VEF AB (Publ)

good day and thank you for standing by welcome to the vef first quarter 2025 earnings conference call and webcast at this time all participants will be in listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you need to press star one and one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one and one again Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker, David Nangle, CEO. Please go ahead.

Yeah, thank you very much. And good morning, good afternoon, everybody. Thank you for joining us on our Q1 results conference call. As always, I'm joined by our CIO, Alexis Camudos, for this call. And what we'll do over the next 10 to 15 minutes is first focus on the results themselves, give you a highlight and update on that. And then the second part of the call, we'll focus more, we'll get more depth in the call on recent exits and capital allocation, which is the focus of the firm at the moment. The slides are available on our website and also I'll go through them on the webcast. Going on to slide number three, just giving you a key overview of the events of the quarter. I think in the NAV itself, we had a 1% move quarter on quarter in dollar NAV positive. And a number of moving parts as always, but generally it was strong underlying company performance and a tailwind of currencies versus the U.S. dollar, which met some headwinds on the multiple sides of equity markets to feed into our valuations. And from a portfolio point of view, it's a repetition of the message over the last few quarters. It really is all about a quality portfolio, the majority of which today is breakeven or cash flow positive, and growth is back in focus. And I kind of say that specifically when I'm thinking about our top three names, names like Creditas, Confio and JustPay were either returning to growth early this year, or back in the last year more specifically, or names like JustPay which had growth unabated through cycle. We are looking at next 12 month growth of key revenue lines and gross profit lines of 35 to 40% in 2025 year on year. Specifically credit assets, which is obviously our focus and biggest asset, in itself is re-accelerating growth. It started to pick up as we highlighted in the last few quarters and they themselves issued their quarterly releases. We saw origination growth year on year of 27%. Last year, second half weighted. And I guess if we look at 2025, the year has started strong. Managing has been quite clear. They're looking for 25% plus growth in key balance sheet lines that's in the loan book. And the start of the year has backed that up. So we're feeling very confident about that asset at this juncture. I think what's very important for us And for the market to know, it's really exits and capital allocation. That will be a lot of this presentation. Exits are in focus. They have been in focus for us for the last 18 months, but they're starting to come through to fruition, the latest of which is the biggest and the highest IRR. After $14.8 million, we took in a partial sale of JustPay just after quarter end, and we'll double-click on that shortly. And then the capital allocation aspect is Something that we've been looking to do is, one, strengthen your balance sheet from these exits, which justify your NAB, and then put that capital to work in logical capital allocation in terms of the short term, which is deliver our balance sheet and buy back our shares at what is a deep discount to NAV. And just key numbers, our NAV at the end of the quarter was $357 million. On a per share basis, people look at that in local currency, where we're listed in SEC, at 3.43. It was off quarter and quarter in SEC as the SEC moves against the dollar by about 9% versus the dollar now, which is up 1% quarter on quarter. You know, over time, our NAV has gone up and to the right, albeit with a bit of a ball, through cycle through 2021, and more recently at the back end of 2024. And before I hand over to Alexis on the valuation section, you know, in Q1, I'd say it was a volatile quarter for markets, and that's an understatement about what's happened since. But even though main indexes, NASDAQ, S&P, were down quarter and quarter, and also you had headwinds in the global FinTech indexes, you actually had some outperformance in certain key names and regions in Latin America and some FinTech names, which I saw a positive move quarter and quarter. So a lot of moving parts in the multiple aspects of our valuation process. But maybe it's better Alexis delves into all that. So I'll pass over to you, Alexis, for the next few slides.

