has been a big success during COVID crisis, but it's also helped us To sell more consumables. So I will say our innovation is an enabler to drive growth, and the Mini 2 Connect is one example, and we have many across
Yes. Thank you, Jean Charles. And maybe just to close that question. So there are 2 angles. We're increasing the spend, Going from the low end of the 4% to 5%, while we're increasing the business, obviously, 7% to 10%.
So the absolute dollar We'll be significantly higher over the next couple of years. And then we're also turning the other knob, which is effectiveness of our R and D spend. So both together, That gives us the confidence that we have then the right output and outcome to fuel the growth going forward. So thanks, Matt, for the question.
The next question comes from Luisa Hector from Berenberg. Please go ahead.
Hello. I'm interested in your comments around China and the increased focus there. I just wonder if you can talk a little bit about the growth potential, where it's coming from. Is this selling product To CDMOs within China or to the local biotech and pharma companies? And maybe a little bit of color around the competitive
Yes. Thanks, Luisa, for the question. I'll take it high level, then I will As Claus, since he also has a very strong presence already in China to comment. So in general, I mean, if you look at the growth potential, I mean, In our market, China is one of the biggest regional growth drivers, high double digit. And we certainly want to not only participate in that growth, But we use it as a fuel for our growth.
I think opportunities are twofold. 1 is around our presence, right? If I look at our network globally, We have about 55 plants globally. A rather small setup is in Asia and in China. We have presence in Antong, in Wuxi.
And as I mentioned in my speech, as we are looking for expanding our single use especially single use offering, we will utilize our footprint we have in China To build on that, why do we do that? We want to be closer to our customers. We want to be quicker. We want to kind of look utilize the local Capabilities there. So expanding network and our footprint there.
And then it's, of course, about the sales, the presence, the penetration into other Tier 2, Tier 3 cities, that's a big angle. And then certainly also utilize our e commerce platform Because we all know that China has already adapted a much different use of mobile. So I suggest, Claus, to add a bit of color to that because, Again, given your model there, you already have a very good base.
Perfect. Thank you, Luisa. For Research Solutions, Actually, China is one of our fastest growing market of the base business. Today, We do about around about 10% of our Reserves Solutions product business in China, and the ambition is to grow this substantially. I think currently what's happening in China meets very well with our value proposition, right?
Chinese customers, Not only pharmaceutical, but more and more also Academia, want to make sure they have reproducible result, Good quality testing and all that kind of things without having the worry that they have to redo tests or research work. And our value proposition regarding premium, high quality reagents and chemistry and biological reagents Meets very well this demand, and we really see this. Secondly, Matthias mentioned it already, we have launched A new e commerce platform recently, and we did the launch before we went globally 2 months ahead in China To provide our customers actually really in the life science industry, I would say the best in class experience, Including mobile. And after the China experience, we went global. And the third one is also we are also looking to improve our footprint To have more product available in China, also out of own capacity.
So this is basically in Research Solutions what we are doing on a high level in
Thank you, Klaus, and thanks for your
question. The next question comes from Sashin Jain from Bank of America.
Just got a real big picture on. So Just trying to reconcile the guidance increase with the amount of investment going in and how you're thinking about returns criteria, any additional color you can give. So guidance obviously gone up roughly 2%, which equates to sort of $200,000,000 sales a year roughly. And that reconciles with CapEx up 2.5x And R and D, if you're going up 100 basis points sort of €300,000,000 €400,000,000 a year investment, so I would have assumed that, that level of investment would have seen greater upside. So I wonder if you provide some more color on the time frame over which you see that upside being delivered from the level of investment you're putting in.
And then maybe I could just take a follow on. Belen invited me to ask my question this morning, again this afternoon, on boosters And then RNA modalities and how you're thinking about upside should they potentially come through? Thank you.
Yes. Thanks, Seijin. Let me take a second part and maybe, Marc, you can cover Seijin's first part. So maybe just to recap. We are guiding and we're expecting for COVID next year SEK 700,000,000 as a floor in Process Solutions.
This year, we will see a bit more than SEK 1,000,000,000. Next year, we can already say with confidence, we believe, about SEK 700,000,000. And over the years, in our 7% to 10% guidance, we have kind of built in a slightly fading Of the COVID contribution, and we have given you also on the footnote two scenarios, if COVID stays as is and if it totally goes away. So in our assumptions for the midterm guidance, we assume that there's a continued rollout of vaccination. As we are here today, Less than onethree of the world population is back fully vaccinated, right, typically with 2 vaccine doses, and about 40% have at least one shot.
