Dear ladies and gentlemen, a very warm welcome to this Merck 2023 Capital Markets Day. My name is Constantin Fest, and I'm really pleased to meet all of you here in Darmstadt, as also to welcome, the great number of participants who are joining us virtually from across and around the world. One logistical item first. Many pieces and parts of this event will be recorded in terms of audio and in terms of video. If you disagree, kindly contact the IR team immediately. We will now start with the main part, the main presentations of the day, with Belén Garijo, our Group CEO, as well as Helene von Roeder, our Group CFO. This will then be immediately followed by a round of Q&A.
Then we will have spotlight sessions, which will focus on the three sectors and the regions that they operate in. In the afternoon, our guests here on site will be able to get very close to our management, have direct interactions in our annual Meet the Merck Management sessions. Now, with this, I'd like to directly hand over to Belén to give us an update on Merck from the CEO perspective, which will be directly followed and complemented by a presentation from Helene with the financial view. With this, Belén, the floor is yours.
Thank you, Constantin. Good morning, everyone. I hope you enjoyed dinner last night, those of you who had the chance to, to be with us. So, first of all, welcome everybody to our 2023 Capital Markets Day. Thank you so much for making the time to spend the day with us discussing our business, the challenges we are confronted with, and, you know, to get a very transparent view on the way we see the year unfolding. Thank you also to those, connecting virtually from all over the world. What I aim to do is to kick this off with, with a high-level update on our business, then follow, by... followed by Helene, that will, share, additional perspectives on the financial overview.
Let me first say that I am delighted to welcome Helene for her first Capital Markets Day at Merck. Very welcome. After that, Helene and I will sit in the hot seat for a lively Q&A to precede the three spot sessions, the three spotlight sessions that will be chaired by the sector CEOs, Matthias, Peter, and Kai, that will come on the stage with some key members of the leadership team. How to start on 2023? Very simple. Let me emphasize that 2023 has turned out to be a very tough transitional year for us, as we already announced to all of you when we had the chance to meet in early Q1 of this year. Let me also stress that we have a very strong track record of managing challenging times.
Needless to say, the COVID-19 pandemic was a major challenge to the global economy, and during this time, we significantly outperformed global GDP as a key indicator for economic activity and delivered robust organic sales growth every single year. This was simply driven by our resilient multi-industry business model, and importantly, driven by our focus on markets, sectors with attractive growth trends. Our diversified business is also helping us in 2023. The world is transitioning to the post-COVID era. We continue to be faced with strong macroeconomic headwinds, combined with rising interest rates. We have seen a COVID cliff in 2023 and a pronounced de-stocking Process Solutions in Life Science. Parallel to that, our Electronics business sector is seeing a prolonged downcycle in Semiconductor Solutions, paired with a low customer utilization in Display Solutions in most recent quarters.
On the positive side, our Healthcare business sector is delivering a stellar performance in relation to a very successful product launches on our first wave, particularly Mavenclad and Bavencio, and supported by a very resilient established product portfolio, which is helping drive growth mostly in emerging markets. We have navigated well through this transitional year. Temporary challenges in Life Science and Electronics were largely offset by a strong performance of our Healthcare business in H1 of 2023, enabling us to stay on track, flat organic sales performance, which you will recognize is significantly better than most of our competitors. What do we expect in 2024? A question that I received frequently last night, that we received frequently last night.
As you know, we are not in a position to provide any precise guidance at this time, but we have a strong confidence in returning to growth in 2024. Why? For Life Science, we are expecting easing COVID comparables and the destocking Process Solutions coming to an end. Science & Lab Solutions is expected to remain a growth contributor, thanks to the product portfolio that we have in that business unit, the broad range of applications, and also the fact that our exposure to instruments, instrumentation equipment is limited in Science & Lab Solutions and in Life Science in general. Our Healthcare business sector generated a strong growth in H1 2023, and our full year 2023 guidance of +6% to +9% also signals our expectations to stay on attractive growth for the remaining of 2023.
From this high base in 2023, we are expecting a normalizing of growth rates for Healthcare, more in line with our midterm aspirations. We also expect that at some point in time, the supply shortages of our competitors in the areas of fertility and endocrinology will come to an end. The main catalyst on Healthcare, evobrutinib, would start making meaningful contribution only as of 2025, followed by the launch of xevinapant. For Electronics, we believe that the semiconductor market will finally pick up in 2024. Artificial intelligence, the Internet of Things, and the processing of big data will also start to drive the next stage of secular growth. And this brings me to my next topic: What is coming after 2024?
First of all, let me stress that we see no structural changes to the attractiveness of the markets and stay confident on our ability and our competitive advantage to capture the growth expectations of those sectors. The three business sectors in which we operate continue to have attractive midterm growth prospect, as you see on the slide. For the global Life Science market, we anticipate 5-7% annual growth, and for the global pharma industry, between 3% and 6% annually. For Electronics, as represented on the slide, we expect growth between 5% and 7% in the semiconductors area. All our target markets, or most of our target markets, I should say, are driven by major megatrends. And obviously, here I'm going to focus on what is most relevant to our business sectors.
In particular, in Life Science, we see continued emergence of complex and novel modalities, while a growth on traditional modalities, particularly monoclonal antibodies. In Healthcare, we identify the growing burden of oncology, new therapies, new innovation, and also the growing burden of neuroinflammation and immunology conditions in patients. In Electronics, I repeat, artificial intelligence, Internet of Things, are driving materials for leading-edge chips. And of course, the overarching topics of climate transition applies across all industries. And all of these megatrends reaffirm our growth ambition. But in order to be able to capitalize on these megatrends, we need to thoroughly understand and develop a competitive advantage. And we also understand the way these megatrends are going to play out differently in the different regions of the world. We aim to build on our geographical diversification and also on our good track record and excellence in execution.
The long-term growth potential across regions, across the three key world regions, our economic powerhouses, is different for each of our three business sectors. In Life Science, for example, we see the strongest growth potential in Asia-Pacific, followed by North America and the European Union. For our Healthcare business sectors, we see North America as a huge opportunity, followed by APAC, and those two regions having the best upside potential, followed by the European Union. We can draw a very similar picture for our Electronics business sector. Taking a look at the long-term growth prospects, in the three global economic powerhouses across our business sectors, we see the strongest, the strongest growth potential in Asia-Pacific and North America, where we are already very well-placed. I have now talked about our key megatrends and-...
The fact that we believe this will play different, differently in the three key global geographies. But how do we capitalize on these megatrends? Our geographic presence fits extremely well to the overall economic contribution of each of the world's key regions, as measured by global GDP contribution. In fact, we are highly geared towards the largest global market, Asia-Pacific, which is also the region with the highest long-term growth potential for us. APAC contributed around 35% to the world GDP in 2022, which perfectly matches the sales contributions of Asia-Pacific to our total sales. According to data from the IMF, estimated GDP growth in Asia-Pacific for 2024 will be the highest of all these three global key regions. China is a major contributor to GDP in APAC, contributing around 50%.
We are aware that macroeconomic uncertainties and the geopolitical issues, mainly the tensions between the U.S. and China, have increased in recent years, particularly in 2023. As you can imagine, with the U.S. being our first major market and China being the second major market for Merck, we are following the situation very closely, and we concluded that these issues are going to be of temporary nature, and that those will not meaningfully impact our business activities and investment decisions in China in the mid to long term. So now what I would like to do, on the next four slides is to go a bit deeper into every business sector to illustrate that our geographic revenue distribution is not just an aggregate of numbers.
We continue to seek very close proximity to our markets, which is extremely important for some of our businesses, for all our businesses, but particularly for Electronics. We understand the requirements across our three business sectors. Just to cite some proof points, in Life Science Process Solutions for example, we have decided to move from global center of excellence to an in-region-for-region approach. Pre-pandemic, we only had a full manufacturing footprint across the key product categories: single-use, filtration, and cell culture media in the Americas, and are now working to regionalize our manufacturing network in Europe and Asia-Pacific to be able to better serve our customer needs in the different key global regions and, of course, to be better positioned to ensure resilience of our supply chain in case of additional trade issues.
Process Solutions, we seek to enhance our market-leading position in the bioprocessing market. We firmly believe we have the broadest offering across the market segments, and this provides a value-added proposition to our customer, a competitive edge. We have included a slide in the appendix that I invite you to take a look at, which outlines our differentiated market position. And obviously, Matthias and his leadership team will be more than happy to provide you with more details during the afternoon sessions. Now, in Healthcare, slide 13 illustrates how well we are poised to capitalize on our global presence while identifying regional opportunities and building on them. Overall, Europe and Asia-Pacific are, as of today, the two strongest regions for Healthcare in terms of revenues.
We have strong confidence in our renewed innovation engine, increasing our US exposure through innovation-driven growth, in particular through our wave two launches, evobrutinib and xevinapant. We will not stop here. R&D and business development opportunities will be driven in Healthcare by the potential those bring, by the additional potential those may bring for us in the US. Focusing briefly on Electronics and how the global economic powerhouses drive our investment strategy and business setup in Semiconductor Solutions, we aim to be the innovation partner to leading-edge global customers, and you know that this market is highly concentrated on a few customers. The semiconductor industry is planning around $900 billion in investments globally, and this is mainly driven by 5-6 companies, the 5-6 leading-edge players.
We serve today all of them, and with a network of R&D and production hubs, as well as innovation hubs, we, as I said before, ensure proximity to our customers, which we believe is giving us a tremendous competitive advantage. Let me stop briefly on sustainability on slide number 15, because we have also made progress here. Already today, we are facing a shift in customer demand and expectations towards more sustainable products and sustainably responsible supplier behavior. In that regard, we have already some notable achievements. We are investing to reduce our Scope 1 and 2 emissions, aiming for climate neutrality by 2040, ten years ahead of the European Union. We have already brought our emissions down by around 10% every year since 2020.
Second, human rights in the supply chain is certainly a global topic, but with increased risks in certain regions of the world. We have control mechanisms, reporting, and processes ready to comply with the German Supply Chain Act, and 82% of our expenses to suppliers are already covered by valid sustainability assessments. Besides the achievements as shown in this slide, I am proud to say that since the announcement of last year's Capital Markets Day, we have embedded sustainability in our R&D processes and have already assessed up to 90% of our relevant R&D projects. A company-wide assessment for a better sustainability performance of products in our existing portfolio across the sectors will follow and will be implemented by the year-end. Let me conclude these, deep dives with the next slide. I showed you that Merck offers the right elements, the right pillars to maximize commercial success.
