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

Welcome to the Vimian Group Q4 Report 2024. [Operator Instructions] Now I will hand the conference over to the speakers: CEO, Patrik Eriksson; CFO, Carl-Johan Zetterberg Boudrie. Please go ahead.

Good morning. This is Patrik and thank you for joining us. We're going to jump straight into it and start with some of the highlights for the fourth quarter results that we just reported. We delivered an all-time high revenue for an individual quarter in the fourth quarter with strong organic growth and that is well ahead of the animal health market. Our cash flow from our operations were very strong as well in this quarter and it corresponds to a cash conversion ratio of 115%. We also increased our operating profit during the quarter. And we're very pleased to have incorporated and consolidated the animal dental business with iM3 starting on October 1 last year and they have made a great start and a good contribution to Vimian in the first months that they've been with us. So now turning to the quarter in more detail. We delivered 27% revenue growth, which led us to this record sales of EUR 104.9 million. We continue to see double-digit growth of 15% organically with exceptional performance from our Specialty Pharma unit. If we look at the adjusted EBITA, we grew 9% in the quarter compared to the fourth quarter in 2023, but remember that, that quarter in '23 benefited from the EUR 1.5 million capitalization of our R&D expenses that was related to quarters 1, 2 and 3 in 2023. If we exclude this onetime impact of the higher capitalization rate in Q4 '23, the adjusted year-over-year EBITA growth for us was 17%. If we look at the margin bridge here, as you can see, our margin came in at 23.4%. And we wanted to show this bridge here, the impact of the R&D capitalization is about half of this margin walk and we end up with a like-for-like margin for '23 at 25.6%. We had a onetime impact from Specialty Pharma where we wrote off a customer receivable, a onetime nature that will not be repeated that impacted us with 90 basis points. And then we have a margin decline in our MedTech business driven by 2 items. The first one is we decided to make investments in the fourth quarter to grow our market share in the orthopedic U.S. market to gain share there and that had a margin impact. And then secondly, we've incorporated now IM3. As you recall when we announced that, the margin profile of IM3 is a little bit lower than the fleet average of Vimian and when we combine it, we'll get this margin impact as well. The rest of our group had a slight margin improvement in accretion and that was predominantly driven by our Veterinary Services group. We now turn to Specialty Pharma. It had a simply exceptional organic growth of 22% in the quarter and it was primarily driven by very good growth across each of our different therapeutic areas, especially 3 out of the 4 were just stellar. The contribution that came from Specialty Pharmaceuticals and Specialised Nutrition was exceptional. And in our Specialised Nutrition, we ran a couple of sales campaigns in various states out in the U.S. for the first time that proved to be very successful. In 2024, about 1/3 of our growth was generated from our cross-selling initiatives and this number has been very stable throughout the year and we continue to see great benefits from the cross-selling programs. Our underlying margin development was stable year-over-year when we include the higher levels of capitalization as we'd highlight a little bit and the write-off of the customer AR. If we exclude these 2 and adjust for it, the EBITA for Specialty Pharma grew by 23%. Now turning to our MedTech business. If we look at the total revenue for MedTech, which would include our acquisition of iM3, we grew 41% in the fourth quarter. We will start to include iM3 in our organic growth number in the fourth quarter this year and we're there off to an amazing start as I mentioned to you previously. We reported 4% organic growth and we continue to see challenges in the U.S. high-end surgical market. Our EMEA and APAC region, which constitutes about 1/3 of our orthopedic business, reported slightly lower organic growth in the fourth quarter, but delivered high single-digit growth for the full year. We completed 52 in-person trainings throughout the quarter and we had 855 participants in those and had as many participants on top of that participating in various virtual trainings. And as we have mentioned earlier, we've taken some investments in the U.S. to gain market share and to drive growth in 2025 and these investments include intensified education programs, sales and marketing initiatives. We see an impact from the consolidation of iM3 on the margin for MedTech as well and we report an 18% adjusted EBITA growth for the segment in the fourth quarter. And as we talked about, about a year ago when we talked about our AOP program, the annual ordering program in the U.S., this quarter is the last quarter that we will continue to make reductions in the AOP program and we expect this to have a slight negative impact on the revenue for MedTech in Q1, but we fully expect to deliver full growth for the full year. We now turn to the Veterinary Services business. Again a very strong quarter with 16% organic growth. We reached 8,400 members here by the end of the year and continue to cement the position as the global leader in service platforms. The strong profitability that the team has shown here is driven first by the great growth that we see and also we've had opportunities for a very positive mix. This part of our business is now preparing for new market entry. So we're reinvesting some of our margins in 2025 into further growth in this segment and you should expect our margins to normalize in this business and be more like the first half of 2024 going forward than the second half that had exceptionally strong margins. If we turn to the adjusted EBITA growth for our Vet Services, it was a remarkable 35% in the quarter. Now turning to the Diagnostics business. We're very pleased to see that this part of our business have now returned to double-digit growth 12%. This is driven by some launches of new products innovation that we've had in the pipeline. The team have worked hard to turn the business around and we're pleased to see some of the fruits of that hard labor. We also want to note here that the livestock market continues to be unpredictable, but we're optimistic about this business and we think about Diagnostics as a growing business for 2025. Also before we leave this slide, just a quick comment to say that the commitment to diversifying this group into more companion animal continues and we have committed in 2025 to continue that investment in launching products of [ shareside nature ] point of care for the companion animal segment of Diagnostics as well. So you can expect us to have the same sort of margin profile that we have shown so far. So with that said, I want to thank you for your attention here. I'm going to hand the mic over to Carl-Johan, who will go through our financials in a little bit more detail. Carl-Johan, over to you.

