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

Welcome to VNV Global's presentations for the second quarter and first 6 months of 2022. I'll leave it to Per to start things off. And before that, just a reminder, as we do it in the Zoom format, if you want to ask a question, please use the Q&A function here in Zoom, and we will go through them later on. Thanks. Go ahead, Per.

Thanks, Bjorn, and welcome, everyone. I'll just introduce sort of the report and sort of the general themes have been going on and what's on our mind at the moment. And then Bjorn will run through the details of our NAV's built up. And those of you who were with us the last quarter will be familiar with the structure and then I'll sort of round things off and then we'll go to Q&A. But -- and I thought I'd sort of just kick things off in a sort of a numerical way. And yes, the NAV, this end of June is down to SEK 75 a share. That's down some 30% over the quarter. It's a very sort of largely -- large horrifying down, some $300 million from the last quarter. That $300 million are, of course, adjustments in the NAV. Bjorn will go through those in more detail. But NAV now about $850 million, which compared to just under $1.2 billion at the end of March. So as you see here, we have -- including some liquidity management, we got about $78 million in cash, that's $71 million is free cash, but $78 million essentially in cash, which you compare to the $167 million in debt that we have outstanding, which gets us to a net debt situation at the end of this quarter of about $100 million that as of the -- we've sold our shares to Property Finder after the end of the quarter very recently. And so that gets us down to a little bit -- well, about $50 million in net debt. Now the majority of this debt, the bulk of it matures in early 2025 and runs, important to remember, it runs at a 5% fixed coupon, so 5% flat. That's the nature of the debt, which is important. So it's a highlight in times like this. I am -- and that leaves us at -- with which we're obviously trading at about 1/3 of our NAV. So NAV about, well, SEK 75 per share at the end of the quarter and we're trading at about 1/3 of that or even less actually because we're down at just below SEK 23 a share. And as we highlight in this report, if you crudely, admittedly crudely, but if you disregard cash and debt, then you're down to a situation where 5 names, our 5 largest names, Voi, BlaBla, Swvl, Gett, Booksy, not even Babylon, but those names make up for the entire market cap. And the remaining 65 names, you essentially get for free. Those 5 names, during 2022, we have high visibility. They will grow at 100% in revenue terms. Now we know the market now is not in favor of growth. It will be in favor of growth again, but it isn't currently. But still, I think it's a healthy sign that these companies are growing well. They're well funded. They are good products that are in high demand and run by very good teams. So I humbly that volatility can -- is present as we clearly see now between quarter-to-quarter. Thankfully, we invest on a sort of 10-year horizon, or at least historically we have. We sell when the founder sell, you know that, but for quarter-to-quarter, now that the entire portfolio is either listed or valued on the back of a model taking in input from listed markets, that is -- you have some volatility from quarter-to-quarter, but these companies are growing well. Across the entire portfolio, you have a price to sale at this NAV of 3. So price to sale ratio of the entire portfolio at NAV is 3. And obviously then, if you take -- if you compare the sales of our portfolio of our part of the companies in our portfolio, then that equivalent sort of multiple is one if you compare it to the market cap that we're trading at. Going through a little bit what's been going on throughout this quarter. So we've been actively selling our shares in same verticals. Now that's not a thematic sort of thing that we're doing, but Hemnet, of course, we have been selling for a while because it's been in a natural sort of exit phase for us, became listed. We're not that close to it. We're not on the board, for example, we have friends around the Board, but we're not directly on the board. And it also sort of had a return profile that was sort of a little bit lower than the ones that we that we are looking for when we invest. So we see a natural exit base, summing that up. It's been a good investment with a 50% IRR since we invested into it. And just on that theme, although there's no connection to us being there is from real estate verticals. It's a very, very good sort of business model. But we have -- after we closed this quarter also entered into agreement to sell our shares in Property Finder and had a double of what -- where we bought them a few years back. So it doesn't sort of make up to the same sort of IRR to write home about that, for example, Hemnet is, but we felt that this was the right thing to do. There is upside in Property Finder over the years to come, but we felt that there's maybe more upside, maybe better risk rewards in the rest of the portfolio, and hence, the opportunity came to sell, we did it. So now we have cash available in the balance sheet that will allow us to sort of capture the opportunities in this portfolio and beyond. So by real estate verticals in our portfolio, although entirely not connected. So I think the other big movement that we should talk about or big action that we have been sort of engaged in over this quarter is that we have gone through -- we've acquired the entire debt of VNV -- of Gett for about $42 million. So we are now the largest -- we own all the debt outstanding at Gett. And the company is going through a financial restructuring where our debt will be converted into equity. And after that financial restructuring, we will be the largest shareholder in the company, increasing our sort of equity participation in the company significantly. And that we -- as you'll have -- as you'll note from this quarterly report, we're yet to sort of give you the details of exactly how much we own and so -- and that's just simply because the financial restructuring is not yet complete. It soon will be. So when we go when we -- in our next quarterly report, we will be able to be more specific about exactly how much we'll owned -- and yes, what valuations are there, the valuations that we have used for the inputs in this quarterly report comes from the valuation that's used in this financial restructuring, which is done by, as you can imagine, sort of third-party investment banks into the factory restructuring, which is, of course, a necessity in all of these sort of situations. But yes, so we've done this because we feel that, that has interesting upside. Obviously, the enterprise to a debt restructuring is attractive as it usually is. The company sits on some very interesting assets, especially Israel, they completely dominate in this sort of marketplace for short distance rise that we're now used to across the world. But for those of you who have been to Israel, you'll know that this is as dominating as you'll see, some of the Americans are in their home cities. And that's really the essence of what we look for companies that have business model through network effects, a few characteristics of monopolies really very high - that's very present in Gett position in Israel. It also has a similarly strong position but within a certain segment of the U.K. market, that's the black cab market. And the third asset is a younger, but very interesting B2B product for corporate travel. So lots of activity around our holding at Gett now, but which will soon result in the company upon financial restructuring, which is -- which will be fully funded on financial restructuring and have no debt, have assets that are generating positive EBITDA and a company which during the course of this year, will be able to be also EBITDA positive in -- at the company level. So very attractive which we essentially will control together with the other large shareholders in the company. So we can come back to that if there are any questions when we go to the Q&A. But apart from that, I mean, in very general terms, the portfolio is developing well. It's going in line with budgets. There are -- most of these companies have funded themselves very recently. They have all reduced cash burn, extending the runway of the cash -- it's in their runway to profitability or decreasing the distance to profitability but increasing the runway that they can go with this cash that they have. And therefore, for many of them, all the way to profitability. There remains some companies that will still require funding to get the profitability in our portfolio. And as we've written in this report, we have set aside about $40 million, which we think covers all of those needs in our portfolio. So well within the cash pile that we have now, which is just -- of $120 million. So that's -- there's lot of stability there. And in this sort of bleak days on a quarter-by-quarter basis of the portfolio, so us marking down the value of the portfolio, there are also stuff that's going the other way inside the portfolio. So we have several portfolio companies that have attracted new fundings in private markets and they have done that at higher valuations than our previous mark. So there's examples like Breadfast, Housing Anywhere, Carla, Kavall, Alva, Tise and also JamesEdition. So within these -- especially the parts of the portfolio that are a little bit younger that we don't talk so much about today, there's stuff going on that's really sort of reflecting that these companies are developing well. I thought that may be sufficed as an intro, and I'll leave over to Bjorn to take us through some more details on the NAV.

