Vimian Group AB (publ)

Hello, everyone. Welcome to Vimyang's second quarter earnings call. I'm Fredrik Ullman, CEO, and with me today, our CFO, Karin Setterberg. So today, we present another quarter with strong organic growth, 14%, and positive momentum across all segments. And our EBIT margin operating profit grew by 28%. We delivered 81.3 million euros in revenue and grew adjusted EBITDA by 15%, reaching 20.3 million euros. I'm especially proud to see how the team in diagnostics have navigated the past year's headwinds in COVID, and we delivered double-digit growth thanks to strong sales execution on the ground and innovation. We strengthened our underlying cash flow from operations and continuously strive to improve performance with the aim to deliver margin expansion in H2 as we gain leverage from our investments and we see some cost measures materialize. Our positive growth momentum continues and we see sustainable demand for animal health over the coming years. With that, I'd like to hand over to Kaliwan.

Thank you very much, Fredrik, and good morning, everyone. As Fredrik said, we continued our strong growth with 21% revenue growth achieving 81.3 million euro in revenue in the quarter. Organic growth was 14%, market performance in all segments. Acquisition contributed to the impact from currency movements of 2%. For the first six months, revenue increased to 169.4 million, and organic revenue growth was 13%. primarily driven by medtech and specialty pharma. to growth 13% in the first half, and there was no impact from currency movements. 15% to 20.3 million at the margin of 25.0%. The lower mark compared to the same period last year reflects the mixed effects from faster growth in US specialized nutrition, and investments to drive growth during this year we have seen a positive market development in all segments over last year overall we continue to see a stable or improving gross margin in a high inflation environment excluding impact from fast growth in u.s specialized nutrition gross margin increased by one percentage point in the quarter we have five Geographic footprint with Europe and North America accounting for approximately 45% of revenue. With our successful growth in the annual order program. As well, as the strong performance, especially in the U. S, we've increased our share of revenue from North America. With the recent acquisition of Australia, and we have also strengthened our business in Australia, and especially and veterinary services in the region. The strong development recorded in the last couple of quarters continues, and as of the second quarter, our performer revenue was 329 million euro. In 2020, we have more than tripled the business through organic growth and continuous strategic acquisitions. Revenue growth has also supported a strong profit increase. We have grown our profit ahead of revenue, almost quadrupling adjusted EBITDA to 86 million euros. We continue to actively drive several organic growth initiatives and synergies within and between our segments and acquired entities to support continued strong revenue and profit development. Back to you Fredrik for some further insights to the quarter and business update per segment.

