Emv Capital (LSE:EMVC) — Interim Results

0:01 Good morning, and welcome to the NET Scientific PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where appropriate to do so. Before we begin, I would like to submit the following poll.

0:32 And I would now like to hand you over to CEO, Ilyan Ilyaev. Good morning to you. Good morning and thank you very much for joining this EMC presentation. Amelia Neliev, CEO of NetScientific. I've met a number of you in person or in previous presentations. And today, I want to take you through the interim results for the first half of the year and in general an update on how things are going with us and the implementation of our strategy. The usual disclaimer. And just a second. And in terms of what we'll take you through today, it's what we'll reintroduce you to NetScientific. I know many of you have heard the story a few times, but there will be people that are new to the story today. A bit more reminding you about the basics of our strategy and then onto the progress and results and portfolio highlights.

1:22 This I should warn you there's quite a bit of content in the presentation. I will skim through some of the slides, but the presentation will be available after this for download as well as a recording of this presentation. So who are we? So NetScientific is a a deep tech and life sciences VC investment group. It is the result of the combination of NetScientific itself and the company I founded EMV CAPITAL in just just under three years ago. What do we do? Well, we identify, invest, and build high growth companies in The UK internationally. We've had a good run. We've grown from eight companies that MedScientific had before the combination of the two businesses to 24 companies now.

2:10 It's a strong portfolio. It's a diversified portfolio as you'll see that's progressing through various value inflection points and we're looking to, of course, generate returns to exits. We differentiate ourselves through several elements that I'll go through in a few seconds. Now in terms of our team, you'll see some changes compared to last year. I remain a CEO and my background is economics, but also I have been working in venture capital, technology development, and IT commercialization most of my professional life. I'm uniquely incentivized to make this company a success, one of the largest shareholders with 15%. Ed Cooper, who joined as general counsel last year, joined as executive director towards the end of last year. He's a former partner at the city law firm with a wealth of experience in m and a, IPOs, and in general, corporate work.

3:04 Jonathan Robinson joined us last year. Towards the end of last year, he has built and listed his own businesses and also background in technology. And we welcomed earlier this year Charles Spicer as the non executive chair for the for NetScientific. He's got a wealth of experience in the city. He previously led Nomura and Numis for their health care practices, and we're looking forward to working with him as the company switches towards realizations and further growth. Steven Crow Steven Crow is CFO, and we are supported with by a large team of core employees as well as venture partners and advisers that enable us to do what we do. Now a recap of what are the advantages of our model. We believe we have built a differentiated model in the AIM listed VC space where we combine some of the elements of classic venture capital operators with the benefits of a PLC.

4:01 We have what we call a capital efficient investment strategy whereby we support companies with selective use of our balance sheet. And as you see indeed this year, we have used our balance sheet, but there is the PLC brand. But we then combine that with the syndication and capital under advisory work that EMV CAPITAL does as a as a finance company. We are very proactive when we work with our portfolio. There is a select group of companies where we are actively engaged not only as board members, but also in terms of driving the development. But also importantly, we we the way this gets paid for is we charge our portfolio fee based services. We do that on value creation services where we provide specific support for the businesses as they grow as well as corporate finance and fundraising businesses.

4:52 That in turn, as you'll see, it means that NetScientific has the potential of being an evergreen self sustaining business that makes the stronger company. We also have strong corporate links. We work with the likes of ABB, Philips Lighting, Mitsubishi, and a number of others. And this provides our portfolio with non dilutive finance as well as validation for the technologies. Now what we have pioneered last year and this year we look we have now scaled is selective group divestments, partial portfolio exits, which means that even ahead of an IPO or a major M and A for our portfolio companies, we can take money off the table and to support the Evergreen aspect of our business. We've talked in the past about the growth of a funds practice. We're doing quite a bit of work in that area and we see that as a major scale up opportunity for the business.

5:43 And we're also looking to internationalize our companies working with our specific capabilities in The US and in The EU helping our companies to internationalize further. Finally, as you'll see later, we have also shown portfolio synergies helping companies work together, save costs, build value together, which again shows us adding value. I want to say again, this is not theory. It's not just a PowerPoint slide. As I go through the presentation, you will see how we have implemented, I think, almost every single one of these points, making a stronger business as we go along. We have now 24 companies mixed between life sciences, deep tech, and sustainability segments. This means that we are diversified. The risk is diversified, but also there's a lot of learnings we can source from the different businesses that we are developing.

