Earnings Call: Q3 2020

Nov 12, 2020

Okay. Thank you and welcome everyone. I'm sitting here together with the new CFO, Christophe Abrahamson. He will take care of some of the presentation today. If we start on Page number 2, which says 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 port squared up, which is as 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 which here SEK 136,000,000,000. Roughly, it's within the systematic macro, which had lost that money. But on the other hand, in the property investments, we have grown it by SEK 5,000,000 to SEK 7,000,000. So overall, we are growing where we would like to grow. I go to Page number 3, sales and results of operation within the Corporate Finance. I think Corporate Finance 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 on the year. Nothing to worry. I think we are generally improving our market positions in the big markets, like which is Scandinavia strong. 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 number 4, which is the Property Investment Management. The result within this sector is about SEK 92,000,000 or SEK 100,000,000. Most of that has come from the performance fee from the CPM, which is the Cattella Property Management Company in Germany. And that profit is related to the performance fee from when we sold the Grand Central project in Dusseldorf. But in general, we have 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 60,000,000, which is in our balance sheet. And I think the put option is in January 2022 in case we would like to sell it. The numbers are not included in the numbers after 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 have been a lot of withdrawals from the fund. We are taking actions, and I'll come back to that. Then we come to the Cattellar principal investments, and that is on Page 6. We have in total invested SEK 800,000,000. Most of that is within the Cactus project in Copenhagen. And after we have sold and dividended out money regarding Grand Central, The investment in Graeme Central is much or is the company which holds these assets is called the only company is called NOS Nordic Seating. And most of those €91,000,000 the €91,000,000 is our equity part of that group. And Catena owns 45% of the North. And when it comes to development projects, it's primarily Cactus. 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 cleanup calls from the bank due to the COVID. We had expected to sell, as you might know, the Pasco II fund during quarter 2, it didn't materialize. And let's see if they would do the cleanup call in Q4. But overall, pretty stable situation. And the projects, I think they all look good. I don't think there should be any worries about Niesiggren Sandtren. There's nothing left. The Seestalt, which is progressing, this is progressing well, HECTOR is doing well. And the Neurje being the logistic property is doing okay as well. Now Christophe, you will I will leave the consolidated numbers, the group numbers to you. Thank you, Johan. So we'll switch 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 a total income of $744,000,000 dollars 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 Dussudoc, which had contributed 208,000,000 dollars to net profit slightly over our prior communications and $175,000,000 of that comes from our principal investment segment and $33,000,000 from our property investment management, which has project managed its project and also received some performance fees due to the exceptional performance of this project. Secondly, we talked about the divestiture of 70% of the mutual funds for 140,000,000 dollars created a Q3 net loss on the P and L of $9,000,000 after selling expenses. And the remaining 30% is now recorded as a SEK 60,000,000 holding in an associated company, which is the agreed purchase consideration for our Puttenkol. Unless Johan said that is for 2022. If we then go to the assets under management, As Johan said, we had divested the fund, which had at the time of divestiture about 20,000,000,000 dollars of assets under management and we adjust for that. The group actually grew its assets by over 7,000,000,000 dollars driven by an exceptional quarter by the property investment management segment, where we had some real key wins with some management of shopping centers in the UK and logistics 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 September. These are all I'll explain this is excluding Cattella 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 3,500,000,000. As mentioned, the continued focus on principal investments can be seen in the 601,000,000 of assets in property development projects, which includes $91,000,000 of our share of equity and associated companies in development projects in Germany and $511,000,000 of project investment in the Danish student housing development, Cactus, which is primarily owned by Cattella and thus reported fully on our balance sheet. In that project, we invested an incremental 64,000,000 dollars in the Q3. Cattellas liquidity remains very strong with about $1,450,000,000 of cash and equivalents and a solidity around 40%. The 3rd quarter cash flow, again excluding the bank, it was SEK 306 1,000,000. A lot of that was driven by CHF 173,000,000 from the sale of Grand Central and $83,000,000 from the divestiture of 70% of Katella Mutual Funds. While we're very happy with our strong financial position, it should be noted that not all of the $1,450,000,000 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 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 $400,000,000 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 situations is big. With the low interest rates, I don't have to you are probably more analytic oriented than I am in the markets and macroeconomics. But generally, we see demand for within the I'm on Page 9, maybe you should know that. Sorry, I apologize. I think there is growth in the segment where we are or 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 