Catella AB (publ) (CATB) Earnings Call Transcript

Welcome to the Catella Q3 2025 Report Presentation. [Operator Instructions]. Now I will hand the conference over to the CEO, Rikke Lykke; and CFO, Michel Fischier. Please go ahead.

Good morning, and welcome to this webinar where we will present Catella's interim report for the third quarter of 2025. My name is Rikke Lykke, and today, it's my first presentation of Catella's quarterly performance as the new CEO of Catella Group. Together with me, I have, as usual, Michel Fischier, CFO and Head of Investor Relations. Before we begin, I would like to share my first impressions of Catella. Since becoming the Group CEO at Catella, I have spent quite some time traveling across Europe to meet employees and to better understand the shared potential of Catella. Catella is a people-focused company with strong talent and expertise across the markets. We have a solid position locally and as a group, and we're supported by strong liquidity and a stable capital base. With this as a foundation, it gives us great opportunities to capture future growth in our markets. However, there's still room to grow. By further improving alignment across the group, we can increase assets under management, become the preferred partner for transactions, attract top investors and clients and most importantly, increase our shareholder value. With our presence in 12 European markets, we are well positioned to achieve these goals. We will continue to sharpen our strategy. At year-end, the principal investment business area will be integrated into core operations. Going forward, we do not intend to independently own or develop real estate assets. Rather the aim of investments is to grow our assets under management in investment management. This is done through seed investments in new in-house funds, co-investments with external capital partners to secure long-term asset management mandates and investments in development projects alongside majority owning capital partners. By doing so, we will sharpen our focus on growing AUM and reoccurring fixed revenues as the originator of real estate investments. We also need to further align our core functions as most of our business is outside of Sweden. This will have an effect on the organization going forward. An important step was the announcement of Dominik Röhrich as our new Head of Investment Management starting March 1, 2026. With his background, we will take important steps towards building a leading investment management platform, driving European growth, improving performance and strengthening our institutional partnerships. Our commitment is clear: develop new products and investment vehicles, secure fixed fee revenues, grow AUM, provide advisory services and optimize operations, all focused on maximizing shareholder value. With these brief reflections, let's walk you through the highlights of Q3 2025. And as usual, we will open up a Q&A session after the presentation. So starting with a brief overview of Catella. Catella manages nearly SEK 160 billion in assets under management with a revenue base of SEK 2.5 billion and with operations in 12 countries and assets in 16, backed by nearly 500 employees. We currently operate in 3 property-focused business areas: Investment Management, Principal Investments and Corporate Finance. Although real estate has had a couple of challenging years recently, we're supported by a long-term growth trajectory as portfolio allocation to real estate continues to increase. Nearly 60% of our income stems from fixed recurring revenue, providing stability to the business as a whole. This metric is also one of our key KPIs and our strategic priority is to grow AUM, thereby increasing the fixed fee revenue base and generating shareholder value. We see sustainability as part of our license to operate 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. This is done through local teams with profound knowledge of their markets, which means we are a true vertically integrated pan-European player. Catella has a history of over 35 years. And during that time, we've established a pan-European platform and a strong and reputable brand name to expand from. The transactional market has gradually started to recover after the low point we experienced in Q3 '23, following a 2-year sharp decline of transactions. Transaction volumes are important for Catella as it generates variable revenues in investment management on top of the fixed fee revenues. It is even more important for the Corporate Finance business area, where the majority of the revenues stem from transactional services. We continue to have an optimistic view on increased activity going forward. It is also supported by market data showing an upward trend. Fundamentals also continue to support an increased market activity, and these include lower market interest rates, availability of financing and stabilized