Good day. Thank you for standing by. Welcome to the Kinnevik Q2 Report 2023 webcast and conference call. At this time, all participants are in listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Mr. Georgi Ganev, CEO. Please go ahead.
Good morning, and welcome to the presentation of Kinnevik's results for the Q2 of 2023. I'm Georgi Ganev, Kinnevik's 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. We will lay out the key valuation changes, and finally, we will track our progress against the priorities and expectations we set at the beginning of the year. On the one hand, the environment continues to be challenging, both for companies and investors. Some of our companies are struggling to navigate a changing and uncertain outlook, and our NAV is yet to return to a meaningfully positive trajectory.
On the other hand, we're uncovering investment opportunities that we believe are some of the strongest long-term opportunities we have seen over the last five years. Our number one priority in these circumstances is to take advantage of the current market to deploy more capital into the highest conviction companies at a more balanced valuations. We're able to do this by leveraging our strong financial position, our permanent capital, and our long-term horizon. Unique competitive advantages for us as an investor, and in particular, in this type of market environment. Let's start today's call by looking at the key highlights during the quarter on page 4. Our net asset value amounts to SEK 54 billion. That's down 3% in the Q2 . In just a few minutes, Samuel will go through some more details on how the valuations of our private companies have developed and why.
On the investment side, we have made a number of follow-on investments in the quarter, most notably in Spring Health, but also in TravelPerk, Recursion, and Instabee. New investment activity was more muted, with two smaller investments during the quarter. Enveda Biosciences, which we covered in our Q1 report, and Charm Industrial, which is a clear emerging leader in the carbon removal space. With recent commitments from Frontier and JPMorgan, Charm has secured the largest offtake amount of any carbon removal company in the world and is scaling rapidly. Speaking of which, I am pleased to report that we are tracking ahead of our climate target for the portfolio, which I will come back to shortly. On a more general note, the market deterioration that started last year makes it even more important to be active, hands-on owner in our companies.
We have supported them in setting strategies, making trade-offs between growth and profitability, and deciding which initiatives to pursue and which to abandon. The Kinnevik team is spending significant time and resources to ensure that our companies have the right focus, strategies, and capabilities in place to set them up for long-term value creation. This kind of times mean taking difficult decisions in the short term. Two companies in our portfolio that have faced significant headwinds in the past 18 months are Oda and Mathem. They are under severe pressure from weaker consumer spending, slower growth of online sales post-pandemic, and a ramped-up cost base. Oda recently made the difficult decision to shut down its expansion into Germany and Finland.
While decisions like these will have a negative impact on the short-term growth, we think it's the right decision for some of our companies to adjust their footprints and focus on efficiency in the current core markets. Lastly, as I'm sure you have already seen, Babylon Health announced in May that it will be taken private by its main creditor. We decided not to participate in the financial restructuring, and as a result, we have fully written off our investment in the company. A top priority this year is to be even more disciplined in our capital allocation, and Babylon falls short of the bar that we have set for ourselves. We have learned several important lessons from our times as owners in Babylon, and today we wish the company and the founder, Ali Parsa, well.
Moving on to page five, where we shed some more light on the follow-on investments we made in the quarter. As I mentioned before, our key priority in the market conditions we find ourselves in, is to make sure we accrete ownership and capital commitments in our highest conviction businesses. Now is the time to seek to maximize the impact of those businesses while minimizing the impact of our lowest conviction businesses. We do this through disciplined capital allocation and by leveraging our strong financial position. The most material example of this to date is the $100 million investment we made into Spring Health this quarter. Since the end of 2022, we have increased our ownership in the company from 5% to 12%, and Spring now represents our largest aggregate investment since we set out on our transformation to growth in 2018.
