Taaleri Oyj (TAALA) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of Taaleri's results for the first quarter of 2025. My name is Linda Tierala, and I'm heading Investor Relations here at Taaleri. Presenting today, we have our CEO, Ilkka Laurila. [Operator Instructions] And with that, I welcome Ilkka to open the presentation.

Good morning on my behalf as well. My name is Ilkka Laurila. I'm CEO of Taaleri since January this year. And as usually, it's now it's time to go through some of the operational development highlights and as well as the financial development of the first quarter in Taaleri's '25 development. The presentation comprises of a few sections. The first part is that we will go through the quarterly highlights. The second part is that we will go through the segment reporting change, which we published during the quarter and the kind of the rationale behind it. And the third part is then is that we will go through kind of the overall uncertainty in the market and its impact to our business and our operational and financial development, followed then by the, let's say, usual operational and financial development of our segments and our businesses. Starting with the highlights of the first quarter. Our continuing earnings in Private Asset Management business grew and profitability improved positively in that segment. It was obviously boosted by the positive development in the renewable energy business in which the growth continued and the profitability development also continued positively. In renewable energy business, SolarWind III Fund is still on a fundraising phase. It's already the biggest and infrastructure-focused fund in Finland, although it is quite likely that we will fall short of our initial target size given the market conditions where we are at the moment. In the bioindustry, the project have continued their development. First of all, we are in a ramp-up phase, in our torrefied biomass plant in Joensuu. The plant has secured its first test batch orders from the customers. Secondly, our Fintoil's biorefinery in Hamina is growing. It has been able to secure new clients. And therefore, the operational development is forecast to -- and the financial development is forecast to develop positively, given the fact that they are able to make a production -- higher production and higher capacity utilization in '25. In our real estate business, they were able to secure a strategic partnership with Keva during the first quarter, obviously, the impact on the P&L can be only seen after we have -- they have been able to deploy the capital according to its mandate. The team is continuously looking for targets and potentially -- potential targets and to how to find and enter to the market. Garantia strengthened its market share during the first quarter. The numbers itself is looking actually quite negative, but we will go through some of the line items there and a bit deeper what is driving the numbers on Garantia side. But overall, in the operational -- from the operational perspective, it has been able to increase the market share and is developing positively. And finally, as explained, we updated our reporting structure and included now investment segment to our reporting. And there's maybe 3 main rationale why we entered in this kind of reporting change. The first one is that this now actually follows better how we actually lead the business. The second one is that now private asset management, both revenue and the profitability development is more transparent after this new segment reporting. And thirdly, obviously, we are able to demonstrate and to illustrate better the potential of our investments and our balance sheet. Then if you take a bit closer look on the segments. On the right-hand side, you can see the Garantia, which remained as it was already earlier, it's the insurance company and obviously, the revenues coming from the investments as well as the insurance income. Then on the left-hand side, there's this private asset management business comprising of renewable energy and other funds. There, the revenue and the top line and the profitability is driven by the management fees and the performance fees. But then the new segment is the investment segment, which comprises of fund investments, co-investments our project development like the project in Canada at the moment and other direct investments. And clear majority of the P&L impact is coming from the investment income in this segment. And all these 3 combined, obviously result a shareholder return. Then going forward with the uncertainty in the markets. So I think we all know how the operating environment has fluctuated quite significantly during the first quarter and has continued to do so also during the second quarter of this year. This page is only to kind of illustrate. I will not go through these line by line items, but this is only to illustrate how widely the uncertainty in the market is actually reflected in our operations. The arrows there in the slide is only an illustration of the, let's say, the main impact of each line item. Obviously, in many of those, if you take a closer look on those, also have an impact for the other direction. But despite of that, this kind of illustrates quite nicely the operating environment and where we are and how difficult it is to kind of maneuver in this kind of environment. It has a lot of impact in different parts of our businesses. And clearly, that is reflected in our first quarter numbers, in which all the key figures have developed actually quite negatively. Revenue declining from EUR 17 million to EUR 8.6 million, operating profit declining from EUR 9.6 million to EUR 0.5 million and earnings per share declining from EUR 0.26 to EUR 0.02. But if we -- if you scratch surface a bit deeper on -- behind the numbers, you can actually see in this graph, if you take a look at the left-hand side, you can see the operating profit during the first quarter last year. On the right-hand side of the graph is the operating profit during the first quarter this year. And you can actually see that the clear majority of the decline in the operating profit is actually coming from Garantia's investment operations. So EUR 5.4 million coming from there. And actually quite evenly distributed between the debt and equity-related asset classes. Garantia's continuing earnings also declined by EUR 0.9 million, having a negative impact in the operating profit. And obviously, that is exactly coming from the delay of the poor performing housing market in Finland during the previous years. And now as said, during the first quarter, the market share and the market development in there looks positive. But however, it will take time before you can see the impact in the numbers. And this is due to the fact that the insurance companies, the IFRS calculations are such that it will have a quite significant time delay, the actual impact for the P&L. Third part in this graph is changes in other investment operations, again, coming mainly from the different kind of fair value changes in Aktia shares in -- impact coming from the Toriparkki and some translational impact coming from the balance sheet investments through the FX changes, not the transactional, but the translational impact. Other changes, 0.8% is the clear majority of that is actually related to CEO change during the first quarter. So overall, if you take a look at this picture, like typically in this kind of business, nothing dramatic will happen during -- in the time period of 1 quarter. But it's -- the impact is -- can be explained with quite kind of, let's say, overall market environment development. But however, if you take a look at the longer time horizon of the market, especially in the private capital markets, the market overall is forecast to continue its growth also in the future with the 10% CAGR