values at attractive yield levels. But at the same time, we're cautiously aware of potential setbacks, which could emerge from tariff turmoil and overall increased uncertainties. Year-on-year, transaction volumes have increased by 15%. With this brief market backdrop, I'd like to move on to some key financial and operational highlights of the quarter. The third quarter was a bit weaker than last year. This was mainly driven by lower transactional revenues in Investment Management. These are nearly SEK 15 million lower year-on-year. Also, Corporate Finance had SEK 6 million lower revenue compared to the same period. We see this decline as a temporary setback. And in the fourth quarter, we expect transactional activity to pick up. In our industry, the fourth quarter is usually the business period of the year. If we then take a look at our business areas, there are a couple of things I'd like to highlight. If we look at Investment Management specifically, the transactional revenue shortfall was largely mitigated by implemented cost and efficiency improvements, resulting in a result broadly in line with last year despite lower revenues. We are also pleased to report AUM growth, which increased by SEK 4 billion compared to previous quarter and SEK 5 billion since the beginning of the year. The growth mainly stems from new asset management mandates, which more than outweighs the lower inflows to our funds offering. Here, Catella's Investment Management has a unique offering with highly skilled local teams with the ability to assist institutional investors to reposition assets through active asset management. Looking ahead, we see an increased demand for these services. On another positive note, as the market slowly recovers, it also supports transactions within our funds and thus transactional-driven revenues. Turning to Principal Investments. As mentioned, we will start 2026 integrating the business area into our core operations. Following the sale of Kaktus as a substantial shareholder profit -- sorry, at a substantial shareholder profit, we have a lower concentration and lower risk in the historical portfolio of investments. We will continue to report on principal investments also in the fourth quarter. But following that, we will integrate our own balance sheet investments and the fee revenues and fair value changes stemming from minority investments together with larger institutional investors that we have and aim to make going forward. Looking at the investment portfolio today, it contains 8 property investments and 4 fund investments. They are all processing according to expectation and plan. In Corporate Finance, as mentioned, the third quarter is usually seasonally weak, and this quarter was somewhat weaker than last year. While the Nordics showed an improved activity, Continental Europe was slightly slower. As we enter the last quarter of '25, we expect a significant increase of transactions based on the current pipeline we have. Before I started at Catella, I took the time to review the strategy we had laid out. I believe that the focused priorities that we have presented is the right way forward and the strategy that will contribute to shareholder value creation going forward. By the deconcentration and refocusing of principal investments and also integrated with our core operations, it is highlighted that we will use our own balance sheet to grow AUM, increase our fixed revenue base and focus on reoccurring revenues. I believe that own investments supporting increased -- I believe in own investments to support increased and stable cash flow is the right and only way to generate increased shareholder returns. Secondly, we'll continue to make efficiency improvements and strengthen the corporate finance organization. There's more work to be done to improve the underlying profitability and put a structure in place that supports growth. This work is since the third quarter headed by Daniel Gorosch. Besides these 2 priorities, we need to continue to grow our existing funds as well as launch fewer but larger internationally scalable products. 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. As mentioned, the main driver behind AUM growth in this quarter and throughout the year was through new asset management mandates, which we, of course, are very pleased with. At the same time, we continue to focus our business development efforts on new products and strategies to raise capital for new scalable products meeting investor demands. So with that, I underwrite our strategy and expect to show continuous progress over the coming quarters and years. Also, as I initially mentioned, since our operations are mainly outside of Sweden, we will make organizational changes to reflect where the revenue is generated and where the majority of our employees are situated. I will now hand over to Michel, who will take us through some of the key highlights.