We believe in Spring for several reasons. The company addresses one of the fastest-growing public health issues, mental health, in the world's largest healthcare market, the U.S. They have an exceptionally strong founder duo in April and Adam. They are well-grounded in science and have managed to deliver superior clinical outcomes. Last year, they grew revenues by 270%, and they are on a fully funded path to generating positive cash flow in 2024. Our permanent capital, which enables us to invest over multiple rounds as companies mature and prove their business, is one of our key competitive advantages. It's a model we have applied many times before, most notably in investments like Zalando and later Livongo. We're excited now to be on the same journey and path with a company like Spring.
We also deployed over SEK 600 million in total into TravelPerk, Instabee, Recursion, and HungryPanda during the quarter. These companies are all emerging leaders in their respective fields and are seeing strong traction and growth. On page six, we provide an update on our capital reallocation expectations for 2023. The assessments of our company's runways remain largely unchanged, with some marginal improvements to the funding rounds concluded in the quarter. During 2023, we expect that 80% of our forecasted follow-on investments will be deployed into these high conviction businesses, where we are either instigating transactions or actively working to accrete ownership. We are taking advantage of the market uncertainty to accrete ownership and capital commitments in our strongest performing businesses, just in line with our strategic priorities.
Only around 10% are forecasted to be allocated to more struggling businesses, where we see potential on a more long-term value creation. As evidenced by the previous slide, we have made significant strides during the H1 of the year to seize opportunities in our existing portfolio. With these successes, we expect follow-on investments to make up around two-thirds of the total investments in 2023, rather than the 50/50 split between follow-on and new investments we expected at the beginning of the year. That does not mean that we have decreased our ambition level when it comes to new investments. We remain as firm as ever in our efforts to source and invest in the most promising and innovating new businesses in our focus sectors.
With that, I would like to round off this part of the presentation by talking about the strong results presented in our 2022 climate progress report on page 7. 3 years ago, we set target to reduce the greenhouse gas emissions intensity in our portfolio by 50% by 2030, compared to 2020. In June, we published our annual climate progress report to follow up on this target. I'm very pleased to report that for the second consecutive year, we're tracking ahead of our targets. In 2022, the 6 companies included in our target fulfillment decreased their year-on-year emissions intensity by 14% on a evaluated basis. Since our base year, 2020, we have achieved an average yearly intensity decrease of 12%.
We believe climate change represent risks in our portfolio, as expectations are increasing fast from customers, investors, employees, and regulators. There are also significant opportunities, which is why we work actively with our portfolio companies to align their businesses with a low carbon future. I would now like to hand over to our CFO, Samuel, to provide some more detail on our private valuations and the development of our net asset value, starting on page eight.
Thanks, Georgi. With valuation levels continuing to be fairly stable, Q2 was another rather uneventful quarter for our private carrying values. But I'll do my best to make it interesting nonetheless, because six months into the year, we would like to post an update on the growth numbers our portfolio is delivering. Moving to page nine, on average, we decreased our underlying valuations in the private portfolio by 2% this quarter, or down around 4% when weighted by value. Passing these underlying valuations through the effects of liquidation preferences and currency fluctuations renders this quarter's small 1% SEK fair value write-up. Adding the SEK 2.1 billion we invested into private assets this quarter, primarily our sizable follow-on investment into Spring, brings us to the SEK 2.5 billion increase in the carrying value of our private businesses that we're reporting today.
Looking at the drivers behind this. Firstly, while the expectations on the rest of our private portfolio have been stable on average in the quarter, downwards revisions of growth outlooks at VillageMD and Oda are holding us back in Q2 in terms of fair value growth. Both these revisions are stemming from measures taken to slim down footprints and hold back growth in favor of profitability. While we clearly support these measures strategically and commercially, from the more crass perspective we take on quarterly valuations, they do weigh on our NAV. Clearly, with the large weight our portfolio has in VillageMD, that specific valuation revision, in particular, has a material offsetting effect on the totality over these last 3 months. Secondly, multiples were slightly down in the quarter in our portfolio, while peers were flat on average.
