VNV Global AB (publ) (VNV) Earnings Call Transcript & Summary

Hello, and welcome to Vostok New Ventures Year-End Report 2019. Today, I'm pleased to present Per Brilioth, Chief Executive Officer. [Operator Instructions] Please begin your meeting.

Thank you, and good to do this at a regular space. This is our fourth quarter report. And I'll just take you through a couple of slides, which you'll be familiar with. Our NAV history for the past 10 or so years speaks for itself. I think our strategy and focus is -- we've sort of mapped up. In this way, you'll be familiar with this. We seek investments with -- in business models that have the potential to generate very high barriers to entry, we call that network effects. We found those type of network effects in the space. So classifieds, of course, which has been the inspiration of this. But as you see from this picture, we're also present in the sort of macro theme for mobility and, in a big way also, in digital health. We -- we've also put together a couple of slides here to sort of highlight a little bit more. I'll come to the actual report in the companies, but just in terms of a sort of a descriptive backdrop is that we've always seen ourselves as optimistic investors. We have no restrictions into what we get involved with. We'd seek investments with -- in this type of companies with network effects and sort of a winner-takes-all characteristics, very high barriers to entry, but if those come around in -- as a very young company, it doesn't matter. Or if it's a very established company, it doesn't matter. But if we just map out our existing portfolio. [Technical Difficulty]

Ladies and gentlemen, please wait while we reconnect the speakers.

