Macro­economic and Sector-Specific Environment

Following the recovery of the global economy in 2021, the International Monetary Fund (IMF) stated in its World Economic Outlook published on January 25, 2022, that this momentum is expected to slow down. This became visible in the second half of 2021. With the spread of the highly transmissible Omicron variant the Covid-19 pandemic resurges and mobility restrictions in some countries were reimposed, threating the recovery path. Higher infection rates put additional pressure on labor supply. A worldwide access to vaccines, tests, and treatments also in low-income countries as well as the efficacy against newly emerging variants is key to curbing the spread of the pandemic. Furthermore, inflation continued to rise in the second half of 2021 and is expected to remain elevated longer than initially anticipated, particularly in the United States. Main drivers are the ongoing supply shortage and rising energy prices. Further challenges to the global economy are, among others, China’s recovery of private consumption and investments in its real estate sector, climate change as well as geopolitical tensions including eastern Europe and east Asia threatening energy supply, international trade, and policy cooperation.

According to the latest forecasts by the IMF¹, global gross domestic product (GDP) rose by 5.9% in 2021 (2020: -3.1%). The economic activity has shown strong post-recession recovery from the Covid-19 pandemic. However, the economic rebound is uneven across countries. Advanced economies registered a growth of 5.0% (2020: -4.5%) while the emerging markets and developing economies saw growth of 6.5% (2020: -2.0%). The GDP of the United States grew by 5.6% (2020: -3.4%). The Euro Area recorded a slightly weaker GDP growth of 5.2% in 2021 (2020: -6.4%). The emerging economies of Asia registered a growth of 7.2% (2020: -0.9%). The strongest drivers were China with 8.1% (2020: 2.3%) and India at 9.0% which recovered strongly from the impacts of the pandemic (2020: -7.3%). As part of the advanced economies, the GDP of Japan grew by 1.6% (2020: -4.5%).

Our organic sales growth was significantly above the IMF’s global growth expectations in 2021 at 13.8%. It was supported by all regions. North America accounted for the highest share of Group-wide growth with 34.6%, followed by Europe with 29.9%, Asia-Pacific with 29.4%, Latin America with 4.9% and the Middle East and Africa at 1.2%.

The overall growth was predominantly driven by the Life Science business sector, which was supported by Covid-19 tailwinds in 2021. Healthcare and Electronics also contributed positively to the organic sales growth. Growth in North America, Europe, and Latin America were principally the result of operations in the Life Science and Healthcare business sectors. In the Asia-Pacific region, growth was supported by all business sectors.

Life Science

Our Life Science business sector is a leading global supplier of products, tools, and services for research laboratories, pharma and biotech production, and industrial and testing laboratories. While Covid-19 continues to have a pronounced impact on many sectors and the global economy as a whole, the life science market has proven itself to be robust. The rapid development and launch of Covid-19 tests, vaccines, and antiviral treatments presents a sizeable but likely short-lived upside, while the base market (excluding Covid-19-specific applications) continues on a strong growth trajectory.

According to the market research firm Frost & Sullivan, the market for laboratory products, which is relevant to our Research Solutions and Applied Solutions business units, grew 10.4% in 2021 (2020: 6.8%). Demand for products related to Covid-19 testing, research, and vaccination remained strong while demand for core consumables and instruments (non-Covid-19 related) returned to pre-pandemic levels after being impacted by regional lockdowns imposed in 2020 for pandemic control. Given strong base demand but anticipated declining Covid-19 contribution and difficult comparables, the market is expected to grow in the mid-single digits.

In the pharma and biotech production market, in which our Process Solutions business unit is active, demand is driven by the development and manufacture of therapeutics and vaccines. According to IQVIA, the end market for biopharmaceuticals grew by 11.9% in 2021 (2020: 10.0%) to € 355 billion (or 33.2% of the global pharmaceutical market). Monoclonal antibodies, currently the leading area of biopharmaceuticals, continued on their growth path in 2021 with positive development of 11.8% (2020: 10.8%). The rapid development and scale up for global administration of Covid-19 vaccines provided additional demand for key bioprocess consumables on top of the base market. Continued strong base market growth is expected to persist with some volatility until the pandemic abates, as routine healthcare and clinical trials resume.

Healthcare

In its latest study from September, the pharmaceutical market research firm IQVIA forecasts growth in the global pharmaceutical market of 6.3% in 2021 (2020: 3.4%). Recovering from the Covid-19 pandemic, the pharmaceutical market is expected to see higher growth in the reporting year than last year. While the pandemic is still ongoing, the pharmaceutical industry returned overall to growth and has been resilient to supply challenges as seen in other industries. Further benefits from positive developments in intellectual property regulations as well as increasing healthcare budgets have influenced the year 2021.

