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

Welcome to Vimian Group Q4 Report 2023. [Operator Instructions] Now, I will hand the conference over to CEO, Patrik Eriksson. Please go ahead.

Good morning, and thank you very much for joining us today. Welcome to Vimian's Q4 and year-end earnings call. I'm Patrik Eriksson, and I joined Vimian as the CEO in January. With me here today is our CFO, Carl-Johan Zetterberg, who will present the quarterly results; and Guy Spörri, our CEO of Movora, who will give you an update on our MedTech segment. I've been with Vimian now for a few weeks, spending most of my time getting to know the business thoroughly, visiting our different sites and our customers, the veterinary clinics. I've met a committed and highly dedicated team. I think we have a strong product portfolio of well-known brands with attractive exposure to high growth market niches and strong relationships with the veterinary community, including several key opinion leaders. I've spent the past 20 years of my career leading global MedTech businesses with up to EUR 1.5 billion in revenue. For almost a decade, I worked for Danaher, a New York stock-listed company, which has very many similarities with Vimian as a decentralized fast growing group of life sciences businesses. I'm very excited to join Vimian and take part of this journey, which I believe can create tremendous value for animals, our people and our shareholders. I will hand over to call Carl-Johan to present the fourth quarter results and to give a deep dive on our MedTech segment. At the end of the presentation, I will give some initial reflections from my side. Now, over to you, Carl-Johan.

