Kinnevik AB

STO:KINV B

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Kinnevik First Quarter 2024 Report. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Georgi Ganev, CEO. Please go ahead.

[Georgi Ganev, executive]

Thank you, and good morning, everyone. And welcome to the presentation of Kinnevik's results for the first quarter 2024. I'm Georgi Ganev, Kinnevik's CEO. And with me today is our CFO, Samuel Sjostrom, and our Director of Corporate Communications, Torun Litzen. The first quarter of 2024 was an important one in many ways. And on today's call, we will walk you through our announced divestment of Tele2 and the outcome of Kinnevik's Board's capital structure review. We will also talk about the exciting investments we did this quarter into Mews and Pelago. And Samuel will cover our financial position and the development of our net asset value, including the continued strong performance of our core growth companies. Finally, I will also talk about our priorities and expectations as we embark further on our next phase as a leading growth investor. And as usual, we will end with a Q&A. So let's start on Page 4. Our net asset value amounted to SEK 47.9 billion. That's largely flat since the end of last year. The market backdrop was more stable this quarter, and we saw strong operational performance in our core companies, Mews, Spring Health, Pleo, Cityblock and TravelPerk, starting the year in line with our expectations. These 5 businesses now represent 46% of our growth portfolio. That's up from 41% at the end of 2023 and 30% at the end of 2022. However, the NAV was also weighed down by a material write-down in our VillageMD investment, reflecting a goodwill impairment by the company's controlling shareholder, Walgreens. Samuel will touch upon this as he will guide you through the valuations of our private companies shortly. As mentioned, we made follow-on investments in Mews and Pelago during the quarter, and I will share some of the reasons why we are excited about these businesses. But let's start with one of the most significant transactions in Kinnevik's history, the divestment of Tele2, starting on Page 5. As announced in February, we have agreed to sell our entire shareholding in Tele2 to an investment vehicle controlled by the European telecommunications group, Iliad; and Chairman and Founder, Xavier Niel. The total proceeds to Kinnevik will amount to SEK 13 billion, implying a premium of 13% to the closing price of Tele2 on the trading day before the announcement. Through the transaction, Tele2 gets a new lead shareholder with a long-standing track record in the European telecom sector. And as an early pioneer in France, and as a business builder of scale across Europe, Iliad and NJJ are very well placed to contribute to the next chapter of Tele2's growth story. Founded by Jan Stenbeck in the 1980s, we're proud of the company Tele2 has become. I'm very grateful for its role in enabling Kinnevik strategic pivot into a leading European growth investor. Tele2's strong value creation and historic dividend flow has been instrumental in building the Kinnevik of today. On Page 6 is an overview of the transaction, which is structured in 3 steps and is progressing according to plan. The first step was completed already in March with net proceeds to Kinnevik amounting to SEK 2.8 billion. And the last 2 steps are expected to close in Q2 and Q3, respectively. At the completion of the transaction, Kinnevik withhold a very strong cash position. And the Board has therefore, conducted a capital structure review, soliciting perspectives from our largest shareholders. Now on the next page, we will go through the outcome of that review. The Kinnevik Board has decided to propose an extraordinary cash distribution of SEK 23 per share or SEK 6.4 billion in total, which represents around half of the proceeds from the Tele2 divestment. This means that since the start of our transformation to a growth-oriented investment firm in 2018, we have distributed a total of SEK 88 billion to shareholders in the form of spinouts and cash. And the Board has also decided to not pursue share buybacks at this time. And the main reason is that we have a very strong pipeline of attractive investment opportunities we are currently assessing, primarily in our existing portfolio. And having a very strong financial position is a key competitive advantage in a market where many others are forced to make exits. After completion of the Tele2 divestment and the Board's proposed cash distribution, we will have a pro forma net cash position of almost SEK 14 billion, meaning that we are fully-funded. This provides us with the strength and flexibility we need to execute on our priorities. One key priority is to create a more-concentrated portfolio by investing more capital into our most exciting businesses. We will also selectively look for new long-term opportunities within our focus sectors. Moving to Page 8, and an overview of our investment in views. In line with our ambition to concentrate capital deployment towards our highest conviction companies, we led a funding round of $110 million in Mews in the quarter. Mews is the leading vertical software and payment solutions for hotels, on a mission to transform the entire industry through technology. What sets Mews Tech suite apart is how tightly different modules are integrated and embedded within each other, providing hoteliers with a full end-to-end capabilities in one single platform. With over 1,000 integrations, the platform is the most connected marketplace in the hotel industry. And Mews creates value for hotels by freeing up staff for hotel staff and empower them to focus on creating great guest experiences. The company also helped Hotels increased booking through Mews user-centric booking engine, and they also provide hassle-free payment processing services using Mews payments. Since our first investment in 2022, the company has consistently outperformed our expectation as it's moved into new geographies and segments. The new funding allows a very strong year with 60% revenue growth in 2023, and over $100 million in annualized net revenue. We also crossed $8 billion in gross payment volume and had over 16 million check-ins at hotels worldwide. And we are super excited to continue backing Mews, led by its founder, Richard and CEO Matt, as they transform the hospitality industry. Now, moving on to Page 9, and an overview of our investment in Pelago. During the quarter, Pelago successfully closed a $58 million funding round. Atomico Growth led the round with participation from us and all other existing investors, as well as new investors Eight Roads and Grey Matter Capital. Pelago developed a transformative care model for substance use management for the U.S. businesses and health plans. Over 46 million Americans have a substance use disorder. And the use of tobacco, alcohol and opioids is one of the nation's most urgent health care needs. Substance abuse costs, used employers and health plans over $15,500 per affected employee and year. Pelago substance use management program reduces those medical claims by over $9,000 per year and per participant, delivering a 3x return on investment for its customers. And the company saw revenue growth of over 280% in 2023. They had 100% client retention, and the platform now covers 3.4 million eligible lives. The additional capital raise will help Pelago accelerate its product road map, extend its continuum of care and advanced clinical research efforts. We are incredibly proud to continue supporting founders, Yusuf, Maroof, and Sarim, as well as the full team at Pelago on the both journey. With that, I will now hand over to Samuel, our CFO, to talk you through our financial position, our private portfolio valuation, and the development of our core growth companies before I go into priorities and plans for 2023 and beyond.

