The transaction market was still cautious at the start of the year, which affected all three of Catella’s business areas. Transaction volumes fell 67 percent year-on-year, the biggest decrease since the financial crisis in the late 2000s. Before buyers’ and sellers’ expectations align, we must work with these market conditions and continue to focus on long-term value creation.
With a strong 2022 behind us and a solid financial position, we are well-positioned to continue growing the company through investments in digitalisation and capital raising, evaluation of M&A opportunities, opportunistic investments, and the launch of new products.
In April, we welcomed Gianluca Romano, who will help to strengthen our capacity to raise capital. With Gianluca on our team, we can further utilise our unique local expertise, long experience and European investment strategy to promote future growth. With an extensive background as an advisor to institutional investors and asset managers, he will sharpen Catella’s strategy and work with global institutional investors.
Stable assets under management in an inactive investment market
Assets under management totalled SEK 141 Bn at the end of the quarter, an increase of 12 percent year-on-year, but unchanged since the start of the year. Our shares in Catella Hospitality Europe were divested during the quarter, resulting in an outflow of SEK 2 Bn in assets under management. The decision to sell the platform to partners was based on profitability not meeting our targets. The transaction generated a profit of SEK 5 M and will contribute to a stronger underlying operating margin going forward.
The sluggish transaction market also resulted in lower variable income in the business area. However, due to the growth in previous years, the underlying income base from fixed management fees is strong. Operating profit of more than SEK 30 M proves the resilience of our underlying business model, with solid profitability despite the slow transaction market. Despite a limited inflow of new capital, we view 2023 with a certain optimism as we continue to have a large pipeline of transactions to complete, and capital commitments of approximately SEK 10 Bn at the end of the quarter.
Stronger focus on liquidity and completion of existing investments
During the quarter, Catella signed an agreement relating to the sale of a logistics facility in Vaggeryd. The sale will generate a single-digit profit in SEK M, which will be recognised in the second quarter and further materially strengthen our liquidity.
In today’s market characterised by uncertainty, low activity, and repricing, we expect divestments of completed projects to be limited during 2023. However, thanks to our financial position, we can afford to delay the divestment of completed and cash flow positive properties. At the same time, we are flexible and ready to utilize liquidity for other investment opportunities that we are actively working with currently.
We have not invested in any new projects since the start of the year and are instead continuing to develop existing projects, albeit at a slower pace. At the end of the quarter, Principal Investments’ investments in six countries totalled approximately SEK 1.2 Bn in 10 projects.
A weak quarter for the advisory services market
The first quarter is seasonally the least active from a historical perspective. This quarter was exceptionally weak, with transaction volumes plummeting by 67 percent in Europe and by a hefty 75 percent in Sweden. The lack of activity in the market also caused Corporate Finance’s income to fall to SEK 66 M (88). However, the loss was slightly reduced by decisions taken in the first quarter 2022 to focus our operations to five countries.
Well-positioned for long-term value creation
Although profit in the quarter was hampered by a slow transaction market, we have further strengthened our liquidity at Group level and still have plenty of capital to increase our fund investments. In a continued turbulent market, we benefit from our strong financial position and strong local asset management expertise, which is more important now than ever. This enables us to continue building on the value potential of our pan-European platform and opportunities to scale our offering, broaden our customer relationships, and build long-term value.
Christoffer Abramson, CEO and President
Catella presents the Interim Report and answers questions today at 10 a.m. CET. To participate, go to https://financialhearings.com/event/46281