Kinnevik AB

STO:KINV B

Earnings Call Analysis

Guidance Set Amidst Exit Market Challenges

In a challenging exit market, the company maintains a strong cash position and has managed minor exits, setting a conservative net deployment guidance of SEK 3 billion to SEK 5 billion annually to avoid net debt. Large exits may prompt a reassessment of the capital allocation framework. While the IPO pipeline is robust, with no urgency to go public, IPOs are improbable until late 2025, with a focus on evaluating potential exit scenarios internally.

Kinnevik Q4 Report: Navigating Through Economic Headwinds with Confidence in Long-Term Growth

During the Kinnevik Q4 Report 2023 Webcast and Conference Call, CEO Georgi Ganev and CFO Samuel Sjöström detailed Kinnevik's performance amidst a tumultuous year for growth investing. Faced with currency headwinds, increased prudence on valuation multiples, and a challenging e-commerce sector, the company emerged with a robust strategy for 2024, focusing on portfolio businesses with high potential, eyeing less uncertainty, and setting a course for renewed net asset value (NAV) growth.

Kinnevik's Financial Performance: NAV Slight Decline Amidst Strategic Investments and Market Challenges

Kinnevik's net asset value saw a 5% decline to SEK 48.2 billion in Q4 and a 9% drop over the whole year. This came despite functional areas of the business achieving substantial growth. For instance, TravelPerk, after partnering with SoftBank, hit a 70% revenue growth, a 90% gross profit growth, with annualized booking volumes nearing $2 billion. These numbers reflect the company's drive to expand and innovate despite broader sectoral challenges.

Robust Portfolio Growth Outshines Public Peers

Kinnevik's private portfolio soared with an average of 60% revenue growth in 2023, outperforming public peers fourfold. Transactions validated valuations in 22% of the private portfolio, and this validation alongside continuous potential growth offers reassurance for investors despite valuation adjustments. Confidence in the value of these businesses underpins Kinnevik's strategic vision as they enter 2024.

Software and Virtual Care: The Pillars of Growth

Software and virtual care companies constitute approximately 40% of Kinnevik's private portfolio, showing resilience with flat valuations amid currency and multiple contraction. These companies, including Pleo, Cedar, Spring, TravelPerk, and Mews, are projected to grow 50-60% in 2024. Kinnevik's investment deployment into these sectors during 2023 was SEK 1.9 billion, showcasing a commitment to these high-potential areas.

Adjustments in Valuations: Prudence in Face of Dollar Strength

With the U.S. dollar's significant appreciation, Kinnevik adjusted the Swedish krona fair values down by 24% at VillageMD and 19% at Cityblock. This reflects cautious recalibration due to currency fluctuations and sets a more conservative base going into 2024.

E-commerce Sector Drags, While Healthcare Sector Offers Mixed Signals

Kinnevik noted challenges in e-commerce and value-based healthcare. While online grocery merger projects like Oda and Mathem create a stronger outlook, the environment remains tough, and no immediate improvements are expected in valuation for 2024. Comparatively, transactions in the healthcare space such as One Medical, Oak Street Health, and Signify reveal significant interest, indicating a varied picture within healthcare investments.

A Challenging Year Leads to Strong Portfolio Foundations for 2024

The net decrease in Kinnevik's private portfolio by SEK 3.5 billion is seen as a tactical move, fostering a foundation for a positive trend in net asset value growth in 2024. The year 2023 was marked by several companies underperforming against expectations, but Kinnevik used this as a springboard to fortify their portfolio for coming years.

Investment Strategy: Selective and Value-Driven

Kinnevik's 2023 investment strategy prioritized software and virtual care, with approximately 40% of the funds allocated to these businesses. Other investments focused on securing attractive valuations in profitable companies and rebalancing the portfolio towards faster-growing businesses, anticipating an average private portfolio growth of around 40% in 2024.

A Shift Towards Profitability and Long-Term Runway Profiles

Through careful capital allocation and support to businesses, Kinnevik has shifted its portfolio to focus on companies that are profitable or nearing breakeven. This pivot towards financial stability indicates a strategic approach to investment that prioritizes longevity and resilience in its businesses, with over 70% of the private portfolio by value being profitable or funded to break even.

Looking Ahead: Commitment to Solving Key Global Challenges

Kinnevik remains committed to its key business sectors, aiming to address pressing global challenges. With strong partnerships and significant potential for returns, the company is prepared to make substantial investments over 2024 and '25 within this ethos.

2024 Outlook: Disciplined Capital Allocation and Concentrated Portfolio

Kinnevik aims to support its key companies' operational performances and further concentrate its portfolio. With a disciplined but vibrant capital allocation strategy, the company plans to deploy between SEK 3 billion to SEK 5 billion net per year on average over the next three years. This approach ensures that Kinnevik remains agile yet prudent in its investment decisions.