Thank you Carl-Johan. So if we look at our segments, all four segments delivered above market growth as call you on said, and I will dive into the largest segment specialty pharma. The specialty pharma organic growth accelerated to 18% in the second quarter with strong growth across therapeutic areas and regions. We see exceptional performance in our US specialized nutrition driven by regional expansion within the US and the launch of new products. We grew adjusted the beta with 18% and the adjusted EBITDA margin is at 26.4%, primarily reflects the mixed effect from the strong growth in specialized nutrition. We continue to deliver on our strategic agenda, launching 20 new products during the quarter, taking the total for this year so far to 45. We are progressing our innovation projects and are preparing to establish direct distribution in Spain during the second half of the year. We made a small CapEx investment in a pharmaceutical manufacturing facility in Australia to strengthen our production footprint and gain access to additional sterile and non-sterile production capacity for the segment. To summarize, positive momentum continues with a very exciting product development and innovation pipeline in specialty pharma. Moving on to our second largest segment, MedTech. medtech we delivered eight percent organic growth in the second quarter despite the pull forward effect from the annual order program in q1 year to date we deliver 17 organic growth well ahead of the veterinary orthopedics market we see solid growth across regions with an acceleration in growth in this quarter in europe and asia pacific the adjusted beta grew with 13 percent and we continue to expand our margins to 28.4%. The rolling 12 months margin to adjust for the effective annual audit program is solid at 31.6% from 30.2% at the end of 2022, as a segment successfully integrates acquired companies and streamline the organization. Operationally, we continue to optimize the supply chain and have centralized warehouses in US, and Europe during the quarter. We implemented a new organizational structure with the clarified responsibilities and reporting lines to enhance efficiency and employee satisfaction. The quarter mark high level of sales and marketing activities and our strategy, sorry, our surgery trainings for veterinarians continue to be highly appreciated. We see solid demand for veterinary orthopedics across the globe and are excited about the development in Medtech. Moving on to veterinary services, we delivered organic growth of 9% in the second quarter with record level member recruitment, especially in our new markets where we now have over 600 clinics. In total, we have over 6,000 member clinics in 12 countries cementing our position as a leading veterinary service platform in the world. The adjusted EBITDA margin is at 26%, and that is the third consecutive quarter with margin expansion up from 22% in Q3 last year. We have in this quarter onboarded the VETR team in Australia, a GPO we acquired during the spring, and we're excited to now have a stronger platform in the region. We also continue to work on our digital platform, highland.com, and have during the quarter strengthened the digital tech team In summary, we see solid development in veterinary services as well. Moving on to diagnostics, the team has successfully navigated the past year's headwinds from COVID, and we deliver 16% organic growth in this segment, well ahead of the market driven by a team's strong sales execution and new product launches developed during the past years. We have solid growth across regions and product categories and are taking market The improved adjusted EBITDA margin at 24.3% reflects operating leverage and progress on our cost optimization program initiated last year, which will also continue to improve during the second half of this year. In the first quarter, we launched our new AI innovation platform, Oversight, to detect and analyze parasites among animals. The platform is being well received among veterinarians, and we see good ramp up in installations during the quarter. Going into Q3, positive momentum continues in diagnostics with healthy trading during the summer period. Handing over to you, Carl Johan, for more detail about our numbers.

Thank you, Fredrik. And let's have a look at the second quarter financials to give you some more color on the numbers for the second quarter. The good revenue growth supported the adjusted EBITDA increase of 15% in the quarter to 20.3 million euro. And the operating profit improved from 7.9 million to 10.2 million euros. An increase of 28% equal to an operating profit margin of 12.5% in the quarter, which is 0.7% of points lost. The operating profit includes item affecting comparability, which decreased to 4.3 million primarily to lower acquisition related costs. as well as PPA-related amortizations of 5.8 million, increasing from the same period last year with new acquisitions completing during the last 12 months. Net financial items amounted to minus 3.2 million, which consists of three main parts. Financing costs of 4.4 million in the quarter with an average interest rate of 5.7%. A positive impact from adjusted contingent considerations, earnouts, including a discounting impact of 5.5 million, which reflects a technical adjustment of the purchase price of one acquisition. This is offset by a negative exchange rate impact of 4.3 million. Financial items in the second quarter of last year. includes a probability adjustment of contingent considerations of 6.6 million. The tax expense for the quarter amounts to 3.7 million. The high tax expense reflects a taxable result higher than the net result due to tax losses without recognition of deferred tax assets and non-deductible expenses, which means currency impact recognized as a financial item . Profit for the quarter amounted to . Adjusted for items affecting comparability, earnings per share amounted to 0.02%. Looking at cash flow, amounted to seven actively to improve cash flow and it is both cool lost the reported cash flow from operating activities includes the litigation payment as per the set or tap to 75.6 million at the end of June, which is up from 72.9 million at the end of March. The increase is driven by slightly higher inventory, higher level of recruiting, partly offset by lower accounts receivables as the ordering program customers pay them more. Cash flow from investing activities primarily related to earn-out payments decreased compared to last year to 42.2 million in a quarter. And cash flow from financing activities of 126.2 reflects the drawdown of the credit facility to finance the litigation payment and earn-outs paid. Cash and cash equivalents amount to 50.8 million at the end of the period, up from 45.9 million at the end of the previous quarter. During the rest of the year, we'll continue our efforts to improve cash flow and specifically networking capital. We start to see positive effects from our focus on supply chain in especially Medtech with centralized warehouses in Europe and US. We will continue our supply chain improvements, optimizing the product portfolio, distribution, further digitalizing the supply chain. Looking at net depth and leverage at the end of the period net depth amounted to 296.1 million versus 292.8 million as of 31st of March this year. This results in a leverage net depth to last 12 months before my EBITDA of 3.1 which is in line with our long-term financial target. The reported net debt is not impacted by the settlement in the U.S. patent dispute, as we have a contractual indemnification protection through the purchase agreement from the acquisition of the UI. Therefore, the amount of the receivable under the indemnification is deducted from the net debt. And some view on current trading. We have started the year strong with good development in all segments. The positive momentum in the business have continued in this summer with mid to high single digit growth on the back of a very strong June. The global economy and macroeconomic outlook are still uncertain, and we continue to monitor demand very closely. But overall, we are positive about the development in our business. And we aim to deliver margin expansion during the second half of the year, both sequentially and year over year. We hosted, or Vimean hosted the annual general meeting on the 2nd of June, electing Robert Belkic as a new board member. Robert brings extensive experience from his role as CFO of Hexagon and will be an important addition to our board and to Vimean. The process to retrieve compensation on the indemnification protection in the U.S. patent dispute is ongoing with filings to the court, and we are nationally working hard to finalize this. Back to you, Fredrik.

