Kinnevik AB

STO:KINV B

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Kinnevik Second Quarter Report 2023 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Georgi Ganev, CEO. Please go ahead.

[Georgi Ganev, executive]

Good morning, and welcome to the presentation of Kinnevik's results for the second quarter of 2023. I am Georgi Ganev, Kinnevik's CEO; and with me today is our CFO, Samuel Sjostrom; and our Director of Corporate Communications, Torun Litzen. 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 1 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 are uncovering investment opportunities that we believe are some of the strongest long-term opportunities we have seen over the last 5 years. Our #1 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 valuation. 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 amounted to SEK 54 billion. That's down 3% in the second quarter. And 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 2 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. And 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. And 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 5, 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. And 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 health care market, the U.S. They have an exceptionally strong founder duo in April and Adam, and they were well grounded in science and have managed to deliver superior clinical outcomes. And 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. Now on Page 6, 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. And 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. So 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. And only around 10% are forecasted to be allocated to more struggling businesses, where we see potential on a more long-term valuation. And as evidenced by the previous slide, we have made significant strides during the first half of the year to seize opportunities in our existing portfolio. With these successes, we expect follow-on investments to make up around 2/3 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. And with that, I would like to run off this part of the presentation by talking about the strong results presented in our 2022 climate progress report on Page 7.

Three years ago, we set targets to reduce the greenhouse gas emissions intensity in our portfolio by 50% by 2030 compared to 2020. And in June, we published our annual climate progress report to follow up on this target, and 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 valuated basis. And since our base year 2020, we have achieved an average yield intensity decrease of 12%. We believe climate change represents risks in our portfolio as expectations are increasing SaaS from customers, investors, employees and regulators, but 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 8.

[Samuel Sjöström, executive]

Thanks, Georgi. So 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 6 months into the year, we would like to post an update on the growth numbers our portfolio is delivering. Moving to Page 9. 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 effect of liquidation preferences and currency fluctuations renders this quarter's small 1% SEK fair value write-up. And adding the SEK 2.1 billion we invested into private assets this quarter, primarily our sizable follow-on investments 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 then. Well, firstly, while the expectations on the rest of our private portfolio have been stable on average in the quarter, downward 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. And while we clearly support these measures strategically and commercially from the more craft perspective we take on quarterly valuations, they do weigh on our NAV. And 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. Now having said that, we follow public market multiples on the way down and our multiples will reflect public markets also going forward. But 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 6 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 5 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 1 or 2 quarters, and that is growth. Because in the last 2 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 outlook for several of our companies as we try to navigate a tricky environment, especially on the back of weakening demand on the e-commerce side.

So therefore, 6 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, and 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% and 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 3x 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 4 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. And 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. But 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 plants in exchange for profitability improvements and runway extensions. And 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. And looking at some examples in our oldest vintage, the 2018 one, since our first investment, Instabee and TravelPerk has grown revenues by more than 30x and Pleo has grown revenues by more than 20, 25x. So as our early-stage investments succeed and growing scale dramatically, percentage growth rates naturally come down from the 100%, 200%, 300% year-on-year numbers these businesses recorded in the first years of our transformation. Now as Georgi has reiterated, considering the scale of 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. And this quarter's investment into Spring 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. Okay. So to summarize, we have 4 main drivers of the change in growth rate this year. 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 industries that face these more temporary e-commerce headwinds, the portfolio's average growth rate moves from 50% closer to 70%, 75% this year. And 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 then 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 dollar 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, and we're receiving another same-size dividend in Q4 this year.

So 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. So 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 2/3 into follow-ons this year rather than the 50-50 split we envisaged at the start of the year. And 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. So 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 and 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.

And with that, I'd like to hand it back over to Georgi for his concluding remarks.

[Georgi Ganev, executive]

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. We're up SEK 1.7 billion in this quarter. We have proven our ability to create and capture the opportunities that arise in more challenging markets. And 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. And as I said previously, we expect follow-on investments to account for roughly 2/3 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.

By 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 at they arise. We are as ever grateful to our shareholders for their 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.

[Operator]

[Operator Instructions] Now we're going to take our first question, and the question comes from the line of David Johansson from Nordea.

[David Johansson, analyst]

So my first question is related to runways and perhaps the road to profitability in some of your companies. So 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 commented in the report that expectations on growth and profitability remains largely unchanged from Q1. So 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. It would be interested to hear your view on this.

[Samuel Sjöström, executive]

Sure. David, it's Samuel. I think clearly, VillageMD is semipublic 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 Village is that they're taking out more cost than expected in part through synergies with the Summit merger. But net-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 length 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. But from the portfolio perspective, it's unchanged in the quarter.

