Vimian Group AB (publ)

We'd like to start our call by going through a couple of highlights. First of all, we operate in a solid market, and the growth continues to be robust. We have made a decision to reduce our AOTP program this year, which is in our MedTech business, where we are normalizing and facing our revenues throughout the year. This is to match the customer's consumption with their deliveries. and to streamline our supply chain and to be able to operate our business with lower working capital, both in inventory and accounts receivable. This change and this offer to our customers to move from annualized order programs where they would buy a full year consumption at the beginning of the year to switch over to a quarterly or a monthly order pattern has impacted our first quarter growth in our MedTech segment. This has no impact on our full-year revenue, and the gap that was created in Q1 will be fully recovered throughout the remaining quarters of the year. We have strong momentum both in our vet services business and in our specialty pharma business. Both of these businesses are delivering a robust double-digit growth. If we look at our customers in our medtech segment, that has never been participating in an AOP program ever, that group of customers are also growing by double digits. In March, we announced new financial targets, our adjusted EBITDA above 300 million euros by 2030 and our net leverage of 3x or below. Those are good targets and we also look forward to execute and deliver on those. We also did a rights issue with 1.6 billion so that we have opportunities to go after and finance value creation acquisitions. We also announced our intention to list on the main market. I'd like to thank our shareholders who participated and for your support in this process. We look at the next slide here and maybe talk about a few things more in detail. The first quarter organic growth came in at 1%, driven by the reduction of the annual order program in our MedTech business. We had an additional contribution of 3% from acquisitions. We also did a small bolt-on acquisition in our MedTech segment. There's no impact of this for the rest of the year, so we have a facing on MedTech. Our EBITDA is down to 26.3%, and this is a direct result of the reduction of our AOP program. Our specialty pharma, vet services, and diagnostics business delivered on the plan that we had for those businesses in the first quarter. And as you can see on this slide here, the light blue depicts the change in the AOP program that was a 10 million euro program in the first quarter last year that was reduced to a 5.5 million euro program in 2024. Moving over to our specialty pharma segment, we grew 11% there. And it was driven by our US specialized nutrition business and our European allergy test and treatment business. As we've mentioned before, we're focusing on driving organic growth through cross-selling products into new geographies and new channels. And we had a significant contribution of growth from those initiatives in the first quarter. Our margins has been stable over the years, and we had a solid 17% EBITDA growth. Going to our maybe R&D and innovation track for specialty pharma, we launched 13 new products in the quarter, and our new allergy vaccine is progressing well, where we have initiated studies on client dogs during the first quarter, and so far it's progressing very well. All in all, we see continued good positive momentum in our specialty pharma and foresee this business to continue to have very healthy growth going forward. Turning to our medtech segment, the result of the decline in the AOP program is resulting in an organic decline of 12%. And it's solely described by the U.S. and by the AOP program changes there. Again, we are matching the customer demand with our deliveries, and it gives us an opportunity to reduce the volatility and increase the visibility, transparency, and predictability of this business. A lot of our customers that were offered a transition here took advantage of it, so they are now on a monthly or a quarterly order plan, and that transition went a lot quicker and faster than we had anticipated. The AOP program is still available for customers who would like to order a full year volume at once. Look at outside of the US, in Europe, in Asia Pacific and in Canada, where we do not have an AOP program. The customers there and the revenues there have been delivering a high single-digit growth for the first quarter. We have good underlying momentum in this business and These facing changes in the first quarter will have no impact on the full year revenue. Going over to veterinary services, organic growth here is 15% and it's healthy growth across all of our geographies. It's predominantly driven by new member acquisition. We welcome 350 new clinics during the first quarter. We have a good conversion of membership into a higher level tier. Our co-owned clinics are also progressing and developing very nicely. They're growing ahead of the market. Our margin development year over year was up 170 basis points and a solid growth of EBITDA of 28%. We see a stable and very positive trend in our veterinary services, and we foresee that this business will continue to deliver outstanding growth in the future. Ollie, who is joining us here today, will spend more time talking about some of the exciting growth opportunities that we have in this part of our business for the future. Going into our diagnostics business, we have a decline of 6% here, and this business is operating in an end market that has been a little bit tougher than all the other markets that we're operating in. The amount of disease outbreaks has been low during this period, and that impacts the need for testing. We're continuing our efforts to diversify our portfolio in the diagnostic segment, and we're diversifying into the companion animal space. We are launching our AI-enabled parasitology platform for our companion animal here in the second quarter. And we are going to reinvest a larger portion of our earnings generated out of the core of diagnostics into further diversifying and growing our footprint into the companion animal space. So we foresee that our margins in this business will be lower than it has been traditionally because of this reinvestment into diversification. We turn to our the ESG effort. Our strategy here is centered around our people, animals and our planet. And we continue to focus on ESG and we're making good progress here. In February this year, we achieved a higher rating by MSCI. We got an A rating there, which we're very proud of. And it was driven by two distinct changes and improvements. We did one around people development and the other one around our governance. We also released our sustainability report for 2023 here in April. And this slide, as we're showing here, is pretty busy, but I want to highlight a couple of things of importance here. More than half of our leaders in Vimeo are women. We trained 15,000 professionals in the healthcare space, animal healthcare case last year. And we launched 111 new products that improve the health of animals. We've also established a carbon reduction plan for scope one and two emissions. And for the first time, we reported on our scope three emissions as well. And during this period, we've also taken the opportunity to bring ESG criteria into our M&A and due diligence processes so that we have that as a basis also for evaluating new acquisitions. We're a young company, we're fast growing, and we're very proud of the achievements we have done so far, but we recognize we're in the beginning of a journey here and we will continue this important work and strongly committed to drive really positive change for our people, our animals, and our planet. And with that, I'd like to thank you for your attention and hand it over to Carl Johan who will walk through our financials in more detail. Over to you, Carl Johan.

