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

Good day, and thank you for standing by. Welcome to the VEF Second Quarter 2025 Earnings Conference Call and webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Mr. David Nangle, CEO. Please go ahead, sir.

Thank you, Razia. Good morning and good afternoon, everybody, and specifically good morning to everybody in New York, where I'm doing this call today. Welcome to our Q2 results presentation conference call off the back of our results, which were announced this morning. And with me, as always, on the call is our CIO, Alexis Koumoudos. Quite a focused presentation for you today. We've got 14 slides in total, but 10 active. And we'll do that quite quickly and in a focused way, giving you the highlights and where we're thinking about everything and life at VEF and then happily open up for questions. Before I get into the deck itself, maybe just some general opening comments on what we're seeing at VEF and through the prism of the markets. What I would say is that 2025 this year, it does continue the improving trends that we're seeing -- that we have seen gradually come through since the 2022 -- early 2023 lows for both public markets and our industry specifically. And this is something -- these trends that we've seen evolve through '24 into 2025 month-on-month, quarter-on-quarter. It's something that I continue to talk about in forums in the market and write about in our investment letters and in quarterly reports. Specifically, there has been a public market supportive backdrop year-to-date. You see that obviously in the main indexes out there. But then specifically to emerging markets and risk assets, it's been even more so, we've been accelerating and outperforming, and that's a nice backdrop to everything that we do. Importantly, within that, capital is flowing. Capital is flowing into funds that invest in private companies. Capital is flowing out into private companies, more rounds are happening. We see that through the prism of our portfolio. And finally, capital is flowing out via exits, and this is something that was tumble weeds maybe 2, 3 years ago, but has been picking up pace and momentum even at the point where nearly IPOs are becoming a trend, not to get ahead of ourselves, but IPOs, M&A, secondaries, more exits are happening and you see that VEF. On a macro level, growth is picking up and interest rates are broadly falling in a lot of parts of the world. So -- and in FX, the currencies that we're exposed to are strengthening versus the U.S. dollar year-to-date. So a lot of positive trends happening in our world, incrementally building up momentum month-on-month, quarter-on-quarter. And this is everything that we see. And then we see it through the prism of our portfolio and our daily business. Against this, and these are general comments, we're still early in the cycle. We're very open and honest about that. It's the best-in-class funds that are raising money, best-in-class fintechs that are exiting. That's the way it should be. We saw with Juspay recently at VEF. And I think the investment company universe, which is focused on this space like ourselves, has been a little bit lagged in catching up, but you can feel that momentum building now in everything we do. So there are general comments on the backdrop of everything we see. Getting specific into the investor deck for the quarter on Slide #2, what we saw in Q2 from a NAV point of view, up 6%, 6.1% year-to-date, up high single digit, 5% quarter-on-quarter. The main drivers in this quarter, and it's different every quarter, it was mainly on the market side with multiples being a nice tailwind as were FX in key markets like Mexico and Brazil specifically when you look at a name like Creditas. The portfolio, continued message on this front around the portfolio one, the risk -- generally, the risk rewards portfolio is much better than it's been for a long time with majority breakeven and growth is now back in focus. And we've got a nice slide on this, focusing on our biggest companies. But we expect 30% to 35% revenue and gross profit growth aggregated across the portfolio over the next 12 months. And this is all NAV tailwind effects that we expect going forward. Specific to that and our biggest asset in Creditas, you see the lead generation fact of loan originations up 44% quarter-on-quarter -- or year-on-year for the Q1 numbers that came out recently. That then drives the loan growth up double digit year-on-year and accelerating. You'll see that into Q2, and that then drives the income statement. There's always some volatility on a monthly, quarterly basis, but the trends are very clear around putting the foot back down on managed cash flow positive growth. Exits continue. And I think this is very important for the industry and for VEF. We have a slide we focus on exits and IPOs and in the industry at large, but it's only important when those broad market trends actually impact us here at VEF and our shareholders through the prism of everything we do. And we've had 3 exits in the last 12 months. We've tapped the IPO market in India with BlackBuck. We've had a trade sale in Brazil with Gringo, and we did a nice secondary sale or partial sale of our Juspay position recently in India. That $37 million comes in and it strengthens our balance sheet, and it gives us healthy options around capital management and capital position. And I guess then what we've been doing with that, and this is consistent messaging, delivering on promises around exits, using that capital in kind of an investment management 101, it's almost the playbook. It's the right thing to do. We're joined at the hip, I think, with most of our big investors in the actions that we're taking, paid down almost half of our remaining debt, SEK 160 million in the quarter. It was nice to that early partial paydown that we had obviously linked to our bond notes. And we started our buyback program doing $4 million of buybacks of our shares at these levels in the quarter, something we will continue to do and look forward to doing and what our shares trade at a healthy discount to NAV. And one of the positives of trading at this discount is our ability to put capital to work in our own shares and our own portfolio at a NAV and NAV is justified by the recent exits and fundraises that have been done across the board. And then I guess a lot of that I'll say is investment management 101, why people are with us on this journey, where is our strength -- where is our IP and our edge? It's really in pipeline. It's in finding the next Creditas, Juspay, EasyGo, Tinkoff and for our portfolio for investors for long-term growth. And that's where we're spending an increasing amount of our time because we are obviously delivering on the short-term value accretion via balance sheet management, we're very much looking to the medium to long-term value accretion by adding the next portfolio winners as we go. On Slide 3 and 4, very briefly before I hand over to Alexis, specific to numbers, the NAV for the quarter is approximately $375 million. That is up 6% year-to-date. So we have a bit of a tailwind in where the NAV on a dollar basis is going, up slightly higher on a NAV per share U.S. dollar given the buybacks that are coming through. So that accretion is also helpful on a per share basis. From the SEK side, the krona, there's been obviously strength in the SEK versus the dollar. So we've got negative high single digit on SEK, both NAV and NAV per share year-to-date. And on Slide #4, what you're seeing from a dollar, we think in dollars and we're investing and we're talking to our investors for the most part, we're seeing that NAV starting to, a, stabilize or b, pick up as we move from Q1 now into Q2. And then NAV per share, obviously, will have a nice kicker as we go as we continue to buy back our shares at these levels for as long as they're at a decent discount. I think we'll continue to do that. From here, Alexis, I'm going to pass over to you so you can talk about the valuation metrics for the portfolio in the quarter and the key moving parts there.

