VEF AB (publ) (VEFAB) Earnings Call Transcript & Summary

Okay. Very welcome to this slightly old format of an AGM. My name is Lars Gronstedt, I'm Chairman of Vostok Emerging Finance. And with me, I have David Nangle, our CEO. The reason we hold it like this is that we hold, for obvious reasons, we, as all other companies, hold a very restricted general meeting, and we'll rob you of the experience of asking questions either to Dave or to myself, and we thought, as many other Swedish companies, that this format, where we have a Q&A session before the actual -- by the week before the actual AGM is one way of allowing you as shareholders to ask those questions you might have like to ask at the actual AGM had that been a normal AGM. So that's the purpose of this. We will spend about the first 15 minutes doing 2 brief presentations. Dave will present what he would have said at the AGM about the company, and we do have, in connection with the AGM, we have a decision concerning what we call the redomestication of Vostok Emerging Finance. So we leave our Bermuda, our legal base in Bermuda, and go onshore here in Stockholm, and I'll briefly talk about the background to that. [Operator Instructions] With that, I thought I should leave to Dave to do your introduction, what you would have said, had we had an ordinary AGM.

Super. Thank you very much, Lars, and welcome, everybody. I am very happy to have you in this forum with us. I have shared my screen so, hopefully, you can all see the presentation I'm going to run through, and it will be available on our website as well for your reading. And what I'll do in the presentation, because it's the kind of the AGM format one, there will be a little bit of a reminder of what we're all about, our history into the current trends, we had our results out today and our Q1 numbers, and then what's coming next year down the pipe. So I'll try and wrap that all up in about 10 to 15 minutes max. But as a reminder, what VEF? VEF is the emerging market fintech investor. What we're doing is we're crossing over 2 strong -- very strong trends in emerging markets, long-term underpenetrated financial growth with a long-term structural growth story in fintech, which is obviously the future of finance, as finance becomes more digitized and online over time. And we're in the crosswinds of both of those 2 very forceful trends, and that's where we're investing into fintech in markets like Brazil, India, Pakistan to name but a few. We do this from a strong team based in Europe, and we do it via a share listed in Sweden on Nasdaq First North. We've been doing that for nearly 6 years now. Time has flown. We've gone from an idea at inception and a market cap, a NAV sub $100 million and one investment to nearly $400 million or approximately $400 million of NAV market cap today. We've made 16 investments since inception, 14 in the portfolio. We've got 2 exits at IRRs of north of 60%. And our IRR for our NAV per share and our share price has been hovering around 27%. So we're turning what once was theory into a decent reality for both ourselves and for you, the investors. And how we look at it is we've always had a sector and geographic overlay. Sector, it's all things, fintech. And fintech is a broad area of finance. So you can be in credit payments, personal finance investments. Increasingly, it's embedded fintech as the world of financing encroaches into all areas like health, education, mobility. And the future finance is realistically everywhere. Geography, we've always had our eyes on the big-scale emerging markets, the Indias, the Brazils and Mexicos of this world, where we believe it's much easier, albeit still hard to create value in a scale single market and harder, again, to do it across multiple geographies. So hence, most of our companies and most of our success has been in scale single-country plays. And then we take minority stakes in these companies and Board seats, for the most part. We're an active investor and very active in the stories that we are, both from an ESG perspective, from an economic perspective, and we really parted their stories through to exit. And then we're quite a unique investment vehicle in what we are. And taking theory into reality, where are we today? As I said, we're in 14 companies across the emerging world. We're heavy in Latin America, 6 of those 14 are in Brazil, 2 in Mexico, so it's 8 out of 14 in the LATAM ecosystem. And Brazil is unique in many ways and the most attractive fintech opportunity across the emerging world, if not the world, in our view. But we're also in some of the up-and-coming countries across Africa, Pakistan, India. We've made our second investment there this year. And then we're in East Europe and Russia, and we've exited out of Turkey. So we've got a great experience across multiple scale emerging markets, across multiple stages of investments and in multiple sectors of fintech across the years of experience that we've done this. If you look at it from a portfolio point of view, [indiscernible] $403 million of NAV as of today's quarterly results. In cash, just $45 million, so we're sitting on a cash position after our placement -- successful placements in Q4 of last year. This concentration around a couple of assets in Creditas, which I'll talk about because it deserves talking about, Konfio. Both of them account for maybe 60% of our NAV. As the nature of an investment company like ours where some of the bigger assets start to break out, we put more capital in them. There comes a concentration in them, then we exit and we do it all again, hopefully. And that's the circle of fund that happens in a company like ours once we're succeeding and delivering, and that's obviously our mandate. I think the track record I kind of show on this slide, Slide #6, is quite key. We -- since inception, we had the #1 fintech assets, not just in our view, I think it's a market view, in Russia and we exited that at a 65% IRR. We moved into Turkey with iyzico. We had the biggest fintech exit in that market, an online payments company, a phenomenal asset at nearly 60% IRR. As of today, we're in top 3 fintech names in both Mexico and Brazil, and we've got a growing quality portfolio in India, which I think we, once again, will have a top-tier name or top-tier names within India. So it's a growing track record where we can copy, paste, replicate our expertise into new exciting scale emerging markets and add some of the best names in the private fintech space and add value and create value for you, the shareholder, over time. And this obviously feeds into our NAV per share and our share price, which is what everybody cares about at the end of the day, good quality, sustainable delivery in value and over time, and that's partly through realized exits and partly through the mark to model of our portfolio of companies as they grow. And you can see from an NAV and share price developments, they track each other naturally as they should and has been a gradual