Kinnevik AB

Thank you very much. Good morning and welcome to the presentation of Kinevix results for the first quarter of 2023. I'm Jorg Eganev, Kinevix CEO, and with me today is our CFO, Samuel Sjöström, and our Director of Corporate Communications, Torun Litzen. On today's call, we will be walking you through the key events during the quarter, including our most recent investment activity in healthcare. We will lay out the key valuation changes, and finally, We will also track our progress against the priorities we set at the beginning of the year. On a more general note, the market backdrop has been very volatile with continued stock market turbulence in reaction to macroeconomic indicators. This instability was made worse by distress in the banking sector. However, the impact on Sinevik and our companies was limited, but it served as a reminder of the importance of financial resilience in these very uncertain times. While the growth and venture capital markets remained slow in the first quarter, six of our companies successfully closed funding rounds. Now let's go to page four with the key highlights of the quarter. Our net asset value amounted to 55.5 billion SEK. That is up 5% in the first quarter of 23. Samuel will guide you through the development of our NAV in more detail and how the valuations of our private companies have developed in just a few minutes. During the quarter, we also invested significant capital to accrete our ownership in Spring Health and Agrina. Since our first investment in Agrina a year ago, the company has seen very strong growth, increasing its covered land by 10 times and expanding its geographic footprint to 16 countries across Europe. They have exceeded our already high expectations in their pursuit to drive the shift to regenerative agriculture. The investments in Spring and Agrina are great examples of how we are seizing the opportunity a slower market generates to double down in the companies where we have the highest conviction. And that is also one of our top priorities during 2023. We also added Envera to our emerging healthcare portfolio. a biotechnology company innovating drug discovery through analyzing natural compounds with large language models. And I will dive deeper into both Spring and Envera in just a minute. The investment activity in the quarter was more than financed by a full exit of our Teladoc investment, which means we ended the quarter with a net cash position remaining at just over 10 billion SEK. Teladoc is the first truly significant full exit from our younger growth portfolio. And it's also a key milestone as reallocating capital within our portfolio is a fundamental part of our strategy. But before we move on to the next page, I would like to highlight that Cinevic has once again been recognized for our leadership in sustainability. We ranked first in the VC category in the Honordex Inclusive PE and VC Index of 2023. We were also rated by Equalip as a top performer in Sweden for gender equality. And these recognitions are a testament to our hard work, our dedication and commitment towards equality, diversity and inclusion. On the next page is an overview of our investment into Spring Health and some insight into why we have such strong conviction in the company. Spring's ambition is to reshape mental health care into treatments tailored to each individual by using big data and machine learning. And since our investment in 2021, the company has seen impressive traction among its customers and grow its revenue by over seven times. We led the round with a $40 million investment and invested an additional 10 million into secondaries from an early stage investor. and the company is now funded to break even. All this means that we have redoubled our investment and accreted our ownership in one of our most promising businesses, and done so at a more balanced valuation. This is also what we said we would do at the start of the year. The founders, April Koh and Adam Shekrud, are setting a new standard in mental health care, and we are very excited to continue supporting the journey. Now moving to page six, where we will provide some more details on our exit of Teladoc. Since our first investment in Livongo six years ago, our investment has generated an IRR of 55%. This gain, equivalent to 4 billion SEK, has financed our investment into new healthcare businesses since 2020, including companies such as Citylock, Spring Health, Transparent, Recursion, and most recently, Invera. This portfolio today is valued at around 7 billion SEK. As I mentioned before, this is a proof point of the validity of our strategy and shows that our model works. That is to reallocate capital within the portfolio to fund new investments and maintain an attractive portfolio distribution. On page 7 is an overview of the biotech company Invera, the most recent addition to our emerging cluster of life sciences investments. Invera was founded on the belief that the answer to many of our most common illnesses and diseases can be found in nature. Nature has been a source of inspiration in drug discovery in the past, but returns diminished due to limitations in understanding nature's complex chemical makeup. Envera uses novel machine learning techniques such as large language models to create a search engine to index and map the chemical components of plants. Today, science knows less than 5% of nature's chemistry and transforming this, our understanding made possible by Invera's search engine, has the potential to improve existing drugs as well as bring entirely new ones to the market to treat unmet diseases. The company was founded by Viswak Kolarul, a PhD in cellular molecular biology and a true visionary. He previously held leadership roles at Recursion, another portfolio company of ours, which he left in 2019 to start Invera. And in April, we invested $25 million alongside our partner fund, Dimension, who was also an early backer of the company. Invera fits squarely into our emerging life sciences strategy, and the investments gives us exposure and access to the technological revolution currently underway in the pharma industry. And while it is an early stage company, we are impressed by the platform they built, and very excited about the potential to create something truly impactful in healthcare. I would now like to hand over to our CFO, Samuel, to go through the private valuations and the development of our NAV starting on page nine.

