Vimian Group AB (publ) (VIMIAN) Earnings Call Transcript & Summary

Welcome to the Vimian Group Q4 report. [Operator Instructions] Now I will hand the conference over to the speaker, CEO (sic) [ CFO ] Carl-Johan Zetterberg Boudrie; CEO, Fredrik Ullman, please go ahead.

Welcome to Vimian's Fourth Quarter and Full Year Earnings Call. I'm Fredrik Ullman, CEO. And with me here today, Carl-Johan Zetterberg, our CFO. As you saw this morning, we announced an issue in time to finance the acquisition of Bova Australia. And we're very excited about this acquisition. I'll tell you more about that later in the presentation. Taking a look at 2022, as a full year. As you know 94% of our group is focused on companion animals. And 2022, we faced an unprecedented year with war in Europe, inflation etc. Our market though, continued to grow and show resilience, but of course, with more normalized demand versus the peak levels we saw in previous years. On our part, we delivered strong total growth thanks to successful execution of M&A. And we had above 11% pro forma organic growth in our companion animal businesses, which gives you a good idea of how the vast majority of Vimian is trending. We also achieved several key milestones on our journey. We entered new markets. We added a new therapeutic area to our Specialty Pharma division. And in MedTech, we integrated acquired product lines and are now offering the full MedTech portfolio in all geographies. Towards the end of the year we also launched 2 new tech platforms, one in allergy and one in Diagnostics. We also advanced our innovation pipeline in allergy diagnostics and orthopedics. We professionalized and structured our ESG agenda, where the ambition is to take a lead in our sector. So all in all, I'm very proud of the operational milestones we achieved, as well as the strong total revenue and EBITDA growth that we have achieved in 2022. Going into 2023, we've got a strong focus on organic growth, operational leverage, and cash flow improvements. We're looking at selectively at M&A as well, of course, but really focus is going to be on organic growth and profitability and cash flow. Just briefly looking at our global footprint that remains in line with the second -- the third quarter, i.e., roughly half of the business in Western Europe, 44% in North America, and 9% in rest of the world. Now looking into the fourth quarter. So in this quarter, we saw similar trends as in the third quarter with strong growth in the U.S., while Southern Europe was slower due to the macroeconomic environment, we also continue to see the impact of the phase out of COVID sales and diagnostics, which will end by the end of the first quarter of '23. We've -- during this quarter, we focused really on the integration of acquired companies and our initiative to accelerate organic growth, while staying cautious to not take on additional costs. We were very active in the fourth quarter, hosting a number of trainings and also attending large trade shows in the U.S. and in Europe. In December, we completed the management transition in Movora and appointed Colleen Flesher as new co-CEO. Colleen comes with 20 years in leading positions in the med tech sector on the human side and is a really strong addition to our team. Now looking at the first months of 2023, I'm really encouraged to see that we're off to a good start with good growth in most businesses. And with that, I would like to hand over to Carl-Johan to look at our financials.

Thank you very much, Fredrik. In the fourth quarter, we grew with 55%, achieving EUR 75.5 million in revenue. The organic growth in the companion animal segment that accounts for more than 90% of our business, was a solid 6.7%. We have seen continued good growth in many areas of our business. Reported organic growth is somewhat held back by phase out of COVID sales and diagnostics as well as slower market development in South Europe. Adjusting for COVID sales, we report organic growth in all our segments in the quarter despite a more challenging macro economical environment. For the full year, revenue increased to EUR 281.3 million, a growth of 62% compared to 2021. For the full year, organic growth was 3.7%, with around 12% pro forma organic growth in our companion animal business. The FX tailwind, mainly in the relation between U.S. dollar and euro continued in the fourth quarter, supporting our revenue growth with 4.2% in the quarter, which is in line with the full-year impact as well. The adjusted EBITA increased by 50% to EUR 18.0 million for the fourth quarter. This is equal to an adjusted EBITA margin of 23.9%, which is slightly below same period last year due to consolidation of acquired entities and strategic investments in new offerings and market development. In our legacy business, we see a stable or improving margin and good pricing power in the market as our gross margin, excluding the consolidation of required entity GlobalOne, which gives us a different business mix, have increased to roughly 1.3 percentage points in the quarter and 1.6 percentage points for the full year. For the full year, adjusted EBITA was EUR 73.4 million, which is an increase of 37% compared to 2021. We have a strong track record in the last couple of years, reaching a pro forma revenue of almost EUR 300 million in 2022. Since 2020, we have tripled the business through organic growth and continuous strategic acquisitions. Revenue growth have also supported strong profit increase. Since 2018, EBITDA have increased to 105% in average per year, which exceeds the annual revenue growth, reaching a pro forma EBITDA of EUR 86 million at the end of the year. We're actively driving several organic growth initiatives and synergies within and between our segments and the acquired entities to drive continued strong revenue and profit development. Back to you, Fredrik, for some further insights on the business segment development in the quarter.