shown in this picture. So overall market conditions have remained rather stable, but the turbulence you can see on a quarter-to-quarter development. Then the next section is that we will go through some of the financial as well as the operational highlights of each of the segments and businesses. First one is the renewable energy. On the table, you can see that the revenue actually increased from EUR 5 million to EUR 5.2 million, followed by the operating profit improvement from EUR 1.5 million to EUR 1.7 million. And that is explained by the increase in the continuing earnings by 8.2%. Operationally, maybe highlighting that the fund decided -- the SolarWind III fund decided to invest in a solar power project in Joroinen here in Finland. So in total, 5 investment decisions have been made from the fund. Then, in the other Private Asset Management business, revenue declined a bit from EUR 1.5 million to EUR 1.4 million, but operating profit developed positively from negative EUR 0.4 million to negative EUR 0.3 million. And as said and explained already earlier, both the bioindustry and the fund operations there as well as the real estate operations and the real estate partnership with Keva, both businesses are looking for and sourcing new investments and are ready to deploy capital when the opportunities arises. And this is kind of the good picture that illustrates why we actually did the -- or one of the factors why we did the reporting on the segment changes. Now you can actually quite clearly see that the continuing earnings in the Private Asset Management business continued its growth on an LTM basis by 6.9% and operating profit develops quite positively, 51.7% on the LTM basis and is now EUR 7.7 million. Obviously, quite natural is that if the exit projects that we are in the middle of -- especially in the renewable energy will have an impact on these numbers then going forward. Then on the Investment segment, like I said, the investment segment continued its ramp-up in biomass plant torrefied biomass plant in Joensuu, secured its first test batch orders from the customers. We continued our development project in Canada to looking for the next site and operations in -- for the torrefied biomass plant in Canada. And the Fintoil's development biorefinery in Hamina is looking for -- looking quite positive. And you can see the pickup in demand based on the new customers that they have been able to achieve. And as said, they broke the production record in monthly refining capacity. But then if you take a look at the financial development of the Investment segment, then first of all, on the left-hand side, you can see that the clear majority of the revenue is coming from other than continuing earnings, meaning in practice, mostly deriving from the investment income, of which fluctuation can then be seen quite directly in the operating profit development. Obviously, it has a big impact of the fair value changes as well as the exit timing has a big impact for this segment. And also in the future, we are most likely going to see quite significant fluctuations between the quarters, how this segment's revenue and the operating profit will develop. But then on the other hand, more stable and more transparent picture on the private asset management and then obviously, the other segment and the cost structure and the development in there as well. Finally, the Garantia. As already went through in the waterfall pictures, the net income from the investment operations declined from EUR 4.8 million to negative EUR 0.6 million, ending up having a revenue decline from EUR 8.7 million to EUR 2.4 million, which is quite straightly linked to the operating profit development from EUR 8.5 million to EUR 2.1. However, like I said, Garantia's share in the residential mortgage guarantees for new mortgages in Finland has grown. And obviously, we will see in the near future whether that is -- that will sustain and how the housing market is developing here in Finland. And that will have then a delayed impact for the profitability development of the Garantia's operations. This picture here is just to kind of remind you of the investment portfolio and the guarantee insurance portfolio of the Garantia operations so that the investment portfolio split is such that roughly 74% of the investments are debt instruments and then 25% is equity or real estate-related investments. So quite conservative allocations, if you would like to take it that way. The insurance portfolio split is comprising mainly from the consumer exposure, 85% and corporate exposure is then 15%. Then following by some of the highlights and key numbers in the financial development. First of all, this a longer horizon picture, 24 months picture of the operating profit development. The 4 sources of revenue, again, on the left-hand side. Continuing earnings has had a biggest impact, EUR 58.2 million in the operating profit development historically, followed then by the net investment operations of the whole group, EUR 48.4 million. And then Garantia's quite stable net result development from the insurance operations at EUR 26.3 million. Performance fees only having a EUR 3.3 million impact during the last 24 months. And then if you take a look at the LTM development in the whole group, the growth in the continuing earnings has been 2%. So quite stable development in the continuing earnings on the LTM basis. But then based on the fluctuations in the other and continuing earnings, the profitability fluctuates much more so that the operating profit has had a declining of 27.6% on an LTM basis. Then on the balance sheet side, the assets in total is now EUR 291 million approximately, comprising so that if you combine Garantia's investment portfolio our nonstrategic and direct investments as well as the net debt situation in our balance sheet, you already are on a roughly EUR 230 million. And then the other assets, the noncurrent and current assets comprises mainly of accounts receivable as well as the accrued receivables of the performance fees. And like I said, the investments and the cash -- net cash position is already at EUR 230 million. And the liquidity remains strong, EUR 27.5 million. The first installment of the dividend paid in April, EUR 0.25 followed then the similar amount of dividend later in the year. And finally, outlook for '25. Starting from the Private Asset Management business, growth in continuing earnings from the renewable energy will be clarified only after we are able to secure the final size of the SolarWind III Fund. And then on the other hand, what would be the exit timing of the Taaleri Wind and II funds. And operating profit is also obviously dependent on the -- how the performance fees are estimated and what kind of P&L impact those will have during the year. In bioindustry and real estate and other funds businesses, the profitability, the operating profit is expected to remain negative. However, it is forecasted to develop positively compared to previous period. And as explained, the profitability and the revenue development in the Investment segment is highly dependent on the changes in the fair values as well as the financial -- final timing of the exits. In the Garantia and the Garantia's operations, the continuing earnings are expected to remain slightly below the comparison period, explaining mainly from the previous development of the Finnish housing market. And the income from the investment operations is expected to decrease compared to previous year, which was an exceptionally strong investment year in debt-related instruments, especially as well as the equity-related instruments. And in other group, the cost level is expected to remain rather stable versus the year ago and the comparison period. With that, I will close my first quarter presentation. And now we have time for the Q&A.

