Earnings Call: Q2 2020

Aug 31, 2020

Quarterly report

Okay. Hi, everyone. A little later Q2 report than what we are used to. This has to do with the new issue and that, that was done over summer and then everything got needed to be delayed a little bit. But I think post this, we're back on track to the normal sort of rhythm, even improving that a bit, I think. But nevertheless, on to the quarter, which I'll try to keep short as I'll do an introduction and then I'll take questions, I think, is the best way to handle this. Busy quarter, busy summer. Obviously, the name change, the big billboard moving to Sweden is also done. And maybe more importantly, a $90,000,000 plus rights issue completed over summer and to fund investments into the existing portfolio as well as new investments. And so and which we've been active in both and some we've been able to close during the course of the quarter and some has been has we've been active also in July August and will continue to be active. And so there's lots of stuff going on. In terms of overall numbers, it's very uneventful 1st 6 months. I mean the NAV in dollar terms is down 2.5% or so compared to the same period last year. Now the that involves a lot of volatility, of course, during this 1st 6 months with COVID happening and a lot of different things going on in different parts of the portfolio. And also in terms of SEK per share, the NAV has also suffered a little bit on the back of the dollar falling versus the Swedish krona. But the I think the big movements in the portfolio or in terms of the portfolio and how the NAV stacks up is that Babylon has continued to sort of go up. Babylon is valued on the back of a model, which in turn is valued, uses a group of listed peers. There is no perfect listed peer here. So here's a group, which also includes, as you all expect, the 2 by now sort of famous U. S. Names in terms of digital health, Livongo and Teladoc, which, of course, have merged. That merger will happen after the end of the quarter. And so the multiples have sort of moved upwards further since the end of the quarter. But the Babylon sort of value in terms of this NAV is up nearly 40% during the first half. Some of that came already during the Q1, of course. And is also sort of very clear, we can come back to that La Blacar down some 16% during the first half. That's also something that's been going on in the Q1. But BlahBlahCar, although there's some very interesting dynamics now as to recovery post the pandemic. I don't know if you can say post the pandemic, but post sort of this lockdown, the first lockdown, we'll see what happens. I'm no expert there. But anyway, where we are now, Blavlacar, of course, had a stop in activity as all our other transportation or mobility plays. But and whereas VOY maybe saw lots of increased activity early on in the recovery, blah, blah is sort of coming in the latter sort of phase, but there's good activity there. But that's down. Voy is down, perhaps surprisingly. This is back on the back of our investment this is on the back of the race that the boy basically just completed. And that's a race that we led. It was a $20,000,000 going to $30,000,000 raise, which we took a big chunk off. We are super enthusiastic over Voi. On the macro level as well as on the macro level, the company is really going from strength to strength in virtually every aspect. However, we are as keen as we are in the company, we, of course, want to invest at the best possible level for our shareholders. So we led the round. We negotiated a price, which was negotiated. You could maybe argue a little bit pre sort of it really kicking off in the first sort of innings of recovery. And hence, I think it's fair to say we've got a good deal. And the fact that it's down during this first half is not should not be well as us being bullish. I think there's or being not bullish, I think there's lots of upside. And I'll try to touch upon some details there. So there's been some activity in the Q2. We did participate in GETS, final round. And we put some more money to Dostoevista, which we're very bullish about, and as well as WUSUF, which whose holding name is Basharisoft, WUSUF being the Zijab vertical in Egypt and other parts of that world. The way we have a couple of slides here, but the way the portfolio sort of stacks up now, you'll see on this following page, this is, of course, pre our free cash coming in from the rights issue, but it's reflective of how the sort of different marks are have moved around. We and the overall picture is not one of a great it's not a big difference from what you've seen in the past. So Baobenal is still about onethree of the portfolio, followed by Blobencar, 20%, GET, CHI10%, followed by Voy, which is down to 7.8% now. But where I feel there's lots of upside. There's lots of upside in all of these, but maybe the void at the back of the transaction is maybe especially interesting given the activity there. And I'll try to touch upon some more details in our in the portfolio in the different names, and then we can move over to questions, Q and A. But Babylon, of course, still amazingly sort of in the midst of this very, very strong acceleration of digital health worldwide. And it's this can be witnessed on they delivered in the 2nd quarter, they delivered nearly 18,000 daily consultation, which is up nearly 80% year on year. I think that's a good reflection of the activity level there. And the bulk of that, of course, comes from the areas where they are already up and running and present now being the U. K. And Southeast Asia with Prudential and some other areas. But the it's I don't think it's no secret that the company is very, very focused on the U. S. Now and, of course, started operations in the U. S. In the early