Good afternoon, everyone, and thanks for joining us at the Raymond James Institutional Investors Conference. I'm happy to be joined by Avantor. We've got CFO, Tom Szlosek, as well as CJ Jones and Blake Montgomery in IR in the audience. I'm gonna keep it quick and brief and pass it over to Tom for a presentation. We may wrap up with some Q&A if there's time, but I'll pass it to you.
Awesome. Thanks, Andrew. Thanks, Andrew. As Andrew said, I'm Tom Szlosek. I'm the CFO of Avantor. I've been with Avantor since December 2018. We did our IPO in May 2019, and it's been, you know, quite a timeframe coming right out of that into COVID-19. We're happy to be here to tell you our story. As Andrew said, we have CJ from our investor relations, who runs investor relations for us. Encourage you to get to know her. She has all the answers, all the information. I'll do my best here. I wanna thank Andrew for having us and to the, you know, Raymond James team for inviting us.
Today, what I'm gonna do is give you an overview of Avantor 'cause I know some of you are not as familiar with the story. I'll try and be, you know, as educational as I can, as well as talking about our financial algorithm, and maybe some of the more recent trends. With that, a couple things on the obligatory statements around forward-looking statements. You'll hear me make some forward-looking statements. They're subject to risk. I'd encourage you to read our SEC filings, our 10-K for our risk factors and cautionary language there. We also use non-GAAP measures where we think they can be helpful to you as investors.
I'd encourage you to consider those non-GAAP measures as, you know, with the relevant GAAP measures as well. Let me tell you a little bit about Avantor. If you take away nothing else, you should really remember that we're ubiquitous when it comes to our customers' research activities in their new product development as well as research, as well as in their analytical testing of, you know, products off the production line. That's one part of the business. The other part of our business is the ingredients, including chemicals and single-use type offerings that we provide for our customers' production platforms. I'll talk a lot about biopharma in a second.
The biopharma industry continues to have healthy growth rates. We continue to be well-represented, and it's a nice source of, you know, recurring revenue. We have six million SKUs just to, you know, put that in perspective, you know, on the research and production side. As the slide says, we're about $7.5 billion in revenue. Enterprise value is about $25 billion. We're based in Radnor, Pennsylvania, just outside of Philadelphia. I'd say 95% of our business is in the Americas and in Europe. Although the fastest-growing piece of Avantor is in EMEA, and, you know, Asia and Middle East and Africa for us. 70% of our revenue comes from life sciences.
You know, the underlying industry fundamentals in life sciences have not changed. That's continued to be a nice growing industry where there's a lot of innovation going on and where our footprint in both that research side that I talked about as well as production, you know, positions us nicely to enjoy, you know, the benefits from that industry. We're a product of a merger in 2017 between VWR, which was a distribution company, and Avantor, which was a, you know, smaller, chemicals, manufacturing company. You know, at that time, we were decidedly weighted towards, you know, being a provider of, you know, third-party, you know, product through our distribution platform.
You fast-forward to today, you know, more than 55% of our revenue is actually our own offerings, meaning that we develop it, we manufacture it, we produce it, and distribute it. This proprietary part of our business has the higher margin rates, as you'd expect. Our overall gross margin rates are about 35%, but, you know, on the proprietary side, it would be much larger. That part of the portfolio is growing almost two times the, you know, third-party piece of it. It's a place where we have a significant amount of our innovation funding.
The last thing I'd point out about Avantor is that, you know, 85% of our business is recurring, meaning that we're not selling a significant number of analytical instruments or CapEx. Most of what we have is materials in nature. It's consumed. You get a nice reorder pattern, nice, you know, the aggregate markets we serve are about $80 billion is the way to think of it. There's many life sciences tools, you know, competitors that, you know, we would have similar products to, but there's no one life sciences company I would say is identical to the other.
