Good day, and thank you for standing by. Welcome to the Kinnevik Q2 Report 2024 conference call and webcast. At this time, all participants are 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 speaker, Georgi Ganev, CEO. Please go ahead, sir.
Thank you, and good morning, everyone, and welcome to the presentation of Kinnevik's result for the second quarter of 2024. I'm Georgi Ganev, Kinnevik CEO, and with me today is our CFO, Samuel Sjöström, and our Director of Corporate Communications, Torun Litzén. On today's call, we will walk you through the key events during the quarter, including our most recent investment activity and the completion of the second and largest step of the Tele2 investment. I will also give a short update on our core growth companies and how they continue to deliver a strong operational performance and the continued challenges we also see in our e-commerce companies. Samuel will then cover our financial position and the development of our net asset value. Finally, I will talk about our priorities and expectations as we embark further on our next phase as a leading growth investor.
As usual, we will end with a Q&A. So let's start on page four. Closing the second step in the divestment of Tele2 to Iliad NJJ in the quarter is a true milestone for Kinnevik. We now have a portfolio fully focused on growth companies and strong financial resources that enables us to capture the many opportunities that our portfolio and the state of growth markets provide. During the quarter, we saw overall continued strong operational performance in our core companies: Cityblock, Mews, Clio, Spring Health, and TravelPerk, providing support to our net asset value in the face of significant public market multiple contraction. Our net asset value amounted to SEK 39.3 billion, that's down 4.7% in the second quarter. The fair value of our unlisted investments was written down by 7%, driven by significant multiple contraction in the public markets.
Investment activity in the quarter was in line with the last quarter's more careful level, as we remained disciplined and focused on progressing our pipeline of opportunities in our existing portfolio. We invested SEK 177 million in Clio by purchasing shares from angel investors and past and some current managers. We also participated in Recursion's $200 million public offering with a $10 million investment. This capital raise follows a very impressive 12 months, during which the biotech company has made significant progress across its drug discovery platform, with five potential drugs in the clinical stage, seven clinical readouts expected over the next 18 months, and several significant partnerships announced spanning tech to pharma. In the quarter, we also provided Oda with an additional SEK 198 million in financing, stemming from a commitment made by us and other large shareholders in connection with the late 2023 merger.
We ended the quarter with SEK 12.8 billion in net cash, and our portfolio remains well funded, with more than 81% of our private companies by value being either profitable or funded to break even. This financial strength enabled us to continue to unlock and execute on more opportunistic follow-on investments, and we expect that our capital deployment to intensify during the second half of 2024. Now, let's move on to page five, where we summarize the Tele2 transaction and where we are in that process. The sale of Tele2 is, as you may recall, structured in three steps. The transaction is progressing according to plan, with the second and largest step completed during the quarter.
The first two steps have totaled SEK 12.2 billion in net proceeds during the first half of 2024, and the third and remaining step of the transaction, representing some SEK 0.6 billion in proceeds, is expected to be completed later this year. As a result of our Tele2 divestment and our review to right-size our capital structure, in the quarter, we also paid out the largest cash dividend in Kinnevik's history, distributing SEK 23 per share, or in total SEK 6.4 billion to our shareholders. Now, let's move to page six for an update on our core growth companies. We are confident that during the course of our transformation, we have managed to find and accumulate investments into a number of long-term core holdings that will increasingly become the new backbone of Kinnevik.
Three and a half years ago, our five core companies made up only 2% of our total portfolio at that time, whereas they now make up almost half of the Kinnevik net asset value. Finding the right balance between growth and profitability has been a challenge for many companies over the past years. As rising interest rates forced many to curtail growth, conserve capital, and quickly prove they could generate positive cash flow, Kinnevik has sought to take a more long-term view. In companies showing strong unit economics, operational results, and financial discipline, we are actively supporting our founders' and management team's growth plans, rather than pushing forcefully for short-term profitability at the expense of potential long-term value creation, all the while at the same time keeping a close eye on performance and cash burn.