Strong Foundations and Clear Strategy Poised for Long-Term Value Creation

With around 35 exceptional businesses valued at roughly SEK 30 billion, and a robust cash position, Kinnevik boasts a powerful platform for long-term value. This strong footing, complemented by a diverse team and a precise strategy, bodes well for the company's net asset value to reflect its long-term potential as soon as 2024.

Earnings Call Transcript 2023-Q4

[Operator]

Good day and thank you for standing by. Welcome to the Kinnevik Q4 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, Georgi Ganev, CEO. Please go ahead.

[Georgi Ganev, executive]

Thank you. Good morning and welcome to the presentation of Kinnevik's results for the fourth quarter and full year 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. With this presentation today, we're closing the books on 2023. And on today's call, we will walk you through the key events and valuation changes for the fourth quarter and follow up on our progress against priorities and expectations we set out at the beginning of 2023. We will also take the opportunity to talk about the future, the new phase Kinnevik is now entering into and what that means in terms of our strategic focus and capital allocation. Finally, we will lay out our more near-term priorities for 2024 and as usual end with a Q&A.Let's first take a look at the fourth quarter on Page 4. Our net asset value amounted to SEK 48.2 billion. That's down 5% in the fourth quarter and 9% for the full year. Samuel will guide you through the development of the valuations of our private companies in just a few minutes. In a quarter that was relatively quiet from an investment activity perspective, we were glad to welcome SoftBank as a new co-investor in TravelPerk. SoftBank invested in an extension of the company's 2023 funding round, which we anchored with our investment in Q2. We are pleased to see another strong international investor enter the company's shareholder base and we're encouraged by TravelPerk's continued strong performance coming out of the pandemic.They achieved a 70% revenue growth in 2023, a 90% gross profit growth and the annualized booking volumes are approaching $2 billion. In Q4, we were also pleased to see Temasek join Aira's funding round as an anchor investor. Meanwhile, H2 Green Steel raised another EUR 300 million in equity with participation from Microsoft Climate Innovation Fund. The company has now raised a total of EUR 6.5 billion in financing including EUR 4.2 billion in debt, a remarkable achievement and testament to the company's ambition and potential. Lastly, we also supported the announced merger between Oda and Mathem as we believe the combined entity will provide an improved financial and operational outlook relative to the standalone opportunities.That said, I will now directly hand over to Samuel, our CFO, to provide some more detail on our private valuations before I cover the 2023 full year and our future plans.

[Samuel Sjöström, executive]

