Clariane SE (CLARI) Earnings Call Transcript & Summary

Welcome to the Clariane 2023 Full Year Results. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you will have an opportunity to ask questions at the end of the call. [Operator Instructions]. Today, we have Sophie Boissard, the CEO; and Philippe Garin, the CFO. I will now hand over the call to your host, Sophie Boissard, the CEO, to begin today's conference. Thank you.

Thank you very much, ladies and gentlemen, dear investors, good afternoon. Welcome to our Clariane Group's 2023 annual results presentation. I am Sophie Boissard, Chief Executive Officer of the Clariane Group. With me today is Philippe Garin, Group's Chief Financial Officer. I would like to start this presentation by highlighting the key events of 2023. And in order to sum up 2023, and I'm on Slide #4, I would like you to remember 3 main figures. The first figure is 89.4%. The second figure is EUR 1.5 billion. And the last and the third figure is a plus 44. What does it mean? The 89.4% is actually the level of occupancy rates we have now reached on our main segment, which is nursing home. And this 89.4% means that we are now back to a kind of normal state after COVID 2020, and of course, this is a major event of the year. EUR 1.5 billion is actually the amount of the refinancing plan. We have launched mid-November in order to unlock the financing constraints created on the back of the restructuring. And of course, this is a major plan for clients which I will elaborate much more on this in a few minutes. And the plus 44 is actually the high net promoter score we reached over the year. This is the highest ever NPS for Clariane and probably the highest ever in our segment of activities and this shows that we have been able, thanks to a continuous improvement effort to reach a recognized high quality of care, and this is probably one of the greatest achievement of 2023. Let us move now to Slide #6 and have a look at the main indicators. 2023, I think it's particularly in my introduction speech is really about a solid performance despite a difficult environment. Solid performance, which is reflected in the top line evolution. Revenue went up 11.4% on a reported basis, which includes Grupo Cinco, the social and psychological care platform we acquired in Spain early 2023. We have reached in 2023, more than EUR 5 billion revenue. Organic growth was 8.4%, totally in line with our guidance with a well-balanced contribution of both volume and pricing coming from all geographies and segments and especially, as I mentioned, a strong contribution from elderly care segment, which is nearly back to normal. As announced, EBITDA rose very slightly to EUR 614 million, which in an environment where inflation on external costs reached almost 10% and where more than 80% of our revenues are regulated is a good performance. As a matter of fact, we have been able to offset 2/3 of the inflation effect coming from external charges. EBITDA margin at 12.2% fell only by 120 bps, mainly due to Germany, as a temporary consequence of the new financing reform that has been deployed over 2022 and 2023, as Philippe will explain in detail later in the presentation. Operating free cash generation [Indiscernible] at EUR 191 million, yet with a transformation rate from EBITDA to cash around 30% below the average of previous years, which was above 40%. This is due to higher working capital requirements, particularly in Germany, again, in relation with the new regulatory framework I just mentioned. We are confident to recover in the forthcoming 18 months and to come back to a normalized operating free cash flow generation. Net profit is at breakeven, including the impact of provisions related to '24 disposal program, which is a major part of our refinancing plan I just alluded to. Financial leverage is 3.8x, which is in line with the restated guidance we gave in October. And finally, the market value of our real estate portfolio stands at EUR 3 billion gross value, down by approximately 8% compared with the value at the end of 2022. This is the very mechanical effect of the decompression of capitalization rate, which remains indeed limited for health care asset class despite the strong increase in interest rates, which have been circling over the last 2 years. The increase in the loan-to-value to 61% from 57% last year, is strictly the result of changes in cap rates on the gross value of the real estate portfolio since the real estate debt is stable in amount. Let us now move to Slide #7. As a second highlight of the year, I would like to focus on the plan to strengthen our financial structure we announced on the 14th of November of last year. This plan was intended to loosen the stranglehold on the lenders and stock markets after the major crisis caused by [indiscernible] default which has been resulting in completely blocking clients' access from the third quarter onwards to financing or to refinancing. So to get out of this bind, we have designed a comprehensive EUR 1.5 billion plan to be executed into 2 stages. The first very short-term phase, which is reflected on the right side of the