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

Good day, and thank you for standing by. Welcome to the VEF 2Q '26 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Nangle, CEO. Please go ahead.

Thank you very much, and good morning, good afternoon, everybody, and welcome per usual to our results conference call, which follows the release of our 2Q air results earlier today. On the call with myself, David Nangle, I'm CEO, with me is Alexis Koumoudos; our CIO and partner since pretty much inception at VEF. I'll start, and then Alexis will come in, and I'll round up, and then we'll open up happily for questions after about 15 minutes of presentation as per usual. . Just to kick off on Slide 2, some of the key events of the quarter, and we'll go through some of these in a bit more detail in the presentation itself. But the headline NAV itself was broadly flat quarter-on-quarter, albeit up 8%-plus year-on-year in dollar terms, slightly higher in SEK. From a NAV point of view, there's a lot of detail below that, really valuation multiples compressed in some of our key markets, but that was offset by the underlying performance, strong performance robust from the portfolio itself, which continues to be in a good state of health. Specifically, Creditas, we always focus on in these events given its size and importance to VEF. Another strong quarter for Creditas Q1 '26 with the last official number out, the growth now in the company loan book top line exceeding 20% and compounding faster quarter-on-quarter and improving in efficiency gains as it goes and something I definitely be quick on. And a lot of the doubt those efficiency gains are actually coming through from its engagement with AI. And we spend a lot of time on our portfolio and its engagement. And we're actually starting to see real benefits. We use Creditas as a casebook example this quarter, both in the management letter, but also in this presentation, to touch on some of the key assets of credits using and the positive implications that we're seeing, not in theory, but already for operational efficiency costs, but also unwidening TAM and growth, which is key in both sides to fence. And from a penalty point of view, we freshened up, strengthened our Board. For a company now 11 years old, there's always going to be turnover in the Board at this juncture, and we're very happy to have Will Pruett from Fidelity [indiscernible] Fidelity and Torun Litzén from Kinnevik in Sweden, 2 very high-profile individuals with deep expertise across a number of areas which are very important to VEF as a listed investment company in emerging market FinTech. And finally, our strategy remains very much focused on long-term value creation and compounding growth in our portfolio. We spent a lot of time talking about our portfolio because it is everything. But around that, what we can control is the exits we've been delivering, how we put that capital to work to strengthen our balance sheet, paying down our debt and moving on to our shares, which trade at a discount, and we can buy them back and obviously create value for all as we go, and I'll double click on that. Moving on to Slide 3, just a couple of numbers. Quarter-on-quarter, the headline itself made a feel like a quiet quarter, albeit a lot happening below the hood and year-on-year a bit more tenure to it on a dollar point of view, from an NAV of 8.4% year-on-year. And from a SEK per share of 11.6% year-on-year. From here, let's move over to Alexis. And I'll pass you, Alexis, for Slide 5 plus, you can get a bit more into actually what happened in the quarter from a financial NAV key trend point of view.

Hi, everyone. Yes, as we look at the portfolio in the second quarter this year, there's been no change in this lift on the quarter of 70% portfolio is valued at latest transaction and 30% mark to model. That is unchanged quarter-on-quarter. Our 2 largest holdings both carry the marks of very recent and [indiscernible] transactions. Creditas, it held that it's $108 million series. [indiscernible] series. The follow-on in January price at our secondary sale in that round. To both, markets are unchanged quarter-on-quarter, and both companies continue to deliver strongly post raise. We sense-check both against traded comps every quarter, and so today, 70% of our now is anchored by third-party transactions disposed within the last 7 months. Within the mark-to-model book, Konfío was marked down around 6% in the quarter. This is purely a comp story. The listed LatAm fintech and financials names that drive our peer medians came under pressure. through the quarter. But underneath that, Konfío continued to deliver in line with plan. So as in the first quarter, the markdown is a symptom of market moves rather than anything company related. And encouragingly, the rest of the mark-to-model book moved higher on delivery, Soil, Abhi, Nibo were all marked up in the quarter with Abhi stand up around 25% quarter-on-quarter as the business continues to compound at pace, and Dave will spend more time on Abhi later in the presentation. Moving on to Slide 6. Here, we show our regular quarterly NAV evolution and the breakdown of the moving parts. The headline is this quarter has been a quiet or stable NAV bridge. The NAV at the end of the second quarter ended at $406 million, as Dave mentioned, down $2.5 million or 0.6% in dollars and up 8.4% year-on-year. Within the 30% of the holdings valued mark-to-model, the underlying portfolio performance added $5 million and FX added a further $3 million with the Mexican peso up 30% and the real up 1% against the dollar over the quarter. Against that, multiple compression across our traded comps took off $8 million. So delivery and currency largely absorbed the comp pressure. On the 70% of the holdings that were valued at the latest transaction, that was unchanged. And at the corporate level, cash was reduced by $3 million, which is our ongoing OpEx and coupon payments in a quarter with no exit proceeds. And there was $1 million of positive translation effect on the bond. So net-net, the NAV is broadly flat on the quarter with robust underlying portfolio performance and FX tailwinds offsetting market volatility. Moving to Slide 7. On this slide, we want to reiterate we continue to feel confident in the high-quality portfolio and its ability to compound from here. Over 90% of the portfolio has achieved self-sustaining cash flow profiles and all of our top 3 holdings are there. We see the portfolio growing 20% to 30% over the next 12 months on a revenue basis and 30% on a gross profit basis with our large late-stage top 3 holdings driving much of this. And Dave will talk a bit more about Creditas, but Creditas is that really strong proof point where we've had 8 straight quarters of annual quarterly growth and seeing record originations up 29% year-on-year. On fresh capital, our companies are well capitalized across the board, Creditas and Juspay, the latest standout fundraisers. We remain encouraged by deal activity across our geographies and by our company's ability to keep attracting fresh capital at strong marks, which drives real value growth and creates liquidity options over time. With that, I'll hand back to Dave to go through a bit more detail on Creditas and Abhi.