Thanks, Georgi, and good morning, everyone. This quarter ends the second year of a turbulent period in venture and growth investing. In our valuations this quarter, we sought to enter 2024 with a prudent base from which the performance of our strongest businesses rather than the struggling ones can be reflected in our future NAV development. On Page 6, we've laid out the drivers of our fair value adjustments in the private portfolio this quarter. From a sector perspective, our valuation changes in Q4 followed a similar pattern to previous quarters, namely poor performance in e-commerce, caution towards valuation levels in value-based care and strong performance and increased portfolio weight in software and virtual care. The quarter's writedown comes from 3 main factors.Firstly, currencies impacted the private portfolio negatively with SEK 1.7 billion in the quarter with the dollar down 7% and the euro down 3%. At the end of Q4, 63% of the private portfolio was carried in dollars and 30% was carried in euros. Secondly, we have taken down our valuation multiples by 7% despite public benchmarks expanding by 8% in part because of an intentional and broad downward push across the portfolio and in part because of the aforementioned caution in value-based care. During the quarter, we've also had several transactions occurring at or around our Q3 marks. In many cases, this leads to us keeping valuations unchanged from Q3 and stalling for a quarter despite the upswing in markets in late '23 and despite continued investee growth and profitability improvements. In Q4, we saw transactions validating our valuation levels in 22% of the private portfolio by value and during the full year 2023, that number was closer to 50%.And then thirdly, we have sought to take out the wider margin of safety to our company's own plans and expectations this quarter. In businesses that had a tough 2023 such as our Nordic e-commerce businesses, we have been particularly harsh. Despite these challenged businesses weighing on our NAV, we saw 60% revenue growth in our private portfolio on average in 2023. That is a growth rate around 4x higher than the average of our company's publicly traded comparable businesses. Wrapping up 2023, we have also sought to clean up in the long tail of our portfolio that inevitably has been built up over the last 5 to 6 years. In this quarter: we're writing off our Monese investment, we're writing down our Omnipresent investment towards immateriality and we are doing further writeoffs in smaller sub SEK 100 million investments.Now these revisions are highly influenced of us intending not to deploy further capital into these businesses and us wanting to start 2024 with lighter feet rather than these revisions strictly stemming from developments at the individual company level. So to summarize, Q4 was a quarter of significant currency headwinds, increased prudence on multiples and investee forecasts, e-commerce continuing to weigh on NAV but software and virtual care delivering on expectations and finally, more and more external validations supporting our valuations. So while the headline number this quarter is clearly disappointing, with this quarter's set of valuations and with our aim to continue to increase transparency around our companies and our valuation assessments, we are confident that we head into a 2024 of less uncertainty, higher potential and with an entry point setting us up for a return to strong NAV growth.On the next few pages, I would like to revisit the 3 categories of businesses that share valuation commonalities and that have been the most important from a valuations perspective during 2023. They are the same ones that I highlighted earlier and that we gave more color on last quarter and I suggest we start with the most important one namely software and virtual care. With that, we are on Page 7 and on our 5 largest virtual care and software businesses; Pleo, Cedar, Spring, TravelPerk and Mews. This pillar of ours now represents almost 40% of our private portfolio, up from 29% at the beginning of the year. In Q4, our Swedish krona valuations of these investments were flat on average despite currency headwinds and multiple contraction. Public peers meanwhile saw their multiples expand by 10% to 15%. Now the gap to these peers this quarter is primarily due to transactions validating last quarter's marks such as TravelPerks' recent funding round.It is also coming from our aforementioned ambition to enter 2024 with a prudent base that allows for strong fair value development as these companies continue to perform in 2024. On average, these companies doubled revenues and more than doubled gross profit in 2023 on a valuated basis. In '24, our careful expectations have them growing by around 50% to 60% after a strong finish to 2023. Profitability is expected to improve with EBITDA loss margins of around 15% on average in '24, spanning break-even to negative 30% and typically correlating inversely with the pace of growth. In this quarter, we value these businesses at 9.5x revenues or 16x gross profit on average. This is a valuation level that is in line with public fast growing software companies on an NTM basis with our companies growing twice and sometimes 3x faster and showing as strong or stronger rule of 40 metrics as it's often referred to.Naturally Pleo, Cedar, Spring, TravelPerk, and Mews are companies we support improving profitability in a substantial way. But as we've said before, more importantly we are insisting on them not overcompensating and unnecessarily compromising on their longer-term growth potential. We deployed SEK 1.9 billion into this group of businesses during 2023 and we're continuing to try to unlock opportunities to invest more capital to help accelerate the share of our portfolio these businesses represent, up towards 50% of