Thank you very much, Patrik. We deliver a solid fourth quarter with continued good growth and improved profitability. Let's focus on efficiency and improving processes deliver results. Our efforts also support further improvement in cash flow from operating activities and reduced net working capital. We continue to pay down debt by another EUR 18.5 million, reducing leverage to 2.9x at the end of the quarter. Let us take a deeper look into the numbers. Organic growth was 7% in the quarter, with a revenue of EUR 82.5 million. This is driven by continued double-digit growth in Specialty Pharma and strong 22% growth in Veterinary Services. Diagnostics had a tough quarter with lower levels of disease outbreaks and testing. The quarter was also slower in MedTech, held back by the U.S. market. Full year growth at 10% better reflects the development of our MedTech business given its seasonality. Acquisitions contributed 5% to revenue growth, partly offset by 3% negative FX impact. The strong adjusted EBITDA margin of 27.5% includes the full year impact of EUR 2 million higher R&D capitalization in Specialty Pharma, as we work to improve and streamline financial processes in acquired entities. On a like-for-like basis, excluding the capitalization effect, the Q4 margin is 25.0%, an improvement compared both to Q3 fiscal this year and Q4 2022. For 2023, despite the challenging macroeconomic environment, we are pleased to deliver 11% organic growth ahead of the animal health market and 26.3% adjusted EBITDA margin, an improvement compared to the previous year. Let us take a short deep dive on our 4 different segments, and start with Specialty Pharma. In Specialty Pharma, we reported 10% organic growth in the quarter, with double-digit growth in specialized nutrition, dermatology, and our European allergy business. We deliver 46% growth in adjusted EBITDA and margin increase to 35.5%. This includes the full year impact of higher levels of R&D capitalization of EUR 2 million. On a like-for-like basis, excluding the capitalization effect, the Q4 margin is 29.8%, which is an improvement sequentially compared to the third quarter and year-over-year compared to the fourth quarter of 2022. We completed 1 bolt-on acquisition, acquiring a dermatology portfolio to strengthen and complement our U.S. offering. Overall, the positive momentum in Specialty Pharma continues with double-digit growth and improving profitability as efficiency measures start to deliver. For the full year, organic growth was 14% and margin 28.6%. In MedTech, we deliver higher absolute sales and adjusted EBITDA compared to the third quarter this year. But the year-over-year growth is impacted by slightly softer trading in the U.S. In Europe, we see continued high single-digit organic growth and strong accelerations in APAC with double-digit growth in the quarter. Full year organic growth of 10%, ahead of the veterinary orthopedics market, eliminates the seasonality effects of the annual ordering program and better reflects underlying performance in the segment. The fourth quarter margin recovers from the third quarter low, but it's below last year's level due to lower sales and investments in organization. Margin for the full year was stable at 30.3%. Following co-CEO Colleen Flesher's departure in December, we have successfully merged the European, APAC, and U.S. organizations under the lead of one Movora CEO, Guy Spörri. In Veterinary Services, the strong performance continued in the quarter with 22% organic growth and significant uplift in profitability. This is driven by a high growth in new members and conversion to higher membership tiers, as well as attractive partner agreements and a Broad service offering. Our co-owned clinics delivers a strong quarter with 8% revenue growth ahead of the market and margin improvement. For the full year, Veterinary Services delivered a revenue growth of 47% and adjusted EBITDA growth of 76% improving the margin with 4.3 percentage points. Diagnostics had a tough quarter with lower levels of disease outbreaks in key regions, primarily DACH. As previously communicated, the overall livestock market remains under pressure going into 2024, but we remain confident in a long-term structural growth drivers in Diagnostics. Looking at the full year, excluding impact of COVID phase-out, Diagnostics delivered 9% organic growth. The margin declined slightly in the fourth quarter, as lower sales offset the benefit of the cost program. Despite this, margin is relatively robust compared to livestock peers who report mid- to high single-digit margins. The recently launched OvaCyte platform, the AI powered parasitology platform is developing as per plan with good ramp up in installations and usage in the equine and large animal segment during the quarter. We're quite excited about this launch and received lots of positive feedback from the veterinary community. Now in 2024, we plan to launch the companion animal solution. We continued to progress on our ESG agenda, and in the fourth quarter, completed a double materiality analysis as part of ensuring readiness for the new EU Directive CSRD. We are strengthening supply control and have now centralized access to all supplier data for improved control, trained all employees in purchasing positions, and established processes to screen our most material suppliers. And back to the numbers for the fourth quarter, giving you some further details. We report EBIT of EUR 2.7 million, which is down from EUR 11.4 million last year. The reported EBIT is impacted by EUR 8 million reduction in the valuation of the non-current receivable related to the U.S. patent litigation, as we have agreed with our auditors to take a conservative accounting approach. Adjusted for this, reported EBIT is EUR 10.7 million. EBIT includes items affecting comparability of EUR 14.3 million. This is mainly in MedTech, with costs related to the U.S. litigation, including the valuation adjustment, and other non-recurring costs relating to M&A in Specialty Pharma and the Group CEO change. Net financial items of EUR 9.1 million consist of 3 parts. Financing costs of minus EUR 6.5 million, with an average interest rate for the quarter of 6.7%. On contingent considerations, we have a net impact of minus EUR 0.6 million. And finally, a negative FX impact of minus EUR 2.2 million. Positive tax for the quarter of EUR 0.1 million reflects the reversal of previously accrued taxes and the utilization of group contribution rights between Swedish entities. Net debt amounted to EUR 285.6 million with leverage at 2.9x, which is down from 3.0x at the end of the third quarter. Cash flow from operating activities sees sequential improvement reaching EUR 17.2 million in the quarter. Our efforts to improve working capital have started to deliver results with net working capital at the end of the year of EUR 71.1 million. This is driven by lower inventory in MedTech and accounts receivable as annual ordering program customers pay their final installments. We're happy to see improving trends through the year and continue our efforts to drive cash flow and reduce net working capital going forward. To conclude, we close 2023 with 18% revenue growth, reaching EUR 331.7 million, and 19% growth in adjusted EBITDA to EUR 87.3 million. In an uncertain and challenging year, we stayed close to our customers and delivered strong organic growth of 11% ahead of the animal health market. The adjusted EBITDA margin improves as we progress efficiency measures and improve processes across the group. Excluding the litigation payment, cash flow from operating activities reached EUR 37.1 million. On current trading, we see high single-digit growth for the group in January. Continued strong growth in Specialty Pharma and Veterinary Services. Remember that, we ran an extended annual ordering program last year. This year, we will return to normal program, smaller than last year. This will balance the growth and margin profile for the year, but as a consequence we expect no year-over-year growth in the first quarter for MedTech. Trends seen in Diagnostics in the fourth quarter has continued into 2024, and we will continue our positive focus on efficiency measures and cash conversion. Now, I would like to hand over to Guy for an update on MedTech.