Our definition of what our market is would be, you know, probably different than, you know, some of the other providers just by virtue of what they provide in their portfolio. But the end markets we serve are about $80 billion, between 7% and 9% growth in the biopharma side. What's interesting is you can bifurcate that between research and production. You know, the research side is probably a low to mid-single digit grower. The production side, you know, is rated, you know, for us at a mid-teens grower, and it's actually grown even greater than that in the last few years. I'll show you in a little bit here. So in biopharma, we're a one-stop shop. About 10% of our business, growing at mid-single digit.
Similar offerings that we have in the healthcare, as well as some proprietary materials that are used in medical implants, proprietary medical implants that have a nice growth dynamic to them as well. We also serve education and government. Those three combined, roughly speaking, is the life sciences exposure that we have. We also have significant exposure, as you can see, to an array of then GDP. You know, mid-single digit, you know, kind of growth rate is what we see there. When I explain to people the objective of what Avantor's objective is in serving its customers, it's pretty simple. Our products and our services are enabling research and product development.
The aim is to continue with our customers through the research process and get specified onto their platforms, onto their production platforms. In biopharmas, you know, the obvious example is being specified into a pharmaceutical product that's on the market. You know, this is where our material offerings can, you know, provide a nice, continuing set of revenue streams for us at some, you know, pretty nice margin rates, as I said earlier.
For labs themselves, on the left hand of this slide, you know, think about it as either a research lab, you know, where new product development is ongoing, you know, by our customers, or like an analytical testing lab where, you know, product that comes off a production line, for example, in a food and beverage customer, it needs to be tested. They need to do lot testing and, you know, most of what you see that's manufactured needs to have lot testing done and they'll have labs for that. You know, we have a pretty good presence there. Some of the examples that we have are a variety of chemicals, you know, buffers and other types of chemicals that would be used in testing.
We also have liquid handling, you know, components. Think of a pipette or a dropper or a beaker or plates. You know, they're used in a research lab. There's analytical instruments, there's personal protective equipment, and, you know, cold storage, you know, kinds of devices. You'd walk into a lab, anything you'd see there, we probably either make it ourselves or, you know, we arrange for our customers to, you know, to have that. Again, it's that one-stop shop that, you know, works well with them. We also provide some services to our lab customers. Inventory management is an example. We also do some media preparation, sample handling, you know, on behalf of the customers as they look to, you know, become more efficient in their operations.
On the right hand of the slide is production. You know, we're on labs. We're all about analytical precision and trying to, you know, help our customers with some precise analytical results. On the production side, the calling card is high purity. High purity and high regulation are the environments that we're operating in. If you wanna be on a drug, a biologics drug, it's gonna have some pretty high standards for you to be able to meet, you know, consistently. You know, we've been at this for years and have a pretty good competitive position. The materials are usually customized. Oftentimes they're co-produced with our customers themselves in their development activities.
The examples, you know, that we have that are in this, in the production side include chemicals and ingredients that you use to grow a cell. Because, you know, in a monoclonal antibody type drug production, you start with a cell. You need to grow the cell and harvest the cell. And while we don't provide the cells themselves, we provide all the ingredients that are necessary for them to grow and to be harvested and cleared. We make peristaltic pumps and the consumables that go along with the pump. These pumps are what allow the materials to work through either a research process or a production process. You know, most times you can't have the materials that you're manufacturing actually touch a pump.
It's gotta be encased in this specialized tubing, and it's the tubing that goes through these pumps. We're the number one or number two maker of these peristaltic pumps in the world. Very strong position, and it's helped us well. Third example, as I mentioned earlier, is some of the specialty silicones that we have, you know, for the healthcare market that are used for in situ, you know, kind of medical implants. Again, that's our business model. And it's a comprehensive offering that we think takes us, you know, from the beginnings of research all the way through to, you know, our customers' production activities. What makes us successful? First of all, the industries.