parts of this year with Centene and Missouri and New York. And those contracts are being rolled out. Although the COVID situation is not all good for the company because the to even though there's lots and lots of demand from this, the as will be familiar for you or with Babylon by now is that the counterparties here are very, very large companies and organizations and states sort of providers of these kind of services. And those counterparties take a long time to settle contracts, to negotiate and finalize contracts, and it takes a long time sort of to finalize the specialties of each different products. And it takes some time to roll things out. So even though things are starting to roll out in the U. S, the execution of further rollouts have, of course, been slowed. It's we're not us being sort of here for the longer term and with lots of visibility to see through the current sort of situation overall, it's not worried at all about that. But it's a fact. But the overall sort of activity here is super, super strong, And we can see the company sort of delivering revenues is really sort of coming along nicely. It's measured out the close of the first half of twenty twenty. Revenues are up some threefold from the same period last year, and we see that continuing the growth continuing over the year and then into 2021. And I as we sort of try to reflect on in the report here, we the current sort of merged revenues of Teladoc and Livongo over $1,000,000,000 is that's a level where we'll have visibility on Babylon sort of reaching those kind of levels over the next sort of 12, 18 months. They won't reach those levels, but the run rate sort of has if we haven't reached that run rate, we will have I think we'll have a lot of visibility into when that happens. So the market cap of Babylon today, which is a bit shy of $3,000,000,000 really sort of leaves a 10x upside to the sort of $30,000,000,000 that of TeladocLibongo just on the base of revenues. And then, of course, the Babylon product, I think, is fair to say, is a different sort of different level in terms of technological sort of advancements and also potential around the business model to build high barriers to entry and enhanced margin. And so I think just by the end of the year, given the growth, I think Babylon has the potential sort of to trade at a $5,000,000,000 plus mark just based on the Teladoc Livongo multiples, but and that leaves a lot of upside basically is what I'm trying to say. So that's on Babylon. And then Glavacar, of course, 2nd quarter, terrible, right? I mean, 70% decrease in terms of activity. But that comes as no surprise. We all know that Europe essentially and I mean, the world essentially stood still during large parts of that quarter. And if there was any activity, it was activity within cities and not between cities. However, now that the recovery is in has is on its way and as lockdowns have eased, blah, blah has seen a lot of activity come back. And in fact, all the way to some levels which have surpassed where they were last year. So big, big drop, but a big, big recovery. And this is especially or only present, I should say, at or in a strong way on the C2C side. So cars, because this to travel in a car, you can travel with a sense of control of who you're sharing the space with. And in fact, Loblaw has even offered the product to be able to share the car with no one else but the drivers, so to be alone with the drivers, so which in that format, you can essentially practice social distancing within the parameters of the car. But that sense of control is absent in the alternative means of long distance transportation, buses and trains, where you get into a confined space with a lot of other people and hence very little control over who you're traveling with and what they may carry with them, etcetera. So car side of things, really recovering nicely. Bus side of things, still have some way to go. And but we're very, very encouraged by the car side of things. And in fact, also, we see the we all the buses are not are lagging for these reasons, the car side of things. We are also very enthusiastic about BlaBla's presence in emerging markets. And here, the car side of things is important, but also the buses are important. And I think it was we try to scale it out in our report here, but it's just worth reiterating how large these markets are. So blah, blah, they're I mean, there's not much activity now. But on the bus side of things, in Germany, it was blah, blah and fixed bus, right, competing over a €400,000,000 market, big market. But you compare that to Russia, which is a €3,000,000,000 market Brazil, dollars 7,000,000,000 and Mexico, dollars 10,000,000,000 market. You realize that Lavela's presence in these emerging markets has been exposed to much, much larger sort of markets than are present in Europe. And of course, these markets will they will not come back in the same way as before. I mean, I don't mean exactly I mean, change is happening here too. So the one who sort of owns the data on travel be it in buses, but most importantly in cars, we'll be able to design activity or offerings for the bus side of things, too. And hence, it's very well exposed to sort of to become the leader in those markets. So anyway, we're excited about that upside. And Voy, Voy then is subject to this very, very strong activity in cities now where populations do not want to be travel on the tube or on the buses to get around the city in fear of being some contagion of this virus. And in the same way, the city councils do not. They want to limit the contagion by reducing the number of people on these public transports. So any kind of alternative means of transportation is has been the focus. And e scooters fit very, very well into that