Terveystalo Oyj
OMXH:TTALO
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Earnings Call Analysis
Q4-2023 Analysis
Terveystalo Oyj
Terveystalo showcased a remarkable transformation in 2023, characterized by a sharp focus on profitability, strong customer satisfaction, and a commitment to quality healthcare. CEO Ville Iho emphasized the successful implementation of the Alpha program, a profitability improvement initiative that significantly contributed to the company's financial success. Terveystalo's EBITA margin for 2023 stood at 9.8%, with an impressive 11.5% for Q4 alone, marking a steadfast progress towards the 2025 target of 12%. The controlled decline in public occupational healthcare contracts highlighted a strategic shift towards more profitable ventures, reflecting Terveystalo's judicious management of resources.
Terveystalo's approach has been holistic, investing in data-driven integrated care models and fostering a workplace culture that led to being ranked as the top employer in the industry. This combination has not only resulted in a record-high customer Net Promoter Score (NPS) but also supports long-term growth strategies such as developing world-class medical service packages. A case in point is the rapidly expanding specialty in sleep medicine, where Terveystalo has established itself as a market leader in the Nordics. This focus on specialty areas and integrated care is expected to play a pivotal role in achieving organic growth exceeding the industry's standard.
Despite wavering consumer demand and the aftereffects of COVID-19, Terveystalo's underlying organic revenue growth remained strong, at 4% in Q4. The company's ability to adapt its sales mix and to implement successful pricing strategies mitigated the impact of lost revenues from COVID and selective outsourcing contracts. While portfolio businesses faced headwinds, they still managed to contribute positively to the bottom line, demonstrating Terveystalo’s resilience in face of adversity. However, challenges in Sweden due to macroeconomic uncertainty and a weak Swedish crown necessitated the launch of a profit improvement program to bolster operational margins.
Terveystalo's financial discipline is evident in its capital expenditure strategy, where investments are critically evaluated against stringent business case criteria. With net debt to adjusted EBITDA at a comfortable 3.0, the company maintains a strong balance sheet, giving it the leeway to pursue promising opportunities. Additionally, refinancing actions have optimized the debt portfolio, avoiding significant maturities in 2024 and solidifying the company's capital structure. This prudent financial management is testament to Terveystalo’s strategic foresight and investor confidence, also reflected in the proposal to increase dividends to EUR 0.30 per share for the year.
Looking ahead to 2024, Terveystalo is poised to build on its strengths, projecting revenue growth and an adjusted EBITA margin between 10.1% and 11.5%. The company has set its sights not only on sustaining the current momentum but also on exceeding it by targeting a 12% EBITA margin by 2025. The completion of the Alpha program and the efficiency gains it embodies serve as a cornerstone for the optimistic outlook. Despite anticipated challenges, such as further revenue reductions from outsourcing contracts and a tough year in Sweden, Terveystalo remains steadfast in its commitment to growth, operational efficiency, and reaching its financial targets.
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Good morning, everybody, and welcome to Terveystalo's Q4 and Full Year 2023 Results Webcast and Call. My name is Kati Kaksonen, I'm responsible for Terveystalo's Investor Relations Sustainability & Communications.So our agenda today is business as usual. So our CEO, Ville Iho, will briefly go through the full year highlights from the financial and operational perspective, talk about the dividend proposal for this year's AGM, and then a brief medical quality highlight and the way we focus on when we look for growth in 2024. We'll follow that with the CFO, Juuso Pajunen, who will go into deeper on the drivers of the Q4 results from the financials perspective progress against the guidance as well as the guidance for this year and going forward.Without further ado, maybe over to you, Ville, and a brief reminder that we'll take questions after the presentations via the webcast as well as through the phone lines. Over to you.
