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

Welcome, everybody, to this Q3 call on -- from us, VNV Global. I'm joined here today with my newish colleague, Dennis Mohammad, who has been here for a year, but many of you may have met him. He joined us from Boston Consulting Group, but he was also the first [indiscernible]. [Audio Gap] I'll kick off and do some highlights. And Dennis will run through some numbers, and then we'll go through the new portfolio, et cetera. So in terms of housekeeping, there's one thing to remember, as you may remember from these calls earlier, and that's to ask a question, you type it into the Zoom chat function, Q&A function at Zoom, so you do that and then we'll sort of pick up the questions that haven't been answered and at the end of this presentation. So if you could take us to the next slide, Dennis. I think there's a lot of familiar faces or numbers on this call. But for those of you who don't know us from before, just very, very quickly. [indiscernible] that operate on global markets and that have sort of exceptional founders. We have -- the portfolio is about 70 companies, all in all and measured -- over the past 10 years, we've delivered a 20% IRR, if you up and entail this quarter report, which is the end of September. We aim for a much higher IRR return in our investments, 30% to 50%. And in fact, the companies that we have sold over the years have been -- the return profile has been of that sort of order. And I'll come back to it, but the portfolio, as you'll see also from this presentation is essentially all about competence from network effects. So that's not essentially it is. But you could also -- there's sort of 3 main macro themes or sectors, if you will, which is mobility, digital health and marketplaces. So -- and different companies belong to different sort of themes. Next slide, the NAV as of the end of September was just shy of $700 million, $691 million, which is down some 19% quarter-on-quarter. If you measure it from the beginning of the year, it's down by about half. Our NAV at the end of last year, it's like $1.4 billion plus/minus. So this market that we're in has had its toll and we're down by half. And -- but for this quarter, we're down by 19%. That's all in the U.S. dollars. And of course, you have the currency moving around. So Swedish krona, we're down about 10% over the course of the quarter in Swedish krona. Sort of on a per share basis, it adds up to $6 a share, which is just under SEK 68 per share. Next slide. I just wanted to highlight a few things that have been going on since we last spoke. And we're very happy to sort of -- to be done with the financial restructuring at Gett. So this company is essentially debt-free now. We're the largest owner, it's performing very well, and it's EBITDA positive. So a big turnaround from where it was, well, at the beginning of the year. We -- this financial restructuring is very recent. So we're not yet at liberty to give all the details around that, for example, how much we own on the company. But -- so we have to remain at least for this quarter, I believe until we issue our annual report. And by then, we will be able to disclose how much we own, but we're the largest owner of the company. We sold Property Finder. We did announce that at the previous quarter report as an event that after the end of the period, and that is now completed. -- within this quarter. Again, post the end of this period, we've had that's been news around one of our formerly larger holdings, which has now gone down so much in the stock market. So it's quite a small holding, which this is, of course, Babylon. And the company announced that it has completed an $80 million raise where we participated with $20 million alongside Kinnevik $26 million. And I'll come back to this as well a little bit, and we can talk about it in the Q&A. But this money together with the proceeds from an exit that they have announced their intention to sell, one of the U.S. assets will take them all the way to profitability. And I feel confident about that. The asset is, of course, not sold yet, but the indications we get will cover them with quite a broad margin. More on that later. Also, we hosted a Capital Markets Day in New York, where we had, I think, it was 5 of our portfolio companies that made presentations. All of those are -- you can -- they were streamed live to everyone who wanted to watch. There were some people in the room, too. But moreover, you can watch them, recordings of them and they're available on our website. Now we're going to move over to go through the actual numbers and Dennis will help me with that.

