Kinnevik AB

Good morning, everyone, and welcome to the presentation of Kinevix results for the first quarter 2024. I'm Jorg Eganev, Kinevix CEO, and with me today is our CFO, Samuel Sjöström, and our Director of Corporate Communications, Torun Litzen. The first quarter of 2024 was an important one in many ways. And on today's call, we will walk you through our announced investment of Tele2 and the outcome of Kinevix Sports Capital Structure Review. We will also talk about the exciting investments we did this quarter in the MUSE and Pelago. And Samuel will cover our financial position and the development of our net asset value, including the continued strong performance of our core growth companies. Finally, I will also talk about our priorities and expectations as we embark further on our next phase as a leading growth investor. And as usual, we will end with a Q&A. So let's start on page four. Our net asset value amounted to 47.9 billion SEC. That's largely flat since the end of last year. The market backdrop was more stable this quarter, and we saw strong operational performance in our core companies, Muse, Spring Health, Plio, Citiblock, and Travelperk, starting the year in line with our expectations. These five businesses now represent 46% of our growth portfolio. That's up from 41% at the end of 2023 and 30% at the end of 2022. However, the NAV was also weighed down by a material write-down in our Village MD investment, reflecting a goodwill impairment by the company's controlling shareholder, Walgreens. Samuel will touch upon this as he will guide you through the valuations of our private companies shortly. As mentioned, we made follow-on investments in Muse and Pelago during the quarter, and I will share some of the reasons why we are excited about these businesses. But let's start with one of the most significant transactions in Cenevic's history, the divestment of Tele2, starting on page five. As announced in February, We have agreed to sell our entire shareholding in Tele2 to an investment vehicle controlled by the European telecommunications group Iliad and its chairman and founder Xavier Niel. The total proceeds to Sinevik will amount to 13 billion SEK, implying a premium of 13% to the closing price of Tele2 on the trading day before the announcement. Through the transaction, Tele2 gets a new lead shareholder with a long-standing track record in the European telecom sector. And as an early pioneer in France and as a business builder of scale across Europe, Eliade and NJJ are very well-placed to contribute to the next chapter of Tele2's growth story. Founded by Jan Stenbeck in the 1980s, we're proud of the company Tele2 has become. and very grateful for its role in enabling Sinevik's strategic pivot into a leading European growth investor. Tele2's strong value creation and historic dividend flow has been instrumental in building the Sinevik of today. On page six is an overview of the transaction, which is structured in three steps and is progressing according to plan. The first step was completed already in March, with net proceeds to Sinevik amounting to 2.8 billion SEK. And the last two steps are expected to close in Q2 and Q3, respectively. After completion of the transaction, Sinevik withhold a very strong cash position, and the board has therefore conducted a capital structure review, soliciting perspectives from our largest shareholders. And on the next page, we will go through the outcome of that review. The Sinovic board has decided to propose an extraordinary cash distribution of 23 SEC per share, or 6.4 billion SEC in total, which represents around half of the proceeds from the Tele2 divestment. This means that since the start of our transformation to a growth-oriented investment firm in 2018, we have distributed a total of 88 billion sector shareholders in the form of spin-outs and cash. And the board has also decided to not pursue share buybacks at this time. And the main reason is that we have a very strong pipeline of attractive investment opportunities we're currently assessing, primarily in our existing portfolio. And having a very strong financial position is a key competitive advantage in a market where many others are forced to make exits. After completion of the Tele2 divestment and the board's proposed cash distribution, we will have a pro forma net cash position of almost 14 billion SEK, meaning that we are fully funded. This provides us with the strength and flexibility we need to execute on our priorities One key priority is to create a more concentrated portfolio by investing more capital into our most exciting businesses. We will also selectively look for new long-term opportunities within our focus sectors. Moving to page eight and an overview of our investment in views. In line with our ambition to concentrate capital deployment towards our highest conviction companies, we led a funding round of $110 million in Muse in the quarter. Muse is the leading vertical software and payment solutions for hotels on a mission to transform the entire industry through technology. What sets Muse Tech Suite apart is how tightly different modules are integrated and embedded within each other, providing hoteliers with a full end-to-end capabilities in one single platform. With over 1,000 integrations, the platform is the most connected marketplace in the hotel industry. And Muse creates value for hotels by freeing up staff for hotel staff and empower them to focus on creating great guest experiences. The company also helps hotels increase booking through Muse's user-centric booking engine. And they also