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Edited Transcript of VNIL SDB IL.ST earnings conference call or presentation 13-Nov-19 4:00pm GMT

Q3 2019 Vostok New Ventures Ltd Earnings Call

HAMILTON Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Vostok New Ventures Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Per Brilioth

Vostok New Ventures Ltd - CEO, MD & Director

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Conference Call Participants

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* Lars-Ola Hellstrom

Pareto Securities, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to the Vostok New Ventures Interim Report January to September 2019. Today, I'm pleased to present Per Brilioth, Chief Executive Officer. (Operator Instructions). Please begin.

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

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Thank you very much, and welcome once again to these calls. This is despite us being super active around -- it's been in terms of deal flow and sort of update in our existing portfolio, this last quarter has been somewhat uneventful. So I will -- so I'll just do a brief introduction with the -- on what's in my mind for this quarter and some comments on the portfolio and then we'll quite through quickly into Q&A and then see if there's some stuff that you think I should address.

But then this presentation, which I'll just sort of use as an introduction goes through the usual sort of format, you'll find it in our web page later. And we -- I'll take you on to Page 5 here, which basically just goes -- is maybe a good summary of the quarter. Our net asset value is just under $690 million and which comes from a portfolio and then some cash. What's been a development over this quarter, which is -- which has to do with its balance sheet is that we have utilized the bond markets once again, in order to raise our liquidity. So we raised a $55 million bond, SEK 550 million bond. Swedish krona being weak, that being a $55 million bond right now. But -- and we have a total frame of $80 million, and $55 million issued that was raised at a 5 -- spots 75% coupon, which we pay quarterly, and it's a 3-year tenure. So that money has entered the portfolio and has increased our flexibility for -- to be ready to do investments as we see fit and as they come. So that's sort of an update from the portfolio overview that you have on Page 5, which is strictly as of this 30th of September, this bond closed just in the beginning of October.

I'd move on to the portfolio and just stick with this page and then take you through some elements, some comments on the portfolio holdings. So Babylon, this sort of all happened during the quarter, but we've already talked about it. So they did close their funding around in the third quarter and we did announce that in the second quarter report back in August. So that's now our largest portfolio holding, $200 million, 29% of NAV. The revaluation was already done in the second quarter so there's no significant moves during the course of this quarter.

But we are -- the use of proceeds will basically help Babylon to continue their product development around their sort of entire range of products that naturally, the AI product being the centerpiece of what they do, but also geographical expansion, and that means the U.S. in a big way. As you know, they're present in -- across the globe, really, with the NHS being a centerpiece in Europe, that client and Prudential being the biggest client in Asia. And there's also activity funded by the Bill and Melinda Gates Foundation in Africa, Rwanda and I believe also now, Kenya. But when we speak in a year from now, we will have quite a different sort of picture of Babylon's engagement in the U.S.

And so this funding round sort of included U.S. presence, which -- and the names have yet to be disclosed, but we will over the course of 2020, but starting in early 2020, we will be able to follow progress that Babylon has, as they increase their presence in the U.S. with paying clients and clients of significant size. So I think visibility around Babylon, their product and their ability to generate substantial revenues will increase significantly during the course of 2020. So looking forward to that a lot.

So with a need to explain the portfolio earlier this year, of course, and BlaBla became the biggest position that now have been overtaken by Babylon on the back of our investments there, but also on the back of the revaluation of Babylon, but BlaBla remains our second largest investment, with a 22% portfolio rate. There, BlaBla is continuing to develop well, they're growing its car ride-sharing business. And they are -- but maybe more sort of, importantly, in terms of activity and growth right now, they are also, as you will know from previous sort of news flow from the company, they're continuing to expand their bus offering. So Ouibus was bought and closed. So they're now a very big player in Europe, the bus market in Europe, but also they did recently announce the acquisition of Busfor in Russia. We are expecting to close during the course -- the end of this year, basically.

We were also -- we are also -- so Busfor is a company which, as you know, we were a shareholder in. And now that's been acquired by BlaBlaCar in return for equity in BlaBlaCar, so our equity holding will have increased slightly on the back of this. And the -- I think in Russia, the acquisition of Busfor, it's a very good sort of data point for the potential of these 2 sort of supply of long distance travels to sort of how much they benefit from each other. We -- to some extent, we've seen this already in France, graphically, BlaBlaCar uses a map of France and show how well, how complementing Ouibus is to BlaBlaCar's car-sharing business. And we have this in the presentation. I won't touch upon it right now. But equally in Russia, I mean, BlaBlacar is of course, in its existing sort of business model or a base business model, which is car-sharing, they have enormous amounts of activity and enormous amounts of demand for long distance travel. And Busfor basically sits on the entire sort of supply of -- not entire, entire, but absolutely majority part of the supply of bus, long distance bus travel supply in Russia. So the sort of demand from the BlaBla platform fits very, very well into the supply of bus capacity that's at Busfor, and vice versa, basically. So it's very, very complementary.

