Vimian Group AB

STO:VIMIAN

Earnings Call Analysis

Vimian Group's Strong Q3 Performance Amid Challenges

In the third quarter of 2024, Vimian Group reported notable double-digit organic revenue growth of 10%, driven by growth in their Specialty Pharma and Veterinary Services segments. The company achieved an impressive adjusted EBITDA growth of 20%, reaching EUR 21.9 million, with an increased EBITDA margin of 25% year-over-year. This marks improvement across the board despite headwinds in specific areas.

Specialty Pharma's Robust Growth Strategies

The Specialty Pharma segment experienced a robust growth rate of 13%. The company's targeted cross-selling initiatives have proven effective, contributing to one-third of the segment's growth. Through active integration and optimization strategies, adjusted EBITDA grew by 24% in this segment, showcasing the benefits of recent acquisitions and efficient operational management.

MedTech Growth Slows; Focus on Education and Market Capture

The MedTech segment grew organically by 4%, notably slower than in previous quarters due to a sluggish high-cost U.S. surgical market for elective procedures. However, European and APAC markets continued to show strong performance with high-single-digit growth. Margin improvements were linked to the successful annual order program, which has helped in stabilizing sales across quarters. This quarter saw a 19% growth in adjusted EBITDA for MedTech.

Veterinary Services: Exceptionally Strong Growth

Vimian's Veterinary Services division excelled with a remarkable 17% growth, marked by the addition of 250 new clinics, bringing the total to 8,200. The segment benefitted from higher service penetration and scale, yielding a 34% growth in EBITDA, presenting a model for successful service-based growth strategies.

Strategic Acquisition of iM3: A Leap into Dental Veterinary Space

Vimian recently completed the acquisition of iM3, a leader in the veterinary dental market, expected to add around EUR 7.7 million in EBITDA. This acquisition is part of a strategic initiative to enter new therapeutic areas and enhance margins through operational improvement. The management is optimistic about leveraging existing capabilities to foster growth in this segment.

Challenges in Diagnostics and Future Outlook

The Diagnostics segment, constituting about 5% of total revenue, continues to face challenges, particularly due to a 5% decline in livestock-focused markets. However, ongoing efforts to diversify into companion animal diagnostics refer to a long-term strategy aimed at improving markets gradually. Management expects this segment's margins to slowly recover over time as the company continues investing in new technologies.

Financial Highlights: Improved Cash Flow and Management

Cash flow from operating activities improved to EUR 16.7 million, along with a decrease in net working capital to 23% of revenue, indicating better inventory control and cash generation. The company ended the quarter with a net debt of EUR 140.3 million, down from EUR 144.1 million, with a reduced leverage ratio of 1.3x. This financial stability enables Vimian to focus on future growth opportunities and manage acquisitions effectively.

Looking Ahead: Growth Drivers and Market Monitoring

Management is focused on organic growth, operational improvements, and the integration of iM3. With primary growth drivers being the humanization of pets and a rising elderly pet population, the long-term outlook remains positive. However, they are vigilant about the U.S. surgical market's performance, which remains soft, and will continue to track this segment while monitoring potential recovery trends.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to the Vimian Group Q3 report 2024. [Operator Instructions]

Now I will hand the conference over to the speakers, CEO, Patrik Eriksson; CFO, Carl-Johan Zetterberg Boudrie, please go ahead.

[Patrik Eriksson, executive]

Thank you very much and good morning, and thank you for joining our third quarter earnings call. We're going to jump straight into it today and maybe look at some of the highlights from the third quarter.

We continue to show double-digit organic growth and margin expansion in the quarter. We had a strong adjusted EBITDA growth and we improved our cash flow from our operations, and we passed an important milestone when we entered into an adjacent and an addition on MedTech niche when we acquired business in the dental space there.

I want to go through a little bit more in detail on what was driving these results. So first of all, a 10% organic revenue growth, and it's driven by our Specialty Pharma and our Veterinary Services segments, which both showed very strong growth. Our adjusted EBITDA grew by 20% and ended up being EUR 21.9 million. Our EBITDA margin came in at 25% year-over-year, and that's also an improvement.