Thank you, Rikke, and good morning, everyone. And let me start by moving to Page 10 to discuss Investment Management in detail. As you all know by now, Investment Management is our largest business area and has since the start, shown an impressive average annual growth rate of over 15% despite the more cautious markets and lower interest for core fund investments, inflows continue to exceed outflows during the quarter. As Rikke previously mentioned, the main driver behind these inflows during the quarter and also the last 12 months has been the onboarding of new asset management mandates. Our offering continues to meet market demand for refined and repositioned assets even in a cautious market environment. We have also been successful in maintaining AUM in our funds over this slower period in the industry. Last 12 months, AUM growth amounted to nearly SEK 9 billion with limited growth in funds and the growth stemming -- and the growth was stemming from asset management mandates. The largest growth was seen in Denmark, followed by the U.K. and Finland. In the quarter, AUM grew by nearly SEK 4 billion with nearly SEK 3 billion through asset management mandates and SEK 1 billion in property funds, mainly residential. If we move on to the next page. Fixed fees have remained stable over the last 4 quarters, north of SEK 200 million. As we continue to have onboarded new mandates, this will support fixed revenue growth going forward from these levels. As already mentioned, variable revenues decreased compared to the seasonally stronger Q2. But looking at historical Q4, you will note that the fourth quarter is generally the quarter where we earn most variable revenues. And this is something we also expect now when we enter the last quarter of 2025. As already noted, efficiency improvements implemented over the year and years have resulted in the effect of lower OpEx. And in this quarter, it specifically mitigated SEK 20 million revenue shortfall, leaving EBIT broadly unchanged. If we then flip to principal investments. Currently, we have SEK 1.1 billion invested, whereof SEK 0.8 billion is in investment projects and SEK 0.3 billion in funds. As initially mentioned, at year-end, the Principal Investment business area will be integrated into core operations. We do this to clarify that Catella's usage of own balance sheet for investments is not a separate business area as our ambition isn't to own or develop real estate independently. Instead, we make real estate investments through partnerships, funds or co-investments where we hold a minority stake. The aim is to fuel AUM growth, increase fixed fee revenues and thereby stability of cash flows and thereby also generating shareholder value. As of end of this quarter, all current investments were progressing according to plans and expectations. And additionally, fund investment performance also contributed positively with fair value changes supporting our EBIT if we move on to Corporate Finance. Here, we saw a moderate decline in revenues, which also was reflected in EBIT. Worth noting is that last year, we had a reversal of provisions with a positive impact amounting to SEK 10 million. Adjusting for this, EBIT actually showed a slight increase despite the revenue shortfall, highlighting efficiency improvements coming through. The overall increase in willingness to transact supported by improving market fundamentals is supporting growth from these levels. Our review remains cautiously optimistic with more closings expected to come during the fourth quarter of 2025. If we then turn to Page 17 for a view of the consolidated income statement. I've already walked you through the larger financial movements in the business areas in the quarter, and therefore, I'll focus on the items below the EBIT line. But before we go there, we're pleased to show that our focus on efficiency improvements is reflected in overall OpEx going down. This is down now actually by nearly SEK 30 million compared to last year. And as just mentioned when I went through corporate finance, the reversal of the provisions there, if we would take that into account, the net effect is an OpEx decrease of nearly SEK 40 million compared to last year. If we stay on the items distorting comparability, following the sale of Kaktus, we're not entitled, of course, to the rental revenues nor the guarantee fee on the senior loan, which we had on the assets. This is some total SEK 10 million lower EBIT effect following the divestment of Kaktus. If we then move on to items below EBIT. Financial net, as you see, is substantially lower than last year. And this is both an effect of lower market interest rates affecting the coupon on our bonds, but also the repayment of the senior loan on Kaktus has significantly decreased debt and thereby interest costs. FX effects were negative in the quarter and at the same levels as last year. The net loss in the quarter ended at SEK 28 million, which is slightly lower than last year, but this is then explained by a lower top line, which largely was mitigated by lower OpEx and interest costs. Worth to reiterate is that exposure to foreign currency has decreased following the sale of Kaktus and that this also means that you should experience lower effects from currency fluctuations going forward. If we then move on to the next page and have a look at our financial position. We've shown this slide for a couple of quarters to illustrate how we view our balance sheet and net cash position. At the end of quarter, the equity ratio stood at 48% compared to 37% last year. And our cash position was SEK 1.6 billion, a decrease of SEK 100 million compared to last quarter as the effect of the repurchase of bonds, which we carried out. And this, at the same time, reduced the market debt with the same amount. The slide you see in front of you summarizes how we look at our net debt or in our case, the 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. These projects are in turn always valued at cost. If we start from the left and move to the right, summarizing all our investments, these amount approximately to SEK 1.4 billion. If we then add our current cash position of the SEK 1.6 billion, we reached a total of nearly SEK 3 billion. If we then deduct our market debt and financing of projects, this takes us to a cash position a bit north of SEK 1.6 billion. Our cash position alone exceeds our current debt. And if we were to divest all current projects at cost and liquidate other fund investments, this would further increase liquidity after full debt repayment. As I've emphasized repeatedly, maintaining a strong balance sheet and robust cash position has been a cornerstone for Catella during the market downturn. And following the sale of Kaktus, we now find ourselves with a significant excess liquidity. And this also gives us relevant headroom to pursue new investments aligned with our investment criteria, supporting AUM growth within Investment Management. It also enables further reduction of debt and other shareholder-friendly measures. With that said, I'll hand back over to you, Rikke.