our private portfolio already in '24. Moving on then to the next category, one which has come further in shifting from high growth to near-term profitability during the last 2 years, but where there is less guidance these days as to how the public market would value these companies and that is our 2 large value-based care delivery businesses and that means we're on Page 8.In Q4, we're taking down our Swedish krona fair values by 24% at VillageMD and 19% at Cityblock. This is coming from 2 shared reasons and for 2 company-specific reasons. The first shared reason is simple and that is the powerful dollar headwind in the quarter. The second shared reason is that we're applying an increased level of caution in how much weight we place on valuation levels where delisted peers used to trade at. Because as you will recall, we used to have 3 highly relevant public comps for Village and City; One Medical, Oak Street Health and Signify. But One Medical then got bought out by Amazon at around 3x, 3.5x revenues, Oak Street was bought out by CVS also at around 3.5x revenues and the same CVS also acquired a faster growing Signify at around 7x revenues.These 3 value-based care provider businesses consistently traded at material premiums to more traditional health care providers also when adjusting for growth and profitability and this was largely due to the underlying secular trend of U.S. health care moving from fee-for-service to provider risk sharing and value-based care. And less comparable traditional health care businesses have traded fairly steady since the buyouts of our value-based care benchmarks. But these data points are now soon a year old so throughout 2023, we have sought to take down the valuation levels of our companies carefully relative to traditional care provider businesses and that goes for Q4 as well. Now these 2 common factors are exacerbated by 2 company-specific reasons. Firstly, at Village, we're being more cautious in our valuation considering the lack of influence we have over this business under Walgreens' controlling shareholding.We have faith in both Walgreens and Village, but we are used to being an active and influential owner and the discomfort of being a passenger with limited influence over outcomes is what pushes the valuation down another notch as we head into 2024. Secondly, at Cityblock, the company is exiting certain less profitable contracts and markets. This bears a 9% negative impact on our revenue outlook this quarter, which passes through on to our valuation. With these measures, City is expected to grow by around 40% in '24 and we see them breaking even in 2025. This is a bit later than originally envisaged due to the stepdown in scale that the market exits entail, but this path remains funded with a large buffer. The third category of businesses that I wanted to cover is e-commerce. Now these companies have weighed on our NAV during 2022 and '23 due to repeating revisions to financial expectations in an uncertain market and ensuing multiple contraction.As a result, they have put a big dent in our overall performance and they now make up a much lower share of our private portfolio. In this quarter, we're writing down Instabee by an additional 27% rendering a fair value writedown of 19% on our aggregate equity and convertible investment. As we talked about last quarter, the company has had difficulties navigating a top Swedish market and our outlook for 2024 remains bleak and does not factor in any improvements in the company's environment. As a result, we're also taking down our valuation multiple and valuing the company at a meaningful discount to public peers. Moving on to our online grocers. The merger of Oda and Mathem creates a stronger outlook than the 2 standalone companies. However, circumstances are still challenging and we're not expecting any meaningful improvements during 2024 when we calibrate our valuation.In the quarter, we're taking our underlying valuation down by around 10% and the change in the fair value of our investment is more drastic due to a weakened Norwegian krone and anticipated dilutive effects from the merger. I should note that part of these effects may be reversed in the next quarter when all technical details of the merger have been finally concluded. So with that, I'd like to end with the full NAV development in the quarter, also considering our public investments and net cash position. That means we're on Page 10. So again we are taking down the fair value of our private portfolio by SEK 3.5 billion. Adding the SEK 0.3 billion net invested in the quarter, the private portfolio comes down by SEK 3.2 billion to SEK 28.2 billion at the end of Q4. Recursion share price continued to swing up and down ending the quarter up 29% in dollars and GFG had another soft quarter.Tele2 was up SEK 0.8 billion when adding back SEK 0.5 billion in dividends received and posted a set of solid results day before yesterday with a slight increase in their proposed dividend. All in all, NAV was down 5% in the quarter to SEK 48 billion, of which SEK 7.9 billion being our net cash position and Georgi will get back to what this financial strength means for our capital deployment ambitions over the coming years. But to sum up. After 2 difficult years, in this quarter we faced some significant FX headwinds and consciously increased our level of caution towards multiples and investee expectations and we ended the year with valuations of almost half our private portfolio validated by other investors. While this quarter's negative valuation adjustments do not necessarily affect where we believe the value of our portfolio will be in a year or 2 from now, I strongly believe that they will help ensure making the return to a positive trend a lot more clear to everyone in 2024.With that, I'd like to hand it back over to Georgi.