Thank you, Patrick. And let us dive into the numbers and move to the next slide, give you some further details on the first worker. The adjusted EBITDA amounted to 24.1 million euro at the margin of 26.3%. The first quarter margin is, as Patrick said, negatively impacted by the reduced annual order program in Medtech. We report operating profit of 13.4 million euro down from 18.5 million last year, mainly a result of the annual order program impact well as the higher non-recurring items of 5.1 million euro relating to acquisitions and the us litigation the net financial items of minus 7.9 million euro consists of three parts the first element being financing costs of 6.5 million with an average interest rate for the quarter of 6.7 percent secondly contingent considerations where we have a net negative impact of 5.8 million. The quarterly discounting impact amounts to 1.8 million, and the negative impact from probability adjustments amounts to 3.0 million, reflecting the strong performance in global one pet products and vertical vets. And finally, a positive impact of 3.4 million from exchange rates. The income tax expense for the quarter amounted to 1.8 million euro. And all of the above resulted in a net profit for the quarter of 3.7 million euros. Turning to the first quarter cash flow, where cash flow from operating activities reached 11.2 million in the first quarter. And it's positive that we continue to see an improvement in cash generation in our businesses. Networking capital amounted to 75.3 million at the end of the quarter, equal to 22% of revenue, which is an improvement in relation to sales from same period last year. Compared to end of December 2023, inventory declined by 0.6 million, driven by continued inventory reduction in MedTech. Accounts receivables increased by 11 million as AOP revenue is paid in installments during the year and US specialized nutrition build up trade receivables after strong growth in March. Accounts payable increased by 6.8 million in the quarter. Cash flow from investing activities was 6.1 million, primarily reflecting capital expenditure of 3.9 million and acquisitions of 2.6 million is an acquisition of veterinary transplant services DTS in Medtech. The capital expenditure is split between 2.5 million investments in intangible assets and 1.4 million investments in property plant and equipment. The main areas for investments are capitalization of R&D and expansion of laboratory capacity in specialty pharmaceuticals, investments in manufacturing capabilities in Medtech and development costs related to the vet family platform in veterinary services. Cashflow from financing activities of 4.1 million include the 3 million repayment of debt. Moving to the next slide, looking at net debt and leverage for the quarter, where net debt amounted to 287.4 million, with leverage of 3.0 times, which is a similar level as the previous quarter. Cash and cash equivalents amounted to 38.1 million at the end of the quarter. External lending of 301 million, broadly in line with 302 million per the end of December, as repayment of 3 million was offset by unfavorable currency movements. With the funds from the capital raised of slightly above 140 million euro received in April, The leverage has come down to 1.5 times. During the first quarter, we also signed an amendment to our bank agreement, adding another 70 million to our existing facilities. The capital raised together with the amended bank agreement had put us in a good position to pursue strategic value-adding acquisitions. Now handing over the word to Olli for a deep dive into veterinary services.

