VEF AB (Publ)

Good day and thank you for standing by. Welcome to the VEF Second Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants will be in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to the conference over to your first speaker, Mr. David Nangle, CEO. Please go ahead, Sal.

Thank you, Razia. Good morning and good afternoon, everybody. And specifically, good morning to everybody in New York where I'm doing this call today. Welcome to our Q2 results presentation conference call off the back of our results, which were announced this morning. And with me, as always, in the call is our CIO, Alexis Camudos. um quite a focused presentation for you today and we've got 14 slides in total but 10 active and we'll do that quite quickly and in a focused way giving you the highlights and where we're thinking about everything in life at bf and then happily open up for questions and before i get into the deck itself maybe so just some general opening comments on what we're seeing at beth and through the prism of the markets you know what i would say is that 2025 this year it does continue the improving trends that we're seeing that we have seen gradually come through since the 2022, early 2023 lows for both public markets and our industry specifically. And this is something, these trends that we've seen evolve through 24 into 2025, month on month, quarter on quarter, is something that I continue to talk about in forums, in the markets, and write about in our investment letters and in quarterly reports. Specifically, there has been a public market supportive backdrop year to date. You see that obviously in the main indexes out there. But then specifically to emerging markets and risk assets, it's been even more so. We've been accelerating and outperforming, and that's a nice backdrop to everything that we do. Importantly, within that, capital is flowing. Capital is flowing into funds that invest in private companies. Capital is flowing out into private companies. More rounds are happening. We see that through the prism of our portfolio. And finally, capital is flowing out via exits. And this is something that was tumbleweeds maybe two, three years ago, but has been picking up pace and momentum, even to the point where nearly IPOs are becoming a trend, not to get ahead of ourselves, but IPOs, M&A, secondaries, more exits are happening and you see it at FF. You know, on a macro level, growth is picking up and interest rates are broadly falling in a lot of parts of the world. So, and in FX, the currencies that we're exposed to are strengthening versus the US dollar year to date. So, A lot of positive trends happening in our world, incrementally building up momentum month on month, quarter on quarter. And this is everything that we see. And then we see it through the prism of our portfolio and our daily business. You know, against this, and these are general comments, you know, we're still early in the cycle. We're very open and honest about that. It's the best in class funds that are raising money, best in class fintechs that are exiting. That's the way it should be. We saw it with JustPay recently at BEF. And I think the investment company universe, which is focused on this space like ourselves, has been a little bit lagged in catching up, but you can feel that momentum building now in everything we do. So there are general comments on the backdrop of everything we see. Getting specific into the investor deck for the quarter, on slide number two, what we saw in Q2 from a NAV point of view, up 6%, 6.1% year-to-date, up 5% quarter-on-quarter. The main drivers in this quarter, and it's different every quarter, and was mainly on the market side with multiples being a nice tailwind as were FX in key markets like Mexico and Brazil specifically when you look at the name like Creditas. The portfolio, continued message on this front around the portfolio. One, generally the risk-rewarded portfolio is much better than it's been for a long time. The majority break even and growth is now back in focus. And we've got a nice slide on this focusing on our biggest companies. We expect 30-35% revenue and gross profit growth aggregated across the portfolio over the next 12 months. And this is all NAV tailwind effects that we expect going forward. Specific to that and our biggest asset in credit tax, you see the lead generation fact of loan originations up 44% year-on-year for the Q1 numbers that came out recently. That then drives the loan growth up double digit year on year and accelerating. We'll see that into Q2, and that then drives the income statement. There's always some volatility on a monthly, quarterly basis, but the trends are very clear around putting the foot back down on managed cash flow positive growth. Exits continue, and I think this is very important for the industry and for VEF. We have a slide we focus on exits and IPOs and in the industry at large, but it only important when those broad market trends actually impact us here at beth and our shareholders through the prism of everything we do and we've had three exits in the last 12 months we've tapped the ipo market in india with black book we've had a trade sale in brazil with gringo and we did a nice secondary sale or partial sale of our just paid position um recently in india that's 37 million dollars comes in this strengthens our balance sheet and it gives us healthy options around capital management and capital position And I guess then what we've been doing with that, and this is consistent messaging, delivering on promises around exits, using that capital in a kind of an investment management 101. It's almost the playbook. It's the right thing to do. We're joined at the hip, I think, with most of our big investors in the actions that we're taking. You know, pay down almost half of our remaining debt, 160 million sec in the quarter. It was nice to do that early partial pay down that we had obviously linked to our bond notes. And we started our buyback program doing $4 million of buybacks of our shares at these levels in the quarter, something we will continue to do and look forward to doing, and what our shares trade at a healthy discount to NAV. One of the positives of trading at this discount is our ability for capital to work in our own shares and our own portfolio at a NAV. A NAV is justified by the recent exits and fundraisers that have been done across the board. And then I guess a lot of that, what I'll say, is investment management 101. You know, why people are with us on this journey, Where is our strength? Where is our IP and our edge? It's really in pipeline. It's in finding the next credit pass, just pay, easy go, think of for our portfolio, for investors, for long-term growth. And that's where we're spending an increasing amount of our time because we are obviously delivering on the short-term value accretion by a balance sheet management. We're very much looking to the medium to long-term value accretion by adding the next portfolio winners as we go. On slide three and four, very briefly before I hand over to Alexis, specific to numbers, The NAB for the quarter is approximately $375 million. That is up 6% year to date. So we have a bit of a tailwind in where the NAB on a dollar basis is going. Up slightly higher on a NAV per share US dollar given the buybacks that are coming through. So that accretion is also helpful on a per share basis. From the SEC side, the corona, there's been obviously strength in the SEC versus the dollar. So we've got negative high single digits on SEC for NAB and NAB per share year to date. And on slide number four, what you're seeing from a dollar, we think in dollars when we're investing and we're talking to our investors for the most part, we're seeing that NAV starting to, A, stabilize or B, pick up as we move from Q1 now into Q2. And then NAV per share obviously will have a nice kicker as we go, as we continue to buy back our shares at these levels for as long as they're at a decent discount. I think we'll continue to do that. From here, Alexis, I'm going to pass over to you so you can talk about the valuation metrics for the portfolio in the quarter and the key moving parts there.

