Good morning and welcome to the Catella Q2 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Christoffer Abramson. Please go ahead.
Thank you. Good morning, everyone. Thank you for attending our second quarter 2022 earnings call. I'm Christoffer Abramson, the CEO of Catella. With me today are Mattias Brodin, our Chief Financial Officer, and Michel Fischier, Head of Investor Relations and Communications. As usual, all materials, including reports and presentations, are available on our website. The recording of the call today should be available, also on our website within a couple of days. I'd like to start, like we normally do, on page number 3, by giving you a brief overview of Catella. Even though I believe most of you are familiar with our strategy and operations by now. Catella operates in three property-focused business areas, investment management, principal investments, and corporate finance.
As of the end of the second quarter, we manage SEK 135 billion in our Pan-European investment management platform. About 75% of assets under management are in property funds, and the other part in a significant number of asset management mandates across Europe. Principal investments is where we invest our own equity into a broad and diversified portfolio of European investment projects together with partners. Finally, corporate finance, which is our real estate advisory and brokerage arm, with leading positions in large European markets. Corporate finance is also an important internal advisor to our other business areas, investment management and principal investments. With that brief introduction, let's move on to page four for the key operational highlights of the second quarter. Start at the group level.
We completed the acquisition of the Warsaw Property Partners during the quarter. We're very happy and glad to welcome WPP to the Catella family. They come with a strong and well-established team in the Polish market, which adds another local platform for us to deliver growth and synergies and also investment opportunities with principal investments. We now have an approved group ESG strategy, which provides alignment and targets across Catella to monitor our progress when it comes to our environmental, social, and governance initiatives. We continue to have a strong liquidity position and no near-term refinancing needs. This provides us the capacity for both opportunistic investments and also capital to invest in profitable growth. Look at investment management a little bit more.
We continue to deliver strong growth in assets under management, adding nearly SEK 10 billion in the second quarter alone, of which the acquisition of WPP added around SEK 1.5 billion in asset management mandates. The growth in property funds added around SEK 3 billion during the quarter, evenly distributed between residential and commercial products, and primarily focused on green funds and sustainability products. Looking ahead, we have over SEK 10 billion of committed capital for investments in 2022 and beyond, which gives us good confidence in continuing to grow the business and continue to invest where we see fit. In principal investments, we completed the second and third sales of Swedish logistics properties.
There was strong interest in the assets, and this confirms the solid business model of developing modern and sustainable logistics properties with long leases in great locations. This happens even in more uncertain market conditions. The two sales generated a profit of about SEK 100 million, with IRRs well above our long-term targets. Four additional development projects that we have ongoing out of a total of 11 active projects are expected to be completed and potentially divested during 2022. The biggest project, Kaktus Towers, our two residential towers in Copenhagen, is progressing according to plan, with virtually full occupancy in the apartments as of this week and substantial investor interest in the asset.
With a strong balance sheet and a growing number of partnerships, we feel we're in a very good position to capture select investment opportunities across Europe. Finally, corporate finance. We have a strong market position in our five remaining markets following the exit of the German and Baltic operations during Q1. The Q2 transaction market, however, was a bit slower than usual as market uncertainties and somewhat of a price gap between buyers' and sellers' expectations delaying transactions. However, we continue to see a good pipeline of transactions in Q3 and so far, Q3 has begun quite well. We are observing an increased interest for debt advisory services as traditional credit markets have tightened.
We anticipate material upcoming refinancing needs in the real estate sector, so we continue to work in that segment a bit more than in the past. As a final point, it's worth mentioning that Catella Corporate Finance was the sell-side advisor on the successful sales of the logistics assets in Örebro and Ljungby in Sweden, highlighting the expertise and synergies we can utilize across the group. Now let's move on to page five, which is a summary of the group's consolidated results. Well, to start with, I am very pleased to present an exceptional financial performance for the quarter. Revenues grew by almost 80% year-over-year to SEK 861 million.
