Emv Capital (LSE:EMVC) — Preliminary Results

0:01 Good morning, ladies and gentlemen, and welcome to the NET Scientific PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just 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 will review all questions submitted today and publish responses where it is appropriate to do so, and these will be available via your investor meet company dashboard.

0:33 Before we begin, if I may, I would like to submit the following poll. And I would now like to hand you over to the executive management team from Net Scientific PLC. Ilian, good morning, sir. Hello, Jake. Thank you very much for organizing this. And, hello, everybody, and welcome to this presentation for NetScientific's annual results for 2022. My name is Ilyan Ilyan. I'm the CEO of NetScientific and host for the day. Now some of you have seen the business before, and I believe a number of the people who have joined haven't. So I'll quickly go through a bit of the history, our business model, and then get into the meat of the substance of the results from last year followed by the outlook for for next year. So a little bit about NetScientific.

1:20 Well, we're an investment and commercialization group with a focus on investing in in the life sciences, sustainability, and industrial space. And the company as it is today is the result of the acquisition of Deep Tech specialist EMV CAPITAL in August 2020, which at the time transformed the company from what we believe was a standstill to what we have now, a scalable venture capital business model. As I'll explain later, I was also the CEO and founder of EMV CAPITAL, and a lot of the business model today is the result of the combination of the two entities. So today, we look to identify, invest, and build high growth companies in The UK and internationally. And, in terms of the, process that we've undertaken from mid two thousand and twenty till now, we can see substantial growth.

2:12 The company has grown from eight to 24 companies in two and a half years in a challenging and volatile market environment. But most importantly, fair value has increased from 11,800,000 before the start of the turnaround to 41,800,000 at the end of twenty twenty two, which is, we believe, a remarkable result. And as I go through the presentation, I'll explain to you how we do it. Key elements of our model is the proactive management of portfolio, value creation services, the capital light investment approach, which is really quite important for us, and the company and its shareholders get value through a mixture of direct equity stakes and carried interest stakes in the portfolio. Now in terms of governance and leadership, my own background, I'm an economist by training.

3:01 I did a PhD at the George Business School focused on innovation finance. But most of my life, have built and grown businesses in technology. That includes in the industrial electrical space as well as IP and technology commercialization of Cambridge IP before I set up EMV CAPITAL. I'm a significant shareholder, the second largest shareholder of Net Scientific with 15% plus, which gives me really strong incentives to grow this business and to make it a leader. My co executive my fellow executive director is Ed Huber, who is also group general counsel. He's a former partner at Traverse, a leading city firm with more than twenty years of experience as a corporate lawyer with a focus on anything and everything including m and a, IPOs, joint ventures, corporate finance, as well as growing a services organization, all skills that have been very important as he came to our business.

3:57 Doctor Jonathan Robinson joined last year, and he's interim nonexecutive chair. He's both an experienced PLC director, but also an entrepreneur and an investor. He he cofounded the listed MVT Group as well as net names, and he's also a fellow geek as a PhD in material science from UCT, but bringing a a wealth of experience to our board. We recently announced also the appointment of doctor Charles Spicer as a nonexecutive director and the incoming nonexecutive chair starting at the end of June. He's a highly experienced chair and director, but he's worked in a number of companies in the med tech, life sciences industries, and in the city more broadly, again, bringing a wealth of experience relevant for the business as we go forward.

4:44 Professor Steven Smith, who's been with us for seven years, will be not be standing for reelection of the AGM at the end of June, but he's he'll continue to help us with his enormous experience in life sciences and growing life sciences business in an advisory capacity. Steven Crow, CFO, supports the supports the board as well as a team of 15 people, both part time venture partners and full time at EMV CAPITAL and NET Scientific, delivering the infrastructure for the business as we move forward. Now what are the growth levers that we have? Well, first of all, the proactive management is really important. We have board representation in 13 companies and are curious about most of the others. That means that we have strong negative controls in terms of representing us as a shareholder and the investors that we work with.