Thank you, Kati, and good morning. From my behalf, I will dive straight into the highlights of '23. So this has been an outstanding turnaround year for Terveystalo and big thanks for Terveystalo team for great contribution. Profitability and operational efficiency have improved across the board. The big driver for the improvement has been our Alpha program, i.e., the profitability improvement program, which has already delivered constantly. We have invested -- continue to invest in data-driven integrated care. That's yielding results. And as a bottom line, as a core of the company, we are high-quality operation. We have a record customer satisfaction, and we are the most attractive employer in this industry, both key cornerstones for Terveystalo future and growing and improving our business going forward.In numbers, Q4 and the year, respectively, we grew by some 2% in Q4 and '23, underlying organic growth is stronger, 4% and 6%, respectively. Margin recovery has been constant. We -- in '22, we set ourselves a target and targets. And we have followed those targets we have overdelivered on those targets, and we are on our way to achieve our financial targets in '25. Margin recovery for the full year has been solid. 9.8%, EBITA margin for the full year and 11.5% for Q4, very, very decent number. And as I said, on a straight line from the starting point to 12% margin, which is our target in '25.Number of appointments, i.e., the volume dropped slightly in '23 and in Q4, and that's mainly driven by loss of public occupational healthcare contracts, which has been a planned action because there's a low -- very low profitability in those contracts. This is supply-constrained business, and we have had a better use for the resources than trying to tender low profitability, long-standing occupational healthcare contracts.As said, the customer satisfaction, it's a record high NPS at 85 against any service company. This is a sky-high figure. And we continued to invest in integrated care, which is delivering customer value. We are #1 in healthcare business as an employer. And as said, it's -- it continues to be the cornerstone. We continued investing in small customer processes and also working environment for our great healthcare professionals.Diving slightly deeper into the segments for the full year, as we can see positive development in our main business healthcare services There, the Alpha program has been a big driver for the improvement. And here, you need to adjust these numbers also against the fact that comparison period '22, we still have COVID business. So against that backdrop, the recovery has been remarkable. And Alpha program has truly delivered.Portfolio businesses and each and every sub-businesses there we have seen progress as well. There are some headwinds in a couple of those, but great work done in our portfolio businesses as well. In Sweden, on a yearly level good progress. When it comes to margin, we have there some recent headwinds in market conditions, and Juuso will comment on that one. There we are implementing now similar kind of measures that turned healthcare services margin around and team is committed to deliver.As said, in our core business, Healthcare Services Alpha program, i.e., the profitability improvement program has been the key driver for delivering the results that we are today presenting. We have exceeded our initial targets, and we can report over EUR 60 million run rate impact already today, which is, I would say, outstanding result. We will continue the program still during H1 this year and boost our margin further. So that we can be confident on reaching the 12% in '25. Juuso will later show some more detailed bridges on how we see that one chipping in.Great achievements in all of the 3 buckets that we set out for the program; commercial, operations, and management system. From a management system point of view, and as an organization, we are very lean, and we are more transparent. We understand better and also external work can read better the delivers of our business and each and every part of the business contributed profitability costs are lower and effectiveness of our management system is higher.Great achievements in commercial front. Pricing actions have been not only tackling the inflation, but they have improved our position. It's not only touching the sort of face value of the prices, better pricing of our different services, closing loopholes in price leakages, et cetera, et cetera. Customer steering is in better shape. We can control better the customer flows, both from a customer service point of view, but also a profitability point of view.In operations, multiple good achievements. We are resourcing our frontline staff more accurately. The care continues to improve. We'll invest in that heavily also during this year. Supply, which is a big thing, continued to improve throughout all of the quarters last year. Supply will be key also for this year. This is a supply-constrained business and whoever at the end of the day will have the resources, will have the business as the #1 employer and with a track record of improving the supply, we are confident that this development will continue. Cost optimization has been a key theme across the board, and one can see the impact in our number.As said, this has been a strong turnaround here. We have still work to do to reach our EBITA target of 12%, but looking at the agenda, looking at the track record, looking at the pace in which we are moving ahead, there's a great confidence inside the team and inside Terveystalo that we will reach the targets. And as one sign of confidence also the Board of Directors are proposing higher dividend from last year. So dividend proposal for the AGM will be EUR 0.30 per share against EUR 0.28 last year. Demonstrating, again, high confidence in what we are doing on the agenda and on the progress of the company.Finally, from my part, as I said, this has been a turn -- last year was a turnaround year. We have proven that we can improve the margins. We continue to improve the margins. We have work to do to reach the 12%, but agenda is there and team is there to deliver. The focus during this year will turn gradually from the profitability improvement program into so-called, so to say, normal business and more to customers and more to growth. The engine inside specialty healthcare services is humming very, very nicely. We have been able to improve the performance of that engine. Now we concentrate on getting more volume on top of that one to get the full benefit out of the operating leverage, which has improved.There are different levers for the growth and how we are seeing the growth in our core. One of the spearheads is concentrating on 10 different specialties where we are creating world-class service packages, world-class medical quality and at the same time, improve the profitability impact of that discipline and volumes through that discipline. Today's example is sleep medicine where we can probably say that we have the best discipline in the Nordics. There, we have done exactly what we have commented around our integrated care paradigm. We have end-to-end services. We have the best possible medical processes in place, and we have great outcomes.At the same time, we have been able to leverage our current customer base of these great services to our current customer base and through that one, improve boost the volumes and also revenue and margin within this. This is just one example, but this can be replicated in several different fronts. Earlier, we have discussed musculoskeletal area and mental health. This is now the third example that more will follow. Growth, customer focus and finalizing the profitability improvement program for these big themes.With that one, over to Juuso.