If we turn to our Specialty Pharma segment, we show strong growth here with 13%. We had very strong growth across all of our therapeutic areas here. As you know, we've talked about a growth initiative here as the one focus point to drive organic growth is our cross-selling initiative. That yielded 1/3 of the growth came by way from that initiative alone, and the positive margin development that we've seen here in Specialty Pharma is driven by continued focus on integration of our acquisitions and optimization of the business in general. The adjusted EBITDA grew by 24% in this part of our business.

If we then turn to MedTech, organic growth in this segment was 4%. And it's driven -- it's slower than in Q2. It's driven by softness in the U.S. surgical elective high-cost market or high-price market, which would be knees and hips. And today we don't see any sign of recovery in this part of the segment in America. We had continued high single digit growth in our European and APAC businesses. The margin improvement here is driven by the annual order program where we have now flattened out our sales of those products across each quarter, and that even now it's our margin profile over quarters, yes, and the years as well. Our initiative to drive growth in MedTech is all about capturing the white space. We do that mostly by way of education and conducted over 20 onsite educations with almost 300 participants in the third quarter. Our adjusted EBITDA for MedTech grew by 19%.

We now switch over to our Veterinary Services business. Very strong growth here of 17%, and we see positive momentum across all of our key geographies in the business. Our initiative for growth in veterinary service, as you know, is all centered around acquiring new members, and we added 250 new clinics to our membership for a total of 8,200 at the end of the quarter. And margins were up substantially here and it's really because of our higher penetration of services on existing customers, and we're seeing good benefits of the scale that this business is now starting to drive. The EBITA growth for Veterinary Services came in at 34%, which is an exceptional growth for this business.

Now turning to our fourth and last segment, Diagnostics business, is about 5% of our total business. We continue to see decline in this business by 5%, and the end markets here, which is livestock-focused market, has unchanged characterizations. The profitability in this business is lower as we have launched this parasitology test to the companion animal business where we're refocusing and diversifying this part of our business also into companion animals. We'll continue that effort in the future as well.

With that said, maybe switch over to the acquisition that we just did. We're very excited about having completed the iM3 acquisition. It's a global leader in the veterinary dental space. And just as a reminder of our strategy where we've said that the M&A strategy is, if were tuck-ins, that adds products or geographies into our existing platforms in Specialty Pharma and MedTech or in Veterinary Services. We also said that we're looking for new therapy areas for Specialty Pharma and MedTech, and this is exactly that, a new therapy area for our MedTech business.

We're excited to have acquired the global leader in the vet dental space. iM3 has a very strong brand recognition in this niche. The niche grows very fast and has very high customer satisfaction. And as we've said before, but just as a reminder, this acquisition would add about EUR 7.7 million in EBITDA, and we consolidated the business into our operations here on October 1 this year.

If we were to look a little bit closer at the company, it's a family-owned business that was founded in Australia about 30 years ago, that has been very, very successful building customers in over 40 countries, selling both direct and through distribution. We're adding 85 employees into the family of and welcome them to the family of Vimian. And we have offices in the U.S., Australia, Ireland and in the U.K. Just like we have in our orthopedics business, white space capture and education is a key driver for growth here. iM3 has a number of state-of-the-art education centers that can be used both for dental and orthopedic education. So we're very excited to add more capabilities here.

If we look at additional acquisitions in this segment, we are looking at driving acquisitions that will help us improve and increase the margin profile of the business. That includes consumables businesses, it includes distribution businesses that will help us acquire that. If we look at our product portfolio in here, we have some very specialized dental units, x-ray units, instruments that are used for the actual surgical procedures or the dental procedures, some small equipment services and consumables. So today about 32% of the revenue of this business is of recurring nature.

So with that said, I'm going to end my piece here and hand over to Carl-Johan, who will walk us through a little bit more details on the financials. Over to you, Carl-Johan.

