Good morning, everybody, and welcome to the presentation of Kinnevik's results for the second quarter of 2017. I'm Joakim Andersson, acting CEO and CFO, and with me today, as for previous quarters, is Chris Bischoff, our senior investment director, and Torun Litzén, our director of corporate communication. We will start today by taking you through a presentation of our results and key achievements during the second quarter. After that, we are happy to answer any questions you may have. Turning over to page three, we have summarized the key highlights of the second quarter of this year. Our operating companies had a solid quarter and focused on delivering profitable growth. Our fashion e-commerce companies continued to invest in their customer offerings to fuel growth, while implementing efficiency measures to improve profitability. Our communication companies, Tele2 and Com Hem, saw strong momentum as they continued to execute their strategies.
Millicom had a somewhat challenging quarter, reflecting weaker conditions on some of its markets. In the entertainment segment, MTG remains very well-positioned to benefit from the shift in consumer video consumption towards on-demand and online. Our companies in financial services and healthcare are leveraging strategic partnerships to reach new customer groups. We made total investments of SEK 3.9 billion in the quarter, whereof the majority into Com Hem, and total divestments of SEK 3.1 billion, attributable to the sale of our remaining stakes in Rocket Internet and Lazada. Furthermore, this morning, we announced a follow-on investment of $65 million in Betterment as part of a $70 million extension of last year's financing round. In conclusion, our net asset value was up 3% in the quarter, driven by strong performance from Zalando and Tele2 in particular, and 6% up when adding back the dividend we paid out in May.
Our total shareholder return for the six months was 22%, a result that we are very pleased with. As of yesterday, our net asset value was SEK 82.6 billion, largely flat from quarter end, following the mixed market reactions on our company's second quarter results. We have a continued strong financial position and ended the quarter in a net debt of SEK 0.8 billion, corresponding to 1% of the portfolio value. We also took advantage of the favorable interest rate environment and issued, in total, SEK 1.9 billion in bonds. Finally, as you all know, the board has appointed Georgi Ganev as new CEO of Kinnevik. I would like to take this opportunity to once again extend a warm welcome to Georgi, who will be joining us at the beginning of next year.
Let's now turn to the first section of this presentation, starting on page five, with more in-depth information on the performance of our larger public companies. The public part of our portfolio accounts for 86% of our portfolio value and is therefore a major driver of value creation. In line with its stated strategy, Zalando continued to invest to fuel growth, while new initiatives on customer satisfaction and tech innovation. The company delivered around 20% growth in the second quarter and a margin of around 7.5%, according to the preliminary numbers released earlier this week. They also maintained their guidance for the full year for both revenue growth and profitability. Millicom had its best quarter ever in terms of net subscriber additions in Latin America, which resulted in increased long-term ambitions for the number of homes passed.
The company's financial performance, however, was weighed down by challenging market conditions in Africa and regulatory changes in Colombia. Tele2 and Com Hem progressed in executing their strategies, as a result, saw healthy growth momentum in the second quarter. In particular, we were encouraged to see an acceleration of Tele2's operations in Kazakhstan and the Netherlands, and that Com Hem's investment in customer satisfaction is paying back in record-high ARPU and lower churn. MTG reported its fourth consecutive quarter of at least a 5% organic sales growth, driven by strong performance in the Nordic business. Overall, we are very pleased with the development in our public companies during the second quarter, and we continue to support them on their respective value creation journeys. On the next page six, we have summarized the key takeaways from Zalando's Capital Markets Day.
Zalando is Kinnevik's largest company, accounting for almost 40% of our portfolio value. The company hosted its annual Capital Markets Day in Berlin in June to provide analysts and investors with better insight into its strategic agenda and the future for digital fashion retail. Among the key messages were that Zalando aims to double in size by 2020 and also aims to achieve a long-term EBIT margin of 10% through its wholesale business alone, with upside potential from its partner program and B2B services. With their ambition to lead the digitalization of the fashion industry, Zalando continues to build on its position as the operating system for fashion. To achieve that, the company has identified three drivers of growth. The first is to improve customer satisfaction through better assortment, improving the digital experience, and to provide more convenient payment and logistics services.