Thank you, Carl-Johan. Before starting the presentation, I would like to introduce Movora's mission as it describes in a quick way our purpose and what we do every day. Our mission is to support our customers, the veterinary community, with industry-leading solutions, education, and best-in-class service so that they can deliver the best outcomes for their patients. So over the past 3 years, Movora has built a global market leader in veterinary orthopedics through both organic initiatives and strategic M&A, more to that on the next slide. Since the IPO in 2021, we have outperformed the veterinary orthopedic market on a number of dimensions and established a new brand, Movora, with strong reputation in the market. We doubled the size of our business and delivered 15% organic growth CAGR ahead of the market. We have strengthened the product portfolio through strategic acquisitions and entered organically into new categories like Imaging with the VetClarity brand. We are convinced that our direct approach in core markets is key as it gives us the direct connection to our customers without distributors in the middle. To achieve this, we have acquired distributors in core markets and entered new growth markets organically, such as Japan, where we today have a strong sales team serving our customers locally. We have put a lot of focus on integrating our acquisitions by building the one Movora organization with clear roles and responsibilities for our 230 employees to achieve strategic alignment and scale effect. We have rolled out the full portfolio in all key geographies and leveraged education facilities across all brands. In addition, we have consolidated in the U.S. 4 warehouses into 1 central warehouse and in Europe from 2 to 1 warehouse. Today, we are one of top 2 global orthopedic players, with a strong brand recognition. Going forward, and our ambition is to be the clear #1 player in all key markets. We maintain an entrepreneurial mindset and a customer-centric approach that allows for local decision-making. Movora has the broadest orthopedic product range in the veterinary industry, including more than 20,000 SKUs. Our offering covers all key orthopedic areas from knee or stifle solutions, which accounts for 39% of the business, to a full portfolio to handle all type of fractures and several total joint replacement solutions, as for example, total hip replacement, which are the most advanced orthopedic implants you can find in the market today, as well as with the best track record -- record for patient outcomes. In addition, we are offering several key surgical products like Instrumentation, Power Tools, Imaging devices, Sutures and Pins to simplify the life of an orthopedic surgeon. Today, Movora owns more than 65 patents, of which half were developed in the last 6 years. We have a strong innovation pipeline, including a 3D printing manufacturing facility using the latest techniques to produce tailor-made implants for individual patients. Movora has a global reach with a strong focus on our local presence in key markets. We serve roughly 4,000 customers in more than 50 countries with 14 offices to ensure local language, fast delivery and a high level of customer support. We go direct wherever it's possible and we sell our products to veterinary clinics, universities and large hospitals. We have 4 Movora education centers, where we offer customers post-university education. And over 60% of our business is in the U.S. and Canada, 22% in EMEA and 15% in APAC. We see significant potential to continue to deliver above-market growth. There are 3 key drivers. There is a growing willingness to pay driven by the humanization of pets and increase in pet insurance levels. Pet owners are increasingly aware of treatment options. And there is an increased knowledge among veterinarians through post-university education. And most importantly, there is significant unmet medical need in our space. For example, cruciate ligament disease or the anterior cruciate ligament in human knees is one of the most common diseases among dogs. It is underdiagnosed, underthreated, and only 1 in 3 dogs in need of a cruciate ligament surgery get 1. Only 1 in 100 dogs in need of a total hip replacement get 1. Today, patients which are diagnosed are mainly treated with painkillers as a short-term solution. Dogs will continue to limp, whereas a total hip replacement will take the dog back to normal walking, running, jumping, and they can enjoy their life. Total elbow and total knee replacement are barely available in the market, and there are even more untreated pets suffering. So overall, we see a significant upside potential in current treatment rates. Training and education is key to drive total market growth, to improve quality of care, and to generate sales. The best products are only as good and effective as the hands of the surgeon who puts them in. Today, there is a shortage of veterinary surgeons. By providing specialist education, we can teach more veterinarians, to outperform the more advanced surgeries and unlock the wide space. Our training sessions are also an instrumental part of the sales process. We host more than 100 in-person workshops every year, which range from simple fracture repair to complex joint replacement. We have 4 fully equipped training facilities and collaborate with several education institutions globally. In addition to the in-person trainings, we offer a full range of digital training modules on our Movora online learning platform. And in total, we train roughly between 1,500 to 2,000 veterinarians every year. Our Movora growth strategy is centered around 4 pillars. The first 3 pillars focus on our current orthopedic business. Firstly, we want to provide products and services that meet or exceed the highest industry standards in terms of quality, sustainability and technology. We strive to be the leading innovator of new products and services to push the standard of care forward. Secondly, we drive education to untapped wide space as elaborated before. And thirdly, we strive for local presence to support our customers where they are. We are service minded. We go the extra mile and we are easy to deal with. And the fourth pillar is all about our next chapter. We are actively exploring to enter new areas of MedTech organically or through M&A, like for example imaging that we started to build up in 2021. We have identified several other areas of interest, where we see unmet medical needs, where we are convinced that we can replicate our success model from orthopedics. So to round up, we have closed a solid year delivering above market growth and capturing market share globally. Looking ahead, our journey just started. We remain very focused on reaching full potential in orthopedics, whilst in parallel looking into other areas of MedTechs to over time, become the global leader in veterinary MedTech. Thank you, and over to you, Patrik.