There's still room to go over the next 12, 18 months, and hopefully, it goes quickly, to fully vaccinate the world. This kind of, if you will, is built Into our model, it's also built in that we will see some booster shots as we are seeing some countries are already moving ahead, especially for the vulnerable groups. We have not built in a full booster shot for everybody in a high frequency, right? Because as we speak today, It's still yet to be seen at what frequency booster shot might be required and what population will be receiving those booster shots and also what's kind of the dosage. So there's a few variables.
So if you take that altogether, there's a set of booster shots, especially for the variable groups, Encoded, if there would be, let's say, a high frequency boost to short rollout across the world, that certainly would provide upside to our midterm case. And with that, Marc, maybe you can cover the first question.
Yes. Thanks for the question. As you know, I mean, we're normally not giving any guidance On the margin evolution overall, but as you know from the presentations, we are really striving for industry leading margins. At the moment, the margin level is exceptionally high, Really driven by operational leverage, favorable pricing and product mix. When you look now at the investments going forward, there will be a step change now in CapEx 2.5 times what you alluded to, but also that goes hand in hand with OpEx, especially spending in areas like what we just said, R and D.
But overall, the back office functionality is looking at organizational readiness in digitization, in sustainability, In the new product offerings, but also in the new service area. So you have to assume that we are very carefully managing the ramp up of the costs And the expenses and the investments we do on the one hand with at the same time achieving substantial leverage on the other hand. And that will be a balancing act have to go through the next couple of years.
Thank you, Marc.
Sorry, the question was
a little bit more. How does that level of investment increase not drive a greater sales upgrade? Apologies if it wasn't clear.
Yes. Maybe the way to look at it, I mean, we mentioned it, I mean, the CDMO business, especially from novel modalities, It's a big growth area for us. We already do have a small setup, as you know, and we will continue to now Rolling it out across multiple modalities across the regions. So we obviously have built in a ramp up in the utilization rate of those new assets. I think we need to take that into account.
Not everything will be fully loaded day 1, and but it will come over the next over the strategic horizon But also beyond, right? I mean, we are phasing those rollouts of the novel modalities over the years to make sure we're able to execute it. So that's, I think, one explanation why you don't probably see everything kind of already kind of kicking in at full level.
Yes.
And to add to that, Matthias. Also think about CapEx in 2 directions, right? One is really investing in the growth of existing products And new capabilities and new service offerings. But there's a substantial part of the CapEx also going in the existing footprint, right, To upgrade in terms of digitization, sustainability, but also to make ensure robustness of supply networks. So this goes hand in hand.
So the step change is, Of course, very strongly focused on the growth areas, but we are also supporting the existing footprint.
Very clear. Thank you.
The next question comes from Peter Verdult from Citi. Please go ahead.
Thanks. Thibodaux, Citi. Just a follow-up from the previous question. I mean, you clearly addressed the demand side of the equation. What about the supply side, Matthijs or Andrew?
Firstly, just as we go into 2022, will there be any sort of residual bottlenecks of notes? And if we do start to see countries or developed countries going down the boosted vaccination route, Do you have the ability to meet to supply that increase in demand?
Yes. Peter, it's Matthias. Great question. I mean, to be clear, that's one of my top priorities and has been over the last months together with my team here, right? I mean, as I mentioned before, we are full out, And we have a laser sharp focus on 2 things.
Get more out of the existing assets. I call it the debottlenecking, right? And we are making good progress, And that will help us over the next months and has helped us already to satisfy many of our customers to ensure they can get The consumables for COVID, but also many lifesaving therapies. On top of that, we have kicked off about a $400,000,000 program for multiple sites. I'll give you one example, single use, for example, in Molsheim, which will go live in phases, partially end of the year, Early next year.
So to sum it up, we will see still over the next, let's call it, 6 Plus months into 'twenty two, a very tight situation. And also keep in mind, our lead time Has increased over the last 12 months, right? Some of our products, we do have already a 9 months lead time, some even 12. So we also need to work down that backlog. So I think it's fair to say that we are gearing fully into the right direction To also work with our customers to support the booster shots they are preparing for.
But it will be still a tight situation as we go into 'twenty two. I would say after mid of the year next year, it should be a much better situation. But until then, it's tight. Again, we are fully geared up. We are working very closely with our customers, the entire team globally.
And so far, it's really working well, but it's a tight situation. Thank you.
The last question comes from Simon Baker from Redburn. Please go ahead.