[Carl Johan Boudrie, executive]

Thank you very much Patrik. And let's take a more detailed view on the financials for the third quarter.

Adjusted EBITA in the third quarter was EUR 21.9 million, at a margin of 25.0%. This is a solid improvement from 22.9% for the same quarter last year, supported by a positive margin development in all of our 3 largest segments, as we see effects from cross-sales, benefit of scale, as well as mix. We report operating profit of EUR 10.1 million, a year-over-year growth of 2%. Items affecting comparability clearly impacted the operating profit in the quarter. In total, the items affecting comparability amounted to EUR 6.5 million with cost for the iM3 acquisition, as well as continued high-level of legal costs for the U.S. patent litigation.

The net financial items of minus EUR 9.3 million consists of 3 main elements. Finance expense of minus EUR 3.8 million with an average interest rate of 6.0% in the quarter offset by EUR 0.5 million interest income. The quarterly discounting impact of minus EUR 1.2 million, an impact of EUR 0.1 million from probability adjustments on contingent considerations. And lastly, a negative impact of EUR 5 million from non-realized FX effects on revaluation of debt. The income tax expense for the quarter amount to EUR 2.7 million. In total, this results in a net profit for the quarter of minus EUR 1.9 million. The negative result is a consequence of the high amount of items affecting comparability as well as the negative impact from FX in the net financial items.

Q3 cash flow. Cash flow from operating activities reached EUR 16.7 million in the third quarter, an improved cash generation compared to the same period last year as well as the second quarter this year. Net working capital amounted to EUR 80.8 million at the end of the quarter, equal to 23% of revenue, a decrease from EUR 82.0 million at the end of June, which equaled 24% of revenue. We see opportunities to gradually improve working capital and cash generation over time. During the quarter, we further improved our processes for inventory management across the group. And as a consequence, the decrease in net working capital of EUR 1.1 million compared to the end of the second quarter is driven by the decrease in inventory in MedTech and lower accounts receivables as MedTech AOP customers pay their monthly installments. The decrease was to some extent offset by slightly lower accounts payable.

Cashflow from investing activities of minus EUR 89.2 million, primarily reflects timing effect from financing the iM3 acquisition payable on October 1. Cashflow from financing activities of EUR 70.7 million with the proceeds of the rights issue in the second quarter of EUR 142.7 million has been used to repay EUR 142.4 million of debt, partially offset by the new loan of EUR 78.5 million for the iM3 acquisition.

At the end of the period, net debt amounted to EUR 140.3 million, down from EUR 144.1 million at the end of the second quarter. External lending totaled EUR 240.1 million following the repayment of the proceeds from the rights issue, as well as the use of funds to finance the iM3 acquisition. Leverage in the quarter equaled 1.3x compared to 1.4x at the end of the second quarter.

With this financial review of the quarter, I would like to hand the word back to Patrik for concluding remarks before we open up for the Q&A session.

[Patrik Eriksson, executive]

Thank you very much, Carl-Johan. So just in conclusion here, if we look at this, we're delivering a quarter with double-digit growth. We continue to see margin expansion. We improved our cash flow in the third quarter. We have our eyes on the U.S. surgical market that remains very soft and we'll continue to deploy the various commercial actions and monitor the situation here for the future. The long-term growth drivers in this industry is very clear and strong that the humanization of pets, the elderly population of pets as well because they live longer, and also the ability to treat our companion animals when they get sick is great healthy growth drivers that will continue to show good solid growth for the future here.

Our near-term priorities are all centered around organic growth, continue our operational improvements, drive really the best place to work and making sure that we onboard our recent acquisition in iM3 and continue to advance our M&A pipeline and agenda.

With that said, I'd like to open up for Q&A. Thank you very much.

[Operator]

[Operator Instructions] The next question comes from Rickard Anderkrans from Handelsbanken.