During the quarter, we were satisfied to see that our core companies continued to deliver on operational expectations as a group, on average beating our expectations both on top-line growth and EBITDA margin improvement. Over the last 12 months, they have grown revenues by 71% on average, and they have progressed on their path to profitability and are now expected to generate positive EBITDA as a group during 2025. Moving to page seven. Like any early-stage investor, we must face the consequences of companies failing to meet our expectations, and we manage these often difficult and complex situations with care and discipline. Our portfolio companies exposed to e-commerce have struggled coming out of the pandemic and are still finding their footing in the current market environment.
As an owner, we focus on driving profitability improvements and capital efficiency to minimize the negative consequences for our NAV over the longer term, and this may entail more forceful readjustments in the shorter term. In Oda/Mathem, we were supportive of the merger between the two companies at the end of last year, creating both scale and the opportunity to introduce Oda's leading logistics solutions into Mathem's operations. The company has appointed a new CEO and management team and launched an efficiency program, including a sizable reduction in headcount. We and our co-investors, Summa and Verdane, have during the quarter provided the company with a bridge financing, and the company is currently closing a new funding round where our co-shareholders, not stepping up to support the business, will face significant dilution.
Job&Talent services many e-commerce companies with its work marketplace and has been impacted by retailers facing a significant slowdown in growth in consumer demand. While the company has made strong improvements in profit margins over the last year and a half, these improvements are not sufficient to offset the significant negative value impact caused by a flattened growth trend. We are actively supporting the company in adjusting to the new environment and helping them to regain the strong traction we saw during our first two years as owners. Our third e-commerce company, which has been forced to readjust, has been Instabee. After a very difficult period, we now see operations slowly stabilizing, and the company raised new equity financing during the quarter without the need for participation from Kinnevik.
I will now hand over to Samuel, our CFO, to talk you through our private portfolio evaluations and our financial position.
Thank you, Georgi, and good morning, everyone. So before we get into our NAV and private company evaluations, let me quickly cover off our financial position. We ended Q2 with SEK 12.8 billion in net cash, with the largest movements over the last six months clearly being closing the lion's share of the Tele2 divestment and our SEK 6.4 billion extra cash distribution, right-sizing our capital structure as we enter our next phase. Pro forma the completion of the third and smallest step of the Tele2 exit expected later this year, our net cash position amounts to SEK 13.5 billion. As you know, we have for some time and are still working through a meaningful pipeline of potential follow-on opportunities. Several of these opportunities are in secondary equity, buying out co-shareholders in need of liquidity.
These are situations where we can utilize our financial strength and competitive advantages to exploit the current market environment and support our founders, also by making sure there is long-term alignment in our company's cap table. Secondary trades, however, can often entail long and less predictable processes, and we also see funding rounds taking longer to conclude, reflecting a more thoughtful market environment. As a result, we are yet to convert a meaningful part of our pipeline. 2024 to date, we have deployed a bit more than SEK 600 million into our core companies Mews, Cityblock, and Clio, of which some SEK 200 million in secondary equity. Additionally, we've invested SEK 103 million in our newer venture, Recursion.
This deployment phase does not reflect the scale of our ambitions, and we're confident that relative to the first half of 2024, we will be able to increase investment during the second half across our core companies, as well as in a few of our newer ventures. So we're optimistic going into H2 , and our short-term capital allocation priorities remain clear and wholly centered around increasing portfolio concentration in our highest conviction companies. Having said that, we appreciate that having completed our transformation to growth, we owe our current and future investors a roadmap for capital allocation that spans beyond our 2024 priorities.
Similar to the capital allocation framework we laid out when we commenced our transformation to growth some five years ago, we look forward to providing you that same level of clarity at our Capital Markets Day in October and to elaborate on why we're so convinced of the competitive advantages our permanent capital base provides and of the many attractions of Kinnevik being a unique publicly listed venture and growth investment platform. For now, let's move on to page 10 and this quarter's NAV development. As Georgi mentioned, NAV was down a bit less than 5% when adjusting for our SEK 6.4 billion extraordinary cash distribution and ended the quarter at SEK 39.3 billion, or 140 SEK per share. Looking at the main building blocks, our two public investments, Recursion and Global Fashion Group, were down SEK 0.3 billion, or 21% in aggregate.
