Catella AB

STO:CAT B

Earnings Call Transcript 2019-Q4

[Operator]

Hello, and welcome to the Catella Q4 Report 2019. Today, I am pleased to present CEO, Knut Pedersen; and CFO, Marcus Holmstrand. [Operator Instructions]I will now hand you over to Knut Pedersen. Please go ahead.

[Knut Pedersen, President & CEO]

Thank you very much. Good morning, everyone, and welcome to this presentation of the Catella Q4 results. Catella continues to grow, and total income increased by SEK 63 million compared to Q4 last year. This is primarily driven by Property Investment Management and principal investments. I will come back to the financials shortly, but first I just give a brief overview of the Catella group.Let's go to Slide #2. We have now built a strong European platform. After the divestment of the business area, Banking, we have 3 remaining business areas, which is Corporate Finance; Property Investment Management, which we call PIM; and Equity, Hedge and Fixed Income Funds.The closing balance AUM was SEK 171 billion, and total income in 2019 was SEK 2.4 billion. There is an even distribution of income over the business areas, where Property Investment Management is becoming increasingly important. Operating profit in 2019 amounted to SEK 422 million.Let's go to Slide #3. What I want to comment on this slide is the decrease in AUM, 2019 over 2018. It is a consequence of the decision to terminate the Systematic Equity product, due to low demand from investors and unsatisfactory profitability from a company perspective. This has been described in previous reports as well. The Systematic Equity product had approximately SEK 25 billion under management.Please go with me now to Slide #4, which is sales and results of operations of the group. Total income in Q4 was SEK 761 million, a substantial increase of SEK 63 million compared to last year. The increase came mainly from Property Investment Management and principal investments, as previously mentioned. Operating profit amounted to SEK 122 million, an increase of some 100% compared to last year. AUM within PIM continues to increase, primarily now from organic growth and new products, which is clearly in line with the strategy the group has.We had outflow from hedge products during 2019, which decreased profit from fixed earnings, fixed expenses in Equity, Hedge and Fixed Income Funds. The annual rate was SEK 204 million at the end of the quarter of fixed earnings/fixed expenses.The migration of card customers to Advanzia Bank has progressed according to plan. It is expected to be completed in Q1 2020. SEK 56 million of additional purchase consideration was recognized as revenue in the fourth quarter, which means that SEK 104 million was recognized in total in 2019.After the migration of our card customers to Advanzia Bank has been completed, the banking license will be divested or, alternatively, Catella Bank will file for the license to be revoked. The latter alternative would imply that the bank enters liquidation, once the license has been revoked by the regulators. The final cost of the closure of the banking operations is somewhat difficult to estimate, although the costs are likely to be some higher than anticipated. The timing of dissolving the consolidated financial situation is determined by which of the mentioned alternatives we choose to pursue.Now please go to Slide #5. Financial position, remaining operations. Catella made a shareholder contribution of SEK 220 million to Catella Bank in the fourth quarter 2018, to satisfy the capital requirement for the bank. The shareholder contribution is expected to be repaid during 2020. Property development projects amounted to SEK 408 million, of which the majority relates to the consolidation of project Kaktus in Copenhagen.I will now go through the operations in our 3 business areas. Please go to Slide #7. Activity levels remained high, and the total transaction market for commercial property in Europe, excluding U.K., amounted to some SEK 950 billion in the quarter. Transactions where Catella advised amounted to SEK 32 billion. Total income was SEK 287 million, and operating profit came in at SEK 48 million. Corporate Finance Nordics had somewhat slower quarter compared to last year, while Continental Europe increased profit.Please go to Slide #9, Property Investment Management. There is high demand from the investment community for our products, and we are well positioned with high credibility. Assets under management increased by SEK 1.1 billion in the quarter. The increase in Property Funds' total income was driven by increased fixed revenues as a result of the SEK 18 billion increase in AUM during the year. Even though we had SEK 20 million in startup costs for initiatives during the year, operating profit increased by SEK 36 million year-over-year. We continue to see very good momentum within the business area.Now please go to Slide #11, Equity, Hedge and Fixed Income Funds. AUM decreased by SEK 13 billion in the quarter, but it's worth to note that SEK 10 billion of these are related to the termination of the product, Systematic Equity, which generated modest earnings to Catella. On the positive note, the year closed with positive performance results in fixed income funds and Catella Hedge Fund, which returned to a level where performance-based fees can be charged. Total income per business area was SEK 199 million in the quarter, a decrease year-on-year, driven by lower fixed earnings. Operating profit per business area was EUR 43 million.Now please go to Slide #13, Catella's principal investments. Principal investments totaled SEK 603 million as of 31st of December 2019. The increase was mainly due to additional investments in property development project Kaktus in Copenhagen.Catella currently 4 property development projects, where we especially want to point out Grand Central, the residential property development project in Düsseldorf. In October 2019, we entered an agreement relating to the divestment of the project that will have a positive effect on profit after tax of some SEK 170 million, of which SEK 155 million will be recognized in Q1 2020.Now please go to Slide 14. We continue to focus on our strategic areas, which we have communicated earlier. Growth, expansion of product offer, development of distribution in the various areas, performance and talent management and bringing Catella closer together.At the conclusion, I would like to make a couple of remarks. We end 2019 on a very strong note. Our advisory operations are well positioned and Property Investment Management is growing sharply. Collaborations between and within business areas continue to contribute to growth. Market activity remains high, and I believe Catella is very well positioned for the future for having continued profitable growth.With this said, we are now ready for questions. Thank you very much for listening.

