Earnings Call: Q3 2020

Oct 15, 2020

Good morning, everyone, and welcome to the presentation of Kinnevik's results for the Q3 of 2020. I'm Georgi Ganev, Kinnevik's CEO. And with me today is our CFO, Erika Sorebar Jonsson and our Director of Corporate Communications, Torren Witsen and our Head of Strategy, Sommen Klosterman. Before we head into some of the strategic highlights in the quarter, I would like to say that it's evident all that the coronavirus continues to have a devastating effect on people and economies globally. But at the same time, it's changing fundamental consumer behaviors and accelerating the shift to digital. We are optimistic that elevated demand for online is likely to remain even as the effects of the pandemic eventually subsides. The trends we saw in the Q2 have strengthened during the Q3. Demand for digital health care, e commerce and online food remains elevated, well above that of previous years. On the other end of the spectra, the travel sector continues to be weighed down by restrictions and remains uncertain when we can expect to return to some kind of normal. Now on Page 3, we have summarized the key strategic highlights during the quarter. Investment activity has remained vibrant with announced merger between Livongo and Teladoc Health. We also invested in 2 new business in our focus sectors. In our efforts to continue pruning our portfolio and focus our resources, I'm also pleased to say that we have divested our shareholding in Home24 and completed our exit from Cliro Group. Our net asset value was up 23% in the quarter when adding back dividend paid of SEK1.9 billion. This was driven by exceptionally strong share price performance in Zalando and Livongo as well as broad based revaluations in our private portfolio. In just a short while, Erika will take you through the development of our NAV in more detail as well as the valuations of our unlisted companies. Our strong balance sheet puts us in a very good position to execute on our investment strategy, and we continue to identify and assess a number of exciting opportunities. Now on Page 4, we have provided you with some details on the announced merger between Livongo and Teladoc. We believe that a merger makes strong strategic sense. It joins 2 highly complementary companies combining Teladoc's reach and large customer base with Livongo's robust programs for treating chronic conditions. This will create the largest consumer centered virtual care platform for a full spectrum of health needs. And the merger will also create significant synergies, and we're excited to become the 2nd largest institutional shareholder in the combined new company. We first invested in Livongo back in 2017 as part of our healthcare investment strategy. And since then, we have led several financing rounds in the company. And so far, we have generated an unrealized return of around 11x our invested capital into the company and around 6x into the broader sector. The proposed transaction truly validates our strategy. And at the close of the Q3, the value of our stake in Livongo represents an unrealized return of 2 28%. When the merger has been completed, Kinnevik will own a 4.5% stake in the combined company and receive SEK1.3 billion in cash. And the merger is expected to close in the Q4 of 2020. Now moving on to our investment in Komen on Slide 5. Common is a residential brand and tech enabled managed marketplace. They combine technology with a unique operating platform that delivers a better experience for renters, while also generating a high return for the real estate owners. Rental costs are often the largest share of consumer wallet, yet the rental market has seen limited innovation and technology investment for many years. Real estate owners choose common as they offer a hassle free experience, including a virtual apartment tours, standardized furniture and all inclusive flexible rentals. Renters get to keep the good parts of co living, while common takes care of the annoyances and run day to day operations without itself assuming lease risk. Our investment in common is part of our strategy to broaden our consumer services portfolio towards business models that reflect broader consumer trends. It also fits perfectly into our vision of providing more and better choice to the consumer. On Page 6 is an overview of our 2nd new investment in this quarter, Joint Academy. This is our first investment in the digital health care space in the Nordics. Joint Academy was founded by a father and son team where the father is a professor and the founder of what is considered the Swedish gold standard for treatment of joint pain. The Sun digitalized the treatment, making it globally scalable and much more cost efficient. Around 80% of global health care costs stem from 15 chronic diseases and chronic joint pain is the 5th most common. As such, Joint Academy addresses 1 of the largest cost drivers in the global health care system. They do this by digitalizing a proven clinical method that has been developed over many years, generating superior outcomes. And with our strong belief in the power of digital care to manage chronic conditions and improve patients' lives, this investment sits perfectly at the intersection of our Nordic venture and international healthcare strategies. On Page 7, we have provided some more details on the performance of our large listed companies. E commerce has seen a tremendous rebound in the last few months, driven by faster than expected recovery in consumer demand and an overall increase in demand for online. Last week, Zalando raised its full year 2020 outlook on the back of exceptionally strong and profitable growth in the Q3. And Tele2 has remained stable through 2020 with less exposure to expensive pay TV sports rights than peers. Livongo has continued its stellar operational performance during the quarter as the adoption of digital health becomes more widespread. Now looking at our younger growth portfolio, we have highlighted a few of our companies on the next page. Moving to Page 8. Our online grocery companies, Kolonial and MatHem, have seen a significant increase in demand and inflow of new customers due to the accelerated shift to digital. Going forward, customer retention and engagement will be key in retaining these new customer groups. So far, these customers have shown similar behaviors in terms of retention