Status Update

Dec 7, 2016

Press release

Good morning, ladies and gentlemen, and welcome to this audio cast and press conference, with Kinnevik. Together in the room with me today, I have the Chairman of the Board, Mr. Tom Boardman. I also have the Acting CEO of Kinnevik, Joakim Andersson, and our Senior Investment Director, Chris Bischoff. My name is Torun Litzén, Head of Corporate Communications. I'd like to hand over to Tom for some opening remarks, and then we will open up to questions from the room and from the audio cast. Okay. Thank you very much, Torun, and thank all of you for being here this morning. I think I'd like to perhaps just make two opening statements. The first is change. Change is probably one of the only constants in the world. Companies change, countries change, the world changes. With change, you have to deal with the change. It's always going to be with us. The second thing I'd like to say is that sometimes from the outside looking in, events like today and our press statement going out this morning, may look very unexpected and sudden, but it is usually an accumulation of events over a period of time and decisions over a period of time that lead to these decisions being made. Having said that, I would like to say that I think this company owes a great debt of gratitude to Lorenzo Grabau. Lorenzo has been with Kinnevik, in different capacities, for just over four years. He was a non-executive director of the company, and then two and a half years ago, we asked Lorenzo to step up and take over as Chief Executive. If I look back at where the company, where Kinnevik was at that point and what the priorities were, Lorenzo had a very clear brief. The brief was, we needed to consolidate the company. We had been making a number of investments across a wide range of different sectors. We had to build our bench strength in our investment professionals. We believed that we should establish an office in London to run our investment center out of London. We were also at a very crucial point in M&A activity in some of our largest investments. I think you all know that Lorenzo played a key role with his team, in the IPO of Zalando, which was on the cards and about to happen. Zalando, as you now know, has been extremely successful with a significant market cap that is one of the leading digital companies in Europe. We also had to get involved in the IPO of Rocket. We also had major transactions, such as the disposal of Avito in Russia, which was extremely well handled by Lorenzo and the team, achieving a sales price of something like 16 times our initial investment. Against that very clear brief that Lorenzo had, he has executed extraordinarily well. In some ways, in the two and a half years, we've actually knocked off a lot of the issues sooner than we might have thought. Back to the process. Lorenzo and the team have also now articulated a clear strategy for Kinnevik, our strategy is to build leading brands in consumer digital space, particularly focusing on health, on financial services, on mobile, and to an extent on education. Under Lorenzo's leadership, the team have also made two very important investments, not that big at this stage, one in Babylon, in health, and one in Betterment, which is in financial services, actually in digital asset management in the U.S. The company has now reached another point, the board have been having discussions as to what are the skill sets that we require in the company for this next phase. This has been a process over time. It was at a meeting of the board, which started yesterday evening and will be running through the rest of today, that the board, following a lot of discussions, reached the conclusion that we need a different set of skills for this next phase of the company. The skill sets that we believe we need now, if we are going to compete in this very challenging space, in the digital space, where we are now competing against some of the world's biggest companies, the Googles, the Amazons, who are making investments in the space. Not only the other VC companies, where we want to be first in line when people have companies and ideas and they need financial backing and support in the digital space. We think that the skill sets required for that start with a really deep and profound understanding of markets, of technology, of consumers, and consumer behavior. That's a different set of skills to what we required two and a half years ago when we started the big consolidation and team building. Having come to that conclusion, which we did only yesterday evening, we have an obligation as a listed Swedish company, that if the board of a company believes that there's going to be a change in the leadership, we have an obligation to inform the market, which we did at 7:30 A.M. this morning. Having made that decision, there's always a question of How and when. In the board's view, in a situation like this, it's probably better to act more swiftly and to do things sooner rather than later. Immediately after the board meeting yesterday evening, Erik Mitteregger and I met with Lorenzo. We informed him of where the board had got to, our conclusion, and informed him that in the view of the board, it was best that we acted sooner rather than later. That's how we've got to where we are. We have a very strong team. Lorenzo has built a very strong team. You were introduced to Joakim, our CFO, who's been with the group for some 15 years. Chris Bischoff has been one of the first men into the trenches in London and has worked with Lorenzo on building the investment professional team. We are very clear that we are now in a strong position to execute the