Kinnevik Results Presentation Deck
Intro
Net Asset Value
value of Kinnevik's shareholding. Liquidation preferences may also entail
that the fair value of Kinnevik's investment remains unchanged in spite of
the assessed value of a particular investee company as a whole changing
materially. An unlisted investee company's transition into a publicly listed
company may also affect the value of Kinnevik's shareholding due to the
dismantling or triggering of such provisions.
Liquidation preferences, as described above, naturally become more
relevant during a market drawdown such as the one we are experiencing
during 2022. The majority of our investments carry these types of down-
side protection provisions, and the effect of these provisions become the
most pronounced in companies where we have only invested in the latest
financing round. In these investments, the fair value of our investment
may remain unchanged in spite of material downwards adjustments to
the underlying valuation of each relevant company. At the end of the
quarter, the aggregate fair value impact from liquidation preferences
amounted to approximately SEK 2.7bn and was primarily centred to a
handful of new investments made in 2021 and early 2022. The same figure
amounted to around SEK 2.4bn at the end of the second quarter, and the
difference was negligible at the end of 2021. As such, the incremental
effect in the third quarter amounts to SEK 0.4bn (due to rounding), and
SEK 2.7bn in 2022 to date.
This value difference means that if Kinnevik's shareholdings would
not enjoy said liquidation preferences, the fair value of the unlisted
portfolio would be SEK 2.7bn lower. In other terms, the underlying val-
ue of Kinnevik's investments in these companies needs to increase by
SEK 2.7bn before the accrual of an on-paper return on investment. This
notwithstanding, the fair values included in Kinnevik's net asset value
statement correspond to the proceeds Kinnevik is entitled to receive in
the event of a sale of each investment at the assessed underlying value
of each company.
AGGREGATE VALUE CHANGES AND DRIVERS
On average, the valuation of each of our companies decreased by 13
percent in the third quarter of 2022 when excluding companies where
our valuations are underpinned by transactions that took place during
the third quarter (Budbee and Monese), and by almost 40 percent dur-
KINNEVIK
Interim Report Q3 2022
Portfolio Overview
Sustainability
ing 2022 to date. Including these two companies, the average decrease
amounted to around 10 percent in the third quarter and around 30
percent during 2022 to date.
Similar to the previous quarter, contracting multiples was the sin-
gle-most important driver of the value change in our unlisted portfolio
during the quarter. Indicatively, multiple contraction had a negative effect
of SEK 4.5bn on our valuations in the quarter. Excluding the valuations that
are underpinned by arms-length transactions in the quarter and thereby
concluded in the current valuation environment (Budbee and Monese),
the effect of multiple contraction was closer to SEK 5.2bn. Revenue growth
offset most of the impact of compressing valuation levels with a positive
contribution of around SEK 3.7bn.
The Swedish krona continued to weaken materially in the third quarter,
in particular against the dollar. Per the end of the third quarter, the currency
exposure of the unlisted portfolio was approximately 62 percent in USD,
22 percent in EUR, and 8 percent in NOK and GBP (with the balance in
SEK). In aggregate, currency changes contributed to a positive effect on
the valuations of our unlisted investments of around SEK 1.5bn in the
quarter. As outlined above, the incremental positive effect of liquidation
preferences in the quarter amounted to SEK 0.4bn. The aggregate positive
effect from these two factors of SEK 1.9bn is what bridges the downward
reassessments of the underlying valuations of our unlisted portfolio to
the 1 percent write-up outlined in our net asset value statement. In 2022
to date, the positive effect of currency movements amounts to SEK 3.9bn
and that of liquidation preferences (in constant currencies) amounts to
SEK 2.4bn, or SEK 6.2bn in total. Other effects such as investee cash burn
and dilution had a negative SEK 0.8bn impact.
OUR INVESTEES RELATIVE TO THEIR VALUATION PEER GROUPS
In our interim report for the first quarter of 2022, we rearranged our NAV
statement. Our aim with the new categorization is to group our private
investments in a more refined way, sorting them with their shared publicly
listed comparable companies in mind. This, we believe, together with the
aggregated financial metrics we are now providing for each category,
is a step forward in terms of transparency of the performance and our
assessed valuations of our unlisted assets. The table on page 29 (which
Financial Statements
Other
includes valuations underpinned by transactions in the quarter in Budbee
and Monese) outlining these financial metrics for our new NAV catego-
ries and their peer groups should be read together with the qualitative
commentary provided on the following pages - including the referencing
of lower-margin SaaS companies in assessing the fair value of our virtual
care investments. Please also note that the averages for Kinnevik's unlisted
investees are weighted by fair value and provided as indicative ranges
as differences between individual companies may be material. For the
categories where our companies are growing at considerably higher
rates than the peer group average, our valuation multiples are typically
at a premium to the peer group's average. This spread is calibrated by
valuations ascribed to our businesses in arms-length transactions and
by the correlation of growth and profitability against valuation multiples
for comparable companies in public markets. The average premium is
considerably smaller (or at a discount) when benchmarking our valuations
against more richly valued constituents in each relevant peer group.
Premiums to the peer group average multiple narrow over time as our
companies continue to outpace the growth of its valuation benchmarks.
When relating our assessed valuations to financial metrics a year further
out than the next twelve months, virtually all of our valuations are within
the ranges of their respective peer group.
VALUE-BASED CARE
Value-Based Care consists of care delivery companies that take risk on,
and are paid on the basis of, patient health outcomes. Our larger invest-
ments in this category - Cityblock and VillageMD - are benchmarked
against a peer set of businesses in various ways delivering or driving a
shift towards value-based care, such as Oak Street Health (OSH), Agilon
Health (AGL), and Signify Health (SGFY). On average, the companies in
the peer set grew revenue by 55 percent in 2021 with gross margins of
25 percent, and trade at around 3x NTM revenues. Our businesses grew
twice as fast with slightly slimmer gross margins, and are valued at around
3.0-4.5x NTM revenues on average. In the quarter, three of six businesses
used as benchmarks for our valuations were subject to takeover offers or
speculation thereof, driving not insignificant multiple expansion. In our
valuation, we note these offers' indication of investor appetite in the space
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