Thank you very much, Guy. Vimian has a strong platform for profitable growth, and I'm very excited about the value potential I see in the company. In my conversations with the Board, they've been very clear that the overall strategy remains unchanged. We will continue to build strong global market positions in niches of the animal health market with unmet medical needs. We will do this both through organic and inorganic growth. I spent the majority of my career in decentralized organizations, and I'm a strong believer in the model with a high degree of freedom and clear accountability in each operating unit. I also see potential to further optimize the business by focusing on key levers for value creation and ensuring that we have the right processes to drive organic growth, profitability, and cash flow. This will be a key priority for me going forward. At the same time, acquisitions with a clear strategic fit remain a key value driver for Vimian. And we need to be active in the market to strike the right opportunities at the right price. The team has spent significant time in the past year to consolidate and integrate acquired businesses. And I believe that we are ready to execute on a selected number of acquisitions during 2024. We continue to work on our pipeline and I see potential for some discussions to pick up momentum in the first half of this year. With that, we can open-up for the Q&A. So over to you, Andreas.

[Operator Instructions] The next question comes from Blanka Porkolab from Barclays.

I have 2 questions, please. The first one is for Patrik. What to your mind is the key strength of Vimian, and what is the strategy to further improving performance across the group in the coming year? And then my second question is, could you give some color around how we should think about phasing of growth in the year and when you expect Diagnostics to turn around?

Those are good questions. I'm going to answer the first one and I'm going to defer the second one to Carl-Johan. Vimian is a group of fantastic brands that we're now driving synergies within each of our segments and also across the segments. So continuing to build those strengths of the brands is the key to value creation. The other key is that, this is a group of almost 50 acquisitions altogether, and building robust standard work and processes to drive organic growth, profitability and cash flow generation is going to be a great key value driver for us as well.

Okay. Thank you, Patrik. And Blanka good questions that Patrik said. On your second question, thinking about phasing and growth for the year and also specifically on our Diagnostic segment. Maybe to start with Diagnostic segment, as you said, we've seen that the Diagnostic segment have been challenging in 2023, and we see that the overall livestock market remains under pressure going into 2024, but we remain confident in the long-term structural growth drivers in the Diagnostic segment. In terms of phasing of sales, as I said, we are in attractive niches of animal health, where we see that we can grow ahead of the animal health market that we expect to grow between 5% to 7% in general. The key change, maybe from a phasing perspective, will be in the MedTech segment. whereas communicated in the call, we are running what we call more normal AOP program this year, which will be smaller compared to 2023. But not compared to 2022. While we will see a more phased growth throughout the year in the MedTech segment, where Q1 is likely to be flattish compared to the first quarter of 2023.

The next question comes from Kavya Deshpande from UBS.

