Investor Update

Feb 17, 2021

Good morning, everyone, and welcome to this telephone conference that we have gathered you all to discuss the announcement of this morning that Kinnevik intends to distribute its shareholding in Zalando to our shareholders. With me, I have our CEO, Georgi Gannel as well as our CFO, Erika Sade Bayjonsson and Head of Strategy, Samuel Closten. But I will hand over to Georgi Ganev for a few initial comments, and then we will start the Q and A. Good morning, everyone. This is Georgi speaking, and thank you very much for calling in to this telephone conference. It's a big day for us as we are accelerating our strategic transformation. So I would like to go through the rationale of this move, what it means to our portfolio And what we can expect going forward from Kinnevik. And I will be happy together with my team to answer any questions you might have. So today's announcement then. As you've already read, I suppose, we will propose a distribution of our Zalando shares to our shareholders. And this is not the end of a journey. It marks the beginning of a new chapter for both Kinnevik and Zalando. And after our 10 year long journey generating an 8.6x return on our initial investment. We can say that this has been a fantastic journey for Genevieve. We've been true supporters Of Zalando's strategy since its inception. And we truly believe that the company has the platform and the team to continue to create a lot of value for customers and for shareholders. This distribution Amounts to SEK 55,100,000,000 in value for our shareholders, And that corresponds to approximately SEK 200 per Kinnevik shares. That allows the Kinnevik shareholders to decide whether to take part in Zalando's continued journey as direct shareholders or to monetize their exposures and of course, with the ability to reinvest in Kinnevik's continued execution. We also know that we have strong support among our shareholders. So we have 50% of the votes in favor for this proposal. And this is truly a step change in Generics' ongoing transformation. If we zoom out a bit and we look at what has happened in the past 3 years, Where the kind of non large public assets were less than 10% of the portfolio value, Growing to today around 37%. And post the distribution of Zalando, we'll go up to 67%. So almost 70% of the portfolio We'll be skewed towards these early growth assets in our focus sectors. And we think that is Very, very exciting because it allows our shareholders to get an exposure to a unique portfolio, a portfolio where you would not probably be able to invest yourself as a shareholder. And with the latest Successes we've seen in digital care, health care and also within our food investments, we think this journey will continue. And the third point is, it's all about shrinking to grow. The pro form a net asset value of SEK 71,400,000,000 or SEK 2.59 per share It's more or less the same as the portfolio value was at the end of 2018. So during these past 2 years, we've created a lot of value. And of course, our intention is to continue to do so. There's no point in compounding assets for the sake of it. We believe that our shareholders can all. On the Randle directly after this transaction, and we believe that we will keep the agility and the nimbleness of Sinead going forward. So what we would like to see, of course, going forward is that our younger growth portfolio That today or tomorrow will represent almost 70% of the portfolio value will continue to grow and increase in proportion. We will also have Tele2 left in our portfolio, which creates a strong foundation of a resilient asset And a solid dividend stream. And that together with our SEK 4,300,000,000 in the net cash basically makes us very comfortable that we can continue to execute on our strategy and continue to support our existing companies in the portfolio As well as finding new opportunities. And as we said again before, we plan to host the Capital Markets Day on February 24. We will look forward to elaborate further on our investment strategy and also present some deep dives in our portfolio and also welcome some of our portfolio companies and founders to the Capital Markets Day. And we look very much forward to that event, and we hope, of course, that you can attend. Going to the next slide, you will see the outline at the timetable, where we have outlined the different steps. And the ambition is to have this done and ready by mid July. And last slide is the picture of the portfolio transformation in terms of net asset value. And here again to what I referred to end of 2018, the portfolio value loss or the NAV was SEK 70,500,000,000 And after the spin off on pro form a basis, we'll be 7 to 1.4. And what we think is exciting here is that, again, The share of the early growth assets is almost 70%. We have a solid net cash position, And we have Pettitou that will provide us with dividend, fueling our continued transformation and our support to our growth efforts. That was basically the presentation that we plan to show you today. And instead of taking more time to go through the details of it, let's open up for Q and A. Thank you. You all. There'll be a brief pause while questions are being registered. Our first question comes from Joachim Goel from DNB Markets. Please go ahead. Your line is now open. Thank you. Good morning. So just some questions regarding