Good day, and thank you for standing by. Welcome to the Ambea Interim Report, third quarter 2023 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mark Jensen. Please go ahead.
Good morning, everyone, and welcome to Ambea's third quarter 2023 report presentation. Speaking is Mark Jensen, CEO of Ambea, and presenting with me today is Benno Eliasson, CFO. I will give you an introduction to the quarter and information on our work on quality and sustainability. Benno will then describe the development of the financials for the group and for the different business areas in Ambea. After that, I will summarize the quarter and compare to our financial targets before we open for questions. I would like to begin with a brief overview of Ambea. Ambea is the leading Scandinavian care provider. We have about 31,000 employees across Sweden, Norway, and Denmark, and revenues of more than SEK 13 billion. We offer a full range of services within elderly care, social care, staffing, and competency solutions.
We have more than 450 municipalities as our clients, and we are an important partner in solving challenges in the welfare system. Let's have a brief look at some of the reasons to invest in Ambea. Ambea deliver value to society, and we aspire to be the most attractive investment in the care sector. From a distance, care providers can look somewhat similar, but at a closer look, there are distinct differences, as you see on this slide. Today, I would like to highlight our market leadership in all three Scandinavian countries. As our focus is on every care receiver we hold responsibility for, market leadership is a sign of trust from our customers. We gain trust from living up to our promises made and through delivery of quality care that leads to better and more independent lives, being the foundation also for new placements.
In most of our segments, the private sector holds a total market share of around 20%, while there are still plenty of room for Ambea to grow as a market leader in the private sector. Growth will come from market share gains in the private sector, as well as through higher overall private sector share of the total market. We provide a qualitative and differentiated alternative to the public sector for care receivers, but also for care workers. Another benefit of market leadership is we can invest in competency and leadership development, effective systems, and innovation to constantly improve our care model and work environment. Market leadership is therefore not only a matter of market share, but of our ability to provide care that is differentiated by quality, delivers more value for money, and guarantees a trustworthy freedom of choice.
We will now turn to care quality. Quality ultimately arises in the interaction between care receivers and our employees. We always want to make it easy for employees to do the right thing in any given situation, so that they can spend their time on things that creates quality and value. We have a systematic approach to quality and sustainability, where we carefully follow up on all our units every month. In the quality report, we highlight some of the activities that were carried out during the last quarter and relevant KPIs. External measurements of care receiver satisfaction are a highly objective means of demonstrating the quality of care we provide. Every year, the Swedish National Board of Health and Welfare conduct a nationwide user survey for elderly care.
This year, Vardaga's result for overall care receiver satisfaction reached 79.5%, an increase of 3.4 percentage points from last year. This is higher than the average results from both public and the private sector, respectively. The residents of seven of our care facilities reported 100% satisfaction. We are incredibly proud of these results and of the local teams delivering them. As part of our ongoing work to improve quality, our quality function conducts more than 250 inspections annually at Ambea's care facilities. These involve reviewing compliance with internal processes, as well as relevant legislation regarding quality, work environment, and environment. Action plans are created to address any issues discovered, which are then followed up over time. This is a vital part of our systematic approach to quality improvement. Over to sustainability.
Our focus on sustainability has been further reinforced during quarter three. Mealtimes are of great importance to quality of life for the elderly. In Vardaga's nursing homes, food is prepared according to the concept, Food Like Home. During quarter three, we released a new cookbook with an increased focus on climate-smart recipes. Greenhouse gas, greenhouse gas emissions are calculated for the ingredients used in the recipes. The new menus mean a total reduced climate impact of 271 tons of carbon dioxide equivalent annually. An important achievement illustrating our commitment to strong governance can be seen in Norway. Stendi published its first report detailing its work to ensure full compliance with the new Norwegian Transparency Act, which came into force on the 1st of July, 2022.