Thank you, Michel. Before we conclude and open up for Q&A, I would like to briefly summarize this presentation. As I started today's presentation, I've initially taken the time to visit the Catella teams across Europe. This has convinced me that we have strong talent, local know-how and relevant investor offering. This, together with a solid financial foundation, provides a strong foundation for developing and growing our company further. With an even stronger focus on how to make use of our balance sheet to increase AUM, attract top investors, we have a very good starting point to grow fixed fee revenue and enhance shareholder value. However, to capture future growth, we will focus on improving further alignment across the group and strengthening core functions and leadership to reflect and strengthen our pan-European platform. We remain cautiously optimistic about a continued slow market recovery. Market fundamentals are supportive of this trend with lower long-term interest rates and tightening credit margins, significantly improved financing conditions and an attractive -- an active, sorry, front market. This, of course, comes with the caveat of an unforeseen increase in market uncertainties. With that said, I would like to thank you all for listening, and we're now opening up for questions.

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

I'd like to start by asking, could you elaborate on how you plan on reporting the Principal Investments segment after 2025? Is Principal Investments and Investment Management going to be merged into the same segment? Or have I misunderstood?

No. I think we'll get back to you with the exact details. But what we aim to illustrate is the development or clarify the development fees that we get on the developments that we have together with investors and also with a clearer scope presents the fair value changes of the actual investments that we have on the balance sheet. So from an investor perspective, we'll get back to you with the exact details at Q1 latest. But it will clarify both how own capital generates new fees into Catella and also how these investments perform according to our investment criteria.

Okay. Sounds good. And regarding the other projects currently in Principal Investments, some of them are expected to be finished in 2028 or even beyond 2030. Are they going to keep going as before?

Yes. I mean they are progressing according to plan. They are historical investments, and we will continue to develop and perform on them going forward.

And regarding fixed fees in Investment Management, it came in at SEK 202 million this quarter. That's the lowest figure that we've seen in 3 years, even though AUM is up about 12% in that same time. Is there any explanation for what has driven that?

Yes. You have to take FX into account here, which affects negatively with some SEK 5 million, SEK 6 million. And then we have grown AUM, as you've seen, but it takes a while from the onboarding of asset management before these revenues are recognized in the P&L as well. So it's a slight delay and some FX into that.

Have you seen any underlying sort of margin pressure on fixed fees in the past few years, if you account for lag effects and so on?

Yes, there's one more piece to this puzzle, and that is generally, when you look at asset management fixed fee revenues and compare these to fund fixed fee revenues, the asset management fixed fees are generally a bit lower. So there's a business mix in there. But then you have in the asset management mandates several additional layers which you don't see in fund fees when it comes to the variable revenues, for example, CapEx fees, letting, leasing fees, performance, promotes, et cetera. But the fixed fees are generally a bit lower than in asset management mandates.

Okay. That's fair. One final question. You mentioned that since a lot of the organization is outside of Sweden, you're planning on making organizational changes. Could you elaborate a little bit on what you mean by that?

Yes. I mean we -- when I look at our number of employees outside of Sweden versus here in Sweden, when I look at our revenue generation, Sweden versus rest of Europe, I am aiming to mirror our -- over time, our organization -- our headquarter organization better -- sorry, I'm aiming to mirror the composition of our headquarter and location of some of our key services to mirror the organization better. Currently, we're in a situation prior to my start that the headquarter was situated only in Stockholm. 98% of our revenue is generated outside of Sweden. I do think it makes sense to have more of our headquarter services located across Europe. Dominik Röhrich is the first. And over time, we will look at more of these services that we provide to the organization from the headquarter to be located outside of Stockholm.

The next question comes from Sauli Vilén from Inderes.

I am Sauli from Inderes. About the asset management side, I'm kind of curious to know how do you -- as a new CEO, you see the current profitability level there? Obviously, if you look at your peers, you're lagging kind of far behind at the moment. So how do you see the current profitability level there?

May I ask you who you compare us to? Because if you compare us to pure asset management firms, you might be right, I don't know. But if you're asking about other fund management firms, I think we actually have a higher share of asset management mandates than the fund management firms we have -- we compare ourselves to. So could you please clarify the question?

Yes, yes. I was more looking at the overall asset managers basically on the Nordic level, how they -- what kind of profitability are they doing currently?

I think most of the asset managers, I think you're referring to are also fund managers. Is that correct?

Yes, yes, mostly, yes.

Okay. I'm not sure we are lacking that much behind, but please do bear in mind that compared to our competitors in the market, we also have another business unit called Corporate Finance. And that, of course, when we mix those 2 as Corporate Finance has had a weak transactional market over the past few years, that, of course, affects our overall margin.

And maybe adding to...