Hello, welcome to Kinnevik Q1 Report 2020. Throughout the call, all participants will be in a listen-only mode, and afterwards there'll be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Georgi Ganev. Please go ahead with your meeting.
Thank you. Good morning, everyone, welcome to the presentation of Kinnevik's results for the first quarter, 2020. I am Georgi Ganev, Kinnevik's CEO, and with me today is our Director of Corporate Communications, Torun Litzén, and our Head of Strategy, Samuel Sjöström. I'm also delighted to introduce to you our new CFO, Erika Söderberg Johnson. Erika, I know that you would like to take this opportunity to introduce yourself to the Kinnevik investor community.
Yes. Thank you. It's great to be on board. Today is my eighth day at work, working mostly remotely from home so far. I'm very much looking forward to meeting everyone in real life, and that goes for the Kinnevik team as well as all of you and other external stakeholders of Kinnevik. Just to give you a short summary of my background. I spent my first 10 years after graduating from the Stockholm School of Economics in 1993, working in investment banking with IPOs, private placements, and M&A transactions. The last 18 years, I've had very broad CFO roles in four different companies within the life science and med tech industries, spanning from early-stage entrepreneurial private equity-held companies to listed, fast-growing, fully-fledged companies with global operations.
In parallel, I've had during the last 14 years external board assignments, earlier in Sectra and MedCap, currently in Cloetta Group and in Saab. I'm very excited to join the Kinnevik team at this very inspiring phase of implementing the strategy that was communicated at the Capital Markets Day in September last year. I'm looking forward to being part of the journey going forward and hope to be able to meet with you soon.
Thank you, Erika. We will be hearing a lot more from you going forward. For today's presentation, we will rely mostly on Samuel and on Torun. Before we go through our presentation of the first quarter results, let me first say that these are extraordinary circumstances that are clearly affecting us all, personally and professionally. Our first priority at Kinnevik as the crisis started was to ensure the safety and well-being of our employees at Kinnevik and in all our portfolio companies. The current situation is posing a number of challenges and issues which we are working hard to address in an extremely fast-moving environment. My view is that Kinnevik is standing strong and that we are in a good position to come out even stronger on the other side.
Even before the spread of COVID-19, we had contingency plans in place. Overall, our portfolio of digitally enabled business models is showing relative resiliency. We're working very closely with our founders and management teams to support them in making short-term adjustments and implement cost savings to safeguard their financial positions, as well as making sure that they have the time and resources to capture the longer-term opportunities of this crisis. We all know that the true proportions and effects of this pandemic are yet unknown, and we have a long way to go before we know the full outcome. I must say, however, that I'm very impressed so far by our company's ability and agility in facing this new reality. Now, let's get through the presentation. As always, we are happy to answer any questions that you may have at the end.
Please now turn to page three, where we have provided you with a summary of the key highlights for the quarter. Our net asset value has decreased during the quarter and amounts to SEK 64.9 billion. This is a decrease of SEK 8.4 billion or 11% compared to year-end, and is driven primarily by a sharp correction in our online consumption companies. Most notably, Zalando, which accounts for a large part of our portfolio and saw a 20% share price drop, negatively affecting our NAV by SEK 6.2 billion. Tele2 has proven rather resilient and saw only a 2% share price decline during the quarter. Similarly, our third-largest holding, the digital healthcare company Livongo, was up 21% during the quarter. Notably, per yesterday, our NAV was up 12% and closed at SEK 72.7 billion, which is largely in line with the year-end.
Looking at our listed companies, Tele2 plays an important role in providing excellent communication services at a time of social distancing and with many people working from home. The company is seeing an increase in fixed and mobile data and is not experiencing any capacity issues in upholding this critical infrastructure. Of course, Tele2 is also affected by this crisis in the way they work, and their customers are also affected. Tele2 will report its first quarter results on the 21st of April. Zalando announced yesterday that the company expects its first quarter revenue and gross merchandise value to be significantly below previous year, and the EBIT is also negatively impacted, resulting in an exceptional write-down of inventories. The company has launched a savings program to counter the negative impact for the coronavirus crisis.
Planned savings of EUR 250 million in marketing and overhead, as well as reduced capital expenditure of around EUR 100 million, will ensure continued financial health, and also it will enable the acceleration of the company's strategic growth initiatives. Our conviction in Zalando's long-term prospects remains firm, and we also fully support management's thesis that investments made over the last decade have placed Zalando in a strong position from which it will emerge from this crisis as a winner. Zalando will report its full first quarter results on 7th of May. Looking at the unlisted portfolio, we have taken down the valuations by about $900 million or 7% during the quarter. This is primarily an effect of the corona crisis on business outlook and peer multiples, in part mitigated by currency movements and downside protection mechanisms that we have in some of our private companies.
I will go into some more details on how our companies have responded to the crisis later on in this presentation, Samuel will also take you through our valuations of the unlisted portfolio. Importantly, our financial position remains strong, we ended the first quarter with $3.8 billion in cash and money market investments. Our net debt of 2.2% of portfolio value is well within our financial target of below 10%. With the sell-down in Zalando last year, our decision to cease paying ordinary dividends and the $1.5 billion in new bonds we issued in February this year, we are well-funded and in a good position to execute our strategy. Of course, we expect that this ongoing crisis will result in an elevated capital need in certain companies in our portfolio.