Areas included in the report are how Stendi has conducted a comprehensive screening of its suppliers in relation to their compliance with the new legislation, as well as the implementation of a new purchasing system, which supports quality assurance of suppliers. The report is available on Stendi's website. You can read more about our quality and sustainability work in the quality report, as well as, as in our annual report. In Q3, the old management pipeline remains strong, and we have 1,214 new beds in pipeline, most of them in Sweden. In Norway and in Denmark, we continue to build our pipeline in segments with good potential and fair commercial terms in line with our updated strategy.
The pipeline increased compared to the previous quarter, where Vardaga, Vardaga could sign two new nursing homes in Täby, that plans to open in 2026 and 2028 with a total of 140 beds. In this quarter, Vardaga opened a new nursing home, Villa Soludden in Halmstad, at a great location near the sea, where care receivers show great interest in moving in, and our ramp-up is progressing faster than forecasted. We also opened one new assisted living facility in Altiden in quarter three. We have an active pipeline in all three markets, and we'll be pleased to see more municipalities welcome private operators to support it, to support the needed capacity expansion. With several years' time for planning, building permits, and construction, the pace in establishing new care homes must increase to avoid a care crisis approaching 2030.
We remain positive that the urgent need for increased supply will lead to more opportunities going forward. Let's have a look at revenue growth. The organic growth showed in the purple bars has been stable on a good level for several quarters now. The total organic growth this quarter is 6%, compared to 5% in quarter three last year. In previous quarters, total growth has been helped by a stronger Norwegian currency, but the currency impact from Norway had almost no effect on top line this quarter. The effect from the disposal of the doctor staffing business in Klara, which we sold in late 2022, brings acquired divested growth to -1% compared to +2% in quarter three last year, due to previous made acquisitions. We remain positive about our overall growth potential in the coming quarters, where both price, mix, and volume is expected to contribute.
We're also seeking for quality acquisitions that will contribute to total growth. I'm proud to conclude that this quarter, Ambea has reached the highest ever net sales and result in both EBITDA and earnings before tax in a single quarter. Q3 is seasonally strong, but this was a positive achievement. Due to focused efforts across the organization and profitability improvements in Stendi and Vardaga, adjusted EBITDA increased by 7% versus last year. Our group margin improved slightly to 11.4%. Good organic growth of 6% drives the revenue growth. We continue to increase our revenues by tender wins, new placements, price increases, and better price mix. Our cash flow is strong this quarter, and we reduced our debts. The cash flow gives opportunities for acquisitions and for continued active capital allocation. Now over to you, Benno, for our presentation of the financial summary.
Thank you, Mark. The solid organic growth we have seen in the last quarters continues, as said, and almost all business areas contribute to the growth in local currency. This quarter, net sales grew by 5% in total versus last year. Net effect of acquisitions, divestment, and currency was -1%, which means that the organic growth was 6% year-on-year. Except for Klara, all business areas show growth in the quarter. Vardaga accounted for more than half of the growth and increased net sales by 9% versus last year. Like in previous quarters, there is an increased occupancy trend. Higher prices have also contributed to their revenue growth, and Vardaga opened one new nursing home with 60 beds, which will contribute to future growth. Stendi increased revenue by 5% in SEK, but showed growth in local currency by 8%.
Altiden increased revenue by 11% in SEK, but this growth was mainly currency-driven. Klara decreased by 12% due to the divestment of the staffing business for doctors and a lower external demand in other staffing solutions. Turning to EBITDA. This slide shows how the different business areas have affected the EBITDA of the group. EBITDA in total grew by 7% compared to the same quarter last year, and this quarter, we reached the highest EBITDA in Ambea's history and a margin of 11.4%. Vardaga was up SEK 24 million from improved occupancy and higher prices and operational improvements, and EBITDA margin was up 1.3 percentage point. In Stendi, the positive effects of the improvements continue to give effect in the EBITDA. Higher occupancy, higher prices, and other operational improvements resulted totally in SEK 11 million higher EBITDA than last year.