Thank you, Per. I'll walk through a few of the main drivers of the NAV during the quarter. But maybe to start off, as Per mentioned, the NAV came in at $849 for Q2, which is SEK 75.31 per share, down from SEK 95.10 per end of Q1, so negative 27% movement in dollars and 21% in SEK given the FX movements as of late. And the main drivers of the NAV movements, of course, is our 2 listed holdings, Babylon and SWVL that continues to trade down. Babylon was down another 75% during the quarter and SWVL down 31%. Among the private holdings, the main driver was us moving Voi from a valuation based on the last transaction of some 6 months ago to EV sales multiples model. We moved into a model as the volatility in the markets made that last transaction, although it's not more than a year-old sale. So we moved it to our typical model, which we run in the past, and they had diverged too much. And that model gave a valuation, which was roughly 31% down compared to that last transaction and our last mark. In the remainder of the portfolio, there were, of course, additional markdowns, again, mainly driven by lower peer multiples across the board. A few exceptions among the smaller names as Per just mentioned, where a number of companies such as Palta, Tise, et cetera, closed new rounds at higher valuations compared to our first quarter mark. All in all, fair value change was a negative $330 million. And given how the market has traded during this last couple of months with compressing valuation multiples and our valuation approach of peer-listed multiples. Looking at the entire portfolio, the implied price to sale ratio of the full VNV portfolio, now for the Q2 now is less than 3x and looking at the same type of ratio, but against market cap, it's less than 1 based on 2022 forecast figures for the entire portfolio. And as Per mentioned, the being significant investment during the quarter was acquiring the outstanding debt of debt in the amount of $42 million. We also sold, as I mentioned, the remaining Hemnet shares for approximately $42 million. All in all, the Hemnet investment was a very successful one. In total, it generated proceeds of $81 million, reflecting a 50% IRR on that initial $10 million investment we did back in 2016. And finally, just to reiterate, after the end of the period, we entered into the definitive agreement to sell our shares in Property Finder at the valuation in line with our Q2 NAV and also our Q1 NAV or mark our Property Finder of approximately $39 million. So adjusting for that, our pro forma cash position, including liquidity management investments amounts to just below $120 million. I'll leave it back to you, Per and…