We have to start with the industries we're serving, that 70% that's life sciences is healthy. It's been healthy for years. There's significant amount of innovation dollars that continue to go there, and, you know, it plays well with, you know, with our portfolio. For starters, you're gonna be, you know, serving markets that are growing. Our position is equally as strong. If you start with, you know, the upper right block on this puzzle, we have, like, unparalleled customer access. We have over 3,500 sales associates globally that work with our customers or at their sites. Think of it as more than 300,000 customer locations, you know, around the world that we're, you know, serving every day.
You know, to be able to have that kind of access with your team makes us a pretty attractive place for our partners that are providing product to get to the market. You know, a couple of examples I'll give you in a minute. You know, on top of the, you know, the actual traditional, you know, sales footprint, we have world-class digital marketing platforms and e-commerce platforms that, you know, serve us well. You know, we've been at that for the better part of a decade. Our customers are significantly engaged with us on those platforms. I talked about our six million SKUs in terms of the portfolio itself.
Our global infrastructure, we've got probably 30 or so manufacturing plants, we've got about 50 distribution locations. We've got in the teens, probably, you know, 15 or so innovation centers. These are strategically located to be near our customers, and they facilitate that collaboration process I talked about. As our customers are engaging in their new product development activities, you know, we're right there with them. We have, you know, labs, we have pilot manufacturing sites that we can work with them to collaborate on new molecules and, you know, testing our products and, you know, for efficiency, quality, regulatory standard, safety, and everything. The last is, in the upper left is our broad team of material scientists.
We have, you know, process engineers, other experts that are there that know our customers' development activities very well, and, you know, are a critical resource, you know, for their, for that development. Obviously regulatory is also a big part of this. We have a strong regulatory team as well. In terms of, you know, the enablers that we have in place that I think will help us to continue the growth that we've enjoyed, you know, I talked about a few on the last page. We have a customer-centric innovation process, and I've talked a little bit about that. I'll give you a little bit more color on that in a second.
We are investing organically, and we're investing in M&A. Obviously, we'd prefer to do everything organic and, you know, develop those, portfolio of proprietary products on our own. There are a lot of cases where you get to market quicker, you build your portfolio quicker, you get, you know, better customer interaction, and engagement, you know, through M&A. We've, you know, we've got both of them as drivers. Let me double-click on a couple of, you know, each of these. If I start with, you know, on innovation, our model is very unique. As I said, we're not out there introducing our own new products, like dozens of new products a month.
We're collaborating with our customers in their introduction of their new products. That's what we do. It's kind of a little bit behind the scenes. You can think of it as us providing, you know, new product formulations, you know, helping them to achieve new purity specifications, or, you know, packaging innovations, things like that. That model has positioned us very well. We're on 85% of the top 20 pharmaceutical drugs that are out there on the market today. We've maintained that position. As things come and go, we're continuing to be partnered with new products hitting the market, very well positioned from, you know, the other facets that I talked about. We also work with partners that do their own product innovation.
You know, we're not necessarily involved in the innovation itself, but that customer access that I talked about earlier helps us to help our customers get their products to the market. I've cited a few examples that you can see on the lower left, you know, part of this slide. Over the last year, we've helped Agilent, Cytovance, Gemini Bio, Oxford Nanopore, you know, just to name a few, to bring their new products, you know, to the market. Think of those 300,000 customer locations that I talked about, and it's a pretty clear reason why they wanna be partnered with Avantor.
In terms of expansion, you know, to support the growth that I've talked about, and the idea of developing our own product, we've tripled our CapEx in the last few years. We're still interestingly a low CapEx model. We probably spend 1.5% to 2% of our revenues on CapEx. We're not hugely capital intensive, but we're finding that, you know, we can drive, you know, better growth with some of these organic investments that we're excited about. On the M&A side, we've fully integrated Masterflex, Ritter, and RIM Bio. You know, those are acquisitions that we did in 2021.
