Kinnevik AB

Good morning and welcome to the presentation of Kinevix results for the fourth quarter and full year 2023. I'm Jorg Eganov, Kinevix CEO, and with me today is our CFO, Samuel Sjöström, and our Director of Corporate Communications, Torun Lutsen. With this presentation today, we're closing the books on 2023. And on today's call, we will walk you through the key events and valuation changes for the fourth quarter and follow up on our progress against priorities and expectations We set out at the beginning of 2023. We will also take the opportunity to talk about the future, the new phase Genevieve is now entering into, and what that means in terms of our strategic focus and capital allocation. Finally, we will lay out our more near-term priorities for 2024, and as usual, end with a Q&A. Let's first take a look at the fourth quarter on page four. Our net asset value amounted to 48.2 billion SEK. That's down 5% in the fourth quarter and 9% for the full year. Samuel will guide you through the development of the valuations of our private companies in just a few minutes. In a quarter that was relatively quiet from an investment activity perspective, we were glad to welcome SoftBank as a new co-investor in travel perks. SoftBank invested in an extension of the company's 2023 funding round, which we anchored with our investment in Q2. We're pleased to see another strong international investor enter the company's shareholder base, and we're encouraged by Travelperk's continued strong performance coming out of the pandemic. They achieved a 70% revenue growth in 2023, a 90% gross profit growth, and the annualized booking volumes are approaching $2 billion. In Q4, we were also pleased to see Temasek join ERA's funding round as an anchor investor. Meanwhile, H2 Green Steel raised another €300 million in equity with participation from Microsoft Climate Innovation Fund, The company has now raised a total of 6.5 billion euros in financing, including 4.2 billion in debt, a remarkable achievement and testament to the company's ambition and potential. Lastly, we also supported the announced merger between Oda and Matem, as we believe the combined entity will provide an improved financial and operational outlook relative to the standalone opportunities. That said, I will now directly hand over to Samuel, our CFO, to provide some more detail on our private valuations before I cover the 2023 full year and our future plans.

Thanks, Jorgi, and good morning, everyone. This quarter ends the second year of a turbulent period in venture and growth investing. In our valuations this quarter, we've sought to enter 2024 with a prudent base from which the performance of our strongest businesses rather than the struggling ones can be reflected in our future NAV development. On page six, we've laid out the drivers of our fair value adjustments in the private portfolio this quarter. From a sector perspective, our valuation changes in Q4 followed a similar pattern to previous quarters, namely poor performance in e-commerce, caution towards valuation levels in value-based care, and strong performance and increased portfolio weight in software and virtual care. The quarter's write-down comes from three main factors. Firstly, currencies impacted the private portfolio negatively with 1.7 billion SEC in the quarter, with the dollar down 7% and the euro down 3%. At the end of Q4, 63% of the private portfolio was carried in dollars and 30% was carried in euros. We have taken down our valuation multiples by 7%, despite public benchmarks expanding by 8%, in part because of an intentional and broad downward push across the portfolio, and in part because of the aforementioned caution in value-based care. During the quarter, we've also had several transactions occurring at or around our Q3 marks. In many cases, this leads to us keeping valuations unchanged from Q3 and stalling for a quarter despite the upswing in markets in late 23 and despite continued investee growth and profitability improvements. In Q4, we saw transactions validating our valuation levels in 22% of the private portfolio by value. And during the full year 2023, that number was closer to 50%. And then thirdly, We have sought to take out the wider margin of safety to our company's own plans and expectations this quarter. In businesses that had a tough 2023, such as our Nordic e-commerce businesses, we have been particularly harsh. Despite these challenged businesses weighing on our NAV, we saw 60% revenue growth in our private portfolio on average in 2023. That is a growth rate around four times higher than the average of our company's publicly traded comparable businesses. Wrapping up 2023, we have also sought to clean up in the long tail of our portfolio that inevitably has been built up over the last five to six years. In this quarter, we're writing off our monies investment. We're writing down our omnipresent investment towards immateriality, and we are doing further write-offs in smaller sub 100 million SEC investments. Now, these revisions are highly influenced of us intending not to deploy further capital into these businesses. and us wanting to start 2024 with lighter feet, rather than these revisions strictly stemming from developments at the individual company level. So to summarize, Q4 was a quarter of significant currency headwinds, increased prudence on multiples and investee forecasts, e-commerce continuing to weigh on NAV, but software and virtual care delivering on expectations, and finally, more and more external validations supporting our valuations. So while the headline number this quarter is clearly disappointing, with this quarter's set of valuations and with our aim to continue to increase transparency around our companies and our valuation assessments, we are confident that we head into a 2024 of less uncertainty, higher potential, and with an entry point setting us up for a return to