The second is to build the infrastructure to empower fashion brands, in effect, becoming their digital strategy. The third is to leverage new technology to meet rising consumer expectations that is set to accelerate with the continued digitalization of the fashion industry. We are very pleased with what the Zalando team has achieved so far, and we are excited to continue being part of their journey going forward. We will now spend some time on the performance of our private companies, and as such, I would like to hand over to Chris Bischoff, our Senior Investment Director.
Thank you, Joakim. As Joakim mentioned, this has been another significant quarter of activity for the private portfolio. Picking out on a few of the highlights by company on page seven. At GFG, we saw solid growth in revenue and improved operating margins, resulting in markedly reduced losses for the quarter, despite the challenging economic conditions in certain markets, notably Argentina, Brazil, and Saudi Arabia. I will touch on some of the highlights of the regional performance on the next page. At Quikr, we saw continued growth in replies per listing and monetization. At Bima, we are excited to welcome Axiata as a core shareholder. Participation by Axiata will aid the company to extend its reach into large markets in South and Southeast Asia. I will go through the operational update at Betterment and the transaction in detail on the subsequent pages.
At Babylon, we were delighted to participate in their Series B funding round, which confirms Babylon as the best-capitalized startup in the consumer digital health space in Europe. In the quarter, I would highlight continued strong growth in registrations and the positive results to date from the NHS partnership. We are pleased with the progress at Livongo. There is an enormous need for the diabetes management services it delivers, and client growth continues to accelerate. The product suite is expanding, and the business is taking the first steps to drive medication optimization. Let us move on to the GFG regions on page eight. A number of operational initiatives contributed to solid performance at the individual company level, including the rollout of new brands, better product assortment, improved buying, which allowed the companies to invest in more competitive pricing and increased warehouse automation.
We wanted to call out the strategic partnership with Emaar Malls. As with the investment by Axiata in Bima and the earlier partnership between Ayala and Zalora in the Philippines, this demonstrates Kinnevik's ability to attract, introduce value-added regional partners into our multi-country businesses. Investment will accelerate Namshi's development in the region and allow it to continue to flourish as the region's preeminent fashion e-commerce destination. Emaar Malls will support the company to access additional fashion brands, further develop its logistics infrastructure, and expand its geographic footprint. Moving on to the further investment in Betterment on page nine. In the last year, Betterment has grown AUM by 95% to nearly $10 billion. It's grown customers by over 100,000 to over 270,000. During that time, the average customer balance has increased by almost $10,000.
Overall, Betterment is the digital market leader in the U.S. in terms of attracting customers new to the wealth management sector. Turning on to our follow-on investment on page 10. Betterment continues to distinguish itself by its product offering. Since the company's last financing, it has launched a series of new product innovations, including access to licensed financial experts on the phone, advanced tax efficiency tools, portfolio personalization, and a range of other features. The investment case remains consistent with what we articulated to you last year. This is a large and growing market with a shift to digital advice accelerating. Betterment is the market leader amongst independents and is attracting more first-time customers than any other platform due to its focus on being the only financial partner that consistently works to maximize its customers' money. Customer acquisition, servicing, and retention is efficient and drives high lifetime value.
While a significant amount of capital remains from the last round, this financing will enable Betterment to continue to aggressively grow its business and increase product development in line with the faster development of the market. As a result of the round, Kinnevik will become the largest shareholder in Betterment, building on our strong relationship with the Betterment team. This is also consistent with our investment strategy of deploying more capital in fewer strong-performing businesses over time. I'll now hand back to Joakim to go through the investment management activities.