[Georgi Ganev, executive]

Thank you, Samuel. So let's reflect on 2023 covering our capital allocation, how our companies have performed and how this performance has informed our expectations for the year to come starting on Page 12. As Samuel said, 2023 was a very challenging year and several companies have not met our expectations. This has been reflected in the weak development of our net asset value. On the other hand, we have made use of this environment to enter 2024 with a stronger portfolio. We have doubled down in our highest conviction companies taking advantage of the market slump to instigate transactions and investing a record amount into secondary equity. We made a limited number of new investments in our focus sectors and we have held back deployment into companies where conviction is lacking. We also used this transitionary year to clean up our portfolio, exiting or writing-off 6 businesses.Obviously the most notable example of this is Babylon, which was unable to fund its continued growth resulting in the liquidation of the company. While some failures are to be expected in venture and growth investment, this result is highly regrettable and something we have spent significant time reflecting on and learning from. With our focused capital deployment amounting to SEK 4.9 billion and SEK 2.3 billion in inflows from exits and dividends from Tele2, we entered 2024 with a stronger and more concentrated portfolio underpinned by robust SEK 7.9 billion net cash position. And on the next page, we have provided a breakdown of our capital allocation during the year. The lion's share nearly 40% was deployed into our software and virtual care businesses, in line with our priority to increase exposure to these companies.SEK 1.5 billion were deployed into more opportunistic secondary acquisition, most notably our SEK 1.1 billion secondary investment in Spring Health. The transaction showcases our ability to accrete ownership also in fully funded soon profitable companies at attractive valuations in the current market. Another SEK 1.5 billion were invested in other performing and emerging businesses. We then also supported our struggling e-commerce companies in the down cycle with SEK 0.7 billion and allocated only SEK 0.1 billion to protect value in our more challenged businesses. On Page 14, you can see part of the reason why we have concentrated our capital deployment into software and virtual care and, as Samuel mentioned earlier, these are the fastest growing businesses in the portfolio. The overall portfolio grew revenues on average by over 60% in '23, which is again 4x their public peers.Looking into 2024, some of our companies will continue the shift towards profitability at some expense of growth and we also expect portfolio growth to continue to be weighed down by a softer e-commerce market and maturing VillageMD. All in all we expect the private portfolio to grow around 40% on average in 2024, but that is before taking into consideration our continued effort to rebalancing the portfolio to our highest potential, typically faster growing businesses. We also aim to add more fast growing businesses to the portfolio. Now turning to Page 15 and the evolution of our private portfolio's financial strength. Compared to 18 months ago, our portfolio has undergone a significant shift in runway profile. This has been achieved through a combination of investee profitability improvements, new financing and improved portfolio concentration towards our stronger businesses.And at the end of 2023, over 70% of the private portfolio by value was invested in companies that are either profitable or funded to break even. The equivalent a year ago was 25%. Meanwhile, companies representing 14% of our private portfolio by value are likely to raise new capital during 2024. This is not by any means an abnormal number. Having a portion of our young and fast growing portfolio looking to raise capital in the near future at any given time is to be expected. With the portfolio growing at healthy levels and clear improvements in profitability profile, clusters are now emerging more clearly in our portfolio. And on Page 16, we have outlaid 2 important clusters in 2024 and beyond. Firstly, our so-called core growth companies; Pleo, Cityblock, Spring Health, TravelPerk and Mews. We expect these businesses to have a revenue growth of over 50% in 2024 with strong gross margins.These companies have gained share of our growth portfolio now representing over 40% of its value. In 2024, we expect this share to increase through both value appreciation and capital deployment and have them on a path to represent more than half of our growth portfolio by value at the end of 2024. We also have a set of new ventures such as Agreena, Aira and Enveda. These companies are much earlier in their growth journey, but are run by strong and diverse teams addressing large markets and solving some of the most pressing challenges of our time. We are carefully monitoring the progress of these companies. We have strong partners that share our conviction and priorities as owners and we believe each of them has significant return potential over the next 5 years.Provided they meet our expectations, we expect to deploy a meaningful amount of capital into these businesses over 2024 and '25 with of course the exception of H2 Green Steel, which is fully funded. These 2 clusters of companies already constitute a much larger share of our portfolio value than it did a year ago and going forward, we expect to continue concentrating the portfolio more towards these businesses. And I think this provides a good bridge to move to the final section of this presentation, focus on what lies ahead for Kinnevik as we enter a new phase of our journey starting on Page 18. First, let's take a brief look in the rear view mirror. In 2018, we set out to make Kinnevik a leading growth investment firm. Since then, our portfolio has undergone a forceful and fundamental transformation. We have distributed close to SEK 75 billion in value to shareholders through spin-offs.We've paid out SEK 6.5 billion in cash dividend and made divestments of over SEK 30 billion. In the last 6 years, we have invested a total of SEK 27 billion into more than 30 new companies. And in parallel, we have also strengthened our cash position to accommodate for the risk-reward profile of our new portfolio improving from SEK 1 billion in net debt to almost SEK 8 billion in net cash as we end 2023. As a result, our growth portfolio today constitutes more than 70% of our total portfolio value and we're entering 2024 with a strong balance sheet, enabling us to seize opportunities over the coming years. Moving to Page 19. While 2023 has been a year of transition focused on profitability improvements, we have spent the year since 2018 ramping up our portfolio.Not only have we allocated capital at a high pace, but we also spent significant time building relationships with founders and co-investors, establishing a strong track record, network and a brand within our focus sectors. This has created an exceptional platform which, coupled with strong cash position, empowers us to continue building our growth portfolio and to make selected investment in the most exciting companies in our focus sectors. And in this new phase we're now entering, we expect the portfolio to maintain its current size in number of investees as we add companies at a slower pace and begin to realize exits at a higher pace. We also expect a slightly higher share of listed assets and that the value will be more concentrated towards a handful of companies.With more tempered capital deployment in relation to the size of our growth portfolio, our future value creation will be more driven by the performance of our larger businesses while capital deployment and financing rounds will be less influential. On Page 20, which I would like to end on, we have concluded our outlook for 2024. Our focus will be on supporting our key company's operational performance and increasing our portfolio concentration further. Capital allocation will be vibrant, but disciplined and over the coming 3 years, we expect to deploy between SEK 3 billion to SEK 5 billion net per year on average depending on the opportunities we see in and outside our portfolio. This in combination with our well-funded portfolio will enable us to execute our strategy even if exit markets stay dormant over the next years.The bar for new investments remains as high as ever and we will leave no stone unturned in our efforts to find the best investment cases out there. While we started our journey 6 years ago building a portfolio largely from scratch, we're now entering this new phase in a very different position. We have an attractive private growth portfolio of around 35 businesses with many exceptional founders worth around SEK 30 billion in total. We have a strong cash position, an experienced and diverse team and a clear strategy. And I believe this makes us well positioned for the long-term value creation and that this long-term potential will again be reflected in our net asset value already in 2024. Finally, I would like to thank all our shareholders for your continued support as we embark on the next phase of Kinnevik's Journey.And with that said, we are now ready to answer your questions. So operator, please open up for Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Linus Sigurdson from DNB Markets.