strategies that the board has agreed and that Lorenzo drove with the team. times have changed, the company's changed, and it was time for a change. Happy to take questions. I would like to ask you to introduce yourself and to speak into the microphone. We will start with the first question from Elias Porsche from Nordea. Thank you. Elias Porsche from Nordea. Will you keep on the strategy of reducing the number of holdings in Kinnevik? Lorenzo said that you aim to go down to 15-20 holdings in a couple of years' time from the 35. Yes. We think it is better to focus. To having identified the companies. In this kind of business, you're not going to win every single one. I think we did go through a phase where we perhaps had a bit of proliferation and made too many small investments, and we've already begun that process of consolidation. I think we've already announced four or five of the companies that we have sold. Absolutely, we will continue to reduce the portfolio to a more focused portfolio in our core areas that I've already spoken about. That's ongoing. Also, we could be making larger size investments in companies in the fields we've identified. Thank you. Andre, if I may. You made a massive capital distribution this year. Kinnevik is now in SEK 1.3 billion of net debt, roughly. Given that we still expect you to make investments for next year, how should we see the capital distribution policy going forward? Absolutely. One of the decisions we made, and that was really on the back of the sale of Avito. As I said, the world changes, and one of the funny things, strange places we find ourselves in the world now is in zero or negative interest rates. We think it is appropriate for a company of our size, and we've always articulated that our strategy is to have no or low gearing, and we haven't changed that. We, at 1.5, is extremely small gearing. We are always transacting and exiting as we have a number of investments, and we believe that a combination of our dividend income, and disposals, and some gearing, enable us to continue making the investments we need to make. We've got a clearly charted three-year forward plan. Very strong CFO. He's done all the hard work and the board have approved it. We think we're in a good position to continue investing. Thank you. Thank you. Anne Leveson from Well, he's involved in a number of them, and he's certainly also on a number of our public companies. Absolutely, as we said in the press statement, he will continue to be involved in those companies. Our biggest company, Zalando is now the biggest single investment that Kinnevik has. Lorenzo sits on that board and will continue to do so. All companies have a nominations process, an annual process, and the board are appointed annually. They will go through that process in the spring, and they will elect and select the boards that they believe are right. What did Mr. Loredo say when you told him he couldn't stay as the CEO? Well, that's never an easy conversation. Again, I don't think it's a complete bolt from the blue. Lorenzo said, "Absolutely, I'm an investment, I'm a professional, and I understand that if a board comes to the decision that they need a change, that is the decision of the board, and the board ultimately has to make that call," and I accept that call. Yeah. You're talking about this is a long process and due to changes within the company strategy and everything. How come if it's not so dramatic, how come he's not here today talking about this? Because I think it's a very fundamentally It's a difficult time. Okay. Again, it's a subjective call that the board made, that we thought it would be better for everyone concerned if we made a clean cut. Okay. Do we have any questions from the audio cast, please? Ladies and gentlemen, if you would like to ask a question for the speakers, please press zero one on your telephone keypad. We don't appear to have any questions from the telephone. Do we have any further questions in the room? We have one question from the audio. Please go ahead. The question, yeah, it comes from Magnus Roman from Handelsbanken. Please go ahead. Your line is now open. Yes. Hello there. Magnus Roman, Handelsbanken. I would just like to ask you to elaborate a little bit more about the competence that you seek for the replacing CEO. You've stated that you want to see Replacement with more operational experience. How come is that important when this is a CEO for an investment company and you have the operating competence in the underlying operating companies? Thank you. Thank you. I think if you look at Kinnevik's history and the companies in which we invest and the roles we play, we are not an investor that puts the money in and then sits back. We are actively involved in the companies in which we invest at different levels, and that includes representation on the boards of the listed companies. Particularly in some of the unlisted ones, it's a very hands-on business. That is where we really believe that it is that hands-on piece as to where we are now, and particularly the fields that we're in and the changes in the technology world that are so rapid that some hands-on operational experience is what we really require. We are not a passive investor. We are a very active investor. Question from the group. Birgitta Forsberg, Dagens Nyheter. Yes, I'm just wondering, was it a regular board meeting yesterday? Was it because of this issue? No, I think as the issue rose, to be completely transparent, we have a board meeting today, which is a scheduled board meeting with all the board flying in from all over the world, from the West Coast of America. With the board convening here yesterday, we