Thank you very much, Patrik, and hello, everyone. And as Patrik said, let me give you some further comments and details on the financials for the fourth quarter. Adjusted EBITA in the fourth quarter was EUR 24.6 million, which corresponds to an increase of 9%. This represents a margin of 23.4% and, as outlined by Patrik in previous slides, the reduced year-over-year margin is driven by quarterly effects in Specialty Pharma and MedTech. We report an operating profit of EUR 12.5 million, a significant increase from last year's result of EUR 2.7 million. Items affecting comparability clearly continued to impact the quarter with a total of EUR 6.2 million. This is mainly costs relating to acquisition activities in MedTech and Specialty Pharma as well as continued high level of legal costs in the U.S. patent litigation. In the U.S. patent litigation, the main hearing in the process is happening now in February, which will drive high legal costs impacting items affecting comparability also in the first quarter. Net financial items was EUR 2.5 million and consists of 3 main components. First, finance expense of minus EUR 4.2 million with an average interest rate of 5.3% during the quarter, which was offset by EUR 0.6 million of interest income. The second element is the quarterly discounting impact of minus EUR 1.9 million and a positive impact of EUR 4.5 million from probability adjustments on contingent considerations, which in the quarter mainly relates to an adjustment for Bova Australia. And lastly, a positive impact of EUR 3.4 million from nonrealized FX effects on the evaluation of debt. The income tax expense for the quarter amounted to EUR 2.4 million at an effective tax rate of 16%. In total, this resulted in a net profit for the quarter of EUR 12.5 million with an earnings per share of EUR 0.02 for the quarter. Looking at the cash flow for the fourth quarter. Cash flow from operating activities reached EUR 24.4 million in the fourth quarter, an improved cash generation compared to the same period last year as well as previous quarters of this year. Net working capital amounted to EUR 100.1 million at the end of the quarter equal to 25% of revenue, an increase from EUR 80.8 million at the end of September, which equal 23% of revenue. The majority of the increased working capital is a consequence of the iM3 acquisition and the rest of the increase is mainly a result of lower accounts payables. Our efforts to reduce inventory in MedTech have continued to yield results with further reductions in the fourth quarter. Cash flow from investing activities of EUR 30.5 million primarily reflects timing effects from financing of the iM3 acquisition and litigation receivables as 2 of the sellers have fully paid their settlement. Cash flow from financing activities of minus EUR 29.8 million as we have continued to pay down debt in the quarter. At the end of the period, net debt amounted to EUR 221.9 million, which is an increase from EUR 140.3 million at the end of the third quarter due to the acquisition of iM3. External lending of EUR 215.9 million, which is approximately EUR 24 million less than at the end of the third quarter as we have continued to repay debt in the quarter. Leverage in the quarter equaled 2.0x compared to 1.3x at the end of the third quarter following the iM3 acquisition. With this financial review of the quarter, I would like to hand the word back to Patrik for concluding remarks before we open up for the Q&A session.