Sure. So just summing up. Thanks, Bjorn. So some movements in -- within the rankings of our largest holdings, Voi remains the biggest one, but Babylon on the back of that 75% fall has fallen out of the top 5. So that company we get for free at our market cap, which is I mean, borderline fascinating. This is sort of themes that we invest into are about the same mobility, the largest as before, digital health has fallen a little bit on the back of especially Babylon. Marketplace is still an active part. We developed markets in emerging markets still developed markets is 3/4 of the portfolio, and we still do some stuff in more emerging markets to the green -- dark green pictures, part of the portfolio are the listed ones. They are decreasing as a percentage of the portfolio, mostly because they've fallen problem most notably, of course, but beyond that also, of course, Hemnet is not out of the portfolio. So there's only 2 publicly listed names. Voi and BlaBlaCar here are the ones that have given indications of that they are -- that they will list at some point. Obviously, not -- they don't have to list or raise money for that matter when markets are stressed as they are now. But once this gets more stable, which, of course, it will, then those are the ones that are not yet dark green and not yet listed, but those 2 are light green so on route for that. The rest of the portfolio remains private for now. We have -- we sort of just wanted to highlight that, and I think we've talked about this in the past that we have 70 names in the portfolio all in all. And there the stuff that's listed now that, of course, is feeling sort of the full force of how this market is pricing growth assets and assets with perceived as higher risk with a longer path to profitability than sort of more traditional companies and traditional sectors, there is still some sort of stuff going on, note SWVL, for example, over this past year, still up 3x from where it's marked, despite being down some 30% in the market over this last quarter. And the same for housing anywhere is close to transaction, which has our mark in the name over these past 12 months double. So there's just lots of activity going on in this in the smaller part -- in the part of the portfolio that's consistent on the other 65 names, so to speak. And as before, I mean, I think I've been on about this before. When we talked 4 years ago, Voi was just nowhere to be seen in the portfolio, right? So they were one of these obscure names that we never talked about in the same way that Wasoko or Bokadirekt or HungryPanda or Alva or Tise are today. So in that other part of the portfolio, there's lots of activity. These companies are growing well. The good products that are in demand and run by very, very strong teams. And on the whole, very good balance sheet and a long runway with the cash that they have. So some of these names will -- when we speak a few years down the road, I'm sure will be the ones that we talk about only. So good activity there. I think what we wanted to finish the sort of -- before we go to Q&A, it's just to tell you that we will host a Capital Markets Day in real life this year. We've had these past 2 years, we've had them on video, on Zoom, which we thought were very good, but now that travel allows us to meet in person, we are going to host this in real life. And this year, it will be in New York, so we can meet our investors in the U.S. face-to-face, but also these investors will get the opportunity to meet Voi, BlaBla, SWVL, Wasoko, maybe some others in real life. And there will also be a bunch of guest speakers that I think will be very good. All of this will sort of be streamed, so those of you who can't make it to New York will be able to watch it live on Zoom. But for those of you in the U.S. and especially in New York, you'd be very welcome to join us at the Jefferies offices in Midtown. So with that, I think we'll go into Q&A. And Bjorn, do you want to kick us off?