6:35 And there's the benefits of diversification. When biotech had some difficulties over the last two years, industrials and sustainability have done quite quite well. Now switching to the financial and operational highlights for the year. Well, this year we have shown that we can execute on an evergreen sustainable strategy. And what we mean by that is that we want to cover our core operating costs through a combination of finance, corporate finance fees, value creation fees and modest or not so modest profits from partial exits from portfolio holdings. What that means is that we don't have to go to market to to pay for the basics. Rather, we can focus on running the business, driving towards exits, and make which particularly in today's markets has been quite quite good.

7:28 We've had a good first half. Total income increased to over 1,000,000 by roughly 65%. The bulk of that has come from what we call the core of net scientific and EMV CAPITAL. That increased by close to a 100% on on on h one last year. Now there is more to that. It's not just the cash that we are generating. But when corporate fund when EMV CAPITAL makes corporate finance fees, it means we're raising money for the businesses. It means we're underpinning valuations. We're bridging companies to the next large round, so it's benefits all around. Importantly, in the first half, we've also done further divestments of roughly £100,000. That has now increased to almost £900,000 in the year to date. Again, these are profitable partial exits that we have worked with our infrastructure and this provides not only non dilutive funding for the group, but it also again demonstrates our ability to grow the business while generating fees to cover the costs of the business.

8:33 Looking further, at group level, the losses are at roughly 1,600,000, which is a bit lower than the first half of last year. Now this reflects that in accounting terms, we consolidate subsidiaries, operating subsidiaries such as GlycoTest and ProAxis. However, from our perspective, these are portfolio companies. They have their own management. They are getting funding from from third parties, and we don't see ourselves as responsible for them. Now the core of the business, Net Scientific and EMV CAPITAL, actually, the loss there has decreased significantly, making the company reflecting the profitability of EMV CAPITAL. As a result of our strategy, we see no current need to raise capital through company share placements and indeed this will be the first year since we took over in 2020 that there have been no that has been no placement.

9:26 Now our working capital, I would describe it as prudent. The cash position is tight but manageable. Again, we're an operating business that generates cash. And what I would add is that in addition to cash on the balance sheet, we also have roughly £5,000,000 of realizable quoted securities, which is something that underpins our growing concern. Now the fair value of the business decreased by about 15% to 35,000,000, and that, of course, is a negative. However, what if you look underneath that, the bulk, in fact, most of the decrease has been due to the decline of the PDS biotechnology share price compared to the end of the year. There was a spike in its price in December and it is now it has declined significantly.

10:17 But from what we can control, which is the existing and privately held portfolio, actually fair value has increased by 3,100,000, which is an 11% improvement from the long listed portfolio. That was underpinned by primarily by three transactions, namely Vortex Biotech Holdings, which you will recall last year, we gained a 30% holding for a a minimal value. And we have seen a 300% increase in our fair value there through a fundraiser that EMV CAPITAL led in June. D name it, which is a company that we held at close to zero. We acquired them through the Centromet acquisition, which is a spin out from University of Leuven. We syndicated a an investment round there, and that has seen a significant increase of fair value to 1,000,000.

11:04 And finally, Qbot has continued its growth. There was an investment round that we led and syndicated, and there's been a further increase in our fair value. Again, this shows how our diversified investment strategy with the growing portfolio and our hands on approach means that we can continue our growth even in difficult times. And by all means, the current market is is not easy, but we have the tools and the means to continue to protect our portfolio and continue to grow. Besides that, there is the capital under advisory. And what we mean by capital under advisory is the funds that we syndicate and we manage behind the custodian where we have a carried interest arrangement, typically 20% with with the investors that we bring bring to that. That not only provides the potential for additional profit for the group, but it also increases our strength in the portfolio companies because we have bigger influence in these businesses.

12:02 In addition to this roughly 3,000,000, we've raised a total of 5,600,000 syndicated investments. And around that, there has been the additional value creation services for the portfolio companies, which are not just about helping the businesses, but it's about putting them on the routes to exit, routes to IPO, opening up the prospects for substantial returns for our group in the next two years. Again, you can look at this after the presentation, but you can see the changing composition of our fair value whereas two years ago it was primarily PDS glyco glyco test. Now you have QBOT with a substantial play, Vortex now with 2,800,000. And this picture will continue to become diversified as we continue to grow the underlying portfolio companies.