Thank you, Carl-Johan. Well, looking back in 2024; we delivered a 13% total growth, 9% organic growth and 9% adjusted EBITA growth despite a challenging market situation for the U.S. surgery market. Our cash flow was significantly higher this year. We delivered EUR 58.1 million in cash from operations and that corresponded to about 70% cash conversion for the full year. All in all, 2024 was an eventful year for us here at Vimian. We laid the foundation for our next phase of growth in the journey here. And I'm really pleased that we set new financial targets, we had a successful rights issue, we strengthened our balance sheet, we prepared ourselves for more accretive M&A and we made an entrance in the fast-growing market niche of veterinary dentals. So all in all, very positive finish of the year. And then maybe if we were to look at our priorities going forward. We remain positive of the overall health market and it continues to grow. The underlying growth trends with humanizations of pets, the aging pet population remains very strong. And there's millions and millions of untreated animals out around in the globe where we have an opportunity to treat them and that represents a long-term growth opportunity for us. We live in a world where there's geopolitical uncertainty and we continue to monitor those very carefully. We're an entrepreneurial company and an agile organization as you learn to know us and we're well equipped I believe to very quickly adapt to the new circumstances and adjust to it. So far with what we know, we see limited exposures to the various different geopolitical things that are being announced every day. Looking ahead, we will continue to drive strong organic growth. We'll work on our operational improvements really to create a fully scalable business. We'll deliver on our people agenda and we'll continue to execute on our M&A pipeline. In the near term, we are preparing and focusing on the uplift to the main market and we have a target and an ambition to be able to complete that at the end of this quarter. I'm excited about the year to come and I'm very pleased to conclude that we are well positioned to drive growth and profitable growth for 2025 and beyond. With that, I'd like to thank you for your attention so far. And operator, please open up for the Q&A section of the call. Thank you.

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

A couple from me. Can we just maybe start on the write-offs that you mentioned being temporary in nature? Can you give us some background on what led to that?

I guess you're referring to the accounts receivable write-down that we conducted in Specialty Pharma in the quarter.

Yes, the write-down, sorry, yes.

Yes. And that's related to one specific customer where there's no issue from a customer point of view. This is a healthy customer, but unfortunately, this relates to historic events where our sort of delivery and sales documentation wasn't up to standard for this customer and our processes were not in place and as a consequence, we couldn't fulfill the obligations from the customer's point of view and get paid for the amount that we sold. And as a consequence, we've taken a cautious approach and written down this total receivable of these products to this customer.

Okay. All right. On MedTech, you're mentioning that we should expect a continuation of similar patterns from leveling down the AOP system in Q1 this year as well. But you didn't say anything about expectations on orthopedics in 2025. And when I take the growth experienced in Q4 of 4% and couple that with maybe some additional headwinds from the AOP, I know you don't give us guidance, but how should we end up with positive growth for the full year? That would entail I'm assuming high single digits for MedTech for the remaining quarters?

Yes. So thank you for the question. In the first quarter we're going to do the last AOP adjustment and I would think about the first quarter as a slight decline in organic growth for MedTech in the implant part of that business. Although we do think for the full year, this is a growth business for sure and it will recover in the second, third and fourth quarter and come back to market plus rates in terms of growth.

And then if I can also ask on the investments that you've undergone to increase your market share within the orthopedics business. What's the rationale behind that? Were you seeing that you were losing market share or is it more taking advantage of a weak market and growing your market share versus what it has been previously?

We see a lot of white space, as we've talked about before, in this market and we wanted to run some tests if we could decouple our growth from the market growth. And the way that we did that in Q4 was to increase our level of investment in the marketing activities starting with significantly more training and education activities. As we reported, we trained [ 1,600 ] people in the fourth quarter alone in this part of our business. We coupled that and paired that with sales activities and incentive programs on that both for our customers and for our own team and then backed that up with very strong marketing. We had a higher presence and a more intense presence at trade shows in the fourth quarter and paired that with a lot more both online and offline marketing to support it. And all these 3 activities altogether had a margin impact in the fourth quarter. If you think about the margins in this business going forward, you think about them being better in Q1 than they were in Q4, but not quite as good as they were in Q1 last year. And that's how we're kind of modeling that going forward in the first quarter.