Our five core growth companies were down SEK 0.7 billion, or 5%, while our private portfolio as a whole was down SEK 2.1 billion, or 7%, and ended the quarter at SEK 25.7 billion. Over the last 12 months, we've seen price transactions in 57% of this private portfolio by value, and on average, these transactions have valued our businesses in line with what we held as fair in the immediately preceding quarter. And since the end of 2022, meaning over the last 18 months, valuation levels of almost 75% of our private portfolio by value have been corroborated by transactions. And when we unpack that number into primary transactions, meaning funding rounds, and secondary transactions, meaning acquisitions from co-shareholders, we see that secondary transactions have on average occurred at a 30% discount to NAV and that primary transactions have on average been concluded at a 25% premium.
That resonates well, both with what we hold as customary secondary discounts in the current illiquid state of private growth markets and validates that our NAV serves as an attractive entry point for new co-investors in our private companies. On the next couple of pages, I'll give you some color on the valuation revisions in the private portfolio, and as usual, you can find much of what I'll be going through in note four in today's report. Starting off with a quick snapshot of the known external drivers, currencies, and multiples on page 11. The Swedish krona strengthened slightly in the quarter, with the US dollar, which represents 61% of our private portfolio, down 1%, and the Euro, which represents almost another third, down 2%.
In total, our valuated currency basket was down a bit more than 1%, corresponding to a negative SEK 0.3 billion effect on our private valuations in the quarter. Moving on to the key peer sets of our private portfolio on the left-hand side of this page, on average, valuated peer multiples were down 11% in the quarter. We saw stability in value-based care, positive movements in the most relevant e-com logistics peers, and considerable contraction in B2B marketplaces affecting investment companies like Job&Talent. The main external value driver this quarter was, however, the significant derating of public market valuation benchmarks in our most important NAV categories, software and healthcare technology. Many of our valuation peers' Q1 reports disappointed the market during the quarter, with forward guidance coming in below consensus and increased concerns around growth rates continuing to taper as software buyers become more hesitant.
This led to sector-wide pressure in public markets and multiples coming down by around 10%-20%. On that note, on page 12, we're revisiting last quarter's chart on how our valuations in software and virtual care stack up against these public benchmarks. So what we're trying to show with this chart on this page is the challenge of how to value growth relative to public comparables, and secondly, that we're effectively valuing our investees in line with multiples of public comparables growing by around 20%, despite our companies growing by two to four times faster. In this chart, expected gross profit growth over the coming 12 months is plotted against the X-axis, and on the Y-axis, we're charting forward gross profit multiples.
Gross profit multiples are, we believe, a good starting point in comparing the valuations of our businesses to those available in public markets, as gross margins are typically indicative of future profit margin levels. Our software and healthcare technology businesses are still loss-making as a group, with cash flow loss margins of 10%-15% on average. That spans profitable businesses like Cedar and Spring to very early-stage companies like Pelago, which is growing by more than 200% year-over-year while allowing themselves to invest in building their product and go-to-market while generating large percentage losses. On this chart, we've plotted out the public comps and our investee averages within software and virtual care. Public company valuations remain fairly tightly dispersed along the black trend line, as growth remains the most important determinant for public investors valuing healthy and well-financed businesses in these sectors.
As we've touched on in the past, the financial profiles of companies in this part of our public peer universe have changed meaningfully over the last years, to a point where today there is virtually not a single public company in these sectors where consensus estimates expect an organic growth rate steeper than 30% over the next 12 months. Meanwhile, our software and virtual care companies are growing gross profit and revenues by around 60% on average, but are valued as a group at a multiple in line with the average gross profit multiples of similar public companies growing by around 20%. Now, the reason why we're valuing our companies at such a meaningful discount to what is suggested by the value that public markets ascribe to growth is because we take into consideration several parameters beyond growth and gross margins.
These clearly include differences in current and expected future profitability and financial strength, but also scale, addressable market and long-term growth potential, and the percentage share of recurring revenues relative to more transaction or usage-based revenue. Now, we are in no rush to push our companies towards the left-hand side of this chart. On the contrary, we've seen many public companies initially being rewarded by markets for aggressively trading in growth for profits and then being punished when markets realize that this push has significant ramifications on their longer-term potential. And that growth profitability balancing act is something we feel our core companies are performing quite well, and it's something we illustrate on the next page, page 13. Looking back on our core companies' development since the end of 2021, they have matured, but they've managed to trade in growth for improved margins in a very efficient way.