So BlaBlaCar, car cooling, profitable business in Europe still growing, enormous amounts of growth around carpooling in emerging markets with Russia, of course, but also Brazil, Mexico, Turkey, India, and -- which is just sort of entering into the early phases of monetization, very much along the lines of the way we see development of monetization or our experience from development of monetization from the likes of Avito. So it's really sort of textbook sort of progress there at BlaBlaCar. And so the car-pooling of -- and the monetization of that emerging markets is going to be super exciting to follow as that's now being initiated. And then got this whole ad on our buses in Europe, but also in emerging markets.

And then beyond that, I think it's interesting to note also that their other new business lines, which is BlaBlaLines, which is essentially a commute, so not long distance travel but commute type of travel from a suburb into the city. They did launch that a while ago, and they did have a good start because it was -- the launch was timed luckily, it sort of started at the same time as France went through the series of transportation strikes. So BlaBlaLines and the commute offering was very -- was a very attractive proposition, when the usual sort of means of travel became nonexistent in terms of trains. But it's really -- since it's really gone from being a pilot to a proper offering and now has 800,000 users, which is substantial. And it's something that we see contributing to [mean] sort of financial revenues in a significant way as we here -- as we go forward.

So that's on BlaBla and I'll -- there's not much new to say around Gett being our -- if we just go down the order of size here in our portfolio. They are continuing their transition into a B2B business model, which is super exciting. It's a niche that's very natural for guests to be active in since they -- in contrast to the Uber, Lyft they did start with a B2B sort of marketplace and then have been, of course, present in the B2C space in some geographies in a big way. But the B2B niche is one which they are very well equipped to sort of capture in a more focused way, and it's also one where the others or large incumbents are not active. And importantly, also one which -- where you do get high barriers to entry but it's not all as capital-intensive as the others. So yes, sort of Gett is doing the right thing and progressing well.

Propertyfinder, not so much to mention on in this quarter, but I would like to go down to Voi, which was 4% -- is 4% at the end of this quarter, September 30. But as we have announced, will change during the course when we report next time, which will be in mid-February, our Q4 report is out. Voi will come in at a different level in our portfolio. And this is on the back of the funding round, which they announced. So they did announce an $85 million funding round this week. And again, that's not reflected in our balance sheet. So 4% Voi portfolio [weight] as of end of Q3 is going to change upwards on the back of 2 things, basically, one, that the valuation, our mark of $100-million-ish is too low. This round was down at a higher price and that the exact sort of the -- that exact figure is not public yet, but will be made public in connection with our Q4 report. So we'll have to wait until that, but it is higher. And furthermore, we have invested more money into it. And so both from a revaluation perspective and from us allocating more money is -- Voi will have changed. So we did bridge this round with some $17.5 million from earlier. But on top of that, we've invested further $30 million. And so not going too much into the details or trying to stay away from the details. So the pricing in this round, our shareholding on the company it's easy to see that they have gone up. We've taken more than our prorata and so our shareholding is way above 30% at this point.

We are -- the reason why we invest in Voi and invest more than our prorata in Voi is that of course, we're super enthusiastic about the business. I think you've all sort of -- we've been through this, why we are -- what -- how our -- what our rationale around this business is and we are of course, very close to the company. And so we are at the Board and at around certain areas of the operations through 2 members of the Vostok team. So that's unchanged. But we think beyond sort of the realization that this opportunity is so, so large, I think it's the sectoral changes we're seeing in Europe where e-scooters and the platform supplying e-scooters are so clearly becoming an integral part of this transportation infrastructure. That realization has increased our confidence. We also see consolidation as a very strong theme that I think will play out over the course of 2020.

And furthermore, we see more and more cities moving into licenses. And I think that there is no -- Voi is, by a wide margin, needs the raise on achieving successful license acquisitions in cities, and the latest one is where they got a license in Marseille. All in all, Voi has got 9 licenses in Europe. And I think the next best competitor to us has got 2. So we think these licenses is a further method of sort of defensibility around this business model. The main one comes from network effects. That this will, if not a winner-takes-all kind of market, then a winner-takes-most kind of market. So the one who has the most users will be also the one who will dominate because of the fact that the number of users that allow these scooters to be well sort of spread out over a city and people, consumers of this product will not use the product unless there is a -- it's easy to find these scooters, basically. So the more users, the better the product. Big check in the box for us, network effects investors.