12:50 Now I can talk on and on about our portfolio businesses, what's happening underneath. I'll try to go through this quickly. Again, take a look at the presentation after after today. But, with glyco test, we've had, for the developments in August, glyco test completed the enrollment and sample collection for the clinical validation study. That is a major value inflection point. Glyco test today as we believe one of the largest collections of liver cancer blood samples, one of the largest biobanks. And that enables the company to move to the next stage which is the validation of the HCC panel. We reported last year that we had some issues with the original HCC panel approach.

13:35 We have we have commissioned a study and we've identified ways around that. Our collaboration with Fossil Pharma continues. We're looking forward to on towards their launch of the product in China. But the last point is that as we indicated earlier this year, we've made a decision with glycotest and ProAxis that we are focusing those companies on an independent funding strategy so that we don't have to support them. Like EMV CAPITAL towards that strategy, EMV CAPITAL has raised certain funds which have supported the business, and the same has been is through with ProAXS. We talked about the vortex fundraise that was that was completed in June. The company is now moving towards launching a service for the pharmaceuticals industry.

14:23 It has established a center of excellence at the London Cancer Hubs Innovation Gateway. This is the role of the major cancer hospital, a leading cancer research center globally. And they have also launched a feasibility study for a workflow integration with one of our partners in The US. All of this is driving towards Vortex becoming a leader in the circulating tumor cell liquid biopsy space with a dual operation out of The UK and The US. And towards that, a recent study by NIST University Hospital, which compared several instruments in this space, confirmed Vortex's platform as superior in this space. So watch this space. Vortex's LinkedIn provides a lot of the upcoming news. You remember that we took a deep position in Qbot, which is a robotics as a service company in the construction tech space.

15:14 And since then, our fair value has increased significantly on the back of continued valuation growth of the business. The company is doing well. The in addition to The UK markets, they're now launching in the several European markets and looking for a launch in the in The US market. Last year, they had impressive revenue growth, and we're looking up to another successful year. I talked briefly about DNAMX. Again, it shows our, our approach. We essentially revived this business. EMV CAPITAL advised on the reorganization and, a 500,000 EIS investment round. But what was particularly exciting for us is that Leuven universities, Gemma Frisios Fund, which has participation of several major European banks participated with us in that in that investment round. The company is now in pilot studies, and they also have a manufacturing collaboration with Proaxis.

16:11 What they do is they play in the verification space for laboratories around next generation sequencing cancer research. So there's quite a bit of synergy with some of our cancer focused portfolio companies. Moving on, you will recall SOFAN Technologies where we whom we backed a few years ago through EMV CAPITAL, through CAPITAL under advisory. The combination of our direct stake and CAPITAL under advisory means that we're now the largest shareholder of SOFANT. It's an Edinburgh University spin out with a satellite communications technology, a satellite antenna that is up to 70% more energy efficient to its competitors. They play in the by by now, we have all heard of, you know, Musk's Starlink, but there is the low Earth orbit satellite communication space. They're collaborating with the European Space Agency. But most importantly, earlier this year in May, they announced a partnership with Inmarsat, now now part of ViaSat, one of the world's largest satellite operators, which also includes a prepurchase commitment for the technology when it goes to market. With EMV CAPITAL has continued support soft funds, and again, we're looking for great things from them.

17:23 Ventev Limited, it's a combined it's a confidence focused on the heating and ventilation space. We acquired a significant stake last year at a, again, minimal price. And we have worked with the company to launch and accelerate the heat pump development program with two of the market leaders in this space, Clear Blue Energy and Curem Systems. They have a pre purchase agreement with the European heat pump distributor, but also they have seen significant growth in the passive air ventilation space whereby schools are using their technologies for their technology to improve the air quality in schools. And there's regulatory drivers for that. The company is progressing well, and we we anticipate some good good news in the business shortly.

18:08 And last but not least, you'll recall that in December last year, we acquired the assets from Recycling Technologies from the administrator. Recycling Technologies was on track for, we believe, an £80,000,000 valuation IPO that was pulled in January for a variety of reasons. Later that year, we acquired the asset. We have been tracking this business for many years. We have now relaunched the business in a capital efficient manner, and they have already secured a proof of concept project with a major industry plastic waste operator looking at a potential up to 12,000,000 pounds plant in the coming years. There are other discussions ongoing. Now what I want to explain is this is, of course, not the 24 companies, but it shows you how over the last two or three years, we have worked with these businesses, taken them through difficult positions, and they're now at key value inflection points either showing value crystallization, the 3,000,000 I mentioned earlier, or onwards towards doing that. And that's really important to explain because when you look at our fair value, which is according to BBCI standards and all that, but what's underneath that is companies that we are proactively engaged in. We're not passengers.