On this chart, which you've all seen before, we plot our core company's average year-over-year growth rate on the Y-axis and their average EBITDA margin on the X-axis. The first red marker in the top left is where we were in Q4 2021, and then each red dot represents the subsequent quarter up to today's Q2 2024. So from being expected to grow by more than 150% with 70% EBITDA loss margins on average at the end of 2021, throughout this journey coming out of the pandemic, they've balanced the growth profitability trade-off well and are now expected to grow revenues by almost 50% over the next 12 months with EBITDA margins of -9%. Each individual core company is grouped quite tightly around that average, with growth rates spanning mid-30s%-70s% and EBITDA margins spanning loss margins of -20% to low single-digit positive percentage margins.
Looking into 2025, we see them growing by more than 40% and breaking even on EBITDA margin on average, which effectively for these typically asset-light companies means being cash flow break-even as well. Now, once that break-even inflection point has been reached, we believe and will work towards growth rates stabilizing at 30%-40% levels that can compound year-over-year at profitability, meaning that the slope of this curve should begin to flatten for the group and in particular for a select few. As we mentioned last quarter, our core company's performance in this chart is something we will continue to report to you over the coming quarters. With that, I'd like to move on to quarterly changes in valuation, starting with these five core companies. Again, you'll find more elaborations on our assessments in note four of today's report.
On average, underlying constant currency valuations of our core companies were down by 5% in the quarter, driven by 15% multiple contraction on average. Quickly going through each of them, we've taken down our valuation multiple by 15% at Cityblock to reflect that there are a few percentage points behind on margin relative to where we expected them to be when we set our forecast late last year. This effect is somewhat offset by growth being stronger than we expected. The secondary acquisitions made in the quarter span valuations that on average are at a customary discount to this quarter's valuation mark. Our valuations of Mews and TravelPerk were largely unchanged in the quarter at around levels these companies were ascribed in the recent funding rounds, and our valuation of Spring Health was also flat in the quarter through continued strong growth and big steps towards profitability.
Clio, however, was down more meaningfully by 13% due to 22% multiple contraction stemming from the significant drawdown in our software peer group that I mentioned. As Georgi laid out earlier, and as you saw on the previous page, these five companies have performed well in 2024 to date, beating expectations on growth and profit margins as a group by a few percentage points. If these five companies continue to deliver results close to our expectations, they will grow their share of our portfolio value even before taking capital reallocation into account, and we will see solid NAV accretion in a flat market. On the next page, page 15, we're outlining this quarter's larger valuation reassessments in the more distributed half of our private portfolio, as well as the aggregate movements in our sectors and in the private portfolio as a whole.
Starting with Cedar, in this quarter, the significant multiple contraction in the company's public valuation benchmarks combines with an approximate 10% dilutive effect from a new employee stock option program to render this quarter's 34% write-down in fair value. Operationally, Cedar is tracking ahead of the expectations we rebased earlier this year, and the company remains cash flow profitable. The other larger valuation revisions are in this quarter again coming from e-commerce, which Georgi touched on earlier. Starting with Oda, we're effectively writing off our entire past investment to reflect the fundamental recapitalization of the business that is currently underway. The bridge financing we provided during Q2 was committed at the time of agreeing the merger of Oda and Mathem, and we see no need for this capital to come into equity at a pre-money valuation that benefits shareholders that do not participate in the current round of financing.
And that is what underpins our drastic valuation revision this quarter. While Oda and Mathem are significant investments measured in the accumulated capital that have been deployed into these two online grocers, and while the performance of these investments to date is highly regrettable, in terms of NAV, Oda is now at a size where it will have an immaterial impact on our portfolio as a whole going forward, and we intend to treat it as such in our quarterly reporting. Headwinds in e-commerce is also what weighs on Job& Talent this quarter. The company has managed to improve profitability meaningfully and generated high single-digit EBITDA margins over the last 12 months, but our read on public market valuations is that this is not meaningful enough to offset the slowdown in growth stemming from the e-commerce retailers that Job & Talent service with this work marketplace.
