Status Update

Dec 7, 2016

Press Release

Good morning, ladies and gentlemen, and welcome to this Audiocast and Press Conference with Sinevik. 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 Anderson and our Senior Investment Director, Chris Bishop. And my name is Torren Litsian, 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, Torren, and thank all of you for being here this morning. I think I'd like to perhaps just make 2 opening statements. The first is change. Change is probably one of the only constants in the world. Companies change, countries change, the world changes. And 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. So having said that, I would like to say that I think this company owes a great debt of gratitude to Lorenzo Grabar. Lorenzo has been with Kinnevik in different capacities for just over 4 years. He was a non executive director of the company and then 2.5 years ago, we asked Lorenzo to step up and take over as Chief Executive. And 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. And 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 and we believe 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 and A activity in some of our largest investments. So 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. It 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. So against that very clear brief that Lorenzo had, he has executed extraordinarily well. And in some ways, in the 2.5 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 Sini Biq and 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. And under Lorenzo's leadership, the team have also made 2 very important investments, not that big at this stage, 1 in Babylon, in health and one in Betterment, which is in financial services, actually in digital asset management in the United States. So the company has now reached another point. And the Board have been having discussions as to what are the skill sets that we require in the company for this next phase. And this has been a process over time. And 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. And the skill sets that we believe we need now if we are 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. And 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. And 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. And that's a different set of skills to what we required 2.5 years ago when we started the big consolidation and team building. And 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 this morning. Having made that decision, there's always a question of how and when. And 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. And so immediately after the board meeting yesterday evening, Eric Musarega 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. So that's how we've got to where we are. We have a very strong team. Lorenzo has built a very strong team. So you were introduced to Joakim, our CFO, who's been with the group for some 15 years. Chris Bischoff has been sort of one of the first men into the trenches in London and has worked with Lorenzo on building the investment professional team. And 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. But times have changed, the company has 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 to 20 holdings in a couple of years' time from 35? Yes. We think it is better to focus and to having identified the companies in this kind of business, you're not going to win every single one. And 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 4 or 5 of the companies that we have sold. So absolutely, we will continue to reduce the portfolio to a more focused portfolio in our core areas that I've already spoken about. And that's ongoing. And 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. Which is now in €1,300,000,000 of net debt roughly. Given that we still expect you to make investments for next year, how should we see the sort of capital distribution policy going forward? Yes. So absolutely, and one of the decisions we made and was really on the back of the sale of a veto. As I said, the world changes and one of the funny things, strange places we find ourselves in the world now is in 0 or negative interest rates. So 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 and 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. So we've got a clearly chartered 3 year forward plan, very strong CFO, who can give you all the he's done all the hard work and the board have approved it. So we think we're in a good position to continue investing. Well, he's involved in a number of them and he's also on a number of our public companies. And absolutely, as we said in the press statement, he will continue to be involved in those companies. So our biggest company and Zalando is now the biggest single investment that SINOVIC has and Lorenza 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. So they will go through that process in the spring And they will elect and select the Board that they believe are right. Well, that's never an easy conversation. But again, I don't think it's a complete bulk 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. Long process and due to changes within the company's strategy and everything. But 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. And 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? 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. Question, yes, it comes from Magnus Raman from Hellsbanken. Please go ahead. Your line is now open. Magnus Thromann, Handelsbanken. I would just like to ask to elaborate a little bit more about the competence that you seek for the replacing CEO. You 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. Okay. So I think if you look at SinoBIC'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 and particularly in some of the unlisted ones, it's a very hands on business. And 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 very active investor. Next question from the group? Migita Forsberg, Daggesnater. Yes, I'm just wondering, was it a regular board meeting yesterday? Or was it because of this issue? 