Yes, sure. So we can start with the first question here. Can you go through a few of the companies that you think will fare better and those who will fare worse in a recession?

In every session?

In a potential recession.

In a potential recession, right. I mean, so if I take you through the portfolio, we've got one that's -- I mean I think, in general, these companies sort of disrupt high-cost services in a traditional sense, right? So Voi will disrupt sort of taxi rides and other sort of historical ways in a cheaper fashion as we book all of these sort of our digital products disrupting high-cost sort of alternatives from a more traditional sort of vendor of these products. So I think in recession, we will, as consumers, we will seek to the lowest cost alternatives where I think, the portfolio overall will deliver those lower cost alternatives. I mean, Wasoko, for example, is a B2B marketplace in Africa, which takes out the middlemen between the Unilevers of this world and the corner stores in Nairobi and elsewhere. And so, making sort of that whole sort of journey much, much cheaper. And the same goes for all of these companies. So I really think that all these companies very well in a recession just by the nature of that they are much more efficiently sort of produced products than their traditional counterparts. But I'd also like to say that because our niche of investing into companies with network effects is also one that gives you a lot of defensibility on the downside because the whole attraction with network effects is that they build very high barriers to entry in a very similar fashion to what you see in natural monopoly. So natural monopolies, which are -- which can set the price and are nondiscretionary products like moving around the city or going to the doctor that you just have to have, I think the nature of those -- that sort of phenomenon also fare very, very well in recession. So it becomes a long-winding answer to this question, but of course, BlaBlaCar stands out. I mean in this environment where petrol prices are very high, it just makes more sense to share the cost of that petrol of going on a long-distance trip between Paris, for example. If it weren't incentive enough that the petrol price on the back of an oil price that was $50 a barrel, it's $100 a barrel, that incentive has essentially doubled. So BlaBlaCar is also the one that sort of stands out and it's feeling an accelerated sort of demand for their product, which makes a lot of sense as a counter -- even countercyclical sort of phenomenon in the portfolio. But again, overall, I think the portfolio in marketplaces and in the nature of the [indiscernible] building and that the disrupting traditional products should fare maybe even better in a recession. Long-winding answer.

Thank you. And then there's another 2-part question here on Voi, and maybe I can start with the first one, which is what says multiple as Voi model? And the answer there is that we don't disclose the exact multiple we use in the models. But if you go to Note 3 in the financial report, you can see the starting point of that model. So the median peer group multiple that will then further discount in our model. So that's a little bit color on that. And then the second question that I lead to you, Per, are there any financing needs for Voi during this year. If we can comment on that.

Yes. No, I think has been sort of very evident in the press here and from Voi itself, I mean, they have, like all other companies in the portfolio have been through a cost-cutting exercise, which has rendered the company in a very good situation, good sort of liquidity in the balance sheet and ample opportunity to sort of extend that runway should they want to, to become cash flow positive, basically. So no need for financing during the course of this year, unless something extremely attractive comes up for them to buy. I would say of -- but then that's a choice. So from a defensive sort of angle, I think it's fair to say that they have the cash they need to go on with the operations as Voi we know it today.