growth story over time. And within that, we obviously track this -- the chart on the right, the discounts to NAV. We're awarded not for size. We're not $100 million or $1 billion. What counts for us is NAV per share and share price as it does for you. And so while we're driving the NAV per share, we're also trying to keep that discount as close to NAV as we can. We'd like to think, and more and more, it's happening that the longer track record we have of value creation and of exits in a space that we're playing in, we trade closer to NAV and even beyond as people start to look through. We've seen instances of that in the recent past. And also a key point here is just our size and scale today. I think at $400 million of NAV and market cap, we're a much more investable creature for you, the investor, much more liquid asset for our shares. And these are all important things that we think about, which we know are important for you, and hence, they're important for us. And from a shareholder basis, just public information. It's been quite a sticky solid shareholder base over time. And it's been great names and benchmark names, both locally in Sweden and globally. And it stands as a testament to us. As a company, we're proud of this shareholder base and we show it off as much as we can, and it gives it a real quality tick mark on us as a company, and we're very grateful for it, and we're very happy we can deliver value for it over time. And from a team point of view, this would have been less in previous years. The quantum has grown in line with success. We're adding more assets, i.e., people added to the team in a diverse way across our different markets and different skill sets. And it allows us to do more with more skill set on the team, and I'm very happy. It's one of the areas that I'm probably most proud of that we've built within the team and over time. And I always say to Lars that this company is about the investors, first and foremost. It's about investments, you've got to get that right. And if we're building the business and building the business, the team is obviously an anchor point to that after the long term. And I'll say a couple of points on Creditas because it is now 42% of our NAV. And if you own a share in us, you own a very big part of that as Creditas. And the good thing or the great thing about Creditas is that it is becoming more transparent in its delivery. And that's not something that we can say about all of our companies because they're smaller private assets, and they tend to only open up over time. But Creditas has got to that kind of series E stage. It's on a path towards IPO. It's comfortable in its own skin and I'm starting to share, on a quarterly basis, it's highlighted numbers. So Creditas, those secured lending in Brazil and now Mexico against homes, against cars, against salary. And that's been growing at 2 to 3x clip per annum in originations and revenues over time. And that's coming through in the numbers, which are, as Sergio, their CEO would say, up and to the right, and we're seeing that in the loan origination in the revenues, and that's obviously feeding through to a very fast-growing asset, a very valuable asset. It was buying $2 billion in their last investment round, and you can see how the run rate revenues are about $100 million at this stage, but let's say, growing 2 to 3x per annum as it goes. So this is one that's one of our -- it's our biggest asset. It's our most in-focus asset. It's our most transparent asset, and it's one that's moving towards IPO in 2022, and that's the plan and as we currently stand. I'm just going to mention Rupeek against the other 14 because it's our latest investments and move into India. And India's market, we weren't in 12 months ago, and now we've got 2 quality names in that market in Juspay and Rupeek. And Rupeek actually reminds us a lot of Creditas in the secured nature of its products -- secured against gold. And one of the biggest financial opportunities in India today, where people can borrow against their savings, which are mainly held in gold across the country is the nature of that market. And they're moving into what is generally an informal space and formalizing it and giving people better loans at better rates and better durations. So it's a very obvious space to be investing for us in that market. I'll just get forward to sustainability and ESG before I wrap up with my comments. But I think on the sustainability and ESG front, this is something that we've been generally talking about for years without formalizing. We've gone about formalizing in the last 12 to 18 months. And I think I can grab 2 phrases here. I think. One is from the sustainability side, we've always had the view. It was not ethical, it's not scalable. And what's not scalable is not good business or investing. So this has been very much at the forefront of every investment we've made, and our portfolio of companies do us proud on that front in terms of financial inclusion, bringing down the cost of finance. And that comes across in Creditas, Jumo, Konfio, to name but a few within our portfolio, and this is a key part of what we do. I think on the [ G ] front, that's coming through in this presentation and also the redomestication, Lars is going to talk about and moving to a Swedish holdco, which very much sits on the governance front. And then finally, to wrap up in a few comments. We look for 2021 and beyond. And what I'd say is our NAV track record is very strong, it's reaching new highs, and it's got a strong basis for continued growth from here. We know the downside risk, but we're very confident in the upside from here. Creditas is our core asset today. It's not our only asset, but it's our core asset. And the exciting thing for us with that one is it's compounding from a larger base. So the position that's compounding from its building 2 to 3x from that base excites us even more. I'd keep an eye on Konfio, which is becoming the largest SME financial services play in Mexico. And then our Indian holdings, obviously, are coming up now and over the last 12 months in. And Juspay in the mobile payment space, and Rupeek in the gold back lending space, are very interesting assets that can break out in the nature that Creditas did for us in the recent past. ESG is at the core of everything we do now. We're going to talk about the Swedish move, but also our portfolio of companies doing us proud on that front. And then the theme itself of fintech is gathering momentum. We've been doing it for nearly 6 years. We're not getting carried away with the hype in the market, the amount of capital in that space, chasing assets. We are very long a portfolio of quality EM fintech assets, and that bodes well in an environment like this. And then we're very structured in our approach to adding anything else to that portfolio. So I'll stop my commentary there, Lars, and I will pass back to you for a movement to the domestication space before we move to Q&A.

