Good morning, everyone, and welcome to Arjo's Capital Markets Day. It is great to see so many of you here today, both here at Epicenter in Stockholm and online. Thank you for taking the time to join us. My name is Maria Nilsson, and I lead communications at Arjo, and I will be moderating our session here today. We have been looking forward to sharing an update on where we stand today, presenting our new strategy, the plan to deliver it, and the priorities moving forward. We also want to go into how we will create value for patients, caregivers, customers, and shareholders over the coming years. We want to give you a clear understanding of the priorities, the strategic choices we have made so far, and why we believe that Arjo has significantly greater potential than what we have demonstrated in recent years.
The plan we will present today has been developed through a broad and collaborative process involving leaders from across the company. It is a plan we are confident in, not only because of the opportunities we see, but because it has been shaped together by the people who know our customers, our markets, and our business best. We have an interesting morning ahead of us. You will first hear from our CEO, Andréas Elgaard, who will present his view on where Arjo stands today, the new strategy we set in place, and the priorities that will guide us forward. We will then take a closer look at two of the markets where we see significant potential for further growth and value creation.
This session will be led by two highly experienced commercial leaders. First, Jessica Shatzer from the U.S. will share her perspective on our largest markets and how we see that we can further strengthen our positions there. Then we will hear from Canada and Jim Findlater, who will share insights into a very interesting market for Arjo and how we can continue to further grow profitably in this market. Following the presentations, we will conclude with a Q&A session where you have the opportunity to ask questions. With that, I am handing over to our CEO, Andréas Elgaard.
Really nice to be here. My name is Andréas Elgaard. I have had the privilege to be the President and CEO since almost nine months now. I am as excited as you are to be able to talk about what we have been up to during these months. For me personally, it has been a true privilege to discover Arjo, all the people, all the good things that we do, and I think there is more good to be done, and that is what we will start to share today and in the coming periods. Let us see if we get the slides up. Yeah. We just sent out a press release.
For those of you that start to see that, I will come into that a little bit later, but we make a commitment today that within the next 30 to 36 months, we will do a clear profitability improvement of SEK 350 million, and the majority of that, the vast majority, will happen within the next 24 months. First, I would like to begin by talking a little bit about who we are before we talk about the reality for healthcare and what Arjo needs to do in order to address that in a better way going forward. I will begin with our starting point. You can say that our core and our purpose is very well-aligned. We really help patients when they need it the most, and we will come into that.
The starting point is really to be experts across different care settings and help people with their mobility. In and out of bed, coming from a chair into the bathroom, taking care of personal needs, and to do that with respect and dignity. That is what we do. And we are a company that has grown both organically and inorganically, and we were founded, and the name comes from Arne Johansson back in 1957 when the company was first started. Then it has, of course, grown and added more capabilities to the company. We had in the last year SEK 11 billion in turnover. We are almost 7,000 coworkers around the world. We have sales in more than 100 markets, and we are truly a diverse company, I must say that, both from a market perspective and employee perspective and, of course, customer perspectives and what we offer.
And we produce, assemble, manufacture our offer in five different facilities, but we also work with several partners that help us to fulfill our offer. I mentioned that we really have diverse markets and diverse customer base before, and that is something that is truly good. We both have segments that are diverse. We have customers that are diverse. Then we have the different markets, which means that we become quite a stable company when it comes to finding our revenue. And you can see that the segments that we are in, it is, of course, patient handling that is very much closely connected to mobility is the biggest area. And medical beds and pressure injury prevention is also very important, and all these help patients to stay mobile and prevent the dangers of being static in the care setting.
You can see that when we have our different quarterly reports or discussions with different members of the finance markets, there is a lot of questions about North America. Today we will have Jim and Jessica that will help us to get a deeper look into that. North America is almost 40% of our sales. We have activities as far away as Australia. We are in South America. I think last year our 10th largest market was India, and it is amazing the business that has been built up there. We are truly a diverse company, I would say. And it is a mix between capital goods, recurring revenue through services and rental, and of course, then we have disposables as part of this also that helps to create the stickiness in how we do our business.
We believe that we have a really solid foundation in our core to base our growth on when we move forward. Everything from the customer base to our teams, our know-how, our competence, to really underlying business that gives us the foundation to be able to move into the future and to also know that we have something to build that upon. Circularity is something that is really important. In more and more markets, in more and more tenders, in more and more public, I would say expectations on us, circularity is a hygiene requirement. Almost 45% of our business has really circular qualities, both in the rental business and in our service business. We try to build this into our capital goods business as well. I think this is probably what is most important, most striking.
When I was new to Arjo, this is what I felt the strongest. It is that we have a true purpose. We do good for people when they need it the most. When they need their dignity and integrity kept, we are there to help them. That is something that is really. There are many companies that have a purpose, but when you really feel it across the organization, then it becomes really something to build upon. It is really something I have felt when I have traveled and met all of these people, is that this is something they come back to. When a rental technician is late with a delivery, they know because they meet the patient, they see the caregivers that are waiting.
The purpose is so close to everything we do, and that is what is being brought back into everybody that works more centrally in the group. In many aspects, Arjo is really great. Great people, great leaders, great solutions. But, as you know, sometimes that is not enough. We are not good enough. We know that in recent years, we have not lived up to the expectations that we put on ourselves. We have not lived up to the expectations that the market put on us. I will just show a little bit on a retrospect before we look forward in what we need to do then. As I said, recent years' performance have left us a bit unsatisfied. Both, I think this is something that all shareholders share, and it is definitely something that everybody within Arjo is also sharing.
You can see that when Arjo stood alone as a company on the stock exchange the first time in 2018 after the spin-off from Getinge, there was a couple of years with, I would say, entrepreneurial spirit, pioneering, being free, building up everything that you need to have as a freestanding organization. That was also some good years, I would say. The market was predictable. We were moving forward. Then we came into the COVID period, and I would say for Arjo, that was really good in some aspects. But when you look deeper, there were some problems already back then that we maybe did not see because we were busy satisfying the tailwinds that we had, and we did not really see that parts of the business actually was facing headwinds.
After COVID, I would say that reality became super clear because when some of the free, I would say, more easy sales that we got disappeared, the reality came back, and you can see that our performance then after that has not been satisfactory. What is good to say is that we have managed to keep the top line growing throughout this period. The CAGR has been there, and I think that has also helped us to keep up profitability. But still, this is not what we expect from ourselves. We need to do much more and much better. Parts of this is also that the strategy that was launched in this period did not really work. The outcome-based ambitions that we had, they never really materialized. I would say since 2022, that became a really harsh reality for many.
I think that Arjo has been a little bit in a waiting mode in some aspects. In the other aspects, I would say all the markets, everybody that is taking care of customers, the underlying business, it has continued to focus. But we got a little bit derailed, and we lost a little bit of our focus during those years. Of course then, when you look at the financial targets, we have had a hard time to live up to those. We have met the growth targets, but we have had a hard time to generate true cash flow. We have had a problem to reach our desired EBITDA margin. I think we have continued to have dividends, but it is time now. I think when these goals were set, they were said to last until 2025.
Right now we are in the process of figuring out which goals we need to have for the future because we need new financial targets that are reflecting the new strategy and the new reality that we live in. We will come back to that in Q1. We wanted today that the focus should be on strategy and not on the financial targets. What you can expect out of the strategy is really what the message is today. Before I come into the strategy, I just want to pause a little bit because healthcare is not standing still. It is evolving, and I would say that that is also why Arjo needs to evolve. We cannot provide yesterday's solutions to tomorrow's problems. We really need to speed up the change in our company because the reality out there is really clear.
There is a number of mega trends. You all know this when you cover other similar companies to Arjo, other med tech, but also other industries, because many of these things are shared. If you look at the aging population, it just means that we need care during a longer period of our life. It puts a lot of pressure, not only on the pension system, but on the healthcare system, because that we live longer is something fantastic, but it also puts a lot of pressure on the healthcare system. At the same time, young people do not see the same appetite to go into and work in healthcare, which means that healthcare is kind of squeezed. They need solutions that help them to be more efficient. They need solutions that help to protect the health and wellbeing of the caregivers.