So I'm back. That's the first time that's happened these past 20 years, but -- so with always the first time. And we're -- I mean our home country of Bermuda, it is typically pretty good lines here, but I'll just blame it on something else, but I hope you hear me. And as I was saying, just trying to sort of position our portfolio in terms of what kind of maturity is that. I mean, we -- I mean, I'm very enthusiastic of our portfolio, and I think we have 5x plus kind of potential returns in it. And that may give people sort of the thought that, okay, that's a very large type of upside, and that must be a -- quite a risky portfolio. But if you look at what -- how our portfolio is sort of distributed in terms of capital rounds, it's, in fact, as much as 3 quarters of the portfolio is exposure to Series C or later, all the way to private equity. And furthermore, it's -- as much as 80% -- more than 80% is also exposure to companies active in a pan-European setting or even global setting. And so I think this -- we just wanted to take the opportunity to highlight this as we sort of educate, not you on the call perhaps, but in general, that we may have a long history in emerging markets in Russia, specifically. But where we are now, what our portfolio is exposed to is more developed markets and sort of later-stage companies. But having said that, I think there's still a clear sort of 5x plus type of upside across the portfolio. So it's good to note. If we go more specifically into the quarter that we have just ended, the fourth quarter, and we've also, obviously, closed the year. There will be an annual report that's going to be out about a month before our shareholder meeting. But if we go to that, you will find that we have closed the quarter with a net asset value of SEK 92.60 a share, that's $9.9 or $777 if you look across the entire portfolio. We have -- yes, so this has been an eventful year. The NAV has increased by 30%. If you adjust for the SEK 25 a share distribution of cash that we did following the Avito exits and the NAV increase that has given off 30% during the course of the year, that's mainly driven by revaluations of BlaBlaCar, Babylon and also VOI. We -- if you go down to the specific sort of names here, BlaBlaCar has, after this revaluation, once again taken its position as the largest component in our portfolio at 25%, followed by Babylon at 24% and post the revaluation of VOI on the back of their last round, that's now our third largest investment at 12%, followed by another 2 pretty large holdings, Gett at 9% and Property Finder at 6%. And we -- just continuing on the year as a whole, just trying to sum it up before we go into the specific companies. So Avito was obviously sold, 37% IRR over 11 years. We did distribute that SEK 25 a share, which, all in all, had us distributing a dollar amount of $215 million. We have, over the years, done about $54 million worth of buybacks. We did retire our 2 series of bond of a total of $91 million early. Beyond that, we've also continued to invest in our existing portfolio companies. There's obviously Babylon, big check, about $70 million; VOI, we have put a total of just under $60 million to work during the course of this year; Gett, we have invested a total of $24 million; and also OneTwoTrip about $7.5 million. We have done new investments into a series of names. All in all, the aggregate sum of new investment is $47 million, and that money has been invested into SWVL, Dostavista, Monopoliya, which is new to this report, but also Shohoz and JamesEdition. So with that, I will go into the specifics here. We have, first, our BlaBlaCar, now being a -- our largest investments. So BlaBlaCar saw its number of members increase to 89 million, up from 71 million at the end of 2018. There's as much as 1.5 million members in its product line of BlaBlaLines, which is in addition of 1 million members during 2019. This has become very popular. You remember this is their -- in contrast to their sort of large product, which is C2C long distance travel product. BlaBlaLines is shorter distance and was a commute type of product, so from suburbs into the cities. During the year, BlaBla also acquired Ouibus, which is the -- one of the largest bus marketplaces in Europe. And parallel to that, they also launched their own sort of product called BlaBlaBus, which will obviously be the name for everything going forward. They acquired bus for the, perhaps, dominant marketplace for buses in Russia. And across the year also -- or in the fourth quarter, specifically in the fourth quarter 2019, the company registered just under 21 million passengers on their platform, which is up some 37.5% year-on-year. That's a figure that we will -- from -- starting from this quarter, we'll sort of be able to provide as a very important KPI for how the business is performing. We are very enthusiastic about the addition of the 2 sort of new product lines to BlaBlaCar, so -- and this will be familiar to many of you, but the addition of the -- of BlaBlaBus to BlaBlaCar provides a very complementary networks. As this top left-hand picture on Page 9 shows that at BlaBlaBus, you have -- their top 100 routes accounts for about 3/4 of their business. As you see on that map, it's very much city center to city center. And then you -- on the right-hand side, you see the situation at BlaBlaCar, where those exact same 100 routes, which gave 75% to the bus side of things, only gets -- those routes provide about 1/5 of the overall sort of business for BlaBlaCar, the remaining stuff coming from something completely different, much, much more granular product. So very well, very complementary to the new bus business that they are launching. And then we also talked about BlaBlaLines, which has been very successfully launched during the course of the year. Long term, we feel that BlaBlaCar has a large potential from today's, like, 75 million members. We -- our -- VNV proprietary work is that we think that will at least be 160 million members by 2023. And whereas, in -- during 2018, you had sort of -- those members generating about EUR 1 a piece in revenues -- net revenues from BlaBlaCar, we think that on average, a member, by 2023, will generate close to EUR 5. And if you apply that EUR 5 across the -- what we think is nearly a conservative estimate of 160 million members, that gives you, like, an $800 million (sic) [ EUR 800 million ] revenue potential 2023-ish, which obviously gives the base for a large potential revaluation of the company. Going on to our, nowadays, second largest position, Babylon. I think this product is very familiar to you by now, but Babylon also had a very large 2018, which set up for what we are extremely excited for 2020. But they did that first close of $400 million of a total $550 million sort of funding round. That $1.5 billion pre, that's also the mark, of course, in our books right now. And furthermore, well, you see the slide here, it's delivered nearly 1 million new registrations and really had sort of a lot of activity across its platforms. All in all, during the fourth quarter, Babylon delivered 10,700 daily consultations, which is split up between about 6,000 virtual and the rest being AI, and that's compared to about 4,500 daily consultation. So more than a double during the same quarter of 2018. So you get a sense of -- at the kind of speed that this company is growing. In -- specifically in the U.K., the company has registered more than 70,000 members at this GP at Hand, which makes it the third largest NHS practice in the country. The reason why we think 2020 is going to be so exciting is that what with the -- what the company has launched in the U.S. with Centene, which is one of the largest, if not the largest, U.S. Medicare insurance company; through Centene's brands, Fidelis Care and Home State Health. And then I think it's no news to anyone that how large an opportunity the U.S. health care market is and how much money is spent there, and the potential for this kind of services to enter is something that's enormous. We -- I'm not going to spend more time on Babylon. I think one important part of the portfolio is VOI. We have revalued VOI on the back of their last transaction, just as 2019 was their first full year of operations and obviously executed at a -- I mean, at a pace that I think -- I don't think I've seen before. It completed its first 1 million rides in March. And then on a cumulative basis, ended the year, having completed 15 million rides. So it's now got 4-plus million users. Revenue during the 4 months has grown by 20x year-on-year, and that revenue is driven by an increase of scooters, but also more rides per vehicle and higher revenue per ride. So it's a big company now. And although young, it's big. It's gone through several funding rounds, and it's about 500 employees all in all. And during the year, it also has concluded a couple of very important and senior sort of recruits led by the new CFO, Mathias Hermansson, who's previously at MTGx and Veoneer; and also a Head of Product, David Almström; as well as Hans Waagø, who used to run Uber Eats in New York. Yes, we own -- just own under 33% of the company, having put in some -- I think it's $58 million, all in all, in -- across several different tranches, leading up to a total round of $85 million of series B funding, which was concluded in November. And just as a point on the overall potential, we feel that this company in -- if you allow yourself to look out a couple of years, we think this company has the potential to generate net revenues to them worth of some $300 million. And then if we conclude this by talking a little bit about Gett. We -- Gett has been in our portfolio for quite some time now, and it's been sort of around the same level and maybe not gotten the -- a lot of attention, certainly not in relative terms to some of the other newer investments that we've made. And for various reasons, and there's a history there, but I must say that I -- it's been quite some time since I felt this good about Gett. Gett has really sort of turned around its business during the course of 2019. And in fact, they reached operational profitability in December 2019, which is something that none of the other larger peers have achieved. And also they have sort of reinforced their focus of corporate clients. The global B2B sales of -- it has been very successful. And they're actually now up to 17,000 active companies in -- during the last quarter of 2019. And of those -- it's about 3,000 of those are large corporate accounts, which will operate with soft-like characteristics, which is also the focus of the company going forward, which is very interesting. So increasingly, you'll see Gett sort of supply its software on -- to these corporate clients, but whereas the actual sort of transportation service may very well be performed by someone else. For example, like with Lyft, where -- so for New York, Gett announced a strategic partnership with Lyft, where their corporate customers will -- well, actually not only in New York, but they will sort of be able to access a transport with Lyft across the entire U.S.A. And so we have put some more money into Gett during the course of the year, which, obviously, in this sort of business, comes with the -- with senior preferred shares. And we feel, again, as good about the company as we have not done for a long, long time. And just before we finish off, I -- there's a couple of notes also on some of the other portfolio companies. So I think Property Finder, the big -- well, one thing to note here is that they have -- we're super happy that they have appointed a guy called Ari Kesisoglu, who's now assumes the role as President of Property Finder and will lead day-to-day operations. He was formerly a Vice President of Facebook. And also during 2019, another note on this company, they did increase their stake in Zynga, close to 40%. And they acquired one of their competitors in the UAE called the JRD Group and so continued to sort of consolidate that market. In a similar sector, Hemnet in Sweden continues to perform. They reported revenues of SEK 373 million in EBITDA of SEK 138 million, which compared to revenues of SEK 322 million and SEK 108 million EBITDA the year before. So very good growth there, but obviously, much, much more to go, as this company sort of normalizes in this mature but very large market of Sweden. I think just closing off here, we have -- SWVL is growing fast. They've more than doubled their volume and revenue since the funding ramp where we have invested, which was done in June 2019, and we're super excited about that. So I think with this sort of introduction, I will hand over to the operator to sort of arrange questions, if there are any.