Thanks, Dave. Hi, everyone. So on slide five, we just showed the valuation approach and key takeaways for the portfolio in the second quarter. As you can see, 43% of the portfolio is valued at latest transaction, with the transactions in JustPay and Confeo making up the bulk of this, and the remaining 57% of the portfolio valued at mark-to-model. There's been no meaningful changes in the quarter to valuation methodologies, I'd say. The greater contribution from mark to model portion of the portfolio is just reflective of the value change in that part of the portfolio, while latest transactions by nature has stayed static despite some of the market tailwinds. Moving on to slide six, this shows The NAV bridge and the breakdown of the growth in NAV in the quarter, which we've been showing for the last few quarters. Overall, $17.5 million growth in NAV was fueled by, one, the strong equity market performance and the impact of that on comps for our market model portfolio. And secondly, as Dave mentioned, the FX tailwinds, and particularly from the Brazilian RAI, I'd say one other point to point out here is in the quarter, we baked some more conservatism into some of our modeling, given some of the macro uncertainty that we're seeing right now. And then other things to point out, I think on the cash and corporate side, you can see just paying black buck cash coming in, partly offset by $4 million of buybacks or so that we've done. in recent time. And so the fewer number of shares outstanding, you'll see NAV per share growth of 6.9% versus the 4.9% in NAV growth, quarter on quarter. There's a small FX headwind on corporate cash, which is just the translation impact of SEC strengthening versus the dollar on our outstanding bond balance. Then slide seven. So just to reiterate what I think Dave said in his opening comments as well, we remain confident in the high-quality portfolio that's now delivering profitable growth. So the important message is that the portfolio is growing revenues and gross profit at 30% to 35% respectively from a self-sustaining base. And by that, we mean the portfolio is almost entirely cash flow neutral positive. And we're seeing this growth manifest in Creditas' re-acceleration of originations that Dave mentioned, and then also in some of the other key metrics across the portfolio. I think Dave in the next slide will cover some of that in Confeo and JustPay that we're seeing. And the environment for fundraising is improving, and we've seen that in the JustPay and Confeo rounds. and we feel confident that other names in the portfolio will be able to track capital from a position of strength at or above unad marks. Back to you, Dave.

