Catella AB (publ) (CATB) Earnings Call Transcript & Summary

Welcome to the Catella's Q4 presentation for 2023. [Operator Instructions] Now I will hand the conference over to the CEO, Christoffer Abramson; and CFO, Michel Fischier. Please go ahead.

Good morning, and welcome to Catella's 2023 Year-End Report. This is Christoffer Abramson, CEO of Catella, and with me today is Michel Fischier, our Chief Financial Officer and Head of Investor Relations. As usual, we'll go through the main events and the financial performance of the last quarter. And after the initial presentation, we'll take questions on the phone and online. As ever, our financial reporting and the presentation materials are available online. I'd like to start the presentation on Page 3 with a brief overview of Catella, although most of you are likely quite familiar with our strategy and operations by now. Catella operates in three property-focused business areas: Investment Management, Principal Investments and Corporate Finance. We manage over SEK 150 billion in our pan-European investment management platform. About 70% of our assets under management are managed in property funds and the rest in a significant number of asset management mandates across Europe. Principal Investments is where we invest our own equity into a broad and diversified portfolio of European investment projects together with partners. And Corporate Finance is our real estate advisory and brokerage arm with leading positions in large European markets. Corporate Finance is also an important internal adviser to our other business areas, investment management and principal investments. With that brief induction, I'd like to start this quarter's presentation with a market summary on Page 4. So the European real estate transaction volumes picked up somewhat compared to the third quarter. But as the fourth quarter, historically, is the busiest and strongest, it is hard to see this as firm evidence, at least, of a return back to normalized transaction volumes. As you can see in the chart, the volumes were significantly lower than Q4 last year and almost 80% lower than Q4 in 2021. Keeping us suppressed at levels we haven't seen since the global financial crisis. In addition to the transaction volumes, a similar trend was seen in capital raising, where 2023 was a very weak year in the entire industry. However, the New Year has begun on a cautiously optimistic note with inflation seemingly under control, which supports equity markets at least. And a general perception that interest rate cuts will arrive earlier than previously forecasted. In European properties, we believe that most of the asset price adjustments are probably behind us. Although this is likely to continue to some extent, at least during the early parts of 2024. Although the transaction market remained slow in 2023, the gap between prime assets with a solid sustainability profile and other parts of the property market widened. This trend was most pronounced in the office segment, but it's likely to spread to other segments as tenant preferences evolve. Industrial and logistics recovered faster in Europe compared to other regions, benefiting from a post-COVID trend related to change in supply chain management. And in the Residential segment, there is a structurally-widening gap between supply and demand for affordable and sustainable housing across Europe. Given the already limited supply, stabilized construction cost and a shortage of development projects, this represents a tailor-made opportunity for Catella. Our strength is founded on our local competence and project management ability. And during the year, we will continue to introduce new products that meet the needs of a changing market. We expect it to remain challenging to raise capital at least during the early parts of 2024, but a renewed focus on fundamentals by investors should increase interest in active management -- active asset management, somewhat higher-yielding investment strategies and opportunities to acquire resilient assets, factors that are to our advantage and what we will focus on during 2024 and beyond. So with that market backdrop, let's move to Page 5 for a summary of our key operational highlights of the quarter. Although the market was quiet, we have been busy during the year as well as in the fourth quarter to start. Changed market conditions require a different product offering. We have, throughout the year, developed new investment strategies, founded on research and our house view. And during 2024, we will launch and raise capital for value-add and opportunistic investments as well as value preservation. The first strategy coming shortly is based on what I described earlier as chronic and increasing undersupply of affordable and sustainable housing across Europe. At the same time, as we have strengthened our competencies in new product development, capital raising, digitalization and AI solution, where we have made investments throughout the year. We have also adapted the overall organization to a lower transactional activity, and we now enter 2024 with an even more scalable platform for growth. Our balance sheet and liquidity position has remained strong throughout the year. And after the sale of the last assets of the Infrahubs joint venture, which happened in January, we are now even more well positioned to capture exciting growth opportunities in a repricing market. Given our financial position, our Board proposes a SEK 0.9 per share dividend for the year, which is essentially is the maximum allowable under our bond covenants, and we feel that our strong balance sheet, liquidity position and outlook makes it possible. And good for our investors, and the indication is, obviously, that we will continue to be a dividend-paying company, even in challenging markets. So continuing with Investment Management. So good news first. AUM was really flat over the quarter, adjusting for FX effect. And in the market with limited capital inflows, we see retained assets under management as a strength especially given some valuation headwinds that work against us. Our outlook for at least the first half of 2024 is that inflows will be limited and that we might see