Hi, everyone. Great to see so many of you here. My name is Torun. I'm head of communications at Kinnevik. I'll be guiding you through the day. Before we start, I just have two slight changes to the program. We will hear from Naren at Omio already at 1:15, pushing our main speaker, Lee, down slightly 20 minutes. I hope that's fine with everyone. We'll also have a Q&A session right after we've heard from Georgi and Joakim. We gathered all of you here today because we are passionate and excited about Kinnevik's future. I hope that all of you in this room will feel that passion and energy as you hear from our management and from our companies. There's no one better, I think, to start off that, to present that strategy and our passion than Georgi, our CEO. Go ahead.
Thank you, Torun. Hi, everyone again, and welcome to Kinnevik's Capital Markets Day 2019. I'm so excited to see so many of you here, and also, of course, via our webcast. The reason we're here is to talk about what Kinnevik is today and where we're headed. Our story is intact. We have reshaped and challenged industries for many years. We were disruptors long before that buzzword was even invented. In the last few years, Kinnevik has also invested in a number of exciting growth companies, and we think this is an excellent opportunity for you today to listen to some of these most exciting unlisted and recently listed companies. You'll hear from Livongo, Betterment, Pleo, Monese, Global Fashion Group, Omio, and Kolonial.no. These companies all represent a good mix of our focus sectors, geographies, and of course, stages of development. With that said, let's get going.
I will start by presenting an overview of our strategic priorities over the coming years, and then Joakim, our CFO, will guide you through how these priorities translate into financials and how we report back our performance to you. Again, we are excited to have you here, and I look forward to an interesting day. Before we start with that strategy, let me start by explaining the rationale of the three announcements we did earlier this week, because I'm sure that you're sitting now and thinking, "What are they really up to?" Firstly, on Monday night, we announced a smaller sell-down in Zalando. We are proud owners of Zalando, and due to its success since our first investments in 2010, it has grown into become the largest asset in our portfolio.
Zalando fits squarely with the strategy that we're presenting today, and our small sell-down should solely be seen in the light of us wanting to keep up the ambition of investments in new, in existing companies. Secondly, we announced on Tuesday that we will distribute our entire holding in Millicom to you, our shareholders. That's a value transfer of roughly SEK 19 billion, or somewhat SEK 65 per Kinnevik share. Thirdly, with a higher share of companies investing heavily in growth and our ambition to maintain that activity going forward, we've also taken a decision to amend our shareholder remuneration policy.
We will use the dividends that we receive in the future for Tele2 to reinvest them into the companies where we see strong traction and where we have conviction that they will create tomorrow's winners in their respective categories. Thereby, we will cease to pay ordinary dividends. We of course keep up the ambition to return cash to our shareholders more in an ad hoc manner when we do successful exits. With those few days of this week covered, let's move on to speaking about our growth strategy, and we will go into the details of how we work and why we have such a conviction that this is the best way to create shareholder value. Kinnevik is a unique company. We combine a strong connection to our history and our heritage with a forward-leaning, bold philosophy.
It's on this foundation we have continued to develop and nurture our multidimensional platform that is taking us to where we are today and that will help us to grow Kinnevik also in the future. Our philosophy is simple, and it resonates throughout our entire portfolio, and it's also what guides us in our investment decisions. We believe that the power of technology makes life better. This is nothing new. We've always been backing the challengers. Think of Tele2, how they revolutionized choice for the Swedish mobile consumer, or how MTG enabled the Swedes who were used by the exciting choice of state-owned television channel number 1 and state-owned television channel number 2 to all of a sudden have access to an abundance of TV commercials. I'm not going into the quality of content here, I'm talking about the number of channels.
In more recent years, Zalando has been disrupting the fashion retail scene in Europe, somewhat 10 years ago. This is actually what Babylon is doing today within primary healthcare in the U.K. while expanding globally. Betterment is doing within the savings and investment market in the U.S. We of course, have more examples. All the companies here today, Global Fashion Group, Omio, Pleo, Monese, and the others, they all have this in common. They're all making life better by empowering technology in order to empower and delight their customers. In the past years, the number of investment organizations claiming to be the best owners of beautiful unicorns and growth companies have literally exploded. When I decided to return to Kinnevik, it was very much based on this organization's longstanding and proven ability to partner up with the right founder to challenge the norm.
We have a unique structure combining what I would call the best of two worlds. Being a publicly traded investment company with entrepreneurial long-term owners, we can make investments and drive value creation for the long term. However long, we still see a risk-return opportunity that is very rewarding. At the same time, we give our investors liquidity, strong corporate governance, and transparency. I would say we are the opposite of a classic fund structure with short funding cycles and focus on quick gains. Kinnevik has permanent patient capital. We have full flexibility and low costs when we operate. We can be there for the founders for the long term, so the founders can be there for their businesses, whether it's building a new business from scratch in Russia, like Avito, or continued expansion within healthcare as VillageMD and Livongo will do in the U.S.
We offer this, what I say, unique exposure to unlisted growth assets for you shareholders that you would otherwise only be able to access through a more traditional blue-chip fund structure. Our companies and our founders, they know that we're here for the long term. History has shown that time and time again. This approach allows us to have very deep partnerships with our companies on board level, on CEO founder level, but also across various competencies between the companies. We took a decision to gather many of these companies early this spring when we hosted an event here in Stockholm. We want them to understand what it's really about to be part of the Kinnevik family. Let's now watch a movie, short film, where we've asked some of these founders what they see as key benefits to be part of the Kinnevik group.
It's always good to build relationships with other people trying to build businesses. When you're trying to build a company, there's a lot of similarities, whether you're trying to deliver groceries efficiently or you're trying to manage finances efficiently.
One of the benefits with having Kinnevik as an investor is that you can share a lot of best practices, knowledge, network with the other portfolio companies.
One of the challenges that you have as an entrepreneur, you think you're the only one who has those challenges, but then you talk to other people, and it turns out everyone has the exact same issues everyone else has.
Kinnevik has a similar history of telecom and media, et cetera, disrupting old industries, that historically most people would think is impossible.
The disruption that this industry needs is a focus on a customer, not a focus on a bottom line.
These magical consumer experiences is what we're really trying to bring.
Kinnevik has really created an ecosystem of founders, entrepreneurs, managers, and portfolio companies that share a common set of values and use that as a basis to build very different businesses in very different parts of the world.
I see not just on a sort of a high-level discussion, but actually, I think there are true potential partnerships that are in the works.
I think the most interesting is that we have companies at very different stages. We have companies that are SEK 5 billion in revenue, some other companies that have SEK 5 million in revenue, 50 people or 5,000 people.
The challenger DNA has been really important and pivotal for Kinnevik, and I think that's something that we feel as well.
Being a part of this group is being part of a family that shares the same vision, wanting to develop new companies and share the same kind of values.
Kinnevik has proved that they can attract amazing people, and I'm very honored to be in this group. You're getting all this amazing kind of tailwind to be successful, and it's great. It's really great.
Let us now look at what we have delivered in terms of return to our shareholders. Going back 35 years, Kinnevik has really evolved in stages, but we have always focused to provide the consumers with more choice, and we've almost been obsessed by challenging incumbents. Starting already in the 1980s within our mobile and media companies. Then later on simplified and changed our structure in the beginning of the millennium to invest really, really big into new consumer companies, paving the path for the new growth. With our recent investments, both in terms of the increasing number of companies, but also total capital deployed over the last 18 months, we're again re-accelerating this pivot towards more growth. These companies will be very much those companies that you will see here today and listen to.
For our shareholders, this has resulted in Kinnevik consistently beating the market over the long term and returned over 300 times in 35 years. For us, improving customer choice means disrupting sectors where incumbents take advantage of inefficiencies and underserved customer needs. Technology is great, but what we truly look for are the most talented, passionate founders and entrepreneurs that we can partner with in order to create the consumer businesses of tomorrow. We partner with these talented entrepreneurs within our focus sectors: e-commerce and marketplaces, healthcare and financial services. Large sectors, all in the process of significant technological disruption. We will continue to back these challengers as they use technology to revolutionize their sectors.
This is exactly what Livongo is doing in the U.S. when helping people with chronic diseases, or what Kolonial is doing for online grocery shopping in Norway, or of course, Omio for travelers in Europe. Finally, we believe in both delivering shareholder and social value for the long term. By building well-governed companies, we can contribute positively to society at large. Let us now look closer at our portfolio composition and what unite these companies. The consumer and the right to choose is at the heart of everything we do. That's why we've been focusing on these large sectors that play a very important role in our customers' lives. You can come in contact with our companies when you communicate within your family or your business.
Of course, when you're buying your new wardrobe, when you're doing your online grocery shopping, when you're going to the doctor, or even better, preventing yourself from being sick in the first place, or when you're going out on a trip with your family. All these companies are part of the household and the life we're living. Of course, to truly understand these customers, we also need to be mind that we should reflect the customer base. Although half of this customer base is female, it's not really represented in our investments, the decision-making bodies in our investee companies, and for that sake, actually in Kinnevik and the industry at large. Therefore, we announced a comprehensive diversity and inclusion framework at the AGM in May this year. I truly believe that diversity and inclusion drives better decision-making, attracts talent, and ultimately creates stronger and better companies.
As the industry at large, we are not good at this today, and I'm not proud. This needs change, and that change can only come with high priority from the top. We have clear targets, clear KPIs that we will follow up. These KPIs, I would say, are far more reaching than we typically see in the rest of the industry. Since we announced this framework, we've actively been working with this internally within Kinnevik and with our companies. I look forward to present how far we have gotten here at the AGM next year, 2020. This is a top priority for us. Later today, you will hear from many of our recently listed or unlisted assets. Before we go into that section, let me first just go through two of the cornerstone companies in our portfolio, namely Tele2 and Zalando.
Both companies fit squarely with our investment philosophy, they're providing better choice for the consumer, they leverage on innovation and new technology. Following the merger with Com Hem, Tele2 has significantly strengthened its market position. Today, Tele2 is either number 1 or 2 in Sweden and the Baltics in mobile, broadband, and digital TV. Tele2 has, in the past year, completed the merger with Com Hem in Sweden, with T-Mobile in Netherlands, exited the Kazakhstan business and sold its Croatian business. Now with this reduced footprint, the majority of the revenue comes from Sweden, a mature and stable market where growth does not come easy.
The financial target is to grow slightly more than the market in general, to reduce the costs on the back of the upgraded synergy targets post the merger with Com Hem, to be disciplined and keep a low CapEx level in order to grow cash flow that can be distributed to its shareholders. As you know, Kinnevik is the largest shareholder of Tele2, and we were big supporters of the merger with Com Hem. We actually facilitated that transaction by taking the decision to distribute our shares in MTG to our shareholders to get regulatory clearance. Even though we had high ambition and expectations with this merger, I must say that the Tele2 team has over-delivered. We talk about impeccable execution. Not only have the synergy targets been increased, but they have executed faster than the original plan as well.
For us, Tele2 is a perfect fit in our portfolio. It's somewhat of a counterweight to the less mature companies, and it provides us with a good yield, as I said earlier in the presentation, that we can reinvest into the companies that we believe could be the winners of tomorrow. Going to Zalando, our largest holding, and I would call it the jewel in the growth portfolio, continues to benefit from an immense market opportunity 10 years after our first investment. Zalando's management team has set out a clear new goal, to be the starting point of fashion and to reach EUR 20 billion of gross merchandise value by 2023/2024. This is a bold vision. To achieve this, Zalando aims to deepen its customer relationship by tailoring the offers in a different way to its most loyal customers. Zalando has also clarified how to expand the partner program.
That is the platform that allows brands directly sell to their customers and also add services like Zalando Media Solutions and Zalando Fulfillment Solutions, two important components to drive profitability. In 2018, 250 brands were connected to this platform that amounted for about 10% of the GMV, gross merchandise value. Now the bar has raised. Zalando says that 40% of the GMV will go through this platform in 2023/24. During 2019, the management and supervisory boards of Zalando were strengthened to support this bold vision. We are, of course, very happy that our lead shareholder of Kinnevik, Cristina Stenbeck, is now the Chairman of the supervisory board in Zalando. A very good fit based on her knowledge about platforms from Spotify, earlier Zalando, and other companies like Omio, in combination with a deep understanding of the fashion industry.
We think this is a perfect setup for Kinnevik, for Zalando, and for both company shareholders. Even after our recent sell-down in Zalando, we are by far the largest owner of this company. In the 21st century, we're not necessarily looking for control. We're looking to influence outcomes. I would say with our 25%-plus stake, we definitely are in that position. If you look back, Kinnevik has systematically reallocated capital from companies where we believe that our tenure as owner is over into more, less mature growth assets. Examples in recent history includes the exit from Korsnäs starting in 2012 in a two-step process where money was deployed into companies like Zalando. Rocket is another example in 2017, where we had opportunity after the exits to invest in a complete new sector, being healthcare, with relatively small tickets to start with in companies like Livongo and Babylon.
With the distribution along this growth and maturity curve, as we see here, U.S. shareholders can benefit from a unique system spanning from companies within the venturing growth businesses to more mature, successful growth companies like Zalando to cash distributing companies, stable businesses like Tele2. Our view that this is a very good balance of young and more mature companies and provides you with an attractive risk-reward profile. What does this mean for our capital allocation framework over the next few years? Firstly, we will invest two-thirds of our capital in follow-on investments in proven and high-performing companies in our portfolio to reach 15%-25% ownership levels. As I mentioned earlier in this presentation, we're not necessarily looking for control. We're looking to influence over outcomes, and this should be in relation to the capital that we deploy.
Secondly, we invest one-third of our capital into new businesses to ensure that we keep infusing our system with fresh blood, or to state it more blunt, continue to feed the cow. We will add two to four companies per year between 2020 and 2023, spread across our focus sectors, but with around 80% of the first round capital being invested in more late-stage businesses abroad. VillageMD is a good example of that, our latest announcement. 20% of the first capital invested in less mature businesses, venture-like businesses in our home market, the Nordics, such as Pleo, for instance. The reason why I qualified this statement with first round capital is that we expect many of the Nordic ventures to grow and to branch out internationally, just like we see Pleo doing now in U.K. and the rest of Europe.
Of course, one day we hope that they will be that clear growth portfolio jewel as Zalando is in the portfolio today. Thirdly, with our ambition to maintain a portfolio around 30 companies, that include also a number of smaller investments in the venture business. This mean that we are aiming to exit just about so many companies that we add. We can't have too many companies and still be the active owners with a nimble team. The lack of at scale exits over the recent years is mainly a function of our portfolio distributions. As our young companies will develop over time, over the coming years, I'm sure that we will demonstrate as successful exits as you've seen with Avito in 2015 and Lazada in 2016 and 2017.
We will continue to monitor our companies when they reach the inflection point where handing over the baton makes sense, not only from a financial perspective, but also from a commercial perspective. To sum it up, we have three priorities going forward. One, we will continue to evolve our portfolio towards a higher proportion of growth companies in our target sectors and markets. Our investments in MatHem and Kolonial in the Nordics, or doubling down in proven companies like Livongo and Babylon in the existing portfolio, and adding new companies abroad like VillageMD are all good examples of something that resonates with that philosophy. Two, we will strengthen our portfolio balance across sectors, stages, and time to liquidity in order to be able to provide you with these exits I was referring to.
Going back to that S curve, it means constantly moving capital if we need between the portfolio, but at the same time, since we have patient capital, always have the privilege to hold onto a company as long as we see a good risk-return opportunity. Three, we will reallocate capital more dynamically in the future and exit a number of businesses at attractive terms as a relatively young portfolio matures. Part of this capital from the exits will be used to feed new investments, and part of the capital will be paid out to you shareholders. Lastly, in this part of the presentation, I am super excited about this new Kinnevik. This is exactly the job I signed up for, and I am convinced that we have this platform built by a team, a portfolio, but also a pipeline, and we are ready to go and execute. Thank you very much.
Thanks, Georgi. Translating that into returns, capital structure, and shareholder remuneration, Joakim, our CFO, please enlighten us.
Perfect. Thank you, Torun. When we talk about the portfolio balance that Georgi just mentioned, we think about that from four perspectives of four different parameters. As you have seen, since this summer, we have already addressed a few of them, including this week's announcements. It's not only the balance between public and private that we have been talking about quite a lot with all of you when we meet you. It's also between the sectors, the geographies, and the stages and tenures. What we mean with the last one is exactly what Georgi mentioned, that we want a more evenly distributed portfolio with a string of pearls rather than having a big overweight to a certain stage.
Recent examples of these efforts are the two-year buildup of our healthcare portfolio and the sell-down in Zalando, which primarily addresses the sector balance, and the proposal to spin the full ownership in Millicom, which primarily is addressing the geographies where our portfolio will be less exposed to geographies with low priority. The consequences of these initiatives will be that we need to rethink our financial targets, the funding strategy, and also the way we present our performance to the markets. We start with our first financial target, the total shareholder return. As of today, we are committed to deliver you 12%-15% return over a cycle.
This target is built up by a bottom-up approach, whereby we look in our portfolio and look at each individual company, set individual targets, minimum return targets for each of them, and then we accumulate and consolidate that to one total number for Kinnevik, which as of now is 12%-15%. As you can see on this page, it is a somewhat simplified model, obviously there are other factors playing a role here when we do this, as an example, where the companies in our portfolio operate, which geographies they are in. As you can see, the way the portfolio is built up today, we have individual return targets of 7%-12%, or around 10% for the more mature ones, and then it spans up to 25% or above for the venture-staged companies.
The consequences of our initiatives is that it's likely to see that we will move upwards on our TSR target. Also it's fair to say that the announcements this week already has led us to be moving upwards in our existing scale. This TSR target, we are evaluating continuously, and we will get back to you with more clarity when we take decisions on any changes. Moving over to our second financial target relating to the shareholder remuneration, you have seen that we have taken a decision to change our dividend policy. You can read this new policy on this page, what we are effectively saying is that we are moving away from regular cash payments, dividend payments to our shareholders, to returning excess cash as a result of our investment activities.
We believe that this new policy is more fit for purpose for the Kinnevik that we are transitioning into with a more growth focus. The rationale for making this change now is the distribution of Millicom, which is the distribution that corresponds to, as Georgi said, around SEK 65 per share, or 8 times our dividend proposal or dividend payout of this year, which will make our shareholders whole for a period up to and including 2026. We would recommend all shareholders that do not sell their Millicom shares and reinvest into more Kinnevik shares to maintain their Millicom positions, because that's an asset that as of now is yielding 5.4%, as we show on this page. This change shall not be read as we are stopping to pay dividends, but it will be less regular.
You can rest assured that we will remain very disciplined when it comes to our capital allocation. Upon each liquidity event, we will carefully assess our liquidity needs and to make sure that we have an efficient capital structure going forward. A reasonable assumption is that we will target to stay within a range of ±10% net cash, net debt to our portfolio value. Finally, I'd also want to clarify that this changed dividend policy will not have any impact or change the already decided dividend that we are paying out in November this year. When it comes to funding, we, as a fully invested company, are working within a capital reallocation strategy. What does that mean? That means that we cannot only spend a lot of time looking for new exciting companies to invest in.
We also need to spend a lot of time looking into our portfolio and at our existing companies to find capital to release for making those investments. For those of you who have been around for some time, you will remember that we more or less every second year have had a large divestment or executed a large divestment, be it 2013 with Billerud/Korsnäs, 2015 with Avito, 2017 Rocket, and last week or this week, Zalando. Going forward, you should expect us to be more dynamic on this capital reallocation activities, and we will not only and solely rely on this big kind of monumental capital releases. As you also can see on this page, we have been somewhat more predictable when it comes to the pace of investments on the green bars, and that is something you should expect us to continue with going forward.