[Rickard Anderkrans, analyst]

So first set of questions on sort of growth and expectations for iM3 for the 5-year earnout period here. Is it reasonable to assume some 10% organic growth for the business over that period? And does your full earnout imply plus 25% EBITDA CAGR, which is in line with the development of the acquired companies you presented in conjunction with updated targets earlier this year? So start there.

[Patrik Eriksson, executive]

Rickard, when we look at iM3, you know the margin is at 21.5, and we think that the EBITDA margin for the business is going to grow over time. And we do that by way of operational improvements, by looking at additional acquisitions that has recurring higher margin and also potentially acquiring some of the distribution channels that are available there. And all of those 3 together will move the margin up to a higher level. On the growth rates, we saw healthy growth in iM3 in the third quarter, and we can continue to see how iM3 will grow at about the average of Vimian today. The niche is growing very fast, I think we can capitalize on it and we feel very good about how that can add to the value creation of our company going forward.

[Rickard Anderkrans, analyst]

And a follow-up, since you're set to pay earnouts for the deal, do you expect to generate meaningful excess free cash flow from the business to fund new acquisitions if we adjust for the earnouts as well?

[Carl Johan Boudrie, executive]

So on that, we see good opportunities for solid cash generation from iM3 or our dental business within MedTech. And as discussed, when we announced iM3, there are 2 portions of the earnouts. There's one earnout with a hurdle where we believe that's very likely that earnout will be reached. And then as Patrik mentioned, there's a second earnout option for the sellers that would imply very strong performance for us, for iM3. And if those earnouts would be payable, then there's a very strong cash generation achieved by the business as well.

[Rickard Anderkrans, analyst]

And what's the rough split between the hurdle and the optionality based on performance?

[Carl Johan Boudrie, executive]

So the first earnout payment on the hurdle, that's EUR 10 million, and then the optionality in the full amount is EUR 50 million if they would reach the full second tranche of the earnout.

[Rickard Anderkrans, analyst]

And on the weak outlook for MedTech in the U.S., you mentioned not really seeing any improvements in the shorter term. But looking at industry data from the U.S, there seem to have been 7% growth year-over-year in the market in the U.S. in September. Was that just a blip in the curve or have you seen deterioration in October? Would be interesting to hear a bit more on what you're seeing and, yes, the underlying development there?

[Patrik Eriksson, executive]

That's a good question. As you know, that same data source that you're looking at was minus 1 and minus 1, and year-to-date it's minus 1.3, so it could be a blip in the curve in September. Of course, it would be great if it wasn't, but I think it's too early to call it out and if you look at the monthly variation of that number, it is quite volatile. So although, it could be the beginning of a turnaround, but we don't want to suggest that it is, let's look at October and November and get a few more months. And if that pattern is prevailing, then I think we are in the turnaround. But I think it's too early to call, Rickard, at this point.

[Rickard Anderkrans, analyst]

And just a final question, any update on the oversight launch in the diagnostics business? When can we expect to see top line impact there and the recovering margins back to double digits? Should we assume a single-digit margins for diagnostics in '25 or would be interesting if any flavor on the outlook there would be very helpful?

[Carl Johan Boudrie, executive]

So on the sort of companion animal launch within diagnostics, and as we've communicated in the previous quarters, we've taken a conscious decision to invest in the go-to-market for the companion animal diagnostics solutions that we have. And as you rightly point out, that has had a negative toe on margins for 2024. We continue to see that for the rest of the year. The companion animal launch is progressing and we see an uptick in the companion animal business, even though we know we're launching a new technology and there's -- it takes time to get uptick in the market, even though we see some positive momentum and it is a resolute solution where we'll continue to see a recurring revenue stream as we have more and more machines installed. With that said, this will be a continuous journey where we'll start to see improving sales and improving margins over time. And it'll not be a step change, it will be a gradual improvement for diagnostics and for the companion animal solutions over time.

[Rickard Anderkrans, analyst]

So single digit should probably then for a couple of few more quarters then, we should probably assume single-digit levels.