additional negative valuation effects. Of course, we have a broad development portfolio of projects that will generate AUM as they are being completed. So those effects should likely offset each other. One thing I would like to highlight in the quarter is the good start in Aquila Group's latest Axipit fund, UPEKA. The fund has already raised over EUR 20 million and invested approximately half of that already in 2023 in rather high-yielding assets. So in the French SCPI landscape, this places UPEKA, in a very good position to attract additional new capital through 2024. I think we mentioned it in the third quarter, but our Benelux platform has now won and are actively working on a key restructuring mandate to run the enforced sale of a portfolio of assets. This is a key step into the distressed landscape and we intend to win more of these types of mandates throughout the year. Turning to Principal Investments. In Denmark, we have essentially a fully residential towers in Kaktus, as we've talked about previously. And as an update, we are now in the process of finalizing the last commercial lease for this unique property in Copenhagen. One commercial lease, big ascending lease has already been signed, and the final one is down the stretch essentially. And with these leases in place, we are now preparing to actively market this property for sale. It's a unique property. And as we can talk about later, Copenhagen is on the European landscape, a strong market and a relative high point on the overall investment landscape. In January, we sold the last development project stemming from the divested Infrahubs platform. The sales strengthened our liquidity position by about SEK 280 million and resulted in a small single-digit profit, which will be reported in our Q1 earnings. Again, very important from a liquidity perspective, minor profit, but the tail end of that portfolio was developed in a different market. So any profit there, we think, is a pretty strong outcome anyway. Now since the start, I think this is important to remember, the Catella Infrahubs joint venture has resulted in SEK 225 million in profit attributable to Catella's shareholders, which shows the strength of picking a strategy based on our research and outlook and being flexible in the way we exit them. Following the sale of this asset in Jonkoping, we have SEK 1.4 billion invested in development projects. Our remaining projects are progressing according to plan, but again, at a slower pace to fit the market and the development needs. At the same time, as we see more opportunities for new investments that meet our return requirements coming to market, we also expect some divestments in 2024, including Kaktus. For Corporate Finance, the year ended on a slightly better note and several platforms performed relatively well. But as mentioned, we are still far from normalized transaction volumes. A couple of transactions, I would like to highlight that the complex refinancing of a portfolio carried out in Denmark as well as the Swedish advisory on distressed assets, quite a high-profile case and the first enforced sort of sale transactions that happened here in the Swedish market, and it's a real strength for Catella to be the advisory on that transaction. Both good examples of transactions where our solid real estate know-how and debt restructuring competencies complement each other. Additionally, I want to highlight the strength of our Finnish operations, which had a remarkable market share in all of 2023 was further emphasized during the last quarter. So let's move to Page 6. And before we move on to the overall financial results, I'd like to give a quick walk-through of the main differences year-over-year and quarter-over-quarter in EBIT. Comparing 2022 with 2023, it's a bit hard, 2 different realities, both within and between the years. And 2022 was a very strong and a record year for Catella in a number of metrics. If you start with the full year comparison. Last year, we had significant contribution from performance fees and funds. And although we received some performance fees this year, they were at significantly lower levels, which is no surprise given where -- how the market has turned out and with valuations coming down quite dramatically. Additionally, other variable revenues declined, I wouldn't say sharply, but materially as an effect of the muted transaction market, which simply leads to fewer disposals and acquisitions, which is a key driver of our variable fees. Last year, divestments and principal investments. at the tail end of a very strong market also made significant contributions to earnings. And the slow transaction market naturally affected corporate finance as well with a decrease of EBIT. And finally, throughout the year, we had some FX headwinds from the Swedish krona. And as we've talked about in the third and fourth quarter now, restructuring costs to rightsize our operations took us to an overall EBIT in the year of SEK 133 million. Now if we compare the respective fourth quarters below on the page. We see the same underlying reasons basically behind the drop in EBIT, but the quarterly impact was especially severe given the large and very profitable divestments of 36 assets in Germany and the Netherlands last year. It is, of course, difficult or difficult -- it is challenging to compare to a record quarter as we are doing today. And our earnings can be volatile between periods. Catella should deliver long-term steady growth, and we are always focused on long-term value creation, both for our clients, investors and shareholders. So quarterly over quarter is interesting to analyze but not really the key metric for us. It's steady growth and improved underlying profitability. If you look at the portfolio sale last year that we're comparing to now in the fourth quarter, not only contributed significantly to earnings in 2022, but for 2023, it protected our investors from further value decreases, which were quite severe in those segments, and has provided excellent fund liquidity now in a repricing market. So it is a tough earnings comparison, but we believe it's a very sound long-term strategy. So Page 7, let's look at the summary of the group's