Thank you, Ville. So my name is Juuso Pajunen. I'm here to show you some numbers. Let's move to those ones. First, if I would simplify this from 3 sentences to 3 words, it would be growth, efficiency and progress. So basically, what has happened in Q4 is that we have the underlying organic top line growth is 4%. Remembering that we lost some COVID revenues, we have some decisions on the outsourcing contracts. And when you take those ones out, we are -- we are growing and also the absolute numbers are actually growing. We have 33 percentage points improvement in EBITA. We are delivering 11.5% of the revenue coming from the efficiency gains from the profit improvement program. And then we have the improved sales mix and the successful pricing in there also. And as you have seen probably from the report already, we have updated the guidance for '24. We are taking clear steps towards 12% that we will deliver in '25.So let's see a bit deeper into the revenues. So we have the sales mix is improving. We have the pricing has been successful and the outsourcing contracts in the portfolio businesses have impacted negatively. If we take the [ big motto ] healthcare services, we are delivering solid growth, [ it's 6% ], if you adjust the COVID revenues in the -- it's closer to 10%. We have the appointments. We are delivering more revenues. Diagnostics is going slightly down, driven by the COVID part and other services such as operations, imaging and so on are delivering positive contribution into the top line.In portfolios, we have the outsourcing, which is clearly by choice. We are reducing revenues. Also this will continue in '24. We are expecting some EUR 10 million annually to drop revenues in this part. We have then the consumer part has been facing the difficulties that we have already communicated earlier in Q3, the consumer demand was lower. But at the same time, when we go into the bottom line bridges, we see that there's still positive contribution on that part. So we have -- all in all, I would say, a solid improvement or solid revenue line. Also in portfolios when we exclude the outsourcing. We need to remember also that we had one working day less for all of our operations in Q4.Sweden, the macro uncertainty continues and weak [ Swedish crown ] also impacts on the absolute number, but also excluding the Swedish crown, top line would have been reducing. But all in all, EUR 342 million revenues in Q4. If we then look what it contributed to profit, 33% improvement in EBITA from 29.7% to 39.5%. Strong performance in healthcare services, almost EUR 7 million more efficiency, sales mix, pricing, cost control. All of these have been topics in our profit improvement program. In all of these topics we deliver; clear improvement, clear step forward.Portfolio business is almost EUR 4 million of more EBITA. This is coming throughout the services. If we split it roughly, we can say that 2/3 come from the public part of the business, which is mainly the outsourcing and staffing and 1/3 is coming from the consumer part of business. So despite having some headwinds, we have been able to improve the profitability. The same themes as in profit improvement program, efficiency, cost control. Sweden, we are decreasing in the bottom line also we see that the macroeconomic environment is impacting us. We are in the preventive care and that one is more vulnerable for employer decisions, how they buy preventive care services.And then segment Other is basically [ rounding around here ]. So all in all, strong profit development, 33% up in EBITA, 11.5% margin in the quarter and 9.8% for the full year. A couple of words, if we go still deeper, most of the things already said in the previous slide. But if we look to healthcare services, it's good to note that in here, you can see the growth, 6%. If you exclude the COVID, it would be even higher. But what is happening in the underlying sales mix, we have taken the liberal choices on our customer, and we have somewhat less connected employees in the occupational healthcare. And it's visible, especially in the public sector. At the same time, the consumer market continues to grow. We have the insurance -- insurance part out of the pocket parts. Both of them are faring well in the total big picture.In portfolio businesses, as said, we can see the reduction in the revenues in the outsourcing contracts. But what I would highlight in here is that from minus 2.5% to 2.9% is a step to right direction, not yet fulfilling our ambitions but a step to right direction. It's coming throughout the operations. Then if we look Sweden, macroeconomic environment impacting, I will say a couple of words more on this one in the guidance part also. But we are facing issues in there. But what we are now doing is that we have initiated the profit improvement program in Sweden, leveraging the methodology we have learned from Finland and bringing that one to Sweden. And the whole idea in there is to make sure that we are structurally capable of delivering good margins in Sweden. And that one we will do in '25 latest.Then if we look from the profits to cash flow, solid operating cash flow EUR 160 million, give or take operating cash flow. At the same time, you may note that our gross CapEx continues to trail down. Now we are at minus EUR 41 million investments. We are picky on where to invest, how to invest. It