19:19 We are often the drivers in these businesses, and that means that we know what is happening. We can spot problems before they happen. We can help the businesses ahead of those problems. And most importantly, in a difficult market environment such as today, we're able to help the businesses move to the next five inflection points. So in terms of going forward, what do we expect? Well, more of the same, and it's anything but boring. We're looking to assist progress our sustainable business model. EMV CAPITAL has good plans of continuing to generate fees and grow that fee income stream. We have proven this year, and I can't overemphasize how important this is in our space, that we are able to divest profitably. We continue to support our subsidiaries, and I mentioned earlier the funds practice that we're looking to develop further. The combination of these tools and channels means that our NAV and fair value has the chance to continue to increase.

20:17 And and finally, we're looking at generating investment returns, yes, to the partial exits, but ultimately through m and a and IPOs for for our portfolio. And, I mean, look, I'll I'll I'll close off with emphasizing that, you know, we are clearly working in a very difficult market. The venture capital industry is going through a a for a bit of a seizure or for a bit of a reinvention, but we believe we are right in the middle of exactly where we need to be. The combination of deep tech sustainability and life sciences where we anticipate a lot of the developments over the next decade will be. We're building a strong portfolio. We can see on the horizon the liquid the the potential realizations.

21:02 And And at the same time, we're being very realistic and focusing ourselves on the execution on a granular level of of our strategy. I'll stop with that and I'll turn over to you for questions. Ilian, that's great. Thank you very much for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard. And, Ilyan, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions, give responses where appropriate to do so, and I'll pick up from you at the end.

21:48 Okay. Thank you very much. So I'm publishing a question from from David. What percentage of the portfolio do you see being realized in the next year, and what's the strategy around any returns to to investors? So the first thing to emphasize is, look, know, we can always get exits simply by being a passenger. There's a number of our companies that are not sure it's they can get an approach, and, this decision will be whatever the decision will be. That is how many of the VC funds operate, and we you know, that might happen. And, of course, we know what's happening on a portfolio basis. But what we are able to focus on is the companies where we have significant influence to work with them with them to prepare them for m and a or IPO, to have a short list of potential acquirers, to build relationships, and in that way to prepare our portfolio as a whole for growth and to eventually exits.

22:52 You understand that at this call, cannot get into specifics about which company is at what stage, but I will share that. You know, we have specific plans around our portfolio

23:05 with specific companies and specific actions that we are looking to put in place. I can't give you the percentage of the portfolio. That will depend on what happens. In terms of the returns to investors, again, we don't have a hard and set rule, but absolutely, in certain situations, we would look to return a proportion of the exits to the to the investors.

23:31 There's another question around, are you working on exits and what can we expect, which I could just address. And there's a further question around, how do you see NetScientific in EMV CAPITAL in the venture capital life cycle? So I've got into this a little bit in in this in the earlier now in in previous interviews. The VC we all know that the VC industry goes through cycles, you know, hype and bust and all that. We are we have a really strong commitment or a strong view that a a a very large cycle in the VC industry, which is focused around digital and SaaS, has come to an end. That is not to say that SaaS will disappear, clearly not, but the cycle of super returns from SaaS sorts of types of businesses and digital has just come to has just come to an end. What we are seeing is that in the context of the drop in these investments, that there is a realignment of LPs, of investors in funds, and investors in companies looking for the next big wave of investment.

24:32 And a lot of that we are seeing and we believe will be in life sciences, in med tech, in industrials, in sustainability. This is where the large problems are. But now also the technology platforms are at the point where you can, in a capital efficient way, grow companies in in in that space. However, what we also believe is that if you have been running a SaaS sort of venture capital business for twenty years or fifteen years, you can't just take that model to this space. This is why we believe we have an advantage because for the last ten or fifteen years, my team has been building the playbooks. We have the scars of operating in this space, the networks, and that's what puts us in a strong position.

25:17 The next question by Mike. AI appears to be growing exponentially in terms of headlines, and life sciences and deep tech are fertile areas for application of AI. There's been no direct reference to AI today, but where do you consider opportunities for NetScientific in this space? Mike, it's a excellent question. Part of the issue is that we've been doing AI for such a long time. Point point drop, for instance, in our portfolio, an Israeli company focused on building automation technologies. They were one of the first in this space to use neural network algorithms for machine vision to learn what's happening in the space. We wonder has an AI solution in the remote patient management space. So so, you know, since, practically, we've been doing it, I suppose we've we've been hesitant to to use buzzwords.