But they also need then solutions that helps to provide the care that they need to do. This is something that, of course, have implications for Arjo that are positive, that the solutions that we provide and the competence that we have is needed even more in the future. Of course, increasing global welfare. More and more people come out of poverty and into the middle class. That also comes with expectations. They expect more. They are not satisfied maybe with the type of care that they saw their parents get. They want something more. They are more aware of their rights. This is putting also increased pressure on our healthcare facilities and institutions, and the public funding or the private funding of those. Then, of course, digitalization and AI, democratization of information.
We kind of single out them both because one is more driven by being able to leverage data and automate and drive efficiency, and the other one is really about what people expect. People expect to have access to information. They expect to be able to keep up with what's going on with their loved ones. And also people that need care and require care, they want to know what is happening. And we can see that more and more, that they expect more. They expect information. They expect to be updated. They expect to be able to follow. This is increasingly putting pressure on systems that historically are quite late to change and that are big, and that requires a lot of trust before they try to change.
And those of you who are from Sweden in the room today, you know how the regions across Sweden are struggling when they need to update their IT systems, when they need to drive their efficiency, because they are not always the best order. They do not always are experienced in driving these types of things. So, being a partner to healthcare providers is also a big part of what we need to be better at. The good news is that we are in markets and in care settings that are growing. Because of the trends, the need for care is just growing. And our healthcare settings are struggling to keep up, both with funding and the ability to provide that care. And as a result, you say that acute care, it is still growing, but the number of nights that you are in acute care is going down.
It's almost in hours. And of course, that puts more pressure on long-term care to keep up. And we know that the number of years that you are in a long-term care facility today has also gone down dramatically, and more and more care happens in the home. And that care that happens both, I would say, in long-term care has become more clinically advanced, and also at home, it becomes more and more clinically advanced. So, the needs are being pushed down in order to be able to cope with the bigger reality of what patients require. But of course, we operate in this. This is our market, so that the market is growing, that the need is there, that we can make a difference, that is something really, really positive. And we just wanted to share a little bit that, of course, acute care is the biggest market.
Long-term care is also really, really interesting. Adjacent care with home care, that's where the growth is biggest. You can see that our position today in some of our categories is quite strong. Patient handling, VTE prevention, pressure injury prevention, hygiene, we are all in top three positions. That is something really, really strong. Then medical beds, we are in a top 10 position. The beds are, if you look at it from a gross profit point of view, maybe it's a little bit lower, but it's also something that creates a stickiness in the relationship, and it's something that gives you a need to come back. Because we have the mattresses that goes on the beds. We help the patients to get in and out of the beds, and it's really a part, a really, really big part.
It's the center of each care setting. So it provides us both with the, I would say, the knowhow and the market position that is required. So that's a little bit what's ongoing in the market and about our position. We are not happy with our performance the last year, so now we need to focus. We need to build on our strengths. We need to kind of remove some of the clutter that maybe got us unfocused in recent years, and to really focus on our core business and build a platform that is more scalable, both for growth and for expansion into new markets, new care settings. If we want to accelerate M&A in the future, we need to do that also from a scalable base. So by that, I go into our strategy.
For Arjo, it's all about making the move and to do that together. That we emphasize the together part is because I am new in this industry. I come from another type of industry. My profile is that I'm a people person, I'm a leader person, I'm a transformational type of leader. It's all about people, getting people to develop and grow and pull in the same direction. Then you get Arjo to also develop and grow. If we'd start to pull in the same direction, that's where the focus comes in, and that's where you can expect positive output. So this strategy has been made by gathering people from all around Arjo. It's not a top-down initiative. It's really a well-founded strategy with all our professionals, and with all the diversity and all the experience that we have.
But maybe that has been kept in pockets, and that has been a little bit unknown to parts of our own organization. I would like to begin with this. In the strategy work, we decided to put our foot down and try to describe how we want our customers to perceive us. So we formulated this, that we call the wished position, and that is to be the partner healthcare providers look to when shaping better care. Trusted for understanding their needs, being easy to work with, and delivering value through purposeful solutions. It's easy to put it down on paper. It is already what we are known for by some of our customers. But it's really, really hard to keep that consistently, that perception, and to live up to that promise that we make to ourselves.
Because that's really who we want to be seen as, and it's who we are striving to also become when we are not meeting up to it. This is something that is constantly evolving. This is not a static place that you can reach, and then you're there. This is something that's always moving ahead of us, that the expectations and the needs and what is purposeful will always change. Now I will go into and talk a little bit more. What is it that we're going to do? What is behind the plan that will put Arjo back on track? We have clustered this a little bit in three buckets. The first one we call Win where we have the right to play. This is all about us having confidence.
We have the competence, we have the solutions, we have the position in the market, we have the trust from our customers. We know that we have a right to play here. We know that we have the offer. We know that we have the know-how. This is super important because it means that we can act with competence. What we have not done is that we have not always used that. We sit with this fantastic situation, but we don't execute it consistently across Arjo. That's what this is all about. It's really about owning and expanding leadership in long-term care, strengthen our position, and scale up in acute care, and then selectively expand into new care settings. This could be home care, it could also be transitions between different care settings.
The word selectively is important here because we've had, in the past, we have made promises about stuff that is small today, but that will be big in the future. Here we want to prove, we want to be sure before we make commitments that we open into new types of care settings where we are more pioneering. We will come into this. I will spend the majority of the time explaining a little bit more about this, so you get a feeling on that. Then I will also come into the area that we call simplify to amplify and the part that is working better together. If we start here in the first one, these three priorities are very, very important. It's all about our core strengths.
You can say that if you talk about home care, we already, in most of our markets, do parts of our business comes from home care. We know much more. We just need to spread that across the company. Let me come into it. If you look at the long-term care situation, we have a proven leadership. We have market-leading positions in many, many markets. We have the know-how, we have the offer, we have the solution, we have the relevance. Then you can look at the neighboring country, and you can see that the situation is completely different. But the care need is the same. We, people, need the same thing. The trends are the same. The reality of the healthcare system is the same. It's just that there are different ways and routes to market.
But when you have the know-how and the confidence, it is easier to then explore that. This is all about us seeing that we have a lot of penetration that we can do, and build on our internal know-how, and it is so much easier to unlock that when you have a colleague or two or three or a hundred that have done this, versus if you need to do a project where somebody comes in from the outside and tells you how to win. Here we already know how to win. Just to make a point out that Canada today, 65% of the sales in Canada are in long-term care. We all know that U.S. being our biggest market, there is so much we can do. We already cover the country. There is so much more we can do from that base.
That is the plan going forward. So you can see that here are potentials. Acute care is our most important sector. We see that long-term care maybe has the biggest growth with profitability position, and opportunity. But acute care is most important in terms of scale for us. We also have most of our know-how and most of our, I would say, relevance here. Again, the strong position gives us the confidence that we know that we have the offer, we have the competence, we have the position, we have the trust, we have the examples. We have such good relationships with our customers that they are willing to also help and share that with others that are willing to try and test Arjo in acute care. We see that there is substantial room to scale this up.
In our plans, we think that we should not promise too much, but we see that there is really, really good opportunities for us here across all our markets to do better. Maybe in the U.S., it is hard to keep on penetrating, but there we have the opportunity of long-term care. Just to see how the internal situation looks like, and you can imagine what we will be up to the next few years. It will require investments, but I think that will be really worthwhile because they will be less risky than some of the investments that we have done in the past. Then the third, and last one, and this is just to point out, on the bottom here, you can see that in Great Britain today, 12% of our sales is actually in home care.