Thank you, Carl-Johan. So looking at the Specialty Pharma vertical. Here, we delivered a full year pro forma growth of 15%, which is in line with our target. And that, I think, is a testament to the strength of that business despite the macroeconomic environment we experienced in 2022. In the fourth quarter, we continued to see strong growth in Europe, U.K. and U.S., although somewhat affected by a softer market in Southern Europe, as we mentioned. And we are monitoring that demand very closely. But when we look now at January and February 2023, it looks stronger. We see a continued strong performance in our Specialty Pharmaceuticals, Bova U.K. and also Specialized Nutrition, GlobalOne in the quarter who will come in as organic growth in 2023 or in the first quarter of '23, both with strong innovation capabilities and a large share of sales from new product launches. Here, we also delivered a margin expansion in the legacy parts of Nextmune and the reported margin you see here is the result of the mix effect driven by the consolidation of GlobalOne, which stands for 25% of the segment sales in the quarter. We completed a small but strategically important acquisition of our Scandinavian distributor in the quarter, which was key to consolidate logistics and optimize supply chain in Scandinavia. Our sales and marketing teams were highly active in the quarter, completing the launch of our new allergy tests in the U.S. It's a platform called PACS. First molecular diagnostic platform in allergy, and that was very well received as we were hosting the big allergy awareness week for vets also in Europe and attending several congresses. Now in the spring, we're preparing to launch direct distribution of our dermatology portfolio, [ ICF ] and nutrition product lines in France and Belgium, and we are preparing for more than 15 new product launches this spring. So overall, I'm very satisfied with the performance of our Specialty Pharma business. Now looking at Bova, Australia. We're excited to proceed to the closing of this acquisition. It's the second strategic milestone on our journey to build a global leader in Specialty Pharmaceuticals, which is a fast-growing segment in animal health and one of our fastest-growing businesses. Bova has an attractive growth and margin profile, which is accretive to our financial targets. We're also happy to deepen the relationship with Nick Bova, who joined us in January last year when we acquired his U.K. business. He's a very strong entrepreneur and -- who is very excited about our journey and will play an important role in our team. And with the issue in kind, we proposed today, we align incentives with all our shareholders and secure strong commitment from Nick, who is also eager to increase his stake in Vimian. Moving on to our MedTech vertical. So in Movora, our orthopedic business here, we delivered solid growth, both full year and in the quarter. A slower European market stopped us from delivering in line with our 15% target. We see continued good growth in the U.S. with high case load in clinics and busy surgeons. And we had a major veterinary surgery Congress in the quarter, which was very successful with more than 200 new sales leads. Our acquired distributors are growing fast. And like in Specialty Pharma, we delivered an EBITDA margin expansion of 2.1% in this business. In Movora, we've also integrated the acquired products and now offer the full brand portfolio across all geographies. So we have a -- we now have a very strong position as a global leading provider in veterinary orthopedics. Moving on to our Services business. Also VetFamily and VerticalVet delivered solid growth in the quarter and full year. We continue to focus on our new tiered membership model and ensuring good strategic partnership agreements with our suppliers. We had strong member growth with more than 300 new members in the fourth quarter. And as we mentioned before, one of our organic growth initiatives was to enter Brazil and also Belgium, and we launched those 2 countries in September, and we're off to a strong start with more than 210 clinics now onboarded organically since we started. In Veterinary Services, we saw an EBITDA expansion of 2% in the quarter. I have to say the new management team here has come together with a very -- in a very, very strong way, and we have recruited some key talents. Also as we have acquired Heiland, our tech platform, B2B e-commerce platform that we're looking to expand both in Germany but also internationally. Moving on to our Diagnostics business. Here, we continue to see the impact phase out of COVID. As I mentioned, that will still last in Q1 2023, but then we expect it to be phased out. In Q4 '22, it was -- sorry, in Q4 '21, it was 20% of sales. But when we look at the core livestock business, we're seeing growth, and we're actually seeing that the market conditions are improving. At the beginning of 2022, this business was heavily impacted by the Ukraine war as a lot of exports from Germany were going to Russia and Ukraine, but we're now seeing growth in other regions of the world. In this segment, we focus really on new growth segments and produces preventive health to enable the reduction of antibiotics use and also on companion animals, including equine. And we continue to work on our costs reduction program that we launched in the fall. We're expected to generate savings of EUR 1.5 million in annualized savings by end of 2023 as we consolidate our production footprint, and we will see the full impact of that in 2024. Moving on to our M&A -- the M&A side of the business. So we signed 13 acquisitions in 2022. And now our focus is really on the integration of these companies and to realize the benefits of working closely together to drive organic growth and operational leverage. We're still open to M&A should the right opportunities arise, but our primary focus is really on getting most out of what we own. And that means organic growth, operational leverage and cash flow improvement. With that, I would like to hand over to Carl-Johan again to go through the financials in more detail.

