Taaleri Oyj (TAALA) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us for Taaleri's very first Investor Day. This is a virtual event, and we are broadcasting live from Helsinki, Finland. My name is Siri Markula, and I'm responsible for Investor Relations Communications, Sustainability and brand at Taaleri. I will also be moderating the questions and answer session at the end of this event. Taaleri has been a distinctly finished company in the past, and the vast majority of our shareholders have been domestic. However, our current business strategy is increasingly international. We have wind and solar projects, for example, in the Nordic countries, in Europe and in North America. You will also hear about our international team and our international fund investors. The number of our shareholders has grown by 60% since the beginning of last year and we wish to welcome more shareholders on board also from abroad. We hope that this event will provide a compact and clear insight into Taaleri and into our strategy and its progression. This event provides you with a chance from here from Taaleri's executive management team and you can also ask them questions. Our representers today include Peter Ramsay, our CEO; and Minna Smedsten, our CFO. In addition, our business leaders will share their views on their business areas and demonstrate their strategy for accelerating Taaleri's growth. You can find the presentation material on our website under the Investors section on the Reports and Presentations page. We will have 1 Q&A session today at the end of this event. We expect to finish in about 2 hours' time. You can ask questions throughout this event by using the question form on the webcast platform. And the questions will be only visible to the moderator, and I will address them to the presenters. But without further ado, let's get started, and welcome our CEO, Peter Ramsay. Peter, the floor is yours.