Thank you, Kali-Oan, and good morning, everyone. I'm here today to give you a short overview of the veterinary service segment within Vimian Group. Vimian Veterinary Services, or VetFamily as we call it, is a global leading veterinary service platform, currently supporting over 7,550 members across 11 markets. Historically, predominantly being a Nordic procurement organization, we have, during the last years, transformed the business with a wider set of key services, as well as offer a vibrant community for our members across four continents. We also partner with most of the leading animal health companies of the world, allowing them to in an efficient way access and engage with our members. Being an independent clinic is challenging and overwhelming, especially with all the non-care tasks you need to address. Today, vets spend around 50% of their time on non-care related work. Through the services of the family, we help our members overcome the non-care task and allow them to focus on the core of their business, the pets. Our mission is to empower the independent veterinarians of the world to stay competitive and relevant in a fast-moving and changing environment. Therefore, we continuously invest and develop our platform to enhance our support for our members. Our revenue streams can on a high level be divided into three main areas, all benefiting from each other. Within partner services, we have commercial agreements on local, regional and or global level with key industry partners, giving our members the benefit of scale and our partners an efficient way to access and engage with our vibrant member community. Approximately 40 to 50 percent of our revenues comes from partner services. Within clinic services, we offer value-add services our members use to evolve their clinics and develop their ways of working. The longer we've operated in the market and the mature the market is, the more value-add services we tend to offer. 20 to 25% of our revenues come from clinic services. Within clinic operations, we currently run a co-ownership program with 11 clinics. We see these clinics and entrepreneurs as innovation hubs that gives us the opportunity to develop and test new ideas within important focus areas, benefiting our entire membership ecosystem. Our clinic operations stand for 30 to 40% of our revenues. Looking at our development and achievements since the IPO, we've more than tripled our revenues with a revenue CAGR of 51%. We have increased our membership base from 2,600 to over 7,550 member clinics. We've gone from seven European countries to 11 countries across four continents through acquisitions in Australia and US, as well as organic entries into Brazil and Belgium. Our global reach has increased our relevance with our partners and with the larger number of clinics now supporting, we've changed our one-size-fits-all approach to a tiered and tailored offering, better meeting the needs of both clinics and partners. We've done focused investments into capabilities within digital, data, and insights, evolving our service offering and relevance, and we have invested into our organization, bringing in additional key talent and prepared our team for accelerated growth beyond our current achievements. We are the only company doing what we do at global scale. And I'm very proud of the development we've had as an organization since the IPO. But we're far from done. There are several avenues of growth we're pursuing and the need of our services increase for every day that passes. We can continue growing by adding new member clinics within the 11 markets we currently operate in. We can expand our service offering to existing members and partners. We can expand organically into new geographies, which we have a proven track record of, and we can leverage our M&A ability to support and accelerate all avenues of growth, as well as utilize Vimeo's geographical and industry footprint. The growth we've enjoyed so far shows the value our services bring to the independent vet community, and I truly believe we will continue to play an important role for our partners and member clinics around the world. Thank you.

Thank you very much, Ali. Clearly a lot of exciting growth opportunities in our veterinary services business. So we're coming to the end to our prepared presentation here. So in the first quarter, we've taken some strategic decisions to continue to build a strong platform for continuous value delivery for many years to come. The new financial targets is a part of that, the successful rights issue and the important decision now to phase out the revenues throughout our med tech business that has a short-term impact on Q1 but no impact on the full year. I'm excited to be on board in Vimeon and lead the company for a long-term journey to allow continued growth and value creation in the animal health space. The market is solid that we operate in. We are great in terms of how we are positioned in that market to take advantage of the market growth and grow above and beyond what the market is doing. We saw some strong performance in our specialty form and our vet services business as you've seen here earlier today with the double-digit growth and maintained or improved profitability. And we're building a strong foundation for the future. And with that said, I'd like to thank you for your attention and open up for Q&A. Thank you very much.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning. My first question is on the med tech division here. I think you said that if you were to exclude the reduction in AOP, which is limited to the U.S. market, then growth would have been high single digits within the segment. Is that true?