strong NAV growth. On the next few pages, I would like to revisit the three categories of businesses that share valuation commonalities. and that have been the most important from a valuations perspective during 2023. They are the same ones that I highlighted earlier and that we gave more color on last quarter, and I suggest we start with the most important one, namely software and virtual care. With that, we are on page seven and on our five largest virtual care and software businesses, Pleo, Cedar, Spring, Travelperk, and Muse. This pillar of ours now represents almost 40% of our private portfolio, up from 29% at the beginning of the year. In Q4, our Swedish krona valuations of these investments were flat on average, despite currency headwinds and multiple contraction. Public peers, meanwhile, saw their multiples expand by 10% to 15%. Now, the gap to these peers this quarter is primarily due to transactions validating last quarter's marks, such as Travelperk's recent funding round. It is also coming from our aforementioned ambition to enter 2024 with a prudent base that allows for strong fair value development as these companies continue to perform in 2024. On average, these companies doubled revenues and more than doubled gross profit in 2023 on a value-weighted basis. In 2024, our careful expectations have them growing by around 50 to 60% after a strong finish to 2023. Profitability is expected to improve, with EBITDA loss margins of around 15% on average in 24, spanning breakeven to negative 30%, and typically correlating inversely with the pace of growth. In this quarter, we value these businesses at 9.5 times revenues or 16 times gross profit on average. This is a valuation level that is in line with public fast-growing software companies on an MTM basis, with our companies growing twice and sometimes three times faster and showing as strong or stronger rule of 40 metrics, as it's often referred to. Naturally, Clio, Cedar, Spring, Travelperk and Muse are companies we support improving profitability in a substantial way. But as we've said before, more importantly, we are insisting on them not overcompensating and unnecessarily compromising on their longer-term growth potential. We deployed 1.9 billion SEC into this group of businesses during 2023, and we're continuing to try to unlock opportunities to invest more capital to help accelerate the share of our portfolio. These businesses represent up towards 50% of our private portfolio already in 24. Moving on then to the next category. one which has come further in shifting from high growth to near-term profitability during the last two years, but where there is less guidance these days as to how the public market would value these companies. And that is our two large value-based care delivery businesses, and that means we're on page eight. In Q4, we're taking down our Swedish Corona fair values by 24% at VillageMD and 19% at Citiblock. This is coming from two shared reasons and for two company-specific reasons. The first shared reason is simple, and that is the powerful dollar headwind in the quarter. The second shared reason is that we're applying an increased level of caution in how much weight we place on valuation levels where delisted peers used to trade at. Because as you will recall, we used to have three highly relevant public comps for village and city. One medical, Oak Street Health, and Signify. But one medical then got bought out by Amazon at around three, three and a half times revenues. Oak Street was bought out by CVS also at around three and a half times revenues. And the same CVS also acquired a faster growing Signify at around seven times revenues. These three value-based care provider businesses consistently traded at material premiums to more traditional healthcare providers, also when adjusting for growth and profitability. And this was largely due to the underlying secular trend of U.S. healthcare moving from fee-for-service to provider risk sharing and value-based care. And less comparable traditional healthcare businesses have traded fairly steady since the buyouts of our value-based care benchmarks. But these data points are now soon a year old. So throughout 2023, we have sought to take down the valuation levels of our companies carefully relative to traditional care provider businesses. And that goes for Q4 as well. Now, these two common factors are exacerbated by two company-specific reasons. Firstly, at Village, we're being more cautious in our valuation considering the lack of influence we have over this business under Walgreens controlling shareholding. We have faith in both Walgreens and Village, but we are used to being an active and influential owner. And the discomfort of being a passenger with limited influence over outcomes is what pushes the valuation down another notch as we head into 2024. Secondly, at Citiblock, the company is exiting certain less profitable contracts and markets. This bears a 9% negative impact on our revenue outlook this quarter, which passes through onto our valuation. With these measures, Citi is expected to grow by around 40% in 2024, and we see them breaking even in 2025. This is a bit later than originally envisaged due to the step-down in scale that the market exits entail, but this path remains funded with a large buffer. The third category of businesses that I wanted to cover is e-commerce. Now, these companies have weighed on our NAV during 2022 and 2023 due to repeating revisions to financial expectations in an uncertain market and ensuing multiple contractions. As a result, they have put a big dent in our overall performance, and they now make up a much lower share of our private portfolio. In this quarter, we're writing down InstaBee by an additional 27%, rendering a fair value write-down of 19% on our aggregate equity and convertible investment. As we talked about last quarter, the company has had difficulties