Thank you. As you know, we are currently slightly are beast in the sense that we are listed here in Stockholm on First North. We have a voluntary undertaking to, as far as is possible, behave like a Swedish company, but we have our legal base in Bermuda for historic reasons. We were spun off in 2016 from what is now called VNV Global, which at that time used to be a Bermudan company as well. It has last year been through the same redomestication process. So it's now a Swedish company in -- also in the legal sense. The advantages of being in Bermuda, where nobody in the Board is based in Bermuda, nobody in management is based in Bermuda, and Bermuda is not necessarily a location that investors look upon as very safe and healthy. All that has pointed to us moving to either to Stockholm or to London. We've made a very, very extensive study, and we've found that moving to where we are listed, here in Stockholm, is the more advantageous move. So we will ask you in connection, not at the AGM itself, but in a special meeting, as we call the scheme meeting in connection with the AGM. We will ask you as shareholders to approve the move from Bermuda to Stockholm. It will mean, in practice. It will not mean very much for you as investors. The share that you have now in the Bermudan company will be exchanged one by one, 1:1 to shares in the Swedish company, still listed on First North. If we should try a relisting to the main Board, that's another process. But it is a process that is well-known impossible to do if you still have the Bermudan base. So we have not yet decided if and when we move to the main Board, but we cannot do that at the Bermuda base. So this is a step that will allow us to potentially take that decision later. There is a legal process in Bermuda once this scheme meeting has approved, the move, but we don't expect any particular blocks there. So in some time, 1 or 2 months after the scheme meeting, the actual redomestication will have taken place. But in the meantime, we'll continue to work just as we do today, and then the whole process will be hopefully of very little hazard to yourselves as investors. And I can say that also because, as I said, we've been through it at VNV, and in the end, there was a lot of legal work. But in the end, it went quite smoothly. And I hope and expect and plan that we'll do it as smoothly here as -- at Vostok Emerging Finance. That is what I was going to say on the move -- the action to move the legal base to Sweden. But of course, if there are further questions, I'll be happy to take those in the Q&A session, which means that we are now -- we come to the Q&A session, and I'll open up for questions.