[Carl Johan Boudrie, executive]

We should assume that we should see, call it a slight but steady improvement of margins as both the companion animal business is likely to continue to show positive moment. Even though, as we said, we're doing this go-to-market investment now for the full year and we will take a very close evaluation in the beginning of next year to see, so what's the next step in our companion animal diagnostic solutions and how we take that to market. And then of course, it is dependent on how our livestock business performs as well because that's the largest part of our diagnostic segments and we see that we have healthy margins within our core livestock diagnostics business. So as both continue to develop hopefully positively during next year, we will see a gradual margin improvement through quarter-over-quarter.

[Operator]

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

[Marco Pires-Cox, analyst]

I have 2, please. So firstly, just on the U.S. MedTech business, obviously weakness here started last quarter and you're still seeing some weakness there. I'm just curious whether you have any visibility on the ground when it comes to iM3 and the dental business there, given that peers in the overall dental market as a whole have reported weakness in the U.S. market there for quite some time. So I'm just curious to see whether you are seeing weakness in iM3 as well as in the U.S. MedTech business?

And then secondly, just a quick one on Spec Pharma, 1/3 of organic growth here today coming from cross-selling. I just wonder how are you thinking about this over the longer run? Do you think this is a reasonable basis to continue or do you expect to be able to expand this to be a higher contribution to organic growth over time?

[Patrik Eriksson, executive]

We'll start with the first one. When it comes to potential softness in the dental business in the U.S., we don't see it in the down business. We see it in the high-end elective surgical procedures, so knees and hips in the U.S. orthopedic business. On the Specialty Pharma piece, the cross-selling initiative has a long runway. We are still in the beginning of that initiative. We've acquired 20 businesses in Specialty Pharma and most of them have a characteristic where it's been a local company with its own manufacturing that has had local sales, if you like, or sold in that country plus adjacent countries. And we're making those product portfolios truly international as part of this cross-selling initiative. And you should also think about any additional acquisitions we do in Specialty Pharma will be folded into the cross-selling initiatives as well as part of the synergies in any acquisition like that. So I think and I see that this initiative has very long runway.

[Operator]

The next question comes from Arvid Necander from Carnegie.

[Arvid Necander, analyst]

First off on iM3, consensus seems to expect the underlying market to rebound in 2025. And assuming that it does, how confident are you that iM3 will be a double-digit growth business this year? Do you see any risk of this, for example, with temporary loss of customers as you convert distributor markets to direct markets or any other factors? And secondly, on orthopedics, do you believe there will be any meaningful pent-up demand once the market does fully rebound? I'll start there.

[Patrik Eriksson, executive]

So the first one is on iM3. We are not looking to make a lot of radical changes right in the onset here. So I don't expect us to see any movement on customer base or any changes there. I think that the primary focus for us in iM3 is all about accelerating the organic growth and making sure now that iM3 is part of a bigger family, that we can leverage the scale that we have and the capabilities that we have together and be stronger that way. So I would expect iM3's growth rates to increase and improve over time.

The second question about pent-up demand for orthopedics, it's a possibility that that might happen. If you need a knee or a hip on a dog, there's a certain window where it's economically feasible to actually perform that surgery. If you wait too long, I think you leave that window. If the market rebounds here in a very short order, I think there could be a positive rebound. But if this is a longer period, I am not sure there's going to be a rebound because those animals are going to be outside of the window where it's defendable to actually go through those relatively expensive surgeries.

[Arvid Necander, analyst]

And just the last one, if I may. Consensus doesn't seem to expect any major margin violation for MedTech in 2025. Assuming a full market rebound, how hopeful are you that you can improve the margin for iM3 already in 2025? It doesn't seem like you're planning much near-term initiatives there, but yes, conversion of distributor markets, the direct markets' increased focus on consumables or other initiatives? Any color that would be helpful.