Thanks, Dave. Hi, everyone. I'll start by just running through the most important valuation drivers in the quarter. Focusing on top three names, so for Creditaf, it continues to be valued on a mark-to-model basis and appreciated 6% quarter-on-quarter. This was driven by company performance and recovery in the Brazilian REI, which was partially offset by mixed comp performance, and that alludes to the market performance I was just speaking about. In JustPay, this is valued in line with our recently announced secondary transaction as part of the $60 million Series D that they raised within a tight range of last quarter's valuation. And Confeo continues to be valued at the August 2024 fundraise valuation. the first quarter of 25, these top three holdings now represent 83% of the value of our portfolio. In the quarter with JustPay, Confeo, Solfacil, and Blackbuck all having recent transactions or being public companies now, and the exit of Gringo, 49% of the portfolio is now valued at latest transactions. up from 26% in the fourth quarter. Moving on to slide eight and our NAV evolution, the bridge that we normally present. So over the quarter, the NAV progressed just over 1%, as Dave mentioned, or about $4 million. In the mark-to-model side of the portfolio, the change is driven predominantly by portfolio performance. appreciation of portfolio currencies versus the the us dollar and this is partially offset by compression in comp multiples and market performance on the latest transaction portion of the portfolio there were no real changes other than the exit in gringo which fell in the first quarter and that moving from this portion of the portfolio into the corporate cash side And that was slightly offset by OPEX and coupons on corporate cash. The effects that you see at the end in the corporate section is merely the translation impact of the strengthening SEC on our outstanding bonds. Moving on to slide nine now and just running through some of the portfolio highlights. Some of this Dave has mentioned, but we continue to feel very strong and confident about the portfolio's ability to drive shareholder value. More than 90% of the portfolio continues to operate at breakeven, reaching a self-sustaining rate of growth, and are not dependent on fresh cash to grow. They are now in control of their destiny. The portfolio on a next 12 month basis is growing at 35% and 40% revenues and gross profit respectively. And the portfolio continues, the portfolio companies continue to be well capitalized and high quality targets of attracting fresh capital, examples of which are now included in the top two of our three names. JustPay and Confeo, and Gringo that was acquired in the quarter. Now moving to slide 10, as Dave mentioned, we're going to talk a little more about exits and the progress that we've made. I wanted to take the opportunity to update you on our objective of opportunistically realizing cash at or around NAS to strengthen our balance sheet and validate the NAS on which we've made substantial progress this quarter. Exits are happening, and we'll also present our fresh capital position and the plans for that. So just on slide 11, here we present the three exits that we've had over the last six months. We've delivered $32 million of exits of gross proceeds, two of which occurred in the first quarter, representing $30 million. The first of which was the BlackBuck IPO, where we realized $2 million and we continue to hold $4.6 million in a listed share. In January this year, Corpay acquired our Brazilian asset Gringo, in which we realized $15.2 million. And last week, we completed the secondary transaction as part of JustPay Series D, realizing $14.8 million in gross proceeds. The $32 million that were realized across these three exits represent a range of outcomes, but all of them were within a tight range of the pre-transaction NAV marks, which is an important point, and Dave will elaborate on that later. The sold shares and realized cash also represented 1.4 times cash-on-cash returns and 11% gross IRR over the three-year period. weighted investment period. And if we include the unrealized gains from these positions, i.e., Black Buck and JustPay's remaining stakes, these three investments represent 2.3 times multiple on invested capital and 25% IRR, in which has been a difficult vintage for the industry. These three exits represent the first of three of this cycle and are the result of the work we've been doing over the last 12 to 18 months. we continue to work towards opportunistically taking cash in at around our NAV marks with the objective of balancing, strengthening our capital position and validating our NAV without selling the crown jewels. And I think this is an important endeavor specifically today when we trade a steep discount on NAV. Just elaborating a little more on JustPay and the Series D round in which we took Some shares off on slide 12. Last week, we announced selling $14.8 million stake in the JustPay transaction. JustPay was our first investment in India in March 2020 when we led their Series B. Since then, they've been a standout performer in our portfolio. And as a result, we invested a further $8.1 million across two tranches in their Series C. This round marks a great step in supporting JustPay's global expansion efforts and their investment in pushing the boundaries of AI, which are both yielding very promising results. Vimal, Sheetal, and the entire JustPay team have been real pioneers of digital payments, becoming meaningful contributors to the Indian payments ecosystem. Today, JustPay powers over $450 billion of annualized TPV. representing over 30 million transactions a day. And they serve some of the largest merchants, banks, tech apps, and networks in India. The business is known for its strong technology offering reflected in best-in-class customer satisfaction and retention metrics. And this has contributed to its uniquely high combination of scale, growth, and significant profitability. And this transaction has allowed us to realize a sizable gain at highly attractive returns while maintaining a 7.8% stake in the company. We're excited to continue our journey with JustPay. We believe they've got a very bright future. And just to run through the metrics, the secondary transaction valuation represent a four times cash-in-cash return and 37% IRR, putting it in the same category as best benchmark exits in ThinkOff and EasyCo, and a great example of the investment opportunity that's present for us in EN FinTech and which Vess is uniquely positioned to capture. Dave, handing back to you.