navigating a tough Swedish market, and our outlook for 2024 remains bleak and does not factor in any improvements in the company's environment. As a result, we're also taking down our valuation multiple and valuing the company at a meaningful discount to public peers. Moving on to our online grocers, the merger of Oda and Matem creates a stronger outlook than the two standalone companies. However, circumstances are still challenging, and we're not expecting any meaningful improvements during 2024 when we calibrate our valuation. In the quarter, we're taking our underlying valuation down by around 10%, and the change in the fair value of our investment is more drastic due to weakened Norwegian krona and anticipated dilutive effects from the merger. I should note that part of these effects may be reversed in the next quarter when all technical details of the merger have been finally concluded. So with that, I'd like to end with the full NAV development in the quarter, also considering our public investments and net cash position. And that means we're on page 10. So again, We are taking down the fair value of our private portfolio by 3.5 billion SEC. Adding the 0.3 billion SEC net invested in the quarter, the private portfolio comes down by 3.2 billion to 28.2 billion at the end of Q4. Recursion share price continued to swing up and down, ending the quarter up 29% in dollars, and GFG had another soft quarter. Tele2 was up 0.8 billion SEC when adding back 0.5 billion in dividends received and posted a set of solid results day before yesterday with a slight increase in their proposed dividends. All in all, NAV was down 5% in the quarter to 48 billion SEC, of which 7.9 billion being our net cash position. And Jorgi will get back to what this financial strength means for our capital deployment ambitions over the coming years. But to sum up, After two difficult years, in this quarter we faced some significant FX headwinds and consciously increased our level of caution towards multiples and investee expectations. And we ended the year with the valuations of almost half our private portfolio validated by other investors. While this quarter's negative valuation adjustments do not necessarily affect where we believe the value of our portfolio will be in a year or two from now, I strongly believe that they will help ensure making the return to a positive trend a lot more clear to everyone in 2024. With that, I'd like to hand it back over to Jorgi.

Thank you, Samuel. So let's reflect on 2023, covering our capital allocation, how our companies have performed, and how this performance has informed our expectations for the year to come, starting on page 12. As Samuel said, 2023 was a very challenging year, and several companies have not met our expectations. This has been reflected in the weak development of our net asset value. On the other hand, we have made use of this environment to enter 2024 with a stronger portfolio. We have doubled down in our highest conviction companies, taking advantage of the market slump to instigate transactions and investing a record amount into secondary equity. We made a limited number of new investments in our focus sectors, and we have held back deployment into companies where our conviction is lacking. We also used this transitionary year to clean up our portfolio, exiting or writing off six businesses. Obviously, the most notable example of this is Babylon, which was unable to fund its continued growth, resulting in the liquidation of the company. While some failures are to be expected in venture and growth investment, this result is highly regrettable and something we have spent significant time reflecting on and learning from. With our focused capital deployment amounting to 4.9 billion SEC and 2.3 billion in inflows from exits and dividends from Tele2, we entered 2024 with a stronger and more concentrated portfolio underpinned by robust 7.9 billion SEC net cash position. And on the next page, we have provided a breakdown of our capital allocation during the year. The lion's share, nearly 40%, was deployed into our software and virtual care businesses in line with our priority to increase exposure to these companies. 1.5 billion SEC were deployed into more opportunistic secondary acquisition, Most notably, our 1.1 billion secondary investment in Spring Health. The transaction showcases our ability to accrete ownership also in fully funded, soon profitable companies at attractive valuations in the current market. Another 1.5 billion SEC were invested in other performing and emerging businesses. We then also supported our struggling e-commerce companies in the down cycle with 0.7 billion SEC. and allocated only 0.1 billion to protect value in our more challenged businesses. On page 14, you can see part of the reason why we have concentrated our capital deployment into software and virtual care. And as Samuel mentioned earlier, these are the fastest growing businesses in the portfolio. The overall portfolio grew revenues on average by over 60% in 2023, which is again four times their public peers. Looking into 2024, some of our companies will continue the shift towards profitability at some expense of growth. And we also expect portfolio growth to continue to be weighed down by a softer e-commerce market and maturing village MD. All in all, we expect the private portfolio to grow around 40% on average in 2024. But that is before taking into consideration our continued efforts to rebalancing the portfolio to our highest potential, typically faster growing businesses. We also aim to add more fast growing businesses to the portfolio. Now turning to page 15 and the evolution of our private portfolio's financial strength. Compared to 18 months ago, our portfolio has undergone a significant shift in runway profile. This has been achieved through a combination of investee profitability improvements, new financing, and improved