They have very attractive portfolios, again, proprietary product that we'll develop and, you know, manufacture on our own. These acquisitions are accretive to Avantor in terms of long-term growth rates and in terms of margin expansion. These are the types of deals, these tuck-in type of opportunities that we would expect to continue to, you know, to pursue from an M&A perspective. We're building a world-class strategy in M&A organization. When we started, you know, after the IPO, we had two people in the M&A group, M&A and strategy group. We've since brought on a world-class leader in strategy and M&A. You know, Kitty Sahin started with us in the fall of last year.
She's building a team that's gonna be, you know, 5x the size of, you know, what we had traditionally had. The skill sets are very impressive of the folks we're bringing in. Some have, you know, technical product knowledge. Some of them are great at, you know, transactional M&A stuff. Some of them are due diligence specialists, modelers. It's gonna help us, you know, going forward. In the near term, I get the question a lot about, you know, the current environment that we're operating in. We're committed to M&A. That's, you know, between, you know, the organic expansion as well as M&A, that's where most of our capital allocation is gonna go. If those opportunities are not there, we'll be de-levering.
I think 2023 is probably a year that's gonna be more heavier weighted to de-levering just because of the environment we're in. We have a portfolio of debt that's pretty fixed. It's like 70% of it is fixed. We got most of our portfolio refinanced just before this wave of interest rate increases, you know, came into effect. We feel fortunate that, you know, we've got a nice footprint there. You know, 30% of it is subject to the market rates. As you know, there were probably 400 basis points of interest rate increase in 2022. There's probably another, you know, 100 or so, 75- 100 on the horizon here.
It behooves us to apply our cash, the cash we generate, to de-levering in the short term. Again, full commitment to investing, you know, and doing what it's gonna take to, you know, enhance our portfolio. I wanna just touch a second on ESG. You know, as part of our core growth strategy, we're investing in our sustainability platform. It's pretty important, you know, to us. We've made significant progress in 2022. You know, from a GHG perspective, when you look at Scope 1, you know, two years ago we set out, you know. We wanted to be very tangible in terms of what we thought we could achieve in a very short timeframe.
We said, "Let's reduce our GHG emissions within three years by 15%." We're ahead of that, and I think when this, you know. By 2025, we'll have accomplished our that goal. Like I said, we're halfway there now. We're also, I mean, we also pay a lot of attention to what, you know, the rating agencies are looking for from us. We've continued to make, you know, good progress, you know, from the ones that you see. You can expect to hear more from us on sustainability. We do a regular annual sustainability report, comes out typically in the May timeframe.
You know, you'll hear more about our thoughts on, you know, Scope 2, Scope 3 emissions and, you know, what we're doing overall for the environment and to maintain that sustainability. Let me shift to our long-term financial goals here. This is the algorithm that we've talked about since the IPO. We're a mid-single digits grower from an organic growth perspective. More or less in line with the market, maybe a little bit better. When I show you the actual results in a second versus, you know, this targeted range, you'll see that we probably have done better than the market. We have significant EBITDA margin expansion opportunities.
If you compared us to, you know, the peers in the group, you would say, well, first thing you'd say is, "Wow, you guys have made an amazing, you know, expansion in the last four years in terms of your EBITDA margin." Secondly, they'd say, "You're still below your peer group." We agree. You know, we think we have 50 to 100 basis points of opportunity a year in expanding our margins. We do it from, you know, basically three sources. One, we get really good leverage from the volume, you know, that we have. We have a fairly fixed cost footprint. I mentioned our CapEx load is not high. We're able to get some decent leverage with volume growth. Secondly, we have a mixed benefit going on here.
I mentioned that our proprietary products are growing twice the rate of our third-party products. Those proprietary products have superior margins to the third party. When you get more of those, you get nice contribution to your margin rate. That's helped out nicely. Thirdly is pricing. We call it commercial excellence, but, you know, for us, there's really two ways that we get pricing. It's a pedigree of VWR, as a distribution player. The systems and the skill sets and the algorithms that we have around pricing are world-class. And from the legacy of Avantor side, equally strong in terms of, you know, managing the dynamics around pricing opportunities. You get.
