Welcome to the Kinnevik Q2 Report 2019. Throughout the call, all participants will be in a listen-only mode, and afterwards, there'll be a question and answer session. Today, I'm pleased to present Georgi Ganev, CEO of Kinnevik. Please go ahead with your meeting.
Thank you. Good morning, everyone, welcome to the presentation of Kinnevik's results for the second quarter of 2019. I'm Joakim Genarlow, Kinnevik's CEO, and with me today is our CFO, Joakim Andersson, and our Director of Corporate Communications, Torun Litzén. We will start by taking you through a presentation of the results released this morning. After that, we're happy to answer any questions you may have. Now please turn to page four, where we have provided you with a summary of the key highlights for the quarter. It's been an eventful second quarter. We have focused our efforts on continuing the shift in our portfolio towards a higher share of growth companies. These efforts included supporting high performers in our private portfolio, evaluating our Millicom stake, and supporting the IPO of Global Fashion Group.
Our net asset value increased by 6% to SEK 89 billion in the quarter, primarily driven by continued strong share price development in Zalando and Tele2. The value of our unlisted assets increased to SEK 16.5 billion, with the uplift stemming from revaluations of Babylon and Livongo, as well as from us investing additional capital in a few of our newer companies, including Kolonial, Pleo, and Monese. The decline in the value of Global Fashion Group partly offset the increase this quarter. We end the quarter with a net debt position of SEK 5.7 billion, corresponding roughly to a leverage of 6% of our portfolio value. Please turn to page five for an overview of the performance of our large listed companies. Zalando continued to capture market share in the first quarter of 2019, growing gross merchandise volume by 23% to €1.8 billion, and revenues by 15% to €1.4 billion.
GMV volume growth was higher than revenue growth due to the strong development of the partner program. Millicom continued to grow both organically as well as through acquisitions while continuing to focus on its core Latin American markets. During the quarter, Millicom completed the acquisition in Nicaragua as well as the divestment of the operation in Chad. Tele2 reported yet another solid quarter and realized another SEK 100 million of synergies, reaching the full-year synergy target already after six months. On page six, we highlight the strategic developments in the company. In addition to progressing the Com Hem integration, Tele2 has continued to streamline its market footprint during 2019, completing exits in the Netherlands and Kazakhstan, as well as signing the sale of the Croatian business, closing later that year.
As a consequence of the divestments, Tele2's board has proposed an extraordinary dividend to shareholders of six SEK per share. Assuming that the EGM approves, Kinnevik will receive 1.1 billion SEK when paid out at the end of August. Let us turn to page seven. Millicom has, over the past few years, transformed from a mobile-only customer proposition across a scattered market footprint into a customer-centric, converged Latin American operator. We have actively supported the company on this journey, and we are convinced that the company is well-positioned for the future. That being said, we're firmly committed to continuing to strengthen our financial position and to evolve our portfolio towards a higher proportion of growth companies.
This includes maximizing returns from a successful and long-standing investment in a company such as Millicom, and we therefore, in early June, announced our intention to divest our shareholding in the company through a public offering of shares. However, during that process, it became clear that a two-step divestment could not be completed at a price which we found sufficiently attractive, and as a result, we withdrew the offering. We'll continue to evaluate potential next steps in relation to our shareholding. Let us turn to page eight for an overview of the performance of our private companies. Momentum is strong in our private companies, and they continue to focus on growth, strategic partnerships, and product innovation. I will come back to Global Fashion Group on the next page, but I want first to highlight two of the companies on this page, Babylon and Betterment.
Babylon has continued to grow its user base and develop its platform. Currently, the company has some three million direct members, and tens of millions more can access the services through partnerships such as with Prudential in Asia. To make the business more scalable, Babylon is also building an integrated medical AI platform, primarily focused on triage and selectively expanding it to diagnosis and predictive analysis. The ultimate goal is to go beyond managing sickness and start to predict and provide preemptive healthcare solutions. Since our first investment, Betterment has grown from managing SEK 4 billion to close to SEK 18 billion in June 2019. During the second quarter, the company launched new functionality for electronically transmitting securities held in a client account at one brokerage or bank to another firm.