Thank you, Chris. On page 12, as previously mentioned, we have made a sizable investment in the quarter to become the leading shareholder in Com Hem. We also made a follow-on investment in Babylon, increasing our ownership stake to 20%. As Chris spoke about just now, we also signed an agreement to invest $65 million in Betterment, showcasing our continued support for the company. We made two successful divestments in the quarter, selling our remaining stakes in both Rocket Internet and Lazada. On page 13, I will go into a bit more detail on the Com Hem investment. You will recognize this slide from when we announced the acquisition in conjunction with the first quarter report of this year. I will not repeat myself too much, but as I said then, Com Hem is a very good complement to our existing mobile and media companies in the Nordics.
Com Hem has a strong market position in the Swedish broadband and TV market and offers attractive growth and cash flow. On the next page 14, we have put together an overview of Kinnevik's partnership with Rocket Internet. Rocket was founded in 2007, and Kinnevik made its first investment in Rocket in 2009. Together, we have founded and built a number of strong businesses together that are now leaders in their respective markets. Kinnevik's partnership with Rocket has been instrumental in broadening our investment focus and in building a large and successful vertical within e-commerce, which now accounts for almost half of our portfolio. Our investment in Rocket Internet is one of our most successful to date, generating an IRR of over 90% and six times return on our invested capital. Turning to page 15, we have an overview of our investment in Lazada.
In June, we sold our remaining stake in Lazada to Alibaba for SEK 1 billion. The transaction was the second step in a two-step process initiated in April last year, when we sold slightly less than half of our stake to Alibaba. As you can see from the chart, our investments in Lazada was made over a number of years as our confidence in the business grew and resulted in a return of almost three times our invested capital and an IRR of 33%. That concludes the invested management part of this presentation. Starting on page 17, we will provide a summary of our financial position. The valuation of our businesses is driven by three components: operational development, general equity market conditions, and translation of foreign currencies. Now that we have covered the operational performance, I'd like to turn over briefly to the equity markets and currency developments.
To the left on this slide, we see a generally flat development of the key equity indexes over the quarter. On the right-hand side, we have a selection of currencies of relevance for our companies that almost all point to substantial weakening against the Swedish krona towards the end of the quarter in particular. With this backdrop, solid performance in our operating companies and generally flat to negative equity and currency markets, I will now go on to talk about what this meant for the valuation of Kinnevik's assets in the second quarter. On page 18, we have outlined the detailed information on the valuation of the largest private companies. On a consolidated basis, you can see on the bottom line that the fair value of these assets again remained stable during the quarter and amounted to SEK 11.3 billion.
The only substantial change from the second quarter came from the sale of Lazada. At the top, we have our largest private asset, Global Fashion Group, and in absence of any material transactions on the GFG level, we continue to value our shares in GFG, mainly on a weighted average and discounted revenue multiple of 1.3 times for this quarter. On page 19, we have laid out the key changes in the quarter that led to the 3% increase of our net asset value. The value of our public companies increased by almost SEK 4 billion, including dividend received of SEK 1.8 billion. Net investments in the listed companies added SEK 1.6 billion to the portfolio value, which include the investment in Com Hem and the divestment of Rocket Internet.
Our NAV per share came up from SEK 289 to SEK 298 during the quarter as the total NAV increased from SEK 79.5 billion to SEK 81.9 billion at the end of the quarter. Adding back dividend paid of SEK 2.2 billion, the value increase was 6%. As of yesterday, our NAV remains at largely the same level as at quarter end at SEK 82.6 billion, and the NAV per share was SEK 300. Turning to page 20. The final slide in this section is, as usual, the summary of our investment activities and overview of our financial position. We made net investments of SEK 804 million during the second quarter. Adding that amount to our dividend net and our operating expenses, you can see on the right-hand side of the page that we ended the quarter in a net debt position of SEK 0.8 billion, which corresponds to 1% of our portfolio value.
We issued a total of SEK 1.9 billion in bonds during the quarter, taking advantage of the favorable interest rate environment. Total shareholder return amounted to 33% for the last 12 months and 19% for the past five years. Which is well within our financial target of delivering annual total shareholder return of 12%-15% over the business cycle. Let's now conclude this presentation by summarizing the key priorities for 2017 on page 22. You will recognize this slide from previous presentations as our priorities for 2017 remain unchanged. Our launch public companies are the main drivers of value creation at Kinnevik, and as such, our top priority is to grow and protect our value.