and purchase frequency as pre pandemic customers. And this makes us optimistic that the elevated demand is likely to last in the longer term. Similar to Zalando, Global Fashion Group also upgraded its full year guidance for 2020 on the back of strong growth and profitability. The company is now expecting Q3 to be the 2nd consecutive quarter with positive cash flow and profitability with respect to the adjusted EBITDA. They're also expecting to approach break even on adjusted EBITDA for the full year of 2020. I would now like to hand over to Erika to go through the valuations of our unlisted assets and our financial position, starting on Page 9. Thank you, Georgi. As you mentioned, the trends we started to see in the 2nd quarter have strengthened during the Q3. Our large listed companies have continued to trade very strongly in the quarter, supporting our net asset value development. Furthermore, we have reassessed the fair value of a number of our private companies due to market and company developments. The fair value of our private portfolio was written up by just under SEK1 1,000,000,000 or 7% during the quarter, With net investments of just over SEK 700,000,000, the total value increase of the private portfolio amounted to SEK 1,700,000,000. Looking at the development of our net asset value during the quarter, we believe our portfolio can largely be divided into 3 categories of companies. In the first category are our fashion e commerce companies, Zalando and Global Fashion Group. They continued to rally in the quarter with continued consumer and investor interest in digital services, fueling multiple expansion well above pre COVID levels. Zalando's share price was up 27% during the quarter, and GFG was up over 90%. In the 2nd category are our more resilient businesses. These include Tele2, our health care companies and our online food and last mile businesses. Tele2 has remained defensive during the quarter, up 2%. And Livongo has continued its stellar performance with a share price appreciation of almost 80%. During the quarter, the IPO of Oak Street Health provided a strong indication of investors' interest in value based care delivery operators, such as VillageMD and City Block. Also, operators of virtual health and telemedicine services continue to be valued with material premiums compared to in person primary care peers. Valuing our businesses in these sectors, we continue to focus on achieved financial performance in assessing our fair values. VillageMD continues to perform strongly, and we have written up the value of our stake by almost SEK1.1 billion or 45 percent, where of SEK232,000,000 stems from our investment in early July. We recently announced the recently announced partnership with Walgreens and its impact on the future outlook for VillageMD provides continued support for multiple expansion, although the company is still valued at a material discount to peers. We have written up our stake in CityBlocks by 34%, driven by the company's performance as our trailing revenue multiple is unchanged from the previous quarter. The fair value of Babylon is unchanged in the quarter, save for some currency headwinds. Our valuation is primarily based on a set of specific operational future milestones. So far, the company is on track to deliver on these milestones, effectively growing into its valuation, but we are expecting to have better visibility during the Q4. As and when we get further visibility on these milestones, we can reassess our fair value. Our valuation corresponds to approximately 21x Babylon's forecasted 2020 revenues, a slight premium to the average of a peer group of disruptive health care and health care IT companies, including Teladoc, which have seen moderately positive trading in the quarter. Our online food companies continue to enjoy elevated growth rates even as the initial COVID driven peak in customer intake and order values is behind us. We have written up by 8% and Kolonial by 11% in the quarter, reflecting the company's strong performance as multiples are unchanged. In the 3rd category are our travel, financial services and emerging markets assets. We wrote down the value of Homeo by 13%, but adding our convertible investment in the company, the fair value of RV investment was up 11% in the quarter. Travelperk continues to face challenges but is performing at a strong level considering the weakness of the underlying market. In light of the write down in the previous quarter, we therefore kept our valuation of Travel Perk largely flat. All in all, our net asset value amounted to SEK 107.9 billion at the end of September. That's SEK 388 per share and represents an increase in the 3rd quarter of SEK20.3 billion or 23 percent when adding back dividends paid. Our share price appreciated by almost 52% compared to NASDAQ trading up 10% and the OMXS30 up 7%. We are, of course, as always, happy to answer any questions you may have on our valuations when we move to Q and As. But I also want to highlight Pages 23 to 25 in the quarterly report, where we have elaborated more on our valuation assessments and methodologies used. Finally, with yesterday's closing prices of our listed assets, our net asset value was SEK 112.7 billion, up 4% so far this month. This was largely driven by continued strong trading in Global Fashion Group and Zalando. Now please turn to Page 10 for an update on our financial position. During the quarter, we made net investments of SEK 0.5 billion and paid dividend of SEK 1,900,000,000 to our shareholders, taking our net cash position to SEK3 1,000,000,000. Adjusting for the dividend received from Tele2 in the beginning of October, our net cash position amounted to SEK 4,200,000,000 and pro form a also for the €1,300,000,000 in cash consideration expected after the close of the Livongo Teladoc merger later on in Q4, our cash position at the end of Q3 would have amounted to SEK 5,500,000,000. In summary, we have a very strong financial position, which gives us full flexibility to execute on our investment strategy. With that, would like to hand back over to for a comment on our key priorities going forward on Page 11. Thank you, Erika. We remain firmly focused dynamically reallocating capital and pivot our portfolio towards a higher proportion of growth companies. As we have proven this quarter, we continue to strengthen the balance in our portfolio