This has, in turn, been exacerbated by significant peer multiple contraction, and it's what renders this quarter's write-down. Similar to Oda and Job&Talent, Instabee has fought to regain its footing in a weak and rapidly matured post-pandemic e-commerce market. You will recall that we've made larger write-downs of our Instabee investment in the past, and in this quarter, we were glad to see the company successfully raising new equity capital. We participated in this funding round solely through the conversion of our convertible loan into equity, and the funding round was concluded at a valuation some 16% above our underlying valuation level in Q1. So zooming out and wrapping up, we saw multiples contracting by 13% in our private portfolio in the quarter, a few percentage points worse than our public benchmarks.
Through strong operational performance in our core companies in particular, this led to milder value declines than what we observed in these public benchmarks and a private portfolio coming down in value by 7% from Q1. Over the longer term, it is operational performance and not market sentiment nor interest rates that will determine value creation, and had Q2 been a quarter of flat market multiples, we would have seen a correspondingly large upwards change in fair value. With that, I'd like to hand it back to Georgi for his concluding remarks.
Thank you, Samuel. Let's now move to page 17, the final page of the presentation. Kinnevik has a history of reinventing itself to make great things happen. Following this tradition, over the last six years, we have completely rebuilt our portfolio. With the sale of Tele2, we have completed our transformation into a growth investment firm.
In the first inning of this new phase, we have set clear priorities to return to a trajectory of shareholder value creation that you find laid out on the right-hand side of this page. We are making clear progress in concentrating the portfolio, with close to half of our portfolio being invested in our five core growth companies, a share that we expect will increase further in the second half of the year, driven by focused capital allocation and strong performance in these companies. We are optimistic that we will be able to accelerate our portfolio exposure to these core companies and some of our newer ventures during the second half of this year. Now, with a more concentrated portfolio, the operational performance in our core companies is key to driving value creation.
It has been reassuring to see our core companies overall deliver on our expectations on growth and margin improvements during 2024 to date, and we will keep you informed of how they progress going forward. Our balance sheet is strong, and we will maintain a solid financial position by being disciplined in our capital reallocation while also making sure that we capture the opportunities in a market where long-term capital is scarce and a clear competitive advantage for Kinnevik. As Samuel mentioned, on 23rd of October, sorry, we will host a Capital Markets Day where we'll look forward to providing you with a clear roadmap of what we're looking to achieve over the coming years and how we're going to do it. We will also take the opportunity to have our core companies present themselves and their growth plan. We're now ready to answer your questions.
So, Operator, please open up for Q&A.
Thank you, sir. 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 one and one if you have any question at this time. Thank you. We are now going to proceed with our first question. And the questions come from the line of Linus Sigurdsson from DNB Markets. Please ask your question.
Okay, thank you, and good morning. So, starting with your increased capital allocation here in the second half, I mean, I recognize it's tough to give a firm outlook, but could you help us with some sort of indication for what the ambition is here in relation to your current or your typical rate of investment? Thank you.
Sure, good morning, Linus. Samuel, I'll take that question. I can probably position it vis-à-vis two anchors. So, firstly, I think in Q3, Q3, sorry, you'll most likely see us do probably as much as we did in H1 combined, and that will be driven by one or two larger transactions. In Q4, let's see how we progress, but I would say it's unlikely you see us ending this year with less than SEK 10 billion in net cash unless we're very successful across our follow-on pipeline during H2.
Okay, thanks. That's really helpful. And then secondly, I mean, looking a bit closer at Spring Health in particular, I mean, revenue came in above expectations, cost below. I mean, could you expand a bit on what they're doing right? What is market-driven? What is driven by good execution? That would be really helpful. Thanks.
Yes, Linus, I will take that question.
So, I mean, I think since we did our investment in Spring 2021, this company has consistently met or over-delivered on our expectations and their budgets. And I think it's a combination of a fantastic value proposition and a great founding team. So, Adam and April, they complement each other. They are having very high ambitions, but also extremely focused on the short and mid-term execution. What we see now in Spring is that once they have been able to demonstrate that larger customers, so basically employers buying for these services, can cut healthcare costs. So, this is basically a dialogue not being made between Spring and the HR department as some sort of benefit, but actually with the CEO and CFO at the company. Once they can demonstrate that it's actually lowering the cost, more kind of tier-one type of customers are in line to roll out Spring services.