Thank you, Per. So as Per mentioned, NAV came in at $691 million for Q3, which is a fair value change of approximately $169 million quarter-over-quarter and corresponds to $6.01 per share or SEK 67.9 per share. In USD terms, then it is down roughly 19%, while in SEK terms, we're down about 10. And the difference is driven by FX tailwinds as the Swedish krona has depreciated against the dollar during the quarter. When looking at the main drivers of the fair value change during the quarter, our listed holdings, Swvl and Babylon were the biggest contributors. Swvl is down 87%, which is roughly at $1 million on the NAV. And this is primarily driven by PIPE shares, having been registered for trading in the beginning of July, which caused a large imbalance between supply and demand and subsequently caused a downwards pressure on the stock. Babylon was down roughly at 52% during the quarter. During the actual quarter, there were no major news other than probably a continued funding overhang, which, as Per mentioned, now been addressed through the announced PIPE funding of $80 million and the planned asset sale that was announced after the end of the quarter. Among our private holdings, the main drivers were, first and foremost, Voi, which we marked down an additional 10% from our Q2 NAV primarily driven by us increasing the discount that we apply to the peer group median multiple. And in the case of Voi was to reflect general market uncertainty. There were some additional markdowns across the portfolio, main ones being when going from valuing holding based on the most recent transaction to valuing it on the back of a peer model. As a reminder, a transaction is typically valid for a year, unless market volatility makes the valuation go still earlier. So during Q3, we moved over to a model for some of our larger holdings such as but not limited to Bokadirekt and Wasoko and despite this transaction, it's being less than 1 year old. So from the Q3 ended -- sorry, report and onwards, the vast majority of our holdings are best -- are valued based on a peer model. Cash for Q3 is roughly $97 million when including liquidity management, $90 when excluding liquidity management, and that's up from roughly $70 or $77 from -- in Q2. When deducting the already announced investment into Babylon, our cash position is roughly $70 million for first 2 weeks of Q3 and then $77 million when including liquidity management. On the right-hand side, you see our debt position, which is primarily the 2 bonds that we have outstanding. And here, the SEK, USD, FX movements as of late have also impacted our position in USD terms, taking it down to roughly $151 million in Q3 versus $171 million in Q2. In terms of main investments during the quarter, there were no bigger ticket investments done other than a few follow-on investments into Vezeeta, Borzo and Gett. And after the end of the quarter, there was also as already mentioned, roughly $20 investment into Babylon. And in terms of exits, we, as Per mentioned, successfully exited our stake in Property Finder. This was closed in September 2022 and generated proceeds of roughly USD 39 million. I think I'll stop there and hand it back to you, Per.