We have not really maybe had a shout-out on that. We mentioned a couple of other markets. If we can start to move the needle here, if we can start to become a little bit more relevant in some of these care settings, because today we enter home care with solutions that have been developed for professional care settings. Since the care need is becoming more and more professionalized across care settings, that is a good trend, but probably we need to be more relevant also just for the home care setting. We have a foothold. So also here we have competence, but we are not as confident. That is why we say that we need to be selective. If we do something in U.S. or Canada, let us pick a part of the country.
If we do something in Europe, let's pick a market where we think is good for us to move forward with. When we have the proof, we can be more bold in our commitments to you and to all our shareholders. So, the simplify to amplify part. If the first one to win where we have the right to play, that's all about what we do, how we leverage our market position and our commercial knowhow, and our value proposition. This is more about us getting our act together. Over the years, we have grown, I would say, organically in our offer, in our value proposition. So we have a need to prune our portfolio. We have a need to make sure that we are efficient across our value chain. Today, we have not done that job in a good way.
This is something that I am really passionate about. I have seen how much value that can be unlocked when you do that, and it's something that we have seen also when we've made the strategy that there is appetite for this in Arjo. So that will be very, very important. Commercial excellence, since we are such a diverse company, since we have so much empowerment, we have so many examples that are great. As you know, you can figure out that we also have examples that are not as great. So we have a lot to do here to be more diligent in our commercial excellence and execution. I will not go into this too much on how we become a digital and AI-enabled care partner. But for us, this is mainly about driving internal efficiency. Most of our products are not connected.
We do know that the need to be connected is something that is growing. We have a couple of pockets of excellence. Visited one of those just last week together with our board of directors in France, where we keep track of all equipment in a long-term care facility, not just the Arjo equipment, but also all of our competitors' equipment. We have knowhow, but we have been a little bit careful in scaling that. We have not built the organization to scale it, so that's something that we need to do in the future. But I will not come into that today. I will just show this to you. So it looks like it's just illustrative, but these are actually real data behind. So we have a super long tail.
Those of you that have worked more operationally, you know when it looks like this in an organization, you have a lot of capacity. You carry a lot in inventory. You need to have all your documentation in order for everything. There's been many, many years of launching new solutions, updated versions, but not removing. That just adds on to the complexity, and complexity in a value chain is cost. That is something that we need to address. But we cannot do that just by optimizing from a procurement point of view or from a manufacturing point of view. We need to make sure that we have our markets and our customers with us on that journey. So this is really an end-to-end initiative that we need to do.
There is significant potential to be unlocked here in making Arjo more straightforward, more simple, and also help us to release the space to come with new innovation. I just showed this is also coming from real data. This just shows how our pricing is varying depending on where we are across different products and our margins in different markets and different settings. There is always a normal variation, but you can see we have quite big variations here. So we believe that there is a lot we can do in terms and conditions, pricing, service charges, and so on that can help us to move the needle here. The last cluster of strategic priorities is working better together. So that is about how we get all the know-how, all the diversity that we have in Arjo to start to pull in the same direction.
Because when you have so much diversity but you do not make use of it becomes complexity, it becomes noise, it becomes clutter. So we need to pull together. That is also why we made the strategy together. I think that we have engaged around 80 of the most senior leaders around our strategy that have part, half of them were part of creating it. The other half is now onboarded, and we are rolling it out step by step across Arjo. So if we get the people to develop and grow, then Arjo will develop and grow. That is really one of my mantras. One part of that is to work on our operating model. So I will come back to that.
This is probably most important, to build a performance-driven culture where our purpose is always at the center, and that purpose is really to help patients when they need it the most. That is for real, but that is not enough. We also need to have a performance culture built into that. So making profit, being successful helps you to invest in yourself, in your people, in your competence. It helps you to invest in R&D. So we need to make sure that we have that culture end-to-end across Arjo when we move forward. That starts with investing in our leaders and empowering our people. That is super important. To make sure that we are then striving towards the same goals. That is why strategy, it is not about what you put on the slides.
It is about making sure that you have the motivation in your organization to start to pull in the same direction. The only thing that counts is what you execute. What we have up here, it is only what we execute that will count. Then you need to make sure that everybody understands that. That it is not Andréas who will do the execution. Now we made this strategy together, then somebody else will execute. No, it is us that need to execute. Then I would say working better together is very closely connected to how we deliver our care, how we help caregivers, how we then become more efficient in that. So it kind of relates to our purpose, and that purpose more and more becomes also about when we do things that are good, it also needs to be sustainable.
So much of our business already today have circular qualities, but we need to make sure that that is something that we build into how we design new products, how we design our packaging, how we design our value chain. With my own background, what I have experience of, the more you work with that, the more you work with efficiency. Because it's all about removing clutter, removing noise, doing things smarter, doing things straighter. I will talk a little bit about our operating model now. We have communicated just before summer that we are organizing ourselves in five regions. These are not five segments, it's five regions in how we cover our customers. U.S. and Canada, I would say for obvious reasons, we don't bulk North America together. It's also two very different healthcare systems. They are funded very differently. We have different cultures.
Then we know we also have this beef going on now that I think is not healthy for anyone. But the U.S. is our biggest market, and Canada is one of our most profitable markets. So it's naturally so that the U.S. and Canada deserves a seat at the table. South and West Europe, so that is France, U.K., two of our biggest markets, but also Italy, Spain, Belgium, that we keep that part of Europe, the southwest cluster together. North and Central Europe is really the Nordic countries, Netherlands, the DACH region, and parts of Poland and Czech, I would say. Then we have the rest, 88% of the population, but not 88% of our sales, but it's still a major part. So that's where we have Africa, it's where we have LATAM. It's where we have our different activities across Asia, but also then in Australia.
In that cluster, Australia is our biggest market, with India being the second. The reason why we want to do this is because we want to raise, I almost feel bad saying it, but we need to increase the proximity to our customers. We need to make sure that the voice of the customer is present in every decision that we make as an organization. In how we prioritize our investments, in how we prioritize our portfolios of development, how we assess if a product will be commercially viable or not. We need to make sure that we do that in a much more commercially relevant way than what we have done before. That we do that early in the processes and not towards the end of a process.
That is really how you speed up time to market, how you increase quality, and most important maybe, is how you can then drive profitability by being relevant to your customers. To support that, we also put in a new function that we call group sales. Group sales is not leading the regions. The regions lead themselves, and they report to me. But group sales has the job to help with commercial best practice and with commercial excellence, and to coach the regions and help them to collaborate. Arjo doesn't have a strong collaboration culture today, so that is something that we need to drive and enable. Group sales has that role in that dimension. Group portfolio is a new function that we have created where we bring R&D and group marketing and our portfolio leaders together into one group.
They will have the responsibility that with our own resources and with our external partners, drive the development of our portfolio, but also drive the portfolio pruning that we need to make in order to become more efficient. Group operations is, of course, our procurement, our assembly, our manufacturing. This will now include the responsibility for our OEM partners. That has not been the case in the past. We are taking end-to-end responsibility for operations, just like we are doing that for portfolio. In the past, we have let some of our countries do their own thing without support from group functions, and that has left the markets very vulnerable, and that is something that we need to help them to straight out.
Then, of course, we have all the other good stuff that you need to have in a company, finance, quality, HR, legal, communication, and whatnot. Of course, IT. Most important here is that also we are going to be really, really focused on execution. The strategy that we present will be executed. That is kind of how I function. I would not make a promise if I did not know that we were going to execute it. We are going to execute this and deliver what we have said. By that, I think it is time for you to have the opportunity to stop listening to me, and instead, I would like to welcome Jessica up on stage.
Thank you. Good morning, everyone. I am so happy to be here with you today. My name is Jessica Shatzer. I am the Vice President of Marketing in the U.S., and I have been working in U.S. healthcare for the past 16 years, 13 of those at Arjo, and the last five leading the U.S. marketing organization. I am thrilled to be here today to talk a little bit about the U.S. market overall, the U.S. Arjo organization, and then we will go into a little bit more detail on a couple of the strategies that Andréas has already laid out that are most relevant for the U.S. So let us dive in. Starting with market characteristics, many of the kind of high-level market characteristics are similar to what Andréas described in some of the trends.