But beyond that, more and more cities and will -- that this will continue, it's our belief, will not allow operators into their cities without the license. In some, we've seen -- in some cities, we've seen them issue only 1 license. So Voi has been successful in those situations, some 2, some 3. So -- but that sort of general model, I think it's what we see going forward, and Voi is sort of very well equipped to continue to be successful in this license -- in getting these licenses, partly because they've taken the strategy from the beginning to be very sort of close to city councils and help them in planning their strategy around actual mobility in the future, the future of mobility in their cities. So really helping them how to think about this. So that's been a very valuable, valuables of inputs and hence, put them in a good position. But also because they are a large operator, the largest in Europe on the European ones. And cities will only sort of give licenses to operators that have proven that they run large fleets of e-scooters and done that efficiently in terms of safety, organization, et cetera, et cetera. So that's another factor that which -- or another benefit from being large, that these licenses will likely be awarded to people who have proven to be able to run these large platforms.

But other highlights on Voi is that they are profitable asset overhead and depreciation and quality markets. And they run a total of 14 million rides to start now, which is impressive figures. As we did talk, as I just mentioned, they all in all got 9 licenses. There is also the new model scooters that they have put out on streets have a completely different sort of lifespan than the earlier ones. So the ones that are now being sort of put out on the street, have an 18-month-plus lifetime as opposed to something much shorter when we got started. And yes, so I think it's -- this sort of background that we felt that the price that the Voi raised money at now is -- made this a very, very attractive investment and enhance us participating and taking more than our prorata.

I think the only other thing to note, just to mention here is on one of our newest investments, but which is a mere sort of 2% holding, which is SWVL, which we didn't talk about in our last reports, but then we did close our investment into SWVL earlier this year. We have talked about this. This is a bus product for large, very large metropolitan areas. And most importantly, in emerging markets. So this company started out in Cairo and has since been expanding into other countries and with large metropolitan centers. Nairobi was, I believe, their first international city, and that has grown massively. But all in all, the company has seen both revenues and volumes double since our investment in June. So it's good data point, and we're super happy with SWVL and how development has sort of played out since we invested.

I think with that, we'll open up for questions, and then if the operator could help organize that?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Lars-Ola Hellstrom from Pareto Securities.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [2]

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You have put out the story quite clear, but some minor questions here. First, on Babylon, has there been any new contracts signed over the last months? I know you can't say what contract but has there been signed any undisclosed contract, new?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [3]

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Well, yes, that's a delicate question. But yes, no, there's been quite a bit of progress around contracts. And I think our focus has mostly been on the ones that will become public and provide visibility into monetization and product development, et cetera, in the first half of 2020. They, of course, have been signed and started quite some time ago and that's the thing with this business model, is that it's not -- you don't sign a contract and launch it the next day. It takes -- lead times are long. But yes, the constant progress on new contracts, I think it's a good description of the situation.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [4]

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Yes. And in terms of visibility, will you be able to share some KPI information in 2020, how Babylon is progressing?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [5]

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Yes, that's a good point. Thanks for raising that. As you have noticed, this quarterly report of ours is so slimmed down, and that's not our intention at all to sort of try to reduce the information flow to our shareholders. We just started to leave out the sort of more repetitive sort of descriptions and texts and have those and sort of focus on those in the annual report instead. But our ambition is for all our portfolio companies to introduce a set of data so as the shareholders can follow progress.

And specifically, with Babylon, I think it's fair to say that we've made good progress with the company, so that we will be able to launch a set of KPI with our Q4 report. That's not -- we're not entirely done with that now. But I think that would be the case. So that's from quarter-to-quarter, there's a set of KPIs that will at least help sort of -- help us all to -- or help people who are not privy to the Board materials, et cetera, follow progress, monitor progress.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [6]

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That's perfect. On BlaBlaCar in Russia, in the bus business, have we seen an increasing trend for bus operators signing up for BlaBlaCar, given that they are now also acquiring Busfor? That there has been some kind of organic growth that operators want to join?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [7]

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Yes. So I think BlaBla has sort of been -- sort of proactive in the bus space in a lot of markets, also Russia, but that's with the acquisition of Busfor. It sort of complete -- it sort of transform their presence there, of course, that's the background to the acquisition. But I'd say that upon closing Busfor, you -- I mean, it's -- you basically have a link to the -- nearly the entire bus market of Russia. So no real needs. And no, there won't be any sort of big progress on adding more bus capacity because it's all on Busfor. Not quite that way, but Busfor is a very large player.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [8]