Thank you very much, Fredrik. As said, let's look at the financials for the quarter and for the full year in a little bit more detail. The strong revenue growth in the quarter resulted in reported revenue of EUR 75.5 million, which is significantly above the EUR 48.7 million reported for the same period last year. For the full year, revenue increased to EUR 281.3 million, which is also significantly ahead of previous year, with an increase of 62%, primarily driven by successful execution of the M&A pipeline and continuous organic growth. Adjusted EBITDA increased by 50% in the quarter to EUR 18 million, and the operating profit improved strongly from EUR 4.1 million to EUR 11.4 million, equal to an operating profit margin of 15.2%. The operating profit includes items affecting comparability, which in the quarter have been impacted by the reversal of legal costs related to the VOI litigation of EUR 5.5 million. High net financial items of minus EUR 29.9 million is the reason for the pretax loss. The net financial items consists mainly of 3 different elements: financing costs of EUR 2.8 million, reflecting increasing interest rates, adjusting for contingent considerations of EUR 24.1 million and negative exchange rate impact of EUR 3.0 million. The higher earn-out related costs reflects upward probability adjustments of future earn out payments following very strong performance of acquired companies, including Bova, Global Pet One products and [indiscernible]. The tax expense for the quarter was EUR 2.6 million despite a negative pretax profit. This reflects partial reversal of deferred tax assets, which with a conservative approach to deduct compensable losses in Swedish entities, as well as nondeductible expenses related to earn outs. The underlying margin development in the quarter was healthy for the group. We reported adjusted EBITA margin for the quarter of 23.9%, which is slightly below the same period last year, but primarily driven by a mix effect, including GlobalOne in our financials, which is a successful and fast-growing business we acquired in December 2021. We have shown strength in protecting gross margin despite increasing cost with high inflation. Excluding the mix effect from acquired companies, our gross margin has increased with 1.3 percentage points compared to the fourth quarter last year. Our adjusted EBITA margin improved in both MedTech and Veterinary Services year-over-year, also Specialty Pharma improved its legacy margins. The margin in Diagnostics is negatively impacted by the phase out of COVID sales as well as exceptional scrapping related to raw material and semi-finished goods also related to COVID sales in the quarter. The cash conversion in the quarter was strong at 110%, which is an increase from 82% in the same quarter last year. The year-to-date cash conversion is 57%. There is a variability between quarters driven primarily by the Annual Order Program in MedTech and acquisitions. The operating cash flow equaled EUR 22.8 million in the quarter and EUR 46.7 million year-to-date. The cash flow in the quarter was supported by a positive change in net working capital, driven by lower inventory levels in Specialty Pharma. But inventory levels are still high with the buildup of inventory in MedTech, ahead of the Annual Order Program in the first quarter of 2023, as well as acquisitions. Cash flow from investing activities decreased compared to the last year to EUR 31.2 million in the quarter, given the lower acquisition pace in the market and increased focus to integrate recently acquired entities. Cash and cash equivalents at the end of the fourth quarter was EUR 42.2 million, slightly below EUR 55.1 million at the end of last year. The net debt as per the end of the fourth quarter was EUR 257.5 million versus EUR 340.9 million at the end of September. This equals a leverage, so the net debt last 12 months to pro forma EBITDA of 3.0x. The change in net debt is mainly attributable to repayment of debt using tranche 2 of the share issue approved by the AGM on October 3. In total, the direct share issue raised proceeds of SEK 1.5 billion, of which the second tranche of EUR 86 million was completed early October. Also, I would like to give the opportunity now in the fourth quarter call to give you a short update on the patent litigation dispute that we communicated on January 13. And since we booked a claim related to VOI patent dispute to give you a brief update. As said, we communicated on January 13 this year that the jury in Middle District of Florida decided VOI had willfully infringed patents and that Synthes should be awarded USD 59.5 million in damages. We have booked this amount as other current liability in the fourth quarter and the contractual indemnification protection that we have as a noncurrent financial asset. We strongly disagree with the jury's verdict and are preparing for various outcomes and will assess all legal options, including an appeal. We believe that an appeal has strong basis. The judgment itself can be announced by the District Court at any time during 2023. Given that the journey found willful infringement, the court also has the ability to enhance damages. Should we decide to appeal, following the judgment, it is anticipated to take 12 to 18 months, and could require us posting a surety bond, which we are planning for. Regarding any financial impact, our view is that we have through the purchase agreement for the acquisition of VOI, contractual indemnification protection up to USD 99.9 million that covers damages as well as procedure costs and interest. As soon as the judgment is announced, our full focus will be to analyze the outcome, prepare for an appeal and ensure we get the fair ruling as part of the process as well as to limit any impact on our operations. From a commercial perspective, we have already phased out the concerned products, so we don't foresee any negative impact on sales. We will continue to update the market as more information becomes available. Giving you a little bit updated view on the market, which is something that's been requested that we update you on sort of historical current and future anticipated market development. We have worked to collect available data from a variety of sources and also bought a fresh market report from Grand View Research. The addressable animal health market was approximately EUR 56 billion in 2022, with growth normalizing after post-pandemic peak. The sector showed resilience despite the weaker macroeconomic climate and grew with approximately 5% last year. North American Pacific showed solid growth, while Europe was a bit softer held back by -- especially Southern Europe. We see that the fundamentals in the market remain strong with growing number of pets, the continued humanization of pets and growing awareness of available treatments as well as medical advancements driving innovation. As a consequence and according to the Grand View Research report, the market is forecasted to grow at approximately 8% to 9% on average per year until 2030. A short update on current trading, as we've been through the first 2 months of the quarter -- first quarter of 2023. The year started positive with growth in high single digits despite the continued macroeconomic turmoil. Our price increases have -- or is being implemented in most of our markets to continue to protect our gross profit margin. And this has, in general, been well understood and well perceived by customers given the high inflation environment. During the first quarter, we will continue to have a negative impact from the phase out of COVID sales. For the first quarter of 2022, approximately 20% of the revenue in Diagnostics was related to COVID sales. But from the second quarter of this year, this effect will almost be removed. Our Annual Order Program in MedTech have been very successful with even more customers joining the program to secure supply and facilitate their business. This will result in pulling up some of the business from the second and third quarter compared to previous year of this year, impacting revenue positive in the first quarter, but with the timing effect of cash flow as customers in the Annual Order Program, they pay for the annual deliveries throughout the year. During the second half of last year, we have continuously strengthened our finance organization and finance processes, giving us the ability to produce our financial reports in a more timely manner in the coming quarters. This is why we have updated our financial calendar. And as a first step, the next report will be pulled in a little bit and released on May 4. So with that, that concludes the financial update and summary for the quarter, and I hand back to you, Fredrik, for a summary and wrap up.

