Good morning everyone, and welcome to the presentation of Kinnevik's results for the Q3 of 2020. I'm Georgi Ganev, Kinnevik CEO, and with me today is our CFO, Erika Söderberg Johnson, and our Director of Corporate Communications, Torun Litzén, and our Head of Strategy, Samuel Sjöström. Before we head into some of the strategic highlights in the quarter, I would like to say that it's evident to all that the coronavirus continues to have a devastating effect on people and economies globally. At the same time, it's changing fundamental consumer behaviors and accelerating the shift to digital. We are optimistic that the elevated demand for online is likely to remain even as the effects of the pandemic eventually subside. The trends we saw in the Q2 have strengthened during the Q3.
Demand for digital healthcare, e-commerce, and online food remains elevated, well above that of previous years. On the other end of the spectrum, 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 three, we have summarized the key strategic highlights during the quarter. Investment activity has remained vibrant with the announced merger between Livongo and Teladoc Health. We also invested in two new businesses 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 Qliro Group. Our net asset value was up 23% in the quarter when adding back dividend paid of SEK 1.9 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 four, 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 two 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.
The merger will also create significant synergies, and we're excited to become the second largest institutional shareholder in the combined new company. We first invested in Livongo back in 2017 as part of our healthcare investment strategy. Since then, we have led several financing rounds in the company. 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 228%. When the merger has been completed, Kinnevik will own a 4.5% stake in the combined company and receive 1.3 billion SEK in cash, and the merger is expected to close in the Q4 of 2020.
Moving on to our investment in Common on slide five. 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 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 six is an overview of our second new investment in this quarter, Joint Academy. This is our first investment in the digital healthcare 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 son digitalized the treatment, making it globally scalable and much more cost efficient. Around 80% of global healthcare costs stem from 15 chronic diseases, and chronic joint pain is the fifth most common. As such, Joint Academy addresses one of the largest cost drivers in the global healthcare system. They do this by digitalizing a proven clinical method that has been developed over many years, generating superior outcomes.
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 seven, 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. Tele2 has remained stable through 2020, with less exposure to expensive paid TV sports rights than peers. Livongo has continued its stellar operational performance during the quarter as the adoption of digital health becomes more widespread.
Looking at our younger growth portfolio, we have highlighted a few of our companies on the next page. Moving to page eight. 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. 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 second 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 nine.
Thank you, Georgi. As you mentioned, the trends we started to see in the Q2 have strengthened during the Q3. Our large listed companies have continued to trade very strongly in the quarter, supporting our NAV 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 SEK 1 billion, or 7%, during the quarter. With net investments of just over SEK 700 million, the total value increase of the private portfolio amounted to SEK 1.7 billion. Looking at the development of our NAV during the quarter, we believe our portfolio can largely be divided into three 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 second category are our more resilient businesses. These include Tele2, our healthcare 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 Cityblock. 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 SEK 1.1 billion, or 45%, whereof SEK 232 million stems from our investment in early July. 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 Cityblock 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. 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 healthcare and healthcare 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 MatHem by 8% and Kolonial by 11% in the quarter, reflecting the company's strong performance as multiples are unchanged.
In the third category are our travel, financial services, and emerging markets assets. We wrote down the value of Omio by 13%, but adding our convertible investment in the company, the fair value of our 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 writedown in the previous quarter, we therefore kept our valuation of TravelPerk 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 Q3 of SEK 20.3 billion or 23% 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&As, but I also want to highlight pages 23- 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 1.9 billion to our shareholders, taking our net cash position to SEK 3 billion.
Adjusting for the dividend received from Tele2 in the beginning of October, our net cash position amounted to SEK 4.2 billion and pro forma also for the SEK 1.3 billion 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 5.5 billion. In summary, we have a very strong financial position, which gives us full flexibility to execute on our investment strategy. With that, I would like to hand back over to Georgi 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&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 are ready to answer your questions. Operator, please open up for Q&A.
Thank you. If you wish to ask an audio question, you may do so by pressing zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Again, it's 01 on your telephone keypad. There will be a brief pause while we wait for questions to be registered. Our first question comes from Derek Laliberté from ABG. Please go ahead with your question.