Thank you. And we can take a question around Gett here, maybe you can provide us a bit more color. What is the idea behind buying debt in a software-driven startup where there are no hard assets or collateral to claim ownership, if things go south seems to be high-risk, low-reward proposition?

Yes.

Not referring to Gett, specifically, a general question.

I think... The answer is I agree. And of course, we're not buying this debt to be a lender, which we're not -- we are an equity investor equity provider -- provider of equities or risk capital to these companies. So we are buying the Gett debt not to remain as a lender, but we're currently sort of in the last inning of the financial restructuring of the company where the debts of the company, which we now own, will be converted to equity. So where we bear the sort of the full upside and full downside of that company's performance. So yes, I think in general, it's not opportune for these companies to fund themselves through debt. There are situations and there is some debt capital that open to companies like these that come at a first glance a very high cost. But of course, if you compare it to the cost of equity, it can sort of on paper make sense. But then you get into a situation like we are in today and that is very much frowned upon and becomes tough for some companies to bear, Gett was certainly one of those and hence there was an opportunity to acquire that debt at, I think, a very attractive price and then -- but as any acquirer of bad debt or debt in a similar situation to after that convert it into equity, which debt to equity restructuring is typically made out for very good sort of entry points, which we think this will be as well.

Thank you. And then another question here. What annual pace of investments seems reasonable? And how do you think about debt to LTV?

Yes. So I mean our framework -- the way we work is very optimistic. And so, we thankfully do not have any pressure to sort of invest at a certain pace or that, that sort of whole thinking stems very much from the BC industry, which sort of have promised investors to invest their capital over a certain number of years. If there are no good investments, we simply don't have to invest anything. And I think the pecking order of the way we look at investments is, #1 is to support the parts of our existing portfolio that needs supporting provided, of course, that the valuations are okay and that they reflect sort of a business that's doing well and that has the same sort of potential that we thought they had when we invested the first time around, et cetera. Essentially, that the companies are performing well and are on track to sort of disrupt markets in a big way, which is sort of one of the premises of us investing in the first phase. But so -- and as we mentioned in the quarter, we've set aside about $40 million of things to cover the existing parts -- the existing portfolio's cash needs. And so that's number one. And then after that, it becomes -- it becomes very natural to look at our own share price. As you know, as long as I've been with this company for a very long time now, we've always looked at our own stock and if that provides a good sort of entry point into assets that we already like, we use that as an investment opportunity. We have also, during this quarter, repurchased shares, which are now going out of circulation and being canceled. And that, of course, gives a boost to the NAV because we buy at a discount and now a very, very large discount. It essentially becomes very, very tough for any new investment to stack up risk/reward-wise, from buying our own portfolio, which we think have a very, very large potential to provide very high returns, especially when it comes at such a large discount. So it's only -- so after that opportunity has been exhausted that we will look at new investments. And there may be the odd one that is very -- it's immaterial and very small in the grand scheme of things, the most important investment that you will see us do is sort of supporting the companies in our portfolio alongside other shareholders to fund them so that they can continue their disrupting of some traditional market and then our own stock price.

Thanks. I can take 2 questions here on SWVL. So the first one is SWVL is making acquisitions, how do they pay for, shares or cash? And there, I can't go into the specifics of the several transactions that they have announced, but in general, they have all been shares. They have been paid 4 shares, and most of them has also been negotiated pre-SPAC completion or advanced SPAC completions. So they pay for them which shares issued at the SPAC price of 10. And then there are some deferred payments subject to that these companies meet some targets down the road. And then the other question is have SWVL's switched entirely to B2B and B2B2C? And they have moved focus to that given the -- so they announced cost cutting and portfolio optimization program. So they will increase focus on those 2 verticals as they are more profitable, higher gross margin, et cetera, but they still run their B2C offering in their most mature markets where they also have healthy unit economics, but cutting down in other B2C more expansive areas currently. And then we can take another question here on the growth. How fast are Voi, BlaBlaCar gets growing organically? And also, if we have any color on the organic growth of the entire portfolio. And there, I can say as Per noted in the management report, so if you look at the 5 largest holdings, on average, they grew roughly at 100% year-on-year, 2022 over 2021. And looking at the tail of the portfolio, you get to that similar range given that -- especially if you weight it against NAV. So that's roughly the number. And another question here. Will you commit to not issue shares below NAV in these difficult markets or how do you think about that?