5:37 But on the investment side, I guess, key differentiation between us and other PLC groups investing in this space is that we don't only invest from balance sheet. In fact, we believe that that is an error to be only investing for balance sheet because it opens the company to many risks. What we have built through the acquisition of EMV CAPITAL is diversified approach where we combine balance sheet investment with syndicated funding. That enables us to service a much larger portfolio with a smaller level balance sheet and derisks the strategy. We also run a value creation program both for in house resources, for our venture partners, and preferred suppliers where we help companies through different stages of their development. And right now, we have such programs with 10 companies in our portfolio.

6:25 We can't focus on all companies at the same time, so we have a cohort focused approach where we rotate the companies to our programs as as as they as they graduate, if you will, and we focus on other ones. Last but not least, we have a service fees model whereby we charge the portfolio companies for our corporate finance and value creation services, which supports the cost of infrastructure, once again, important in this space. I'm not gonna go through the all of the logos, but what I want to emphasize is that over the last few years, we have built and enhanced our portfolio across multiple sectors. But what unifies them always that they're focused on deep tech, high potential returns, strong IP, and also companies where we can make a difference. And the way we have worked this up is that I've talked about the capital light investment advantage, you know, that it enables NetCentivec to support its portfolio companies to a large larger number than you would expect.

7:27 But the combination of capital light proactive investment approach and value creation means that we are a lot more in control of our destiny. We can see problems before they come up. But also, importantly, we're able to identify good opportunities for us to acquire stakes, to bridge finance, to deepen our investment in these companies early before others can do that. Our fee based services approach means that we're offsetting the costs of running the busy operation, while our strong corporate links mean mean that we can help develop joint development agreements for the for our companies, help broker co investments, and get validation from corporates, again, helping to grow the portfolio. We are also able to capture early liquidity whereby we don't have to wait for a full exit in order to generate some level of of of return.

8:16 And, of course, through through our strong footprint and networks in The US and here, we have we have we are able to help the companies to internationalize early and again accelerate growth of value. Last but not least, because we're close to many of our companies, we're able to identify synergies where they can share resources, where they can share infrastructure, or where they can develop joint offerings, again, the portfolio as a whole to grow. What is the result? Well, here is the some of the highlights from the for for last year. Importantly, fair value has continued to grow. We have grown that to 41,800,000 for 2022, up from 31,000,000. Now we believe this is quite remarkable. In the venture capital industry as a whole, a lot of the VC portfolios have been characterized by a drop in fair value.

9:06 We don't believe that is an accident. Partly, it's because of the sectors we're focused on. Partly, it's because of the stage of investment we're focused on. But, again, through our experience, we know that we have been very active in defending our positions in the companies and helping them get to different patches as they build value inflection points. On the back of that, EMV CAPITAL is now profitable with increased revenues of 1,200,000, and we have a strong pipeline going forward. The group loss for the year has increased to 3,700,000 from 2,900,000. However, what lies behind that is that roughly 1,500,000 was attributable to the core of NetScientific and EMV CAPITAL, which is the infrastructure. This is what drives the business, and the balance of that amount was consolidated from investments into r and d in the portfolio companies, ProAxis and GlycoTest.

9:56 It's also important to flag that on the back of changes we implemented last year and in the beginning of this year, going forward, ProAxis and GlycoTest will be funded by external investment, which means that our going concern needs are much lower than in previous years. Through our capital light investment model, we've been able to continue our support for the portfolio companies whereby direct investments of 3,200,000 able to unlock further syndicated funds of 5,300,000, most of which is capital under advisory where we have a carried interest giving us two sources of returns across 10 transactions. And for the portfolio as a whole, 18 companies raised roughly $70,000,007.00, 70,000,000 in last year, a year that marked one of the worst years for venture capital investment.

10:46 And this again shows, we believe, the strength of our capital light model that we're able to this make this relatively small transactions at critical points, critical junctures of the development of the portfolio companies, helping them to different spots, building our stakes, and then they're able to take much larger funding on the on the markets. Now last year, we also had a proof of concept whereby we sold down roughly £500,000 worth from one of our privately held companies. That was profitable. We had a roughly two times return. Now it's not a 10,000,000. It's not a 20,000,000 exit, but it's quite important because it shows that on our journey going forward, as we build up the companies for large exits, we're able to take some money off the table to help to keep our our model evergreen. Our portfolio expanded to 24 companies through the acquisition of direct stakes, including inventive and recycling technologies. Again, quite important that we did that for noncash terms, and in turn, this now increases the upside we have within the portfolio.