This is yet another example of how Betterment continues to develop and expand its product portfolio, making service better and increasingly seamless for its users. Now please turn to page nine for an update on GFG. Global Fashion Group started trading on the Frankfurt Stock Exchange in the beginning of July, presenting public market investors with a unique emerging market fashion e-commerce opportunity. As part of the IPO, the company raised around EUR 200 million, of which Kinnevik participated with EUR 60 million. We decided to support and participate in the IPO, as we believe the company has made significant progress under its new management, and we also wanted to ensure that the company is well-funded to execute on its strategic plan. GFG made further progress in the first quarter, showing strong growth as the company continued to build its brand platform, now with over 10,000 brand partnerships.
In addition, the active user base continues to grow as structural adoption of mobile and e-commerce continues across GFG's markets. Now, turn to page 10 for a look at a few of our investments in the quarter. Last year, we invested in 10 new companies across our four sectors. Our ambition is to support our new companies, and over time, increase our stakes as they grow and perform. In line with this strategy, we have invested further capital in Pleo and Monese in the second quarter, as well as Kolonial, which I also spoke about on our Q1 call. Pleo is growing its business across UK, Denmark, Germany, and Sweden, attracting strong interest from customers, as well from potential investors. The company has truly found an attractive niche market and has a highly appreciated customer proposition, paving the way for a strong growth.
Pleo will use the proceeds for its latest funding round to triple the size of its team and to accelerate its product development as it plans to add more services to its offering for SMEs in Europe. Monese, our UK-based neobank, providing banking services to the under-banked, is continuing to grow its user base rapidly and in line with plan. The company recently launched a collaboration with PayPal that expands customers' access to financial tools in the modern economy. With that said, I would like to hand over to you, Joakim, for an update on our financial position.
Thank you, Georgi. On slide 12, we present the key contributors to this quarter's NAV development. In the second quarter, our NAV increased by 6% to SEK 89 billion, and NAV per share increased to SEK 323 in the second quarter. The main drivers of the uplift were continued strong share price development in both Zalando and Tele2. As for yesterday, our NAV had increased slightly to SEK 89.4 billion or SEK 324 per share. The value of our unlisted portfolio increased to SEK 16.5 billion. This increase was driven by the investments in GFG, Kolonial, Pleo, and Monese, as well as the revaluation of our healthcare companies, Livongo and Babylon, in part offset by the negative value development in GFG as we valued our ownership stake in line with the IPO price.
This quarter, we have updated our valuation methodology to ensure compliance with both IFRS 13 and the updated IPEV valuation guidelines. This means that a collective assessment is made to establish the valuation methods and point of reference that are most suitable to triangulate the fair value of each individual asset. While a valuation in a recent transaction is not applied as a valuation method as such, it typically provides an important point of reference and basis for the valuation of the asset in question. As you may have noticed, we have two fairly significant valuation uplifts in our healthcare companies, Livongo and Babylon. The fair value of our shareholding in Livongo amounts to SEK 1.8 billion. The valuation is based on forward-looking multiples of a peer group of healthcare companies and corresponds to the low end of the price range in Livongo's pending IPO.
The fair value of Kinnevik's shareholding and other interest in Babylon amounts to SEK 1.2 billion and is also based on forward-looking revenue multiples of a peer group of healthcare companies. Since we invested first in Babylon, the company has made significant improvements to its platforms and started rolling out international partnerships, two factors that underpin the revaluation of the company. Please turn to page 13 for an overview of our balance sheet. As you can see on this page, net investments amounted to SEK 1.3 billion in the quarter, which meant that we ended the quarter with a net debt position of SEK 5.7 billion, corresponding to a leverage of 6% of portfolio value. As Georgi mentioned earlier, Tele2 has proposed an extraordinary dividend drawing from the proceeds from the transactions in Kazakhstan and the Netherlands, which will bring us SEK 1.1 billion in the end of August.