had a dinner yesterday evening, we actually scheduled, said this is something that I think has got to a point where the board now needs to make a call. Can we please sit down and make the call? We convened the board meeting yesterday evening before the dinner, we had a lengthy discussion, the board unanimously made the decision they did. Lorenzo Grabau is on the board, he was not there yesterday evening. No, he's not. He's not on the board. No. Okay. Do you think you will take someone internally now to lead the company? Our search will certainly look internally, we will cast that net quite wide. It's a big and complex job to be Chief Executive of this organization, particularly with all the changes happening in the fields in which we operate and the speed of change. Will Lorenzo Grabau sell all his shares in all the companies, Kinnevik companies? I have absolutely no idea. That's Lorenzo's call. Thanks. Do we have any further questions from the audiocast, please? Yeah. The next question comes from the line of Aaron Ricadela from Bloomberg. Please go ahead. Your line is now open. Yes. Aaron Ricadela, Bloomberg News. Just to be 100% clear, because I dialed in a few seconds late. This is Tom Boardman as the principal speaker, correct? Yep. Yep. Okay. Aaron Ricadela at Bloomberg. My question is, I heard everything you said about different skill sets, new competition for investments, what's needed broadly as the chief executive, yet it seems like Lorenzo set his course at least a year ago. I'm kind of wondering on the timing. It seems very clear from your release and some of the language that something must have happened that we don't know about. How did all this come to a head? Can you give us a little more color on that? Yeah. I would just like to reiterate something that I've said, and that absolutely categorically, there is no single event which has brought this to a head. There is nothing that has happened. It has been a process, but like most processes, it gains momentum. Discussions are held, and the strategy has been pretty well articulated for the last year, and there have been a number of pieces of the execution of that strategy that have been ongoing. Increasingly, the board has been saying we are nearly ready for the next phase, and we think that in the next phase, we need different leadership. Those conversations gained more and more momentum until I took the decision as Chairman of the Board that we could not have this happening in separate conversations. The board needed to sit as a board and apply their minds to the issue and make a decision. Hence, I requested that the board, who were all going to be here for today's meeting, met yesterday. We had those discussions, we made the decision, as we are obliged to do, we communicated it. It is no single event. Absolutely not. We have the highest regard for what Lorenzo has achieved in his time in this company. He has made a significant difference, and we can only thank him really sincerely for that. All right. Thank you. From Stockholm. When do you estimate the new CEO will be at his job, the permanent? I don't have a crystal ball. The search will commence immediately. We certainly hope as soon as possible. Having said that, we do have a strong team in place to keep the company running. Yeah. What would you say is the deadline for the last date without damaging the company's operations? I don't think there is a specific date. A change like this always creates uncertainty, both internally and externally, you want to remove uncertainty as soon as you can. In a perfect world, we'd certainly like to get this handled and done by the time the green of spring comes back to Europe, we will work actively to do it as swiftly as we can. Last question. You're talking about these long processes and you're being transparent and all, how do you think it affects your possibility to recruit a new person when Kinnevik is a company where you obviously can get sacked over the day like this? Yeah, I think people will make their own interpretations. I hope that they will read that Kinnevik is a company with a very long history in this country, with a very strong culture and values. Part of our values is to be open, honest, and transparent with everybody, both internally and externally. Stefan Gauffin, Nordea. Just a clarification. Has there been a different view between you or the board and the CEO regarding the road ahead or the execution of the strategy, or is it simply a new skill set needed? I think it's absolutely the latter. Strategy is also not an event, by the way. You don't sort of have strategy and then it's all over. Strategy is a process, and it's an ongoing process, because as the world around you changes and things come to light, you need to change as well. The last focus strategy session that we had, we had here in Stockholm in July this year, where Lorenzo and the whole team presented the strategy, articulated very clearly the fields in which we believe we have got the competence and the expertise to operate in. That is in leading consumer digital brands in the spaces, and the industry that I've spoken about. You get into the execution of that strategy, you start evaluating the skills and the bench strength and what you require for that is the point that has led to the decision. We'll go to the audiocast to take the next question, please. The next question comes from the line of Derek Laliberté from ABG. Please go ahead, your line is now open. Good morning. Thank you for taking my question. In light of what you mentioned are the appropriate skill sets and experiences of the new CEO you're looking from, how do you feel about the investment