provide hassle-free payment processing services using Muse Payments. Since our first investment in 2022, the company has consistently outperformed our expectations as it's moved into new geographies and segments. The new funding allows a very strong year with 60% revenue growth in 2023 and over $100 million in annualized net revenue. We also crossed $8 billion in gross payment volume and had over 16 million check-ins at hotels worldwide. And we're super excited to continue backing Muse, led by its founder Richard and CEO Matt, as they transform the hospitality industry. Now moving on to page nine and an overview of our investment in Plago. During the quarter, Pelago successfully closed the $58 million funding round. Atomica Growth led the round with participation from us and all other existing investors, as well as new investors, Eight Roads and Gray Matter Capital. Pelago has developed a transformative care model for substance use management for the U.S. businesses and health plans. Over 46 million Americans have a substance use disorder, and the use of tobacco, alcohol, and opioids is one of the nation's most urgent healthcare needs. Substance abuse costs youth, employers, and health plans over $15,500 per affected employee and year. Pelagos Substance Use Management Program reduces those medical claims by over $9,000 per year and per participant, delivering a three times return on investment for its customers. And the company saw revenue growth of over 280% in 2023. They had 100% client retention, and the platform now covers 3.4 million eligible lives. The additional capital raise will help Pelago accelerate its product roadmap, extend its continuum of care and advanced clinical research efforts. We're incredibly proud to continue supporting founders Yusuf, Marouf, and Sarim, as well as the full team at Belago on their growth journey. With that, I will now hand over to Samuel, our CFO, to talk you through our financial position, our private portfolio evaluation, and the development of our core growth companies before I go into priorities and plans for 2023 and beyond.

Thanks, Jorgi, and good morning, everyone. So before we get into the NAV and private company valuations, let me just quickly cover off our financial position, considering the big swings we have in front of us over the coming quarters. We ended Q1 with $10.3 billion in net cash, with the key movements in the quarter clearly being closing the first step of our Tele2 divestment, and on the investment side of things, having led Mews financing round with a $419 million SEC ticket. Before my completion of the remaining steps of the Tele2 transaction and our 23 sec per share extra cash distribution, our net cash position amounts to 13.9 billion. As you know, we have for some time and are still working through a meaningful pipeline of potential follow-on opportunities. Many of these opportunities are in discounted secondary equity or our financing investee company M&A. Now, these are situations where we can utilize our financial strength and competitive advantage to exploit the current market environment and support our founders when others cannot. Secondary trades and M&A are, however, notoriously hard to forecast. But having said that, we're confident that our 13.9 billion pro forma net cash position provides us not only with the strength and flexibility we need to capture these opportunities, but also with enough capital for us to say that a growth-centric Sinovic now is fully funded, irrespective of the current state of exit markets. Clearly, we expect to generate several exits primarily in the tail of our portfolio over the coming years, but considering the market uncertainty, a strong financial position helps ensure that we can remain focused on creating long-term value rather than chasing short-term liquidity. So in summary, The pivot to growth is soon completed, the strategy is financed, and the near-term capital allocation priorities that we've outlined to you in past quarters remain clear. And Jorgi will get back to them as he wraps up today's call. Moving on to page 12, then, and this quarter's NAV development. NAV was down 0.5% to $47.9 billion, or $170 sec per share, in Q1. Looking at the main building blocks, Tele2, which we're carrying at the agreed deal price, was up a billion SEC in Q1 when including the sales proceeds received in the quarter. Our other two public investments, Recursion and Global Fashion Group, were up 0.1 billion or 9% in aggregate. Moving to the private portfolio, our five core companies were up 1 billion or 8% when including capital deployment. But all of this was offset by VillageMD being down 2 billion. based on the valuation implied by WBA's goodwill impairment charge announced in late March. I'll get back to this shortly, but just to wrap up, our remaining private assets were up 0.1 billion, meaning that the private portfolio in total was down 5% to 27.3 billion, or up 3% if excluding VillageMD. On the next couple of pages, I'll try to give you some color on these drivers of value in the private portfolio, as well as on the changes we're making to our reporting structure in this quarter. Starting off with a quick snapshot of the known external drivers, currencies and multiples, on page 13. The Swedish krona was down in the quarter after a strong upwards movement in late 2023. The US dollar, which represents 60% of our private portfolio, was up 6%, and the euro, which represents another third, was up 3%. This led our value-weighted currency basket to be up 5%, corresponding to a positive effect of 1.3 billion SEK to our private