Taaleri Oyj (TAALA) Earnings Call Transcript & Summary

Good morning, and a warm welcome to Taaleri's Presentation of our Fourth Quarter Results for 2024. My name is Linda Tierala, and I'm heading Investor Relations at Taaleri. Presenting today, we have our new CEO, Ilkka Laurila. You may ask questions after the presentations, and you may do so during the -- from the webcast link at any time during this presentation. And with that, I'll hand over to Ilkka. Please go ahead.

Thank you, Linda. Good morning, everyone. As said, my name is Ilkka Laurila. I'm a new CEO of Taaleri since 9th of January this year. So even though that I've been working at Taaleri already since last February as a CFO, maybe it's still worth that I would shortly introduce my kind of background a bit. So shortly, I have 2 master degrees, one in forestry, one in economics, started my career more than 20 years ago in the forest and wood industry, then moved quite quickly 20 years ago already to Ernst & Young in transaction advisory, financial advisory, M&A advisory type of services. Then during the financial crisis, moved to more on a restructuring services and after financial crisis, moved back again to corporate finance and M&A advisory type of services. Then since 2012, I worked at Terveystalo, first as a Head of Treasury and Head of Procurement and CFO since 2015. During Terveystalo's period, we made that roughly 100 M&A acquisitions, 3 private equity rounds, listed the company in 2017 and then went international in Sweden and in Estonia during my time there. Stepped down from that position '22 and have had a shorter period as a CFO and different kind of advisory roles to private equity companies since that up until February last year when I joined Taaleri. In addition to that, I have a few Board roles as well. Maybe worth mentioning are the publicly listed entities. I used to be a member of Musti Group's Board until recently stepped down after the Sonae's public tender offer. And I'm still a Board member at Nightingale Health, which has published its intention to list the stock in a main list as well as in the OTC list in the U.S. market. So that's shortly my professional background. In addition, we have actually today also published the new appointment to our executive management team. So Lauri Lipsanen will join Taaleri latest on May. He is -- he has a good kind of versatile background in more than 10 years background in different group CFO roles. And before that, he has been also having a different career in a different kind of advisory services and M&A and financial type of advisory services. With that, we will go through the '24 key figures and the highlights. First of all, key figures for '24. If you take a look at the lower side of this slide, you can see that positive development in all relevant KPIs, meaning that 1.6% increase in continuing earnings, up to EUR 40.5 million. In total income, the increase was 6.3%, up to EUR 70.5 million. Operating profit increased quite significantly, 19.3%, up to EUR 38 million. And earnings per share increased from EUR 0.81 to exactly EUR 1 per share. Then if we compare our achievement in '24 versus our long-term financial targets, the growth in continuing earnings and performance fees was 2.4%. That is obviously trailing below our long-term financial targets. Then on the other hand, return on equity, 15.3% when the target is at 15%. So we are on a target level in there, which is based on -- if you take a look at the historical data, it's actually first time since the Taaleri sold its asset management business in '21. And the dividend payout ratio is exactly that 50%, which is our long-term financial target as well. Then going further on the Q4 highlights. So starting from the left upper corner, so income grew and profitability was excellent. So 13% increase in group income and nice or even excellent, you can call it, operating profit margin, 47% in the last quarter. Fundraising activities continued actively in the last quarter and the kind of the total amount of the commitments amount now that EUR 481 million in total in SolarWind III Fund. Biocoal plant in Joensuu was completed, the -- and we are starting the operation and the production with the smaller test batches and the broader ramp-up will take place then during this financial year during 2025. In real estate business, we had a new strategic partnership with one of the largest Finnish pension insurer, namely Keva at the beginning of '25, and that is obviously a great testimonial of our real estate business capabilities and credibility of our team and business in a real estate. Garantia's performance continues strong as always. The combined ratio was 26.2% and the insurance service result was EUR 3.3 million. Overall, if you would like to conclude, I think the performance itself in Q4 was on a good level, even though that we are facing