We delivered an operating profit of SEK 328 million compared to SEK 9 million in Q2 last year, and with an operating profit margin of nearly 40%. Earnings per share in the quarter was SEK 2.80, which we consider a great indication of long-term value for our shareholders. Investment management has delivered a substantial AUM growth of SEK 23 billion over the last 12 months, and in Q2, AUM grew by SEK 10 billion, a strong outcome in a relatively challenging market. Profit margin was 45% in the quarter, and we track at 31% over the last 12 months, driven both by underlying AUM growth, which increased our fixed fee generation and also by substantial variable revenues. In principal investments, the logistic divestments added SEK 100 million in group profits.
These sales were finalized on July 1st, and invested capital post Q2 now amounts to about SEK 1 billion, compared to SEK 1.3 billion at the end of the previous quarter. As I mentioned, we had a slightly slower quarter in corporate finance. You know, the bid-ask spread between buyers, sellers, price expectations, it's really buyers being a bit cautious and sellers still seeing the value that have pushed certain transactions into the future. Despite the lower revenues, corporate finance delivered a solid quarterly EBIT of SEK 26 million. Okay, on page seven, discuss investment management a little bit more in detail. Since the inception of investment management in 2015, we've delivered a strong average annual growth rate of 25%.
Year- on- year, assets under management grew by SEK 23 billion as of Q2. Of course, the growth continues to drive increased fixed fee income, which is our key underlying investment management metric and frankly, the main underlying profit driver in Catella. Last 12 months, fixed fees grew by 18% to over SEK 740 million. Last twelve months variable fees were SEK 516 million compared to SEK 426 million for the same period in 2021. The increase of 20% is mainly driven by significant performance fees in several residential funds. Investment management continues to be the main growth engine for Catella as we successfully raise new capital and launch new sustainability-focused funds and asset management mandates.
On page eight, a quick sort of deeper look into the AUM growth, assets under management, growth in investment management. We provide a broad and diversified fund offering for our clients, which continues to generate capital inflows, especially into funds with a clear sustainability agenda. Of the SEK 23 billion in AUM growth over the last 12 months, a large portion stems from inflows to our modern residential funds, again, with particular interest in sustainable assets. Notably, we have very, very strong inflows into Catella Wohnen Europa and our Article 9 dark green residential fund, Catella European Residential III. If you look at Q2, the AUM growth was both strong and quite broad from fund inflows, which in this quarter were evenly split between residential and commercial products. The acquisition of WPP, of course.
New asset management mandates in the UK and some positive currency effects due to a weaker Swedish krona. Now outflows during the quarter, albeit not so great, related to normal active portfolio management and some exit sales from completed asset management mandates. As mentioned, we have over SEK 10 billion of unlevered committed capital ready to be deployed into our funds through property acquisitions and further developments. On page nine, we have the P&L for investment management. Here we are pleased to report a 60% revenue increase year-over-year, which is mainly driven by performance fees and the underlying AUM growth continuing to increase fixed fee revenues. We delivered over SEK 200 million of performance fees from three funds that continue to deliver outstanding returns for our investors.
The net impact of these on operating profit for Catella was nearly SEK 150 million. Our growth in managed assets, you know, doesn't notably increase costs, you know, with the exception of primarily variable compensation. This really supports our expanding margins, improves the scalability of the business model, as our fixed fees grow, grew close to 20% annually, and costs certainly nowhere near that. On behalf of our fund investors, we are currently reviewing sales of certain fund assets during 2022. The ambition of any disposals at the moment is really to enable a reallocation of capital to even more sustainability profiled investments and rebalance the portfolio a little bit. We go to page 11, and we have an overview for principal investments.
