Kinnevik AB

Good morning, everyone, and welcome to the presentation of Kinevix Result for the second quarter of 2024. I'm Jorg Eganev, Kinevix CEO, and with me today is our CFO, Samuel Sjöström, and our Director of Corporate Communications, Søren Lissén. On today's call, we will walk you through the key events during the quarter, including our most recent investment activity and the completion of the second and largest step of the Tele2 divestment. I will also give a short update on our core growth companies and how they continue to deliver a strong operational performance and the continued challenges we also see in our e-commerce companies. Samuel will then cover our financial position and the development of our net asset value. Finally, I will 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. Closing the second step in the divestment of Tele2 to Iliad and JJ in the quarter is a truly milestone for Sinevik. We now have a portfolio fully focused on growth companies and strong financial resources that enables us to capture the many opportunities that our portfolio and the state of growth markets provide. During the quarter, we saw overall continued strong operational performance in our core companies, DataBlock, Muse, Clio, Spring Health, and Travel Perks, providing support to our net asset value in the face of significant public market multiple contraction. Our net asset value amounted to 39.3 billion SEC, that's down 4.7% in the second quarter. The fair value of our unlisted investments was written down by 7% driven by significant multiple contraction in the public markets. Investment activity in the quarter was in line with the last quarter's more careful level as we remained disciplined and focused on progressing our pipeline of opportunities in our existing portfolio. We invested 177 million SEC in Citiblock by purchasing shares from angel investors and past and some current managers. And we also participated in Recursion's $200 million public offering with a $10 million investment. This capital raise follows a very impressive 12 months during which the biotech company has made significant progress across its drug discovery platform with five potential drugs in the clinical stage, seven clinical readouts expected over the next 18 months, and several significant partnerships announced, spanning tech to pharma. In the quarter, we also provided ODA with an additional 198 million SEC in financing, stemming from a commitment made by us and other large shareholders in connection with the late 2023 merger. We ended the quarter with 12.8 billion SEC in net cash, and our portfolio remains well-funded with more than 81% of our private companies by value being either profitable or funded to break even. This financial strength enabled us to continue to unlock and execute on more opportunistic follow-on investments, and we expect that our capital deployment to intensify during the second half of 2024. Now, let's move on to page five, where we summarize the Tele2 transaction and where we are in that process. The sale of Tele2 is, as you may recall, structured in three steps. The transaction is progressing according to plan, with the second and largest step completed during the quarter. The first two steps have totaled 12.2 billion SEC in net proceeds during the first half of 2024, and the third and remaining step of the transaction, representing some 0.6 billion SEC in proceeds, is expected to be completed later this year. And as a result of our Tele2 divestment and our review to right-size our capital structure, in the quarter we also paid out the largest cash dividend in Genevix history. distributing 23 SEC per share, or in total, 6.4 billion SEC to our shareholders. Now, let's move to page six for an update on our core growth companies. We are confident that during the course of our transformation, we have managed to find and accumulate investments into a number of long-term core holdings that will increasingly become the new backbone of Shinide. Three and a half years ago, our five core companies made up only 2% of our total portfolio at that time, whereas they now make up almost half of the Chinovic net asset value. Finding the right balance between growth and profitability has been a challenge for many companies over the past years. and as rising interest rates forced many to curtail growth, conserve capital, and quickly prove they could generate positive cash flow. Genevieve has sought to take a more long-term view. In companies showing strong unit economics, operational results, and financial discipline, we're actively supporting our founders' and management teams' growth plans, rather than pushing forcefully for short-term profitability at the expense of potential long-term value creation. All the while at the same time, keeping a close eye on performance and cash flow. And during the quarter, we were satisfied to see that our core companies continued to deliver on operational expectations as a group. On average, beating our expectations both on top line growth and EBDA margin improvement. And over the last 12 months, They have grown revenues by seventy one percent on average, and they have progress on their path profitability and right now expected to generate positive as a group during ten twenty five moving to page seven like any early stage investor. We must face the consequences of companies failing to meet our expectations. And we manage these often difficult and complex situations with care and discipline. Our portfolio companies exposed to e-commerce have struggled coming out of the pandemic and are still finding their footing in the current market environment. As an owner, we focus on driving profitability improvement and capital efficiency to minimize the negative consequences for our NAV over the longer term. And this may entail more forceful readjustments in the shorter term. In OTA and Motham, we were supportive of the merger between the two companies at the end of last year, creating both scale and the opportunity to introduce OTA's leading logistics solutions into Motham's operation. The company has appointed a new CEO and management team and launched an efficiency program, including a sizable reduction in headcount. We and our co-investors, Summa and Verdane, have during the quarter provided the company with a bridge financing, and the company is currently closing a new funding round where our co-shareholders not stepping up to support the business will face significant dilutions. Job and talent services many e-commerce companies with its work marketplace and has been impacted by retailers facing a significant slowdown in growth in consumer demand. While the company has made strong improvements in profit margins over the last years and a half, these improvements are not sufficient to offset the significant negative value impact caused by a flattened growth trend. We are actively supporting the company in adjusting to the new environment and helping them to regain the strong tractions we saw during our first two years as owners. Our third e-commerce company, which has been forced to readjust, has been InstaBee. After a very difficult period, we now see operations slowly stabilizing. And the company raised new equity financing during the quarter without the need for participation from Genevieve. I will now hand over to Samuel, our CFO, to talk you through our private portfolio valuations and our financial position.