Okay. Thanks for taking my question. A slightly related question on order patents. One of the things we've heard about, I think you've mentioned Certainly, your competitors have in bioprocessing is that we have seen a lengthening of the time when over which Current orders are placed before delivery from 6 to 12 months to 18 months through the pandemic. That's obviously given you increased visibility on the order book.
Do you expect that to continue? Or do you expect that now the urgency and the disruption of the pandemic is starting to diminish a bit, or at least it will, That, that will come back down to a more normal period. And then at the other end of the order time frame, Clearly, the urgency of a lot of pandemic related orders has probably added costs Because of the need to supply very quickly. To what extent has that blunted the Significant margin increase that we've seen through the pandemic. And do you expect that cost pressure, if it is Meaningful to diminish over time.
Thanks so much.
Thanks for your question. Maybe the first one, Simon, on order time and you can address that. Andrew? Okay.
Simon, thank you for the question. So as we have shared Previously, our order intake is around about sort of 60% year over year. That is starting in percentage terms to sort of plateau a bit against stronger comps from the second half of last year. And as you know from our Q1 and Q2 Earnings release, our sales are not at that level. So the order book is continuing to expand as we speak here.
That being said, it's very clear that customers understand the unique and unprecedented situation we're in And are placing orders significantly ahead of time. From the conversations I've had, top to top with many of our top accounts, There is an appetite to have longer term transparency and consistency moving forward. So I think they may come in a little bit, But I do think we will move forward into a new norm where customers have got longer range visibility on their order books They will place orders further ahead of time. So that was it with respect to the orders. Maybe to Mark in terms of the impact on margins?
Yes. I think at the moment, what you see is really an exceptionally historically high level coming really from favorable pricing And the product mix effect we currently see. So we do expect going forward that there will be a slight decrease Coming through normalization simply of these two effects mainly. And about the volume leverage, we already spoke. So we see this continuously Evolving, and we're managing that visavis the ramp up in the different new capacities where we initially, of course, facing certain startup costs.
Great.
Thank you very
much. Thank you. Ladies and gentlemen, thank you for your questions. The next
Thank you for joining our live sand session.
Thank you very much.
Thank you.
Thanks, everybody. Thank you. Bye, everyone. Thank you.
Dear, ladies and gentlemen, welcome to the electronics session as part of Merck's Spiritual Capital Markets May I now hand you over to Constantin Fest, Head of Investor Relations. Please go ahead, sir.
Dear, ladies and gentlemen, a very warm welcome back to the 3rd and last session of this Capital Markets Day, and this one is for Electronics. We have now the presentation of Kai Beckmann, CEO of Electronics, who will then be followed by a Q and A with Kai and selected members of Kai's top management team. And with this, I would like to directly hand over to Kai to kick it off. Over to you, Kai.
Thank you very much, Constantin, and a very warm welcome also from my side, and thank you for joining our electronics deep dive session. And to have enough time for Q and A later, please allow me to go straight into a brief 5 slide recap. So we have successfully transformed our business to become a leading player in the electronics industry, and we have one of the strongest portfolios And everything in place to deliver accelerated growth. So back in 2018, we announced our Pride Future program. And today, 3 years later, we can say that we have delivered on our promises.
We have successfully transformed the electronics business of Merck, And we have done so earlier than planned. So following the successful integration of Versum, we are now a €3,300,000,000 plus business, And we generate over 90% of our sales in electronics, and we achieve attractive, stable EBITDA pre margins. Already today, we are an integrated innovation leader with 1 of the broadest and strongest portfolios in electronic materials related Services and equipment. And on the left hand side of this slide, you can see a snapshot of what electronics will look like In the midterm future, a business with roughly 10 equally sized differentiated technology platforms In attractive segments that enable our customers across more applications than ever before, all our businesses have a clear set of priorities, We created mid term guidance of 3% to 6% sales CAGR. We have everything in place to gain speed And continue to be a vital growth engine for Merck.
Looking at our end markets, we see vast growth potential And a substantial need for materials innovation to enable the next generation of chips across more applications than ever before. In previous decades, PCs, smartphones and tablets were the dominant categories driving semiconductor growth. Now we are entering the era of AIoT, the link between artificial intelligence and the Internet of Things. More device categories than ever before will provide a broad basis for even faster industry growth. In this new era, a self driving car, for example, will likely generate more data per day than all devices used by the average person today.