On the investment management side, we invested SEK 150 million in Mathem and alongside the Swedish institutional investors AMF to support the company's growth agenda. We also invested SEK 106 million into Budbee as we see clear long-term potential in the last mile logistics sector. During the quarter, we also invested SEK 74 million in Town Hall Ventures' second fund. Town Hall Ventures is an investment fund with the aim of transforming the U.S. healthcare system to better serve its consumers. An investment thesis which resonates very well with Kinnevik's own healthcare strategy. The investment was made in part to deepen the strategic ties with Town Hall Ventures, which is headed up by Andy Slavitt, who has been an advisor of Kinnevik. He has been instrumental in accelerating our healthcare portfolio, and we have previously co-invested together with Town Hall Ventures in VillageMD. Moving on to the Kinnevik team.
As you know, we welcomed Erika to the team in the beginning of April. We're also very excited to have Anna Stenberg joining us as Chief People and Platform Officer in May. On the next page is a summary overview of how the spread of the coronavirus is affecting Kinnevik and our portfolio. During times of extraordinary uncertainty and extreme market volatility, Kinnevik has the benefit of being able to play the long game. Growth investing is indeed a long-term activity, and accordingly, in spite of the challenges we face, the capital allocation framework presented to you in September last year remains unchanged. We do believe, however, that the spread of the coronavirus means that we will commit slightly more capital or commit it earlier than anticipated to our existing companies. We also believe that opportunities for new investments and potential divestments may become fewer.
We therefore believe that 2020 will be a year where we focus our capital to our existing portfolio to a higher degree than in other years over a five-year plan. As I mentioned earlier, our financial position is strong, and we have the firepower to execute our strategy while supporting our companies as needed through this crisis. Now, some of our businesses are facing or will face softening demand, supply chain disruptions in an environment which is less favorable to raise capital in for investing into future growth. On the other hand, some of our companies are seeing an unprecedented surge in demand, forcing their teams to work hard to supply their customers with the products and services they need. Travel and healthcare provide a telling example of this.
Demand for international travel has virtually dropped to zero at an unprecedented speed. By contrast, digital healthcare company Livongo issued a statement in the beginning of April saying that its first quarter revenue is expected to come in above previous guidance, driven by the strong demand. In downturns, focus on cash and runway is increasingly important. We are ready, willing, and we're able to support our businesses in this time of crisis, but we also remain prudent in relation to the measures we request from them and the capital we provide them with. However, a crisis like this also creates opportunities for our businesses to gain market shares and come out of this crisis stronger than it came in, and with a strong outlook for the long-term value creation.
We have dedicated the next few pages in this presentation towards giving you a better understanding of how the current situation is affecting our portfolio, and also how our companies are responding to these extraordinary circumstances. Let's start with this on page five. The Nordic online grocery market is experiencing an extraordinary surge in demand. Both Mathem and Kolonial.no have become vital parts of society, supplying families and individuals with food to their doorstep at a time when many cannot or do not want to leave their homes. In Norway, Kolonial.no's customer intake has been 10x that of normal levels, and the recent developments have fast-forwarded the company's growth plan significantly. The increase in demand has been a true litmus test for the company's ability to scale its operational model.
Even with an exceptionally strong sales growth, warehouse productivity has been maintained, and the time to profitability has been drastically shortened. The trends we see at Kolonial.no clearly shows that as volume increases and efficiency remains high, the business model is cash flow generating already at a relatively small scale. Similarly, customer intake is at record highs at Mathem, and the company is operating at maximum capacity to satisfy the increased demand. With a SEK 500 million funding round closed earlier this year, the company is well capitalized and plans to open a new environmentally certified warehouse in 2021. This warehouse is expected to significantly increase both capacity and efficiency. Now please turn to page six for an overview of our digital health companies.
In a world where health services for those that are not critically ill need to be made available digitally, the business models of our digital health companies are particularly effective. Many traditional institutions have limited capacity to deliver virtual care, which becomes especially problematic as the number of people seeking care grows exponentially while the healthcare workers put their own health at risk to provide the treatment. Livongo's solution is particularly valuable for people with chronic conditions coping with the current coronavirus crisis. Livongo responded quickly by developing and rolling out a targeted COVID-19 response effort to keep its members healthy, informed, and supported through the duration of the pandemic. As previously mentioned, the company announced that its first quarter revenue is expected to come in above previous guidance, driven by the strong demand.
Similarly, Babylon has developed a product leveraging its AI capabilities to triage the diagnosis of COVID-19. The product has attracted strong interest and is promoting Babylon's ongoing international expansion. Turning now to page seven for an overview of our travel companies. The travel industry is in the eye of the coronavirus storm. While both TravelPerk and Omio saw strong growth in line with expectations during January and February, they experienced steep declines as travel restrictions were imposed globally throughout March. Even though the timing and the shape of the recovery within travel sector remains very uncertain, such periods also brings opportunities. For both companies, this represents a time where the teams can accelerate product development to better serve their users in the future, and also manage operating expenses to build leaner and more efficient organization.