Thank you.

Moving over to our ESG agenda, we continue to develop our ESG agenda. And in the second quarter, we completed our first group-wide employee survey with a positive outcome. We see very high levels of engagement and strong entrepreneurship across the group with a good employee net promoter score of 32. I was also encouraged to see that there is a strong sense of belonging in our teams, which is a key driver for employee satisfaction. So to conclude, Dimeon delivers a good second quarter and first half of the year. We remain well positioned and the overall sector continues to show resilience despite the wider macroeconomic environment. Our focus remains the same, and we continue to build leading market positions in attractive niches of animal health, and we are committed to strengthen cash flow margins over the coming quarters. As you know, I took a difficult decision in June to step down from my position as CEO, and the recruitment process is now ongoing. Vimian has, over the past years, almost tripled in size, And now that all four segments are performing well under strong leadership teams and good systems in place, I've found the time right to eventually hand over. I do remain a committed investor and strong believer in the potential of Vimyon, and I look forward to following the company and the team's progress in the years to come. With that, I would like to open up for any questions.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Blanca Porcolab from Barclays. Please go ahead.

Good morning. Thank you for taking my questions. My first question is on spec pharma and diagnostics. How should we think about the sustainability of the double-digit organic growth seen here? Is this reasonable for the remaining quarters, and what do you expect the key drivers to be? My second question is on margin expansion in the second half. Could you provide some color around the magnitude you expect here and which businesses are likely to be the key contributors? Thank you.

So we don't give any guidance on specific, I mean, we don't give any guidance, but can we expect to see good growth in those segments going forward? Yes. What are the drivers? Mainly innovation and geographical expansion. We are launching numerous new products in both of these segments and that are so far well received and we're quite excited about those products. Your second question was about the margin expansion. We cannot give you a quantification of that, Blanca. We can say that it's mainly driven by the fact that we expect to see returns from the investments and growth that we have put in place. And on the central, we see expansion of margins in the underlying businesses. And we have put a central team in place that is now fit for purpose that we don't expect to expand. And so with continuous organic growth, we expect to see operational leverage. And we also have some cost containment programs, especially in diagnostics, where we are consolidating production. We will see the financial impact or savings from that in the second half of the year.

Great, thank you. And I just have a follow-up question around the July commentary you gave. So how should we think about that mid to high single-digit growth across the different businesses? Are there any that sit at the lower or higher end of that range? Thank you.

No, it's actually quite even, I would say. There are no outliers there. But it's very early to tell. I mean, it's typically a slow month in July when people are on vacation. It's very early to predict the quarter just based on July.

Great. Thank you so much.

The next question comes from Ricard Anderkrans from Handels Banken. Please go ahead.

All right. Good morning. And thank you for taking my question. So, so first one on, on specialty farm, I just wanted to, to check on the strong organic growth there. If there was any particular, you know, pull forward or stocking effects, it seems like perhaps June was particularly strong. It would be interesting to hear if there's anything, you know, exceptional driving that growth that we should be aware of. It's

except it was exceptionally high growth i mean you cannot we cannot expect that type of growth every quarter um but it's uh it's not a pull forward it's just that you know when we enter a new um geography in the us we it's typically high volumes that uh we we deliver so it's uh for every geographical expansion or account expansion it drives uh high growth But we cannot guarantee that type of growth every quarter for sure.