A modern high end fridge today already has more compute power than your average smartphone 5 years ago. And in the not too distant future, your smart sports apparel might catch up With that as well, so there are currently around 50,000,000,000 AIoT devices, and your smartphone is just one of these. The number is expected to grow to over 350,000,000,000 devices by 2,030. And as Berdan mentioned this morning, We will live in a world defined by instant access to information, permanent connectedness and assisted intelligence. All these new data centric applications will require more and newer types of displays, such as augmented reality And virtual reality devices, and they will need more chips and better chips to generate, process, Transfer and store data.
And this is why the average chip value per device It's expected to grow from around 18% today to over 30% in 2025. Our semiconductor customers are already working on expanding their capacities. And as I'm sure you have seen, they will even accelerate their efforts. The most recent investment announcements from Samsung or TSMC clearly indicate That we are already entering this new era. The MSI, the area of silicon wafers used for semiconductor production Measured in 1,000,000 square inches was growing with a CAGR of around 5.5% in the past 15 years, And we now expect this growth to step up to a midterm CAGR of 5% to 7%.
We also anticipate that the industry will continue to be upward cyclical, however, to a lesser degree. This is driven by the aforementioned diverse end applications and a higher capital discipline in the industry. To meet this demand, our customers We'll not only require more materials and solutions, we will also need significant innovation of materials to enable the next generation of chips. So let me cover this in a bit more detail in just a few slides. To address these industry needs, we are now shifting gears from Transformation to growth execution with our LevelUp program.
LevelUp will focus on Four core pillars, namely scale, technology, portfolio as well as people and capabilities. This will put us in a position to meet the increasing demand and capture even more of the growth potential we see in this industry. LevelUp will help us to provide our customers with an attractive set of innovative and high quality materials based solutions. With that, we will enable the next generation of electronic devices. When it comes to scale, We will diligently drive capacity investments that are in line with our customers' expansion plans.
Our investments will allow us to tackle industry challenges and to ensure supply reliability. We will continue to localize our footprint in order to get even closer to customers, particularly in Korea, In Taiwan, in China and in the United States. We'll take a closer look at these CapEx plans on the next slide. Looking at technology and innovation, we will sharpen our focus even more on our customers' key technological inflection points, And we will sustain one of the highest R and D ratios in our peer group. We will continue to address sustainable innovation As for example, with the recently announced new generation of greener solvent alternatives.
On our last slide before we for the Q and A, we will cover our innovation pipeline in more detail. Concerning the portfolio pillar, we will continue to pursue diligent bolt on acquisitions with the aim to expand our portfolio, And they can be targeted at high growth and high value segments. And at the same time, we will remain committed to our broad portfolio, which is, as you know, Highly appreciated by our customers. And finally, looking at people and capabilities, we want to continue to be one of the most attractive employers In the competition for next gen talents, safety, quality and sustainability will remain top priorities. And just as important, we will drive our capabilities in data analytics, and we will continue to leverage digital and data.
This will help us to provide better solutions for our key customers. And for example, when it comes to collaborating with our customers on High throughput experimentation or big data and artificial intelligence projects. You probably recall Belen talking about this Earlier today in some more detail. And when it comes to scale, we will diligently expand our capacity and synchronize our plans with demand in the market And the expansion plans of our customers. And as you can see on the upper chart, on the left, CapEx of the global semiconductor industry It's expected to be at €115,000,000,000 in 2022.
This equals more than 2x the level it was in 2016. We will ramp up in lockstep with our customers. And this means we more than double our CapEx By 2024, ensuring that we are a reliable long term partner of choice for our customers, and we are prepared To accelerate CapEx further in the years beyond 2024. This will, of course, depend On future customer demand and market development. So looking at the main semiconductor geographies, we plan to invest In an additional large site in Taiwan, and this investment will ensure supply for key customers and also further increase our R and D footprint.
We'll expand our strong footprint in Korea, building on the already existing solid proximity to our customers. In China, We will further boost our efforts as a highly localized multinational ready for growth. And this by expanding local production and R and D capabilities. Last but not least, we will also enlarge our capacity for global And local supply in the United States, allowing us to enable new sites of our key customers. Let's move to the last slide.
So when it comes to technology and innovation, we are already a trusted partner to the electronics industry today. Our strong portfolio of silicon and optical solutions empower our customers to build smaller, faster, more energy efficient And more sustainable devices in various applications across the entire data sphere. But we are not only empowering today's devices. Our solutions also enable the next generation of leading edge technologies. And as you can see on this slide, we cover the entire data in all its applications.