Altiden's EBITDA is SEK 6 million lower than last year due to higher startup costs for our new nursing home and higher staffing costs. Klara generated a lower EBITDA than last year, down 1.7 percentage point, or SEK 4 million. We saw generally lower external demand for our staffing solutions in Klara. But all in all, the group EBITDA was up SEK 24 million. Cash flow. Operating cash flow increased substantially compared to the same quarter last year. This reflects the weaker-than-expected cash flow last quarter and the strong EBITDA in this quarter. The rolling 12 operating cash flow is at roughly 92% of EBITDA. In Q3 rolling 12, we can see a more normalized free cash flow as we communicated last quarter.
This slide shows the way from the rolling 12 reported EBITDA of SEK 960 million to the SEK 855 million in EBITDA, excluding IFRS 16, and down to the free cash flow post-tax of SEK 442 million. We can see that we have, for example, invested SEK 105 million in fixed assets, paid SEK 110 million in interest, and SEK 109 million in taxes. We still have a slightly negative effect on working capital of SEK 31 million. On this slide, we see how we have used the generated SEK 442 million in free cash flow. SEK 112 million was distributed to our shareholders as dividend, SEK 9 million was spent on acquisitions, and SEK 226 million was spent on the share buyback program. Based on our strong free cash flow, we will continue an active and balanced capital allocation that includes further debt reduction and future acquisitions.
Our net debt ratio is now 2.9x EBITDA, excluding IFRS 16, which is lower than our financial targets of 3.25x EBITDA. Now over to the development of the different business areas, and we are starting with Nytida. Sales increased by 3%, mainly driven by new operation in both contract management and own management, and higher prices. Own management homes showed slightly lower occupancy compared to last year due to some closed units. Nytida continued to win several tenders and have, at the end of the quarter, a net contract balance of +38 million in annual sales that will commence operation during the coming 12 months, which will contribute to future revenue growth and EBITDA growth.
EBITDA was slightly lower than last year and decreased 1% to SEK 168 million. This is still a very strong performance, given the external cost pressure, which Nytida met with operational improvements and higher prices. EBITDA margin in the quarter landed at 16.7%, and rolling 12 EBITDA now trend at 13.4%. In Vardaga, net sales increased by 9% year-on-year, driven by higher occupancy and higher prices. The own management portfolio increased net sales by 11%, while the contract management portfolio increased by 5%. EBITDA ended at SEK 123 million, which is much higher than last year, up 24%. Vardaga will continue to compensate for underlying cost pressure by higher occupancy, operational improvements, and by price increases. We saw in the quarter lower startup costs and lower costs linked to the exit of three rental contracts earlier this year.
Mature units showed a margin of 13.7, which is 3 percentage points higher than average margin. Vardaga has, at the end of Q3, balanced contract net of SEK 135 million in upcoming annual net revenue, which will contribute to future revenue and EBITDA growth, of course. Stendi net sales increased by 5% in SEK and by 8% in local currency due to higher occupancy and higher prices. Stendi opened four new assisted living facilities during the quarter. We saw a stronger demand and our own management portfolio increased net sales by 8% as well in local currency, with growth in all sub-segments. EBITDA increased by SEK 11 million to SEK 88 million, an increase of 14% versus a relatively strong Q3 last year. The EBITDA margin in the quarter was up to 10.9%.
We saw a continuous margin growth in Stendi, thanks to higher occupancy, higher prices, but also an effect of the actions we took in the first half, first half of 2022, which gained full effect from Q3 last year and have continued to deliver since then. We can see that the rolling 12 margin now increased to 5.4%, which is up from 3.8% full year 2022. Altiden. Altiden's net sales grew by 11%, but only 1% in local currency. In Q3, the EBITDA was SEK -2 million, down SEK 6 million from last year, and underlying, Altiden's underlying profitability is still at an unsatisfying low level. EBITDA was impacted by startup costs for our new nursing home, under own management, and high staffing costs in general.