consolidated results in the fourth quarter. For all the reasons, I just mentioned in the EBIT, total revenue decreased by about SEK 120 million. EBIT ended at SEK 10 million compared to the record SEK 124 million last year, mainly driven by the lower variable revenues in Investment Management and primarily from that critical portfolio sale called [indiscernible] last year that I just mentioned. But in Investment Management, AUM has increased by SEK 12 billion over the last 12 months even though quarter-over-quarter it decreased by SEK 6 billion, but that is mainly all FX driven as the Swedish krona strengthened against the euro towards the last few weeks essentially of the fourth quarter. There can be some -- a little bit volatile for our earnings, especially in the financial net, which Michel will talk about later. But again, it doesn't affect really the underlying earnings and fixed fee income generated by our increasing AUM. I know the underlying business model continues to perform despite the slower transaction market and we will continue to improve our fixed margins following the cost measures that we have taken at the end of 2023. In Principal Investments, no divestments were realized during the quarter. But as I mentioned, we sold the last Infrahubs development project in January. Corporate Finance, we experienced a comparably stronger quarter, but as discussed, still well below the volumes we are used to. We have, throughout the year, adjusted the cost base, which led to an improved EBIT despite lower revenues compared to the same quarter last year. So on Page 9, I'll start going into Investment Management in a bit more detail. Again, we love this chart. Since the inception of Investment Management, we have delivered a strong average annual growth rate of about 20%. As mentioned, AUM has increased by SEK 12 billion over the last 12 months or SEK 17 billion currency adjusted. The largest movement during the year, of course, was the acquisition of Aquila Group, which added a more diverse capital base and additional competencies to meet opportunistic investor demand and importantly, broadening the investor base to retail investors as well. Even though the growth is not what we have delivered in recent years, we still experienced capital inflows in 2023 exceeding our outflows, which is, I think, a pretty strong outcome compared to our peers. This was offset by the sale of Catella Hospitality in Europe and, again, valuation effects. So if you go to Page 10, due to the divestment of the large portfolio in Germany and the Netherlands last year as well as slower overall transaction market variable fees really they have decreased substantially year-over-year. There's no hiding from that. However, adjusted for currency effects, our fixed fees remained flat in the quarter, which we believe is relatively strong in such a weak market and despite some valuation impact. Operating expenses were affected by restructuring costs taken in the quarter, but those will lead to run rate savings of SEK 10 million annually, and we continue to work to lower our fixed cost base relative to AUM, really setting up for scalable growth, and we have further efficiency plans going into this year, not necessarily restructuring, but making our operations more efficient and enable growth without adding to our cost base. So as an effect of the lower variable revenues and some one-off costs, this quarter's EBIT ended about EUR 80 million lower than last year. Once again, though, adjusting for FX and one-offs, EBIT would have shown a small improvement compared to the third quarter of 2023, and we will continue to stress that the underlying fixed fees and the underlying earnings growth is what we focus on. And we'll take the upside in variable and performance fees as they come and as the market continues to recover. So let's turn to Page 12 for an overview of Principal Investments. The investment portfolio consisted of 10 active projects at year-end and 9 now after the sale of Jonkoping in January. The projects are well diversified across asset classes and geographies. They are run by local teams, Catella local teams, the securing competence and execution as well as additional revenues within the investment management area as we do both development and asset management mandates. Beside these displayed investments here on the slide, we have some smaller investments in predevelopment phases and co-investments, where we have growing asset management mandates as well. Smaller scale, but aggregation mandates that are important for investment management. So with no divestments, the quarter EBIT was about 0. And I think it's important to remember that all our projects are conservatively valued at cost, and Michel will talk more about this when we go through the balance sheet. So founded on our strong financial position, we remain patient with our projects and are ready to utilize our liquidity and new investment opportunities as they emerge. And of course, should we succeed with our planned 2024 sales, we'll have even more liquidity to invest in new strategies as the market starts to recover. On Page 14, we focus on Corporate Finance. All the revenues in the Corporate Finance business area reached their highest levels in 8 quarters, which is a great thing. We're still a long way from normalized levels. But there are some hopes that the outlook has brightened somewhat. And at a minimum, there's a lot more interest and activity, maybe not that many more closings, but a lot more interest and activity in most of our markets, which is a good starting sign. And we saw a comparably stronger performance by our teams in Finland, France and Spain. We also saw a larger portion of advisory services carried out in more advanced debt and restructuring transactions where our broad skill sets come into play, another encouraging sign. So in total, revenues fell by 6% year-over-year in the quarter, but this was compensated by us having reduced our operating costs throughout the year, leading that EBIT increased SEK 2 million to SEK 14 million. So I'll now hand over to Michel, who will share a brief financial summary and some really critical aspects of our balance sheet, beginning on Page 16.