Yes, hello. I have a question on Kolonial. There was news out that the company is expanding or increasing its capacity and building a new warehouse. I was wondering if this implies any funding needs for the company?
Hi, Derek. Thank you for that question. We're currently in the dialogue with 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. Our thesis around making money on online grocery is proven. We also see that there's more opportunities for Kolonial, both in Norway but probably with their technology also elsewhere. We are very supportive, but we have no news on exactly what it means in terms of funding. We are in a dialogue with the company on that.
Okay, exciting. It's very clear. I have the question on if you could just elaborate a bit on these milestones in Babylon that you're referencing in connection with the valuation? You have this 21 times sales multiple, but just what these milestones are approximately and how they're connected to your assessment of the valuation?
Yes. Let me then start with the milestones from a commercial standpoint, and I will hand over to Samuel to go a bit deeper into how it impacts our valuation and how we think about it going forward. 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. Babylon, they have this more kind of D2C service with NHS in the U.K., but in U.S. and in Asia, we are primarily working with partners. And the Centene contract was a large frame agreement with one of the largest hospital groups in the U.S.
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. As we say in the report, we also see that the company is performing according to those milestones. It's really about the development of the Centene contract. Samuel, if you would like to explain why we're using that as a basis for our valuation.
Sure. Hi, Derek. 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 million and another 5x next year. With a company growing at that pace, forecasting is very tricky and therefore also fairly volatile. That's why we've elected to focus on these milestones. I think Georgi covered them fairly well. I can just 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 Georgi 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 Babylon reaches their 2020 ambitions, I believe we can safely say that they will also have reached these milestones, which all else equal, would have a positive effect on our fair value in coming quarters.
Okay, interesting. That sounds very reasonable. The funding status 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 think it's clear to all of us that the multiples in the public markets, they're quite high right now in this sector. Of course, the company being public would mean that the company would have the currency to continue to expand and also to expand inorganically. In terms of M&A and consolidation, that could be very interesting. 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. 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.
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. 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 evident by all the investments that you have in the sector. Obviously, this was within real estate, but are there any sub-sectors 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 sub-sectors, to be honest, but we try to not go too deep into the sectors. If we look at Common as an example, they're not real estate investors. They are providing a managed marketplace as a layer in between the end customer and the property owners. That's where we understand the business models from other marketplace solutions. With that experience that we have scaling such a marketplace, we can actually be an active owner in companies like Common, for instance. Another sector we looked into 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 Omio and TravelPerk, and we can apply the same type of models and metrics that we have seen, for instance, in fashion and e-com into those sectors. What you could expect is that we will be looking at a quite broad portfolio of sub-sectors, but try to stay relatively light in a light asset way, if you will.
Got you. That's very clear. Thanks.
Thank you. Our next question comes from Joachim Gunell from DNB. Please go ahead with your question.
Thank you very much. Perhaps to follow up where we left. It's very interesting with the entry here into Common. Where do you believe, Georgi, that Kinnevik are the best placed to add value to a company like Common, given that this is your first bet on property tech?
As I said earlier, I think our consumer angle is extremely important to have in these companies. If I look at Livongo as another example, when we came into Livongo, we were not the experts of healthcare, but we understood it from the consumer standpoint. Within this space at that time in 2017, many of the companies were focusing on the partners with other large healthcare providers and not towards the member, the end user of the services. 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. That's the main contributor. We also have, I think, by that, the understanding of how to scale efficiency when it comes to customer acquisition.
What are the unique unit economics for a company that is successful, and how can we use that marketing and customer acquisition knowledge in a company like Common? 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 immediate hockey stick growth in the next quarter, but rather build up a very solid business over a longer period of time. That also fits squarely with the kind of the DNA and the methodology that we have at Kinnevik.
No, that's very helpful, Georgi. Coming back to the topic we discussed on Babylon, but not for Babylon. You commented earlier this year that a potential option going forward for VillageMD is an eventual IPO. Given now how the U.S. market seems to reward this type of value-based care providers, is that also an option for Cityblock? Where are they in terms of maturity? Any color there would be helpful.