Improvement measures were implemented to turn around the financial performance and to drive profitability in relation to capacity and organization, which will have a gradual effect in 2024. The transition will, however, take time, and we are integrating all units and companies acquired the last years into a new business platform and a new management structure. Klara. In Klara, net sales decreased by 12%, which was expected, as we have divested a staffing solution for doctors last year. But we also saw a slightly weaker external demand for staffing solutions for nurses this quarter. Well, from 2023, reporting our training organization, Lära, together with Klara, and Lära had a lower external demand for our training courses in the quarter, mainly due to seasonality.
EBITDA decreased by SEK 4 million to SEK 14 million due to lower sales. The EBITDA margin reached 13.2%, but our rolling 12 at high 12.0%. W ith that, back to you, Mark.
Thank you, Benno. So to sum up our financial development versus our targets, our growth target is 8%-10% through a combination of organic and acquired growth. We are close to our target in the third quarter with 6% growth rolling 12, driven by organic growth. We remain active on several dialogues when it comes to acquisitions. Over time, the growth target can still be reached as a combination of organic and acquired growth. The coming quarters, we aim to prioritize acquisitions as the market is now more active, and we see good potential for bolt-on acquisitions. The leverage level is 2.9x EBITDA in quarter three, which is below our financial target. We expect our solid cash conversion to continue, which gives us potential to grow and leads to financial flexibility.
Free cash flow will be used for dividends according to our policy, bolt-on acquisitions, debt reduction, and share buybacks. Looking at the profitability target, we have a midterm Adjusted EBITDA target of 9.5%, which we have not yet reached. On the next slide, I will provide our view on the building blocks to reach our profitability target midterm. The rapid increase in inflation have made the target tougher to meet short term, but is still reachable midterm. When looking at the present profitability level in our business areas, we see three of them with substantial midterm margin improvement potential. First, Altiden, which is loss-making today, but should midterm be able to deliver 7-9 percentage points higher margin. With the right common platform, operations in profitable segments, and by increasing occupancy in social care and own management nursing homes, we will get the business on track.
Since Altiden represents 10% of our business, that would impact the group margin by 0.7-0.9 percentage points. Next, Vardaga, where the mature units have been generating around 10% margin for some time, with a Q3 at 9.5% rolling twelve. The total margin for all units is now around 7%. With a better portfolio mix, increased occupancy and cost compensation over time, we expect another 2 percentage points improvement. Since Vardaga represents 35% of our business, that will give another 0.6-0.8 percentage points impact on the group margin. And lastly, Stendi, where profitability has improved this year, we think that another 2-3 percentage points are reachable midterm.
This will be delivered through higher occupancy and further operational improvements, and will affect the group margin by 0.5-0.7 percentage points, with Stendi representing 24% of our business. The two remaining business areas, Klara and Nytida, will also hold room for some margin improvement, but to a lesser degree. All in all, and with these building blocks, we see that our margin target is reachable within two to three years. And lastly, we will look beyond the third quarter before we open for questions. Ambea's organic growth is expected to continue through increased occupancy, new openings and price adjustments. We also expect higher margins year-on-year in Nytida, Vardaga, and Stendi, due to high occupancy and operational improvements. Since last year, we have worked with several efficiency initiatives to mitigate the effects of cost inflation.
Transition in Altiden will continue with building the right platform and improving profitability. We expect to see year-on-year performance improvements in the coming quarters, and positive EBITDA for the full year of 2024. In line with our updated strategy for future-proof care, we continue to invest in leadership development and additional competency development for operational staff. We are further improving our quality model through investing in a new group-wide digital workplace and a modern and improved quality management system for all business areas. In a combined effort to lower cost and reduce energy consumption and CO2 emissions, we are also investing in various energy efficiency initiatives in our care homes and investing in also an accelerated rollout of electrical cars. Finally, I would like to emphasize the dedication and hard work of our management teams and operational staff in all business areas.