26:05 But in terms of how we see it, look, we see AI just like material science, just like robotics as technology horizontals which we have to learn to operate with and apply in the in the areas of areas of interest. First of all, all of our we we have regular discussions with all of our companies to see how the latest advancements, L and M and so on, in AI can be applied in their own models to shortcuts, but also from a defensive perspective. And, yes, of course, from a investment screening perspective, we are looking at the opportunities. You will know there is a lot of hype in there. There's a lot of AI that isn't AI, isn't quite what the AI wants to be. So we're very, careful. It is easy to burn your hands there. And in general, we don't like to overpay for assets. But we have deep domain expertise in a number of areas. So when we see something good, we know we know we know we know what it is.

26:59 Question by Ben. The market struggles with non listed valuations. What's the board's plan to bridge the gap between market cap and your valuations? Well, there's two questions here. Maybe if I start with the last one in terms of how do we bridge the gap between market cap and our valuations. I mean, the easy answer is that that's your job. We are focused on executing the business plan. We're focused on showing our model working, and we're focused on communicating to you what what is happening within our business and in the context of the market. You will see have seen market observers flagging the enormous disparity between our fair value of 35,000,000 and our current market cap of 15,000,000. I I see that as an opportunity. So to an extent, it is the job of the market to to do that, but that's the easy answer. Of course, from our side, we are looking at what are the other ways of demonstrating to the market that our strategy works.

27:54 We believe that the what we are what we announced in the interims and what we are explaining today, the £900,000 of secondaries shows that the model works. It's not always in. We're able to take money out in probably the worst market environment our industry has seen. In addition to that, of course, the real, elements that will move our value, we believe, is, is exits within the portfolio, m and a and IPOs. And I've explained today that we have specific plans, in that. Question by Alex. How involved do you get with your investee companies beyond funding? Look. When I started EMV CAPITAL, before it was acquired by NetScientific, I was involved in everything. And since then, we have grown a strong committed team that shares the same philosophy and the same hardworking and dedicated culture.

28:43 We have expanded our team to in a capital efficient way to include both people in house that kept have the disciplinary skills that we can drive the businesses. But we're also working with a small group of venture partners and advisers that we know very well who who are able to sit on the boards of companies, sometimes even taking the interim CEO or a chair position. And that's how we combine a relatively small team with a broader network of people that share our philosophy, share our vision, share our and we know how we operate to manage this growing portfolio. This gives us the infrastructure to continue to grow without without burning out. And a final question, can you tell us more about your fund practice? What role would this play in your scale up?

29:37 So and look. In this space, ultimately, the way you scale is, yes, through the the PLC balance sheet, but also through access to manage the funds. We are working on some specific initiatives in this space. We don't want to announce prematurely what we're what we're doing. But what I would say is that we have market pool. People are seeing what we are doing. I've talked previously about the near three and a half times increase in our fair value over three year period. This is remarkable data and information when people from the fund management space look at it. So I would say people that are from the fund management industry are really curious about our model and how we can scale it with the the fun tools.

30:23 So leave it at that. Perfect. Thank you for that, Ilion. And I believe you have addressed all the questions for investors today. And, of course, the company can review all questions submitted today, and we will polish those responses on the investment company platform. But before we direct investors to provide you with their feedback, which one is particularly important to the company, Ilian, could I please ask you for a few closing comments? Thank you. Look. It's a somebody asked us, you know, where do you guys disappear for the last four or five months? In the current environment, is tough by any means, you know, people have a choice. One choice is just to shut the blinds, you know, close the eyes, put on a cold towel, waking up when it's over, or to recognize that today is when great portfolios are born.

31:09 We are working heavily to advance the portfolio to show that our model works because that's, you know, that is our style. We look at the opportunities and engage with them. But also, you know, it is today that great companies are born. And the model that we are showing now that is working, that is sustainable, that is generating profits, that is the model that will scale when inevitably the markets and the business environment work. We strongly believe we will be one of the deep tech leaders in this space. I'm extremely motivated both as a founder and visionary, but also in terms of my shareholding in the business to make that happen. But I'm surrounded with an incredible team of dedicated multidisciplinary individuals, and we're all working in that direction. And I hope we you stay for the ride with us as we show what is possible.

31:58 Ilyan, thank you once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback and order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of management team of NET Scientific PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you.