We are close to the customers, we have excellent market intelligence, and we are able to exploit our regional strengths as a global player. We have the strategic flexibility to adapt our business to the market requirements. You will hear more about our strong customer positioning and our ability to capture growth during the spotlight sessions following this presentation and the presentation of Helene. With every business sector illustrating the key strengths in one of our three global regions. This already brings me to the outlook and executive summary, which I'm sure you are eager to see. We view our midterm growth prospect as being intact. We have, as I mentioned, the elements in place to deliver attractive growth profile. We are well positioned, both from a business standpoint and from the geographical standpoint, to benefit from key megatrends driving our attractive markets.
We maintain our growth aspiration for all our three business sectors. In Life Science, we continue to expect a midterm organic sales growth CAGR between 7%-10%. Look, underlying market fundamentals remain attractive beyond these temporary developments, such as the destocking Process Solutions. our product portfolio and our innovation engine increase our confidence in the midterm growth perspectives. For Healthcare, we continue to strive for a mid-single-digit organic sales growth CAGR in the midterm, and this will be enabled by the recent product launches and is to be expanded by the upcoming Wave Two launches of evobrutinib and xevinapant. We also expect that our very resilient established product portfolio will make a positive contribution and will stay resilient.
Finally, for Electronics, we regard the midterm growth prospects as intact between 3%-6% midterm CAGR, due to our continued confidence in the secular trends driving semiconductors and our ability to outperform the market as we have done to date. We therefore have a strong confidence in midterm growth beyond 2025. We capitalize on these key mega trends that I have repeatedly mentioned in all, in all our three business sectors. We have a strong base to maximize our future commercial success. We maintain our aspiration of around EUR 25 billion in sales by 2025, and we not only have attractive midterm growth prospects, but we also have a strong long-term growth opportunities fueled by our growth and by our enterprise innovation engine across sectors. Innovation is a key driver of future sales growth.
In the sector and across sectors, it will help secure our long-term perspectives, and it's also a proof that our diverse multi-industry setup fuels our ability to solve problems faster and leverage our competencies across sectors. Life Science, for example, provides AI-driven tools and services and breakthrough combinations of AI and automation, while Healthcare provides expertise to life for Life Science development and uses life Science tool to accelerate drug development. I would like to highlight three developments today illustrating what I have just said. First, AIDDISON. AIDDISON is a software package that Life Science is selling to customers for early drug discovery through our SLS team. It was launched in 2023, and is using generative artificial intelligence built from historic data in Healthcare, and we are further building on this capability. The second development that I would like to highlight are organoids.
Recent announcement by both the FDA and EMA signals a willingness to move away from animal testing, and we have made a big commitment to follow that as part of a clinical submissions. SLS currently sells two-dimensional cell culture organoids, which our Healthcare colleagues are already using for a screening purpose. We are also working on next-generation organoids, which may incorporate chip technology, so the three sectors. This bioconvergence brings together our leading innovation across Electronics, Life Science, and Healthcare. One important point is smart manufacturing. Smart manufacturing is an overarching topic across all three sectors. We have clear synergies in terms of capabilities, engineering, data. We have a joint effort to drive advancement in smart manufacturing. Each sector has developed a strong capability in certain areas, and the cross-sector collaboration enables us to have a holistic view to drive advancement in manufacturing.
This also puts Merck in a position to support our customers in their own efforts. What is helping us now, and even more in the future, is to further leverage our competencies across sectors to further boost our innovation engine through a Merck Business Services approach. Merck Business Services help us to manage our cross-sector services and pool and create efficiencies across our three business sectors. We have moved to Merck Business Services 2.0 this year and have generated efficiencies, helping obviously our performance. I am sure many of you have been waiting for me to share how our organic growth ambitions, mid to long term, are complemented by our M&A strategy. I assure you that M&A continues to be a key priority for the board. We have defined clear guardrails for our M&A.
Any acquisition needs to fit in with the mega trends for the group, and most importantly, needs to support and accelerate our organic, profitable growth strategy. You ask me, "In what form?" I say, "A small and larger transactions are possible, as it is a combination of both." While times can offer attractive opportunities, you know us very well; most of you know us very well, and we will continue to take a very disciplined approach. Helene will add further color on this, further color of this point later. Importantly, and something I mentioned during our Q2 call, we are under no time pressure, and M&A is always only a means to an end. To conclude, we have a strong track record in managing challenging times. We leverage and capitalize on appealing mega trends across our three business sectors.
We are aiming to maximize our commercial success through our very highly diversified business, but also, through our presence in key global geographies, and we will count on that, vigorously execute on delivering efficient, meaning profitable, sustainable mid-term growth. With that being said, I would like to thank you for your attention and would like now to invite Helene on the stage to continue with the financial overview. Thank you very much.
So, thank you very much, Belén, and a warm welcome also from my side to this year's Capital Markets Days. I'm very glad I made it on stage without falling over, and I took the clicker, so good start to the day. So it's my great pleasure to share my financial perspectives and build on what Belén has just presented to you. So let's look at slide 24. Sorry, this is 24. I will focus on the transitional year in my first section before moving on to 2024 and beyond, explaining how we expect to return to attractive and profitable growth. And in my third section, I will focus on our midterm goals by sector before continuing with my presentation with an executive summary. So let's start with the financial perspective on the transitional year.
So on slide 26, I show you how we are navigating through this very challenging environment. Looking at the performance of Life Science and Electronics combined, sales have declined organically by around 5% year-on-year in H1 2023. The combined EBITDA pre-margin declined by 260 basis points from the level of full year 2022. Now, you know, the key reasons for this development were significant COVID headwinds, however, paired with pronounced destocking Process Solutions, as well as Semiconductor Solutions, having been affected by the obvious downcycle in semiconductors. Given our business model, this was largely offset by the strong performance of our Healthcare business sector, which delivered an 8.8% organic sales growth and a strong margin development in H1 2023.
Now overall, the strong performance of the Healthcare business sector helped us to achieve a flat organic sales performance year-over-year in H1 of 2023, with a robust margin level. Now, I want to underscore that market conditions have made 2023 a transitional year for Merck, affecting both Life Science and Electronics. So with that, let's go to page 27. Now, what you can see on the first chart on the left side is that since early 2022, key interest rates have risen significantly, as illustrated by the increase in the Fed funds rates in the US since January 2022. For many corporates, this means that preserving cash has become more important. And on top of that, the world is normalizing post-COVID.
As you can see on the chart on the right, worldwide prescription drug sales are expected to decline year on year in 2023, after a period of strong growth, reflecting this development. A consequential broad-based reduction of inventories has resulted in pronounced destocking in Process Solutions business within life science. So and then let's look at the right-hand side. In Electronics, we are also seeing the dynamics of a world normalizing post-COVID. As economic cycles impact wafer production in semiconductors, the partial unwinding of work from home post-pandemic amplifies the effect. Nevertheless, the 2023 guidance reflects the fluid environment. So with that, let's move on to page 28. The temporary challenges in Life Science and Electronics drive the development of the EBITDA pre-evolution from H1 2023 into H2.
For Life Science, we expect the trough Process Solutions in Q3 2023, and to reach an inflection point for order intake in mid-Q4 2023 to Q1 2024, in line with what we have said before. For Electronics, we do assume that the market downturn in semiconductor materials will extend into 2024. However, please bear in mind that our EBITDA pre in H1 year of 2023 was also supported by the UDC patent agreement and Healthcare benefiting from active portfolio management income of around EUR 70 million. Now, this is important. We do confirm our 2023 guidance ranges with sales of EUR 20.5 billion-EUR 21.9 billion, and EBITDA pre of EUR 5.8 billion-EUR 6.4 billion, and EPS pre of EUR 8.25-EUR 9.35.
We have provided you with these wide-ranging guidance ranges due to a number of moving parts we are currently confronted with: the shape and further evolution of Process Solutions, in particular, the ongoing, very complex SAP migration project in Life Science, the uncertainty around China in Life Science, and for Electronics, the dynamics of the downcycle of the semiconductor market. When I consider most of these factors now, the scale between challenges and opportunities has maybe shifted slightly to the former. So with that, if you move to page 29, I also wanted to share a few words on our financial profile and explain how it reflects our confidence in strong mid-term growth.
As you can see in the chart on the left, our 2023 guidance implies a decline in sales and EBITDA pre, with our operating expenses being roughly in line with the 2022 level at the respective midpoints of the 2023 guidance, but above at the 2021 level. You also can see in the chart on the right, our CapEx to sales ratio has structurally increased over the last five years. Now, actually, the message is pretty simple: We are investing in our three business sectors with a mid- to long-term view. In line with our guidance, we expect around EUR 1.8 billion-2 billion in CapEx spending for 2023. This reflects an increase from the levels we had from 2018 to 2021, and it's also visible in our CapEx to sales ratio.
The ratio of between 8%-9%, as implied by our guidance for 2023, sits above the recent profile. Now, what this clearly shows is that we're investing through the cycle and have strong confidence in future growth. It is a high priority for us to manage CapEx responsibly. We are evaluating regularly whether investment continue to support our long-term, profitable growth. In summary, and as you have heard from Belén before, we do expect a growth inflection in 2024 and a return to attractive, efficient growth beyond 2024. We are financially geared towards this goal.... So now, let me give you some more color on why we are so confident that we will resume growth in 2024, and our profitable growth perspectives beyond 2024 in the next section. With that, please look at slide 31.
While we're not providing guidance for you for 2024, at this point in time, I will provide a little bit of color and feeling on the developments we expect and how these are expected to contribute to the sales growth inflection and the development of EBITDA pre at this point in time. With the end to customer destocking Process Solutions, resilient growth in SLS and a pickup in semiconductor materials, we have drivers which will support our growth. We also benefit from the expectations that our DS&S business within S emiconductor Solutions will remain at a consistently high level in 2024 compared to 2023. And in Healthcare, we expect that competitor stockouts will start to ease, which, by the way, are leading to quite high comps in 2023. But 2024 is only the starting point for achieving attractive, profitable growth in the midterm.
