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

Welcome to Vimian Group Q3 Report 2026 Presentation. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Alireza Tajbakhsh; and CFO, Carl-Johan Zetterberg Boudrie. Please go ahead.

Good morning, and welcome to Vimian's Third Quarter Earnings Call 2026. I'm Ali Tajbakhsh, Group CEO; and together with our CFO, Carl-Johan Zetterberg Boudrie, to present our results for the third quarter. We continue to deliver strong performance with strong revenue and earnings growth in the quarter. Organic growth remains at double digits, which is well ahead of overall animal health market. Our cash flow improved significantly compared to the previous quarter with operational cash conversion of 71%. We also see our M&A pipeline progressing in the right direction. And after the end of the quarter, we entered soft tissue surgery through the acquisition of Norfolk Medical Products in the U.S. On the management side, we finalized the recruitment of our new Head of Specialty Pharma, Hans Skarplöth, bringing on board another highly experienced leader to the team and promoted long-term team member, Andrea Tidholm, as Head of M&A. Our business continues to outperform the overall animal health market, which reflects the strength of our strategy with focus on attractive market niches, but also strong brand portfolio and disciplined execution. Looking at the numbers more specifically, we report 15% revenue growth and reached EUR 120.3 million in revenues in the third quarter. Organic growth was 11% with strong momentum across all segments, 3% contributions from acquisitions and 1% positive impact from currency movements. Adjusted EBITDA grew 14% to EUR 29.2 million with strong growth across all 4 segments. Margin was 24.3%. Moving on to Specialty Pharma. Specialty Pharma's underlying business momentum remains strong with 7% organic growth, driven by double-digit growth in the therapeutic areas, allergy, dermatology and Specialty Pharmaceuticals. As previously communicated, the therapeutic area of Specialized Nutrition was impacted in the third quarter by a strong prior year comparison. Adjusting for the impact from the sales campaign in Specialized Nutrition, organic growth in Specialty Pharma was 11% in the third quarter. During the quarter, we launched an updated version of our allergy test platform, Pet Allergy Xplorer or PAX, that covers an additional 25 allergens. PAX is the most advanced veterinary allergy test, and there are several third-party scientific studies reaffirming the test platform's ability to outperform other tests on the market. We continue to drive strong profitability in Specialty Pharma and adjusted EBITDA grew 12% to EUR 15.2 million and the adjusted EBITDA margin improved to 30.3%. Our MedTech business achieved another quarter of double-digit growth, reaching 15% in Q3. Both the Dental and the Orthopedic business delivered double-digit growth in the third quarter. In the Dental business, growth was driven by strong commercial execution and deepened penetration of key customer accounts in the U.S. as well as strong growth in APAC. In the Orthopedic business, growth was led by APAC and Europe, and our North American business delivered another quarter of growth in unchanged market conditions. We continue to drive education in the quarter and trained 1,300 veterinarians in the quarter across our Dental and Orthopedic businesses. Adjusted EBITDA grew 20% to EUR 10.5 million, and the adjusted EBITDA margin improved to 24.4%, driven by strong growth and improved gross margin in our Dental business. I'm pleased with the development of our MedTech business and the new management team continues to review the business to address operational improvements. In our Veterinary Service business, the momentum remains strong with 10% organic growth and 12,400 member clinics at the end of the quarter. During the quarter, we officially entered 2 new countries, which we talked about previously, Japan and Portugal receiving positive feedback from the veterinary community. Adjusted EBITDA grew 28% to EUR 5.9 million, and the adjusted EBITDA margin improved to 30.5%, including positive effects in the quarter from mix and our strategic partner agreements. Our Diagnostic business delivered 13% organic growth in the quarter, driven by extraction and PCR test sales in the livestock business. Adjusted EBITDA grew to EUR 0.5 million. The adjusted EBITDA margin was 7.2%, including our investment to diversify companion animal diagnostics. Looking at our M&A activities, we have completed 5 acquisitions year-to-date and continue to have an active pipeline covering both large new platform acquisition as well as smaller bolt-ons. Earlier this week, we signed the acquisition of Norfolk Medical Products, a leading niche provider within soft tissue surgery. Norfolk is a U.S.-based business that develops, manufactures and sells specialized implants and consumables, including, for example, a well-renowned urinary bypass implant for cats and dogs. The acquisition adds annual revenues of around $6.9 million and expands our MedTech offering into a new fast-growing niche. Norfolk's portfolio is complementary to our existing surgical offering and the operating model are well aligned with focus on close relationships with the specialist community and education to unlock market growth. Profile of the customer base is also largely the same as ours. Many orthopedic clinics also do soft tissue surgery, and Norfolk has currently a very small sales force. So we see good opportunities to grow the business by leveraging our MedTech sales force across the globe. We continue to deliver our sustainability agenda focused on animals, people and planet integrated into the core of our operations. In the quarter, we completed our employee experience survey with continued high engagement scores. We delivered -- we also held our first Global Leader Conference with 100 leaders from around the world to strengthen the cross-company culture and collaboration across the group. And with that, I will hand over to Carl-Johan for deeper insights into the financials.

