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

So good morning, everybody, and welcome to Catella's Interim Report for the First Quarter of 2025. My name is Daniel Gorosch, Interim CEO of Catella Group; and together with Michel Fischier, CFO and Head of Investor Relations, we will walk you through the highlights of the first quarter of 2025. After the presentation, we will open up for a Q&A session. And the material and reports are, as always, available on our website. So I'd like to start the presentation with a brief overview of Catella starting on Page 3. So today's Catella Group, we are managing approximately SEK 150 billion in assets under management with a revenue base just north of SEK 2 billion and we have operations in 12 countries, assets in 16 and this is backed by nearly 500 employees. So we operate in 3 property-focused business areas: Investment Management, Principal Investments and Corporate Finance. And although real estate has had a couple of challenging years recently, we are supported by a long-term growth trajectory as portfolio allocation to real assets is increasing. Nearly 70% of our income stems from fixed recurring revenue providing stability to the business as a whole. We see sustainability as part of conducting our business both through long-term relationships with clients as well as through fund investments and investment projects. We manage our larger institutional investors' capital through funds and asset management mandates, and this is done through our local teams with profound knowledge of the local markets leading to us being a true vertically integrated pan-European player. And we as a group has a history of more than 35 years and during that time, we have established a pan-European platform and a strong and reputable brand name. So with that brief introduction, I'd like to start this quarter's presentation with a short market summary. So after 3 years now with declining or hesitant markets, the market is now in a recovery mode, which we can clearly see on this slide. Last quarter we saw a substantial uptick in transaction volumes year-on-year and the first quarter of 2025 showed a small increase in transaction volumes of 4% if you compare with the same period last year. Most financial fundamentals that are supporting an increased market activity have continued to strengthen during the beginning of the year, including lower market interest rates, availability of financing and stabilized values at attractive yield levels. But as we all know, at the same time as the arrows now are pointing in the right direction, the tariff turmoil and overall increased uncertainties have dampened the transaction activity in the first quarter. Nevertheless, we are still cautiously optimistic that we will see continued market recovery in the second quarter and throughout the remainder of the year. So with that brief market backdrop, I'd like to move on for some key financial and operational highlights of the quarter. So the relatively slow transaction activity is also seen in our financials where revenues decreased by SEK 20 million year-on-year. Looking into EBIT, the negative outcome is explained by a number of underlying items, which moved [Audio Gap] and these will be explained in more detail by Michel later in this presentation. Furthermore, FX translation effects as the SEK strengthened during the quarter has had a substantial negative effect on financial net resulting in the negative delta in earnings per share year-on-year. So if we then take a look at our business areas, there are a couple of things I'd like to highlight. Starting with Investment Management. Inflows continue to exceed outflows, which is very positive, and we noted a small increase of [ SEK 150 million ] in AUM compared to year-end. But again when translating the movements and value to Swedish krona, it shows an FX attributable decrease. Our French SCPI fund Upeka was placed amongst the Top 5 performers in the market with nearly 8% return for last year. That placement boosts our capital raising and we saw the best quarter ever in Q1 and also continued strong inflows in April. As already mentioned, the market was slow in the first quarter, and this is also reflected in the very few transactions and disposals taking place in Investment Management. If we then move into Principal Investments: obviously the biggest news happened after the quarter ended when we entered into the sales agreement of Kaktus Towers on May 1 and the closing is planned to take place on May 19. And this Kaktus development project started with the purchase of land in 2016 with the aim to provide modern and energy efficient apartments for Copenhagen's growing community of young professionals, also with very strong ESG credentials. And through the last couple of years of downturn in the real estate market, Catella's strong financial position facilitated further investments and engagement in the building to reduce risk and also position the asset for divestment. So we have reached that point now where we can sell Kaktus at attractive levels both to us as a seller and also for the buyer. And for Catella's shareholders, these divestments will add nearly SEK 260 million to the operating profit in 2025 after transaction costs. And further, as mentioned also during last quarter, we have now signed an agreement with Barings regarding the residential development project Vega. The co-investment secures a long-term mandate with recurring revenue and also attractive returns, some 15% to 20% IRR on the invested capital. This process started with us securing the land and designing the overall plan to develop the site and following that, we initiated discussions with larger capital partners to invite them into the development phase and also to the subsequent exit of the project. So besides all the benefits just described, the project also limits our capital commitment and thereby also the downside in risks. So with substantial liquidity now being freed up with the divestment of Kaktus, we continue to review new products to generate shareholder value with a balance in risk and reward. Corporate Finance: the slow transaction volumes in the market were also reflected in the business area's top line and also in the EBIT. And in anticipation of a gradual increase in transaction activities going forward, we took further steps during the quarter in increasing the efficiency within Corporate Finance and this resulted in one-off costs amounting to SEK 7 million taken in the quarter, but will support a more efficient and profitable business going forward. So before moving on to the business areas in detail, I'd like to reiterate our route forward and priorities for this year and also discuss our progress during the first quarter. As we presented last quarter and to take Catella forward, we have embarked upon a refined