organization as a whole? Do you feel they have the appropriate skill sets there, or do you expect any changes or expansions of this, in your opinion? Sorry, Torun, can you just help me with that. Do you envisage any changes in the investment organization or if they have the appropriate skill set? No, I think absolutely the investment organization and the team that Lorenzo has built. If you go through their CVs and their background and their history, and you look at their performance over the last two and a half, three years, I believe we have got the skill sets that we need to find companies, to do the due diligences, to do the acquisitions, to do the disposals. At certain levels and in certain companies, absolutely, I've seen the skills in the investment team growing in assisting in the running of those companies. It is for the group as a whole, for Kinnevik as a whole, that we believe we need the change, not in the investment team. We'll take the next question from the audio cast, please. The next question comes from the line of Martin Lindgren from Direkt. Please go ahead. Your line is now open. Thank you, and thank you for taking my questions before today, Tom. I wonder, was appointing a chief operational officer ever discussed in the board? Further to that, is M&A experience something that the successor to Mr. Grabau needs as well as he had? Speaking of your intention to decrease the number of holdings to 15 to 20 somewhat, how many holdings do you have today, by the way? The exact number, Chris, one of you can tell me, it changed again last week when one of the transactions we did. Let me get to the first point. I think absolutely, I really can say in my 45-odd years, I've had the privilege of working in many different industries and many different countries. I have not worked with many people who have the skills, the financial acumen, the decision making, the analytical capabilities that Lorenzo has. He's outstanding, absolutely outstanding in that field. A lot of that skill he has identified in the team that he's built, and he has added value to them with his background and experience. All right. I'm not clear. Did you ever discuss appointing a chief operational officer as a complement to Lorenzo's skill set and keeping him as the CEO? Yes, we had discussions on that, and I must say, it's a very big and very complex job. I think trying to handle the spectrum, and across, you're also operating in different countries, and it's not just London and Sweden. As I've said, Lorenzo has had to travel the world with his team, from Brazil to Australia and from South Africa to Stockholm. We did have discussions on the appointment of a chief operating officer. We've also looked at the appointment of a chief investment officer in splitting the roles and trying to identify what the skill sets are required for those. It ultimately comes down to any organization, the culture and values and behavior of an organization is a reflection of the culture, values, and behaviors and skills of the leadership set, starting with the chief executive. That is the decision that the board came to, is that is where we need the change at this point for where we are on our journey. Okay. Good answer. What did you say about the number of holdings that Kinnevik possesses today? We have today around 35 companies. 35, and your ambition is? 35. Yeah. to be on about half of that, correct? I think there are another six. Well, in the shorter term, there are probably another five or six that we are currently working on the disposal of. We certainly don't go public. You don't want to sort of put up signs. From that, there are some that we are evaluating and that we believe are not long-term, but that we can add value to and uplift their values in the next 24, 36 months. They may then well either stay and become really big, important companies, or they will also be disposed of. We don't have a number that we are obsessed with, that it's got to be 10 or 12 or 15. We've just got to identify the winners, keep, build, add to, strengthen the winners, identify the losers, and fix them if they can be fixed and dispose of them. Finally, if I may, is it possible to get a list of all those 35 holdings with some basic figures? Yeah. I think it's in our annual statements, very clearly explained company by company, a schedule of all the listed companies and a schedule of all the unlisted ones. Our values, and we are very transparent, as we should be, in the valuation. We do our valuations. They may not be the last transaction value sometimes. We have reasons that we think the value should be less or more. Generally, I think we are quite conservative, but that list is there for everybody to see every company. Thank you. We'll take our next question from Stockholm. Elias, Thank you. Just to follow up on that, if I may, the London office, how do you view that going forward given the Swedish culture and so on? Thank you. I'm glad you didn't say with Brexit or without Brexit. We do believe that London is a center that attracts, and you're able to attract a wider pool of talent from around the world than perhaps you can in Stockholm. That's a judgment call. We will continue to operate the investment team out of London under Chris' leadership. I believe we have a final question from the audio cast. Please go ahead. Yep. We have a follow-up question from the line of Magnus Roman from Handelsbanken. Please go ahead. Your line is now open. My question has already been answered. Thank you. Thank you. Do we have any final question here in Stockholm? That does not appear to be the case. Thank you very much for attending, and we look forward to seeing you soon. Bye.