Hi. Thank you very much, Siri, for good introduction. My name is Peter Ramsay, and I've been the CEO of Taaleri since December last year. And I aim to shed some light on Taaleri as an investment and hopefully increase the understanding of our business activities and why we have -- we think we're going to succeed in our chosen path. Briefly on myself, I worked in the investment banking and investment community for over 30 years. My last assignment was with a big-sized family office as their Chief Investment Officer and Chief Financial Officer. Taaleri's history started in 2007 as an asset management business. We sold the wealth management part to Aktia, a local savings bank, a year ago, and we struck a strategic distribution agreement with them. So they take care of our Tier 2 and Tier 3 distribution in Finland. If we look at our headline here, we say impact through alternatives. That, of course, means a lot of things. But coming from the Nordics, one could say that we have been 4 runners in the world when it comes to both impact and the circular economy. And 2019, I went to a seminar where the key note speaker was the former Foreign Secretary of the United States, John Kerry, and I was very surprised because he was talking a lot and actually only about impact and the circular economy. First, I thought it was a PR stunt. But when the stage later, the next speaker was David Rubenstein from Carlyle, and he was also addressing the same issues. I felt that there might be a seismic shift taking place. And actually, I think there has been a huge change since that given moment. And if we look at the business lines that we are engaged in, they all address impact in one or another way. First, our renewable energy business. It's quite clear that the reduction of carbon dioxide in this -- in the atmosphere, is very much driven by renewable energy. The same thing goes for bioindustry efforts, that is our second business line. And then our third business line, which is real estate funds, there we typically have built housing and residential funds, vintage funds. And of course, their impact is that they then cater to the needs of those who need residential living. And finally,Garantia, which is our credit guarantee business, the impact comes through the way as they mainly grant mortgage guarantees, so they enable people to get mortgages to the extent that they don't have collateral themselves. Well, many things are dependent on timing. And I think the 2019 event for me was a big -- a huge change when it came to the speed of development. So I do think we have tailwind and acceptance for the activities we're engaged in today. If we look at the megatrends that affect our businesses at Taaleri, I think one obvious one is climate change, where both our renewable energy and our bioindustry is directly linked to creating solutions. That do help reduce carbon dioxide in the atmosphere as well as other bad substances. Electrifications, we all know the ambitions for electric vehicles and other such solutions. And there, of course, the renewable energy business caters to that need. Consumers have always had changing values. But I think for the last 10 or 15 years, it's been quite clear that they want to know from where their products come from, how they are produced, what the raw materials are, et cetera. And I would say that our bioindustry, in particular, addresses these issues. And when it comes to the fourth megatrend urbanization, the residential housing funds that we put up definitely helped in this development as well as the guarantees on the mortgage loans that we provide through Garantia. Here's a picture of how -- I think this is a shell who has produced it sees the need for electricity in the future. And I think there are a few things to take away from this picture. One is the light blue proportion, which shows the renewable share of the energy production. The other one is how nonfossil fuels will replace those that are fossil today. And finally, we see that the red line is going much higher than the production, and that is, of course, productivity gains that is expected from any electrical appliance you use in the future. But there is really good tailwind. And if we look at the sort of the shift here, it just seems to start when it comes to renewables according to this estimate. Our strategic road map is the following: we have chosen, since we sold the wealth management business to focus on impact and renewables. And this is very important to notice. I think Taaleri has been known for being a sort of a forerunner in investing in various business lines. But now we have chosen our sort of battleground. And there's is the old saying that pioneers take the arrows, settlers take the land. And I think Taaleri, to many extents, have been a pioneer. We have some arrows in our skins, but now we have decided to be settlers. And in particular, the renewable energy business is a quite clear example of this, where we are growing already internationally. So the question is, can we grow from Finland as a base internationally viable businesses? And then we move to our next sort of strategic goal, that is growth. Growth is quite clear when you look at the tailwinds that hit our business lines currently. But I think growth is also important since we're in this very rapid growth phase. We do need to attract talent, and we do need to be able to retain talent and it makes more sense to have a bigger business because that will enable us to do that in a sensible way. I think also when it comes to the procurement chain, the growth does have its impact in the sense that we will become a more important counterparty to our suppliers and sub-suppliers when we are -- have bigger business. So we're trying to build critical mass here, which is important to note. And then, of course, if we think of the situation we are in when it comes to these business lines, they are in different phases of their -- or stages of their growth. I'd like to use 1 metaphor and it goes to a book that I read about 10 years ago, which is called The Second Machine Age, written by 2 professors at MIT, Brynjolfsson and McAfee. And the hypothesis is quite simple in that book. They say that it takes about 30 years for a new technology to outpace the old technology. They start with the steam engine, took about 30 years before they stopped blowing up and were dangerous and then they sort of beat the horse on every scale and never look back. Electrification had basically the same development, took about 30 years to make it safe. So the buildings didn't burn. But then after that, people didn't use any more oil or kerosene for lightening up their houses. And then they move to digitalization, about the same thing there, 30 years from when the PCs came to the market where digitalization really took speed. And today, we take it for granted that everything is on our mobile phone. It wasn't that 15 years ago. And so then we come to the renewable energy business. And of course, there, if you look back 30 years, you needed subsidies. They were not competitive from a price point of view, the wind farms. But today, they are actually -- marginally the cheapest production of energy in certain places in the world. Same goes for solar panels. And this might also be the case for some of the bioindustry things that we're engaged in today. Now finally, if we move over to the returns, if we are successful and we make good returns for our clients and our funds, it will grant us bigger funds, and it will also grant us some performance fees and thus, that will then trickle to our shareholders in the form of returns, right? If we go from megatrends to more concrete and tangible market trends, we are investing in renewables since we think they're highly attractive. I think I mentioned already a couple of things when it comes to the CO2 reduction. But then we have other -- also initiatives, taxonomy in Europe. You have the green deal in the U.S. So there are several things that are pushing this business ahead. Of course, this will mean that there will be bottlenecks for the businesses. But I think when you look at our business mix, and Kai Rintala will later take you through that, is why we think that we have a good chance to orient through this as well. Then another trend which is visible is that people still want to invest in alternative funds and alternative investments. And one of the reasons is, of course, diversification. if you look at it from a top line perspective, you can diversify your portfolio by also going into alternatives. But I think another important thing is that you can expose yourself to investment themes or particular investments through alternatives better than you can do through the liquid markets. And that is also driving the demand for alternatives. The third thing, which is over time evident is that there is growth in wealth in the world, and that wealth has to be invested somewhere. And typically, it is invested where it makes sense. So that's also a good trend to be aware of. Although right now, we might have a situation in the capital markets where we're taking a breather. But over time, we know that there's a growth in wealth. Finally, I would say, and this has maybe been accentuated after the war in Ukraine is the fact that people want to have security in their energy supply. They want to have energy reliability and they also want to have energy independence as well as they want to get rid of fossil fuels. And that does cater to what we're doing today. Here's a chart which shows a survey where people asked their interest in alternatives and investing in alternatives. And based on this survey, there seemed to have been a demand of about 10% increase for the 5 years from 2020 to 2025. And -- for us, maybe it's a little bit more relevant to look at the subsectors. We've chosen here real estate infrastructure and natural resources. And there seems to be good appetite for those subsectors albeit in this survey, it looks that investors have chosen to go more for the liquid end of the spectrum than the illiquid. Our business logic is the following. On the right-hand -- left-hand side, we have our private equity funds and business lines, renewable energy, real estate and bioindustry. On the right-hand side, we have our credit guarantee business, Garantia. On the left-hand side, if we look at the private equity businesses that we have, there's a lot of synergies in between these businesses. We can use the same administrative platforms. We can share our best practices, and we can also share our distribution. As I told you earlier, we have a distribution agreement with Aktia. They take care of our Tier 2 and Tier 3 distribution in Finland, and we take care of the Tier 1 as well as the international distribution. If we go back to Garantia and look at their business, it is very profitable today. It's been with the groups as 2015. They've totally transformed the business, so there is mainly mortgage guarantees today and they're much more capital efficient than they were when they joined Taaleri. And finally, on the top, we have what it says Taaleri, we have some own investments, old investments that we call nonstrategic, which we are, over time, going to dispose of. Their value is about EUR 30 million currently, book value. Our strategic priorities, we have lined up 4 of them, and I will take you through them in the following slides. So these cover the years 2021 to 2023. And as we said, we put impact on renewable energy at the heart of our operations. And I think the most critical elements are, of course, the changes that we see in the megatrends that drive these that are very key and quite clear in the core of our doings. We say here that we have realized emission reductions of 2.1 million tons of carbon dioxide since we started the operations in renewables. Number, good to remember. Second thing is we talked about scaling our businesses, and we want to scale them so that the business lines can use the same administrative and other functions. But as well, as I talked about the growth earlier, the scalability cannot come on cost of quality. So we have to be very aware of quality and scaling with that in our mind, will actually lead to the best possible result. Then third, we've said that our sales is key also going forward. Now I talked about the strategic relationship with Aktia. We've also hired our own new Head of Sales, and our focus going forward will very much be on the Tier 1 and international distribution. And finally, after the sale of the wealth management, we're slightly overcapitalized. We have said that over time, we will optimize our balance sheet. I think currently, it feels okay to be a little bit over solvent than the other way around. If we look at our sort of strategy, we say that it's built on our strengths. And we are different in many ways. We have, I mean, a diverse offering. It's it's very sort of focused. We've chosen our battlegrounds there. We have integrated the way we work. We try to get scale out of our platform. But finally, and maybe most decisively, we call us a player with our end-to-end expertise. What does this mean? It means that we not only manage assets, we develop them, we finance them, we build them and then we operate them. Finally, we exit them when they come to the exit phase. But the end-to-end is maybe something that differs us from many other players. If we look at our strategic road map for the group and concrete actions that we are focusing on, we talked about the distribution with Aktia that is very important. Then this year, the new renewable energy business line will launch their third SolarWind fund. And we are continuing to exit nonstrategic investments. And finally, we have a tall oil factory that is being finalized in Hamina, Southern Finland and they will become operational in the second half of this year. Next year, as I maybe earlier mentioned, the international sales operations will be grown and then also the SolarWind fund within the renewable energy. SolarWind III will have their first close. And in Garantia, they will scale the portfolio guarantee models and hopefully strike some new strategic partnerships, maybe as well, both in Finland and maybe as well abroad. 2024, pretty much the same as in 2023, but then we might venture into Biocoal fund in Canada. How does the business logic then transfer to income logic? Well, on the left-hand side, we have this recurring, stable, continuing earnings and they come -- they are a function of the amount of assets we have under management. And then on the right-hand side, if we are successful, we will receive performance fees. And as we sell down our balance sheet, if we do it successfully, we will also gain profits from that. And of course, this all transfers into shareholders in the form of dividends eventually. But Minna Smedsten, our CFO, will take you more in depth through this. Our long-term financial targets. We've said that we want to grow our continuing earnings 15% per annum. We want our EBIT margin, our operating profit to be over 25%, and we want to -- our return on equity to be over 15%. These are our long-term targets. I don't have to be delivered every year, but they have to be delivered over time. And then we have also said that we distribute at least 50% of our annual income as dividends and also our surplus capital that we don't need for activities will also be returned to the shareholders. If we take a quick glance at our numbers from last year, our turnover was EUR 70 million our operating profit, EUR 31 million, and we are just slightly over 100 people full-time employed at the company. And on the left-hand side, there's a sort of a time line over Taaleri where you can see that we were funded in 2007. And then a lot of things have happened in between. But of those may be worthwhile mentioning is Garantia that we bought in 2015. Taaleri Energia was formed in 2016, and then we sold our wealth management business last year. And here are the -- if we focus on the income side, first, on the left-hand side here, we see the continuing earnings at the far left, then we have the net performance fees. And we have the net income from our insurance guarantee business and finally, our net investment income, which also includes the portfolio that our -- that Garantia holds, but roughly 1/3 on each pillar. So on continuing earnings on the Garantia net fees and on our investment activities. Naturally, over time, we want to drive the left-hand corner higher. Here's a graph on the right-hand side, which shows our operating profit for the last 12 months. At the end of March, it was 38.5%. And on the left-hand side, we can see the distribution between the continuing earnings and then other, then continuing earnings. And the dark blue is the continuing earnings and the light blue is the other income, and this is also the last 12 months. Other income here is performance fees and investment income. This is our share price development. We were listed on the stock exchange in 2014, and Minna Smedsten will also take you through, a little bit more through the evolution and the history of how we have returned funds to our investors. So what do we say? We strive to be a Nordic forerunner in alternative investments focusing on sustainability. And this is truly our goal. We have a very skilled and an ambitious personnel. I mean that's the most important resource we have. And it is the prerequisite for being successful here is to hire and retain the best in each field. This, of course, takes a lot of footwork to take us where we're going. But I think we have the right culture for that. And if we look at our values, which we renewed this spring, it also tells the level of our ambitions. And one of our values is dare to succeed. And I think that tells a lot about what our people think that -- or how they feel that they will be able to go forward. And I will actually hand over to my skill and ambitious colleagues from here on. And the next one is Minna Smedsten, so please. Thank you.