needs to come from a good business case. We have good business cases, but being selective, it means also that we can invest a bit less than we have earlier done.Then if we look on the balance sheet, 3.0 net debt to adjusted EBITDA. It's a good place to be. I'm a bit shame to say it's actually 2.96, I would have wanted to find [ 0.02 ] there to be at 2.9, but 3.0 it is. It's coming from reduction in the interest-bearing debt, but at the same time, like I've been saying IFRS 16 lease liabilities, it's a good market now to negotiate with the landlords and make commitments towards certain type of premises, and that is something that we have done. So thus, the net debt has not gone as much down as it could have. But the main component in there arises from the lease liabilities.Then the other positive item is that we have now in the refinancing in Q4, we closed EUR 135 million of term loans and extended EUR 40 million of revolving credit facilities. Actually, we then took only [ EUR 125 million ] when we lifted the launch. And now, we don't have material maturity points in '24. So our debt portfolio is in a really good shape.Then comparing what we have done against our financial targets. Our growth target is 5%. We delivered 2% revenue growth in '23. Underlying organic growth is higher. So we are capable of growing, but at the same time, we want to do the 5%. Profitability, clearly a step in the right direction. We are at 9.8% against the guidance of 9.1% to 10.1% in full year. We target to 12%. I will say a couple of words on that one, what we are doing to get. But we need to now remember, if we took this one a bit into perspective, our lowest LTM was at 8% at the end of Q1 '23. From that one, we have taken 1.8 percentage points up. And that 8% LTM, the bottom deepest point was still supported by some COVID revenues. So from my perspective, we have taken very good steps forward, and I'm really happy to tell in our guidance, that we will continue on that route.Capital structure 3.0 doesn't need to -- or it doesn't merit to too many further comments. We are below our target. We are picky on our investments. If we see good investments, we have basically balance sheet to change them. Dividend policy will [ even prove that one 0.3 ], I think it signals that we are truly confident with our future. We have been increasing the dividends. It's 64% of the adjusted net profit. So when you take the adjustment items, the goodwill write-offs out from there, you see that this is comparing to our 40% of the net profits. It's some were aligned with that part. And as you know, the goodwill impairments don't have a cash flow impact. So this is a clear cut decision or proposal from Board of Directors.Guidance. So what do we have? We have a stable market. We have solid underlying demand. We have supply in order. Our supply, our healthcare professionals numbers continue to grow. And we have -- we are in phase of finalizing a profit improvement program concentrating in efficiency. So we have the building blocks. And against those building blocks, it's quite easy to say that with these components, our revenue will grow in '24. Our adjusted EBITA will be between 10.1% and 11.5%. This is our guidance. We are confident that we are progressing clearly from the 9.8% in '23.When putting out the guidance in place, it's based on what we knew at the end of '23 from macroeconomics. We will finalize the profit improvement program. We will lose some revenue in the outsourcing contracts, and we do know that Sweden will have a difficult year this year, which we will tackle with the profit improvement program in Sweden. So there are various different components in the markets, but strong underlying demand, solid market conditions. So this is what we will do. Growing revenues, 10.1% to 11.5% EBITA.And it's not all there yet. So one more thing, we will go to 12% in '25, 10.1% to 11.5% guidance this year. We will continue in the healthcare services, the finalization of profit improvement program, and we will chase the efficiency gains to the end. What we have started, we will complete, and it will have a further positive impact. We have done by end of '23 EUR 60 million of run rate impact in 14 months. We have this year time to still top up that and make sure that we do it. Healthcare services is also the big motto. So obviously, a big chunk of the improvement towards 12% needs to come from there.Then what happens in Sweden, we will improve the structural margin capability. We will take the methodology from the profit improvement program to Sweden, and we will make it happen so that it contributes towards the 12% target positively compared from where it is today. But at the same time, I said '24 will have struggles. So that one will also happen.Portfolios, the outsourcing reduction will continue to happen in '24, EUR 10 million, give or take less revenues. But we have further efficiency gains to reap in this part of the business. We have also clarified the organization structures, the ways of working in '23. We will continue on that work and also portfolio businesses will contribute positively into the 12% target, which we will reach in '25.So basically, as a summary, good fourth quarter, solid underlying demand, stable markets, efficient organization, supply and control will yield in better results in '24. These words -- thank you, and let's go for Q&A.
