Hello, and welcome to the Vimian Group audiocast for teleconference Q1 2022. For the first part of this conference, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO Fredrik Ullman. Please begin your meeting.
Good morning, and welcome to Vimian's Q1 2022 report. I'm Fredrik Ullman. I'm the CEO of Vimian, and with me here today, Henrik Halvorsen, our CFO. As usual, we will start with a short presentation, and then we'll open up for Q&A. Before we go into the results, if we move to page two, I would just like to give you a brief update as to where we're standing compared to roughly a year ago. When we did our IPO, we had about 450 employees. We're now above 700 employees globally. We have done 23 acquisitions since the IPO, expanding our product portfolios, our reach, our capabilities, and our number of customers. We have really strengthened our global position in animal health.
I will tell you a bit more about that, further out in the presentation. If we look at our global footprint, moving to page three, what I would like to bring your attention to, looking at the left-hand side here is that in 2021, we had 35% of our revenue in North America, and we are now up to 48% in the Q1 , mainly driven by the acquisition of Global One. The U.S. is the world's largest market in the world, so we have focused on strengthening our position there. We have actually done another acquisition in Q2 in the U.S. with VerticalVet, and I'll tell you more about that acquisition in a bit.
Our exposure to North America has become much bigger, and it's actually now the largest market within Vimian. If we look at our segments on page four, both Specialty Pharma and MedTech have seen again strong growth and now represent 82% of our revenue in the quarter. Also important to pay attention to that. If we move on to page 6 and we look at our Q1 results, we had a strong start to the year. We saw 55% growth versus our target of 30%. Organic growth was 7.2%. We expected the Diagnostics to be the one-time effect in Q1 last year. Except for that, the big segment grew very strong.
The organic growth without diagnostics was actually about 17%, and Henrik will go more in detail there. We've also had an uptick in the margin versus Q4 at 30.2% EBITDA margin. Lower than Q1 of last year, but the mix was certainly very different last year. Also, we had some exceptional effects in the diagnostics, where we had the stock up effect in Q1 of 2021 that we didn't expect to come back this year. We're happy with the margins as well. We've also completed four acquisitions in this quarter.
One that is quite exciting is Bova in the UK, where we actually add a new therapeutic area to our specialty pharma business, and I'll give you more detail around that in a bit. We also unlocked the Asia Pacific region with the Cahill Vet that is now selling both our specialty pharma products and our orthopedic products. Nice synergies there. Last but not least, we developed our ESG strategy and signed off the ESG strategy with the board, appointed a new person to be in charge of the ESG strategy, and you'll get more color around that in a bit as well. Good.
With that, I would like to hand over to Henrik on slide seven.
Thanks, Fredrik. Turning to page seven and the financial highlights for the quarter. As Fredrik mentioned, we had a very strong growth in the quarter of 55%, so revenue is up to EUR 67.9 million. Organic growth was 7.2%, and that's driven by strong growth in MedTech and Specialty Pharma, mainly with around 24% organic growth in the MedTech segment. In Specialty Pharma, if we include all the acquisitions on a like-for-like basis, growth was above 30% in the quarter. We had negative organic growth in Diagnostics as we expected, and that is due to the phase out of COVID sales. We had much higher COVID sales in Q1 of 2021 than in Q1 2022.
In Q1 2021, we also had backorder filling coming into the year. If we exclude the diagnostics from the organic growth, we had a growth of 17.4%. 90% of Vimian grew by 17.4%, but this is then balanced by the negative growth in diagnostics. We had acquired growth of 46%. We had acquisitions in all segments, but the main contributors in the quarter were Specialty Pharma, where Global One and Bova sticks out, and MedTech, where we have done several acquisitions in Q4 and Q1. We also have a positive impact from currencies of around 2% from the US dollar.
As Fredrik mentioned, North American market is growing in importance for Vimian, and it's now bigger than Europe, or at least in the quarter. If we look at the margins compared to last quarter, Q1 2021 is down. We are at the margin of 30.2% now. There are some drivers similar to what we explained earlier, but maybe worthwhile repeating those. The business mix from acquisitions have changed, and that has had an impact on the margin. Compared to last year, we built a central organization which really were not in place then, and we also strengthened the organizations in the segments. We have more normalized revenue in diagnostics, as explained, so that means less operational leverage in that segment if you compare it to Q1 2021.