slide, has been finalized at the end of the '23 financial year. It involved both the finalization of 2 real estate partnerships for a total of EUR 240 million in equity capital and the establishment of a real estate financing bridge with banks of the Crédit Agricole Group for a total amount of EUR 200 million. So those 2 are done. The second stage is much more structural and is ongoing. On one hand, it involves the implementation of an asset disposal program with an expected gross disposal value of EUR 1 billion. On the other side, it involves the completion of a capital increase with preferential subscription rights for a total amount of EUR 300 million. We are currently doing good progress on both these points. As you will see in more details later in the presentation, the aim of the plan is very clear. It is about reducing our net debt and returning to a leverage level of less than 3x by 2025 at the latest with LTV for real estate debt reduced to below 55% within the same time frame. Finally, and this brings me to Slide #8. I would like to take the opportunity to outline our achievements on extra financials and on ESG. And this, thanks to the remarkable work carried out by our teams to execute on the comprehensive road map that we filed in 2019 before COVID crisis. Indeed in 2019, we designed a 5-year plan whose target ambitions were strengthened when we adopted the status of mission-driven company 1 year ago. And actually, by 2023, Clariane will have met or even exceeded all its commitments. First and foremost, in terms of human resources policy. Second, in terms of quality of care and dialogue with the community of patients, families and residents and last, but not least, in terms of environmental impact. Let me comment here on the main achievements, starting, of course, with HR and human capital policy. The first achievement is definitely on the education and carrier development. Today, as you see on the slide, 12% of the company's employees are involved in a qualifying path course to be compared with 4% when we started in 2019. As a result, and this is in main figures -- in France today, we can fill 80% of the assistant nurse position through our own internal training programs. So this education path is good both for our employees who can progress through training. And for the company in terms of recruitment in the labor market that remains very tight and will remain very tight for the long run. The second achievement is about employee health and safety at work. We have been able to reduce work related accident frequency rates from 57 in 2020 to 37 to date. Loyalty has also been very much improved with the increase in seniority to 7.5 years on average to be compared with 6.7 years in 2019 before COVID when we launched the plan and an engagement rate that has been regularly measured which reached this year 79%, which is indeed a very high score to be compared with the other peers of our sector. Thanks to all these efforts, we have been able to be awarded top employer as the first company in the care sector. The second dimension of our ESG policy is about quality of care, of course, and it is very much related to the quality of our HR policy. And in this area, too, a great deal of work has been carried out since 2020 with the deployment of best-in-class quality standards in all the group's geographies for medical social -- for elderly care and health care activities. With the certification granted by independent third party bodies such as AFNOR France or DAkkS in Germany. We have been also working a lot in deploying and strengthening governance and mediation body in all our facilities and we have now 97% of our facility, which indeed has [Indiscernible] body, and it helps a lot to support and to avoid any [indiscernible] or to support improvement of quality and dialogue on the long run. All these have enabled us to reap the benefits in terms of perceived quality of care with a net recommendation score that has reached, as I said before, the nonprecedented and particularly high level of plus 44. This is 20 points more than in 2020, and this is 10 point more than the peers measured by the independent third-party organization we asked to support us in those inquiries and surveys. Let me say lastly, a few words on the third pillar, which is about environmental dimension. Clariane last year made a commitment to comply with the [Indiscernible] trajectory. We have already been able to reduce by 36%, our carbon intensity footprint per square meter in comparison with 2019 and of course, we have been committing to do a further minus 30% by 2030, mixing different levels, reducing energy consumption, changing energy mix, pushing on waste management and also working together with our main suppliers. So once again, a very strong year in which all the hard work we have been doing for the past 5 years is [Indiscernible] both in terms of operational and economic resilience and in terms of the recognized quality of care. I now hand over to Philippe Garin to give you a very detailed presentation of what this means for our income statement and balance sheet. Please, the floor is yours.