At TravelPerk, this has also been an opportunity to expand its corporate client base, and March was actually one of the best months ever for new customer acquisitions. While these clients may not transact immediately, past trends suggest high stickiness and share of wallet once travel activity picks up again, which we believe it ultimately will. On page eight is an overview of the financial services that we have in our portfolio. Our financial services companies are affected by lower economic activity as transaction volumes fall and financial markets become highly volatile. Assets under management at Betterment was down around SEK 3 billion in the first quarter, in line with the S&P 500, and totaled SEK 18.4 billion at the end of March. However, the company has retained its customer base and continued to see strong traction in its multi-product strategies with a steady inflow of deposits.
With that said, I would now like to hand over to Samuel for a deep dive into the valuations of our unlisted portfolio and our financial position, starting on page nine. Take it away, Samuel.
Thank you, Georgi. On page nine, we outline the development of our net asset value during this quarter. In Q1 and through the current shape of the ongoing COVID-19 crisis, we believe that our portfolio can largely be divided into two categories of companies. In the first category, you find our more cyclical businesses, which during the quarter generally saw softening demand and contracting multiples on public equity markets. Here you find fashion e-commerce, online travel solutions, and financial services. Zalando was down 20% in Q1, GSG was down some 50%, and we wrote down the value of our financial services businesses by 13% on aggregate. I'll touch on our unlisted investments in more detail shortly.
In the second category, you find our less cyclical businesses, as well as individual companies that have seen increased demand for their services as COVID-19 is affecting how we conduct our day-to-day lives. Clearly, while in no way unaffected, no one is, Tele2 belongs in this category, but so do our healthcare businesses, which are all working very hard to help the populations they cover cope with the ongoing pandemic. Here, Livongo was up 21% in the quarter, and we have written up the fair value of VillageMD by 20% on the back of strong performance and developments in the peer group that we benchmarked the company against. As Georgi pointed out, our online food businesses, as well as Budbee, are seeing a significantly elevated demand over the last few weeks.
As we state in today's report, we believe economic downturns tend to accelerate the shift in consumer behavior, and it is this shift that we are investing in. However, in relation to our fair value assessment, we are cautious not to extrapolate recent over-performance until we have a more fact-based view of the current crisis effect on customer behavior over the longer term. Accordingly, our assessed valuations were effectively flat when adjusting for currencies, but slightly down due to the Norwegian krone weakening materially against the Swedish one during this quarter. All in all, our NAV amounted to 64.9 billion SEK at March end. That's 235 SEK per share and represents a first quarter decline of 11%. This can be compared to the Nasdaq, which was down 15%, the OMXS30 down some 16%, and our own share price, which was down 28% during Q1.
However, as you all are very well aware of, markets are very volatile and uncertain at the moment. As Georgi mentioned, if we adjust our net asset value with yesterday's closing prices of our listed investees, it amounted to 72.7 billion SEK, so up almost 8 billion SEK from end of March. Clearly, had we made our assessment of the value of our unlisted portfolio per yesterday, this value would have been something different and would likely have benefited from the slight rebound that we've seen in equity markets during April. If you please turn to page 10, I'd like to provide some additional nuances to the assessed fair values of our investments in private businesses per quarter end. In the first quarter, we are writing down our unlisted portfolio by 0.9 billion SEK or around 7%.
I suppose the knee-jerk reaction of some of you may be that this seems to be a bit on the low side, and compared to broader public equity markets, it is, but for three very good reasons. As I pointed out on the previous page, a large chunk of our capital is invested in businesses that have fared relatively well through the coronavirus crisis thus far. Around half of our unlisted portfolio by value is within healthcare, online food, and last-mile logistics, sectors within which we see continued strong performance or even over-performance and fairly stable trading multiples of the peer groups of listed companies that we benchmark our businesses against. As is rather customary in VC-funded businesses, certain companies adopt financing structures that entail preferential rights, such as liquidation preferences.
In general terms, these rights can have the effect that as long as a business is sold at a valuation in excess of the capital it has raised, we recoup our investment. Having said that, while an unchanged fair value may seem, and in part is advantageous considering the market we're currently in, it does not remove from the fact that our assessed value of the company as such may have been revised downwards in a material way. This is relevant this quarter for Omio, which is a company we believe from a valuation perspective should be hurting in line with listed online travel agencies. Now it may be some time before our assessed valuation of the company as a whole bounces back and the fair value of our investment returns to growth unless the underlying market, such as the travel industry, stabilizes and recovers back to pre-crisis levels.
Thirdly, as is typical in this type of market, the Swedish krona has depreciated against the US dollar and euro. The dollar was up by 6% in the quarter, and the euro was up 3%. This provides a cushion for our company that operates in or are denominated in these currencies. On the flip side, our assessed valuation of our Kolonial investment was flat in Norwegian kroner, but again, down materially in Swedish kroner due to these currency changes. Lastly, a precondition this quarter as it relates to our assessment of the fair values of our unlisted assets is that it's been a historically volatile and uncertain quarter. As always, we base our valuations on everything we know and believe per today and peer multiples in currencies per quarter end.
As the situation and our and everyone else's understanding of its duration and magnitude develops, so will our fair value assessments. Now, adjusting for downside protection rights and currency changes in the quarter upwards and downwards, the write-down of our unlisted portfolio would have been closer to that of broader equity indices, but still by a magnitude that would be indicative of our sector balance's underlying relative strength to that of your overall stock market. In summary, our unlisted portfolio has proven to be relatively resilient to the ongoing crisis in its current shape and form. A number of our investments carry downside protection, a limited few of which are in play, and we've benefited from some dollar and euro tailwinds in the quarter. This all then sums up to what is a relatively small write-down compared to your broader market.