Let's look at slide 32. You have heard Belén talking about the end market growth potentials in each business sector and the key megatrends. In the midterm in Life Science, we actually see all our 3 business units to be the key drivers for the group. In Healthcare, I want to highlight the 2 therapeutic areas of oncology and neurology as key growth drivers to you. In Electronics, it is our Semiconductor Solutions business, which we expect to form one of the key drivers for our midterm growth ambition. Importantly, these 3 key drivers we identified for Merck already contribute more than 70% to group sales. When I talk about strong growth prospects midterm, what does it actually mean in numbers? With that, let's look at the next slide.
We continue to see an attractive midterm organic sales growth CAGR of around 7%-10% for Life Science. We Process Solutions to resume growth, Life Science Services to show attractive midterm growth after temporary headwind, and Science & Lab Solutions to deliver sustainable, profitable growth in resilient and regulated markets. Our business and geographic mix, in combination with our innovation engine, will help us to deliver above market growth, and I'm sure that Matthias and his leadership team will give you much more color during the Meet Merck Management session. Let's move to Healthcare. We continue to see a mid-single-digit organic sales CAGR, mainly driven by the launch waves I and II. The bigger portion is expected to come from the potential Wave II launches.
Now, this would be evobrutinib with best-in-class potential in relapsing multiple sclerosis and xevinapant, our new inhibitor of apoptosis protein, aimed at setting a new standard of care in locally advanced head and neck carcinoma. Also, the so-called Wave I launches, namely Bavencio and Mavenclad, and our established product portfolio, are expected to contribute to our midterm growth ambitions. Of course, this afternoon you will hear more from Peter and his leadership team in the Meet the Management section. So with that, Electronics. We want to achieve midterm and organic sales CAGR of 3%-6%, which is why we have not changed our midterm view on organic sales growth. We expect the vast majority of growth to be contributed by Semiconductor Solutions, for which we see an organic sales CAGR of 7%-10% in the midterm.
This would be market growth and also supported by continuously investing as part of our Level Up program. And where is Kai? Because it will be him and his leadership team walking through more details also in our Electronics business sector sessions this afternoon. So far, you've only heard me share my view on our organic growth ambitions midterm. However, Belén also mentioned we continue to look for inorganic growth opportunities through M&A, and I'm very happy to provide you more financial perspective on this topic. First of all, let me allow me to stress again what Belén said before. We are not pursuing M&A for the sake of it. We have clearly laid out you today that our organic growth prospects are actually very compelling.
Nevertheless, we seek out acquisitions if they can enhance and accelerate our efficient growth strategy, meaning to achieve profitable and sustainable growth. We have very clear criteria, as you can see on the left side, which have not changed. For example, any acquisition must support our profitable growth strategy. We do want to maintain our strong investment grade rating, and an acquisition needs to be accretive to EPS pre. So with that, let me share more details on our focus areas, starting with Life Science. We are looking to enhance the core business, as well as enabling and adjacent areas for all three business units within Life Science. Within Electronics, Semiconductor Solutions remain a key focus area for us, and we are also interested in innovative assets in Healthcare and are looking really continuously for licensing transactions.
We maintain a strong financial capacity and look for small and larger transactions, and our clear guide is value creation. The current M&A environment is pretty influenced by macro and economic uncertainties and key interest rates at levels we have not seen for many years. We have a sharp focus on our cash profile. We confirm our dividend ratio, the payout ratio to be 20%-25% of EPS pre. And please bear in mind, we have an extremely strong track record of fast deleveraging. Cash and debt remain our main financing options. We are in absolutely no hurry and can really wait patiently for the right target while closely monitoring development. So with that, I've already reached the executive summary. We are laser focused on delivering this transitional year. We expect the growth to resume in 2024 in Life Science and Electronics.
We regard our midterm growth ambitions for three business sectors as being intact. Finally, M&A continues to be on the agenda with a clear goal to support our efficient growth strategy. Thank you very much for your attention, and I think we're moving to the fun part now, which is Q&A. With that, hand over to Constantin.
Thank you. Thank you very much, Helene. I would like also Belén to join us on stage, and I think we can have a seat. We are now ready for our Q&A session with our CEO and CFO.
Where is Peter? Where is Peter?
Yeah. We would kindly ask our audience in the room to get ready for the questions. Raise your hand, as you already start doing, and use the microphone on your desk once it's your turn to speak. So we open, and Richard, I think it was first.
Thanks very much. It's Richard Vosser from JP Morgan. Maybe on the reiteration of the midterm targets, I think I saw on the slides that they go from the beginning of 2023 or the end of 2022. I think the original targets were to hit EUR 25 billion in terms of sales by 2025, and that's obviously a EUR 4 billion gap from somewhere around today. So how should we think about that bridge? I understand the growth trends are intact, but that implies an acceleration in one of the next two years, and it's probably not 2024. So some idea of that bridge and how to think of that would be great. And then maybe second question, you gave some color on margins for 2024 in terms of the EBITDA contributions with bars.
Just maybe a little bit more on that in terms of how we should think about margins. It... I could imagine Life Science could see some margin improvement and Semiconductors maybe in H2 when the recovery comes, but just some thoughts on margins year on year in EBITDA. Thanks very much.
Thank you, Richard. To be consistent, I will, I will, I was answering that precise question to one of your colleague last night, so I will say exactly the same as I said last night: 25 by 25. Definitely don't go to the math, right? Or don't take me to the math, I said first. What I can tell you is that we keep that aspiration and that objective for ourselves and our teams, and we will definitely go after that objective, and this is what I can say about this. Not everything is going to be in our control, for example, currency, right? But everything that we control today is going to be, you know, managed to deliver on that aspiration. On the margins.
So as you know, we don't give short-term margin guidance for the next years. So I would like to point you to sort of like what is our midterm margin guidance for Healthcare. If you look through, you've seen that like we are looking more or less at a +30% margin for this year. And if I look at Peter, he says, "Okay, that feels like a comfortable range going forward." On Electronics, again, midterm guidance and aspiration is to be around the 30, reach the 30%. And in Life Science, we've also been pretty clear. At the moment, we are more or less at the 30. We've been at 38%, during COVID times.
As Constantin always so nicely says, is like, "If you take the middle of it, you probably can think of how we are aiming to strive towards margins.
Matthew?
Thank you. It's Matthew Weston from UBS. Two questions for me, please. You made it very clear about M&A, that you are in no hurry, and it's about finding the right asset. But I also recall that I think M&A was included in the 25 by 25 goals. So maybe I'm wrong, Belén, I shake my head.
It wasn't.
It was not. Okay, perfect. So it really is on top of that. The second question then is around Mavenclad LOE, 'cause that's obviously a very important assumption in that 2025 plus timeframe that the market has to get its head around. And I'd be very interested from a senior management level, where we should be thinking as a group about when Mavenclad will go generic, and how much impact that's anticipated to have?
So I mean, you, you know that, we have, initiated, and presented a very compelling position that, allowed us to, to, to really, gain in some European countries. The critical topic is going to be, how does-- how is that going to unfold in, in major markets? But once again, we believe our case is compelling, and, why-- we are working on different scenarios. I think Peter and the team can give you a bit more flavor. There is nothing new to communicate as far as I can, as far as I can say. But, a stronger positions in European countries, and, and recognition of our, regulatory data protection and, and, and the patents and, you know, expectations, still on the litigation, on the patent litigation that we have in the US.
Sachin?
Thanks very much. Sachin Jain from Bank of America. Two financial clarifications, please. So, Helene, when you were discussing 2023, at the end, you said challenges versus opportunities shifting to the former. So I just wanted to check, should we interpret that commentary as more bottom half of 2023 guide, or is that not an interpretation I should take from that? And on the 2024 slide, when you talk about the divisional growth items, you talk about Healthcare achieving midterm, but that commentary is absent from life science. So again, should we walk away from that thinking that achieving the 7-10 for life science in 2024 may be tough? Thank you.
On the guidance, as you know, I can't give you any update before we actually announce numbers. I think I would like to reiterate that, like, we have a number of challenges on our books, and again, sort of like, point towards, like, maybe there's a little more, more challenges than upside. On the margin question, I'm not quite sure I understood correctly what you said, because,
Sorry, it was on the 24 slide where you discuss each of the growth drivers by division. I think there's an aspiration on Healthcare to achieve the midterm that was absent from the Life Science commentary at the top. So is it fair to think that Life Science will be tough to achieve the midterm 7-10 next year?
Yeah. I mean, I think let me answer.
Yeah.
You are referring to the top line. So in my introduction, I mentioned 7-10 midterm. Obviously, you know, this is going to be highly dependent on our perspectives for 2023 and how fast the destocking is coming to an end. So if you assume, as we have assumed to date, that we may see the inflection in order intake by Q4 2023, right? We have obviously we need a bit of time until revenue comes back. And obviously, even if we don't guide, I would tell you that 7-10 is more of a midterm topic rather than a 2024 ambition.
Holger, you're next after Florent, and then..
Holger Blum, Piper Sandler. I have a question on the chart on page 19. You showed illustrative growth after 2025, which had a range of flat and increases, and given your midterm perspective, I wonder, how do we get to a flat sales growth scenario from 25 onwards? What are the assumptions there?
I told you that slide was going to be confusing because there are two lines. I kind of, I mean, I confirm that our longer-term perspective is attractive. We don't. We are not in a position yet to make commitments post 2025, right? Concrete commitments. And this is why you should take for your own estimates and for your own projections, you have to take our midterm growth ambition as the guidance, right? With the caveat that I mentioned on 2024, in which we will give you more information, obviously in March and in May, but take that midterm growth aspiration as to the longer term.
I would put that probability zone as a Gaussian statistics with a certain parameterization.
I would agree. Florent, you are next.
Good morning, Florent Cespedes from Société Générale. Two questions, please. First, a financial question: on M&A, you reiterated your criteria, notably, value creation and accretion on EPS pre. Is there a risk that with the higher interest rates, there could be an impact on the timing of the, let's say, implementation of these elements, notably the EPS accretion? That my first question. Second question: APAC, you said, it's a great opportunity for the company, but maybe could you elaborate a bit on how you will navigate on the short-term risks on this region? Thank you.