Yeah. Good morning, Adele. Yes. So what we're saying is that the actual growth outside of the U.S. is high single digits.

Okay, got it. But then I think at the end of Q4, when you presented, you said that January was high single digits for the group. So I'm just trying to reconcile how, I guess, was the growth, did the growth get lower throughout the latter half of the quarter? Or is there anything in the other segments that contributed to the low organic growth in Q1 outside of MedTech?

As Patrick said, we had a good performance in the other segments in the quarter, seeing double-digit growth in both veterinary services and in specialty pharma. As said, in diagnostics, there's still some headwinds in the sector that we see, and we saw a small decline in diagnostics in the quarter. For medtech, I think as you alluded to, and Patrick as well, we saw double-digit growth outside of US in the quarter. And also the annual order program, we wanted to make a shift from the annual order program, trying to get a better match between sales and deliveries and the underlying consumption. That was more successful than we anticipated and that we foresaw during the quarter. And that's a big shift for Medtech in the quarter and the big change or deviation from what we expected initially in the quarter. But as Patrick said, we don't see that that will have any impact on the full year numbers. It's just the facing of sales in the US.

Got it. And that expectation, is that based on visibility that you have with your customers or underlying demand? Or how can you be so confident that growth for the full year won't have an impact?

Yeah, that's a great question, Adele. So we're tracking the customers who took up the AOP program in 2023 that did not participate in the AOP program in 2024. And they've now shifted over to either monthly or quarterly orders. And we're tracking all of those customers. And when we see their order pattern, we're very confident that they will make up that difference throughout the remainder of this year.

Okay, got it. Then I'm assuming that the reception so far with your customers have been positive. There's been no one that's been pushing back on this strategic decision here.

No, it's voluntary. We're offering them to change from an annual program into either a quarterly or monthly. And we've been overwhelmed by how many have actually taken up on that offer and switched. So it's well received.

Okay. And then on diagnostics, the comment here about margins being lower, because of your decision to reinvest into the companion animal diagnostics. Is the margin going to be lower because of the initial cost base being elevated, or is the companion animal diagnostics segment a lower margin business versus livestock diagnostics?

The way we look at it, Adele, is that we're investing to put a more diverse portfolio in diagnostics. We're a little bit too dependent on the livestock and market there. So it's going to be an investment in terms of a cost increase in the short term to build up a capability to predominantly on the commercial side sell these products into the companion animal space.

Okay, got it. And then maybe a question for Ali, if I may, if he's still on the line. Great presentation here on veterinary services. I don't think you have any exposure to the UK within this segment, but it would be great to get your view on the CMA's current review of the veterinary industry there. And if this presents an opportunity or a challenge for you, should you want to expand into the UK or no impact at all?

um thank you for the question we have no uk exposure at all in our in our operations um but in general um you know we we support the investigation and looking forward to see what outcome of that is but i think the services we offer and the way we support the independent community will benefit from that got it um

And then lastly, M&A, which is the question everyone wants answers to, what does the pipeline look like now with the rights issue being completed?

Yeah, since we last talked about this, our pipeline is continuing to grow and the deals that we talked about a few weeks ago, they're progressing forward. So we feel very good about the M&A pipeline and our opportunity to buy value creation, creating companies in there and add to our existing business.

So still a combination of bolt-ons and larger acquisitions that you're looking at.

Yeah, that's correct.

Great, thank you.

The next question comes from Vineet Agrawal from Citi. Please go ahead.

Oh, hi there. Just one clarification on the M&A contribution. I think on slide three, you mentioned the contribution of 3% is in Medtech. But if I look at the financial report, I can see that the acquisitions didn't contribute anything in the Medtech, but actually in Stag Pharma. So I'm just wondering if you can clarify that. And then... Just on web services margin, can you give any flavor as to what would have been the margins excluding those investments in the digital platform? And are these investments largely done or likely to put some more pressure on the margins throughout 2024? And then finally, I know that historically you have given some sort of trading update into the quarter. I know you don't give any guidance. but you did use to provide some sort of color into the quarter. Just wondering if you have stopped it, or can you give us some flavor as to what April look like? And yeah, I mean, May is only two days, so maybe how did April shape up?