This is Kavya from UBS. I've got 2, please. So first, it's just on the M&A front. You have a compelling organic growth profile. Given where interest rates are, is it reasonable to assume any further M&A this year will be bolt-on to still allow the balance sheet to be kept strong? And then the second one is just on vet visit growth, because there's been a lot of talk about this, and it seems that your peers are saying it's normalized now after having been rebased by the pandemic. Just wanted to check whether you're seeing something similar, and if so, what sort of growth are you expecting for vet visits this year broadly?

Just so I understand your second question, you mean on the veterinary businesses in general and what we think about the market outlook and growth going forward?

Yes, absolutely, yes.

Okay, good, thank you. Just wanted to clarify. So to start with on M&A, and also a relevant question. Acquisition is one of several avenues we have and we work with to execute on our strategy. We have an interesting funnel with good strategic and financially healthy companies. And we see potential for some processes to pick up momentum during this year. It's of course very difficult to know exactly if and when those acquisitions will materialize, but as said, we have an interesting funnel and we see potential for some of the discussions to pick up. Historically, we have primarily financed acquisitions through our own cash flow and debt financing. If the right acquisition opportunity will surface, we'll of course determine the right financing solution case-by-case but we'll continue to work to improve cash flow and to create financing room for acquisitions and we also have a strong support from our majority shareholders in our strategy. On the market growth and second question relevant. And as you said, yes, we did see a spike in growth throughout the pandemic in the animal health space. But I would say, the animal health market has shown great resilience, if we look historically and grown year-over-year, essentially every year for a very long period of time. And we see growth continuing in the animal health space, where our expectation for 2024 is similar to 2023 of around 5% to 7% as the macro-economical outlook is still a little bit uncertain, just as we saw in 2023. That's why we're very happy that we delivered. 11% organic growth for the full year of 2023, despite mid single-digit market growth and uncertain macro-economical environment.

The next question comes from Rickard Anderkrans from Handelsbanken.

Thank you for the update on the Movora business as well. Much appreciated. So I have a few questions, starting with the softer current trading dynamic in the U.S. It seems that, there's some market data pointing to actually around 2% decline in the surgical hospital purchasing development in January in the U.S. Does that sound reasonable? And could you add some commentary around this software development? Is it a sort of macroeconomic thing in your view? Or if you could add some commentary on your expectations for the underlying development in the MedTech market?

Good. Thank you for the question. And I think the market, and as I said by Carl-Johan before, in the U.S resilient, but not unaffected by the macroeconomic environment. Looking at the market data for the U.S. veterinary market, I think clinic revenue has in quarter 4, like has continued to show solid growth. And we think like that is driven by -- price increases and higher growth of more advanced treatments, while the number of clinic visits have flat or declining. And I think that's a trend maybe going forward now in 2024. But for the veterinary market -- veterinary orthopedic market, we estimate like the U.S., grew like as well, like mid-single digits during 2023, which is a slowdown compared to previous 2 years. But U.S. inflation also comes down towards the end of the year. So we believe we can be positive for the market sentiment going into 2024. And yes, I think I'm positive about 2024. Our mission and ambition is to grow our business and to be clear #1 player in the veterinary orthopedic market. So I hope that answers your question.

All right. That's helpful. Just a question on a little bit of the full year dynamics for '24. So what are your anticipations in terms of price increases versus '23 and are you committed to delivering adjusted EBITDA margin improvement in year-over-year in full year 2024?

As you say, looking at full year and price increases, one I would say, looking at 2023, we have a strong market position where we've seen that we have the opportunity to pass on price increases that we see in our business to our customers. And that's why we could see in 2023 and as we commented in previous quarters that we've sort of maintained or improved our gross margin throughout the year. Going into 2024, we sort of continue to have a balanced view on price increases. We are looking into low, mid single-digit price increases across the business for 2024. And on your comment on, are we committed to delivering EBITDA and margin improvement for the year. As we said, our ambition is to continue to grow ahead of the animal health market and to continue and have the ambition to deliver margin improvement and margin expansion throughout the year and going forward.

That's very clear. And just a quick follow-up as well if I could on the previous question on the M&A funnel and what you're thinking about so. Are you looking at some larger deals or is it mainly bolt-ons? And it sounded like if you're sort of initiating conversations here in H1, maybe we should expect deal volume to come through in the second half of the year in terms of timing. So that would be super helpful to add some commentary around that please.