macro. So we've seen VOI from, of course, like a standstill again in March, April and parts of May, really, you can really come back strongly and in fact, sort of have shown profitability during the course of June and sort of stand strong to sort of able to provide profitability for the full year of next year. And so that's very encouraging. And we've also seen the interest of cities to sort of transfer its population's travel onto these e scooters by the continued and increasing issuance of licenses. And of course, the U. K. Stands out here as a very good sort of pointer of how quickly this is moving now. U. K. Was a market that wasn't expected to open up for e scooter in any form for another couple of years. But then besides in the midst of these lockdowns that this was a good and maybe necessary opportunity to take advantage of to bring the populations out of lockdown onto the streets, but in a different way, try to move them away from the 2, but perhaps also for the long term, move them away from cars. Most cities also longer term, regardless of COVID, wants people to be want cities to be less congested by cars and move people on to other means of transportation. So the U. K. Has opened up, and Boeing is really killing it there. They are they're coming out as the leader and have secured several exclusive tenders in the UK, which is very, very encouraging. So we I mean, boy, I think if we look at a few years out, not next year, not 2 years, but beyond there, you have a real possibility of this company being like a $400,000,000 revenue, dollars 100,000,000 EBITDA company, which, of course, will leave sort of the market capture where we have it valued at today in the dust behind itself and really, really move higher. So we are as you can sense, we're very enthusiastic over this and very happy to be shareholders of about 30% of the company. Okay. I think in terms of general updates, I think that may be a good sort of starting point. And if the operator could help us move over to Q and A at this point, that would be good. Thank you. Our first question comes from Mr. Lars, Arita Securities. Please go ahead. Hi, Per. There is a lot of questions on Babylon, but we could take the most important question in terms of opportunity going forward. How do you see the opportunity for value based share for Babyla? And then what do they need to prove to expand that segment? Well, value based care is an enormous opportunity for Babylon. It's one which, as you, I think, allude to, is one that they have not been present in. So you could I think one has to call it a new product. I mean, where their existing product is AI as a service, just selling the software like any SaaS business and then to provide sort of vertically integrated sort of products like we do in the U. K. With the NHS. And then in the U. S, up to now, Centene sort of mix of those. But stepping in and assuming the full sort of value based care contracts, they need to sort of rely a little bit on what they have done in the K. And therefore, it's encouraging to see how successful they've been in the U. K. And also there's been some service done by the NHS to sort of to share with their counterparties on the how Babylon has fared as a digital sort of GP. And they've come up come out really well in terms of where GP at hand the barbell of GP at hand have been present, they have shown to have reduced hospital costs by some 30%, which is what you'd expect from a digitalization. And I think it's been present in other forms of digitalization that those have been sort of the kind of movements. But here, where Babylon is present in contrast to maybe other more niche products, this is serious sort of this is serious numbers. And then you apply that to value based care operators who come from a very sort of offline and traditional way of handling sort of patients coming out of the insurance system. Those numbers, of course, tell a very, very strong picture in terms of profitability on value based care. So yes, value based care is not maybe the SaaS margins kind of business, but the opportunity is enormous. And Babylon's experience from the U. K. Should be relevant for this. So we're very excited. But it's a new sort of product. And so as always, there's risk around it when there's something new. But very, very exciting. Because I know it's really, really hard, but on a like for like basis, given a contract, could you give us some kind of hint what it would possibly imply in terms of extra revenue and profits. I understand that revenue will be higher, but margins lower. But in the end, what will be the end result in terms of profits from a value based contract? I think it's a little too early to say sort of the end game of this. I mean and so we'll need to come back on that as we sort of go along here. But I think you can imagine sort of a digital product with a sophistication of the Baobler 1 has the potential to disrupt sort of the traditional for value based care world in a big way. And at this point, I think it's one has to sort of if you assume that the traditional value based care operators run well, they make money in with very traditional tools. But and then you just take the NHS survey I just mentioned and where Pavel has been present and helped reduce hospital bills with 30%. That's margin right there. Now it's simplistic and crude, but I think that's the best way to model it right here that you run as well, historic tools. There is obviously return that leads people to do it. And Babylon should be able to improve that by just that sort of that 30 percentage. But this is new, and there will be lots of material that will come back to this when as we go along. Okay. A question on Blobacar here. It's not much to do about the COVID-nineteen situation. But given that