the timing of this transaction. And then shrinking to grow, should we read anything into that, okay, 2021, 2022 Should be a period where you will crystallize a lot of energy value from your Unlisted portfolio which would have otherwise not moved the needle in such a large extent. I think that's a good way to describe it, Joakim, because, of course, we have made a mark, I think, In our early growth portfolio with companies like VillageMD and Livongo, of course. So the question we got a couple of years ago is that do you really have something in your portfolio that would move the needle? I think we have proven that. But of course, the effect of value uplift in our fast growing companies will have a larger impact Without having one asset like Stalando representing more than 40% of the portfolio value. So that's correct. We expect Continue to see these assets grow. And we look, of course, at the operational performance mostly, the underlying forms of these companies that we are very happy with, then the valuation, as you know, is impacted by a lot of other factors, such as the multiples on the markets and so forth. But I mean, our ambition is to continue to grow these assets, and the effect of that will be clear when we have shrunk in our portfolio. Very good. And I mean this is very much in line with the communication regarding your earlier, all call it sell down in Zalando that you were not planning to realize any further cash proceeds. But did you evaluate Any other alternatives with the remainder of your Zalando's opening? I mean, we think this is a clear best option for Zalando Porciniwig because we have a lot of shareholders within our cap table that would like to capture the future value creation of Zalando. So selling, let's say, on their behalf and distribute cash from this point was not an ideal situation as we saw. Then of course, if there's a strategic sell, you can always discuss it as a matter of price. But we see great upside in Zalamba going forward. And therefore, I would say that price would have been very high, a very clear premium. And without that option on the table, I think this is Definitely best option for our shareholders in terms of value creation. And I would like to repeat that. This has nothing to do with our view on CELANDO's future. We believe it has stagnated or reached some sort of plateau, but it can't grow anymore. We think this company has a fantastic platform. We're distributing a company Where it has a strong position, maybe stronger than it ever had before, and that's also important to underline. Very clear. And just a final one perhaps for Erika. I mean, with the Millicom transaction fresh in mind, can you talked just a bit about the various tax implications on capital gains from this type of transaction depending on What type of option shareholders should choose here with regards to the Zalando stake? Yes. I will hand over that question to Erika. Yes. So as always, on a dividend, you will be taxed On the value of the dividend received. And we have a Q and A already on our website that sort of goes through the different Things to think if you're Swedish based or if you're non Swedish, The tax impact of that and also lessons learned From all the questions received in connection with the Millicom distribution, we are sort of well prepared and have a call center also set up and also already been in contact with the tax authorities. So these details will all be communicated and Q and As are already provided. Different shareholders will be taxed differently depending on how you hold your shares, where you're based all. And if you're of course, if you're a Swedish or a foreign holder. So yes, these are questions that we believe is really important for us to make sure that we can answer and communicate and direct questions from our shareholders. Perfect. I'll have a look at your website. Thank you very much. Thanks. Thank you. Our next question comes from the line of Ramiel Khouria from SEB. Please go ahead. Your line is now open. Thank you, operator. Good morning, everyone. Two questions, if I may. Perhaps I'll take both straight away. First off, on The split between listed and unlisted, Georgi, are you sort of comfortable with how things are looking today? And perhaps if you could shed some light as far as you all. IPO timing of portfolio companies go. And then the second question relates to a potential or if you've considered they do a listing of Selamor, I mean, I can see the constraints you're having have a bit less than 21% of the company. So I can almost imagine how discussions have been, but have you even sort of top up the topic. Thank you, Ramiel, for your questions. Let me start by the portfolio, this kind of balance and what we see going forward. I think first of all, we are very excited about this pivot That we will have, again, almost 70% skewed towards the early growth assets. And we think that's a fine balance. However, we also expect those assets to grow faster than Tele2 for obvious reasons. So over time, I think that will continue to increase. The split within the early growth portfolio when it comes to private and public assets, that's more difficult to kind of predict Because it's really about what's the best way for these companies to raise capital. So there are, of course, a lot of private placements, private investments that we can be part of, but there