investments, 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 measures and direction, which is on Page number 10. You can see to the this graph 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 the big part of that is residential and offices and very little in other market segments. And value add, which is segments 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 Eitan maybe, 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 this is not that you should not see this as a decrease of the core, but actually that we would grow in other segments. That's how we I think we have somewhere in the quarterly report and said that we will make some kind of not restructuring, but we will have we will look deeper into how can we grow the group after, especially in Germany, because 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 high extent the residential segment. Okay. We could go into Page 11. Most of you probably know that we made this co investment together with the partner in the Nordshipping, which is a logistic size of 70,000 square meters are built. 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, Cattellar will receive the same kind of return as every other investor will return. So that's in the range of 4% to 8%, that's what Capella will receive on that. On top of that, by doing these kind of co investments, 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 investments. I think it's totally aligned with our strategy at Cattell, which also is being shown that we have a lot of participation or aligned interest from management in the various companies because they can also be dependent on our success. So it's part of the overall strategy of Capella 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 funds we generate, we will attract more money. And on top of that, we will have a performance fee, while we believe that we could earn, in general, a very good return on the small percentage of investments we 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. And when it comes to Equity Edge, it's the only remaining asset we have in this segment is the systematic macro, which during the last 2, 3, 4 years, has 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, which 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 both the model, but also start a new fund, which will be launched early next year to balance the performance of systematic macros. Over time, systematic macro models should perform, but during certain periods when 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 Kamskela 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 to the same responsible for the bank. Our HR manager, he is also responsible for the bank. And I think we are making good progress. And our we are not behind the time plan. But there are some still there are still some issues in relation to the SSS and the ECB, which need to improve the winding down of the bank. And on the group level, I'm on Page number 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 share to another company. By that, we received the capital gain, which is we couldn't have done that if we had sold the property this year. Okay, that was the end. Thank you. Any questions? Thank you. Our first question comes from Patrick Betelius from ABG. Please go ahead. Hi, good morning. Thank you for taking my questions. A couple of questions from my part. If I just start on start with the fact that you're right in the CEO statement that the ongoing transformation to 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 on 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 an excellent 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 same close to our customers to make sure that they are aware of what we are doing and that they find that a positive reaction from our side. Great. And the last question regarding this segment is you have done some you're 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 if the the I don't know the I don't have any firm opinion on the asset 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 and per month to month. Okay. If we phrase it like this then, if we 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 30,000,000, SEK 40 5,000,000 a year. If you exclude those, absolutely. If you include them, it simply comes up. But it's not far away. Yes. Okay. Thank you so much. 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 2nd oldest, it looks like it's Seastard, 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 Stestat, it's a big project. It's also a big project in Munchen Gladbach. And what I mean by that is that you cannot we cannot do 2,500 apartments in Bunchengladbach at the same time. I mean, just that project is a project of I mean, let's say, we have said €500,000,000 to €700,000,000 or €800,000,000 It's not fully defined yet in more than 15 to 20 different spaces. 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. Okay. I mean, we have in total invested less than SEK 100,000,000 for the krona 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 1,000,000,000 to invest in this project. So I think we have I will not disclose everything about the financial structure of this. But and there are no secrets like this. But we it's not decided and we don't know exactly. But I would say that we can do it on quite favorable terms. Okay. Okay. That's fair. Thank you. Then I just have 2 more questions. Looking at the balance sheet now and the cash position and what you expect to be added also when the bank is finally divested. What do you want to do with this? What is the first thing that can be expected as a shareholder that you want to use this money for? And can you also then talk a little bit about the bond of SEK 750,000,000 that you have on your balance sheet? Is that a necessary financing source? Or is that something that you're looking into of buying back? I don't think we should comment on trading in our own bond. We do intend to spend the bond, whether