My name is Minna Smedsten, and I'm the CFO of Taaleri. I joined Taaleri already in 2013 when we got listed on the First North. I will show you today why we have chosen to focus on continuing earnings and how this is visible in our strong returns. Peter just summarized our ambition to be a Nordic forerunner in alternative investments with focus on renewable energy and sustainability. We have set 4 strategic priorities. And the first one is to focus on renewable energy. Second one, to scale our business, expand our sales and improve our balance sheet efficiency. Now I would like to go through with you more in detail, our earnings logic and how the growth in continuing earnings, improved performance fees, balance sheet efficiency, improves our returns to you as our shareholders. Let us start from the most left-hand side that is from the growth in assets under management. So here, you can see a typical step up for our funds. So basically, we will get a stable return of management fees during circa 10 years. And at the end, when we reach their set targets for the fund, we will see performance fees. The performance fees are naturally then linked to the set targets that is called the hurdle rate. And the performance fees can easily exceed 2 or 3x the management fee on an annual basis. If you then look at our model, that is where you manage many funds and you launch many funds. You will see a naturally increasing amount of management fees. But the most importantly, you will also see more recurring performance fees going forward. So the larger the fund is, naturally the larger the performance fees will be. And those are then -- when you exceed 10 years period circa then you will see more of these performance fees coming in. Then a word about our assets under management and how they have developed. So we changed our strategy last year when we sold the wealth management business. And when you now look at the development of our assets under management, you can see that they have grown from -- or basically, they have doubled to EUR 2.2 billion from 2017. And that is an increase of 21%, that is quite impressive. If you then take a look at our fund performance. And here, you can see the net IRR that is for the funds that we have exited and it's 11%. And the net IRR of 11% is the annual growth rate that our funds and co-investments have generated to the fund investors after deducting our fees. And if you look at the money multiple or the total value paid in, our number is 1.6x. And it means that basically, if you put in EUR 1, you have basically got back EUR 1.6 from the funds. Now let's turn back to our earnings model and take a look at what we actually have received income from. So basically 2/3 of our income has come from continuing earnings and 1/3 has come from performance fees and investment income. On the right-hand side, you can see the funds that we have exited. So basically, the assets under management that we have returned to our investors, and also the profit that we have then shared to our -- or basically, the profit that we have made during this period. And there are actually 2 things that I would like to point out from this right-hand side picture. And it's the performance fees of Wind II and III that we announced last year that we estimate to be EUR 20 million. They are not included in this picture because we haven't exited them yet, so they will then come along when we exit the Wind II and III. And there's another thing also. The light gray bar, most to the right. That's the data center exit that we also announced during April, and we expect that to be realized now in Q3 once we get the approvals from the authorities. When you then take a deeper look into our income and for the last 12 months, what has actually generated the performance. So you can see a nice ladder building up from continuing earnings. You have the continuing earnings from renewable energy of EUR 16 million. Then you have continuing earnings from private asset management, EUR 5 million. You can see the steady income from Garantia, our insurance company, EUR 18 million. And then in addition, performance fees of EUR 11 million and investment income of EUR 11 million. Total income last 12 months, EUR 63 million. Let's then do a wrap up of our financial performance against our long-term targets. Our growth in continuing earnings was 13% and the long-term target was 15%. If you now remember our earnings model, you understand that the growth of continuing earnings is very dependent on the launch of new funds. We raised Housing Fund VIII during the period, but we also exited Housing Fund VI that was a large fund. We exceed clearly our profitability target of 25%, and it was 38% and also the equity target or shareholder value target of our target is 15%, and it was 72% now during the last 12 months. But you must remember also that we exited wealth management during this period, and we had a very good performance in the last 12 months. The shareholder value target is quite challenging for us going forward as we have a strong balance sheet as we will show -- we will go through in a few seconds. Now when we have gone through our earnings and what our earnings -- how they have developed, then look at the -- and then we will look at the balance sheet and how we will drive your returns with a more efficient balance sheet. So first, we have a new dividend policy, and we will distribute half of the profits to our shareholders and the excess cash that we don't need for future investments or then for our capital adequacy. Secondly, very importantly, Garantia's new strategic strategy. And the new strategy is less capital intensive and it enables Garantia to pay basically the profit straight to Taaleri Plc, which we again can then return to our shareholders. Taaleri paid EUR 34 million in dividends now in April, and Garantia's share of this dividend was EUR 15 million. Taaleri has a very strong balance sheet. We have total assets of EUR 310 million. We have strategic investments of EUR 36 million, nonstrategic investments of EUR 25 million that we have said that we will exit. And then you basically have a Garantia's bond portfolio of EUR 146 million. And now we get to the most interesting part. And now I would like to go through with you how we have actually increased our shareholder value since the listing in 2013. So we have a picture of it. And you can see that our own equity was EUR 6 million before we got listed on the First North in 2013. We have made 2 share issuances and raised money of EUR 38 million. We have made profit of EUR 254 million, of which we have returned to our shareholders EUR 109 million. And we had an equity of EUR 190 million end of Q1 when you take the dividend distribution into consideration. And to summarize. What does it mean that we focus on continuing earnings, strong investor returns with a clear focus on renewable energy. We have strong teams. We have the know-how, and you have seen that we reached the set targets. We have made EUR 254 million in profits, of which we have distributed EUR 109 million back to our shareholders. Our total shareholder return on an annual basis has been 21% since 2013 on an annual basis compared to 11% for the general growth index, OMX Helsinki. Our total shareholder return on an annual basis during the new strategy period, has been 39% compared to the 6.5% for the OMX Helsinki general growth index. Our total shareholder return has been 453% since our listing compared to 168% for the OMX Helsinki growth index and 60% since beginning of 2021. These are indeed great achievements, and I am very proud and excited to be working with all these teams that you will now hear more about. Thank you very much.