are also IPO, specs and other types of tools in the toolbox. And for us, as we have the flexibility to own a company through different phases, We are quite different actually if it's a public early growth company or private early growth company. What we have said though is that we focus our new investments into the private ones because that's where we think we can provide something more unique to our shareholders instead of buying kind of early, less mature public companies. And now Last but not least, I would like to say that looking today at the portfolio, we believe we have a unique composition of companies. So as far as we know, there are no other public investors in Europe that could offer this type of exposure to digital health care With companies like Babylon, Teladoc, VillageMD, CityBlocks, Cedar And also, Joint Academy, we have a portfolio that probably is in the top range globally and definitely as a European investor. So already By looking at these assets, we can provide something that is very unique for the shareholder. We also have, as you know, a lot of capital now deployed into the food sector. And that's, again, a place where we think that we'll see a lot of growth going forward And the excitement around and that area also is around what value we can bring to our shareholders. Going to your second question then regarding the potential dual listing. Yes, obviously, that is something that we have considered. The thing with the Duo listing is that it needs to be something that could provide enough value to shareholders, To Zalando shareholders, long term. And as it looks today, we can see that There are enough reasons to list Zalando on the public stock exchange in Stockholm, as it looks now. So it has less to do with us owning 21% or 31% or 40% of the company. I think we need to see that there are strong merits for such a lifting. Today is along with shareholders. Most of them can own shares on the front of traffic change. And They have demonstrated that also more recently when they raised capital to that bond. So there is a strong underlying demand for the randoser share, And we believe that those of our shareholders that cannot or would not like to own Stanford is the shares. They can actually use this period of time to actually sell the rights all and reinvest that capital elsewhere. Crystal clear. Thank you. Thank you. Our next question comes from Nizla Nader from Deutsche Bank. Please go ahead. Your line is now open. Great. Thank you. I have a couple of questions from my end. Firstly, could you maybe give us an understanding as to what the overlap is In your shareholder base and Zalando's, we're trying to understand what's the possibility or the potential number of shareholders who could potentially want to sell Zalando's shares once the distribution has been made, so just to get an understanding there. And secondly, why did you decide to distribute the stake all at once and not potentially sell that sell it down in portions the way you've done in the past. And connected to that, was there ever an idea to monetize A part of that stake for your own sort of capital investment needs going forward, instead of distributing it outright. And lastly, just to understand how it would work for your existing shareholders. If they do want to monetize the share that you are distributing to them, how would they do it? Would they receive The share, which is listed in Sweden and then they sell it in that sort of Swedish marketplace? Or do they sell it to you and you monetize it on their behalf. Just to get an understanding as to how that works on the back end would be great. Thank you. Thank you, Nisland. So I can say directly that for the third question, I will refer that to Erik and Samuel. But the kind of the overall answer is that it will be traded in Swedish Stock Exchange. They're right. But they will go through how it will work technically. Then I think I touch upon briefly on the first question, even though I would open up for comments from Torren there. But I think it's important to say that although there is an overlap between Kinnevik shareholders and shareholders owning Zalando directly, That cannot be seen as a reason for those shareholders to sell because the support that we have received for this distribution that amount to 50% of the votes in Kinnevik and 30% of the capital. That support is not there because people wanted to receive Zalando shares and then immediately sell. It's because they see a strong value in Zalando going forward. This is actually a good way for them to accrete ownership in Zalando. But I will let my teammates you all to elaborate on that answer, if we should comment on the exact overlap. But I will now focus on the second question you had. And I think For us sorry, what was the second question again? I didn't write that down. It was The second question was on why you decided to dispose the stake all at once and whether you want to monetize it. Yes, exactly. You combine that with disposal at once and whether we should monetize it. I think when it comes to monetization, As we said earlier, we have monetized Zalando twice, where we recouped the initial investment capital, where actually a little bit more. We did that during the period when Kinnevik was trading at a significant discount. So of course, raising capital in the market would Not have been an, let's say, as attractive