Thanks. I think that we are now ready to move into questions from the phone lines, if we have any on the line.
[Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank.
Okay. I have a couple of questions. We'll take this one by one. Starting from the margin guidance where you're giving a wider range than for last year. Can you elaborate a bit on why you're seeing higher uncertainty this year? And what are some of the sort of key variables that will be impacting the outcome?
Well if I start, and Ville can complement. So basically, we need to remember that last year, we gave the guidance 4 months later than this year or a couple of months later, it was after Q1 when, of course, we had seen 1 long quarter, so one could kind of say that we had almost 1/3 of the information available when determining the guidance. So I don't fully, fully signed comment that the uncertainties are clearly wider. So that's the first part of it.At the same time, the items that may impact the guidance where we land between the brackets, we have listed in our assumptions. Maybe the one further to comment from those ones is that we have some, let's say, stretches in the labor market in Finland and how these ones turn out during the year. We do know that our CLA is ending at the end of April. So what happens in those ones will have an impact on us. And now we are kind of basing our assumptions on no material surprises perspective. So that's maybe one to mention on top of the assumptions that were all listed and also this one is actually listed in there.
Okay. Then moving to the growth guidance. You're seeing top line growth despite some outsourcing headwinds. How do you see price and volume component developing this year?
Well, I think that both need to be a component in there. At the same time, you saw that there is some reduction in the appointments and at the same time, we'll have presented a couple of ideas what we are working on the volume side. Of course, we are targeting like-for-like basis on both. Pricing will have an impact. But at the same time, we need to remember that pricing is also tied to what type of inflation we, for example, see.
Okay. And then finally, on the Alpha program, you achieved EUR 60 million run rate in Q4. What could be sort of the final run rate that you will be obtaining during this year? I think you mentioned that you are planning additional measures in Sweden. And then most likely, there will be also something in Finland.
Yes, I think that the run rate that we will achieve is such that we will deliver 12% in '25. So there's -- we need to remember that in these type of programs, when we talk about run rate, it is tied to a certain point of time. And we have built this program from October '22. So the more we start talking about run rate compared to that baseline, the more faster it gets. So we are now turning our eyes more and more into 12% in '25. It has been continuously the [ North Star ], but it is easier for us to communicate against that [ North Star ] in the future presentations. But obviously, it means that we need to continue in our efficiency actions. We need to finalize the initiatives we have started and it means also against the '22 October baseline, significant further improvement in the run rate as it was calculated at that -- against that target.
Okay. And can you maybe elaborate on the new measures you're planning this year that will help you to attain 12% margin next year?
Well, it will continue on the same trail as it has -- as we have communicated during the past quarters, we have the commercial part where we have taken -- we have gotten forward with leaps and bounds. That one will continue during this year. At the same time, the efficiency, we have taken lots of the low-hanging fruits during '23 that will continue to contribute in '24. But we have further ideas how to do things. We have further ideas on the appointment. But the key levers continue to the same -- to be the same. Having the right number of staff delivering the revenues is in key the digitalization is a key. We want to give a good beauty experience to healthcare professionals make sure that they don't spend excess time with different type of tools they need to be able to concentrate on delivering value to clients, which we will then be happy to price and share between ourselves and the professionals.
Yes. If I may add, I would name 3 different areas where the focus will be high during this year. So demand generation will be one of the big, big levers. There are several elements in our program and then turning into normal sort of [ a BNL ] driven leadership during the year. That will support demand generation and hence, the volumes. Then care parts continuity, which we have discussed at length during the calls earlier also will be a key focus for this year. We have made some progress in there, but work to be done to get really into the heart of integrated care paradigm. Then finally, as maybe a detail, but an important one, there are measures that we concentrate on, which support appointment profitability. And there, we have a solid agenda how to do that one so that we wouldn't be in the future so reliant on sort of latter part of the [indiscernible].
Okay. I don't have any further questions.
The next question comes from Iiris Theman from Carnegie.
This is Iiris Theman from Carnegie. I have also a couple of questions. So if I also take them one by one. So firstly, have you seen any kind of pickup on the public demand? And what kind of discussions are you currently having with well-being counties?