Got it. All right. I have a couple of more questions, but I'll just ask 1 final and then get back into the queue. On this legal settlement with the main hearing happening in February, do you expect deliberations to start right away or is this going to continue to be a prolonged process?

It's a very good question. We're continuing to follow kind of the pace of the legal system and the proceedings that are happening now should end up with a verdict in court and that is 1 way to conclude this. I think it's too early. First of all, it will take time before the verdict is done and being publicized. But it could mean that it's over at that point and we do hope so. I mean we have settled with 3 out of 4. We have 1 seller left and we hope to clear that as well. From a timing standpoint, this is always really hard and things take longer in the legal system in America than maybe in other places in the world. But I think about this as something that we'll have a resolution to before the end of this year and hopefully a lot sooner than that.

Okay. Great. And I mean without commenting on the legal process, I know that can be a sensitive subject, but it did seem here that you are equally as confident on resolving it with the positive outcome as you have been in the past. Correct?

Yes. Our case continues to be very strong. I think it's evidenced partly by 3 out of 4 have already settled at the full amount. 2 out of these 3 have paid us. The third one is paying on the agreement that we made with them on the payment plan. So there is 1 item left here and we're resolving that the way that the legal system empowers us to do and we continue to believe we have a very strong case here. That's unchanged.

The next question comes from Rickard Anderkrans from Handelsbanken.

Following up a bit on MedTech. Are you seeing any signals of improvement in the market heading into Q1 in the U.S.? And I also noticed that you called out that the rest of the world sort of decelerated growth here in Q4 to low single digits. Anything in particular we should be mindful of in rest of the world or should we expect sort of deceleration heading into '25 in that part? I just wanted to check those 2 things.

Yes. So maybe I can start with the market in the U.S. There was a positive signal coming out of one of the data sources that we track in December, but it's an index that covers only a month's worth of surgical procedures and we think the time period on which that's measured is too short to draw any conclusions from it. So we track this index. I mean for those of you who recall, that same index had a very positive signal in September and then it fell back on the following month. So although we like to see positive signs, there's too early to say that the market is turning. We don't see the market further deteriorating. We believe it's bottomed out, but it's too early in our opinion to call whether it's improving or not for the first quarter or not. We will get data. We monitor this very closely and we'll be knowing a lot more in a few months when we get a few more data points under our belt, but it's too early. I don't think it's going to get worse in the market. It might get better, but it's too early to say. Now maybe switching to your question about Europe and the rest of the world there. We don't draw the same conclusion. We think it's temporary there. It's a number of different mixed reasons why the total came in a little bit slower on growth. And remember, that area consolidated for the full year delivered high single-digit growth in the full year. So we think this is temporary. The reasons for different markets to be a little bit softer is different and they're easy to explain. So we think it's temporary, we think it's going to blow over and we don't see this as a systematic market issue at this point.

Okay. That's clear. And following up on MedTech looking at margins were down quite significantly year-over-year. Can you help us think about the MedTech margins for '25? A lot of moving parts here with the acquisition of iM3 and growth investments, et cetera. So any help we could get sort of piecing together the puzzle for the coming quarters and the year ahead would be helpful.

Yes, absolutely and to give you some more color. I think as Patrik said, there will be an impact if you just look short term in Q1 given the continued phaseout of AOP. Having that said, both for the first quarter and for the full year, we are expecting a more normalized margin development in, say, MedTech orthopedics. going forward. We've done the investments that we saw were needed in the fourth quarter. So from a MedTech perspective looking at orthopedics, we expect a more normalized margin pattern for 2025. Then as you pointed out, of course being mindful of the inclusion of iM3 in our numbers that have a lower margin than the fleet average. So there's a negative mix impact from consolidating iM3. On iM3, we're clearly sort of working to ensure that margins over time will improve for iM3 and for iM3 or MedTech dental alone, we will see a like-for-like margin improvement over time.

Okay. But what's the sort of normalized margin level for the non-iM3 MedTech business? I mean we have quite limited history, I guess.

So what we expect for this year and if we look at the full year, we expect margins to be on a similar level as we've seen in the last couple of years being mindful of course there have been seasonality in previous years in MedTech that we're phasing out. But if you look on the full year margin in the last 2 years, that's where we see a normalized margin for our MedTech orthopedic business.

Okay. That's clear. And then a final follow-up. So what was the -- could you quantify the organic growth and EBITA margin contribution from iM3 in Q4?