Thank you very much, Ali, and good morning, everyone. As mentioned, I will give you a more detailed view on the financial development in the third quarter. Adjusted EBITDA in the third quarter was EUR 29.2 million, an increase of 14%, corresponding to an adjusted EBITDA margin of 24.3%. As we have previously stated, we foresee a more stable margin development for the full year 2026 versus 2025, driven by our investments to drive growth in the MedTech segment. The slightly lower margin in the third quarter, specifically compared to the same period last year is primarily a result of higher central costs. Central costs amounted to minus EUR 3.0 million in the quarter, an increase from minus EUR 1.8 million last year. The increase is mainly a result of expenses related to our long-term incentive programs in total EUR 0.6 million in the quarter. These are non-IFRS -- noncash IFRS expenses that will recur for the duration of the 3-year programs. We report an operating profit of EUR 20.5 million, a 17% increase from last year's result of EUR 17.5 million. Items affecting comparability were similar to the same period last year and totaled minus EUR 2.1 million, mainly attributed to acquisition costs in MedTech and Veterinary Services. Net financial items amounted to minus EUR 6.9 million and consisted of 3 main parts. One, financing expenses of minus EUR 4.2 million with an average interest rate of 4.0% during the quarter, partly offset by interest income of EUR 0.8 million. And secondly, a quarterly discounting impact of minus EUR 0.9 million and negative impact of minus EUR 2.2 million from probability adjustments related to contingent considerations, mainly from new acquisitions. And lastly, a negative impact of EUR 0.5 million from exchange rate effects on the revaluation of debt. Income tax expense for the quarter was minus EUR 4.3 million at an effective tax rate of 31%. In the quarter, the tax expense as a percentage of pretax profit was negatively affected by probability adjustments related to contingent considerations and other nondeductible expenses. In total, this resulted in a profit for the period of EUR 9.3 million with an earnings per share of EUR 0.02 for the quarter. Cash flow from operating activities reached EUR 22.6 million, corresponding to cash conversion, defined as operating cash flow in relation to EBITDA of 71% for the third quarter. Net working capital amounted to EUR 116.4 million at the end of the quarter, equal to 25% of revenue and an increase from EUR 114.1 million at the end of the second quarter, which equaled 26% of revenue. Cash flow from investing activities amounted to minus EUR 21.0 million, primarily consisting of acquisition and earn-out payments. Capital expenditure amounted to EUR 4.1 million, which is 3% of total revenue, with EUR 2.9 million related to investments in internal R&D and software development and investments in property, plant and equipment amounted to EUR 1.2 million. Cash flow from financing activities totaled EUR 2.4 million, mainly from proceeds from borrowings. At the end of the quarter, net debt amounted to EUR 262.4 million, which is down from EUR 273.7 million at the end of the second quarter. Cash and cash equivalents amounted to EUR 55.6 million, an increase compared to EUR 51.6 million at the end of June. External lending was EUR 263.1 million at the end of the third quarter. This resulted in a leverage at the end of the quarter equal to 2.0x, a decrease from 2.1x at the end of the second quarter. We continue to be well capitalized with an ability to execute on our strengthened acquisition pipeline. With this financial review, I hand the word back to Ali for concluding remarks.

Thank you very much, Carl-Johan. We delivered continued strong performance in the third quarter with strong total revenue and earnings growth and double-digit organic growth. We've closed 5 acquisitions year-to-date. And after the end of the quarter, we entered soft tissue surgery through the acquisition of Norfolk in the U.S. Overall, we have a clear progress across our strategic initiatives and are well positioned to continue delivering sustainable and volume-led growth combined with value-creative M&A. On November 24, we will host Vimian's first ever Capital Markets Day in Stockholm to provide a strategic deep dive and describe the road map to our 2030 financial targets. Thank you.

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

First question on North American Orthopedics, another quarter of growth. Do you feel like that business has now completed its turnaround? And what sort of growth rates should we expect going forward?

Yes, we're happy with the development of our U.S. Orthopedic business with a second quarter of growth in unchanged market conditions. As a consequence of the unchanged market conditions, we believe the current growth rate is what we expect in kind of short-term future. We are happy to see that the changes we implemented earlier this year has shown positive effect, and we're confident that the existing new management team will continue to drive operational improvements to maintain and improve our momentum.

That's nice to hear. And then on Diagnostics, especially the margins, second quarter in a row now single-digit margins. Is this sort of the level that we should anticipate with the investments that we're making in the companion Animal Health?