[Operator Instructions] Our first question is from Lars-Ola Hellstrom from Pareto Securities.

First of all, can you say a little bit of how you have made the valuation of BlaBlaCar, how it's built up? And will BlaBlaCar be profitable in 2020 now that they're expanded into buses in 2019? But is it scaling enough, so it will be back to profitability in 2020?

Sure. Lars-Ola, yes. So yes, no -- and so on BlaBlaCar, I guess, there will be more details coming out in the annual report, but we have moved to model. And the -- just the general metrics is that we use as much data as we can from public peers, not that there is any public peer that's exactly like BlaBlaCar. But nevertheless, we would use a peer group from the public market and then apply that to the financials of -- near-term financials of BlaBlaCar. So at this stage, there's not much more we can say on that, but it's something we feel provides a very fair picture of BlaBlaCar that's -- and I think also as per sort of the comment, these are more general comments earlier, I think it also shows that there's certainly a lot of upside to this sort of $800 million to $1 billion really -- revenue potential of the company. Will they be profitable in 2020? That's sort of some -- an outlook, which I will -- which I'm not committed sort of to share. But what I think is -- I mean, as you allude to, the -- they are investing a lot into the sort of very, very ground opportunity of the bus marketplace through Ouibus, Busfor, and there's still -- there's some competition in that space in Europe, which I think BlaBlaCar has an excellent sort of position to sort of make a dent into because of their base in the -- on the car side and the own data that they have, but also a very sort of very deep pocket, so -- but I think I'll have to leave sort of the outlook sort of type of nature on that -- in this context at that level.

Okay. I can ask a question on the 1.6 million consultation from Babylon Health. Is that telephone consultation on the platform? Or is it consultation done by a Babylon doctor?

That will be the overall sort of consultation that -- I pulled up the slide, so you can see it, which is done by the company as a whole, you'd say.

Yes. So we actually don't know the split on how many of those that Babylon actually gets $48 to $50 on average.

No, no, no. Exactly. The -- it's -- I mean, it leaves more information to be sort of desired, but it's -- I think it's a good step in terms of some kind of sort of disclosure on KPIs, et cetera. So -- but I think you're going to have to make some assumptions around that and then build sort of even, if crude, I think you'll get a good picture. But in addition to those, you also see that they did make AI consultation. So the -- as -- even if you look at the company from a distance, it's clear that their main sort of fully vertically integrated business is in the U.K., where the reimbursement model is sort of along the lines, which you described like so.

Okay. We can move to VOI. And I note now, finally, that you invested a little bit more than I had realized that you were -- pour into the company, $47.5 million, and it seems to be at a slightly lower pre-money valuation than I expected as well. So is this a reflection that the funding market for is good as start-up is more troublesome? We are seeing Circ acquired by Bird, and that competition will simply ease because no new ventures will simply get funding, so the existing players will have opportunity now to grasp the market.

