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

Hi everybody, welcome to VNV Global 9 Month and Third Quarter 2023 Conference Call. We will start with walk through with a few slides going through the key events of the quarter and the key events in the portfolio, followed by Q&A. And as a reminder, if you want to ask a question, please use the chat or Q&A function here on soon and we will take them in the end. With that, I'll leave it over to Per Brillioth, CEO of VNV Global to start. Go ahead, Per.

Thanks, Bjorn, and hi, everyone. Yes. So this is our balance sheet as of September 30, came up to $710 million. That's like just under SEK 60 a share, SEK 59 a share in NAV, which is a rather flat quarter. There is some ups and downs, and Bjorn will walk us through what have been the movers there. But on an aggregated level, it looks kind of uneventful. If we go to the next slide, we try to highlight a few things that we think are worth highlighting from the quarter, and it's difficult not to sort of kick off with Gett and unfortunately, not because Gett is doing super, super well as a company, but because of October 7 and the sort of devastating horrible stuff that's going on in Israel and Gaza. And so it's really a little too early to establish sort of the impact of October 7. We are -- we have marked the position down during this quarter. Bjorn will go into more details, but -- and that is partly because of the way we do our valuation work, which looks at the multiples of a listed peer group and how those move around, but we have also sort of increased the risk premium you could say, because of the situation that was connected to this part of the world and to Israel specifically, and we feel that sort of covers the situation as of today. In effect, sort of as a part of the downtick in Gett is related to the general multiples, and part of it is that you can basically say we've adjusted it for the stock exchange development since October 7 in Israel in general. And so it's crude, but it's a good proxy of the way sort of markets look at Israel. And otherwise, the company is -- was it's been too early to say anything concretely because the whole situation is so new. This part of the world, of course, is not new to violent sort of patches and throughout history, they have sort of tended to sort of calm down and this one will, too, of course, at some point, it's too early to tell, say exactly when. The nature of Gett's business model in Israel is such that it's based on a subscription model. So the financial impact is not as severe as you could think. The situation right now in the country is one which in terms of business activities, sort of feels reminiscent of COVID a little bit because schools have been closed and they are -- and so people are home tending to their kids and families and schools are due to reopen from what we understand next week. So then we expect sort of stuff to pick up again. Leading up to October 7, Gett was on a roll. And of course, Gett is not only in Israel, it's in the U.K. as well, but they were ahead of business plan, and this has rendered the company in a very solid, strong financial position. So both from that perspective and in terms of management of the company. It's in a very -- I'd say, in a very solid position to sort of deal with the current situation. So that's Gett. Boy, super strong quarter, best ever, really, 19% adjusted EBITDA margin, which is strong and also the first full quarter where it was EBIT breakeven. We expect the company sort of to be EBITDA positive just above but still this year and developing to the same situation at an EBIT level sort of next year. And that's, of course, a big improvement. We can come back to Voi later. And also our largest possession, of course, BlaBlaCar, those of you who participated at our Capital Markets Day, so both Voi and BlaBlaCar, but BlaBlaCar is continuing to do well. They're on track to deliver their budgets being EBITDA profitable, which also means cash flow positive. So in a very strong position indeed, and we're happy for that. The company, of course, is nearly of countercyclical nature given that this is the essence of their businesses to share the costs of riding a car for a long-distance car trip. And in tougher times, you're more prone to sort of want to share costs. And so now petrol prices have been high in Europe and elsewhere. And so it's been sort of -- it's enjoying a boost from that. But now if and when, I guess, when and if or times are getting a little bit tougher in general, traveler shorts are maybe even more prone to sort of share the costs of travel. On top of the to-do list at VMV is really to get us into a situation where we can become debt free. We are -- as we have announced, you will have seen and we've talked about in our quarterlies et cetera. We have started redeeming or repurchasing our bond, the bond that matures in June of 2024. Now, we're certainly getting into winter mode here in Sweden, and summer feels a long time away. But it's coming up. And so we've been initiating sort of essentially a redemption of these bonds by using the cash balance that we have and that cash balance allows us to sort of buy back the entirety of that bond or whatever is outstanding in June next year to redeem it in full. And then beyond that, we have been -- we've actively been reducing the costs, the operating costs of VNV and so the remaining cash balance that we have beyond sort of repurchasing or redeeming the bond that matures in June 2024. We have enough cash to pay the coupons of the remaining bond, of course, but also to run the company for the -- and to do whatever quite on an aggregated level, quite small investments that we need to do in the portfolio. So we have cash for that. And which leaves us in a position where we have the entirety of 2024 to perform further exits in the portfolio that are needed to raise money to pay down the second bond, which matures in early 2025. And then monitoring what's going on around the companies in our portfolio. We do see transactions, transactions that are being executed around the market that we use for our NAV. Excuse me, and so that gives us -- that gives me a lot of good confidence that we will be able to raise money out of the portfolio to pay down also the bond in early 2025. But it's still good to have to be -- not to have to do that under -- in any sort of stressed way. So now we have a long period of time to perform those exits in a good sort of structured manner. I think with that we go on to the next slide, please, Dennis. And so what's helpful in the portfolio is that, the overall portfolio is getting to a profitability stage. And a larger and larger part portfolio is becoming profitable. So earlier this year, we had about less than half of the portfolio, which was EBITDA positive and if you include Voi, which is EBITDA positive, but where EBIT is the more relevant level, we're a touch above 70%. So 45% going to 70% is very helpful because that means that the portfolio is -- doesn't need to sort of access markets to be funded and which leaves us in a situation where we can concentrate using our liquidity to pay down our bonds. So that's very helpful. This progression towards profitability is partly due to that the companies are growing and maturing and have customers to buy their products, et cetera, et cetera. But it's also, frankly, partly due to the fact that there's quite a bit of cost cutting being done across the board. So the companies have been engaged in sort of reviewing costs and taking out sort of excess capacity and thus sort of increasing or becoming profitable as this slide shows, that does come at the expense of revenue growth. So you'll see sort of -- if you look at a few years earlier, you had revenue growth in the hundreds of percent, and that's now come down as the companies are focusing instead of profitability, which takes out some capacity to sort of boost revenues. But it's clearly what is the right thing to do at this time. And this progression is, I think, is very helpful for us. I'd like to leave the mic to Bjorn, if you could take us through the accounts here.

