Adler Group S.A. (ADJ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Adler Group Investor Corp live webcast. I am George, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Julian Mahlert, Head of IR. Please go ahead.

Welcome, everyone, and thank you for joining us here today. My name is Julian Mahlert, and I am Head of Investor Relations and Public Relations at Adler Group. Following our publication this morning, we would like to use this call to inform you on first, the publication of the audited consolidated financial statements and annual accounts for 2022 and 2023 of Adler Group; second, the recently completed comprehensive recapitalization of the group; and third, changes in our Board of Directors and senior management. Along with me, as always, we have Thierry Beaudemoulin, CEO of Adler Group; and Thomas Echelmeyer, CFO of Adler Group. Both will guide us through a few slides, followed by a Q&A session. You can find this presentation on our Investor Relations website under other publications. And as a last remark from my side, please let me remind you that this call will be recorded. With that, Thierry, the floor is yours.

Thank you, Julian, and a warm welcome from my side. As our Chairman, Stefan Brendgen said to the media earlier, today mark an important day in the company's story. Today is the beginning of a better future for Adler. We fully audited financial statement and with a solid financial structure. With this, Adler Group can execute strategy in the interest of all its stakeholders. With the completion of the audit processes of our consolidated financial statement and annual account for the years ending 2022 and 2023, including and I wish to stress this explicitly and qualified audit opinion. Adler can finally close the books on these 2 past fiscal years. With this, we have fulfilled what we have promised since April 2023. As you may know, the previous published consolidation financial statement for the year '22 and '23 had been unaudited. This was due to the fact that our then auditor, which was mandated to the audit for 2022 financial account and expectedly informed Adler Group in May 2022 that it will no longer carry out the audit. Since then, we did all and everything to engage a new auditor. The outcome is summarized on this slide. As communicated last year, we not only mandated one auditor but a total four audit companies, AVEGA Revision for the Luxembourg-based Adler Group S.A. and three other audit firm for the audit of the subarea relevant to the group, the so-called component audit. Rödl & Partner for ADLER Real Estate AG, now ADLER Real Estate GmbH, Morison Köln AG for Consus Real Estate AG and Domus Steuerberatungs-AG und Wirtschaftsprüfungsgesellschaft for the individual statement of the German property company of Adler. It was in our own interest to provide all data request by the audit firm even beyond the level required for usual financially. We didn't want to leave any question unanswered. The result of the audit process in how the reward of this considerable effort. It is therefore my privilege to express great thankfulness for all of the one involved over the years. However, there is one person, which I would to thank individually my colleague and CFO, Thomas Echelmeyer, who led the audit process besides many other ordinary and extraordinary financial project. Now I would like to hand over to Thomas.

Thank you, and a warm welcome from my side. Please allow me to comment on general aspects, which I consider important from a CFO perspective. First, about the outcome of the audit process, as you can see on Slide 3. We managed it to overcome a totally unprecedented situation in Germany of being a stock-listed company, not having an auditor and having to publish two unaudited annual reports in the world. The outcome can make us proud, publishing our audited numbers without any restatements in the 2022 and 2023 accounts proves the quality of our work and of our numbers. This goes also for the 2022 annual report of our subsidiary, ADLER Real Estate. And let me add explicitly what the Chairman said to the media earlier today, the completed audit processes were not only very time consuming because of the coordination between the four audit companies involved. Moreover, the entire audit procedures were more extensive than you would see it in any other financial audit. And all of this had to be done next to the daily operational finance business, too. Therefore, many thanks to everyone involved. Moving to the next Slide 4. The completion of the recapitalization we communicated to the market around 10 days ago. There is only one additional comment from me on this. Over the last 2 years, the teams managed 2 financial restructuring processes in a highly difficult capital market environment. The details of the comprehensive recapitalization you can find in our recent disclosure. Of the last 2 years, they have been a perfect storm in our industry and has forced us to reassess the initial 2023 restructuring plan. And in a nutshell, to prolong our bond maturities beyond 2026, 2027 and to recapitalize the group. As I said, the outcome is very positive news for our company, and we can now move on with our strategy. Back to you, Thierry.