Yes. Thank you, Ilkka, for a great presentation. [Operator Instructions] We have some questions here from the studio as well, Sauli Vilen from Inderes.

So about the strategy process, Ilkka, you opened it up quite a bit in the CEO remarks there. So is it the right interpretation that you are not planning any like bigger structural changes, but instead, you are more, you could say, streamlining the current strategy around the current segments?

Well, let's put it that way. Obviously, we will open it more closely in the autumn where we will have our Capital Markets Day. But yes, in such a way that, obviously, like I explained the rationale behind the segment reporting change is that we are more -- better able to kind of illustrate the development of all these 3 segments. But having said that, obviously, Taaleri's, you well know the Taaleri's history. It has always included different kind of quite sizable transformational changes as well, but those are difficult to, let's say, budget in a way. And we all know what is the overall market environment at the moment. So we are continuously looking for best possible opportunities to maximize the shareholder return. But obviously, we are quite cautious when it comes to the timing of the different major structural changes in our operations.

Okay. That's more clear than I expected. Then about the -- your Canadian, the torrefied biomass plant there. When are you in a position that you need to make like the, let's say, the final call that either you invest or then you withdraw? Like can you put us on the time line there?

Well, let's put it that way, that we are not in a position that we are urged to make a final decision to invest. It's really based on our own judgment that whether we would do it or not. Currently, we are doing feasibility with [indiscernible] and that's what we are in the middle of. And obviously, it depends quite significantly what kind of conditions and what is the operating environment there. The logic and the rationale behind the kind of the development company and the kind of the opportunity is based on the raw material availability and the pricing of the raw material in Canada. And that's the logic. And that has not changed based on the geopolitical situation. But obviously, it's the kind of putting this everything in a time line, it's actually quite, let's say, dangerous at this stage when, obviously, you have to secure a lot of things before you are able to do the final decision. And that's why it still most likely takes some time, but we are not in a kind of position that we need to make a decision. We have our time.

