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Edited Transcript of VNIL SDB IL.ST earnings conference call or presentation 14-Aug-19 1:00pm GMT

Q2 2019 Vostok New Ventures Ltd Earnings Call

HAMILTON Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Vostok New Ventures Ltd earnings conference call or presentation Wednesday, August 14, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Per Brilioth

Vostok New Ventures Ltd - MD & Director

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Presentation

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Operator [1]

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Hello and welcome to the Vostok New Ventures Interim Report January to June 2019. Today, I'm pleased to present Per Brilioth, Chief Executive Officer. (Operator Instructions)

Per, please begin.

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Per Brilioth, Vostok New Ventures Ltd - MD & Director [2]

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Thank you, and sorry, everyone, for getting off -- getting started a couple of minutes late. I thought I'd concentrate on the new investments that we've made, including the follow-on investment in Babylon, for this quarterly call. And then in the Q&A format, I'm happy to go to some of the older constituents on the portfolio.

We -- [and to flick it through] the sort of introduction slides, I think we've updated the total return slide, which we've continuously started to measure since we spun off the Russian listed portfolio in 2012. The IRR so far is 37%. So this is a slide that we'll continue to update as we go along. And I think it's -- one can choose any sort of starting point, but one starting point is that sort of relevant is the -- is we're going to run from this semi-listed portfolio to fully private portfolio.

But as you know, on Page 3, since you all see very clearly, we've been around for a long time and it's come through different phases. And we've distributed a lot of cash and made some exits, et cetera, et cetera.

But moreover to the situation today, I think we increasingly find ourselves talking about 3 sort of themes. But these themes are organized under our overriding sort of quest, which is to invest in the companies with strong network effects or companies, business models, which have the opportunity to build high barriers to entry. And this, of course, the classified space is a very well-proven area for this with a fragmented supply base, a fragmented demand base, lots of liquidity in between, and you get very high barrier to entry. (inaudible) was of course the inspiration for what we do today, and we still have a portfolio of more classical classified and things going on, Propertyfinder and Hemnet being the most sort of traditional ones.

But the sort of Airbnb-lookalike from Housing Anywhere, Booksy, which is the sort of marketplace for beauty. And -- but also one new one, which is JamesEdition, which I'll come back to.

But this sort of more traditional theme of network effects have been a little bit dwarfed as of late, 2 different themes where we feel super-excited where you find these potential business models of high barriers to entry. One, which is mobility, where we've been for some time with Gett and then followed by BlaBlaCar, but now increasingly with Voi, which those 3 make out, obviously, a large part of the portfolio and they're all sort of sorted under mobility.

Mobility, which has this sort of -- where -- I mean we don't -- we invest into these companies, because they have the potential to build high barriers to entry, but it's when -- and then we found ourselves under certain macro sort of themes or macros, and obviously, mobility is a very topical one now with lots that's going on inside the cities and intracity, et cetera. And we -- there's lots of disruption to the sort of traditional model of transportation. But inside city and between cities that we feel are -- has this potential to build very high barriers to entry.

We're super-excited by the new ones as well, Voi, of course, being very close to heart apart from BlaBlaCar and Gett, but the new one SWVL, which is buses inside of city, something I'll come back to and touch upon a little bit later. But also Dostavista marketplace for last mile distribution, transportation, and Shohoz, we have talked about before.

And then finally, of course, digital health, where although in the likes of Vezeeta, you do find the traditional sort of fragmented supply to fragmented demand. But increasingly, the barriers to entry in this sort of theme very much sort of -- at the heart of Babylon is more around the size of the data. So the one that's the largest data, largest readable data, digitally readable data and that's also smart around it will have very large barriers to entry to competitors, Babylon being a very good example. And we will of course come back to that.

But going into the numbers of the portfolio -- of the report that we issued this -- released this morning. Our -- the portfolio as of the 30th of June is $700 million, and there's basically no debt. So that's basically the net asset value, which gets you at an updated FX. FX moves around a lot these days, gets you to about SEK 86 a share, which puts that at a, for me, mouthwatering discount of nearly 30% at -- if you compare our stock price to where we are -- to the entity.