It is their committed work with our care receivers, making the world a better place, one person at a time, combined with sustainable uses of resources, that delivers our ability to improve our care services and results, also post this quarter. And with that, I conclude our presentation and open for questions. Operator, can we have the first question, please?
Yes, of course. Now going, going to take our first question. The first question comes from the line of Jakob Lembke, from SEB. Your line is open, please ask your question.
Yes, good morning. My first question relates to Stendi, where I think it's quite strong growth here compared to Q2. Is there anything in particular behind that?
We see strong growth in all business segments in Stendi. And we also see, after the quarter ended, that the growth has continued, in terms of new placements. So I would say overall, you know, relative high demand in the Norwegian market, and we are able to match that demand in our care homes. So, nothing else but that.
Okay, sounds good. And then on the margin in Stendi, I mean, clearly now your initiatives are having an effect. And so when we look forward, do you see that these kinds of initiatives will be the key driver for further margin expansions, or will it more be volumes?
It will be a combination of better placements, more placements, and also operational improvements. So a combination.
Okay. Then on Altiden, you now say that you expect some improvement here in Q4. It seems like, you know, the sort of trough in Altiden, we have sort of been pushing that ahead of us for quite some time now. So I'm just wondering a bit on sort of what you have done now here in Q3, and what makes you confident that it will start to improve now?
So when you do this kind of rebasing of a business like we do in Denmark, sometimes things take a little longer time than you anticipated from the start, and I think that is what we have seen in Denmark. I mean, so we have carried out the initiatives that we have planned for, that is, some capacity reductions in some areas, it is some capacity expansion in other areas, and it always costs in the beginning when you expand capacity. So we have two, as an example, we have two own managed nursing homes in Denmark, and opened one last quarter, which of course is expensive in the beginning until you have ramped it up. As our business is relatively small in Denmark, I mean, you will see a new nursing home with 75-bed will weigh in quite heavily in the beginning.
And of course, that will improve over time as we expect occupancy to improve in Denmark. So that is one thing. And then we're working on multiple fronts in terms of operational improvements. And that is everything from effective staffing to lowering our staff turnover, employing the right managers. It's on training activities. So it's a wide number of activities that are being carried out. We can see that, I mean, some of these things will bite better in quarter four, and that is why we can also communicate that we expect improvements versus quarter four last year and also into 2024. But it is of course a challenge, but it's a challenge that we believe we will overcome, and we see positive signs now.
Okay, and then just on sort of the pipeline, and you mentioned that you opened a unit now here. So how do you sort of assess the risk to fill the occupancy in Denmark going forward?
So I mean, the demand is high in Denmark also, as it is across Scandinavia. I mean, we see an increased need for care, both within elderly care and within social care. It's only a matter of our ability to match that demand, and of course, also to have attractive care homes and have the staff in place, to meet the care receivers that are in need of care. So I think we have good opportunity to match demand, and demand is increasing in Denmark as well as it is in Sweden and Norway. So yeah, that's how we see it.
Okay. And just finally on prices, when we look into 2024, what do you see both on the Care Price Index, but also sort of the other components, which is not directly linked to an index?
We have in Sweden a lot of our contracts linked to some kind of index, and some are not. And we think that it's going to be rather neutral next year, the level of cost increases and the level of pricing increasing on our running business. Then, of course, all our new businesses that we are adding on, we can of course set the prices that we want to set on based on the market level. But rather neutral this year, we see if you look at on a broader space.
Okay, great. That's all for me. Thanks.
Thank you. Now we'll go and take our next question. Just give us a moment. The next question comes from the line of Kristofer Liljeberg from Carnegie. Your line is open, please ask your question.