Super. Thanks, Alexis. Let me bring it home over the next two slides and then open up for Q&A, but I think leading on from Alexis talking about the specific exits and those three names, from an ideology point of view, what our goal was with these exits, and we're by no means in wind down of our portfolio, we're opportunistic the names that we sell or the pieces of the names we sell and the price that we sell at very close to now but a lot of this is about validating our nav in the eyes of the market you can talk about your portfolio you can talk about in theory what it's worth but then you prove out the reality via exits and by companies raising capital and it helps to validate what is your nav and ideally get your share price closer to that true point and evaluation so that's the key goal here from these exits Key goal number one. And then number two, that cash-in obviously strengthens our balance sheet. So it's an element of balance sheet management. It's a good time to be building liquidity at a time of volatility. And with that excess liquidity coming through, then we have options. We have flexibility. And I guess, you know, phase one with that flexibility really is focusing on de-levering our balance sheet and share buybacks and adding value, creating value for our shareholders. Now, specifically around the NAV marks, those three exits that Alexis spoke about a couple of seconds ago you know in this slide here on slide number 14 you have the valuation that we had these companies at pre-exit or pre-partial exit and then the value of the exit was actually done at for the stake that we hold and what you can see in the case of just pay we exited just north of that pre-exit valuation amount green goes slightly south and then black book on the money as it's listed and but net net as a total amount of value in our NAV versus value of three portfolio companies that we exited, it was a positive move versus our NAV. And that was key for us. We keep on telling the market that our valuation process is true and fair and proper. But it's only when you have companies actually exiting, when you've got real dollars coming through the door at those marks, they can truly stand behind it and stand in front of investors and say that your NAV is true and proper like we are right now. And continuing on that, if you look at our portfolio as a 100% portfolio, from these three exits, you now have 28% of our portfolio that's been realized or partially realized or justified by cash exits. Then you also have, that's Black Book, Just Pay, and Green Goat. Then you've also got 23% of our portfolio outside of those names that have raised capital over the last 12 months in the market, names inclusive of Confio, a top three name, and Sol Facil. And these are names that have raised money at or not marks. And then less than 50% or 47% today is at a mark to model where we do the modeling short-term valuation on a multiple basis, which as we're seeing with the exits and the companies raising capital, ends up being broadly true and very true cycle. But from a pro forma point of view, less and less of our portfolio is marked to model as we move away from COVID, as companies raise money and as companies exit. And that's starting to help us justify more and more our NAV marks as we go. In the second part of these exits, I say, first part is NAV mark justification. Second part is strengthening our cash and our balance sheet, which is key for any investment company. So you start off the year, our year ends 24, and you have nearly $13 million of cash and liquidity on balance sheet. After the exit from Gringo and the recent exit at JustPay, and you add on the public stake in Black Book, which has had a good performance since IPO, sitting on approximately 45 million dollars of cash and liquidity or liquid assets and that's north of our bond position today which is approximately 40 million dollars so we're back to a net liquidity positive position pro forma which is where we wanted to be and then that gives us positive choices of what we can do with our liquidity and how we can manage our balance sheet in this window and that moves on to the capital allocation you've seen the number of and updates we gave last week around the exits and around our capital allocation and ideology. And this has been coming because we've drifted out of the market over the last few quarters, but it's good to have it done and be real and out there. But effectively, with the money that we have on balance sheets today, it's sufficient for us to be able to partially redeem our bonds. We plan to do that in the Q2 window. And then also, as important or more important for equity shareholders, it's allowed us to announce a share buyback for up to 5% of our outstanding shares. Now, if these things are not static in nature, neither are the exits static in nature, so more exits, opportunistic exits at the right price with the right assets, gives us more firepower to put more money in the short term into delivering the balance sheet and to buying back more shares, i.e. they're open-ended at this stage. And then to close off, just a few points. One, you know, we keep on saying this, it's all about the portfolio. Any investment company is only as good as its portfolio. Our portfolio is strong, it's profitable, and it's growing again. And as you can see in the market, whether it's JustPay, Compio, SaltaSeal, it is attracting fresh capital from the markets, which is great to see and a justification that we are in quality days. From an exit point of view, you know, start of 2024, you can make promises and you can say what your goals are for the market. But in the last six months, we've had three exits of three different assets, one by IPO, one by M&A, and one by a partial exit in a secondary sale. Many different avenues to exit your companies at the right price. And now we're leaning into what is the most obvious logical use of excess capital at the moment, and that's deleveraging our balance sheet and buying back our shares at what is a deep discount to NAB. We'll do that all day, basically buy back our portfolio at a discount It's just the most obvious short-term strategy for us before we get back to the medium to long-term strategy, which is adding that incremental just pay, credit pass, easy co-teen cost to our portfolio. I'll stop there. Operator, I'm very happy to open the floor to questions at this time.