across sectors, stages and maturities. We also remain prudent by exiting companies where we believe our tenure as owners is over. The world is still deeply impacted by the pandemic, and I am truly humbled by the hard work and dedication shown by all our companies. They have been flexible and really stretched their capabilities to be able to serve their customers with more and better choice. As always, I'm also very grateful for the continued strong support from our shareholders. Before we move on to the Q and A, I would like to mention that we're planning to host a Digital Capital Markets Day later this fall, and we will get back to you with more details on the date and program. Now we're ready to answer your questions. So operator, please open up for Q and A. Thank you. Our first question comes from Derek Dalle Petrie from ABG. Please go ahead with your question. Yes, hello. I had a question on the Kolonial. There was news out that the company is expanding its or increasing its capacity and building a new warehouse. So I was wondering if this implies any funding needs for the company. Hi, Derik. Thank you for that question. We are currently in the dialogue with the Kolonial regarding funding needs. It's nothing specified yet, but we are truly supportive of that company. Again, first of all, we have seen efficiency increase materially and we have also seen a great scalability during the pandemic. So kind of our thesis around making money on online grocery is proven. We also see that there is more opportunities for Kolonial both in Norway, but probably with their technology also elsewhere. So we are very supportive, but we have no kind of news on exactly what it means in terms of funding. But we are in a dialogue with the company on that. Okay, exciting. It's very clear. And then I had a question on if you could just elaborate a bit on these milestones in the Babylon that you're referencing in connection with the valuation. And you have this 21 times sales multiple, but just what these milestones are sort of approximately and how they're connected to valuation? Yes. So let me then start with the milestones from a commercial standpoint. Now I will hand over to Samuel to go a bit deeper how it impacts our valuation and how we think about it going forward. So I mean, when we invested in Babylon, it was on the back of their being able to position their B2B offers, basically how they can sell their services to other large players in a very positive way. The first contract, as you perhaps know, was the Prudential contract in Asia and the second large was the Centene contract in the U. S. So Babylon, they have this more kind of D2C service with NHS in the U. K, but in U. S. And in Asia, we're primarily working with partners. And the Centene contract was a large frame agreement with 1 of the largest hospital group in the U. S. So to scale with that customer across United States was key for us when we put the valuation mark at the last fundraise. That is something that we're very excited about. And as we say in the report, we also see that the company is performing according to those milestones. But it's really about the development of the Centene contract. So, Samil, if you would like to explain why we're using that as a basis for evaluation? Sure. Hi, Derik. So as you know and as we've pointed out in the past, Babylon is a sort of hyper growth business aiming to grow by 4x this year to $80,000,000 and another 5x next year. And with the company growing at that pace, forecasting is very I think Jorgi covered them fairly well. I can just sort of sum up. I think covered them fairly well. I can just sort of sum up that in short, these milestones relate to the degree to which Babylon is delivering on a handful of key contracts, including the ones mentioned and that they are recognizing revenues at the pace and at the magnitude that we believe justifies our current mark. I could add that if Boblon reaches their 2020 ambitions, I believe we can safely say that they would also have reached these milestones, which sort of all else equal would have a positive effect on our fair value in coming quarters. Okay, interesting. That sounds very reasonable. And the funding standards of the company where are we there and also from your point of view what would be the benefits from this company being public potentially going forward? I mean, I think it's clear to all of us that the multiples in the public markets, they are quite high right now in this sector. So of course, a public the company being public would mean that it the company would have the currency to continue to expand and also to expand inorganically. So in terms of M and A and consolidation that could be very interesting. But we don't see it as a prerequisite for this company to grow. There is great demand for this type of exposures from investors, both in the private and public market. And right now with the current trend that we see in Babylon and the team's ability to expand into the U. S. With these large partners, we feel comfortable that there will be great demand both in private and public markets. But having said that, in the public market, the multiples are high and it will give them the strong currency to acquire companies. Thank you. That's very clear. And just finally on this new investment in common within consumer services. I think consumer services obviously is a quite wide sector and also that's sort of evident by all the investments that you have in the sector. I mean can you obviously this was within real estate, but are there any subsectors or segments in Consumer Services that you are specifically targeting for any potential new investments additionally? I think the answer is that within Consumer Services, we are looking at quite many subsectors, to be honest, but we try to not go too deep into the sectors. So if we look at common as an example, they're not kind of real estate investors. So they're providing a managed marketplace as a layer in between the end customer and the property owners. And that's where we understand the business models from other marketplace solutions. And with that experience that we have scaling such a marketplace, we can actually be an active owner in companies like Common, for instance. I mean, another sector we looked into that, that expects or sees a lot of headwind today is the travel sector. Same thing