Thank you, Carl-Johan. So just to summarize, 2022 was a challenging year. But we saw that our market and business is resilient. We successfully executed on a broad M&A pipeline and delivered strong pro forma organic growth in our companion animal businesses. We consolidated companies with different financial profiles and made investments to accelerate growth, which was reflected in our margin. But we're also seeing those investments starting to pay off. We achieved several key milestones, new market entries, new therapeutic areas, roll out our MedTech portfolio in all geographies, launched new tech platforms, and we strengthened our ESG agenda. So overall, I think we've become a stronger company, a much stronger company during 2022. Now looking at 2023, as Carl-Johan mentioned, we are off to a good start. But of course, times are still uncertain. We need to closely monitor demand and ensure cost control. I have a very clear ambition to reaccelerate organic growth through innovation and sales excellence and also by allocating investments to our high-growth geographies and segments. I see 5 key areas for this year. In Specialty Pharma, it's really continue to grow that with plus 50 product launches across therapeutic areas. And we're going to roll out existing products and services in additional markets and channels and of course, continue to address the white space through education. In MedTech, we'll focus on growing total market size through education as well and work on operational excellence while we explore other areas of MedTech beyond orthopedics. In Veterinary Services, we'll continue to expand our service offering to more independent clinics, upgrade and recruit new members and make sure we succeed in new geographies, while we digitalize the offering by investing in Heiland our new B2B e-commerce platform that we will roll out in more geographies. And in Diagnostics, we are penetrating the producer segment via precision farming initiatives. And we're also launching a new AI artificial intelligence-enabled technology for equine and production animals. And we're actually launching that in collaboration with Nextmune and VetFamily, and we will launch it in companion animals end of this year, early next year. Of course, we continue to accelerate our ESG agenda with a focus on our people, the animals and our planet. And with that, I would love to open up for a Q&A session.

[Operator Instructions] The next question comes from Adela Dashian from Jefferies.