Morning, and thank you for your questions. Let me answer question one and three, and then I'm going to ask to clarify question two, sorry. But taking question one, and just to sort that out, and so if you understood it correctly, in specialty pharma and in veterinary services, we have a contribution from acquisitions of, let's say, 6% to 7% within those two segments. Within medtech, there's no contribution from acquisitions in the first quarters in our numbers. And to your third question in terms of sort of current trading or full year expectations. As we said, if we adjust for the MedTech sort of change in the quarter and removing a large part of the seasonality of MedTech and that also contributed to seasonality of the group, we see a stable development in the first quarter. We have started the second quarter according to expectations, and we feel confident and are positive on our expectations for the full year. So we haven't changed our perception or perspective regarding the full year from that end. And then also, as I said, we're making a list change. I have a target to move to the main market in Q1 next year. And as a consequence, and as you noted in the last couple of quarters, we are tightening our reporting processes continuously and reporting at a more timely fashion to the market. And as a consequence, also, the current trading update in the quarter makes less and less relevance. So, sorry, could you just repeat the second question for me, and I'll try to give you a good answer on that one as well.

No, I was just checking on the red services margins. Can you give any sort of feedback as to what would have been the margins, excluding those investments in the digital platform? And are these largely done or likely to put some more pressure on the margins throughout 2024?

I can start and then Ali can give some more color. If you look at veterinary services in the last couple of quarters, we've seen a nice continued margin improvement in veterinary services in the last couple of quarters. Good solid revenue growth, good strong organic growth, and we see the continuously positive margin development. In the first quarter of this year, It's better than the first quarter of last year. There is some, you could say, small seasonality between the quarters. And secondly, as we mentioned, we have taken conscious decisions to invest in the digital platform to ensure continued good growth and margin development within veterinary services going forward. I can let Olli give you some additional color to the investments and development for veterinary services?

Yeah, no, I mean, I can just only reiterate, we've improved our margin by 170 basis points since the last quarter. We always, a big part of our success is balancing the investments we're doing to the platform to support the community and allowing them to grow. If we hadn't taken those investments we mentioned this quarter, of course, the margin would have been higher. And I don't feel any I feel comfortable with our margin not being additionally pressured during the year.

Thank you.

The next question comes from Ricard Anderkrans from Handelsbanken. Please go ahead.

All right, good morning and thank you for taking my questions. Just trying to get a sense a little bit on the moving parts and expectations for the full year, a little bit on growth and margin. So, you know, is it still reasonable to achieve a high single-digit growth profile for the group in the year given the slower start and you know as I understand in the annual ordering program there was some discounts given to to the customers for ordering in ordering in bulk is that discount still in the monthly or quarterly contract so you know we should expect that a little bit of margin pressure in the medtech segment in the coming quarters from that or maybe help us understand a little bit of the moving part. So I'll start there. Thank you.

Yeah. Good morning, Rick. And thank you for your question. The annual order program refacing that's going on now where customers will from buying on the full year to buying in monthly or quarterly will have no impact on the full year. So you'll see a full recovery. And if we look at how those customers are behaving now, that have switched to that type of order pattern. They're behaving exactly as you would expect them to behave for them to order the same amount of volume, but through a different timing throughout the year. So you will see Q2 and Q3 and Q4 recover the revenue gap that was created here in Q1. So from a full year perspective, this doesn't change how we think about the full year at all. neither on the top line or on the margin side.

That's very clear and Olli thank you for the presentation there as well. I was wondering if you could perhaps add some more insights and commentary on the rationale behind the clinic operations and direct investments into vet clinics. You know, clearly a lower margin and less scalable business than the remaining part of the operation. So maybe add some more details on how you're thinking going forward. Do you intend to expand that part of the business and how should we think about it synergistically with the remainder of the vet family group? Thank you.