We continue to invest into diversified portfolio projects in different asset classes. The portfolio now consists of 11 active projects in six European countries, which I'd say are all progressing according to expectations. At quarter end, we had about SEK 1.4 billion of equity invested. As mentioned, following the logistics sales in Sweden on July 1st, invested equity amounts to around SEK 1 billion. Our projects sold to date have generated an average IRR above 50%, well ahead of the long-term target of 20%. Of course, I should point out 50% is not an indication of where we think the market's gonna continue, but, so far so good and we continue to see great projects in our pipeline.
Total revenue for principal investments was SEK 242 million in the quarter, of which SEK 160 million related to the logistics sales in Sweden. Other revenues related to the development companies, Catella Logistic Europe and Catella Project Management, which were both as of the first quarter this year, included in principal investments. Operating profit for the business area was SEK 102 million, of which you know, the two Swedish logistics sales generated virtually all of that. On page 12, we continue with a little bit on principal investments portfolio. As we've mentioned on prior earnings calls, 2022 is a bit of a harvesting year for principal investments. Already three of seven projects have been finalized and divested.
The investor interest remains strong, and it shows really the value of the assets we develop and the importance of having platforms, creating a pipeline of projects across asset classes and markets. The next two Swedish logistics assets will be coming to the market shortly, and the large Kaktus development in Denmark is, as I mentioned, generating significant investor interest at the moment. Looking ahead, we see a solid pipeline of opportunities meeting our IRR requirements. We are, of course, very closely monitoring the construction cost inflation and interest rates at the moment.
You know, we have a lot of intelligence through our corporate finance arms across Europe and we will not change our underwriting requirements just to keep investing, of course, but rather keep finding the right opportunities with our partners at the moment. You know, this market movement creates interesting opportunities. Examples, two recent U.K. investments at the bottom of your page are good examples of this, where we see long-term potential and we can use our Catella APAM team to execute on these pretty complex plans. That is exactly what they do and what they're experts in. Okay, on page 14, let's focus on corporate finance.
Catella Corporate Finance maintains a strong market position in all remaining five platforms and markets, and we are no longer negatively impacted by loss-making platforms. As mentioned, the current market uncertainties and a bit of a bid-ask spread between buyers and sellers price expectations have been and continues to push some transactions forward in time. Despite this, Corporate Finance delivered a solid EBIT of SEK 26 million. Excluding the Q1 restructuring costs in Germany and Baltics, which we talked about last time, the year-to-date EBIT is really on par with a very strong 2021. We continue to see a good pipeline of transactions and an increased interest for debt advisory services as traditional credit markets have tightened. We look forward to working on upcoming refinancing needs in the real estate sector. I now hand over to our CFO, Mattias Brodin, to cover the financial summary beginning on page 16.
Thank you Christoffer. Let me briefly cover the financial summary, focus on below the EBIT line items. As Christoffer already mentioned, the strong quarterly operating profit was driven by investment management and principal investments, leading to a very strong operating profit of SEK 328 million, corresponding to a margin of 38% compared to 2% year-over-year on a group level. I would once again remind you of the line deduction of profit attributable to non-controlling interests. According to IFRS accounting standards, before we consolidate all income from companies with controlling influence. In order to highlight profit attributable to Catella AB's shareholders, we adjust for profit attributable to non-controlling interests. For example, all of the revenues from the sale of Örebro was recognized as revenue, but SEK 58 million was then deducted in order to disclose our share of the profit.
Turning to financial net, we noticed an improvement from last year. This is mainly driven through the implementation of an improved in-company lending structure, as well as positive currency effects, primarily from the weakened Swedish krona against euro. As a result of the strong quarter, earnings per share increased to 2.8 SEK year-over-year, compared to - 0.52 last year. Continuing to page 17, where we look at our financial and liquidity position. Catella continues to have a strong balance sheet and equity ratio supporting our future growth plans, both in new investments and for potential M&A activities. Compared to last year, total assets have increased by over SEK 1 billion- SEK 5.6 billion. The increase is related to additional and new investments in principal investments.