there. We look at marketplaces within the travel sector with Omeo and Travelperk and we can apply the same type of models and metrics that we have seen, for instance, in fashion and ecom into those sectors. So what you could expect is that we will be looking at a quite broad portfolio of subsectors, but try to stay relatively kind of light in a light asset way, if you will. Got you. That's very clear. Thanks. Thank you. Our next question comes from Joakim Benoit from DNB. Please go ahead with your question. Thank you very much. So perhaps to follow-up where we left, I mean, it's very interesting with the entry here into Comen. Where do you believe, Geordie, that Schindig are the best place to add value to a company like Comen given that this is your first debt on PropertyTech? I think as I said earlier, I think our consumer angle is extremely important to have, right, in these companies. If I look at Livongo as another example, when we came into Livongo, we were not the experts of health care, but we understood it from the consumer standpoint. And within this space at that time in 2017, many of the companies were focusing on the partners with other large health care providers and not towards kind of the member, the end user of the services. So that's the same thing with common. We take the customer's perspective, how we can make a better solution for the customers and of course, partner up with someone understand the ecosystem of real estate. So that's the ecosystem of real estate. So that's the main contributor. We also have, I think, by that the understanding of how to scale successful and how can we use that marketing and customer acquisition knowledge in a company like Common. And thirdly, again, being a long term partner, these entrepreneurs, often serial entrepreneurs that chooses to cooperate and partner up with Kinnevik, they're looking for a long term investor because a business like common, we don't expect that to have an immediate hockey stick growth in the next quarter, but rather build up a very solid business over a longer period of time. And that also fits squarely with the kind of the DNA and the methodology that we have at Kinnevik. That's very helpful, Georgi. Coming back to the topic we discussed on Babylon, but not for Babylon. You commented earlier this year that, I mean, a potential option going forward for VillageMD is an eventual IPO. But given now how the U. S. Market seems to reward this type of value based care providers. Is that also an option for CityBlocks? Where are they in terms of maturity? Any color there would be helpful. Yes. I think when it comes to the Healthcare portfolio, even though it's above 20% now as the kind of the share of our entire portfolio, we have to remember that we have those 22% spread across different kind of subsectors within healthcare and also maturities. So the whole point with the CityBlocks versus VillageMD is that Village is a more mature company and they are larger. So I think in terms of kind of a public listing, Village is probably earlier out than a company like City Block. But having said that, we believe that the models that both these companies represent fits very well in the public market. And there is a clear demand for it. And going back again to what we said earlier in the presentation when Erika went through the valuations, we still see a gap between the multiple that we use for Village and the public traded peers. And we have no other plan than to close that gap over time as the company is continue to performing and potentially come closer to an IPO. Very clear. And then just final for me. I mean, you've really increased the transparency here regarding operational KPIs and some financial debt for some of your companies here. And that has really helped the investment community understand the potential that we've seen that in the shares, I believe, as of this year. Are there any companies here that we should expect more transparency from going forward in the coming year? I think it's difficult to say because as we are not kind of in a controlled situation of any of our companies, It's a discussion between the other shareholders and of course the management. And typically the reason for not sharing is that for competitive reasons, these companies would like to operate in a more quiet environment. So I think it's difficult for us to commit to that. Our intention and ambition is actually to continue to be more transparent, especially for those companies that are more mature and come closer to a potential IPO or a trade sale. Say. Our next question comes from Liana Osterberg from Carnegie. Please go ahead I'm sorry, I'm coming with the boring questions here. My first one is on MatHem. Kolonial had a very strong growth in the quarter. But if I compare MatHem to its peers, we had East Gas Online sales up 148% and Axford of 128% in Q2. And I think if we look LTM's IKEA is up 65, Axford is up 61. So why is the company underperforming so sharply? I know that they've had some problems, but it's a wide difference. And when do you think the company will be equipped to deal with higher demand? And do you think it's too late for them? Did they miss out on this COVID boom? And yes, I have some more, but go ahead. It's okay to ask answer that question first, Lena. Yes, please do. I think the first important point here to mention is that we're looking at the total growth online from these players and they include Click and Collect. So what you need to ask them is how what's the share of Click and Collect growth, which means that you order online, but you as a customer go and pick up the groceries in the store. Often these groceries are then picked in the store as well, which very different from the pure online growth that we see at Kolonial and MatHem that has no other options than order online and deliver to home. So that's the first important distinction. The second question is that how much is this a transition from their existing customers going online rather than capturing new customers from competitors? So that's the second question, which you have to look at the overall growth of these companies. And the 3rd parameter here is that the difference between MatHem and Kolonial is the automated warehouse. So whereas Kolonial has been able to scale and to kind of deliver on that surge in demand we saw especially in the 1st couple of months