I'm happy to try and answer any questions you may have on our valuations this quarter when we move to Q&A, but I would like to take the time to highlight the elaborations we provide on pages 23 through 25 in this quarter's release. We've tried to provide you with more color on how we reach our assessments and hope that these, in combination with our attempts at overall enhancements of our disclosure of our industry's performance, is helpful to you in analyzing us and our portfolio. This is an area where we will be looking to improve further as we continue to balance our portfolio towards a higher share of these unlisted growth companies over the coming years. Moving on to our financial position on page 11.
We ended the quarter with a net debt position of SEK 1.5 billion, corresponding to a leverage ratio of 2.2% of our portfolio value. This is up 0.9 percentage points from 1.3% at end of 2019, down 2.3 percentage points from 4.5% 12 months ago. Our SEK 1.5 billion net debt position is largely made up of some SEK 3.8 billion in cash and short-term investments and SEK 5.3 billion in short- and long-term debt. In February, we issued a SEK 1.5 billion five-year bond that's at +80 bps, in connection with which we repurchased roughly SEK 0.6 billion of our bond maturing in May this year.
Accordingly, we have SEK 1.8 billion in bonds maturing during 2020 and have the financial strength to await further certainty in the outlook of our industries, our investment budget, and the market before deciding on whether to refinance parts of these maturities during the year. Tele2's proposed dividend means that Kinnevik would receive 1 billion SEK in ordinary dividends and 0.7 billion SEK in extra dividends. Per today, 1.7 billion SEK is slightly above our current forecast in terms of capital injections into our existing companies through 2020. This investment forecast also reflects our current assessments of an elevated funding need due to and throughout the current shape of the ongoing COVID-19 crisis. As you all understand, the situation can deteriorate in excess of our and our company's expectations and across different parameters of our capital allocation budget.
In hindsight, and as Georgi pointed out earlier, we are if possible even more convinced of the decisions we took in September last year in relation to Zalando and our dividend policy, as these placed us in the strong financial position we're now facing this ongoing crisis from. The challenges that COVID-19 pose does not mean that we're not looking for new businesses or opportunities to accrete ownership in the winners of our current portfolio by acquiring secondary shares. On the contrary. Current uncertainties may very well entail that investments are funded by tapping into our SEK 3.8 billion cash position to a further extent than originally intended. We will still be looking to release capital from within our existing portfolio as and when attractive opportunities arise. What we told you last quarter still holds.
We have a financial position from which we can execute on our five-year plan. Based on our current outlook, this plan is not materially affected by what's unfolding now. Considering the uncertain market environment, our current view is that it is fair to expect 2020 to be a year during which we focus our capital more on our existing companies relative to other years of our five-year plan, and that our net debt position may increase slightly more than the case would have been under more normal circumstances. With that, I'd like to hand back over to Georgi for his closing remarks.
Thank you, Samuel. I would also like to take the opportunity to thank you for working extremely hard during the last quarter before we had the pleasure to welcome Erika to Kinnevik. Thank you very much. Your time and effort has been invaluable for me, for the full team, and for the company. At times like these, it is as important to be agile and flexible in meeting this new reality as it is to make sure we focus on delivering the long-term strategy we set out last year. We have three clear priorities going forward. Continue to evolve the portfolio towards a higher proportion of growth companies in our target sectors and markets. Strengthen our portfolio balance across our focus sectors, geographies, and stages. To reallocate capital more dynamically and exit a number of businesses at attractive terms as our relatively young portfolio matures.
Finally, I'm also very thankful for the strong support we see from our shareholders in these turbulent times. We have ended the presentation, we're now ready to answer your questions. Operator, please open up for Q&A.
Thank you. If you would like to ask a question, please press 01 on your telephone keypad. If you wish to withdraw a question, you may do so by pressing 02 to cancel. That is 01 if you would like to ask a question. Our first question is from Joakim Gunell from DNB Markets. Please go ahead. Your line is open.
Thank you for that. To start with, really appreciate the increased level of transparency in your reporting. Thank you for that. You mentioned here that the funding to existing companies should be somewhat similar to the dividends received from Tele2. You will either fund additional investments from your balance sheet or by selling down an existing holding. Can you elaborate on the two latter options, especially if you allude to all parts of the portfolio or just listed?
Thank you. We're not going to state particular companies here, but as we approach reallocating capital within our portfolio, it doesn't matter if you're listed or unlisted. Again, I would like to reiterate that we have a balance sheet that is very strong, and we are well under our long-term leverage target. We believe that funding can come from a number of different sources.
All right. In terms of driving active ownership and strategic priorities for your VC portfolio, I guess you also alluded to that you will emphasize more on sustainable growth, longer cash runway, et cetera, but are there any key additional focus points and priorities that you see for, say, each of your target sectors?