Super. Thanks, Alexis. I've got three slides before I wrap up, but maybe just one overlaid to what Alexis said. And this is just off the back of following the Sinevic results, for example, and how they reported and some conservatism baked in in their evaluation process. I think our end You know, as you see the markets performing multiples, FX, you take one eye on your forecast and you can just bake in some more conservative estimates as you go, which is quite a nice thing to be able to do. And I'm watching your companies, you know, over-deliver what you're baking in. Also, with half of our companies marked the last funding round, some of those funding rounds were now nearly as long as 12 months ago. The valuations in those companies have not benefited clearly from the marked model FX. markets, multiple tailwinds. So we're feeling quite nice around the conservative bias and balance to our portfolio valuations at this point in the cycle. Moving forward to slide number eight, you know, growth is key. We are growth investors. We're quality investors. So it is nice to see after a period of real focus on getting to cash flow, positive sustainability and businesses, which I think was a very good exercise for all of our portfolio and the industry at large. Not everybody made it, but, you know, a very healthy exercise you know, it's important that you get back to growth and sustainable growth. And this is our three biggest companies. This is all public information shared by a variety of sources. But Creditas, obviously I talked at the start about that origination growth, loan origination growth, picking up quarter and quarter and feeding into 44% year on year origination growth. That feeds through to the 11% loan portfolio growth, which has been accelerating from single digit the quarter before. and that will pick up again in Q2, and that then feeds into the income statement with a lot of moving parts within that, but this is what we want to see at this point in the cycle. It's not V-shaped, it's U-shaped, it's gradual, it picks up and it builds momentum. JustPay actually never really missed a beat around growth. It's a less cyclical payment business as opposed to like the credit house and Confio who've got their businesses built around credit, which can be quite cyclical in nature in these markets. But the 60% year-on-year net revenue growth is indicative of the year-on-year trends happening at JustPay and their payments business, both from a volume point of view and an income statement point of view, both at home and India, and now as they start to succeed abroad. And finally, Compio, this is 40% portfolio growth and even faster on the origination growth. This is just Q1 data, all official sourced data that we're allowed to share. Just very good to see these, and I'm in New York this week with Compio. They've got a board meeting here tomorrow with the full board in town for that. It's just very good to see these companies having got through another stress window. We like our companies being stressed in downturns, coming out stronger, and then putting the foot back down on growth. Slide number nine. We could have done five slides on capital in the system. There's so much data points out there coming from the market, both globally and then domestically in a lot of our specific markets. As I did say, there's a lot of capital now coming into the markets again, whether it's been international over US, whether it's EM within international, whether it's private versus public. Once again, we're not getting carried away. It's not a wall of money. We're not back to 2020 and 2021. which was unhealthy and too hyped. But we're seeing a gradual return to normality and we like that. And what's incentivizing that or enticing that is that we're seeing capital be recycled via the exit system, IPOs, M&A, secondaries. The market generally gravitates towards IPO data for sentiment because it's the flashy IPO that you get. But we did see some big fintech IPOs in the US in the first half of this year around Chime, eToro, and then Circle and Stablecoin Front. And then names which have been, you know, plenty of names are there which have filed in close to Sweden, obviously Klarna in the US on the wealth management front, wealth front. So very interesting to see IPOs coming out in size and shape, benchmark names, performing post-IPO and it's off the back of healthy markets. And in specific to our markets on the IPO front, India is probably the healthiest IPO market in emerging markets and one of the healthiest in the world. we recently did an IPO black book in our portfolio and then two payments companies, which have been, you know, either in the news or officially filed for IPO and pine labs and phone pay. We look forward to these companies being listed more peers, more listed FinTech in our world is always welcome and welcome periods for companies like just pay in our portfolio. Um, second last slide is around our balance sheet on the capital in, you know, once again, uh, It's very nice when we can make promises to the market and we can meet them. Delivering exits is hard. Delivering exits in certain time frames is hard, but we wanted to deliver exits. We've delivered to three across different portfolio companies. And the top left-hand chart, this is slide number 10, has allowed us to go from a cash position of $12.8 million at year-end to a cash position of $20.8 million annually. at the end of Q2, at an $8 million uplift. But obviously within that, we put capital to work in paying down our debt and also buying back our shares. So a lot of value accretion and balance sheet management, classic investment management 101, which we're very happy about. And obviously we're in a net debt position, a net positive debt position as a result of that. So it was slight negative in terms of what we owe to the market, cash versus debt outstanding. So very happy around this. And I kind of, say to the team that a lot of this is a lot of work to get to this position to deliver all these outcomes, but this is investment management 101. If you had the book from Buffett or anybody else, we are doing the playbook obviously suited to where the best business model and what we should be doing around shareholder value accretion, balance sheet management, capital management at this point in the cycle with the capital we have with our shares trading where they are and where our IP and our real edge is, is really in investing. And the pipeline work is getting very interesting. We're very happy with some of the names you see at the top of our portfolio, very much focusing in and doing more work so that we're ready for capital to work in the next future winners in our portfolio as and when the time is right and our capital position is right, which we're foreseeing is not too far away. And then finally, just to wrap up, and it's kind of reiterating these points again, but we're at the very simple business. We're in a very clear place. Momentum is behind us. So we reiterate and then we execute on the clear plan of what we're doing and we add something in each quarter as something becomes more important. But it's always all about the portfolio. Without a strong portfolio as an investment company, you're nothing. It's the lifeblood of your company, quality companies that are growing, that are profitable, that are able to raise capital. You know, they can grow. They grow your nav. They have an ability to exit. You can then, you know, the exit front, exit markets are back globally. They're alive. They're well established. They can be healthier for sure. It's still early in the cycle, but we are turning NAV into dollars at NAV levels. We've done it in three companies. We look forward to doing more. We've got a lot of work streams going on on that front. We're under no stress to sell any of our companies at the wrong price, and that's the position I want to be in as an investment manager. We're doing the right things on capital allocation, or at least we feel we are, and more to be done. More capital in from any exits. Go straight to buying back our shares at these levels. Hopefully trade at a healthier level to NAV. and we're going to get there. That is our plan and our focus as a firm. And then the pipeline is the medium to long-term value accretion aspect for us and for our shareholders. So I will stop there, operator. I'm very happy to answer any questions from the market at this point.