The developments at a regional level are extremely heterogeneous. Latin America reported significant growth of 15.9% (2020: 10.8%). The EMEA (Europe, Middle East and Africa) region also enjoyed continued solid year-on-year growth of 5.0% (2020: 4.8%). In North America, growth also increased compared to the previous year, amounting to 6.5% (2020: 4.5%). In absolute terms, the pharmaceutical market in the United States remains the biggest and most important market by some distance. Market growth in the Asia-Pacific region (excluding China and Japan) accelerated to 6.6% (2020: 2.2%). China grew by 7.2% (2020: -1.8%), which was due to the recovery from the Covid-19 pandemic as well as the continued development of the local healthcare system and the shift from spending on generic products as a result of price regulation (e.g. volume-based procurement) in favor of innovative treatments.

Not only the growth of the pharmaceutical sector as a whole, but also the development of the biopharmaceutical market, is relevant to our business. According to IQVIA, the market volume for biological pharmaceuticals totaled approximately € 355 billion in 2021 (2020: approximately € 318 billion), thus continuing the recent trend of a continuous increase in market share. These products accounted for 33.2% of the global pharmaceutical market in 2021 (2020: 32.0%). The most important market for biological pharmaceuticals remains the United States, with a 59.9% share of the global market value.

The developments in the therapeutic areas of relevance to the Group saw differing trends in the reporting year. The global market for type 2 diabetes excluding the United States followed the positive trend of previous years, achieving growth of 10.6% in 2021 (2020: 12.6%). The therapeutic area of infertility saw a significant upturn of 27.0% in the reporting year (2020: -2.0%) recovering from the severe impacts from the pandemic in the previous year caused for example by the closure of clinics. Following the decline in last year, the market for colorectal cancer further declined by -16.2% in 2021 (2020: -3.3%) due to biosimilar penetration. The growth trend in the market for multiple sclerosis patients stalled compared to the previous year’s level with -2.7% (2020: 0.9%) impacted by generic competition.

Electronics

The semiconductor industry is the most important market for our business with materials for the production of integrated circuits (Semiconductor Solutions). In particular, the growth in demand for semiconductor materials depends on the wafer area produced for semiconductors. The silicon wafers required as raw materials are used as an indicator to estimate the demand for semiconductor materials. According to the global industry association SEMI.org, the area of delivered silicon wafers was strongly increased by approximately 13.9% in 2021 (2020: 5.3%). This growth is fueled by the ongoing acceleration of digitization through Covid-19 and the resulting boosted demand for digital end-applications (notebooks, PCs, gaming) and digital infrastructure (network, servers, 5G). The high demand and the importance of semiconductors is clearly visible in the currently ongoing global chip shortage. Semiconductors are a key ingredient in many industries including communications, consumer electronics, automotive, transportation, clean energy, aerospace, and defense. To cope with this surge in demand, all major chip manufacturers increased and accelerated their investment plans into new fabs and additional capacity. Combined with ongoing innovation needs, these investments will lead to a huge demand for innovative materials. Driven by the mentioned acceleration of digitization and the according exponential growth of data, there is a lasting need for semiconductors across all device end-markets. Our targeted semiconductor materials market is expected to grow strongly, with only minor cyclicality.

With our Liquid Crystals business, we are the leading producer of liquid crystal mixtures for the display industry. According to surveys by market researchers at Omdia (forecast Q3 2021), the display surface area is growing at 4.0% in 2021 (2020: 5.7%). Driver of this growth is the strong demand for TV and IT equipment, caused by the ongoing “stay at home booming” after Covid-19, especially in the US market since the second half of the year 2020. Liquid crystals will continue to play a key role in the display industry in the future. OLED technology, for which we are also one of the leading material suppliers, is becoming increasingly important in high-end display applications.

The markets for automotive coatings and cosmetics are crucial to our Surface Solutions business. According to LMC, a leading global provider of automotive forecasts, global automobile production grew by 2.2% in 2021, after a steep decline of -15.9% in the previous year due to Covid-19 (factory closures, supply chain interruptions, and a slump in consumer demand). China continues to be one of the most important markets. In 2021, also other key markets in Asia (ex. China), Europe, and North America returned to growth. Despite the already mentioned chip shortage, the outlook for 2022 is positive with expected further improvement in market growth. The market for cosmetics and care products showed a good recovery with an overall growth of 6.6% in 2021 (2020: -1.3%). After the negative effects of Covid-19 regarding lockdowns and social distancing and the increased trade conflicts between the United States and China last year, Euromonitor expects the market recovery to be sustainable, also beyond 2021.

¹ World Economic Outlook, as of January 2022