Thank you, Per. Yes. I'll start just going through the NAV overview as to September 30. And on this slide, we have an investment portfolio of some $800 million, close to SEK 68 per share and another $50 million, $53 million, if you include liquidity management of cash, which is SEK 4 per share. adding up to close to SEK 72 per share. Of course, which Per mentioned, there is the debt which amounts to some SEK 12 per share. Following the partial repurchase during the third quarter, which ends up at the NAV of SEK 59 per share or just about $700 million. This, in relation to our current share price, where we trade at a very steep discount in excess of, I think, 75% as per today. If we go to next slide, Dennis, I'll also walk through the largest portfolio constituents and highlight their movements during the quarter. As a general comment, it's been a relatively flat quarter, both in SEK and dollar terms slightly down over the quarter. But if we start with the largest constituent, BlaBla performing well. Slightly up during the quarter, driven by marginally higher peer multiples and BlaBla now accounts for 33% of the investment portfolio, the gross portfolio, which represents roughly SEK 23.5 per share. Some material asset for us, of course. Gett, as Per mentioned, we've written down by roughly 14% over the quarter. And this valuation models did increase an adjustment and an increased risk premium as of the horrific October 7 events. But as that happened close to the quarter ending, we adjusted that discount and adjustment in the model further, which had our mark down by some $50 million or 14%. This is, of course, an asset that we need to follow very, very closely, both from an operational standpoint and from a financial market perspective in the quarter here, given the current situation. Gett as per September 30, represented roughly SEK 7.7 per share. If we move down to Voi, again, continued and good performance, slightly down, primarily driven by adjusted peer multiples and Voi also represents some SEK 7 per share. So across these only three assets and that accounts for more than 50% of the NAV and together represent roughly SEK 38 per share. If we go ahead with Booksy and Bokadirekt, which have essentially the same business models but various markets. They're both slightly up, Booksy and Bokadirekt are partly up because of increased peer multiples. And then if you look at Bokadirekt, you have an additional upward valuation driven by stronger performance both on top line and bottom line. Moving ahead, to Numan, a company that's also performing really well, especially in the weight loss vertical, which they're quite active in on the back of this Novo Nordisk Wegovy drug. Here, the valuation or the downward adjustment is driven by peer multiples. Ending here by the top 10 companies, [indiscernible], which is the main detractor in relative terms, which is down 30% over the quarter. This is the African B2B marketplace, which have seen material strategic shift here over the last couple of months where they adjusted their plans significantly where growth is less aggressive on the back of increasing gross margins and reducing burn. So here in the short and medium term, the financial outlook has changed, which we now have reflected in our valuation. These 10 holdings represent more than 75% of the overall portfolio. So I thought I stopped there, but happy to go into question for the specific holdings and it's their valuation in the Q&A. But maybe Dennis, if you move to the last slide, you can also see it on a more visible basis on the main drivers of the NAV over the quarter. So of course, you see Gett here, down and also cash down driven by the debt repurchase, which you see to the right where we bought some SEK 141 million nominal amount of the [indiscernible] bond in September and then post quarter end, we bought an additional SEK 25 million. Here, we can also add that, and as Per mentioned that we have set side Swedish krona for this [indiscernible] bond that now sits on account with some interest, so the carrying cost is relatively low, but we still feel there is merit to repurchase the bonds in the market. And with that, I think I'll leave it back to you, Per, to continue.