Thank you. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are now going to proceed with our first question. And the questions come from the line of Linus C. Watson from D&B. Please ask your question.

Hi, guys. Good afternoon. Thanks for taking my questions. Starting off, I mean, now that you are in a more comfortable liquidity position, just if you could give some more color on how you use sort of the trade-off between buying back shares and paying down debt. And at what point would you say that you are comfortable starting investing again, whether that requires making new exits?

Yeah, hey, Lance. Thanks for the question. Yeah, I think you used the word comfortable, and we are comfortable with liquidity and capital. It's good to be comfortable, given where we were 18 months ago. We're not flush, so we do have choices to make. We can't do all of everything. But we have decided that we can do both, work on the bond side and work on the equity side. We can lean into both sides. So what we'd like to do by the end of Q2 is have approximately half our bonds redeemed, all paid back. We are actively working as of today in buying back up to 5% of our capital, our shares in the market. So that's an ongoing, more gradual process. The bonds might be a quicker one. And what we'll do then with incremental exits at this time, and we're working on a bunch of different exits. And as you've seen, the last three exits have been very specific. We haven't forced anything. We haven't made you know, we have a knee-jerk reaction to trying to get liquidity in. It's being the right exit at the right time at the right price. So short term, we could see more 2025, 2026, we could see more exits coming in and that will allow us to do more of the same off the bonds or a gone and blur our share price trades much closer to NAV which we think it should. Then I think, you know, what you alluded to the medium to long-term strategy, like why do we exist? We exist to invest in the best in class fintech companies across emerging markets and that does not change. It's just that short term is so much more obvious in terms of value creation for our shareholders and what we're doing right now. But we're very much working our pipeline. We do have top of pipeline, top of funnel names that we're looking at. We will be active again investing in companies, but the short term priority is balance sheet management. That's where the value lies in 2025.

Okay. I appreciate that, Culler. And then when you talk about additional opportunistic realizations, As a core priority how how much of that do you feel is in your own hands or how much is at risk?

Now given sort of the current market backdrop Yeah, what I'd say is if I look back I started 24 we probably had seven or eight different work streams on the go and What you've seen is three different ones in very different ways in different markets working out so the control our side is to keep on working on with the portfolio companies, with the names, with the exit options that work through on those names. And then we said no to two or three different exit options because it was the wrong asset at the wrong price at the wrong time. So there's an element of control. And what we find is you make your own look and the harder you work, the more likely you do succeed in these exits. But it's also a big element, as you allude, in terms of the market. You know, is the market open? Is the market flush with liquidity? Is there buyers out there? Is confidence high for different markets and different segments? So, you know, the market is an aspect of this too.

Okay. Thank you so much.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We have no further questions at this time. I would like to hand back to you for any closing remarks.

Yeah, thank you very much. And look, thank you everybody for joining us on this call. I think you've heard the message loud and clear. We have been delivering on promises around exits. The balance sheet is stronger and we're putting that capital to work as logically as we can in the short term to add value for you, the shareholder. And we'll be taking this message on the road. Myself and Cahal from the investment team are going to be in New York, London and Stockholm in the not too distant future. So if you are interested in meeting, do feel free to let us know. Otherwise, have a great Easter and we'll talk soon.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.