Liquidity at the end of the quarter amounted to SEK 1.4 billion compared to SEK 1.1 billion in previous quarter. Reported liquidity does not include sales of Örebro and Ljungby, and taking this into account, the liquidity is at SEK 1.8 billion. As seen, the past year's increased utilization of excess cash has taken us to a more efficient balance sheet position, reducing excess cash to generate returns for Catella and shareholders. To conclude, it is worth noting that we have no short-term refinancing needs and that we have a good capital position to further explore both long-term investments and opportunistic possibilities supporting profitable growth. That was all regarding Catella's financials. Back to you Christoffer.
Thank you Mattias. Before opening up for Q&A, I would like to briefly summarize the quarter from our perspective on slide 19. We are pleased to deliver an exceptionally strong second quarter for Catella, and we're heading towards one of the best years in the history of the company. It's an exciting time, challenging times, but exciting times. I think, you know, with our partners across Europe, we are well-positioned in this market. The strategic steps taken last year, creating a property-focused company built on three business areas and internal synergies, is paying off. We're pleased to keep adding excellent platforms and more investment partners across Europe, which is really the growth engine that we use.
Investment management continues to grow steadily and has over SEK 10 billion in unlevered committed capital to support further growth opportunities. The acquisition of WPP was finalized, and we're excited to welcome a strong team and a well-established company to the Catella family, in an exciting market, in Poland, where we see big investment opportunities and positive demographic trends. Our ESG strategy was approved and harmonizes our long-term ambition and goals across subsidiaries and business areas. We also continue to be both encouraged and immensely proud by the strong investor demand for our sustainability-focused funds. The transaction market has slowed down somewhat given the current market climate, but corporate finance sees a good pipeline of opportunities looking ahead, and we are developing our offering in debt advisory services.
Further sales from our Swedish logistics portfolio supported strong results in the quarter, and we see substantial investor interest in our ongoing investor projects across Europe. When investing from our own balance sheet going forward, we will do so with both focus on new platforms to generate revenue streams for all of Catella, but also on being ready to make the right material opportunistic investments in this evolving market. With that, I would like to thank you all for listening and opening up and opening it up for questions. Thank you.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from the line of Jesper von Koch from Redeye. Please go ahead.
Hi gentlemen and first of all, congratulations to the very strong quarter.
Thank you.
My first question is regarding principal investments, where you say that you will take a more cautious stance for new investments. If you could just elaborate on your plan there in the current environment.
Yeah, I think cautious is one word to describe it. It's more w e have to be more focused. You know, not saying we're taking our foot off the accelerator, but we have to be more cognizant of the market. If you look at price expectations, which we see in Corporate Finance, the spread makes it somewhat more challenging to take a step forward. Look, we have great partners, and we trust and rely on their expertise to find the right opportunities. As you know, and as you can see on page 12, the continued focus has been, you know, we've made some relatively large plays compared to the overall portfolio in the U.K., where we have a very strong team.
They're specialists in certain types of assets, conversion mandates and development mandates, which are long term. Where I would say we would be more cautious in the short term is quick development projects or arbitrage opportunities. That market has softened. It's harder today to just buy a piece of land, develop something, and sell it in a forward market. That market is a lot tougher. What we are doing instead is focusing maybe a little bit more on longer term higher value and with even more potential. It takes a little bit more time and patience to do the right investment. That's not to say that we change our philosophy. It's where we see the most value today for Catella shareholders.
Okay. Good. Thanks. Regarding the underlying portfolio in investment management and its valuation, especially in the property funds, what I'm wondering is regarding the potential cushion in the valuation. Basically since you don't value the properties from a certain yield, but rather the revaluation first becomes substantial when you divest the assets. If you could just talk about this and how big that valuation cushion might be.
Yeah. I think, as you know, we don't provide a forecast, and I think it wouldn't be prudent for us to suggest that the valuation rules that are in force for portfolio evaluators are wrong. What we see is that, as you know, in an upturn, you know, cash flow valuations are a bit slow-moving. Having looked at the last two quarters of executed sales, clearly, they've delivered a significant upside compared to the portfolio value, the book value. That has, however, you know, changed the valuation in some of the funds because the valuators have to take into consideration recent sales.