Hello, everyone. Let's move to Slide 10. I'd like to move on the income statement with the first slide confirming the relevance of our growth model. The first observation in line with what we saw in June is strong organic growth in each of our 3 businesses. This growth was driven in particular by a rise of almost 2 points in our occupancy rate. Finally, it is also worth noting the [Indiscernible] growth in the health care division grew by 17% and now accounts for just 1/4 of our [Indiscernible]. Let me move to Slide 11. If we look at the growth little differently by breaking it down into its volume, price and scope impacts. We see that price alone has a strong boost to growth, accounting for more than 5%. This effect was not the only one as the group achieved volume growth of 3% over the year, despite the end of the [Indiscernible] as part of the COVID crisis. Lastly, the acquisition of Grupo Cinco accounted for 3% of growth giving Clariane overall growth of over 11%. Slide 12. This growth is largely the result of our improved occupancy rates. In fact, we have seen an average increase of almost 2 points over this year, which is very solid performance. [Indiscernible] December '23, we were at 89.4%. Today, we are at 89.8%, which means that we are almost back to where we were before COVID. Slide 13. I think the first focus is clearly the impact of the inflation that reached a record level, the [Indiscernible] effect has been largely absorbed, thanks to good management of our cost structure. Indeed, [Indiscernible] from salary increase of 5.5% and other costs that were up by almost 10% and which represents 30% of our total cost base, our price increase averaged only to 5.4%. Again, [indiscernible] the decline in margin was limited to 120 basis points, a very good performance. Slide 14. Once again, we can look at this in a different way by looking at the variation in the component of EBITDA from one financial year to the next. Volume contributed EUR 30 million. Price had a negative impact of EUR 23 million, changing the scope of consolidation with Grupo Cinco in Spain, had a positive impact of EUR 9 million. And real estate business led to the development of our network was down by EUR 7 million. Let's turn now to the rest of the income statement, and in particular, Slide 15 -- sorry, to the net profit. Overall, the net result from continuing operations fell by around EUR 150 million over the year. This change can be explained by a fairly standard item, this increase in our depreciation and amortization charge, which represents around EUR 15 million. This figure is explained by the very significant investments we made in previous years. On the other hand, there are 2 more recent developments, EUR 90 million increase in noncurrent expense, EUR 12 million increase in financial results. Noncurrent expenses comprise asset impairment of around EUR 60 million, mainly relating to disposals that have been [Indiscernible] the process of being completed EUR 30 million in restructuring costs, particularly in Belgium and Germany. The increase in interest expense is due to the terms in our interest rate spread, which as you know can [indiscernible]. Finally, the point of explanation about tax. As our pretax profit is negative by around EUR 50 million, we should have had [tax gain] of around [EUR 5 million] Which is not the case, given the impairment of our EUR 50 million of our deferred tax asset in Germany. In fact, we have a significant tax loss case forward in Germany that can be absorbed by future profit. However, recognition of this benefit has been capped for this year to future economic benefit is retained, but its accounting translation effected. Slide 16. Net income from continued operation in '23 takes into account impairment losses on asset of EUR 60 million. [indiscernible] for this item, net income from continuing operation is [indiscernible]. With regard to this asset impairment, it is very important to bear in mind that this asset right now is largely related to disposal carryout as part of our refinancing plan, mainly the U.K. and real estate assets in Netherland. If we have not sold these assets, they would not have been impaired. We are, therefore, moving from a value in use to market value, which given the evolution of the real estate market leads us to depreciate this asset. I will, therefore, draw your attention that our annual impairment test carried out in '23 amounts to only EUR 6 million. I will remind you that on real estate assets, have always been recognized as their historical value. And therefore, most of our portfolio have not impact on their value in our balance sheet. Let's look to our business by region. As we have seen with our sales by businesses, we have also seen strong growth in each of our countries with France and Italy, our most mature countries growing by more than 6%. Regions such as Germany and [Benelux] benefited from both price and [indiscernible] effects. Lastly, paying double in size over the year with the acquisition of Grupo Cinco in January '23. Slide 19, France delivered a remarkable performance with organic growth of almost 7%, an increase of 8% on a reported basis. Further group activity in this region contributed to this good performance. In particular, there was strong growth in the health care and community care businesses. [Indiscernible] business, the occupancy rate continued to recover, fetching 88% [indiscernible] and around 88.6% today. This growth in business is not fully reflected in EBITDA given the high inflation, but EBITDA is still up. In terms of satisfaction, the NPS was up sharply to 45. Slide 20. Let's move on to Germany, which, as you know, is experiencing [indiscernible] nursing home sector, which is our main business in that country. We have seen particularly strong sales growth of around 10% -- 10%, sorry, mainly as a result of price increase. Since '22 we have had 2 successive and very significant increase in salaries, which has been passed on our tariffs. However, inflation in Germany on other costs have been particularly high and has not been offset by change