11:47 We have increased infrastructure in terms of team growth and consolidating our model. And as a result, now EMV CAPITAL has increased revenues and covering its costs and contributing to the group. We had a placement last year of 1,500,000 in June, again, in very difficult market environments, but this was quite important in helping us to implement the strategy and to continue with the turnaround project. So we are very much thankful to the to the investors on the call that participate in that placement. Last but not least, I talked for some of the board changes that we have made to continue to drive growth ambitions as we move into the next stage of development of the business. Now some more visual aspects of this. And, again, looking at the fair value of of the business, you know, this grew from 11,800,000 at the end of nineteen through to 21,000,000 at the end of twenty twenty through the acquisition of EMV CAPITAL, 31,000,000 end of twenty one, 41,000,000 in at the end of last year.

12:46 You know, this is the result of it's not accident. It's the result of a lot of hard work by my team, but also it shows a model that is that is working. Capital under advisory, which is why we have a carried interest, also increased. Of course, before the turnaround, there was zero. This category did not exist, and it has continued to increase. For '22, where you see a slightly flat increase, that reflects the translation of roughly 3,000,000 of carried interest capital under advisory into a direct stake in Vortex. If it wasn't for that, the trend would have continued. Now looking at net asset value, we have, again, shown a significant increase by roughly 36% to 25,000,000. But, again, looking at the turnaround trend, this has been quite positive.

13:33 We started with 6,900,000 at the end of twenty twenty. We're at 25,000,000 today. Year on year performance is very important, but what we are looking to communicate to the market is that we're looking to grow year on year, but also we are on a long term growth path for this business. And you can see that also through the net asset value per share where we started at point 46. We're now at $10.07. Now let's look under the fair value composition. You you all have these slides afterwards so you can dig into it further. But what we're looking to communicate here is that this is has been a story not only of growth of fair value, but also changing composition and a diversification of the portfolio. This growth and diversification strategy is important because it is much safer I'm being trivial here, but it's much safer to have a larger portfolio with many positions than a small portfolio with only a few positions. And for instance, you can see here how PDS started at 2,000,000 in 2020, growing to 8,000,000 in '21 and 14 point 7,000,000 at the end of last year. It's now roughly at 10 or 11,000,000 slight decrease given US market dynamics, but, again, a significant increase.

14:45 But you also have some new entrants here such as Qbot, SageTech, Epibone, and, of course, now Vortex, each of which provides significant potential for future growth. We cannot forecast what it is, but you understand our the strategy we're following and the diversification of sources of growth going forward. Now a little bit under the hood, how do we do it? Well, over the last few years after the acquisition of NetCentive by NetCentive of EMV CAPITAL, but also the work that EMV did in years before that, we have built a number of playbooks that we're now able to integrate as a as a single approach whereby we can take the companies through successive stages of value creation, building up their value, building up our stakes, and eventually crystallizing value and exit. We typically acquire stake on advantageous terms. The reality is we don't like paying menu price. We always look for a good deal. And good deals, of course, have trade offs. There are risks that we feel we're able to handle with our value creation team. We then take a pause, and we look to rebuild and review the business plan and models of those companies.

15:48 We then look we then syndicate some relatively small funding both from our balance sheet and our network of investors, and we use that funding to support the company through a few short term twelve, eighteen months worth of value inflection points until the company is ready to take on more money from institutional investors. At that point, we take the companies through an investment readiness approach. Sometimes we lead a fundraise, and we get to the next stage, of course, ultimately leading to IPO exits or partial liquidity. A few examples. I mentioned the deeper stakes we have now acquired in Vortex. We now have 30% of this business. We acquired that for a noncash consideration on the back of some services that we capitalized. The next vortex today is the result of several years of value creation services by EMV CAPITAL. We're now leading an investment round into the business, and the company is launching their centers of excellence around liquid biopsy both in The UK, at the Royal Hampson Institute, as well as in San Francisco where we have a have long term presence.