[Carl Johan Boudrie, executive]

Maybe I'll get back to your questions and maybe just to fill in on what Patrik said onto the U.S. dental market and what we see opportunities for iM3, I think it's important to remember as well as we communicated, when we entered the dental space with the acquisition of iM3. There is a great reason why we're entering this space and why we see very long-term avenue for growth because this is a segment with a lot of white space that we see. So even if there would be a slower market or as you asked, Arvid, in terms of changing, going direct from distributors, et cetera, we see a lot of white space to cover within the dental business. And it is a huge opportunity for vets to increase their offerings within dental as well for them to develop and grow their business.

Then to your question, Arvid, on margins for iM3. So we have a very long-term belief that we can continue to develop our dental business with very solid growth and margin expansion to over time bring them to the fleet average of the group. And this we will do through step-by-step, very consciously making sure that we improve margins, looking to develop and invest in the business in the long-term to ensure that we capture white space, that we drive growth. That will, of course, over time mean that margins will improve, but we are investing in the business for the long-term. We are investing in the business to ensure that, especially from a financial and governance perspective, we're meeting the requirements from a main market listed company. So that is weighing a little bit on the cost level and as a consequence the margin for iM3 and MedTech dental. But with that said, we are positive that we continuously will improve margins in the MedTech dental over time to bring it to a fleet average from a group perspective.

[Operator]

The next question comes from Sten Gustafsson from ABG Sundal Collier.

[Sten Gustafsson, analyst]

If you could go back to the U.S. MedTech market, and I'm sorry if you already covered this in your prepared remarks, which I missed partly, but would it be possible to split up the market in the elective surgical procedures and more trauma? And talk about the performance in the -- how the sort of the acute or trauma market is developing? And also if you could share with us the growth rate in EU and rest of the world in the for the MedTech business, that would be helpful?

[Patrik Eriksson, executive]

Yes. I'll start with your second part of the question. The Europe and APAC businesses is growing high single digits and the North America business grew 1%. So that's the growth division. We split up internally the growth rates for the elective and the non-elective. So if you look at fracture plates, which typically is non-elective, if you've had trauma and you break legs and you will put fracture plates on there. The volume of fracture plates is very steady. The volume of knees and hips and particularly on knees because it's a much higher volume there than on hips. That's where we see the volume decrease here as a result of, I think, people electing to do those surgeries either later or postpone them to maybe never. And I think that was a different question about that, but it's hard to speculate whether they're going to rebound or if those are lost opportunities. But we do see that the trauma-related business is very steady and the knee business is where we see the market impact and people are delaying those surgeries today.

[Sten Gustafsson, analyst]

The share of sales roughly, are we talking 50-50 or is it 80-20 split between the elective and non-elective in a typical year or so?

[Patrik Eriksson, executive]

Sten, that's a great question. I actually don't know the exact split on that.

[Carl Johan Boudrie, executive]

We can get back to you on the exact how we split. No, I don't know the exact split, how we should look at different products in terms of it if it's elective or more trauma-based. I think that's a different way of slicing it. We can get back to you on that -- on that, Sten.

[Sten Gustafsson, analyst]

And then finally, general question on pricing for MedTech globally, is that positive year-over-year or how does that work typically?

[Patrik Eriksson, executive]

Yes, global price is up 5%, the price increases that we have conducted in the past. Yes.

[Sten Gustafsson, analyst]

And do you expect to be able to raise prices also for next year?

[Patrik Eriksson, executive]

Probably, but not at the same level. There would be smaller price increases if we deploy that.

[Operator]

The next question comes from Kavya from UBS.

[Kavya Deshpande, analyst]

I've got 2, please. The first is again on U.S. MedTech. I was just curious to understand how you are thinking about next year in terms of your commercial strategy, given what you are seeing. Do you expect to do another annual ordering program next year? Would it be downsized? Would it be a similarly small size as this year? Yes. So that's on that. And then on Specialty Pharma, I was wondering if you could share whether the cross-selling initiatives are concentrated to certain therapeutic areas and brands. And then also just if I could have another one on Specialty Pharma, on a regional basis, it looks like there were some shifts in dynamics here. So sequentially it looks like Europe's obviously still very strong double digits, but possibly stepped down versus last quarter and North America stepped up sequentially versus last quarter. So yes, are there any dynamics to flag there in terms of where the products are launching, where the integration efforts are concentrated regionally? That would be helpful.

