The calm transaction market in the first half-year has allowed us to increase our focus on long-term value creation throughout the organization. The agreement to acquire a majority of the French company Aquila was a step in this process. We have also continued the work of creating the next generation of investment products with focus on sustainability and a high degree of digitization. Despite a challenging economic environment, we have delivered a stable development of assets under management.
Transaction volumes in Europe totalled EUR 24 Bn in the second quarter. This is the lowest level since the global financial crisis in 2008/09 and a decrease of over 60 percent year-on-year. Our decision to streamline operations and our focus on maintaining and strengthening our financial position benefits us in the current market climate. This allows us to invest in the company’s future during a hesitant market, both through real estate-, M&A- investments, and through long-term value creation in operational improvements and digital development.
In the quarter, we announced that we signed an agreement relating to the acquisition of 60 percent of Aquila. The French company comprises Aquila Asset Management and property fund manager Axipit Real Estate Partners, with a total of just over SEK 16 Bn in assets under management. The acquisition complements Catella’s existing Corporate Finance activities in France and provides a key piece of the puzzle to our continued growth ambitions for Europe. The integration of Aquila into Catella allows us to internally manage the French property holdings in our funds, and assume a relevant asset management position during interesting market conditions. In addition, the investment fund platform, Axipit, adds retail investments, a market that continues to grow in the current market. The acquisition is expected to be completed in September.
After the end of the quarter, Catella APAM (UK) was assigned a 12-month advisory mandate for Transport for London (TfL). This represent another prestigious assignment for our UK platform. Initially, the contract will involve assisting TfL’s wholly-owned commercial property company in understanding and realizing the potential of its assets, although in the longer term it may also open up opportunities for growth in assets under management.
Towards the end of July, we divested our 50 percent holding in Infrahubs and associated project companies for a purchase consideration corresponding to total invested capital, plus SEK 12 M for the value of the platform and assets. Through our partnership with Infrahubs we have successfully contributed to the Swedish market's need for sustainable logistics solutions, and we wish Infrahubs every success on its continued growth journey. The transaction reduces our exposure to development projects and will free up additional capital for other growth investments.
Growth in assets under management
At the end of the quarter, assets under management in Investment Management totalled SEK 149 Bn, an increase of SEK 9 Bn from the start of the year. Completed development projects mainly contributed to the positive change, as well as exchange rate effects.
The Catella European Residential fund generated significant performance-based income in the quarter, although overall, variable income was lower as a direct result of reduced transaction volumes. However, growth over the past few years has increased the underlying income base from fixed management fees, which increased by 14 percent year-on-year. Capital commitments for future investments remain extensive and will largely be utilized in the funds’ development projects. Stable fixed income, capital commitments, and continued strong investor relationships mean that Investment Management stands strong in a turbulent market.
Focus on strengthening liquidity and new investments
The divestment of the logistics property in Vaggeryd was completed in the quarter, generating SEK 4.5 M in profit for Parent Company shareholders. Furthermore, the transaction increased liquidity by SEK 306 M.
We foresee limited divestments of completed projects in 2023. This is due to low transaction market activity and high uncertainty. However, we actively and continuously evaluate opportunities for new investments that meet our return requirements, mainly in co-investments with the aim of generating additional management mandates.
At the end of the quarter, Principal Investments’ investments in six countries totalled approximately SEK 1.5 Bn in 10 projects.
Advisory market remains quiet
As already mentioned, the transaction market remains hesitant. This affects all business areas, but mainly Corporate Finance. Income decreased by 38 percent year-on-year, resulting in negative operating profit of SEK -22 M (SEK 26 M). However, we expect some improvement in the second half of the year given the latent demand, although it is difficult to predict precisely how and when this will be realized.
Continued focus on value-creating investments and product development
Our breadth alongside local management competencies and a strong financial position provide us with significant opportunities. Lower valuations of potential acquisition targets provide us with the opportunity to expand our pan-European platform and to generate synergies. The dry powder in our funds provides the opportunity to grow assets under management. Our track record of navigating turbulent markets allows us to create the next generation of investment opportunities for our customers. A relatively calm transaction market also provides us the time and focus in creating long-term value in the organization. We have embarked on an exciting journey that I am eager to pursue.
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/46282