Sorry, Rickard, yes again, you said the...

Yes. So what was the organic growth and EBITA margin from iM3 in the quarter?

So organic growth from iM3, we have not sort of disclosed that number. iM3 have contributed with EUR 10.1 million of revenues in the fourth quarter.

The next question comes from Marco Pires-Cox from Barclays.

Just a couple of questions from me. Firstly, just following up on the MedTech business and the growth outside of the U.S. You mentioned softness in some markets there that were easy to explain. Could you maybe provide a bit more color on what was driving the softness here outside of the higher comparison base? And then secondly, if we look at the Diagnostics business, I think you said you expect this business to return to growth in 2025. Maybe if you could just provide some color on your level of comfort with margins in this business versus consensus and whether you think a low to mid-teens margin for 2025 is feasible? And then 1 final question, just on tariffs. My understanding is that you're not that exposed to tariff risk currently. But if you could provide some color on what parts of your business you have production within the U.S.? I believe this is only Specialty Pharma, but any clarification here, that would be great.

Okay. I'll start with the first question and I'll let Carl-Johan cover 2 and 3 I think. So your first question was about a little bit additional color on the European medtech market and it's a little bit different thing. So first of all, just to frame this up, MedTech is about 1/3 of our business and Europe, APAC is 1/3 of that. So 1/3 of 1/3, if my math is right, is about 10% of all of Vimian. And in there, we have obviously a lot of different countries so it's a big mess. I'll give you an example of a couple of things that we see in there. We have 1 country where we have very strong comps that was I think just provided a very high jump-off point for this year and their growth is, therefore, a little bit weaker. Their underlying growth rates are actually very good when you compensate for that onetime effect. We have another market that is their run rates are stable, but they're a little bit lower at a little bit lower clip. But they have performed the same way throughout the quarter. And then we have a couple of areas where we think it's order timings where some customers have probably optimized their cash flow and their order patterns and perhaps not placed those orders at the end of the year that they maybe did in prior years. So when you take that full picture, there's a lot of signals in here and they're very diverse in terms of how they sound and the reasons for them. So that's why we think this is temporary. When we received those similar signals in the second quarter in the U.S., all the signals said the same thing. Wherever we looked, whatever data points we poked at, they all said the same thing, it's the market. This is not what we're hearing and what we're seeing when we poked at this in MedTech today. And maybe I'll cover the revenue side of the Diagnostics question and then, Carl-Johan, maybe you can cover the 2 remaining questions. So we do see Diagnostics as a growth business this year. The livestock market is still volatile. We think we can compensate that with the innovation that we have recently launched and it's been well received and there is good legs and runway for those to perform well throughout 2025. And Carl-Johan, maybe you talk about the margins and the developments there.

Yes. So margin perspective for Diagnostics, and just as Patrik said, we expect Diagnostics to continue to grow as we go into 2025 just as we saw in the fourth quarter. That will have a positive impact from a margin perspective where we see the margin level for the full year of 2024 is a reasonable margin level for Diagnostics for 2025 as well as we continue to invest in our companion animal diversification in the Diagnostics business. And then on your last question around tariffs, of course very relevant question and there's a lot of uncertainty in the area at the moment and going forward. And we're of course monitoring this very closely and taking, you could say, precautionary steps in going through how we can work with our supply chain, our pricing, our suppliers to make sure that we mitigate any potential effects. As Patrik said earlier on, we see limited impact from the tariffs that's been sort of announced/discussed 2 last weeks. And predominantly, just as you pointed out, it's especially for Specialty Pharma where we see some potential impact from a short-term perspective as in one of the therapeutical areas we have a larger majority of the sales manufactured/produced in Mexico. But as said, we are taking a lot of precautionary steps to ensure that we diversify supply chain and work with our customers and work with our pricing to mitigate any potential effects from the tariffs.

The next question comes from Kavya Deshpande from UBS.

Two, please. And first is on Specialty Pharma. Would you be able to provide us with more background on the national sales campaign in the U.S., please? So which kind of customer segments are you targeting, by what channels and should we expect this to be an annual thing every Q4? And then my second question was around Diagnostics. What exactly were the new products that drove the inflection in growth there? Were they all livestock related or did this refer to the companion animal health side? And also just with regards to your investments there, would you be able to provide us with more detail on where exactly these are going to support the diversification of this business?