in tariffs in either '22 or '23. The necessary adjustment is taking place with '23 likely to be a low point for Germany in terms of margin. We are starting to see the fruits of our efforts take shape, and we believe that we will be able to benefit from an improvement in the situation as early in '24. Nevertheless, our EBITDA margin fell from 23.5% in '22 to 18.9% in '23. In this complex environment, the platform has shown exceptional [Indiscernible] with a particularly strong performance in term of quality and a sharp rise in NPS to 43. Slide 21. The Benelux area, including Belgium and Netherlands performed very well with strong growth in both countries, 9% for Belgium and 25% for Holland and an increase in margin rate. Belgium EBITDA margin was from 21.9% to 22.6% and the Netherlands from 18.2% to 21.5%. So this is a region with a remarkable track record. Slide 22. Let's move to Italy, where I will make the same observation. Italy is still enjoying the very strong growth at almost 9%, of which 6% is organic. EBITDA grew by 10%, generating a slight improvement in the margin rate. This inclusive growth was achieved while maintaining a high NPS of 59. Slide 23. Finally, in Spain, which is our last geography, we have a margin addition that has absolutely nothing to do with inflation [Indiscernible]. Decrease in the margin rate in Spain, it's mainly due to the acquisition of Grupo Cinco, which as you will recall, has an extremely strong ambulatory business and therefore, a particularly low level, low tariff state costs. Despite the fall EBITDA margin rate, Spanish performance was particularly good with EBITDA doubling in value over the [period]. Slide 25. I would like now to move on the detail on the cash flow statement. '22 has seen a degree of stabilization in investment compared with '21. '23 correspond to a significant [Indiscernible] in all our investments with the real estate investment [indiscernible] by 2. These investments remain high, representing a further EUR 500 million over the '23 financial year and were financed mainly by setting a partnership in our real estate [Indiscernible]. Since this year, we had EUR 300 million through 3 real estate partnerships during the financial year. Cash flow was down slightly to EUR 191 million. These 2 factors combined enable us to reduce our [Indiscernible] debt to [EUR 60 million] after 2 years in which a very significant proportion of our growth was financed by debt. 26, so I suggest we move on the free cash flow section and focus on working capital, in particular. If we look at the service of operating free cash flow since '19. This has been around EUR 250 million. The cash conversion of EBITDA was around 40%. '22 was clearly a year above this average, marked by a very high level of real estate activity. '23 significantly lower than in '22 and slightly lower than the previous year. This change is mainly due to a negative impact on working capital of around EUR 18 million compared to '22. This is primarily due to a change in financing framework in Germany. The successful financing arrangement put in place continue to generate significant [indiscernible]. As a result, we are continuing to [Indiscernible] an overvalued working capital requirements in Germany, which is quite significant and which will have to [indiscernible] in years. In addition, our ability to put in place factoring solutions to improve working capital requirement has been reduced in most of our regions. Slide 27. Turning now to the investment cycle. As you can see on this chart, we were at EUR 1.2 billion in '20. Over the next [2 years], this level of investment as [Indiscernible] to around EUR 800 million. We then reduced this amount to EUR 533 million in '23, taking into account of the [indiscernible] real estate investment. This [amount of growth investments], of which we have control will be reduced to an average of EUR 200 million over '24 and '25. [indiscernible] our network makes it extremely difficult to go below this level on investment. 28, as a result of this very significant investment cycle, we now have a network of [indiscernible]. This effort contributed to our CSR performance as Sophie explained earlier. Let's move to Slide 30 on the balance sheet. Let's start with our real estate portfolio. We have had a year in which cap rate have risen to an average of 5.94% of our portfolio. This represents an increase of cap rate more than 10% with an impact of EUR 330 million in our portfolio value of EUR 3.2 billion after variation of scope. These cap rates were partially weighted by the rise in [Indiscernible] which represent EUR 56 million. When these 2 amounts added together, we recorded a [indiscernible] in our real estate value of around [Indiscernible]. We therefore believe that we are accounting for a significant portion of the decline that has been underway since '22. The decline has generated a mechanical increase in the group LTV, which is risen from 57% to 61% of the value in the real estate, while real estate debt is stable [indiscernible]. Slide 31. As you can see from Sophie's introduction, we are back to 3.8 average. This is a significant improvement on the average 4.1 at 30th of June. Our real estate debt of EUR 1.8 billion, representing LTV of 51% which is high point since our objective is to return to LTV of 55% gradually. Finally, in term of debt trend, I believe that '23, despite being a particularly difficult year in terms of debt management will have resulted in a favorable factor, namely the stabilization of debt. 32. Moving to our liquidity and maturities. Our liquidity and [indiscernible] stand at almost EUR 70 million. The maturity you see for '24 includes EUR 100 million for factoring, EUR 200 million for real estate and around EUR 100 million for [indiscernible]. So we have enough to meet this maturity, mainly real estate and [indiscernible]. '25 is also here with the [Indiscernible] maturity. On the other hand, '26 includes significant maturity amounts, their renewal will be addressed with the smooth revenue of our plan. I now hand over to Sophie on the refinancing plan.