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. 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. Gorsson from D&B Carnegie. Please ask your question. Your line is opened.

Good afternoon, guys. Thanks for taking my questions. Could you perhaps start with giving some more color on this negative contribution from portfolio performance in the mark-to-model holdings? I appreciate you talking about this conservatism in the presentation, but is this more of a general haircut, or is it baking in, say, a negative macro scenario? Or how should we think about this?

Yeah. Thanks, Linus. How are you doing? So let me start, Alexis, and then you can overlay with detail if you don't mind. I think this is just logical. What we're seeing in the market is a lot of volatility on the macro front. It hasn't really impacted our company so far, be that in Mexico, India, Brazil, and the key ones. But when you see volatility, whether it's the tariff, whether it's the potential impacts on rates, whether it's volatility around trade flows, you want to be a little bit more conservative in what you're forecasting just in case. Nothing we're seeing in the numbers so far makes us concerned. But one, it's the emerging markets in the globe that we live in today. Then you cross-reference that with tailwinds that we have around FX and multiples in the portfolio. And you've got a nice buffer of tailwinds of valuations being uplifted from the strength and performance of these metrics into your valuation models. So then you sit down as a team and you just bake in some more conservatism for the quarter. I don't think it's anything more than that. It's not pay specific we're worried about a certain company or market specific we're worried about certain you know macro and in this environment i think it's just healthy conservatism you know at a point where we've got a number of forces either volatility on macro and or nice strength and tailwinds from multiples and fx um alexis do you want to jump in on that or are you happy what i said yeah i mean i i don't think i've got anything more specific to add other than i would say like

the macro uncertainty we're referring to is mostly around rate outlook and the impact of that on credit across the portfolio, basically.

Got it. Thanks for that clarity. And then a question on JustPay. You highlight the strong growth momentum here on page eight. Could you give perhaps some more color on operations, like what's working well, what are the main challenges at the moment, etc.? ?