quite kind of mixed operating environment, both in a kind of key markets that we are operating in the real estate markets, in the fundraising markets. So even though that we are having a quite difficult operating environment, I think that the performance overall was on a good level. Going forward, if we take a closer look at then the segment results and the performance in our segments, segments first, first of all, Private Asset Management. In renewable energy, like already explained that the fundraising continued. Worth noting is that we also recognized that EUR 1.8 million of the performance fees related to SolarWind I Fund, of which exit preparations were initiated and according to our revenue recognition principles that the kind of the first part of the performance fees is now recognized. In addition to that, the exit processes continued when it comes to Wind II and III Funds, which are at the end of their life cycle. Then if you take a look at -- on the right up corner on the numbers, you can see, especially if you take a look at the operating profit there, nice 50.8% increase in operating profit from EUR 5.7 million to EUR 8.6 million, obviously driven by both that recognized performance fee as well as the good result of the investment operations, which were related to our U.S. pharma activities in the U.S. market and which were now recognized in the P&L. Maybe short look at how we have been able to develop our Taaleri Energia's investor base. So if you take a look at these vintages earlier, so if you take a look at the SolarWind I, which is now on the -- of which exit preparation has now initiated, in 2016, the whole investor base was completely based on the Finnish investors, then going forward to SolarWind II in 2019, 1/3 of the capital was related to international investors. And then the situation at the moment with the SolarWind III is such that more than half actually already is -- of the investment is coming from international investors. And this all is actually happening at the same time when the market overall is quite challenging. And this is the kind of the graph on the right-hand side describes the private equity funds globally, the capital call versus the distribution. And you can see that the net distributions have been negative already quite some time with the exceptions of 2 years earlier and in '21. And this is actually the end result, obviously, of the market that we are having at the moment. So the changes in the interest rate environment, M&A market, et cetera, et cetera, and the kind of how it combines together is the capital call versus the distributions globally. Then going forward to Other Private Asset Management business in there, if you take a look at the activities in Bio I Fund, it made its fifth investment during the review period for the Dutch recycling concrete processor. Then on the other hand, like already touched upon, the torrefied biomass plant in Joensuu is currently in a ramp-up phase. The -- and the international project in Canada continues. And worth noting is that during the '24 year, we also invested in that our another kind of biofactory in namely Fintoil. We invested more of capital in the second quarter, amounting EUR 5 million through which we were able to increase the share ownership from 24% up to 39.6% currently. In the real estate business, great achievement with that strategic partnership with Keva. Obviously, like I said, good testimonial of our quality operations in there. The result development itself, if you take a look at, again, the table there, is that the operating profit declined from EUR 1.7 million negative to EUR 2.6 million, and that is driven by -- if you take a look at the upper line items through the investment operations in which we made a couple of write-offs of -- related to older investments that Taaleri has made earlier. Going forward to Garantia, Garantia continues on an excellent performance level. The insurance service result was that EUR 3.3 million, up from EUR 2.7 million. The kind of the P&L recognized investment income is EUR 2.2 million, up from EUR 1.4 million. Maybe worth noting is that if you take a look at the kind of the total comprehensive income, the total investment income, including fair value changes is at EUR 1.8 million versus EUR 4.6 million. And as said, the combined ratio on an excellent level, 26.2%. Going forward to other segment, which comprises of group functions, Taaleri Kapitaali, and Taaleri Kapitaali, worth noting is that we have now sold by the end of the year, total worth of EUR 6.3 million in shares. And the total amount of nonstrategic investments are now totaled that EUR 18.7 million. But no other major changes in this segment. Finally, if we take a bit closer look on the numbers, the P&L development and the balance sheet. First, the P&L, nice 13% increase in total income during the last quarter