So, we think now, up until now, the company has really proven that this works, and now they can kind of leverage and capitalize on this very strong value proposition.
Okay, thank you so much. That's it for me.
Thank you. We're now going to proceed with our next question. The next questions come from the line of David Johansson from Nordea Markets. Please ask your question.
Hello, good morning. Thank you for taking my questions. Maybe to start off, we've been hearing you talk a lot about your selective and disciplined capital allocation into highest conviction bets for a number of quarters now. And then I look at Oda and Mathem, and I mean, the whole investment is basically written off.
So, maybe you could walk us through why this is a company where you continue to deploy cash and perhaps what your plan is for this company going forward. I'll start there as my first questions. Thanks.
Thank you, David. David, this is, of course, a relevant question. And let me be very clear here. I think Mathem and Oda have disappointed us massively since we made our first investment. But we have to remember as well that when it comes to Oda, we have seen them demonstrating that they have absolutely a world-class solution when it comes to logistics for online grocers. And during the time where they had decent volume growth, they were also able to generate positive cash flow. So, we think that the technology as such and the method is actually proven.
So, combining these companies allows them to, A, cater for scale because just having a Norwegian business in the Norwegian market is too small for this business to actually generate value. So, kind of combining them would provide scale, and it will also help Mathem to further increase their efficiency. So, that's why we're backing the business. Is this a core focus for us? No, it's not, but it's a way for us to protect some value in these businesses. And why we are readjusting the valuation this much, and this has been done in an alignment with the other investors, is exactly what Samuel said. We don't want any investor not participating in backing this company actually to ride on an unnecessary high valuation of this company.
So, it's more of a company reset, but we do believe there is value to be made when investing in this company this quarter. Otherwise, we would not have done it.
Okay, thank you. That's clear. Then a question on VillageMD. I think Walgreens, they have been pretty clear that they look to divest most of their ownership and continue to actively reduce the footprint with growth basically deteriorating in the last quarter. So, I think the outlook from here looks pretty uncertain, at least from my point of view. So, maybe you could spend some time commenting on the recent development with Walgreens and how you think about the growth prospects now and perhaps also your role in the company going forward. Thank you.
Yeah, thanks, David.
So, I mean, Walgreens commented that in their last report that they would be open to divest or to kind of separate VillageMD. And I can understand because since they made this investment, it's not helped them really. I think from our perspective, we have no kind of concrete deal or potential transaction to comment on. So, I have to kind of save that for later if such a transaction happens or is about to happen. We do, however, have a very close dialogue with the company VillageMD. And from my perspective and Kinnevik team's perspective, we would welcome a world where Walgreens is not the majority owner of VillageMD because we think that the company we backed once upon a time would probably be better off being autonomous and standing on its own.
How that would impact the Kinnevik stake and our role in the company, I think it's too early to tell. But I think in general, if that separation in one way or another happens, that would be positive.
Okay, thank you. That's clear. And then just perhaps the last one for me. Could you give us an update on the exit environment that you see and how you think about potential divestments also going forward? I think you have mentioned, I think, late 2025 before. So, any sort of additional color here I think would be helpful. Thanks.
Yes. I mean, I think first of all, as we're trying to kind of act on the opportunities we see in the current portfolio, we see that this is still more of a buyer's market in this segment. So, divesting companies is more of a challenge.
We have now ongoing dialogues with potential buyers for some of our businesses. But again, with this cash position, we're not forced sellers, and we, of course, would like to maximize the value for our shareholders. So, having those dialogues doesn't mean that we have to sell it, but I think that in the coming years, we will definitely further concentrate our portfolio by divesting some of our non-core businesses. When it comes to kind of liquidity events in our more core or kind of our core companies, that's more a matter of when the window of opportunity kind of or the window for IPO opens up. As Samuel went through, we think that the recent markets have only really looked for short-term profitability rather than long-term growth.
And since we want to find a better balance for our core growth companies when they provide such strong unit economics, we'd rather wait until that window is suitable. If that happens in 2025, let's see. But our current plan says that these companies will be ready to go public in 2025 if the market is there.