And to give you just a few examples. So in the area of data processing, chip manufacturers will adopt A new transistor technology called Gate All Around. This will happen within the next 2 to 4 years. This technology will allow for increased scaling And lower power consumption. The challenge in making gate all around transistors is the uniform formation of the so called nanosheets.
We provide etchants that selectively release the silicon nanosheets from the sacrificial film to enable uniform formation. Another challenge is the formation of the so called metal stack to minimize power consumption. We provide Special dopants enable the tuning of the threshold voltage and optimize chip power consumption. And there will be new 3 d NAND chips with more than 300 layers, which means cost effective data storage. The challenge in making 3 d NAND chips With an increasing number of layers is that signal delays occur, and we provide novel ALD precursors that enable high quality films With higher conductivity, this increases signal speed and minimizes crosstalk between the memory cells.
Looking at data interfaces, there will be new augmented reality headsets, which offer users unparalleled immersive experience Inattractive form factors. The challenge is to manage light for the display, and we are currently leveraging Know how across our display and semiconductors business to provide higher refractive index and other materials that control light Efficiently. And just this example have given you an idea about the innovations we are working on in electronics. And with that, I will happily hand back to Konstantin to introduce the members of the electronics leadership team who will join us for the Q and A sessions. Thank you.
Thank you very much, Kai. And with this, we are ready to transition to the question and answer part of the last deep dive session of this day. As a More of you to ask questions in the first place. I'd like to introduce the panel that we are having now. Kai Beckmann, CEO of Electronics is being joined by Anand Nambya, Head of Semiconductor Materials Kate DeKasse, Head of Delivery Systems and Services Michael Heckmeier, Head of Display Solutions John Langan, Chief Technology Officer, Electronics Ed Schober, Head of Strategy and Business Transformation and as well, Stefan Katze, Head of Electronics Controlling.
With this, I'd like to now directly hand over to Our operator, Sergey, over to you to kick it off with the Q and A, please.
Thank you. We'll now begin our question and answer Day. Gary Stivendron, Exane BNP Paribas. Please go ahead.
Thank you very much. Could you just talk to the kind of the current levels of visibility you have on the materials order book? And then also kind of the levels of inventory that Semi manufacturers are holding relative to historic levels. Just thinking here about the phasing of growth for semis over the midterm relative Guidance, kind of how much of a boost a normalization of the order book and inventory levels that could have?
Yes. Okay. Thanks for the question and thanks for the patience. Sorry for the technical hiccups. So we know we are All on, and welcome to the electronics Q and A session.
Happy to have you all in that session and guide to take your question. Maybe Let me pass it on to Anand. I think he has a perfect visibility of what's going on right now in the industry from our constant Conversations. And so, Anand, would you please take that question?
Yes. Thank you, Kian.
Thank you, Gary, for the question. As you've heard in the industry, there is a crisis with regards to chip shortages. And if you peel the onion from there, there is an enormous amount of demand for chips these days and that ranges from All types of devices, memory, logic, sensors, etcetera. And all of this demand is at a very high level. There is an enormous amount of shortage in supply, which is why we see very high price increases lately and the market doing extremely well.
We believe this sort of demand, as Kai mentioned in his speech, will continue for the next several years. And therefore, we believe this market will remain extremely healthy.
Thank you. Will now move to our next question from Michael Leuchten from UBS. Please go ahead.
Thank you very much. A high level question for Kai. I think I asked a question at the last CMD where you set a very narrow range for your medium term guidance. And I think Your answer at the time was sort of visibility and the confidence that the demand For the top line growth or the demand behind the top line growth would not fall out of a fairly narrow corridor. You've now widened the corridor, but you haven't really lifted The lower end of it.
So I was wondering if you could speak to sort of like you now a year or so later see obviously more demand. We had the That may but why at the lower end of the corridor, what's the risk here? Why have you not lifted it if Structural demand is so strong, as you've just outlined. Thank you.
No. Merck, thanks for your question. And this one, Just to build a bridge to the last year discussion. Of course, now the time horizon got a bit longer. So many of the investments that are currently being executed on our customers' side, They will, of course, then have an effect on the demand side within that period of time.
Why did we keep the lower end? Think constantly, if we guide on CAGR, some people try to track us like year on year, We really deliver year on year within that range. And that misunderstanding sometimes leads to a bit of confusion. So we kept a bit, how shall I say, Safety cushion for the earlier years where the capacity situation is maybe not significantly ramping up. And kind of the longer term picture, you can see if you look into this corridor quite nicely.