Our capital structure target in the form of maintaining a lower leverage than 10% of our portfolio value will remain. That also means that we will continue to use debt in between capital releases to bridge the time between making an investment and a divestment. As a consequence of Kinnevik becoming more focused on growth companies with a higher proportion of unlisted companies, younger companies. We also believe that we need to be more transparent with our approach to value creation. As such, we are working on a refresh of our valuation guidelines as well as the disclosure principles. On the valuations, you have seen that we already from Q2 this year have updated our methodologies in accordance with the IPEV guidelines and accounting standards. In short, this means that we are no longer using latest transaction value as a primary method for arriving to the fair values in our portfolio.
We will have a more regular monitoring of the valuation based on multiples and DCFs. When it comes to disclosures, we know that many of you are keen on us being more transparent with our company's performance, and we will going forward seek to increase our disclosure level and try to find a balanced approach as our companies grow and mature. To wrap up this short section, I would like to show you two pages more on our investment activities the last years and also a snapshot on our portfolio as it looks today. First, on this page, we have tried to illustrate what we have achieved over the last five years and what the outcome of our investment activities have been, including the addition of 16 new companies which to date have delivered an unrealized IRR of more than 34%.
We believe we have been able and will be able to find and be part of creating a number of winners in this portfolio. The ambition going forward is to continue to support these companies as well as to find new companies that complement the ones we have. As you can see on this page, these companies are still very young in our portfolio, but we see great momentum for a number of them, such as our healthcare companies, Babylon and Livongo, as well as for some of the younger companies in portfolio based in the Nordics, such as Pleo and Kolonial, and you will meet them later today. Finally, we wanted to bring you a quick overview of our portfolio as of today based on the high activity over summer and this week.
As you can see on this page, if we start by taking our Q2 numbers and then add on the activities, we have invested $1.8 billion in Babylon, Livongo, and VillageMD. We have received $1.1 billion of extra dividend from Tele2. We have sold shares in Zalando worth $5.9 billion, and we have proposed a dividend in kind of all our Millicom shares worth around $18 billion. Pro forma, that would mean that our portfolio, our NAV, would be around $73 billion as of today, and our leverage would be at below 1%. Consequently, and to summarize, we are in a very strong financial position, and we have come far already in our transition, and we are all very excited about the next steps for Kinnevik.
Thanks. As I said, we now have time for a couple of questions to Georgi and Joakim. If you want to ask a question, there are microphones here in the room. While we get that gathered, maybe I will start with the first question. I think a lot of people in this room were a little bit surprised by the move on Zalando and Millicom, given that we had announced a different plan in the summer. Why did we change plans, Georgi?
That's a good question, Torun.
Thank you.
You hear me? First of all, just to zoom out a bit and say why did we take decision to exit Millicom? That's the first thing. We just said that already in June, let me recap. We've been owners of Millicom for almost 30 years, it's a great company. In the last few years, they have strengthened their position significantly. Focus on Latin America, four strategic acquisitions last year to strengthen their footprint as an fixed mobile converged player in these nine countries. Upgraded financial targets, regained growth on mobile as before fixed, a very bright future for that company in order to produce better cash flow. We decided that, as I said in the presentation, that our tenure as owner with this company was over. We don't add that much value going forward.
That company doesn't add that too much value to be in our portfolio, and therefore, we can allow our shareholders to own shares directly. The initial plan, as you said, Torun, was to sell one third in this full market offering and distribute the rest. That was a bold decision that did not go as planned. Being bold as Kinnevik, we also need to assess when things doesn't really move ahead as envisaged. We look for alternative ways of handling this asset. The best way, in our book, was not to sell part of that stake to a price that is basically too low. We think the company share price should be much higher than it is today. That's the blunt and real answer.
We then look at Zalando, we have seen a strong recovering in the share price for a strategy that we really believe in. With a high exposure from one company in the portfolio, and this idea of not necessarily looking for control, but rather to maximize the influence of the outcome, we thought that this was a much more responsible and prudent way to sell down a small stake in Zalando, and at the same time, not have the issue of being cornered of who would pay enough for one third in Millicom. Which I think will show in the share price going forward. That's the maybe too long answer, but still an answer.
Good. I saw we had some hands in the Derek?
Thank you, Derek Laliberté from ABG. Sorry if I'm misinterpreting something, but it seemed from one of your earlier slides that you're targeting a 50/50 ratio between public and private assets going forward. If that's so, on what time horizon are you aiming to achieve that?
That's not an exact target. What we're saying is that we will move with this transition, but most probably not go beyond that. If we go beyond that, we think that we will have too much risk and too little stability in the portfolio. We have no time horizon for that, and it will be taking definitely some time. Just because of the sell-down and distribution of Millicom, we haven't increased close to that kind of ambition.
I understand. Thank you.
Okay. Go ahead.
It's Patricia Hedelius from Svenska Dagbladet. When looking at the share price development on GFG and Livongo, have you had too high valuation on GFG and Livongo?
Sorry, can you repeat that question?
When you look on the share price development on the GFG and Livongo.
I mean, since the IPOs.
Yeah.
I'm curious because you have had a high valuation before the IPO, and when you see to the development now, it hasn't been so good on the stock exchange. I was wondering, looking backwards, was it too high valuation?
At the IPO, you mean?
Yeah.
Okay, I understand. I think that these are two different companies, and the share price have moved for different reasons, I would say. If we start with Livongo, still our blended in price is around $12. We think this is a good deal for us. As we know, the IPO was a great success. It was oversubscribed by 25 times. The initial pricing was increased from the original range of 20 to 23 to 28, and still there's oversubscription. I think there was a huge demand. The company also, in our view, released a strong report, maybe not completely understood by the market. Of course, being a high value tech stock, very volatile, in these markets, things can change very fast.
I can't comment further what the specific reasons are, but I can just say that we are very comfortable that this company will increase in value over time. We think if we compare with the Zalando journey, for instance, that the majority of that value uplift actually happened post IPO, and I'm sure that that will be the case also for Livongo, even from the IPO range. For GFG, it's a different reason, which is quite complicated. I think it's a combination of recent IPOs with a similar kind of structure, cap table and so forth, and also the uncertainty of will they be able to become profitable in these quite highly competitive markets.
Luckily, we have Christoph Barchewitz, one of the Co-CEOs here today, and he will explain more, and also maybe give you with a feeling that, wait a minute, there's a big disconnect between the operational KPIs and the share price today. That would maybe answer that question as well.
Just one last question then. Is there any risk that you will be a little bit too optimistic now in the new Kinnevik with the assets in the future? You explained a little bit about your valuation, the cash flow model and so on, because I think it is not transparent as it was before. I am just curious, is it a little bit risky that you are being too optimistic in the future as well?
I would say no. This is not the choice for us. This is a methodology that is in line with guidelines and rules, so we need to comply with them to start with. I think just to bridge the book value to the public value of Livongo, what we did in Q2 was that we marked it up in Q2 to the IPO price, which was the only reasonable thing we could do. Obviously then we can't control what's happening in the public environment, right?
I would say no. The big difference between before and now in the valuation methodology is that we previously had used latest transaction value, been able to use that, I should say, for up to a year. It's been kind of static in our portfolio, whilst the company obviously develops and moves up or even potentially down, hopefully not. We would be more follow that development of the companies going forward and be a little bit more dynamic there. That's the main difference.
I think we will have time for just one more question. Then I will encourage you, if you have further questions, to grab Joakim and Georgi also during the breaks. Go ahead. We have two questions here. Joakim, go ahead from DNB.
Just to clarify, I think that Livongo's value is up some four times from your pretty conservative value. It was the market to set the IPO price. Just if you could, yeah, Joachim Gunell from DNB Markets. Thank you. If you could just further address your current target verticals address some two thirds of the household's consumptions. You mentioned that you want to have an evenly distributed portfolio going forward. Can you perhaps shed some color on other target verticals for you to address going forward?
Now, these are the focus sectors that we have and will keep. I just want to underline that it's not about a complete even distribution among those sectors, that we do one each every year. It doesn't work that way. We are looking for the best founders, the best companies out there, and then we invest. I think when we talk about some even distributions, it's more factors. It's geographies, it's sizes of companies, it's maturity, time to liquidity, et cetera. That balance need to be monitored so we can provide a more regular type of exits process going forward. It will not be that one in healthcare, one in financial services, one in e-commerce, then we start over again. That will not be the case. We take the last question.
Final question.
Thank you. Ramil Koria from SEB Equity Research. Just two questions in one, really, on portfolio composition. I guess, given your strategic repositioning here, there is some rationale for you to exit assets with emerging markets exposure. Shorter term, I guess the churn in terms of new investments coming in and replacing old investments in terms of number of holdings, that will hold shorter term, but say three years out, you will be forced to actually exit holdings which are sort of aligned with the new strategic repositioning here. How will you go about choosing the exit objects? Secondly, just very briefly, how does Zalando constituting a very large share of your assets today sort of translate with the sort of specified with the slide we saw on how you want to divide things between mature growth and ventures? Thank you.
Take the first question first. I think when it comes to focus on emerging markets, again, we have said earlier that our focus from new investments going forward will be mainly in Europe, with a special focus for earlier ventures in the Nordics and U.S. We have then, with also the Millicom divestments, changed a lot of that exposure. We have now below 10% of the portfolio actually in emerging markets. This does not mean that we have to exit the companies we have today with an emerging focus. That's the benefit of being this long-term, patient capital investment company. We have the privilege to hold onto these assets as long as we see a good return risk opportunity.
My view is that the assets that we have today are definitely exit-able, but right now they can return better capital to us and to our shareholders by keeping these assets. Over time, yes, we will pivot into our focus geographies, but we will not rush into something if we believe that a certain asset is undervalued. The second question was regarding Zalando and their relatively large exposure. That is correct. I would say we have done something when we sold down, but that was not the main reason. We definitely believe that Zalando is a fantastic company, and we are true supporters of the strategy going forward. I think that no one have been accused for having a large exposure into a fantastic company when things turns out well. I can just tell you an anecdote.
When the share price was at EUR 22, I defended, literally together with Joakim and the rest of the management team, the decision to hold Zalando. I know, unfortunately, that many of the shareholders that own Kinnevik would maybe have not thought in that way during those times and could perhaps have sold when the share price started to tick up again to 25, 26. We knew that by ring-fencing Zalando until the market actually understood the value of this strategy, we would not only be providing value creation for our shareholders, but also helping the company to execute on that journey. That, I think, is something also where Kinnevik can play an important role by being a 25%-plus owner of such a fantastic company. Yes.
Thanks. I think it's time to move on. We will now take a deep dive into our focus sectors. To help us with that, we have Chris Bischoff, who is heading our London office and has been also instrumental in driving a lot of the new investments, especially in the healthcare sector. We have Andreas Bernström, who is head of our Nordic activities when it comes to investments. Currently, he also doubles as an interim CEO of Mathem. Go ahead, please.
Good morning. As Georgi said, we're focused on three sectors that represent the majority of household spend. Today, in this session, we'd like to take you through a little bit more detail on those sectors and our strategies for exploiting the opportunities we see within them. We're organized as a team by sector, and we believe a sector-driven approach is the right strategy. Our sector approach allows us to go deep and build conviction around the sector, and that we think is a differentiator, both against the Kinnevik of five years ago and against our peer set. I'm going to start with healthcare, go through e-commerce ex-food, and then I'm going to hand over to Andreas, who's going to touch on food and finish up with financial services. Firstly, on healthcare.
The four key points we'd like to make on this slide. That is firstly to say healthcare demand is increasing significantly. That's driven by an aging population, growing inequality gaps, a need to address the growth in chronic diseases, and a search for better life. As you'll see
180 million people now in America have one or more chronic conditions, and the average age of the population in Europe is over 44 years. Secondly, the healthcare spend levels are enormous and putting a huge financial burden on the system. Healthcare spend represents nearly 20% of GDP in the U.S. and over 10% of GDP in Europe. This spend, despite the quantum, is growing at faster than inflation, so it's becoming a significant issue for the electorate in many democracies. In the U.K., healthcare spend was a key issue in the Brexit vote, and it's the number one issue in the U.S. in the 2020 presidential elections. Thirdly, all that spend is not necessarily leading to better outcomes or indeed more efficiencies. Firstly, physicians are often compensated on the number of procedures they undertake rather than the quality of those procedures.
Secondly, the administrative burden of healthcare is significant. In the U.S., administration costs represent 8% of total healthcare spending versus 2% in the U.K. or in Sweden. Finally, healthcare is consistently ranked amongst the worst-performing industries in the world in terms of consumer satisfaction. That perhaps wasn't an issue when the consumer was in pain, but as we'll see in this presentation, the consumer is going to make more of the purchasing decisions going forward. Part of the problem is that healthcare hasn't been set up as a system for where we are today in 2019. The system was designed initially for the drug manufacturers, the payers, and the providers. The patient wasn't at the center of the system. The drug manufacturers and the payers get a lot of blame, actually, the providers in the shape of hospitals should bear their share of blame too.
Enormously expensive inpatient and acute care infrastructure has been built around the world that no longer is fit for purpose. That infrastructure costs an enormous amount of money. In the U.S., the average cost of a hospital stay per day is $6,000, and the 25th percentile is nearly $20,000 a day. The moment you go into a hospital, it's very expensive. We want to take the healthcare system and put the consumer back in the center of the system, make her the key focus, and really try and focus on preventative care and chronic care management. There are four key developments that lead us to be optimistic. Firstly, consumerism. The consumers, whether they like it or not, are going to have to make more decisions in healthcare. In America today, out-of-pocket consumer expenditure on healthcare is $350 billion a year.
More than $1,000 per person per year, and that's on top of their insurance. They're going to have to come in charge of their healthcare spend. As they become in charge of their healthcare spend, they're going to demand that payers and providers serve them better. By serving them better, I mean giving them better access, more convenience, and more affordability. Secondly, technological change is significant in this sector. We're seeing the growth of new devices that allow remote and passive data monitoring. We're seeing standardization of APIs that allow interoperability. We're seeing the use of machine learning that allows the analysis of vast data sets. Thirdly, payer reform is coming. We're seeing the largest health insurers in the U.S. shift their populations to value-based contracts. That is enormous opportunity to improve healthcare outcomes, but also to lower costs.
Value-based care and VillageMD, our latest investment, is a really fascinating area. If you haven't had a chance, I recommend that you listen to the podcast on our website with Andy Slavitt. Finally, those three changes are leading to provider innovation. Providers are looking at this and saying, "We need to create emerging access points. We need to provide access to full-stack verticals, and we need to introduce better care models." Whilst healthcare is complex, our investment approach is simple. We invest only in three areas of healthcare. One, we want to broaden access. Two, we want to improve the care experience. Three, we want to improve the financial experience. Each one of our companies does one or more of those with the aim of delivering better outcomes at lower cost. We have diversification across stages, geographies, customers, and business models. Babylon broadens access to care.
Livongo and VillageMD improves the care experience, Cedar improves financial billing in the healthcare system. In addition, each of these companies has several commonalities. Firstly, the entrepreneurs who built them all have experience in the healthcare system, so these are not naive people. Secondly, each uses rich, often unique data sets to provide actionable insights for patients and customers. During the course of the CMD today, members of Livongo will test their blood over 100,000 times. At Babylon, people will use their chatbot and virtual care over 8,000 times. This may seem a relatively small number for those in e-commerce, but this is transformational in healthcare. Thirdly, each aligns their business model with their clients and delivers tangible ROI to those clients. Fourthly, consumer satisfaction is the best in their sector, so patients and consumers love these providers. Finally, they have attractive business models.
They have fast growth, recurring revenue streams, high margins, and each one of these businesses is funded at least through 2021. When we look at healthcare in totality, we've been invested for three and a half years. The current value of our positions is around SEK 700 million, and we have around SEK 300 million invested. SEK 140 million of that 300 has been invested in the last two months. While the returns look attractive, we are very optimistic that they can be exceeded significantly from here. I can now touch on e-commerce and marketplaces. Many of you will be much more familiar with this sector. I think the four points I would draw your attention to here. Firstly, this is the largest area of consumer spend, representing nearly one-third of total household expenditure. Secondly, online penetration really isn't that high.
It's still only 14%. There's significant headroom for further growth. Thirdly, the sectors that we are focused on, fashion, food, travel, and classifieds, are each enormous and represent over $1 trillion of annual spend. Fourthly, this is a sector that is dynamic and moving very quickly. As an example, on-demand services have grown exponentially as consumers, particularly millennials, are looking for easier access to goods and services. Our segments will continue to benefit from the tailwinds of growing online penetration, but we're also seeing business model evolution, and that provides an opportunity to build new revenues and increase profitability. By way of example, at Quikr, over two-thirds of our revenues now come from transaction services rather than from serving simple advertising-based solutions to consumers. We're getting the traffic from the advertising-based classified model, and we are monetizing that traffic through transactions.
As you heard from Georgi, Zalando has transitioned its business from a first-party platform or first-party seller to a platform for partners. Our initial investments, online investments in e-commerce, focused on physical goods, buying and selling physical goods. When we look at it today, consumers are spending more of their time and their money on buying services, and in particular, buying experiences. We have realigned our strategy and our investment focus to take account of this. As a first step, in 2018, we invested in travel, a segment with high emotional resonance for consumers and high frequency of purchase, as well as relatively high online penetration in a number of sectors. We continue to expect to broaden our focus. As examples, we see large opportunities in fitness and in housing, sectors that both have high transaction value, high frequency of use, and high consumer engagement.
In summary, e-commerce will remain a core pillar of our investment strategy for a number of reasons. It's a large sector, we're highly familiar with it, and we think there's enormous opportunity to build great brands. We will continue to look at different segments and see if we develop them. Our e-commerce portfolio is diversified across sectors, geographies, business models, and maturity profile, including a number of public assets. We're backing the leaders in fashion in Europe and emerging markets, classifieds in emerging markets, B2C and B2B travel, and last-mile logistics. You know a number of the companies on the left-hand side of this page, so I'd like to emphasize a little bit the companies on the right in the travel sector. Omio is the leading European online booking platform, multimodal online booking platform.
It has put together an extraordinary inventory on the supply side that provides a very different experience for consumers. Much of that inventory was not previously available online. You'll hear later from the founder of that business. TravelPerk, which is the leading online corporate travel booking platform, which is bringing a consumer-grade experience to corporate travel. It's also helping finance managers assess spend of their employees. With that, I'll hand over to Andreas.
Thank you very much. Good morning, everybody. Nice to be here. I'm going to talk a little bit about food and financial services. I thought I'd first say, joining Kinnevik 18 months ago, it was my first real job for about 20 years. I'd worked as an entrepreneur in technology-driven businesses. I had raised capital from a whole host of different venture and growth funds. It was by meeting Georgi and Cristina, listening to the DNA and also to the story about what Kinnevik wants to become, that made me so excited about joining this. Today is a landmark because now we can accelerate a lot of the things that have been on the table or have been discussed for 18 months.
I hope in the conversations that you will have outside of this room, but also in what you hear, that you will understand that Kinnevik really does think differently and act differently to entrepreneurs and industries in a way that very few others, in my experience, have done. At Kinnevik, I manage three different areas. I look at venture investments in the Nordics, I look at financial services, and I look at our newest category, which is food. Something that everybody can relate to, something that everybody does every day. It's an industry that's been controlled by incumbents for 50 years. Looks pretty similar in most European markets. Digital transformation has been extremely slow, and we feel the time is ripe for something to happen here, to have digital innovation in the food sector. It's a third % of discretionary spend, household spend.
It's a conversation that a family has every single week, every single month. How much food are we spending? Where are we spending our food? Just to put that into perspective, in the Nordics, it's 4 times the size of the global music industry, and that's just in the Nordics. The opportunity to actually build a meaningful business in each geography is pretty material. At the same time, we in Sweden are early adopters. We're used to being at the cutting edge of how technology's adopted. When it comes to online groceries, that's not the case. We lag considerably behind European and global peers. In the U.K., you have around 8% online groceries penetration, and South Korea around 20%. That's a good thing, we feel. We know that the trend is happening, and we know that there's an opportunity for growth going forward.