Great. I think that sort of wraps up a sort of high-level description of where we're at and hopefully a decent summary of our quarter report, which at the -- again, at the aggregate level looks eventful and -- but doesn't reflect that, in fact, the bulk of these companies are doing very, very well. We certainly feel and as is shown by the progress of -- towards profitability, 70% plus at an EBITDA positive level if you exclude Voi where the relevant level is EBIT, that -- that's still way above 50%, which is a good sort of progression, nearly 60%, to be frank, to be the exact more and which is a good progression since the start of the year, and there's more to come there. So both that and then at the individual level, some good momentum in the larger holdings. So I think with this, we'll move to Q&A. And Bjorn, I see that we've received some questions in the chat. So I think I'll just kick off and just describe generally or take some of those questions. And please feel free to type in more questions should you feel that we have missed something.

So one question here is that an update on what, in fact, our portfolio does need in terms of cash over the next 12 months. And that's, I should say, is to the order of $5 million to $10 million, not more probably to the lower end of that. And of course, there's and that we have liquidity for and feel that it's the right thing for us as shareholders to sort of to do those investments. There are, of course, companies which are doing well and which may look at raising money, but for aggressive reasons and -- but by doing that for aggressive reasons, also means that the valuation is fair, it's strong. It's reflective of that the company is doing well. And then at least mathematically, you can -- if those are done at NAV or maybe even above NAV then it's also a situation where you could opt to be diluted without adverse effects on the overall valuation. So overall portfolio needs from where we see that it's in the interest of us as investors and shareholders to participate is sort of to the order of $5 million, $10 million. And then I think you're also wondering what are we going to sell to pay down that bond that matures in early 2025. And it's sort of not really appropriate for me to go into the details of that. But just to give you some color is, of course, that -- well, BlaBlaCar has publicly talked about going down the listed routes. And I'm not sure that they sort of mentioned a firm or they are for sure, not mentioned a firm date on that. But that's -- the company is obviously doing well. And even if it's not 2024, but by 2025 and doesn't exactly match the sort of the duration of our second bond then in advance of such an event, you could expect more sort of activity around the company and perhaps also more interest from people who sense that there's -- the company will go public, et cetera. It's -- so even from our top holding, one should not rule out that, that may give rise to sort of ex opportunities. It's not our plan A, but it's at least picking up on something that, that company has said publicly. I think we've talked in the past that Gett is in a natural exit phase for us. There's certainly been speculation in the international press, Israeli press to that effect. And it's not, again, not appropriate for me to comment. The current situation in Israel, of course, is not sort of positive for anything in relation to financial holdings in that country, although it's like -- as like I tried to sort of described earlier, we really feel that company is in a really strong position also with the cash they have on the balance sheet and the nature of their business model to sort of really do okay in this sort of current uncertain period that the country is going through. And so that -- so -- it's -- but again, I'm not -- doesn't -- it's not appropriate to comment in any greater detail. Outside of these, we do see that there are opportunities -- not opportunities, sorry, but that there are transactions going on in the secondary market for some of these names that happen in relation to -- or at a level which is sort of in proximity of our NAV, which gives us good confidence that there's -- of an active market, and hence, one that we can, should we want to be able to tap into over the course of 2024, but really want to time that well. Also, since the company is doing well and where there may be opportunities for the companies to sort of raise money for aggressive reasons and at valuations which are reflecting sort of a fair value those may also be give rise to sort of opportunities for us to sort of tag along some secondaries together with a sort of organized structured private primary rate. So there's a multitude of those kind of opportunities that we are monitoring and that we feel -- it makes me feel really confident that we'll be able to perform this over the course of 2024. So sorry, it's a long-winding answer, but on an important topic. So thanks for that question. And, yes Bjorn, and you're also looking through these questions, is there anyone here that we haven't answered. There is a question maybe to you, Dennis. Dennis, our colleague here who many of you met, I think, but was one of the first employees at Voi, that's how we got to know him, and we're grateful that he's now join us for some time now time passes quickly. But there's a question on the competitive landscape for Voi. And if we've seen any significant changes in what the peers are doing in Q3. So maybe, Dennis, do you want to update the people on the call on that and maybe just more generally on Voi, stuff that I haven't touched upon in detail.

