Kinnevik AB

Welcome, everyone. Also from my side, thank you for joining. My name is Ruben. I'm interim CEO at Chinovic since about four weeks. This is my first earnings call, and so far I'm enjoying the work with the team. It has been very busy weeks, so there is a lot to talk about, and I would suggest we get started right away. I will be presenting today together with our CFO, Samuel, who you all will know quite well. Just to briefly go through the agenda, I will start with some reflections on our priorities and actions over the last weeks. And then Samuel will talk about the investee operational development, our NAV capital allocation, and then we'll have time for Q&A. So maybe to start out with a very simple question, which is why are we here? What's the purpose of Cinevic? And in my mind, there is a simple answer to that question, which is that our purpose is to be good stewards of our shareholders' capital and then generating attractive returns while taking appropriate levels of risk. There are probably also other more ambitious answers to that question, but I like this as a starting point for what we want to talk about today. And then, of course, I also want to mention that Chinovic obviously has a long history of living up to that promise and doing exactly this. But what do we need to be good stewards of our shareholders' capital also in the future? I think we need a culture that is focused on joint achievement and on performance. We obviously need that within our own team at Chinovic, but we also need that as an expectation towards our portfolio companies. In this context, I think it's important to strive for values like true ownership, so I want everybody on the team to act like an owner. Accountability, I want everybody to feel accountable for the outcomes that we generate. Focus and simplicity, which to me means to focus on the few things that really drive value and to not do anything else than that and to do those few things in the most simplest way possible. And then also clarity and candor, which to me comes back to honest and truth-seeking debate in the team. So this is really the type of values that I want to strengthen within Chinovic during my time as interim CEO. So in the spirit of clarity and candor, let's start by confronting some hard facts. In the first quarter of 2026, our portfolio is down 22%. That is a substantial number. It's driven by primarily three effects. The first one being derating of our listed peers due to macro and AI. Secondly, continued challenges that we see in the climate tech portfolio. And then thirdly, of course, also our own evolving views on our portfolio. Now, of course, we can debate if we all agree with the market's assessment that has been quite harsh, for example, on SaaS companies recently. And personally, I probably disagree with some of that. And I would find that many of the founders that we work with will actually find good ways to leverage AI to their advantage. But I think the bottom line is that we need to accept that the market price for many of our portfolio companies just has changed. And we are reflecting that really to the full extent in our NAV. Now, as a first consequence of the ongoing portfolio review, which is not concluded but has started, we have taken a first decision, which is to discontinue the sector of climate tech. I personally actually believe that climate tech has a great purpose, and so I don't really like this decision personally. But then again, if we just look at the hard facts and take an honest view, I think it's clear that we have not been able to live up to our expectations. And by the way, just to mention, I think we're not alone with that. It is a sector that has been challenged in many ways and has been difficult for many investors. So on that basis, we have taken the decision to not make new investments, in the sector and also not to report it separately going forward. However, of course, we will continue to be good and supportive shareholders to the assets that we do own. We have also done some work to simplify our reporting. I hope you have noticed we have reduced the length of our reporting from about 40 to about 20 pages. We have tried to make it more plain and we'll continue to work on this going forward. we have also decided to discontinue the idea of core companies. I understand that this concept has been helpful in many of the discussions around the portfolio in terms of focusing on some of the maybe larger holdings, but I also think it has introduced a kind of strategic rationale to the portfolio discussion by saying some companies are core and others are not. So I believe that this distinction might not be helpful to a company like Chinovic. So we will not report on that dimension going forward. Just to be clear, of course, all five of these companies are very important to us, but they are important because of their scale, because of their quality, because of their potential, because of their founders, and not because they are core or strategic in nature. Now, we have also worked intensely in the team to review our organization and our ways of working. And we have in the leadership team decided on some organizational changes that are far reaching. In my assessment, I saw many things that I liked. I see high engagement with the team. I see a sense of deep loyalty to Cinevic. I see a desire to collaborate and to do well and to improve and to learn and to grow. But I also think that when I look at the organization as it is today, I don't feel it's necessarily fit for purpose and fit for what we want to do in the future. And I think that relates to its size, but also in many ways to its complexity. And I would like really to make a shift from a mindset that feels a bit focused on different departments and different views, more towards a feeling of being one team, where just people have different roles and different accountabilities, but ultimately are one and the same team. So the goal is to be smaller and more focused in our organization to enable more direct communication, stronger collaboration, alignment, and then also faster decision-making. I hope that by doing these changes, every team member will have clearer accountability and also the ability to create more impact for the team and for our shareholders. We have also worked intensely