And of course, once we know the plans better and we would, of course, track them very carefully, We give you updates on how the long term perspective is going to develop. But I think it should give you confidence on the long term outlook and kind of the amount of Cyclicality that we could assume. I think we were pretty accurate in the past years to anticipate a pretty dynamic industry and giving you Visibility on that and would like to keep a track record of the liability in our forecast that we were a bit cautious On the frame. Does that make sense, Michael?
Yes. Thank you very much.
The next question comes from Ned Weston from Credit Suisse.
My question is about the link Between your key customer CapEx and the Merck Electronics P and L, so there's lots of very big CapEx being Numbers being used by the likes of TSMC, a lot of it seems to be political as investment is going into the U. S. In your guidance, do you assume that all those CapEx numbers are real? Or are you essentially probability adjusting them So there is potentially upside if the spend and level of the capacity grows.
And then I'd
be really very interested to understand how your customers' Spending money feeds into your P and L. We're not familiar with this, particularly in terms of how the Systems business benefits As the facilities are built and then how the variable P and L changes as chips actually get manufactured, How should we think about the cadence of growth over the next 5 years?
Yes. Matt, exciting question. Thank you for that. And So the maybe the first question already contained a part of the answer on so the of course, the current Noise level on our customers' investments needs to be kind of clear a bit going forward. There is are announcements Which may not happen.
There are things happening which may not be announced as big. So we, of course, put to the whole list Of so far intangible plans, we put, yes, you could say probability adjustment to that. But there are very tangible plans Where already ground is broken and where already our DS and S business is enjoying a lot of kind of interesting new projects. So and I see Kate smiling on this. And by the way, Kate is here for the first time.
She has just taken over DS and S. But while she is new in that leadership role, she is in DS and S For most of her life, and she knows the industry inside out. But maybe on this, Kate, I would pass that part of the question to you on The visibility, the tangibility of our customers' plans and the bridge. And then you could maybe speak to how does it then link to our project business and how does it link to our equipment business. And Anand, I'm afraid it's again you to kind of explain how do we get an annuity out of that kind of a Constant flow of business out of these projects.
If the 2 of you would jump in, please.
Absolutely. I'll start. So in delivery systems, we are linked to the same customers That we have on the material side. However, we have a different perspective. We interact with different people at the customer.
And most of the time, we're interacting with facilities teams members, which means that we're involved and we have visibility to the Construction side of the projects of new factories. And so we get visibility to these projects, the investments you mentioned, TSMC, Other folks like Intel and Samsung in this industry, we get visibility to what's happening much earlier in the process. And so it's a very complementary business where we're able To provide a perspective on what's happening at our customers earlier, and then we can collaborate with our materials team To really understand what that means and if capacity is delayed or if capacity is speeding up, We can provide that visibility so that we then in turn can be ready on the materials side.
Thanks, Kate. And Kate, when you get the visibility for TSMC and Intel's fabs, We get the visibility from Kate's business that what the material capacity utilization and ramp up would look like. Historically and in the future, we work very closely with our customers to understand their capacity expansion plans Way in advance of announcements. And they take into account what is the equipment capacity that's available in the market a place to fill these factories and what's the material capacities available to fill these factories. And that's we work very closely with them to ramp up Alongside them as we win new technology nodes.
So really exciting time and absolutely The CapEx number is SEK 115,000,000,000 in 2022 is 2x that of 2016. So we see an enormous amount of potential For growth coming up, and we're building to those potential with ramping up our own capacities.
I just should, Matt, give you an idea how kind of integrated this organization works on these opportunities. And visibility is king in A highly dynamic industry, especially in times when there is like a gold rush going on in that industry, I think visibility To build our capacities on our side, to understand the technology needs, and we may come later to some technology aspects to understand what are the specific technology requirements and how can we best fulfill these needs. Matt, I hope this has answered your question.
Thank you very much.
One final build on your comments. Kate, when we talk about customers and governments who are both committed This unprecedented and accelerated CapEx expansion over the next 5 years plus, I've personally been involved in this History for over 35 years, and I've never seen this tremendous of an opportunity. I mean, Intel themselves yesterday at the car show in Munich, Germany, Announced that they're going to invest €94,500,000,000 in fabs in Europe. 2 new fabs plus additional fabs to be announced. So tremendous opportunity.
Semi equipment, as we know, goes from EUR 60,000,000,000 to EUR 120,000,000,000 in the next couple of years. It truly is unprecedented times. Nuslu is for real. It takes time to build these facilities, And our teams have worked very hard on obtaining plans of record, not just for the equipment, but for the materials. So when you talk about your original question about the linkage to the P and L, We definitely link it to the E and L for our future, and it's like our CFO refers to Marcus Kooner.