[Samuel Sjöström, executive]

Thanks, Georgi, and good morning, everyone. So, before we get into the NAV and private company valuations, let me just quickly cover off our financial position, considering the big swings we have in front of us over the coming quarters. We ended Q1 with NOK 10.3 billion in net cash with the key movements in the quarter, clearly being closing the first step of our Tele2 divestment and on the investment side of things, having led Mews financing round with a SEK 419 million ticket. Pro forma completion of the remaining steps of the Tele2 transaction and our SEK 23 per share extra cash distribution, our net cash position amounts to $13.9 billion. As you know, we have for some time and are still working through a meaningful pipeline of potential follow-on opportunities. Many of these opportunities are in discounted secondary equity or our financing investee company M&A. Now, these are situations where we can utilize our financial strength and competitive advantage to exploit the current market environment and support our founders when others cannot. Secondary trades and M&A are, however, notoriously hard to forecast. But having said that, we're confident that our EUR 13.9 billion pro forma net cash position provides us not only with the strength and flexibility we need to capture these opportunities, but also with enough capital for us to say that a growth-centric generic now is fully-funded, irrespective of the current state of exit markets. Clearly, we expect to generate several exits, primarily in the tail of our portfolio over the coming years. But considering the market uncertainty, a strong financial position helps ensure that we can remain focused on creating long-term value rather than chasing short-term liquidity. So, in summary, the pivot to growth is soon completed, the strategy is financed and the near-term capital allocation priorities that we've outlined to you in past quarters remain clear. And Georgi will get back to them as he wraps up today's call. Moving on to Page 12 then, and this quarter's NAV development. NAV was down 0.5% to NOK 47.9 billion or SEK 170 per share in Q1. Looking at the main building blocks, Tele2, which we're carrying at the agreed deal price was up SEK 1 billion in Q1 when including the sales proceeds received in the quarter. Our other two public investments, Recursion and Global Fashion Group were up $0.1 billion or 9% in aggregate. Moving to the private portfolio. Our 5 core companies were up SEK 1 billion or 8% when including capital deployment. But all of this was offset by VillageMD being down SEK 2 billion, based on the valuation implied by WBA's goodwill impairment charge announced in late March. I'll get back to this shortly, but just to wrap up, our remaining private assets were up $0.1 billion, meaning that the private portfolio in total was down 5% to NOK 27.3 billion or up 3% if excluding VillageMD. On the next couple of pages, I'll try to give you some color on these drivers of value in the private portfolio, as well as on the changes we're making to our reporting structure in this quarter. Starting off with a quick snapshot of the known external drivers, currencies and multiples on Page 13. The Swedish krona was down in the quarter after a strong upward movement in late 2023. The U.S. dollar, which represents 60% of our private portfolio was up 6%, and the euro, which represents another 1/3 was up 3%. This led our valuated currency basket to be up 5%, corresponding to a positive effect of SEK 1.3 billion to our private valuations. Moving on to the key peer set for our private portfolio shown on the left-hand side of this page, multiples and share price development in Q1 were both virtually flat on average. And we're reporting a similarly flattish underlying value development outside of VillageMD, albeit while stomaching significantly steeper multiple contraction. And that downward spread to the comp set stems in part from our industries growing significantly faster than the public market equivalent with a number of them transitioning over 2024 and '25, into being valued increasingly on a direct basis of current and near-term future profitability. Now, on that note, on Page 14, I'd like to spend a minute or two on the public comparables in our most important categories, software and virtual care, representing around half of our private portfolio. What we're trying to show with this chart is, firstly, just the challenge of how to value growth relative to public comparables. And secondly, that we're effectively valuing our investees, which are growing by 65% to 70%, in line with multiples of public comparables growing by around 20%. In this chart, expected gross profit growth over the coming 12 months is profit against the x-axis. And on the y-axis, we're charting forward gross profit multiples. Now, we've profit out publicly comparable software and health care technology businesses as well as our industry averages in software and virtual care. Now, while public company valuations are somewhat dispersed along the black trend line, growth remains the most important determinant in valuing companies in these sectors with growth being typically 2 to 3x more