Happy to. I think a fair description of the -- what has happened to the competitive landscape is really [indiscernible]. We're seeing competitors leaving many markets where Voi is present. So the competitive pressure has really decreased. We're also seeing that basically all the other major European players have had to raise funds, some of them multiple times since Voi last raised funds which is in 2021. So -- and that has only been to kind of stay afloat so not for aggressive reasons, so to speak. Voi is really in a strong position here. We are fairly certain that Voi is the operator with the lowest cost to operate, which gives them a quite capital-efficient way to kind of gain market share in a time where competitors are relatively speaking, weaker. We're seeing city after city moving towards tenders, which is a very good thing in this industry as markets regulate, they typically also -- they typically move in the direction where it's financially more attractive to be in those markets. And Voi is the operator that has the highest regulated market share in Europe. One, during the third quarter, we won and launched London, which is the largest single market in Europe where you can operate scooters. But also some additional wins and launches in Vienna, couple cities in the Nordics, Denmark and Norway and one city in Germany as well. So they're definitely in a strong position, and we're seeing that the competitive pressure has come down, which has benefited them. And we were also seeing in the numbers, right, with 19% EBITDA margin and breakeven on EBIT for the first time.

Good. Thanks. Thanks, Dennis, for that.

I think there was one other question on Voi, I can just quickly cover, which is around the convertible note, which I guess is a more technical question in the NAV report. So in Voi, we obviously have our equity stake of 23.1%. And that is shares equity today. We've also invested, I think it was roughly $17 million, that accrues at 4% per year since the end of 2021 in a convertible note. That is really an equity instrument. We show it on two separate rows. So the convertible note is on a separate row, but it is expected to convert into equity into shares at latest end of next year, but most probably before that, is probably the fair answer. So you could just actually see that as an equity stake is the answer.