There's also a reason for this. The incumbents did a fair amount of investment in 2000, ICA, Axfood, to try to create this behavior that they were seeing in other parts of the world. Unfortunately, it didn't work. We didn't have the right kind of digital penetration and mobile usage. Now with Mathem, 10 years ago pioneering this, we're starting to see growth rates that are pretty impressive. Why do we like online groceries? There's been some skepticism. People think of it as a low-cost business. We see different things that make us very excited. One of the first ones is how often the actual distribution of food happens. Mathem's distributing and Kolonial distributing about 20 to 30 times per annum. If you look at mature markets, you're looking at 40 or 50 times.
That means that every week or every other week, somebody is coming to your home and delivering food. That creates predictability. It builds a relationship. It demands attention. The home screen of your mobile phone is a holy place. Very few applications are allowed to be there. In the future, if you're going in to fill your shopping list every single day or every single week, there's a good chance that that might be there. Last but not least, we're building a last-mile logistics network into the home. We're being able to deliver that food predictably that we can actually leverage in the future with other services and other verticals. As you all know with e-commerce, returns is an issue. Smaller basket sizes through mobile usage means lots of returns. In food, returns are not an issue. Last but not least, we're all trying to save time.
Time is probably our biggest enemy as a family today. Specifically in the Nordics, where you have such a high proportion of women in the workforce, convenience is king. We've done a fair amount of investments in distinct direct consumer brands. We think there's an opportunity when it comes to food specifically to invest into an ecosystem. You build up through the hub, Kolonial and Mathem, the online distribution, the logistics into the home, and from there on, you can actually start creating other verticals at almost no marginal extra cost. We've started doing that, and I'll explain a little bit more about it in the future. If you went into a grocer's, or some of you may well have gone into a grocer's in the '70s and '80s, and you go into a grocer today, the experience is not very different.
It's not like you're going to see a massive transformation. In the U.S., you're starting to see grocers become more of an experience. Having said that, people and how they think about food has changed dramatically in the last 10 years. People care about how food's grown, how it's packaged, how it's distributed, what wastage is being created. In the U.S., you have 25% of young people who actually identify themselves as vegetarians. Veganism is up 600% in the last three years. People care about the planet. They care about how food is created, and it's something that every single brand needs to take very seriously. You're also seeing changes in consumer behavior. Again, in the U.S., for the first time, food bought out of the home is bigger than grocery full stop.
That means people are buying takeaway food, ready meals, and meal kits in ways that have not happened before. That trend is moving here as well and lends an opportunity to grocers. Three days of normal food, and you know what? I can't be bothered to cook food on Thursday and Friday, so I'm going to get ready meals, an Indian and an Italian. Health. What we put in our body is important, but we don't know what we're putting in our body because we're just picking things from shelves and we're looking at the back of it and we're saying, "What's the content of this E something? I've got no idea." As long as it says eco on it, I'll buy it. The opportunity through this data to actually create filters around how your basket looks and gives you nudges to become more healthy individuals is enormous.
Building a brand used to be about signing up Beyoncé, putting billboards up, and doing some infomercial. Today, it's not that easy. People will Google. They will do their research. Brands need to build relationships that are transparent and human, where consumers are. Distribution models are changing. Uber Eats, Foodora, Instacart, online grocers, sustainability. One third of all food is wasted. It's one of the biggest impacts on our CO2 footprint. How are we going to handle this? We believe that by removing a network of hundreds of stores and by using technology, we can actually reduce wastage considerably over time. How have we done this? Step 1 is we've invested in the best businesses in the hub, Kolonial and Mathem. We've created the digital relationship with the customer and the last-mile logistics network.
From there, we have an opportunity to start building on verticals and on categories. We've already done this with Clas Ohlson. Relationships with Kolonial and Mathem are in place. You're buying your food, you add some batteries, some light bulbs, SEK 100 extra in the basket at almost no extra marginal costs. We can do this with pet food, we can do it with pharmacies, and we can do it with other services. We can also do it with recycling. As you're buying five or six different pairs of shoes for your children, three need to be returned. We can pick those up for you. There's a lot of things that we can do with that distribution network to increase margins. Last but not least, we can actually launch brands.
We could launch brands like NYX or Oatly, or we could create our own brands that we launch, or we could create technological filters to nudge people to a more healthy and sustainable lifestyle. There's an enormous amount of opportunities here. I'm meant to be following my cards, but I'm not really doing that, am I? Where are we? Mathem, I'm going to do a case study on that, so we're not going to talk about that. Kolonial, you're going to hear from somebody considerably better than me. The man himself will be talking. Quickly about Karma. Karma is a business that's trying to eradicate food wastage, which is a pretty hefty vision, something that appeals to Gen Z and should appeal to all of us. They create a network, a distribution ability for grocers and restaurants to sell food that are close to their sell-by date.
Food that would otherwise be just thrown in the bin. You can quickly run to a shop after lunch, pick up food, and save it. To date, they've saved 1 million meals. Started in Sweden, they're now in the U.K. They're launching in France. If you haven't tried that service, you should. It's incredible. Right. Financial services. We always talk about large markets, but this one's really quite enormous. I think we need to quantify it a little bit, and I'm going to use my notes more on this. In each distinct sector, whether it's loans, savings, mortgages, neobanks, insurance, we're talking about trillion-dollar industries. Again, this industry has also struggled with disruption. It struggled for disruption in slightly different ways, however. Legislation, regulation, bureaucracy, interoperability problems, technology legacy systems, balance sheets, the need for capital.
What we saw with payments is that this market can be disrupted. With the advent of high penetrations of mobile, with the opening up of banking, PSD2 and APIs, we're seeing disruption starting. It's being driven by the young. These young individuals are expecting fair, they're expecting transparent, something that banks and financial services have typically been unwilling or unable to provide. Chris was mentioning that healthcare service providers in the U.S. have low NPS. I think it was 12. Here we're talking about minus two. To be better is not difficult. These companies They're starting at the top of the funnel. Okay? They're not trying to create the entire stack and the entire value chain. Hence, most financial institutions are not really seeing a massive value erosion. They're getting the top of the funnel.
None of these financial institutions became billion or trillion-dollar industries in 10 years. They did it over generations. This is painful over time, and it's creating enormous value for consumers. We're looking at solving problems around the consumer life cycle, and we've pinpointed five areas where we think we can do this, and we invested in companies that solve these problems. Each industry in itself, as I said, is huge. Fee structures, legacy technology systems, and regulation have slowed the speed of development. That is a massive advantage for the new technological breed. Young consumers who are used to Swish, Uber, and Spotify can't relate in this new world.
Options that speak to them and help them understand an industry that has inherently created complexity to extract value become painful. Options that shine a light on fee structures and simplify their daily lives, allow them to feel educated, are prioritized. A number of similarities in these businesses from both a structural and operational perspective, I'd just like to highlight some of them quickly. Not only are they looking at the top of the funnel, they're looking at early adopters. Early adopters are a little bit like hot bloggers or fashion icons. They bring with them a lot of other people. By attracting those individuals and showing that an experience can be better, they ensure that they actually get a lot of word of mouth. They're also mobile first. They don't try to solve lots of problems. They try to solve one problem at a time.
As you'll see with Betterment solved one problem and grew AUM to $20 billion. With that customer base, they're moving to savings and credit cards. That is how they extract value. They look at transparency. They look at fee structures that you're used to. How do I bundle this fee structure so a customer can understand what I'm paying and what the value I'm getting from that? They're technology first, they're technology businesses at their heart, they think about how to create efficiency through how they scale, which allows them to be cost efficient. That, in combination with extremely low marketing costs, allow them to have low prices. Last but not least, customer service. I think we're going to hear from Monese later. They have 24. It's probably not 24/7. I'm probably lying now. Let's call it 24/7.
You can call them up and speak to an individual in the language of your choice. You try thinking about that from a financial services. "Hello, you're number 27 in queue. We will be with you shortly." Customer service is at the heart of everything they do, and they try to build it into the service throughout the journey. Just quickly on our portfolio. These companies are actually looking at global trends. One enormous global trend is migration. People are moving from certain European countries to other. They're moving from Asia to Europe. Actually understanding who these individuals are is extremely complex. Take the U.K., for example. Friends who moved from Sweden, who had gone to nice universities, came to the U.K. and tried to set up a bank account.
If they didn't have a gas bill, an electrical bill, an English driver's license, a job, a recommendation, they couldn't get a bank account. You imagine if you've just come from Bulgaria to the U.K. and you don't speak the language. Monese have solved that problem. Rather than it taking months, it takes minutes to KYC that individual, understand the risk profile and give them a bank account. If you look at Pleo, another trend, most jobs are being created in small, medium enterprises. We all know that expenses is a horrible thing to do. You bundle them into your little desk. At the end of three months, you start sticking things onto a piece of paper, and you give it to somebody who gets really annoyed. Most companies who try to solve this problem from the CFO suite.
Okay, how from an accountant's perspective can I make this work better? Pleo did it differently. How do I make the experience enjoyable from an employee's perspective? If they use it and they do it every day, it's going to make life easier for the finance department. Interestingly, the NPS scores, which are through the roof, are higher with the finance department than they are with the employees. Last but not least, Betterment. We talked about this, but they've grown AUMs to $20 billion in a five or six year time period. Now they've just launched a savings account, which is, I think, the most popular savings account in the U.S. It's growing like crazy, and now they've added credit cards. Savings, we're becoming a wealthier world. There's more disposable income.
The idea of putting your money into a pension or a fund, most of us do it. We're not really sure why we're doing it. We put it with somebody who we think might be a little bit smarter. These guys have helped us understand that it can be transparent, educational, and fun. Thank you very much.
Thanks. Chris and Andreas will be with us also after lunch to go through a little bit under the hood of Kinnevik and how our investment processes work, also do try and catch them during lunch if you want to ask them questions. I think now we really want to hear from some of our companies. Let me invite up on stage three of our exciting financial services companies. We have Jeppe Rindom, who is the founder and CEO of Pleo, we have Jon Stein, founder and CEO of Betterment, last but not least, Norris Koppel, who is the founder and CEO of Monese. Very welcome to all of you.
I think one of the things that actually unite these companies, in addition to working in financial services and being owned by Kinnevik, is that they have all been built from a real passionate point of view. You really have a passion for solving problems for your customers, and that, I think, is a very, very good starting point. If I can start with you, Jon, I think you have a tagline on your website which says something like, the money that people have earned so hard, we should make the money work as hard for them as they worked making them. Tell us, how does Betterment solve that problem? Tell us about how you started Betterment and where you are.
Great. Thanks for that. I was going to say, our mission is not far off from the Kinnevik goal of helping to use technology to help people live better lives. We say our mission is to empower people to do what's best with their money so they can live better. Very similar. We at Betterment are a smart money manager. We have recently added checking and savings to our existing investment and retirement services that we've provided for years. I started Betterment after years of working for some of the U.S.'s largest banks and brokers, seeing again and again through my consulting work with them in product development and risk management and so on, that they weren't thinking about the end customer when they were designing products. They weren't really designing novel ways to solve customer problems.
I saw that through technology, we would be able to rethink the services that help customers reach their goals. We started in the investing space. Today, we offer the average Betterment customer 38% more cash in retirement than if they were to manage their money on their own through traditional brokerage or investment products. How do we do that? It's this intelligence that we build into our platform. Customers come to Betterment, they tell us about their goals, they tell us what they need from us, and rather than just, say, pitching them a bunch of mutual funds or letting them select stocks on their own, which is the traditional way that people invested, we create a portfolio specifically for that customer's goal, and then we risk manage that over time. We tax manage it.
It's on a glide path, and that helps the customer to make the most of every dollar that they invest. We're now bringing that same intelligence to our customers' everyday cash, their short-term needs, that everyday cash flow. We launched, just a couple of months ago, what is today the U.S.'s highest-yielding savings account without any sort of limit on how much you can invest with us. It offers $1 million of FDIC insurance as opposed to the traditional $250,000. That's been enormously popular. We doubled our user growth, customer growth immediately upon launching it. We've seen incredible inflows of assets into that, and that's continuing. We are seeing higher, interestingly to us, even higher average deposits from initial customers coming in, higher net worth customers coming to us, which is also surprising.
At the same time we launched that savings account, we announced our checking product. The checking product will have no ATM fees worldwide. It will be a fee-free account. We will make money on that by collecting interchange revenue when customers swipe to transact. That is an interesting diversification for us as a company, but also allows us to bring together that everyday cash management, helping customers to make the most of their everyday money, which is something they've been asking us to do for some time, and bridging that into their longer-term saving and investing goals. No one yet has done that integration really well, and we think that our investment in advice and intelligence over the past several years best positions us to be that smart money manager, the smart money manager brand that serves the next generation of Americans.
Thanks, Jon. Jeppe, I read an interview with you when you did your last funding round this spring, you said something about when you use Pleo, we export the Nordic management style to the company that adopts the system. How does that work?
How does that work? Let me see if I can pitch it as well as Andreas did. In Pleo, we offer payment cards to businesses in a way that you would expect it to work in 2019. Our product caters for everything that needs to happen before a purchase and after a purchase. Before a purchase, how do you assign cards to all of your employees? How do you administer the rights of everyone? How do you set up the organization? Who should oversee whom? After the purchase, how do you collect the receipt? The problem we all know is snapping an image of the receipt, or even us on an online transaction, picking up the receipt automatically in your inbox, creating the tax and the metadata around a transaction automatically, passing it on to the accounting system.
Even if you are out traveling, we reclaim the VAT in the different markets. Managers or leaders can see where money goes. They can follow the spend and have a good hygiene around the spending. You could say that's the more functional part of our product. That makes us excited and proud. I think what makes us more proud is more like the purpose space that we're in. Gallup makes this survey every year about workspaces, and it turns out globally that 80% of employees and businesses are disengaged or actively disengaged in their work. Globally, but also in the Nordics. Really, that's super sad. There's so many unhappy workers out there. In the report, and also to us, it comes down to leadership. Leadership in businesses today are still very top-down, very hierarchical.
It's a designed leadership approach back from the industrialization, where leadership was about taking creativity away from people and making them super efficient on the assembly line. That doesn't really work today, because today innovation is huge. You need to absorb changes in the market so fast, and the only way you can do that is allowing everyone to participate in the innovation. One of the reasons, the key reasons why people are so disengaged, is they feel not autonomous enough. They feel micromanaged, they feel controlled. We're trying to tap into this purpose space and trying to do it differently. Trying to allow for businesses trusting in their employees, inviting them into being a part of the purchasing process. Everyone can access company money in a controlled environment.
We're taking away all these manual tasks and trying to automize them so they can be more autonomous, more efficient in their work. That's what makes this exciting. When people start referring to the fact that they are now Pleo-ing stuff instead of buying stuff, we know that we're onto something. That's where we take a strong stance as a product to do it differently.
Thanks, Jeppe. Now, Norris, over to you. Andreas told your story a little bit in his introduction about you coming to the U.K. from Estonia and having a real problem getting proper banking services. Out of that frustration, you started Monese. Yesterday, when some of you met Norris, you put out this big hairy goal of what was it? 100 million customers within a couple of years? That sounds great from our point of view. Why don't you tell us about Monese?
Sure. Before I dive into Monese and why we exist and so on, I actually, after founding Monese, I bumped into a story that I find hugely inspirational and possibly also demonstrates what can be done when someone focuses on underserved segments. In early 1900s, there was an Italian immigrant called A.P. Giannini in San Francisco who was at the board of another bank, and this bank refused to serve Italian immigrant farmers. These people had no place to put their savings, and there was no access to credit. A.P. Giannini thought that, "Why the hell is going on." And decided to create a competing bank across the street, and the bank was called Bank of Italy at the time.
He was focusing on savings accounts and credits, and was very focused on multilingual, so they were basically serving the customers in Italian, in Polish, and so on languages. That was never been done before. Completely unheard of. Business was booming, and it became quite a national sensation. By serving the underserved segment that nobody else was looking at, this bank is today known as Bank of America. That bank was, at a peak time, the largest retail bank in the whole world. I think that inspirational story is something that I keep very close to my heart to this day. As was mentioned before, Monese story is pretty much has the same humble beginnings, let's call it that. I came to the U.K.
I was unable to open a simple bank account. That got me thinking that maybe there is something that can be done. After some research, I found out that the blockage basically is not because of KYC or not because of the regulations or governments being a bit tricky. Actually, thanks to modern technology, it's possible to make banking truly global and truly accessible by anyone. Monese was founded in 2015 after a couple of years of heavy tech work in a garage, so to speak. We had to solve two problems. First of all, how do you make KYC or customer identity checks rock solid and give anyone access to the financial services? Second, how do you build banking technology that is solid and is scalable around the world?
What we are seeing is that, for example, in the U.K. and in European markets as well, banking is actually, or banks are typically built as very domestic institutions, and they are built to serve the audience in those countries. Monese has completed the opposite approach. We have seen ourselves as a global player from day one. We did start in the U.K. in a very humble way. It was just a simple current account with a card and payment access and so on. Ambition was also always much bigger. Today, we are covering 31 countries in across Europe. We provide not just current accounts, retail banking facilities, payments, international remittance and so on. We also have introduced small business accounts.
We found out that small business owners, where you have one, two, let's say, owners of the business running a small shop, they are also wildly underserved, and especially if owners are coming from international backgrounds, it would be very difficult to start up a new business in a new country. We're solving that problem as well. We started three and a half years ago, roughly, and we have been growing pretty fast. Today we are actually much more closer to 1.5 million users than 1 million. I was also counting how quickly we are growing. At peak moments and peak days, we're actually adding 11 people per minute to our platform at some moments. It's pretty significant. I can see also that user growth really has accelerated two, three times in the past 12 months quite easily.
We actually, with Kinnevik's support now and other investor support as well, such as PayPal and so on, we are really aiming to accelerate this growth. I'm pushing for 5X, not 2 or 3X. Please don't write it down. As also was previously mentioned, so my team target is 100 million users in about five years. Again, this is internal target, and hopefully we'll land anywhere near that area.
Thanks, Norris. Growth is obviously the theme here, and we have slightly different, I would say, strategies maybe. Pleo going multinational, whereas Betterment, I think, will stay focused maybe primarily on the U.S. Jon, where do you see growth? Are you gaining market share, or are you going into new markets, or are you developing new products? How do you focus so that you know where to grab your growth?
One of the things that we've seen over the long term is the strength of our referrals, and our community of customers. About half a million customers in the U.S. We've seen that be our largest acquisition channel, even as we've scaled, it has scaled faster than the growth of the customer base. Today, referrals are an even higher percentage of our total acquisition. We have our lowest cost of acquiring a customer that we've had in four years. In fact, it's dropped each of the last four years sequentially. Yet we're acquiring more customers than ever before. That's a testament to the power of the brand that we've built, and it's part of the reason that we are excited to add more products.
Our customers trust us, they trust our advice, and they're excited to buy the next product from us or have the next product from us, because they work well together, and we already have their trust. Since Kinnevik invested, we've grown from about $4 billion in assets, I think, to now $20 billion. We have, at the same time, increased our gross margin from something negative to something now above 70% in the core investing business. That core business today is throwing off enough cash to cover not only the cost of serving those customers and the research and development that we put into it and the sales and marketing that we put into it, but it's allowing us to make these investments into new products. For instance, I've talked about the checking and savings, but we're also looking at our business-to-business channels as interesting growth opportunities.
We have Betterment for Advisors, which is a platform for independent investment advisors to use our technology in a white-labeled format for their clients. Perhaps our most exciting B2B channel is our 401(k), which we are scaling very quickly, serving businesses where we sell one business, all the employees of that business then get Betterment accounts. That's a really interesting front door for us, particularly as we add more of these other account types to cross-sell into those bases. We look at Fidelity as a big brand in that space in the U.S., who's really built their business on 401(k) and the cross-sell from the 401(k) into their other products, but hasn't maybe kept up with the latest technology. An interesting opportunity for growth there as well.
Thanks. Pleo, you are going multinational.