[Operator Instructions] So please feel free to take the floor away, who wants to take the first question. Okay. Everybody is sitting on their hands. If there are no questions, of course, we will not just -- then we will conclude here. But I'll give another minute or so for you to find the opportunity to ask if there's anything you want to ask.

Lars, we have a question from [ Klaus Gummerer ]. Klaus, you are now allowed to ask your questions.

I wanted to talk about, or make a question about the increase of the investment team that you have made and announced recently. Where do you see like the ideal size of the team going forward?

I'd let you answer that, Dave.

Yes. Super, Lars. Let me just -- do I have the slides? Checking if I had the slide in here with the team, one second and I will answer. Here we go, sorry. Yes. So Klaus, the way we thought about the team and resources was very much the way we like to build with success. So with our AUM or NAV going from $100 million to $200 million to $400 million, we felt a lot more comfortable building out resources post -- or with success, as opposed to being one of those firms that built a team or built the resources ahead of success. So as we grew, you can see that these people have joined our team, and over time since the 2015 when I effectively started out this from a drop-off from VNV. I think at the moment, we have 4 people, if you include myself, Henrik, Alexis and Cathal on the investment management side. And Henrik has a few hats, but he's on the investment team as well. And then we have the associates or the analyst pool in Eire and Shashi. Now Helena, obviously, from Sustainability and Counsel gets very much involved in the investments, and Elisabet just handles all the stuff on the Accounts side. I think the team of 8 today is very well -- I think we're very well structured in terms of size, resources, abilities. It is across 3 countries already. I think we're already the ultimate digital or remote team ahead of COVID, so we've been focusing very well through COVID. We haven't missed a beat. But I would say that I've always told Henrik, Helena that we're always hiring. We're always looking for good people, and we're in no rush to add anymore. But I think size and shape, we're in good position today in terms of mix and type of skill set for the assets that we're managing, for the amount of positions that we have and for the pipeline and investor work that we do.

To me, it's -- cost as a percentage of net asset value is, for me, a very important metric when measuring the efficiency of our performance. And if we take an ordinary [ mutual ] fund with the specialization like we have in emerging markets and the specific area of investment, you will usually pay between 1.5% and 1.8% in yearly management fee. If we go to private equity, it would pay significantly more. So to me, it's always important to be below a cost base of 1.5% of NAV. Last year, we crossed that threshold with some margin. And that's a metric that I'm always looking at, of course. And of course, the size of the team impacts on that metric. And that metric puts a break on expansion. So what we -- as Dave said, what we want to do with that amount of money is we are looking to get the absolutely best and most skilled professionals and not skilled only in their personal capacity, but also skilled as a team, working together as a team. Okay. If we have no further questions, I thank you for joining this session. And I regret that we can't see you at an ordinary AGM. Hopefully, we'll be able to do that next year. And we'll close the session. Thank you very much.

Thank you.