important for multiple levels than profit margins for healthy and well-financed businesses. As you all have observed, the financial profiles of companies in this part of our public peer universe have changed meaningfully over the last years. We used to have the benefit of observing valuation levels for several public comps growing at clicks of 50%, 60%, 70% year-over-year. Today, however, there's 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 by 65% to 70% on average, but are value-add at a multiple in line with the average gross profit multiples of similar public companies growing by 20% to 30%. The reason why we're valuing our companies at such a meaningful discount to what is suggested by their growth rate and the value that public markets ascribe to growth is because we take into consideration several parameters beyond growth in gross margins. These include differences in current and expected future profitability, financial strength, scale, long-term growth potential, and the percentage share of recurring revenues relative to more transaction or usage-based revenue. The valuation levels we ascribe to our companies in these sectors are not just a matter of accounting and reporting, but they have been corroborated by capital markets. We have seen price transactions in all our software and virtual care companies except Cedar and Sure over the last 12 months. And these transactions have on a value-weighted average basis, priced to our companies 10% above our assessed valuation in the immediately preceding quarter. Even with this average, including secondary transactions led by us in Spring and Pleo at 20% to 25% discount. You'll find more on this in Note 4 of our report. But with that, I'd like to zoom in on our 5 core companies that now represent almost half of our portfolio after the Tele2 exit. And these are Cityblock Mews, Pleo, Spring and TravelPerk. On average, the underlying dollar or euro valuations were flat in the quarter, and their SEK fair value was up around 4.5%. Including capital deployment into Mews and Pleo in the quarter, this group of company's fair value grew by 8%. Quickly running through each of them. In Q1, the group is weighed down slightly by Cityblock, where we're decreasing our multiple due to us taking a conservative stance towards multiple contraction in certain pockets of Cityblock peer group in the quarter. Mews was up 7% on a euro price per share basis corresponding to the valuation the company was described in its Q1 funding round. Pleo and Spring were virtually flat, more or less in line with public comps, and TravelPerk was up 5% on an underlying euro basis after having delivered on expectations in an assuring way since their last funding round was priced in mid-2023. Operationally, our core companies have performed well coming out of the pandemic. In the last 12 months, they grew revenue by more than 75% on average, and they've all started 2024 in a solid way, meaning our expectations on growth and beating them on profitability. Over the next 12 months, we expect our core companies to grow top line by more than 50% on average, and to generate an average 12% EBITDA margin loss. And that is a loss margin that they can easily sustain with the capital they have on their balance sheets today, and our companies are themselves targeting more ambitious numbers than what we base our expectations and valuations on. Now, if these 5 companies continue to deliver close to our expectations, they will take a larger share of our portfolio into account, and we should see solid overall NAV accretion even before taking into consideration the other more distributed half of the portfolio. On Page 16, we're putting these growth and profitability expectations in a historical perspective. Looking back on our core company's development since end of '21, they matured, but they managed to trading growth for improved margins in an efficient way. On this chart, we've plotted 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 Q4 '21, and then each red dot represents a subsequent quarter. So from being expected to grow by more than 150% with 70% EBITDA loss margins on average at end of '21, as I mentioned, they are now expected to grow by 50% over the next 12 months, with EBITDA margins of around minus 12%. I should say that each individual core companies grouped quite tightly around that average, with growth rates spanning high 30s to mid-80s percentages, and EBITDA margin standing negative 20% to breakeven. Throughout this journey coming out of the pandemic, they've balanced the growth profitability trade-off well and tracked the rule of 40 quite tightly, meaning growth rates plus profit margins adding up to 40%. Looking into 2025, over the next 12 months by the time we end '24, we have them growing by more than 40% and generating a small but positive EBITDA margin on average, which effectively for these typically asset-light companies means being cash flow positive as well. And once that breakeven inflection point has been reached, we believe growth rates will begin to stabilize at levels that can compound year-over-year at profitability, meaning that the slope of this curve should flatten on average and in