Thank you for the question. I mean, we have the co-ownership program to offer entrepreneurial veterinarians that kind of want to continue developing their clinics and at the same time contribute positively to our entire community. These are clinics that want to be in the forefront of how you should run and operate a modern clinic for the future. So we see these clinics and entrepreneurs as innovation hubs that gives us an opportunity to develop and test new ideas within important focus area. So although these clinics stand alone, have a different growth and profitability profile than other parts of the business, we kind of look at our business as a whole and how each part can contribute to the total business over time. And we see synergistic opportunities in between. In terms of future acquisitions, it's hard to comment on that specifically, but we always evaluate value-creative opportunities. And that's also the case when it comes to the co-management program.

All right, thank you. And just to squeeze a final quick one in, any uptake or uptick into heading into April or sort of end of the quarter from the avian influenza uptick we're seeing and some of the headlines we're seeing in media, just wanted to check if there's anything to flag there.

Yeah, I know. And that's sort of very well spotted on market activities. No, of course, we're aware of that outbreak. So far, it hasn't moved that much into production animal. I would say it still has been predominantly into wildlife. We're starting to see a little bit of spread into cattle, especially in the US, where we are working closely with our partners to see how we can support the labs and our customers with this outbreak. But we haven't seen any, I would say, any large effects from a commercial point of view so far.

That's very clear. Thanks for taking my questions. Thank you.

The next question comes from Kavya from UBS. Please go ahead.

Hello. Thank you for taking my questions. I just had a couple on the annual ordering program. So just on the first one, it's now currently 5.5 million euros, right? Is this a level that you would expect it to remain at or would you look to further reduce it going forward and inviting more customers next Q1 to switch to monthly or quarterly ordering patterns? My second question is just in terms of your other two competitors or in terms of the veterinary orthopedic implant market. Is the annual ordering program, is this sort of standard practice or was this program kind of unique to Mavora? And then the third one, if I may, is just I was curious to understand, presumably there was a discount attached to the AOP. And so does this now go away when you switch to monthly and quarterly ordering? I'm just, I guess I'm just trying to ask what was the incentive for people to switch over? Was there an economic incentive in any way?

Thank you very much for your questions. So it's a four and a half million program reduction this year, euros. And I think your question was, you know, how's this going to play out in Q1 2025? And if we look at the amount of customers that switched this year, there might be a few that will decide to switch again next year. It's hard for us to predict that. if there is any switching going on next year, it will be significantly smaller than what we've seen this year. It might be a significantly reduced impact. But again, the program is now relatively small compared to our total revenue anyway. So that's the first way of looking what might happen in Q1 2025. And then your second question was around is annual order program some common in the industry or not? The program was born at a time when several companies in the space, particularly in the US, had some supply chain issues and delivery issues. And it was almost an insurance program for customers to always have availability of products when several people had trouble to deliver product. We don't have any delivery problems anymore. I think that's true for us and all of our competitors too. That way you can kind of now adjust the program. There are no particular, going back to the discounts, there are no particular incentives to move from the annual order program into the monthly or the quarterly program. So there'd be no impact on discounts or anything like that. So people are moving because they think it's a better way to order to match their consumption with the deliveries they're getting from us.

Thank you very much. That's really clear. And just to clarify, prior to this year, were all U.S. customers, was it compulsory to be on the annual ordering program if we just look at last quarter? Or were there still customers that could have the choice to order in a month?

You've always had a choice. But we had a very large uptick last year, an extraordinarily large uptick last year. And we don't really see why the annual order program is so beneficial. You know, we think it's better to match the consumption with the deliveries, but it's, you know, annual order programs still exist. So customers who wants that, we'll sign them up for AOP and customers who do not want it, we'll sign them up for another order pattern. So we'll adjust to what our customer would like to, how they best would like to do business with us.

Thank you. That's really helpful. Thank you very much.

Thank you.

The next question comes from Arvid Nikanda from Carnegie. Please go ahead.

Good morning and thanks for taking my question. So first on spec pharma, can you say anything on the rollout of the PACS test in the US? Is it starting to pick up any speed? And secondly, would you see the need to invest, to increase investment in diagnostics? Does that come on the back of... lower than hoped for uptake of new potential growth drivers for 2024? I guess primarily oversight, or is that still too early to tell?