All right, makes sense. And just to follow up on the margin improvement question as previously, how should we think about the cadence of margin improvement? Should we expect perhaps a bit slower development in Q3 with a big pickup in Q4? Or should it be more of a linear improvement just to get a sense of how you're thinking about the margin expansion trajectory?

would see more a linear development that would be my my assumption there's nothing it's not like there's just a one-time effect of something that will just hit in q4

All right, thank you. And just the question on leverage. Are you sort of committed to deleveraging the balance sheet? Do you have sort of a target leverage level for the end of the year, just to get a sense of how we should think about the leverage development in the coming quarters?

Yeah, as I said, we are focusing on sort of continuously improving cash flow and especially improving networking capital. And as we expect cash flow to improve, during the year, that should also drive organic deleveraging. Then on the exact extent, we don't give specific items on the specific number, but definitely, as I said, focus on improving cash flow, which drives the natural deleveraging of the business. And as to acquisitions, it's relating a little bit to your question. We continuously work on making sure we have an attractive acquisition pipeline. And I think we have a number of interesting opportunities, but our focus as it is right now is making sure that we integrate and maximize the impact from the acquisitions we already made.

Thank you. Just to squeeze in a final one. Any update on retrieving the compensation for the US litigation process? What's your sort of thinking on timelines and probability of success and sort of the status update would be super helpful. Thank you.

I said the process is ongoing and we're working intensely and hard to making sure that we finalize this as quickly as possible. In terms of timing, we don't want to speculate in any exact time. I said it's booked as a current receivable. which gives some indication in our view on timing. And as we communicated before, we believe that we have a strong position given the indemnification we have in the agreement where we purchased DOI. So we're working intensely to make sure this is finalized as soon as possible, but I don't want to give any specific guidance on the exact timeline.

Fair enough. Thanks for taking my questions. Thank you. Thanks, Richard.

The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning. Let me maybe just start on congratulating you on this strong quarter, especially on the organic growth side. And going off of the questions that have already been asked, I do appreciate the comments surrounding July, what you're currently seeing there. But you also mentioned that July typically is a seasonally weaker or lower volume month. Should we then expect growth to amplify in August September or you know you've already seen the first few weeks of August already so could you give us any more not guidance but just color on what the growth in Q3 has improved month by month or not?

Again it's still too early to tell you know month to month can vary quite a bit because depending on timing of orders So I really don't want to guess anything. What I would say is that I feel comfortable or confident in our business. And the only risks I would see are macroeconomical ones that are common to every sector. And I think that our sector is probably more resilient than most sectors, even in turbulent macroeconomic environments. So that's pretty much all I can say. To predict Q3, I cannot do that. I'm sorry, Adela.

Okay, no problem. And that was actually going to be my second question. Is there any area within your business where you are seeing early signs of down trading due to the macroeconomic environment?

Not really, actually. I mean, right now, this quarter, we've seen really all segments, all regions growing strong. And yeah, I cannot pinpoint anything that I... We're not seeing those type of signals yet.

Got it.

We monitor it, of course, very precisely. We look at it very closely and we have live data every day on pretty much every product in the company, so we can see it. But we're not seeing that as we speak.

That's good news. And then specialty pharma and the US expansion there. you speak about you know going into a new geographic region um who are your customers there is the visit the veterinary clinics and and how should we perceive you know if this was a big um heavy volume driven uh quarter within that specific area of specialty pharma um are they fully stocked now with the new products or or how should we perceive the I guess the underlying demand there for that specific area that drove growth in Q2?

So the customer base are the large retailers in the US. So it's a direct-to-consumer business. We've seen good underlying growth or end demand for these products and we have very good brand equity in that space. and those retailers will choose to go you know they are they are split up into different regions you know northeast uh southeast etc and so they they decide them to go into a specific region or sub region of the us but that's something we've seen that business has been growing very strong for for a few years now uh and we're not done yet what we've also done is to improve the product portfolio since we acquired the company uh roughly a year and a half ago so it They had a limited product portfolio when we acquired the company, and we have now invested in the company, and we have developed a number of new products in that space, which is part of driving that growth.

