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

Okay. Thank you, and welcome, everyone. I'm sitting here together with the new CFO, Christoffer Abramson, he will take care of some of the presentation today. If we start on Page #2, which is leading finance group in property and alternative investments, which should be on your screen. I think most of you are probably quite familiar to this one. We have added during the year, the fourth square up, which says Principal Investments, which is becoming more of a core sector in our strategy, and we will come back to that. I think the others, you are quite familiar to. We have, during the quarter, lost some assets. We just have here [ SEK 136 billion ], roughly it's within the Systematic Macro, which have lost that money. But on the other hand, in the Property Investment, we have grown it by SEK 5 million to SEK 7 million. So overall, we are growing where we would like to grow. I go to Page #3, sales and results of operation within the Corporate Finance. I think Corporate Finance has performed according to plan or maybe even better, given the overall situation, and they are working with the positive results for this quarter. And they have still a pretty good pipeline. Of course, with the turndown during the last week, it might have an effect. Otherwise, we are quite positive about the outcome of the year. Nothing to worry. I think we are generally improving our market positions in the big markets, like -- which is Scandinavia and France. Germany is suffering, and we are considering various kind of opportunities, which do not mean that we will close it down. Actually, the opposite. I go to Page #4, which is the Property Investment Management. The result within this sector is about SEK 92 million or SEK 100 million. Most of that has come from the performance fees from the CPM, which is the Catella Property Management company in Germany, and that property is related to the performance fee from -- when the -- when we sold the Grand Central project in Düsseldorf. But in general, we have a positive market situation, and I would say that all operations within this sector are doing well. And we expect to grow it further. Then we come to Equity, Hedge and Fixed Income. We sold the mutual fund. As you probably already know, it means a small loss on the consolidated numbers. But overall, I think we are pleased to have it sold. And as you know, we have a put option on the remaining SEK 60 million, which is in our balance sheet. And I think the put option is in January 22, in case we would like to sell it. The numbers are not included the numbers after the sale of mutual funds. When it comes to Systematic Macro, they are suffering, and they have lost -- they've had a pretty bad performance. And due to that, there has been a lot of withdrawals from the fund. We are taking actions, and I'll come back to that. So then we come to the Catella Principal Investments that is on Page #6. We have, in total, invested SEK 800 million. Most of that is within the Kaktus project in Copenhagen. And after we have sold and dividended out money regarding Grand Central, the investment in Grand Central is much -- or in -- the company which holds this asset is called -- the holding company is called NOS, Nordic Seeding. And most of those 91 -- the [ SEK 91 million ] is our equity part of that group. And Catella owns 45% of the NOS. And when it comes to development projects, it's primarily Kaktus. And you know that we have the loan portfolio as well and that is being explained somewhere else. I think they are doing okay, according to plan. Maybe there are some delays in the clean up calls from the bank due to the COVID. We had expected to tell -- as you might know, the past of 2 fund during quarter 2, it didn't materialize. Let's see if they would do the clean up call in Q4. But overall, a pretty stable situation. And the project, I think they all look good. I don't think there should be any worries about the Grand Central, nothing less. The Seestadt, which is progressing. Düssel-Terrassen is progressing well. Kaktus is doing well. And the Norrköping, the logistic property, is doing okay as well. Now, Christoffer, you will -- I will leave the consolidated number, the growth numbers to you.