on a cost review. And this, I think, ties really back directly to the concept of stewardship, because when we look at how we invest, we invest really from our own balance sheet. which means literally every krona that we spend unnecessarily is a krona that we cannot invest and cannot make compound for our shareholders. I think this context we also have to consider that we do not have cash generating assets in the portfolio currently. So a first review of our cost base signaled a significant savings potential that we want to realize by the end of this year. and we aim for a target level of management cash cost of around 200 million per year starting by 2027. I'll actually come back to that point on the next page with a bit more detail. Now, also in the spirit of making every kroner count, I think we also need a very disciplined follow-on approach. Many companies in our portfolio are investing to grow fast, and so they should, and I think this is also exciting because the value of many of these companies lies in the future, so we should be investing. And I also believe that our role as investors is to support these companies on their journey, and sometimes also that means to be investors in follow-up rounds, which I see as a great opportunity to be presented with those opportunities to allocate more capital. At the same time, I think to be good stewards of our capital, of course, we need to be disciplined in these decisions. We need to look at a variety of factors, at the long-term potential of the company, but also at the execution track record, the financial performance, the competitive modes and how they are building and evolving, the question of whether or not we can build a substantial stake in the business and have the influence that we would want to have, and also at our own return expectation, which needs to be balanced with the risk that we are taking. So I look at ourselves as a supportive shareholder, but I think it's also important to say that we have the ability and maybe sometimes also the obligation to say no if we think that the investment is just not right for us. So in that context, our goal is to invest not more than $1.5 billion in follow-up rounds in the existing portfolio, and we should not think of this as a budget but more think of this as a cap. So some of the things that are outlined here will help us to preserve cash, and I think that is important also for my role as interim CEO because my objective is to provide optionality for a permanent CEO. By reducing management cash cost and by being disciplined on follow-on investments, I think we are doing exactly that. And my expectation is that this would leave Chinovic with around 5 billion in discretionary investment capacity. Of course, this number is not including any capital from potential exits in the coming years. In the context of preserving cash to create investment capacity, the Board is not pursuing share buybacks at this time. Also, the Board is proposing that the AGM provides authorization to the Board to be able to decide on buybacks in the future. So to briefly summarize, and I realize that this has been a lot, but I guess also a lot has been going on, so there's a lot to talk about. But just to recap, I think our purpose is to be good stewards of shareholders' capital, generating attractive returns with an appropriate level of risk. And we have a longstanding history of doing just that. But we are also on a journey where many things will change. And we are working on a number of levers, focusing on those things that we can influence to make sure that we also live up to that purpose in the future. So there's a lot of work to do, and I'm very confident that we'll make good progress in the coming weeks and that these steps will make the company stronger. Now, there are just two areas where I would like to provide a bit more background. The first one is the cost reduction and the cost review. So just to briefly walk you through our logic, we have started with the 2025 reported management cost, which was 341 million. We have then deducted all non-cash items, which are primarily depreciation, amortization, and LTIP. And then I've arrived at the management cash cost for 2025 of 313, which is kind of our baseline. And I really wanted to talk about cash cost because cash is king, so that's what we should be talking about. We have then made our considerations around the target org, how we think the team should be set up for the coming years, and the review of non-personnel cost. And on that basis, we have defined 200 million as our new target annual management cash cost. Now, you should think of this number as kind of a steady-state cost number, so it might deviate in some cases, such as inflation, FX changes, changes in cash-based incentives that depend on the outcome of those years and the related performance, but also significant deal-related or other one-off cost. So... To get to this target rate, we are targeting a reduction of about 35%, which I think is substantial. And we are aiming to take the restructuring costs that might be associated with this primarily this year. Of course, now the task will be to make those changes without taking away anything that is material to our performance and value creation. And I think there is a good path of doing that. We'll be working to implement these changes in this year and then aim to reach the new target cost level for the full year in 2027. The second area I wanted to dive a bit deeper into is the idea of cash preservation. You should think of this chart not as an exact plan but more as a way to think about it and an indication. Per the end of this quarter, of the Q1, so the last quarter, we have 7.5 billion on the balance sheet. And I think the goal is to spend as little of this as possible. And if we would look at what do we have to spend going forward, it's first of all the cost for our own team, which I just talked about. If we take a reserve for that for the coming five years, five times 200 gets us to 1 billion. And then I've talked about the follow-on where we want to stay below 1.5 billion for the current portfolio, which brings us then to 5 billion in cash that will be available to a next CEO. And my goal is to maximize that number. So with that, I hand over to Samuel to take us through the following sections.