... Thank you, Flora, and I start by APAC, if you want. So look, I mean, I mentioned already in the intro and you know that very well, China is our second largest market and we have a strong presence in China with our three sectors, and the same is true for the U.S., although the presence of the different sectors is different by region. I mean, We have been extremely close to the U.S. government, the German government, and obviously the major policy decision makers in order to be able to prevent additional trade restrictions, right? This is our main concern.
At the same time, we are securing, right, that we gain—while we mitigate our potential risk, we also gain more strategic autonomy to serve our China customers. We don't imagine a global world without China, and we are expecting policymakers to be able to find acceptable solutions to continue to run globally. Obviously, investment decisions are being evaluated on a case-by-case basis in order to also de-risk our footprint whenever is necessary. But so far, I have repeatedly said that we have not drastically changed our investment policies in any of the countries. So we are more in the diversification piece. I mean, on the economic dimension is obviously a concern, right?
The current anti-corruption act is another challenge in the short term, but we, we consider those topics to be more temporary. And we don't see major impact, although we are working on different decoupling scenarios eventually, right? To understand our risk factors. We don't, we don't really see that decoupling is going to be a reality, or is highly unlikely. Let's put it that way.
With that, to the EPS question, I mean, as you rightly point out, given higher interest rates, it is harder to achieve a day one EPS accretion. So we would look at EPS accretion most likely at the end of the achievement of all synergies. So that's the way I think is a realistic way of to look at M&A for the future.
I think, Peter, all the way in the back. Yep.
Thanks. Peter at Citi . Just one question, Belén. I mean, we sat here last year, and everyone left Darmstadt thinking capital allocation was all about CDMO. But judging from the conversations we had last night, that appetite seems to have shifted. So I know you're not gonna call out what you're looking at and what specifically, but can you just describe your relative appetite to transact across the divisions? Thank you.
Look, I think, as the strategic frame guiding us is market attractiveness, our ability to win in in that marketplace, and obviously, the considerations that Helene detailed as well on following our or supporting our growth strategy, right? So we believe that CDMO is going to, you know, after the pandemic, is going through turmoil, mainly on, also on the biotech funding and all this. This doesn't drastically change our perspective. We are going to be looking at Life Science overall as one of our top priorities for M&A. And as I mentioned, we don't need to go... We may go small, we may go big, or a combination of both.
It depends on what is going to create more value, and at the end, the targets will be evaluated on those bases.
I think, James, you already raised your hand earlier.
Great. Thank you. James Quigley from Morgan Stanley. So just picking up on M&A again, in terms of the focus areas, you. Hi. There were four on the slide. Is there any order in terms of that priority, or is it a case of you canvassing across all four areas and seeing what could create the most value? And then secondly, on China as well, just picking up on that. So you've mentioned about why you're confident from a geopolitical standpoint as to why China is still an attractive market. But in terms of Merck, in terms of competition, in terms of investment, why are you confident that you can continue to capture benefits from that market?
Yeah, very good. So let me start by the M&A question. Is there a priority? Is there an order, a sequence, I guess you mean, right? Unfortunately, this is opportunity driven, right? So, I mean, we may have a sequence in mind, but it's opportunity driven and definitely what we do with a lot of discipline is to analyze and rebase our portfolio every year to be able to identify not only acquisition target potential or potential targets, better said, but also, you know, to analyze what businesses could have a lower fit with our own growth trajectory. So we look at everything, right? And there is no predefined sequence, right? Normally. So on China, why are we confident?
I mean, we have a presence of the three sectors in China. Healthcare is our biggest sector at this time. We have built a high and very competitive presence over the last 7-10 years in China, coming out of nothing, through our competitive portfolio in fertility and essential medicines, right? So everything that could come to China for innovation will have a potential upside on our Healthcare development. Life Science is definitely a growth opportunity. I mean, we see increasing emergence of biotech in China, in novel modalities. I mean, the majority of the clinical trials that are being conducted in oncology are in China.
25% of the clinical research that is being conducted in oncology is in China, which is a fantastic opportunity for our Life Science business. Academic, you know, SLS is already having a very significant percentage of revenues coming from China, and we are very well positioned. And that's why, you know, the challenges that we have seen post-pandemic, we once again consider to be temporary. And of course, Electronics is a key market for Electronics. I mean, China is a key market for Electronics, in particular for semiconductor materials. We are still relatively small in that market, so we believe that we have an opportunity to grow. So those are the main reasons, right, that we believe China is a growth opportunity for Merck.
Just one point on the M&A. The ability of Merck to position itself in the M&A market across three sectors actually is a huge option value, in my opinion, because it really does give the ability to leverage in M&A discussions, and it allows sort of like us to be much more picky on targets. I, I would say, like, that's a huge, huge positive for this company.
Falko?
I think there is another one.
Rajesh. Falko, then Rajesh, then Oliver.
Thank you. It's Falko Friedrichs from Deutsche Bank. On Life Science, please. So I think I've heard you just say that you still believe that orders are inflecting in Q4, then sales early next year. Can you just share with us what gives you confidence in that? What are you basing that expectation on? I mean, we are in Q4 at the moment, so is it that customers are ordering now in October? Again, do you see that in the books? Just a little bit of color there would be helpful. And then secondly, congrats on confirming the life science guidance for this year. I think that's quite an achievement, but is the midpoint still fully in play, or should we rather think about the lower end for this year? Thank you.
Let me start by the second question because it's very easy, and I will use a sentence from Helene. We will use the full flexibility of our guidance, you know? I mean, I think, you know, when you look at what the market is communicating, I mean, you have to give us some credit that we have integrated, you know, some of the business assumptions in the right way, you know? And that is definitely what we say. We will use the full flexibility of the guidance. And what is giving us confidence?
What is giving us confidence is that we have a customer survey with 200 customers that we have recently seen, and we have some visibility on the way inventories at customer level are evolving, and they are basically reaching a kind of normalized inventory levels, right? So I think Matthias and the team will give you a ton of details on the situation of inventory, but those are the main reasons that we believe we will make the inflection point in Q4.
Rajesh.
Hi there. Sorry about that. On the M&A strategy, you referred to EPS accretion. Can I ask you one question? If you think of the life sciences business or Electronics, these are perpetuities you're buying. These are not finite cash flows, right? Whereas in pharma, you get a patent life. So do you look at any returns metrics when you're doing this? Because, you know, in low interest rate, even my granny could do EPS accretion. It's a bit more difficult now, right? I get that, but the cost of equity is much higher, so investors are looking for return accretion. So how does your EPS accretion target compare with return accretion? That would be the first one. The second question, you called out a SAP integration. If you could give us some color on that. Sounds a bit scary.
Don't know what it is. Would really help. Third question is on Life Sciences. Everyone has a different story, you know, be it CDMO, be it bioprocessing. People are suspending guidance, making up guidance. I don't know. You have given a very clear path of how you see inflection and recovery. Within the various factors, interest rates, customers preserving cash versus, you know, biotech funding getting chopped at some parts... what do you think are the relative contributions of the weakness we have seen this year versus the recovery we'll see forward? i.e., do we get back to the growth rates we had in the past, or do we go to a lower growth rate in the future?
Do you want me to start with that last one?
Why don't you?
I mean, once again, we have not seen structural changes.
Mm.
to the markets in which we operate. You know, when you look Process Solutions, we see pharma pipelines being very strong. We see traditional modalities growing, novel modalities growing even faster than traditional modalities. So biotech funding coming at some point in time, the biotech environment coming to a more attractive profile. So research will continue, right? And research and development and manufacturing will continue. So definitely this will play differently in the different business units, but we have not seen any structural changes. The market is going to be very highly competitive, right? Post-COVID, we have seen that already. But we believe our portfolio is highly differentiated. We know the business really well. We are very well positioned in our customers.
Now we have even more capacity regionally, and we feel very well prepared to deal with the growth ahead.
Yeah, and-
EPS.
I love your question on the EPS, because actually I think we live in a new normative, which means we have interest rates. And of course, in the past we have said, "Okay, EPS, IR needs to be above WACC, and all of these parameters." But we are right now also looking a little bit at our KPIs. It's interesting because at the dinner I asked a few of you: "So how do you think about equity, equity growth in this new environment?" And it's still, I get the feeling that actually the market isn't sort of decided itself, yeah? So hence, if I wanted to look in my little crystal ball, I would say like something around ROIC, cash conversion, ROCE is going to be on the table. At this point in time, we're doing the work.
You had a third question, and
SAP.
SAP. Ah, yeah.
SAP.
Lovely SAP. I look at JC, he loves SAP. So, we had a SAP migration in the U.S., in the SLS business, predominantly. And as with SAP migrations, things can go wrong, and then they can go very wrong, and I think like we are probably more in the very wrong stage. Having said that, I mean, the team has done amazing work. We have a lot of people out there fixing it. We are very much seeing the light at the end of the tunnel. Matthias and I and Jean-Charles are feeling much more confident that we are through the worst. It will have a business impact, but to be clear, we are very glad that we've issued the guidance in life science with the way we have done it.
This is included in all our guidance, so nothing to be scared about.
We will give you further information during the Q3, the Q3 call on that precise impact.
Next question. Oh, Oliver.
Hi, it's Oliver Metzger from Oddo BHF. So the first question is, last year it was all about resilience. Now, basically, you talk more about growth. So if it comes to your M&A strategy, normally I would assume in a resilient mode, you look more for factors like EPS accretion. So from a financial perspective. When growth, you look more about the strategic because you see a bigger future to come. So, would you agree that the likelihood for strategic deals has increased compared to one year ago? Second question is, more detailed because, you mentioned, the exosomes and also organoids, in particular as very interesting ideas and say, "Okay, we sell them." How do we sell them? How are the payment structures?
Is it just an upfront money you get, or is it, given the nature, a kind of continuous payment stream?
Let me address this question first. So, any product that is launched through the sector is associated... For example, if I am not mistaken, this is a software that we are providing to customers, so it's associated to a price, right? Simple. Very simple. Unless services could be provided on top, and eventually it will become a service fee. For example, in Electronics, we have a project in which we are interacting with our customers. We call it Athinia. I'm sure the team will make comment this afternoon. Right now, we are in the pilot phase, right? But at some point in time it will become a service fee.