I think I would like to reiterate what we said during the presentation, that this is a time where some of our companies really need to take drastic cost measures for it to survive this crisis. It's also an opportunity to sharpen the strategy and the efficiency in the organization. That's an agenda that we drive, I would say, towards every company in our portfolio. As also said in the presentation, I'm impressed by the fighting spirit, the agility and the actions that our founders and CEOs and management teams in these companies have taken during the quarter. I think this will just make sure that we, as I said, come out stronger after this crisis. Apart from that, we see a surge in demand in several areas, and we see opportunities that could potentially be M&A opportunities within our company portfolios.
We need to dedicate time also during this crisis to look at those opportunities. If I should kind of have a balance, how much we spend on, let's say, survive versus thrive, I would say it's still more about taking these conservative measures to make sure that the companies actually will have enough runway to survive this crisis. We also spend, let's say, 30% of our time looking at opportunities, both for Kinnevik as new investments, but also definitely for opportunities for our companies within the portfolio.
That's clear, Georgi. Final question from me. Digital health, the value proposition obviously becomes increasingly clear owing to the pandemic situation. Are there any positive surprises here that you would like to highlight that you haven't already spoken about? Also perhaps, is there anything to say about Babylon's U.S. expansion plans here in 2020 since the outbreak began?
Yes. I can name a few. Some of them we touched briefly upon, but I can elaborate a bit. If we take healthcare sector first, and I can say something about the Nordic online grocery strategy and investment that we have made. If we look first at the sector of virtual care, this crisis clearly show that it's not only a short-term demand, but also an increased awareness from authorities, from members of Livongo services and the customers that use Babylon, that actually see that this is a very efficient and necessary tool in these times. I think that general awareness will only increase. During the quarter, we have seen, of course, some challenges in the roll-outs of Babylon's large contracts in the U.S.
We have to remember that these are large organizations like Centene that owns a bunch of hospitals, insurance companies, and so forth, and they have been quite short term focused, like all of us during these times. Having said so, Babylon and Livongo have responded quickly to the COVID crisis, and they have actually upgraded and changed their services so they can be used in a broader sense during this COVID-19 crisis. As we say, help patients, help consumers to actually get information and to be able to actually remotely take care of their chronic illnesses. Their non-critical illnesses.
I would also like to say that looking at Livongo that had a quite tough journey, as we know, in the public markets after the IPO, is now really highly valued by investors because they realize that not only is it a strong platform, it's also very resilient in times like this. Of course, having a blended entry price for Kinnevik at SEK 12, we're happy to see that investment has generated a great return as we speak. If I should go shortly into the online grocery space, I think the most important thing is not to talk about this surge in demand that is happening now. I think it's clear to everyone that when societies are either completely locked down or almost locked down, people tend to buy online, if they can.
What's really interesting is to look at some data points that we have when it comes to efficiency. When we made those investments in Mathem and Kolonial, we had a thesis that said that with enough volume and with enough high efficiency in the company, we can make a profitable business and a cash flow generating business. That thesis is now, I would say, really shown, or we have underlined that thesis, and we've got clear facts and data points that shows that we were right when we took that bet. There's a long way to go establishing this Pan-Nordic online grocery business that we are dreaming of, but at least we're much more comfortable at this time that we've made the right decision.
Thank you very much.
Our next question is from Ramil Koria from SEB. Please go ahead. Your line is open.
Thank you, operator. A few questions, if I may. Starting off on the investment side, you previously said that you expect to invest less in 2020 versus 2019, and the wording has been, again, invest slightly less. Is that still relevant weighing everything you've said today together?
Yes, it very much is.
Got you. Looking on the unlisted side, is it possible to give any flavor on which holdings that have imminent refinancing needs? Perhaps as a direct follow-up to that, how far have you really gone in your projections when you say that the incoming dividend from Tele2 will cover refinancing needs? How do you model things given the huge uncertainty surrounding everything today?
Of course, it's a very relevant question, Ramil. We have been elaborating on various scenarios. As we said also, we did contingency plans already last fall when we were thinking, what if we will face an economic downturn? Of course, no one knew that it's going to be a virus like this, but still, we had different scenarios. What we see that we're not that dependent on the specific dividend of such or anything else in our portfolio over the kind of three- to five-year plan. We know that we have a capital framework, we have a resilient portfolio, and we will be able to deploy the capital that we actually plan for. What we say, however, that in these times during 2020, when we still have so much uncertainty in the market and how long this crisis will last, we'll be a bit more prudent, obviously.
We will hold back on some of the new investments unless we see some really dislocated pricing and opportunities or businesses that we actually know is having a good traction. Less risk, obviously. That is what we say. Should there be so that we have companies that are facing short-term funding needs, we will do two things. First, we will always evaluate that business case in itself. It's not given that we will be a supporter of every company in our portfolio if we don't believe that there's long-term value creation opportunity. That's the first thing. It will be a case-by-case exercise. Secondly, we will also make sure that we drive an agenda towards all these companies, so they realize that if this turbulent time continues, they need to be used, that there will be less capital available, and that capital needs to last longer.
It's a lot of responsibility also on the portfolio side, not only at Kinnevik. Therefore, we're comfortable with our projections that even though we would invest slightly earlier in the existing companies, we have put enough demands on them regarding capital allocation and cost efficiency, that that capital will last longer than we initially planned for in the old plans over this next five-year period. Having said that was a long answer of saying that we are comfortable that we can stick to our capital allocation frameworks, and we, over this five-year period, can invest in enough new companies.