16:51 Really strong potential in a very high growth area in in life sciences. Qbot, something somewhat different. It's a robotics as a service company in the construction technology space, home for home retrofit installation. Again, this is a company that we are monitoring with an advisory stake for many years. But in 2021, we saw that there was an opportunity for the company to grow, and we drove the company through a turnaround process. We acquired a strategic stake in the company. We now have 17%. Back then, we had zero. But we also implemented a paid for value creation services support. The results have been significant. The company has more than doubled its revenues. It is now launching it has launched in in Europe, looking to launch in The US. So, again, implementing our approach to drive change, accelerate growth, and look to bring in external investment as the company moves forward.

17:43 Last but not least is PDS Biotech. PDS is a Nasdaq listed company, but once upon a time, it was a university spin out which backed. Today, we have a 4.4% stake. In 2020, I joined the board, and NetScientific was quite critical in anchoring and syndicating an investment as they were looking to take the start their journey on on Nasdaq. Since then, the company has launched four phase two trials in the HPV cancer space with some of the leading names in the world, Merck, National Cancer Institute, MD Anderson Mayo Clinic. They're now looking to launch a phase three of one of their trials. They did an in licensing deal earlier this year with Merck. And with the Merck current market cap of well, it's roughly 290,000,000 as of last Friday.

18:28 Again, showing what is possible in this space when the companies we're back have good and strong management. But that's not all we do. And for some here's some other examples of what underlies our infrastructure and some of the opportunities going forward. Two years ago, we announced that we helped to spin out market capital from Marshall Group in Cambridge. We backed the team in essentially an MBO. And as a result, market capital is today one of the leading early stage venture capital companies in Cambridge focused on early stage spin outs from the university and the incubators. As we all as many of us know,

19:07 Cambridge gets one of the leading high-tech clusters in Europe, perhaps racking second or third after Silicon Valley with some of the largest deep tech opportunities now coming on stream. Market has 49 portfolio companies, and we're now working with Saranac to put together a follow on investment vehicle whereby we and other investors can support the scale up of the companies that MAPITAL PLC has bought. Recycling technologies is a very different example. So we set up Deep Tech Recycling as an SPV back in December. We have a 30% stake for noncash consideration in the business, and the company was set up in order to acquire the assets of a well known developer of plastic waste recycling technologies called Recycling Technologies.

19:53 RT had been close to IPO on AIM with a targeted market cap of 80,000,000. This is in the public domain. And, unfortunately, the fundraise did not happen. Unfortunately, the company went to the administrators. However, myself and another team member had previous exposure to recycling technologies from previous work. Therefore, we were able to work quickly, put together our playbook, and now we have a value creation team working on the relaunch of the business in a more capital light approach that's consistent with our philosophy. So these are some examples of what's happening underneath under the hood. There's a number of other such cases, but it probably gives you a good sense. So starting to conclude, what is the outlook for next year? Well, in many ways, it's more of the same, but hopefully, not boring.

20:43 We're looking to continue to drive the, development of a sustainable business model with the generation of more fees at EMV CAPITAL level, selective divestments, as well as continued external funding for the subsidiaries, which in turn we anticipate will help to crystallize fair value in those businesses, which in turn will translate in fair value for for us. Importantly, we're looking to scale and increase our funds practice as a key scale scalability part of our infrastructure in in years to come. We have the tools and model to continue to grow NAV and fair value by progressing the portfolio companies through the value creation stages, by syndicating and bringing in third party investment rounds, and the continued proactive portfolio management.

21:28 And, of course, last but not least, looking to generate profitable exits for the portfolio companies and helping to prepare them for that. Now I know it's a lot to take in, but you will have the slides after this. And but to summarize, what we have today is a transformed business compared to what we found in mid twenty twenty with a robust investment model. My team who have been extremely hardworking have shown what is possible with a strong focus and driving a vision. We now have a maturing portfolio with the potential for exits. A big part of our portfolio is now potentially in harvesting stage. But also, we have the management commitment and incentives to continue to drive the alignment of asset value with market cap. You're all aware of the significant gap between what I showed you on the fair value and NAV with market cap, but also moving moving forward. And we have good prospects for 2023.