In 2023 to date, the average premium to public comps has come down by around 20 percentage points. Having said that, we followed public market multiples on the way down, and our multiples will reflect public markets also going forward. Considering the aforementioned outlook revisions, the general uncertainties out there, and a few transaction-guided marks, we have elected to stay measured and let multiples be a bit sticky to end of 2022 levels during the first six months of the year. Thirdly, there continues to be some inertia in our NAV due to liquidation preferences. The impact is coming down a bit in the second quarter by around SEK 150 million, and the aggregate effect now corresponds to around 9% of our private portfolio, down from 11% at the end of 2022.
As we lay out in today's report, this effect remains fairly concentrated, with more than 75% relating to five relatively mature and well-funded investments, representing around SEK 4 billion of fair value. Lastly, and perhaps most material in this quarter, the Swedish krona continued to depreciate. In Q2 alone, this provided a SEK 1.3 billion positive impact on our NAV. With that, I'd like to shift attention back to the key influence of our NAV and returns over a longer time period than that of one or two quarters, and that is growth.
In the last two quarters, we've spoken about growth more in terms of by how much our companies have cut back on it in favor of profitability, and in the context of adjusted outlooks for several of our companies as they try to navigate the tricky environment, especially on the back of weakening demand on the e-commerce side. Therefore, six months into what's been a challenging year, we thought it would be worthwhile to take a step back and revisit the higher-level portfolio numbers to ensure we're clear on the rate at which our portfolio continues to grow. That means we're on page 10. I hope many of you recall the 2022 numbers we shared in connection with our Q4 report a few months back.
Namely, that last year, our private portfolio grew top line by almost 100%. Their public valuation benchmarks grew by a bit more than 25% on average. Clearly, we're not expecting the same velocity in 2023 for our portfolio, nor for their more mature listed benchmarks. Rather, halfway through the year, we expect the portfolio to grow top line by more than 50% in 2023 on a weighted average basis versus a peer set growing at 16%, 17%. As we show in the chart on this page, that is still more than three times faster than the public benchmarks, as these naturally, to an extent, operate in the same dynamics as many of our businesses. Now, to understand this movement, we think it's helpful to consider four main drivers.
Firstly, VillageMD merging with Summit means that our largest private investment has taken a step change forward in terms of business maturity, leapfrogging into a 20%-30% growing stable business from the 55%-60% growth company VillageMD was on a standalone basis last year. Secondly, as we discussed last quarter, our e-commerce businesses are facing particularly significant headwinds this year for apparent reasons, Georgi has mentioned the subset of challenges that our online grocers have faced and are navigating through. This recessionary dynamic clearly also pushes the portfolio's average growth rate down a notch. While the VillageMD Summit merger is clearly more of a permanent step change, we believe the downdraft in e-commerce is causing more of a temporary dip in growth this year for our businesses.
Thirdly, at the outset of the year, many of our businesses traded in that extra 10%, 15% worth of growth in their plans in exchange for profitability improvements and runway extensions. These are measures we generally support and help our companies take, but they also mean that aggregate growth rates come down relative to 2022, even though there are also instances where we're pushing our companies to be more aggressive. Lastly, which is perhaps easily forgotten, considering the pace of our transformation and the quite strange years we have behind us, our private portfolio is now carried at an aggregate SEK 32 billion, but has an average tenure of no more than around 3.5 years.
Looking at some examples in our oldest vintage, the 2018 one, since our 1st investment, Instabee and TravelPerk has grown revenues by more than 30 times, and Pleo has grown revenues by more than 20-25 times. As our early-stage investments succeed and grow and scale dramatically, percentage growth rates naturally come down from the 100%, 200%, 300% year-on-year numbers these businesses recorded in the 1st years of our transformation. As Jorgi has reiterated, considering the scale our growth portfolio has reached, we need to be more forceful and more disciplined now in order to move the needle than was the case a few years ago. This quarter's investment into Spring Health is a great example of how we can use capital allocation to meaningfully rebalance our portfolio towards a more attractive financial and return profile.