Are we talking about both physical retailers and online retailers here, or is there a... It's physical.

It's mainly physical. Okay. Yeah. It's the cost of Trader Joe's and such.

Yeah, yeah. Okay. And then lastly, on the margin expansion, I know you've already commented on this a bit throughout the call. But we, aside from the mixed effect in specialty pharma, you've also had, I guess, a ramp up in investments being made. And you did mention quite briefly that You don't see further expansionary efforts to be made in the second half of the year. Is that how we should perceive it? Are you done with the investments now? Okay.

Yeah. I mean, it's really minor things like the head chief of people, but it's not going to move the needle on the group level. But if you look at the underlying businesses, they are delivering margin expansion The two areas where we have invested, as I mentioned, we have strengthened the central team to be able to operate on the public stock market over the last two years. And that team is now fit for fight. And we are able to deliver reports faster than before. And the other thing is the tech team in our growth bet in highland.com within veterinary services where we have strengthened that tech team to be able to launch that platform in more geographies which we're getting ready to do so that's those are the two areas but we're not expecting to continue to increase optics at this point focus is to to drive operational leverage and drive profit expansion

So if anything, we're looking at a more efficient business going into the second half of the year, and that coupled with the ongoing high organic growth, you should be able to continue to deliver on this underlying momentum that you've had thus far into the year. Is that how we should view it?

That's right.

Thank you very much.

You're welcome. Thank you.

The next question comes from Christopher Liljeberg from Carnegie Investment Bank. Please go ahead.

Thank you, and good morning. I have three questions. First, on Nexmu, would it be possible to comment how much that business is growing if we exclude this exceptional performance for specialty nutrition? The second quarter growth in Medtech surprised me here, given that there should have been a negative facing effect from the annual order program boosting Q1. So could you maybe comment a little bit more about how you're able to grow 8% organically for Medtech this quarter despite that? And final question is related to the continued negative EU items that you have for more or less all business areas. So could you explain that a little bit? Is it still driven by M&A or is it more integration, restructuring of the business? And how should we think about that for the second half of the year? Thank you.

So maybe I could take the first two questions and let Karl-Johan elaborate on the last one. So on Nextmune business excluding specialty nutrition, we are growing high single digit. And so we're seeing actually strong growth across therapeutic areas and geographies in that business. And in Medtech, why are we growing strong there? So the pull forward, the AOP program is predominantly in North America. And actually in quarter, strong growth is coming from EMEA and Asia Pacific region, where we've seen very, very strong growth. they those two regions don't have an aop program so it's it's it's pure organic growth essentially i hope that answers your question uh christopher i would yeah were you growing in in uh in the us for medtech in the second quarter as well we did yeah yeah we grew organically also in the us uh but we're also you know we pushed i mean apac and and um APAC and EMEA drove even more growth. Thank you. And then about the non-recurring EU items.

On the non-recurring items for the quarter, they mainly consist of two parts. And as you said, one of the elements is acquisitions and the second element is related to the vui dispute so those are the two main elements of the non-recurring items in the quarter looking ahead as you say acquisition wise our focus is to make sure that we take care and sort of extract the value from the acquisitions made and the vui dispute costs i said our focus making sure that this process is hopefully finalized as soon as possible. So I would say that's some color on maybe the NRIs and looking at maybe what to expect going forward.

Okay, thank you very much.

The next question comes from Patrick Ling from DNB Markets. Please go ahead.

Hi, guys. Just one short follow-up question on leverage. Maybe you can walk me through it a little bit, because when I look at your report on the footnote on page 30, I actually get a quite different number for your net depth. Maybe you can talk me through that, if you were. where it's wrong.

You said that page 13 or?

Page 30 where you have the net debt. If you just sum all these items up, you end up with a net debt of 351 approximately. But it actually adds up if you do it for the same quarter last year.