So you should not think of this, beyond being innovation seeds, that at some point in time will become monetized, right? And of course, this is not integrated in any guidance or in any of our business planning for the moment. So it's innovation seeds and benefiting from bioconvergence. I think on the strategic likelihood of the M&A, look, you know, I mean, we have spoken about growth from the very beginning, right? We have spoken about efficient growth. If you were with us in 2021, right? Our or my first Capital Markets Day, we already identified efficient slash profitable growth as one of our enterprise priorities. So resilience, I mean, for us, resilience means our ability to anticipate and deal with, and deal effectively with adverse circumstances.
That's why we have emphasized further resilience. We have a very thorough assessment of our resilience, and now the question or the objective for the board is to keep the company resilient. And there are many different dimensions. It's not only about diversification. Cost structure is there, and definitely not only about M&A, right? It's not one or the other. We have spoken about this already. There are several dimensions of resilience, like our cost structure versus competition, our ability to, you know, our own digital capabilities and digital transformation. So we discussed that more last year in anticipation of what we saw coming, right? And the challenges that finally materialized in 2023. But it's not either/or. That's what I mean.
We have time for one more last question. Gary?
Perfect. Thank you. It's Gary Steventon from BNP Paribas Exane. So first, just on M&A and the topic there, just on portfolio and balance. Just wondering if any of the impacts you've seen in life science, Electronics over the last year changed your view at all on maintaining balance between the three pillars, or are you still happy with the skew that you have and perhaps adding to that skew in the future? And second question, is on CapEx and the investment there. I think in the slides you'd shown kind of a range in CapEx, but it was on a relative basis. The question really is how that looks on an absolute basis, and then given as well, we've seen some drags to the margin this year because of utilization.
How do you think about, or are there any changes to how you think about utilization and perhaps freeing up headroom moving forward, and how that might offset against capturing surges in demand?
I take the first, you take the second. So, different weight of the sectors. I mean, the way we see this, and this is very clear within our pharma, within our family guardrails, is we don't have a pre-specified weight by sectors. We say we invest on sectors, and we don't neglect any sectors, right? So this is kind of the guiding frame that helps us making decisions. But, you know, you can argue that up to now, the transformation of the company was aimed to rebalance, right, the heavy weight that we had in the past in the pharma sector. But right now, we are relatively well-placed, and the weight of any specific sector, if this is your question, is not driving our M&A for the time being.
It's not one of the strategic questions. But not neglecting any sector drive the way we think about the long-term, investment on, you know, when we come to making trade-off sector, sectors. So that's the way we look at this.
And then on CapEx, I mean, the way we are thinking about it is, like, in a way, 2023 was a year that rebased the market, and hence, we are not interested in having CapEx, which basically is standing idle, like you correctly say, in the future because the market hasn't yet caught up with the capacity that we have built. Let's take Electronics as an example. Kai has a lot of customers who are demanding from him to invest in order with their own investment growth. Now, if we see that the customers are to some extent delay their CapEx, we will obviously try and do the same, because otherwise, as you rightly point out, the idle cost of having a finalized and finished fabs would impact our margins. But it's a very fluid situation.
It's nothing where you can say, "Okay, I can really plan that," like, it needs to be finalized at the end of 2024 versus 2025. And I know that Matthias and Kai especially, are all the time, like, looking very, very closely at the CapEx spend we're doing in order to sort of calibrate for a moving market.
Well, this now concludes our Q&A. Thank you very much, Belén and Helene, for answering these questions, and thank you for asking them. With this, we can transition to the next section. We come to the spotlight sessions.
Thank you.
So thank you. These are three dedicated sessions, one session for each business sectors, and it's the second element of our Capital Markets Day here today. You will see a discussion between the sector CEO and colleagues from the organization, one or two colleagues from the organization, which I will introduce shortly. As you heard Belén and Helene say, we built on our geographical diversification by executing and leveraging our key megatrends. Also, as a global player, we're able to leverage the regional strengths. Please keep this in mind. This will be the background and the context of these three sessions. Also, each of the sectors will have a focus on one of the three global powerhouse regions that Belén introduced this morning. Let's start with the first one. The first session focuses on the life science business sector.
It's about its presence in North America. We'll discuss the positioning in the market, challenges, opportunities, and of course, strategy. So let me give a warm welcome and introduce the speakers for this session. We have Matthias Heinzel, Member of the Executive Board, CEO, Life Science, and Jean-Charles Wirth, Head of Science & Lab Solutions. Have a seat. Just one or two words of background on Jean-Charles. Jean-Charles has been with Merck since 2006. He has been the Head of Science & Lab Solutions since its launch in April 2022. And Jean-Charles is based in the Greater Boston area at our Burlington, Massachusetts, site, and has lived in the US for 11 years now. With that, Matthias and Jean-Charles, the floor is yours.
Yeah. Thank you, Constantin, for your introductory remarks. And first of all, also a warm welcome from my side for this session. So probably that's the only session we talk today where we don't mention order intake. So this is more about the bigger picture, but I, I guarantee you, we will answer all your questions in the afternoon session to go deeper on that one. But seriously, Jean-Charles and I will now zoom in on the Life Science business sector with a regional focus on North America. I'll give you a bit of a context, how important the market is for us in our Life Science business. So Life Science overall, last year reached $10.4 billion in sales, and North America is a key part of that.
It's about 36% of our sales, which was last year, EUR 3.7 billion. And with that, our share of North America is similarly to the global market. Last year we grew about 8.4% in North America, which was slightly above our total business growth of 8.2%. If I look now at the bigger picture, North America is not only a big and important region for our life science business, but for the Merck Group overall. About 30% of Merck's Group sales in 2022 was generated in North America, and that's about EUR 6.4 billion.
It's really a key pillar for us, and we expect also the North American market to play a really key role in our midterm guidance, which we just reiterated this morning in our 7%-10% growth organically. So, Jean-Charles, can you talk a bit, little bit more about the life science market in North America and how we're positioned there?
Sure. First of all, warm welcome as well from my side. So I will say, the life science North America market is attractive, and it's based on broad-based driver. And I would like to give you some example. First one, it's about our colleagues and our, I will say, companies and customer. They're investing twice more in R&D in North America than Europe. The second driver I would like to share with you, it's about the public funding, which is extremely important for our academic customer. When you look at NIH as an example, from 2022 to 2023, the increase was 6.5% or $3 billion. Very important for us.
The third driver I would like to share with you, it's about our biopharmaceutical manufacturing customer, where we see a high single-digit growth from this customer, driven by the ongoing flow of drugs approval, as mentioned by Belén earlier today. To answer the second question about life science, Merck Life Science in North America, I would like to say that we are well positioned, and let me give you some numbers. First, our colleagues. We have roughly 11,000 colleagues working in North America, from manufacturing to supply chain, commercial, marketing, R&D. We have a very strong footprint: 30 manufacturing sites, 30 distribution centers, and 10 centers of excellence dealing with R&D from East Boston to West Temecula, California. We have also center of excellence, single-use manufacturing, as an example. Danvers, the site is in Danvers, Massachusetts.
I would like to talk about our contract testing sites in Rockville, close to Washington, D.C. Finally, I would like to talk about our contract development and manufacturing sites. Think about viral vector in Carlsbad, California. Think about API in Madison or conjugates in St. Louis. Last, our portfolio. When you look our portfolio, today, we have three process solutions, Science & Lab Solutions, and Life Science Services. The three portfolio are rich. Process Solutions, i would like to disclose or use the comparison of an holistic offering, which set us apart. For Science & Lab Solutions, something which is close and dear to my heart, I would like to describe the portfolio large, very deep, unique, and driven by innovation.
For science and lab services, I would like to say that we are offering unique services and solution, which give us the opportunity to deal with customer very early in their R&D activities, and as such, we are well positioned. So, to summarize, Matthias, I will say that we are well positioned, but we are also facing some challenges in North America. So what do you want to say about the challenges?
Yeah. First of all, I think you're right, and we talked a lot about 2023 being a transitional year. Just think everybody's happy once we leave the transition year behind us. And of course, we talked a lot about the market facing headwinds, but we remain absolutely convinced about the long-term, very sound and very solid market fundamentals, and I think you heard that also convincingly by Belén and Helene this morning. So North America is obviously more than just a market for us and the Merck Group. In total, we have 34 manufacturing sites, and you mentioned some of them. Also, we source more than $1 billion of materials and goods in the U.S. every year. So for Life Science, in particular, manufacturing and exporting those from the U.S. into the global market is highly important.
Now, we talked about challenges, and certainly the Inflation Reduction Act, IRA, presents certainly a challenge. A challenge for our customers, pharma companies' ability to really capture value from innovation. So customers with higher exposure to IRA probably will have to look for some near-term savings and maybe potential cuts in R&D. But overall, and that's our assumption, happy to discuss with all of you, we expect that customers will rather shift rather than reduce. So they are shifting more, maybe to accelerating trends and especially moving towards biologics versus small molecules. So for our business, for Life Science in North America, we expect rather a limited overall impact. Our bioprocessing materials and consumables are rather a small component of the final cost of the drug. So over the long term, there might be possible upsides as biologics are relatively insulated from those new pricing regulations.
Obviously, also the appetite from then customers to automate and digitize may even be an opportunity for us as we can help them to really drive more efficiency. Overall, I think we are very well positioned also to deal with that headwind. The potential then for IRA's secondary order effect to reduce the pharma M&A or the biotech funding, it still has to be seen. But as patents are expiring, right, those pharma companies have to refill the innovation pipeline, and that gives us really confidence that I think we are well positioned and again, can help them to achieve that goal. Yes, there are some challenges, but we also see plenty of opportunities. Jean-Charles, why don't we move from the challenges to the opportunities? Share some more about that.
Sounds good. So, again, think about Merck Life Science as a business which is well positioned in North America. We have a very clear strategy, and I will say that we want to advance, one, our leading-edge science. Two, it's amplifying our customer value driver. And three, it's, we want to do it through execution, and as such, we have targeted investment. And I would like to give you two example. On slide 12 of Belén, she mentioned that we are moving from global to more regional targeted investment. And one concrete example is dealing with our business, taking care about in vitro diagnostic. We announced a few months ago a massive investment in close collaboration with the U.S. government, Department of Defense, dealing with, lateral flow membrane in Sheboygan, and we talk about a EUR 121 million investment.