[Patrik Eriksson, executive]

I'll start by answering your first 2 questions. I'll let Carl-Johan answer the third question you had. So the first one was related to MedTech and whether we see an AOP program coming next year. And we reduced the AOP program quite significantly this year in the first quarter. There are still customers who prefer to do AOP programs and they will continue to do so in the first quarter. So I expect there to be a level of AOP program. It might be a little bit smaller again in Q1, which I would guess that we have a couple of more customers maybe switch over to either monthly or quarterly order program.

And then on the second question on your Specialty Pharma piece on cross-selling. If you go down on what it is that the team is doing there? There's 15 distinct cross-selling initiatives inside of that piece. And they go across multiple geographies and multiple therapeutic areas. So it's a little bit all over the board probably is a good answer to that. But there's additional things you can add into the cross-selling, going back to the other one here about how much runway there is. So there's significant runway in the program. And Carl-Johan, maybe you want to take the third part of the question, which is the regional dynamics?

[Carl Johan Boudrie, executive]

Yes. So -- and also on your question relating to the cross-selling and as one of the reasons why we see continued with runway for cross-selling within Specialty Pharma, the predominantly so far it's mainly within allergy and dermatology. We are starting to see other initiatives that are bearing fruit in the other therapeutical areas as well, but maybe through the more runway going forward and [indiscernible] runway to drive continued growth in Specialty Pharma. On the regional dynamics and to say the growth in the U.S. and maybe North America versus Europe between the 2 quarters, there are 2 main things to keep in mind in that. One, in Q2, we had a very strong sales in our specialized pharmaceuticals business, especially in Europe and in the U.K. where one of our competitors were struggling and -- struggling and we had a great opportunity to go in and catch their business. So we had a very strong performance in specialized pharmaceuticals in the second quarter, which weighted up share of sales in revenue. And we also had slightly slower growth in our specialized nutrition business, which is predominantly North America, U.S. based. So mix effect driving the performance in the different regions between the quarters. In this quarter, we've seen sort of an uptake in growth in specialized pharmaceuticals taking a larger share of sales, which also has a mixed impact on the margin if we look sequentially Q2 over Q3. And secondly, there's a seasonal effect as well. We had a very strong month or month quarter in Europe in Q2, it's slightly slower in Q3 and that's to a large extent a seasonal effect from summer period in Europe.

[Operator]

The next question comes from Rickard Anderkrans from Handelsbanken.

[Rickard Anderkrans, analyst]

Just a quick follow-up. So I know U.K. is a quite important market for the Vimian Group. So there was another company in this space who called out that the larger vet chains have been somewhat cautious in the U.K. potentially due to the antitrust investigation ongoing in the market there. So I just wanted to kick the tires and see if that's any concern or risk that you're seeing or if you felt anything of that you wanted to double-check?

[Patrik Eriksson, executive]

No, and as you say, we're monitoring that event closely. Maybe we can see also of course, there's maybe some of the larger corporates in U.K., they have needed to take action based on this investigation that's ongoing. From our perspective, we see a continued good momentum in the U.K. and we have a very diversified, both customer base and route to the market in the U.K. So we haven't seen any real impact from this. And as we've communicated before, we're welcoming this investigation and making sure that we do what's best for pet parents.

[Operator]

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

[Patrik Eriksson, executive]

Well, thank you very much. Thanks for your attention and interest today. Again, double-digit growth in Q3, margin improvement and an improvement in our cashflow generation. We do see impact from our U.S. surgery business as we've talked about here. However, we are confident that we will finish the year with a healthy, full year solid growth. And looking forward to meet you again when we report the fourth quarter and the full year.

Take care and have a wonderful day now.