[Operator]

[Operator Instructions] And our first question comes from the line of Patrik Brattelius from ABG.

[Patrik Brattelius, Analyst]

Yes, I have a couple of questions. If we start with the Equity, Hedge and Fixed Income Funds, so we saw net outflows here now in Q4 '19 in systematic macro. What can we expect for the start of 2020 in terms of net outflows versus net inflows? It looks like the fund is performing in line or slightly down compared to where it finished in Q4 '19.

[Knut Pedersen, President & CEO]

This is correct. In terms of the performance. And as we have communicated, we have seen outflow in Q3 and Q4. And it's, of course, difficult for us to go out and communicate on financials for Q1. That said, I would like to say that we don't see any substantial flows, either way, at the moment.

[Patrik Brattelius, Analyst]

Okay. Yes. And keeping on the subject with the asset under management. It looks like TAM in the Property Asset Management was down 6% quarter-over-quarter. What was that due to?

[Knut Pedersen, President & CEO]

That was due to closing of one mandate in one of the geographies.

[Patrik Brattelius, Analyst]

Okay. So going forward, we should continue to expect to see this nice growth that we have seen historically? So this was more of a singular effect? Or is the growth in assets under management in this segment slowing down a bit?

[Knut Pedersen, President & CEO]

This is lumpy between quarters, but I made a fairly strong statement when I presented the business area a few minutes ago, and where I concluded by saying, we continue to see very good momentum within the business area, which then will be represented by, of course, AUM.

[Patrik Brattelius, Analyst]

Okay. Fair enough. And then I had a question about your balance sheet. You have a very strong cash position already. But it looks like it will become even stronger in 2020 with the divestment of Grand Central coming in and the Banking. What are your strategic thoughts about the balance sheet next -- well, this year?

[Knut Pedersen, President & CEO]

First of all, any dividend or extra dividend contribution to shareholders is a board topic. Secondly, as you point out, we do expect to strengthen the balance sheet in 2020 by the actions you mentioned. And then it will be a board topic, how to handle the strong cash position once these are completed.

[Patrik Brattelius, Analyst]

Okay. If I phrase it in another way then, how -- what's your view on the M&A in the market? And do you see any segment that you would like to strengthen further?

[Knut Pedersen, President & CEO]

So clearly, we have found very high traction by -- with various initiatives within Property Investment Management. And as you also see that we couple these together with principal investments. So I think that will be the area where we will continue to allocate resources for growth. That said, we have the platform today, so now I think that the focus must be to continue to increase AUM in the various entities, both within the Property Asset Management and within the Property Fund. So that's where we see the strong growth. What's also very encouraging is that the initiatives we take within Property Funds, and this is important, these initiatives used the European property access management platform to execute on their strategies. A number to exemplify this is that we have -- a couple of years ago, we had pretty much 0 money in our Property Funds which were invested through our asset management platform. Now, a little more than 2 years later, we have SEK 16 billion invested from our Property Funds through our asset management platform. This is fantastic leverage on the platform we are based.

[Patrik Brattelius, Analyst]

Okay. Yes, yes. And a last final question. It's more of a detailed question regarding -- if you look on Page 22 under other, then you have other revenues that is SEK 31 million in the fourth quarter. Can you specify what that is, please?

[Knut Pedersen, President & CEO]

Yes, that's relating to Catella's principal investments. So it's capital gain book recognized as revenues in the fourth quarter. It relates to SEK 15 million for the Grand central project, of which the cash is deposited for Catella Logistic Europe, and it relates to SEK 10 million for the capital gain of divestment up to 2/3 logistic projects in our French operations.

[Operator]

[Operator Instructions] Our next question comes from the line of Rickard Henze from Nordea.

[Rickard Henze, Senior Director]

Sorry about that, but my questions and some has been covered by the previous questioner.

[Operator]

[Operator Instructions] And there seems to be no further questions at this point. So I will hand the word back to the speakers. Please go ahead.

[Knut Pedersen, President & CEO]

Thank you very much for listening, everyone. Thank you.

[Operator]

This now concludes today's call. Thank you all for attending. You may now disconnect your lines.