It's all about profitable growth. That's what we
Thank you. We will now take our next question from Peter Verdult from Citi. Please go ahead.
Thank you. Peter Dole, Citi. The messaging on semi is very clear, so perhaps a question for Michael or Kai On display and the whole dynamic about returning to growth, I think, in or before, just a clarification on when you think display Good return to growth. And I think everyone on the call knows that OLED is going to be a growth driver. But perhaps you could also spend a little bit of time Talking about the dynamic you see for the LCD part of the business, is that just ongoing decline, moderating decline Or even stabilization, given the essence you're making.
So just a discussion on a little bit deeper onto the display side The Electronics business. Thank you.
Yes. Peter, thanks for building the bridge to the display side. And you probably have noticed that we have now kind of Clustered our businesses on the display side a bit differently on the slide that I've presented in order to Kind of to show how these things are interlinked with the new technology requirements, specifically as it comes to AR, VR and other form factors like glasses. And I believe Michael is charged to the MAX to respond in much more detail to his question and Especially on how the OLED trajectory and how the liquid crystal trajectory will be in the next years. But I think we gave you an indication Peter, on that we returned to growth in not too far future in that business, which is an enormous achievement Given the situation, liquid crystals was in some 3 to 4 years ago.
So in such a short period of time, This has been completely of a build. And Michael, please, your stage.
Yes. Thank you, Peter and Kai, for parsing We don't talk about liquid crystals and OLED anymore. In a sense, we're really clustering around technology platforms, as you saw. We do that for a while already in semiconductors. And now we're coming out with a consistent tech description of our electronics business, right?
And Active emitting materials, so that's the headline where OLED is part of it, but also other materials like quantum materials. So for the OLED business, indeed, you're right. For the quarter, we see very strong growth, especially compared to last year, very nice buildup. We're investing in OLED to further feed that growth. We're investing in manufacturing plants in Korea and China, which are the 2 Dominant markets from a OLED perspective, and that one is our strong growth driver definitely in these dispositions.
Light modulator materials Discovering liquid crystals but also other materials like reactive meso genes for ARVR applications or for optical films for brightness enhancement and even And even non display applications, the liquid crystal business, I have to say there's not a lot news to Yes. We set our strategy very clearly in 2018. We're managing the business very consistently with cash. The outlook is fairly Constant with what we said already. Last year, the business was hit a bit more by COVID, and this is going to recover.
So it's Kind of modulating around our assumption, but basically, it's boring in the sense there's not much Here's to tell you. And then the 3rd element in this resolution is the future less play, where we then look into topics like how can we help our customers to Flexibleized OLED, so means bring OLED into real flexible applications. How can we help to drive new Applications like ARVR, I mentioned already, where, by the way, semi solutions and business solutions kind of merging technology wise. When we do the math of all this, we come to the conclusion that we communicate already by mid of the century, Sorry, because the DK, you're going to see display solutions coming back on the growth track as well. So thank you very much, Greg.
Hey, Michael, just a very quick follow-up. I couldn't be more excited about our realignment around these technology platforms Because I think it shows that we do have the opportunity to apply those technologies across these fields when semiconductors and displays and The whole processing of data needs to come together. So just so excited for our new alignment around those platforms.
Thank you. The next question comes from Simon Baker of Brad, please go ahead.
Thanks for taking my question. Just really going back to Matthew's question and Kate's answer, and apologies if I missed this Because the reception died a bit. But in terms of your visibility on customer new capacity, Could you give us an idea, your latest thoughts on when that capacity is likely to come online over the next Sort of 18 months or so. I know you talked about in the past that being the period over which it should start to come online, but any color there? And then thinking about growth drivers for you and the market, slightly longer term, could give your thoughts on the potential impacts of the open risk initiative, which if it displaces some of ARM's market share, Would certainly lower chip design costs.
And what implications that's got for price and volume from your perspective? Thanks so much.
Thank you. Thank you, Simon. Maybe on this capacity enhancement side. So currently, we look at a list of probably 30, 40 PEP projects and which are already on that list, not just talk in the newspapers. And each of these It's in different stages.
So we see already perhaps close to opening, very close to the opening date when they start mass production. And we see perhaps where they're just Breaking ground or preparing the land for that. So that's the scale in which we are. And Kate's team is tracking precisely Where these fabs are, when is the planned high volume production date and what would be Our opportunity in that business, at the end, it's a number of a very distinct number of customers. We're not talking about a set of, I don't know, Hundreds of customers at the end.