In H1 2023 alone, the average growth rate of our private portfolio has increased by 10 percentage points just through our work in changing this portfolio's composition. To summarize, we have four main drivers of the change in growth rate this year: a VillageMD that's taken a step change in maturity, cyclical headwinds in e-commerce that should eventually abate, an overall focus on profitability and runway improvements, and an early-stage portfolio that's scaling along the S-curve, where we're using capital allocation a lot more forcefully. As shown on this page, if you strip out the more mature post-merger VillageMD and the handful of investees that face these more temporary e-commerce headwinds, the portfolio's average growth rate moves from 50% closer to 70%-75% this year.
It's this type of powerful organic growth, together with improved profitability, that we believe is what will determine our NAV and returns in the long term. Moving on to page 11, to wrap up on our NAV development in the quarter, also considering our public investments. Again, the private portfolio is up SEK 2.5 billion, largely driven by investments and not necessarily impacting NAV in the short term. In the legacy public growth pocket of the portfolio, Babylon has been written off and GFG had another soft quarter. Recursion, the newer public addition to our growth portfolio, traded up 12% in the quarter in USD terms, and with a bit of a boost by us investing an additional SEK 145 million over the market in May, our stake grew by around SEK 0.3 billion in the quarter.
Tele2 was down SEK 1.4 billion and paid SEK 0.5 billion in dividends, decreasing the stake size in our NAV by SEK 1.9 billion. We're receiving another same size dividend in Q4 this year. All in all, NAV was down 3% in the quarter to SEK 54 billion, of which SEK 8.8 billion being our net cash position. We remain in a position of financial strength, and as Georgi stated, with the successes we've had in uncovering opportunities in the high conviction side of our private portfolio, we're expecting to deploy around two-thirds into follow-ons this year, rather than the 50/50 split we envisaged at the start of the year.
We will be measuring our capital deployment to ensure that we can continue to capture opportunities that arise also throughout 2024, noting, as always, that investment opportunities do not arise in an evenly linear quarterly fashion. To sum up, a slightly uneventful quarter from an NAV perspective, but with continued strong underlying growth in the private portfolio, a narrowed gap to peers on valuation multiples, and a continued focus on improving the portfolio balance and utilizing our strong financial position to maximize the impact of our highest conviction businesses. With that, I'd like to hand it back over to Georgi for his concluding remarks.
Thank you, Samuel. Let's now go to page 13, the last page in this presentation, to take stock of our priorities and expectations for 2023. During the first half of 2023, we have been firmly committed to executing our priorities by investing around SEK 2.4 billion during the first half of 2023 into some of our highest conviction businesses, whereof SEK 1.7 billion in this quarter, we have proven our ability to create and capture the opportunities that arise in more challenging markets, we have rebalanced our portfolio in a meaningful way. We've also shown the power of our permanent capital, which is a key competitive advantage as an investor. As I said previously, we expect follow-on investments to account for roughly two-thirds of the total investments during 2023.
This is largely a result of our most recent investment in Spring Health, as well as the opportunities we see emerging in our existing portfolio during the second half of the year. While the macro environment has been somewhat more stable in the last couple of months, we are ready and in a strong position to continue navigating challenging markets ahead as they arise. We are as ever grateful to our shareholders for the continued support as we rebalance our trajectory for the years to come. That said, we are now ready to answer your questions, so operator, please open up for Q&A.
Thank you. Dear participants, as a reminder, to ask a question, you need to slowly press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. This will take a few moments. Now we're going to take our first question, and the question comes from the line of David Johansson from Nordea. Your line is open. Please ask your question.