[David Johansson, analyst]

Okay. Then my second question is in regards to Pleo, which you have basically revised downwards every quarter since 2021, but now it's up 7%. So we saw in the company's 2022 report that operating losses continue to point up where it's quite drastically year-on-year. And so 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. So could you maybe elaborate a bit more on when you expect profitability for this business? And what do you believe is a sustainable growth multiple for Pleo over time?

[Samuel Sjöström, executive]

David, it's Samuel again. I think you, on Pleo, we're more focused on looking forward and backwards. I think we've been fairly clear with the challenges Pleo faced last year with the decline in consumer spend. As you know, many of Pleo clients are themselves venture in growth capital funded businesses. So while we saw a 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. So it's a widely 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 "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 breakeven within the next 2 years on a monthly basis. But 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.

[Operator]

And the next question comes from the line of Derek Laliberte from ABG Sundal Collier.

[Derek Laliberte, analyst]

Okay. 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?

[Georgi Ganev, executive]

Derek, Georgi here. So as you said, we did a follow-on investment in 2022 second half. And the ambition for the company was to focus solely on the core business model and divest part of the kind of noncore markets and businesses. The company has improved a lot when it comes to profitability over that period, but they did not succeed with those divestments. So that was kind of 1 key milestone for us as an investor when we did that investment. But then I think, generally, looking at the opportunity ahead when we compare the long-term value potential between Babylon and for, 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. So as I said, I mean, they fall short of that very high bar, I think, of ours. So 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.

[Derek Laliberte, analyst]

That's very clear. And to follow up here, I'd like to ask also on Mathem, if you can comment anything on the status of reaching profitability and whether the idea is that this latest funding round in the quarter was the last one, and how the path to breakeven looks like? And also if you could follow up with Babylon 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?

[Georgi Ganev, executive]

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. And yes, they are big ones because Vivino is not burning close as much cash as the other 2. Different type of business model, more of a marketplace 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. So 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 [indiscernible] earlier this year, which always, as people have know, if they are being closed, 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, and that means taking very, very drastic actions and difficult decisions internally, laying off people, decreasing costs across the board. So 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. And like with Babylon, for instance, we took 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.

[Operator]

Now we're going to take our next question. And the next question comes from the line of Oskar Lindstrom from Danske Bank.

[Oskar Lindström, analyst]

Two questions from my side. Number one, I mean, you've talked a lot about the sort of increasing focus on capital retention and increasing runway for your companies and also how this, in some cases, has had a negative impact on near-term growth outlooks as well as on NPDs for those businesses. Is this something that you continue to foresee to continue during H2 that a lot of businesses are still trying to catch up on increasing their runways either 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.

[Georgi Ganev, executive]

Thank you, Oskar. So I would say that the spread is very wide here in the portfolio. So 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're focused on the right things. For some businesses, that means focusing solely on the core operations to increase efficiency and focusing on profitability. But 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. So 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.

So I think the spread is wide again, and we will never be kind of completed or done with our actions. That's not the way we're on the businesses. We will constantly be close to our teams and make sure that they're focusing the right things. For some businesses, that journey will, for sure, continue to be even more cost efficient over the coming quarters.

[Oskar Lindström, analyst]

Right. I mean, could you give a rough number of sort of how many of your privately held companies would need to increase the runway as you see it now?

[Georgi Ganev, executive]

No. But as we said before, we gave you these numbers that are unchanged. So a very small part of our portfolio on a valuated basis actually needs capital this year. And in relation to or kind of follow-on budget, 80% goes to businesses that are actually currently performing very strongly or has enough cash or have already reached profitability. So we see ourselves much more forward leaning into those businesses.

But of course, we play a very active role in the others as well that are struggling. And some of the companies that are struggling now might have long-term potential. And there, we thought that we summarize to around 10%, as I said in my presentation. And some companies that are struggling where we have decided not to deploy capital, we kind of wish the other investors the best of luck.

[Oskar Lindström, analyst]

Okay. My second question was just on Babylon Health. I think you mentioned in the presentation here that you've 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?

[Georgi Ganev, executive]

Of course, some of these learnings we keep for ourselves and not to spread to our competitors. But 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 SPAC transactions during a very hot kind of SPAC market in the U.S.

That bubble burst first at the end of 2021, as we know. And then when the market changed focus to actually looking for profitable businesses or businesses that could become profitable in a relatively fast way, the company is struggling a lot to kind of change the course and kind of transform their entire business, if you will.

So 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 the SPAC transaction.

But another kind of learning 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. And 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.