Thank you, Johan. So we'll push to Page #7, where, as Johan said, we'll summarize the consolidated results of the group. Overall, the group delivered a really strong quarter with total income of SEK 744 million, which represents a year-over-year increase of 44%. And despite the challenging environment, we are still ahead of 2019 on a year-to-date basis. Obviously, 2 significant events had a material impact on the Q3 financials. Johan talked about the Grand Central project in Düsseldorf, which has contributed SEK 208 million to net profit, slightly over prior communications. And SEK 175 million of that comes from our Principal Investments segment and SEK 33 million from our Property Investment Management, which has project managers -- project and also received some performances fees due to the exceptional components of this project. Secondly, we talked about the divestiture of 70% of the mutual funds for SEK 140 million. That created a Q3 net loss on the P&L of SEK 9 million after selling expenses. And the remaining 30% is now recorded as a SEK 60 million holding in an associated company, which is the agreed purchase consideration for [indiscernible]. I know Johan said that is for 2022. If we then go to the assets under management, as Johan said, we have divested the fund, which had, at the time of divestiture, about SEK 20 billion of assets under management, and if we adjust for that, the group actually grew its assets by over SEK 7 billion, driven by an exceptional quarter by the Property Investment Management segment where we have some real key wins with some management of shopping centers in the U.K. and logistic sites across France and a lot of residential investment acquisitions across Europe. So real strength in some of the core areas that we're focusing our future on. We go to Page #8 to cover the balance sheet as of 30th of September. They're all -- I'll explain. This is excluding Catella Bank, which is reported as a disposal group held for sale. And excluding the bank, the total -- the group's total assets are about SEK 3.5 billion. As mentioned, the continued focus on Principal Investments can be seen in the SEK 601 million of assets in property development projects, which includes SEK 91 million of our share of equity in associated companies in the development projects in Germany and SEK 511 million of project investment in the Danish student housing development, Kaktus, which is primarily owned by Catella and thus reported fully on our balance sheet. In that project, we invested an incremental SEK 64 million in the third quarter. Catella's liquidity remains very strong with about SEK 1.45 billion of cash and equivalents and a solidity around 40%. The third quarter cash flow, again, excluding the bank, was SEK 306 million. A lot of that was driven by SEK 173 million from the sale of Grand Central and SEK 83 million from the divestiture of 70% of Catella mutual funds. While we're very happy with the -- with our strong financial position, it should be noted that not all of the SEK 1.45 billion of cash is immediately available for investments as a large portion is still held in our daughter companies to fund ongoing operations and partner share of profits. But we'll get to that more, I think, after the year-end. Once the banking license is returned, we expect to increase our cash balance by some further SEK 400 million, which is indicated in a footnote and at the far right in the graph when we look at our -- we look at our very positive liquidity outlook and the strength for future investments. On that note, I'll hand back to Johan to speak a little bit about where we are heading strategically.

In general, I think the market interest for properties and related situation is big. With the low interest rate, I don't have to -- you are probably more analytics-oriented than I am in these markets -- the macroeconomic. But generally, we see demand for -- within the -- I'm on Page #9, maybe you should know that, sorry, I apologize. I think there's growth in the segment where we are located or where we are focusing. And in general, we see demand for our products. We -- and most of our emphasis or our focus will be in the Property Investment, but also a little bit in Corporate Finance. We are both -- I mean we -- today, we are primarily -- and we could move on to the next page, which is the measures and directions, which is on Page #10. You can see to the these graphs here, whatever it is -- they're not graphs. But you can see that today, we have probably 50% of our existing funds, and our assets are within what I would call the core business. And a big part of that is residential and offices and very little in other market segments and value add, which is a segment where we are a little bit more opportunistic and maybe where we expect returns in the range to investors of maybe 8% to 12%. We are not that focused in that segment. And in the pure opportunistic segment, which is what [ APA ] may be, I would say, are focusing. We are not -- it's not a very big part. If we would -- if I would picture our future, I would say that we would like to create more verticals. We would not like to decrease our focus in the core business because that's where most of the German money -- and I would say, in general, where most of the money is focusing. But we think that since we intend to grow and grow by initiating new verticals in new segments, I think maybe the core business will stay being around 50% of our assets under management. And so it's not that -- you should not see this as a decrease of the core, but actually that we will grow in other segments. That's how we -- I think we have, somewhere in the quarterly report, said that we will make some kind of -- not restructuring, but we will have -- we will look deeper into how could we grow the group faster, especially in Germany, and Germany is the biggest property market in Germany, and also where we have a very strong footprint. But we think we could do that even better. In Germany, we have, I would say, 95% being in the core business, and maybe that will, over time, decrease to 75% by a combination of new initiatives, but also a growth in the core business, which is to a high extent, the residential segment. Okay. We could go into Page #11. Most of you probably know that we made the co-investment together with a partner in the Norrköping, which is a logistic size of 70,000 square meters of build. On top of that, we believe that -- and I think it has been described somewhere else as well that we will have to -- but we also think it's totally aligned with our strategy to make a co-investment or seed capital into new funds or new structures. First, Catella will receive the same kind of return that every other investor will return. So that's in the range of 4% to 8%, that's what Catella will receive on that. On top of that, by doing this kind of co-investment, we will probably be able to grow the asset management faster than we would if we didn't do it. So by investing 3% to 5% of new funds or new structures, we would probably grow the asset management faster. I think everyone today would like to have aligned interest from the party who is responsible for the investment. I think it's totally aligned with our strategy at Catella, which also is being shown that we have a lot of participations or aligned interest from management in the various companies because they want to be dependent on our success. So it's part of the overall strategy of Catella to be connected with what we are doing. And thirdly, we will earn performance fees if we -- in these new structures. So on top of this 4% to 8% that the Catella -- that the fund will generate, we will attract more money. And on top of that, we will have the performance fee, while we believe that we could earn. In general, a very good return on the more percentage of investments we will do together with new investors. And this is part of the strategy that we would like to build. When it comes to Corporate Finance, we do have a problem in Germany. We will put some focus on that and see how that could be improved. When it comes to Equity Hedge, it's -- the only remaining asset we have in this segment is the Systematic Macro, which during the last 2, 3, 4 years have performed extremely well and generated most of our cash flow. I think that's mainly due to corona and the new situation in the world with -- the world is not 100% systematic anymore. It's very much event-driven. The systematic products have not performed very well. And we are trying to change though the model but also start a new fund, which will be launched early next year to balance the performance of Systematic Macro. Over time, Systematic Macro model should perform, but during certain periods where there are political events or other kind of events driving the balances -- or the macro balances, it's difficult to perform. And we have had problems. The fund is down 10% this year, roughly. Regarding Catella Bank, I think management has done a very good job, not including myself. It includes the management in the bank and especially our HR, who is -- they are responsible for the bank. Our HR manager, he's also responsible for the bank. And I think we are making good progress. We are not behind the time plan, but there are still some issues in relation to the success and the ECB, which need to approve the winding down of the bank. And on the group level -- I'm on Page #12, by the way, we have done some cost savings. You could see it in the numbers. And we are still working with trying to decrease the taxes in the group. I don't know if any one of you have seen it, but we have had almost [ 30% ] taxes on the sale of the Grand Central, which is due to some kind of tax restructuring, which we did during last year, where we sold internally part of the -- to another company. By that we received the adjustment gain, which is tax-free. We couldn't have done that if we had sold the property this year. Okay. That was the end. Thank you. Any questions?