Okay. And you're saying that 296 yeah so i i get 351 instead when i just add those numbers up yeah and and i would say that the difference i said uh in looking at that the litigation and the receiver for the litigation and what item would that end up in uh I think it's good, but so the litigation that's excluded in. So, it's a current receivable where we, the litigation that we. I said that the receivable from the sellers from the litigation process, and that's record as a current receivable and excluded from from that debt. So that should be excluded in order to reach the 296.

Okay, and how much is that? Was that 58 million or something? Yes, roughly.

But we can follow up this separately and walk it through.

But if I look at it like this, as long as there's some uncertainty whether you will get that money or not, it still is... I mean, your net debt at this point in time should be 351 instead.

We are, as said, we think that we have a strong position under the agreement with the sellers and the indemnification protection under the agreement. And that's why our position is confident in retrieving the funds. And as of such, that receivable is included in the net debt calculation. I guess it's also fair to say that the auditors have

see that the same way yeah okay but in in in sort of a table like that maybe you should have that in as a positive item and not only include the cash and cash equivalents yeah because it looks kind of strange when it differs it's a good point yeah that's a good point thank you patrick okay okay great that's all i have thank you thank you

The next question comes from Peter Verdelt from Citi. Please go ahead.

Yeah, thanks. Peter Verdelt, Citi. Two questions. Freddie, firstly, just good luck with the next chapter when you depart. I suppose just before you leave, when it comes to, you said yourself, the business, you've tripled the business, you've been very acquisitive. Could you just give us a sense how well or not you think the business is integrated going forward for the next person, whoever he or she may be. Just the level of integration you think has been achieved. Are you satisfied with that going forward or an area of improvement? And then just more generally, just could you characterize M&A in organic growth as a big part of your strategy that you laid out at the IPO two years ago? Could you just characterize the current environment? I realize you're not going to talk about specific assets, but could you just broadly characterize the current environment to do stuff, valuation expectations, your comfort or not to go above three times leverage, and the willingness or not to use equity going forward? So just any sort of flavor would be helpful.

Thank you. Sure. So on your first question, Peter, well, the reason I choose to step down now is that I think it is a good phase for the company. The company is in very good hands, very strong leadership teams, and a relatively high level of integration. So systems are in place, central data warehouse is in place, we have full transparency on data, organization is set up, and the organization delivers. So I thought it's better to hand over in such a phase of the company than when you are in the midst of you know, of new one or numerous M&A transactions. Um, so I'm actually not at all, um, concerned and I'm staying, you know, I'm very close to the team and, and, uh, and to the board. And of course, uh, you know, I'm not disappearing, going anywhere. Uh, so I'm, I'm also available to support the team, but I chose to, I just want to have a little bit more time with my family than in the last seven years of running, running quickly and, been traveling a lot so this is the reason and so i have no concerns on that on that front and the um the question on the the mna environment you know there's still if you look at this market it's still a highly fragmented market and there's still a lot of opportunities uh when you start to look at the the breadth of our business um and the both in terms of product categories therapeutic areas and geographical footprint. Many regions we are not in, but we just started to tap into Brazil with now 600 clinic members in that family in Brazil, but we have hardly touched it yet. We've gone into Japan with Medtech, that's the world's second largest market, but we still have to go and explore that region. South Korea, um is another region that could be super interesting so there's still a lot to do um on the uh you know valuations um you know i don't you know it's i would say that you know with cost of capital that has gone up my impression is that the number of transactions have maybe gone down slightly um As to our willingness to go above three times or pay with shares or whatever, we're looking at, we continue to have an interesting pipeline. We're looking at these and when the time is right and we think that we have a highly strategic acquisition that would require more equity, then we'll then we'll speak to investors, but that's not on the radar at this point.

Very clear.

Thank you. Enjoy the rest of the summer. Thank you.

As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Well, thank you everyone for participating in the call today, for also very good questions. Again, I think I'll just reiterate, I think we are in a very strong position, very strong organic growth, good teams in place, good systems in place, a very strong innovation pipeline and a motivated crew to continue to build Vimeo and take it to the next level. um you know the search for new ceo is ongoing and i will update you on that when we have more information to share but very bullish about the future and the month and and years to come thank you so much for today and enjoy the rest of the summer