Well, if I start, the short and simple answer is no. We have not seen a pickup in activities or demand. It has been a similar kind of situation from Q3 up until this point. So basically, there's a heavy internal concentration on their own issues by the healthcare counties. And we don't see sort of new openings, at least not new big openings. The normal business continues as is, we have a solid staffing business. We are selling services from our network and no changes there. And that's, of course, a solid high profitable business for us, but discussing new type of cooperation agreements and new type of service modalities that we could offer for healthcare counties. There has been quite silent.The only piece that is currently moving is digital platforms and related services. There are a lot of tenders out there, but that's sort of a fairly special market, but it can grow up and maybe to let's say, EUR 30 million business or something as a whole and then Terveystalo would have a share of that one. But the big moves are still to come. And last year, the early on -- in last year, we have forecasted that there will be new activities happening during the latter part of the year. I think we said Q4, now we need to, in a way, rephrase that one. And now we are looking at the latter part of this year. Healthcare counties have a lot of work to be done before they can open up for new larger cooperation agreements.
Okay. Very clear. And then secondly, related to Sweden. So in order to reach the kind of higher margin in Sweden, does it require acquisitions? Or are you basically able to reach group margin levels with your profit improvement program? Or will Sweden remain below the margin.
So let's put it this way that we will -- we are targeting at a clearly higher margin level than feel good platform has been able to produce earlier. So a higher margin level than previously, the -- so far, the highest, I think is close to 6%, slightly lower than 6%, but we are aiming at higher margin level. But with the current program, with the current measure, it does not still reach group margin. So still the big plan is the same. We need to have the healthy base, which we are now tackling with the healthcare -- with the profitability improvement program. But reaching group profitability will require transformation in the healthcare company. Now we are in preventive as Juuso said.
Okay. And my final question is just related to this efficiency measure program in Sweden. So perhaps can you go still through in more detail what kind of measures [ you are expecting even ] this year?
Well, if I start, Juuso may fill in. So basically, we have 3 different buckets in our Alpha program in Finland. We had the organizational efficiency structure than commercial actions operations and operational efficiency, same buckets will be deployed to Sweden. Of course, they have slightly different headlines because the business is slightly different. But under those buckets, we have focused actions now commencing and they will yield results as we have seen also in Finland in Alpha program.
No, I think that, that's as it all.
The next question comes from Anssi Raussi from SEB.
It's [indiscernible] from SEB. A couple of questions from me as well. And if I start with your, let's say, conversion rate like diagnostic and appointments. Is this current level something we should expect in the future as well? Or do you see potentially in some direction here in the future?
I think that we need to look at from 2 different perspectives. If you refer Q4 diagnostic rates, we need to remember that Q4 and Q1 are in the flu season. So obviously, conversion rates in these periods are higher. But then if we take kind of the base level and thinking, we have now more or less achieved in the standard diagnostic care parts 2019 levels, which are still below the care guideline levels in Finland clearly. So there is a room for upside from that perspective, but it doesn't come easily. It is driven by people behavior and so on. So we are obviously working on to get there.Then we do see that we have certain pockets in the long-term sicknesses where the diagnostic rates are not yet fully recovered. And this is something that we are also trying to make sure that we get on the higher level. So we are now in an okay place. We see room for improvement, but this type of post call it recovery starts to be seen.
Yes, if I may add. So we have been able to -- as Juuso said, we have fixed basically the simple [ as conversion ]. So flu season yield similar kind of results and slightly better results than earlier. And where we have still work to do is this longer-term sicknesses and longer and more complicated care parts. And as I said in the presentation, one of the focuses for this year is care parts continuity. And there, we have an agenda in place, which will support conversion in this, let's say, higher yield and more complex care parts.One thing to add, though, is the fact that I alluded earlier to -- which is a fact that we are also concentrating now and we have a solid agenda in place to boost appointment profitability from Terveystalo point of view. That's important to note as well.
Okay, clear. And sorry if I missed this one, but did you mention anything about sick leaves, like you have already lower sick leaves, but how elevated those are, for example, if we compared to pre-pandemic levels. So how much margin improvement left there, if we go back to so-called normal here.
I would say that we are give or take in normal levels. It is in a place that we don't feel it material to comment. There's always volatility in sickness leaves there will always be volatility in those ones. But at the moment, we are in a fairly understandable place from total perspective.
Okay. And then finally, about your CapEx level in 2024. Did you mention anything about that one?
Well, we don't guide CapEx levels. As such, we have been saying in the Capital Market Day that we see that in a longer-term period something -- something starting with 4 would make sense as in 4 percentage points of revenue would make sense in the longer perspective. Now we are clearly below that level, and we are continuously iterating and evaluating that part. What I can assure you is that in '24, we will make any investments where we see a strong positive return on investment. That one we have balance sheet, but we are also very careful to pick the right one.