in the pandemic, that has not been the same situation for MatHem. But having said that, MatHem opened up a second warehouse taking over foodies premises, and they have scaled and delivered growth early in the pandemic around 50%. So if you look at those things, you will compare more kind of apple to apples than the figures that you just stated. Then I think lastly, we should also remember that the strategy for MatHem is to focus on the larger urban areas in Sweden. So Stockholm with kind of Mala Dalen as an area, so Uppsala, Vasteras, etcetera, around, right? And then you have the Gothenburg area and Malmo area. And that covers roughly 50% of Swedish population. So that's also a difference. And just before the pandemic, Ax Food announced that Maatpunkt SE actually withdrew their offer in the Malmo region. So they do not offer that service anymore through Markmont Essia. They're going all in with Village with the majority of the growth is Click and Collect. Can I ask you, wouldn't Click and Collect grow less in the pandemic? Wouldn't the pure online version have a faster growth because people would not want to go to the stores? That's a philosophical question. The fact tells me that Click and Golek grows faster. And I think the answer there is that those models are that model is pushed by the incumbent. Because if you're incumbent, Lena, and you have a large store chain, your value network is already equipped for you to actually bring out the groceries to the stores. There you have people working, picking in the stores. And if you don't have an automated warehouse tailored to e com, you want to use that network. So if you have a lot of customers, you're pushing that model. It's not what the customer wants. We believe that over time, what the consumer wants is actually to order online and get the food delivered to the home. That will save around 90 minutes per week. And I think that's the key thing here that we are betting on and what we hopefully will see over time. But do you get them, let me phrase it this way. Do you fear that they have missed this if COVID has been an opportunity? For a few people, it has been, but in this sector, it has been. So do you fear that they've missed this opportunity because of the lack of automation and the difficulty to scale up? Not at all. I would argue that MatHem is growing within their market share on Pure Online. So they have captured market share in that segment. But again, you need to take out the pure online, so deliver to home and you need to look at the regions where they are active. If you're doing that compared to the incumbents, I would argue that MatHem is taking market share during the pandemic. So it's the contrary. Yes. I'm sorry, I'm going to continue to focus on the less performing assets because everybody else has asked about the great ones already. That's fine. So I'm just trying to understand, Karma, why is that growth coming down? If you could just maybe say something about that. And also the Budbee, which I would assume would also be a beneficiary from more online sales during the pandemic. Why is that seasonality? Or why is the sales trending down there? If we look at Karma first, I mean, I think we have to mention that that's a very small share, right, of our portfolio. So I appreciate that you asked the question. It's around SEK 40,000,000 and 0.004 percent of the portfolio. But nevertheless, it's not growing as fast because of the restaurant businesses during the pandemic had also had some struggles, right? The cafes, etcetera, with not as many people visiting them. So it has more kind of linked to the restaurant business during COVID and the cafes, the delis. And when it comes to Budbee, there we see a great demand for their services. I think based on 2 things, the general e commerce trend is driving the need for delivery services. And then, of course, with the preparation by many retailers, with the fact that Amazon will launch in Sweden, they need to have a very good alternative. So if you assume that Amazon will take a significant part of the e com market, but of course not 100% of it, All the rest will have to have delivery options that is actually in line with what Amazon can offer, right? So a lot of e tailers have upgraded their offering on the last Mydeliver option, which has resulted in Budbee growing this fast. But maybe I missed your question regarding Budbee. It was more that the trend is going down, I thought, when I looked at it, the graph just that you had, which showed the revenues for deliveries. Okay. It's a number of new merchants, sorry. But there was no new merchants, yes. Yes, yes. So that is not the trend in deliveries. This is signed up merchants and that was boosted during the pandemic where actually a lot of merchants had to actually add this as an option in order to capture e commerce sales. So it's basically a number of merchants trend rather than number of deliveries. Okay. But could you say something? The number of deliveries is still contained in our chocolate? Of course. So I mean, if we look at the speed that they're growing, they've tripled the revenues in 2019 to SEK 150,000,000 and surpass that level already by the Q2 this year. So by the end of Q2 this year, they have surpassed the growth in 2019. And then 2019 growth was tripled the year before. So we're talking about several X in growth per year. Yes. That's good to know. Okay, perfect. Thank you. Thank you. Thank you. Our next question comes from Stefan Ward from Pareto Securities. Please go ahead with your question. Yes, hello. Thank you. I have a question about the portfolio construction in the broader sense. You have a very strong balance sheet now with pro form a net cash of SEK 5,500,000,000, total liquidity around SEK16 billion after the Teladoc or Livongo divestment you will have a fairly liquid asset that is currently valued around SEK 13,000,000,000. So it seems like you have a lot of financial flexibility. Adding to that performance of Zalando is clearly satisfying and they're being free cash flow positive already in 2020. And I expect that free cash flow generation is probably going to expand over the next few years as the company continues to expand its business. And also Zalando has this huge cash position of SEK 2,400,000,000. So that perspective, hasn't Tele2 sort of played out its role a bit for Innovit. It's a slow growing asset. We