Cool. I think the question, Linus, is how long have you got? But Alex, why don't you summarize the good stuff?

Yeah, I would say, so JothPay is made up of two core businesses. One is like the merchant business, which is serving very large enterprise clients in India predominantly. And we're seeing like a real re-acceleration of the growth in that business. I'd say like in the past year, so the second business is the UPI business. The UPI business was growing much faster and the mixed impact. So you can see in that slide that TPV was growing faster than revenues and that was the mixed effect of the UPI business growing much faster. But we're starting to see a real like re-acceleration of the merchant business and actually I think the merchant business is going to be growing quicker than the UPI business this year. And the other trend that we're starting to see is like real traction on the international front. Now, still coming from a very low base of revenues, like we're talking about low single digit percentage contribution on revenues. But we are starting to see like contracts being signed with some benchmark names in other international markets. that can become quite meaningful and really start to gain traction in those markets. And we're really excited about that. I'd say those are like the overarching themes and what's kind of happening at JustPay today.

Yeah, and I think it's clear, Alexa, and just to follow up Linus, a lot of our companies do tend to succeed in their home market and that's where they have the edge today. And we're always a little bit nervous of companies going outside their home market to conquer a neighboring market or the world. And it's fraught with more difficulty as much as delivering at home is hard. So we were, you know, but JustPay has been very logical about their expansion strategy and what they've done and going with partners to markets of Southeast Asia by going to markets like Brazil, which have a very similar payment system with PIX versus India and UPI. And I guess without faking in any upside to international in our forecast, We've been, as Alexis said, we've been positively surprised by the early signs of what they're doing.

All right. That's much appreciated. And then my final question is around capital allocation. Just some clarity. I mean, now that you've executed on some debt pay down, you've started doing buybacks. You're spending a lot of time talking about the investment pipeline. How should we think about prioritizing between these three just in the near term?

Yeah. Thanks, Sam. we do talk about it a lot um because it's super important and then we tend to reiterate a lot because um it's just to get good clear to get the message out there um i think there has been you know we weren't even talking about pipeline a couple of quarters ago when we talked to the market we were very much talking about you know exits and then you know delivering the balance sheet and buying back our shares it's just we couldn't see beyond that now that you deliver three exits You've paid down the chunk of debt that you say. We've got low-level, you know, single-digit debt to NAB. It's 5%, 6% from memory. We're even less. You're looking at your shares. We believe in when we talk about conservatism and buying back our shares consistently through these windows is just the most obvious thing to do. But we also see the share price moving. We also see more, we're starting to get, things are moving in the right direction on those fronts. So as those things start to move, you start to think more about the medium and long-term. Not that we stopped, we start to allocate more time to them. So pipeline had always been building in the background, but it's a window whereby, and I said it's two or three names, and not to get too specific, that really have us on the hook, that we're focused on, that we're excited about, that we're getting deeper and deeper on so that we can get to a point where we have conviction one way or the other on a name or two names or three names. And, you know, these things work in parallel with your share price, with the capital income exits and how you manage everything. So I would still say, I think of the three parts of that capital allocation aspect, I think the priority in my head right now, this is today and these things move because of the moving parts. is the share buyback because that's the most obvious IRR value accretive thing we can do given the recent paydown in a chunk of the debt and given where the pipeline is today versus where it's going. So I think it's going to be quite fluid, Linus. I think we'll continue to make real-time decisions. We'll let math be a key driver in the short term, buybacks, but strategy will obviously overlay as we look towards pipeline.

Okay, thank you very much. Those are all my questions. Super, thanks.

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 will now hand back to you for closing remarks.

Yeah, super. Razia, thank you very much. Look, thank you, everybody, for supporting us, for following us, for being on this call. We are appreciative of your patience with us through this journey and how we've got ourselves to this position of strength and momentum. I won't reiterate what we said about five times on the call. I think our messaging is very clear about where we're at and where we're going. But if you need any clarification, you want to speak to us directly, any interest in Beth, obviously just reach out to one of us, myself, Alexis, or Cole, obviously, and we'll be happy to speak. Otherwise, have a great summer. Thank you very much.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.