But in hindsight, I think, and also going forward, we should have been even more focused, of course, in delivering first on the core business. But again, we have the full conviction of these businesses until we took the decision not to fund any longer. But in 2022, we had high hopes, and our ambition was that this company could actually turn profitable with the current funding.

[Operator]

And now we're going to take our next question. And the question comes from the line of [indiscernible] from Handelsbanken.

[Unknown Analyst]

I just got a question on Spring Health. Can you share the reason for selling for the owners whose share you bought?

[Georgi Ganev, executive]

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. So we want to deploy more capital and the seller wanted to release capital.

[Unknown Analyst]

Okay. 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?

[Georgi Ganev, executive]

I think generally more adjacent to what we have in our portfolio. We have today a couple of kind of core focus sectors. And then, if you will, we have defined subsector underneath. So within health care, 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 Enveda and Recursion. It's a relatively wide focus area. Then we have, as we've said before, started 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. And we have also some assets in the marketplace buckets. So I think those are the main sectors we are looking at. But in the software areas, of course, there's a broad portfolio, a different type of B2B and B2B2C type of services. But I expect us to stay mainly in those areas.

[Unknown Analyst]

Okay. And 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?

[Samuel Sjöström, executive]

Sure [indiscernible]. It's Samuel. I think the simple answer is that, that ground included structures that make it difficult to extrapolate the round valuation on the full enterprise, answer 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.

[Operator]

And the next question comes from the line of Stefan Ward from Pareto Securities.

[Stefan Wård, analyst]

A question regarding VillageMD. I'm a little bit puzzled with the revaluation there. I think, I mean, it looks like Walgreens [indiscernible] is quite happy with the performance of Village. I might be misinterpreting that. But otherwise, it -- 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. And therefore, it's a little bit why you make the valuation adjustment. I can understand if you're related to peer groups and such. But can you comment on the way forward from the VillageMD investment?

[Samuel Sjöström, executive]

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. And 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. So this all means that we are expecting revenue to be a lot lower than we had in our outlook a quarter ago. And we understand that Walgreens are focused on EPS growth. I think we still valued Village after the merger as a company that has a massive market opportunity to grow into. So from our perspective, the net effect of what might be positive for Walgreens is negative in our NAV. And it's probably just a difference in approach in that we are more growth focused than perhaps Walgreens is. On the future, I'll leave it to Georgi.

[Georgi Ganev, executive]

Yes. And as we said before, we think that this was already a relatively mature business. With the merger with Summit, 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. And it's pretty convenient that we are a small owner of this relatively large business. So obviously, when the right timing occurs and the right opportunity, we are a potential seller of this business. But we have no rush with SEK 8.8 billion in net cash end of this quarter, we see that we can wait for the right opportunity.

But 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 is fair to say. We don't change those lenses too fast, too quickly because then there is 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.

[Stefan Wård, analyst]

Okay. Yes. But it's fair to say that the sort of only possible acquirer today's business is Walgreens, its alliance, right? I mean, can't really be [indiscernible]?

[Georgi Ganev, executive]

Not necessarily, Stefan, because you can think of an IPO, right, of this business being stand-alone, and we could be a seller in the public market to anyone. So 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.

[Stefan Wård, analyst]

Okay. And then on to another question regarding Oda, if you could update a little bit on the -- yes, I was a little bit surprised about the hefty revaluation of that asset.

[Georgi Ganev, executive]

Yes. That's again, I would say, something that is a little bit counterintuitive because we believe that the company is doing the right things, given the market environment. So the kind of the big ramp-up ambition and the extra cost they got during 2021 to actually launch in 2 new markets, Finland and Germany, has proven not to be as effective.

And 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. And 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. So I think from a growth perspective, the forecast is decreased and therefore, it impacts our valuation negatively. But long term, we think this is the right way to do. So although it's kind of not good for valuations this quarter, we think it's good for the business.

[Stefan Wård, analyst]

Final question from my side, if I may. The climate tech strategy with [indiscernible] of unit, when will you include that as a separate part in the NAV?

[Samuel Sjöström, executive]

Stefan, it's Samuel. We have this pocket now that we call early bets. And if you strip out Recursion, which is public, and also the smaller fund partnership investments we have made, I think that NAV categories carried at around SEK 2.7 billion, SEK 2.8 billion. So out of that, SEK 1.5 billion is climate take spread over 5 businesses. So call it 5% of the unlisted portfolio. So we're not quite at that sort of critical mess yet, I believe, in terms of highlighting it as a separate NAV category, but we are getting there. And I'd say most likely, it's something we're going to introduce perhaps as we enter the next financial year.

[Operator]

[Operator Instructions] 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.

[Georgi Ganev, executive]

So thank you very much for listening and for your questions. And 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.

[Operator]

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