My first question relates to the comments regarding current trading, especially the organic growth being in the high single-digit range. Could you give us some more details regarding that number? Is it broad-based? Does it also cover the Diagnostics division? Or is it mostly related to the companion animal sector or segment.

So it does include everything. But the -- as I mentioned, the Diagnostics business will still see a negative impact on growth in Q1, and we expect that to be Diagnostics to have a positive growth as of Q2. But despite the negative impact from Diagnostics in Q1, we expect to see single-digit growth to high single-digit growth for the group. And that is also because as I mentioned, Adela, Bova and GlobalOne that they are coming now into -- we've owned them for -- they will -- we have now owned them for more than a year, so they will be calculated into the organic growth as of Q1 as well.

And then just taking a look at the adjusted EBITA bridge, it seems like the most material negative driver was the margin decline when you consolidated GlobalOne. Could you please touch on some of the initiatives you're undertaking here to make sure that the synergies flow through this year from the business and help margin expansion going forward.

Yes. So GlobalOne has a slightly different margin profile. But if you look at absolute EBITDA growth, it's growing strong. So it's a mix effect. And of course, as that business grows, margins will improve as well organically through operational leverage. But then we are taking -- the key measures we are taking is to focus really on organic growth, to get operational leverage, and we're very cautious on cost. The area where we're taking out costs is primarily in Diagnostics, where we're consolidating the production footprint to improve margins. And we've also reduced SG&A there. So I don't know if that answers your question or was your question just related to improving the margin of GlobalOne.

And then finally, if I could just ask about Veterinary Services. There you've spent or invested quite a lot during 2022. Do you feel like you've done enough there? Or is there additional investments that need to be taken within that specific vertical?

No. Actually, we've strengthened -- we have a very strong team in place. We're not expecting to increase the investment there. We expect that team to deliver strong growth in both the legacy business and in the digital business going forward. We haven't -- but no, we're not expecting to increase. What we've actually done is to -- we started 3 initiatives: Brazil, Belgium and Eastern Europe. And once we saw that both Belgium and Brazil were really taking off quickly, we reduced our investment in Eastern Europe, but we have everything ready to launch there, but we're going to hold off on that, and we're focusing on Brazil and Belgium to start with also to protect the bottom line.

The next question comes from Kristofer Liljeberg from Carnegie.

3 questions. First, could you comment on how much sales you had from GlobalOne and Bova separated in 2022? And what growth rate they have in Q4 as you ended the year? Second question is on the overhead costs. If you could give some flavor on the run rate going forward? And the same for financial costs, which were a bit lower than I expected, at least in the quarter after the share issue. So would you say that the underlying cost of EUR 2.8 million you had in the quarter, is that a good level now for 2023?

Carl-Johan, do you want to take those questions?

Yes, sure. If we start with sales of GlobalOne and Bova brand underlying growth in both, I think we don't have -- we haven't disclosed sort of specifically the detailed numbers of Bova brand and GlobalOne, but they are significant part of our Specialty Pharmaceutical business, and they have grown significantly both of them during 2022, and we do see continued positive trends. And when it comes to GlobalOne, specifically, we have said that GlobalOne is roughly 25% of sales in Specialty Pharmaceuticals for the fourth quarter. And where we've seen double-digit growth in both Bova brand and GlobalOne during 2022 and in the fourth quarter. Then your second question on run rate in operating expenses going forward for 2023. I think as Fredrik said and commented a little bit specifically on Veterinary Services, I think that comment is relevant in January. We have during 2022 done selective investments in the business. We are now in 2023, given the sort of financial or macroeconomical turmoil, I would say, making sure that we are very cautious and prudent when it comes to costs and very selectively increasing costs. We do have some investments where we will have the full effect from an operating cost perspective now as well on 2023. But we don't see that we are making significant increases in new investments. So with that said, it's a good proxy to see that the run rate that we have roughly during Q4 is a relevant sort of target for us for 2023.

So based on that comment, I would imagine that you expect the adjusted EBITA margin to improve 2023 versus 2022?

Yes. As Fredrik commented before, one of the key focus areas we have for 2023 is to drive adjusted EBITA margin expansion. So yes. And then your final question on sort of the financing costs. I would say, yes, but with the uncertainty it seems it is still an uncertain environment, and we do see interest rates increasing. And I think the latest estimate is they could continue to increase. So with that said, if we look at current interest rates, yes, that is a relevant level. But unfortunately, I can't predict what would happen with interest rates going forward.

But what interest rates did you pay in Q4?

Of course, interest have increased a little bit. I would say we're looking at interest rates between 4% to 5% for Q4 for cost -- financing cost.

The next question comes from Rickard Anderkrans from Handelsbanken.

