Welcome to the Catella Q1 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the CEO, Daniel Gorosch, and CFO, Michel Fischier. Please go ahead.
Good morning, everybody, and welcome to Catella's interim report for the first quarter of 2025. My name is Daniel Gorosch, Interim CEO of Catella Group, and together with Michel Fischier, CFO and Head of Investor Relations, we will walk you through the highlights of the first quarter of 2025. After the presentation, we will open up for a Q&A session, and the material and reports are, as always, available on our website. I'd like to start the presentation with a brief overview of Catella, starting on page three. Today's group, Catella Group, we are managing approximately SWE 150 billion in assets under management, with a revenue base just north of SWE 2 billion. We have operations in 12 countries, assets in 16, and this is backed by nearly 500 employees. We operate in three property-focused business areas: Investment Management, Principal Investments, and Corp. Finance.
Although real estate has had a couple of challenging years recently, we are supported by a long-term growth trajectory as portfolio allocation to real assets is increasing. Nearly 70% of our income stems from fixed recurring revenue, providing stability to the business as a whole. We see sustainability as part of conducting our business 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, and this is done through our local teams with profound knowledge of the local markets, leading to us being a true vertically integrated pan-European player. We, as a group, have a history of more than 35 years, and during that time, we have established a pan-European platform and a strong and reputable brand name.
With that brief introduction, I'd like to start this quarter's presentation with a short market summary. After three years now with declining or hesitant markets, the market is now in a recovery mode, which we can clearly see on this slide. Last quarter, we saw a substantial uptick in transaction volumes year on year, and the first quarter of 2025 showed a small increase in transaction volumes of 4% if you compare with the same period last year. Most financial fundamentals that are supporting an increased market activity have continued to strengthen during the beginning of the year, including lowered market interest rates, availability of financing, and stabilized values at attractive yield levels. As we all know, at the same time as the arrows now are pointing in the right direction, the tariff turmoil and overall increased uncertainties have dampened the transaction activity in the first quarter.
Nevertheless, we are still cautiously optimistic that we will see continued market recovery in the second quarter and throughout the remainder of the year. With that brief market backdrop, I'd like to move on for some key financial and operational highlights of the quarter. The relatively slow transaction activity is also seen in our financials, where revenues decreased by SWE 20 million year on year. Looking into EBIT, the negative outcome is explained by a number of underlying items which moved against. These will be explained in more detail by Michel later in this presentation. Furthermore, FX translation effects, as the SEK strengthened during the quarter, have had a substantial negative effect on financial net, resulting in the negative delta in earnings per share year on year.
If we then take a look at our business areas, there are a couple of things I'd like to highlight, starting with investment management. Inflows continue to exceed outflows, which is very positive, and we note that a small increase of EUR 150 million in AUM compared to year-end. Again, when translating the movements and value to Swedish krona, it shows an FX attributable decrease. Our French SCPI fund, UPECA, was placed amongst the top five performers in the market, with nearly 8% return for last year. That placement boosts our capital raising, and we saw the best quarter ever in Q1 and also continued strong inflows in April. As already mentioned, the market was slow in the first quarter, and this is also reflected in the very few transactions and disposals taking place in investment management.
If we then move into principal investments, obviously, the biggest news happened after the quarter ended when we entered into the sales agreement of Cactus Towers on May 1st, and the closing is planned to take place on May 19th. This Cactus development project started with the purchase of land in 2016, with the aim to provide modern and energy-efficient apartments for Copenhagen's growing community of young professionals, also with very strong ESG credentials. Through the last couple of years of downturn in the real estate market, Catella's strong financial position facilitated further investment and engagement in the building to reduce risk and also position the asset for divestment. We have reached that point now where we can sell Cactus at attractive levels, both to us as a seller and also for the buyer.
For Catella's shareholders, these divestments will add nearly SWE 260 million to the operating profit in 2025 after transaction costs. Further, as mentioned also during the last quarter, we have now signed an agreement with Barings regarding the residential development project Vega. The co-investment secures a long-term mandate with recurring revenue and also attractive returns, some 15%-20% IRR on the invested capital. This process started with us securing the land and designing the overall plan to develop the site. Following that, we initiated discussions with larger capital partners to invite them into the development phase and also to the subsequent exit of the project. Besides all the benefits just described, the project also limits our capital commitment and thereby also the downside in the risks.