I will not go into detail on those, but I did want to highlight a couple that are most relevant for the U.S. The first one I need to call out the bariatric trends in the U.S. because of the prevalence of GLP-1s. We have had a lot of questions on whether we see a decline there. What we have seen is a slow in the trends around obesity, but we have not seen massive reductions like some people may have anticipated. We have actually got 42% of U.S. adults as clinically obese, so there is still a massive need for bariatric solutions that we offer. Next, if we look at financial and operational, I feel like I have been here so long, so I have seen this kind of history of financial issues with customers, kind of what happened pre-COVID, during COVID, post-COVID.
Now in an exceptionally post-COVID world, I would say that there are three different tiers of customers, and actually our credit rating agencies have called it a trifurcation within customers. Some are doing really exceptionally well, some are doing quite poorly, and a good chunk of them are right in the middle. The average operating margin today for a U.S. hospital is about 1.3%, which has risen over the last number of years. Interestingly though, two areas where they are investing, one is around capitalization. We have seen more capitalization over the last year and a half than we have in many years, meaning instead of renting products, maybe they want to make a purchase of medical beds or surfaces or other equipment in their facilities.
The other area is new healthcare construction, and that could be a new facility, that could be a renovation of an existing facility or a new tower, and we have seen that increase 11.2% year over year in the market as a whole. Next, the increasing focus on preventable events. This has been a focus for a long time in the U.S., and it is mainly been a focus in acute care. What we are seeing now from the U.S. government is a lot of those regulations pushing down to the long-term care world. Think of things like patient falls or pressure injuries where there will be a financial impact for not meeting certain standards. On the right there with customer dynamics, healthcare mergers and acquisitions are accelerating.
A lot of these things that I am mentioning, the new construction, the healthcare M&A, these are all in efforts for them to increase their profitability, also diversify. Another area that they are doing that is moving some patient volumes into ambulatory surgery centers. More and more surgeries are moving from traditional inpatient to an outpatient situation where they are leaving maybe same day. Lastly, something that we will talk about today in more detail is sustainability. Sustainability has been a strategic initiative for maybe a smaller subset of hospitals and health systems within the last years. I would say it is becoming more mainstream and more important for them, and we have been able to position ourselves as a good partner within that space. I hope the key takeaway here is that the underlying demand for our products and solutions at Arjo is strong based on the U.S. trends.
At a high level, Andréas already shared where we get the bulk of our revenue and sales from, and that is in acute care. We also have about 10% that comes from long-term care, a smaller 2% from home care, and then an even smaller, or excuse me, 3% in home care and a smaller 2%, which is others, things like prisons or schools, things like that. In the middle, you can see the categories that drive most of our revenue. We have market-leading positions in categories such as patient handling, rental, VTE prevention, and those really drive the bulk of our revenue. We also have a very strong service offering, so that is very important to what we do as well. How we deploy, we are deployed across the United States. We have around 850 employees and 63 service centers.
That is really important for the rental and service component of what we do. We deploy through a direct sales and service model, which is very important because that customer intimacy that Andréas Elgaard talked about is highly related to this and the relationships that we can drive. One way that we truly differentiate is through our clinical expertise and our clinical support that we provide. That is something that we highly value and our customers highly value. We are home to the flagship Renew Medical reprocessing facility. Arjo acquired Renew Medical back in 2018. That facility is in the U.S., and that has remained a large component of our strategy. As you can see, we have a very strong position in the U.S., and it is really built upon our acute care leadership position. We have had seven quarters consecutively of profitable growth.
You can see that we have a greater than 7% CAGR in our capital categories. That actually jumps up to low double digits when we are talking about patient handling on its own. We have a 7% CAGR in what we call core rental. Many of you who have been following us for many years know that there is a product that is within critical care, that it has been highly volatile. It is one specific product that drives or has historically driven a large amount of revenue. Because it is so volatile, we will tend to take that out and call that core revenue. You can see that the base of the business and that underlying business is quite strong. On the right, some of the key drivers for us. We have a large, what we call install base. We have been in the market for many years.
We have been in the U.S. since 1979. There are a lot of products out there that are Arjo products. Because of those deep relationships, because of the quality that we offer, because of some of the new products that we have offered, customers opt to choose Arjo again when they go to replace those products. That is very important. Next, we have strong traction in project sales. On the previous slide, I mentioned the trends within new construction. We have been able to leverage that, not only from a product portfolio standpoint, but with relationships with architects and new construction planners and things like that, where it is a full Arjo solution, not just a product solution. Lastly, expanding partnerships with key hospital networks, what we call integrated delivery networks. Some of these big consolidations that are happening across the U.S.
We have the relationships at the highest levels with some of these facilities and great partnerships that really drive not only one product category, but we try to drive the full breadth of Arjo solutions within that. I will just give a quick example here. We had a customer recently. The opportunity actually started from a replacement opportunity. They had some equipment they needed replaced. We were able to go in, have a more consultative conversation, realized there were some problems with pressure injuries and falls and mobility. We were able to elevate that conversation, and then it went even further away from patient handling and into DVT prevention or VTE prevention and rental. Again, just a small example about how we were able to drive the full breadth of Arjo solutions.
Obviously things have gone well from an acute care standpoint, but there is a lot to lean on from an opportunity side. Let us go into a couple of those being long-term care and reprocessing. I do not think I need to sell you on the value of long-term care. You saw how much revenue Canada does. A lot of our other markets are very strong in long-term care as well. We have the product portfolio here. We have the solutions to really deliver, but we have not tapped into this market. There are 16,000 nursing homes and skilled nursing facilities in the U.S. Today, we access only about 3,000 of them with our existing footprint and sales force. Within those 3,000, mainly we are only selling patient handling equipment.
Obviously there is a huge opportunity here to work with our existing customers and partners and pull through the rest of that Arjo portfolio. We also have an opportunity to sharpen our value proposition. We do not want to be seen as just a product provider for our partners. We want to be seen as a full solution provider who is able to be consultative. We can help with patient outcomes and resident outcomes. In doing that, we really need to lean on that clinical expertise that I mentioned earlier. Lastly, in order to fully penetrate and address this market, there does need to be investment in the direct sales force and also distribution partnerships that already have access and partnerships in some of the areas that we would like to go to. Next, advancing sustainability. This is that reprocessing that I talked about.
For anyone who is not familiar, most of the products that are sold into the U.S. market are disposable single-use products. They are used with one patient and they are thrown away. You can imagine the waste and cost that that drives into the healthcare landscape. Customers have a desire to reprocess or reuse those items again. The main method that they do that through, or U.S. reprocessors do that through, is with ethylene oxide, which is a toxic gas. We call it ETO. Arjo ReNu offers a solution that is cleaner and greener and does not use ethylene oxide whatsoever. It uses the hot water method. I only say that just to set the foundation for why this is so important.
There are massive amounts of equipment and devices going into landfills that we will now be able to divert and use again for customers, not only helping their sustainability conversation, but also helping reduce cost savings. Within the reprocessing world, it is much more cost-effective to reprocess a single-use device than it is to manufacture a new one. There is a good amount of profitability in this category for us. What do we need to do here? The first thing is expand our reach. We work with some of the nation's top and foremost thought leaders here from a health system standpoint, and we need to leverage some of those relationships to bring on new Arjo customers. We also are working on deploying new business models.
Today, we only reprocess non-invasive medical devices, and we are working on a program that allows us to capture some invasive devices and reprocess those through partnerships. Lastly, broadening our capabilities. One thing that is really important with reprocessing is that you are continuing to look for new types of products to reprocess. That is something that is consistently part of our strategy to try to drive new business within existing customers as well as new customers. What I hope that you have taken away from this short presentation is that the U.S. remains an attractive market. We are going to continue penetrating the acute care market and doing everything we can do to grow that.
