Taaleri Oyj (TAALA) Earnings Call Transcript & Summary

Good morning, and welcome to Taaleri's presentation of our results for the first half of 2025. My name is Linda Tierala, and I'm heading Investor Relations here at Taaleri. With me presenting today, we have Ilkka Laurila, our CEO; and our new CFO, Lauri Lipsanen. [Operator Instructions] And now it's my pleasure to hand over this presentation to Ilkka. Please go ahead.

Thank you, Linda. Good morning on my behalf as well. And as usually, we will go through some of the highlights that has happened during the second quarter '25 and that is then followed by result presentation of Lauri Lipsanen, our new CFO. Starting with the highlights of the second quarter. Second quarter was actually quite eventful quarter in our context. Even though that all of the activities have not been yet seen in the P&L, there's a lot of things that has happened during the second quarter. But if you take a look at the headline highlights, the first one is that the continuing earnings, especially in the Private Asset Management, grew quite significantly at 34.5%, and that is mainly driven by retroactive management fees, but there's also other good positive development in there. Then if you take a look at the SolarWind III Fund, the fundraising activity continued quite strong during the second quarter. Total amount of the new fund raised, the new amount that was raised during the second quarter was EUR 64 million. And the end result is such that, at the moment, the total size of the fund is EUR 503 million, but it's still open for one bigger investor. And hopefully, we will see the end result during the second half of '25. The third highlight is then that the Taaleri strategic partnership with Keva progressed quite nicely during the second quarter, and they were able to make their first investments during the second quarter, and there's a lot of activities in addition going on at the moment. In Bioindustry side, all the projects are still progressing quite nicely. And the Joensuu Biocoal plant was able to ship the first test batches to customers, and the quality seems to be on a good level so that we have a good possibility to progress in that ramp-up project as well. Marjatta Rytomaa started as a Managing Director of Taaleri Bioindustry during the second quarter, and there has been some other key management people changes also during the second quarter, which we will also go through. Garantia's market position has improved. So both the kind of the new sales is increasing as well as the market share is increasing. However, that is not fully seen in the P&L numbers, and Lauri will open a bit the logic behind the P&L and the kind of the delays and why and how that is then seen hopefully in the later stage. Finally, we made a strategic decision to strengthen our distribution and sales capabilities, especially in Finland, but also internationally. And we also discontinued our cooperation agreement with Aktia. We are still having obviously good dialogue with them. But at this stage, we made a decision that, for us, especially when considering Tier 2 and Tier 3 customers, it is strategically important that we are able to have an open dialogue with our potential investors as we are operating in such funds that are requiring quite deep expertise, and therefore, it's important to have a direct dialogue with the team and our own salespeople and sales team as well. Going forward, take a bit closer look on the SolarWind III Fund. Like I said, the total number is now EUR 503 million, out of which 56% is coming from the international investors, which is obviously a great number, and a lot of new investors coming from different countries, European countries. The size at the moment is 42% bigger than the previous vintage, which is also a good testimony how our fund and our track record has been seen in the market. Fund has already invested 55% of its capacity, which kind of is a good sign in that sense that they have a quite strong development portfolio in their hands. And therefore, the investment capacity is quite -- even though that it's quite high at the moment, they are able to deploy most likely investments in a quite fast pace, which then leads to faster initiation of the next vintage. Then if you take a look at -- a bit closer look at on the market and how the transactions in the market has developed lately. I think we have all seen here in Finland quite positive news when it comes to real estate transaction market volume. It has increased quite significantly during the first half of the year. The volume has increased almost 1/3 compared to the previous year. But on the left-hand side, you can actually see that the actual level where we are at the moment, even though that the development is positive, and we have been able to benefit from the positive development, both in our real estate funds as well as in our Garantia business, even though that the actual volume is quite significantly below '21 and '22 levels. Then on the other hand, the other important factor that we follow quite closely is M&A transactions here in Finland. There, actually, you could call that the picture is more, let's say, mixed. On the right-hand side, you can see that actual number of the transactions here in Finland has increased. But if you take a look at the euro value of the transactions, you can have a different kind of statistics. So the picture is somewhat mixed. And as you can see, the actual level of the activity is still quite somewhat lower level than it used to be a few years ago in '21 and '22. But all in all, in both of these kind of key transaction markets, which are crucial, obviously for us, the first half year development has been positive, even though that the kind of the comparison period has been quite low. Like I said, there has been a lot of key management team member changes in our -- in Taaleri's management team. Lauri will introduce himself later in the presentation. Marjatta Rytomaa started as a Managing Director in our Bioindustry business in May, and Timo