Super. Thanks, Alexis. Yes, there's a few topics I want to touch on before I wrap up and up to any questions. First is portfolio on a micro level as opposed to a macro. Creditas itself, we are very happy with Creditas at this point in its cycle, and we've been with the company for coming up to 10 years, next couple of years. But it's in the best operational health. We've seen it. One is the growth aspect of the story, and this comes through on Slide 8. And it's just clear in the slides and the charts that we see with the loan portfolio evolution, the revenue evolution. We were talking a lot about Creditas reigniting growth back in early 2024 when it was theory. And what we've seen is quarter-on-quarter-on-quarter, when we look at the year-on-year growth, it's gone from single digit to low double digit, and now we're north of 20% in Q1, and that goes for both the loan book and also the top line revenue. We're looking at Q2 numbers as we speak in-house, and I sit on the Board about Creditas and what we're seeing is that improving yet again. in Q2. So the of growth at Creditas compounding again inside of our portfolio is happening and is very visible through the data that they are producing. As important, less well flagged or predicted was the operational efficiency, the cost evolution that we're seeing at Creditas, which is a real positive. A lot of this is AI-driven, which I'll talk about in a second, but we're seeing great operational leverage at Creditas at this point in its cycle as the top line of the business just grows at a pace much higher than the OpEx base. We're seeing CAC at all-time low customer acquisition fell below 10% for the incremental loan for the first time ever in Q1 and falling. And a lot of that is down to the headcount evolution of the business, and I'll talk about that now. And this is AI. This is a thing that we didn't overly amplify when AI was coming through 12, 18, 24 months ago. We've waited. We've worked with the tools. We've worked with our companies until we're at a point where they're actually starting to make a difference on a -- from a real point of view, from a numbers point of view, from a business point of view. And now we're starting to highlight and show both some of those examples. And it's nothing better for us than showing through the prism of Creditas, our biggest company, and it's having a real impact on their business. [ Sergio ] joined [ Keith Rickman ] recently on a podcast. He's a Board member of [ BMV ], a sister company. And in that, he went through a lot, and he talks a lot about this with the Board at Creditas and the key shareholders. And what we've seen is that agents are now a big part of the business, working along with humans, the better humans are becoming more like air traffic controllers in the business and AI tools and agents are coming through from customer acquisition, onboarding, communication, collections into scoring. And what we're seeing then from a math, from an Excel, from a classic analytical point of view is that the employee count is falling. They were 4,000, remember, over 18 months ago. They're below 1,800 today. They're above 2,000 at the start of the year. So it's really starting to compound down. So at a time when we're getting our growth in the loan book coming through and it's improving in terms of pace, we're actually seeing a real operational leverage story as the AI tools and implementation of them are really hitting headcount and operating expenses. To add to that, once you've got lower operating expenses, you can do better pricing, better cost to serve and actually AI then enables a bigger TAM for Creditas to sell its products into. So I think we're still very early days on this with Creditas and many of our other companies have got many other examples to play out there, but we're actually seeing tangible benefits in the Creditas, efficiency gains, increasing TAM and operation expenses, which just adds to that top line growth story I was talking about on the previous slide. I also wanted to talk about something beyond the top 3 this quarter because we do have a number of our companies coming through, albeit smaller in scale. So less impactful on NAV today, but can be more impactful on them tomorrow. And just a reminder, we'd like to remind the market that we, on average, do pick winners to get into the portfolio. We do nurture them through to maturity and do create a lot of value for our shareholders over time. And Abhi is one of those rising stars in our portfolio. And this is a seed investment. We don't generally go that early at VEF these days, and we're more in the growth stage when we do invest. But Abhi was a seed investment. It's a company -- a fintech company in Pakistan since expanded to the Middle East. but it really has scaled at pace and in a very disciplined manner. They've managed to balance organic growth, which is classic fintech, but game-changing M&A when they bought a microfinance bank and got regulated and licensed in Pakistan and also partnered to a similar degree in the Middle East. Middle East really is growing the expansion because Pakistan were quite a sizable entity even after just 5 years. And what I'd say from a numbers point of view, it is exactly what we're trying to do. This is a company that's got now a $200 million loan book. It's got $260 million of deposits, real banking, mainly in Pakistan, these numbers, $85 million of run rate revenues at the top line and $20 million plus of EBITDA. So this is a company from inception us backing a founder in key scale emerging markets, mainly in digital banking, we're starting with one product, earned wage access into SME lending and has become a much more broader financial product platform. We do also have an interview with the founder of that company, [ Ammersari ], on our website. We did that recently, and we're very excited with where Abhi is