In the Veterinary Services segment, we have clinic acquisitions which come in with a different margin profile, and we also have the geographic expansion as we elaborated more on in the Q4 report last year. If we compare margins sequentially, comparing Q4 last year to Q1 this year, we are up significantly from 24.7% to 30.2%. That's up by 5.5% points. That is driven by solid performance in all segments. Also we have a positive impact from the annual order program in the MedTech segment. With that, I'll hand it back over to you, Fredrik.
Thank you very much, Henrik. Looking at what that means for last twelve months, moving on to page eight. When we look at our pro forma revenue for 2020, meaning the full year revenue of all companies we owned on December 31, and if we assume that we had owned them for the full year, we had SEK 138 million in revenue. If you look at the last twelve months revenue ending March 31 this year, with all the companies we owned on the last of March 2022, that number was SEK 247 million. Adding the companies we have acquired in theQ2 of this year, the last twelve months revenue ending March 31, 2022, gets us to SEK 260 million in revenue, backwards looking.
Essentially, a growth of 89% versus full year 2020. Not quite double the business, but almost. If we now move into the different segments and look at page nine. Specialty Pharma, we saw continued strong growth and profitability. The pro forma organic growth was 31.7%. The big contributors of growth, Global One that we acquired last year had exceptional growth, but also Bova and our allergy portfolio. This is now 44% of our business in the quarter. We also saw an uptick in the margins of our Nextmune business, despite actually Global One having slightly lower margin than the rest, but we still see an increase in margin.
Moving on to MedTech on page 10. MedTech is now 38% of the revenue. Here again, we had a strong Q1 The annual program was repeated and we saw an organic growth here of 23.9% against a strong Q1 2021. A margin of 37.9%, lower than last year because the mix again is very different. We've added that a year ago we had three companies in this segment, and now we are at eight companies, of which three are distributor companies where they have a lower margin, but where we work on increasing the margin by selling more of our own products with higher gross profits.
We also expanded geographically here with the acquisition of Cahill Vet in Australia and New Zealand, to then start to sell our full orthopedic portfolio in that region. We will also actually sell our Nextmune products through that organization. That's a nice addition. Moving on to page 11 and the diagnostics side. We expected here a softer quarter than last year that was exceptional, both in top line and EBITDA. Since we have a lot of operational leverage here that the lower revenue weighs on the margins. If you see, look at the trend from prior quarters, the margin is expanding.
Now, you know, looking forward, I'm a bit concerned about the whole agricultural space in general, due to the fact that the feed prices, you know, wheat prices, corn, soy prices have gone up. Putting pressure on animal protein producers. Again, this is only 10% of Vimian, but this is something that we are keeping a close eye on. When we look at the innovation pipeline here, we have some quite exciting developments and, so mid to long term we're bullish, but this is an area where we are exposed to both macroeconomic trends and also government spending on defense versus animal health could be a potential risk here.
Moving on to page 12 and our veterinary service, which is now 8% of the revenue. You can see that we've seen a pickup in revenue in the Q1 . Organic growth was 5.6%. We've seen a financially positive response from our new tiered membership program, which both our strategic partners and our members like. Margins are impacted mainly by the fact that we have acquired a number of clinics, that we've put in place a central team to do those acquisitions that will create operational leverage, but that weighs on the margin. The other thing is that we have invested in regional expansion, both in Latin America, where we start to see those plans actually materialize, but they're still weighing on the margin.
That's why you see a lower margin than last year. Since the end of the quarter, we have added a new organization here, VerticalVet with 1,100 members in North America with a strong profitability and growth profile. Very quite exciting development in our vet service business. Moving on to page 13, if you look at the overview of acquisitions we've done this year. So far this year, we've done 8 acquisitions, adding up to SEK 39 million in revenue. Bova and Avacta in our specialty pharma business, Cahill Vet and Everost Spectrum within the MedTech segment and VerticalVet, as well as three clinics in the veterinary services segment.