Hi, and good morning. Thank you for taking my question. My first question is related to runways and perhaps the road to profitability in some of your companies. For example, we saw in June that your company, VillageMD, missed somewhat on earnings due to slowing growth and also a challenging cost environment, which also appears to be reflected in your NAV. At the same time, you comment in the report that expectations on growth and profitability remains largely unchanged from Q1. Could you maybe elaborate a bit more on some companies that are maybe exceeding your expectations and on companies where you see that risk on profitability could be delayed, such as in VillageMD? Since runways tend to get longer every quarter, we'd be interested to hear your view on this. Thank you.
Hi, David, it's Samuel. I think, you know, clearly VillageMD is semi-public through Walgreens reporting, so you can sort of rely on what Walgreens tells you in that regard. I would say that what they're doing at VillageMD is that they're taking out more costs than expected, in part through synergies with the Summit, but net with the slowdown we're seeing in growth, we still feel that that change is impacting valuation negatively in this quarter. I think on runway, in general, the splits we've shown you in the past, where we split runway lengths by portfolio value, that looks unchanged in the quarter. However, clearly there's movements going on between companies, with some performing worse than planned and some performing better than planned. From the portfolio perspective, it's unchanged in the quarter.
Okay, thank you. My second question is in regards to Pleo, which you have basically revised downwards every quarter since 2021, but now it's up 7%. We saw in the company's 2022 report that operating losses continued to point upwards, quite drastically year-over-year. Growth looks mainly to be a factor of high burn, and at the same time, the multiple for this company, in my view, is still quite high. Could you maybe elaborate a bit more on when you expect profitability for this business? What do you believe is a sustainable growth multiple for Pleo over time? Thank you.
David, it's Samuel again. I think on Pleo, we're more focused on looking forward than backwards. I think we've been fairly clear with the challenges Pleo faced last year with a decline in consumer spend. As you know, many of Pleo clients are themselves venture and growth capital-funded businesses. While we saw fairly stable subscription revenues, clearly transaction-based revenues came down. What we're seeing now is subscription revenues exceeding plan and transaction-based revenues, stabilizing and even improving. You know, it's a wildly different financial profile looking 12 months ahead, rather than looking 12 months back.
In terms of when we expect Pleo to reach, profitability and what is quote, unquote, "sustainable growth rate" is going forward, I think this is a very nimble company, and I think they've proven that in terms of, again, the changes we're seeing in financial profile looking ahead rather than looking backwards. We expect Pleo, if that makes sense from a long-term perspective, to reach break even within the next two years on a monthly basis. Now I think we're more focused on making sure that Pleo doesn't, overly focus on runway and on profitability and miss out on the massive opportunity that's out there. I think that's our call it concern at Pleo rather than the burn rate.
Okay, thank you.
Yeah.
Thanks, also, that's all from me. Thanks.
Thank you. Now we're going to take our next question. Just give us a moment. The next question comes from Joan of Derek Laliberté, from ABG Sundal Collier. Joan, is open. Please ask your question.
Okay, good morning, and thank you very much. I'd like to ask first on Babylon here. Apart from the financial issues, what really made you lose conviction in the case, given that you actually quite recently made another investment in the company?
Hi, Derek, Georgi here. As you said, we did a follow-on investment in 2022, H2 . The ambition for the company was to focus solely on the core business model and divest part of the kind of non-core markets and businesses. The company has improved a lot when it comes to profitability over that period, they did not succeed with those divestments. That was kind of one key milestone for us as an investor when we did that investment. I think generally, looking at the opportunity ahead, when we compare the long-term value potential between Babylon and for example, Spring Health, we've taken our decision to redoubling on the company that actually can have the biggest positive impact for the long term for Kinnevik.
As I said, I mean, they fall short of that very high bar, I think, of ours. Being, of course, proud, backing a company for a long period of time with a great vision, we had to take the very difficult decision now to not invest further capital.
Thank you. That's very clear. To follow up here, I'd like to ask also on Mathem, if you can comment anything on the status of reaching profitability, whether the idea is that this latest funding round in the quarter was the last one, and how the path to break even looks like. Also, if you could follow up with Vivino as well, because I didn't see anything in the report about that, how that is going, and if that's sort of having similar issues as Mathem and Oda. Thank you.