My name is Kai Rintala. I'm the Managing Director of Taaleri Energia, which is the renewable energy business of Taaleri. Taaleri Energia is a fund manager, focusing on utility scale, wind and solar. And we take those projects and investments through development phase, which largely involves the permitting of those assets. Then we take them through construction and then all the way to the operational period. And we do have the skill set to take them through the entire life of those assets. We have a sizable team, approximately 40 people. And that's slightly different from your typical renewables manager, because our focus is more technical, if you like. So we do hands on the development work ourselves. We also get involved in construction management ourselves, and we do get involved in the technical asset management ourselves as well. And why we do that is because all of that creates value to our fund investors. So it's in development, it's about better quality assets at better price than otherwise available from the market. In Construction management, it's all about on time, on-budget delivery. And then in technical asset management, it's about the megawatt hours that you get out of the assets in order to generate the returns. We are active in U.S., Texas, namely, but dominantly in Europe. We do have 1 historic project in the Middle East as well. Our overall portfolio size is 2.8 gigawatts, and that involves all of our operational assets, under construction assets, as well as the development assets that we have in our portfolio. We are one of the main players in the -- in our own home market. We are currently the largest operator of wind farms in Finland and extremely proud of that. Our business model is to partner with the partners of best quality and what that means is international investors, starts as AIP, Danish infrastructure fund, Masdar, Abu Dhabi government owned renewables company or indeed Berkshire Hathaway as a financier on our [ Texan ] project. The priorities for Taaleri Energia going forward on the near term. First of all, the entire business relies on performance. So we do need to continue making good investments, taking care of those investments and making sure that they deliver returns to investors as well. We are coming to an end of our current fund, SolarWind II, and we will most likely finalize that in the course of this year, which means that we will be in the market for fundraising for SolarWind III fund later on this year in the second half. What we are also doing in the meantime, we have raised external debt to put together a development portfolio that we will use the seed, SolarWind III fund that is something that in the current market, it is extremely attractive, given that you are able to provide good visibility of where the investments in your next fund are going to go as opposed to the fund being applying pool fund. So good visibility in terms of what the investments are going to be. The road map for us as said, we're going to finalize the existing fund. Naturally, we will need to still continue managing the construction of those projects out of SolarWind II, which will take this year, next year. That doesn't change that throughout the period. We will continue doing the value enhancement actions on the operational portfolio as well. As mentioned, in preparation for the launch of the new fund, we continue to add projects into our development portfolio. And then we'll launch the fundraising, which will naturally then continue for 1-year plus period from that point onwards. What is also envisaged to happen in 2023? We are starting the preparation of the exit of our existing wind funds, which are coming to the end of their lifespan. And most likely, that activity will be concluded in 2024. We do currently have 1 operational managed account with Korean investors who have invested in Finnish wind farms. Next year, we will continue to explore those sort of opportunities. Our ambition by 2025 is to get to a EUR 2 billion asset under management. Then let's look at some numbers, income last 12 months. On the left-hand side, you're seeing a stable level. The last 2 bars, the increase is the booking of the performance fees from Wind II and III funds, noting that those funds have yet to be exited, but the refinancing of those funds increased the probability of the performance fee considerably. The same thing occurs on the middle graph in operating profit. And on the last 2 bars, that is the increase that you are seeing. On the right-hand side, you are seeing our assets under management from 2017, and we have maintained a steady, steady growth base. which we intend to do with this model of having vintage funds. We are on to our fifth solar or wind fund at the moment with #6 being launched later on this year, and that is the part that we intend to stay. And now I hand it across to my colleague, Essi.