We are going to be leaning on some of our counterparts, like Canada, to help us really dive deeper into long-term care and get good penetration there, as well as continue on the path with reprocessing. We will do everything we can to execute on the strategy that Andréas Elgaard has laid out for us today. With that, I will hand it over to Jim Findlater, our Vice President of Sales and Marketing for Canada.
Thank you, Jessica. Thank you, Andréas. Really great to be with you all today. My name is Jim Findlater. I lead our sales and marketing team in Canada. I have been in the healthcare industry for about 17 years, 15 of which I have had the privilege to work for Arjo and support our customers across the country. I have had the ability to do that in many different capacities within Arjo, leading sales teams, marketing teams. I have had a unique ability to interact with stakeholders externally, from frontline staff to C-suite, which provides a lot of really interesting insight that I can share with you today. I start with what is going on in Canada, and Andréas talked about this as trends at the beginning of his presentation. In Canada, we have the average age of the patient and the resident increasing on an annual basis.
They are staying at home longer and then coming into institutional care with much higher acuity needs and less mobility. Then they are coming into institutions that are overburdened right now and have significantly less resources than they have had historically. Essentially what we are saying is, our customers are being asked to do a lot more with a lot less, and we are uniquely positioned to be able to support them there. The Canadian healthcare system in general looks something like this. Just under SEK 400 billion were spent on healthcare in Canada, which is about 12.7% of the GDP. What is unique about our situation is that you might look at it and see one country, but in fact what we have is 13 separate markets across the country who operate very differently.
You take that 71% of public funding and how it's disseminated in each market, in each province, in each territory is different. We're working with different health authorities, regional health authorities, provincial health authorities, municipalities. What I will say is that there does seem to be shared priorities across the chain. We're looking at expanding access to primary care, supporting healthcare workers, and reducing the backlog there, and supporting access to home care and safe long-term care. What our customers are craving for in Canada right now with the long-term care homes and the acute care homes are craving, is creating efficiencies. Once again, we're uniquely positioned to be able to provide that to them. The takeaway here is it's a vast geography that we're supporting, with 13 buyers and one problem set, but it seems to be aligned. This is Canada in brief.
This is where we sit. Andréas talked about the long-term care penetration that we have in Canada and market leaders. 65% of our revenue today comes from the long-term care sector, 27% in acute care. There is a presence there for sure. You'll hear in a little bit, we're just looking to grow that more significantly. What is presented as home care is our representation in the community, which we largely use a network of dealers to help penetrate. Then there's a 2% of other, which is distribution of a small portfolio of products. More importantly, if I bring your attention to the middle here, we see the breakdown by product category. If Arjo Canada was a house, what you can see here is that the pillars of that house are patient handling, hygiene, rental, and service. That's what keeps the house up.
We have market leadership positions in patient handling, market leadership positions in hygiene, market leadership position in rental solutions, which are almost exclusively distributed through acute care. Then we have our strong service offering to support all of those products. We also sell medical beds and surfaces across the country, predominantly in acute care, DVT, and disinfection. When we look at the footprint of Canada, we see 240 employees across the country. A central warehouse just outside of Toronto in Mississauga, Ontario. We have, like the U.S., almost exclusively direct sales, service, and clinical offerings, which again, to mirror the U.S., creates a more intimate experience for the customer. We have 11 service centers that we utilize to execute our rental operations throughout the country, and a production facility in Magog, Quebec, which is a global manufacturing facility.
Very vast, big geography, 8,000 kilometers almost from coast to coast, and pockets of population. Not dissimilar, I think, I had a conversation outside earlier to Sweden. Just creates some opportunities for us to, when we talk about being direct with our customers, some of the pockets where the population isn't as dense, we have large territories to cover. We'll take a look here and transition to how we've been doing recently. I say 5+ years of growth, but really this goes back to Arjo becoming a standalone in 2018. We see consistent results. We have a +9% revenue CAGR from 2021 to 2025, 22 consecutive quarters of growth going back to Q4 of 2020, and consistent year-over-year development and profit improvement. That's what we've accomplished recently. The how is even more exciting.
The introduction of a dedicated consistent sales management process, accompanied by a really targeted commercial excellence program where we've intentionally pursued defining who are we talking to and what are we talking about with our customers. When I take a look at the corporate groups that we've been able to enhance our relationships with, we've, like the U.S., really focused on progressing towards solution selling from products, so being less of a vendor and more of a problem solver, which has had a big impact on our relationships with our corporate groups and has allowed us to expand that business by bringing on competitive corporate groups. We've been able to do that because the rental business is so stable for us in Canada, and the rental business has allowed us to be able to divert resources and opportunities outside.
Focusing on what we've been able to accomplish with that rental business since the acquisition of it in 2012. Lastly, Andréas also spoke about this a little bit, this has never been more important to us that we have a direct global manufacturing facility in Canada, and we utilize that. We utilize that to create efficiencies in our supply chain by direct shipping from that global manufacturing site. As well, in recent months and years, it's been really impactful for us to claim Made in Canada. We've been able to utilize that to penetrate customer base. We've been able to really navigate the geopolitical impact of the supply chain for patient handling specifically. That growth that we've experienced recently has come from a very disciplined execution in the segments that we know best.
The question is: where do we go from here? How do we press that advantage? Andréas introduced a strategy to you today where one of those strategic imperatives was win where we have the right to play. That's exactly what we intend to do in Canada. A deeper penetration into long-term care, a stronger penetration into acute care, and the exploration of home care a little bit more intimately. I'll talk about each of those just very briefly here one at a time. Strengthen and scale in acute care. We have an opportunity to leverage the footprint beyond our rental business. There's approximately 94,000 beds that are in target for us in Canada, and the opportunity there is to expand to the full Arjo portfolio.
Despite the beef between the two countries, Arjo Canada and Arjo U.S. work very closely together, and there's a lot of key learnings that we are looking to grow on from the U.S.' penetration into acute care. Our commercial strategy here has been to introduce a direct acute care sales team in the most populous areas of the country. We believe that that dedicated effort will allow us to be able to create stronger relationships and penetrate further with the full Arjo portfolio. At the same time, the need to defend and expand on our rental solutions, which is one of the core areas of our business. We supplement that by growing via the solutions in patient handling and wellness. In long-term care, we are viewed and we are market leaders, and yet it still remains an attractive area for us to expand.
There are approximately 200,000 long-term care beds in Canada, and that number is growing because there has been recent announcements of funding for new beds in Canada for long-term care beds, knowing the impact of the aging population, of course. Yet we feel like we are under-penetrated with one of the key product portfolios that we have, which is therapeutic surfaces, and to a lesser extent, medical beds. The commercial strategy here is to utilize that brand reputation that we have in acute care of having solutions that treat and prevent pressure injuries and bring those solutions into long-term care. Establish partnerships with long-term care homes who are struggling a little bit with resources to have outcomes-based programs that target pressure injury prevention and minimize transfers between long-term care and acute care.
Lastly, aggressively pursue winning these new build projects, which we have been securing over the past several years. As they are ramping up to make sure that we are well-positioned to work with architects and builders and some of our big customers to make sure that we are winning these new build projects.
Lastly, we look at selectively exploring our enhanced presence in home care. We know that provincial governments are actively investing in keeping people at home for as long as they can. We know that people want to stay at home as long as they can. We also know that there are not enough institutional beds, so this creates an opportunity for being able to have a bigger presence into home care. So we are also investing in a dedicated team here, a more dedicated team, I should say, here, with a stronger strategy and set up for commercial execution.