I think when it comes to the healthcare portfolio, even though it's above 20% now as the share of our entire portfolio, we have to remember that we have that those 22% spread across different kind of sub-sectors within healthcare and also maturities. The whole point with Cityblock versus VillageMD is that Village is a more mature company, and they are larger. I think in terms of a public listing, Village is most probably earlier out than a company like Cityblock. 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. 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.
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. Just final from me. You've really increased the transparency here regarding operational KPIs and some financial data 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 in a controlled situation of any of our companies, it's a discussion between the other shareholders and of course, the management. Typically, the reason for not sharing is that for competitive reasons, these companies would like to operate in a quiet environment. 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.
Roger that. Thank you very much.
Thank you. Our next question comes from Lena Österberg from Carnegie. Please go ahead with your question.
Good morning. 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 ICA's online sales up 148%, and Axfood up 128% in Q2, and I think if you look LTMs, ICA's up 65%, Axfood is up 61%. Why is the company underperforming so sharply? I know that they've had some problems, but it's a wide difference. When do you think the company will be equipped to deal with higher demand? Do you think it's too late for them? Did they miss out on this COVID boom? Yeah, I have some more, but go start with that.
Is it okay to answer that question first, Lena?
Yeah.
Yeah.
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. What you need to ask them is 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 is 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. 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? That's the second question, which you have to look at the overall growth of these companies.
The third parameter here is that the difference between MatHem and Kolonial is the automated warehouse. Whereas Kolonial has been able to scale and to kind of deliver on that surge in demand we saw, especially in the first couple of months in the pandemic, that has not been the same situation for MatHem. Having said that, MatHem opened up a second warehouse taking over Fodie's premises, and they have scaled and delivered growth early in the pandemic, around 50%. If you look at those things, you will compare more kind of apple to apples than the figures that you just stated. I think lastly, we should also remember that the strategy for MatHem is to focus on the larger urban areas in Sweden, Stockholm with kind of Mälardalen as an area, Uppsala, Västerås, et cetera, around.
You have the Gothenburg area and Malmö area, and that covers roughly 50% of Swedish population, so that's also a difference. Just before the pandemic, Axfood announced that Mat.se actually withdrew their offer in the Malmö region. They do not offer that service anymore through Mat.se. 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. Fact tells me that click and collect grows faster, and I think the answer there is that that model is pushed by the incumbent. If you're an 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. 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.
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. Do you fear that they've missed this opportunity because of the lack of automation and the difficulty to scale up?
No, not at all. I would argue that MatHem is growing within their market share on pure online. They've captured market share.
Okay
in that segment. 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. It's the contrary.
Yeah. 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.
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 think we have to mention that that's a very small share of our portfolio. I appreciate that you asked the question. It's around SEK 40 million and 0.004% of the portfolio. Nevertheless, it's not growing as fast because of the restaurant businesses during the pandemic had also had some struggles, the cafes, et cetera, with not as many people visiting them. It has more kind of link to the restaurant business during COVID and the cafes, the delis. When it comes to Budbee, there we see a great demand for their services. I think based on two things, the general e-commerce trend is driving the need for delivery services. 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.
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. A lot of e-tailers have upgraded their offering on the last mile delivery option, which has resulted in Budbee growing this fast. 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. Yeah. It's a number of new merchants, sorry.
That was now new merchants. Yes.
Yes. That is not the trend in deliveries. It 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. It's basically a number of merchants trend rather than number of deliveries.
Okay, could you say something? The number of deliveries is.
Yeah
still continuing to grow sharply.
Of course. If we look at the speed that they're growing, they've tripled the revenues in 2019 to SEK 150 million, and surpassed that level already by the Q2 this year. By the end of Q2 this year, they have surpassed the growth in 2019, and the 2019 growth was tripled the year before. We're talking about several x in growth per year.
Yeah. That's good to know. Okay, perfect. Thank you.
Thank you.
Thank you. Our next question comes from Stefan Wård 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 the pro forma net cash of SEK 5.5 billion, total liquidity around SEK 16 billion. After the Teladoc or Livongo divestment, you will have a fairly liquid asset that is currently valued around SEK 13 billion. It seems like you have a lot of financial flexibility. Adding to that, the performance of Zalando is clearly satisfying, and they're being free cash flow positive already in 2020. 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. Also Zalando has this huge cash position of SEK 2.4 billion.