Of course, you have inflation, and inflation is sort of the starting point for our pricing discussions. But given our placement in our production platforms, in our customers' production platforms, we're pretty low on the, you know, the amount of the bill of material that we occupy. We're a very small component of, you know, the customer's product cost. We've done a lot to get specced in. We've done a lot of collaboration work, you know, two or more years of collaborating to get specified onto those platforms and meet the regulatory requirements. You have a strategic pricing advantage there as well. It's both, you know, offsetting inflation and, you know, doing strategic pricing.
With that, our net earnings, you know, should grow in the mid-teens. Operating profit obviously is driven by the 4%-6% and the 50-100 basis points. We also continue to reduce our interest expense. You know, we're still, you know, modestly levered, you know, 3.7x at the end of 2022, but that has come down from over 5x in the, you know, short order of a year and a half. It says that we generate a lot of cash and, you know, when we're de-levering it, that creates additional, you know, income opportunities for us. Our free cash flow generation is very strong. We target 90% free cash flow.
I talked about our priorities on capital allocation. You know, I think we're in a shorter window here where it's probably a little bit more leaning towards debt and de-leveraging until I think the M&A markets improve for us. That's the overall cap allocation model. If you look at how we've actually performed against those targets, against 4%- 6%, our CAGR's been 6.5%. Against the 50- 100 basis points of margin expansion, we've done about 130 margin expansion a year. We've gone from 17.1% EBITDA margin, as I said, to 20.9% at the end of 2022. You know, nice healthy growth there.
Our adjusted net income CAGR has been over 35%. Our free cash flow is more than double, you know, over that time period. We're ahead of what we set out for ourselves as our targets, and we continue to revisit the targets, you know, as the portfolio complexion changes. You know, perhaps you'll see an update, right now we're comfortable with, you know, the way we've articulated that. If I turn to 2023. You know, the thing to keep in mind is that our long-term growth algorithm hasn't changed. 2023 is gonna be a little bit different for us.
We went through a detailed walkthrough of our guidance in our Q4 earnings call, I'd encourage you to listen to the transcript on that. Nothing's really changed since then. The guidance reflects a strong end markets that we serve. Our customers in biopharma, for example, are doing fine. Our customers in healthcare, they're all doing fine. We also have, you know, healthy pricing environment, you know, as I've talked about. The one thing that the industry is facing and we are facing is a bit of an unwind out of the COVID era for 2023.
A little bit in the second half of 2022, where, you know, some of the SKUs that we were selling to support COVID testing, COVID vaccinations, and, you know, protection from COVID, you know, are all unwinding. We probably have a couple hundred million dollars of revenue that comes out of our base in 2023 that we're facing. You know, putting that aside, you see, you know, some reflective, you know, growth dynamics for the year. Let me just quickly wrap up here. If you could remember four things from what I've talked about, you know, as potential, you know, investors in Avantor is one, the attractive markets we're serving.
Again, life sciences, 70% of Avantor growing, you know, very, very nicely. The capabilities that we have, if you look at, remember that puzzle chart I had. The commercial footprint, the portfolio of six million SKUs, the physical capacity that we have to be near our customers and, you know, the acumen that we bring and expertise we bring in material sciences is unmatched. The track record of exceeding our guidance, you know, we intend to continue with a hardcore focus on that long-term guidance and making sure we're tracking towards it. Then, you know, innovation. You know, whether it's, you know, through our customers' innovation, our own capacity expansion, we're, you know, we're excited about, you know, what that could mean. Let me leave it there.
I wanna, you know, for those of you who are, you know, are investors, either in the room or, you know, listening, I would, I thank you for your support. For those of you who are not, there's still plenty of room on the Avantor train. Would love to have you a part of it. Thank you very much for your listening.