With these remarks, I would now like to hand over to Georgi to sum up.
Thank you, Joakim. During the quarter, we adopted a framework to drive diversity and inclusion at Kinnevik and in our portfolio companies. We have, among other things, earmarked 10% of our annual investment budget for female-founded companies. With clear KPIs and a strong commitment from both our board and my management team, I'm convinced that the initiative will ensure we build stronger and better companies. As I started out saying, the second quarter was eventful and activity continues to be high. We see a positive momentum across all our assets and with exciting developments in a number of our private companies, I feel that we have a very strong foundation for future value creation. We're now ready to answer your questions. Operator, please open up for Q&A.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad now. If you find your question has been answered before it's your turn to speak, please press zero two to cancel. We now have our first question from Lena Österberg from Carnegie. Please go ahead. Your line is now open.
Good morning. One question here on your thoughts to strengthen your balance sheet. First of all, curious on, is it new investments you are looking to raise cash for, or do you see continued need to invest in your current holdings? If I may, why is it so specifically that it's Millicom that you want to divest and not Zalando? You have two big liquid companies. One is providing dividends and the other is not. Why have you chosen Millicom and not Zalando?
Thank you, Lena. I'll answer your questions. First of all, when it comes to new investments versus foreign investments, there will be a combination of both. We are definitely looking for new investment opportunities and plan is to find new companies in our growth portfolio over the coming years. We also have done a fair amount of new investments during the past year. As those companies grow and perform according to our expectations, we will also be ready to deploy more capital in those investments. As we said before, we have an ambition to reach ownership to become the largest minority shareholder of somewhat 20%-25%. That would also be our ambition in the companies we believe should stay in our portfolio for a long time.
When it comes to divesting, as we announced in June, we believe that Millicom is a great and stable company in many ways. If you look at the company today compared to just a few years ago, it's a focused Latin American market operations with nine countries, with FMC mobile fixed conversion capabilities. Therefore, it's a good way to hand over the baton for a different ownership on the next journey. That's our intention. We also see that it doesn't really fit as well as other assets in our portfolio, since we've said that we would like to focus mainly on Europe and U.S., and a specific focus around the Nordics. Also look for growth opportunities.
Since Millicom is a mature, stable asset, not really a growth asset in that aspect compared to Zalando or Global Fashion Group, and it also sits outside our geographic focus, we think that's the right choice to focus on right now.
Can I just maybe follow up, given the dividend levels you have and the dividends you receive after Millicom has been divested, say that you divest the whole company. That's a relatively close match. Given that you will continue to need money for new investments and you don't have that much large assets that you could divest to fund it, wouldn't it make more sense to keep something that provides you with a stable dividend flow?
I think that what we announced also in our press release in June was that we will adjust the dividend going forward, when we divest a dividend company like Millicom.
Okay.
We wouldn't have, in that, losing that dividend. You can also argue, as you say, that cash could be used to fund our investments or the operations, but that has not really been the intention, basically in the past either or now. We have a funding strategy where we are supposed to fund ourselves with continuous divestments over time and not through the dividend coming in from a company like Millicom.
Okay. Thank you.
Our next question comes from the line of Johan Sjöberg from Danske Bank. Please go ahead. Your line is now open.
Thank you. I had one question. You are keeping up quite a high investment activity, which we appreciated. I just want to check with you how you see the investment market right now in terms of finding new objects and also have you seen any change there recently in terms of prices or new ways opening up for your investment organization?