Adela. So I think as you know, Diagnostics is 2 parts of the business. One is livestock, which structurally has a lower margin than the overall margin for Vimian and the second part is companion. And to your point, we are investing in companion animal, but companion has a structurally better margin than our livestock business and more margin that's in line with, you can say, the group overall margin. In the quarter, specifically and also in the second quarter, we've had certain integration costs from the acquisition of I-Vet, which is part of our companion animal part of the business and also some investments to drive strong growth in the companion animal part of our Diagnostics business. But we foresee in 2027 and onwards that margins will pick up in the Diagnostics segment as our companion animal business starts to scale.

Okay. So that's interesting. So maybe to levels that we haven't seen in more modern times with the Diagnostics business if we exclude the extraordinary levels during the pandemic.

I would say you can expect, you can say, continuous improvement of the margins as the companion animal business starts to scale and becomes a larger part of our Diagnostics business.

Okay. I see. On Specialty Pharma, I appreciate the commentary there, but growth was excluding the campaign timing. I just want to confirm that, that's now fully behind us and there's nothing additional in Q4...

The national sales campaign that we conducted this year, mainly in the second quarter and that was mainly conducted in the third quarter of last year is something that's, call it, behind us for 2026. So there's no comparative disturbances, so to say, in the fourth quarter relating to the national sales campaign.

Yes. All right. And then lastly, on leverage and M&A, it declined before the Norfolk acquisition. How much -- like how do you view your M&A pipeline at this point? And how much additional capacity within your preferred leverage range?

So as you say, we have leverage of 2.0x. We're sort of well below our long-term financial target. And we have good and solid financing capabilities in place. So from a leverage and financing perspective, we're confident that there's significant headroom for us to drive further M&A. And in the pipeline, we see interesting opportunities, both from a sort of bolt-on perspective, but also from certain larger interesting M&A opportunities.

The next question comes from Adrian Elmlund from Nordea.

A few questions for me, please. I'll take them one by one. So first off, the dental business in the MedTech vertical seems really strong. Could you give any more flavor on this? How much can we sort of extrapolate, if you will?

No, we see continued strong momentum in our dental business, which kind of comes from strong revenue growth in combination with kind of slightly better gross margin in general. I think the dental space, as we talked about before as well, is an interesting and growing field. So I think we're well positioned to capture that growth, the strong team in place.

Right. Okay. And regarding the acquisition yesterday, could you tell us anything more about margins, multiples paid, how you think about that and the growth profile?

Yes. So I think the Norfolk business currently has a slightly lower margin profile than the Vimian average. But as I talked about the synergistic opportunities leveraging the Vimian network and the MedTech orthopedic sales force, we believe that we can bring that business into higher margins over time. The company has delivered strong growth. It's a highly attractive niche, and we expect that to continue as part of Vimian. Multiple-wise, I would say that it's in line with what we historically have paid for businesses, and we expect that multiples will travel down as we realize synergies.

Right. Okay. Last question regarding Veterinary Services. The performance here in the U.S. seems to be strong, right? Could you give us any color on why it's strong in the U.S. now seemingly when the veterinary market in the U.S. is reportedly rather soft?

I think veterinary service has shown for a long period of time that it's an attractive and consistent business that deliver value for our -- the independent vet community and our partners. U.S. is a strong market for us where we operate under 2 strong brands being VerticalVet and dvmGRO. And I think the service offering, the team we have and the support, the clinic community in the U.S. needs is right up our alley in terms of the services we're offering, and we see continued momentum across the entire world, but in particular, U.S.

The next question comes from Arvid Necander from DNB Carnegie.

So first on Spec Pharma and on the national sales campaigns we've seen over the past few years. How should we think about their future contribution? Are you targeting campaigns -- going forward? Or is the ambition to further expand their scale? On vet services, margins have obviously improved through the year. Directionally, how should we think about the margin trajectory going into Q4 and 2027?

So if we start with Specialty Pharma and U.S. Specialized Nutrition, -- and maybe sort of take one step back in that business, we've successfully grown that business over time with expanding our customer network or our customer base and also expanding our product base. And that's something that we'll continue to drive in 2027 and onwards as well, making sure that, as I said, expanding our customer base, expanding our product portfolio, taking further shelf space with our customers. The national sales program that we now ran for 3 consecutive years, it's a testament to our strong customer relationship with the large retailers in the U.S. And that's, of course, something that we will focus on being able to be part of also for next year and going forward. Just on your second question, that's related to veterinary services, right, and margin. So in veterinary services, and as Ali mentioned, in the third quarter, we had positive effects in the quarter from a positive mix of high-margin services, including partner agreements. Looking at the fourth quarter for veterinary services, I would say it's fair to assume that the margins for vet services will be on the year-to-date average margin that we've seen for veterinary services so around 28.5%, 29% mark.

Perfect. That's very helpful. Just the last one, if I may. On Norfolk, how should we view this? Is this a platform that as you see it that would enable you to do further acquisitions within soft tissue surgery, similar to what we've seen in iM3? And do you have targets within this in your pipeline?