Thank you, Georgi. Just a follow-up on that. You are implicitly saying that the imminent refinancing needs in the companies that you are willing to actually provide capital to in the shorter term is equivalent to roughly SEK 1.7 billion or below SEK 1.7 billion. Obviously, you must have projected something in terms of when demand will return for the companies in question. How have you gone about? Are you expecting demand to come back in, I don't know, Q4 2021 or?
Of course. I think it's very difficult for us to say how long this crisis will last. There are enough so-called experts that are having a lot of opinions regarding that. I don't think we should be one of those experts. Let me put it like this. We are conservative in our plans. We don't, for instance, expect a V-shaped return in travel during this year, but a slow recovery. Therefore, companies within that sector, such as travel, Omio, for instance, we are seeing that they have put themselves into what we call more of a hibernation mode. Of course, a company like that can reduce their spending significantly by not spending money on customer acquisition because there's little demand, and also, of course, take other cost actions.
That kind of hibernation mode can make the company last for a much longer time than the original plan actually told us, where they were spending a lot of money in customer acquisition for future growth. That's one extreme example. We think that the market and also demand in many of our services will come back. The question is, of course, when, and only thing I can say that we have been conservative.
Thank you. That's clear. Moving on then. Looking at the valuation on the unlisted side, given that some valuations for specific companies are sanity checked versus latest funding rounds, et cetera, and given presumably lower demand for new investments among other, call it VC firms, essentially valuations should come down for some of the companies. Wouldn't it be better to proactively lower valuations for the companies that will raise cash the coming few quarters here? Does that make sense or?
I hear where you're coming from. The way we approach our valuations is that we look to assess the fair value of our investments, and that's per March end. We do not necessarily take into account doing haircuts to have a buffer for future quarters, but the development in value during this quarter and the next quarter and the quarter after that will be reflected in each individual quarterly report.
Also to add on that, again, as I said, my first point, when we're looking to invest more capital into a business, we will look at that case standalone. Of course, we will assess not only the valuation, but also any types of protections, downside protections that we can actually put in place. We have a headroom in that investment for potential down rounds in the future, or should the crisis continue for a longer time than we first thought. Those type of mechanisms is what Samuel talked about early in the presentation that's already now being active in some of our companies. While our fair value is moving sometimes sideways, the actual valuation of the company has been significantly decreased.
Thank you. Then going to the liquidation preference that you have in some investments. Samuel, you spoke about it earlier as well, but could you please elaborate specifically how it is weighed into the valuations you recognized in the quarter? Perhaps for someone not so familiar with how private investments are made, what does it theoretically mean? If you just could repeat what you said earlier about equity values in the latest funding rounds and how that weigh into your preferential right.
Sure. I'll give you a general answer, but that is specific to us. These liquidation preferences effectively mean that the capital raised by a company is paid back before common holders get their ownership stake. Hence, as long as our valuation is in excess of the amount of capital that this company has raised, we recoup our investment. Specific terms can vary between companies and between liquidity events, and even between funding rounds in one company. That's essentially how they work, and should the valuation go beneath the amount of capital a company has raised, then proceeds would be allocated pro rata to the amount of capital invested as opposed to the percentage of shares held. Does that answer your question?
Yeah, it does. No consideration is made to the actual balance sheet, but rather capital raised versus your valuation, essentially.
No. We assess a value of a particular business, and then we allocate that value amongst equity and debt holders in accordance with the terms of the various agreements in place.
Got you. Thank you so much, both.
Our next question is from Lena Österberg from Carnegie. Please go ahead. Your line is open.
Yeah. Good morning. I have a couple of questions as well. First, a bit of a follow-up on Ramil's question with the funding need for the existing ventures. Could you maybe say something about how has that changed compared to the funding need you saw before the outbreak of the virus? How much has it increased for this year?
Sure. Thanks, Lena. It's increased fairly marginally, I would say.
You still expected to invest most of your incoming cash in the existing ventures this year? Earlier you said about one-third would go to new investments over time.
Exactly. The framework we have is a five-year one. You shouldn't necessarily look at a specific quarter or year. That still holds, and those types of proportions are still relevant.
Basically, we see, of course, that in times like these, it's good to have dry firepower, which means, Lena, that the one-third that we are deploying over this time in new opportunities, they can arise now, but they can actually arise also by the end of this year or early next, depending on how the market develops. So we're seeing this, again, as Samuel said, over a longer period of time. The companies we know in our kind of funding projection that need cash, we of course have enough headroom for. Again, to repeat myself, it's not about deploying cash on the basis of the old plans, but deploying cash or deploying capital based on a new plan where many of these companies will be more efficient.
Okay. I have some questions on Kolonial. You say that now you've doubled revenues compared to the start of the year. You have 10 more customers. Still the company says that they need to scale volumes to reach profitability. I was wondering, you mentioned the revenue and the customer numbers, but how far are you from breakeven now that it's running at peak volumes?
I think first of all, 10x more customers now than a normal quarter. That's because of this enormous surge in demand during these times. We don't believe that that would continue forever. We do believe that the level of penetration and the general awareness of buying groceries online will actually continue also after this crisis. To be very clear on that. The numbers we see today with these volumes make us certain that the business model is profitable already. Of course, we cannot believe that these volumes will continue for quarters ahead. Let's say, in other words, going back into a normal situation, hopefully then with slightly higher penetration. We know now in the plan exactly when the company can be profitable.