I would like to give you a little bit more flair around some of these acquisitions. If you move on to page 14 and we look at Bova, this is a key milestone in our strategy in Nextmune, adding a new therapeutic area. This company can do customized pharmaceuticals like an injectable paracetamol for horses or chicken-flavored drugs for a specific dog with a specific weight. What is also nice about this company is that they have a very strong team and very innovative team. We expect Bova to be a key asset in driving our innovation pipeline forward in Nextmune. It's also very, I mean, highly performing company, EUR 10 million in revenue with 40% EBITDA margin.
They are present in 10 European markets. Here we are planning to roll this out, leveraging Nextmune's commercial presence in more and more countries to enable further growth. That's Bova. If we move on to page 15, I'd like to give you a little bit more flavor around VerticalVet. VerticalVet is a purchasing organization for 1,100 clinics in North America. They've seen a very strong growth in the last years with also very nice profitability. The idea here is really to bring more and more services from our European organization to VerticalVet, but also get inspired by the way VerticalVet works in North America and cross-fertilize with our European countries.
That said, we are also looking at synergies with the other verticals. In two weeks, I'm actually going to the U.S. to meet up with our VerticalVet team, as well as the leadership teams in North America of Nextmune, Movora and Indical, to look at how we can get the full potential out of all the assets we have in North America, be it customer relationships, product services, and talent. That's quite exciting. Moving on to page 16 to give you a flavor about Everost and Spectrum. I think you saw this slide last time, how we built Movora, you know, bringing companies together with complementary assets.
If you look to the right here with the orange box, Everost and Spectrum really brings complementary products to our portfolio, especially within the instrumentation space. This is a company where essentially we are doing a carve-out, asset carve-out and leveraging our existing infrastructure, be it for order fulfillment, logistics, sales. And we take over the portfolio, bring it into our current Movora. So that's a nice addition to the group. With that, I would like to hand over to Henrik and look more at the financials on page 18.
Thanks, Fredrik Ullman. If we turn to page 18, quickly cover the income statement. We had, as mentioned before, a very strong revenue growth of 55%.
Revenue increased from EUR 43.7 million in Q1 of 2021 up to EUR 67.9 million in the Q1 of this year. Operating profit is in line with last year. We already covered the impact on the margins in the business between the quarters. Profit before tax is down a bit as net financial items are higher, that is also higher in this quarter compared to the same quarter last year. If we look at the profit for the period, we do have a very high effective tax rate in the period. That is due to pre-tax losses in some entities where we have not re-recognized any tax assets. That's a conservative estimate. If we move to page 19, we have a maintained high cash conversion.
We're up 7% points, up to 75% in the Q1 of this year. Strong cash flow from operating activities, EUR 11.1 million. Looking at the operating activities, that's up 15 and EUR 15.7 million. That's driven by growth. We have a slightly negative impact on the net working capital of EUR 4.6 million, and that mainly reflects the annual order program in the MedTech segment, but we have also built some safety stock in the quarter to ensure supply in the coming months. Cash on hand at the end of the quarter is almost EUR 100 million, that also partially reflects some financing that was drawn at the end of Q1 to finance an acquisition in early Q2.
If we move to page 20 and look at net debt and leverage, we have a net debt position of EUR 266.5 million, up from EUR 168.1 million at year-end. That reflects very strong acquisition agenda that we've had. That is reflected in the leverage, which is now at 3.6 times. We do have headroom to our covenant, and there is a visible path to organic deleverage from these levels. Good to mention that. I'll hand back over to you, Fredrik, to cover the final items of the presentation.
Thank you, Henrik. If we move on to page 22 and current trading, as we're all seeing, I mean, there is a macroeconomic uncertainty and rising inflation. We have taken heed for that, so in terms of our cost, but of course, it's hard to predict really how consumers will react short term. If you look historically, the animal health space has been relatively resilient to those type of situations. If you look back at the financial crisis in 2007 till 2011 and even in 2020, we saw slightly lower growth rates, but we didn't see a decline. We don't expect to see a decline either, but we've seen exceptionally high organic growth, especially in this quarter, in 90% of the business growing 17%.
Of course, we can't expect to see that level of high growth every quarter in a turbulent world. We do expect to see slightly more moderate growth rates in our large segments, but that doesn't mean a decline or that we don't believe in the overall estimates. Of course, in the MedTech space, we had a strong Q1 result, and that also implies some pull forward orders. That's why we expect to see slightly softer Q2 along the same pattern that you saw last year. We focus now quite a bit on organic growth and also harvesting the synergies we have.