That perspective, hasn't Tele2 sort of played out its role a bit?
for Kinnevik? It's a slow-growing asset. You don't really need that.
dividend for stability with your own balance sheet. By reducing Tele2, you would clearly improve the potential for generating returns in Kinnevik. Could you give a bit of your view on reasoning? Thank you.
Hi, Stefan. I would say, first 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. 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. We don't foresee or we don't expect any dividend from Zalando in the near term.
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. 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. That, of course, is very comfortable for us as a growth investor. I think time will tell going forward what would happen.
Right now, we don't have any other plans than so.
Okay. Thank you.
Thank you. Our next question comes from Nizla Naizer 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 one. Two, 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 be needed if this exposure to Zalando continues to increase on the back of their own strong performance?
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, Nizla. 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. Why is that? Firstly, is exactly as you say, people that have learned how to shop online, and especially among new customer groups, so elderly people, et cetera, that were maybe not so used to shop online, have realized that's a good way of shopping and convenient way of shopping. 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. We cannot be protective anymore during a lockdown. By having incumbents pushing the online channel, that will also help the whole market, the whole segment to grow.
If you're well-positioned as the number one or number two in a region, you will benefit from that tailwind. 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. There's also some other differences. I would say between fashion and selling sofas online, it's a big difference. Difference in complexity of delivery. It requires two-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.
It's a different gameplay than what we see in the kind of more asset lighter marketplaces solutions and within fashion specifically. 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. Yeah, exactly. The portfolio concentration. Sorry. No, I think it's 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. I have no further comments on that. As you know, we've done two sell downs in Zalando. We have recouped the capital that we have invested, and nevertheless, our stake today is worth more than before that sell down.
That, I think, is a luxury, and we're humbled, and we're 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 Johan Sundberg from Danske Bank. Please go ahead with your question.
Thank you. I apologize if you have answered this question before, but I want to come back to MatHem and talk a little bit about the valuation of that. Do I interpret it right when I look at page number 23 that you have a 25% discount on MatHem versus peers? You refer that to that it's less mature than the peer group. Is that correct or?
That is correct.
Is this the first time? I've been looking at previous results. You have not used that 25%. Is this the first time you do that, or is that a new valuation 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.
Yeah.
We're trying to reflect a lot of things in that discount, but that's one of them.
Okay. In terms of profitability during the quarter, there were some, I don't know if it was a slippage of your tongue earlier, last quarter from your side here. If I remember correctly, you were profitable, I think it was in Kolonial during the first month of the pandemic. Can you talk a little bit about the profitability in these two names?
Yeah, that's correct. 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 employees on weekends and so forth. They still managed to deliver a very high efficiency, so units per hour as you measure. That means that we can now 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. With a manual warehouse that you have also outgrown more or less in terms of efficiency improvements, the main objective and the vision was to capture as much growth as possible.
With a scalability that cannot be there until we have the automated warehouse that we will have in 2022, we'll have to invest in order to capture market share.
Was Kolonial profitable in Q2? Oh, 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.
Okay, fine.
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. Our thesis has been proven, and therefore we can go back to aggressive growth.
Okay. Can I ask you also about Babylon and also VillageMD, and looking at the valuation these names, you say that it will take some gradual or there's a big discount right now, but there are some time or there are some things which you want to achieve before you apply full market valuation, so to speak. Looking at what sort of timeframe would you say that you're looking for before we will see your market valuation or full peer group valuation on these names in your own books?
Right. If we start off with Village and City, that sort of share comparables. 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 re-rating 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 Cityblock. We need to relate to and sort of respect the marks that were established in those transactions, which is why we're not 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 two months ago. Free float is fairly limited.
Provided our businesses continue to perform and markets continue to be supportive, we do not see 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 second-largest institutional owner in 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 ambition there, since you have your investment criteria also?