particular, for select few. Our core company's performance in this chart is something we will be coming back to throughout this year. But for now, I suggest we move on. On Page 17, we outlined this quarter's two larger valuation reassessments as well as the aggregate movements in our sectors and the total private portfolio. You can find all these data points and more in today's report. Starting with Cedar. In Q1, we're taking down our valuation by 21% in SEEK fair value terms to reflect longer-than-expected sales cycles that impact our expectations on growth in GAAP revenue in '24. This change in near-term growth expectations is what leads to the relatively large 8% downward change in NTM revenue outlook and in turn, bears a knock-on effect on the valuation multiple we end up with when running Cedar through our various regressions. We expect Cedar's growth to reaccelerate in the back end of this year and the company is currently EBITDA breakeven, but the temporary dip in growth we believe warrants a material cut evaluation this quarter. By far, largest valuation change in this quarter, however, is that of our retained 2% stake in VillageMD. As many of you know, in late March, VillageMD's controlling shareholder, WBA, reported an impairment charge related to VillageMD goodwill. We estimate this accounting measure by WBA to imply an underlying valuation of VillageMD some 66% below our assessed valuation in Q4 2023, which is noteworthy, considering WBA have deemed the valuation more than 30% above our assessed valuation in Q4 '23 as fair in each consecutive quarter since the acquisition of Summit in late '22. In this quarter, we've opted not to let our own bottom-up valuation assessment of VillageMD determine our fair value. Instead, we're expecting WBA's accounting valuation so far as we use it as the basis for the fair value assessment of our 2% ownership stake. That means that VillageMD is now valued below 1x NTM revenue, while growing by 20% in WBA's latest fiscal quarter with an unchanged expectation to reach EBITDA breakeven during 2024. Our own expectations on VillageMD in 2024 and '25, have remained largely intact since Q2 2023 when WBA and VillageMD revised their business plan after it was proven that their expectations on the acquisition of Summit had been misguided. And to date, VillageMD has tracked those expectations quite well. This revised VillageMD valuation bears a SEK 2 billion negative fair value impact and is what pushes our private portfolio into the negative this quarter, as excluding Village, the private portfolio is up 3% in sectors. With that, I have one final slide before I pass it back to Georgi. And that's just a quick page to point your attention to the measures we're taking this quarter in order to aid the understanding of our private portfolio by trying to provide more information on our private companies while respecting the constraints we face from a confidentiality perspective. I'd like to highlight just a few changes this quarter. To start off, we've amended our NAV categorization slightly. As we've telegraphed in earlier quarters, Climate Tech is now introduced as an NAV sector in its own right, along with valuation commentary in Note 4. Clearly, these valuations and that commentary will become more interesting as time passes and our companies begin to prove out whether they're meeting our expectations. Secondly, we are merging health care investments into one NAV sector, while continuing to report on valuation commentary separately for value-based care and virtual care in Note 4, considering the differences in business models and peer-set Thirdly, consumer finance has been removed as a category, more accurately reflecting our investment strategy, which has for some time now focused more on software and B2B2C or enabler businesses rather than the more crowded consumer-facing Fintech space. As a consequence, betterment has been moved to platforms and marketplaces, and our other past consumer finance investments have been moved to our small other category. We will upload the data sheet on our website during the course of today, if we haven't already, to help you bridge historical NAVs into this new categorization. The second measure we've taken is to dial up the level of financial information a notch. In Note 4, we now provide you with LTM and NTM growth rates for each of our sectors at a quarterly cadence together with NTM gross margins. We will also be providing changes in revenue outlook and valuation multiples for all large businesses, in addition to already providing it for our NAV categories. The third measure taken on board feedback received from some of you, is that we will be providing a full list of all the public peers we use in valuing our private businesses on our website, rather than just providing you with what we believe are good illustrative examples in Note 4. We hope this will help you track external valuation factors in between quarters for a portfolio that after the Tele2 divestment is overwhelmingly private. And through 2024 and onward, we will be continuing to take incremental steps in this direction. With that, I'd like to hand it back to Georgi for his concluding remarks.