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And what's the prospect for further acquisitions in other markets?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [9]

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So especially in emerging markets, the sort of -- there are Busfors in other emerging markets, too. Now I'm not -- we're not sort of -- so that's just a description of that, but there are sort of similar opportunities in pretty much all large emerging markets. I'd say that Busfor was maybe the best positioned of the ones I've seen. We're obviously investing into Busfor, not investing to try to front run BlaBlaCar's acquisition of it. We thought it's a very, very interesting marketplace. And from that position, we've looked at similar sort of companies in Turkey, Brazil, Mexico, and we thought that Busfor stood out as the best one. But in all those countries, there are ones and that at some point may or may not, I don't know, become interesting for BlaBlaCar. But it's also -- there's also limits to M&As, of course, time-consuming sort of effort. So I'd expect them to sort of try to close and integrate Ouibus and Busfor first before going anywhere else. But the phenomenon is present in other emerging markets for sure.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [10]

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Okay. Turning to Gett, are they delivering positive EBITDA now in October, November? Or is it still to be reached?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [11]

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Yes. No, no, no. It's -- they are pretty much on track to delivering positive EBITDA at the group level as per their budget. But it's not -- but it's -- but that budget is a little bit further out. So that -- so we're positive around that. But I don't think it's fair to say that it's something that's happened in the past, that's still to come, but it's basically on budget for that.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [12]

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So it's more likely in Q1 then?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [13]

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Yes, yes, yes. Or actually, before that, too, I'd say at the group level.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [14]

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At Christmas. And how is the rollout or the expected launch of the global B2B platform progressing? Is it still on track to be launched in 2020?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [15]

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Yes, not -- think there will be -- yes, absolutely. And there will be a sort of further visibility and data points for us as analysts sort of to follow from a public standpoint during the course. In the not-too-distant future on that. So.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [16]

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Okay. And 2 questions on Voi. First of all, I guess, in the beginning of the summer, there was targeting a higher valuation and $100 million raised. Would you say that, that competitor has been raising funds, also that we have seen the WeWork, SoftBank at the back out, has it affected the investor sentiment and devaluation in this round?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [17]

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No, I wouldn't say so much. WeWork -- I don't think so. This is a much, much, much, smaller sort of fund raise and player than the sort of the $1 billion gain that WeWork were in. So it's a different sort of investor base. And I can't say that I've sort of seen sort of a read-across sentiment-wise. I think there's lots of positive sentiment around the space. But more to your second point is that there are -- Voi is the, by margin, largest of the European-based players, lines still, a bigger player. But most of those other European players have also been out fundraising, which is natural. This is basically a blue ocean of market opportunity here. So that's perhaps more of a factor. And then also, the appetite for capital varies from pricing point to pricing point, basically.

So I think this was -- this is an optimal sort of raise at the pricing points that we managed to negotiate with the company at stage.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [18]

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But in general, in the venture capital scene, would you say that the WeWork-SoftBank debacle has had an effect on valuations in raising rounds now? If we disregard the Voi transaction, but if there are a lower price point now compared to just a few months ago on the investment front that you get?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [19]

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Certainly, sort of media sentiment on the back of WeWork, but also either on list and those sort of IPOs which have traded below, right? All of that have -- isn't constructive for sentiment, I think it's fair to say. But I haven't felt that for strong companies with growing and clear path profitability, et cetera, et cetera. I can say that the pricing points have changed super dramatically. Not a nice pace, at least, but humble about that, of course, we don't (inaudible) everywhere. So may be different elsewhere.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [20]

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It would be good if the valuations come down. It's just an opportunity for you. Yes, the second question on Voi is, who is the #2 in Europe that has received the 2 licenses? Is it (inaudible)?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [21]

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That's good. I think so. I should know, who is (inaudible) probably it's (inaudible).

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [22]

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And a merger would be really good. And can you give the story about the write-down on DOC+, what has happened? What has to be changed in the business model?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [23]

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Yes. I think okay. Thanks for bringing that up. I meant to talk about that. But then they've done -- DOC+ is not developed according to plan. I think the main reason is that the marketplace for home care in Russia was not sort of strong enough to provide positive unit economics or a path to that in the near term. So that was discontinued. And so they did -- so you could call that a strategic shift. And then they have sort of -- they've refocused on other products with better unit economics, but this has also changed the financial forecast quite a bit with lower expected revenues near term, and hence, we moved it -- the price downwards. That's sort of the background.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [24]

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Okay. And also on the SWVL, I've read the interview with one of the founders, and as you stated, they have been progressing really well. And I also saw some comment that they were thinking about a new $100 million capital raise in H1 2020. Considering that it's progressing so well, would you like to inject more funds into the -- to the growth [store]? If you were given the chance.