Thanks, Jorgi. Q1 was, for a change, a less dramatic quarter for our private valuations. And that means I'm going to talk to a thinner set of pages than has been the case in the last few quarters. That does not mean, however, that we feel we're providing less information in this quarter. Quite the contrary. Now, some of you may already have had the time to skim through Note 4 in today's release. For those of you who are less acquainted, Note 4 is the part of our report where we lay out the valuations of our private businesses in more detail. In this quarter, we've made a fair amount of revisions to this section of our report. The objective has been to provide you more information in a less dense and more digestible way. We've been drawing on the data we've provided you through a tumultuous 2022 and sought to institutionalize it in our report rather than to provide it in more ad hoc ways in the presentations like the one we're halfway through now. After you've had the time to go through our report more carefully, I look forward to hearing your feedback and thoughts on how we can continue to improve our disclosure and help your understanding of what we feel is a very exciting set of businesses. With that, on to Q1. In this quarter, an underlying write-up of 2-3% translates into a small 1% SEC fair value write-up from last quarter. Adding 0.8 billion SEC invested primarily into Spring and Agrina brings us to the 1.1 billion SEC increase in the carrying value of our private businesses this quarter, just shy of the 30 billion mark. what's underpinning this small write-up well firstly we had some support from public market multiples this quarter and valuation multiples in our private portfolio expanded as well but by a much more modest figure of around one percent the difference here is primarily coming from value-based care where we're dealing with a public benchmark that is in flux after several buyouts apart from that there is some structural multiple contractions stemming from our companies growing materially faster than the average peer and also a few idiosyncratic adjustments to the valuation levels of certain investments. Secondly, we're recalibrating expectations for certain investees in this quarter. Our more B2B-focused companies are performing in line with highly set expectations, but as Jorgi mentioned, we've noticed some incremental softness in some of our consumer-facing businesses that has caused us to reconsider our growth expectations through a more conservative lens. The effect on our portfolio of these revised expectations is continued strong growth and a rolling NTM outlook that is increasing, but not necessarily increasing at a level that we expected a quarter back. And that one-off adjustment is holding this quarter's ride up back a bit. From a more technical standpoint, contrary to the last few quarters, liquidation preferences brought a negative impact to our fair values this quarter, as we quote unquote amortized the accrued effect of preferences. down from 3.2 billion SEC to 2.9 billion, or around 10% of the total carrying value of our private investments. As we lay out in today's report, this effect is fairly concentrated, as 75% of this accrued difference relates to five relatively mature and well-funded investments representing around 4 billion SEC of fair value. So, in total, the NAV we post today entails a small write-up held back by some slight headwinds in consumer-facing businesses and a fair amount of caution on multiples with contraction relative to public peers. Now, us taking a more cautious approach is manifested in the clearing prices we're seeing in our private market. Broader market indicators suggest a funding environment that again declined quarter on quarter, but nevertheless, we had six funding rounds in our portfolio in Q1. On average, these rounds were concluded at valuations almost 50% above our underlying Q4 marks. So as we said in Q4, the concept of a public-private valuation gap may be a phenomenon in the broader market from a macro point of view as companies delay their repricing, but it does not seem to exist in our NAV when these repricing events actually materialize. And I think that speaks to the benefits of our permanent capital model in this type of volatile market. We swallowed a lot of bitter pills last year when writing down the underlying value of our private portfolio by around 50% on average. But this also means we entered 2023 with a set of valuations that reflected the current reality rather than that of a company's last funding round. And this means we can operate in a free and in a rational way, focused on creating value rather than on sunk costs and protecting the last headline valuation. With that, I'd like to touch briefly on the handful of more material valuation revisions we're making this quarter. And that means we're on page 10. I mentioned the buyout activity in value-based care, which is something that has been going on over the last six months and has caused the best public benchmarks for our value-based care businesses to be taken or be on the cusp of being taken private. And that's why we're being careful and expanding our multiples by low single digit percentages in our two large value-based care businesses, VillageMD and CityBlock, even though public benchmarks have expanded more aggressively. Nevertheless, even with this caution, we're writing up both investments with around 10% this quarter. For VillageMD, that means we're virtually valuing it in line with where last quarter's transaction took place, up from a 10% discount in Q4, And for Citiblock, it means we're valuing the business at a similar discount to VillageMD as the one we've upheld since mid-2021. Jorgi mentioned the funding round at spring, which is a key achievement against our priorities this year. As far as valuation goes, we're valuing the company in line with where this round took place. That means a 25% write-up of our stake before taking into account the new capital we've put to work. Even so, our forward revenue multiple expands by no more than around 10%. And this is roughly in line with the average movement in the public peer group in the quarter and means that our multiple is down more than 40% compared to where we were a year ago and almost 70% from where we concluded our first investment back in September 21. Now this investment delivering 25% value appreciation during a period of 70% multiple contraction is an indication of what we've been saying in the past, namely that the key long-term valuation risks in our portfolio revolves around execution and operations rather than