don't really need that dividend for stability with your own balance sheet. And by reducing Tele2, you would clearly improve the potential for generating recurrence in Kinvey. Could you give a bit of your view on reasoning? Thank you. Hi, Stefan. I would say, 1st of all, even though Zalando has a very strong cash position, especially after the convertible. We support growth. We believe that Zalando can do a lot more on growth. They have a great and unique position in helping brands to become more successful, both in the kind of partner program and also in their wholesale model. And the kind of strategy that they have had is to grow organically and being kind of also prudent in launching new concepts. We believe and support that Zalando will continue to do that maybe at an even higher pace going forward, given that they have such a strong position both in terms of cash and also in the market. So we don't foresee or we don't expect any dividend from Zalando in the near term. And I think you as an investor in Zalando, you should reason the same way. That is, of course, very different from Tele2, which is a yield player. I've said it before, I think that Tele2 can do much more both in capturing synergies, but also using this position that they have now with fixed mobile convergence in the market and deliver good services that will take them back to growth. We have said before and we can repeat again that Tele2 is needed to fuel our transformation as a company. And it also creates this counterweight in the portfolio because in bad times when multiples go down instead of up, you have this more kind of defensive stable asset that could provide yield. And that, of course, is very comfortable for us as a growth investor. So I think time will tell going forward what could happen. But right now, we don't have any other plans than so. Okay. Thank you. Thank you. Our next question comes from Nizhoniiza from Deutsche Bank. Please go ahead with your question. Great. Thank you. Three questions from my end. The first is on, I guess, fashion e commerce and Zalando and Global Fashion Group. In your view, from what you've seen on the ground, do you think that elevated demand for e commerce and that structural shift would continue more aggressively going forward now that people have gotten more used to the idea of online fashion and online purchasing rather during the time of the pandemic? That's question 1. And 2, Zalando with its rally is again a very sizable part of your portfolio. Are you happy with the size of your exposure? Or do you think that at some point some adjustments would needed if this exposure to Delanda continues to increase on the back of their own strong performance? And lastly, just given that e commerce has done so well, curious to understand why you disposed your stake in Home24, which I guess would have been exposed to the same sort of drivers? Some color there would be great. Thank you. Thank you, Disla. So I think on the general trends, first of all, we definitely believe that the elevated growth that we've seen will continue and continue at a higher pace than pre pandemic. And why is that? Firstly, it's exactly as you say, people that has learned how to shop online and especially among new customer groups, so elderly people, etcetera, that were maybe not so used to shop online have realized that's a good way of shopping and convenient way of shopping. But there's also another reason and that actually is that the offline player, the traditional players have had no options than to accelerate their online strategy, right? So we cannot be protective anymore during a lockdown. So by having incumbents pushing the online channel, that will also help the whole market, the whole segment to grow. And if you're well positioned as the number 1 or number 2 in a region, you will benefit from that tailwind. So we are optimistic that this change and this accelerated consumer behavior will actually be positive for our companies in this space going forward as well. When it comes to Home24 and some other smaller e com players that we've had, we've taken a decision to prune the portfolio so we can focus on some of the larger assets or the assets where we see potential for them to actually move the needle for Kinnevik at large. But there's also some other differences. I would say between fashion and selling sofas online is a big difference. Difference in complexity of delivery, it requires 2 man handling, it requires a different type of logistic chain, which is, of course, solvable. And we see great progress in certain companies as well, but it's a different gameplay that what we see in the kind of more asset lighter marketplace solutions and within fashion specifically. Therefore, we're taking both a kind of strategic decision based on that, but also because of our need to focus. Maybe did I miss something around? You can fill in, Samuel. The yes, exactly. The portfolio concentration, sorry. No, I think it is definitely a luxury problem. It's a problem, but it's a luxury that we have companies in the portfolio right now performing really, really strong. And I have no further comments on that. I mean, as you know, have done 2 sell downs in Zalando. We have recouped the capital that we have invested. And nevertheless, our humbled and we are very, very pleased to have a company with that type of performance in our portfolio. Got it. Thank you. Very helpful. Thank you. Our next question comes from Joran Soper from Danske Bank. Please go ahead with your question. Thank you. And I apologize if you have answered this question before, but I want to come back MatHem and talk a little bit about the valuation of that. Do I interpret it right when I look at Page 23 that you have a 25% discount on MatHem versus peers and you refer that to that it's less mature than the peer group. Is that the way you is that correct or? That is correct. Is this the first time because I've been looking at previous restarts, so you have not used it 25%. Is this the first time you do that? Or is that a new evaluation method you apply now? The method is the same. The discount has expanded slightly. That's to reflect the differences in business model because the peer set that we benchmark MatHem and Kolonial against are not online grocers. There are no pure play listed online grocers available to compare our businesses to. As you know, Ocado