Yes. Just resting on this slide first, slightly longer. I think one general comment to make is that there is just important to point out, and I've made this point sort of in the write-ups that we have in these last couple of quarters that whereas we value the -- pretty much all these companies on the back of the model today, that model takes its inputs from a listed peer group. And all of those are trading in common shares, which is full upside but full downside also, just a normal equity instrument. And then we apply a discount to pay 10% to 30% on top of that. But whereas in fact, we have most of these unlisted holdings in the portfolio, which is all of them, apart from Swvl and Babylon, are pretty much all of them have -- we hold the most senior preferred shares. And those preferred shares are take debt-like qualities on the downside. So which has our NAV reporting yielding a slightly too conservative scenario. So one thing here, for example, on this slide, you've got Wasoko, which is an investment that we did pretty much all of it like earlier this year. Now we've taken that down by 40%, which is the value of the company if you look at the best peer group we can come up with. But in fact, all of our shares there are very -- are the most senior preferred shares. So there's no way the company at this moment of time, at least, I mean this risk with everything, but we think there is risk on the upside here. But the point I'm trying to make is that the preferred shares we hold are nowhere near where they're not at full value. So 40% markdown here is -- yes, it's too much, and you get the point. But this is the way we value our holdings, and I guess you can say that we're debating if we should move over to what could be described as more industry standard, which is to go through a waterfall and then you would sort of pick up the actual instrument that you hold in these different companies. There's pluses and minus with everything. But if we are to err, we'd like to err on the conservative side rather than the other way around. The other point I just wanted to sort of highlight here and then as you walked us through that. But for those of you who have been following our cash movements -- there is -- so we had $70 million of cash at the end of June, plus liquidity management, which is still there, the $7 million. That -- we've added on cash of about $40 million to -- from the proceeds of the exit of Property Finder. And then we made investments of roughly $10 million. And then on top of that, of course, we have Babylon. But the difference that you may find there is essentially OpEx, coupon and 1 or 2 sort of one-off costs that we've had. And so that's -- that will give you a good picture on the movement in cash from last quarter to now, hopefully. Good. If you move to the next slide, I just thought I'd sort of highlight a little bit on the -- give you an update on the actual portfolio companies. This is our portfolio. You'll recognize it. The main difference here is that Babylon due to stock being down by 95% up until the 30th of September, has moved up slightly on the back of this financing or quite a bit and -- but it is still down to some 2%. But on the whole here, and we can go into sort of more details at the Q&A. But Voi, as we wrote in this report was EBITDA positive in August. So I think it's -- and this company obviously differs from month-to-month to some aspects of seasonality, especially in the Nordics around this. But this, I think, is a good sort of sign that this company is where this company, in general, is at. So very positive. That's a result of some cost cutting, but it's also a result of this company just continuing to perform well. BlaBlaCar is maybe a standout in the portfolio as of this quarter. And I worry or I sense maybe it's a better way to put it, that the risk here on the mark is on the upside. This is a company that you all know, but this has got very large elements of counter cyclicality in it. It's cost sharing, which is helping, and the people are more prone to do in tougher times than in good times. And moreover, this is cost sharing around the price of petrol, which of course, are at very high levels around Europe today. So this company is really performing very well, EBITDA-positive for the latter part of this year will be profitable next year. And again, I think the risk here is on the upside, we -- in terms of our mark. And here again, I mean, we failed, as per the previous slide, we failed to sort of pick up in the way we go about valuing our companies, the fact that we hold senior preferred shares here, not only, but a lot of our exposure is to senior preferred shares. And they -- the mark that we have, which is derived by looking a little bit maybe too much backwards or too much at a situation which still has remnants of COVID when, of course, business is very slow for this company. But even at that mark, those preferred shares are still sort of good in terms of mark. So there's that technical sort of upside in this as well. Gett financial restructuring down, EBITDA positive, so in a very good place. Booksy has moved up in this report. We moved it to a model from a transaction -- and it's simply that we had carried it to know even when taking into account that the peer group that we used for their model is -- has, of course, traded down. Housing Anywhere keeps on [indiscernible] at the European market. They're consolidating the European market for medium- and long-term rentals. The last acquisition was their largest French competitor called Studapart, so performing very well, similar to Numan, Breadfast, Babylon, we mentioned a little bit before, but this is, of course where when we spoke in this format a year ago, it would have been our largest acquisition, larger than Voi, now it's down here, driven by the stock falling severely over the course of these last 12 months really. A lot of that, I think, has to do that the company entered its public life or public listed life with a financing deficit that was manageable in the sort of first quarter or 2. But when sort of cost of capital started rising on the back of the war in Ukraine, and the inflation worries, et cetera, the funding risk and the funding and the actual point when the company will run our cash became closer and closer, this had inflicted sort of pain on the company shareholder by the stock falling. We are very enthusiastic about having the opportunity to invest more in this company at these sort of levels. It's sort of levels that were reminiscent of where we first invested in 2017, and that's despite the fact that the company has sort of developed immensely since those days, which was essentially pre any revenue. And the company is guiding to the order of $1 billion revenue this year, up from a little bit more than $300 million last year. So a completely renewed company. So we think that the company here is probably a standout again in terms of risk reward in our portfolio, and we think it's in the interest of our shareholders that would take the opportunity to fund the company that -- which is also what we've done now as per the announcement earlier this week. So this $80 million, together with the proceeds from the future exit of their IPA network in California, will get this company on to profitability, which is, of course, takes away the financing risk of the company. Of course, the exit is not of that asset. It's not done yet, but the more we understand there's good demand for those type of assets in the U.S. and the type of valuations that you'd expect from it will leave the company with the buffer to get to profitability, if you include this $80 million as well. So furthermore, the company is performing a split or inverted split so that it gets to above that dollar fresh mark, which is so important when you're trading on the New York Stock Exchange. So that's also something that will open up the company for U.S. investors who are large -- where large category are prohibited in investing into these companies, which are what you call the penny stock on what you do. But -- so we'd expect that to sort of more -- I mean, the funding risk being taken away is much more important because that's a real fundamental development of the company taking that risk away. But there's technicalities around it also like this inverted split that we think will be positive for the company. I think if you could take us to the next slide, Dennis. We -- not much changed in terms of how the difference of macro teams or sector stack up here. Mobility marketplace, digital helps to the largest ones and when your markets have come off a little bit as a percentage of the overall portfolio. So it's quite a small part. If you go to the next slide, we call our Avito of tomorrow or our voice of tomorrow. Now that Avito has this bad sort of Russian clinging name or sounding name. But essentially sort of -- we think our future sort of home runs are already in the portfolio, and they're sort of in the shadows of the voice and the BlaBlaCar that are arguably more important for the performance of our portfolio in the shorter term. But when we speak in this format or for a couple of years from now, we think that some of the holdings that are now hidden in that other part will, in fact, be much more much larger and having much more impact about the short-term development of our share price during the course at that point in time. And I sometimes get a feeling that we -- that the discount that we trade at is partly attributable to this part of the portfolio where I can sort of sense that from a distance people may say that this portfolio is questionable what it's worth. There's a lot of companies. It's difficult to get insight into them, and cost of capital has gone up. So it's -- yes, and that yield sort of an uncertainty that may -- that one could argue maybe has an impact on our discount. But we've created this slide and just to sort of highlight a few other companies here because my view is that this part of my portfolio is by no means worth anything less than where we have it marked. -- because -- and certainly not sort of zero. These are companies that are mature, growing fast, their products are in demand, they're well funded, 60 of them all in all. So yes, there will be a few of them that don't make it. But -- and we have a sense of who they are, and they're pretty small. But the big ones and some of them, some big and some small we have highlighted here are performing very well. Basically, Bokadirekt is a very mature marketplace for booking platform for the beauty industry in Sweden. HungryPanda, is the food delivery platform for Chinese communities outside of China. Flo is the world's largest [indiscernible] with 50 million subscribers, most of them in the U.S. Olio is food waste community platform, which we funded together with Delivery Hero. NoTraffic, Israeli company around the software that changes the way traffic lights are monitored. [indiscernible] around improving an AI platform that improves the way you do job interviews, collective foods and marketplace between providers of raw material for restaurants and restaurants and Alva, one of our favorites highlighted also in my intro report because it's been -- the management has been joined by Christoffer Norman, almost many of you will know from the days of him running Avito. So he's joined Alva, which is also, again, an HR company based on data rather than the CV antiques that we have been used to. So he's joined that company as the CEO. So sort of very solid, very well-funded companies. And finally, before we go in Q&A, just to highlight the -- on the next page, yes. So our NAV is halved since the beginning of this year. So as Dennis was talking about, it's now mark-to-market, I think, with all common shares to a listed peer group. So it's come off. We're not sellers of these companies at these levels, but this is the way our accounting sort of standards works, and this is where we mark them. We think we may have erred on the conservative side here because of the nature of the preferred test. But despite that, there's some we trade at nearly a 70% discount to that NAV, which has created some turnover in the stock. We have some changes in the cap table and it's interesting to see. I think with that, we'll stop this and then we'll move over to Q&A session. Yes, please send them through to the Zoom Q&A function, and we'll sort of take them one by one. So that is -- if you could get a start on this, that would be great.