We want to utilize, again, therapeutic surfaces to promote prevention in home care. We look at stakeholders that we do not have a strong relationship with today, that we would like to build a stronger relationship with tomorrow in the occupational therapists and physiotherapists in the community. Lastly, introduction of more flexible models to be able to effectively navigate through the home care sector in Canada. In summary, Canada remains an attractive market for continued success. What we have to do going forward is build on our commercial momentum that we have built up over the past few years, the significant momentum we have built up. Pursue key targeted opportunities across all sectors, or win where we have the right to play. Lastly, I will leave you with this. We are positioned to deliver consistent, sustainable results, and that is what we strive to do.
With that, I am going to welcome Andréas back to stage.
Thanks, Jim. That's g reat.
Big thanks to Jessica and Jim. I think it gives a deeper perspective, especially considering that I am up here. We need somebody that actually is a professional as well. Jokes aside. I hope so far that you have seen that we are ambitious about the future, but we are also honest about where we have maybe not done so good in the past and where we have also room to improve. That is so clear that every person I meet in Arjo, every topic we discuss, it is like there is a potential there. There is a potential to grow and develop. There is a potential to do better. That is really what we then, when we combine in what to expect for the coming years, that is what I will go into now, and that we can be confident in what we say.
We have been looking across all parts of Arjo, and what we then commit to today is this SEK 350 million EBIT improvement compared to 2025. We need to have a base when we make these promises. We do not know about the future. We have a clear line of sight of the things that will deliver towards this. Also, we have potentials that goes beyond. We have mainly focused on efficiency, coming out of clarity in roles and responsibilities, enabling the organization to work better together, to empower our regions and markets to do what they do best, and that is to lead and take care of our customers and make sure that patients get the healthcare that they need.
But also by doing that, also harmonize the best practices that we have, the most efficient way of delivering our rental solutions, the most efficient ways of driving a service organization and so on. There's a lot of that. It really starts with empowerment and collaboration, and that we need to be humble that as individual leaders or individual teams, we don't know everything. We are not the best. Even if we are great, there's always somebody else that has something that we can learn from. That's really a big part of this. The operating model will come with some cost restructuring because we have grown over the past years. Our staff has grown more than what the company has grown. There is some efficiency there, but a lot of that comes from clarity in roles and responsibilities.
What will happen in individual markets, what will happen on a regional level, and what does that mean for our group functions? Then we have seen significant opportunity on procurement, and I have led these types of initiatives in different organizations in the past. I also have many years in an organization that was super focused on procurement efficiency, and I can see in Arjo that we have a lot of potential. This is something that we have spent large parts of the first half of the year validating, and we have started the execution of that. So we're off to a good start. So it's all about leveraging and professionalizing our procurement and also challenging our current ways of working. So really significant potential there. Then we have spent the day today to talk about commercial opportunities. But we have not built in any growth.
So this SEK 350 figure is not fueled by growth over those years. So it's really about things we can do with our own hands, stuff we have control over that will deliver the total sum of EBIT improvement then. We talk about mid-2029, but the vast majority of this will happen earlier than mid-2029. But then what's also important is then, because this is maybe a little bit back to basic, focusing on the core business, our core strengths, spreading the good gospel of best practice, and making sure that we are more consistent in our execution. So that's all good. But what about the future? What about new markets, new customer segments, new product segments? What about M&A? Today, we don't focus on that. We focus on what we can control, and that has significant value.
But of course, we have looked into what will this mean when we also then start to drive growth. What will product portfolio optimization mean in terms of efficiency and across the value chain? This will impact our capital efficiency a lot, but it's another initiative that we will look deeper into in the coming period. Supply chain optimization, I think there is some things to do, not as big potential maybe as we have in the other ones. Then, of course, we need to drive our growth. We need to maybe build capability or enhance our competence, and one way to do that is also to leverage M&A in a more clear and a more strategic way than what we have done in the past. So that will also be part of the portfolio.
But it's important for me to communicate today that this that we talk about comes from these three, and that there is more value creation to be delivered beyond this. I put together an indicative slide in when to expect this to happen. The vast majority will happen within the coming two years, but we say that mid 2029 is when the full effect is in place. This also comes with a one-time investment in restructuring in order to free this up, and I would say that we have been conservative here when we make this promise, because we know that we have to deliver. Arjo has promised things in the past, and we have not delivered. This time, we're going to deliver. So we've been a little bit conservative here.
We have not been as conservative here because we also don't want to say, "Okay, we said this number, but now we have exceeded." So we're trying to be prudent in the promises that we make. You can see that this ramps up progressively over the period. But it's not something that you need to wait a long time for. It's something that we have in the coming short period. I think this is super important, and as I said in the beginning, so right now, and today, we're focusing on how we will make the move together, and that is really about unlocking the potential of our core business, building on our strengths that we have, controlling and becoming more efficient in how we spend our money, where we invest, and how we collaborate and work across the value chain.
Clarifying a lot of things, making sure that we become more scalable and more efficient before we take the next step and put more on our plate, or maybe then use M&A as a tool. I don't want to say that M&A is off the plate and that is something that only happens in the future. No, that is something that you need to work with long term, and sometimes these timelines happen sooner than what you expect. So it is something that is part of our parallel world. But we need to build a stronger core, a more efficient core, because the way that we grow today, when we grow, our costs follow, and that is not an efficient way of growing. We need to be able to grow in a way where profitability grows more than the top line.
This is really what to expect from us in the coming years and in the short period that we just have ahead of us. Of course, we have an interim report coming up soon. So we still have some days to get the Q3 in place, and then we'll present that to you guys in October. We have a year-end report coming end of January, and then we'll present new financial targets in what to expect from Arjo also from that aspect, and that will be presented during Q1. By that, I will just highlight again the opening slide I had, that this is the commitment we're making. It's all about unlocking the potential of being Arjo, and it is a plan that we know we can deliver on. I can say that because it's not my plan. It is our plan.
It is these people that have made that plan. So it is all the professionals like Jessica and Jim that you have met today that have put this plan together. So it's really the result of a co-creation. And maybe a bad joke, but I told the teams when I was new that we're going to do this, and we're going to co-create it. And I told them that you're going to develop Stockholm syndrome. That you become part of a journey, and you will realize through that journey that you are actually being kidnapped. And you will start to sympathize with the kidnapper, because that's really what's going on. When you invite people to co-create, to participate, and to contribute, it's no longer your baby. It becomes our baby. Then the trick is, and the trap is that, guess who's going to execute?
It's the same team that have developed the plan. It's now their plan. Now they also get the privilege to execute, and that is something that has been really well received. It's what these leaders want. They are really good executioners in their everyday life. But now they have a shared plan, and it's been understood. And they may be, as you know, when you bring a group of people together, they don't always think the same thing. So they have really challenged each other, but they've also been part in then selecting where do we put our money? Where do we put our time? Where do we put our focus, and how can we deliver that to our purpose in the best possible way? So this is why I'm confident that this is a plan that we can deliver.
By that, I say thank you from my side, and we open up the floor for Q&A. And I welcome Maria, Jessica, and Jim to the stage to join me, and let's see if we get some good questions, tricky questions, or how we move forward.
Okay, if you want to ask a question in the room, raise your hand and wait for a microphone. And if you want to ask a question online, tap into the chat box below the video player. Who wants to start? Over here?
Thank you. Kristofer Liljeberg from DNB Carnegie. Two questions. Just to make sure the base you assumed for the SEK 350 million improvement, that is adjusted EBIT for 2025, I assume, or? You can do that. This is the improvement. You can take that as you wish. This will be a net improvement.
It seems you see this as a saving more than an actual EBIT improvement because you do not include any sales growth here, or?
We do not include sales growth in this number, but it is an element of efficiency in how we work together. It is procurement, but it is also on the commercial excellence side. It is all of these things.
Okay. The actual EBIT improvement, if you grow the business, continue to grow 3%-5%, the actual EBIT improvement will be more than SEK 350 million in this period.
If the assumption is that we will be more efficient as we grow, yes.
Okay. Thank you.