Thank you for taking my questions. So first one, if you could add a little bit the commentary around the capacity for organic deleveraging here in 2023. Do you have sort of a vision or target in terms of the leverage ending in 2023? That's my first question.

Well, I would say that there will be a natural deleveraging excluding M&A, there will be a natural deleveraging. But again, we have -- as long as we're going to look at -- we will look at M&A possibilities. So it's a bit difficult. It's not that we have a target for deleveraging per se, but naturally, it will organically go down -- the leverage will go down organically if we don't do M&A. But I'm not going to say that we're not going to do M&A.

I think that -- as Fredrik comment also as said, we did see a good operating cash flow in the fourth quarter and also good or decent operating cash flow for the full year. And also, as Fredrik commented before. So the second important sort of financial focus for us sort of -- or third, you could say we have driving -- continue to drive organic growth margin expansion. And third, we continue to focus on cash flow and especially making sure that we have the right working capital levels, where inventory has been a little bit, I could say, inflated or it's been at a higher level at the end of Q4, given that we made sure that we have the availability of stock in especially MedTech for the AOP program and also a little bit still for sort of managing Asia uncertainties in supply chain.

So if you could also perhaps comment a little bit on group-wide price increases in 2022 and what you're planning on that front in 2023.

So the group-wide price increases in '22 was around -- between 5% and 6%, depending on the area, some areas a bit more, some areas a bit less. And of course, the normal price increases would be more than the 2% to 3%. We will monitor the situation in terms of inflation. And of course, we'll take proactive steps if inflation continues, then we'll take proactive steps to increase in line with what we did in '22.

And just a final one. So you mentioned that the Annual Order Program has been very strong here in Q1 and we see going forward. Can you quantify that somehow, what type of impact should we expect for Q2 and Q3 from that going forward impact? I know it's a bit speculative, but we've been...

Yes.

To get a sense.

It's a bit early. I would love to -- I can wait for that because it's too early actually to give you any exact prediction on that. So I would love to wait until the full quarter has ended before we speculate anything on that.

The next question comes from Patrik Ling from DNB.

Patrik here at DNB. Also a few questions. First, actually, a follow-up on the last question on the Annual Order Program. I mean even if you say it's too early to give any exact predictions. I mean you still commented on your overall growth in January or February saying that it was high single digits. So I mean, if you compare the first 2 months with last year, how would you say that the Annual Order Program has worked out thus far?

It's been a good start. I mean, again, when we talked about the high single digits, that's what we're talking about compared to last year, where we also had a good AOP program.

So would you say that AOP program is adding more to the organic growth this year than last year, if you just compare the first 2 months?

Slightly.

Then I also had a question regarding this industry data that you presented, which we are, of course, very thankful for. But I mean, you keep your 15%-plus organic growth target and still the market forecasts up to 2030, according to what you presented, is only 8.5%. Could you care to elaborate a little bit on what will make you able to grow almost twice as fast as the overall market for this period?

Yes, it's mainly driven by the fact -- I mean, if you look at the total market here, this includes both livestock and companion animal markets. It includes certain segments that are large and you could say commoditized. And there are other market segments that are higher growth, and we are more exposed -- we are exposed to segments that are higher growth of this market. So it's just that we select segments that -- where we see a lot of white space, and we see a lot of potential to drive penetration and above-market growth. But of course, there's a huge mix in that EUR 56 billion and some segments are high growth. Some others are lower growth. So that's the primary one. And then, of course, within the markets we are, we are typically gaining market share. Be it in -- so in our Specialty Pharma, be it in Orthopedics, our 2 largest ones. We are gaining market share. In Veterinary Services, we're also gaining market share and actually in Diagnostics as well. So it's a combination of high-growth segments and market share gain.

So if you just would make an estimate based on this market forecast and particularly look at the markets where you are active in, how much would you say that that market is growing if the total market, including the low-growth areas, is growing 8.5%.

It's a wild guess because there's no data. There's -- these segments have very little market data to [indiscernible]. So my guess is that we're going to -- we will grow maybe 2%, 3% faster than the segments that we're in. Call it, 10%, 12%, depending on the region.

It was really -- the question was really about -- I mean, if 8.5% is for the total market, including both high and low growth areas, I mean, if you are more exposed to the high-growth areas, if you have a feeling for how much the expected market growth in those high-growth markets are?

Yes.

Because that should be higher than the 8.5%?

Exactly. But it's -- I don't have the exact number because we are in -- we're exposed to many geographies that have very different growth profiles. As we mentioned today, North America is growing fast right now, Southern Europe, not so fast. We see growth -- we see strong growth in APAC. We see strong growth in Australia and New Zealand. And within those regions, you have different segments that have different growth profiles as well. So it's a bit hard to tell you the exact number or the exact mix. And that mix changes as we take on -- as we make M&A investments to go into a new region, that number changes again, right.