that will be in a lower or bigger amount, we don't know yet. And we don't comment on whether we would try to spend or decide to buy back any of the bonds. I think that's the fair comment, is it? We do understand that the short term return of buying back the bond that is then what we are in the market for our liquidity. So I think we know the difference between paying 4%, 5% and running nothing on our money. So but we so I think that's the answer. Is that a good enough answer for you at this stage? Yes, I guess so. It's like but are there any grand plans for this massive cash position? Or is it just small investments? Or are there M and A targets in, for example, the UK, which you bought the company a couple of years ago? Or example, the UK, which you bought the company a couple of years ago? Or you want to strengthen your position in Germany in corporate finance and that needs a lot of cash? Or what is the next step for this pile of cash? We don't have any giants that in the front of us. We are discussing several percent possibly that. For it's not that we will invest SEK 500,000,000 to make any new equity. That's not on the road map today. And that could come up. We have had during the years several possibilities to acquire companies or do acquisitions in or joint ventures, which we have not due to various factors. And I think there might be new opportunities, and we want to be prepared for those. But on the other hand, if we can see that we could grow our assets faster by doing co investment, we should be also prepared for that. Okay. That's fair. Then I just have a final question here. And that is where we're at on the search for a new CEO? Is that currently ongoing? Or is that the past and you will take over as permanent CEO? Or where we're at in this? The only thing I can assure you, I will not step in as the permanent CEO. I think we are I'm probably staying on for a shorter period in order to late the transformation going on in the kind of people that we would like to have as a management set up, where we would like to have more profitable knowledge knowledgeable presence with the deep understanding of the market. And I think what is important for us being that today, I mean, we have almost 90% of our operations outside Sweden. And if we are going to be credible and relevant for the structures around the Europe, we need to be able to deliver to 3 different things. 1 is competence and deep knowledge of their segments and their business. That we have to be relevant to them so that we they believe that we could advise them and support them. The other thing they require is financial support. If they find possibilities, targets, co investment, whatever, we need to have the necessary funds to be relevant. If we are going to talk to BlackRock about investment, we cannot we need to be relevant to BlackRock as well. So we are trying to grow our perception in the market. But I think part of that is having a strong balance sheet and being having the relevant competence in the structure. It's about people here, but it's also about money. And we need to be strong in both aspects, in both segments, people and money. And that is my primary target. So far, I think I made maybe a small difference, but I think we have somewhat new directions. And I think we have a very motivated team. We have that in the past with the former management as well and they did a good job. I'm not complaining at all. I'm just saying that we are trying to refocus the operation. And we try to be elusive to our operations. If I were to make any complaints, I think maybe we have been a little bit far away from our operations, which is partly why we maybe have failed in certain areas. We need to get closer to the operations, closer to the people and have a direct impact on what they are doing and follow them. But we can really do that if we have relevant ourselves. Is that an answer? Great answer. Yes. Then that was all for me and great for thanks for the new look in the presentation. I like the measures and direction section which you have added. Thanks. Okay. Thank you. There appears to be no further questions. So I will hand back to the speakers for any other remarks. I don't have any further comments. I think last time, I made the presentation maybe too long. This time I made it too short. But regardless, this is my perception. I think we are in pretty good shape. I think we have a lot of motivated people. We have a much clearer focus and we are trying to enlarge our competence in the property sector. And that's what we are trying to do at the moment. And I think we have there would be new possibilities coming along and we have to be open minded for them. And it's a matter of being quick and being relevant. I think you're on to that point, being quick and relevant. You do need liquid capital for that. I think the point that we've made about the cash appearing very large on the balance sheet, I think that is a prudent and a smart way to be when you're in the middle of a transformation, so you can take the right opportunities when they come along. And also in this situation with COVID, we believe there will be opportunities coming along. And if we are long term player in the market, and I think we have sometimes, I believe, that the Swedish or Scandinavian investors underestimate our market position in Germany or in Europe as a whole. And I think our growth will not necessarily take place in Sweden. We have a very good corporate finance. We are good in the asset management here, and we are setting up new structures in Scandinavia and Sweden. But our growth will try to be focused in continental Europe. And even if SEK 2,000,000,000 is a lot of money in Sweden, if we go to Germany that they always assume we are talking euros. So you know, we shouldn't we are not a big fish. But we need we want we do want to play with the somewhat big efficient without being heated. Thank you for listening. Okay. Thanks a lot. Thank you very much.