With substantial liquidity now being freed up with the divestment of Cactus , we continue to review new products to generate shareholder value with a balance in risk and reward. Corporate Finance, the slow transaction volumes in the market were also reflected in the business area's top line and also in the EBIT. In anticipation of the gradual increase in transaction activities going forward, we took further steps during the quarter in increasing efficiency within Corporate Finance, and this resulted in one-off costs amounting to SWE 7 million taken in the quarter, but will support a more efficient and profitable business going forward. Before moving on to the business areas in detail, I'd like to reiterate our route forward and priorities for this year and also discuss our progress during the first quarter.
As we presented last quarter, and to take Catella forward, we have embarked upon a refined strategy with fewer strategic priorities to secure the capacity and also focus on the how, how to implement the strategies and priorities we see as the most important. The first one being to deconcentrate and to refocus principal investments. Looking ahead, we are firmly committed to decrease the concentration, i.e., to increase the diversification of our investment portfolio, which we are now doing with the divestment of Cactus Towers. Furthermore, we have refined the criteria for new investments. We have said that they need to be smaller in size. We have also said that they need to be more diversified as it comes to asset class, geography, and duration. Primary focus for principal investments is to support the growth of investment management AUM through funds or mandates.
We also said that the investment needs to meet hurdles, investment hurdles of 15%-20% IRR, but could be lower if it secures long and recurring fixed fee revenue. By narrowing down and focusing the use of our balance sheet going forward, our investments will fuel the growth of AUM and even further increase the stability of growing cash flows. Obviously, the sale of Cactus in the second quarter will substantially reduce concentration and risk in our balance sheet, and it will also free up liquidity to invest in accordance with our investment criteria. Secondly, even though we have made significant efficiency improvements and strengthened Corporate Finance, we believe that we can do more to improve the underlying profitability and put a structure in place to support growth.
Here, we see a clear scope to create a better joined-up business where we take advantage of our strong local organizations, but at the same time, make sure to offer a seamless offering to our pan-European clients. In the first quarter, we progressed with these improvements and took, as I mentioned, some cost to execute on this strategy. Thirdly, besides refocusing principal investments to support AUM growth, we need to continue to grow our existing funds as well as launching fewer but larger international scalable products, supported by our investment thesis that we call the Catella Health View. 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.
During the quarter, we continue to focus on business development and are preparing new products and strategies to be launched to our investors. With that said, we made some progress during Q1 and continued to build Catella based on our core competences, capital and real estate competence, to create long-term shareholder value. If we then move to the next slide to discuss investment management in detail, investment management is, as I mentioned, our largest business area and has since started showing an impressive average annual growth rate of almost 20%. Despite a more cautious market and lower interest for core fund investments, inflows continue to exceed outflows in the first quarter. As you see in the charts, the strengthening of SEK was the main driver behind lower AUM in euros, which we show a small positive development.
Last 12 months, inflows amounted to north of SWE 17 billion, split between SWE 8 billion in funds and SWE 9 billion in asset management mandates. In funds, the inflows were concentrated to residential products, and in mandates, the largest growth was seen in Finland, followed by the U.K. and the newly launched strategic equities fund, and France, which onboarded some new asset management mandates. Outflows were mainly driven by expiring mandates in the U.K. and Finland, followed by some outflows in property funds. In the quarter, we experienced similar moves with inflows into property funds and our logistics fund and onboarding of new mandates in Finland and France. Outflows during the quarter were mainly related to expiring mandates in the U.K. Overall, a small but positive development in the quarter, but FX translation effects impacted the consolidated AUM. Take the next slide.
Although fixed fees remained stable or even increased quarter on quarter, when taking FX into account, the limited transaction activity led to a significant decrease in variable revenues, actually the lowest result we've seen over the last 16 quarters. With planned acquisitions and divestments in the coming quarters, we expect this to pick up during the remainder of the year. OPEX increased slightly for the quarter, partly due to increase in variable salaries due to strong performance in 2024, especially in the fourth quarter. We continue to monitor and control costs, and for the full year, we expect costs to be at similar level as in 2024 plus inflation. Worth mentioning is that some IT costs related to the merger of the German fund platforms of SWE 4 million were taken in this quarter. If we then move on to principal investments.