Yes. No, and as I said, we have a funnel of interesting potential acquisitions with, I think, good companies strategically, where the strategic rationale makes sense, and financially healthy and operationally strong companies. And we do see potential for some processes to pick up momentum throughout this year. It's difficult to speculate exactly timing on specific discussions and when they materialize, so that's difficult to give you a good color on if and when certain acquisitions could happen. But as I said, we have an interesting funnel and we do see potential for some of the processes to pick up.

All right. I just didn't get fully clarity on the size and sort of the magnitude. I mean, you're close to your 3x leverage target. So just that's why I'm asking in terms of the size of the deals you're looking to close this year potentially?

Yes. We have a mixed pipeline in the funnel. So we have both sort of interesting smaller acquisitions and also maybe interesting more strategic larger potential acquisitions in the pipeline. And again, it's difficult to say, which of these acquisitions will materialize, if and when that they will materialize throughout the year. But as I said, the pipeline, it's a mixed bag.

The next question comes from Peter Verdult from Citi.

It's Pete here from Citi. 3 quick questions, please. Forgive me, I'm a biopharma analyst, so I'm always used to seeing R&D getting expensed through the P&L. So can you just explain why you're capitalizing R&D in Spec Pharma? And just so we understand fully, what was the magnitude of capitalized R&D spend across the group in 2023? I think you called out EUR 2 million in Spec Pharma. I just want to make sure I got my numbers right and understand what's been capitalized and why you're doing that. Sorry for that sort of painful question. Secondly, just on the guidance for 2024, I think you're calling out high single-digit organic growth expectations. It doesn't sound like there's going to be a huge acquisition contribution. So just your level of comfort with where I think consensus has expectations for revenues to grow in the low to mid-teens on a reported basis. Just want to kick the tires and engage your level of comfort there? And then just, sorry, just to wang on about business development, I'm not going to ask you about the size and quantity of deals. I think that's a bit unfair. What I'm going to ask you is, in terms of potentially financing any deals, are you comfortable to go above 3x or should we be preparing ourselves for, or are you willing to use equity to finance anything that you think strategically meets your goals?

And let me try to answer each of your questions and help me out if there's anything that I missed in my answers, but relevant questions. So if we start with R&D and capitalization. One, we capitalize the costs throughout the group and as we acquire companies, we continue to ensure we improve financial processes and other processes, bringing them into how we treat financing, I'm sorry, how we treat financing, I'm sorry, how we treat financial processes across the group. So what we've done in the quarter is just making sure that one through good area within Specialty Pharma have gone into the same processes as we have within the rest of the group. And as said, the effect in the fourth quarter and for the full year is EUR 2 million. For total R&D expense for the year, that's roughly EUR 9 million, total R&D for the year. So I think if that covers your sort of question on R&D. Then sort of growth for the year and a little bit on -- on consensus. As said, we expect the animal health market to grow mid single digit in a year. We are in -- our ambition is to outgrow the animal health market. We've seen trading in January starting good with strong growth continuing in Specialty Pharma and in Veterinary Services. In MedTech, we have -- we see good momentum, but having that said, and as we communicated, we will run more of a normal AOP program throughout this year, where we receive more balanced growth throughout the year, if we look compared to 2023. The livestock segment, we've seen the challenging sort of market conditions from 2023, continuing into 2024. Cover your sort of thoughts on 2024.

And then just lastly on the -- your willingness to use -- your willingness to use equity to finance any deals?

Yes. So historically, we have primarily financed acquisitions through own cash flow and debt financing. If the right acquisition opportunity surface, we'll of course determine the right financing solution case-by-case. But we'll continue to work to improve cash flow and to create financing room. We have good headroom to our incumbents and we do have strong support from our majority shareholders in our strategy.

The next question comes from Adela Dashian from Jefferies.

Just 1 follow-up from me on the AOP program and the decision to not run an extended version this year. Could you give us some more explanation as to why that decision has been made? Is it a reflection of not seeing enough demand or is it more of what you previously stated that you want the more balanced performance throughout the year?