has a different model. So we're trying to reflect a lot of things in that discount, but that's one of them. Okay. And in terms of profitability view in the quarter, there were some I don't know if it was a slippage of your time earlier, last quarter, Georgi, from your side here. But if I remember correctly, you were profitable, I think it was in Kolonial during the 1st month of the pandemic. Is that can you talk a little bit about how about profitability in these two names right now? Yes, that's correct. So what we saw with increased demand that they had the ability to capture because of their automated warehouse and more importantly, keep their efficiency, even though they had to add a lot of kind of employees on weekends and so forth. They still managed to deliver a very high efficiency, so units per hour as you measure. And that means that we can now kind of see that the model works and it's possible to make money selling food online. That has not been the case for MatHem for obvious reasons. So with a manual warehouse that you have also outgrown more or less in terms of efficiency improvements, you the main objective and the vision was to capture as much growth as possible. But with a scalability that cannot be there until we have the automated warehouse that we will have in 2022, we'll have to kind of invest in order to capture market share. So what's Kolodial profitable in Q2 sorry, in Q3? I don't want to comment on full quarters. But since we are supporting growth, we have actually increased our marketing spend again after the pandemic in order to grow as fast as possible rather than becoming profitable. So we used that couple of months to verify the model and if you will test the scalability of the automated warehouse. That is enough for us. So our thesis has been proven. And therefore, we can go back to aggressive growth. Okay. Can I ask you also about upon Babylon and also VillageMD and looking at the valuation these names, you say that it will take some gradual or it will there's a big discount right now, but you add there are some time or there were some things you want to achieve before you apply full market valuation, so to take a look at what sort of timeframe would you say that you will you're looking for before we will see that your like your market valuation or full peer group valuation on these names in your own books? Right. So if we start off with village and city that sort of share comparables, I mean, I think I can give a fairly simple answer to why our mark is where it is and that we're not giving you this massive rerating this quarter. And that's simply because in both companies, we had fairly material transactions in early July at Village and end of June at Citiblock. And we need to relate to and sort of respect the marks that were established in those transactions, which is why we're not sort of merely taking Oak Street Health's revenue multiple and slapping it on our businesses and calling it a day. It's more complex than that. Let's see how Oak Street trades. It was IPO ed sort of 2 months ago. Free float is fairly limited. But provided our businesses continues to perform and markets continues to be supportive, we do not see sort of any reason to why we shouldn't be able to narrow this gap in a consistent way over the coming quarters. Okay. Final question from me, it's about Livongo and also Teladoc merger. Yes, you would be the 2nd largest institutional owner in the the new company, but still you will have an ownership stake in that company, which is clearly below what you are aiming for when in terms of your own stakes. How do you reason about your future ownership in Teladoc Livongo? Are you fully committed long term owners? What is your long term efficiency since you have your own investment criteria also? First of all, we always committed owners until we're not. So I guess that, of course, we believe in the company's future. And as we have said, we believe in significant synergies here, not to say least on the cross selling opportunities between the large customer base of Teladoc being able to offer Livongo services. So we're very positive around this merger. And therefore, we would like to capture those synergies. What that means for our ownership going forward, I think it's something I cannot comment today. But maybe one thing regarding the 4.5%, as we said before, I mean, we have an ambition and we're aiming for 15% to 25%. But what's more important, we say that we would like to influence outcomes, right? We're not necessarily looking for control. And in this case, again, as you say, we're the 2nd largest institutional shareholders. We have Board representation and we also have, to say, a very close relationship with other directors such as Glenn Talman, the Founder and the former CEO of Livongo. So we believe that we can actually manage the outcome of that company in a fairly good way. And it's not that we are running our companies in an Excel spreadsheet every quarter and then that spreadsheet decides what company to sell because of these parameters. So now we ended up with this merger because we believe it makes strategic sense. And one consequence of that is that our ownership goes down for plus from plus 10% to sub 5%. That's what it is. We are again very humble for what we've seen in this sector, but we are mostly very excited about being owners of Teladoc. It's an amazing story, absolutely. And in terms of your ownership in Babylon, you don't see any these 2 becoming competitors now when Babylon is entering the U. S. Market? I think that's a relevant question. I mean, over time, obviously, there will be more consolidations and I think more competitiveness between some companies. We as an investor, we believe we have the luxury to invest in several companies once again spread across geographies, stages and maturities and so forth. So that's a way for us to, if you will, hedge in this sector and capture as much of the positive outcome as possible. What's important to, I think, remember is that if you think about 2 kind of megatrends within the health care sector today, one is the digitalization of virtual care and the other trend is value based care. And we have companies exposed in either kind of the virtual care piece, which is more Taladoc and we have companies more exposed into value based care, such as VillageMD and City Block. What Babylon is doing