As already mentioned, the largest news came after the quarter ended with the agreement to sell Cactus Towers, and the divestment will free up significant liquidity and make room for new investments in accordance with our investment criteria. Also, after the quarter ended, we signed the agreement of the residential project Vega in Copenhagen with Barings, as I mentioned, and the investment is made in accordance with our investment criteria and caps our total capital commitment to SWE 83 million over the development phase at the same time as it builds AUM and secures long-term mandates. This investment is also made at attractive returns, some 15%-20% IRR on the invested capital. The quarter in itself was quite uneventful with continued progress in current projects. Last year, we had some smaller divestments and milestone payments contributing to the top line.
The difference in revenue and also EBIT is mainly explained by no investments or milestones and also negative mark-to-market valuations in fund investments. Let's continue to Corporate Finance. As already mentioned, the low transaction activity in the quarter affects all of our business areas, including Corporate Finance. Net revenue was broadly unchanged year on year. To further streamline operation and increase efficiencies, restructuring costs of SWE 7 million were taken in the quarter, impacting the quarterly results but leading, as I mentioned earlier, to a lower cost base looking ahead. Looking at our markets, continental Europe with France and Spain showed a slight improvement compared to last year, but the Nordics with Sweden, Denmark, and Finland came in below last year. Our view is still cautiously optimistic with more closings expected to come in the second quarter and also especially in the fourth quarter of this year.
With that, I'll now hand over to Michel, who will share a brief financial summary beginning on this slide.
Thank you, Daniel, and good morning, everyone. I'd like to start by adding some color to the operating operational results this quarter, where the negative outcome of SWE 44 million is an effect of several things impacting this quarter, as well as effects that we had the same quarter last year. Starting with divestments and milestone payments received last year in principal investments, there were no such transactions in this quarter. Last quarter, we had a positive EBIT effect of SWE 70 million, which we did not have in this first quarter of 2025. Next, as Daniel already talked about, the very low transactional volumes reduced the variable income in investment management notably, and this translated into a SWE 13 million EBIT impact as well.
Also, as stock market turned sour during the quarter, this impacted the mark-to-market values of our fund investments, and this amounted to negative SWE 12 million. Finally, the quarter was impacted by two one-off costs related to restructuring, one in Corporate Finance of SWE 7 million, and another one related to IT investments stemming from the merger of our two German fund platforms. Taking all of these into account, we show a comparable EBIT compared to last year. If we then flip to the next page and concentrate on the items below the EBIT line, there is only one thing I would like to highlight on this page, and here I would like to turn your attention to the currency effects in the financial net.
The financial net was negative SWE 143 million in the quarter, but SWE 104 million of this outcome is explained by, once again, a stronger Swedish krona in the quarter, which then decreases the value in local currency of intercompany loans as well as cash held in foreign currencies. If we then continue to the next page, looking at the balance sheet and especially the financial position, we have shown this slide a couple of times, and this is how we view our balance sheet and also to help you in your understanding. End of quarter, the equity ratio stood at 37%, and our cash position was SWE 782 million. As I mentioned on numerous occasions, to prudently maintain a strong balance sheet and cash position has been key for Catella throughout this market downturn.
The slide that you see in front of you summarizes how we look at our net debt, or in our case, our net cash position. As you all know by now, the overall majority of our liabilities are related to investments and 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 to approximately SWE 3.1 billion. If we then add our current cash position of some SWE 800 million, we reach a total of SWE 3.8 billion. If we from that then deduct our market debt and financing of projects, this takes us to a cash position of SWE 1.4 billion.
If we would do then the exercise of divesting all current projects, value the cost, and other investments in funds, if that was carried out, this would lead to a negative net debt, i.e., excess liquidity after that being repaid. In this hypothetical scenario, we would still have investment management and corporate finance as revenue-generating businesses going forward. To repeat what has been said previously, it's not our ambition to divest our projects, and we will continue to invest in our existing pipeline and also invest in new projects that meet the investment criteria which Daniel described earlier. If we then turn to the next page, we took the liberty of illustrating how our cash position develops post the divestment of Cactus . As you see, the divestment of Cactus reduces Catella's investments by SWE 1.7 billion and takes us to SWE 1.4 billion in investments.
At the same time, it increases the cash position to SWE 1.7 billion and then would result in a net cash position of SWE 1.7 billion after that being repaid. With that, I think I'll stop and hand back over to you, Daniel.