Blobacar is financially strong, having a strong cash position, is there any M and A opportunity? There is some smaller platforms in some of the emerging markets that is financially struggling now that they can acquire for us cheaply? Yes. For sure, there will be. So nothing is sort of live from where I sit, although we are an observer at the Board right now. So management will for sure be more active in this. But yes, the sector is struggling, especially on the bus side, both in developed markets and developing markets using sort of an old textbook lingo, but emerging markets versus Europe basically, you see the bus side of things especially struggling. So for sure, there will be opportunities coming out of that struggle. But it's there's nothing sort of really live and on the table just yet. And finally, about it's really welcome that the U. K. Is opening up for VoIP. But what would be the main risk that the UK towards the snapback and that this temporary license is not will be extended to be permanent license in 2020 1? No. I don't think that's a U. K. Specific risk. I think that risk is very, very low, and it's more I mean, we're humble about that this is a new product. But I think as we here in Stockholm and across Europe really have seen that this is a means of this platform of transportation, now eScooters can develop into virtually anything, is the way of the future. And it's the big revelation as that has really become part of City's infrastructures. So I the U. K, we're just a little bit slow waiting to see how things were developing in Continental Europe, I think, is fair to say, and trying to learn from that and then go about it in the best possible way. But given the I mean, you speak to your friends in London, and they are totally uninterested in getting on the tube to go to work when they and so there's a clear demand from voters population, right, for this. So I don't so one understands why they sort of accelerated the starting of this. So I think that risk is very low really. And finally, about the as the volume was not awarded a contract in Paris, has the team analyzed what possibly could have gone wrong? And I know the details is not out yet, but what's their internal analysis of the situation? Yes. Of course, they have that's I mean, the not getting the Paris license is a little irritating, right? But it but one has to sort of be clear about that it's more a feather in a hat rather than sort of the foundation of the company. I mean, some of these contracts that they have the individual contracts that they have won in the UK and London, we're not yet in London, right? Those contracts on an individual basis are more valuable than being one of 3 in Paris. So in terms of value of the company, it's not it's basically no big deal. But of course, Paris is Paris. And in terms of it would have been a nice weather to have. And yes, the company is, of course, going through that. And I think there remains some work to be done around that. And I think it's fair to say that the company has in no way given up on Paris. And if not being able sort of to address it in the shorter term, they will 100% be back when those licenses are up for renewal, which is 2 years down the road. And so that's the fighting spirit of the company. But it's not I mean, in terms of our upside scenario, it doesn't really change it. Okay. Thank you. Thanks. Thank you. We have another question. Sir Madam, please introduce yourself. Hello? Yes, sir. Your mic is open. Please go ahead. My line is oh, thank you. Didn't hear my name. Well, I would like to ask about the valuation of Babylon. If you compare your valuation is actually higher than the valuation stated by Cynevik in that quarterly report a month ago. And I would inquire about the reason for the different valuation that you give Babylon compared to Kinnevik. Yes, yes. Think you'll have to ask Kinnevik about their valuation. But our valuation is very much one which is sort of founded on based upon how we go about looking at our companies. And I think as most people do, that you look into the future and you make assumptions on what you think is a reasonable sort of development, revenues, earnings and over the nearer term, that's how we go about it. And then you apply that and you try to be sort of conservative and reasonable about that, not getting ahead of ourselves. But still looking a year or so into the future and assumptions around that and then multiplying that with sort of multiples, which we derive from a group of listed peers across the globe. Now I know that we come out with something larger or a higher number than Cyndewig. And I think Cyndewig has to sort of comment on their side. But what I think is fair to say is that we have it's not the first time. So we are very close to Kinnevik and have done and have been investing together with them for a scary long time, but over a decade, long, 15 years. Anyway, so it's not the first time where their valuation mechanism has rendered a lower number than ours. And I think sometimes they look at the situation as is now and maybe even how it's been for the past sort of while and whereas we look more into the future. And what's right or wrong, we think the way we go about it is a reasonable way to value these kind of companies for sure. I hope that helps. Well, future will see. Future will see, exactly. Thank you. Thank you. We have no further questions. Dear speaker, back to you for the conclusion. Okay. Well, thank you everyone for listening in. You can in order to reach us if you have any other questions. Otherwise, our 9 month report is going to be out on October 23, which is a little earlier than usual. So I look forward to speaking to you then. Okay, thank you. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.