We've done a lot of M&A. We have a pipeline of M&A, but we're also a bit more select, I would say, in the sense that we are also waiting a bit of a reset in valuations on the private side. Therefore, we are a bit more, I would say a little bit more, focusing on the organic side and making sure we create the most value out of all the great companies that we have actually acquired, in the last 18 months. If we move on to page 23, I would just like to give you a very quick view on our ESG strategy that really centers around people, animals, and our planet.
This is a strategy we signed off with the board and that we will start now to implement after the summer. People, because our employees are the most important asset that we have. We have an ambition to be the preferred employer within animal health, a fertile ground for entrepreneurs and entrepreneurial minds. Here we will really focus on employee health and wellbeing, education, employee development, diversity and inclusion, and business ethics. Animals is the core of our company. Here, of course, it's about animal welfare. It's about increasing the standard of health in the world of animal health in the world. Through innovation and education, which is core to our business.
Also antimicrobial resistance is a global long-term issue, and this is something we contribute to improving with also our diagnostic solutions that are there to actually prevent disease spread and discover diseases as early as possible. Last but not least, the planet. We don't have a very, you know, negative environmental footprint, but we can, given the number of animals we touch and the number of veterinary clinics we touch, influence. We can have an impact here in behavior changes in behavior on selecting more sustainable products. We develop products that have a lower environmental footprint, where we produce less waste from plastics, for instance, and also focusing on a responsible supply chain.
So those are the key areas of our ESG strategy. Elin Gusten, who will join us to lead this effort with Maria, she's joining us full-time in August from Indical actually. I'm quite excited to see this starting to roll out throughout our organization globally and expect to see great results from that. Moving on to page 24, looking at our, you know, near-term focus, again, the focus is really on strengthening the organization's capabilities to manage our growth and integrate the companies, the acquisitions we have acquired and realizing the synergies.
It's not a hard integration, but it's really about commercial synergies and growth synergies, and really capitalizing on the emerging collaboration between the segments that is now starting to burgeon. That's quite exciting. We continue to extend our M&A pipeline to see where certain deals make sense. But we also have a number of innovation initiatives within Specialty Pharma, with new vaccine technologies and diagnostics, with new technology platforms that we are focusing heavily on. In the MedTech space, it's really about one Movora, meaning bringing all these different products through one sales force, one order fulfillment process and one presence despite several product brands.
Within that family, the focus is really to roll out our tiered membership into more and more countries, but also digitalization and expansion to new markets with US, Eastern Europe and Latin America that are all ongoing, and that's what we're gonna focus on. But materialize those initiatives. Of course, last but not least, being the best place to work, being a fertile ground for entrepreneurs and rolling out our ESG strategy. That's really the near-term focus of Vimian. Just to summarize the quarter, moving on to page 25. I think all in all, we've seen a very strong Q1 of the group in a very turbulent external market.
We think that we are in a very good place as a company and we have seen strong track record both in organic growth and in M&A with very exciting companies joining our group. I think that is testimony to the team and the culture we are creating and the vision we have for Vimian to become a leader in animal health. With that, I would love to open up for any questions you might have.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. Our first question comes from the line of Richard Koch from Handelsbanken. Please go ahead.
Right. Good morning, and thank you for taking my question. First on leverage, you acquired VerticalVet, the MedTech portfolios and then two clinics here in Q2. What type of pro forma leverage are you running at in Q2? And can you comment anything on the covenant there would be super helpful. Thanks.
Okay. Hi, Richard. Great to hear from you again. I mean, obviously the leverage is up a bit, not massively, but we are higher now with the VerticalVet acquisition, of course. I don't really want to comment on the pro forma leverage, but it's not something that we're concerned about. When it comes to covenant, I don't really want to comment on exact numbers, but we have, I would say significant headroom there, so I'm not concerned.
Super helpful. Thank you. Can you provide any quantification of the growth moderation heading into Q2? Should we still expect organic growth? Is the moderation primarily driven by orders coming into Q1? Would be just interesting if we can get some additional flavor on the outlook here for next quarter.