Teivaanmaki was appointed to Head of Institutional Sales and will start his duties then later this year in October. Then some of the key figures. Kind of the overall picture of the key numbers is that if you take -- compare this to the previous year development, you can actually see that all relevant key numbers developed positively during the second quarter. However, like already mentioned, it was partially explained by the retroactively recognized management fees related to closing of the SolarWind III Fund. But then on the other hand, as we will see in the following slide, there was also a negative development in the Garantia's business, which is more related to, let's put it that way, technical accounting treatments than the actual negative kind of actual numbers and the cash flow. Then if we would go through some of the highlights of different segments. Starting with the renewable energy. As you can see, the operating profit increased from EUR 1.9 million to EUR 3.1 million, which is obviously driven by that retroactive management fees mainly. Then on the other hand, like I already mentioned, the EUR 503 million fund, which is the total number in commitments that is actually the biggest infrastructure fund here in Finland, which is a great testimony of the performance and the track record of our renewable energy business. Then maybe a bit more other type of news was that we were actually partly refinancing Taaleri Wind II and III funds, and with that, we are more freely able to optimize the actual timing of the exit in those funds, even though that those funds are still active on the -- active -- we are active in the market with those funds and looking for the exit. But most likely, as we have said in our outlook, the actual exit most likely will happen only after '25. Moving more towards the Other private asset management, maybe three things to highlight in that segment as well. Operating profit developed quite positively, as we had said in our outlook that it will develop positively in this year from negative EUR 0.7 million to negative EUR 0.2 million. Then on the other hand, Taaleri Bioindustry Fund prepared to execute its sixth investment, and hopefully, we are able to have some news on that later this year. And in real estate, positive development in that joint venture between Keva and Taaleri and they were able to rearrange the refinance agreements on certain funds, which is obviously a positive thing in this kind of environment and especially when it considers the real estate market. Moving forward to Garantia. Like already mentioned, kind of the overall activity is developing positively, which can be seen that the new sales is increasing and actually the market share in that business is also increasing. However, the insurance service result is declining from EUR 3.5 million to EUR 2.4 million, which is driven by factors behind the combined annual ratio as well as the kind of the changes in the portfolio, which Lauri will open then later during the presentation and the logic behind that. Total income from the investment operation increased from EUR 2.4 million to EUR 3.5 million, which actually combines those two items there on the right-hand side. So that part of the investment income which is recognized in the P&L was the EUR 2.8 million. And then the part of the investment portfolio result which is recognized in the comprehensive income was EUR 0.6 million. And it's important actually to combine those two when kind of making -- or looking at the performance of the investment portfolio. And when we take a bit deeper look on the investment portfolio, even though that this is a static picture from the -- at the end of -- from the end of the first half of the year, it's worth noting that if you would compare the portfolio split between the -- at the end of last year and the current situation, the total amount of the debt instruments at fair value, if you combine those light gray areas and light blue areas, is now 70% when it used to be 76% at the end of the last year. Then on the other hand, equity proportion has increased from 18% to current 21%. So we have increased our equity risk in our Garantia's investment portfolio during the first half of the year. Then our next segment is the investment. Revenue was actually negative, but that is only linked to one specific USD-related investment and one USD receivable, and that's driving those numbers. No major other changes in that segment. But then if you take a look at our investment segments, investment portfolio at fair value, maybe worth noting is that three biggest investments comprises more than 50% of the total investment portfolio. Out of these three that Truscott-Gilliland is that wind farm in Texas, out of which we own that roughly 7%. But those two other investments, namely Fintoil and Turun Toriparkki, in both of those investments, actually, the first half development has been quite positive. In Fintoil, even though that is a quite cyclical business, obviously, they have been able to operate their facilities almost at full capacity during the second quarter. Obviously, it's -- like I said, it's a cyclical business. It increases the working capital, et cetera, et cetera, but they have been able to gain new customers and therefore, able to increase the capacity utilization in the -- between the -- or during the second quarter. On the other hand, Turun Toriparkki, revenue is also increasing in there. Utilization rates are increasing, and we have been able to pass through some of the price increases in that business as well. Then if you would take a look at the smaller investments, the development in those has been more varied. You could call there has been some positive development, but also negative development in those, but out of the total investment portfolio, three biggest investments comprises more than half of the total portfolio. Then I would like to invite to stage our new CFO, Lauri Lipsanen, which will go through -- who will go through some of the highlights of the result and balance sheet development.