So, maybe I go a step back and we do the AOP program because it's highly appreciated by the customers that they can really secure access to orthopedic implants for the full year. And by doing so, they can free up capacity for the clinic, staff, and really focus on more value-creating tasks than reordering stock from us all the time. It means for us that we can finish servicing our existing customers in the beginning of the year and then, liberate time for our sales people to go after new accounts for the reminder of the quarters. So, we like we had the extended program last year, was exceptional. We tried, we added more to that and we go now back to a more balanced approach that we can really like throughout the year that we have more balanced financial -- finance, that we see more balanced financials throughout the year. That's what I think is better for the business and better for us, and from a phasing point of view as well.

So would you say that, you were kind of testing the waters last year with a more accelerated approach or was it because you just saw an exceptionally high demand?

So, we have brought together several companies over the last couple of years and at the beginning just 1 company has had this kind of this AOP program, and we added more customers from the other brands. So we tested the water there. And right now, we, yes, as I said before, we balance it out throughout the year, and go back to a normal AOP program. Correct.

Okay. Great. Yes, that makes total sense. And then maybe, hopefully a last and final one on this M&A discussion. Could you provide us some more insight into in which segments you're seeing the most robust pipeline from here on out? Or is it a balanced mix there?

I would say to a large extent, yes, as you say, it's a balanced mix. But primarily, we are seeing interesting opportunities in Specialty Pharma, in MedTech, and within Veterinary Services.

The next question comes from Arvid Necander from Carnegie.

So first off on MedTech with the normal AOP program for 2024 and expectations for flattish growth in Q1, do you expect the distribution of full year sales through 2024 to broadly follow the trend in 2022, or could there be other factors such as stocking up effects ahead of price increases that might suggest this might not be the case? Could you give any additional input on how you expect sales to develop through the year in 2024?

Arvid, sort of relevant additional color to MedTech and sort of growth in that segment, what we expect for the year. And as we sort of discussed in the number of questions throughout the call, yes, we are seeing a more balanced growth throughout the year 2024 with a more normal AOP program in the first quarter. Why? Yes, we expect sales in the first quarter in the MedTech segment compared to the first quarter of 2023 to be more flattish, but then to see a balanced growth throughout the year. And as you say, it's more maybe a pattern that we've seen historically than taking 2023 off the table. And for orthopedics, just as Guy mentioned before, we see great potential continuing in the orthopedic segment. In many geographies in Q4, we continue to grow. As we said, Europe was high single-digit growth in the quarter. APAC, we saw an acceleration of growth with double-digit growth. And the U.S. market, although maybe slightly softer, but it did grow compared to the third quarter of 2023. So we see a positive development also in the U.S. orthopedics market in the fourth quarter.

Okay. And then on Diagnostics, could you give us a bit more insight into the market dynamics here? Do you believe you're losing market share or are you essentially growing in line with the market for your specific niches?

The Diagnostics market in general, and if we look at many of our peers and into the sort of overall market, we've seen that this market has been a challenging market due to several, especially macro-economical factors that impacted, and especially livestock Diagnostics significantly. If we look at our full year performance excluding the COVID phase-out with an organic growth of 9%, that's ahead of the Diagnostics livestock market where growth is more low single digit from looking at the market and peers.

Okay. And the last one from me then. I guess asking one of the previous questions in a slightly different way. With your investment in product development and Diagnostics, when do you expect to be able to launch the first products that could have a meaningful impact on sales?

In Diagnostics specifically?

Yes.

And as we've discussed before, and we talked a little bit about in the call as well, we have recently launched the OvaCyte platform, which is our AI-powered parasitology platform. And that's us moving into companion animal Diagnostics. This is a product that we see great potential in. It's a market-disrupted product, tapping into a market that's roughly EUR 500 million annually on a global basis. We just launched it into equine and large animal, and in 2024, we plan to launch a companion animal solution. Of course, we need to make sure that this product becomes a success and that we ramp-up sales, but we are extremely excited about the technology, the improvement this brings to veterinarians and to companion animals, and of course hope that this will generate good sales in the future.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Well, thank you very much for joining us today. It was very nice to meet you all. I look forward to this journey together. And that concludes our call today. Thank you very much. Have a lovely day.