Yeah, sure. Maybe I can answer that question. Yes, no, we don't expect not to see any growth. We don't want to expect to see 17% growth quarter-over-quarter for the last three quarters of the year. That's kind of what we are trying to.
To aim at, because I think that would be unrealistic. We do still expect to see organic growth.
Perfect. Then just a final one. How should we think about margin development into Q2 as well? Obviously last year from the strong Q1 into Q2, we saw quite a steep drop in margin. How should we think about the margin development here? Would be helpful as well.
I think that there are a few things to consider when it comes to the margin. I mean, part of it is of course the consolidation of the acquisitions that we've done, and we try to provide financials in all of those cases, where we can. That has had an impact on margin and will continue to have an impact on margin. But as we see, for instance, in Specialty Pharma, even if we have, you know, acquired companies with a lower margin, we still have a like-for-like improvement of 3% points in the margin. That's very encouraging, I think. In Q1, we also have the annual order program, which drives up the margins in MedTech a bit.
I would expect a slightly lower margin in MedTech in Q2. Apart from that, no massive changes in any of the other segments. I mean, maybe with the caveat that Fredrik explained a bit, the dynamics in the diagnostic segments with lower government funding, et cetera, could potentially have an impact there as well as there is. I mean, in all of our segments, we do have operational leverage of course. That could have a negative impact. I don't think it should be massive.
All right. Thank you.
Just to add on this, Fredrik.
Yeah, sorry.
For me, I think what you should focus on is the 82% MedTech and Pharma. Here, you will see again, as Henrik said, you won't have the annual order program in MedTech and therefore less operational leverage. But also on the other side, in Pharma you will have, you know, Bova which has a high margin in Nextmune. And also actually in VetFamily with VerticalVet, we also have that will come into Q2, so that will have a positive impact on the VetFamily margin. All in all, we don't expect any huge variations, but it could have maybe a slight compression of margin in Q2.
Thank you. That's super helpful. I'll get back in the queue. Thank you.
Thank you.
The next question comes from the line of Peter Verdult from Citi. Please go ahead.
Morning, Peter Verdult. Just a few questions, please. Citi. Maybe for Lars or Henrik. Could you just characterize high level the degree of pricing power you have as a group and just any differentials or amongst among the different divisions? That's question number one. Question number two, Henrik, just comfort with where consensus is for this year. I think it's penciling in around SEK 270 million of revs and just under SEK 80 million of EBITA, sort of 50-ish percent growth in sales and little less in EBITA. Just wanted to get your take and, you know, get a gauge on your comfort. Then lastly, just sorry to harp on and go back to the leverage 3.6 times.
I know you made prior comments as a prior question, but you know, should we assume that you're, you know, you've been busy year to date, but should we assume that deal flow will slow while you delever or do you still see a very full pipeline of potential deals? Just wanna know how the balance sheet currently crimps or doesn't crimp your ability to transact. Thank you.
Yeah, sure. Thanks, Peter. On the first question of pricing power, I mean, as you rightly point out, it differs between the segments, right? If you look at, for instance, Specialty Pharma and MedTech, I would say overall we have very good pricing power. Maybe a bit less so on the over-the-counter product in Specialty Pharma, but we do have definitely room to maneuver with the pricing there as well. But if you look at, for instance, the MedTech segment, the cost of our product in relation to actually performing the operation on the patient or the pet is a relatively small part of it. It's not a small part of the total cost. It's not that massive.
When it comes to the Diagnostics segment, slightly less pricing power I would say, due to the dynamics with larger tenders, et cetera. If you look at the Veterinary Services segment, I mean, that's a slightly different business model. It's not, you know, that you price it to end customers in that way. I think there it's more around the tiered memberships that Fredrik have explained. It varies, but overall I would say we have good pricing power in the group, and especially in the two larger segments which comprise above 80% of the business.
Yeah.
