Taaleri Oyj

OMXH:TAALA

Earnings Call Transcript 2023-Q1

[Peter Ramsay, executive]

Good morning, and welcome to Taaleri's First Quarter Results. The first quarter for us was very much business as usual. There was a lot of action under the motor hood but less events that create headlines. However, our highlights for the quarter was that our continuing earnings increased by 24% to EUR9.8 million. Within the renewable energy business, the fundraising of SolarWind III was in full force, and we have also increased the amount of projects in the development portfolio to 35. The Bioindustry did their third investment in the Bioindustry fund into a company called Nordic Bioproducts. It's a company that is engaged in cellulose-based materials, and they also started preparations for a new fund.Garantia had a fantastic combined ratio. It stood at 24.3% for the quarter, and the insurance service results increased by 44% to EUR3.8 million. And Garantia now applies the IFRS 17 standard as of the 1st of January. So we have restated the numbers for 2022, so that they are comparable with the ones being disclosed. Looking closer at the numbers for the first quarter, as I said, the continuing earnings increased by about 24% to EUR9.8 million. The private asset management business there, we had an increase of 13.8% in the continuing earnings to EUR5.6 million and Garantia's continuing earnings increased by 52.2% to EUR3.9 million.We didn't book any performance fees for the quarter. And our total income for the PLC increased by about 6% to EUR9.3 million. Our operating profit stood at EUR1.6 million, that's a margin of 16.8%. And our assets under management were flat compared to the end of last year, standing at EUR2.5 billion. And thus, we booked earnings per share of EUR0.02 for the quarter. Now if we look at our 12-month rolling performance, I'd want you to focus on the left-hand bars on the third one where it says LTM, it shows our last 12 month continuing earnings, which are about EUR38.7 million.And then we have other than continuing earnings, which, in our case, is investment income and performance fees, and they are about EUR23.7 million. And again, on the right-hand side, you can see our operating profit, which for the last 12 months has been 48% and the euro amount is EUR29.9 million. Now if we look at the various income or cost sources for the first quarter, it's rather one-sided. On the other hand, we have a lot of continuing earnings, but then we have no performance fees and a slight negative investment income for the quarter.But I think the quarter is a little bit too short to look at our business. So thus, it's more sensible to look at the last 12 months rolling. And of course, here you see slightly more even bars starting in the left-hand corner with net continuing earnings from our private asset management business. Then we have the performance fees that we booked during the last 12 months, and we have Garantia's income from the insurance operations and then the investment income, which are a bit -- the pillar is a bit smaller. But as we remember, last year, it was a troublesome year for the fixed income market, and Garantia's investments are mainly in the fixed income space. And thus, that is a little bit lower.And then on the right-hand side, we see the operating profit for our rolling 12 months, which is EUR29.9 million. Moving over to our private asset management business, and we start with the renewable energy. As I said, the SolarWind III fund is being -- is heading for its first close. Just as a reminder, this is a Dark Green Fund under Article 9 under EU's SFDR, i.e., Sustainable Finance Disclosure Regulation. As I said, we're heading for a first close in this quarter. And as earlier communicated, the development portfolio stands at 35, which is a good number, i.e., that is the projects that then will be executed within this fund as it has raised money.The income was EUR3.6 million, slightly down from a year ago. It's mainly driven by currency effects. And if we look at the continuing earnings, they actually were up 11.2% to EUR3.9 million. Moving over to our other private asset management operations so within the real estate business, they have been active in trying to develop new products. Not an easy market for the real estate investors