And as you see here in the small pie chart, mobility makes up nearly half the portfolio, but followed by digital health and classifieds. Those 3 themes are very -- are standing out a lot. And if you break that down on to a company basis, we've got Babylon now at nearly 30% of the portfolio post the revaluation of this last transaction, and of course, including our new investments into to our add-on investments, but followed by BlaBlaCar and Gett and so on.

What I'd like to do is then just go into Babylon. I think Babylon has been part of our portfolio now for more than 2 years. So I'm not going to go into much of the background here. I think you're all aware of that, but just to touch upon the transaction that we've just gone through.

So Babylon has announced to raise a total of $500 million with an option to raise another $50 million and at a $1.5 billion pre-money, taking it to $2 billion, post-money, $500 million of cash. Of that $400 million is done and the remaining $100 million is currently being closed. And the largest investor here, it's PIF, which is a sovereign wealth fund of Saudi Arabia and also very large global tech investor. There's -- it's one the largest U.S. health insurers now in the cap table alongside Munich Re's venture arm. Of course, we participated as the generic. Us too have, of course, been shareholders for a while.

And these funds, I think -- which I think is the largest ever raise for a U.S.- or U.K.-based European digital health company will be used to further build the product, but also to expand further and most notably in U.S. and Asia, 2, of course, very, very big markets.

So we fund -- I mean we obviously got going in Babylon back 2 years ago, I think, April 2017 and have held that mark in our portfolio, which is just north of $200 million, and that's now been revalued to $1.5 billion pre to post. We put in $70 million, $70 million in a $500 million raise. That math gets us to just over 10% on a fully diluted basis.

So to make that math work, since we owned about 10% before, is that we have -- the company has -- we as capital providers are diluted by the equity incentive programs to the founder, Ali Parsa, and to management that have been put in place, which is of course super-important for a company like this and at this stage that both founders and [MPs] are present.

We are -- first and foremost, we think this is a very, very rare opportunity to invest a large check into a -- maybe into a risk-reward situation that matches some of the -- or in some cases even better than some of the smaller type tickets into arguably sort of -- but also new business models that we do elsewhere. So -- I mean we -- it's not uncommon, and we apply our capacity in those situations too to find situations where we invest sort of $5 million or $10 million or sometimes less. We don't shy away from investments that are less, as this report has shown, into risk-rewards that -- but we're -- a more limited amount of capital is -- can be applied. This situation, it's rare in that it's -- we've been able to invest $70 million in something that we think has a very limited downside and has the potential of [TAMX] over a 4-, 5-year period.

And it's in contrast to Avito, which we could always benchmark against shifts that is listed and gave us some metrics. This is, of course, more difficult, because the disruption, the digital disruption of the health care industry is maybe the last sort of big digital disruption out there. And there are no global leaders. In fact, I think Babylon is the global leader. So there's no other entity to benchmark to. And hence sort of -- we have to build the model for new us as financial analysts have to -- we can't go to ships that and compare.

But it's interesting to note that there are -- I think there's no one-offs there that does this at the scale and at the -- in the broad sense that -- the broad attack on the sector that Babylon is doing.

But for example, our partners at Kinnevik have invested successfully and also IPO-ed a company which is involved in only one vertical, which is diabetes management, a company called Livongo, which IPO-ed some while ago and I think is now currently trading at just south of $1.5 million, which is about 20x -- it's 20x revenues, 20x revenues.

So that's just one data point, but one vertical where Babylon is sort of, obviously, approaching a much, much, much broader set of verticals within primary care and the other sort of big elements of health care. And this company alone is sort of being valued at the current valuation of Babylon on an equity basis. So I think that's interesting, crude, but still interesting.

Also my -- I mean close to home, we have Spotify, which is, of course, involved in a different sector. But my -- I'm fascinated by the comparison where people pay $10 a month to listen to music, and Spotify is something at 100 million paying subscribers. And I think if you pay $10 for music, you will easily, obviously, pay that for health. Now contrast to sort of entrainment, health, the payment of health would -- comes not only from your personal pocket, will come from state, from insurance, from corporates, et cetera. But I think you will see over time as this digitalizes that the equivalent sort of global leader offering digital product for health will easily compare to the likes of Spotify in terms of revenues per user per month.