[Linus Sigurdson, analyst]

So starting off, you take down your portfolio values quite substantially here in the quarter. Is there any way you could sort of quantify how much of this is driven by, say, less positive fundamentals than you saw 1 quarter ago as opposed to sort of wanting to rebase expectations, if you will?

[Samuel Sjöström, executive]

Linus, Samuel here. I would say it like this. It's more our scrutiny of our investees' expectations that is changing rather than our investees' expectations on next year that is changing. So again as I said in the opening remarks, we're trying to widen the margin of safety here also drawing on what we've learned from the last 2 years in terms of misses and beats on expectations.

[Linus Sigurdson, analyst]

That's very helpful. And then second and lastly, you say that 14% of the portfolio will need new funding during the year. Is there any color you can give on sort of how many of these you expect to, say, participate in? And if there's anything you can say about the timeline of those transactions?

[Samuel Sjöström, executive]

I'll take that one as well, Linus. I'd say the absolute majority of that sits in companies that we're already sort of calibrating our participation in. It's relatively back-ended towards the end of the year I would say. So we're not expecting too much to come through in Q1 and Q2 other than processes that are already initiated.

[Georgi Ganev, executive]

And just to add, Linus. I mean as you see on the slide, the average holding period is a little bit more than a year so they're a relatively new investment for us. The conviction is high, but we also are very clear that they need to meet their milestones and their plans for us to have further conviction of course.

[Operator]

And your next question comes from the line of Andreas Joelsson from Carnegie.

[Andreas Joelsson, analyst]

I have 2 questions. The first one on the comment on entering a new phase. It sounds a little bit like what you planned to do already in '23. And if I look at the investments you have made and split them into the core growth companies, the newer ventures and other; it's fairly evenly split during 2023. So I'm just a little bit curious on can you sort of confirm that that split will be different from 2024 and onwards? And also on the core growth companies, you say that you will invest, allocate more; but I guess they are not in need of capital injection. So does that mean that you will increase your ownership in those type of companies? And my second question is you have a net cash position and if we add potential dividends from Tele2 for the coming years, it does not really cover the net investment level in your outlook using the midpoint of that range. Just curious on your view on that.

[Georgi Ganev, executive]

Okay. Andreas, this is Georgi. I will take the first question and then I'll hand over the second to Samuel. So absolutely you're right, we talk about a new phase that we have actually already entered. '23 is, as we say, a transitionary year. So given the kind of tough environment and the shift to profitability and some cleanups, it's basically a lot about preparation for the phase -- for '24 and onwards. We believe that the categories that we have started to talk about will be very much like the one we will continue to talk about. That said, we also understand that the more concentration in the portfolio we will have to a handful of, let's say, 10 companies, the more we need to increase transparency around those businesses and maybe discuss a little bit less of the ones in the long tail. So I think you can expect that our communication from 2024 Q1 and onwards will be slightly different.But you will not be surprised because what we have done in 2023 is actually part of entering this new phase. And then when it comes to capital allocation, yes, as we continue to rebalance our portfolio and we kind of double down in what we see potential category winners; we would like to invest in these companies either through attractive secondary opportunities or if they are entering some transformational business development; that could be an M&A or a more ambitious market expansion, et cetera, that require new capital. But that will then be from a position of strength, that's what we're saying. And I think that we have, with 2023 behind us, some proof points that we have been even more disciplined in our capital allocation to companies where we see this potential. So yes, the thing will be to be forward leaning to increase ownership in businesses, but also to back businesses that we like and we believe in to take more ambitious next steps.

[Samuel Sjöström, executive]

And maybe I can cover on the guidance and on how much capital will last. I think the math is simple. So clearly, I don't disagree. Net investments of SEK 3 billion to SEK 5 billion per year, we're getting SEK 1 billion per year from Tele2 dividends and our HQ costs are covered by our financial net. I think these numbers are more sort of on the basis of smaller divestments in the shape and form that we've seen over the last year. I think over the next 2 to 3 years, there will also be larger exits that sort of reset the clock if you know what I mean. So we're going to gauge deployment relative to what we see on the horizon.

[Georgi Ganev, executive]

And maybe just to add on that. What we say today is that we believe that the next phase we're entering into will kind of increase our pace of doing exits. However, we also have the buffer to wait until the next opportunity is better for the companies we believe in and where we see high potential. So we will not rush by exiting companies where we see we can have a better -- create more shareholder value in, let's say, 1.5, 2 years from now.

[Andreas Joelsson, analyst]

Okay. So part of potential exits are not part of the net investments so to say?

[Samuel Sjöström, executive]

The game changing ones are not. I mean I think we've been fairly clear on our ambitions at VillageMD for instance.