right now, but there's always room for new innovation. And they also have some older funds that are coming to the end of their life span. So we will probably start preparations for next -- there in the coming years.Within the Bioindustry, as mentioned, they did their third investment within the Bioindustry Fund. This is a really interesting company that produces cellulose-based materials with a high processing value. And the team is also making preparations for a potential new fund that would invest in start-ups in the Bioindustry space. And our reasoning is as the Bioindustry ecosystem is being currently developing quite rapidly, it feels logical that we -- if we want to be a player in the field, also look at companies in -- that are in an earlier stage as a -- that we invest in these as well.The team has had numerous encounters with extremely interesting companies in the space, but really lack the vehicle to invest into these situations because the Bioindustry number one fund is a growth investment fund and does not invest in early-stage companies. Anyhow, wrapping up on the other private asset management business, one can say the continuing earnings increased to EUR1.6 million, mainly driven by -- that we managed to raise more AUM last year. There were no performance fees for the quarter, and the income was actually also EUR1.6 million and the EBIT, so the operating profit stands at minus EUR0.5 million.Now if you look at the private asset management business over a rolling 12-month period, we can see that the continuing earnings and our other than continuing earnings are about evenly struck, slightly over EUR21 million each. And on the right-hand side, we see the operating profit for the last 12 months, which is EUR17.8 million. That is an operating margin of 42%. And this is a picture of our funds that we manage and the AUM from these funds. There's a -- it's a very busy slide, but on the right-hand side, you can see the split between the various business lines.And of course, as we expect to do a close here for the SolarWind III fund in the second quarter, that dark blue bar that stands 4% will naturally increase its portion of the AUM. Moving over to Garantia, which we call our strategic investment. And as I earlier said, we have restated the numbers for the first quarter as we now apply the IFRS 17 standard from the 1st of January. And if we look at the combined ratio, it was 24%. This is a remarkably low number and the insurance result within Garantia grew 43.8% to EUR3.8 million. Now this was a mix of increased revenues and a decrease in expenses. And we actually booked no losses in policies or in contracts within the IFRS regime within the first quarter this year and last year, there was some losses booked.So income stood at EUR4.8 million, and this was due to an increase in insurance service result. There was also an increase in net investment income. January and February were very strong in the fixed income market. In March, Silicon Valley Bank was rescued and we had a slight increase in spreads due to that but nevertheless, there was a profit of EUR0.9 million in the investment income. And the operating profit for the first quarter was EUR4.4 million. The guarantee insurance exposure is currently EUR1.8 billion. It's slightly down from the end of last year when it was EUR1.9 billion. And the solvency ratio is very strong. It's 235% for -- at the end of Q1.Moving over to what we call our non-strategic investments or other; I mean, what really counts here is we look at the book value of the portfolio. And here you can see in the light blue box down at the right -- in the right corner, the book value was EUR24.6 million at the end of the first quarter. This is really mainly a technical correction from year-end. We haven't really sold anything. There's slight currencies that have gone against us and then one of the companies we did a small adjustment to fair value. So all in all, the continuing earnings were EUR400,000. Investment stood for a loss of EUR500,000, and the income was more or less zero and the operating profit, minus EUR1.4 million. And that's due to the fact that we are allocating costs here as well.All right, I'll hand over to our CFO, Minna Smedsten, then she'll run you through our results and the balance sheet.