I'll do the first question here and I'll let Carl-Johan handle the second one. So in Specialty Pharma, we partnered with one of our largest retail partners in the U.S. and together with them formulated a program to get better shelf space exposure for our products and to create a campaign around those products. It's the first time we've ever done this in the company and it was one of the very successful trials together with this partner and it's turned out to be a huge success. And we've done that in a number of different states and this is a national retailer. We didn't even do it across all of America, but we tested it and tried it in a number of states. And we hope that we have an ability and an opportunity to do it soon again because we really like the results of it. But that drove significant top line growth in Specialty Pharma in that segment and for Specialty Pharma as a whole.

Yes. And then on Diagnostics, say a little bit on the innovation, what drove good traction in Q4 and also the investments in diversification. So if we start with the first element and the new product introductions, that's relating to innovations that we've done in especially the livestock segment that we've taken to market in our solutions for the livestock segment where we've seen a good response from the market and a good traction from those introduced products in the second half of the year. When it comes to companion animal, and as we announced in the beginning of last year, we are investing to diversify our business in companion animal where we today predominantly have 1 technology that we've launched in AI parasitology. And the investments that we are taking and that we started in Q2 last year and that we continue to do this year are predominantly market related in sales and marketing efforts, making sure that we get a good traction in taking this product to the market and build a strong sort of revenue around companion animal solutions.

And if I could squeeze in just 1 quick follow-up on the Specialty Pharma question, please. Given your comp for Q1 is not too dissimilar from Q4, I mean is this kind of organic growth that you printed this quarter the sort of exit rate that we should be thinking about for the rest of the year or as you said, this was a trial sales campaign and it's more under sort of discussion whether you'll do something like this again?

So the growth in Specialty Pharma, we've seen a good performance for Specialty Pharma throughout the entire 2024. I think as Patrik said on the national sales campaign, that's something that we hope to replicate going forward, but it was a little bit of a special element now for Q4. So the organic growth in Specialty Pharma was maybe a bit stronger than what you would say is the exit rate for the business, but we've seen a good performance for Specialty Pharma throughout the year and we continue to have a positive outlook for Specialty Pharma also for 2025 especially as we are very pleased with the initiative on cross-selling that we have been driving through 2024 where we see a lot of additional runway in that initiative that accounted for roughly 1/3 of the organic growth that we saw in Specialty Pharma for 2024.

The next question comes from Arvid Necander from Carnegie.

So now that we're a bit into 2025, could you provide some insights on net price increases? Have you faced significantly more resistance compared to last year coming off a period of high inflation? And can you give us a feeling for the magnitude in Spec Pharma and MedTech specifically? I guess last year some of your spec pharma competitors were mentioning high single-digit increases, including some fairly established franchises in the derm and allergy segments. Is the industry now reverting to something closer to the 3% to 5% we've seen historically? And what are your expectations for Nextmune and Movora in 2025?

Yes. I would say back on a little bit what you alluded to, price increases last year was driven by high inflation a little bit higher than what we expected to see this year. We're expecting from an overall group perspective, price increases of low to mid-single digit across the group of course with some variation looking at different segments and different geographies. If we take U.S. MedTech specifically, we will pursue a more cautious approach on price increases near term. As we've discussed I think at length that the U.S. surgery market continues to be a little bit softer and I said as a consequence, we'll pursue a more cautious approach on price increases for U.S. MedTech this year.

The next question comes from Adrian Elmlund from Nordea.

Just a short question for me here. How do you view the margins of iM3 going ahead? Is it possible to get the margins to reach like the segment MedTech margins or group margins as stand-alone or do you sort of have to make bolt-on acquisitions or roll-ups, if you will, to reach more group level margins?

So as we've said, iM3 they have a different margin profile than the rest of the MedTech business and to large extent the rest of the Vimian business while there is a negative mix effect in consolidating iM3 into our numbers. We will continuously improve the margins within iM3 as we continue to drive strong organic growth, as we continue to drive a different mix from a sales perspective or as we've discussed, we're moving more to consumables and we see scale in that business going forward. So margins will on a like-for-like basis continue to improve for iM3. Having that said and to your question, sort of where do we think margins will end up. We're confident that iM3, they can achieve margins that are on Vimian fleet average. And then of course it depends on the type of acquisitions that we can find in the dental space, but potentially with different type of acquisitions, we can see a different mix within Medtech dental as well from a margin perspective and hopefully on the positive side.