Looking at the question on the consensus. As you know, we don't provide guidance as such, but I think if you look at the numbers and where we are right now on a like-for-like basis and also with the acquisitions that we have done in Q2, I would think that this is not unreasonable. The question on leverage. We are at 3.6 and as
We have also done acquisitions after that. We do, as I mentioned in the presentation, see a way to organically deleverage if we do less acquisition. Fredrik also mentioned that doesn't mean that we want to do less acquisitions. We want to do acquisitions as part of what we do. Maybe we're a bit more selective and maybe try to look for a correction in pricing in the market. As a listed company, there are of course additional opportunities for financing, and we will also seek approval from the AGM coming up in June to pay for acquisitions with a share component as well.
Very clear. Thank you.
I hope that answers your questions, Peter.
Very clear. Thank you.
Thank you.
The next question comes from the line of Sander Kox from Nordea. Please go ahead.
Good morning, and thank you, Fredrik and Henrik, for the presentation. A couple of questions. First one regarding now when you focus more on integrating your acquisitions, how should we look at the margin trajectory from there? I guess you have some opportunities, especially on the MedTech side in improving the business mix of acquired companies with distributor character. Could you guide a bit on the opportunities there?
As you say, I mean, we can't guide you on the margin development, but as you say, we have successfully within, for instance, AdVetis in France, we have replaced step by step the lower margin product with higher margin products. And that has worked out successfully. I was in Paris a couple of weeks ago with that team, and that has worked out fine. We're doing the same now with Freelance Surgical in the UK, bringing in the full KYON product portfolio, and we will also bring in the VOI portfolio there. So those processes are ongoing. The last one is Kahuvet, that we have now started to supply with our products.
We also expect to see an increase in margin over time. There is still the deal we did with Everost and Spectrum. That's a very nice deal because we were able to take over the portfolio, but without taking on any OpEx, essentially. We expect that, you know, growth profit to essentially at the end fall almost 100% on the bottom line. Again, there we also expect to see operational leverage from that deal. All in all these deals will increase marginality over time as we extract those synergies. But of course, they take time. It's not something you just do overnight. It's customer by customer.
I think the industrial logic is very strong and we've seen that we can make it happen in, for instance, in France. I hope that answers your question. The other thing is, as I mentioned before, we are now working, you know, two weeks going to the US and meeting up with the leadership team in North America to not just look within the verticals, but also start to leverage VerticalVet and their network in pushing or promoting, you know, Nextmune products and Movora products. We can also start to see, you know, we can do referrals from our members to refer clinics within orthopedics, for instance, that may not be members of VetFamily. There are many different ways we can look at and creating value as an ecosystem.
That I will need to get back to you on, you know, quantifying those, but we are now starting to put more and more focus on those type of opportunities as well. That is actually happening in Europe. Last week, we had a VetFamily event where both Nextmune and Indical was present, where Indical presented a new technology to the members to, you know, get feedback directly from the members as to what they think about it, how it positions against competition and who would actually buy this and got very positive feedback there. Those are ways to start to see how we can, you know, explore across vertical synergies as well.
Okay, thanks. Thanks for that. Perhaps on MedTech, I think you mentioned that the annual order program was quite good. You got both recurring customers coming back and new customers, but how much of the good performance was from orders being kind of pulled from Q2 to Q1?
It's not a huge amount, but there is. The thing is that now this is happening in the U.S. only. Since we went into one sales force with both KYON and BioMedtrix, there is some KYON products that were now brought into the annual order program, and that's the main impact from that. We do expect to see slightly softer growth in Q2 versus Q2 last year, because we're able to execute on the program in a kind of more speedy way. Last year, part of the annual order program also went into Q2, versus this year it's really in Q1.
Okay, thanks. On vet services, could you remind us again about the impact from the, I mean, supplier renegotiations? Does that have a significant financial impact, and how should we look at that going forward? As I guess it's quite a big part of your revenue stream there that comes from fees from suppliers.
Yeah. It had an impact of about SEK 150 thousand in the quarter. Net, so some were positive and some were negative. Net-net, it had a SEK 150 thousand negative impact. You have the regional expansion investment had around SEK 270 thousand impact. If you take those out, if you had no impact from suppliers and no investment in the core, just looking at the core without clinics, the margin would have been about 34%. The core is now at 25%, after investing in regional expansion. You add the clinic side, which is about 20% of the revenue.