And of course, Babylon sort of already present in a big way in some of the biggest markets in Europe, showing that it can be sustainable and handle large amounts of inquiries in like Africa, having a large insurance company as a paying customer in Asia and partnership to enter China and now also the U.S. I think in -- it's not a farfetched sort of statement to say that -- the sort of -- that Babylon will way surpass the number of users that we see at streaming services like Spotify. So Spotify, $8 billion currency revenues. I think it's also maybe even cruder than Livongo, but still a data point to use when we think about the potential here of that -- of Babylon. And also to put into context when we talk about the -- when I think that when we talk 5 years from now that Babylon will be a $20 billion company, public or private.

And then because it's a private company and because it's sort of at the stage it is in terms of buildup, there is a dearth sort of information that we as public investors are -- have available to us. But it's one data point, which is interesting to note, which Babylon has made public is that they now deliver 4,000 clinical consultations per day, which is one -- and on top of that, 1 patient interaction every 10 seconds, and that's obviously a lot. And then -- and if you compare that to the teledoctor business model, which is -- there's nothing -- I mean we have a couple of here in Sweden and those are paid about $50, $60 per consultation. So if you -- and now Babylon is involved in a much, much more sophisticated sort of digital product than the teledoctor side and one which has much more potential for revenues, and obviously, much, much higher potential for margins than the teledoctor side. But if you just take the sort of numbers out of a place like Sweden on a consultation basis and apply that to Babylon's existing number, which is of course in its infancy in terms of where they're going, you get sort of revenue levels at about $100 million, you apply Livongo multiples to those, and of course, you're already at the $2 billion, which is just a starting point.

So -- and I hope that gives you a sense of the -- at least the enthusiasm that we have here for being exposed to this company. We will -- we are conscious that this is now our largest investment, that things move around. But I think it will stay this way and -- because we see the strong growth that they're subject to. But also, we're conscious over that we're not yet that anywhere close to sort of the disclosure levels and both in terms of content and frequency that we have that, for example, Avito, that we sort of endeavor to sort of improve that alongside the company Babylon. And I hope that when we issue our Q3 report, the report as of the end of September, there will be -- we will have built a sort of a format that will allow you as our shareholders to follow this and follow progress on this. Not at the sort of level that we had at Avito, but at least something that will give you ability to start to sort of build your own models for Babylon.

I'm not going to touch upon the big macro elements. But in terms of our investments here, obviously, Babylon stood out that one where -- which we've been active in throughout the -- throughout this year really or throughout the last 12 months is Voi. And Voi, which is -- I mean Babylon is growing fast, but nothing compares to Voi in terms of its ability to grow.

We've got a slide here, which gives you a second quarter 2019 update for Voi and which saw them have -- they increased the number of users by 600,000. They're now surpassing 3.3 million rides and that expanded into a number of different cities. And they've been sort of very fast in entering Germany, who very, very recently opened up the country on a city-by-city basis to this macro mobility product. And Voi is displaying very, very strong growth also in Germany, but -- that, of course, are -- basically dominate -- you sight the number of bikes you see on the streets in a place like Stockholm if -- with all sorts of coloring, et cetera, you have Voi. It's the absolute law just across this part of the world. So strong in its home base and expanding very quickly across the rest of Europe, and it's really a global -- European leader out there, of course, the U.S. ones being larger on a global basis.

We -- it's -- we've shown this slide before, but Page 15 gives you sort of a very, very crude, but still mathematical examples of how you can sort of get to grips with its revenue potential here. And this shows you Stockholm on a peak day, the 1,000 scooters, 10 trips per day, average revenue per tip $3.50. Deduct the sort of direct costs of charging a scooter and you get to revenue potential of about $17,000 to $24,000 per day, which gets you above -- well, on the upper side, up to $10 million annualized. And that's -- they're rolling out. They're already in 30 cities. That potential gets you to about nearly $300 million revenue potential, obviously, that they're in now. Obviously, they're not there yet, but it's -- the actual figures are not for public distribution, but that -- they are -- and it's not so far away. I think it's the -- it's maybe the best way to look at it.