Hello. I'm Essi Sten. I'm heading Taaleri Real Estate. And I will now present you what we do, what are our strategic priorities and how we target to achieve them. We specialize in real estate fund investment and asset management. We have operated in Finland since 2009. Today, we manage 9 closed-end real estate funds. These funds are authorized alternative investment funds. In addition to these funds, we have also 4 real estate mandates. We have 2 portfolio management mandates for 2 Aktia special investment funds. Then we have an asset management mandate for a portfolio owned by Aktia life insurance. In addition, we provide asset management services for a resilient portfolio in Finland of a global investment manager called Patrizia. The total value of properties under our management is today around EUR 800 million. This portfolio includes both residential and commercial assets totally around 90 properties. We also do forward funding. Hence, we also have several build trend development projects on our portfolio. Assets are located in Finland, majority being in Helsinki region. A few assets, we have also in Stockholm, Sweden, yet since our team is located in Finland, our main investment focus also is in Finland. This business is very local business and requires extensive local knowledge and experience. Today, our team is 14 real estate specialists. We provide all strategic real estate operations in-house. This means property transactions, property development, property financing and commercial, technical and financial asset management. ESG is our core and that we incorporate into all our operations. Our strategic priorities are fairly simple. We are to grow our real estate fund business and our real estate mandate business. This will -- we will do by delivering attractive investment products and by delivering very professional investment and asset management services. Besides growth, we target to more profitable AUM, like mentioned already today, we are targeting to scale towards more larger funds and larger investment products. We do have already a fairly sizable real estate portfolio. But since it's structured into 13 different mandates of funds. It's also a fairly management-intensive portfolio. So we target to sell the -- scale the fund size, so our target to more scalable business for us. Our core target is also to develop sustainable real estate and through this on our part, also more sustainable environment and societies. We want to be the leading local partner for investors who seek not only profitable investments, but also one to take part into this development. We also believe that EST is the most important value driver for real estate in the future, not only environmental [indiscernible] aspects, but also social and governance issues will be increasingly important within real estate industry in the future. Hence, excellent investments requires also excellency in ESG management. So we believe that a competitive edge can be achieved through excellency in sustainability and within all these 3 ESG factors. Then continuing with our strategic road map. It's also fairly simple what we're going to do. We will grow our real estate fund business. This means that we will actively execute investments for our closed-end funds that are under investment period. And then we target to launch new sustainable investment products at yearly pace. This year, we have kicked off investments to our newest fund, that is Taaleri Housing Fund VIII. We also have in our pipeline several interesting potential new products for coming years. Then we will grow our real estate mandate business. It means also that we will actively execute transactions to Aktia open-end funds under our portfolio management. For these also, we have executed several deals already this year and have a very strong pipeline going forward. At the same time, we will also exit some of our closed-end funds, example being this year, we have exited Taaleri Daycare Properties fund that was not done very successfully last March. So taking into account also these exits, our target is to grow the property portfolio under management from our current EUR 800 million to EUR 1 billion by 2025. Finally, here, I will present a bit more in detail our current funds and mandates. Like earlier, on behalf of this, we do actively investments in both residential and commercial assets. We do also Built to Rent development projects and invest also obviously, to cash flow existing assets. Looking our closed-end funds. Obviously, they are in different phases of their life cycle. We have currently 3 funds at exit phase also 3 funds on the holding period and 3 funds doing actively investments. Taaleri multifunctional premises is a close-end fund investing in modern daycare properties. This fund actually is almost fully invested to other funds investing our Built to Rent residential funds. Taaleri has been one of the first fund managers in Finland introducing residential funds, and we have a strong track record in residential. This Taaleri rental home is our seventh residential fund. It is also our impact fund, which means that in addition to sustainable energy-efficient property investments, it delivers a positive social impact by leasing out the apartments at affordable level. Our newest fund is Taaleri Housing Fund VIII. It's currently under its second fundraising round. This fund is our core residential fund. It invests in sustainable energy efficient, very high-quality residential properties in largest Finnish growth centers, so in Helsinki, Tampere and Turku and being our newest fund, obviously, ESG is off to priority. Then looking the mandate side here are 2 Aktia special investment funds: Aktia Commercial Properties; and Aktia Residential Fund. So these funds we have under our portfolio management and for these ones, we actively execute both commercial and residential investments. On asset management side, we have mandate for already, like I mentioned already to a portfolio owned by Aktia life insurance and then we provide asset management services to Patrizia and [indiscernible] local partner here in Finland. Our growth target of EUR 1 billion by 2025, we aim to achieve by scaling these 2 mentioned Taaleri closed-end residential funds and these 2 Aktia open-end funds. And on top by launching yearly new sustainable investment products. Thank you. Happy to answer any of your questions later on. And now handing over to my colleague, Tero Saarno.