Thanks, Ruben. And morning, everyone. So I'll cover investee performance. I'll work my way into NAV, and then I'll end on capital allocation. Then we'll open up for Q&A, after which Ruben will give some closing remarks. On performance, based on preliminary numbers, our larger companies have started the first months of 2026 broadly on plan. In Q1, our health investees grew revenues by 28% on average compared to last year, and improved EBITDA margins by 3 percentage points. And our software investees grew by 32%, while improving margins by 7 percentage points. In the quarter, we also saw Ambeda continue to deliver on important milestones. Their discovery platform's lead drug candidate completed very successful phase 1b studies, demonstrating both efficacy results well above the current standard of care and clear signals that the drug is well tolerated and safe. These are promising results which the company will now try to confirm in phase 2 studies. So operationally, our larger companies outside of climate tech have had a solid start to the year. But as reflected in the significant public market volatility, there are material and continued uncertainties out there, both in the short term and in the long term. And for us, I'd say that sits mainly in three areas. Firstly, rising oil prices clearly may impact air travel, and that would hold back growth at PERC and MUSE. Now, we're yet to see that come through in actual reported performance, and our forecasts do not incorporate this potential impact. But I should say that PERC shared some observations of the recent travel trends that they're seeing a few weeks ago, and we've put a link to that on this slide. Secondly, there's continued uncertainty around U.S. policies for federal funding of Medicaid and Medicare. Now, that's something we, probably you and Citiblock, clearly have grown accustomed to in the last quarters, and it's something that we're trying to factor into our projections. But thirdly, the key topic across our focus sectors is AI disruption and how this is feeding into the long-term growth expectations, terminal values, and thereby ultimately share price performance of public software companies. We published an article on our website that combines our perspectives with some insights from across the portfolio. And while these clearly do nothing to alleviate the compression in public market multiples, we feel they do provide important nuances when one reflects on our conviction in the longer term outlook for our companies. But moving to page seven, the way public markets digested AI disruption was the primary driver of valuations this quarter. We saw broad and significant multiple contraction across our public peer sets, particularly in software and software-like healthcare technology services. It is evident that capital is rotating into other sectors, with public software being the weakest performer year-to-date, with index declines of around 20-25%. As a result of this uncertainty and rebalancing, the sector is now trading at its lowest multiples in roughly 15 years. This drawdown was fairly indiscriminate across types of companies, but we do see a few patterns. two in particular stand out and they also resonate with our own hypotheses and that's firstly that fast-growing companies continue to command significant valuation premiums in public markets and secondly looking at share prices over a longer time period than just q1 more vertical software companies that provide specialized services have outperformed less critical horizontal application companies And these stronger performing companies are often not only the systems of record, but also form core workflow systems. And this, many argue, should enable AI and vertical software to become more of a feature than a threat. Again, please all make sure to read the article that I mentioned that we posted on our website. And please also note that we're providing some subcategories of peer groups in our standard spreadsheet published on our website this quarter. And as trading patterns in public market evolve, this subcategorization may grow in importance going forward. Having said all of that, again in Q1 the market drawdown was still fairly indiscriminate. So what we're doing on this page is that we're showing the quarters changes in multiples in our larger investees, and we compare them to the trading of their respective public peer groups. The black lines chart the multiple movement from the bottom to the top decile company in each peer group, and the red labeled dots represent our larger companies. As you can see, we have generally stayed within the trading