Another one, which is also very important for us, it's to facing and making sure that we respond to the increasing demand in biosafety testing. And as such, we're investing a lot in Rockville, Washington, D.C., where we are going to make an investment, and we are doing an investment of EUR 290 million. So we want to take care and making sure that we address these opportunities through very targeted investment. The third element I would like to mention with the audience is our go-to-market. We have a unique go-to-market strategy within Life Science, and I would like to talk about multi-channel. The first channel is our specialized sales. We go direct with sales specialists with a strong know-how. The second channels is about our dealers and distributor, which are extremely important for us as well.
The third one is about e-commerce. E-commerce is a strong pillar of our go-to-market, and I would like to share with you some concrete number based on 2022. If you look in 2022, we have more than 47 million visits on our website. We have more than 25,000, more or less, customer visits looking our web page, meaning the content of our website is extremely important for our customer. The third element is about the volume in term of order. More than 2.5 million order through our website in 2022. Last but not least, I would like also to highlight the investment we did in e-commerce over the last few years. Last year, we mentioned to this audience, the project Stratus, where we scale up our web platform, and today we are seeing two strong benefits.
One is with our global strategic account. Think about B2B, where we are seeing a huge increase of order from our global strategic account using our B2B platform. And the second one is around e-shop. We're investing a lot in digital marketing, and today it's paying off.
Yeah, thank you, Jean-Charles. And maybe just to complement and build on what you said on e-commerce, because the question also comes up from time to time. Obviously, that gives us great insights, right, about trends in the market, right? Connecting the dots, and yes, I will use the word AI here as well, because this is a global platform. We talk here mostly in this session about North America, but very strong penetration with this in China, across the globe. So again, think about that not only as a sales and marketing tool, but also getting great insights about what's going on in the market. But look, we are not only excited about the near-term opportunity, we also see very good, of course, midterm perspectives. We talk about our key strategic pillars. You mentioned also before advancing leading-edge science.
So what does it really mean?
Yeah, I mean, the way we see the North American markets, we believe the industry keeps evolving, and we see a lot of opportunities. And as such, I will say innovation is critical for us. It's a very important pillar of our strategy. Why? Because we want to make sure that we meet our customer needs and expectation moving forward. Few example, the first one is about the fact that US is primary market for monoclonal antibodies, and as such, I'm thinking Process Solutions. we are investing in innovation, and we recently announced a new product introduction called Ultimus Single Use, where it's a container film , where we make sure that the durability, and I would say the resistance of this single-use bag is much stronger today than it was tomorrow, which drive efficiency for our customers. So it's one example.
The other example, and I will not mention Lab Water yet. I expect that I will have some question on Lab Water this afternoon. I would like to talk about automation robotics in biomonitoring, where through this type of activities, we enhance efficiency with our customer. The last one, of course, novel modality is extremely important. Think about viral, genetic for mRNA as an example for Life Science Services . So in a nutshell, looking ahead, I would like to reinforce the message that North America is a growth market, where we are seeing strong, let's say, drivers, KPIs, that makes us confident. Think about the aging population. Think about the robust pipeline of new drugs coming, point one. Point two, we are looking for profitable growth in this market, and it's about our strategy, and it's about execution. Our strategy is clear.
Point 1: we are looking to advancing leading edge science. 2, we are looking to amplifying our customer value driver through close collaboration with our customer. And the third element, it's about increasing competitiveness through our operation and commercial excellence. So in a nutshell, I would like to say that North America is clearly a robust pillar for Merck Life Science, and we are well-positioned to be successful in the future. So with that, Matthias, any additional comments?
Thank you, Jean-Charles. Great to be here with you on stage. There's obviously so much more we could talk about, but in the interest of time, we need to wrap it up here. So thanks for your interest in Merck, in Merck Life Science. And thanks, Jean-Charles, again for joining me, talking about our highlights in North America. In summary, it's a transitional year, but overall, the market is very attractive. It's growing, driven by long-term fundamentals. We do have a very robust global footprint. We talked about the footprint in North America. We talked about expanding into Asia, broad portfolio, you got the sense for that. And we have a clear plan to really capture that growth, near and midterm. And obviously, execution is key, and our management team is very much dedicated to deliver on that growth plan.
For the group here, you will meet the management in the afternoon session, and I'm looking forward to a very lively, engaging discussion, talking about order intake and all important topics you have on your mind. But for now, thank you, Jean-Charles, and.
Thank you, Matthias.
With that, closing our session.
Jean-Charles for these valuable insights. Now with this, we are ready for the second session, on the spotlights, and this one is on Healthcare. Kind of moving from North America now to Europe. So let me give a warm welcome to Peter Guenter, Member of the Executive Board, CEO of Healthcare, as well as Hong Chow, Head of China International, which importantly, also includes Region Europe. Welcome to the stage. Some words of additional background, on you, Hong. Hong has been with Merck since 2021 and served previously as CEO of Roche Pharma in China, and Hong held various leadership roles, before in APAC and in Europe. With that, over to you, Peter and Hong, the stage is yours.
Well, thank you very much, Constantin, and good morning to everybody here in Darmstadt. And of course, it's a pleasure talking to you in a year where Healthcare is really thriving. And of course, we will do everything we can to continue that thriving future for Merck Healthcare. Now, why zoom on Europe for Healthcare? Europe, and you have seen that on one of the slides, is still representing more than 30% of Healthcare sales. It is a true reflection of the portfolio of Merck Healthcare. So with the exception of some of the older established products, the whole portfolio of Merck Healthcare is truly present in Europe. And last but not least, we have a very strong manufacturing network in Europe, which makes us really a important player in the European pharmaceutical environment.
Today, we will take the opportunity to walk you through a little bit more detail in the presence of Hong. I'm working now together with Hong since two years. I would say that you can see obviously that she's an ethnic Chinese, but actually moved very early to Germany and was raised and educated in Germany and the UK, so she knows something really about Europe. And actually, she started her career with Bayer Schering, believe it or not, in investor relations. And therefore, she also has a deep expertise in Europe. Hong, the idea is that we're going to discuss a little bit together on what is required to make you a successful pharmaceutical actor in Europe. We have been doing that since a couple of years now.
So what you think are the keys to this success?
Yeah. Thank you, Peter. First of all, let me say also hello, especially to my old friends, whom I know over 20 years ago when I was head of investor relations at Schering AG. So such a pleasure to be here again. And so actually, I'm excited to talk about Europe, because Europe was usually the region not in the spotlight of Capital Market Day, and last Capital Market Day, I remember I get only question about China and emerging markets. So today, I'm excited to talk about Europe. And so why Europe? I think Peter already mentioned, it's the sales contribution, so it's over 30% sales contribution. But I would say even more importantly, strategically, because, as you remember, global specialty innovator is our Healthcare strategy, and Europe is the foundation. So in terms of specialty, Europe's share is about 40%.
So Europe makes over 40% of our global Mavenclad and Bavencio sales. And, I think today I really want to demonstrate to you, you know, why we are so successful in our home continent and why we have confidence that we're going to continue to be even more successful with our wave two launch. So for me, there are two factors. So one is that the deep understanding of our customers and patients. I think Belén had in her slide, this applies to a whole Merck. And secondly, it's our launch and market access capability. First, deep understanding.
So when I joined Merck two years ago, I always try to visit customers wherever I am in countries, and especially in Europe, and I always, always ask them, "You know, we have leading positions in all the area we are, and what is it?" And they will say, "It's a Merck factor, Hong." So what is it? The Merck factor they say: "Well, we feel as Merck, you are genuinely, you genuinely listens, and you truly understands the customer and patient needs." So let me give you an example of recently. So six months ago, we launched our xevinapant ambassador program, and 26 of us, senior managers, including Peter, myself, and all our Healthcare executive colleagues, we have made a key account manager. So we have met, virtually, some face-to-face, 50 physicians in head and neck, and in one-on-ones in last six months.
So I myself had very engaging, inspiring, and insightful discussion with them. So I just mention two. For instance, I met a Professor Jürgen Dunst. He's a radiation therapy oncologist in Germany, and I also met Hisham Mehanna, a head and neck surgeon. In all this conversation, the first thing they said, they said, "It's very seldom a senior management ask so deep questions." But I told him, "In working for Peter, you always ask, ask deep, deep questions." So, so they say, you know, really very impressive that you guys want to know about the clinical practice, about the patient journey, how patient navigate from radio, chemo, now to the new therapy.
they also said, you know, they, they are very excited about the arrival of potentially xevinapant, because in their view, head and neck has been an area which was neglected, and they are grateful a company like Merck that we built our long heritage of Erbitux in head and neck, and now we have xevinapant for the locally advanced. So with that, I think we have really very, very strong, you know, relationship with our customers, and this is built on really on genuine interest. In addition, of course, you know, besides this one-on-ones, we attend major congresses and, upcoming or as we speak, ESMO, and of course, ECTRIMS last week in Milan. Peter, you were there. Do you want to share?
Yeah, I think it's another proof point of what you mentioned, Hong, is this really deep customer centricity and proximity. So I attended for two days and a half the ECTRIMS, which is the largest MS Congress in the world, actually, it's bigger than ACTRIMS. And I have some data here. We had 34 posters. We had two symposia with literally thousands of participants. And again, the whole staff of Merck present on the site really engaged very frequently and very deeply with our customers. In total, we had between the Merck employees, the Merck leadership, and our customers, more than thousands interactions with KOLs.
We facilitated peer-to-peer interactions, so I think it's fair to say that Merck in ECTRIMS in Milano was a little bit, you know, the talk of the town. We see a deep interest of the community in our presence in MS, and of course, even more so in the data of evobrutinib and also the so-called disease state awareness campaign that we launched to even further advance the knowledge and the understanding of the so-called smoldering disease or the silent progression.
Yeah. So when talking about evobrutinib, actually brings me to my second point of excellent launch and market access capability. So our most recent launch in Europe, Bavencio, we have established Bavencio, maintenance therapy as standard of care and first line UC, as you know, and we have reached shares in over 80% in most of our European countries, and in France, it is even 90%. And even for post-launch phase, like Mavenclad, we continues to work on expanding market access. So in the past last two years, we have expanded the, we call the access criteria for Mavenclad. Probably some of you know, you know, from two relapse to one relapse or naive or first switch patients. We have made this improvement in six countries, and we are actually planning to do more, to six markets more.
I think with this, you know, we really would bring also this capabilities to evo and xevinapant.