Thank you for that question. I would say that as we said before, it's difficult to say anything about the future, but I think we can all agree that we are rather on the top of the cycle than on the bottom of the cycle. Of course, that drives higher multiples, higher valuations. Therefore, we focus only on companies where we see a long-term
Growth opportunities and stability such as our healthcare sector, for example. With that said, since we are a long-term investor that will invest also in bottom of the cycles and the top of the cycles and continuously, we feel like we are less exposed to these variations than perhaps other investment companies. I can repeat what I said last quarter and the quarter before that, we are, of course, cautious to be part of any bidding contests and highs at this moment because the valuations are rather higher than lower at this time in the cycle.
Yeah. Truly understand that. Just to follow up on that one. When you're looking at your investment pace here, it's been quite high in the first half and obviously also GFG, you invested in GFG now in the listing. If you don't focus on the balance sheet here, but would you say that the investment pace on the second half will be slower than in the first half, or how do you see your investment cash flow here going forward?
As we announced in the beginning of the year, our intention was to do fewer but larger investment throughout 2019 compared to 2018. On that kind of guidance, we have definitely delivered on. We did an investment in MatHem of roughly SEK 900 million, and we made some larger follow-on investments.
We announced earlier this week our intention then to buy conditionally to the IPO of Livongo, the stake from an existing shareholder for a significant amount. Those are in line with what we have said. Of course, also using our balance sheet and our leverage as a rubber band, as Joakim used to say, we're also cautious that we spend our money carefully and therefore the activity needs to be planned accordingly.
Okay, good. Thanks a lot.
Our next question comes from the line of Derek Laliberté from ABG. Please go ahead. Your line is now open.
Yes, good morning. I had a question on one of your bigger unlisted assets, Quikr. I was wondering what's driving the valuation change there on the negative side, whether it's mainly peer multiples or if something's deteriorated more from an operational perspective. Thank you.
Hi. It's Joakim, I'll pick that on up. No, it's a minor change, and we see a great development in Quikr. They have good momentum in their different verticals they are operating. So it's nothing material, it's just a slight shift this quarter.
Okay, thanks.
Our next question comes from the line of Joachim Gunell from DNB Markets. Please go ahead. Your line is now open.
Thank you. Good morning. Just a follow-up question perhaps to Joakim on your decision to provide or update valuation methods for the majority of the holdings, looking at forward-looking multiples instead of trailing ones. More specifically on a holding like Betterment, the methodology is unchanged where you just provide a discounted cash flow analysis.
Yeah. That change, as I mentioned before, and as we write in the report, is mainly driven by the updated guidelines in the private equity guidelines for valuations of unlisted holdings. The latest transaction value as we typically used before, is not a real method any longer. We are updating those methods for those companies and move over to more of a dynamic approach to the valuations and using multiples of DCFs. Having said that though, we will continue to use the transaction values as strong guiding stars for where we think the fair value is of the companies. That's the drivers and the background to why we changed the methodology for quite a few of our companies.
Understood. One more question from me on Betterment. Could you please provide perhaps your view on the competitive landscape amongst U.S. independent robo-advisors? On my calculations, it seems like Betterment is gaining quite significant market share amongst the independent ones in terms of assets under management, that is.
That's correct, Joakim. We see that Betterment is by far the strongest independent robo-advisor in the market in U.S. and therefore also in the world. Having said that, the market is vast, and looking at the incumbents like Charles Schwab and the others, of course, its size is relatively small. It's a pure play game for Betterment, where they start with a new modern platform, and now expanding its functionality. We believe that they have a very strong position in this space. They are, as you say, the leading ones in terms of asset under management.
Thank you very much. Have a good summer.
Thank you.
Thank you. You too. As a reminder, ladies and gentlemen, if you do have a question for the speakers, that's 01 on your telephone keypad now, or 02 to cancel.
Okay.
There are no further questions at this time. Please go ahead, speakers.
Thank you everyone for listening in today. I look forward to meeting many of you here in Stockholm the 19th of September at our Capital Markets Day to elaborate further on our strategy. There you will also meet several of the founders and leaders of our companies that form part of our future growth story. Until then, I hope you'll enjoy a hopefully very nice and warm summer. Thank you very much. Bye-bye.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.