is that they are exposed to both of these trends. So they have the position to become one of the larger value based care providers, but on a virtual basis. So using virtual care as the way to become more efficient as they take aboard more risks with their contracts that they are now launching with Prudential's and Centene. So we think that's a very exciting story in itself. But of course, it entails some execution risk as it does. And therefore, that company is, I would say, a bit earlier in maturity compared to Village or Teladoc. Great. Thank you much. Thank you. Our next question comes from Ramiel Khouriel from SEB. Please go ahead with your question. Thank you, operator. Good morning, everyone. Thank you, guys, for the presentation. You've gotten a lot of great questions during this call. But let me just try to pick your brains on a topic I found particularly interesting being narrowing the gap versus public peers in terms of valuation. A very high level one, but could there be a risk in narrowing the gap too soon, which would sort of mean that if the company decides to remain private and raise new funds that there will be a demand from the company side to reflect public valuations if you've decided to indeed revalue the company according to public valuations. Does that even make sense? But the question, I guess, being that, is there an implicit risk in revising valuations too quickly if the company has funding needs and has no intention to go public anytime soon? Hi, Raimil. No, I think I mean, at the end of the day, when a company is raising money, most investors are looking at the fundamentals. So the operational performance of that company and of course, what is the alternative of investment investing. So it's difficult for Kinnevik as one of the owners to kind of control that next mark by not being aggressive in our valuations. So I think it's as you say, that correlation is not really there. But there is, of course, another risk in terms of our valuations. But maybe you want to elaborate further how we think about closing that gap, Samuel? Sure. I mean, if we take a step back, what's going to drive the value in these two businesses is not sort of arbitrage on multiple. It's performance and it's organic growth. In terms of narrowing the gap, there is a time factor in there. There is a comparative factor in play here. I mentioned that in both companies, we've had transactions just sort of 3 ish months ago, and that is a very heavy reference point when we assess our fair values. So narrowing this gap sort of depends on how the comps perform and how our businesses perform. So it's tricky to give you an estimate. Is there a risk? Yes, there is risk considering the levels of multiples we're seeing in the market. I'd argue we have less multiple risk on our balance sheet because as you've noticed this quarter, what's driving value in this quarter in the private portfolio, but also to a certain extent in the public portfolio is performance and not expanding multiples. All right. That's clear. And then circling back to one of the first questions you got during the call on potential funding needs in Kolonial. And Georgi, you mentioned that it could be for sort of laying the map in terms of distribution capabilities, but also to potentially venture outside of Norway. Is that a discussion you're currently having in this funding round, so to say? Or could it be that the venturing outside of Norway is something for distant future, so to say? No, I don't want to go into the details of the company's strategy because it's for them to announce that first. But of course, we have looked at this case as such from both a geographical standpoint and growing more in Norway. As we've said many times, we're super impressed by the execution by the management team and also how they delivered on this automation. So that in itself makes us excited to look at various alternatives. And of course, those alternatives will also requiring different type of funding needs. So first, we have to decide that or the company needs to decide that together with the Board of investors. And after that, we will determine how much funding is needed. Understood. And then a final one from my side. On the Capital Markets Day, what do you want to convey during that, Georgi and team, of course? That's the perfect teaser by saying that you need to visit that Capital Markets Day. But obviously, I mean, jokes aside, I think for us, it's a combination of a follow-up from what we've said last year and also to give you some kind of figures on that, mostly what you know, but also to go through it from our perspective, invite a few companies to tell you about their stories and what they have experienced. But of course, I should lie if I say that I wish you to find a good trigger as well to buy Kinnevik for the continued story. So that is something that we hope we can deliver on. It's very clear. Thank you so much guys. Thank you. Our next question comes from Stefan Waughn from Pareto Securities. Please go ahead with your question. Thank you. One more question for me. I just want to get some clarification on the balance sheet strength with this net cash position of €5,500,000,000 pro form a and very strong liquidity on top of the net cash position. How will you steer that? I mean, it seems like you cover a lot of investment activities. We look back on the past few years with this decision. That can you give us some guidance or principles on how long you can stay with such a substantial net cash position before sort of distributing to shareholders or employing it in new investments? Thanks. Yes. Stefan, again. Well, we are within our sort of target where we want to be, plusminus. And as we said earlier during the call, we continue to see lots of interesting investment opportunities that we continue to evaluate. So we have good faith in that we can put that money into good work. Okay. Thank you. Thank you. There are no further questions, so I'll hand back to the speakers for any of our remarks. Thank you very much for listening. And especially this call, I would say, for many questions. Thank you very much. And as a reminder, we will report the results for the full year of 2020 on the 4th February 2021. And again, we will come out with a separate invite regarding Capital Markets Day later this fall. So stay safe, everyone, and thank you very much. Bye.