Thank you, Ilkka. My name is Lauri Lipsanen, I started as CFO 3 months ago. My professional background is that I have two Master degrees, one from industrial engineering and one from finance. I have worked 5 years in consultancy and 2 years in pulp and paper industry and the last 12 years as Group CFO in private equity-owned companies, the last company before Taaleri being Swappie. Then about the result. Taaleri had a strong second quarter of the year. Revenue grew by 8.3% to EUR 12.9 million, mainly driven by Private Asset Management segment and strong investment result from Garantia. These were partially offset by adverse changes in euro-USD FX rates as well as declined insurance service result of Garantia. And as Ilkka said, Private Asset Management segment revenue was driven by continuing earnings mainly related to the SolarWind III-related retrospective fee bookings. And this accounted for roughly 2/3 of the continuing earnings growth in Private Asset Management and also impacted fee level -- fee expense level in Q2. Garantia's investment result was plus EUR 2.8 million, whereas in Q1, the result was negative by EUR 0.6 million. And in Q2 2024, the investment result of Garantia was plus EUR 1.4 million. As Ilkka mentioned, exchange rate fluctuations were related to one USD investment and one USD receivable, and this burdened Q2 results by EUR 1.2 million. Then Garantia's insurance service results decreased from the comparison period due to increased insurance service expenses, mainly due to costs arising from onerous contracts and higher acquisition costs. And as a result, operating profit was EUR 4.5 million. In summary, the group's continuing earnings, revenue and operating profit all increased and operating profit margin was 34.8%. In contrast, in the previous quarter, operating profit was EUR 0.4 million burdened by market turbulance-driven net investment result. And therefore, the first half of the year, the operating profit was EUR 4.9 million. As evidenced from this slide, continuing earnings development has been fairly stable on a quarterly basis. However, both Taaleri's quarter revenue and operating profit have been fluctuating mostly driven by other than continuing earnings, which in this period under review, mainly relate to the net investment operations. And then we look respective figures in a rolling 12-month basis. We can see that the LTM growth in continuing earnings has been 1.5%, and other revenue and continuing earnings has been fluctuating on LTM basis. Operating profit has remained strong at over 45%. In Private Asset Management, continuing earnings have increased by 12.5% in LTM basis, and operating profit growth has been strong in this segment. When it comes to Garantia, Garantia's revenue has declined recently as both insurance service results and net income from investment operations have declined. Declined interest rates boosted 2024 net income result at Garantia. Whereas, the recent decline in insurance service result has been driven by two matters. Insurance revenue has been declining on a rolling 12-month basis until it has started to rebound from Q2 '25 onwards. This explains the drop in Q1 '25 LTM insurance service result, whereas the decline in Q2 '25 LTM insurance service results largely relates to increased insurance service expenses mainly relating to the onerous contracts and increased acquisition costs. When it comes to actual claims, those have remained at fairly low level and increased only by EUR 0.1 million in the first half of this year compared to the first half of the last year. The decline in net income from investment operations has been the main driver behind the decline in operating profit on a rolling 12-month basis. It should be noted that the part of Garantia's investment portfolio's fair value changes are visible only in the other comprehensive income reported below operating profit. And as Ilkka mentioned, Garantia's share of residential mortgage guarantees in new housing loans in Finland has increased materially during 2025, which have had a slight positive impact on Garantia insurance portfolio. You can see that the insurance portfolio has been somewhat -- insurance portfolio has been declining on a rolling -- but started to rebound from Q2 '25 onwards. But compared to rolling LTM insurance revenue, you can see that the rebound impact is rather immaterial. And this is due to the fact that our insurance revenue is recognized with some delay. On the right-hand side, we can see an illustrative example of how insurance revenue of a new residential mortgage guarantee group is recognized over the years. A thumb rule is that recognized insurance revenue decreases over time, mostly driven by decreasing risk exposure. However, the recognized revenue is materially lower for the first year compared to the subsequent few years due to fact that new residential mortgage guarantee contracts start more or less constantly throughout the year. And under IFRS 17, new insurance contract is recognized based on the weighted average timing of each annual insurance cohort. Then shortly about balance sheet. Our equity ratio and liquidity have remained strong. Available total liquidity was EUR 46 million, including the unused revolving credit facility of EUR 30 million. The first dividend tranche of EUR 7 million was distributed in April and the second dividend tranche will be paid in October. When it comes to investments, nonstrategic investments have declined by EUR 2.6 million during the first half of 2025 mostly because of the rest of Aktia shares has been sold in Q1 '25. Garantia's investment portfolio increased slightly compared to year-end despite Garantia distributed a dividend of EUR 7.5 million in the spring. This concludes my presentation. And as the next step, Ilkka will present the outlook section. Thank you.