Yeah, thank you very much. It's Kristofer from Carnegie. Three questions. First, the margin, positive margin trend here for Swedish elderly care in the quarter. I think it even accelerated somewhat further what we have seen in the first half of the year, despite you should have seen a larger negative effect from the salary increases. So if you maybe could explain a little bit more, what's driving that? My second question relates to, you know, it's an accounting question. The positive effect from IFRS lease accounting on EBITDA suddenly seems much smaller here in the quarter versus what I've seen for a long time. And if you have a reason for that, it would be helpful.
Then I wonder how we should think about working capital for the full year. Do you still think that will be a negative impact, i.e., an increase, or do you think you will work that down further here in the fourth quarter? Thank you.
Okay, take the first one. Occupancy in Vardaga and the improvements made in Vardaga, I think we have made a lot of operational improvements this quarter compared to the same quarter last year. I think we had more issues last year with staffing during the summer and like that. I think that has been more smoothly operating this year. And of course, the higher, the high occupancy is, of course, also a factor, and the fact that we didn't open any new homes in the beginning of the year, in first and second quarter, we do did last year, and we had a couple of these homes loss-making in the third quarter last year, that we don't have this year at the same level. So it's a couple of different factors that are generating the higher EBITDA and the higher margin.
The next question around IFRS 16, there is a valuation done every quarter of the IFRS 16 portfolio, and it depends a little bit on how many new lease agreements that you have signed and how many you have lost, and how we have prolonged them. I think that this year, this quarter, the lower IFRS 16 number will come back to a more normalized level next quarter again. That's what I've seen as trending before. And the third one, relating working capital, we think that the fourth quarter is rather neutral versus the close of the third quarter regarding working capital.
It's of course, we have a lot of invoices that are due on the very last day of the year, so there's always some uncertainty around the close of the full year. But looking at the calendar, we have no specific reason to say that the working capital will be on a different level than on the close of Q4 than we have seen in Q3.
Can I have one more. Thank you for that. One more question. You said you expect to reach the margin target in two to three years. I don't know, would you be willing to say anything about how we should think about margin in 2024? I think you commented that you expect, on an overall level, to be able to compensate now for inflation. So does that mean with underlying improvements in Denmark, for example, higher occupancy rates, et cetera, that we should see a continued margin improvement in 2024?
Yeah, I think we said that we will see margin improvements in Stendi, Vardaga, and Nytida. We think that that is what we hope to see in 2024. Yep.
I could understand that for Vardaga and Stendi, but why Nytida?
We think that the price cost mix is rather neutral, and we think that the operational improvement and improved volume also could give us a little bit better margin next year than this year.
Great. Thank you very much.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. Now we're going to take our next question. The next question comes from line of David Johansson from Nordea Markets. So line is open, please ask your question.
Hi, good morning. Just two questions from me. So first on Vardaga, where you highlight quite strong improvements occupancy in the quarter. Obviously you have a strong pipeline here, looking at beds under construction and newly opened homes. But maybe you could comment a bit on your expectations on occupancy for the rest of the year and in 2024, and what do you believe is the potential now looking at margins for this business? That would be the first one. And then adding a question on Altiden, we still post negative earnings despite maybe a seasonally stronger quarter. Could you elaborate a bit more on the improvements in terms of profitability for Q4? And if these underlying improvements you talk about will be enough to bring this division to profitability next year? Thank you.
Yeah. So I can answer your question on what we think on occupancy in Vardaga in Q4. We expect the occupancy to improve in quarter four. We have seen a positive start also of the quarter. So that's our expectations for that. In terms of margin improvement potential, as we explained, we think there is a midterm two to three-year potential of 2 percentage points margin improvement in Vardaga, based on a better portfolio mix, the increased occupancy, and also better cost compensation over time. So that's our outlook in terms of the margin development in Vardaga. Then in Altiden, so when it comes to the measures that we have put in place, we believe that the measures we have put in place will deliver a better quarter four than the quarter four we saw last year.