Yes I -- as you've seen us sort of do historically, I don't think -- we have not issued shares below NAV but we raised equity capital over these -- we've done it, I guess, this is not twice of these past couple of years. We've issued them around NAV even at a slight premium to NAV and that's okay to do if we have investment opportunities. I think that's the point we all agree upon. And -- but if we say that at a large discount to NAV, that route or sort of private placements raising money that way is not open because if you need to, for whatever reason, need to raise money at below NAV, then you have to give everyone the chance to pick up their pro rata of that, otherwise, it's just not fair. And so thankfully, as you've seen us -- you've seen the cash pile in the portfolio as of the end of the quarter is $78 million, and we've since sold assets for another roughly $40 million at the NAV of the last quarter. So we don't -- so obviously, we don't -- we're not in a situation where we need to raise money at these sort of levels. So yes, that's the way we think about equity funding. So no need for equity funding now. We have ample cash to do what we need to do in the portfolio and more. And so, no need to sort of attack markets at this sort of very depressed valuation.

And adjacent question to that, I guess, in the report, you mentioned that there is $40 million to take our pro rata over the coming years in the existing portfolio. But do you see a risk that other investors might not be able to commit, thus forcing you to invest more in relative terms?

We don't -- we can't obviously force anyone to invest, but I think in general, in our portfolio holdings, we share the cap table there with investors that are very like-minded to us and are in sort of similar situations that have access to liquidity and that believe in this company's ability to grow and become profitable. And hence are -- provide opportunities of good risk award situations are fundable. So I don't -- although that risk is always there, but I think in most of our situations, we are joined by shareholders, investors basically that are on a similar mindset. And if we're investing, I think it's fair to expect that the other part of these different cap table will also be invested.

Thanks. And then another question here around future buybacks. How do you see that going forward?

Yes, that's always on the table. I mean, we have bought back stock leading into the blackout period that's now ended with this report. And as per sort of your earlier comments that we made, that is that priority #1 is to see that the companies in the portfolio that are good to invest into, which we think is basically all of them are doing well, et cetera, that they are funded because, if we then need to dilute ourselves at these sort of very low valuations, then of course, that will be painful as markets normalize and things -- the valuations will start to pick up again. So we try to be careful not to dilute ourselves at sort of distressed valuations because our borderline things that we're talking about now. So that's #1. But beyond that, it's really the opportunity to buy something at 1/3 of the price, which we think -- the NAV, we think will provide very high returns going forward. But if you can buy NAV at 1/3 of a price, it's very difficult for any new investments to compare to that, which will essentially come at NAV, right? So we buy back stock on a very optimistic basis. We don't do it sort of in a general sort of fashion. We do it opportunistically. We never buy on an update. Now there's been mostly down days, but we have also been active on down days. So that continues to be a present opportunity, I think, is the best way to describe it.

Thank you. I think we'll stop there. And if there's questions here that we haven't been able to answer, we'll try to do that offline later on.

All right. Well, good. Well, thank you for participating, and thank you for all these good questions. Remind me, Bjorn, we report next on the 20 of October, I believe, right?

Correct.

Correct. So there will be an opportunity to talk like this on the 20 October, it seems like a lifetime away, but it will come quickly. In the meantime, you know where to reach us, so please don't hesitate to get in touch, if you have any queries.

And also a reminder on the Capital Markets Day on the 27 of September in New York. Please reach out if you want to participate. Thanks a lot.

Thank you.