[Georgi Ganev, executive]

Thank you, Samuel. Let's now move to Page 20. After closing, the sale of Tele2 completes our transformation of Kinnevik into a leading growth investment firm. Transformation we started in 2018. We have done this through 6 years of forceful capital reallocation and value creation. Pro forma for the Tele2 transaction and the proposed extraordinary cash distribution, we have made investments of SEK 27 billion, divestments of DKK 34 billion and distributed EUR 88 billion to shareholders through spin-offs and cash dividends. During the course of this transformation, we have also strengthened our cash position, improving from $1 billion in net debt to almost $14 billion in net cash. In other words, we are entering the next phase of our history in a position of strength. On Page 21, the final page of this presentation, we have outlined what this new phase will look like and our near-term priorities. Our portfolio without Tele2 will constitute around 30 companies with the two important clusters. The first cluster is our 5 core growth companies: Mews, Spring Health, Pleo, Cityblock and TravelPerk, which have shown exceptional operational performance. Over the last 12 months, they have grown revenues by 75% on average, progressed on their path to profitability and are expected to generate positive EBITDA in 2025. These businesses now represent 46% of our growth portfolio that's up from 41% in just 1 quarter ago. We will work hard to create opportunities to increase our capital deployment into this group. And coupled with the value appreciation throughout the year, we have them on a path to represent well over half of our growth portfolio at the end of the year. The second cluster is our selected younger ventures, which are yet to prove themselves, but where we see strong long-term potential. These include Agreena, Enveda, Recursion, among others. And we expect the composition of this group to change over time. These companies are much earlier in the growth journey and time will tell if they will be successful. Provided that they meet our expectations, we will deploy a meaningful amount of capital into these businesses over the coming years. And over time, when they deliver on their business plans and our conviction increases further, they will also have a meaningful positive impact on our NAV. Outside of these 2 clusters, we have and will always have a set of companies that do not qualify in either cluster. They may not or at least not yet have the adequate scale or strong enough potential, and they are therefore, not as important to shareholder return at this point in time. Some of these companies could move into 1 of the 2 previous clusters at the progress on the growth journey. But also in some cases, we will be looking to release capital once markets become more accommodating. The beauty of our strong cash position, however, is that we do not need to make any excess in the near-term, we are not forced sellers in any businesses. Our priorities for the near-term are to increase portfolio concentration, support our key company's operational performance, and to maintain our strong financial position. The sale of Tele2 provides us with the strength and flexibility we need to execute on these priorities. And we see -- as we've said before in this presentation, a strong pipeline of attractive investment opportunities, primarily in the existing portfolio, and the bar for new investments is as high as ever. What I would like you to leave with you today is that we firmly believe that in our current portfolio, we have a small number of core long-term holdings that may become the new backbone of Kinnevik. Companies that will continue to create value and compound over decades of growth. And as such, we're doing now what we have done for the -- for almost 90 years to reinvent ourselves over and over again. We will be hosting a Capital Markets Day in the second half of 2024 where we look forward to sharing some more of what lies ahead in the future of Kinnevik. Finally, I would like to thank all our shareholders for your continued support, and I hope to see many of you at our Annual General Meeting on 3rd of June in Stockholm. We're now ready to answer your questions. So operator, please open up for Q&A.

[Operator]

[Operator Instructions]. And now we're going to take our first question, and it comes from the line of Linus Sigurdson from DNB Markets.

[Linus Sigurdson, analyst]

So to start off, could you help us sort of break down the VillageMD write-down here? I mean, I'm thinking about how you evaluate the Walgreens write-down? And if I interpret your communication correctly, their new forecast is in line with the one that you already had. So I'm just trying to understand how you sort of reconcile those things. Thank you.