Thanks, Dave. Hi, everyone. So on Slide 5, we just show the valuation approach and key takeaways for the portfolio in the second quarter. As you can see, 43% of the portfolio is valued at latest transaction with the transactions in Juspay and Konfio making up the bulk of this. And the remaining 57% of the portfolio valued at mark-to-model. There's been no meaningful changes in the quarter to valuation methodologies, I'd say. The greater contribution from mark-to-model portion of the portfolio is just reflective of the value change in that side of the portfolio, whilst latest transactions by nature has stayed static despite some of the market tailwinds. Moving on to Slide 6. This shows the NAV bridge and the breakdown of the growth in NAV in the quarter, which we've been showing for the last few quarters. Overall, [ $17.5 million ] growth in NAV was fueled by, one, the strong equity market performance and the impact of that on comps for our mark-to-model portfolio. And secondly, as Dave mentioned, the FX tailwinds and particularly from the Brazilian real. I'd say one other point to point out here is in the quarter, we baked some more conservatism into some of our modeling given some of the macro uncertainty that we're seeing right now. And then other things to point out, I think on the cash and corporate side, you can see Juspay and BlackBuck cash coming in. Partly offset by $4 million of buybacks or so that we've done in recent time. And so the fewer number of shares outstanding, you'll see NAV per share growth of 6.9% versus the 4.9% in NAV growth quarter-on-quarter. There's a small FX headwind on corporate cash, which is just the translation impact of SEK strengthening versus the dollar on our outstanding bond balance. Then Slide 7. So just to reiterate what I think Dave said in his opening comments as well, we remain confident in the high-quality portfolio that's now delivering profitable growth. So the important message is that the portfolio is growing revenues and gross profit at 30% to 35%, respectively, from a self-sustaining base. And by that, we mean the portfolio is almost entirely cash flow neutral positive. And we're seeing this growth manifest in Creditas' reacceleration of originations that Dave mentioned, and then also in some of the other key metrics across the portfolio. I think Dave in the next slide will cover some of that in Konfio and Juspay that we're seeing. And the environment for fundraising is improving, and we've seen that in the Juspay and Konfio rounds. And we feel confident that other names in the portfolio will be able to track capital from a position of strength at or above NAV marks. Back to you, Dave.