I mean, I think we can start with the bigger question, whether there are similarities, or differences between, for instance, an Oda, Mathem, and Vivino. Yes, there are big ones because Vivino is not burning close as much cash as the other two. Different type of business model, more of a marketplace model in Vivino. But the similarities are that they're facing, I would say, headwinds in terms of sales, kind of post-pandemic, also kind of the economy being very different now, and the households in Europe spending less on these type of services. That's what we see kind of across the e-commerce bucket, if you will.
When it comes to Mathem specifically, as we said before, they implemented their new kind of automated warehouse in Larsboda earlier this year, which always, as people have known, know, if they're being close to it takes some time to kind of fine-tune that. We did this investment together with the other investors to support their path to profitability, and now they're tracking according to what we expect. That means taking very, very drastic actions and difficult decisions internally, laying off people, decreasing costs across the board. That's basically the biggest focus right now. We never do any kind of commitments for further rounds in the future, but every kind of business case will be evaluated when we have the opportunity to invest or not.
like with Babylon, for instance, we did the decision not to deploy more capital. It might be different for other companies, but that's nothing we have taken a decision on now.
Okay, great. Thanks for those comments. That's all from me at this point.
Thank you. Now we're going to take our next question. The next question comes from the line of Oskar Lindström from Danske Bank. Your line is open. Please ask your question.
Hi. Yes, good morning. Two questions from my side. number 1, I mean, you've talked a lot about the sort of increasing focus on capital retention and increasing runways for your companies, and also in how this, in some cases, has had a negative impact on near-term growth outlooks as well as on NPGs for those businesses. Is this something that you continue foresee to continue during H2, that, you know, a lot of businesses are still trying to catch up on increasing their runways, either by, you know, by spending less, basically? Is that change in companies fully completed, or is there more of this ahead of us? That's my first question.
Thank you, Oskar. I would say that the spread is very, very wide here in the portfolio. As we've said before, our job as an investor, is to be an active owner, to be very close to the board, the management, and make sure that they are focused on the right things. For some businesses, that means, you know, focusing solely on the core operations to increase efficiency and focusing on profitability. For other companies, it might actually be our job to safeguard them, so they have the ability to focus on growth and not kind of overly as Samuel said, focus on the path to profitability too early, but to capture these market shares. I think Pleo is a good example of that.
Spring is a very good example of that, where we feel very confident that the underlying business model is sustainable and great in many ways, and that we have a strong team. I think the spread is wide again, we will never be kind of completed or done with our actions. That's not the way we run the businesses. We will constantly be close to our teams and make sure that they're focusing on the right things. For some businesses, that journey will for sure continue to be even more cost efficient over the coming quarters.
Right. Thank you. I mean, could you give a rough number of sort of how many of your privately held companies, you know, would need to increase their runways as you see it now?
No, as we said before, we gave you these numbers that are unchanged.
Yeah.
A very small part of our portfolio, on a valuated basis, actually needs capital this year. In relation to our kind of follow-on budgets, 80% goes to businesses that are actually currently performing very strongly or have enough cash or have already reached profitability. We see ourselves much more forward-leaning into those businesses. Of course, we play a very active role in the others as well that are struggling. Some of the companies that are struggling now might have long-term potential, and there we found.
Yeah.
that we summarized to around 10%, as I said in my presentation. Some companies, that are struggling, where we have decided not to deploy capital, we kind of, you know, wish the other investors the best of luck.
Okay. Thank you. My second question was just on Babylon Health. I think you mentioned in the presentation here, that you'd learned some valuable lessons from that investment, but I'm not sure if you mentioned what they were. Could you please elaborate a little bit on that?