option. We didn't have a net cash position that was this strong. Today, we have a net cash position of you more than SEK 4,000,000,000. We have Tele2 that will provide us with a steady dividend stream going forward, And we are trading at a very narrow discount or a slight premium. So I think for us today, we see a lot of alternatives to will secure our financial position that is already strong to start with, I have to repeat, then to monetize Zalando. And we know that selling down Zalando would have come with a discount. And since we see a lot of upside in Zalando going forward And we have such a strong support for this proposal. We think this is the best way for us to hand over this fine company For our shareholders that would like to continue to own it directly and accrete ownership if they're already owners Or new shareholders that would like to buy Zalando. This could be a good opportunity because, of course, the liquidity will increase short term. And we know that there is a strong demand for international investors to have a higher exposure to Zalando. But of course, with a limited liquidity, it's difficult to accrete those terms of ownerships. You. And that is something that this, of course, transaction and distribution will facilitate. Should we have done it in similar in several steps, of course, that would have been an option. But I think Also, when you disclose something like this, it's big news. And we think it's better to actually rip the bandage as 1 at once and basically tell the market this is our intention, this is what will happen. And with, again, support from our shareholders, there is no kind of speculation of what will happen. So even if we would see some turbulence short term, we actually think that Long term, this will be something that's very accretive for both Kinnevik and Zalando, and it will be shown in both respective share prices. Okay. Corinne, do you want to comment on the Shareholder base or is that something we don't comment? No. I mean, there is a certain overlap, of course, as you mentioned, Georgi. But Like you said, we don't believe that's a necessity that they need to sell immediately. I don't know, Samuel, if you had some additional comments on that. Sure. I'd say we're pretty optimistic about our shareholders' ability and appetite to hold Zalando directly. I think There are 2 types of shareholders basically who you could argue could face potential issues. That's retail investors and it's Swedish or Nordic institutions. And if we start with Retail, I think you've all seen the fairly strong trend of retail investors increasingly looking outside of Sweden when they build Their portfolio and that sort of tailwind of retail ridding their home buyers clearly supports this transaction. And I think you also all know that Zalando is one of the more popular foreign stocks on the Swedish online broker platforms. And through this transaction, it will clearly again a number of new Swedish retail shareholders. And secondly, as it relates to the Swedish and Nordic institutions, firstly, You will note that this transaction has strong support from our shareholders and among them several Swedish institutions, some of them with a fair amount of flexibility as to where they allocate their capital and some of them with fund mandates that may prohibit certain funds from owning German stock. However, despite that, we still remain optimistic about how this transaction will trade out for even for these shareholders considering Fund managers may be able to reallocate in between funds with different mandates. There may even be room for exceptions, even for Swedish focused funds. And lastly, funds that cannot hold the stock typically have a fairly long and generous grace period, which decreases the risk of any sort of supply shock. And whatever shares that need to be sold, We find comfort in the strong demand for shares in what is Europe's number one e tailer. And when we Span off Millicom. Millicom's share price appreciated by a handful of percentages during the trading window in the right to receive Millicom stock. So I'd say we're optimistic about how our shareholders will act and how this transaction will pay up. Great, very helpful. Thank you. And then Erika here, you had questions regarding the Some more practicalities and just basically the time line that we intend to propose for the AGM It's laid out on Page 4 in the presentation material that was sent out, which gives you the overview. But just as a general, You our shareholders will receive redemption shares. These redemption shares will be traded in Stockholm, On the Nasdaq Stockholm, approximately mid May to mid June during a 3 week period. So during this period, you can decide if you want to sell your redemption shares or if you want to keep them. If you keep them, you will receive Swedish Zalando shares, which you then can reregister as Sort of the underlying German Zalando share. Okay. Thank you. And as there appear to be no further audio questions, I return the conference to the speakers for any closing remarks. Okay. Thank you very much. And thank you for the questions and thank you for calling in. We're super excited about What this means for Kinnevik and Kinnevik shareholders. And we welcome you to our Capital Markets Day, where we will discuss our early growth portfolio further. Thank you very much and have a nice day. Bye.