Thank you very much, Philippe. I would now like to conclude this review of the 2023 financial year by taking a closer look at our plan to strengthen our financial structure and in particular, at this stage, that lie ahead. So let's move on to Slide #34. As I mentioned, the 2 first stage are already done and closed and we are now working very intensively on what is reflected here under the #3 and 4, the rights issue on one hand and disposal program on the other hand. So let's start on Slide #35 to describe what is the capital increase is about. It will be put to a vote at the General Meeting of Shareholders on the 26th of March. The aim is to raise EUR 300 million in order to strengthen the company's equity capital and to accelerate the reduction of leverage and debt. The capital increase is being proposed with preferential subscription rights, which will enable all shareholders to either take part or to transfer their preferential rights to new shareholders wishing to take out a position. Crédit Agricole Assurances. I'm on Slide #35. I hope it's clear for [indiscernible]. So Crédit Agricole Assurances through its subsidiary, Predica, has already indicated that it will provide a EUR 200 million guarantee to ensure the successful completion of this capital increase. The remaining EUR 100 million will be raised with the support of the main members of our banking pool. In terms of the timetable, as I said in my introduction, we had a number of conditions to need before we can decide upon the capital increase. One of the most important of these preconditions was to obtain an exemption from the obligation to launch a takeover bid from the Autorité des marchés financiers in the event that Predica would cross the 30% threshold. This exemption was obtained on the February 6, and is now definitive, so it will enable us to move forward on this basis. Second precondition, if Predica were to exceed the 40% control threshold by virtue of the guarantee, it will also be necessary for them to obtain prior approval from the French Competition Authority. As agreed with Predica, we have decided to submit an application to the French Competition Authority in order to preempt that issue, and we do not anticipate any particular difficulties on it, but we have to wait until the authority can pronounce the acquisition on the -- based on antitrust assessment. As you see on Slide #36, once the authorization has been obtained, we can proceed with the capital increase, subject to, of course, and this is, of course, the major precondition to the authorization to be given by the General Meeting of Shareholders which had been convened for the 26th of March. And you can find on our website, so clariane.com all documentation relating to the meeting and in particular the resolutions and the brochure that will serve as a basis for shareholder views and it helped to support their vote. It should be noted that both Predica and [indiscernible] were members of the company's Board of Directors have already indicated their support for the capital increase, on the request of the Autorité des marchés financiers, Predica has committed to cap its voting rights up to 1/3 of the expressed vote. Based on all those elements, the capital increase is underway to intervene either just before the summer or in June or just after the summer, meaning in September, depending on the timing of the expected authorization from the Competition Authority. Let's now move on Slide #37 to review the second part of the plan, which will obviously also have a major impact on the future and reshape the Clariane group in the forthcoming one -- I mean the disposal program. As I said, we expect from the program to generate EUR 1 billion in gross proceeds from disposals. In the new market environment with higher cost of money, we aim to focus the group on a smaller number of geographies, offering sufficient market and business steps and scale effects and enabling us to take full advantage of skills and cost synergies. This is why after assets strategic review, we decided to withdraw from the U.K. market, where we have built a small platform and to arbitrate Berkley Care and we have been able to manage the deal under excellent conditions. Just as a reminder, our Berkley Care platform is a recent one that we have been developing since 2020 with 12 care home positioned in a premium -- access premium segment. This is definitely a high-quality platform with a very strong and in committed management and therefore, we were able to sell it on very good terms at the end of very short and well-managed competitive process. It enabled us to raise the total sale price of nearly EUR 250 million corresponding to a multiple for the internal platform of around -- 17x sorry, [Indiscernible] EBITDA, we can encompass definitely also the embedded growth of the platform. After repayment of the EUR 90 million in capital that Predica had invested in the platform, at our site, we will be able to reduce our debt, both corporate and real estate by a first EUR 145 million. In addition to this first transaction, a few days ago, we sold our 50% stake in the real estate development front we had founded in the Netherlands with our partner, Aedifica, and this is a transaction of EUR 25 million. So in total, in the last 2 months, we have been completing more than 1/4 of the divestment program, and we are, of course, working now intensively on additional divestment with various process underway, including in the Benelux country. All of these, as I said, with a very clear and simple aim, which is to refocus on probably 4 major geographical areas with sufficient diversity and complementarity of activities to support the group's