Yes. I think you're onto how we sort of see the market, too. I mean there are no real new entities that we see come in to the market. Now there's -- it's only a series of -- it's only the old ones that are sort of consolidating the space and very clear data point where Bird has bought Circ. And it's -- there will be more -- I mean, over time, I'm certain there will be more consolidation. And we -- yes, we -- as you noted, we took a little bit more than our pro rata. We think VOI and this e-scooter platform that's really being built is really unique in terms of that it provides network effects, but also further defensibility through the issuance of these licenses, where VOI is the European leader by far of -- in terms of how many licenses that they have acquired. So that adds more sort of defensibility. So we think the opportunity is great. I think the -- we're certainly the largest investor in this sort of last round. And we're able sort of to price this, which I think is in a very favorable sort of level for us and our shareholders.

So you expect that the C round was the last round needed to take the company to profitability on a group level.

No. I think that could be the case, but given the growth opportunities are still out there, I think -- I mean, the company is sort of very -- on a quick march to profitability, which is amazing given that it's so young, this company, but really established itself as one of the leaders -- or the leader of the European sort of based companies. But I'm -- I mean, we're not to sort of look at every sort of new investments in its context and timing, et cetera, et cetera. But I think there could be opportunities that we may want to fund at this company going forward. But obviously, not in the near term, when the companies are very well funded, growing very well and in this space, which sort of provides real cash inflow to the company. So nothing in the near term and maybe never that the opportunities are -- one should not miss.

Yes. And also about Gett, it was flat sequentially, but that is mainly due to -- you invested $5 in convertible debt. So I just wonder, are you still valuing it on EV, EMV? Or is it EV and net revenue now as not will be as much B2C operation?

That's also something that we'll sort of have more details. I mean it's not the right sort of -- we can't provide more details on what we have right now for Gett on the sort of specifics of the valuation. But obviously, the capital that we provided to the company, alongside other shareholders, are -- is -- comes in as usual in this sort of situations in a format of preps, which is senior and so provides sort of very good sort of downside protection and -plus other characteristics, which sort of helps us assume the mark that we have on the company. But I think whereas -- maybe it's been a couple of years when they have sort of had to go through some heavy lifting in -- with the competition from Uber, Yandex in Russia and also others in their other markets, I think the companies are really sort of gone through that super well. And now the operational certainties are much, much higher in all their markets. And I think that we -- that we're looking at -- again, that's a very decent upside from our mark, I mean, being a fair mark and everything right now, whereas there's more -- I mean, we've gone through these years with more uncertainties. Those have now been handled and sort of -- and straightened out and much more predictability about the business now, which leads me to believe that this is, again, something that provide -- that will provide some -- a very good risk/reward for us. So yes.

And finally, can you say some words about the new Russian investment there?

Sure. So this is a more traditional sort of a marketplace kind of a business for long distance freight. We put in about $9 million for about 9% of the company. This is a company, which in -- like in so many situations, when you build sort of marketplace type of business, and it's very difficult to build market -- in many situations, it's difficult to build market -- a marketplace without a good starting point on -- of either demand or supply. So this company comes from a background of being a simple sort of old world type of trucking company. And so it's using that supply of long distance freight capacity to build a marketplace. And so currently, it's about 80% of the business comes from their own sort of fleet and -- but as much as 20% comes from the marketplace business, so -- where the actual fleet is owned by others. And that's something that's growing super fast. And over the coming years now, that's the focus of the company. So it will sort of develop into something that's -- that relies much less on their own sort of fixed assets and much more on the sort of super high-margin marketplace business. And we think it has a lot of upside. I mean you can -- I mean Russian opportunities like this don't get -- don't have the luxury of having a lot of sort of capital chasing them. So the valuations are attractions, really, of similar businesses in the rest of the world. I mean we write about this example of the Indian company, Rivigo, which is valued about 3x of Monopoliya, and the India market and the Russian market is really the same. So it's -- yes, all right, sorry, the -- so the valuation difference is something like 10x, but the size of it is something like 3x. And so -- yes, so there's a large upside in relative to other emerging market name. But on absolute terms, this sort of very well fits the kind of risk/reward that we're looking at -- that we'd like to invest into.

And in terms of the marketplace business, is it -- margins in the 40%, 50%, that is possible.

Absolutely.

Okay.

Absolutely.

So that's the case to build that. So most of that margin is related now to the marketplace business already, I guess, then, on a group level.

Yes. Well, it's certainly contributing, certainly contributing.

[Operator Instructions] And as there are no further questions, I will hand the word back to the speaker for any final comments.

Thank you very much, and thanks for listening in. You know where to find us if you have any other sort of comments or queries. Our next interaction in this format will be for our Q1 report, which is out a little earlier this year. It's out end of April rather than mid of May, which is -- so it will be a little earlier, but look forward to talking then. Thank you.