Yeah, so we're seeing an improvement in the rates and in our U.S. allergy business, but I think we still have a way to go there until that's in the shape and in the growth rates that we would anticipate and like it to seek. And we're using our European business as kind of one of the proxies there where we're very successful with this particular product and in that segment. We're working to get to the same level in the US, but we have a way to go to get there. Your question about diagnostics is, you're correct. We're launching the oversight product right now. And there's a prior question here is that we're investing in the go-to-market structure for that. to ramp up sales in that segment. And I think the way we think about this is that we will expand some costs in OpEx as part of building this up and that will deteriorate the margins in the diagnostics business until we see the revenue ramp come up and match, which I think there's a delay between the two of them.

Is it possible to quantify the OpEx spend? compared to last year's or the increase for 2024 when it comes to diagnostics?

So looking at diagnostics and taking the two of them, we see, and as you saw, I would say still in the quarter, even with some investments in companion diagnostics initiated this quarter, we see more of the full effect in the coming quarters from that investment. in terms of cost base, and as Patrick said, revenue will ramp up. Looking at livestock diagnostics, we still have a very healthy margin in that business, and we see that continuing. The investments that we're doing now in companion animals, of course, it's difficult to speculate on how quick will the revenue ramp be, and I think we'll have to come back to that in coming quarters. But we're expecting the investments in companion having the total margin for diagnostics more being in single digits for the next one to two quarters.

Okay, thank you. And lastly, how should we think about the M&A related costs for 2024? I understand that it's, of course, hard to estimate integration costs for potential acquisitions, but it seems like there's some fairly recurring costs baked into the M&A related NRIs.

sourcing stay on the bonuses etc so so as you increase the the focus on m a should we expect the base to increase significantly from the coming quarter even if no acquisition is made uh so so very relevant question i say one as you say there's a few uh and if you're looking at the quarter there uh there's costs related to uh you could say earn out related costs uh those will start to move away here within a few quarters. Then, as you rightly point out, it's difficult to have a good insight into exactly what costs will be in relation to M&A going forward, because, as you say, it depends on what type of acquisitions we will engage in, timing of those, sizes of those acquisitions. I would say it's fair to assume that there will be some costs in the coming quarter in relation to us pursuing and, as I said, hopefully executing on M&A opportunities.

Right. Thank you so much. That was it for me.

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

Hi, guys. Thank you for taking my question. I have a follow-up on this annual ordering program, if I may. I mean, you show on one of the slides that the AOP has declined from 10 million to 5.5 million this year. But when we look at your total sales in Medtech and exclude the AOP, I mean, you end up with having flat development from 26.5 million euros this year as well. At the same time, you're saying that the clients that are not participating in the AOP program are growing double-digit, and it's a high single-digit growth in Europe and APAC and Canada. Somewhere down the line, there seems to be some part of the business that is not doing as well as expected. So maybe you can elaborate a little bit on where we should see the shortfall in growth this quarter.

Thank you very much, Patrick. That's an excellent question. So there is a group of customers that we said we encouraged them to go into AOP and we really boosted them up. They're not part of the 10 million in this calculation because the 10 million is our normal AOP customer base. We boosted up another 3 million with additional customers that we kind of enticed them to go into AOP last year, and they were newly acquired customers from our acquisitions and other things like that. So we expanded the AOP program last year, and they're not part of the calculation, which is also the gap that you're kind of looking for is that classification of those customers. There's a 3 million euro kind of delta that you can put in either category. And they're not normal AOP customers, so we didn't want to reflect them there. But we did encourage all of them to do annual order programs last year. They have also not replicated that this year.

Okay, so what you're saying is really that the 10 million that you show on page three is... I mean, in reality, it was 13 million last year, but the 3 million was, you know, customers that you more or less pushed into the AOP program. Is that the way I should interpret it?

They were first-time AOP customers, and the way that it's played out here, that was the first time and the only time.

Okay, great. And then the second question. I mean, if a client that has been an AOP client in the past this year decides to do say monthly or quarterly ordering instead do they have the choice to go back to an annual program next year absolutely any time okay yeah okay great uh good that's all for me thank you thank you as a reminder if you wish to ask a question please dial pound key 5 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.

Thank you very much. Thank you for your interest in our first quarter report. Thank you for your questions. I really appreciate it. We look forward to continue to create a great animal health company and create value for our shareholders and our veterinary customers and our employees going forward. I look forward to see you again in the second quarter. Take care and have a wonderful day.