effective, efficient and value-creating growth trajectory in the years ahead. Let us move now to Slide #39 and to the outlook for 2024. First, in terms of top line, as you have understood, we are expecting more favorable development in all our business segments and in all our geographies. This traditional retirement home segment can still bring an additional 2 to 3 points of occupancy before being totally back to recovery pre-COVID into natural network. This will definitely fuel the organic growth in 2024, especially in the 2 main geographies representing 2/3 of the network, which are France and Germany. In the Healthcare segment, we expect the growth to be fueled by the strong development of outpatient care, and this is true for France, for Italy and also for Spain. And we have a strong embedded growth in the small segment, the smallest segment of Home Care and shared housing segments with strong pipeline, both in the -- under the [Indiscernible]. So this is pure home care and under the [indiscernible] brand, and this is shared housing mainly in France. So on this basis and with the strong organic price of this, probably around 3% at least, we expect to achieve organic sales growth of over 5% this year, with of course, also a contribution of repricing, mainly coming from the nursing home segment in Germany, with the second jump into the repricing after the very significant inflation in wages and costs and to a lower extent in France. Turning down to EBITDA pre-IFRS 16. This is, of course, a little bit more difficult to guide because of the change in scope to come, but what we can say is that on a pro forma basis, after disposals, we expect to be stable in value compared with 2023. Because we expect this year to have a very low or no EBITDA contribution from real estate development activity in contrast with previous years, where it was represented between 5% and 8% of the total EBITDA amount. And this is why taking this factor into account the stable value of EBITDA forecast for 2024 will, in fact, correspond to an increase in operating EBITDA in a context of steady growth in volumes and prices. In terms of leverage, this is the third part of the guidance, we expect to achieve less than 3x financial leverage by the end of 2025 at the latest with a loan-to-value on real estate debt back to less than 55%. This debt reduction trajectory that is going to materialize in 2024 will clearly be underpinned by 2 levers. First, the speed of the implementation of the plan to strengthen the group's financial structure and is particularly -- in particular, the impact of proceeds from disposals and the timing of the capital increase, but also a more robust generation of operating free cash flow, taking into account the back to normal of working capital requirements over '24 and probably in '25 and given the reduction -- significant reduction down to EUR 200 million in the level of development investments at the end of the high cycle of CapEx despite [indiscernible]. In terms of guidance, last but not least, I would like to give some perspective on our fourth core extra financial targets, which you have understood are the major foundation for our sustainable and efficient performance. We have set 4 targets. The first one is to maintain the level of recommendation and therefore, the NPS significantly above that of our peers, and therefore, stable after deducting the effect of change in scope of the disposals. Second target, we are going to continue our efforts in the area of qualifying [plan] and education in the target of at least 10% of our employees on the new scope and role in the cycle of training for qualification. Third, we strive to improve our policies and results in terms of health and safety at work and we target a further reduction in the frequency of lost time accident of at least minus 5%. Fourth, all of this, of course, is without prejudice to our efforts to reduce further our carbon footprint according with our SBTi commitment. Finally, as we indicated already on the 14th of November, given our current leverage of over 3.5x, we would be able to propose to the Annual General Meeting of shareholders to pay a dividend this year. This is in line with the conditions of the terms of the syndicated loan to mobilize all our resources to reduce the group debt until we are back below 3.5x, and we hope we can do that next year. Let me finish on Slide 40 by outlining the group's operational and strategy roll back. Definitely, you understand 2024 will be actually twofold. With on one -- we're definitely -- further deploying our At Your Side corporate project and, in the meantime, executing the refinancing plan and driving free cash flow generation with various levels I just alluded to. In '23, in a [Indiscernible] environment, we were able to demonstrate our resilience and our ability to adapt. We are also able to validate the full relevance of our strategy, diversified and complementary service offering to best address growing demand for personalized care in all our markets and investing in quality and promoting a culture first, to ensure sound and sustainable fundamentals. And the recent years have shown just how essential this dimension is. In '24, we will be building further along those lines. Deploying our corporate project to best serve and care for our communities while executing our plan to strengthen our financial structure. And I can assure you that the entire Clariane team is fully committed in succeeding in those 3 challenges for the sake of all shareholders and stakeholders, local communities, employees, shareholders and suppliers. Thank you very much for your attention. We are now ready to answer your questions.