We have seen solid financial performance and strong customer growth during the first half of the year for our companies, and they are all well-positioned in their respective markets to continue growing in a profitable way. Each company has a clear strategic agenda, which they are executing, and we will continue to work on together with them during the rest of the year to support them on their respective journeys. Similarly, our investment team remains firmly focused on driving sustainable growth in our private portfolio, as well as implementing best-in-class standards for governance, risk management, and compliance. Furthermore, a key priority for 2017 is to identify and invest in new, exciting businesses that complement our existing portfolio, and we are very pleased with the additions so far this year, Com Hem and Livongo. We have an ambitious agenda, and delivering on that agenda will only be possible with a strong team.
Therefore, we seek to attract, retain, and reward talent in line with Kinnevik's value creation. This year, as decided at the AGM, we have launched two long-term incentive plans designed to align the interests of our employees with those of shareholders, helping us fulfilling this objective. Lastly, we strive to build and promote our strong brand and culture through proactive and transparent communication with all our stakeholders. In short, we can look back on a strong first half of the year, during which we have continued to execute our strategy at a high pace. Thank you very much, and let's now open it up for questions.
Yeah, thank you, sir. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. If you find your question has been answered before it is your turn to speak, please press 02 to cancel the question. Please hold until we have the first question. We have the first question from Elias Pöyhönen from Nordea. Please go ahead, sir.
Thank you. Elias Pöyhönen from Nordea. You have been offloading non-core assets such as Metro Sweden, Black Earth Farming, Seamless, and so on recently. How much more do you have in the pipeline, and when do you expect to come down to the 15-20 holdings that previous management said was the target? Is this still the target? Thank you.
Good morning, Elias, and thank you for the question. We will continue to work on our portfolio. We don't have a specific number targeted, and we don't have a specific time set out for that non-target. We'll continue to work with the aim of focusing our resources on a fewer number. There is still a, call it a tail with smaller businesses, and we will probably continue to try to find new homes for them, but you will probably not notice it.
All right. Regarding the valuation of the unlisted assets, over time, the discounts that you apply to the peer multiples have been quite volatile, from a 20% premium in Global Fashion Group to now a 43% discount, and smaller but still significant moves in the other holdings. These discounts seem more stable now over the past few quarters, but the calculation of them are still quite opaque to us. How do you calculate the 43% in Global Fashion Group, for example, and how should we think about these going forward? Should we expect a gradual decline towards zero or steady at the current levels? Thank you.
Yeah, it's a good question. Thank you. As you know and remember, during this period, we've talked about GFG and the shift from the premium valuation to a discount valuation. I think you also remember that the market perception was that going from a premium valuation for growing companies in developing markets to a discount valuation and a more focus on the more developed markets and more mature businesses. During that period of time, we also shifted, obviously, our mindset and followed the market trend in our assessment of the fair values.
How we come to the exact number of the discount in GFG is simply that we do a bottom-up sum of the parts analysis, where we look at each of these businesses within Global Fashion Group, and we try to assess what the discount level should be if you compare, for example, Russia with the peer group that we have, Western Europe, more mature companies and profitable companies. It's to a certain extent, an assessment of the country risk and then also an assessment of the discount level for being more immature and not profitable. We have an ambition to be transparent. We have an ambition to be conservative and consequent in the way we look at this. We haven't gone from a 20% premium to 40%, 50% discount over a quarter, but it's been a journey over probably quarters, right? That's the thinking about it.
Certainly. Regarding the future development, should we think about these as slowly going towards zero, or should we expect them to remain at these levels for the coming few quarters at least?
Yeah. As they develop and as they become profitable, you should expect the discount to come down. As long as we keep the peer group as it is, as long as the peers trade and is valued the way they are today, and as long as we get closer to them, in terms of financial performance, yes, it should go down.