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [25]

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Yes. I think SWVL is on fire now, really, in terms of their execution in new cities, et cetera. So they should and will require -- they will take in more funding. And I think as a starting point, we'd be looking to absolutely participate and at least protect our prorata, which is around 10%.

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Lars-Ola Hellstrom, Pareto Securities, Research Division - Analyst [26]

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And otherwise, on investment pipelines, are you evaluating new investments? Or is it mostly a follow-up investment on the current holdings that we are expecting in coming quarters?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [27]

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I think we're basically -- we basically have one new deal a day in terms of deal flow, which is about the way it's been for a while. So -- but so quite intense activity, but there is nothing right now. There's one deal that we're well progressed on that we should be able to announce during the course of Q4, which is a super interesting marketplace in emerging market capacity. That's with a very clear sort of developed market, sort of benchmark. It's not an enormous ticket. So that's been going on for quite some time that we worked on that one. But beyond that, there's nothing that we are working on, there's nothing new that we're working on. So, yes.

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Operator [28]

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And the next question comes from the line of [Michael Kauffman] from (inaudible)

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Unidentified Analyst, [29]

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One question on Voi, in your management report, you sounded quite enthusiastic about the outlook and you mentioned $500 million in sales in a few years out, so does it mean 2 years out? Or more towards 5 years out? And that's number one. And also, what do you think is the margin profile for Voi once it reached scale? So on these 2.

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [30]

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Yes. No, no, no. I think, given the opportunity, especially around -- well, in Europe, essentially, the central to Northern Europe, Germany, France Benelux, et cetera. I think had -- this is not a 10-year view, this is well within a 5-year view, where annual revenues are of this nature, well within, I'll say. So 3, 4, 5 years out, I think it's fair. I mean, if 3 to 4.

So very enthusiastic around that, of course. And I -- we see strong network effects in -- within Voi and the business model of Voi. And so it's important to be large and to become large first. And sort of the textbook and how to roll this out, it's very reminiscent of our other type of investments like classifieds. But I don't think it's more -- this is more also reminiscent of -- this is winner-takes-most kind of business model. This is Évry, Lyft versus Juno in New York, kind of there's 3, but not more than 3. And the biggest have sort of 60-ish-percent, and then the other one has smaller and the third has even smaller, but that's a rough split. And then also, margins don't become of the -- sort of the holy grail of online classifieds, where you see some verticals up to nearly 70%. This is more sort of -- so it's not that -- I don't think -- I think that's too optimistic. But mid-30% to 50%, entirely possible, I think.

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Unidentified Analyst, [31]

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30% to 50% in terms of EBITDA margin? Or...

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [32]

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Yes, yes, yes.

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Unidentified Analyst, [33]

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Okay. And another question on your NAV calculation per share. So I understand that you used the undiluted share count, which is something like 78 million shares. And so far, you haven't included the new shares from your new management program. When do you think it's a good time to take the share also into account when calculating the NAV per share?

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [34]

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That's a good question. The -- there's probably sort of a rule on IFRS on that, that I should know by heart, but I don't. So I think the general idea, certainly, in terms of cost accounting is that one assumes that the sort of option programs or [LT] programs as they're now called, just get executed at a 50% success rate, see what I mean. So 50% of the maximum potential sort of shares issued are -- is sort of what you usually use when you account for costs. And then hence, I would assume that also is applicable to the fully diluted number of shares. But they only come into issuance when they are exercised, of course. So there is -- there are some more shares that will likely be issued next year and then a year after that, and then there's a pause of a couple of years, and then there's the new sort of 5-year program that started this year that comes into effect. So -- but if you e-mail me at [per@vnv.bc], I will -- I'll get you an exact answer from Nadja, our CFO.

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Unidentified Analyst, [35]

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Okay, yes, that would be helpful.

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Operator [36]

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(Operator Instructions) And as there are no further questions, I'll hand it back to you, Per.

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Per Brilioth, Vostok New Ventures Ltd - CEO, MD & Director [37]

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Thank you very much for that, and thank you for listening in. And I look forward to talking to you again in this format in mid-February with our Q4 report. Please feel free to get in touch in the meantime, if there's anything you want to know. Okay. Thank you.

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Operator [38]

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