[Operator]

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

[Derek Laliberte, analyst]

Okay. Just firstly wanted to follow up there on the investment guidance. I suppose you have answered this, but I really don't understand something fundamentally. You're guiding for SEK 3 billion to SEK 5 billion in net investments and just by that definition, that would include exits, and you have then cash of SEK 8 billion right now. So shouldn't that be interpreted as that you're planning to sort of deploy all of the net cash plus the Tele2 dividends over the coming 3 years?

[Samuel Sjöström, executive]

Derek, so again this is an indication and clearly our deployment pace will be gauged by our successes and also exiting companies. And I think in the near term those exits will primarily come from the longer tail of businesses and it's really on that basis that we're giving you these numbers. Again in case of larger exits from larger stakes in the growth portfolio, then that would reset the timer. And as Georgi mentioned, we have now the capital we need to basically gauge when is the optimal time to exit over the next 3 years and we can calibrate our deployment against that horizon.

[Derek Laliberte, analyst]

Okay. I think I get it. And just on the sort of fairly large valuation cuts that you're making in this quarter and the lowered financial forecasts. I mean I understand that it's sort of year-end and everything is up for deeper review I suppose, but you made a fairly big reset last Q4 as well if I remember correctly. So just sort of wondering how we can have conviction in this being sort of a low base to grow from here during the year?

[Samuel Sjöström, executive]

Sure, Derek. I think from what we're seeing, volatility in terms of investee performance as well as multiples was very high during '22. That has stabilized now in '23 and we're seeing on average that companies are coming in much more in line with expectations. So we feel that the environment and the horizon has become a lot more clear and that's what gives us confidence in saying that we feel that the base we're entering 2024 with both in terms of valuation levels, in terms of multiples and expectations on our investees and also noting the cleaning up, so to say, in the longer tail makes us very confident in having conviction in this year and in next year.

[Georgi Ganev, executive]

I also would like to add, Derek, that as we say in the report more than 20% of the valuations by value has been confirmed by other rounds with external investors in the quarter and 50% of the growth portfolio by value has been kind of validated, if you will, at our marks in our book or above during the full year and I think this is a very big difference compared to 2022 where there were very few transactions. And our belief is that the market will continue to open up and also make it easier to compare our valuations with what the market is willing to pay for them.

[Derek Laliberte, analyst]

All right. Also wonder on VillageMD, this downgrade due to lack of influence. Wondering if you could just explain that in a bit more detail because Walgreens has sort of been in the driver seat for a while there. So I'm wondering if anything has changed of late in your view because the new guidance and the focus on profitability, et cetera, has been around for a while.

[Samuel Sjöström, executive]

Sure. I think so as you know, Derek, first of all, our ability to comment on a subsidiary that is central to a large U.S. listed company's equity story is quite limited. I think we all understand the increasing uncertainty on the accurate valuation levels for these types of value-based care providers again considering the lack of accurate comps out there. But as it relates to the situation we have in Village with Walgreens in the driver seat, I think it sort of forms part of what we've been trying to do here in Q4 in general, which is to take out some uncertainty. So rather than trying to be in the very middle of the fair value corridor, we're trying to be in the lower end here because Village is special in the sense that we're not necessarily in control of outcomes here to the extent we are in other companies.

[Georgi Ganev, executive]

And also I mean what you referred to is Walgreens' guidance and outlook, that has clearly not changed. So this is our view rather than someone else.

[Derek Laliberte, analyst]

All right. Okay. And finally, this is probably in the material somewhere so excuse me. But with regards to the Aira and also the latest H2 Green Steel investments here. Is it correct that you haven't participated in the sort of these latest rounds and how have they affected your ownership?

[Georgi Ganev, executive]

That's correct. I mean in both in these cases, there were extensions of the rounds, right, with great investors coming in. So Temasek in Aira, a partner that we've been working very close with for many years; and in H2 Green Steel, Microsoft Climate Innovation Fund. Some investors increased their investments in Aira in this extension, we did not. So the numbers we have reported earlier are the numbers we still have invested.

[Operator]

[Operator Instructions] And your next question comes from the line of Oskar Lindstrom from Danske Bank.

[Oskar Lindström, analyst]

Two questions from me. First off, on the cash runway improvement for your unlisted assets, which you outlined on Slide 15 there. How much of that has been achieved through cost cutting rather than sort of organic growth earnings improvement in these companies? And is that part of why you've cut your growth expectations for these companies? So that's the first question.