versus 6.3% increase in the full year numbers. Again, in operating profit, nice 36.3% increase in operating profit versus 19.3% in the full year numbers. Overall, if you take a look at the operating profit level for the whole year, that is, you could say, on a quite good level, EUR 53.9 million (sic) [ 53.9% ], obviously, driven by good result in our investment operations, supported also obviously the performance fees. And the total other comprehensive income is at EUR 1.1 per share versus EUR 0.88 a year ago. Going forward to the waterfall picture, clear majority of the operating profit in the last quarter was generated by the continuing earnings in our Private Asset Management business, EUR 7.4 million. Then on the other hand, the investment operations for the whole group combined is at EUR 7.7 million, followed by then Garantia's income from the insurance operations, EUR 3.1 million. And if you take a look at the longer horizon, 24 months, the same similar type of waterfall you can see here. So the clear majority currently during the last 2 years of the operating profit is deriving from the Private Asset Management business, supported by the investment operations, then followed by the insurance operations. And obviously, the performance fees recorded at the moment during the last 24 months are significantly smaller contributor for the whole operational profitability development. These numbers we have already touched upon, but if you take a look at the right side of the slide, you can see that the -- that even though that the operating profit itself fluctuates, obviously, also even though that you take the LTM numbers, it still has increased quite significantly versus a year ago. Going forward to the balance sheet, worth highlighting here is that the direct investments in our Private Asset Management has increased now that EUR 36.1 million versus EUR 32.3 million. Kind of the biggest contributor or investment in there was that EUR 5 million additional investment in Fintoil. Then on the other -- on the contrary, there was some write-offs related to that, but the biggest investment was that Fintoil's EUR 5 million. Nonstrategic investment according to our plan is decreasing continuously and is now down to EUR 18.7 million versus EUR 35.5 million. Garantia's investment portfolio on a stable level, EUR 155 million versus EUR 160 million a year ago. Strong liquidity position gives us room to maneuver if there would be an opportunities in addition to existing credit limits that we are having. And the dividend proportion that the Board of Directors proposes to AGM is that EUR 0.50, and we will touch upon changes in that as well. So finally, the dividend proposal and '25 outlook. So in dividend, the Board proposes now to AGM that the company will transit to kind of the biannual dividend distribution arrangement, meaning that the total amount of EUR 0.50 will be paid in 2 equal installments, of which between we will have that 6 months period, so EUR 0.25 in April and EUR 0.25 in October. Total amount would then be that EUR 14 million roughly. Then on the outlook for '25, obviously, at this stage, you can kind of conclude that the outlook is very much dependent on different -- on the other hand, in our kind of business, the different fundraising activities combined with the exit of the timings. And therefore, obviously, it's difficult to put an exact number because it's a timing type of kind of question mainly. Then on the other hand, it also depends on our investment operations and how we are able to perform there and recognize the performance fees related to different exit processes. On the other hand, in the bioindustry and real estate business, the kind of the international focus and the growth in there will still burden our profitability in Other Private Asset Management business. It is expected to remain on a negative numbers. On the other hand, it should develop positively compared to a year ago. Garantia, the continuing earnings expected to remain slightly below the comparison period, obviously, mainly driven by this weak development in Finnish housing market. And as we all know, the kind of -- due to kind of the declining interest rate levels, we had an exceptionally good investment result in Garantia's operation. And depending on how the market environment develop, but at the moment, based on -- if you take a look at the in line with the market expectations, the investment operations is expected to decrease compared to a year ago. Then on the other group activities, the result development is very much dependent on the fair value changes in nonstrategic investments. And then on the other hand, like explained at the beginning, the exit -- final exit moments and the result of those -- exit of those nonstrategic investments. With that, I think we have gone through the '24, and now I think we have time for Q&A.