Perfect. That was all for me. Thanks.
Thank you. We are now proceeding with our next questions from Andreas Joelsson from Carnegie. Next question.
Good morning, everyone, and thanks for the presentation. First question from me would be related to the increased revenue outlook that you have done in the quarter. You showed that the growth in the core holdings has been 62% versus the 60% that you expected.
So, just give some more color on the conviction that you have in the outlook increase that you have done both in this quarter and also in the last quarter would be great?
Hey, Anders, Samuel here. Look, I think the increase in outlook for the private portfolio as a whole is mainly driven by changes in portfolio composition. We've tried to aim straight down the middle when it comes to adjusting our expectations, drawing on the overperformance we've seen in the first five or six months of 2024. And that doesn't necessarily lend itself to increasing growth rates, but in some situations, it's actually the contrary where we're being more careful in terms of extrapolating the overperformance we're seeing. So, I'd probably summarize year-to-date and also outlook for 2025 as largely unchanged from a growth perspective.
But then again, you have a mixed effect of the change in portfolio composition where overperformance is more, I would say, more suitable for extrapolation is on profitability where we're seeing quite meaningful improvements in many areas of the portfolio. So, I think for the private portfolio as a whole, we're looking at an average EBITDA margin that is very close to break-even, even when looking at the full portfolio excluding the pre-revenue investments and not only the core companies. I hope that answered your question. So, we're again trying to leave room for continued overperformance rather than to extrapolate the overperformance we've seen on growth in 2024 to date.
Thanks. And maybe a follow-up on that, and maybe it is obvious, but just trying to be clear.
Given the route you have to EBITDA break-even and given the comment that 81% of the companies are either profitable or fully funded, the investment opportunities that you see ahead should then be that you increase your ownership in these companies rather than that there are funding needs. Is that correct?
No, exactly. And that's also what makes it a bit hard both to convert the pipeline at the pace we perhaps would have preferred and also giving you clear indications on how much we believe we'll be able to convert because it's a mix of secondary transactions where you're negotiating with sellers and at times also with the company. And you also have more M&A-driven funding rounds where if you lose an auction for a prospective acquisition candidate, then that round doesn't happen.
We've seen some ebbs and flows there with activity across the portfolio, in particular in the core. Then also funding rounds, even for companies needing to raise capital, takes a lot longer in this type of market relative to 2022 and 2021, which, to be clear, we thoroughly enjoy because we can then really invest the process we like to put in before investing. I wouldn't say that being funded to break-even or even profitable precludes additional capital races. We have situations in the portfolio, again, primarily in core companies where companies are considering raising pre-IPO rounds more as a way to introduce public market investors that are able to cross over ahead of an IPO rather than a need to raise more capital as such.
So, that all sort of combines to a quite broad funnel in the pipeline, but it takes longer and it's more difficult to say the extent to which we'll convert.
Perfect. Thank you.
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 one and one on your telephone and wait for your name to be announced. We are now going to proceed with our next question. The questions come from the line of Derek Laliberté from ABG Sundal Collier. Please ask your question.
Okay, thank you and good morning. I was looking at page 17 in the presentation here about the percent of growth portfolio to be private going forward.
Perhaps this should be viewed as obvious, but how are you planning to reach that metric coming down from currently above 90% to above 60% but lower? Are you expecting this to be through the IPOs you talked about, or are you also looking at some more public investment alternatives like you did with Recursion? Th ank you.
Hey, Derek. Samuel here. I think we're not looking to increase the share of public investments in the portfolio through deploying into public companies for that reason. However, clearly, with the liberties we have with our capital structure, we have a broader investable universe than many others. But that's not what we're trying to say on this page. I think what we're trying to say really is that, yes, there will be IPOs over the next two or three years that will grow the share of public assets in the portfolio.
It's a balancing act because we're still very attracted by the value creation we believe will be created in private markets over the next few years, perhaps in particular listening to the many, call it speculations on the bar to go public these days, both in terms of scale and in terms of profit margins. So, we're equally keen to have a high share of private businesses in the portfolio. But clearly, we have seen the challenges of being, I wouldn't call it a black box considering the efforts myself and the team have put into note four of today's report. But it's clearly difficult at times to run a portfolio that's 95%-96% private, as is the case today. So, that's a longer-term ambition that points towards IPOs of portfolio companies and us remaining owners post-IPO and potentially even accreting in them.