We're only four years into the journey. There are so many opportunities for us. I think it starts with a very substantial market size. We target companies between 5 and 1,000 employees, and the product is successful across any industry. There is a lot to go for here. Currently, most of the business is Denmark and the U.K. We recently launched Sweden, we launched Germany. We are now bringing on the first customer in Spain as well. Geography is certainly a growth lever. We're also strengthening the product. From being a more debit kind of prepaid experience, we are now moving into credit. Also the value chain in the product, adding now VAT reclaims where we take a cut of 25% and other businesses to build on. Yeah, there's quite a bit of opportunities for us still.
Norris, you are definitely already multinational. How do you think about developing your stack of products, and is it growing geographies, or is it now maybe focusing on the product development, or where is your growth going to come from?
What we have found is all these three key drivers are really driving our growth as well. In the early days, where we were only in one market and we were addressing borderless generation and basically gig economy, this is massively increasing audience size at the moment. The nature of work is changing, and many more people are actually entering gig economy. Many more people also are moving between countries to create a new life, or they're moving for study or work and so on. This is massively, rapidly expanding market, which is where our growth is coming from. Secondly, we are constantly looking to expand to new markets. We recently expanded across Europe, basically, 31 markets. Now what we have seen is that initially our growth was mostly coming from the U.K.
Today, two-thirds of growth is actually coming from mainland Europe. I'm talking about markets such as Germany, France, Italy, Spain, being our key markets. When we started in a very humble way, just bank accounts and debit cards and so on. Today, on top of SME banking, we have added quite a few other things as well. We see that aligned with our goal to replace a mainstream traditional bank completely, if we are able to provide credit, savings accounts, mortgages, and all that people would expect from a mainstream bank, we are actually able to grow that way as well and attract more people and retain more people. As a side note, I would like to also say that we don't try to invent the wheel here.
Instead of going and sort of turning against banks, for example, and saying everything is bad and new is good, we are actually actively finding new partnerships. We find that by scaling through partnerships with legacy banks and also new neobanks and fintechs, one can scale much faster and provide value, not only to our customers, but also legacy players and to ourselves as well. I would say growth is coming from all three.
Well, financial services industry is, of course, a massively regulated industry, and compliance is a buzzword. I think all of you have seen the problems that Scandinavian banks have run into with their KYC process and what have you. Would you say with that sort of background, is compliance and regulation maybe a good thing because it prevents new players, or is it hampering your growth? I guess when Pleo moves into full service card, you will end up with a lot of regulatory issues. How do you see that?
I think it's a little bit of both, actually. I think in the beginning, it was very frustrating for us. We had this saying that we almost were building three companies because we had to build a software company, we had to build a compliance company, and we had to build a payment technologies company. We had to make those investments. I would say even KYB, when you're business exposed, it's more complicated than consumer because you need to understand ownership structures, you need to understand each individuals and sort of the controlling rights amongst them. It was super challenging, and we saw a lot of friction in the first customer relationships in trusting us with these sensitive documents. We had to productize this area and provide for a good flow and connect with the databases so that we could automate a lot of this.
It was certainly a challenge. I would say now that it's sort of overcome, it's a little bit protective for us. We have a team dedicated for this product so that we can tackle the challenge in the same way in each new market. Now we can handle this. I would say it's still risk. You don't open the newspaper today without seeing a new Nordic bank sort of exposed in this area. It is certainly something that we need to take extremely serious and invest into. I think we have the liberty of doing this from a data science and software mindset, as opposed to hands and feet, that seems to be the mindset of the banks out there. I think we're good positions for these sort of challenges.
From a license point of view, we work in Europe and we are licensed in Europe, obviously that puts some strengths on us in terms of launching tomorrow in the U.S. Again, would we want to do that? I think it's something that we could overcome. It takes some lead time for us to go to new continents.
Jon, you are facing the U.S. regulators, and you're also expanding into more banking-like services, maybe. How do you manage that?
I've always thought that our regulatory relationships are a competitive advantage. Despite, of course, it's complicated to get approvals and there's some barrier to entry there. I think that we've been close with our regulators for many years, and that has helped us to be on the right side of most things. We've been talking with the SEC and the Department of Labor about rules that are pro-consumer and also help our business. That's exciting. As we go into new products, of course, we encounter new regulations, but I think the long-term, real competitive advantage that we have, if I think about what are the barriers to entry, it's not so much like the regulatory piece for us as it is the advice. The intelligence that we're building on top of our customers' accounts is really sophisticated and is hard for an upstart to copy.
It's also hard for an incumbent to copy.
For instance, across all your different investment accounts today, your 401(k), Roth 401(k), IRA, Roth IRA, taxable account, and soon your HSA. We've just started a partnership with UnitedHealth, Optum Bank to offer HSAs, and advice on those HSAs. Across all of these accounts, we can tax manage, we know the contribution limits, we tell you which to put money into, which to take it out of. We shield dividends in one where it's most tax efficient. We put the assets that are likely to appreciate long-term in another. All of that sophistication is not done by the incumbents because each of those account types is a separate system, sometimes through an acquisition, sometimes developed at a different time. It's very hard for them to bring all of that together in a customer-centric way.
We've really innovated around, say, retirement as a holistic view across all of your accounts and for all of your family. Which is a very different way of how the industry approaches it, and that technology provides us a great competitive advantage.
Norris, tell us about regulating your 35 countries and your banking operations and how.
As a starting point, before we founded the business, I was thinking, how on earth can we truly be international, and how do we go through this regulatory hurdle and all the licensing and so on? KYC and making sure that we are knowing enough about our customers became the cornerstone of this business. We spent 2 years, as I said earlier, on figuring out how to bring KYC customer identity checks into modern era. How can we take advantage of data that is all over, surrounding us, every one of us. There's a cloud of data that follows you wherever you go. How do we tap into that data and how we can make sense of it in a way that regulators are happy and we are not laundering any money, or we are not basically enabling bad people the access to financial system.
We spent some time, some money on it, I would like to say also that because we were a young startup, and we still are obviously, we had quite a lot to prove because there was no trust initially. How do you build trust? You just have to do 10 times better or 20 times better than pretty much everyone else. That's where our early focus really went. I think regulators that we're currently working with are really appreciating that fact. KYC has not been an afterthought for us. It has been the cornerstone of this business.
Thanks. Now we have some analysts out here who are dying to hear about when will profitability come and how do you feel about that. Let me frame it a little bit differently. If you look in five years, Jon, and you think about creating a successful business, when are you happy? What's the success look like, and where do you see this going in five years?
In five years, I would like for Betterment to be public. I would hope we'd be on the other side of an IPO at that point. I would think about us as the smart money manager across everything from investments to checking savings. We're probably also adding some close-in lending products and insurance, like life insurance, things that coordinate well and that you want to work with those core financial products in your life. Providing the intelligence across that through your employer into your personal accounts just feels like an immense opportunity. I can't imagine that in my two daughters who are three and five today, that by the time they are graduating from college, that they would ever have to think about, am I putting this money into the right account? Am I saving enough right now? Am I on track to be happy later in life?
They're not going to have to worry about those kinds of things because the intelligence that we're building today and already putting into market will help them to know that they're in line for a secure future, to give them peace of mind. We're making that accessible to everyone. That's what I'm excited about in five years.
Norris, you already said 100 million customers, but in addition to that?
That's a number that there's more to it. What we really are working towards is what we have achieved today is microscopic compared to where we want to go. We really want to be in the center of customers' financial lives, and the idea is to be a little bit in the background, not in an intrusive way, but help customers to really grab control over their financial wellbeing. As we know, money worries, whether you're rich or poor, you still worry about money every day. Problems are of course different, but this is the main cause of stress and people being unhappy is money and the worry about it.
If Monese were to be in the center of that financial universe of yours and secretly working in your pocket as an app and helping you to save money, putting a little bit money aside for a rainy day, informing you about how much you have accumulated and where is the next purchase supposed to come from, I think that's one of the things that we really want to achieve in a big way. We are kind of moving in that direction at the moment, although it's a little bit hard to see. Secondly, one thing that we have done in terms of current account opening speed and international KYC, we have done that. We were one of the first ones to do this such a quick way and rapid way.
I think the next challenge also for me personally, which is very close to my heart, is that doing the same in credit as well. Credit is incredibly broken. Again, if you're moving between countries, your credit score and data about you doesn't move with you, so you typically have to start from scratch. That I have spoken to billionaires who have exactly the same problem. We're not talking about necessarily poor people here. This is the next challenge for us, and we are really trying to, for example, Jon, you're coming from U.S. Let's say you fly over to Stockholm and you decide to marry here, and sorry, maybe a wrong comparison here, but.
I'm already married, but yeah.
You start a new life basically here. I bet on my hat that if you walk into any Swedish bank from day one, they will not give you a credit card no matter how hard you try or even if you promise to put in SEK 50,000 on that account. We are solving that problem as well, and I think for us a big success would be if you are able to nail credit and make it universally accessible in the next five years as well.
Okay, thanks. Jeppe, I know Pleo, you closed the largest Series B funding in Denmark this spring. I guess that's not the end goal. How do you define success?
I would say in the beginning it was much about product market fit. Making sure that we had good satisfaction with our customers. We have a Net Promoter Score of 70, and that they didn't leave us. Today we lose less than 5% of our customers on an annual basis. That was the first challenge. Secondly, figuring out how do we ensure that we have a good business model. With business model, we look a lot at the payback. If you add the cost of marketing, sales, and verification and handling and so forth, when is the customer profitable? Today, a customer is profitable around eight, nine months after they get started. That's also fairly solid.
You could say now we are focused more on how do we move from really strong growth in Denmark and the U.K. into more like a European hyper-growth. Company profitability is really not a big focus of ours right now. I think it's like either you deliver hyper-growth or you deliver profitability, and right now we are focused on hyper-growth. As long as we can continue that, I don't think profitability will be a goal by itself, as long as the fundamentals are strong.
Okay. I think we should finish up. Before we do that, Georgi talked about Kinnevik as an owner. We talked a little bit of compliance. You'd also talked about building sustainable businesses. One of the areas where we have a very tight dialogue with you as our companies are, for instance, around our Governance, Risk, and Compliance framework and so on. It'd be interesting to hear from your point of view, Norris, what do you think about us as an owner? Is it what Georgi said? Where do you see the value coming from?
For me, this is really clear. I think it wasn't as clear early on when Kinnevik decided to invest, but it became actually much stronger, this bond, when I attended Summer Days this summer, Kinnevik Summer Days. Basically it boils down to two things. We are ultimately a positive impact business, and we are trying to generally have this positive impact on society, and this is what aligns really well with Kinnevik's as well. Number two, is a long-term view. I really would find it very difficult to work with VCs who have maybe three-year horizon and they want us to exit. It may take another five, 10 years to make this an insanely successful business before we decide to IPO, for example.
Jon, what would you like to add?
I think that says it well. I think we have appreciated, one, the long-termism of the company that you talk about. Two, a thing that I probably underappreciated early on was the GRC focus. We had never had an investor spend so much time understanding our compliance and culture and things as when Kinnevik came in. It has been transformative for us. I feel like we are such a much more mature and better company today than we've ever been. I think that has improved our regulatory stature. It's improved our actual fraud and compliance stature, and it's improved our morale. We're seeing today the highest ever employee retention that we've ever had, which is odd for a company that continues to grow and scale.
Usually, you see things go the other way. Our team is happier, and I think better positioned, thanks to some of the GRC work that we've done.
Ask Stuart, Jeppe.
I completely echo the fund set up in the sense that we want a balance between more short, mid-sized funds and longer-term funds. I think that creates a good dynamic in the cap table. That was more the hygiene, but I would say 80% of it has always been for us more the personal chemistry with the people investing and, on one side, just knowing that they completely buy into the vision and knowing that they buy into the leadership team. I think in our case with Andreas and Georgi, I think what we valued a lot was backgrounds from running companies and understanding, you could say the challenge that you have as a founder and in each stage of the businesses. I think that's something that we both enjoyed in the investment process, but also in the dynamics in the boardroom.
That meant a lot to us.
Thanks. Time is running up. We have lunch coming up. I am sure that you have questions for Jon, Norris, and Jeppe. Do take the opportunity during lunch. We'll try and reconvene here in about 45 minutes. Thanks to our speakers. Welcome back, everyone. I think we're ready to get going with our program. First of all, we'll have Chris and Andreas back, this time taking us under the hood of the Kinnevik engine and going through in some detail our investment process from sourcing to how we work with our companies. Go ahead.
Thank you, Torun. We have the graveyard shift after lunch to talk you through process. We'll do our best to enliven it, and we'll use a couple of case studies later on to bring that to light. As we explain in this process section, the investment strategy is critical to our approach to investing, and we want to make sure you understand that we develop a thesis by sector. In this section, we want to ensure also that you understand how we invest and what we do after we invest. Again, here, we believe we are differentiated both in the rigor of our processes and the support that we make available to our companies. First, I wanted to remind you of our investment criteria. What do we look for when we invest before we talk about how we invest?
At the baseline, there are three factors that are important to us. One, we need to see a large market. Two, we need to see secular growth trends. Three, we need to see underserved consumers. Thereafter, we look at the companies and we say, "Who's getting product market fit and traction with customers? Who has got the right technology? Who's got the right leadership team? Who's got the right diversity and values?" Finally, we layer on the economics. What are the unique economics of the business? Can we make money by investing? Is there investment opportunity? Having done all that, we step back and say to ourselves, "Can we make a difference? Are we the right investor for this business?
Clicker.
You can move page. When we look at a new investment, we actually have a well-defined 3-stage process. Each stage of the process, there are clear checklists. At the first step, the sector teams bring to the group their pipeline of the most interesting opportunities that they have seen in the sector. The purpose of this committee is to take a look forward and get better visibility on what is coming to market and when. The reason for this is the best companies, when they come to market for new capital, they move very quickly. It's a competitive advantage to know who's coming and when. We get that advantage through our network, through our portfolio companies, through our co-investors, through our advisors, and through a gamut of other sources.
We use that advantage to understand what's coming and how we think about the opportunity cost of looking at particular investment. We collect data, we use CRM tools to track over 1,000 companies by sector, by stage, and by geography. The opportunities that make the grade come to the investment committee of the company. We leverage this firmwide group and the combined experience and capabilities of people on the investment team, the management side, IR, really across the whole of Kinnevik to understand the heritage of Kinnevik, as well as the merits of a particular investment. We go through detailed materials that address those investment criteria that I mentioned earlier. We have active debates. They're not always easy, and some decisions are extremely tough, but we come out of that investment committee with a conviction about going forward and potentially making an offer in a business.
The final investment committee process that we go to after the first is about follow-up questions and reviewing additional data that we have received post interacting the company with the firm intention to make an offer. At that stage, we really drill down into the economics of the business, and in particular, try to understand, will this business grow enough to make a profit? Because the businesses we invest in, although we can see a track record, we need to see them grow revenue in order to reach profitability and break even. Where possible, we also have the founder come in and present to the investment committee. We know strategy is extremely important, but it's a necessary condition of success, but it's not the only condition of success.
What really matters in the end of day is the quality of the founder, their drive, their leadership, their passion, their values, and we back people we believe in. As you can see on this slide, our funnel is pretty broad at the top. There's over 500 companies that we've evaluated in the last 12 months. We believe that breadth at the top helps with our selection process. We do pass, however, on most investment opportunities, but we do so at an early stage, so we don't let things linger. We like to say yes or no quite early. When a potential investment comes to an investment committee, we are serious, and the hit rate goes from one in 100 to one in four. Post term sheet, we take on board the advice of other parties. We supplement our own team's work with due diligence by third parties.
We'll do work on commercial due diligence. We'll do work on financial, legal, GRC, or sustainability, technology, really across the gamut of the business and trying to leverage that additional team around us to make sure that we fully understand the business. This is not a rubber-stamping process. We do it for every investment, by the way, whether it's a SEK 5 million investment or a EUR 50 million investment. It's not a rubber-stamping process. It really allows us to create an investment plan post-investment that we then follow through, whether it be 100-day plan, whether it be a one-year plan, and that really is the basis that we then evaluate and monitor the company on going forward. The right company selection is obviously critical, but what you do post-investment, we think, is key to maximizing potential value.
We're not afraid to roll up our sleeves and really get our hands dirty should the situation require. We recognize that we're not in management, we're investors, but we will do more work if needed. In the Nordics, in particular, as Andreas will explain, we'll even take on operational restructuring responsibilities if we think the opportunity is attractive enough. Why are we active? We're active because there's a lot of capital out there, and capital in itself is not a differentiator anymore. We have to do above and beyond that. We think that we're set up to be more active and proactive in terms of how we invest in the new Kinnevik. The new Kinnevik is going to make fewer investments. They're going to be larger investments.
That provides our team with the time and the incentive to really get involved and focus on adding value to the portfolio. We monitor company performance both monthly and biannually from a competitive perspective. Those monthly readouts give us an early warning as to what may be going well or what may be going less well in a portfolio company. If needed, we can dig in and help should the company require. We also do biannual sector deep dives where we go in and try and think about the sector dynamics to really understand where the market's going. Whatever we do, we recognize that not every investment will turn out as we expect. We, as Georgi said, are long-term investors. The flip side of that, we will not follow our money in every company that we invest in. We do expect a certain level of performance.
I'll now hand over to Andreas.
Thank you very much. My first Capital Markets Day, and I've been told that my GC will only breathe out after I've stopped speaking. Let's run through this relatively quickly. Chris and I are very complementary, and what I mean by that is not the little and large show. What I mean by that is that we have vastly different experiences. One of the reasons that I think anybody wants to work in a business is that they want to build something, and they want to grow. They want to learn. One of the things that I thought was really exciting about coming to Kinnevik was to actually work alongside Chris and his team. I don't know if you know, but he's run the technology practice at Goldman Sachs before he came to work on the investment side.
His rigor and understanding of core metrics and how to analyze themes and businesses is something that was very new to me. On my side, I've worked operationally. I've sort of worked with technology businesses hands-on. I think that these two lenses, when put over each other, give us a great opportunity to evaluate and help businesses as we go along. I think another thing that we think is very important is that when you look at a business, whether we invest in it or if it's a business theme in case, we learn something. That something can be shared with our entire network. Jon spoke earlier about the fact that they had GRC committees brought into Betterment already 2015 or 2016, it was something that was very new. We're not doing this because we think it's something fun.
We're doing it because we think it's important, and we think that it adds value. Again, Mattias was in the U.S. He collected all the GCs from our different businesses, sat around a table for a couple of days to try to understand where network effects could be gained, what we could learn from each other, what we could share from each other, and make sure that that practice in each business improved. The need for rigorous understanding of the business that you're getting involved in is obviously pretty apparent, and expertise around M&A, fundraising, also very apparent. Half of our team has actually worked operationally within businesses, and that gives us an opportunity, if needed, at important inflection points, to actually roll our sleeves up and actually get involved in the business. This can be helpful.
It's not something that we have to do or something that necessarily want to do, but it's an option. Again, having worked, I think I've had 13 different VC and growth funds sitting on my boards. The level of commitment and support that we are trying to build up in our process is something that I've not seen before. The nature of our capital being long-term is potentially, if we feel that continuing to invest in a story is prudent, something that gives a lot of confidence and security to a founder. Again, if you're running a business that is choppy and it goes up and down, the ability to have somebody who's pretty calm and leaning back and looks at the long-term vision is very encouraging. Sustainability. Where's my glasses? Here we go. Sustainability.
We've talked about this a little bit, but I think the fact of the matter is that businesses that work with a foundation that is intertwined into sustainability will perform better over time. It's the same as diversity. Businesses that have different viewpoints at the top will make better decisions over the long run, and this is something that we've taken seriously for some time. We look at it when we get involved with a business pre-investment, but we also work with it on a continuous basis going forward as well. As Betterment said, it's something that actually allows the business to mature. It allows to create stability along the culture of that business and can actually be an opportunity to actually increase and improve employee brand awareness and be a better way of being able to entice great talent to that business.