Great. Thanks for that. There's a question on what we get on our cash balances. So the way -- the rough way to think about it is we -- for we're mostly in Swedish crowns now because most of our usage of cash is Swedish crowns, our bonds are Swedish crown based. And they run the first bond runs at a 5.5% fixed rate and the second bond runs at a 5% fixed rate. So they trade slightly below par. And so you're looking at -- you're looking at roughly, call it like just under 6% yield to maturity if we repurchase the first bond at the current market prices, and we're getting roughly 4% on the cash that we have. So it's not a huge carry, but if we get but still one that makes sense. I mean it makes sense to repurchase the bond, 6 is better than the 4. So that's the that's the reasoning behind repurchasing more of those bonds. Another question here on Gett and that -- and the questioneer is highlighting that the company has changed significantly over the past years. And what's the business model in general for the company. Now it has changed. I mean it was en route to sort of become a global player in the ride-hailing space, that turned out to be very competitive. So it's retracted from that and that retraction gathered pace as the public markets closed, they were on track to do a SPAC and that SPAC market, of course, became not functionable a year or so ago. It was in this period where we became a much larger shareholder in the company by way of buying out the bank debt and converting that debt to equity. And since then, really sort of had the company focus on its two main markets, which is Israel and the U.K. and really using a sort of super high level, Israeli R&D and tech to run both the Israeli business, but to be competitive in the U.K. market, which is a competitive market. The commonality between the two markets also and which has been sort of a theme throughout the years that Gett is to focus on regulated taxes rather than private vehicles, which is more, which is what we see, of course, the likes of Uber are doing. So both in the U.K., it's black cabs and in Israel, it is the regulated taxis that the company is serving. So -- and that's it. Basically, the company is focusing on profitability. These markets are doing well. The company is profitable and sort of it has been has had -- has been prioritizing financial stability and cash flow instead of dipping its toes into new markets. Right. We had a question on BlaBlaCar, Bjorn.

Yes, correct. It's essentially a question on BlaBlaCar. If we can confirm what they communicated on our CMD on the EBITDA projection for 2023 of EUR 20 million, and those are still hold through is the short answer there. And then maybe to finish up unless there's more questions. There's also a question here towards them, to you, Per, that you've been talking about potential cash counts of the future in the portfolio. So maybe some color on that.

Yes, no, thank you. I -- for sure. I mean our ambition is to sort of have one -- have -- or have at least one of our companies develop into a company that's cash flow positive at the company level, but enough cash flow positive to also sort of be able to return cash to shareholders. And so -- and that's -- and so that a shareholder like ours, like us can be -- can use that cash flow to sort of pay the operating expenses for running a company like VNV, but also to sort of have cash to invest. And so I think basically, all of the larger holdings are of such potential some in the shorter term and some in the medium term, I mean, but ahead but not a long -- I mean long term, of course, as well. But before we talk about long term is in the -- on the closer horizon. So BlaBlaCar is, of course, cash flow positive today. And it's just turned cash flow positive. So there's a lot of -- we see -- we're very enthusiastic over the earning growth potential over the coming years at that company turn around and become cash flow positive and we see that growing quickly over the coming years. And to the extent that it can be also at some point, return cash to us. Gett for sure is that of a similar nature as well as some of these others. So if I had to sort of if you put me against the wall and say which one will be the first one, it'd probably be BlaBlaCar. It's is the easy one to talk about because they're already there essentially and followed by Gett. So those will be the ones. Yes. No, I think rounding off here, it seems like we've exhausted the questions. We -- but please sort of feel free to sort of continue answering. But I mean for us here, we're -- we are working very closely with all our portfolio companies. They are -- we are very happy with the progression to profitability, which gives us freedom to use our liquidity to pay down our debt, which we think is a very easy, well I shouldn't say easy, but it's a very clear way to sort of improve shareholder value to take that sort of risk out of the equation. And we feel, although it's difficult for me, as you can sort of sense to go into specific names and which one are we negotiating around and which -- where is the demand, we feel that the companies are doing well. And despite sort of volatile markets, completes that are doing well, they do find interested buyers. So that gives me confidence that we will be able to do that. But I hope you appreciate that it's not appropriate to go into specific names and specific situations that we have to sort of -- that this is not a setting for it, but we're hard at work at doing that, and we feel -- I feel confident that we will conclude over the course of this coming year. Good. I think we've touched upon most of the questions. If there are any questions that we've missed, please e-mail us and let us know if -- or ask them again, and we'll take them by e-mail. But I think we've touched upon most of them. And with that, I'd like to sort of thank you for joining. We report our Q4. When is our Q4 out, guys? It's sort of end of January, plus/minus, which in 2024. So that's the next opportunity to do this.

January 23.

January 23. So -- so talk to you then, but please feel free to get in touch if there's anything in the mean time. Okay.

Thank you.

Thank you.