It's a number which is below 100. Definitely end up that below 10 of extremely big customers. We've got a high visibility. And Kate And Ed, maybe you can follow-up on this one and on this The technology question that you had on risk and its impact on the manufacturing costs. Maybe, John, Could you then elaborate on this question, how it impacts the industry?
I think there is, of course, from my point of view, much less than it's in The news because it's one specific technology for one very, very distinct application, although John is the person to excite you on this topic. Kate, if you could start.
Katie?
Sure. So to Ed's point earlier, I have now I've been in this industry for 20 Plus years and started in construction, and I agree. I have never seen The level of investment, the level of announcements from our customers of new factories. I have also never seen The level of engagement that we have across the globe in delivery systems with all of our customers. In every one of our regions, Every one of our customers has announced new factory investment, and we are processing orders, receiving orders And forecasting orders that are coming in very, very quickly.
And so looking at really making sure that we have the right Capacity in region to be able to support this, but we are very busy right now and I am receiving many orders And it's exciting, and I'm really looking forward to the fact that There's a lot coming and it's coming very quickly.
Yes, to build on Kate's comment, thanks Kate. Our customer relationships are very strong, so we have very insight good insights via our delivery systems business Into the capital projects, we know it takes about 2 years to build from the ground up in these greenfield sites. They then ramp and lock in their process over Of the delivery systems requirements, we have insights into the fab and what materials they'll be using. So our teams work closely in close proximity With the customers, we've got fabs being built by TSMC here locally in Phoenix right now. TSMC from The fact that 25% of the world capacity comes out of Taiwan, we're ultra close to that customer there.
It's ramping 6 fabs now. So we're very close to the leading customers in this industry. S and S provide us with good guidance As part of our business, and then Anand and his team can work closely with the customers to obtain these plan of record wins for the 6 key process Where we have one of the broadest and most relevant portfolios in the entire industry.
And just to close on that real quick, the open risk Initiative versus ARM, etcetera. I think what we're seeing is the ability for many different customers to start to custom design their chips for their So for us as a material supplier, that's both an opportunity and a challenge, a challenge to understand what those different design architectures Are going to require to manufacture them and then an opportunity for us to introduce those enabling materials that will allow those devices To realize the benefit that those many customers are now designing those chips. So I think that's just a very exciting opportunity and will bring us lots of New, very capable devices and material requirements.
Great. Thank you very much.
Thank you. And we'll now take our last question from Rosie Turner from Barclays. Please go ahead.
Hi, good afternoon. Thank you for taking my question. Just one quite specific around the semis business. I think, obviously, as we've kind of discussed in quite a lot of detail, there's undersupply more broadly of semis at the moment. But actually, in terms of DRAM, we have got to a state where because the rest of chip manufacturing can't keep up, We are now in a significant kind of oversupply position in terms of DRAM.
And I guess if you look at kind of SK Hynix, the shares are down kind of 15% in August, Reflecting that, so I just wondered if you could let us know what your exposure is more broadly to DRAM, how that's going in terms of your shift To 3 d NAND and whether kind of that's something we should be slightly concerned about. Thank you.
I'm sure Anand would jump on that question right away.
Absolutely. I think the fundamental question we have to ask ourselves is why are these why is the market behaving like this? And we have to Look back into where we came from in 2019 to 2020, the semiconductor market was already expecting the growth At the behest of 5 gs and AI implementation. However, with the pandemic, there was also the massive digital acceleration That created demand for PCs and smartphones and more data centers and gaming consoles and more autonomous driving and more consumer electronics. All of this, as we all mentioned earlier, is unprecedented in the marketplace.
And this we is the reason why There is shortages in the market. There's a high demand and an extremely short supply. When you look at the memory market, both DRAM and NAND have Extremely healthy inventory levels. The prices are rising and they have been rising for the last several quarters And DRAM prices are fairly healthy at this point. And that is the reason why customers have also announced various capacity expansions Because of the high prices and the low supply, and we believe the memory market will remain still very solid for the foreseeable future.
Great. Thank you very much.
Ladies and gentlemen, thank you for your questions And your attendance. I now hand you over to Constantin Fest for closing remarks.
Dear ladies and gentlemen, this now concludes the Merck 2021 Capital Markets Day. Thank you so much for joining this event, for following the Merck journey and for being with us today. Also note that the recording of this event will be available in about 24 hours from now. And with this, thank you again.