Thank you, Jorgi, and good morning, everyone. So before we get into our NAV and private company valuations, let me quickly cover off our financial position. We ended Q2 with 12.8 billion in net cash, with the largest movements over the last six months clearly being closing the lion's share of the Tele2 divestment and our 6.4 billion extra cash distribution, right-sizing our capital structure as we enter our next phase. Perform at the completion of the third and smallest step of the Tele2 exit expected later this year, our net cash position amounts to 13.5 billion. As you know, We have for some time and are still working through a meaningful pipeline of potential follow-on opportunities. Several of these opportunities are in secondary equity, buying out co-shareholders in need of liquidity. And these are situations where we can utilize our financial strength and competitive advantages to exploit the current market environment and support our founders also by making sure there is long-term alignment in our company's cap table. Secondary trades, however, can often entail long and less predictable processes. And we also see funding rounds taking longer to conclude, reflecting a more thoughtful market environment. As a result, we are yet to convert a meaningful part of our pipeline. 2024 to date, we have deployed a bit more than 600 million SEC into our core companies Muse, Citiblock and PLEO, of which some 200 million in secondary equity. Additionally, we've invested 103 million in our newer venture recursion. This deployment phase does not reflect the scale of our ambitions. And we're confident that relative to the first half of 2024, we will be able to increase investment during the second half across our core companies, as well as in a few of our newer ventures. So we're optimistic going into H2. and our short-term capital allocation priorities remain clear and wholly centered around increasing portfolio concentration in our highest conviction companies. Having said that, we appreciate that having completed our transformation to growth, we owe our current and future investors a roadmap for capital allocation that spans beyond our 2024 priorities. Similar to the capital allocation framework we laid out when we commenced our transformation to growth some five years ago, we look forward to providing you that same level of clarity at our capital markets day in October and to elaborate on why we're so convinced of the competitive advantages our permanent capital days provides and of the many attractions of Sinovic being a unique publicly listed venture and growth investment platform. For now, let's move on to page 10 in this quarter's NAV development. As Jorgi mentioned, NAV was down a bit less than 5% when adjusting for our 6.4 billion extraordinary cash distribution, and ended the quarter at 39.3 billion, or 140 SEC per share. Looking at the main building blocks, our two public investments, Recursion and Global Fashion Group, were down 0.3 billion, or 21% in aggregate. Our five core growth companies were down 0.7 billion, or 5%, while our private portfolio as a whole was down 2.1 billion, or 7%, and ended the quarter at 25%. Over the last 12 months, we've seen price transactions in 57% of this private portfolio by value. And on average, these transactions have valued our businesses in line with what we held as fair in the immediately preceding quarter. And since the end of 2022, meaning over the last 18 months, valuation levels of almost 75% of our private portfolio by value have been corroborated by transactions. And when we unpack that number into primary transactions, meaning funding rounds, and secondary transactions, meaning acquisitions from co-shareholders, we see that secondary transactions have on average occurred at a 30% discount to NAV, and that primary transactions have on average been concluded at a 25% premium. That resonates well, both with what we hold as customary secondary discounts in the current illiquid state of private growth markets, and validates that our NAV serves as an attractive entry point for new co-investors in our private companies.

On the next couple of pages, I'll give you some color on the value... ...revision in the private... portfolio. And as usual, you can find much of what I'll be going through in note four in today's report. Starting off with a quick snapshot of the known external drivers, currencies, and multiples on page 11. Corona strengthened slightly in the quarter, with the US dollar, which represents 61% of our private portfolios, down 1%, and the euro, which represents almost another third, down 2%. In total, our value-weighted currency basket was down a bit more than a percent, corresponding to a negative 0.3 billion SEC effect on our private valuations in the quarter. Moving on to the key peer sets of our private portfolio on the left-hand side of this page. On average, valuated peer multiples were down 11%. We saw stability Value-based care, positive movements in the most relevant e-com logistics spheres, and considerable contraction in B2B marketplaces affecting MBC companies like Job and Talent. The main external value drive of this quarter was, however, the significant derating of public market valuation benchmarks in our most important NAV categories, software and healthcare technology. Many of our valuation peers' Q1 reports disappointed the market during the quarter. forward guidance coming in below consensus and increased concerns around growth rates continuing to taper as software buyers become more hesitant. This led to sector-wide pressure in public markets and multiples coming down by around 10 to 20%. On that note, On page 12, we're revisiting last quarter's chart on how our valuations in social care stack up against these public benchmarks.