strategy with fewer strategic priorities to secure the capacity and also focus on the how, how to implement the strategies and priorities we see as the most important. The first one being to deconcentrate and to refocus Principal Investments. Looking ahead, we are firmly committed to decrease the concentration, i.e., to increase the diversification of our investment portfolio, which we are now doing with the divestment of Kaktus Towers. Furthermore, we have refined the criteria for new investments. We have said that they need to be smaller in size. We have also said that they need to be more diversified as it comes to asset class, geography and duration. And primary focus for Principal Investments is to support the growth of Investment Management AUM through funds or mandates. We also said that the investment needs to meet investment hurdles of 15% to 20% IRR, but could be lower if it secures long and recurring fixed fee revenue. So by narrowing down and focus the use of our balance sheet going forward, our investments will fuel the growth of AUM and even further increase the stability of growing cash flows. Obviously, the sale of Kaktus in the second quarter will substantially reduce concentration and risk in our balance sheet and will also free up liquidity to invest in accordance with our investment criteria. Secondly, even though we have made significant efficiency improvements and strengthened Corporate Finance, we believe that we can do more to improve the underlying profitability and put a structure in place to support growth. And here, we see a clear scope to create a better joined-up business where we take advantage of our strong local organizations, but at the same time make sure to offer a seamless offering to our pan-European clients. In the first quarter, we progressed with these improvements and took, as I mentioned, some costs to execute on this strategy. And then thirdly, besides refocusing Principal Investments to support AUM growth, we need to continue to grow our existing funds as well as launching fewer, but larger international scalable products supported by our investment thesis that we call the Catella house view. Investment Management is the main value driver of our business, and it is of course extremely important that we continuously create products that are relevant and that are in demand from our investors. So during the quarter, we continue to focus on business development and are preparing new products and strategies to be launched to our investors. So with that said, we made some progress during Q1 and continue to build Catella based on our core competencies, capital and real estate competence to create long-term shareholder value. So if we then move to next slide to discuss Investment Management in detail. Investment Management, as I mentioned, is our largest business area and has since start shown an impressive average annual growth rate of almost 20%. Despite the more cautious market and lower interest for core fund investments, inflows continued to exceed outflows in the first quarter. And as you see in the charts, the strengthening of SEK was the main driver behind lower AUM and in euros we show a small positive development. Last 12 months, inflows amounted to north of SEK 17 billion split between SEK 8 billion in funds and SEK 9 billion in asset management mandates. In funds, the inflows were concentrated to residential products and in mandates, the largest growth was seen in Finland followed by the U.K. and the newly launched Strategic Equities Fund and France, which onboarded some new asset management mandates. Outflows were mainly driven by expiring mandates in the U.K. and Finland followed by some outflows in property funds. In the quarter, we experienced similar moves with inflows into property funds and our logistics fund and onboarding of new mandates in Finland and France. Outflows during the quarter were mainly related to expiring mandates in the U.K. So overall, a small but positive development in the quarter, but FX translation effects impacted the consolidated AUM. Take the next slide. Although fixed fees remained stable or even increased quarter-on-quarter; when taking FX into account, the limited transaction activity led to a significant decrease in variable revenues, actually the lowest result we've seen over the last 16 quarters. But with planned acquisitions and divestments in the coming quarters, we expect this to pick up during the remainder of the year. OpEx increased slightly for the quarter partly due to increase in variable salaries due to strong performance in 2024 especially in the fourth quarter. We continue to monitor and control costs and for the full year, we expect costs to be at similar level as in 2024 plus inflation. Worth mentioning is that some IT costs related to the merger of the German fund platforms of SEK 4 million were taken in this quarter. If we then move on to Principal Investments. As already mentioned, the largest news came after the quarter ended with the agreement to sell Kaktus Towers and the divestment will free up significant liquidity and make room for new investments in accordance with our investment criteria. Also after the quarter ended, we signed the agreement of the residential project Vega in Copenhagen with Barings, as I mentioned, and the investment is made in accordance with our investment criteria and caps our total capital commitment to SEK 83 million over the development phase at the same time as it builds AUM and secures long-term mandates. This investment is also made at attractive returns, some 15% to 20% IRR on the invested capital. The quarter in itself was quite uneventful with continued progress in current projects. Last year we had some small divestments and milestone payments contributing to the top line. The difference in revenue and also EBIT is mainly explained by no investments or milestones and also negative mark-to-market valuations in fund investments. So let's continue to Corporate Finance. As already mentioned, the low transaction activity in the quarter affects all of our business areas, including Corporate Finance. Net revenue was broadly unchanged year-on-year. And to further streamline operation and increase efficiencies, restructuring costs of SEK 7 million were taken in the quarter impacting the quarterly results, but leading, as I mentioned earlier, to a lower cost base looking ahead. Looking at our markets, Continental Europe with France and Spain showed a slight improvement compared to last year, but the Nordics with Sweden, Denmark and Finland came in below last year. Our view is still cautiously optimistic with more closings expected to come in the second quarter and also especially in the fourth quarter of this year. So with that, I'll now hand over to Michel, who will share a brief financial summary beginning on this slide.