Yeah, I mean, you referred to Bavencio when we visited France together. I was very impressed with the overall performance of Bavencio in France. We have now treated more than 5,000 patients with metastatic urothelial cancer. And actually, one of the reasons is that France was, is one of these countries where you have an early access program. And of course, we leveraged that, we benefited from that, and you know, further cemented and reinforced our position there in France.
Yeah, indeed, Peter. So early access program was the key to success in Bavencio. I mentioned this 90% share, and just within nine months when we launched our EAP, Early Access Program, we benefited 400 patients. And looking ahead, you know, EAP, we're going also to plan it for xevinapant, not only in France, because we think such a program would help physicians to generate early experience, but also to allowing generation real-world data, which will be important for payers. And it really shows that as a company, you know, we truly cares, and we bring innovation to patients and also value to payers. And that certainly was confirmed when we speak to the patient advocacy group.
During that visit, we also had a conversation with a French advocacy group for UC and caregivers, and I think Peter's checking my French, so it's called Cancer Vessie France . Oui?
Yeah, very good. Très bien.
You remember that?
I absolutely remember because the chairwoman of that association is actually a Native American, which spoke fluent French to me, which is something that sticks in your mind because it doesn't happen all that often. Yeah. But it also confirmed that, you know, when you try to do good for the patient, your business will also thrive. Yeah, we are fully committed that the one drives the other, and that's really what we're trying to do.
Yeah. Yeah. Exactly. Also, en résumé I always say, you know, is doing well by doing good. And, you know, doing that, we really have delivered commercial success in Europe and give you some data points. Bavencio, I already mentioned, we have established standard of care, and, and of course, we are aware, you know, aware and prepared for future competition. But we have proven with Erbitux. So Erbitux, we have remained market leader in metastatic, colorectal cancer, and we believe, you know, we have team in Europe which can win.
Absolutely. So let's switch gears a little bit to the healthcare environment in Europe. Obviously, cost pressure is not a new phenomenon in Europe. You all know that. But obviously, with budgetary situations of governments, the cost pressure only continues to increase. So in order to work hard on access to innovation, preparing for our wave two launches, reinforcing or improving further the market access conditions of our existing products, it really truly requires a close collaboration with regulators, but also, of course, with payers. At the same time, we need to be wary of the fact that also the customer interaction, the way we talk to the physicians, to the healthcare providers, to the nurses, is also changing, right? What we try to do is really permanently look at an optimization in the way we interact with our customers.
We call it a new go-to-market model, and you can-
Yeah.
comment a little bit on that.
Yes.
In Europe, specifically.
Yeah. I have to confess, when I was working in China, I thought only China in emerging market are changing constantly, and the good old Europe, you know, is quite stable. But when I took the responsibility also for Europe, and I knew I was wrong. So the European market is, in fact, very dynamic, and I was very glad to see that our European teams, they have been not only good adapting to changes, but they also have initiating trends. And one of the trend we are initiating is go-to-market model. Jean-Charles talk about life sciences. We also call our new go-to-market model, and this go-to-market models basically is really listen to our customers, because our customers, they want fewer but higher quality interactions. They want faster responses, and they want also have customized interactions.
So our models basically is about a customer-centric engagement model with a primary point of contact, so we call PPOC. So there are three key roles in that model. One is a medical science expert, and the other one is a therapeutic area specialist, and third one, local market access. So let me briefly describe the model. So before launch, like what we do for evobrutinib and xevinapant, the medical science expert would own 100% of that relationship with the customer. Then the therapeutic area specialist would take over and be the primary point of contact for that customer. But however, he or she would always pull in the medical science expert or other experts in digital channels into that on as needed basis.
And lastly, the local market access would know the local market inside out, because in some of our countries, market access is very regionalized, so there's not one national reimbursement scheme, but a lot of provincial reimbursement schemes. And so we hope that this would, you know, with the new model, become much more efficient and also more customer centric.
Absolutely. So, Hong, you mentioned PPOC. Nothing to do with POC of R&D, to make it clear. But I think really, what we're trying to achieve here is to be even more focused, even more concentrated, and of course, also reap some efficiency gains, which is a constant exercise that we do in our to keep our cost base under control. So I think with this new model, with the upcoming launches, I'm very confident we will continue to drive our sales forward in Europe.
Yeah. And, you know, the agile way also actually help us to optimize our resource allocation. Because, you know, we do that country by country, but also account by account. And, and this would require kind of life cycle based prioritization, which requires sometimes very tough discussions and decisions, and sometimes those Peter and I have, or with our CFO, Jakob, is how we allocate our resources, you know, towards markets, towards accounts, towards launch products where we make most impact.
Yeah. Perhaps we, very shortly on policy shaping, because the time is advancing. I'm personally member of the board of EFPIA, which is the European Trade Association. I'm chairing the so-called Innovation Committee. Hong, you are on the-
Yeah
... International Committee, obviously, which fits you very well. So some short word on that?
Yeah, and then thanks also, Belén, and you. I mean, you have been everywhere also, meeting ministers and we—our teams, they are also not, you know, they are also on the ground. And so together, we actually had 50 mini-meetings, 50 meetings in last two years, meeting the European Parliament, the Council, the European Commission. And the discussion we are having is actually around the famous European pharma legislation, then on IP protection, also mostly create a more sustainable pricing reimbursement scheme. And this meetings, really, I know, I really see, you know, coming from a larger company, I really see that at Merck, we are doing very, very well, and we are very strong in policy shaping.
Just give you an example, I think a few weeks ago, the President of the European Commission, Ursula von der Leyen, was here with us in Darmstadt. I think this is possible because they know we genuinely care, we drive innovation, and also we have very competent and committed teams.
Exactly. Talking about teams, diversity is something that is very close to my heart. In the European region, we have 44 nationalities, and I'm very proud to also tell you that of our general managers, so the most senior positions that we have in the European regions, actually 40% of them are women, yeah, and that is the highest rate that we have. So short word on your take on diversity?
Yeah. Actually, you mentioned 40 our female GMs, but the benchmark is only 32. But we don't want to stop here because you probably recall, our goal is to achieve gender parity. Yeah, so we still have work to do. But beside the diversity, I think what's special about Europe is that our talents. We manage to attract and retain the best talents. I know time's up, but I really want to mention, you know, give you some color of our people. So let me just mention two. Let me start with Marieta Jiménez . She's our regional vice president for Europe, and she used to be the general manager for Spain, before that in Sweden, and she brings lots of experience in sales, marketing, BD and other leadership roles.
We have very strong general managers in our key countries. For time reasons, just mention Jan. So he's Jan Kirsten , our general manager in Italy, has been very successful. And Jan was the head of fertility before and leading corporate strategy. So for time reasons, I mean, I could go on and go on because we really have amazing people in our region. But what they have in common is always that they know, you know, their business inside out, and they are very passionate people, leaders, making impact to people's lives. Yeah.
Thank-
With that, back to you, Peter.
Thank you very much, Hong. So I would just like to wrap it up and leave you with three thoughts. Number one is, we are a truly important player in Europe. We are leading in the therapeutic areas in which we are active, and we have really a deep understanding of our customer base, whether these are HCPs, payers, or regulators. Number two, we have introduced a new go-to-market model, and that will allow us to be even faster, even more pertinent with when we are in, you know, that moment of truth, you know, those 5, 10, 15 minutes, whatever it is, that we are in front of our customer, in either a face-to-face setting or in a virtual setting.
And then last but not least, you heard it from Hong, we are truly convinced we have a very, very experienced team in Europe. Not only in Europe, but also in Europe, with very strong commercial capabilities, but also very strong market shaping activities, which of course, will benefit us with the new launches to come. So with that, I thank you very much for your attention, and I turn it back to, Constantin. Thank you.
Thank you. Thank you. Thank you. I'm sorry.
Thank you so much, Peter and Hong. With this, I'd like now to introduce the last of the three sessions and move even further east as we focus this time on Electronics and APAC. Warm welcome on stage, Kai Beckmann, member of the executive board, CEO Electronics, and we also have Anand Nambiar, Chief Commercial Officer of Electronics, as well as John Lee, Head of Electronics in Taiwan. As always, let me share one or two sentences on both colleagues. Anand has been with Merck since the acquisition of AZ Materials and is based in San Jose in California. Anand has held several leadership roles across Asia. John has been with Merck since 2011, starting in display solutions and has taken postings across surface solutions, Germany, China, is now Head of Electronics in Taiwan.
With this, Kai, the floor is yours.
Thanks a lot, Constantin, and it's still good morning. We made it right before 12 o'clock. Good morning, everybody. Happy to be here on stage with the Electronics team and hope you have kind of the breath to kind of stay for one more, one more session, then we are done this morning. Talking about Asia and Constantin already indicated the experience we have on the regional side. So all of us have worked and lived in several Asian countries. All of us have a semi background. All of us have worked in display as well, and for the display industry. So there's quite some coverage of the topic, and now everyone looks, of course, predominantly into the semiconductor industry. And Asia, for semi, is, of course, extremely important.
70% of our global semi solution sales is in Asia... and 75% of the wafer capacity of the industry is in Asia, so there is a lot of dynamics. Asia is very diverse. Other than the other two regions where we are acting in, where there's much more kind of homogeneous structures. In Asia, talking of for South Korea, Taiwan, China, Japan, Singapore, Malaysia, the countries are vastly different in terms of customer interaction, in terms of environment. There's a lot of differences. We wanna focus on that here as well. Three of the five leading-edge semiconductor companies have their headquarters and their main R&D locations in Asia. That's important to be very connected to them, and there's a lot of growth driven by megatrends.
We will talk about that as well, and there is a constant commitment to further invest. You see construction sites, you see cranes everywhere in the countries, so that's going on. This is what makes us recommit to our Level Up investments. So we are very much aligned with the timelines of our customers, specifically as the dynamics are very high in Asia. So we of course understand that the current downcycle is probably deeper and longer than anybody in the industry expected. But there's still, on the other side, the quite amazing opportunity that's building up with all the investments happening and with all the R&D activities happening. So we wanna exactly focus on that in our discussion and how we mirror the ambition of our customers in this discussion, specifically in Asia.
So maybe, Anand, if you want to start. Could you give us an idea on what are these current megatrends that we are looking at specifically then for the Asian region, and how are we dealing with that?