going. And I'd say watch this space. There's a lot more to come from this company in terms of size, shape, compounding and value, and it can become one of those ones that are breaking out from the general part of the portfolio into the top 3 to start making a real impact on our NAV and compounding going forward. Beyond the portfolio on a micro level, I always want to talk about our cash and balance sheet. It's key. We are at a position of $24.7 million of debt, which is falling due by year-end. Our cash position today is slightly below $22 million. We're continuing with the communication. The plan is to pay down our debt ideally by year-end. If not, we will be directionally positive as in reducing our debt, and we've done that since we kind of peaked at a $50 million debt ticket, and we brought that down half already and more to go as we deliver exits. The exits are coming. We did one in Q1, nothing in Q2, but we're very confident there will be more coming in the coming quarters or next 18 months, very focused on a number of opportunities on that front, always looking to pick the best opportunity at the right time at the right price. There's no pressure on us to do the wrong thing. So reducing our debt with this capital allocation ideology is key. And then it's very hard for us to look beyond our shares, which I'll talk about trade at a deep discount and that's the highest IRR opportunity that we see with excess capital as we start to get beyond the debt hurdle, which is in front of us. So directionally positive, strengthening our balance sheet, logical capital allocation, and that's key to driving future value for VF and our shareholders. A couple more slides. One is I wanted to bring back up the share price and the discount to NAV, just to remind the market, our shareholders, of which we are some that we have not forgotten. We're very focused on this. We are not happy with this. We talk a very strong game about what is happening under the hood at VF, and that's our portfolio, the trends, the exits that we're delivering, the compounding growth. That's all good in its pocket. At the same time, we have to be very cognizant of the share price and where it's at. It's something we're not happy about. We believe we have a playbook of delivery and that delivery of the playbook with a performing portfolio and the right use of excess capital as it comes back in capital allocation from debt into equity is the right way and tools to close that discount and improve the share price over time. So it's kind of hand-in-hand approach of the portfolio and then the right use of capital allocation over time fixes this and the right -- makes it directionally positive as it was in the past. Before I close up, very happy to talk about our new Board members. This is something we have been working on for a while. We want to surround ourselves and have the right people in the room for long-term value creation. We want to have the right people helping us in EM, fintech investing and questioning us on corporate governance, capital allocation. Will Pruett joined the Board recently. Will is a phenomenal individual, very experienced ex Fidelity for EM, emerging markets financials, but also for Latin America. He's on the listed Latin American fintech companies. He's very much in the wheelhouse of what we do day-to-day. He's more on the public side historically. We're on the private side, but he's got great experience and great insight to a lot hit the ground running. And also Torun, who joined us ex Kinnevik, what we like about her is the fact that she's been through cycle with Kinnevik up, down volatility. She has seen everything from the inside of an investment company riding high, going through headwinds. And she just brings a lot of honest insight to us and our story around just lessons learned what happened were and the implications of different decisions and movements. So 2 fresh additions, fresh mindset, fresh energy to the Board, and we had our first Board meeting with them after the AGM in May, and it was a very positive event. I'm very happy to have them on board. So just to close off, I think that our message in the market continues to be, one, we're very happy with everything that's under the hood at VF. There's a lot of controllables and we believe we're controlling them well. A lot of the focus is the portfolio, which self-sustaining cash flow profiles are not needing those cash that did maybe in the past, growing now start to compound at a faster pace. Creditas is a great case in point and attractive enough to be raising fresh capital from the market, which is great for us to see in new marks and capital in. The exits, they don't happen every quarter, but we've proven out with a number of exits over the last 18 months and a clear guidance for more over the next 18 months. And then you kind of look at capital allocation and what we've done with that. We're very clear we want to be rid of our debt, and we're very clear that our shares trade at a discount that makes them too enticing not to be buying with excess capital. So it's happy to see the portfolio compounding in value feeding through to NAV and then very focused on the controllables around capital, capital in and capital allocation to add value as we go. Operator, I will stop there, and we can open the floor to Q&A for any of you, please.

[Operator Instructions] Our first question comes from the line of Stefan Knutsson from Redeye.

First off is regarding the exit progress sort of -- I mean, you talk a lot about Creditas and the impressive AI development that they've had. At the same time, we have seen some LatAm fintech having a hard time in the public market. So my question is really regarding how flexible you can be with the bond refinancing coming up, if you can sort of wait to do exits to get a better price? Or yes, can you talk about that development, please?