Chris has given you a little bit of information about the funnel, how we work in a very systematic approach, the scope and the size of the funnel, what we look for. Hopefully, I've given you a little bit of color about how we're different, how we take this job extremely seriously. We don't invest in 10, 15 businesses a year. We invest in two to four. The decisions we make are important, and we take them. We put a lot of time and effort into making those decisions as best we can. We also thought it'd be useful to have a look at what we do post-investment. We've given you a bit of color up to pre-investment, but what do we do post-investment? We have two case studies for you. One which is Mathem, which is a little bit more hands-on.
I've been working as an interim CEO there since April. Chris will talk around Livongo. Before we do that, here is a film around our food vision. It's massively motivating to invest in this sector. It's something that everybody can relate to. It's something that everybody does every single day. It's one of the largest industries in the Nordics, with incumbents that have been around for 30, 40, 50 years.
Nobody believed that MTG could lead a way in turning the media industry upside down. Nobody believed that Tele2 could redefine telecom services. They did.
To build a business, a disruptor in this space is very energizing.
Kinnevik has always been great at spotting consumer trends and understanding what consumers want and need. In the past 10 years, we've seen Zalando moving fashion from offline to online. Now we're taking on food, an even larger sector.
It's huge. I mean, the groceries industry is around four times the size of the fashion industry. As such, I think it's the largest piece of consumer wallet. Fashion's at about 10% online penetration. Groceries today for the Nordics is at 1.5%. We can already see through other geographies that the transition is happening. You've got South Korea, which is at 20% online penetration. In Europe, you've got the U.K., which is at 8%. The Nordics is way behind at only 1.5%.
Consumer behavior is not a static thing. Obviously, in Norway five years ago, you simply didn't have this service, but the demand was clearly there. Oda is Norway's largest online grocery store. Our vision is to make the world's most efficient retail system. It's a new way of goods to flow through society. This is a new infrastructure. It's been going at an unprecedented rate. I believe that a generation from now, this will be as natural as having a dishwasher in your house.
When Kinnevik thinks about food, it's not just online groceries, it's an ecosystem. There are different aspects of the ecosystem that are important, whether it's warehousing, waste management, automation, last-mile logistics, different verticals. We want to find the best companies in all these different areas and support them and invest in them so that we can create the best service for the end consumer.
The vision for Karma is to make us the first zero food waste generation.
Food waste is such a big problem that we actually encourage a lot of other platforms to make people aware how big of a problem this is. It's one-third of all food that's produced is wasted at a trillion-dollar value each year.
We saw that no one was really solving this globally, and we said, "What if we can use our technical platform to actually solve this?" To actually help the industry to sell this high-quality, still edible food to consumers.
The way that we eat and how we eat has changed considerably. The way that we grow, how we package things, how we deliver things. We believe that we have an opportunity to drive that very important trend forward. Great. Always nice to hear your own voice like that. I've covered the main themes around why we've got really excited about food. There's a couple of other things around Sweden, Nordics, but specifically Sweden, that are quite interesting as well when you think about food. You have incumbents that are actually franchise models, which is quite a different way to run a business and adds a level of complexity. The other part is that you're working in a market that actually has relatively high gross margins. If you compare gross margins of food in the Nordics to Holland, the U.K., Belgium, you're talking around 30% higher.
Low-cost companies, Lidl and Aldi, have typically struggled. I think that that is only temporary. Food or price of food needs to be static, so there will be more price pressure over time. Sweden or the Nordics is also a relatively small market internationally. To get international players to come and compete here is going to take some time. Our first investment in food was Karma, but it was with our investment in Kolonial that we started getting really excited because the problem has been: How do you actually make money here? Being able to sell the groceries is one thing, getting consumers to purchase them. Getting them delivered is another thing. How do you create efficiency in that channel?
What Kolonial showed us was with a relatively low CapEx model, we can generate similar or better UPHs, which is the efficiency down of leading competitors around the globe. When we saw that in combination with this last mile logistics, we decided this was a really interesting play. The next step was. How do we do this in Sweden? In Sweden, there was one market leader, an independent, started by a founder couple in 2010 who were passionate about making the food experience better. They built a phenomenal platform, a brand positioning that was resonated with customers. Over the last two years, their growth rates have slowed, partly in part because they hadn't developed their infrastructure to the way that maybe they should have done, but also because incumbents had seen the opportunity and pumped a lot of money into building their own competitive infrastructures.
We expect to be able to add to Mathem's existing brand proposition and to tweak it and improve it over time. We believe that the best way to do that is by leveraging technology to understand how each consumer is different, to be able to tailor the experience, to tailor the shop. When I walk into a shop, if I'm a vegetarian, I should see no meats. Filters that don't need to be preset, but actually learn from my own behavior. We believe that technology and data are the answer to any of these things. That doesn't mean that we have to lose the touch and the feel of being a top-level grocer. Just to put it into perspective, Kolonial, I think is 10 times or 20 times the size of a normal shop.
When they get in avocados or tomatoes or any other fresh goods, the speed at which these things come off the shelf means that the produce is just infinitely better than produce that you're picking up in your local store that could have been sitting there for five or six days. To put into perspective, we've done a lot of changes in the four or five months that I've been there. We've added a number of people to the C-suite. The Chief Revenue Officer was the CEO of Vimla. Our Chief Product Owner is from Spotify, Chief Technological Officer from Acast, and our Head of Data is from Fishbrain. We've added 12 engineers and two product people, and that's a beginning. We've also announced that Johan Lagercrantz is joining us on the 1st of December as CEO.
He has a background in food, entrepreneurial. I think he's run two entrepreneurial businesses that he sold and listed, and he's also worked with bemanning, which I don't know the English word for now. People? Bemanning? Anyone? Staffing. Thank you. He's worked with staffing, so a great fit. We've also added two people to our board that have direct competencies in areas that we think are of critical importance to the business now. That doesn't mean they're going to be of critical importance in 18 months time, and we believe that the board needs to be fluid to take into account how a business changes. We've just started this journey. We're five months in.
The signs are encouraging. We look forward to how this business will develop in the next 5 to 10 years. Thank you very much. Livongo was quite a different opportunity from Mathem in the sense that we had the opportunity to look around the whole globe and look for the best company that we felt we could invest in chronic care. As I said earlier, I think chronic care is a clearly vast sector. Really the challenge for us was, which is the right company to invest in? Before that, which is the right area of chronic care to focus on? After investigation, it became obvious that diabetes was the best fit. It's nearly epidemic in terms of its scale. It's a very high engagement condition, and there's a lot of user-generated data.
Beyond that, there is a clear metric for defining how well or sick a person is. Improving that metric can be demonstrated for ROI, both to the payer and to the consumer. Within diabetes, Livongo stood head and shoulders above the competition, particularly when we looked at it in relation to four key challenges investing in healthcare. Those are, first, the buyer is not the consumer, typically. Even when the customer experience is great, the insurer can make that product not available to you. Second, most companies focus on point solutions rather than A through Z solutions, and most payers want A through Z solutions. If you're a company and you don't increase product density over time, you're in real trouble.
Third, new technology is great, but if it doesn't fit into the workflow of an existing provider, good luck to you in terms of scaling. Fourthly, ROI takes time typically to develop, and so you'll never reach mass adoption without proving that. If you can't prove it, then you're going to go nowhere. Livongo addressed each of these challenges. They had a world-class B2B sales team, as well as a product that consumers loved. The aspiration from the start was to create a multi-care platform, not just a single point solution. They were a full stack provider across hardware, software, and services, and they didn't need to go through the existing workflow. Finally, they had several marquee clients who strongly validated their product. Beyond our initial investment, there were also three key areas where we felt we could add value.
Firstly, taking our experience in consumer technology that we developed in telecoms, media, retail, and applying that. We felt there was a real opportunity to increase the investment in data science and analytics in the company and provide that same level of customer service we know and love elsewhere in e-commerce. Secondly, to encourage boldness in condition management and expansion in condition management. As Lee will talk about later, Livongo has expanded quite aggressively in terms of its product density. Thirdly, because we're international and Livongo is a U.S. company, we could be the kind of eyes and ears, if you will, to the rest of the world and help them think through when to go abroad and which markets to go into.
We did all those three things, and in addition, we supported the IPO a couple of months ago, in particular, buying shares from a secondary seller. On the financial side, you'll see on the right, we think Livongo has performed exceptionally since we've invested. We're delighted by the IPO. However, we do think that the majority of our returns here will come post-IPO. We feel somewhat like Zalando, Livongo has an opportunity to become a multi-billion dollar business, and we feel that from here, the horizon could be one that leads to a company certainly the size of Zalando.
Thanks, Chris. We will hear from Lee Shapiro, CFO of Livongo, in a minute. I do think we have time for a couple of questions, if there are any, to Andreas and Chris on our investment process and how we work. Does anyone have a question? Joakim, go ahead. Oh, hang on. You'll get a microphone.
Joachim Gunell from DNB Markets. Perhaps your view on, so to say, value crystallization in terms of the maturity of your investments. You mentioned here that, okay, there's considerable value creation potential beyond the IPO, but on aggregate, where would you say that you can create the most, so to say, value for your invested companies?
I think companies,
Andreas follows on. I think it is different at different times. Clearly, the restrictions on us look different in a public company than versus a private company. To the earlier conversations about Zalando at a later stage or Millicom, we will only invest in a company and continue to invest in companies so long as we think we can provide value to that company, and we think the risk-adjusted returns are good. I think at the early stage, it's more around incubation. We do a little bit more of that in Sweden. We do venture in Sweden. Andreas can talk about that. We don't do that internationally. Livongo is based in California and in Chicago. I can't fulfill the role of an interim executive that
That Andreas is fulfilling at Mathem. That's just not geographically possible. The flip side there is I spend more time, if you will, on really drilling down on it, finding those amazing entrepreneurs who we can back. That's more of the kind of DNA that I do. That also reflects my experience, where Andreas' experience is get in, get involved, and grow the company by active participation. I think growth stage investing, which is what we focus on primarily in the London office, is about that company selection and then selectively supporting it, whether it be M&A, whether it be GRC, whether it be product expansion, whether it be recruiting executives in a slightly more hands-off way than you would do in venture.
I think that was a pretty good answer to the question.
Yes. Thank you.
Good. Stefan. Do we have a microphone for Stefan? He's here. Okay, I think people can hear you.
You can ask the question now or can repeat it.
Go ahead. I will repeat it.
about how the business model looks in terms of margin structure for the food assets that you have in the Nordics, and also where you see that the market penetration will sort of end up in a more mature state. Just to get better clarification on that.
Am I allowed to answer this one? Margin structures are around, and this is typically across groceries practices, around 40% gross margins from sold price to purchased price. You have an ICA that's probably generating somewhere in the region of 5%, 6%, 7% EBITDA. That's in a sort of a physical store network. If you look at an Ocado, they're working on 32%, 33% gross margins, and they're making 1%, 2% EBITDA. The CapEx investment is obviously dramatic. Free cash flow is very limited. If we look long term, rather than explicitly pointing out what we think the opportunity is, but gross margins, if you can leverage the network, could be considerably higher.
If we can find ways of creating supply chain efficiency at one fifteenth of the cost of infrastructure that other players have done, then we think that bottom line, at scale, at SEK 10 billion in revenues, this business can be very profitable. The second question was segments?
No, relative penetration, where you benchmarked against.
Right
Korea at 20%. Is that still expanding? Where do you see that this.
Yeah. Korea is actually still expanding, so is the U.K. I think if you look at analysts' forecasts, they think in 5 years' time we should be close to 6%-8%. A 3 to 4 doubling from where we are today. That sounds reasonable to me. In the long term, if you look at the people who are purchasing food online, it's not 45-55-year-olds. It's 25-35-year-olds. As they move up the generation, the people that come behind will also be purchasing food. The transition is done over decades and generations. Ultimately, if you can get a better experience at a cheaper price, saving time, you're going to do it. How long? How much time? I don't know.
I think we need to go on, but you can also grab Andreas and Chris in the coffee break to ask further questions. Before we head to Livongo, I'm very happy to introduce Naren Shaam, who is the CEO and founder of Omio. Yesterday, me and Naren, we actually went to meet the Vice Minister of Industry here in Sweden because he wanted to talk about train monopolies and ticketing solutions. The Vice Minister was telling us that, yes, they're looking into if you could possibly do an investigation around international ticketing systems for rail companies. Naren looked at him somewhat surprised and said, "Well, I do that every day. I have that figured out." I thought that was pretty cool. Tell us all about it, Naren.
Thank you very much. Hi. Nice to meet you all. Thanks for having me. Very briefly, today's presentation is more on the vision. We're still early in what we can drive the market and not so much in the numbers. We're also a private company. We also want to keep confidentiality. I'll tell you the journey we're going to take all consumers towards the future of travel. Very quickly, most of you know this, mobility is a very large sector, and it's growing, and it's changing very fast. If you actually look at where the change is coming from, it's coming not from within the industry, but from people, players outside the industry. In general, there's a lot of capital that's gone into mobility. I'll spend little time focusing on that. Bike sharing, scooter sharing, ride hailing, car sharing.
billions of capital, SEK tens of billions of capital going into mobility. In general, it's driving an economy of experience, which is people look for convenience, less car ownership, urbanization, and basically, people compare these products to other industries like Amazon, like Netflix, like Spotify here, et cetera, and how simple is it for me to press a button and a taxi is standing outside the door. When you look at that last segment there, long-range mobility, all the names there are still large incumbents, still people who've been around for decades, and that's where we focus on. Two other shifts that are happening in the mobility as a whole. One is there's a general trend towards, at least in the younger millennials, Gen Z, is people spend more money on experiences than owning physical goods. 65% of the younger generation save up money to go travel.
There's a natural shift in the macroeconomic world towards travel. Finally, especially in Sweden, as you know, sustainability is something that's growing exponentially. I was so surprised in the last two days to learn every conversation's around, "Hey, can you share more data on how many people you enable to get out of flights onto trains?" We have tons of data. We should probably publish that in Sweden first. It's incredible how many people are willing actually to go to more efficient modes of transport. Surprisingly enough, these efficient modes of transport, trains and buses, also run at 50%, 60% capacity across Europe. There's still huge efficiencies to be gained within these modes of transport. A deeper look into long-distance transport and where I started.
I'm originally from India, moved to the U.S. to study, fell upon this idea, then moved to Europe 7 years ago to start building this company. I started with very simple questions like this: What's the best way to travel from Paris to Amsterdam, right? There's trains, buses, multiple rail companies, multiple bus companies, multiple airlines. Actually door to door sometimes is almost the same on train and air when you take into consideration you got to go to the airport, check-in, fly, and then take public transport on the other side. Most of Europe, people ask these questions, what's the best way to travel from Florence to Rome? I probably need to add what's the most energy-friendly or climate-efficient way to travel from all of these locations. When you keep going across Europe is a very dense network of transport.
Trains and buses running every part of every country, villages, towns, big cities, connected, but no access to distribution. No one outside of Sweden knows SJ is actually a transport rail company in Sweden. No one has a clue of the brand name. This network is very fragmented across Europe with thousands of suppliers, and very large volume of passengers across each of this market. In fact, European ground transport is a EUR 100 billion market. It's very large just within Europe. When you step back, most consumers are asking the exact same questions globally, which is, what's the best way to travel from São Paulo to Rio? Is it a flight? Is it a bus? What's the best way to go from Tokyo to Kyoto? Where do I buy my train ticket? Shenzhen to Hong Kong.
When you actually step back at the world of transport, I probably left out 10,000 plus logos here because no one has a clue how to actually stitch together this world of transport. No one's done it before other than the airline industry. Really what it comes down to was global, especially ground transport, is not on a single distribution system. There is no Amadeus, which is a SEK 30 billion business here in Europe, that focuses on ground. It's happened in flights, it's happened in hotels, but there is no one else that focuses on ground transport. What's even more interesting is it's not speaking the same language as the airline industry. Ticketing systems are completely different. They don't talk to each other. There's no station codes. Europe has 100,000 stations, 500 airports.
You're talking about vast density of data that no one, no company has seen until now. My vision, our vision as a company is very simple. First, bring the world of transport into a single distribution system. I thought if one company can do that, wow, that's a very big business. Global transport anywhere in the world, whether it's trains in Thailand, Southeast Asia, buses in Brazil, Chile, there is no one that has brought this data together. Once we bring this data, it's actually fairly easy because there is access to consumer. I can distribute it back to Expedia, Priceline, whoever else, and then make money. That was the first idea. I realized, actually, you know what? That idea is only half the solution.
The other half of the solution is travel as an industry whole has not produced magical consumer experiences that you see in other industries I mentioned, like Netflix, Spotify, Uber, Amazon, et cetera, where you press the button and a vase is made in Vietnam and shipped to you same day. When you look at these magical consumer experiences, there are a few key elements that come out. One is no one in travel has controlled data end-to-end between supply and demand. There's always layers. There's a GDS layer, there's the online travel agencies, there's meta search engines. When you actually have to push through products, you're not able to do that because each layer has their own priorities, let's say. That never happened in travel. Second is no one connects the modes of transport.
Actually, my flight from Berlin to here was a cab to the airport, a flight to Arlanda Express, and actually a walk from Stockholm Central Station. That's 4 legs of the journey. The last one is a walk, very healthy. The other three booked separately, three separate times, three separate transactions, as if I told you watch the next new series on Netflix and I give you three episodes and the remaining seven, go find it on the internet or DVD or wherever else you can, right? That's the story of travel. Every one of you in this room do this today. That's because the industry forces you to do this. There's no reason for you to not have these connected journeys.
The same consumer, everyone looks at travel and says, "Oh, very low frequency." Yes, it's low frequency if you only fly, but it's higher frequency if you connect the dots, right? 80% of all air consumers take a ground transport leg along with that. Maybe it's just a simple Heathrow Express, Gatwick Express, but they still do, and it's still part of the same journey. The second part of the vision really is how can one company connect all of these modes of transport so that you can bridge in terms of consumer experiences, but you also provide innovation in terms of unified mobile ticketing. You can get better economics across connected modes of transport. The last thing is a paradigm shift in consumer behavior. Most people who live outside of London search London all airports. What is London all airports in any website, correct?
You have JFK. People post #JFK, #LHR. No one's going to JFK. They're going to Brooklyn or New York, or they're going to Cambridge. It's this ability for consumers to start doing natural search. I'm going home. I'm going to my town. We're still talking about simple consumer journeys, slightly more complex, one order of magnitude more complex. What's the best way to get from Stockholm to Pamplona in Spain? Google. What's the closest airport? Google. How do I get from Bilbao Airport to Pamplona? Very simple. It's still just one layer of complexity. When you start bridging this, most consumer journeys are very complex. That's the two biggest things that we try to solve. Sounds very simple. Quite difficult, actually. We're six years old. How far have we come? We operate in 35 countries across Europe.
We work directly with 800-plus rail and bus partnerships. These are very large state-owned companies like SJ, SNCF, Deutsche Bahn, Renfe, Trenitalia, all the way to the tiniest of buses, trains that run regional transport between Naples and Pompeii. All of them are plugged in. We are really the largest source of not just ground, but also unique inventory across, and we also normalize that data along with air, we can do end-to-end journeys. We bring it all in a very, very simple user experience. It's all mobile. It's all mobile ticketing. Fun fact, we are also the largest unified mobile ticket platform there is because we talk to all the underlying systems. If we issue a QR code, it is canonical in any underlying rail or bus company across Europe, as long as they have mobile ticketing themselves.
Scale, six years old, we are 27 million monthly active users. We're actually 75% mobile. Another fun fact, a majority of our users book same day, next day. We drive this comfort, convenience on I can actually buy last minute, and I can actually have the comfort that everything will work, and I can still transact. Something similar to what we have seen in other industries. It took us six years to cover Europe as GoEuro. Shortcoming in my vision was the name. I thought it'll take a decade to actually bring the thousands of European suppliers together and stitch it together. Actually, we got it done in six years. We rebranded to Omio, four-letter word, beautiful, simple name, works in every language around the world, to actually expand. Where are we taking this company next? We expand across three verticals, three axes.