First of all, we always committed owners until we're not. 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. 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. Maybe one thing regarding the 4.5%, as we said before, we have an ambition and we're aiming for 15%-25%, but what's more important, we say that we would like to influence outcomes, right? We're not necessarily looking for control.
Right.
In this case, again, as you say, we're the second-largest institutional shareholders, we have board representation, and we also have, to say, a very close relationship with other directors such as Glenn Tullman, the founder, and the former CEO of Livongo. We believe that we can actually manage the outcome of that company in a fairly good way. It's not that we are running our companies in an Excel spreadsheet every quarter, that spreadsheet decides what company to sell because of these parameters. 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 from plus 10% to sub 5%. That's what it is. We are again, very happy. We're humble for what we've seen in this sector, we are mostly very excited about being owners of Teladoc.
Yeah. It's an amazing story, absolutely. In terms of your ownership in Babylon, you don't see these two becoming competitors now when Babylon is entering the U.S. market?
I think that's a relevant question. Over time, obviously there will be more consolidations and I think more competitiveness between some companies. We, as investors, believe we have the luxury to invest in several companies, once again, spread across geographies, stages, and maturities and so forth. That's a way for us to, if you will, hedge in the sector and capture as much of the positive outcome as possible. What's important to, I think, remember is that if you think about two mega trends within the healthcare sector today, one is the digitalization, so virtual care, and the other trend is value-based care. We have companies exposed in either the virtual care piece, which is more Teladoc, and we have companies more exposed into value-based care, such as VillageMD and Cityblock.
What Babylon is doing is that they are exposed to both of these trends, they have the position to become one of the larger value-based care providers, but on a virtual basis. 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 and Centene. 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 very much.
Thank you. Just as a reminder, if you do wish to ask an audio question, you may do so by pressing zero one on your telephone keypad. Once again, it's zero one on your telephone keypad if you wish to ask an audio question. Our next question comes from Ramil Koria from SEB. Please go ahead with your question.
Thank you, operator. Morning, everyone. Thank you guys for the presentation. You've gotten a lot of great questions during this call. 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. 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? 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, Ramil. I think at the end of the day, when a company is raising money, most investors are looking at the fundamentals. The operational performance of that company and of course, what is the alternative of investing. It is difficult for Kinnevik as one of the owners to kind of control that next mark by not being aggressive in our valuations. I think it is as you say, that correlation is not really there, but there is of course another risk in terms of our valuations. Maybe you want to elaborate further how we think about closing that gap, Samuel.
Sure. 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's a time factor and there's a comparative factor in play here. I mentioned that in both companies we've had transactions just sort of three-ish months ago, and that is a very heavy reference point when we assess our fair values. Narrowing this gap depends on how the comps perform and how our businesses perform. 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. 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 strategy because it's for them to announce that first. 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. That in itself makes us excited to look at various alternatives. Of course, those alternatives will also require different type of funding needs. First we have to decide that, or the company needs to decide that together with the board investors and after that, we will determine how much funding is needed.
Understood. 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. Obviously, 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, also to go through it from our perspective, invite a few companies to tell you about their stories and what they have experienced. 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. 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 Wård from Pareto Securities. Please go ahead with your question.
Thank you. One more question from me. I just want to get some clarification on the balance sheet strength with this net cash position of SEK 5.5 billion pro forma, and the very strong liquidity on top of the net cash position. How will you steer that? It seems like you cover a lot of investment activity if we look back on the past few years with this position. Can you give us some guidance or principles on how long you can stay with such a substantial net cash position before distributing to shareholders or employing it in new investments? Thanks.
Yes. Hi, Stefan, again. Well, we are within our target where we want to be, plus minus. As we said earlier during the call, we continue to see lots of interesting investment opportunities that we continue to evaluate. We have good faith in that we can put that money into good work.
Okay. Thank you.
Thank you. Do we know if there are further questions? I'll hand back to the speakers for any final remarks.
Thank you very much for listening, and especially this call, I would say, for many questions. Thank you very much. As a reminder, we will report the results for the full year of 2020 on the February 4th, 2021. Again, we will come out with a separate invite regarding Capital Markets Day later this fall. Stay safe, everyone, and thank you very much. Bye.