Hello, and welcome from my side as well. I'm heading Taaleri Bioindustry. My name is Tero Saarno and I have actually a technical background, so coming from energy business being power plants and oil side as well as bioindustry, bioeconomy side of businesses. So what Bioindustry means for Taaleri and what -- how can we say that we are a European forerunner in this is that we actually launched our first fund, and it had -- about 1 week ago, it had the first closing and we already reached the target size of the fund. And one big key on that fund on reaching the target size was that it's Article 9 dark green fund according to European Union Sustainable Finance disclosure regulation, and there is a clear demand for these type of funds. Taaleri has a legacy on Bioindustry already before this fund. So we've been doing a couple of co-investments, 1 in tall oil refinery here in Finland and in 1 co-investment in biocoal factory as well as here in Finland and actually 1 fund that has been already exited had a production fleet of 5 biogas factories. So there is long legacy history in Taaleri. And now this is put into more, let's say, prudent and diligent way of doing this in a business line of bioindustry. So we are, yes, we are the youngest member of Taaleri family, but coming strongly from here. So what we do? We invest in industrial scale production factories or production lines that enables the growth of a bioeconomy and that disturbs the current fossil and virgin-based businesses. So there is a big shift from fossil and virgin raw material usage to bio-based nonvirgin raw materials, and that's what we are doing here. This is a growth fund, so we will not be investing in start-ups, in this our first fund, we're investing in technologies that are proven in industrial scale, but which still are in the very early stages of their growth. The team is currently 4 members. The fifth member is actually hired already starting at the end of this year. We have really strongly technical teams. So half of the current team members are from technical background. And that's part of Taaleri's DNA as well. So we see that when we invest into wind parks or real estate buildings or bioindustry factories, we need engineering firepower for these investments. We need to first of all, be able to find the best technologies available that have the scaling potential that are in industrial scale. And then when we go into growth phase of the companies, we need to do a lot of projects that involve building up factories. So we need engineering background people for that as well. And also, during the operational phase of the assets that need to be for example, maintenance and operations, designing type of things that require engineering background people. So that's a very vital part of the team to have a strong technical background. Our priorities going forward is as already mentioned that focusing on replacing fossil materials and virgin materials. And the -- let's say, the industries where we are -- or market segments that we are going into, they are like fabrics, textiles, packaging materials, circularity of materials. I will go them through in my last slide a little bit more in detail. Currently, our investor base in the first one is Finnish institutional investors and family offices as well as high net worth investors. But in the future, in the long run, of course, our focus is abroad, and we like to attract foreign institutional and family office investors into our fund. However, we are -- in any case, we are the first Article 9 bioindustry fund in the whole, called Europe. So leading the way. The focus from the beginning has been on finding new technologies that are scalable. Scaling -- in a growth fund, scaling is the key. So you need to have a -- you need to understand the technologies deeply enough that you can scale them up. You see that there is scaling potential in the technologies, and there is also demand in the market for these type of products. So the road map for the coming years. This year, we've been fundraising our first fund, which reached the target size of EUR 80 million, together with Aktia, which was a big success only a couple of months of fundraising, and we were able to reach the target size. And we are now going into the second round of fundraising and hopefully reaching the hard cap within quite reasonable time. Biocoal investment, we'll see its start-up at the site here in Finland. So during late August, beginning of September, we will start the Crown works, the civil works at our Biocoal investment, and again, actual concrete real asset project where we build up factory from [ strengths ] and start producing biocoal for heavy process industries like steel industry, cement industry and such. And then active management on Fintoil, the tall oil refinery that will have see its commercial start-up during the Q3 this year. Next year focus will be on Fintoil's first operational year, managing that, seeing that operation maintenance, all of that stuff goes well. Managing the investments into our first fund, which will start already during the later part of this year. And then start-up of the Biocoal factory in the very last part of next year. And then, of course, we start evaluation of new fund opportunities. And in '24, we see that Biocoal will see its second coming in that sense that we don't want to do this co-investment, single project co-investments. As such, there is always something more than one-hit wonder in these things in our thinking. So there will be -- if we see that joins through Biocoal factory is a successful one, then there will be bigger fund for several biocoal factories most likely in Northern America, in Canada. Then managing the investments in Bioindustry Fund I continues. And then we start preparing ourselves for Bioindustry Fund II. And the big picture in '25 is to reach EUR 0.5 billion assets under management. Then I would like to talk a little bit about the market segments that we see most promising currently. So first one on the left high side is organic fertilisers. So fertiliser market as such is growing, but we see that organic fertilisers, they are growing even more, partly comes from the consumer demand, this growth. But of course, now during the current crisis globally, we see that these organic fertilisers, they also have a great benefit on being self-sufficient. So typically, organic fertilisers, you produce inside your own country limits and gives you self-sufficiency in that sense. Second one, recycling technologies. We are there focusing on plastics recycling and specifically plastics that have been hard to recycle previously. So there are technologies for recycling plastics that ended up in waste incineration plants previously. And that means that when you can give new life to this sort of plastics, you avoid the CO2 emissions coming from burning these plastics in waste incineration plants. So it's a circular economy based market segment. Third one, textiles and fibres, a really interesting market currently, a lot of big openings in this market, mainly coming from, let's say, technologies from pulp and paper processes. So that's one good reason for being here, located here in Scandinavia and Finland, we have very strong background on forestry, pulp and paper, so gives us a good backbone for those type of technologies. Fourth one, metal recovery. So electrification of society and more in detail electrification of transportation, for example, is requiring a lot of new metals and minerals. And we like to think that one should recycle the metals and minerals that have already been excavated on the ground and not -- and also avoiding to open new mines. And this can be done with modern technologies, for example, by utilizing steel smelter and zinc smelters, slag piles that are basically waste piles that contain a lot of valuable minerals that have not been previously valuable. Fifth market segment where we see the big growth and ready technologies is functional biomaterials. This includes, for example, bioplastics that replace normal fossil plastics and then biochemicals to replace harmful or fossil-based chemical products. And last, geothermal energy, focusing solely on geothermal heat. And this is actually one business segment that they're seeing a big boom due to the current situation here in Europe. So a lot of countries in Central Europe are thinking how to avoid utilizing natural gas for the heating in the future and district heating networks are seeing a big boom in Europe and geothermal energy is actually perfect fit for district heating networks. So we see that as a very big and growing market segment where you have already technologies that have been there. So that's my takeaway from Bioindustry, from Taaleri's point of view. Happy to answer questions on the Q&A session. Now I will give the speech to my colleague, Titta Elomaa. Thank you.