First is we expand across modes of transport. I mentioned airport transit. Very simple product for us to attach an airport transit to every flight ticket we sell because we already sell the flight tickets. Skip the line Gatwick. How many of you fly to Gatwick? There's four, five kiosks for 200 people that land on the same flight all standing in line. We can offer these very simple products in very big addressable markets. Second is ferries. When we went into it, we had no idea it's a $20 billion market. We already have majority of supply in the Mediterranean. You'll start seeing this product come out. Second axis in which we expand is geographies. We're going beyond Europe. North America, Latin America, and Asia are the three biggest markets for ground transport.
We are going to share more news by this year and more to come over. Remember that our way of expansion is not the same product in every single market. We have to go market by market, license, contract with the largest state-owned operators, buses, rebuild the entire inventory system so you can buy your ticket on your phone. Very simple. Seat reservation, whatever other features, discount cards, et cetera. It's the whole thing we have to build, and then we launch. There are network effects between these markets. The last axis that we expand in is our own products. It's very new. We started launching it this year. We do it in Spain, about five, six, 7% of all our tickets sold in Spain are connected journeys. We issue a single ticket between either two different rail or two different modes of transport.
We're starting to do that. We're starting to offer look into unified mobile ticketing we spoke about. There's a whole slew of products that will come to the market that the market has never seen before, mainly because no one historically owned all inventory to be able to create these products in the market the same way Amazon has done. For example, when you look at Amazon, you would never think somebody who buys a book would buy electronics and somebody who buys an electronics would buy car washings solutions. They're completely different products. Each vertical, very low frequency. When you start bringing those together, and it takes a long time to bring these things together on a global basis, we see data that shows very clearly that these dots are all connected. We are very proud of the team, actually, for the scale at which we operate.
We have 376 people. We have five offices, Berlin being the largest, Prague, London, Karlsruhe, and Beijing. We have quite a few Chinese customers. We operate in 19 languages, Chinese being one of them. We have Alipay, Tenpay, and all that. Outbound tourism from China is big, so we went in there early. We're actually very proud of two other facts. 59 nationalities. We're really very international, I think that's the factor of just Berlin being so international. The second one, which is we're 38% women, that is not a factor of being in Berlin. That is very much a calculated thing that we have built over time, and we have a lot of programs. The last but not least factor that we're most proud of, Cristina Stenbeck is on the board, and most of you have worked with us.
The reason I work with Kinnevik, the single largest driving force I've ever met in terms of pushing me to do beyond what I'm capable of every single day, and it's an absolute pleasure to work with you, Cristina. With that, thank you very much.
Thank you, Naren. Maybe I can just ask a final question, because clearly growth is top of your mind.
Yeah.
What does success look like?
Success for me is, hopefully in a few years, the whole world of transport is in one product, and we've managed to do that. Second is we have managed to shift consumer behavior out of airport to airport into more natural search. If these two things happen, the underlying metrics will follow.
Fantastic. Thank you, Naren.
Thank you very much.
We're now getting ready to welcome Lee Shapiro, who is the CFO of Livongo. Before we do that, we'll show you a short film about Livongo.
It was a shock to me to find out that I had diabetes. When you find out you have a chronic illness, it's something that you can't get away from. People with chronic conditions aspire to live their life in the same way that those who don't have chronic conditions live their life. It's not where you're managing to feel great. You're just trying to manage to feel normal. I went to the doctor. He's like, "Well, if you don't change something, in five years, things are going to start shutting down. Your body's going to die." I was diagnosed with Type 1 diabetes when I was 12. I'd never heard of diabetes before. I had no idea what it was. The thing that actually made me the most scared in the whole process was watching my dad, for the first time, cry. I received a phone call.
They told me that my son was diagnosed with Type 1 diabetes. I knew what Type 1 diabetes was. I knew it was bad. I knew there wasn't a cure for it. He looked up at me, and he said, "Dad, can we fix this?" At the time, I took a deep breath, and I did what probably most fathers or mothers would do, and I said, "Yes, we can." At that point, my life changed. My name is Glen Tullman. I'm the Executive Chairman and Founder of Livongo, and we empower people with chronic conditions to live better and healthier lives.
Thanks. Lee, on our program, it says CFO, but I think that's massively understating your role with Livongo, because you've been with the company as an investor and a board member from the very beginning. We are extremely pleased and thankful that you traveled all this way to address our shareholders. Please go ahead.
Thank you so much, Torun, and thank you for the opportunity to present to you. Also, I want to just start out by thanking Kinnevik for believing in us. For Cristina taking a step forward and learning about the business, and Chris and Georgi looking at what it is that we're doing and thinking that we might be the Zalando of healthcare, or the Omio of transportation or Mathem for food. Health is a challenge that we all face every day in our lives, and we're quite passionate about what we believe is the huge opportunity in front of us to add technology to solve these problems. We are a public company. This is the fine print that we always have to disclose at the beginning of any public presentation.
We're fortunate that we were listed on NASDAQ a little over a month ago and are quite pleased to have the access to the public markets that we have today. What is Livongo? We are using technology to change healthcare. We believe that you can have a data-driven experience that is used to provide you with personalized guidance to better manage your care. We live in a day where the data is available, but making that actionable is not necessarily accessible to all of us. The amount of time that you have with a medical professional is so limited, that being able to provide you with the type of guidance is something that drives our mission. Our mission to empower individuals with chronic conditions to live better and healthier lives.
Because we're so focused on a member-first experience, our members love us, and that is truly at the core of what it is that we do and guides the people at Livongo every day to do the things that are necessary to help our members succeed. We'll talk a lot more about that during the course of this presentation. We are focused solely in the U.S. today, our clients are self-insured employers, health plans, pharmacy benefit managers, and as Chris alluded to earlier, those who are at risk for the cost of care. Don't lose sight of the fact that we're driven by our members and the member experience. What is it that we're thinking about for healthcare?
When you look at what Google did for content or Facebook did for community or Spotify did for music, we believe that we can do the same thing for care. We're bringing an internet moment, if you will, to healthcare, and using the power of having technology wherever we go, a mobile-first experience, into the way in which we're able to interact with our members. What we're trying to do is fit into their life flow, allowing them to have the ability to get the questions answered that they need answered at the time they have those questions, as opposed to trying to get them to change their behavior in different ways. Chronic conditions, unfortunately, is one of the largest problems in the world that we face today. Just in the U.S. alone, almost half the population have a chronic condition, and 40% have more than one.
Individuals with diabetes, 70% of them also have hypertension. When you start looking at the fact that we are at a place today as societies where we're living longer, but we're also living with chronic conditions. 90% of the healthcare spend in the U.S. relates to chronic conditions, and that's $3.7 trillion of spend that's associated with both healthcare spend and productivity loss that's due to chronic conditions. At Livongo, we believe that the way in which we address this is by serving our members one by one in that individualized way. We've had spectacular growth to date. Just in the first half of 2019, we've now exceeded 190,000 members, up from 114,000 at the end of the year. I want to bring that back to the point I was making earlier about this being a data-driven experience.
We believe we have the largest database of real-time finger-prick blood glucose readings anywhere in the world. We're using those insights in terms of better understanding how and when our members need care and what we can do to help them avoid either hyperglycemic or hypoglycemic events, which can cause great health challenges and a lot of cost to those who are at risk for the cost of care. We're using that data to help drive our experience, and I'll talk about our Applied Health Signals approach, that is pulling information about you from your environment, as well as from the modalities that you use, using something we call our AI+AI engine to power behavior change related to health. In the first half of 2019, we've already exceeded our revenue for all of 2018, and that's driven by our member growth.
Now I'd like to touch a little bit about what we're doing and how it's different. To describe that, you have to understand that when you're an individual who has a chronic condition, you might see a provider a few times a year if you're compliant, maybe once if you're not very compliant. A typical office visit, at least in the United States, is now limited to something like 10 minutes with a provider. 99.9% of the time, you're living on your own managing these chronic conditions. You don't have the ability or the capabilities to understand the things that are necessarily happening to you. If it's 2:00 A.M. and you need to reach a healthcare professional, who do you turn to? You're not necessarily going to be able to reach anyone.
On the left-hand side of this slide, the experience today is for an individual with diabetes, you're on your own managing. You're alone managing your condition most of the time. You have a glucose meter, not much larger than this clicker. What it's doing is, as you're pricking your finger and you're inserting a test strip into the device, it's giving you a reading. You don't necessarily know how to interpret that reading and what to do about it. It's stored typically in a dumb device, meaning that's not connected anywhere. The data is not going anyplace. You might bring that box with you to your doctor when you go see them for a visit, and they might be looking at months of data and talking to you about trends and things that have occurred way in the past.
Imagine if you were in a position where you had a guardian angel who was working with you anytime you were measuring your blood sugar, or if you have hypertension, your blood pressure, or if you're an individual who has weight management challenges, anytime you're stepping on a scale, being able to provide you with guidance at the time that you're getting those results, and giving you coaching in a way that you're looking for it, coming over your phone, coming directly on the device, the smart connected glucometer, coming across your scale, and being in a position to now help you at the time you're thinking about your health to take the steps that are necessary. If you're not active at that point in time, what if you could click a button to speak to a coach anytime you need to 24/7?
Or be in a position to schedule time with someone who might help you and guide you better with regard to that. Chris mentioned earlier this closed loop experience. The Livongo journey provides all of those elements to our members. Our AI+AI engine powers our approach. What we're doing is we're gathering data from the meter, from the scale, from your blood pressure cuff, as well as from data that we're receiving from our clients, those who are paying for the cost of the solution. That may be claims data or other information about an individual's health experiences. We're looking at their demographic information. What age are you? Where do you live?
Your zip code tells you a lot about your health status. We're using that to come up with information that we aggregate, and then we apply that in terms of giving you insights to your own experience about your health journey. We do that through a smartwatch or through your phone or on your PC, and we're providing information into electronic health records, where it can be used by providers to better guide their patients based on what information we were delivering at the time they had a health event. As we get that information back, what we're doing is we're utilizing it in a way that allows us to iterate and provide better guidance as we go forward. Our learning engine, based on that database that I described earlier, that was just blood glucose readings.
Think about the trillions of data points that we have in our engine today that are learning and providing new ways for us to interact with our members. What that does is it leads to true behavior change. We've done studies where we just nudge individuals towards differences in behavior. For example, measure your blood pressure three times a week and do it before you have breakfast. 40% of those individuals that we gave that guidance to changed their behavior, which is a massive amount of change in a healthcare environment, and very different from what's experienced, even when you're given advice by a physician on things you need to do to change.
What we do is we believe that these various abilities that we have to change are leading to real outcome differences for our members, and therefore reducing the cost of delivery of care. The member journey we have is a very Apple-like experience, and Apple didn't copy us. What we do is we provide a box to a member that comes with a smart connected meter or blood pressure cuff, and they open it, and it's ready to use in their day-to-day management of their condition. By meeting members where they are, we allow them to customize the way in which they interact with us. Do they want a message on their phone? Do they only want to receive messages on the device? Is it something where they want to arrange for personalized coaching?
We then deliver our health nudges, and our members are feeling better in control of their condition. They're empowered to make a difference in their own lives, and that allows them to have better health outcomes. What does that lead to? These are really the three key pillars of what it is that we're doing. One, our members love the experience. We have a net promoter score, which is an industry standard way of measuring experiences. Just to give you some comparisons, a typical health plan has a negative net promoter score. A pharmacy benefit manager has negative to low single digits. We are at a level of some great consumer companies in terms of delivering a fantastic experience for those we serve. Because they like what they're doing, we're leading to better health outcomes. We're lowering blood glucose levels.
The systolic blood pressure changes that we're engaging our members in is the equivalent of them starting on a new medication without necessarily taking a new medication. Depression and anxiety scale scores are lowered by over 55% because we're enabling those members to do things differently and to get the guidance that they need. When you're doing that, delivering better outcomes, that leads to savings. Close to $2,000 per member per year. As shown in the study that we did with a large Fortune 500 company in the U.S., they had a five times ROI with Livongo in the first year of using our solution with those individuals who were enrolled into our program.
What we're seeing is this combination of member satisfaction, reduced cost of delivery of care, which leads to better outcomes for the member and better financial outcomes for the clients that we serve, and that's fueling some of the growth that we've had in the marketplace. Now, when we do this, it's been a journey that we started on at the end of 2013, when 7wireVentures, the fund that I co-founded with Glen Tullman, who you saw in the video, made the first investment into Livongo. We needed to build out an ecosystem in terms of going after what is a very fragmented market in the U.S. for how healthcare is paid for. We started by contracting directly with self-insured employers, and we have direct relationships with clients. That led us to start working with a number of influencers.
Sometimes we call them interferers. They're influencers in the way in which healthcare is paid for in the U.S. Those are some of the consultants that exist, some of the names that you may know, like Mercer or Aon Hewitt, that are advising self-insured employers on delivery of care. We were selected by many of those organizations as a leading innovation to work with their employees to drive savings. That brought us then to the health insurers who were administering many of the health plans for those organizations. As they started to sell on a national scale, they took our solution, and they started to resell it.
Now with the two largest pharmacy benefit managers in the U.S., CVS Health and Express Scripts, which is owned by Cigna, we are go-to-market partners for them and embedded in their diabetes management and other chronic condition management programs, which has led us to now increase the level of participation that we have in the market. I don't want to under-emphasize the complexity of navigating this very diverse ecosystem. We're fortunate we have a team that's sold into these markets before and has dealt with those complexities and brought relationships to bear in being able to do so. In every situation, though, even if we're selling indirectly, Livongo always has a direct relationship with the member. That trust, that relationship that we've built, allows us to drive the outcomes that we're seeing.
That's part of the way in which we're able to convince these very complex partners that we have, that are serving tens of millions of individuals with their health insurance or pharmacy needs, but to entrust us to be the one who's working with the member at the ground level, if you will. Today, we have, at the end of the first half of the year, 720 clients, 193,000 members, but we added 307 new client relationships just in the first half of 2019 alone. That led us to add 79,000 members, almost as many as we had just exiting the year of 2018. The growth is pretty significant and rapid in terms of what it is that we've been able to accomplish.
The typical journey for a client is that the way in which we sell, we will start working with them at a given point in the year. We can sell all year long. We're not limited to a benefit cycle that in the U.S. typically starts in January. Many of our clients that are self-insured are able to start working with us earlier than that. It takes us on average six months to sell a client, and then we start an enrollment process. We use the AI engine to understand information about how best to reach a member and enroll them. To give you some perspective, a typical health benefit that's provided by an insurer or self-insured employer gets enrollment in the single digits in terms of percentage.
We, across our book of business, have enrolled 34% of those members who are eligible for our program because of the value that we're delivering to the member. We have at the client level, 96% of those who had the opportunity to renew with us in 2018, did so. We lost a few by merger and we gained a few by merger. We have, at the client level, over 90% member retention rate. What we're also proud of is that at a client level, we have 114% dollar-based net expansion, which means that our revenue is growing with the client because we're continually enrolling new members into the solution that they bought. I also want to make sure that I note here that that's just related to our diabetes offering.
We launched hypertension at the end of last year. This doesn't include some of the new products that we offer into the market. In terms of our total addressable market, just in the U.S. alone and just relating to individuals with diabetes and individuals with hypertension, it's a $47 billion market opportunity. Unfortunately, what we're seeing in the U.S. is that that market is growing. There's an additional 500,000 individuals each year who are diagnosed with diabetes. That's both type 1 and type 2. We haven't even yet caught up with the growth rate in the market based on the just under 200,000 members that we serve. It leaves us a relatively long tail and why we're confident that the company has great growth potential in the years to come.
In terms of the organic drivers of our business, there are really three areas that we look at. First is product intensity. As I mentioned to you, 34% across the book of business from 2018 of those individuals eligible for our solutions have enrolled with Livongo. When we look at those clients who have used our best practices and where we've optimized enrollment, we're at 47%, just under 50% of those who are eligible for our solution. We believe that we have opportunities to grow just with the current clients that we have by a significant percentage by continuing to enroll. We get data from those clients on a regular basis.
As our AI engine is learning more about ways to optimize the interactions that we have through the testing that we do in terms of the types of messaging that we put out to enroll and retain members, we see opportunities to grow there. Secondly, product density. I mentioned that we just launched hypertension, and we've seen very good uptake with our clients who had bought our diabetes solution to buy our hypertension offering as well. We added in the first quarter of this year, through an acquisition of a company called myStrength, behavioral health offerings that we sell also through health plans, as well as to our clients who are using our diabetes and now hypertension offerings. Improving our product density or share of wallet with clients is another way we grow. Last but not least, we still have room to go.
We only had, for example, 20% of the Fortune 500 as clients. We have room to grow with other insurers, and we see work with the governmental insurance. Half of those insured in the U.S. are insured by Medicare and Medicaid programs. We've launched and become an approved provider for Medicare, and we believe that more and more individuals will be taking on a managed Medicare or managed Medicaid program, and we see growth opportunity as well. That provides us with three very strong ways in which we see the business expanding.
Our competitive moat at Livongo is based on mastering the complexity of the market that we serve, continuing to deliver great results for our clients, growing the base of solutions that we provide to serve individuals with chronic care, and a demonstrated ability to work with really large clients to show them that we're able to scale with them in ways that they need a partner to scale. Livongo has built out a platform that allows us to serve many more hundreds of thousands of members than we're serving today, and we believe that the infrastructure that we put in place is now capable of serving many millions of members. I'd like to just focus for a moment on some of the financial highlights that we shared with the market in our Q2 earnings call just a couple of weeks ago.
Our revenue year-over-year from 2017 to 2018 grew 122%, yet, the first half of 2019 over the first half of 2018, we had 156% growth. We've already done more revenue in the first half of 2019 than we did in all of 2018. Part of that is based on the way in which our business model works. It is a virtuous business model that our clients appreciate. They're only paying us per participant per month. Those of you who have studied the way in which health benefits are provided in the U.S., many offerings have been population-based. Health plans or employers, those at risk for the cost of care, were paying vendors based on a low rate across a whole population.
We believe it's important for us to align our interests with those of the clients we serve, and so they only pay us for those who are using our solution. Because of that, we see a tremendous amount of recurring revenue. This subscription model gives us great degree of predictability into the revenue that we're able to deliver. Our margins today are in the high 60s. Low 70s, we see as being our potential longer term. That's based on this closed loop system that we provide in terms of device, coaching, member experience, all the data and analytics that we're delivering, as well as the customer service that we're delivering to our clients. We see opportunities, as I discussed previously, to continue to expand our offerings.
When you look at the type of growth that we've had, you can see on the right-hand side of this slide what our growth has looked like quarter-over-quarter. Again, that's principally driven by the diabetes offering and has a very small contribution from weight management and behavioral health, which we just acquired in the first quarter of this year. As to our long-term operating model, we believe that we can have gross margins in the low 70s, that 72%-74% range, and we can continue to drive efficiencies in terms of our operating costs.
We see that we can move from where we sit today with regard to a negative operating margin into a positive operating margin of 20%. We started to demonstrate that as noted on our Q2 earnings call with regard to improvements that we've made already year to date in our operating margins. What excites me about Livongo is that we have a significant trajectory for long-term growth. I've already described our opportunities in product intensity, product density, and also adding new clients. There are other ways in which we'll continue to grow as well. We believe that the platform we have today can continue to serve individuals with other chronic conditions. We look at ways internally, as we did with our hypertension offering, to develop solutions in Livongo Labs that we can bring to our clients.
Because of the data that we're collecting from our clients as well as from our members, we understand where those needs are. We now have a series of targeted offerings that we'll be able to bring to market. For those that we don't feel we're well suited to build internally, our business development team is looking for partners in the market whose offerings we might be able to sell through the trusted relationships that we've built with our clients, or companies that we can acquire as we grow the business. Lastly, we see that there is a massive opportunity for us in international markets. Unfortunately, in just the next few years, there'll be more individuals in China and India with diabetes than there are people in the United States.