Thank you, Sophie. There's quite a large number of questions on the floor already. Maybe we could start with this question, which is -- can you comment on the normative occupancy levels in the next [Indiscernible]? Is there further improvement? Or have we reached a plateau in -- at the end of '23?

Thank you very much for the question. So as we said earlier, we are now back to a small 90% occupancy. And we have always said that we expect some normative level to have at least 93%. So there is another 3% of occupancy to come on the mature network without prejudice of further development or opening of new homes. We expect actually to be back at that level probably by '25 with a significant further step in '24 fueling the growth. We have seen in the recent years that business or the activity structure in elderly care has changed with actually patient coming later and requiring higher intensity of care and staying actually for shorter stays or for respite stay. So it is more and more about a little bit more inflows, outflows, and this drive actually, of course, a little bit lower occupancy, but definitely also a higher contribution of the pricing and care rates based on this care intensity. And this is also a trigger for players that can demonstrate a strong medical expertise and a strong care quality. And definitely, on this, Clariane is very well positioned.

There are some questions around the German market. The situation seems to have deteriorated quickly in Germany across the sector. [Indiscernible] Specific questions on whether [Indiscernible] in Germany in the future?

Yes, definitely, this is probably one of the main the main tax of '23. Actually, the full German regulation on elderly care in Germany have been changed over '22 and '23. We've actually the combination of free reforms, it hasn't been very well combined by the German authorities. First reform has been through to pass a very significant wage increase of plus 30% without due compensation. So this plus 30% had to be -- the compensation had to be negotiated locally with each and every care insurance. That's the first thing. The second has been to increase the requirements in order to get the diploma of nurse, which has actually created a bottleneck for the recruitment of such nurses. And last, but not least, there have been also a change in the way the staff ratio to be implemented in the home. So the combination of the 3 has created a lot of pressure in order to renegotiate the pricing scheme for each and every home. And there has been definitely a time lag at care insurance level with a significant delay in the offset of its various costs. I think that with the drop of close to 400 basis points in EBITDA margin, we have reached actually the bottom and we are now starting to see a normalization. We have a complete repricing scheme ahead of us with a renegotiation of the rates for 100 of our homes. And I expect to be back at the level of margin we were in '22 by '25 at the latest with the first significant step to be done this year. Last but not least, I think this is probably something very new on the German market. It's also about yield management and private pay. We were not used at Clariane to completely implement the levers in terms of private pay on this segment and we have naturally started very actively last year to work on this. And I think we have significant upside coming from private pay and additional services to be factored in the residence contribution. So based on that, I expect again to be back to a normative margin level in 18 months with probably some upside to come there, given the very strong and sustainable quality of operation.

There is a question in on the chat around the price of the U.K. in particular price of the real estate in U.K. that we have [Indiscernible].

The deal is based on [Indiscernible] of EBITDA. And as you know, in U.K., [indiscernible]. So we have the basis of this deal, which is 17 type, the [indiscernible] EBITDA, which represents a loss of EUR 40 million. If you want to have -- we have not -- all the rest is just brainstorming, but we can brainstorm together. And if you see that the level of decrease of value in real estate is around 8% this year. Last year, we have 2% -- so it's in average 10% for the full company. And we know that in U.K., it was a bit higher than this amount. So you may have an idea of a decrease in the real estate value between 10% and 12% [indiscernible].

Some questions around the debt. One of these questions if you don't want to [indiscernible], maybe clarify was [Indiscernible] maturity in 2024 because I think it -- the graph on the [Indiscernible] very similar color in blue, in 2024 the 152 is actually a corporate debt, which is actually through our factory scheme. But apart from that, there are some questions around how advanced the labor process is on the convertible bonds and whether we expect to pay down the RCF [indiscernible].

[indiscernible] we are talking, of course, but we were in a [Indiscernible] since one month. So we have to wait during period -- and it's always easier to talk after delivering a set of accounts for the financial year. So we are working with them. It's a bit too early to give you detail, but pricing is going, I would say, the right way. On the other topic, which is RCF, we will have to reimburse first term loan and after the RCF. It is organized like that regarding the disposal. So RCF will be [Indiscernible] either by the revenue part of the disposal of assets or by a significant part probably by the [Indiscernible].

There are some questions around the noncash EBITDA and the other items, the [Indiscernible] in the cash restatement. If you can make a comment, please.

Yes. So we are back to a specific situation with a significant amount of negative value in the bridge between EBITDA and free cash flow. We had a quite normal noncash item around EUR 40 million in the EBITDA. We have the noncurrent impact, meaning the noncurrent item [Indiscernible] in cash are in this bridge. They represent this year EUR 71 million a month, which is increasing due to the increase of the [indiscernible]. And last, but not the least, real estate. We had 7 leasebacks last year, which brought around EUR 30 million of positive impact [Indiscernible]. Overall impact was is plus 30 plus 70, EUR 170 million of negative impact, where last year, we were at the same level of non-cash, slightly down regarding noncurrent because the amount was less significant and [Indiscernible] regarding selling back, it was a positive one, and most of the difference is coming with this topic.

A specific question on the German environment. On the Slide 20, you have different figures. I mean, there is a pricing impact of EUR 126 million. However, the [Indiscernible] pricing of 6.8%. Is there any change between the 2 and what explains the difference between the 2 months.

We have some volume impact. If I take the 10%, I need to reconcile to ensure that there is no -- small issue, but we have 12% or 10% of the increase in organic. This organic split between overall 6% of price -- and near 7% in price and 3% in growth, in obvious volume when we have a much higher impact on the cost side. I hope it's answering your question, but if it is not clear, we can take -- can work together.

[indiscernible], which is the impact of the CapEx on the bottom in [Indiscernible], this makes the total increasing debt in the gap of EUR 115 million in 2023. However, this seems low if we look at the amount of development CapEx of last year of EUR 154 million and EUR 218 million of real estate CapEx, can you clarify this.