There are no more questions at this time. So I hand the conference back to the speakers.
Thanks very much. I think maybe we take questions from the audience now before we go into the webcast questions.
Roni Peuranheimo from Inderes. A lot of good questions already. I could ask about the profitability guidance. So what factors could swing the profitability from the lower end to the upper end? Is it more market-related, for example, to labor markets or internal factors?
I think it has both components with internal factors. Of course, we are confident that we are capable of impacting those ones we will finalize the profit improvement program. Of course, if we continue to be ahead of time, a bit with high conversion from that one, it can merit higher than -- it can merit being at the higher end of the range. And then, of course, on the lower end of the range, there are items that are beyond our control, such as the labor market -- labor market predictability in Finland.
Then about Sweden, given the weakness in Swedish business at the moment? So how eager are you doing more acquisitions at the moment there? How confident are you about the business model in general?
Well, I think we need to split it into a bit like Ville said, that the current occupational health market is certain type of a preventive market. To be in a group benchmark profitability, we need to transform to be in healthcare. That doesn't happen organically. But at the same time, of course, the platform on which we are building anything needs to be healthy and delivering solid underlying margins also on that one. So we will balance between these 2 topics during the year.
Yes. And maybe to add to that one. Obviously, while we are commencing this profitability program we need to see clear traction and clear improvement before doing anything extra or doing acquisitions. So as you said, the base needs to be really, really solid.
All right. Maybe one more question about the Alpha program. The run rate was already EUR 60 million. So what was the jump so high from Q3 levels?
Well, we have been able to take many of the initiatives forward. I think that part of that one is normal human cycle [ or say, Christmas ] comes and you want to complete the work before that one. So then you run a bit faster still from the earlier pace. So that gives you a bit of change. Then we need to put it into the context during the year. We continuously communicated that the let's say, cost savings are the quick wins. Those we implemented very quickly, very efficiently. But the closer you went to the core processes, the more time it takes, the more careful planning, it takes and the more time it takes implementation-wise, so most of these things that we achieved didn't come as a surprise to ourselves. They were coming from a diligent [ whereon ] process, which require a certain amount of time. And in service industries, delivering this type of positive impact within 12 months is actually quite a great achievement.
All right. No more questions from me.
We have quite a few questions from the webcast. Let's see if we can go through all of them. Maybe first question to both of you, what was the biggest single contributor in the profit improvement program?
If I start, I would say within these 3 buckets, of course, the organizational structure and operational efficiency from that part is a slightly smaller bucket then we have the operations and commercial. They were almost neck-to-neck at the end of the -- across the finish line. So we started really fast [ and beak with ] the commercial actions. But then as Juuso explained earlier, operations were almost able to close the gap at the year-end.
And then if I maybe complement that if we look in short term, it's clear that commercial actions were delivering a lot. But if we look long term and we look for structural profit improvement, we are now with the organizational changes with the efficiency gains, our operating leverage is better. So we are structurally in a better place that will, in long term yield probably more than the commercial items.
Right.
Yes. Then on a general question, what kind of M&A targets are we looking at in 2024, if any?
Well, if I start from that one, we touched upon the Sweden. In Finland, we are positive to add good cases to our platform, depending how they can contribute both to the [ mother ship ] and then the specific business model. At the same time, we are quite big in Finland. So we would rather look on certain type of bolt-ons than anything else. So -- but we are open. We have the balance sheet. We are clearly looking if they are positive business cases.
Yes. I would assume that the number of acquisitions this year will not be 0.
Yes. Okay, more than 0. All right. Given the current interest rates and inflation, how was the pricing were we able to achieve all the necessary price increases for 2023, actually? And then what does the environment look like for this year?
So the pricing environment has been solid. It has been healthy. Of course, we as a main player, we have driven the pricing environment. So one needs to remember that one. We have been able to develop the pricing of different services on the way that we targeted that. Of course, the base is surely slowing down because the inflation has gone down also. But there are more sort of more detailed ways how we can still improve the commercial arena and do commercial actions. It's not so much sort of a face value price increases, rather getting most out of the different service modalities closing the loopholes of price leakages, et cetera.
Great. Maybe a couple of questions on the balance sheet. Are we happy with the current relative debt levels? Or would we consider deleveraging in 2024?