Thank you, Lauri. And finally, the outlook for the year '25. We made a slight update to our outlook considering the Private Asset Management and renewable business in there. We are now saying that the exits from the Taaleri Wind II and Taaleri Wind III Funds are likely to take place after '25. And that's the only update in our outlook. So we are still saying that in renewable energy, obviously, the result of this year is dependent on how the timing of the certain fundraising activities, performance fees and the exits are coming. In Other private asset management, we are expecting positive profitability development compared to the previous period. And then on the Garantia side, like I said, they had an extremely strong comparison period, especially in the investment operations. And therefore, we are expecting a slight decrease in there as well as in the operating activity as well. But that actually concludes the presentation part of the second quarter and now we have time for the Q&A.

Thank you, both. [Operator Instructions] There's a question here from Sauli Vilen from Inderes.

Yes. Sauli from Inderes. About the sale of Wind II and III, can you explain why it takes so long? Because, I mean, it's a fairly simple asset and you have a long, long track record about it. So is it about the market situation, fluctuation in the interest rates, et cetera? Or what is behind the fairly long process?

I think there's two key drivers on that. The first one is that the overall transaction market activity which has been quite slow lately as we all have recognized during the last few years. But the second one is related to kind of the electricity market development here in Finland. And the actuality, the kind of the future price -- forecast prices for the electricity prices are kind of moving -- have been lately moving towards negative prices, and that has also had an impact obviously for the kind of the interest from the buyer side. We all know that here in Finland, we are expecting a lot of activity coming through different kind of investment activities, be it in those data center investments or whatever related to hydrogen and everything and new industrial facilities, but those have not yet realized in that matter that would have a significant impact of the price forecast of electricity prices, and that has also had an impact on those exit processes.

Are you still comfortable with the carry you have booked from those?

Obviously, at this stage, because those are not -- we have not made changes on those.

Okay. Then about the SolarWind development portfolio. Are you building a similar development portfolio as we speak, what you did before the SolarWind III? I'm already looking at SolarWind IV now. So...

Well, they are developing the development portfolio continuously, kind of project by project going forward. And that is actually quite -- actually significant kind of -- will have a significant impact for the next vintage in that sense that there's a lot of those kind of projects that they are able to move to the next fund, and that will enable, obviously, the faster development, both on the SolarWind III but then on the other hand, on the SolarWind IV as well.

So basically, the SolarWind III can sell the rest of the renewable portfolio...

Most likely so.

Okay, that makes sense. Then about the Garantia's dividend. Is the rest of -- you now paid the EUR 7.5 million -- are you paying EUR 7.5 million like in autumn when you pay the dividend out from the parent company?

Yes, that was the decision by the Board.

Yes. Then on your Texas wind farm project. Obviously, you were also planning to exit that at some stage. I think at some point, you also said that it can be during '25 or so. Has the current political situation in the U.S. affected the exit market of that kind of an asset?

Well, yes and no. Obviously, there's a lot of turbulence in that market as we all can maybe recognize. But then on the other hand, actually, the -- it has had a -- you could say that it has actually had a good positive impact for the existing facilities because there's now certain regulation, which has an impact for the new investments, but which then increases kind of the demand for the existing operating activities. And therefore, it's a bit mixed situation, and we all kind of recognize the turbulance in that market. But it's a -- it might end positively, let's put it that way.

And what about the timing on the possible exit there?

It is -- the asset itself, it is on that stage. But the same applies as it applies to other exit market and exit situation, that is you need a seller and buyer and you need a kind of -- the market is low, as we all know, the transaction market. And that's not the Finnish issue, it's a global issue as we know.

Okay. Then about Garantia. Why do you think that your market share has been increasing on the Finnish mortgage market?

Well, we are able to -- internally, we are able to measure in such a way that if you take a look, we know how much mortgage loan has been granted here in Finland. That's the available data, and we can see our own data, and through those two kind of KPIs, we can see that we have had a positive development in there.

Why you think is that? Why it has been increasing?