Okay, great.
No, yeah, I understand that you maintain your sort of private growth focus here, but I still view this as sort of on the margin new information. I understand it's not an exact target, but yeah, I read you as that you think this is a bit too high on the private exposure side. So, next, I'd like to ask on Cedar, just if you could give some details about this dilution from the employee stock program. I think the valuation is down 27% and multiple 22%. Should we view this as peers basically standing for 22% and the stock program for 5%? Because I read it first as it was kind of quite a big impact from this stock program, which sounded a bit strange.
And to follow up on that also, on the same company, apart from these temporarily longer sales cycles that you've discussed before, I thought this business was doing pretty well with plenty of room for growth. So, how do you view the outlook from this point operationally? Thank you.
Thanks, Derek. I'll start with operations. Cedar, as we've mentioned, has very long sales cycles, which is in part tricky but also gives a very good indication of recognized revenues 12 months out. So, Cedar, we have growing by around 25% in 2025 and doing a low single-digit EBITDA margin. So, the company is performing very well relative to the rebased expectations we set last quarter.
What makes Cedar special, I would say, in the portfolio is that it's one of the very limited few where we lack a board seat and, as such, influence and access to the level of information we like to have. Why is that? It's because we declined to participate in the company's funding round during late 2020, I believe, due to concerns around the valuation at that point in time. And since then, we've been more in the dark here than we prefer, and then we are for virtually all other companies. So, the new ESOP program came as a bit of a surprise for us this quarter, and that's highly unfortunate. And that's what's compounding with the multiple contraction we've laid out.
So, I think in terms of magnitudes of that write-down, it's probably a bit more than 2/3 that can be ascribed to multiples coming down and 1/3 ascribed to the dilution of the new ESOP program. But operationally, from what we can gather from the information we received, they're doing quite well.
Perfect. Thanks for that clarity. And finally, also, I'm not sure if I understand the chart on page six of the core growth company's portfolio concentration here. I mean, is that based on the five companies that you currently call core in today's announcement? Because my understanding is that this core composition has changed quite a bit over the last years. Or is that correct?
No, sure, Derek.
I think the term core growth companies is one we launched in Q4, and that covers the five companies laid out on this page of Cityblock, Mews, Clio, Spring Health, and TravelPerk. And what we're showing in that chart on the left-hand side is those five companies' share of total portfolio value, so including everything. Hence, you see quite a push in connection with the Zalando distribution clearly in 2021 and now also with the divestment of Tele2. So, capital reallocation is, as Georgi laid out, also fueling this increased concentration towards these five companies that we increasingly see as the backbone of Kinnevik in this next new phase.
Okay. Yeah, that's what I presume. But then you've made, I mean, haven't you? I forget the exact development there, but I mean, you've invested in these companies quite a bit since 2020 as well.
Oh, yeah, definitely.
So that's driven a large part of that increase in combination with the divestments, I would think.
Yeah, absolutely, Derek. And I think portfolio concentration will come through both capital allocation into these businesses, follow-on investments, and their strong performance. But in this chart, you also see the divestments that actually impact that portfolio concentration. But it's the same companies as we call core companies now that we've tracked backwards. Just to comment on the first question you had, Derek, as well, regarding how large a share of the portfolio will go public.
If you think about the core companies now representing close to half of our portfolio and them maturing quite fast, going back to Samuel's graph on the Rule of 40, you can imagine that when the markets allow IPOs of these types of businesses, it can easily impact the share of public companies quite fast by just a few IPOs in that group. So, even though it's a big step from the 90+% being private today to, let's say, 60/40, it's not that many IPOs that need to happen from that group before you see that change.
Oh, yeah, I get it. That's great. I appreciate the clarity.
We have no further questions at this time. I will now hand back to the CEO, Georgi Ganev, for closing remarks. Thank you.
Thank you very much. And thank you for listening and for your questions.
As a last reminder, we will report our results for the third quarter of 2024 on the 16th of October. Thank you. Bye.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a good day.