Okay. And a follow-up to that maybe. When we look at the M&A pipeline ahead, is the sole focus only to acquire sort of bolt-on acquisitions to iM3 or would you also be interested in maybe pivoting into a new platform as well?

We've expressed an interest to do bolt-on acquisitions into iM3 and strengthen the dental presence that we have. We are continuing to cultivate our pipeline and add to our pipeline for both Specialty Pharma and MedTech in general and our Veterinary Services business. And what we're really looking for there is products that have complementary or companies that have complementary products and companies that can help us strengthen our geographic footprint or geographic density in markets that we're interested to enter. So the pipeline is very focused to execute on our strategy for value creation where we look at Specialty Pharma, MedTech and Veterinary Services.

[Operator Instructions] The next question comes from Kavya Deshpande from UBS.

I just wanted to squeeze in with 1 more question, if possible, please. Just on your outlook for the animal health market growth for this year, is it fair to assume that that's sort of remaining within 5% to 7% and specifically it's the companion animal health market?

Yes. That's a great question. It's a question we sometimes ask other people too. We continue to believe that the market is very healthy and it's very strong. Whether it's going to end up in exactly that range or not, we don't know, but we don't have a better number than that. So I think that that's a fair assumption and a fair assessment today. If you think about our business, we have an express strategy to be in niches in this business and we target niches that have a higher growth rate than the average market. So our biased portfolio should grow faster than the market. And then through the initiatives that we run like cross-selling for Specialty Pharma, white space capture through education in MedTech, et cetera, we will gain additional growth and come up to the double-digit growth that we're targeting every year.

Got it. And just if I could just follow up on the white space initiatives in MedTech. I noticed this quarter there seemed to be more of an emphasis on virtual trainings in MedTech. Is this sort of likely to be the case going forward? And in the past, what have you seen in terms of sort of the customer retention rates from doing virtual trainings and getting them on your products versus in-person training?

Yes. So first of all, in MedTech what you really get trained on is surgical procedures. So a lot of the trainings that are in-person would have components of placing implants into either models or cadaver or things like that to really get comfortable and skilled in the procedure as such. So you will never see like a 100% virtual. I'd be a little bit afraid of that because I would like the surgeons to be hands-on experienced and be really good at it. So those trainings will continue. Having said that though, the way you can prepare for surgeries like that, there are some theoretical components that are conducive to deliver on a virtual environment and that's also to meet our customers who would like more flexibility. And that allows you to focus when you get together on the hands-on aspect and you can cover some of the theoretical things prior to showing up. And I think it's a way to enhance the overall quality and the delivery of it and also adjust to our customers' needs for a little bit more flexibility on when and how they get trained.

And these customers pay for these trainings, right, or are they given free?

Yes, you pay for all of them. Absolutely. If you find a free training, you should take it. In our experience, these are highly value-added trainings they'll provide you. The teachers that we engage in this are some of the best surgeons in the world and you equip someone with the skills to start an entirely new revenue stream in the practice. There's an enormous amount of value in the actual trainings here and we do charge for all of them. We're not trying to make a profit out of them. It's not a profit center for us, but we also don't want to lose money on it.

The next question comes from Adela Dashian from Jefferies.

Just 1 final one for me as well. I guess following up on the M&A discussions previously. I mean one of your peers stated this morning that they are seeing a more favorable outlook for the M&A market just in general and I want to be, I guess, mindful of your current leverage ratio. But are you also seeing the potential for deals to materialize being more robust in 2025 or is that a trend that really hasn't impacted you in 2024? Is your pipeline essentially more firm this year than what it was at this point last year is what I'm asking?

Our pipeline is growing and there are a number of very interesting acquisition candidates in that pipeline. And as you would expect from someone that has made as many acquisitions as we have, we always have ongoing dialogs and discussions and calculations with the targets that fits in our strategy and that have attractive valuation principles associated with them.

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

Well, thank you so much for your attention and your questions today. We concluded the year with a strong finish and we look out with excitement to 2025. We think we're very well positioned to continue to drive strong profitable growth in 2025 and beyond. And we thank you for your attention today and look forward to see you soon again. Have a wonderful day. Take care.