The clinic without any central cost for clinic group management is at 13.5%. We have a small team, but that lowers that margin to about 3% on 20% of the business, and that is what, you know, drives the margin down to around 18% on a mixed base within the Q1 . Part of this, we expect to see operational leverage from, especially the regional expansion. We expect gradually to see increase in revenue in those regions. Of course, the central clinic team is not something we will extend. I mean, we won't make it bigger, but they will get leverage from if we buy any more clinics.
Last one on central costs. Are you now approaching the level that you find suitable, or will you continue to grow the organization?
Central cost, we have, I think the team, I would say 80% is there. We're actually adding a legal counsel who's joining us from Zoetis in the fall. On the other side, we then expect to see external costs for legal going down. That should pay for itself. With the ESG strategy, we expect to hire a chief of people to focus on people development and leadership development and so forth. The ambition is also then to have a lower external hiring costs with headhunters. I hope that position will also pay for itself. It should.
Okay, thank you. That's all from me.
We have one more question from the line of Patrik Eriksson from DNB Markets. Please go ahead.
Thank you. Just a couple of questions. Maybe first, can we come back to your margin discussions? I mean, Henrik, you said that we should expect margins, especially in medical technology, to come down from the level we saw in Q1. Do you mean compared to Q1, or do you mean compared to Q2 last year?
Sorry, I was referring sequentially compared to Q1.
Given that you had order fulfillment program in Q1 last year as well as in this year, would you expect margin, given the change in mix that you've seen, to be higher in Q2 compared to Q2 last year?
I would expect it to be slightly lower due to the acquisitions that we've done. In Q2 of last year, we had basically not done any of the distributors deals. Although we expect to be able to improve margins in those as we've outlined in earlier earnings calls, it will not happen overnight. I would expect it to be slightly below Q2 of last year.
When you say slightly, how much would you say is slightly?
That's a good question. I don't want to comment on any exact numbers, but I still expect to see, you know, good solid margins in MedTech. It's not that I expect it to fall off a cliff. It's I expect it still to be solid margins.
Okay, great. Then also you had a comment regarding M&A strategy, and you said that you were waiting a little bit for a reset on pricing expectations in the private market. Maybe you can elaborate a little bit on that. What price expectations do you see currently in the private market and are they significantly above what you have talked about before?
No, not really. We haven't seen certain companies that, you know, had a tech angle to them have had a bit high expectations. I think that, you know, the fear that people have in the public market, I think comes into also the private market at some point, and, yeah, we think that that could give us a benefit in terms of deal structures and valuations. Exactly how much, I can't tell you. This is a bit, that's a bit of a crystal ball question.
Yeah.
Yeah.
If you look at the start of the Q2 now, for example, are there any transactions that you have said no to, you know, mainly due to pricing, where price expectations have been too high, that you haven't really been able to motivate yourself to buy companies due to pricing?
Sorry, just to make sure I understood the question. Are there deals that we haven't made because the price expectations were too high?
Exactly. That was a better way of putting it.
Sorry, yeah. No, yes, absolutely. Yes. Many deals we have, we have actually not transacted on because we felt that yeah we couldn't justify it. Maybe the other buyer. That doesn't mean that the transaction didn't happen, most likely because the other buyer might have had a higher level of synergy than we might have had, so they could justify higher valuation. We've been quite disciplined on pricing actually. We try to be very disciplined on pricing.
Okay, great. My last question, I mean, you talked a little bit about focusing on innovations going forward. Could you elaborate a little bit on any costs associated with that and any time frames when we should start to see new products that you have developed yourself actually materializing?
We've talked to you about the vaccine technology. It's a milestone-based payment, so we pay as they are successful. It won't appear on our P&L, it appears on the balance sheet once those milestone payments are made. The vaccine technology will take some time. I mean, that's gonna take years before it's ready. Also some new technologies we are exploring in diagnostics. I would say that those could be between one year from now and two years from now, that those could be ready to have an impact on the market. Again, all these deals are made with call options and milestone payments, so we only pay if they are successful.
Okay, great. That was all for me. Thank you.
Sure.
Patrick.
As there are no further questions, I'll hand it back to the speakers.
All right. Well, if there are no more questions, thank you so much for attending, today's call. Thank you for great questions, and, we look forward to continuing the dialogue with all of you. Thank you so much. Have a great day.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.