[Samuel Sjöström, executive]

Sure. Hey, Linus, it's Samuel. Look, I think the key difference between us and Walgreens from a reporting perspective is that clearly, we are fair value centric and they are not. Having said that, when the controlling shareholder claims that their subsidiary is worth X, myself and my team aren't going to question that at this juncture. You all know that goodwill impairments may not necessarily be a search for the most fair valuation, but perhaps more of a reverse process where you start with the results and work your way back. But in any case, this quarter, we've elected not to make our own valuation assessment. Clearly, going forward, Walgreens aren't going to move that mark around, at least not upwards. That's not how their accounting works. So let's see how things develop from here and out. But in this particular quarter, we're merely plugging in what's implied by Walgreens goodwill impairment charge. On the performance, as you rightly say, what we're seeing coming through in the monthly reports that we received time to time is tracking what we've had in our expectations since mid-last year. I understand there's been made some references to a longer-term outlook. But considering this is a business that, again, growing 20% in Walgreens last fiscal quarter, reaching EBITDA breakeven in '24, I think you don't necessarily need to look 15, 20 years into the future to reach a fair value assessment here.

[Linus Sigurdson, analyst]

Okay. And then I wanted to ask on the position not to do buybacks. I recognize you see sort of significant opportunities to grow the private portfolio. But could you talk a bit about how that option has been weighed against the cash distribution?

[Georgi Ganev, executive]

Yes. Hi, Linus, it's Georgi here. I mean, again, the Board conducted this capital review with the largest shareholders. And I think there is a broad alignment between our larger shareholders, our Board and management on the fact that we see these attractive opportunities in the portfolio, where we actually think that the long-term return is superior to buybacks. That's the main reason. In the comparison between cash dividend and buying backs, I mean, again, that is our shareholders' view, and we think this also gives the flexibility for shareholders that would like to reinvest to do so. But from my perspective as CEO for the business, I can only talk for the opportunities I see in the current portfolio in our focus sectors, and we believe that pipeline is strong. And that pipeline will also further concentrate our portfolio and make it even more attractive.

[Linus Sigurdson, analyst]

Okay. And then just the last one, if I may. So you're obviously going to have a large net cash position even after the distribution. How are you sort of planning on managing that cash? I mean, what kind of yield could we expect? What kind of currency do you intend to keep it in?

[Samuel Sjöström, executive]

Sure, Linus, starting with currencies, we hold all our cash in SEK virtually. We don't want to speculate in currencies more than we're indirectly doing through the portfolio right now. If you look at sort of the cash management net we're running, I think it exceeded SEK 100 million in Q1. I think it came close to EUR 500 million in 2023 in total. So it's covering HQ and a bit more. Where is that sitting? Well, we have an extremely low risk appetite when it comes to managing that cash. So it's basically a mix of A-rated money market funds and deposits with banks, spread out clearly to manage counterparty risk. So it depends on where yields end up. I think at least for the coming -- call it 24 months, we're covering HQ with our treasury and then let's see how the rate environment develops from there.

[Operator]

Now, we're going to take our next question. And the next question comes from the line of David Johansson from Nordea.

[David Johansson, analyst]

I'd like to start off with a follow-up question there on the net cash position. The EUR 13.9 billion pro forma should provide you with at least a couple of years of runway, but obviously, portfolio exits will become more important now going forward. So it would be interesting to hear how you see this kind of playing out over the coming years and when we should start to see exits in the unlisted portfolio?

[Georgi Ganev, executive]

Thank you for the question. You're absolutely right. We expect to see exits over the coming years. I think this cash position gives us not only the dry powder to capture those opportunities we have referred to earlier, but also to create the necessary buffer for us not needing to sell our best companies too early. So, it can give us the long-term holding horizon that we would like to have in our best businesses. But surely, this cash position gives us time to actually sell companies when the exit window opens up for these type of businesses. So looking at our portfolio today, there is significant value in companies where we believe we can exit over the years. And that's why we use the term fully-funded.

[David Johansson, analyst]

Okay. And I'd also like to follow-up with a question there on VillageMD. The impairment from Walgreens, I mean, it has been out for some time now, so nothing new there. But what surprised me a bit is that you are moving away from your previous model framework. When we have discussed this previously, you've always kind of relied on your own assessment? And if my math is correct now, you have Village at around 0.8x revenue, which to me looks right, but it's pretty far off from where you have been previously. As I said, the company is also profitable on adjusted EBITDA now. So overall, I would be interested to hear your reasoning around this.

[Samuel Sjöström, executive]

Sure, David. Look, again, I think what we're doing right now is effectively not arguing with the controlling shareholder as to what the "fair value is" of this business per end of March. Going forward, we intend to, over time, sort of reintroduce our own way of thinking and our own models in valuing this business because, again, Board wins will not be changing their assessed valuation upwards ever. That's not how it's going to work. So for now, a massive hit, yes, but clearly, the slope of the trajectory from here on out gets deeper, because you and I know what we felt was fair 3 months ago, and now we're starting off from a much lower base.