Good afternoon. My name is Titta Elomaa. I'm the Managing Director of the Garantia Insurance Company. And it's my pleasure to have this opportunity to explain what type of an insurance business we run within the group and also some strategic targets that we have for the near future. And then also to show you some numbers how we have succeeded with the business. So we are an independent nonlife insurance company specialising to guarantee services. We have the license in the European economic area. So we could already now do the business outside Finland. Like for all of the insurance companies, the business idea is to collect or pull the premiums that the customers pay to offset the risk of a loss that they will not want to face. And of course, the premiums are always received well before the losses are paid. In our type of a business, it is also so that the premiums are received well before so many years before the potential claim is paid. So that's the reason why we have the funds that we are managing. Of course, we have also the solvency capital that we will manage. And that's the reason why the investment return plays a role in our earnings and our profitability. Our principal risks are, of course, the credit risk from the underwriting and then the investment risk, the market risk that we have for the investment operations. At the end of the first quarter '22, our gross exposure for the insurance was EUR 1.7 billion. That is actually consisting of more than 50,000 different agreements, and it is well diversified portfolio already as of today. The combined ratio after the first quarter was 31%, but of course, very short period of time, and I will get back to this combined ratio later on. Solvency ratio, we had at 223%, which is, of course, explaining that we have still plenty of room to underwrite more risk. We have a credit rating of A- from the Standard and Poor's rating agency. And of course, this is verifying to our customers' beneficiaries the credit worthiness of ourself. So what is actually a guarantee? So I would say it's collateral. And where the collateral is needed, it's, of course, where 2 parties are not sort of relying on themselves. There needs to be increase of trust -- and our collateral is an easy and cost-effective way to do this also very scalable. And we have done this for quite many years already. So almost 30 years we have been on this operation. And so we have been building a long-lasting customer relationships and we have customers that have been with us for decades. So we are serving the customers in Finland today, either consumers or corporates. And of course, I have a very talented team with me to do this work. We have the extensive experience in financial sector, mainly banking background and, of course, expertise on the digital service development. So what are our strategic priorities? We are still further diversifying our insurance portfolio, even though I said that we had more than 50,000 agreements in the portfolio at the moment. And that will be through new ways of using the guarantee and also through cooperation with new partners. We are optimizing our own use of capital. As mentioned here before, we are able to pay good dividends for our owner -- and of course, we are enhancing the capital efficiency also for our customers. The modern way to use the collateral is to use the guarantee. We are expanding our distribution network, as I said, today only working and underwriting in Finland. But hopefully, later on, we will go further to different countries, mainly with our domestic partners first, but later on with the different teams over in different countries as well. So the strategic road map, just to highlight a few of the targets we have. And since we are at the half of this 2020 (sic) [ 2022 ] year already, I would highlight that we are maximizing the potential that we have with the Garantia distribution channel, mainly with our banking partners with the residential mortgage guarantee, we still have a lot of potential there. And then maybe I would highlight that in the second quarter -- in the second half of this year '22, we will be launching a new cooperation with the digital marketplace for the rental guarantees. So hopefully, we will see some new business possibilities with those digital marketplaces already this year. And then next year 2023, we will go further with the distribution network and, of course, scale the portfolios and then also analyzing the possibilities to underwrite reinsurance where we have a license also. And then in '24, we hopefully -- and I'm quite sure that we will have the Nordic partners already at that time, the teams that would underwrite our guarantees. And then also exploring more of the digital potential by the data platforms and possibly also connected in sources. And as I said, a few numbers to show how we have performed. So we have been with the Taaleri group since 2015. And we have been on a growth path ever since. The gross premiums written since 2015, we have had the compounded annual growth rate almost at 17%. And since the financial industry more or less has been on a stable level with the growth. So we are quite happy with this number. Of course, the earnings before taxes is volatile for the investment operations since we are using the financial accounting standard, the Finnish accounting standard and the investment gains are booked only when realized. Of course, the losses are booked immediately. And as for this year, we see that there has been a turmoil in the investment markets, in the capital markets. And of course, we will -- we are affected. We are not immune for that, even though we have the conservative long-term investment policy. So then the combined ratio, that's the most important ratio in the industry. So insurance companies are valued through the combined ratio. And as I mentioned, we had 31% for the first quarter of this year. We had 35% for last year 2021. And that would mean that for each premium earned, each euro earned, we paid claims of EUR 0.02 and then EUR 0.33 for the operations of this business and then 65% or EUR 0.65 were left for the company as a result. And this is, of course, before the investment income. But as I said, 1 quarter, 1 year is a very short period of time since we are underwriting credit risk, which is sort of long tail risk. So we should record this maybe more with a 10-year perspective. And that would mean that the claims ratio for the last 10 years is averaging 8% and the combined ratio around 50%. Of course, it's -- these are all past numbers and the past performance is not guaranteed. I cannot guarantee that to you. But I'm having quite confidence on the outlook that we have for the insurance business. So in that sense, I'm happy to be here to talk about our operations. And if you have any further questions, I will be here also after my presentation, there will be the Q&A session. So thank you.

Thank you to all presenters, for your presentation, and thank you for the -- to the audience for your questions you have already sent us. You can keep sending questions and all business directors are also still present here to answer your questions. And I'd also like to remind you that you can find the presentation material on our website under Investors section on the Reports and Presentations page.

But let's get to the questions. First one for Peter. You mentioned that investors are interested in alternative investments. Can you tell a bit about your view for alternative investment demand in the near and midterm future, especially thinking about rising interest rates and inflation and the war in Europe?

Yes. Thanks for the question. Of course, it probably depends very much on which segment of the alternative spectrum you want to look. But if we specifically look at our business lines, I would say that there is a lot of tailwind currently for our businesses. And what we saw in the bioindustry fund with the first close, it was quite clear that the adoption of new technologies that are sort of hitting the sustainability impact and circular economy issues, they will be in demand. That is for sure. We also know that in infrastructure and, in particular, in renewable energy, there is not only sort of investor demand, but also there is government bodies that are pushing for this energy independency. So I think in those segments, one could say it's sort of the outlook is good. Of course, interest rates are something to bear in mind. Now it's always a question of what the interest rate level should be or shouldn't be and when does it affect? But of course, all asset classes inherently are driven by returns. And then the absolute level of interest rates is just as important then as a factor long term. But maybe, as always, there has been capital allocated a little to free handed and open-minded in the recent years because we've had a very low interest rate and maybe the old thing that when the tide goes out, you can tell who could swim. And I think those who have viable business models and have sort of can anchor their returns at an early stage for their investments. I think those will prosper better. Now the general demand for alternatives I think there is still a demand for them. I think people are underallocated. And that sort of is still something that is visible in most of the surveys I see and most -- when you look at the actions of how people act. But maybe I'll pause there. Thanks.

Thank you. Then we have a few questions for Kai, if you would like to come to the stage. First question, is SolarWind III limiting your ability to take new mandates on board? And secondly, even though you have talked about mandates before, you haven't received new mandates in quite a while. Have you -- or will you change your approach towards mandates?

Thank you for the question. So indeed, SolarWind II and in the future, SolarWind III will limit the ability to take mandates in a way that the mandates that you do take cannot be competing with the fund. So therefore, our funds will enter into -- in the projects during the development and construction stages. So therefore, if we are to do mandates, then those will most likely be in operational projects. And it is quite natural given that the profile that we have, it will be Nordic operational wind where we have extremely, extremely good capability which is attractive to investors. Then in terms of no recent mandates, the timing has been fairly difficult due to COVID. Our existing mandate investors are located in South Korea and travel to discuss business opportunities have been significantly difficult of late, but we very much intend to pick up the activity later on this year and next year.

And also for Kai, have you seen changes in PPA pricing? And has there been changes in interest for your projects and assets?