[Operator Instructions] Our first question comes from Patrik Brattelius from ABG.

A couple of questions from my part. If I just start on -- start with the fact that you write in the CEO statement that the ongoing transformation to become more property focused is still ongoing. So how should we view the Equity, Hedge and Fixed Income Funds segment? Is this noncore from your perspective?

In the long term, yes, I would say. But that doesn't mean -- that doesn't answer the question if that is within 1 year or 10 years. But at the moment, we are trying to focus on improving the performance and developing new products or elements of the product.

Okay. Great. And if we continue on with that. You're right that the model within Systematic Macro has been altered and changed. Has that, in itself, led to any outflows from clients, since you have changed the premises on which they invested from the beginning?

No, I would say the opposite. I think so far, we have only changed like maybe maximum 10%. And probably that will increase up to maybe 20% to 30%. I think most of those changes are being welcomed by the remaining investors, and we are paying in -- to include to our customers to make sure that they are aware of what we are doing and that they find a positive reaction from our side.

Great. And the last question regarding this segment is you have done some -- you are working with the cost base, but would you say that Systematic Macro now is profitable on this AUM base, if we were to normalize the cost base?

It's a moving target when it comes to -- if you could tell me what total assets would be during next year, I could answer the question. But the problem is, I don't know the -- I don't have any firm opinion on the assets under management for -- during the next 6 to 12 months. I wish I had, but I don't. But I think we have taken measures in the Systematic Macro. And are they sufficient? I don't know. So it's -- we are working with that, and we are reassessing the cost base from month to month.

Okay. If we phrase it like this then. If you keep the AUM base flat and all these cost measurements that you have taken are done and finalized, will -- is -- would the segment be profitable then?

Depending on how you -- we are taking substantial investments in new products and product development in the order of SEK 34 million to SEK 45 million per year. If we exclude those, absolutely. If we include them, it simply comes up. But it's not far away.

Yes. Okay. My next question is regarding the Principal Investments, where, if I remember correctly, Grand Central started in 2015 and is now divested. Looking -- which one is the second oldest? It looks like it's Seestadt, which started in 2017. How far along are we in this process now? What is left to be done? And is this reasonable to be expected to be the next project to be divested? Or is it too big, and hence, needs a little bit longer time than Grand Central? Or how should we think about this?

It's a big project. It's also a big project in Mönchengladbach. And what I mean by that is that you can not -- we cannot do 2,500 departments in Mönchengladbach at the same time. I mean just that project is a project of the -- I mean, let's say, we have set EUR 500 million to EUR 700 million or EUR 800 million, which is not fully defined yet. In more [indiscernible] in different phases, and we are just about to start the new phase, which is less than 10% of the old project. So my take on this is that this will be ongoing for the next 5 to 10 years, but it doesn't take a lot of capital, and that's why it's such an attractive investment. I mean we have totally invested less than SEK 100 million in these projects, as you can see from our presentation. And these are projects which will -- yes, which will take roughly about -- it's more than EUR 1 billion to invest in this project. So I think we have -- I will not disclose everything about the financial structure of it. But -- and there are no secret like this, but -- and it's not decided and done now exactly. But I would say that we can do it on quite favorable terms.