Yes. Sten Gustafsson from ABG Sundal Collier. I have a question for Jessica. When you talk about the opportunities in the U.S. in the long-term care segment, I guess that opportunity has been there for quite some time. So I was wondering if there are any structural reasons why you haven't focused on that before, and what the competition looks like for you.
Yeah, that's a great question. Starting in 2022, many of you know, we separated North America into U.S. and Canada. Post-COVID, we had been struggling from a revenue and financial standpoint. We made a decision at that time. We had to work to turn around the acute care and the government business that we had, and we've successfully done that. That's why today we feel like we can really take on this element of the strategy. From a competitive standpoint, the market is highly fragmented in long-term care.
That's why I think from our position, we're able to capitalize on some of that consolidation of the chains. So smaller regional chains are getting bought up into bigger and bigger chains, and they want consistency across their homes that they have. Arjo's positioned in a really nice way to do that with the scope that we have.
You do have the products in place today?
Mainly. We have a couple of product launches that are due, one of them in Q1 and another later next year that will help significantly.
All right. Thank you.
Hi. Thank you. Mattias Vadsten from SEB. Thanks for taking my questions. First one would be if you could talk a little bit more about the initiatives taken to be able to charge better for the value add you provide your customers. If you could talk also a bit about where this is working today for Arjo and where we need the material improvements.
Yes, we did not share individual countries there, but we have several good examples where we have great, I would say, diligence, and we are being meticulous in our terms and conditions, in our commercial execution. I do not want to maybe point out individual countries that is not doing it as well. But we see that is clearly within our own reach. I would say that in many markets we are a bit unaware. To understand why will we succeed in doing something that we could have been able to do in the past is that we have not fostered this, I would say, cross-border collaboration. We have not had the forums, we have not had the mechanisms. Arjo have largely managed country by country. We have not had the mechanisms for the countries to interact with each other. That is also a background between.
When Canada and U.S. were separated a couple of years ago, there are very few networking opportunities or best practice sharing that happened. Those are some of the capabilities that we are putting in place.
Thank you. In terms of elements of price pressures today, in what segments is this more extended than not?
Maybe I shouldn't look at Jessica, but you know that our DVT or VTE, or sometimes we call it IPC.
Yeah.
We like our abbreviations. We know that in U.S. that's a huge business, but we have seen new, very, very tough competition. The average price level has dropped significantly, and that's been followed up in every quarter. I don't see in my crystal ball that is going to return. That's the new reality of competition, and we need to face that and adjust our business models, because I think that we've had business models where we knew we would catch up if we just got the customer. But now we need to make sure that we're profitable from the get-go.
Thank you. One last, if I may. In terms of the new operating model, you talk about commercial execution and so forth.
Yeah.
I would expect to hear a bit more on growth perhaps. But would you say this is what we can look forward to as of the Q4 report then with the new?
I would say that, as you know, we do not give guidance, but today we have given a guidance, so this is something that we will follow in every quarterly report. And we will then follow how we, I would say, how our execution materializes in the P&L so that can be separated until we have reached our promises, and then we can go into a more business as usual. But I think that you will expect to see effects of this coming in during 2027 and 2028, and that we will be able to talk about that, I would say. Then when we have new financial targets, of course, that will be a more wide set of focus, and it will not just be about what we have presented from the strategy. We know that we have an underlying business.
I have just said that this is a subset of the things that we are working on, but they are so material, and they are so concrete that we want to share them today.
Thank you very much.
Next question.
Thank you. Ludwig Germunder from Handelsbanken here. I want to start with a follow-up on Mattias' question about the price pressure that you've seen. You said, Andréas, that you do not expect it to return, but how should we think about that going forward? Will it be stable in your view, or do you think there will be more price pressure?
If you talk about the VTE category specifically, I think that we are probably flattening out in terms-
Yeah.
Of price pressure.
It's been a steep journey downwards. I don't know, Jessica, if you want to add something.
Yeah, I would say that's accurate. I feel like we're very close to the bottom at this point. Now we're really looking to capture additional customers, keep the existing customers that we have, and then whenever we can, try to increase price in other categories.
To build on that, it also means that if this is the reality of the market, the way that we deliver our solutions has to also improve. Where we manufacture, how we manufacture, how we drive supply chain operations, how we package the goods so it's easy and efficient, and also how we build stickiness in our customer relationships. Because this is a segment that is with high level of consumables, and it's really once you're in there with a customer, it's a really recurring revenue type of business. We do want to keep being there.
Generally, price pressure across all categories, I would say I don't see that that is something that will be I think that the pressure on Arjo and the whole market, given the pressure that the healthcare systems are under, I don't think that we will have easy sailing in the future. We need to work on our own efficiency.
We need to work on our own relevance, and that's also linking back to, I think, both Jessica and Jim were talking about that we need to show how we deliver our value, being more of a solution provider than just a product provider. We need to show how this solution delivers reduced costs and relieves pressure from staff and so on.
If I could add to that, just briefly. It also connects to the sustainability and the reprocessing that we mentioned today. That's a big element where if you combine the offering that we have with reprocessing, you can provide additional value. There's cost savings on our side, so it's really a win-win for customer and Arjo.
Great, thank you. Just a second question to understand where you stand today. So I understand it's been an extensive work with this strategy that you've presented today. But in terms of financial targets that you aim to present in Q1, what are you missing today that is holding you back from presenting targets today, for example?
I would say that it's part of the line of questioning that you guys have had. So I think what we will come back with is how we will manage capital in a better way. I think that is important. I think we've all seen that the cash flow generation has not been where it should be. So there will be additional focus on, I would say, capital efficiency and what that means in terms of financial targets. I think that what we have seen when we've been working on the strategy and the energy we get out and, I would say, also inspiration when you bring people together to explore a little bit our own company again and our own opportunity, that has been really revealing.
Of course, if we see potentials that are there that are untapped, that needs to be built into our growth ambition. That is something we need to come back to. I think also, maybe it is our own fault, but I think that we have talked maybe a little bit too much about gross profit and growth and not enough about bottom line. I think that we will have more focus on profitability, and making sure that whatever we do, if the margin is high or low, that by the end of the day, we measure if we are actually delivering value to our shareholders. I think that needs to be stronger, that element, when we present our financial targets.
Thank you.
I will take a quick question from online as well. Andréas, would you like to elaborate a little bit on where we intend to invest for the future?
Yeah. It is a broad question. I think if I start on the people side, we intend to invest in developing the leadership of our leaders. We have great people, but they are not used to collaborating across borders. They are fantastic within their own domain, but they have not been given the opportunity to collaborate and manage, I would say, multiple priorities and multiple needs and to be comfortable in that. Also, to help them to better navigate when you are being in the unknown, because we know that the world is not as stable and predictable as it used to be. As a leader that has many years in an industry, when the fundamentals around you are changing, you lose your own kind of leverage that you have towards your organization.
We need to help them to realize that leading in the unknown is very different from leading in the known. You need to engage your people, you need to empower much more, and you need to bring more people into that. So we will invest in our people, for sure. We also need to invest in our capabilities in how we drive efficiency. When it comes to looking forward into the market, I think that we have said already today that if we want to penetrate in long-term care, that doesn't happen by itself. We need to have dedicated investments. So we need to invest in people. We need to invest in, I would say, sometimes facilities. I think if we talk about the U.S. and Canada, we cover the markets pretty well, so we have a lot to leverage from.
That's where the investments will be, in the market penetration. If we do something that is more M&A related, of course, that will also be part of that. When we look into the portfolio, I would say that we need to mature how we work with our partners. Arjo needs to lead. We can never abdicate our leadership, but we need to also leverage the competence that comes from some of our partners. We have not always done that and not always realized that they also have engineers, they also have creativity. So we need to empower also our partners to be closer connected to our product development processes and to how we then deliver that offer to our markets. So the investments will happen broadly across. If we come into stuff like M&A and so on, that will be communicated when it happens.