Okay, thank you, Michel. Before we then conclude and open up for Q&A, I'd like to briefly summarize the quarter from our perspective. As we now have mentioned a couple of times in this presentation, we remain cautiously optimistic, and our house view is that we have the worst behind us and that the market will slowly start to recover. We've already seen the recovery phase starting, I say. Fueled by significantly improved financing conditions, lower credit margins, and an active bond market, transaction volumes should continue now to recover. This, of course, comes with the caveat of an unforeseen increase of market uncertainties.
Our key takeaways from this quarter are that we continue to do the right things and that we are making progress. AUM showed a small increase, where lower inflows in funds are matched by increased demand for asset management services. We continue to deliver on a strategy where the agreement to sell Cactus is a huge milestone in deconcentrating and refocusing our balance sheet. This divestment further strengthens our already strong financial position, which Michel just outlined, which we have managed prudently through the downturn of recent years. The divestment also enables new initiatives to generate shareholder value. As a final point, we welcome Rikke Lykke as the new CEO of Catella. I am thankful for the trust the board has placed in me to lead Catella as interim CEO, and I warmly welcome Rikke as the new CEO and president.
Rikke will assume her position after the summer on August 15th, and I will continue in my role as interim CEO until then. With that, I'd like to thank you all for listening, and we are now opening up for questions in the Q&A session.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Emil Johnson from DNB. Please go ahead.
Thank you. Good morning. A couple of questions from my side.
Starting off with the transaction volumes in investment management, I get that no deals are done until they're signed and the ink is dry and so on, but could you say anything about how long in advance you can be fairly certain that a particular transaction is going to go through in investment management?
I mean, the funds always have a clear view or plan of which assets to divest and which assets to invest in. We have a pretty clear view of which transactions are going to take place. Of course, as we experienced this quarter, some transactions were delayed, but for the year, as Daniel mentioned, we have a pretty clear view of the pipeline going forward for the remainder of the year and thus the transactional revenues that are going to stem from them.
All right.
Looking at the pipeline for the rest of the year, how would you sort of rate that if you compare that to the kinds of volumes we were seeing last year?
That's not a number that we have disclosed, so that's nothing we will disclose on this call either.
All right. Fair enough. For the next quarter, usually Q2 is a bit stronger on the variable fee side. Do you think that's a reasonable expectation considering the whole Liberation Day volatility and everything that's happened?
I mean, volumes are picking up, and of course, we have seen a wet blanket over the market over the last six to eight weeks, but we see, for example, that volumes are coming back, and especially Sweden and Nordics, we are quite an active market right now with a 12-month average of now SWE 170 billion in transaction volume in Sweden, for example.
It is a quite active market right now. Q2, as you say, is seasonally the second best quarter during the year, and I think this will be as usual with these kinds of seasonal effects.
All right. Thanks. Should we expect any further redundancy costs during the rest of 2025? Could you say anything about that?
As we have said previously, we took the majority of restructuring and severance costs during 2024. Should you expect some smaller adjustments to take place? Most likely, but those will not be the material changes which you saw in 2023 and 2024, actually.
All right. Finally, when it comes to the proceeds from Cactus, I presume at least parts of those are going to be reinvested eventually into principal investments.
In terms of the timeline for that, could you say anything about when's the soonest we could start seeing any kind of reinvestment? For example, you should not expect anything until at least Q3, or some kind of commentary like that would be helpful.
No, I mean, we continue to invest on an ongoing basis. I mean, last year, we made one investment in Germany. After the quarter ended, we invested in the project Vega. We invest continuously, but as Daniel has described, and as we have described, we aim for definitely a more diversified portfolio going forward. There will be many but smaller investments over the time horizon coming.
Okay. The new projects that you're looking at, is there any chance that any of those will come in Q2 already, or is that too early, do you think?
Vega came in in Q2.
Yeah, but looking at the ones that have not been announced yet.
Okay. Then you will have to wait for the announcement.
All right. Fair enough. Those were all my questions, but thank you very much.
Thank you.
Thank you, Emil.
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
We have no questions that came in on the written, so nothing more from us. Thank you, everybody, for listening, and thereby conclude today's session and see you soon again. All material is, as I mentioned, published on our website. Thank you, everybody. Bye-bye.