Then the last question is, I mean, you talked about being cost conscious and scaling down a little bit on the production footprint in Diagnostics and reduce SG&A. And I mean, maybe you could elaborate a little bit more here because you're saying that you're going to be cost conscious and make steps to improve margins. But you actually only mentioned Diagnostics, which is really the smallest part. If you could just elaborate a little bit more on cost containment and cost saving programs going forward.

Sure. Carl-Johan, do you want to talk about that?

Yes. I think Diagnostics the first comment before, it's more, I would say, one clear example of activities that we're doing to make sure that we are the rightsizing our cost structure and being cost conscious. But rightfully so, as you comment, that's in 1 of our 4 segments. And we are making sure that we are -- I think from that perspective, you say I would comment sort of 2 areas because we are a strong focus for us is to make sure that we expand our margins. And expanding our margins is twofold. One is to make sure that we continue to extract revenue synergies within our segments and between our segments. Secondly, of course, as you say, is to make sure that we are conscious of cost risk and that we sort of put costs in the right places -- for now 2022, as I commented before, in 2022, we did make some selective investments. A few of those examples, as Fredrik mentioned as well, take Brazil for Veterinary Services is one example where we did invest into the market, and we've been successful start of entering Brazil and as it continues to be a good growth for us. But yes, it was sort of initial investment turn to Brazil. We don't foresee any other sort of large investments that we have now. We will continue to drive the investments or focus areas that we've already embarked on to continue to drive growth and limit our investments. And then just as for revenues, we will continue to extract synergies within segments and between segments from sort of an operating activity perspective as well. So one complete example in that area, in my own sort of high jump from a finance perspective, where we do start to see that, yes, we can start to sort of combine and consolidate finance activities also across -- within segments and across segments to drive operational efficiency and sort of cost control. And those areas we have in many other functions and many other activities across the group.

The next question comes from Blanka Porkolab from Barclays.

Blanka Porkolab from Barclays. I have a couple of questions, please. The first one is, could you help us understand the rationale for the equity raise and why you have chosen to change the financing of the acquisition, is leverage of a particular concern? And my second question is, how should we be thinking about the growth from M&A this year, given you mentioned a focus on driving organic growth and being more selective on M&A?

Just in line with the others, very relevant questions. Just to cap your first question correctly, that was related to now Bova, Australia and the acquisition we announced -- or the closing of the acquisition we announced this morning.

Yes, that's correct.

Yes. I would say we are always sort of making sure that we structure sort of find the right structures for the acquisitions we make and also looking at how sort of what proceeds we use to ensure that we use the financing options that we have, what we think is the best way. Secondly, as Fredrik commented, Nick Bova is sort of a very strong entrepreneur with a very strong business that's excited to be part of Vimian and that we are excited to have him being part of Vimian as well. And this is also an opportunity for us, together with Nick to further align our interests going forward with Nick becoming a relevant shareholder in Vimian.

And the second question was around M&A prospects. So we have a few smaller targets that will come in, and we have also a number of -- we have a pipeline of very interesting targets that we're looking at. But we're still seeing valuations that we find a bit too steep in the private segment. And so we want to make sure that we enter deals at attractive valuations. So essentially, we're going to execute deals when we find them attractive enough from a valuation point of view. But the pipeline is there, and there's actually quite a lot of attractive targets in there.

The next question comes from Kristofer Liljeberg from Carnegie.

I have 3 more questions, if that's okay. First, coming back to this Annual Order Program. I wonder a little bit if this strong momentum is driven by new customers or existing customers want to buy on this program instead. So the question is, if you expect a larger share of the full year MedTech sales coming from the Annual Order Program than you saw in 2022, i.e., if the strong start of the year will have a lot of negative impact on growth in the second and third quarter than you had last year. That's my first follow-up question.

I would expect it to have a slightly larger impact, a negative impact on Q2, Q3, Q4, mainly because we added a number of companies to the group during '22. And those products are also part -- they were not part of the AOP program in 2022, but they are now part of the program in '23. So that does have an impact. I guess that sounds -- yes, that should answer the question intention.

So when you talked then about high single-digit growth in the start of the year, would you say -- would you still say that's a good guesstimate for what the full year could be growing because even if you would have a negative impact from the Annual Order Program, rest of the year, you would also have an easier comparison for Diagnostics, for example.

Yes. No, yes, I expect to see high single-digit growth for the year.