Thank you, Daniel, and good morning, everyone. I'd like to start by adding some color to the operational results this quarter where the negative outcome of SEK 44 million is an effect of several things impacting this quarter as well as effects that we had the same quarter last year. Starting with divestments and milestone payments received last year in Principal Investments, there were no such transaction in this quarter. So last quarter where we had a positive EBIT effect of SEK 17 million, which we then did not have in this first quarter of 2025. Next, as Daniel already talked about, the very low transactional volumes reduced the variable income in Investment Management notably and this translated into a SEK 13 million EBIT impact as well. Also as stock market turned sour during the quarter, this impacted the mark-to-market values of our fund investments, and this amounted to negative SEK 12 million. And finally, the quarter was impacted by 2 one-off costs related to restructuring: 1 in Corporate Finance of SEK 7 million and another one related to IT investments stemming from the merger of our 2 German fund platforms. Taking all of these into account, we show a comparable EBIT compared to last year. If we then flip to the next page and concentrate on the items below the EBIT line. There's only 1 thing I would like to highlight on this page and here I would like to turn your attention to the currency effects in the financial net. The financial net was negative SEK 143 million in the quarter, but SEK 104 million of this outcome is explained by once again a stronger Swedish krona in the quarter, which then decreases the value in local currency of intercompany loans as well as cash held in foreign currencies. If we then continue to the next page looking at the balance sheet and especially the financial position. We've shown this slide a couple of times. This is how we view our balance sheet and also to help you in your understanding. End of quarter the equity ratio stood at 37% and our cash position was SEK 782 million. And as I mentioned on numerous occasions, to prudently maintain a strong balance sheet and cash position has been key for Catella throughout this market downturn. The slide that you see in front of you summarizes how we look at our net debt or in our case our net cash position. As you all know by now, the overall majority of our liabilities are related to investments in development projects through Principal Investments and these projects are in turn always valued at cost. And if we start from the left and move to the right summarizing all our investments, these amount to approximately SEK 3.1 billion. And if we then add our current cash position of some SEK 800 million, we reach a total of SEK 3.8 billion. If we from that then deduct our market debt and financing of projects, this takes us to a cash position of SEK 1.4 billion. And if we would do then the exercise of divesting all current projects, value the cost and other investments in funds; if that was carried out, this would lead to a negative net debt, i.e., excess liquidity after debt being repaid. In this hypothetical scenario, we would still have Investment Management and Corporate Finance as revenue generating businesses going forward. And to repeat what has been said previously, it's not our ambition to divest our projects and we will continue to invest in our existing pipeline and also invest in new projects that meet the investment criteria, which Daniel described earlier. If we then turn to the next page, we took the liberty to illustrate how our cash position develops post the divestment of Kaktus. So as you see, the divestment of Kaktus reduces Catella's investments by nearly SEK 1.7 billion and takes us to SEK 1.4 billion in investments. At the same time, it increases the cash position to SEK 1.7 billion and then would result in a net cash position of SEK 1.7 billion after debt being repaid. And with that, I think I'll stop and hand back over to you, Daniel.