Thank you, Christoffer, and good morning, everyone. As already mentioned, the quarter was negatively impacted by a significantly lower-variable-revenues, FX translation effects as well as some restructuring costs. On -- adding to that, on HQ level, we also had external M&A advisory costs related to potential transactions, which we reviewed, but decided not to proceed with in the final phase of the potential acquisition. These costs amounted to SEK 5 million, and the remainder of the differences between the years and the other and eliminations column, is explained by the lower internal invoice costs, which either way, would have been eliminated on group level. Looking below the EBIT line, we had additional negative FX effects of almost SEK 50 million related to the appreciation of the Swedish krona and thus reducing the value of our internal loans on the balance sheet, which as well is reflected on the P&L. Also, as interest rates have come up, it affected our bond and other interest-bearing debts, leading to a negative financial net of SEK 75 million and thus taking us to profit after tax amounting to negative SEK 75 million in the quarter. If we continue to Page 17 and have a look at our balance sheet and financial position. I'd like to start with that we received some interest on how to analyze our balance sheet. And I'd like to spend a little time, this quarter, to review how the accounting of our investments actually work. Some of you even say that it's been impenetrable. And that's why we highlighted this quarter to shed some light to investors of how you should view it. The way our balance sheet should be read is that the overall majority of our liabilities are related to development projects in principal investments. These projects are in turn valued at cost. So hypothetically, if all our projects were divested today at cost, our net debt would be negative after adding cash, i.e., we would hold more cash than our financial obligations. Since development projects are treated differently, depending on Catella's ownership, we have illustrated this to help investors, which you see on the page of how to read our assets and liabilities in relation to our investments. If we start with projects where we have an ownership less than 50%, they are consolidated according to the equity method, i.e., our share of equity of the project, and this is shown in the line holdings in associated companies. If we move on to the last Infrahubs project, which was sold in January, as already mentioned, our investment was mainly comprised of loans and thus, this investment is reported as a receivable from associated companies. The investments that we have, which are not related to project developments, such as our holding in Pamica, the seed investment in Catella Fastighetsfond, our U.K. REIT fund and Aquila's newly launched UPEKA fund are classified as other noncurrent securities. And turning then to investments where we have an ownership above 50%, these are then fully consolidated on our balance sheet, i.e., 100% on the asset and liability side, even though the ownership stake is less than 100%. And our majority of own projects are, therefore, fully consolidated and reported on the line, which you see on the slide, which is called development and project properties. So to summarize this accounting exercise, which I've hoped proved has supplied a bit more of clarity of how to read our balance sheet. Our investments in development projects and seeds investments are reported on different lines dependent on our ownership stake and type of investments. And this is something we will follow up and continue to report going forward to provide additional clarity on how the accounting rules work for Catella and our own investments. Finally, at year-end, our equity was still strong at 37%, and our cash position was SEK 796 million. And following the sale of Jonkoping, it increased with an additional SEK 280 million. This leaves us with a continued strong balance sheet and equity position, and we have no near-term refinancing needs and a sufficient liquidity to continue to invest in long-term value creation. With that said, I'll hand back over to you, Christoffer.