Of course. Some of these learnings we keep for ourselves and not to spread to our competitors. On a general note, I would say first lesson is, of course, that they ended up in a perfect storm, going to the market on a SPAC transactions during a very hot kind of SPAC market in the US. That bubble burst first at the end of 2021, as we know, and then when the market changed focus to actually, you know, looking for profitable businesses or businesses that could become profitable in a relatively fast way, the company struggled a lot to kind of change the course and kind of transform their entire business, if you will.
Of course, we have seen now that in a bull market, it's very easy to ramp up your cost base too aggressively, and also to kind of jump on the hottest trend, which in that time was to do this SPAC transaction. Another kind of learning from more from a strategy point of view, I would say that we have all been very impressed by the vision of Babylon and what they wanted to achieve. In many ways, they have also delivered proof points. We have to remember that. They have delivered proof points for users, for patients, and also for B2B customers that have been using their services.
In hindsight, I think, and also going forward, we should have been even more focused, of course, in delivering first on the core business. Again, we had the full conviction of these businesses until we took the decision not to fund any longer. In 2022, we had high hopes, and our vision was that this company could actually turn profitable with the current funding.
Right. Thank you. Good.
Thank you. Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad. Now we're going to take our next question. The question comes from the line of Zina and Galen Ricchiuti from Handelsbanken. Your line is open. Please ask your question.
Thank you for answering my questions. I've just got a question on Spring Health. Can you share the reason for selling for the owners whose share you bought?
I'm sorry, but that's something we can't discuss at all, because we have committed not to do so. The only thing we can say is that we have a very high conviction for this business because of the reasons I just went through. The kind of the macro tailwind, the astonishing team, and their ability to deliver value both for patients but also in terms of a kind of sustainable, profitable business model. We want to deploy more capital, and the seller wanted to release capital.
Okay, thank you. With regards to new investments, do you, going forward, prefer to see that broadening your current exposures or that they are more adjacent to what you already have?
I think generally more adjacent to what we have in our portfolio. We have today a couple of kind of core focus sectors, then, if you will, we have defined subsector underneath. Within healthcare, for instance, we have virtual care, we have value-based care, but we're also now investing in kind of drug discovery, biotech type of businesses with Invita and Recursion. It's a relatively wide focus area. We have, as we've said before, start to invest more and more into the climate tech area. We are strong in software with very returns in that sector since we started to invest in the software businesses. We have also some assets in the marketplace bucket. I think those are the main sectors we're looking at.
In the software areas, of course, there's a broad portfolio, different type of B2B and B2B to C type of services. I expect us to stay mainly in those areas.
Okay. Just a final question, regarding the valuation of Lunar. Could you give some insight as to why you chose to value the company 35% below the valuation implied from the last financing round?
Sure thing. No, it's Samuel. I think the simple answer is that that round included structures that make it difficult to extrapolate the round's valuation on the full enterprise. Hence, we're being a bit more careful than just describing that headline valuation to the full company, but rather doing some more intricate calculations than that. I think I'll leave it at that.
Okay, thank you. That's all for me.
Thank you. Now we're going to take our next question. The next question comes to line of Stefan Wård from Pareto Securities. Your line is open, please ask your question.
Thank you. Question regarding VillageMD. I'm a little bit puzzled with the revaluation there. I think, I mean, it looks like Walgreens Boots Alliance is quite happy with the performance of Village. I might be misinterpreting that, but otherwise, it... Well, from what I can read, they're sort of happy with the progress, and they seem like the obvious acquirer of your stake in that company eventually, when that could materialize. Therefore, it's a little bit why you make the valuation adjustment. I can understand if you relate it to peer groups and such, but it's... Can you comment on the way forward from the VillageMD investment?