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. So with the board convening here yesterday, and 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? So we convened the board meeting yesterday evening before the dinner and we had a lengthy discussion and the board unanimously made the decision they did. So but Lorenzo Grebao is on the board, so he was not there yesterday. No, he's not. He's not on the board? No. Okay. And do you think you will take someone internally now to update the company? Our search will certainly look internally, but we will cost 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. So will Lorenzo grab all the shares in all the companies? I have absolutely no idea. That's Lorenzo's call. And do we have any further questions from the audio cast, please? The next question comes from the line of Arren Riccadella from Bloomberg. Please go ahead. Your line is now open. Yes. Arren Riccadella, Bloomberg News. Just to be 100% clear because I dialed in a few seconds late, this is Tom Boardman as the principal speaker, correct? Yes. Yes. Okay. Aaron Riccadilla 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. So 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. So what was the fundamental how did all this come to a head? Can you give us a little more color on that? Yes. So 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. And 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. But 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. And 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. And 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 and as we are obliged to do, we communicated it. But 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. And we certainly hope as soon as possible. But having said that, we do have a strong team in place to keep the company running. Yes. What you would say is the deadline for the last date without damaging the company's operations? I don't think there is a specific date. I think it's anything that a change like this always creates both internally and externally, and you want to remove uncertainty as soon as you can. So in a perfect world, we'd certainly like to get this handled and done by the time the green offspring comes back to Europe, and we will work actively to do it as swiftly as we can. And last question, you're talking about this long processes and you're being transpersonal. But 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 And I hope that they will read that Schoonmaker is a company with a very long history in this country with a very strong culture and values. And part of our values is to be open, honest and transparent with everybody, both internally and externally. Stefano Fang, 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? So 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 life, you need to change as well. So the last focused 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 and that is in leading consumer digital brands in the spaces and the industry that I've spoken about. You then get into the execution of that strategy and you start evaluating the skills and the bench strength and what you require for that and that is the point that has led to the decision. We'll go to the audio cast to take the next question please. The next question comes from the line of Derek Loehberger from Evercore. Please go ahead. Your line is now Evercore. So in light of what you mentioned, the appropriate skill sets and experiences of the NIL CEO you're looking from, how do you feel about the investment organization as a whole? Do you feel you have the appropriate skill sets there? Or do you expect any changes or expansions of this in your opinion? Sorry, Toren, 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 and if you go through the CVs and the background and the history and you look at their performance over the last 2.5, 3 years, I believe we have got the skill sets that we need to find companies, to do the due diligence, to do the acquisitions, to do the disposals and at certain levels and in certain companies absolutely I've seen the skills and the investment team growing in assisting in the running of those companies. But it is for the group as a whole, Machinevig as a whole that we believe we need to 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 Direct. 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? And further to that, is M and 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, whatever you can tell me, but it changed again last week when one of the transactions we did. But let me get to the first point. I think absolutely and I really can say in my 45 odd years, I've had the privilege of working in many different industries in many different countries and 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. And 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. So I'm not clear. Did you ever get the point, sort of Chief Operational Officer, as a complement to Lorenzo's skill set and keeping him as a CEO? Yes, we had discussions on that. And I must say, it's a very big and very complex job. And 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. And so 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. But 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. And 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. And what did you say about the number of holdings that you needed to put at this today? We have today around 35 companies. 35. And your ambition is to be on about half of that, correct? I think there are another well, in the shorter term, there are probably another 5 or 6 that we are currently working on, on the disposal of and we certainly don't go public, you don't want to sort of put up signs. And then 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. And they may then well either stay and become really big important companies or they will also be disposed of. So 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 the least of all those 35 holdings with some basic figures? Yes. I think it's in our annual statements very clearly explained company by company, a schedule of all the listed companies and the schedule of all the unlisted ones. Our values and we are very, very transparent, I'm as we should be in the valuation. So 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 Posch, Nordea again. Thank you. Would it be advantageous for the next CEO to be a Swedish citizen, you think? Or and given that you spoke about operational experience, I take it that Kristina Stenbeck is definitely not the candidate? So I don't think we have any bias on nationality or on gender for that matter. So no, it's not necessary that the next CEO, he or she should be Swedish. The pros and cons. And we do have very deep Swedish roots. And while we have become a global player, the heart of the company is still very much a Swedish company. We hope with some of the other great companies that this country has produced, sometimes just coming from the southern tip of Africa, I look at what Sweden has achieved and is achieving by the way in the digital space. It's one of the key centers in the world in what is coming out of Sweden right up there with some of the other big tech centers. So no bias, we will be costing our net very wide. But our culture remains Swedish. Thank you. And just a 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 or 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. So we will continue to operate the investment team out of London under Chris' leadership. I believe we have a final question from the audio Please go ahead. Yes. We have a follow-up question from the line of Magnus Rohrmann from Handelsbanken. Please go ahead. Your line is now open. My question has already been announced. Thank you. Thank you. And do we have any final question here in Stockholm? That does not appear to be the case. So thank you very much for attending and we look forward to seeing you soon. Bye.