Thank you, Michel. Let's -- before usually, we have a little bit of a summary, which I'll do on Page 19, and then we'll open up for Q&A. Look, I think it was important to highlight the details on the balance sheet. I think the net debt or actually cash position that we have on the balance sheet on top of the cash already shown is an important factor in how to look at our company and our strength going forward and the opportunities to act. And so thank you for that, Michel. The market environment continues to be uncertain. It is clear. But we feel that we've seen some glimpses of a recovery in the quarter with inflation seemingly under control and decreasing swap rates, leading to some core transactions occurring in select markets across Europe in the last quarter of last year. So too early to say the challenges are over, but some encouraging signs at least. Look, these quarter's financials were subdued, quite a lot by significantly lower variable revenues, pretty severe FX headwinds as well as restructuring costs. But I'd like to point out, all these things are basically transitional in nature. These are temporary effects. Our underlying earnings, our sort of local currency-denominated AUM remains flat or stronger adjusted for valuation impact. And so there are underlying earnings capabilities of Catella and our underlying balance sheet remains as strong as ever. Now it might take a little bit of time for the variable fees to get back to the most recent year's levels. But FX headwinds to us is something that I'm not saying we don't focus on, but it goes up and down and hits financial net and to some extent, EBIT. But really, it isn't an indicator of the underlying or future performance. Restructuring costs, obviously, in the quarter necessary in the current environment and will provide future improved margins on the overall operations. So after quarter end then, we sold the final property from the very profitable Infrahubs partnership and strengthening our liquidity further. And we finally, critically, I think, reached a point where we can actively start to market the Kaktus Towers in Copenhagen for sale. Obviously, this is another big aspect of our balance sheet as well. As we adapted the organization, as I mentioned, through restructuring and other activities to a slower transaction market. We also strengthened our competencies in new product development and capital raising, digitalization and AI solutions, which we'll talk more about as we launch our new products that have these components. And as we enter into 2024, we have an even more scalable platform for growth and new competencies required to capture that growth. In Investment Management, much of our focus in 2023 has been on capital retention. This is hard and a very critical aspect of playing defense in a tough market. But we have succeeded, and we've retained the capital in our mandates and our funds -- and we have, during that time, also developed new investment strategies focused on our research house view. So now during 2024, the focus hopefully will turn more from defense to offense, and we'll go to market and raise capital, meeting demands for value-add and opportunistic investments as well as value preservation depending on the investors, which we currently see a strong demand for whether that is in the next 1 or 2 or 3 or 4 quarters remains to be seen, but the products, the research, the pipeline is there and now it's a matter of getting the capital in play. And as a final point, I am pleased to see initial recovery in Corporate Finance, which showed its strongest quarter for the last 2 years. Again, too soon to call victory, but at least some positive signs. And with that, I would like to thank you all for listening and open up for questions.