Sure, Stefan, it's Samuel. I'll start on valuation. I'd say this, Walgreens and Village and Summit, they're all very focused on integrating the acquisition right now. As we said, they're being more aggressive on realizing synergies and taking out costs from the business than perhaps we anticipated. That, together with a larger than expected year-on-year hit from a drop in pandemic-related sort of respiratory incidences, that's impacting parts of the Summit business on a top-line basis. This all means that we are expecting revenue to be a lot lower than we had in our outlook a quarter ago. We understand that, you know, Walgreens are focused on, you know, EPS growth. I think we still valued Village after the merger as a company that has a massive market opportunity to grow into.
From our perspective, the net effect of what might be positive for Walgreens is negative in our NAV. It's probably a just difference in approach in that we are more growth focused than perhaps a Walgreens is. On the future, I'll leave it to Georgi.
As we said before, we think that this was already a relatively mature business. With the merger with Summit Health, it's even more mature, and it also shows that we have, in our growth portfolio, companies more at the end of the S-curve. It's pretty convenient that we are a small owner of this relatively large business. Obviously, when the right timing occurs, and the right opportunity, we are a potential seller of this business. We have no rush. With 8.8 billion SEK in net cash end of this quarter, we see that we can wait for the right opportunity. Just to fill in on what Samuel says, it's definitely the difference between having a growth lens and more kind of less of a growth lens, probably fair to say.
We don't change those lenses as too fast, too quickly, because then there's no consistency in our valuation methodology. Of course, over time, when the company starts to be really profitable, we might actually do a valuation change methodology for those businesses as well.
Okay, yeah. It's fair to say that the sort of only possible acquirer to this business is Walgreens Boots Alliance, right? I mean, it can't really be sold to anyone else, so.
Not necessarily, Stefan, because you could think of an IPO, right? Of this business being standalone, and we could be a seller in the public market to anyone. I think we have definitely a kind of post-IPO acquirer in Walgreens, but we're not limited to that, as I see it, because this is a perfect case for them to IPO when the time is right.
Okay, thanks. On to another question regarding Oda. If you could update a little bit on the... Yeah, I was a little bit surprised about the hefty revaluation on that asset.
Yeah. That's again, I would say something that it's a little bit counterintuitive, because we believe that the company is doing the right things, given the market environment. The kind of the big ramp-up ambition and the extra cost they got during 2021 to actually launch into new markets, Finland and Germany, has proven not to be as effective. Given the kind of the market environment, I said, and the weaker economy for households in Europe, and this approach to launch greenfield in these markets, Oda took the decision to cut those expansion plans drastically, and also the headcount and the cost base. Meaning now focusing kind of purely on the core market, Norway, where we know they can actually reach profitability.
The question is whether they will again, then, in a different way, approach other markets. Could be more of a kind of asset-light type of expansion, if you will. I think from a growth perspective, the forecast is decreased, and therefore it impacts our valuation negatively. Long term, we think this is the right way to do. Although it's kind of not good for our valuations this quarter, we think it's good for the business.
Final question from my side, if I may. The climate tech strategy with Natalie's sort of unit, when will you include that as a separate part in the NAV?
Hi, Stefan, it's Samuel. Well, we have this pocket now that we call early bets, if you strip out Recursion, which is public, and also the smaller fund partnership investments we have made, I think that NAV category is carried at around 2.7 billion-2.8 billion SEK. Out of that, 1.5 billion SEK is climate tech spread over five businesses. Call it, you know, 5% of the unlisted portfolio. We're not quite at that sort of critical mass yet, I believe, in terms of highlighting it as a separate NAV category, we are getting there, I'd say most likely it's something we're gonna introduce, you know, perhaps as we enter the next financial year.
Great. Many thanks. Have a great summer.
Thank you, Stefan.
Thank you.
Thank you. Dear participants, as a last reminder, if you wish to ask a question, please press star one one on your telephone keypad. Dear speakers, there are no further questions. I would like now to hand the conference over to Kinnevik's management team for any closing remarks.
Thank you very much for listening and for your questions. As a reminder, we will report the results for the third quarter of 2023 on the 18th of October. Have a nice summer. Thank you. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.