Absolutely, Kai. The specific megatrend is artificial intelligence, and it helps to just go back into history and look at the industry. It took about 40-50 years for the semiconductor industry to hit $100 billion. It took about twenty-plus years later, it took only 20 more years to get to $500 billion, and that was on the behest of smartphones, data servers, cloud services coming on over the last couple of decades. And it's predicted that it's gonna take another only 7-10 years to get another $500 billion into this market. And where is that gonna come from, is our understanding, it is AI is gonna drive it.
And if you think about where the market is today, in terms of the volumes of wafers put in production, it's only 0.1% of the wafers put in production contributing to AI, but it's already generating somewhere in the 8%-10% of the overall value. So you can imagine, if you extrapolate that a few years, this is gonna create an enormous amount of value for in the industry. And all of these chips, all of these leading-edge chips, which are 7 nanometers or below, are all produced in Asia for those for those foundry customers. And you might have heard of some recent phone launches and some really interesting AI servers. They're all made in John's home country. Maybe you can give us some insights.
Well, thank you. Thank you, Anand. Definitely today, just like Anand mentioned, that those size of 7, 7 nanometer and below, for leading-edge foundry are all produced in Asia. Around like 70% are in Taiwan, and the remaining 30 stay in Korea. In Taiwan, one of our biggest customers has 9 operational fabs. Four of them are so big, are called GigaFabs . The biggest one has the total floor space of 10 million sq ft. It's even bigger than the sum of 130 standard soccer fields altogether. Even Taiwan is a small island, but it has been the largest single market for semi material worldwide for 13 consecutive years. Korea is the second largest semi material in the world. There are still 5 fabs under construction, and four of them are so-called the MegaFab . Kai, back to you.
Yeah, John, I think we brought you here, and thanks for being here with us because you are the person on this panel who has the kind of the hot breath of the customer in your neck, so that you feel that every day sitting in Taiwan, there is small distances to everybody. I appreciate you being here because you can give us really the kind of the frontline experience in this panel. Maybe you can give us a bit more flavor on what does it specifically mean for us as a strategic partner? You have explained the industry. Now, how do we? How are we dealing with that?
Absolutely. Absolutely, Kai. Being a strategic partner means that we are helping customer innovate, offering a broad range and relevant portfolio of materials, helping them... supporting them globally, and also having the local yet resilient supply chain with scaled. To grow with customers, we are investing significantly in a new 150,000 square meters facility in Kaohsiung, Taiwan. The phase 1 of the expansion, which was about to build a manufacturing facility for DS, DS&S equipment, was already completed last year. Phase 2, which will be more focused on material capacity expansion, is scheduled to be completed in 2025. This will integrate a comprehensive product lines throughout the entire Semi Solutions portfolio, including thin films, specialty gases, patterning materials, DS&S into one single location.
As Belén mentioned in her presentation, our proximity to customer is very important, and we do take the full advantage of proximity as our facility is located exactly the same science park with our cust- with our major customer in Taiwan. Our R&D teams are literally embedded in their site, and our customer visit our, our site regularly as well. Doing business in Taiwan, actually, there are some key differences. It took our teams years, even decades, to earn the trust from our customers. We did this through joint material developments, solving the technical issues in the fabs, ensuring uninterrupted supply during pandemic. While customers' appreciation sometimes very subtle, but the way that we work could be very significant.
Last month, Merck was invited by SEMI, endorsed by the major Taiwanese customer, as the only material supplier to deliver a keynote speech at the Master Forum of SEMICON Taiwan. In Taiwanese culture, this is a strong symbol of trust, recognition, and partnership. Anand, would you like to cover the rest of the APAC?
Yeah, I mean, I think very similar to what John mentioned, the fabric of doing business in Asia is quite similar in Korea and Japan and China. And so being close, being local, and investing lockstep with those customers is absolutely super critical for our long-term success. And each country has slightly different dynamic, but our long history and local presence and our infrastructure in all these countries have really helped embed ourselves into these customers, R&D teams, and operations teams for years. And as Merck, we are able to do this because we do have that global footprint. And personally coming from AZ in the past, it was very, very hard to do that, and this is what we have as strength today in the industry.
Yeah. I think we are there before any of the fabs started as Merck. This is a good, great opportunity for us as a company, because we are not just based on the Electronics experience, we have the larger Merck experience in the countries, which gives us a lot of access to governments, to academia. That's, of course, a competitive advantage that we have in that market. Now let's switch a bit gears. Now we are in a pretty kind of critical phase of the industry. 2023 is a critical point in time. We see diverging industry priorities on the one-hand side. We see, of course, high levels of entry, we see low fab utilization, and the semi cycle in our back.
On the other hand side, of course, we see substantial activities in R&D. We see substantial investments in capacity and the innovation drive. You can really see and feel that in every conversation we have with our customers. Perhaps, Anand, could you give us some more flavor on the innovation side of things? Maybe let's start with that.
Oh, absolutely. Customer innovation focus is really on a few criteria. There's power, performance, area, cost, and sustainability. So they're constantly driving towards developing devices that have better power performance, lower power consumption, better performance, low cost, and better utilization of area, and in a sustainable manner. And innovation is fundamental and is key for us to be in the game, to play the game, and... But research or developing new molecules alone is not enough. We have to scale it, we have to produce in high volume, and be able to supply it for the next two or three decades without a single quality problem. And that's all sort of long history of developing our products, supplying to these customers, learning from mistakes, and being able to do this repeatedly over and over.
As I mentioned before, we're deeply embedded in customers' R&D programs. These programs take anywhere from 2-5, sometimes to 10 years to develop. Our main mission is to win the so-called process of record, PORs, and that's similar to what you would refer to as an FDA approval. A lot of emphasis goes into being there early on to win these programs and to get those PORs, which allows us a sort of a sustainable business model because there are much more higher switching costs once you have a POR. A huge focus for us to win the POR, and as customers transition from node to node, that is our focus area, and innovation is absolutely super critical for us.
Mm-hmm. Maybe, John, you wanna add on this one? On the-
Well, absolutely. We have recently announced a collaboration with Micron to co-develop a specialty gas material solutions with very low global warming potential. This is key to preventing climate change, I'm sorry. Taking the cell phone that we all have as an example, around 80% of the overall emission comes from the manufacturing of the phone itself, and mainly from the chips. The manufacturers will need our innovation to help them achieve their goal and target. Hyperscaler like Apple, Google, and Amazon, they have the net zero target for 2030. But many of the wafer fab companies, they have a later target, and that's the area that we could help our customer to identify the area for accelerations. Speaking of AI, Anand, in your opening, you talk about AI.
The value of AI, as you mentioned, is about 10% of the overall industry and expected to grow significantly in the years to come. Many of the PORs that we are winning now, today, relate to AI-enabling materials. However, the wafer volume that AI related to so far is still very, very minimum. As you mentioned, about like 0.1%, but this indicates the great potential for the midterm that we are seeing. Kai, back to you.
Yeah. Thank you, John. This is very, very impressive. Now, let's tackle the elephant in the room. Of course, the kind of diverging priorities we have, they seem to have an impact on our margins. I'm using that word now, and they seem to have an impact on margins, especially on the short term. And can you illustrate that a bit?
Absolutely. Our 2023 guidance for H2 being in EBITDA low 20s, it's purely a result of very lower utilization of our factories, and as a result of all the utilization reduction in our customers. But if you rewind back to 2020 to 2022, you know, we were looking at—we're going into 2020 with a massive integration of Versum Materials, and here comes the pandemic. But despite that, in from 2020 to 2022, we, we delivered double-digit organic growth and not let a single customer down. And we did this when we were capacity constrained, so you can imagine the potential that we had.
And so therefore, at that time, we had already estimated that this boom in H2 of the decade, driven by AI, 5G, and 6G, and so on, we're going to see another wave of growth coming in H2 of the decade, and we had started planning for capacity expansions back in 2020 and 2021. And these plans take 3-5 years for us to put in place. So we've already begun that journey of investing to make sure that we can intercept that inflection point, which is right around the corner in a couple of years. And that's super critical for us to keep investing into it.
But also we've learned that in the last couple of years, through this growth cycle, we've learned a lot that we can be more efficient, we can be more productive, and using tools like data and digital, using tools that we've developed internally and with our customers, that we can become more efficient in the future. And we're going through some of those painful processes to make sure that we are productive right in the future, and we can scale more efficiently in the future. And all of this is what gives us the confidence that we can meet that midterm guidance of MSI of 5%-7%. And with these leading-edge chips all focused on those, on more process, more materials, and so on, we can achieve that 200-300 basis points even higher than that.
Yeah, and you gave us already some highlights on how we get back to the magic around 30%. It has been just in the previous conversation confirmed by our CFO: there's no way to escape. I think that's what we heard. The message was crystal clear. I took note of that. And so any additional thoughts that you would share on how to get back to around 30% range?
Absolutely. I think, you know, when we look at that EUR 500 billion of additional value that's being created, in terms of volumes, we expect over 40%-50% of additional volumes to be created, too. And so that's why our investments today is hand in glove, lock, stock, and barrel with those customers that are putting these factories, these MegaFab and giga fabs, and we expect to win those PORs and get back into that profitability range.
Excellent. Now, let's bring it home. I think we are right on the way to lunch. I think we tried to share with you kind of how connected we are with our Asian customers, how specific that capability is in different countries, especially in the technologies that we are. How we attach the mega trends that are important for us, for the industry to grow, and how we are able then to convert that into innovation and hence into sales, and how we get back to the margins.
I think if you take with you Semi Solutions, Electronics at large, but Semi Solutions specifically, which was the focus today, is very well positioned to navigate through that current down cycle that we are in and will take kind of the opportunities that we've seen in R&D, innovation, in capacity building into the upward cycle that is soon to come. And that we can discuss in the afternoon. I thank you a lot for your attention in the morning. I know it's right before lunch, and it's getting tougher and tougher. If you take with you, that's a good starting point for Electronics. We kind of get into the upward cycle, and we start the conversation with you in the media management meeting in the afternoon. Thanks a lot, and enjoy the day to come.
Thank you.
Thank you very much, and to all our speakers, thank you for sharing all these insights, highly valuable. And to our audience, thank you for being with us, and your continued interest in Merck. And with this, we are now going-