What you're saying is that they are profitable at the moment?
Yes, they are.
Okay. The second question will be, are they near max capacity in the warehouse they have when they are profitable? My question is long-term, because that's the whole thing with Zalando as well, that to grow, you need new warehouses, and on a cash flow basis it's still difficult to prove that over time that these businesses actually generate surplus cash. If you're profitable but your warehouse is at peak capacity and you need a new warehouse, does really the model work?
Yeah, it definitely works. First of all, we have to remember that Mathem today, they have three warehouses in Sweden, so building the automated warehouse will increase the efficiency significantly. Also, of course, same thing with Kolonial. Even though they have a very efficient warehouse, higher volumes can actually improve the efficiency. You order more of your goods direct from the suppliers to the warehouse instead of using third parties, as an example. You can build a bigger warehouse with more slots for trucks, which also increases the efficiency. You can have different areas or sectors within a warehouse where you can handle different products, such as the high rollers and the fast movers versus the long-tail goods, et cetera. I think definitely there is also scalability in becoming bigger and building actually an extended operation.
You look at Zalando, for instance, this has been a discussion for a long time. Since they are growing so fast all the time and over the last year they have grown from a couple of warehouses to 11 warehouses in Europe now, of course, during that period of time, you have an increased CapEx that I would say is not normal. It's when you reach more of a steady point and where you don't maybe have 30% growth, but actually coming down to normal levels in this space, then you have rescalability. Personally, I'm not worried about the never-ending CapEx feed in warehouses because I also know from personal experience that there's scalability in becoming bigger.
Okay. I have a final question on Kolonial and Mathem. Why do you use different valuation multiples for them given that they should have the same peers?
Yes, they have the same peers. They differ slightly in financial profile and multiples at which they'd raise capital at, and that's the primary reason. As you will have noted in our report, we are not factoring in the sales during Q1 in our valuation method, but we're using last 12 months worth of revenues per year now.
Yeah. You're also using historic multiples, right?
We're using multiples per end of March.
Okay. All right. That was it. Thank you.
Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Johan Sjöberg from Danske Bank. Please go ahead. Your line is open.
Thank you. I would like to pick up on just the last remark you made, Samuel, there on Q1 also for Mathem. You highlighted it was last 12 months ending at the end of 2019, and you also write something very interesting here into the multiples declining shortly by the end of March. Could you just give us some sort of indication what Mathem especially, talk a little bit about what sort of top-line growth you've seen in the quarter. Also a little bit upon the margins also within Mathem. My last and final question when it comes to Mathem, sorry for talking about Mathem, but I see all these Mathem trucks all over the place right now. A little bit also about the number of people who have subscribed to Mathem, and also a little bit about the age distribution within that.
I guess this has opened up a lot of opportunities for you to get hold of people who would never sign up for these sort of services. I'm actually thinking about my own mother, for example. Thank you.
Thank you for those questions. Unfortunately, I will make you a bit disappointed because we are not ready to disclose any detailed figures. That is because competitive reasons and other reasons. Today, we can just say that what we have seen is an enormous increase in demand. The main difference with MatHem and Kolonial, that even though you see a lot of MatHem trucks, which means that they are the leading online to door online grocery player in Sweden, we still know that their kind of warehouse is so manually set up. It is constrained on manual labor compared to Kolonial that has much more of an automated warehouse. The issue or the challenge for MatHem has been to deliver on that demand. The team is doing a fantastic job to scale up, but it is a lot of manual scale-up that we see today compared to Kolonial.
Of course, that's why we closed this round of SEK 500 million together with AMF and some others in order for them to be able to launch the new warehouse in 2021 that will be automated and efficient. Should we have that warehouse today, you should have seen maybe twice as many Mathem trucks on the streets that you see today. Unfortunately, we're a bit behind in that infrastructure rollout, but we knew that when we made the investment. We didn't think the demand would come this fast. I go to kind of the age groups, again, on a more general level, I would say that you're absolutely right. This is what I mean by increased awareness. People are using these services, even though they have their old behaviors of walking to the closest grocery stores.
We see loyal customers helping their friends or their parents to actually educate them how to use Mathem. You're definitely right. This spreads the awareness into different gender groups, different customer segments. The biggest question today is, of course, how many of these customers will continue to use the service after the corona crisis? We don't know, but what we can say is that when we look at different markets, such as in South Korea, where we know the penetration is very, very high. After the SARS crisis, the penetration of online food went up significantly, almost doubled. Of course, we have high hopes and believe that many of these customers will actually continue to use the service because it's not only a good service during a crisis, it's a very convenient service in a normal life.
If you save up to one and a half hour a week using these services, I think more customers will be aware that it's an excellent way of shopping. Of course, there's a lot of other upsides by using these services, such as over time, it will actually will also increase the footprint because there's less.
Waste.
Waste. Thank you, Eri.
Waste.
Less waste since you have fewer, basically distribution points compared to a normal network chain. A lot of that. I think what we should do is that when we are ready, because you're not the first one asking these questions. When we are ready, we will have a dedicated session on the Nordic Online Grocery journey and be more specific and open with what we see in our companies.