So leaving the -- those 2 big ones and going down the order of the investments that we've made in terms of size. The -- we've put in a total of $16 million into SWVL, which is an Egyptian company.

But I think it's going to be the first Arab-based company that becomes a global tech product. And in fact, it's already -- it's already expanded outside of Cairo -- sorry, Egypt into Nairobi and into Pakistan and with very, very high success. And I think this is one you want to watch. There's obviously been very strong digital sort of businesses built in the Middle East, and we're very bullish about that region. We think sort of the startup sort of ecosystem in the region is very much overlooked and clouded by the noise of political and violence and oil price, et cetera, et cetera, but very strong startup community. They have produced companies that -- and most notably the one, Careem, which is the Uber of the Middle East, which Uber bought for $3 billion not so long ago, but that's also a product that's been focused on, like the others that have been focused on, on offering a product within the Arab region.

And SWVL, I think, would be the first one, very enthusiastic about that, also grows outside. So this is a premium alternative to city's transportation. So in a city like Cairo, if you are middle class, you don't -- you can't afford to take a taxi or an Uber on a daily basis to work. So you're subject to the local bus system. And the local bus system is in short supply and it's in very poor quality, but that's all you can afford. So you get out on the street and you wait for the bus and you wait for bus, which is not overcrowded, and it's very difficult sort of to navigate that and to sort of transport yourself efficiently across town to work essentially, to work and to your home after the day has ended.

So what SWVL has done is that they have taken aboard basically all the premium bus supply and they guarantee the bus owners a certain sort of -- certain fill of the bus and then they take the upside.

And then -- so the customer will through an app book a ride with a premium bus, which is still sort of -- which is way much better than the -- your alternative on the bus side. You will know when the bus arrives and you will be guaranteed seat and there'll be sort of, like, (inaudible) and additional safe, and there will be Wi-Fi, et cetera. So you can leave your house on an exact moment, you know where the bus is going to be. You know at the exact moment when the bus is going to be at your corner and then -- so much more efficient in that way. But still, it's about 70% cheaper than the on-demand ride-hailing apps, which you have in a place like Cairo.

So SWVL is already doing 1 million bookings per month across hundreds of different groups. And all of you who have been to Cairo know that this is a messy town, lovely town, but very big and very, very tough to sort of transport yourself in. And so the saying is, if you can make it in Cairo, you can make it anywhere. And that's sort of proven this very well. When they launched in Nairobi, they went up to sort of Cairo levels in much, much, much quicker than they did in Cairo.

So the network effects around this is, of course, that -- well, the more customers you get, the more supply you can bring. The more supply you can bring, the more customers you can get. So you have the 2-sided sort of buildup of barriers to entry. But also the tech around this is very important in that here this is different again from ride hailing, where you are -- have a tech that gets that calls the car and gets the car to a certain address. This is something, which you have to plan in real time. And so -- but as you build the business and as the -- you gather data, and that data allows you to sort of to form new bus lines, which will cater to demand.

So enormous market. SWVL, we watched this company for a while. And -- but now they've really proven that this works. So we got involved in this round. To my knowledge, there's basically one other competitor on global basis, which is doing this in India. We haven't done much in India and -- but it's something -- it's a means of transportation that will grow a lot going forward. We're super excited.

The other one here in terms of size is Dostavista. Dostavista has been around for quite a few years, and it's founded by a guy called Mikhail Alexandrovski and targets the first and last mile delivery market.

So this is the -- what -- they offer a product, which gets deliveries within 90 minutes or right on time. And here, the macro is that long distance works very well, but the first and last mile is something that's very fragmented and therefore inefficient and expensive essentially.