[Samuel Sjöström, executive]

Oskar, Samuel. Cost cutting clearly one dimension of it. I think primarily in 2022, our companies did a fairly good job at doing big cuts rather than several small ones. But yes, cost cutting very much part of it. I think scale benefits we're seeing coming through in many assets. Cityblock is 1 example where contribution margins are strong, but you need to become larger to enable to cover your overhead. I think the third effect naturally is funding rounds. We did a large pre-emptive participation in Spring and we have other examples of companies that are raising capital to both up ambitions and bring them to break-even. I think another effect clearly is just how fair values have changed during the year where we are being more harsh against the companies with weaker financial positions and that's also being reflected in the changes here. Another example clearly of a company that actually was funded to breakeven already, but still raised capital is TravelPerk with the extension that they announced during January. So it's a bit of both.

[Oskar Lindström, analyst]

All right. And my second question is a follow-up on this capital allocation issue, which several people have asked about already, where you say that in addition to the SEK 3 billion to SEK 5 billion net investments per year, you're also seeing potential for additional sort of larger exits and you mentioned one of your unlisted companies there. I mean could you potentially also -- I mean are exits from listed companies also are they excluded from this or is that a potential as well?

[Georgi Ganev, executive]

But I think, Oskar, we have tried to give the market a sense that with our strong cash position and some minor exits in this still relatively difficult market for exits in private companies, we have the guidance of SEK 3 billion to SEK 5 billion net deployment per year. That's basically more to say we're not running into net debt territory even if the exit market remains dormant. Should we do any, as Samuel said, game changing type of exits so a large exit or we're approached by someone that would like to acquire some of our businesses or any type of larger exits, I think we need to redefine what that means for our capital allocation framework both in terms of ambition level and of course capital allocation in general.

[Oskar Lindström, analyst]

All right. Wonderful. Those were the 2 questions I had.

[Operator]

[Operator Instructions] Your next question comes from the line of Stefan Ward from Pareto Securities.

[Stefan Wård, analyst]

I'd like to ask a couple of questions regarding a few of the assets. If you could give us some insights into the development of Spring Health and Pleo. And the way I see and if I understand it correctly, you have the software assets at [ 10.6x ] next year's revenue. If you could give us an indication of the expected growth for that valuation as well would be helpful.

[Samuel Sjöström, executive]

The expected growth of the valuation, Stefan, you said?

[Stefan Wård, analyst]

No, total top line growth.

[Georgi Ganev, executive]

For these 2 specific companies.

[Samuel Sjöström, executive]

I'd say Pleo is a bit later than Spring in its journey. So Pleo is around call it the average of that of the 5 software and virtual care companies that we highlighted on a page in the deck. Spring Health is growing slightly faster than that average.

[Stefan Wård, analyst]

Okay. Perfect. When it comes to the value-based care assets and the adjustments that you made there, could you give some insight on the situation in the market there? Is it still like quite busy consolidation phase within value-based care or have the assets decided that have they been picked off or what's the status in the U.S.?

[Georgi Ganev, executive]

What we see generally is that it's difficult for smaller players that have not the scale to survive in this business. So we think that net on the balance is good for our assets because they are large in the respective populations. So I think acquiring populations from smaller value-based care provider gives them a good opportunity to also grow inorganically. That said, what Samuel also referred to is that Cityblock has been kind of pruning their footprint for a while now in order to focus on profitability. What we expect for them is for them to grow a little bit faster now that we have taken that kind of top line hit in Q4. But going back to your question, I think it's more difficult for the smaller players so there will be continued consolidation in the market.

[Stefan Wård, analyst]

Can you give any comments on possible listings regardless not commenting on market conditions, but just assuming that the market is fairly stable and that it's possible to list companies? How many of the assets in the unlisted portfolio could be potential exits via IPOs over the next -- over this investment period 3 years that you sort of laid out for net investments?

[Samuel Sjöström, executive]

Stefan, look, we have a pretty good pipeline of companies that are IPO ready or becoming IPO ready in the near future, call it, over the next year. There's no real rush to go public in our view. There might be for other smaller investors, but not on our end. We're not necessarily expecting any IPOs this year, next year maybe towards Q4 potentially. But again no rush. I think in relation to exits, which are clearly more difficult to forecast, typically companies get bought not sold and we're confident that there will be exits over the next years. But our portfolio is a bit too small in terms of number of companies to allow us to guide you guys in a helpful way on what we expect. And I think that sort of came through in the questions we received earlier here. But as part of us spending time understanding the portfolio and where it's headed, clearly we have a laundry list of exit scenarios for many of our companies and we also have a team member dedicated to this now. So let's see, but IPOs unlikely until late '25.

[Operator]

Thank you. There are currently no further questions. I will hand the call back for closing remarks.

[Georgi Ganev, executive]

Okay. Thank you very much for listening and for your questions. And just as a last reminder, we will report the results for the first quarter 2024 on the 18th of April. Thank you. Have a nice day.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.