Yeah. Can I ask you in a bit of a different way then? When you made the investments in Kolonial and also into Mathem, and looking at your own models, what you would expect in terms of growth and profitability, et cetera, KPIs, which you obviously have very sophisticated models upon. When you look at those initial assumptions which you made, and when you look at what you see today, where are we in terms of your own initial assumptions there?
I would say that the assumptions on Kolonial, which was a big bet on can you improve efficiency significantly by having an automated warehouse, which is relatively CapEx efficient as well, that was the big bet we did. That have been confirmed, and I would say that we have numbers that are even better than we had in our initial models in terms of unit per hours that warehouse can actually deliver. That's a very important check in the box. Of course, on demand, we are maybe one year or more ahead of the plan, but that is due to the short-term increase or surge we see in the demand. That we don't expect to continue. All the models are maybe one year ahead.
The same thing goes for Mathem then?
Yes, absolutely. There we knew that there was no automated solution in place. You have the demand, but you don't have the efficiency increase. If we would be a bit creative and use the kind of models and the blueprints of what we see in Norway with Kolonial and apply that for the numbers in demand we see at Mathem, we would be in exactly the same position.
Got it. Can I ask you also, Samuel, you had a good slide showing about the valuation on the end of March and also what it would've been applying multiples yesterday. I am sorry, I did not quite follow up here fully after that. What were your assumption of an unlisted value or the valuation of unlisted assets, assuming yesterday's multiples and you compare it with the reported numbers?
Apologies if I was a bit unclear, but the numbers you see on that page is only reflecting updated share price for our publicly listed entities. The unlisted companies are unchanged versus end of the quarter.
Yeah. Okay. There are so many different peer groups and to be honest, I don't have a full insight into like Quickr's, the different peer group multiples. For us on the outside, should we use Nasdaq, for example, how that is developing? Is that a good indicator how you would say the valuation multiples are moving or you have to get a feeling for it? It tends to move a lot here.
Sure. It's difficult to pinpoint one reference here. This quarter, I'd argue that the rebound you've seen in our listed assets, you can typically apply on the unlisted assets as well.
That's great. Thanks so much for you.
Thank you.
Our next question is from Derek Laliberté from ABG. Please go ahead. Your line is open.
Thank you. I'm aware that your ambition certainly is to grow the private portfolio in relation to your total NAV. I was also wondering if you are actively looking for opportunities in public markets where there may be some interesting things popping up as well. In practice, how does this work? Do you have somebody in the investment team monitoring this? Do you have a target list in this space and sort of following up too continuously, or is that not in focus?
I would say the main focus, Derek, is unlisted assets because I think that's also the most valuable way for us to put capital in terms of equity story and why you should own Kinnevik, right? Having said that, there are some newly listed companies or listed companies within our sectors that may not be accessible to some of our shareholders, or they do not have enough information of those companies and those sectors. There we might actually invest in a public company. We've always said that regarding Livongo, if I just should repeat the holding statement, is that should Livongo be very low valued and we see an upside, we think we can actually, and we have the access to buying shares. That could be a company to further invest in, for instance.
We don't have a dedicated person or team that look on public justifications right now. Main focus, I would say, is to sweep the market for opportunities within the private sector.
Okay. Then finally with regard to new investment opportunities, is there one of your target sector that's sort of the number one most interesting now and where you're spending the most time in searching for a potential new acquisition?
I think there's not a specific one. We do it in all sectors. Where we have already doubled down is within healthcare, as you know. We still think that it's a sector that can grow within the Kinnevik portfolio. We know more and more about the sector. We have a substantive good track record already within that sector. The thing is, however, that this crisis has actually shown that these companies are even more valuable. It's not the same kind of opportunity to buy companies at a dislocated price as in other sectors. I think it's fair to say that we look in all our sectors, actually, but we continue to double down on the ones that we have a smaller representation in.
Okay, thanks. That's all from me. Thanks.
Just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Liz Miliatis from Bank of America. Please go ahead. Your line is open.
Good morning, everyone. It's Liz Miliatis from Bank of America. First question would be, are there any assets in the portfolio where you're seriously questioning the cash flow sustainability or the fundamentals of the business or the industry as a whole, where you might question whether you'd actually commit extra capital in the next round? I guess you can't specifically name those assets, but just wondering if there are any of those assets in your portfolio at the moment. Secondly, are you looking at taking advantage of any government schemes that are out there to help any of your companies, or is it very much just relying on the current capital structure for each asset? Thank you.
Thank you, Liz, for your questions. When it comes to specific companies, we don't want to out them here and now, of course. I can go back to what we've said before. Our focus sectors remains the same, and our focus geographies remain the same. That's where we are looking to deploy more capital. When it comes to basically your second question, there are a few examples of those things happening within the portfolio, but they are very minor in general. I think the main reason for that is that our digital companies, relatively, some of the other industries that we see now are facing less of those issues. Even our companies within, let's say, the travel sector are not as impacted since they don't have as many assets or employees compared to the traditional ones, for instance.
Okay. Thank you.
As there are no further questions, I will hand back to the speakers for any final comments.
Thank you very much for listening and for your questions. As a reminder, we will host our annual general meeting on the 11th of May, and we will report results for the second quarter of 2020 on the 13th of July. I wish you all a very nice day and hope that you are safe and well. Thank you very much. Bye