[Minna Smedsten, executive]

Thank you, Peter. Yes, my name is Minna Smedsten and I'm the CFO of Taaleri. So let's take a look at our businesses, a little bit next to each other and how our income comprises of the businesses. So you can see that basically, our continuing earnings were EUR9.8 million. And our private asset management share was nearly 60% and got on just 40%. As we didn't exit any funds during the quarter, we didn't book any performance fees either. And we booked a EUR0.3 million decrease in fair value in -- from currency exchange in the Texas Wind Farm project.And now a few words about our strategic investments, so we present Garantia here. And Garantia's continuing earnings grew to EUR3.9 million. And the net investment income grew to EUR0.9 million, but we also present the fair value change in our Aktia share position, and that position decreased with EUR0.7 million in Q1. And according to IFRS 17, most of Garantia's insurance-related expenses are netted from the cost side and transferred to the income. And thus, Garantia has very small expenses, and you can see operating profit of 90.2%.Our group's operating profit, excluding net income from investment operations improved to -- improved from EUR1.6 million in Q1 last year to EUR2.1 million, and that corresponds to 21.8% of income. Now let's take a look at the quarters next to each other, and our continuing earnings grew to 24%, and our turnover increased 59% to EUR9.3 million. A few words about our costs; basically, biggest cost items are naturally our personnel costs. And here we have booked EUR1.5 million in bonuses. That's an increase of EUR0.4 million from last year.And our fixed personnel costs grew EUR14.5 million -- 14.5% to EUR2.8 million, mainly due to recruitments in Renewable Energy and Bioindustry. Here you can also see a comparison of the IFRS 17. So now looking at the right-hand side, you can see a column of IFRS 17. That is how we have restated our last year financial figures and the IFRS 4, what we actually reported last year. So now looking at the items and the columns next to each other, you can see that most of Garantia's expenses are transferred from the cost side to the income and when the costs are netted, then naturally also our operating profit then increases in the group or actually in the -- according to IFRS 17.But on the whole year basis, we didn't see any changes in the profitability, but we will see a variation during the quarters. So the IFRS 17 will increase the volatility between the periods, but not on a long-term basis. Then finally, a few words about our balance sheet; Taaleri has a solid balance sheet with an equity of EUR202 million and total assets of EUR308 million, and that gives us an equity ratio of 66%. Our AGM that was organized in April decided to distribute a dividend of EUR0.70. And that corresponds basically to EUR20 million. And when you take that EUR20 million away from our cash balance sheet, you can see that our cash stands today basically at EUR32 million.Then our biggest item is naturally Garantia's investment portfolio that consists mostly of fixed instruments and that totaled EUR144 million, and that is after the dividend of EUR10 million that they paid to the parent company during Q1. Actually, Garantia has now paid the acquisition price back to us. They have returned EUR63 million in dividends, and we actually paid SEK60 million in 2015. All-in-all, we also had the strategic investments in private asset management and that totaled EUR37 million. Thank you.

[Peter Ramsay, executive]

All right. Thank you, Minna. So summarizing our first quarter, we had an increase in continuing earnings within the renewable space, all eyes is on SolarWind III fund raise. Of course, they've increased the project portfolio. You must not forget that they are also advancing the projects in the previous SolarWind II fund every quarter. Within the Bioindustry, we did one more investment and then they're preparing for the next venture capital fund and Garantia restatement of the results, plus they had a very strong quarter.And what's going to happen in the next quarters? Well, of course, we're eagerly looking for first closing SolarWind III. Within the Bioindustry, I'd say it's -- they're of course evaluating new investments within the fund, the Bioindustry I Fund. And then they're also starting the construction of the torrefied biomass plant in Joensuu, which we have talked about earlier. And within the real estate business, they're looking at the possibility of developing new products. And in Garantia, I would say its business as usual for the coming quarters. Thank you.

[Operator]

[Operator Instructions]

[Sauli Vilen, analyst]

Sauli Vilen from Inderes. About the new Bioindustry Fund, let's call it the start-up fund now. Can you give us any indication what size that fund could possibly be?

[Peter Ramsay, executive]

So it's not going to be a big fund because it's sort of a venture capital fund. And I don't know what the size. It has, of course, to do with what the market can take, but it's -- we're not talking about more the max EUR50 million, if anything so just to give you a ballpark number.

[Sauli Vilen, analyst]

And the fee structure, I guess, the Bio I gives a good indication about fee structures of fund in that field?

[Peter Ramsay, executive]

Yeah. But let's have the fund in place first before we talk about fees.

[Sauli Vilen, analyst]

Okay. Then about the Bio I, how much of the capital is committed at the moment of the total capital?

[Peter Ramsay, executive]

The Bio Fund. They've done three investments. I don't have the exact number, but I would say it's between 20% and 30%. But this is a very -- I'd rather give a broader -- sort of broader range on that, but that's what I would say.

[Sauli Vilen, analyst]

And then about the real estate, obviously, a good thing that you try to develop new things. But I mean, how confident are you that you are actually able to sell anything in this market since I mean basically all of your peers who has real estate, real estate funds or products, they basically cannot sell anything at this stage. Actually, the outflow -- that there is outflow more than inflow. So I mean this is kind of a tricky situation, I guess.

[Peter Ramsay, executive]

Yeah, it's a tough market. I mean you're absolutely right. So developing new funds is then finding opportunities that fit into this market, but it's not going to be an easy sell.