Yes, happy to. I guess the first question is on our -- of our $97 million in cash and liquidity. Obviously, $20 million has been invested into Babylon, as we mentioned. So question is here, what do we plan to do with the remaining $77 million that we have? What's our view on buybacks given the current discount? And how do you view a buyback of the bond at current levels as well?

Yes. So the $77 million, we -- is the cash that we'll have post the investment into Babylon and about a $10 million investment aggregated investment into the other part of the portfolio. So as per my guidance of about $40 million needed for the existing portfolio to get funded. There's 10 left on that. So that will be -- this is our estimate, but we're close to these companies. So we think it's fairly accurate. So that will be 1 maybe priority #1 use of cash. Moreover, of course, costs about $10 million to $12 million to run the company every year. We got our coupons to pay. So we have to preserve some cash for that. Beyond that, it's very difficult to find new investments that measure well against our own stock, to be frank. If we can buy our own portfolio at a 7% discount, it's very hard to find something that measures well against that. Now we have some limitations on what we can do in our own stock because it's essentially a dividend. And we've got our bonds outstanding and we got some covenants that limits to what we can do there. But in general, buybacks is always on the table for us, especially when we look at our new investments. So again, new investments is -- becomes less prioritized. If something fantastic comes along, that sort of at a bigger discount of 70% of our NAV, we'll, of course, look at that. But so far, we haven't found that. And yes, I mean our debt at some point should be repaid, constantly watching where that debt is trading as well. The next one?

Yes. Another question is around, sorry, here we go. So why has the debt holdings in BlaBlaCar have been revalued during the quarter?

Yes, it's good -- thanks for pointing that out. So maybe Dennis, you could flick us through to that more detailed portfolio slide. But the convertible that we hold in BlaBlaCar is convertible at some price into equity. So whereas we've before been carrying it at sort of the nominal value now that we've marked that -- well, in this quarter, actually, we marked BlaBlaCar up, but we marked it up from a level which is still below the sort of the floor of that convertible, if that makes sense. So that's convertible at like EUR 9.5 per share, we have it marked lower, so the negative $12.5 million is the difference from where we will get equity and where we have it marked. So the way it's carried now is more correct if you like, the way we mark our portfolio, how we value our portfolio. However, the convertible that we have convert into, again, senior preferred shares. So it does have debt-like qualities on the downside. And if you would value this debt on the back of a waterfall, you will put that $12.5 million straight back. So -- but I hope that explains how that sort of $12.5 million comes about.

Excellent. Another question specific to this, how much of our cash position is held in dollars as opposed to SEK probably due to the FX movements and [indiscernible]?