Super. Thanks, Alex. I've got 3 slides before I wrap up, but maybe just one overlay to what Alexis said. And this is just off the back of following the Kinnevik results, for example, and how they reported and some conservatism baked in, in their valuation process. I think our end, as you see the markets performing multiples, FX, you take one eye your forecast and you can just bake in some more conservative estimates as you go, which is quite a nice thing to be able to do and watching your companies overdeliver what you're baking in. Also with half of our companies marked to last funding round, some of those funding rounds were now nearly as long as 12 months ago. The valuations in those companies have not benefited clearly from a mark-to-model FX markets, multiple tailwinds. So we're feeling quite nice around the conservative bias and balance to our portfolio valuations at this point in the cycle. Moving forward to Slide #8. Growth is key. We are growth investors, or quality investors. So it is nice to see after a period of real focus on getting to cash flow positive sustainability businesses, which I think was a very good exercise for all of our portfolio and the industry at large. Not everybody made it, but a very healthy exercise. It's important that you get back to growth and sustainable growth. And this is our 3 biggest companies. This is all public information shared by a variety of sources. But Creditas, obviously, I talked about start about that origination growth, loan origination growth picking up quarter-on-quarter and feeding into 44% year-on-year origination growth. That feeds through to the 11% loan portfolio growth, which has been accelerating from single digit the quarter before, and that will pick up again in Q2, and that then feeds into the income statement with a lot of moving parts within that, but this is what we want to see at this point in the cycle. It's not V-shaped, it's U-shaped. It's gradual, it picks up and it builds momentum. Juspay actually never really missed a beat around growth. It's a less cyclical payments business as opposed to the likes of Creditas and Konfio, who have got their businesses built around credit, which can be quite cyclical in nature in these markets. But the 60% year-on-year net revenue growth is indicative of the year-on-year trends happening at Juspay and their payments business, both from a volume point of view and an income statement point of view, both at home in India and now as they start to succeed abroad. And finally, Konfio, this is 40% portfolio growth and even faster on the origination growth. This is just Q1 data, all official sourced data that we're allowed to share. Just very good to see these -- and I'm in New York this week with Konfio. They've got a Board meeting here tomorrow with the full Board in town for up. It's just very good to see these companies having got through another stress window. We like our companies being stressed in downturns, coming out stronger and then putting the foot back down on growth. Slide #9. We could have done 5 slides on capital in the system. There's so much data points out there coming from the markets, both globally and then domestically in a lot of our specific markets. As I did say, there's a lot of capital now coming into the markets, again, whether it's been international over U.S., whether it's EM within international, whether it's private versus publics. Once again, we're not getting carried away just on a wall of money. We're not back to 2020 and 2021, which was unhealthy and too hyped, but we're seeing a gradual return to normality, and we like that. And what's incentivizing that or enticing that is that we're seeing capital be recycled via the exit system, IPOs, M&A, secondaries. The market generally gravitates towards IPO data for sentiment because it's the flashy IPO that you get. But we did see some big fintech IPOs in the U.S. in the first half of this year around Chime, eToro and then Circle on the stablecoin front. And then names which have been plenty of names that there which have filed close to Sweden, obviously, Klarna in the U.S. on the wealth management fund, wealth front. So very interesting to see IPOs coming out in size and shape at benchmark names performing post IPO is off the back of healthy markets. And then specific to our markets on the IPO front, India is probably the healthiest IPO market in emerging markets and one of the healthiest in the world. We recently did an IPO of BlackBuck in our portfolio and then 2 payments companies, which have been either in the news or officially filed for IPO in Pine Labs and PhonePe. We look forward to these companies being listed, more peers, more listed fintech in our world is always welcome and welcome peers for companies like Juspay in our portfolio. Second last slide is around our balance sheet and the capital in. Once again, it's very nice when we can make promises to the market and we can meet them. Delivering exits is hard, delivering exits in certain time frames is hard, but we wanted to deliver exits. We've delivered 3 across different portfolio companies. And the top left-hand chart, this is Slide #10, has allowed us to go from a cash position of $12.8 million at year-end to a cash position of $20.8 million at the end of Q2. That's an $8 million uplift. But obviously, within that, we put capital to work in paying down our debt and also buying back our shares. So a lot of value accretion and balance sheet management, classic investment management 101, which we're very happy about. And obviously, we're in a net debt position as a net positive debt position as a result of that, a slight negative in terms of what we owe to the market cash versus debt outstanding. So very happy around this. And I kind of say to the team, a lot of this is a lot of work to get to this position to deliver all these outcomes, but this is investment management 101, if you had the book from Buffett or anybody else, we are doing the playbook, obviously, suited toward the best business model and what we should be doing around shareholder value accretion, balance sheet management, capital management at this point in the cycle with the capital we have, with our shares trading where they are. Where our IP and our real edge is really in investing and the pipeline work is getting very interesting. We're very happy with some of the names you see at the top of our portfolio, very much focusing in on doing more work so that we're ready to put capital to work in the next future winners in our portfolio as and when the time is right and our capital position is right, which we're foreseeing is not too far away. And final slide, just to wrap up, and then kind of reiterating these points again, but we're -- it's a very simple business. We're in a very clear place. Momentum is behind us. So we reiterate and then we execute on the clear plan of what we're doing, and we add something in each quarter as something becomes more important. But it's always all about the portfolio. Without a strong portfolio as an investment company, you're nothing. It's the lifeblood of your company, quality companies that are growing, that are profitable, that are able to raise capital. They can grow, they grow your NAV. They have an ability to exit. You can then -- the exit front, exit markets are back globally. They're alive. They're well. They can be healthier for sure. It's still early in the cycle. But we are turning NAV into dollars at NAV levels. We've done it in 3 companies. We look forward to doing more. We've got a lot of work streams going on, on that front. But we're under no stress to sell any of our companies at the wrong price, and that's the position I want to be in as an investment manager. We're doing the right things on capital allocation or at least we feel we are and more to be done, more capital in from any exits go straight to buying back our shares at these levels, hopefully trade at a healthier level to NAV, and we're going to get there. That is our plan and our focus as a firm. And then the pipeline is the medium- to long-term value accretion asset for us and for our shareholders. So I will stop there, operator, I'm very happy to answer any questions from the market at this point.

[Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Linus Sigurdson from DNB Carnegie.

Could you perhaps start with giving some more color on this negative contribution from portfolio performance in the mark-to-model holdings? I appreciate you talking about this conservatism in the presentation. But is this more of a general haircut? Or is it baking in, say, a negative macro scenario? Or how should we think about this?

Yes. Thanks, Linus. So let me start, Alexis, and then you can overlay with detail, if you don't mind. But I think this is just logical -- what we're seeing in the market is a lot of volatility on the macro front. It hasn't really impacted our company so far, be that in Mexico, India and Brazil and the key ones. But when you see volatility with the tariff whether it's the potential impacts on rates, whether it's volatility around trade flows, you want to be a little bit more conservative in what you're forecasting just in case. So nothing we're seeing in the numbers so far makes us concerned. But one, it's emerging markets in the globe that we live in today. Then you cross-reference that with the tailwinds that we have around FX and multiples in the portfolio, and you've got a nice buffer of tailwinds of valuations being uplifted from the strength and performance of these metrics through your valuation models. So then you sit down as a team and you just bake in some more conservatism for the quarter. I don't think it's anything more than that. It's not case specific. We're worried about a certain company or market specific. We're worried about a certain macro in this environment. I think it's just healthy conservatism at a point where we've got a number of forces, either volatility on macro or nice strength in tailwinds from multiples and FX. Alexis, you want to jump in on that? Or are you happy with what I said?

Yes. I mean I don't think I've got anything more specific to add other than I would say, like the macro uncertainty we're referring to is mostly around like rate outlook and the impact of that on credit like across the portfolio, basically.

Got it. And then a question on Juspay. You highlight the strong growth momentum here on Page 8. Could you give perhaps some more color on like operations? Like what's working well? What are the main challenges at the moment, et cetera?