[Operator]

[Operator Instructions]. And now we're going to take our next question. And the next question comes from the line of Derek Laliberte from ABG Sundal Collier.

[Derek Laliberte, analyst]

I wanted to follow-up again on VillageMD here. I mean, at this point, what do you think of as the biggest risk for your remaining valuation here just considering the outlook for the company, but also based on what the Walgreens might decide to do.

[Samuel Sjöström, executive]

Hey, Derek, I'll start, and then let's see if Georgi wants to chime in. I think the risk with Village is not necessarily a valuation risk, but rather that we aren't able to convert that stake into liquidity as we hope to. I think accounting valuations are interesting and we spend a lot of time clearly on them. But at the end of the day, we'll have a very clear answer on what our stake is worth when we exited. So, I think that's probably more the risk, and that also clearly then pertains to the general IPO environment in the U.S. and in health care in particular. So probably more of a sort of a liquidity risk from our perspective than a valuation risk from this level. Georgi, anything to add?

[Georgi Ganev, executive]

I think I can echo what you're saying, Samuel, but I think it's important to also remember that we sold down a significant part of our shareholding in VillageMD, receiving 3x roughly our invested capital. At that time, should we -- should we have the opportunity to sell the entire stake, we would have. But unfortunately, we became a minority shareholder in the backseat of a strategic owner, owning 60% of the business. So I think in terms of influence, that is from my perspective, the biggest risk, and that will come basically into the fact that we are discussing liquidity events, but have no control of those.

[Derek Laliberte, analyst]

Okay. That's very clear. And then just out of interest, do you see any similar situations where we could see something like this happen as well?

[Georgi Ganev, executive]

I mean, our principle is that we would like to be an inferential minority shareholder, which means that in contracts with shareholder agreements, we have rights, we have board representations, and we also have a very strong alignment with our partners and co-investors. That is something we have in all our other businesses. So, from that perspective, VillageMD is unique, and something we have referred to before as a company where we don't see ourselves as long-term owners. So I think, I mean, it's fair to say that this is a special case.

[Derek Laliberte, analyst]

Okay. Understood. And on Cedar, maybe this in the report somewhere, but what are the underlying sort of reasons for this longer sales cycles that you referenced?

[Georgi Ganev, executive]

Basically, on Cedar, they are selling to hospitals. So I mean, conservative customers taking a long time to kind of move into new contracts. And we also have competition in terms of an incumbent in the U.S. market, that are currently developing similar services like Cedar, not with the same quality, not with the same customer satisfaction, but still having that control of customers. And that has slowed down the sales for a while. But as we are seeing now, the signed contracts are picking up significantly, but it will take time to kind of integrate those new customers. So as Samuel said, at the end of the year, we will have a much better view on kind of the projected revenue.

[Derek Laliberte, analyst]

All right. And on the pipeline going forward there, thinking about new versus follow-on investments, I might have misunderstood something so far, but I get the impression that you will focus the majority of reference on existing companies there. Can you give some more background on that, if that's the case?

[Georgi Ganev, executive]

I think we are, with this cash position, ready to back any long-term business in our focus sector. Businesses we understand, businesses will believe in for the long-term. So, we will constantly look for those opportunities. But we also have an exciting and broad portfolio. We take the 5 core businesses, as we have done last year. We have been able to increase our ownership via both primary transactions, but also discounted secondary transactions. And I think if we can pinpoint companies like that within our portfolio where we can increase our ownership and our influence, we think that is a long-term value creator that is far superior than buying back our entire portfolio, especially when 1/3 will be in cash. We also have the opportunity not to concentrate only our own portfolio, but also the cap tables in those companies and make sure that the remaining shareholders will have a very strong alignment on the company strategy. The second thing within our existing portfolio is that there are also transformational M&A opportunities where we could help these companies to actually grow much faster and do step changes in their growth journeys. That type of capital, we also believe could create longer and stronger value compared to buying at this time, our own portfolio. Then we have the more promising companies, the second cluster I referred to, companies that have not yet basically, delivered all the proof points, but we will see long-term potential as they deliver on their plans or beating their plans. We also want to have capital ready to continue back these businesses in order to make them as successful as our core 5 businesses. So, that's basically the reasoning around the kind of pipeline, I would say, more skewed towards the existing portfolio, but also we are open to find new opportunities. I hope that clarifies or give you some more color, Derek.