[Operator Instructions] Next question comes from Emil Jonsson from DNB Markets.

Thank you for the presentation. I want -- by asking in Investment Management. Have you noticed any increase in capital flagged for withdraw during the quarter?

Well, we've had, I think, over the last 3 or 4 quarters had a -- let's say, a consistent flow of redemption requests, which we've talked about earlier, in a manageable amount. Sometimes it's a specific fund or a specific investor. And so far, we managed to keep most of that capital in play. I wouldn't say that there's been an uptick in the fourth quarter. It is at a level of a couple of percent of our AUM that we have to continuously manage. So no particular real uptick in the fourth quarter, no.

All right. And the capital commitments in Investment Management that are yet to be utilized, have they increased or decreased compared to last quarter?

They haven't really moved. I mean we haven't had a huge capital inflow from new investors, but also, again, no withdrawals of commitments. So the capital commitments remain. As -- I think we've talked about previously, most of these capital commitments in certain funds are needed to finish existing development projects that will be done during 2024, primarily and some in 2025. And then, obviously, we have the liquidity following the portfolio sales. So those are the two sort of primary liquidity sources in our existing funds. And so the commitments haven't really -- they haven't changed, which, again, I think, is a strong development for us.

And adding to what Christoffer said, I mean, of course, in this slow transaction market, it is harder to convert actual capital commitments to transactions, i.e. buying assets into funds.

But if you see -- we talked about the somewhat positive signs. If you follow our press releases from across Europe over the last couple of months, you will have seen some decent residential transaction, for example, in Finland. We've had a couple of logistics investments, placing capital at play as the repricing reaches levels that our investment committees are comfortable with. And finding the right opportunities, they're out there. It's a matter of getting the right price and some markets have moved enough that our funds are now finding really interesting opportunities. But it takes a lot longer than it used to, for sure.

All right. And when looking at the cost base in Investment Management, it tends to kind of jump around a lot from quarter-to-quarter and now you got these restructuring costs also. Could you help us understand the different drivers in the cost base going forward?

I mean, the first thing I'll say before Michel will help out with a lot more detail than I can provide is the volatility that you mentioned is primarily variable remuneration. If you have a strong quarter, we put away and accrue for a lot higher variable pay, that is really the biggest part of the variability. So that goes along with profit. It's -- I would not classify it as volatile operating cost. It really is a very sort of -- it's margin that remains the same, but it jumps with revenue more than the cost base. And the fixed cost base is what we really look at controlling and reducing over time here.

And adding to what Christoffer said, we carried out the redundancy programs in one of our largest German platforms during the last quarter. We see that means that both added to the cost base when it comes to redundancy or restructuring costs as well as personnel costs being at a higher level than you should expect going into 2024.

We do not -- I mean, we do not account for or report restructuring costs below the line, right? So the operating costs are not only higher in a quarter where you take restructuring cost, but you haven't seen the benefits yet. So it's basically a double impact at one time. A lot of other companies might report that below the line, but we do not.

All right. Okay. That's helpful. And so taking this into account and accounting for changes in personnel and so on, would you expect that the fixed cost base will sort of drift downwards from where it currently is or drift upwards?

I mean, it's -- it depends on the revenue outlook. What we -- what I would say, it would -- should go down as a percentage of AUM or revenue, depending on the metric you want to look at. If we have significant new activity, obviously, the cost base might tick up. But no, we're keeping a very tight look at the fixed cost base at the moment.

All right. That's helpful. And looking at Principal Investments, do you have reason to believe that the Kaktus property will sell for significantly more than -- or let's say, generate a significantly higher profit than the one you generated when you sold the Infrahubs properties?