[Sauli Vilen, analyst]

Then about the last about the SolarWind III, I mean, you're obviously getting closer to the first close now. But I mean, can you give any indication like how -- what has the feedback been on the market? And I mean I guess the demand is there for that kind of asset, but are the institutions willing to close at this stage when the market is overall like the alternative market is fairly -- I mean, it's not what it used to be, like -- with the year or two year ago, so I mean, can you give us any indication about the overall feeling yourself?

[Peter Ramsay, executive]

I think if anything you want to raise in this market is a renewables fund. So that's perhaps the good news on the fundraising side. But you're absolutely right that the pipelines are not what they used to be and the appetite is not. But that's perhaps sort of the only good thing that if you want to raise something, it's this kind of a fund. Let's see where the first close ends up at. And of course, that's not the last close either. So I think it's sort of typically, you have two or three closes. But -- and that might change in the due course.But it's definitely a different landscape than it was if we go back one or two years, that's for sure. I mean there are several factors that affect that. One is, of course, the fact that interest rates have risen. And the other thing is that that the sort of uncertainty with how allocations are that our people overweight or how do they look at that. Fortunate for us is that this is a very specific sort of allocation. It diversifies your holdings, and it doesn't necessarily correlate to the extent -- with the exception of the interest rate. But of course, there, we have a mitigation from energy prices that then, of course, are sort of -- you have to balance those two.

[Joni Sandvall, analyst]

Joni Sandvall from Nordea. Maybe a couple of follow-ups still on the renewables side. Have you seen any changes in LP's allocations? Have you seen reduction in allocation sizes?

[Peter Ramsay, executive]

Well, it's too early to say. We have to see the first close when the ink is dry, but I mean, we're aiming, of course, for a bigger fund, we have a bigger pipeline. So I would expect that at least some people will increase their allocations, but it's kind of hard to give you an exact answer on that before it's sort of -- before it's closed.

[Joni Sandvall, analyst]

Okay. Then maybe a bit about exit pipeline for the non-strategic investments. Obviously, it's a tough market currently. So when should we expect some news on that front?

[Peter Ramsay, executive]

Well, we have sort of our internal roadmap for that, and we hope that we can show something also this year. But of course, if you look at some of the investments that we disposed off last year, it was a better market to dispose those. So I'd say we were -- I'm not saying we were lucky, but we had the opportunity. We did that. But we're not going to force anything out of the portfolio and especially if it's not yet ripe to be sold, I think also for our shareholders, it makes sense then to sort of harvest those a bit longer.

[Joni Sandvall, analyst]

Okay. And final related to new possible Bio Funds. So how large investment in personnel you need to operate this.

[Peter Ramsay, executive]

Well, we have a team today that's eight, and we might talk about one addition to that within that current team. We have structured it so that there is room for this fund. Now we're exploring if we can execute on that. So I think that's our sort of take on the whole situation is that there's -- the ecosystem is developing. It's been very polarized driven by the big companies and then you've had the universities that do research. But there is sort of a space, and we've run across so many companies there, which are interesting. So really, the idea comes from that. Now the future will tell if we will have investors that also are aligned with our thoughts. But maximum one person, it would take to sort of be able to run that fund in a professional manner.

[Operator]

Any more questions?

[Analyst, analyst]

[indiscernible]. Good morning, investor. I'm also on the fee side. On [indiscernible], is the fee structure similar to the previous ones where after first closing, the full commitment is counted into the fee which starts running?

[Peter Ramsay, executive]

You mean yes, subsequent. Yes. Yeah. It starts from sort of when you do your first close then retroactively, you sort of collect the fees.

[Analyst, analyst]

So that starts up to quarter two.

[Peter Ramsay, executive]

Well, the idea is that we do -- yeah, our first close during this quarter.

[Analyst, analyst]

Right. Okay. Any reference clients there that you can mention that have signed?

[Peter Ramsay, executive]

I'm going to wait until we do the first close.

[Operator]

And there are no questions from the webcast at the moment. So I think we are wrapping up.

[Peter Ramsay, executive]

Okay. Thank you very much.