around valuation multiples. On the other side of the spectrum, we're taking down our valuation of InstaB by 15% in the quarter. E-commerce in the Nordics is slowing, and while InstaB continues to show strong growth and gain market share, this has implications on short-term expectations on top line and therefore also on our valuations from a quarter-on-quarter perspective. At Moniz, the other large write-down this quarter, We've revised our expectations on the company's investment needs as it continues to pivot its revenue mix from B2C to B2B. This impacts our valuation negatively in the short term until we have a clearer financing path, and it's effectively what causes the 35% write-down in the quarter. So, as mentioned, in aggregate, the slight weakness this quarter is primarily coming from our B2C business. Looking at the underlying valuation changes, we're writing up our more business-facing investments by around 6% in the quarter, while we're writing down our consumer-facing businesses by almost 10%. The net effect of that, where around three quarters of our carrying value falls into the business-facing category, is what adds up to the 1% fair value write-up this quarter. Moving on then to page 11 and adding the development in our public investments. We exited Teladoc slightly above where it closed the first quarter, and a few hundred million SEC above where it closed Q4. And Tele2 had a strong quarter, trading up by more than 20%. And this causes our NAV to be up by 5% in total in Q1, ending at 55.5 billion SEC, or 198 SEC per share. 10.5 billion of that NAV is in net cash, as we're ending this quarter with an even stronger financial position than we started it. And to give you some more sense of in what type of context we're expecting to deploy that capital, let's move ahead to page 12. All right, so in past quarters, we've shown you our runway estimates for our portfolio. Those remain largely the same with some incremental improvements stemming from the fundraisers concluded in the quarter. But looking at the uses of our capital through a different lens, What we're showing on this page is the different backdrops to our forecasted follow-on investments in 2023. Now, to recall, our expectation for 2023 is to deploy around 5 billion second total, split roughly 50-50 between new investments and follow-on investments into our existing portfolio. Out of the follow-on half of these 5 billion, more than 70% is forecasted to be deployed in rounds or transactions we're instigating ourselves, or where we're going to attempt to invest more than our Prorata share. And you've seen examples of that this quarter at Spring Health and at Agreena. Less than 20% of our follow-on forecast is in rounds that are planned for this year in more emerging businesses and where we're targeting Prorata participation for the time being. Now, the remaining 10% or so, or call it around 250 million SEC, is our forecasted deployment into investments where we're seeking to minimize our participation for various reasons. where we still believe us providing additional capital is preferable to the potential alternatives available so what could make us underperform against these expectations well we do not believe us being dragged into rescue finance things in some of our less performing more troubled businesses a factor here rather we see two different circumstances having the potential to affect the ultimate outcome firstly We may not be able to deploy as much capital as we would like to into our existing high conviction businesses, either because of competition on the demand side or because of lack of supply at valuations we find attractive. All else equal, that will push the 5 billion and the percentage share of follow-ons downward. Secondly, it may be that the current market environment makes it harder for us to find enough attractive new opportunities to invest in. Jorgi has mentioned before the importance of not letting the bar for a great investment subconsciously creep downward because of a lack of supply and itchy fingers. And we do not know for sure whether the market will pick up enough steam for us to find sufficient opportunities to deploy the 2.5 billion SEC we're expecting to deploy into new investments this year. Not managing to source and execute on new opportunities would naturally push the 5 billion downward, as well as the percentage share of new investments. Again, all else equal. To sum up, our financial position is strong. We're beginning to materialize opportunities to accrete in our highest conviction companies during a period of more balanced valuations. And we're working hard on sifting out new opportunities in a less intense fundraising environment, such as our Invera investment announced today. With that, I'd like to hand it back over to Jorgi for his concluding remarks.

Thank you, Samuel. Let's now go to page 15, take stock of our priorities and expectations for 2023. Kinevic is a truly long-term investor, which is becoming increasingly valued by our founders. The market backdrop will likely continue to be volatile and difficult to navigate for some time to come, and financial resilience is vital. That said, it's our responsibility to continue supporting and pushing our companies to remain aggressive, challenging, and innovative. This will ensure that their customer offerings remain relevant not only in the next quarter, but for the next 10 years. During the first couple of months of 2023, we have remained disciplined in our capital allocation and end the quarter with a stronger net cash position that we entered it with. With our investments into Spring Health and Agrina, we've taken the opportunity to double down and accrete our ownership in the businesses where we have the highest conviction. And we have done it during a period of more balanced valuations. We are also actively working with our more challenged investments and believe no more than around 10% of our expected fall on investment this year will go to companies where we seek to minimize our commitment, as we heard Samuel go through. Within Vera, we're also proving our ability to source and execute on new exciting investment opportunities in a slower venture and growth market. And we hope to repeat these achievements throughout 2023. We are as ever grateful to our shareholders for the strong support as we continue executing on our shorter term priorities and our longer term strategy. And we look forward to meeting many of you at our annual general meeting in Stockholm on the 8th of May. With that, we're now ready to answer your questions. So operator, please open up for Q&A.