Yes, I, certainly, hope so. I think -- look, two completely different transactions, two completely different properties, two completely different markets, frankly. As I said, we had a really great run of profits in Infrahubs in our logistics portfolio. But the last couple of properties that we exited, they were acquired and developed in a slightly different market. The land cost and the development costs were much higher than the initial investments. So getting out and exiting these last couple of assets from Infrahubs provide a lot of liquidity and minor profits, which is still good considering the overall portfolio. I mean we look at a partnership or portfolio, you have to look at it over time and over a cycle, it was very profitable. But Kaktus is different. I mean if you look across Europe, Copenhagen remains one of the sort of bright lights. It's a very solid market. It has the right, we think, the right demographic trends, the right sustainability profile as a city. Kaktus is a landmark asset. It is a unique property. It is fully let with one more lease to sign, get the ink on the paper. And I would also point out in the last 2, 3 months, there have been some comparable transactions in the Copenhagen residential market at yields that are comparatively to the rest of Europe, pretty strong. I mean, those are pretty tight still. And the investor interest and demand in Copenhagen is still strong. So we expect to turn a decent profit on this project. I can't speculate how much, and I don't know when, but we are now ready, and the market is pretty strong at least.

All right. And just one final thing. So looking at the P&L for the quarter, could you just quickly summarize all of the FX drivers in the P&L or above the financial net, please?

It's a challenging question to answer, critically. But earnings, especially in investment management from across Europe translated into -- I mean, I don't -- it's...

I mean, broadly speaking on -- all else being equal as the last quarter, we should have been at or above the same EBIT as we were. But then again, all else wasn't equal this quarter. So it's a tough question to answer. I think Christoffer already elaborated on the fixed fee development. If FX would have been unchanged, we would have seen a slightly higher fixed fee being one. And also staying on investment management, if we were -- looked at EBIT, it would have been the same or even above, including restructuring costs. So...

I think, Emil, if you want to, Michel can take you through this on a separate call and just we can go through the details. But it's a single -- high-single digits impact primarily from Investment Management.

The next question comes from Patrik Brattelius from ABG.

Can you hear me?

Yes, good morning.

Good morning. Perfect. My first question is, could you please specify how much Aquila contributed to income and EBIT here in the fourth quarter?

We haven't specified that in the report. But obviously, it has contributed. But looking ahead, the reason for us entering and acquiring 60% of Aquila was, of course, the outlook and the buildup of the SCPI and reaching a different kind of investors in the French market, retail investors through the SCPIs. And while we are confident and happy and pleased about during this quarter or the last quarter was, of course, the buildup of their new fund.

I mean, look, first of all, it's positive. So we'll start with that. We haven't disclosed the number, but it's positive, and that's a good thing in today's market. They have already transacted with several other Catella Companies across Europe who have acted as advisers to new acquisitions for especially Axipit, UPEKA fund. And it's a critical strategic presence for us. And look, we feel very confident that these numbers will be good going forward. It was still a strong first quarter. I mean, they just walked through the door and delivered a positive result. So we'll start with that and start reporting that in a bit more detail during 2024.

Great. Given this challenging environment that we are seeing and you expect it to remain subdued in the first half I read in the CEO comment. Do you foresee any need for an additional cost savings program?

Not a big cost-saving program per se, but a very tight cost control, which is a daily thing. We -- the -- our business is a pretty significant collection of businesses, subsidiaries, partnerships, and they all need their own critical mass to a certain extent. So big sweeping reductions is hard. But over time, what we're working on is some in and outsourcing, depending on what we're trying to do. Certainly, some centralization and automation and digitalization of critical costs, especially non-revenue-generating costs. And that is something that we'll spend more time on in 2024 than we have in 2023. '23 was more of a -- you had to take some significant measures, and that's critical, and it's never fun or easy, but it was necessary. But right now, it's really about maybe not replacing levers, automating, centralizing and working on long-term efficiencies that we have to grow without adding a lot of cost, and that's the focus. So no sweeping programs as of yet.