Thank you, Thomas. The new financial structure provide us with a solid foundation for the years to come. Let's now proceed to an update in senior management on Slide 5. As we announced this morning, Thomas will leave Adler group. I can join in what our Chairman said to the media. Without Thomas, we would not probably not sit here today. Adler Group owes a lot to him, but with his mission completed, Thomas has reviewed his long-term personal perspective and decided to step down as CFO and Board member with immediate effect. Thomas will remain with the company until the year, allowing a smooth transition period over to the new Group CFO, Torsten Arsan, who will join the senior management team as per 1st of October. Torsten is a finance and real estate expert with more than 20 years' experience in the industry. Thomas, would you like to add something here?

Yes. Thank you, Thierry. Also for your kind words. Over the last 2 years, we all have had many, have you ever heard something like this before moments. For a longer-term perspective, which Adler now has, the Group needs and deserves a CFO for the longer term, too. However, my personal midterm perspective is different, but Torsten Arsan can provide the longer-term commitment. Torsten is a proven finance expert and executive in the real estate industry. Give him a warm welcome as you did to me. For me, it is time to say thank you very much for the constructive dialogue over the past 2 years. And with that, back to you, Thierry.

Thank you, Thomas. The completed audit are an essential condition to proceed with our long-term strategy. It also comes at a good time. Central banks around the world have and will continue to either interest rate regime and inflation has come down significantly. This is all very good news for the real estate industry and for Adler Group too as we announced recently with our Q2 figure, our portfolio value decline has significantly decelerated, and we expect a stabilization in the valuation of our yielding assets. While we now have less immediate pressure to assess portfolio disposal, Adler will continue to be an active partner in the market. We sold the Wasserstadt portfolio in Berlin and a development project to the city of Leipzig, and we are in constant discussion to assess disposal of further development projects. We are focusing more on our residential efforts. We have reconfirmed our full year 2022 -- '24 net rental income guidance with our H1 result. Generally, the outlook for our sector is much better than it was 2 years ago. So battery is an important description because it was worth to have work many towers to get all this done while running the daily business too. With this, I hand over to Julian.

Thank you, Thierry. And with that, back to George. Please start the Q&A.

[Operator Instructions] Our first question comes from Armin Akhavan with Schonfeld Strategic Advisors.

Can you hear me?

Yes, we hear you.

Okay. Perfect. Can you just confirm if from a business plan perspective, you're still intending to prioritize selling down developments before yielding assets? And could you please give an update generally on how you see the market for development assets at the moment, transaction market? And generally, if you made any progress over the last couple of months and if there's anything that is far progressed that we should be expecting?

So our strategy is to focus on building yielding assets. So that's why we are prioritizing the sales of our development project. That's true. So we have successfully sold in the past month a project to the city of Leipzig and there are a few more transactions in the pipeline. We are also disposing our stake in BCP, which is not also a strategic one. The market is getting better with better prospect in terms of lower interest rate, in terms of more appetite for investment. From a long-term point of view, yielding development effects are very attractive, because it's a low new build. These are ESG-compliant project. Nevertheless, investors are still cautious with development risk. So I think things are getting better but development assets will recover after yielding asset. But nevertheless, our strategy is to dispose the development asset because we did not intend to build it. So that makes more sense for the city and for all our stakeholders, that new developer and new investors are coming on board.

Okay. So would you generally be open to selling some of the Berlin assets as well? Or is that really not something you would do? And then you already touched upon BCP, I think you've been trying to sell that asset for or that stake for a little while. Could you maybe also give us an update on where you are in that process and if and when you expect to announce the transaction.

So the recapitalization, which we just announced give us enough time to assess the best opportunity. So there is no rush to sell anything, and we have enough time to see that. So we -- our priority for the moment is a development asset in our stake in BCP. And we see more and more interest for -- I was taking BCP and for yielding assets, but we have time to choose the best option for the group. For BCP, we expect to see progress in the course of '25. And also in development, we expect to be able to announce additional transaction in early '25.

[Operator Instructions] There are no more questions by the phone. I hand back over to Mr. Beaudemoulin with -- for closing remarks. Sir?

So thank you to have been with us today. So as we have stated. So there was a very good news with the completion of recapitalization, we've published audited accounts. So we look forward to continue to give you an update on our strategy, and we will speak in the next publication. Thank you.