So this you have in the real estate is [indiscernible]. So you have a significant part of acquisition, the CapEx for [indiscernible] during the first period. That is the first point. It's not the main one because you're right, moving from 218 to 216 is a big gap. So a significant [Indiscernible]. The other part of it is the way the [Indiscernible] into account the value of CapEx is not linked to the cash out, but linked to some steps, we are moving out on the greenfield. So the way -- the increase of the value of the greenfield through [Indiscernible] work is not the same than the cash out we have, which is the base to look CapEx. I hope it's clear, but it's a remaining part of the difference.

The technical question on how is the financial leverage calculated and what are the metrics within this in [indiscernible]?

Sorry, what was that?

So we have 2 financial leverages that are now followed mix -- facility. The first is the loan to value and then CapEx 65% at the end of the year on a [Indiscernible] valuation, as was just referring to. And the other one is the financial leverage on the OpCo, this is taking the financial debt, without the debt of the real estate portfolio. And this is compared to the EBITDA pre-IFRS 16, but impacted by a sort of normative rent calculated on the real estate debt. So therefore, a cap rate of 5.8% that is applied to the real estate debt. Some other changes within the bridge to come to an adjusted EBITDA. It can include, for example, the impact of acquisitions on a 12 month only basis. But those are the main elements that will lead us to calculation and in this case, in the closing of 3.8x. And the next question is around what drives the increase in other costs of around EUR 172 million, including sort of the elements around the rent. Is it mainly [indiscernible].

There is no ramp in this line. We have -- we were used to book the COVID compensation on cost. We have 2 kind of COVID compensation -- and will not speak anymore about COVID compensation next year, and it's a very good year -- very good thing because it's always difficult to explain. So we had last time that in '22, we had to book COVID compensation in revenue regarding level of activity. So compensation at level of activity has been booked as a revenue. And compensation of cost, were booked as compensation of course, in cost. So last year, we had still some significant amount, which has been [Indiscernible]. And I have to say that our compensation of cost were very often booked 1 year after -- sorry, part of it about [Indiscernible]. So the increase of [Indiscernible] first due to inflation. We have more than 10% inflation is the main topic. And after we have the impact of this credit sets.

We have another precise question, Philippe, what is the outstanding amount of the term loan at the moment?

So the term loan outstanding amount is EUR 565 million. We have to reimburse EUR 50 million in May 24, and the remaining will be both minimum EUR 505 will be rounded [Indiscernible]. This is [Indiscernible] maturity, but you may know that we will have -- when we receive the cash from U.K. disposal next month, we will have to handle [Indiscernible] loan from the proceeds. We have overall for starting with EUR 240 million of sales of disposal value, EUR 90 million of equity, which has to be to [Indiscernible], EUR 40 million of local [indiscernible] debt, the remaining part of EUR 110 million, which will be a switch following the agreement on term loan [Indiscernible] clear both the term loan.

Thank you. We have a question here that is around the growth CapEx sensing a lot of investment over the last 3 years in growth CapEx. Can you provide any tax guidance on incremental capacity and what we should expect in coming year?

Yes, of course, currently. So we have been, of course, looking at our pipeline under the new financing conditions with higher interest rates, and we have only kept the short term, the projects that are already fully financed or delivered. And so there is an additional 3,400 new beds to come in terms of greenfields project. This is actually mainly coming from France and Spain, 2/3 of these. And there is also a small 1,000 located in the Benelux and some contribution of Italy. So that's why the additional capacities to come short term, meaning to be delivered '24, '25 and it will fuel the growth there. And there is, of course, all the contribution coming from the legal projects that are in the ramp-up phase and so this is reflected in the '24 guidance. When it comes to midterm guidance because I think the underlying question here is about midterm guidance in growth potential. I would like to invite you to discuss this at our Investor Day which will take place on the 15th of May, where we actually intend to be much more precise on the forecast beyond '24 based on the execution of our refinancing and financial strengthening plan.

We have covered, I think most of the things in order to take questions on the forum. And of course, we may available with [indiscernible] for any further questions after this call.

So thank you very much for having attended the call. As I said as an introduction, I think '23 has been really very much about a paradoxical year for Clariane, very strong and resilient operational performance with strong top line growth and resilient margin in inflationary environment. And on the -- and the second dimension is, of course, the impact on our ability to finance and refinance of the [indiscernible] and the sectoral prices. So I'm very confident that based on the very strong and resilient and qualitative -- recognized qualitative platform we have, we will deliver further on the back of our At Your Side corporate project in all the 3 segments of business, we have built keeping a high level of quality in all dimensions and that we will manage the execution of our refinancing plan. And I would like to highlight the fact that we have been able to deliver more than 1/4 of the disposal program in 2 months is as such a very strong achievement, and the next milestones are to come. So thank you very much for your presence today. And we are, of course, totally available for further questions. Thank you very much. Bye-bye.

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