And also a question on the growth here in Q1. How much of the better growth is coming from just price increases or price increases are higher now than they were in Q4.

I would have to get back to you on that one, exactly the price mix -- price volume mix of growth.

Maybe I could phrase it differently. So the price increases you have done, have they been gradual? Or have you had a large price increase at the start of the first quarter 2023?

I can answer that sort of briefly, and that's why I think that sort of the price increases are -- it depends on segment and then it depends on market. So one answer for the entire group. So depending a little bit on the price increases that we did last year and what we think is sort of in the best way to depending on product area, depending on the [indiscernible] area, how we drive that price increase, you could say for the sort of first part of the year, the price increases, if you go from a group perspective, they will be gradual. So there will be sort of some positive effects from price increases gradually throughout the first couple of months in 2023. But I think back to the comment on sort of the start of the year, and we have seen a good underlying trend in [indiscernible] in the business as well. If we would do like-for-like comparison.

But the short answer is, it's been a gradual price increase. In the MedTech business, we did 2 price increases during last year. In Specialty Pharma, we had a price increase that came into effect in parts of the business now in February. So the short answer is it's been a gradual price increase. We've done several of them during the last 12 months.

And then my final one on the patent dispute. I think you commented on this, but I didn't fully understood. So what's the early stage that you could be forced to pay the damages? And what do you think would be the lag before you then will get compensation from the VOI sellers.

So -- sorry, just to get to -- what is the earliest we would have to pay and what…

Yes. So, is this something you think will impact your cash flow maybe in 2023?

That will be a question for you, Carl-Johan.

Yes. No, and also a good question. I think it's sort of -- we don't want to speculate on sort of the future potential outcomes. What we do know, and as we said, we have a jury verdict now and now we're waiting for the final judgment. -- that we expect to happen sometime during 2023. And once we know the final judgment, then we'll see what sort of consequences will be of that judgment. But I think it's too early to speculate on what the outcome will be and the potential scenarios given the final judgment.

I would add to that, that we feel -- so we are preparing an appeal. We feel like we have a strong base for an appeal for 3 main reasons. One, the -- our view is that the patent should never have been granted because of lack of inventory step. 2, price are not infringing. And 3, the damage calculation is unheard of in terms of anything we've seen in the U.S. So -- that's why we feel strongly about an appeal that we are preparing. And yes, I think we have to wait and see, yes.

The next question comes from Peter Verdult from Citi.

Peter Verdult from Citi. Just 2 questions, Freddie. Just building on your comments on the M&A environment. Just with leverage now at 3x EBITDA, if the opportunities do come up, the appetite to take on more leverage versus equity funding would like to explore that topic with you in terms of the balance sheet structure? And then secondly, just high level, at the time of the IPO, I think the aim was to get a 30% plus EBITDA margin at every division. And when I look at the developments of Spec Pharma and Movora, that's fine, but it just feels that, that looks increasingly unlikely in the Kahuvet and VetFamily. So I'm not asking you for midterm guidance per se, but just pushback if I'm wrong, but should we really be scaling back significantly our long-term expectations for profitability in the Kahuvet and VetFamily?

Yes. So when we model our business for the coming 5 years with the current business mix, we expect that to take longer than we did at IPO simply because the business mix has changed, right? I mean, GlobalOne came in. We have invested in clinics, and we do look at absolute increase of EBITDA and return capital deployed more than on pure margin as a percentage. So due to that business mix change, we expect that margin target to come later than we had planned for in 2021 at IPO. That doesn't make GlobalOne a bad investment. I think it's a fantastic investment, and that EBITDA is growing very, very quickly. And also our clinics that have a slightly lower margin, they are performing well. The investment we're making in VetFamily, I see that we're going to get operational leverage from vet because we will drive operational leverage to cross-selling within VetFamily, but also with the other verticals as we bring on all our products to the Heiland platform, for instance. We're actually starting now also to leverage VetFamily as a sales force for Indical, a new rapid test in companion animals and the new AI-based diagnostic platform that we're launching. So I think those investments are very sensible to do, strengthening the group. But if you're just looking at the target of 35%, I expect it to take longer for us to get to 35%.

On the leverage.

On the leverage, I think that's a difficult question to answer because it really depends on the situation. I mean, I think we have to look at each situation individually and see what makes most sense. It has -- interest rate development has an impact there's many, many factors that play a role here, and we look at each situation independently. What I can say is that organically expect the leverage to go down and also actually the Bova deal now will bring the leverage down even directly, even further. So yes, that's what I can say at this point.

[Operator Instructions]

All right. So if there are no more questions, thank you so much for participating in the call today and for all very relevant questions, we wish you all a very nice day, and speak to you soon.