I see. And when you talked about AUM, looking into 2024, you mentioned that you will see some negative valuation effects. Can you help to share and specify the absolute expected effect from these? Or is that the same level that we have seen, for example, here in the AUM bridge in the last quarter?

I mean, look, I don't have a crystal ball. What -- and I cannot predict this. But what I can say is, we believe that a lot of the valuation in the market has come down and we're starting to stabilize. But starting to stabilize means that there's still a bit of a tail end. And there are certain segments as well that might be more vulnerable and continue to reprice in the first half. Whether that is 1%, 2%, 3% or 5%, depending on a segment or a country, we shouldn't really speculate. We have budgeted to predict a slight decrease so that we rightsize our cost base accordingly. But it's -- there are certain valuation methodologies and comparables. It depends on how the market picks up. It depends on the transactional activity. But we do think that there's going to be a few percentage points until we reach the bottom. That's our assumption. Now we obviously have capital commitments and development projects offsetting that, which is a good thing.

Great. And we have previously talked about this EBIT level in investment management that given the asset under management base that you have, that you can reach -- you believe you can reach SEK 200 million EBIT on fixed fix. Should we expect that to increase now even further given the run rate costs that you highlight? Or -- and if this SEK 200 million, how we should think about looking into 2024? Or are there any additional drivers that you think is important that we have with us.

Well, I think the first important thing there is that it's not exactly fixed fix that we mean to SEK 200 million is at a subdued level. It's basically -- this is as usual. Now the last two quarters have been extremely quiet. So -- but you have to back out the FX headwinds here. You have to back out the restructuring cost to get to a more normalized level. I wouldn't change 200 million as a working assumption. It might be a bit less in last quarter and maybe the first quarter if the market activity doesn't pick up. But from a run rate perspective, I think we haven't really changed our picture. The AUM is in sort of local currency denomination fixed. So there's no real reason to change. I mean if we had a -- maybe we have a SEK 10 million, SEK 15 million run rate cost reduction from our restructuring programs, that doesn't change whether it's SEK 180 million or SEK 200 million or SEK 220 million, really, that's sort of a base assumption in a normal market activity. So not yet. But over time, that's -- the leverage effect and scalability effect is what matters. And what we really focus on is once the transaction activity starts reaching more normalized levels, that leverage will come more into play, and you'll have an even higher margin than we had in the past.

Great. And I have one last question, if I may. You showed on a slide and we also talked about this IRR target of 20% within Principal Investments. Do you foresee this target to be a little bit too ambitious the coming 2 years given the current market? Or do you believe that this is a fair IRR target to deliver on?

Well, it's a very long-term target. It's a very over complete cycle target. So whether over the next 2 years, we'll achieve it, I mean, one in 2024, it will be very dependent on Kaktus, of course. Two, really is investments that we're doing now, they are likely to be exited in 2, 3, 4 years, and that's where that target comes into play. It is -- as you will have seen in the last year and the year before, we had very significant profits and an IRR of 50%. Whether that's 10% in 1 year, that's okay because it's measured over a cycle. It's a long-term target. So sure. In the short term, that might be a challenge. But what we're looking at now is making investments that will generate those types of returns in the coming years, not this year. This year, we're looking at 1 or 2, 3 exits. And hopefully, we'll be at least these levels.

Do you have like a minimum level where you believe that Kaktus should be in -- that transaction?

We can't give a prediction on that. But if you look at comparable transactions in the Copenhagen residential market, the yield is close to 4% -- around 4%. I think our asset is stronger positioned, even though it has a slightly higher commercial revenue base. So if you all else being equal, that's probably where we hope to transact.

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

Thank you, everyone, for listening in. Thank you for a very interesting and challenging questions, and we hope we've shed some lights on the last quarter and then what we're aiming to do in 2024. It turns out that it is exactly 11:00. So perfect. We appreciate that, and we wish you all a great weekend. Thank you.