Yes. Most of it is held in dollars, but we do have old some in cash. We're not currency speculators, which would be scary if we were because that's difficult, but at least for us. But -- so most of it is held in dollars, but we do also have some in SEK because we have cost in SEK and we have a coupon to pay in SEK. So we -- our cash balance has come off, and those -- that's part of the one-offs that I described in your making sense of how the cash sort of has moved up and down. So the cash in dollar terms have come off a little bit also due to FX. But of course, net on net, in terms of the net debt position in the company has improved because we have more debt in Swedish krona than we have cash in Swedish krona.

Excellent. Another question, more broad stroke question. Can you discuss consumer behavior and how it affects our largest holdings, probably elaborating on that question is -- are there any concrete examples of shift in consumer behavior that we've seen so far in our larger portfolio companies?

I mean the -- I think the question sort of alludes to that if there is a risk on the downside on the consumer. And I think -- I mean, the obvious one that sort of strikes me is that the main sort of risk here is on the upside with BlaBlaCar because that consumer -- I mean the consumer is very cost sensitive and they want to share costs, so that's been performing well. But -- and beyond that sort of getting on the upside, all the other companies are performing well, right? So revenues are growing. So we can't really see any consumer sentiment sort of coming off on the back of a down cycle in really any of the sort of portfolio holdings. That of course, if the sentiment or the economic sort of pain for the consumer becomes much, much worse that, that may come in the future. But I also think that a lot of these companies, they sell products which are cheaper, better, more efficient, et cetera, than alternatives out there. So it's not necessarily that you get sort of a negative impact here because if people feel. If consumers feel more economic pain, they may opt to move over to Voi instead of taking a taxi or something else or they may move over and use the cheaper sort of platform of through Booksy, et cetera, et cetera, et cetera, so.

Great. Thank you. Another question also on the [indiscernible]. So what -- when do you see the next exit materializing the portfolio? And I think particularly, any thoughts on the timing of some of the largest holdings such as BlaBlaCar, Voi, Gett or any other specific name?

It's too early to elaborate on that. I mean, financial restructuring of Gett, of course, is done now, and I think that's an asset that's very attractive for a lot of maybe obvious players out there. But we've -- but too early to say. There's bits and pieces in the portfolio where we have that -- where we have, which I say, that are easy to exit. There's some interest for some parts of the portfolio, some portfolio holdings and there's some portfolios that will turn into a liquid instrument that would also -- that will be -- that one could sell should one want to. So there's bits and pieces here and there. But -- and then it becomes more -- there are some which -- there's a handful of holdings that I think will be sold in the not too distant future, at least if you allow too distant future to be defined as sort of 6 to -- well, 6 to 9 months. And -- but it's too early to sort of talk about them in any sort of detailed form. And then there's -- yes. And then I can speculate, we're not certainly not sort of eager to exit things like BlaBlaCar, but one can imagine that there will be an increasing interest for some of those type of assets.

Excellent. Specific question on Voi. So how do you see competition from scooter ownership, I think private ownership of scooters versus shared scooters?

Do you want to take that, Dennis?

I'll take a stab at that. So I think as Voi, it's a matter of shifting consumer behavior from using, as Per mentioned, that taxi or that sometimes some public transport solutions to -- and moving over to more mobility solutions, so like electric vehicles. And so to answer the question, there has -- so far, we haven't seen or heard any major impact from private ownership cannibalizing on the shared side. If anything, it's probably a good sign that more and more consumers are considering this market mobility solutions. And another aspect to that as well is that the use cases are quite different. With a shared vehicle, you can -- you don't have to care about [indiscernible] actually moving the vehicle in and out of building and you don't actually have to get track at the vehicle at all time versus a shared vehicle that you can use to go to, if it may be a restaurant, to your job or to the gym, whatever. So the use cases also differ. But on the whole, it's definitely seen as a positive when more and more consumers are shifting towards micromobility solutions rather than congestion engine, taxis or cars for that matter. I think we have covered most of the questions that have come through. There's one question on the ownership of Gett after the restructuring. Is there any more light you can shed on that, Per? Or when can we do so?

For sure in our annual report, which is out -- well, seems like March, I think, but maybe earlier. But at this point in time, we're not permitted to do that. So I think we'll have to leave it at that we are the largest owner of the company. All right. Well, if that concludes the questions. Thank you so much for joining us. I promise not to bore you with any more Bruce Springsteen lyrics. Someone said I should use Kendrick Lamar lyrics next time around, but we'll see. But thank you for joining us. And you know where to find us if you want to kick some other stuff around. And otherwise, we'll see you in 3 months. Thank you.

Thank you very much.