[Derek Laliberte, analyst]

Absolutely. I appreciate the clarity and explanation. Great. And finally, on the distribution news era. I know it's a Board decision, but just wondering why you wouldn't see a mandate for buybacks just to sort of have it as a tool in your toolbox, so to speak. Because I suppose the outlook for investments could change quickly thinking about your -- the meaningful pipeline that you see.

[Georgi Ganev, executive]

I think at the end of the day, it's about the alignment between the board, the shareholders and also the management on the pipeline of opportunities. We can always -- or the Board could always go back to our shareholders and seek a mandate at the next AGM or the AGM after that. The point here is that even with the buyback mandate at hand in our toolbox, I am sure that we would prioritize these opportunities I just went through. So if you want to see it as -- from a symbolic point of view or signaling, not having the buyback mandate means that we have a lot of -- we need to prove that these existing investments that we're about to do could create even better value over time. So, I think it's just a vote of confidence that we see these opportunities within our portfolio, so we can share pick the companies we really want to invest in and potential new investments.

[Operator]

And now we're going to take our next question -- just give us a moment. And the next question comes from the line of Bharath Nagaraj from Cantor Fitzgerald.

[Bharath Nagaraj, analyst]

I have two questions, actually. You mentioned a number of private companies are now being valued on your portfolio on a profitability, kind of multiple. Could you talk about what those -- which those companies are at least? And secondly, the magnitude of the funding that is required from 18% of your portfolio. Like could you speak to that as well?

[Samuel Sjöström, executive]

Hey, Bharath. Good to have you on. Samuel. I'll start with the first question on valuations and using profitability measures rather than revenue. Look, I think this is a transition that every company goes through, and it's something that we've been using throughout the last couple of years really to triangulate accurate revenue and gross profit multiples. So clearly, first step is to move from revenue to gross profit that we are effectively doing for each of our businesses today. Just so happens that we tend to report on revenue multiples because it makes it a lot easier to provide you guys with average numbers, and just make the communication part of it a bit more clear. We already have several companies where we look further down the line. For instance, the Cityblock, we look at contribution profit margins and triangulate that against peers. We have a number of companies that are EBITDA profitable on an NTM basis. We mentioned Cedar being breakeven. So clearly, not at a magnitude that we can sort of apply multiples on and call it today, but a job and talent, for instance, is significantly positive on an EBITDA basis already. Betterment is another one that is sort of reaching that point. But I think, bear with us and we'll make that whole transition into profit multiples a lot more clear also in our report in Note 4, where we cover off private valuations. Georgi, do you want to comment on the scale of the financial position?

[Georgi Ganev, executive]

I think, again, the financial position gives us the flexibility for the years ahead. And as we have shown, many of our businesses in our private portfolio has also improved the profitability. So 75% of the portfolio value is either breakeven or funded to breakeven. So, I think for us now, this gives us great opportunities to invest where other -- perhaps more short-term investors cannot invest.

[Operator]

And now we're going to take our next question. And the question comes from line of Zino Engdalen Ricciuti from Handelsbanken.

[Zino Engdalen Ricciuti, analyst]

I've only got one related to Spring Health. Just to get a bit more understanding where you say that the cash consumption is 20% lower than you expected now in this quarter. Could you say something, if it's something that could be extrapolated or if it's cost being pushed or something like that?

[Samuel Sjöström, executive]

Hey, Zino, it's Samuel. I think that's largely an effect of us not merely plugging in company budgets into our valuation models. But myself, my team, and my colleagues in the investment team doing a lot of work, bottom-up to understand what we believe our companies will be able to achieve irrespective of what they tell us. So, that's part of it, meaning sort of Spring hitting their budget or even beating their budget, meaning they're beating our expectations by an ever wider margin. To put it in perspective in terms of does this change the forward outlook for Spring in particular, I think we're careful to start to extrapolate sort of 1 quarter worth of overperformance. But just for context, that Spring, we're seeing them reaching that profitability inflection point on an EBITDA basis end of this year. So on a next 12-month basis, they're very close to breaking even. And that's before having sort of revised our own expectations to move them closer to management.

[Operator]

Dear speakers, there are no further questions at this time. And I would like now to hand the conference over to a speaker, Speaker Georgi Ganev, for any closing remarks.

[Georgi Ganev, executive]

Thank you. And thank you very much for listening and for your questions. As a last reminder, we will report our results for the second quarter of 2024 on the 9th of July. Thank you very much, and have a nice day.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.