Okay. Continuing on that, let's say that at some stage, you would be in a position that you would decide that you want to invest on the plant. Would we be talking about the same size of investment what you have done in Joensuu? And secondly, would you rather do it from your own balance sheet fully? Or would you maybe try to create a vehicle around it like you did in Joensuu?

The structure is still open, and that is obviously very much dependent again on the market development and the development in the operating environment. So the final structure of the financial instrument is still open. The size of the one line is pretty much on the same level that it's in the Joensuu. The total amount obviously depends on how many lines we will open in Canada, whether there is -- if there is these 2 lines in 1 factory, obviously, the investment size of one factory is almost double, not quite because there is some synergies. And then it depends on how many factories you will build up -- building up in Canada.

Okay. Then a couple of more detailed ones. Do you still book some management fees from the old wind funds, 2 and 3? I guess...

Yes.

Okay. Then about the receivables, when do you expect to get the rest of the Texas receivable and then you have the development portfolio is a bigger chunk there. Any time line when you probably could realize those cash?

Again, like I said, it depends on the market conditions and the exact timing of the exit. But let's put it that way, that we are hopeful that those will happen during this financial year.

And now we have a question from Jukka-Pekka Pesonen from Nordea. So he's wondering about the SolarWind III fund and the total commitments now stand at EUR 481 million. So what's your best estimate for the fund's final size based on your commitment pipeline? Are you still targeting to close around the half year mark?

For the latter part, yes, we are targeting to close the fund in the midyear. The first part, the final size, there's still ongoing few due diligence processes with the investors. And obviously, the end result of those due diligences remains still open. And at this stage, it's really difficult to put an exact number. But like we said, it's quite likely at this stage that it will fall below our target size, which we have stated earlier.

And then a couple of questions from the other business -- about the other business units. So in real estate, has anything and then how much been invested already from the Keva mandate?

Nothing yet.

Okay.

So that's a simple answer.

And then moving on to Garantia. So first of all, what's the expected allocation for Garantia's investments going forward? It's been quite bond heavy so far. But is this the plan also in the future?

There is -- the current kind of split is quite close to, let's say, neutral position that they have in their investment portfolio. So most likely, there's not going to be dramatic changes. Obviously, they are making their own decisions based on the market environment, but it will be -- it will remain debt heavy also in the future because that is the kind of the base allocation in their investment portfolio.

Okay. Then there's a question about this -- the bond that Garantia has raised. So what's the fee structure on this? And how much will Taaleri earn from the bond?

That we have not actually opened, but it's -- we have said that it's guaranteed by Garantia. And obviously, that is -- comes with the fee. And then there is some part of the transactional fee as well.

And then let's move on to the -- some of the bioindustry projects. So do you have a target IRR? And what kind of IRR have you been able to achieve with Fintoil and with Joensuu so far?

The fund have their own IRR targets. I don't have those numbers from the top of the head. And obviously, it's actually not quite reasonable to take a look at the IRR in the middle of this kind of ramp-up processes and the middle of the investments. The final kind of IRR then kind of can be seen after the investments -- all the investments have been done and the ramp-up is ready and it's ready to kind of -- for the next phase of the investments.

All right. And then we have a question about the current macroeconomic environment. So what's the impact of tariffs on Taaleri's business? How do you think about this?

It will not have a direct impact for Taaleri's operations, but it might have an indirect impact for Taaleri's operations like in, I think, almost all businesses. First of all, it increases the uncertainty in the market, and that will always have a negative impact for the investment operations, all kinds of investment operations. The secondly, obviously, in our Canadian project development company, if there's going to be tariffs between the U.S. market and Canadian market, it might have an impact for the investment decision when the time arises, but that remains to be seen. But like I said, obviously, the tariff itself and the macroeconomic development has a lot of different kind of impacts to our operations when it increases the uncertainty in the market.

Thank you. Do we have any further questions from the floor?

Yes, we do. Just out of curiosity, you said that you will probably close the fundraising during the summer. Let's say that you still would have some good leads or discussions going on. Do you -- would you be able to postpone the final close of the fund for, let's say, 6 months or so, if you -- if hypothetically...

Hypothetically, technically, yes, we are able to do it. But our current plan is to close it during the summer.

All right. As there are no further questions, let's conclude this webcast. And I wish you a pleasant day and yes, a nice week. Bye-bye.

Thank you.