portfolio concentration towards our stronger businesses. And at the end of 2023, over 70% of the private portfolio by value was invested in companies that are either profitable or funded to break even. The equivalent a year ago was 25%. Meanwhile, companies representing 14% of our private portfolio by value are likely to raise new capital during 2024. This is not by any mean an abnormal number. Having a portion of our young and fast-growing portfolio looking to raise capital in the near future at any given time is to be expected. With the portfolio growing at healthy levels and clear improvements in profitability profile, clusters are now emerging more clearly in our portfolio. And on page 16, we have outlined two important clusters in 2024 and beyond. Firstly, our so-called core growth companies, PLEO, Citiblock, Spring Health, Travel Perk, and Muse, We expect these businesses to have a revenue growth of over 50% in 2024 with strong gross margins. These companies have gained share of our growth portfolio, now representing over 40% of its value. In 2024, we expect this share to increase through both value appreciation and capital deployment. and have them on a path to represent more than half of our growth portfolio by value at the end of 2024. We also have a set of new ventures such as Agrina, Era and Invera. These companies are much earlier in the growth journey, but are run by strong and diverse teams addressing large markets and solving some of the most pressing challenges of our time. We are carefully monitoring the progress of these companies. We have strong partners that share our conviction and priorities as owners, and we believe each of them has significant return potential over the next five years. Provided they meet our expectations, we expect to deploy a meaningful amount of capital into these businesses over 2024 and 2025, with, of course, the exception of H2 Green Steel, which is fully funded. These two clusters of companies already constitute a much larger share of our portfolio value than they did a year ago. And going forward, we expect to continue concentrating the portfolio more towards these businesses. And I think this provides a good bridge to move to the final section of this presentation, focused on what lies ahead for Sinevik as we enter a new phase of our journey, starting on page 18. First, let's take a brief look in the rear view mirror. In 2018, we set out to make Kinevik a leading growth investment firm. Since then, our portfolio has undergone a forceful and fundamental transformation. We have distributed close to 75 billion SEC in value to shareholders through spin-offs. We've paid out 6.5 billion in cash dividend and made divestments of over 30 billion. In the last six years, we've invested a total of 27 billion SEK into more than 30 new companies. And in parallel, we've also strengthened our cash position to accommodate for the risk reward profile of our new portfolio, improving from 1 billion SEK in net debt to almost 8 billion in net cash as we end 2023. As a result, our growth portfolio today constitutes more than 70% of our total portfolio value. And we're entering 2024 with a strong balance sheet enabling us to seize opportunities over the coming years. Moving to page 19. While 2023 has been a year of transition focused on profitability improvements, we have spent the year since 2018 ramping up our portfolio. Not only have we allocated capital at a high pace, but we also spent significant time building relationships with founders and co-investors, establishing a strong track record, network, and a brand within our focus sectors. This has created an exceptional platform, which coupled with strong cash position empowers us to continue building our growth portfolio and to make selected investment in the most exciting companies in our focus sectors. And in this new phase we're now entering, we expect the portfolio to maintain its current size in number of investees as we add companies at a slower pace and begin to realize exits at a higher pace. We also expect a slightly higher share of listed assets and that the value will be more concentrated towards a handful of companies. With more tempered capital deployment in relation to the size of our growth portfolio, our future value creation will be more driven by the performance of our larger businesses, while capital deployment and financing rounds will be less influential. On page 20, which I would like to end on, we have concluded our outlook for 2024. Our focus will be on supporting our key companies' operational performance and increasing our portfolio concentration further. Capital allocation will be vibrant but disciplined, and over the coming three years, we expect to deploy between 3 to 5 billion SEC net per year on average. depending on the opportunities we see in and outside our portfolio. This, in combination with our well-funded portfolio, will enable us to execute our strategy, even if exit markets stay dormant over the next years. The bar for new investments remains as high as ever, and we will leave no stone unturned in our efforts to find the best investment cases out there. While we started our journey six years ago, building a portfolio larger from scratch, we're now entering this new phase in a very different position. We have an attractive private growth portfolio of around 35 businesses with many exceptional founders worth around 30 billion SEK in total. We have a strong cash position, an experienced and diverse team, and a clear strategy. And I believe this makes us well-positioned for the long-term value creation and that this long-term potential will again be reflected in our net asset value already in 2024. Finally, I would like to thank all our shareholders for your continued support as we embark on the next phase of Genevieve's journey. And with that said, we are now ready to answer your questions. So, operator, please open up for Q&A.