Okay, thank you. On Betterment, the assets under management per customer has since 2014 grown on average by 6% per quarter sequentially or 22% year-over-year, which given the high number must indicate negative churn. Could you please help us understand the mix between performance and negative churn in this development? Thank you.
Sure. Thank you. I'll pass it over to you, Chris.
Absolutely. You're right in suggesting that the business has negative churn, and indeed one of the core engines of growth of the business, and the reason why there's very strong forward visibility is that customers, once they're on the platform, not only stay on the platform, but they continue to deposit on the platform through historically both positive and less positive market conditions. As we grow the base, that's clearly going to be a more and more substantial part of the business, and that is why we're focused on accelerating growth. It costs us to grow because we have to pay for those customers up front, but once they're on the platform, the CAC to LTV is very attractive. I would say that that is a core engine of the business.
As we think Betterment is the only automated platform out there that can serve all customers on the market. We have customers who are millennials, and they're opening their first account, and we have customers who are putting $5 million-$10 million onto the platform who are retirees. We're really across the spectrum. I think our sweet spot is customers with over $100,000 of investable assets, and we are looking to grow their share of wallet over a period of time. I guess in summary, we would expect assets under management per customer to continue to grow.
Should we take the historical growth? Is it roughly half in asset growth and half in negative churn? I mean, 22% on an annual basis is, of course, not only performance.
Yeah, I think we continue to attract by number of customers. We continue to attract those savers and initial investors as our largest number of customers. It's going to be impacted by the mix of customers we attract over time. I think you can continue to assume that sort of growth rate in average customer balance. It will be impacted by a number of factors that are hard to predict.
Okay, thank you.
Thank you, Elias.
We have another question from Magnus Roman from Handelsbanken. Please go ahead, sir.
Yes, hello, this is Magnus Roman. Thank you. I have a question regarding the Lazada divestment. I guess Lazada, the Asia-based business, of course, was largest general e-commerce business model that you owned. You also own one in Latin America, Linio, and one in Africa, Konga. After the divestment of Lazada, should we view general e-commerce as still being sort of a core e-commerce sector for you or not?
Thank you, Magnus. I think what you see in our report as well, is that we work with these general e-commerce businesses and try to convert them into marketplace models, which I would say is a general theme out there. We continue to work with Linio and Konga, trying to drive revenue, trying to drive the conversion from an inventory-based model to a marketplace model. We try, as we do for all companies, to create value out of the businesses, and we will continue to do that going forward. Regarding the future and the future potential steps for these companies, I will probably pass on speculating about that.
Sure. Okay. On the home and living retailers, you raised your valuation of Home24 by over SEK 100 million or the value of your ownership stake of 17% sequentially here in Q2. Can you give us a bit more color on that adjustment, please?
On Home24, well, this is a bit technical actually, because you remember this liquidation preference structures that we have in many of our companies. For Home24, we are at a stage where any shift in full equity value would have quite a substantial impact on the fair value of our shares. If you remember a couple of quarters back, we had a quite substantial write-down of the fair value of our shares in Home24, and now we are coming back and climbing back on this steep liquidation preference curve, if that makes sense. See some improvement in the equity value of Home24, and it has a bigger impact on our fair value.
Okay, thank you. You own 17% in both Home24 and Westwing, the two home and living retailers. Maybe that is perhaps a bit below the ownership level that you prefer in the long term. I guess the question is a bit the same on the home and living retailers. Are they a continued core part of your e-commerce investments, which is otherwise very fashion-centric, or may they not be?
Yeah, no, thanks. I understand the question. Yes, they are part of our e-commerce segment. They've been through some different challenges, and we think they are in a good position now where we hope we would see a turnaround and some good development going forward. We will work hard with both of the companies and continue to drive value there as well. That's the general answer.
Thank you.
Thank you, Magnus.
At this time, there are no further questions. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero and one on your telephone keypad. We have no further questions, sir.
Okay, thank you. Thank you very much for listening and for the questions, Elias and Magnus. As a reminder, we'd like to inform you that we will report our Q3 results on the 26th of October. Thank you again, and have a nice day and a great summer.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.