22:22 And with that, I open the floor to questions. Ilian, that's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, 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 your investor dashboard. Ilion, as you can see, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. Ilion, if I may just hand back to you to respond to those where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Thank you very much.

23:08 Well, starting with a question by James who says

23:14 an important question. The market doesn't believe your fair value with the share price of 69p today. How do you intend to close the gap? And so, James, what I'll say is that I wake up and fall asleep with these numbers as I'm I'm one of the one of the largest shareholders in the business, and I'm personally most affected, if you will, or significantly affected by by this gap. What I will say is that, clearly, the venture capital industry and the end market has had a really bad year last year. We all know that. I could also say that many of our peers have experienced a significant decline, But that's not the point. It is our responsibility to continue to drive the business going forward and to communicate to the market what it is that we have done. I think the results of last year speak for themselves, and think what we will look to do is to continue to drive greater market awareness of our performance with more sessions like this and ultimately, of course, looking to drive the company towards towards exits because that is the ultimate proof of the pulling.

24:22 I want I'll next ask I'll next ask answer question by Michael D. How do you identify new opportunities, and how do you view this pipeline over the next twelve months? So, Michael, I think the moment people realize that you're investing, you know, of course, you're flooded with the incoming, and there's a number of certain a number of such incoming that are interesting, and we have to be aware of the market. The strong opportunities that we see tend to be from referrals, and they tend to be deals that we have monitored over a long period of time. We want to understand the deals we get into. So while we speak to the market, typically, we get to know either the referral source or the company itself. In terms of where do the good ones come from, well, they come from our partners.

25:08 I talked about market capital with whom we've been on a journey together for two years. A number of corporates we coinvested, a number of family offices, and other investment partners. So this is how we invest in Mapout. And also our we're very, very selective, so we make only a small number of investments per annum. K. There's another question. There is very little shareholder interest in NetScientific. If this continues, there is a chance of is there a chance of you and other lead shareholders taking NetScientific product? I think oh, this agrees some somewhat with respect. We think that there's been strong interest in NetScientific. We have had three strong placements. But, clearly, there is an issue with the broader interest in the company and, you know, increasing awareness in the market of what we do.

26:02 There's a hands up element that over the last two years, we have been heads down executing. Perhaps we haven't done enough in investor investor reach out. We're looking to to to close that gap. But the flip side of the coin, of course, is that the investors do do understand our space. They do understand the massive potential of deep tech, also understand the market gap that is created. And, ultimately, nature of course vacuum. So we're working on educating the market and evolving the business and and closing the market gap. Ilyan, if I may just jump back in there, thank you very much indeed for addressing those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review and to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the investor meet company platform.

26:57 But, Ilian, perhaps before really looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Sure. Sounds good. And maybe I'll just answer one final question by James. Any reason for the lack of director buying post results? I think there's been a number of directors that have bought in in previous years. I think it's for myself specifically, because I'm in a concert situation with another significant shareholder, I'm simply not able to buy further. Believe me, would have would have wanted to in in in some of the previous months, but that's the situation. Okay.

27:46 Perfect. Thank you, Ilian. I know investor feedback is particularly important to yourself. So if it's okay, if I could just ask you for a few closing comments, that would be great. Absolutely. Look. I think, guys, from an overall perspective, the venture capital industry has come to the end of a of a phase, and it is now entering another phase. We operate within the VC industry. The VC industry has gone through many phases. We are in the deep tech space. And if you look at how that part has behaved, the drop in valuations has been lower in the deep tech space, and a lot of the future returns or future outputs, and that's and the interest of of the evolving VC model is in our space.

28:31 We are focused on that, and we believe we have the right investment model with the right playbooks developed over many years to create a leader in deep tech investment in life sciences, semiconductors, in sustainability, and industrials. You're seeing some of the early results. Anyway, you cut it going from an 11,000,000 fair value to 40,000,000 plus is a significant output, but that's not where we're stopping. We're looking to grow the business and build out the the the investment model around that. From the last year, you can see the early results of the of that of that realignment of the model. And stay tuned. You know, we are continuing to drive this model and in the in the confidence that the market will recognize it.

29:17 Brilliant. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. Behalf of the management team of Net Scientific PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all. Thank you.