Hello. Erik Cassel from Danske Bank. First, on timing of the savings. When you say mid 2029, is that some sort of annualized run rate by that point, or is it realized on a rolling 12-month basis by that point?
It will be realized on that point, and the vast majority will happen before that.
I was wondering on the SEK 370 one-time investment, what's the proportion of that affecting cash flow? Is there any sort of non-cash component to it?
No, that will affect cash flow, and it will be connected to capability investments, I would say, in operations. It will be also investments in, like I said, market penetration, and there will be investments in, I would say, organizational efficiency.
Okay. Thank you. Can you share a bit more which proportion comes from the different buckets that you show? You had some indicative circles in there, but is it possible to say how much is more certain headcount reductions and maybe a bit, say, unsure procurement factors that you may be uncertain on timing and magnitude, for example? Basically, how much is certain of the total savings?
Yeah. So of course, we work internally with targets that are even higher because we need to have ambitions that makes us able to deliver on the ambitions that we share today. Because we all know that there are risks in execution, and not everything that you do will be delivered. But we are confident that we have seen enough ambition and enough potential that we can do this promise today. So we have not broken down exactly how much will come. I would say the illustrations there are there for a purpose. They are indicative, but you can also see what they indicate. So I think that's the answer that we give today, and I'm pretty sure that when we come back in the coming quarters, we will be able to share more about that.
Good. Thank you. I was wondering if the new model has any implications for cash flow generation. Do you expect to have some sort of leaner network and capital effects from this?
We believe that the new operating model definitely will help us to reach a better cash flow generation. I would say that a lot of what I talked about when it comes to portfolio pruning, efficiency, that will help us to drive cash flow generation because we can be able to also. Cash efficiency because we are tying up the capital in many places today that we can do better going forward.
Okay. Last question. As you talked about retiring products and slimming SKUs, do you expect that to be a notable headwind on growth in the coming years? Are you willing to give up, say, the recent year's growth rate in favor of lifting margins?
I would say that shareholder value will be our ultimate purpose. We do know that we have. I would say that we still take care of products that were launched more than 20 years ago, sometimes 30 years ago, and we still keep them alive, even though they are not part of significant sales. Of course, when you do portfolio pruning, it comes with arbitrage. What usually happens is that in the beginning, it feels difficult, but in the end, you actually unleash sales to have more predictability in availability of product. It usually is a good growth driver. Intuitively, it seems like the opposite, but usually it actually helps you to become more efficient, and that helps sales to be more efficient. Of course, this is not something that we will do from an inventory point of view.
It will be something that we do from a value chain point of view. How do we create the best value, and how do we then create that across?
Thank you.
Do we have any further questions? Yes, over here.
We talked about pricing, but another reason for lower profitability in the last year has been geographic mix, where the U.S. and Canada has grown slower than other regions, and now you talked about the new strategy in North America. Going forward, do you anticipate that negative trend to reverse, and we will see higher growth in North America compared to the rest of the world?
I think that if you look at gross profit, it is one story. If you look at bottom line, it is another story. I think that is also part of we need to focus on, by the end of the day, when we have been busy executing everything we are doing and realizing the growth we have created, it is what is left on the bottom line that we need to be much more focused on. I think that Arjo has had too much focus on top line and gross profit and not enough focus on. I am not saying that we will stop thinking about that. I am just saying that we need to make sure that keeping ourselves busy needs to result in something, and that is part of becoming more performance-driven in our culture. I hope that answers your question.
For instance, earlier this year, we communicated that we won a huge deal in South Africa, a huge medical beds deal. Of course, you can imagine yourself, we are selling medical beds to healthcare institutions across South Africa. The gross profit is not the best, so it brings down the average, but the bottom line is good, and the capital efficiency was excellent. We got paid before we had to pay our own invoices. Sometimes there is more behind the gross profit, and I think that we have been maybe too focused on a couple of indicators that are maybe true for parts of our categories, but for other categories, they tell a different story. I think that is why, by the end of the day, the bottom line is where we need to have our focus.
That is also why I sent a message today about talking about EBIT improvement and not on higher up in the P&L.
One more question, if I may.
Yes.
On cash flow. You currently spend around SEK 600 million on capital expenditures each year, which is approximately 5% of sales. You mentioned that expanding into acute care will result in some investments. What is the normalized level of capital expenditures to maintain the current base and deliver on the new growth targets? Currently you only deliver around 20%-30% of EBITDA funnels down to free cash flow. What is a level you will be happy with?
We are not setting financial targets today. Sorry for that boring answer. I think the other answer I gave before was that we need to look at our capital efficiency because we know that we are not being efficient today, and we know that not enough is being then released in real cash flow by the end of the day. We can see that on our debt, that it has been flat for a period here, and we came from a period where we gradually worked our debt down, and then it has stopped. Portfolio focus has many aspects to it. It is not just about developing an offer that the customers like. It is also developing an offer that is more efficient across the value chain. It is more efficient in assembly.
We need to leverage our OEM partners as well, so we make sure that we take the right make-or-buy decisions. I think that historically, we have maybe taken these decisions in silos, and we have not done that in a value chain optimization point of view. I am used to that way of working, and I think a lot of people across Arjo also have similar experiences. As an organization, we have not had that decision-making or that operating model governance. I expect us to be able to improve also the capital side. Today, we cannot talk about that. We have been super busy coming to the point where we are today, and we think it is significant enough to take our time and your time to share that. Then we really hope to come back in Q1 with financial targets where we can talk more about that.
Hi. Ludvig Lundgren from Arctic. Starting with a bit of a follow-up on the SEK 370 million one-time investments. You highlighted that this will be incurred by 2027, but can you elaborate a bit on the timing of these costs, and will we see material effect already in 2026?
They will be largely incurred in 2027, but also parts of it will also go into 2028 because we will do some changes across the company that needs longer lead times before we can execute it. You need to build up a capability before you can execute on some parts of it. We do not elaborate into exactly what it consists of. Of course, we know that based on our plan. The figure that we have put out is conservative, which means that it might be less. But we also put out a conservative figure in the SEK 350. It might be more. We are trying to match those two. If the SEK 350 becomes higher, I do not want the SEK 370 to grow. I want to be able to deliver more value.
Okay. Very clear. Then I had one for Jim, because I believe the long-term care in Canada is operated by both public and private facilities. I just wonder if you can give some flavor on what type of facilities Arjo is strong in currently, and if we see any trends on the market trends for the both types of facilities.
That is a very good question. Currently, we are in about just under 75% of long-term care facilities across the country in some capacity over the past 10 years. That number really does split between the public and the private. I would say that we have equal partnerships with both. I think when you look at the privates, that is where you get more into the corporate accounts or group purchasing organizations, which may have a bigger ability to be impacted from a top level down. But still the publicly funded system is, they view us as market leaders, and they trust us, and we work with them effectively. I would say the big difference between the two is that you have a more top-down approach with the privately funded corporate groups. If that answers the question.
Yeah. Thanks. Then if I just can squeeze one more in, just a bit of a follow-up to my first one. Because it sounds like some of the costs will be in the P&L, some will be maybe capitalized. Then should we expect a bit of initial margin decline from these investments, which will then drive margins in the longer term? Is that how to interpret these initial investments?
I think all of you understand that we talk a little bit in riddles about some of these things, because it is not until we have executed some of the initiatives that we will have the true cost. It will be mainly P&L effect in that restructuring. That is kind of the message that I can give today.
Thanks. Very clear.
Any further questions in the room? No. Then I think we are ready to wrap this up. Before I hand over to you for some final comments, I just want to say that if you have any further questions or want to connect, feel free to reach out to any of us. Then over to you, Andréas.
Yeah. I do not have much to say.
No.
No. I just want to say thank you for listening to us and also thank you to Maria, Jessica, and Jim, because I think you were dynamite today. Really good. Big thank you, guys. Thanks. Thanks to all of you.