We are also now business planning for next year, and that process is not finally concluded yet. But so far we have seen good initiatives from the Danish business in terms of the ability to improve also during 2024. Some of it with initiatives that are already put in place and will give us effect next year, and some of it with some additional initiatives that will be implemented next year. I believe is that we will turn Altiden profitable during 2024, as a mix of combination of initiatives already in place and some new initiatives that will be put in place from now on and during next year.
Thank you. Understood. That was all for me.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes through line of Karl-Johan Bonnevier from DNB Markets. Your line is open. Please ask your question.
Yes, good morning, Mark, and then good, good Q3 progress. Ben, I wonder if you could help me a little, just detailing what kind of cost inflation you are planning for or seeing for 2024, looking at the rental contracts, labor agreements, and similar kind of things.
Yeah, I can help you with that. Start with Sweden. Sweden, we have a two-year salary deal with main labor organization unions. We see something like 3.1 percentage points in some, and up to 3.7 in some other from 1st of June or 1st of July. That's what we see in Sweden. We also know that there are rental agreements with October index, and that has not yet been finalized, but something like 6.5%, 7% increase for our rents next year will be the most probably the case. In the other markets, we don't have any next year salary agreements yet. We think that there are a little bit better structure of compensating in these markets, where the average salary increase will also increase our prices with some time lag. We don't think that there's a risk of being hit by inflation that we cannot compensate in Denmark and Norway.
Good. Thank you very much. Then just on, also on the capital allocation, I heard your comment about maybe looking for a slightly lower gearing level in the midterm. I guess that makes sense given the current interest rates and so on. But what would be your, say, ambition, so to say? Obviously, you're already about below the group targets.
We don't have any other targets than the 3.25, but we are now below 3, and that is maybe, maybe that's the between 2.5 and 3, a level that is more probable than above three in the coming future.
Okay, so no further debt reduction, interprets your [crosstalk]
No, now we have the-
Commentary during the call like that, so.
No, we don't have any other targets than below 3.25.
When we look at now, hopefully the acquisition pipeline becoming more of a business generator for you as well, do you see gearing being a limitation for you for the moment to go for the deals? Or are there other things that are holding you back, so to say, in these discussions?
We don't see gearing as a limitation for that, and there's basically nothing holding us back more than, of course, we need to make and want to make quality fold on acquisitions, and specifically in the business areas where we believe it's adding the most value. As we explained, we have ongoing processes and dialogues now in the market, and we expect that growth lever to contribute more going forward after a period of time where it has been kind of difficult to meet expectations between seller and buyer, so to speak. We see the market . It's in better balance now, and we believe that we will see also growth contribution from acquisitions, going forward.
Looking at the geographic part of that, would you, even at this stage, considering doing further transaction in Denmark, or is this more related to Sweden and Norway, giving the underlying profitability you see there now?
We are not active in terms of acquisitions in Denmark at the moment. We are focusing and concentrating on what we have. And, of course, we need to make sure that that is stable and solid before we continue to acquire in the Danish market. But over time, we are sure we will get back to a position where that will become again a growth level also in Denmark. But for the time being, we are not focusing on Denmark in terms of acquisitions.
Mark, I also just want to pick your brains on the bridge. Looking at the Vardaga component there, I can clearly see that you are that there should be, say, the 2 percentage points upside for you to realize that. But I also noticed that we have now the good sign in this report that you are starting to rebuild the new opening pipeline, and I guess that is also starting to look quite good for at least 2025. And, with that normally coming with a headwind, do you still see that that might be an even longer transition, maybe for the Vardaga component to be able to deliver on those 2%?
No, we don't believe it will be a longer transition. We still believe that is, reachable within two to three years.
Excellent. Good if you can get both the growth component and the margin component to work together there, so. Thank you very much, and all the best out there.
Thank you so much.
Thank you. There are no further questions. I would now like to hand the conference over to Mark Jensen for any closing remarks.
No more questions. Thank you all for calling in. The quarter four report for 2023 will be published on February 8th, 2024. I wish you all a nice day. Stay safe and healthy.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.