Yes, I think this one corners back to the 2 topics we have discussed in the presentation. So first of all, our 3 topics. First of all, we have a solid operating cash flow. So if we do not invest that one, it will yield in deleveraging subject for dividend decisions. Now Board of Directors increased the dividends. It's from EUR 35 million to EUR 38 million. So it doesn't make or break anything in that end. Our CapEx, excluding [ LTM ], was EUR 41 million. So within these ones, you can see that about our free cash flow is and depending on the investment cases and all of that one, it will have an implication on the net debt-to-EBITDA ratio. So from that perspective, we have capability to invest, if investments don't come, it comes with deleverage by mathematics. So...
Yes. Can you just elaborate a bit on what are the buckets in our CapEx spend overall and looking at this year?
Meaning this year [ as '24 ]?
As in '24, yes.
We will continue the investments as we have done. So we have had -- if we put it into 3 different topics, we can say that we can invest in the walls, in the brick-and-mortar, which is mainly leasehold liability type of investment. So it is carried by our landlords. We will continue to optimize our real estate portfolio. Then we can invest in tangible assets, such as MRI, ultrasound devices and so on. Those ones are very much demand-driven. And I would say, local to regional investments that we take based on the local business cases, but we will continue both kind of the sustaining investments where you need to -- you have a certain type of an MRI portfolio, and you need to renew it every now and then. And new machines will be based on local demand situation.And then the third, actually, the most interesting one are the digital investments. We will continue to invest in digital. It's a big part of our strategy. It's a big part of our operating model, and it's a big part of our value creation. We want to be the best in that sense. So those investments will continue. And the levels we discussed already earlier.
Yes. Maybe then an overall comment, how would you characterize our debt portfolio at the moment and our financing capabilities.
Well, our financing capabilities are strong. So if we start from the capability perspective, we are now all included net debt to adjusted EBITDA at 3x, which is lowest to our industry. We have a solid cash flow to back that one under all circumstances. Then if we look to that portfolio, we issued during '23, EUR 100 million sustainability-linked bond. That is for 5 years, it goes to '28. Then we renewed financing from term loan and revolving credit facility perspective in Q4 this year, it means that we don't have any material maturity points in '24 on our debt financing. So we don't need to renew material things. We have capacity to take further loans if we see positive investment cases, and we have a solid cash flow to back it up. So I'm, as a CFO, I'm actually very comfortable and happy with our current portfolio position.
Great. Maybe then to you, Ville. We have talked about the finance side of things and how we plan to come to the 12% EBITA margin, but what about the service quality and the metrics that we look there? Are there any plans to improve the service quality metrics and where do we put our focus on that side?
Yes. I think I said in the presentation that this year, the focus will shift from sort of program-led profitability improvement to customers, patients and professionals in the core of our integrated care is delivering value for all of the stakeholders. You also mentioned digital investments, they will contribute to a smaller more fluent, better access to care services. We will continue to invest in that one and make progress in that arena.As a track record, we are never happy. But looking at the NPS at 85 last year, of course, the starting level is already solid and really, really high. But we will not stop there in the credit care, will deliver even better results. And we will introduce actually also new measures, we then raise the perceived care from our patients and our customers. And with that one, boost the feedback to integrated care development. So it's going to be a high focus this year and value will be delivered.
Great. That's actually a good segue to the next question on whether we are planning to launch any group-wide ESG initiatives in this year?Maybe I can just elaborate a bit on that one. So if we look at Terveystalo as a company, the main sustainability topics are, of course, related to our customers, our end users, our own people and ethical business conduct. And these are the cornerstones on which our business is built and are very much integrated into our strategy. So what Ville just talked about the initiatives where we -- if you look at the care continuity, the customer value, the experienced quality as well as the efficacy of the care are very much in the cornerstones in our ESG strategy as well.As well as looking into how do we further improve Terveystalo as a working place to all the professionals to enable small working environment so that people can focus on the meaningful matters on our customers, on our patients and building out working -- work community as a whole. So those are the things that we continue to focus on ESG front as well, and taking the group like practices to Sweden as well.Any last words before we conclude this session.
Yes. Thanks for the audience. And of course, thanks for Terveystalo team. '23 was, as I said, outstanding recovery and turnaround year. We continue on the same path. We have a solid agenda. For this year, slightly -- we slightly shifted focus on more organic development and volume growth. And customers, we will continue delivering on the latter part of the Alpha program, and we are on track to reach 12% in '25. Thank you.
Thank you for joining us.