What we're finding is that the way in which we can now translate these offerings, and we work in different languages with our members today, to be able to work in other markets is a longer-term objective for what it is that we can deliver. Our team is built for scale. Our CEO, Zane Burke, was previously a longtime member of the leadership team that grew Cerner Corporation, that already is a global business in the medical space. My partner and longtime business associate, Glen Tullman, who's our Executive Chairman, has served on a number of other boards and is very active with a number of growth companies. Dr. Jennifer Schneider, who's the mastermind of our Applied Health Signals platform, is someone who had worked at other public companies in the past and has helped us grow the business.
What I'd also like to highlight is that our team comes from a vast array of other companies, both with Silicon Valley as well as healthcare experience. Our Chief Technology Officer, Dave Engberg, was one of the earliest members of Evernote and grew that to a business that serves over 150 million users today. When we talk to him about security and scalability, he looks at where we are today and laughs and says, "We haven't even scratched the surface of what our platform can deliver." Anmol Madan, who came to us after founding a company that is in the behavioral health space and is a highly regarded data scientist in the U.S.
We have almost as many individuals now on our data science team as we do coding at Livongo, and we believe that that's going to be another way in which the solutions that we offer can continue to deliver value. Last but not least is the Livongo team itself. We're passionate about what we do for individuals with chronic conditions. One third of our team members have diabetes or another chronic condition, and another third have family members who do, and the balance are just as passionate about the mission. What you see here is a picture of a team that rode for the Juvenile Diabetes Research Foundation to help find a cure for juvenile diabetes. We as a team raised more than any other team in the history of the ride.
We think that what we do is something that we bring every day, the passion that we feel for our members, to the work we do at Livongo. I'd like to thank you again for the opportunity to present to you, and also thank you so much for your investment in our exciting company.
Thanks, Lee. I think we will have time for a couple of questions. When we get the microphones sorted and so on, let me start with the first question. Now, you talked about international expansion. What would be the main hurdles? Would it be the different health system? Because I guess the treatment or the systems would work equally all over the world, but what would be the difficult areas to penetrate if you want to go global?
No, thank you for the question. Actually today, Livongo works all over the world. Our United States Department of State is a client of ours, and so we work on the ground in countries all over the world today. I think that the challenges with regard to international expansion is making sure that we're able to deliver that personalized member experience in the way that we do it in the U.S. today. We're very familiar with GDPR, the data standards that exist in Europe. California has now adopted similar standards. We will need to stand up data centers and other servicing technologies to be able to support our members here, in addition to work with some of the single-payer systems, government systems, where healthcare is delivered. We're fortunate in my prior life at another public company, Allscripts, I managed our international operations.
We had, for example, 60% of all healthcare in Singapore running on our platform. We operate in Australia, we operate in the U.K. and the EU. We have some relationships that we can bring to bear there, but we're not quite ready with all the opportunity that we're having in front of us in the U.S., we're not quite ready to launch into international markets.
Thanks. Do we have any questions for Lee from the audience? Not one. Yeah, go ahead, Joakim.
Thank you. Joakim Gunnald from DNB Markets. You obviously have a long runway for growth ahead, but being sold as such a health benefit, what's the most important growth driver going forward? Is it the commercial end market or perhaps Medicare?
With regard to what our growth can be in terms of thinking about the markets that we serve, we do see really meaningful opportunities in terms of continuing to penetrate with the large employers who we serve through some of the channel partners that we work with. That is near term. We are also starting to make early progress in government markets. As I mentioned, half of healthcare is paid for in the U.S. by government-sponsored programs. We believe that there's a number of programs like Medicare and Medicaid, programs that are provided by unions to retirees, that we're just starting to make inroads in, but we see great growth potential from there. We do not sell direct to consumer today because consumers don't pay a lot of out-of-pocket dollars for healthcare. That's been increasing.
I believe that also down the road, there are going to be opportunities for us to work with individuals directly, and we're hoping to leverage some of the great knowledge and experience that Kinnevik has in consumer markets to help guide us on that journey.
Thank you, Lee. Just one final question then. Just to get a feel of the, so to say, stickiness of the business model, what is the churn, so to say, that you're experiencing, and how has that developed over the past couple of years?
Thank you. Imagine you're an individual with diabetes. You receive either through your pharmacy or maybe it arrives at your home from your pharmacy benefit manager, a glucometer. You may go to a pharmacy, and you may choose one on your own and pay a little bit out of pocket for it. Every month, you're given an allocation of test strips to use to prick your finger, put a droplet of blood on, and then test. When you run out of those test strips, you have to come out of pocket, sometimes paying $25-$50 to buy more test strips. What do most consumers do when they run out of strips? They stop testing. The way that we change the model and the benefit for the member is because we have a connected device, we know every time you test.
We know every time you're measuring your blood pressure. What we're able to do is we send you at no cost additional test strips because we want the data. We've turned that model on its head. Because of that, and because the focus that we have on members, we have very high member retention. As I noted in the slides, at a client level, we have over 90% retention of our members. Just to clarify that, individuals will leave employers. We have a number of large employers in the U.S. who are clients. 75% of the reason why a member might churn is because they've lost eligibility. They've either left an employer voluntarily or involuntarily. The balance of that, and I think we reported a rate that was just under 2% for the quarter in Q2.
The reason why it's so low is because at a client level, when someone leaves an employer, there's a new employee who fills their seat that also has a propensity to have a chronic condition, and we're able to continue to recruit. That seat is filled by someone who becomes a Livongo member. Again, on average, around 2% a month, but if you ignore the 75% of that that's due to a change in employment, our rate is somewhere around 6% a year in terms of churn.
Thank you.
Lee, so Livongo went public in July. It seems-
I used to be the same height as Chris Bischoff, but since going public.
The hiring process. It seems quite an early stage in your growth trajectory to go public. Why did you choose to do that at this point?
Going public is a great opportunity for any company to be able to access a new base of investors, and to have the ability to raise capital in a very liquid and dynamic market, and we're quite privileged to have the opportunity to do so. I've served as an officer of other public companies and on boards of two other public companies currently, and so there's great advantage in doing so. It was also, I think, a very meaningful branding event for Livongo. The clients that we work with, the Fortune 500 companies, some of the flags that you've seen that we work with, Delta Air Lines, Boeing, Pepsi, Target.
They like working with companies that have transparency with regard to what it is that they're sharing with regard to their financial results, and to be able to look at us and see that we have the strength to be a partner for them for the long term. It gave us the capabilities to now be able to raise a meaningful amount of capital, just under SEK 400 million, to fuel our growth, as well as to be able to better establish the brand in the mind of our clients.
Lee, thank you so much for presenting to us.
Thank you.
Thank you. Let's take a 20-minute coffee break and then convene back again. Last leg of a long day. I am very happy to present to you my former colleague, Christoph Barchewitz, who used to be an investment director with us at Kinnevik, but then we threw him out into the real world, and he is now the Co-CEO of Global Fashion Group. Christoph, over to you.
Great. Thank you, Torun, and thanks everyone for still being here. I'm excited to be here. Good afternoon. As Torun said, I am Co-CEO of Global Fashion Group. I have moved from Kinnevik to GFG at the beginning of 2018, but I've been involved with Global Fashion Group, through my prior role at Kinnevik for over 5 years, so I know the business fairly well and didn't just get to know it over the last 18 months. Over the next 20 minutes, I plan to present an overview of our business, our financial track record, together with an update of our first half 2019 performance and the outlook for the full year. We started our business in Brazil in 2011. Over the past eight years, we have built GFG into the leading online fashion and lifestyle destination in Asia Pacific, in Latin America, and in the Commonwealth of Independent States.
Our reach is extensive. 2 billion visits to our apps and sites over the last 12 months, and brand awareness of over 80% in our markets. In the last year, we served more than 12 million customers who placed over 31 million orders and generated EUR 1.6 billion in net merchandise value. Our 12 million customers represent just 1% of the 1 billion consumers that live in our end markets. We want to connect all of those consumers to the 10,000 brands we work with. Our vision is to be the number 1 fashion and lifestyle destination in all our markets. Being number 1 is really important. Our scale enables us to attract the leading fashion brands globally and to offer a wide selection with an outstanding customer experience, powered by technology and operations.
We have four consumer brands in our regions, The Iconic in Australia, Zalora in Southeast Asia, Dafiti in Latin America, and Lamoda in CIS. Let me now introduce you to our business in a bit more detail. Our track record of strong growth and improving profitability is underpinned by four key drivers. First, we have a leading position in all our markets, and we are firmly focused on entrenching that position as our markets grow. Second, we offer our customers an inspiring and seamless experience right the way through from discovery to delivery. Third, we're a strategic partner of choice to our brands. Many brands want to access our markets because of the high rates of growth, but they need a partner to help them manage the operational complexity, and we offer a flexible business model to do just that.
Last but not least, the physical and technology infrastructure we operate is highly scalable, but also flexible, so that it can be customized for diverse local markets. I'll talk about each of these drivers in turn, starting with our leading market position. Fashion and lifestyle is a €320 billion market in our end markets. That is roughly two-thirds the size of Europe or the U.S. Importantly, these markets are growing at 7%, more than double the rate in Europe or the U.S. Fashion e-commerce in our markets is still in its infancy. It's about 10 years behind Europe and the U.S., with penetration of just 6%. Just think about it for a second. If you go back 10 years, 2008, 2009, very few people in Europe, here in Sweden, in Germany, in the U.K., were shopping fashion online in any regular way.
Our markets are at that stage today. It's not a question of if, but when penetration grows. When history repeats itself in our markets, we could go from the 6% to anywhere between 15% and 40% that these more advanced markets are seeing today. We've been able to achieve our market-leading position because we offer both an inspiring and a seamless customer experience. This all starts with our assortment. We began the business with just 2 categories, apparel and shoes. Today, we don't only offer these 2 categories, but we also offer accessories, sports, and kids products. Nevertheless, there are still a lot of categories we have not rolled out in all our markets, so there's plenty of future potential. For example, beauty is a EUR 1 billion opportunity which we have only started to roll out in some markets, for example, in CIS.
Determining the right assortment goes back to what our customers feel inspired by. This is basically about providing the best combination of global and local brands. We then complement this with our own brands, both to offer entry price point products, but also to cover gaps in our assortment. For example, in Malaysia and Indonesia, we have pioneered our own modest wear offering given the significant share of the population that is Muslim. To give you an idea of the width of our assortment, we offer more than 10,000 amazing brands from around the globe. This includes 78% of the top 50 global brands. We only work with the brands directly, not through unauthorized resellers or gray market importers.
The brands we offer range from affordable fast fashion brands like River Island or Pull&Bear or ALDO, all the way up to premium brands like Michael Kors, Rag & Bone, or Armani. A big part of the inspiration also comes from offering high fashion brands. They might not always be what the customer places in her basket, but they certainly attract a lot of interest and traffic. Increasingly, our customers mix and match. They wear a €40 dress together with €400 sunglasses. You have to carry a really wide range. As I said earlier, we build strong relationships with our brands and customize our approach through fully flexible business models, we have three business models today. We started in 2011 with the retail model. In this model, GFG owns the product, controls the price, and benefits from the high margin of fashion. This is still the primary model.
81% of our NMV and half our SKUs came from retail in the first half of this year. To grow our assortment, we launched our second business model, marketplace, in 2014. This allows us to list products without having to buy it upfront. The ownership of the product and the inventory risk remains with the brand. Marketplace is a good way for us to trial new brands and products or to manage long-tail items. We also have exceptionally strong e-commerce capabilities, and we're starting to leverage these by offering brands capabilities they don't have themselves, such as fulfillment, digital marketing, and data analytics. That's the third business model that is more nascent. These services accounted for less than 2% of revenue last year, but they're growing fast, and they serve to strengthen our brand relationships.
We now provide fulfillment services to over 25 global brands, which is more than double the level last year. I want to move on to talk about our operational platform. Our mobile app is a dominant platform for traffic, customer engagement, and net merchandise value. Nearly half of our NMV was generated on the app in the first half of this year, a seven percentage point increase versus last year. The app is core to our strategy. It's growing in share, it has higher conversion than our web and mobile sites, and reduces the friction for the customer. Since 2011, we've built a highly scalable operational platform that provides a real competitive advantage as it is fashion-centric, tech-focused, and tailored to each of our end markets. Let me take you through the six components of the value chain. First, sourcing.
We operate the entire supply chain ourselves, from brand showrooms to our own fulfillment centers. Second, e-production. Our nine studios produce over 17,000 images per day, enabling us to upload over 26,000 new products every single week. Third, in fulfillment, we operate 10 fashion-centric fulfillment centers located close to our customers to enable fast and low-cost delivery. We leverage automation in these centers where the scale is significant and labor costs are high. Our fulfillment centers in Sydney and Moscow are the most advanced when it comes to automation. We are also building a new large-scale automated fulfillment center in Brazil, which is going live next year. The fourth component, payment. We offer 35 different payment methods, including cash on delivery, credit cards, mobile wallets, and installments. The fifth component, delivery. We use couriers, pickup points, and lockers to deliver over 90,000 orders every day.
Most orders are delivered by third parties in Asia Pacific and Latin America. In CIS, we deliver 86% of orders across all of those markets by our own fleet. Finally, customer service. We have 1,500 customer service employees, and last year they handled 9 million emails, chats, and calls in 11 languages. Operational excellence is a strong differentiator for GFG. We stand out from local competition as we are more advanced and technology-enabled. We also stand out from global cross-border competition as we're a lot closer to our end customers. In short, our strategy is to win customers early as they begin their shift to shopping online by offering them an unparalleled assortment by engaging them with highly personalized content, and by delivering an outstanding shopping experience. Fast, easy, and efficient. All of this results in a market-leading net promoter score of 80%.
I'll now turn to our financial performance. We earn virtually no revenues in our reporting currency, the EUR, so our results are impacted by currency movements. I will focus on constant currency growth rates today. It's also worth noting that 70% of the products are bought in local currency, and nearly all our staff, over 98%, are based in local markets, which means that we have a natural hedge for over 85% of our cost base. Let me talk you through our results for the last three years. Net merchandise value has increased by over 20% per year since 2016, with growth accelerating to 22.5% in 2018, mainly as a result of our marketplace business model. Marketplace share has grown from zero in 2014 when we launched, to 15% last year.
Net merchandise value represents the checkout value of our customers, including VAT, shipping fees, and is net of all our returns. It's a figure our customers have actually paid for in total. The number of orders we delivered grew to 28.2 million last year. We have been able to maintain a profitable average order value of more than €50. At this level, we cover all our product, fulfillment, and marketing costs, delivering a profit contribution for the average order. Our active customer base grew 14% to 11.2 million in 2018, and average order frequency increased to two and a half times a year. As a result, NMV per active customer grew 8% to reach €130. Increasing frequency and earning a bigger share of the customer's fashion spend is a key opportunity going forward.
This chart compares our customer acquisition costs for our 2017 customer cohort with their customer lifetime value. You can see that within 6 months, we have paid back 80% of the acquisition costs, and within 1 year, more than 100%. All of our regions delivered a payback within 12 months. This chart shows that we have established unit profitability and are on a clear path to overall profitability as we continue to grow. We start on the left with EUR 1.5 billion NMV, which translates to EUR 1.2 billion of IFRS revenues after adjusting for sales taxes and marketplace sales. In 2018, our take rate for marketplace has been 31%. After the cost of the product, our gross profit margin is 39% or €450 million last year. We're profitable after marketing costs and generate a profit contribution of 6.1%. We're scaling this unit profitability as we continue to grow.
Tech and admin costs of SEK 159 million are largely fixed. We add back depreciation amortization to get to adjusted EBITDA of SEK 50 million, a loss of SEK 50 million, which is 4.3% negative. Over the last three years, we have demonstrated the ability to balance strong top-line growth and steady margin improvement. NMV growth in 2018 was mainly driven by the strong growth of marketplace. Revenue has grown 19% a year on average since 2016. This lagged a little bit behind NMV growth last year due to the increasing share of marketplace, where we only record the commission in our revenue. Over the last three years, our adjusted EBITDA margin increased by over 10 percentage points. We broke even in Latin America and Australia in 2018, which together represent over half our revenues. Turning now to take a quick look at regional performance.
Our active customer base is growing in all our regions, with the fastest growth in Asia Pacific. The three regions are similar size in terms of NMV and revenue. NMV has been growing faster than the active customer base, driven by the increasing order frequencies. Gross profit is also roughly even across the three regions. The gross margins are highest in Latin America and CIS, given the relative maturity of those regions versus Southeast Asia in our Asia Pacific segment. Turning now to our first half results of 2019. Our strong performance continued with all the key trends unchanged. Our active customer base grew by 1.5 million year-on-year, or 15%. These customers continued to shop more frequently, driving strong order growth of 26%. NMV per active customer grew healthily at 7.1%.
As a result, NMV grew over 22%. Gross margin was just under 40%, slightly down from last year. Last year, we received a significant one-off payment from one of our suppliers in the second quarter. Nonetheless, our adjusted EBITDA margin moved forwards just under one percentage point to a loss of 4.8%. We continue to make progress on our path to profitability. Turning to the outlook for the full year. We expect NMV to grow between 20% and 23% in constant currency terms, reaching somewhere between EUR 1.7 billion and EUR 1.8 billion this year. We anticipate revenue will be above EUR 1.3 billion. We expect a further improvement in adjusted EBITDA margin. We are planning CapEx of about EUR 80 million for the year. To sum it up, we have a large market opportunity as fashion and lifestyle spending moves online in our markets.
We have built an inspiring and seamless shopping experience, connecting 10,000 brands to a billion consumers in our markets. Quite importantly, we have a proven track record of strong top-line growth, and we've achieved EBITDA breakeven in half of our business and continue to improve profitability every year. Thank you very much.
We have time for one or two questions to Christoph, if we have any. Go ahead, Yuan from Danske Bank. I think you can speak up.
Thank you.
We haven't given any specific guidance around that. I think what we've said is we're focusing on a clear path to breakeven for all of our regions. We have obviously achieved that in Latin America and in Australia already back in 2018. There's certainly not the expectation that we're going back on that. The next region to get to a breakeven is certainly CIS, where we're not that far away from that milestone. Southeast Asia, for us, is really an investment region. It's very early days. It's a complex region. Our business is still fairly small, and so we're expecting a couple of years of losses in that region to continue, but probably also with the most significant growth.
Taking that all together means that we think we're going to certainly still be negative this year, but make progress relative to the -4% margin that we had last year. I think for next year, it's a bit early to give a more specific target, but certainly the expectation should be that we're gradually stepping forward and the overall group breakeven is certainly something that is an important priority for us, while we continue to also focus on growth, given that we're so early in the market.
Your financing needs, do you need any further finances or you have enough for the time?
We had EUR 315 million of cash per the end of the second quarter, including the proceeds from our IPO, and we feel pretty well capitalized when it comes to that amount of capital. I think as you can see from the guidance, we're investing on the CapEx side in significant amounts, but I would say in a very disciplined way, and so we believe we're fully funded to execute on our current plans. Obviously, to the degree we change our plans around additional business models, additional opportunities or additional end markets, that may change, but I think the core business plan that we're executing, we're funded for.
Derek?
Thank you. I'm just wondering here, what's really holding back growth. I mean, 18%-19% revenue growth is fantastic in some sense, but you have these, as you mentioned, large addressable markets. You're clearly a younger company than Zalando. You would think that growth rates should even be higher.
Yeah. I agree. We'd love to see faster growth. I think what we believe is that in a lot of our markets, we're still before that inflection point of mass adoption of e-commerce in general, and in particular in this category. To give you one example, in Brazil, a market which has seen some e-commerce activity for probably two decades, and we've been there for nearly nine years now, apparel penetration in online is still just 1%. There's two fundamental reasons for that in Brazil. One is the sizes are not properly standardized, even within the same brand, and so trying on the product is absolutely critical to the customer experience. But trying on only works when returning is very easy.