Indeed, the market is in an interesting phase. The power prices are extremely high. However, the PPA prices are not increasing as dramatically as the power prices, given that you are signing a fixed contract for a 10-year term. So the answer is that yes, there is some increase, but the increase is limited. Then in terms of interest rate, on our existing projects that we've already financed, we typically hedge about 75% of the interest rate. We can go even higher than that. So therefore, that is largely unaffected. However, when you are doing financing for new projects, then it's absolutely clear to everyone that we are in a rising interest rate environment. But that is more than offset by the raising power prices and the slightly higher PPA prices that you're managing to secure.

This might be somewhat what you just said, but given high inflation and increasing turbine prices, have you seen any pressure in projected IRRs or does higher electricity prices mitigate cost pressure?

I think the short answer is yes.

And SolarWind III fundraising is coming up, given the current knowledge about the market demand, what is the target size that you are aiming for?

That is that we are currently in SolarWind III in the soft market testing, where we are seeking feedback. We have not decided on the final target size yet. Target size will be driven by the credibility of the pipeline and the credibility of the team. What you do see renewables managers like us doing is doubling the fund size from one to the next. Our previous fund was EUR 354 million.

Then we have a question for Essi. Have you seen changes in interest from foreign investors? And has there been changes in bid/ask spreads for portfolios in the market? And how do you view the current yields in the market? Lots of questions.

Very short answer. Not seeing any hesitance from foreign investors in real estate markets and not seeing any changes due to the situation within the yields. On contrary, I would say that real estate investors coming abroad have seen the Finland, let's say, more safe still compared to overall in Europe. So our stages are safe, having a [indiscernible] has sort of a stage.

Thank you. Then we have some questions for Tero about Bioindustry. About your ramp up, can you also take individual projects or club deals, i.e., Fintoil while you are investing Bio I fund? And if you can, is this something you aim to do?

Yes, we can in some sorts. But of course, the Fund I has -- is giving some limitations for us. But of course, if there's a good opportunity, we try to look how we could take on the debt. And if it means hiring new people to the team that is anyway growing then, that's one option.

That was the second question about the team. How big a team you are aiming for on the long term? Can you, for example, give out an indication about how many people you would need when you start to raise Bio II.

For Bio II, we need 2 to 3 people more on top of the current ones. In the long run, I see that we will be a team of 15 to 20 members.

And can you describe the scalability of your business/funds? Is there any size limits regarding the future funds from this perspective?

Not that I see. The technologies are evolving all the time. So what I see and what our team sees is that there is new technologies coming to the industrial scale proven phase. So we see that within the coming years, there will be a very strong pipeline on bioindustry side.

You mentioned that you start to prepare for Bio II in '24. Does this imply that you expect some 3-year investment period for the Bio I Fund?

Yes. On the fund agreement, we have 5 years investing period. But due to the very strong pipeline that we have already now, we believe that, that will be 3 to 4 years.

That was all for you, and then we move on to Titta. Can you describe on a more detailed level, the impact of rapidly rising interest rates for Garantia? Obviously, you are taking a hit for bond board portfolio, but are there other aspects?

Yes. As I mentioned, we are not immune for the turmoil that we see in the fixed income market, especially with the inflation rates going higher and the interest rates getting higher as well. That's something that was expected for very many years, but it is always a surprise when the markets turn and the speed that it has been turning -- has been somewhat surprising. So it will be affecting the fixed income investors that we have in our portfolio at the moment and since we are heavily allocated to fixed income instruments. But still, we have the modified duration at 3.3%. So I would think that we will have sort of a lower figures, if it's a negative return this year coming to the year-end. So since we are long-term investors, and I don't see any of the credit risk rising in our portfolio, so we will get the 100% at the maturity and the maturities that we have are quite short. But of course, we will see that in our earnings at least during the spring time.

There has been some indications of cooling down of housing loan needs. Have you seen any implications for your businesses?

So far, we have not. We know that the housing market has cooled down, especially over in Sweden, but it was maybe a bit bubble over in Swedish market that we did not see in Finland. And I think during these last 2 years that we have had the pandemic, people have been wanting to have larger houses since they need to have the working space study at home as well. And I think it is okay for us to sell the residential mortgage guarantee or for our distributes and banks. So now they might even have more time to explain how they could use our guarantee as a collateral for the mortgage loans.

And how have you changed your portfolio to the current environment with higher interest rates and possible also higher risk premia for corporate bonds?

Well, we have kept the investment policy that we have. It's a long-term policy and not really much need to have the change. But what we have -- what we have done is that the new investments that we do are mostly on a very short maturity, at least on less than 2 years maturity. So not adding any credit or interest rate risk to the portfolio.

Thank you. That was all for you. Thank you. A general question. Any changes in cost of financing of investments are changes similar in all business areas?

Maybe I'll take that question. I mean, on our own balance sheet, we have a miniscule amount of debt. So there -- I guess that there's -- yes, there's no change. But of course, like Kai mentioned earlier, there is naturally a direct effect from rising interest rates to when you finance these projects to the extent that you use debt. But that is then -- like in the case of energy, reflected in the prices or overly compensated by the rise in the prices of the PPAs and the energy prices. But for us, it has actually -- had so far very little effect.

Thank you. I think we are running out of questions. So thank you, everyone, for the good questions and participation. And I think now it's time for your closing words, Peter. So feel free.

Thank you. Maybe I'll use this slide. Yes, thank you to everybody to listening to us. It's been a pleasure to present Taaleri for you and particularly proud of my colleagues who do a great work every day and are just as thrilled as I am. And I think we are in the middle of a historic shift, which is its unique by nature. And it's both exciting and challenging. And if we go back to this metaphor from the second machine age, it looks like in some of these industries, we've only taken baby steps yet. So that makes it even more exciting. The disruption will, through creative destruction once again split the world in a Darwinian way. And history has shown us that those who dare to adopt -- adapt early and build viable businesses and companies will fare well. And to me, it seems that large capital pools are actually entering this space, the space where we are active. And we, as a company, have to rise to the occasion and be prepared to meet this challenge. But I believe we're heading steadfastly as a company in the right direction, and it's a great pleasure to meet all of you later and then we can evaluate how we coped. Thank you.