ranges that we've seen in public markets when we reassess the multiples we value our businesses at. And we've also considered the recency of larger transactions in companies like Muse and Aviva that warrant a somewhat milder but still substantial multiple contraction. In other cases, like Cedar and Plio, we've been a bit harsher, considering the lower growth profile of these companies relative to other investees. Our evaluation models suggest that this is fairly proportionate to what we're seeing in public markets, where slower-growing public software companies have traded down some 10 percentage points more than their faster-growing equivalents. And lastly, at Citiblock, we've focused more on the trading of the more tech-enabled peers rather than the traditional care providers, to try and reflect this underlying market narrative. Moving to page 8, to put this multiple headwind in absolute terms, it brought an 8.3 billion SEC negative impact on private valuations this quarter. And that obviously makes it the driver of our private portfolio decreasing in value by 29% in the quarter. Adding net cash and public assets, NAV was down 22% in the quarter, and in Q1 at 27.9 billion SEC, or 101 SEC per share. Going by sector, health and bio was down 20%, and software, the sector most vulnerable to public market multiple contraction, was down 38%. Our climate tech companies, meanwhile, were down a meaningful 56% in aggregate. And this was a decline driven more by individual company circumstances. The main driver was the announcement of the funding round at Stegra, in which we have elected not to invest. And with the clarity gained here, we've taken a revised view of the fair value of our investment and have decided to write it down to 10 million euros. If the company hits the business plan that underpins this funding round, we expect to be able to recoup our full investment over the coming five to six years. And we've discounted this expectation at a conservative rate of return to reach the fair value that we report today. As Ruben mentioned, we've narrowed our sector focus, and that entails us not making any new investments in climate tech, and it also means changes to how we categorize our NAV. And as we make this change in today's report, we have made sure to provide a full breakdown of the fair values of each company in climate tech and the valuation reassessments that we're making this quarter. And on our website, you will also find a spreadsheet providing a historical pro forma NAD overview based on this new amended categorization. In our NAV statement in today's report, we now also show the value of our investments based on the last transaction that we've noted in each company. In the current market volatility, fair value ranges widen, and our valuation process places a very short expiry date on transaction-based valuations. But we hope you find this additional detail helpful nonetheless. More specifically, over the last 12 months, we've seen transactions in 46% of our private portfolio by value at a 9% weighted average premium to our preceding NAV assessment. So the transaction pace in our portfolio has come down a bit over the last quarters. And moving to page 9, you also see that reflected in our capital allocation in Q1. Because in the quarter, our only investment was effectively the completion of our 20 million euro participation in MUSE's funding round that we announced earlier this year in connection with our Q4 report. Net investments amounted to 116 million SEK after the sale of a real estate property as part of the right-sizing of our cost structure that Rubin went through. And after HQ costs and treasury income, our net cash balance was largely unchanged in the quarter, ending at 7.5 billion SEK. So our financial strength and flexibility remains strong and is reinforced by the cost savings and the 1.5 billion SEC follow-on expectation for the existing portfolio that Ruben went through. And looking ahead, we're continuing to execute on the capital allocation priorities that we laid out earlier this year, driving towards a more concentrated and more mature portfolio. And with that, we'd like to open up for Q&A before Ruben gives his closing remarks.

Thank you so much. Dear participants, as a reminder, if you would like to ask a question, you will need to press star 1 1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1 and 1 again. Please stand by, we'll compile the Q&A roster. This will take a few moments. And now we're going to take our first question. And it comes from Linus Sigurdsson from DNB Carnegie. Your line is open. Please ask your question.