We see an uptick, but clearly, we consider this as the first movement of recognizing what we think is a substantial buffer in our portfolio. You know, which would be good, great if the market turns, and it's gonna be even better if the market continues where it's going. You know, I don't wanna put a number around it, Jesper, as you know. I think, you know, recent performance and recent sales have changed the valuation somewhat. It shows that we do have underlying values in a lot of our portfolios that would be realized if we sold today.
Great. Thanks for that answer. Just considering the uncertain macro environment and with like high energy and financing costs and also building materials and so on. Have the preferences from investors has that changed anything from for your like investment management part?
I think a lot of our investors are looking at it similarly to what we mentioned about principal investments, that you have to be a little bit prudent in the short term when it comes to quick deals, quick developments. You know, what we are doing on our own balance sheet is being a little bit cautious, as I mentioned, in the near term of starting developments or accelerating developments because we anticipate that the markets will, you know, stabilize a little bit. We need better visibility. Our investors, you know, we have had no capital outflows. We've had a few conversations where investors say, "You know, at the moment, maybe we'll hold off a couple of months just to wait out the market." We agree with that.
What we're doing is also looking at the alternatives, and the alternatives are really moving into sustainability focused assets. To deliver real high quality green and sustainable assets, you know, with few exceptions, they have to be modern. They have to be new. There's still a need for continuous developments. It just matters of being in the right location, and being prudent in your underwriting, which we of course always are.
All right, so more into the, like, sustainability focused assets. Then, I mean, you said that you were evaluating selling some of the assets in the property funds if I understood correctly. Is this in any particular area?
No. We have started in certain areas, but it's a broad assessment. You know, we look at our portfolio. We've had great portfolio management and great asset performance over many years. We continue to look at portfolio management and reallocation of capital. Today, what I would say is that we're taking a bit more detailed view on assets where we think we would struggle without spending too much money or time and effort that we don't have in those particular mandates to convert these assets to a green enough standard or sustainable enough standard that we'd prefer. I think we have much better opportunities to deploy the capital in sustainable focused assets. We're not talking about massive drastic sales here.
We're talking about an assessment across the board and a reallocation of capital away from assets that will frankly be in better hands with another buyer who can put a bit more effort into conversion, and we continue to invest in assets that fit our profile.
Great, thanks. My last question to Mattias is about like your current tax rate in the quarter was at a low 21%, but naturally lowered by the zero or close to zero tax from the Infrahubs divestment. What would you say that the normalized tax rate for investment management and corporate finance is now, and how much left is there to do to improve your general tax rate?
Well, I would say reviewing or looking over all the countries, I would say it's without the capital gains that pushes down the sort of taxes. I would say around 30% will be the normalized because that's sort of the taxes that we do have overall in each country. I would say around 30% would be the normalized value. Then of course, depending on our success in capital gains and principal investment, that pushes the tax rate down.
Okay. If I understand that correctly, the 30% is nothing that you're like working on to improve further, but that would rather stay at around 30%?
I would say so because it's depending on sort of each country's tax structure. We do see some trends in our sort of markets l ike France that they actually the company tax goes down. I would say around 30%, perhaps a bit lower. We do work with this continuously, so we try to be more efficient as efficient we can then, but it's depending on each country's tax legislation of course.
All right. Thank you very much. That's all for me.
Thank you Jesper.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your telephone. There are no more questions at this time, and I hand back to Christoffer Abramson for closing comments.
Okay. That was a rather brief Q&A session this time which means I hope that our presentation was clear enough. As always, if you have follow-up questions, please reach out first to Michel as our investor relations contact. We are happy to answer and clarify any questions that we can. We thank you all for your time today and look forward to speaking with you on the next call. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.