Cool. I think the question line is how long to be got. But Alexis, why don't you summarize the good stuff?

Yes. I would say -- so Juspay is made up of 2 core businesses. One is like the merchant business, which is serving very large enterprise clients in India predominantly. And we're seeing like a real reacceleration of that -- the growth in that business. I'd say like in the past year -- so the second business is the UPI business. The UPI business was growing much faster and hence -- and the mix impact. So you can see in that slide that TPV was growing faster than revenues, and that was a mixed effect of the UPI business growing much faster. But we're starting to see a real like reacceleration of the merchant business. And actually, I think the merchant business is going to be growing quicker than the UPI business this year. And the other trend that we're starting to see is like real traction on the international front. Now still coming from a very low base of revenues, like we're talking about low single-digit percentage contribution on revenues. But we are starting to see like contracts being signed with some benchmark names in other international markets that can become quite meaningful and really start to gain traction in those markets. And we're really excited about that. I'd say those are like the overarching themes and what's kind of happening at Juspay today.

Yes. And I think it's clear, Alexis, and just to follow up Linus, a lot of our companies do tend to succeed in their home market, and that's where they have the edge. And we're always a little bit nervous of companies going outside their home markets to conquer a neighboring market or the world, and it's fraught with more difficulty as much as delivering at home is hard. So we were -- but Juspay has been very logical about their expansion strategy and what they've done and going with partners to markets of Southeast Asia by going to markets like Brazil, which have a very similar payment system with Pix versus India and UPI. And I guess without baking in any upside to international in our forecast, we've been -- as Alexis said, we've been positively surprised by the early signs of what they're doing.

All right. That's much appreciated. And then my final question is around capital allocation. Just some clarity. I mean now that you've executed on some debt paydown, you've started doing buybacks. You're spending a lot of time talking about the investment pipeline. How should we think about prioritizing between these 3 just in the near term?

Yes. Thanks. We do talk about it a lot because it's super important. And then we tend to reiterate a lot because it's just to get good clear to get the message out there. I think there has been -- we weren't even talking about pipeline a couple of quarters ago when we talked to the market, we were very much talking about exits and then delevering the balance sheet and buying back our shares. It's just -- we couldn't see beyond that. Now that you delivered 3 exits, you've paid down the chunk of debt that you say we've got a low level, single-digit debt to NAV, 5%, 6% from memory or even that. You're looking at [indiscernible]. We don't believe we believe in when we talk about conservatism and buying back our shares consistently in through these windows is just the most obvious thing to do. But we also see the share price moving. We also see more -- we're starting to get -- things are moving in the right direction on those fronts. So as those things start to move, you start to think more about the medium and long term. Now that we stopped, we start to allocate more time to them. So pipeline had always been building in the background, but it's a window whereby -- and I said it's 2 or 3 names and not to get too specific that really have us on the hook that we're focused on that we're excited about and that we're getting deeper and deeper on so that we can get to a point where we have conviction one way or the other on a name or 2 names or 3 names. And these things work in parallel with your share price with the capital in from exits and how you manage anything. So I would still say, I think of the 3 parts of that capital allocation aspect, I think the priority in my head right now, this is today, and these things move because of the moving parts is the share buyback because that's the most obvious IRR value accretive thing we can do given the recent paydown in a chunk of the debt and given where the pipeline is today versus where it's going. So I think it's going to be quite fluid, Linus. I think we'll continue to make real-time decisions. We'll let [ MAT ] be a key driver in the short term of buybacks, but strategy will obviously overlay as we look towards pipeline.

[Operator Instructions] We have no further questions at this time. I will now hand back to you for closing remarks.

Yes. Super, Razia, thank you very much. Look, thank you, everybody, for supporting us, for following us, for being on this call. We are appreciative of your patience with us through this journey and how we've got ourselves to this position of strength and momentum. I won't reiterate what we said about 5 times on the call. I think our messaging is very clear about where we're at and where we're going. But if you need any clarification, you want to speak to us directly, any interest in VEF, obviously, just reach out to one of us, myself, Alexis or call, obviously, and we'll be happy to speak. Otherwise, have a great summer. Thank you very much.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.