Okay. Thank you, Michel. And before we then conclude and open up for Q&A, I'd like to briefly summarize the quarter from our perspective. As we now have mentioned a couple of times in this presentation, we remain cautiously optimistic, and our house view is that we have the worst behind us and that the market will slowly start to recover. We're already seen the recovering phase starting I say. Fueled by significantly improved financing conditions, lower credit margins and an active bond market; transaction volumes should continue now to recover. This of course comes with the caveat of unforeseen increase of market uncertainties. Our key takeaways from this quarter is that we continue to do the right things and that we are making progress. AUM showed a small increase where lower inflows in funds is matched by increased demand for asset management services. We continue to deliver on our strategy where the agreement to sell Kaktus is a huge milestone in deconcentrating and refocusing our balance sheet. And this divestment further strengthen our already strong financial position, which Michel just outlined, which we have managed prudently through the downturn of recent years. And the divestment also enables new initiatives to generate shareholder value. And as a final point, we welcome Rikke Lykke as the new CEO of Catella. I am thankful for the trust the Board has placed in me to lead Catella as Interim CEO and I warmly welcome Rikke as the new CEO and President. Rikke will assume her position after the summer on August 15 and I will continue in my role as Interim CEO until then. So with that, I'd like to thank you all for listening and we are now opening up for questions in the Q&A session.

[Operator Instructions] The next question comes from Emil Jonsson from DNB.

A couple of questions from my side. Starting off with the transaction volumes in Investment Management. I get that no deals are done until they're signed, and the ink is dry and so on. But could you say anything about how long in advance you can be fairly certain that a particular transaction is going to go through in Investment Management?

So I mean the funds always have a clear view or plan of which assets to divest and which assets to invest in. And so we have a pretty clear view of which transactions are going to take place. And of course as we experienced this quarter, some transactions were delayed. But for the year, as Daniel mentioned, we have a pretty clear view of the pipeline going forward for the remainder of the year and thus the transactional revenues that are going to stem from them.

All right. And looking at the pipeline for the rest of the year, how would you sort of rate that and if you compare that to the kinds of volumes we were seeing last year?

That's not a number that we have disclosed. So that's nothing we will disclose on this call.

All right. Fair enough. For the next quarter, usually Q2 is a bit stronger on the variable fee side. Do you think that's a reasonable expectation considering the whole Liberation Day volatility and everything that's happened?

I mean volumes are picking up and of course we have seen a wet blanket over the market over the last 6 to 8 weeks. But we see for example that volumes are coming back and especially Sweden and the Nordics, we are quite active market right now with a 12-month average of now SEK 170 billion in transaction volume in Sweden for example. So it's quite active market right now. So Q2, as you say, is seasonally the second-best quarter during the year and I think it will be as usual with this kind of seasonal effects.

All right. And should we expect any further redundancy costs during the rest of 2025? Could you say anything about that?

As we've said previously, we took the majority of restructuring and severance costs during 2024. Should you expect some smaller adjustments to take place? Most likely, but those will not be the material changes which you saw in '23 and '24 actually.

All right. And finally, when it comes to the proceeds from Kaktus, I presume at least parts of those are going to be reinvested eventually into Principal Investments. So in terms of the time line for that, could you say anything about when is the soonest we could start seeing any kind of reinvestment? Like for example, you should not expect anything until at least Q3 or some kind of commentary like that would be helpful.

No. I mean we continue to invest on an ongoing basis. So I mean last year, we made 1 investment in Germany; after the quarter ended, we invested in the Project Vega. So we invest continuously. But as Daniel has described and as we have described, we aim for definitely a more diversified portfolio going forward. So there will be many, but smaller investments over the time horizon coming.

Okay. And the new projects that you're looking at, is there any chance that any of those will come in, in Q2 already or is that too early do you think?

Well, Vega came in, in Q2.

Yes, but looking at the ones that haven't been announced yet.

Okay. Then you'll have to wait for the announcement.

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

We have no questions that came in on the written. So nothing more from us. So thank you, everybody, for listening and thereby conclude today's session and see you soon again. And all material is, as I mentioned, published on our website. Thank you, everybody. Bye-bye.