Because of the logistics infrastructure in Brazil, we have been able to solve the outbound delivery, but we haven't solved the returns, which is why return rates are very low, but also why we believe growth is relatively low. It's some of those types of challenges, and we have similar challenges in other markets, that we believe are holding this back. What we do see is that some markets are growing much faster. For example, some smaller markets like Indonesia or Colombia, we're seeing dramatically faster growth than the group average. Some other markets, like for example, Brazil, where we've built a meaningful business, but there's still certainly some structural holdbacks in the market that we're trying to solve.
Thanks.
Well, thank you, Christoph.
Great. Thank you, everyone.
The last company that we are proud to present to you is the Norwegian answer to Mathem, i.e. Kolonial. I think finding Kolonial was the reason that we got so confident that there was something interesting to do in the food sector. Karl, CEO and founder of Kolonial, very happy to have you here.
Thank you.
Yeah. I'm also very grateful and excited to be here. I think when you found a company, you dream about staying, being on a stage like this at some point. We were also very impressed with Kinnevik's ability to spot trends and deep trends early. I remember our meeting almost a year ago, a little bit more than a year ago. I believe I had an email in my mailbox by the time I landed back in Oslo, and it was clear that you had thought about a lot of these things already before we came. We certainly share a vision for the food space. Hopefully I can shed some light on why we believe there is such a major opportunity, both for customer value creation and shareholder value creation. Our vision is to give our customers freedom and flow in their everyday lives.
What we mean by this is that, instead of spending time in a grocery store, which 80% of Norwegians dislike, we simply take care of that side of your daily logistics. We bring you beautiful fresh products and inspiring meals, but effortlessly. You don't spend any time, more than you absolutely have to, in ordering our groceries. We started a few years after both Mathem in Sweden, also Nemlig.com in Denmark. We began scaling up in 2015, and we've had a quite significant growth since then by roughly 10x in the first couple of years. As you see from this graph, it definitely did flatten out somewhat in 2018. This was very important. It was a year where we focused on operations, and I will get back to that and why that has been a very important part of our future growth.
I should also mention that we are now back. We haven't gone out with our numbers for 2019 yet, but we are back to the growth rates that we, let's say, are used to. We should typically be at around 30%-40% growth year-on-year, and we see that on a weekly basis now when compared to last year. We're the clear market leader in Norway. This has some pros and some cons. We currently have about 75% of the free picking online grocery. That means not meal kits included. There's a meal kit market of about 500 million NOK in addition to this. We've had a pretty solid position from the beginning. That doesn't mean that we haven't had competition. We were actually challenged by another pure player that left the market a year ago. It's a tough market.
They were a well-funded startup, with about almost 300 million NOK in investments. It also shows that, I think this market is more brutal than let's say traditional retail, in the sense that if you are slightly worse on a lot of parameters, you don't get slightly less customers, you end up getting almost none. That was basically what happened. We've merged through that phase, and right now our current main competitor is an incumbent, Meny, which is one of the more high-end supermarkets. They're currently doing this by picking in store, and they haven't fully committed to growing the online grocery market. They're also the largest incumbent player, which means they have more concerns around, let's say, cannibalization and so on than what we do.
This is of course beneficial to be the market leader, but that means that we also have to grow the market by ourselves. If we were more players like we see in Britain when you're starting to reach 8%+ market share, that typically comes when the incumbents also push the supply side. We aren't necessarily opposed to more competition. It could also help us grow the market. It's worth mentioning that Norway, a fairly small country, 5 million people, but still we have a 200 billion NOK market, roughly EUR 20 billion, which says something about the size of grocery and how important it is in people's lives, and what a massive opportunity this is. We're currently at roughly 1% market share. We should at least be at British levels within some years.
It's worth noting that the British market is also growing. Who knows where this would eventually land? There's a huge growth opportunity. Our P&Ls. We haven't presented many numbers, in general to the market. We've had a pretty small select group of investors. I'm sure that you're used to seeing P&Ls with actual numbers on them. I'm sorry that mine is basically written in crayons, but at least hopefully I'll get a point across. Starting at the top, we have our gross profit. Of course, gross profits generally in groceries are fairly slim. Ours are slightly below our peers, mainly because we are fairly aggressively priced. Kolonial.no typically has around 3%-4% higher prices than the discounters. We have decided to stay at that level because we believe it's sustainable and because we want to fuel growth.
On our spoilage, is on world-class levels. Andreas mentioned it earlier, but our warehouse roughly turns over about 20 times or more than an average supermarket, which means that the rotation is incredibly high. We're actually down to 0.3% in most weeks. Most of that can also be eliminated. On variable fulfillment cost, which is probably my main point today, we're doing very well and I'll get back to that a little bit more in detail. Distribution cost also, basically in top of the class, and then finally transaction fees are in line with peers. Basically, our contribution margin is considerably positive. That is why this business, I would say that profitability is inevitable at this point. I think when Kinnevik invested, it's worth noting that we were at very different numbers from what we have well, no numbers here, but where we are today.
You basically had to believe that we both had to improve on our gross margins, we had to improve our fulfillment cost, and we had to grow. The point now is that now we only need to grow. After the contribution margin, of course, you have the marketing spend. It's quite oversized due to growth. It's obviously somewhere between a variable cost and a fixed cost. Part of it is needed to maintain, but most of our marketing now is on growth. Still after that oversized marketing cost, we're still solidly positive. Then you have the fixed costs, basically the warehouse operation and technology and G&A. The operations cost, the fixed operations cost is also a bit of a question whether you should count that as fixed or variable.
There is a bit of a step change once you reach the maximum capacity of a warehouse, then you need to build another one. At scale, the fixed operations cost on warehouse is fairly limited. Basically, for the last couple of years, we have made a big effort in improving our efficiency. We had to build a scale first. It's very difficult to build an efficient operation at scale when you don't have scale. Basically, you have to invest and sort of take the hit in growing, even when you might even have negative contribution margins. Once we got to a fairly solid level on revenue, say roughly EUR 100 million or so, you have enough to start building a more efficient operation. That's what we did. We did that in the beginning of 2018.
The benefit for Kolonial, which sets us apart from a lot of other companies in our sector, is that we have always owned the entire chain, the technology end to end. Basically, the whole front side, the customer-facing parts of the business, but also the warehouse management system and the distribution system. Typically, if you look at other online grocery players and pure players around Europe, you'll find that most of them have outsourced something, either whether it's their warehouse or their distribution, most on the customer-facing side. This has made us able to adapt fairly quickly and also fundamentally change our system when we saw that we needed to do that. This has led us to somewhat of a breakthrough last year, where we basically, in the last couple of years, doubled our productivity.
A major driver of that was that we went over to a semi-automated model, but at a much, much lower CapEx than you would typically see in other online e-commerce players. We have variable costs that are in line with the absolute best in the world, but our CapEx investments for this is roughly one twelfth of what you would need to build that type of efficiency with other systems. That is a major step change because it, of course, gives you much better return on capital, but it also allows you to make smaller warehouses that are efficient at lower scale, which again, means you can make more of them, which will again, reduce distribution costs and also give you a better product to customer with faster delivery.
This is basically what happened during this fall, this was after Kinnevik invested, I believe Kinnevik made a good bet that panned out. Taking a step back, we believe that we're changing the value chain for groceries, one thing is whether we can be profitable or not, where are we compared to the physical grocery stores. If we see here, when you look at supermarkets, they have a fairly large range on cost. They can be fairly efficient, let's say a Lidl, a hard discounter to a more an upscale supermarket or corner stores that tend to have higher costs as a % of their revenue. That means that the range here is fairly large. You would say that typically between 20% and 38% cost in a sort of traditional supermarket chain.
What's interesting about online groceries is that I think everyone has sort of caught on that our last mile is, of course, an additional cost that physical stores don't have. I think what a lot of people don't realize is that upstream, we have quite a lot of savings. One is that a typical physical grocery store will have a production and they'll have transport to a central hub, which will redistribute those items into the store. Whereas when you have 20 or 30 or 40 supermarkets worth of revenue in a single location, much more of your items will come directly. We source from producers, but also even directly from farms.
In addition to that, you have some possibilities of going upstream, like in bakery, we actually bake our own bread, which is something that in a normal store, typically, if you come at the end of the day, the bread will be either sold out or they will have massive waste or both, which is usually the case. Whereas we basically have zero waste on bread, and every piece of bread is always available. That, of course, then you can enter into and take some of the margins from that part of the chain as well. There's quite a lot of savings upstream, and in the distribution to the warehouse. On the picking side, by the way, I forgot to explain what UPH are, UPH is units per hour, and this is basically a variable cost metric, one-to-one with your variable fulfillment costs.
It basically means you take all the items that you pick during a week, and you divide it by all the hours in the warehouse. That way, whether it's restocked, whether it's picking, whether it's terminal work, and whether you move processes around, won't matter. You will still get one number at the end, and that number is comparable across countries as well. You don't have to take into account labor, wages, and price levels, and so on. I'm not going to say exactly where we are on this line, but you can see that we're somewhere north of 100, and roughly twice as efficient as we used to be. Back to this point, when you have fulfillment centers with pretty high UPH, you also see that there is quite a substantial saving in the fulfillment cost when you compare to the store.
Basically your upstream and your warehouse costs are lower, and that offsets most, if not all, of the distribution costs. At scale, we believe it's perfectly possible to be at, let's say, Lidl levels, end to end. The reason why that's quite a disruption is that, of course, then you end up with a massive amount of customer value that the customer doesn't have to pay for. At the end of this, we typically save our customers around an hour for every order. Our orders are quite large. Typically, our customers buy for a week at a time. Meaning that this year will save our customers well over a million hours that we give them in free time. The other thing is that our quality levels tend to be significantly higher because the rotation is so high.
The same thing goes for marginal products, where that used to be a trade-off between cost and, let's say, SKU count, whereas you don't have the same trade-off in an online model. We can add more items and even pretty marginal items without that necessarily pushing cost. All these basically selection and quality being key drivers in the normal retail setting. Right now, for fruits and vegetables, out of 500 order lines delivered, we typically get the complaint on one of them. Yeah. This has been presented previously today. As I mentioned, there was a bit of a meeting of minds when we first met because obviously we believe that once you have a profitable online grocery base, you can build on more categories. We've done that in several areas. We have moved into pet foods and basically verticals that are quite adjacent to grocery.
We also just started our cooperation with Clas Ohlson the same way as MatHem has done in Sweden. Basically, you add the gross margin of those products directly to your bottom line. There is almost zero additional marginal cost of handling those items. It's worth noting that as e-commerce go, I don't think there's any hotter forge than groceries to build an efficient or forge an efficient e-commerce business. Our picking costs are, and have to be, very much lower than in almost any other industry. When you add other verticals into this mix, you get a pretty compelling business case. I think that's what I wanted to say. I'm open for a couple of questions.
Good. Let me start with the first one and then hand it over to you. You say that you can do world-class picking efficiency or efficiency at a fraction of the cost. How is that possible?
Well, that's a good question. Once you have these type of breakthroughs, I think you typically ask yourself, why hasn't anyone done this before? I don't have a really good answer to that. What we're basically talking about is using conveyors, but in a smart way. It's a software driven system, but it's not goods to man, which has been kind of the go-to model for most of e-commerce. The problem with goods to man is typically that in order to produce volumes that you see in online grocery where basket size are typically 40 to 45 items per basket, a goods to man system just can't give you the output that you need unless you make enormous investments in basically robots or shuttles. If you think of an AutoStore type of system, the small robots that drive on top of the cube.
You just need such a massive amount of them because they need to feed the pickers with so many items so quickly that the CapEx basically blows out of proportion. We have found a different way of solving that.
Ramil, go ahead.
Thank you. Ramil Koria, SEB Equity Research. First off, going to the graph with the UPH, if I understood that correctly, you're envisaging a scenario where that's going to increase moving on, you're also saying that you've seen sort of the inflection point in terms of CapEx and automation, and the infrastructure is in place. How are you going to drive UPH going forward?
From a sort of a lean operations point of view, there's still tons of waste in that process. I think any type of automation system still has a lot of potential to be tweaked within the frames. On top of that, we still see opportunities in automating other parts of the chain. We do it in the terminal. I believe you saw some robots that were stacking in the background. We see this rather as an opportunity to automate each individual part of the process rather than taking a cube or a very holistic, massive, automated storage and retrieval type of philosophy. There are still areas where we see that with pretty low CapEx, you can automate individual processes further, and you can optimize within the processes that are already semi-automated today.
Thank you. Just a brief follow-up on that. You're basically saying that you're best in class, and to my understanding, you're comparing yourself to some of the offline players moving towards online. If you would compare yourself to Ocado, for instance, how do you compare in that aspect?
I did compare myself to Ocado.
Gotcha. Thank you.
Do we have any more? Yeah, Lena.
Thank you. Lena Åstrand, Carnegie. The process itself is actually quite manual, and compared to the other platforms that we've seen, they scale quite nicely on a global level, and this requires a lot of investment to scale. Could you maybe say something about what share of other verticals you have in your net merchandise value today, and where you see that going in the next five years, just so we understand where do you go from manual to get some leverage?
Yeah. So far, Clas Ohlson was a new project that we launched two weeks ago. We're still talking single-digit % on that vertical, and that was about 200 SKUs from Clas Ohlson. That's still early days, and that's being scaled up. It depends whether you categorize things like pet food as groceries or other verticals. We're still talking, let's say, 95% plus is groceries. We've just began our vertical journey, and it was important for us to win groceries first. I think that's also something to keep in mind. I don't think we will roll out new verticals at sort of breakneck speed. I think we need to be able to integrate them over time and never lose sight that we are primarily a grocery company.
I think if you are let's say that the customers get a perception, even though it's not reality, but they get a perception that you're worse on groceries simply because you have other categories, then you're in trouble. You have to integrate this over time.
Where do you see profitability in five years' time?
I'm not going to give an absolute number, but it'll be less than five years, I can tell you that.
Long-term margins for you, where would they be?
Also not sharing the margins. I would've shown the full P&L.
Okay. Well Go ahead.
Thank you. Elizabeth Miliatis, Bank of America. Would you be able to comment on the threat of Amazon or other sort of larger players that have scale, and how you react to that? Thank you.
That's a good question. I think Amazon is probably, on the global scale, the main competitor. I also didn't mention that given this breakthrough, we feel we've earned the right to compete at nationals. We will start looking at new markets. Eventually, we will meet Amazon in some of them, I'm sure. The Nordics seem to be fairly far down on the Amazon priorities list. I believe that even if they build a warehouse in Sweden, food will probably be quite a bit of waste. We would probably be able to build up groceries in the Nordics and these parts of Europe before Amazon moves into that market. For sure, that is, I think, the main competitor.
It's interesting how Amazon basically started with a fairly small category and kind of worked their way in into larger and larger categories, and eventually started to cover everything, and for a long time, except groceries. Now they've also added groceries in several large European cities and American cities. It doesn't seem like they have entirely cracked that model quite yet. It's also not particularly well known exactly how they do their fulfillment. That's definitely someone to watch very closely. I would say that if you can win on groceries, then the frequency is so high that I would prefer to win on groceries than move into other categories than be strong in other categories and weak in grocery. Yeah.
Stefan, sorry. I think you can speak up then. Oh, sorry. Please do it in English.
I have a question warehousing. I'm sure that a lot of other retailers will be very keen to have the same thing. If you look at the model, there would be potential in licensing their technology to other players. Is that something that could be licensed to other food retailers? Is it something that you would be interested in?
It is a technology that's proprietary. It's definitely a possibility. I'm not sure that it would be the best way for us to capitalize on it. We are primarily an end-to-end player. Being basically a software and hardware provider is quite a different ballgame. We are unsure on whether we want to go that route. Primarily, we're looking more at greenfield rather than selling our technology.
Let's take the final question from Stefan from Pareto.
You said that the market was NOK 200 billion.
The Norwegian market?
Yeah.
Yeah.
You have 1% online penetration.
Yeah.
You have 70%.
It's actually less than 1%, yeah.
Less than 1%, but you have 70%-80%.
Well, we'll clear SEK 1 billion by a bit of margin this year. Our target is roughly 30% in thereabouts from there on. Sounds correct.
Just finishing off with the maturity, do you have the percentage for what we see upstream sales and maybe sales and marketing? Is it similar to that or say it's a lot of this marketing model?
I'll try to give you a bit of an answer and be sufficiently obtuse. I did show you that sort of Lidl cost base is around 20%. That clearly means that I believe that you can at the very least put distribution and fulfillment, and even some of the upstream costs in those numbers. Yeah.
Sales and marketing model.
Well, I can give you someone else's numbers. Ocado that was mentioned, I believe they are sort of a 2, 3% marketing. We are considerably more than that to grow. Yeah.
Thanks, Karl.
Thank you.
You can catch Karl afterwards as well, I think. With that, we are getting ready to conclude, and Georgi, I'll hand over to you to do that.
Thank you, Torun. Yeah, I said this morning that it's going to be an exciting day, interesting day. I hope you feel that it has been so. We have been listened to Andreas and Chris that have shown how we work at Kinnevik with new investments and existing investments, we of course, have heard a lot of these entrepreneurs present their fantastic companies, I just want to underline that this is a select of our companies. We have more in our portfolio, of course, in the pipeline. What I think is pretty obvious that all these companies and founders, they are trying to solve pain points by changing the complete value chain within an industry.
No matter if it's travel, healthcare, or going back to the financial services panel we had here, they're building completely customer-centric solutions, and they use technology to solve the pain points that are very difficult for incumbents to solve. All these underserved customer needs is basically a huge potential for these customers. I think that also is the kind of red thread throughout our entire portfolio and actually our history and why we're here. Before we finish up and have a session outside where you're able to ask me and the team and of course, the founders, more questions, I would like to go back to two slides from this morning to again reiterate some of the points I made regarding the new Kinnevik.
Firstly, we say that we will invest about two-thirds our capital into follow-on investments in companies where we see strong traction, when we have conviction that they will become the winners, the category killers within their sectors. One good example is when we double down in Livongo. It's a very impressive company, and I'm sure that they will grow very far from where they are and create value for Kinnevik and our shareholders. We will add about two to four new companies per year, and 80% of what we call the first-round capital will go into companies that are a bit more mature internationally, such as VillageMD is an example that we added just recently. 20% of the capital will go into new businesses of more venture style in the Nordics, our home market.
We are aiming in all our businesses to get an ownership level of about 15%-25%. It's not an exact number, but it's basically to influence outcome rather than aiming for control. The portfolio as such will include about 30 companies. Again, it's going back to Kinnevik being an effective low-cost operation. We want to have a nimble organization and yet being active owners. We can't have too many companies in the portfolio. That means that we need to do an exit when we're adding a company. We're going to prune our portfolio a bit more actively going forward than what we have done in the past. There have been times when Kinnevik had a portfolio of 60, 70 companies. That's something that we definitely would like to avoid in the future.
We're going to invest in our focus sectors to more or less evenly distribute the capital also across stages of maturity and geographies in order to get this balanced portfolio. Our three priorities then, continue to evolve our portfolio towards a higher proportion of growth companies, to strengthen this portfolio across stages, geographies, and maturity and time to liquidity, and to reallocate capital more dynamically. We will create exits over the coming years when our companies are more mature than we see today in our younger portfolio. When we do so, we will take part of that capital to again reinvest in new companies to infuse the system with new blood, but we will also distribute capital to the shareholders.
These are the three things that we will focus on now the coming years, and I'm sure that we will create a lot of value in the new Kinnevik. Thank you very much for coming here today. Thank you everyone that has been watching on the webcast. Last but not least, I just want to say that I really enjoyed looking at your creative P&L, Karl, maybe something that we can say, slightly better than competition, slightly worse, bang on target, world-class. I'm just joking. I think it was a good slide. It shows that we can actually create profitability also in the online groceries. Thank you very much.
Thank you.
Well.