And so this is on-demand logistics for a small- and medium-sized enterprises, which needs delivery to be done to their customers on a very precise basis and a very short basis. They -- so network effects are clear here. There's more couriers you have, the more customers you will have. And the more customers get more couriers. So you've got fragmentation on both sides. Clients will rate couriers in a similar way to taxi services. And the company, they also run the system, which scores couriers with many different parameters, in a way similar to how banks score their customers.

So this is -- we're enthusiastic about this in many different ways. It's a very, very large market. It's a business model, which is very -- requires, again, a very sophisticated technological sort of platform at its core. This is not ride hailing. This is -- you need to sort of be able to plan the couriers routes in real time. This needs to change, and it needs -- but you still need couriers to be able to sort of to do many, many deliveries per hour and per day. So that's sort of real-time management of the routes is something that's not easy to do and require sophisticated technology, something that Russia and Russians are well equipped to sort of build on a global basis.

And therefore, this company also had been started in Russia back in 2012. This market is now profitable for them. They are the market leader, and they've invested in these profits to become market leader in other places as well. In fact, they're in 13 different markets, which are all smaller than Russia, but still are -- but interestingly, it's a Russian company, again, with a global product. So there's 1 million couriers on Dostavista now globally and unit economics are very good. It's very big market, great entrepreneur, a serious entrepreneur, built other businesses before and is very, very high capacity to deliver.

We have come across this company through our network of having been around Russia for a long time. Some of the angels in the company are people that we've known for a long time. So we've followed this a while. This was a great opportunity for us to get involved.

If we -- just 2 more new ones, and these become smaller. We've invested about $3 million into JamesEdition. JamesEdition is a classified company business model for luxury goods with 2 key categories in high-end real estate and high-end cars. And so the logic around this is, of course very clear that a luxury house in Southern France does not only have -- the buyers and sellers of this house are not only based in France, they are normally based in Europe. They are Asian, American, European. They're global essentially.

Yes, there's no real sort of global platform for this sort of type, but quite valuable category. And this goes -- a similar situation for houses in Miami or in Dubai or in Spain, et cetera.

So the verticals have sort of picked up on this niche category are all offline. And so this is a very traditional sort of offline going to online disruption, which this company is focusing on. Small, yes -- it's been around for some time and then a pivot used to call JamesList and restructured it now to JamesEdition. Through that restructuring, the company has changed a lot both on the cap table and it's now sort of all very -- all people we know very well in Piton Capital and Marco of NOAH fame, who are shareholders. And moreover, the company is run by Eric Finnås, who was previously Head of General at Avito. So it's really Moscow-based Avito management running sort of a global classifieds vertical. We're very excited.

And finally, an investment into -- another investment in the digital health. Obviously, it's one that's dwarfed in every way by the size of Babylon today. But we put $1 million into Grace Health, which is a company founded by 2 Swedish women, Thérèse Mannheimer and Estelle Westling. And they are essentially building an amazing clinic for emerging markets.

So digital -- women's digital health clinic, which will allow women to get access to care and services and different products for women's health. So they started in Ghana and are -- it's a young company that had -- did experience a lot of growth in their first sort of steps in the market in Ghana and are looking to sort of -- to grow this into other emerging markets, huge, huge market. And the one which is now sort of opened up for these type of products, we've seen it in our sister company, Vostok Emerging Finance, investing into consumer finance play called JUMO, which you can see can make a very viable business with very small tickets, $1 per consultation, et cetera. In this case, JUMO is different, that they have shown that with the spread of cheap smartphones, you can build businesses on very small sort of revenue tickets across a very large number of users.

And this is one which $1 million is, of course, very small, but we're looking to sort of increase this as the company sort of continues.

We are -- I think what we'll do is I'll stop there and open up for questions. So if the operator help us organize that, that would be great.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And there are no questions. I will hand it back to you, Per.

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Per Brilioth, Vostok New Ventures Ltd - MD & Director [2]

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Okay, great. Well, thanks for your time, everyone. And you know where to find us if you want to -- if you have anything specific you want to talk about. And if not, we'll talk to you in 3 months. Thank you.

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Operator [3]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.