valuations. Moving on to the key peer set for our private portfolio shown on the left-hand side of this page, multiples and share price development in Q1 were both virtually flat on average. And we're reporting a similarly flattish underlying value development outside of VillageMD, albeit while stomaching significantly steeper multiple contraction. And that downward spread to the comp set stems in part from our investees growing significantly faster than their public market equivalents. with a number of them transitioning over 2024 and 2025 into being valued increasingly on the direct basis of current and near-term future profitability. On that note, on page 14, I'd like to spend a minute or two on the public comparables in our most important categories, software and virtual care, representing around half of our private portfolio. What we're trying to show with this chart is, firstly, just the challenge of how to value growth relative to public comparables, and secondly, that we're effectively valuing our investees, which are growing by 65% to 70%, in line with multiples of public comparables growing by around 20%. In this chart, expected gross profit growth over the coming 12 months is plotted against the x-axis, and on the y-axis, we're charting forward gross profit multiples. We've plotted out publicly comparable software and healthcare technology businesses, as well as our investee averages in software and virtual care. Now, while public company valuations are somewhat dispersed along the black trend line, growth remains the most important determinant in valuing companies in these sectors, with growth being typically two to three times more important for multiple levels than profit margins for healthy and well-financed businesses. As you all have observed, The financial profiles of companies in this part of our public peer universe have changed meaningfully over the last years. We used to have the benefit of observing valuation levels for several public comps growing at clicks of 50, 60, 70% year over year. Today, however, there's virtually not a single public company in these sectors where consensus estimates expect an organic growth rate steeper than 30% over the next 12 months. Meanwhile, Our software and virtual care companies are growing gross profit by 65 to 70% on average, but are valued at a multiple in line with the average gross profit multiples of similar public companies growing by 20 to 30%. The reason why we're valuing our companies at such a meaningful discount to what is suggested by their growth rate and the value that public markets ascribe to growth is because we take into consideration several parameters beyond growth and gross margins. These include differences in current and expected future profitability, financial strength, scale, long-term growth potential, and the percentage share of recurring revenues relative to more transaction or usage-based revenues. The valuation levels we ascribe to our companies in these sectors are not just a matter of accounting and reporting, but they have been corroborated by capital markets. We have seen price transactions in all our software and virtual care companies except Cedar and Shore over the last 12 months. And these transactions have, on a value-weighted average basis, priced our companies 10% above our assessed valuation in the immediately preceding quarter, even with this average including secondary transactions led by us in spring and plio at 20% to 25% discounts. You'll find more on this in note four of our report, but with that, I'd like to zoom in on our five core companies that now represent almost half of our portfolio after the Tele2 exit. And these are Citiblock, Muse, Pleo, Spring, and Travelperk. On average, their underlying dollar or euro valuations were flat in the quarter, and their SEC fair value was up around 4.5%. Including capital deployment into Muse and Plio in the quarter, this group of companies' fair value grew by 8%. Quickly running through each of them, in Q1, the group is weighed down slightly by Citiblock, where we're decreasing our multiple due to us taking a conservative stance towards multiple contraction in certain pockets of Citiblock's peer group in the quarter. Muse was up 7% on a euro price per share basis, corresponding to the valuation the company was described in its Q1 funding round. Clio and Spring were virtually flat, more or less in line with public comps, and Travelperk was up 5% on an underlying euro basis, after having delivered on expectations in an assuring way since their last funding round was priced in mid-2023. Operationally, our core companies have performed well coming out of the pandemic. In the last 12 months, they grew revenue by more than 75% on average, and they've all started 2024 in a solid way, meeting our expectations on growth and beating them on profitability. Over the next 12 months, we expect our core companies to grow top line by more than 50% on average, and to generate an average 12% EBITDA margin loss. And that is a loss margin that they can easily sustain with the capital they have on their balance sheets today, And our companies are themselves targeting more ambitious numbers than what we base our expectations and valuations on. Now, if these five companies continue to deliver close to our expectations, they will take a larger share of our portfolio into account. And we should see solid overall NAV accretion even before taking into consideration the other more distributed half of the portfolio.

On page 16, we're putting these growth and profitability expectations in a historical perspective.