Yes. So now we open up for questions both from the floor and from those of you following this webcast online. And I would like to remind you that if you want to ask a question, you may do so through the webcast link and the chat window in that link. So let's actually take the first question through the webcast link. So we have a question from Jukka-Pekka Pesonen from Nordea, and he's asking about the SolarWind III Fund and commitments and targets. You stated that reaching the EUR 700 million target size is uncertain in this market. Could you potentially postpone the closing time line of the fund or rather continue with the smaller fund size?

At the moment, the plan is not to postpone the closing time line and obviously -- well, when it comes to the total size, it's typical with -- especially with the international investors that they have quite sizable tickets, which at this stage are obviously still uncertain. And the kind of the end result and the total size will be quite significantly dependent on those, let's say, generic international tickets that how those will end up. But at the moment, there's no intention to postpone the time line.

Thank you, Ilkka. And now we have a question from the floor here. So from Sauli Vilen from Inderes.

Yes. So my first question about the Solar -- sorry, the SolarWind I and its carry. What kind of time line should we expect with -- now as the exit preparation have begun? And then secondly, can you remind us like how the carry will be recognized in the future since now you kind of prebooked some of the carry in?

Yes. So the logic is such that if it's -- if the kind of -- when the exit process starts and it's likely that the exit process will take place in the following, let's say, 24 months, that's the timing when we start to recognize the revenue. And it's recognized on a quarterly basis based on the probability of the exit and the kind of the value of the exit. And it is obviously at the beginning because it's still uncertain and it's quite far away. The discount factor that we utilize is quite significant. So it's -- we are using big -- quite big without kind of saying the exact amount of the discount factor, it is a significant discount that we are using when it's still quite far away of the final exit. But that's the logic.

Okay. Then about the bioindustry, what kind of ramp-up should we expect in the near future? Like do you have anything -- any new products on the table there besides when you will eventually kick off the flagship II Fund? And I guess it will be not this year, it will probably be '26 or so. So how we should see the ramp-up before the eventual flagship fund?

Well, currently, we are in the middle of kind of researching opportunities in Canada. And that -- that's obviously then one of the initiatives that we are in the middle of and we are working on quite heavily. But obviously, all those activities, it will still take time. It's not happening overnight and not even during 1 quarter or 2 quarters. But that is the activity that is ongoing at the moment, most concrete activity at the moment.

And regarding the same topic, about the Fintoil, could you give us a status regarding what's happening in the Fintoil at the moment? I mean it's -- even though it's just one investment, it's kind of an important reference case for you since it's kind of the first big bio-investments from your own.

It is an...

So can you shed some light on that?

Yes, exactly. And our ownership in that is already -- it increased during this financial year from 24% to 39.6%. So we have a quite significant ownership in there. It has developed positively. During the last financial years, it has suffered from the low utilization rate. But now we are seeing quite positive development, especially in the capacity utilization. So even though that the market itself is maybe not that dramatically changed, it's moving slowly towards positive territory. But the capacity utilization view that we have at the moment looks quite optimistic, and that's why we are quite optimistic on that investment at the moment.

Okay. Then finally, about the old Wind II and III Funds. You have been on the exit process for quite a while now, I think like over a year now. What has been the main reason that the exit process has been taking so long since obviously, those are kind of stable assets, you could say. So is it like because of the market situation to interest rate fluctuation, et cetera, what has prolonged the discussions or what's behind that?

Well, it is moving more or less according to our initial plan. But obviously, it is the same now with the SolarWind I Fund. It will take time, especially these projects when those are kind of the -- many of the investors that are looking at it are international. And that's why it takes time. It's -- they do the quite prudent BD processes, et cetera, et cetera. And that's why even though that it's moving more or less according to plan, as I said, it takes time. Those are quite lengthy processes starting from the preparations to until kind of the final exit then takes place.

And we have a question from Jukka-Pekka Pesonen from Nordea. And this is related to the strategic partnership that Taaleri Real Estate announced with Keva. So can you leverage the announced partnership with Keva in the new real estate products to be launched further this year? And if so, how?

Well, obviously, I think the biggest kind of impact that we are able to see from that mandate is that it brings credibility to our team and our operations in real estate. We have had -- with all fairness, we have had challenges with our real estate business, but there is -- we have now made a significant change in team and the operation, how it's structured and how it's managed. And that is an excellent testimonial that now that we are able to have a concrete mandate with one of the biggest Finnish institutions to kind of how it will support our near-term future activities in other services that we are providing in real estate business.

Thank you. And then there is a question about Garantia. So is there anything you could tell about Garantia's development over the year?

Well, like I said, I think the kind of the good overall performance continued in Garantia. Obviously, we are facing a quite slow housing market, especially in Finland. But despite of that and also driven by the revenue recognition principles that Garantia is using the kind of the P&L development itself is quite good and positive. So -- and now when lately we have seen, I think we all have read from the news that the housing market has actually started to develop positively. And that is something that we are also seeing hopefully in the near future in our Garantia's operations. But obviously, everything will take time, and it's quite tightly linked with the housing market development overall. But kind of to summarize, even in a tough market, it has performed on an excellent level.

All right. There are no further questions online. Are there more questions from the floor? So as there are no further questions, this concludes Taaleri's fourth quarter 2024 webcast. Thank you.

Thank you, everybody. Thank you.