Ladies and gentlemen, good morning. This is Lorenzo Grabau, and welcome to Kinnevik's Q3 results. Here in Stockholm, I am together with Joakim Andersson, our Chief Financial Officer, Torun Litzén, our Director of Communication, and I'm very pleased to welcome Mattias Andersson, our new General Counsel, who is also here with us today. As you will have seen in the report that we just released this morning, Q3 was a very strong quarter, with net asset value up 15% to SEK 75 billion. If you look at the numbers as of yesterday, you can add an additional 3%. We have shared with you a short presentation, which as customary, we'll take you through, then we will go through questions that you might have on our reports and of course, any further topics you'd like to discuss.
If we turn over to page number two, this is a good summary of our quarter. The first important point is that our fashion e-commerce companies are delivering on our promise. Strong revenue growth, improved profitability, and de-risking of our businesses. Our second important point is that our communication and entertainment assets are executing on their transition plan, which is something we've been talking about quarter after quarter. This transition plan entails migration to data for the communication businesses, investments in digital for the entertainment businesses, and a very disciplined approach to cost management, which in some cases requires cost-cutting. The third important message for this quarter is that we're continuing to execute on our prudent investment strategy. First, we want to own more of our priority companies, if of course, we can do that at appropriate valuations.
A good example of this is the investment we made in the GFG companies earlier this year. The second thing is we want to better capitalize the companies that we're invested in by working in close partnerships with other investors. Where it is Baillie Gifford for Home24, Latin Idea for Linio, and in fact, the public markets for Tele2, as we support their rights issue for the funding of the TDC B2B acquisition. Now, if you think about it from a strategic point of view, we are continuing to show that we are taking risk, but in a prudent and disciplined manner.
When we realize that the best way forward is consolidation, we're ready to act upon it, as we've demonstrated with the sale of Jabong to Flipkart for $70 million in cash, and the consolidation of Wimdu into 9flats, which we will come back to later on. In conclusion, we end the quarter up 15% with an equal contribution from both our public and private companies, and with a very strong and liquid balance sheet and practically no debt. Now let's go a little further into the details by starting on page four by reviewing the performance of our largest operating companies. Let's start with our public companies, which as you know, account for approximately SEK 64 billion or 86% of our gross assets. Four of our six companies, Zalando, Tele2, the companies within Rocket Internet, and MTG, delivered very healthy growth rates.
17% for Zalando, 6% for Tele2, 32% on average for the key Rocket companies, and 7% for MTG. The other two companies, Millicom and Qliro, focused on a substantial improvement in their profitability, with Millicom reaching a 36% EBITDA margin and Qliro gross margin up 3%. Overall, we're very pleased with the performance of our public companies. If we turn over to page five, we are particularly pleased with the performance of Zalando. Despite what everybody will describe as a challenging operating environment, Zalando was able to deliver a solid revenue growth and a very significant improvement in its profitability, showing its ability to find an adequate trade-off between growth and margin improvement depending on the market conditions.
The good news is Zalando is continuing to invest in what matters the most to customers: improving the assortment, improving service, adding brands, in some cases through partnerships, and most important, investing in improving the customer experience quarter after quarter. Which puts Zalando in a strong position to continue to capitalize on the overall shift that is taking place in fashion e-commerce from offline to online. If we now turn over to page six, we're similarly pleased by the success of the investments that are made by a number of our Swedish public companies in driving innovation and product development from within. As you know, this is at the heart of the Kinnevik way of creating value. Organic growth, innovation, and not expensive M&A and unsustainable leverage.
In the case of Tele2, from the very beginning, creating and building upon a strong IoT platform, which opens new avenues for customers to engage with multiple devices across multiple industries. Doing so in partnership with a number of leading players on a market-by-market and sector-by-sector basis. In the case of MTG, we're quite impressed with the work that they've been doing in taking their content and developing and launching the Viafree digital advertising-funded video platform, and building on it in a way that is going to allow access to customers and content very much on an open architecture basis. Similarly, we're very impressed with how they have been developing on the esports side, a much broader product offering than was there when they made the original investments, and taking that across the world, both alone and in key partnerships.
Let's turn over to our private companies on page seven. We can see continued progress across our private portfolio. Starting with the GFG group of companies, which now account for nearly 8% of our NAV. You will have seen, as they reported recently, they had a very good first six months on an aggregate basis. Nearly 9.5 million customers, i.e., 36% growth. Revenues up 37%, NMV up 41%, and a substantial improvement in the EBITDA margin, 18 percentage point better than last year. These numbers exclude Jabong, which, as you know, we have sold earlier in the year, which means that this is a real improvement in the continued operations. Second, our 3 earlier stage companies, Quikr, Betterment, and BIMA, have shown exceptional growth rates, in particular with Quikr driving a substantial increase in the listings and the responses.
In the case of Betterment, a continued growth both in number of customers as well as under assets under management, up 85% and 126%, respectively. If we turn over to Westwing, this company has been focused on delivering a solid path to profitability. As a result, growth has been more limited than in the past, but has allowed us to deliver an exceptionally improved financial performance with a 22% improvement in the EBITDA margin, which means that Westwing is on track to become a profitable and growing company. Let's take a deeper look on page eight and nine at the GFG group of companies. We're presenting here the four components, Russia, Latin America, the Middle East, Southeast Asia and Australia. Starting with Russia and Lamoda.
Continued increase in mobile traffic, innovation, and big investments in logistics infrastructure have allowed Lamoda to continue delivering exceptional growth and a substantial improvement in profitability. Orders were up 36%, active customers 56%, NMV and revenues up 43% and 41%, with an adjusted EBITDA margin going from minus 16% to minus 6%. Excuse me. In the case of Dafiti, we had a very successful rollout in the marketplace product offering, which is obviously a very attractive component of the business, given it allows us to de-risk the inventory side of the business, and a successful integration of Kanui and Tricae. Growth orders a slightly lower pace, 20%-22% in orders and customers, and 24% and 18% in NMV and revenues. Similarly, a very significant improvement in adjusted EBITDA from minus 37% to minus 10%. Namshi had an extraordinary performance.
With a very lean cost structure and a solid set of investments in infrastructure and technology, they were able to grow orders and customers 60% and 100%, and NMV and revenues over 50%, and they were well into profitability. Namshi is, of course, facing a significantly more challenging environment today, as I'm sure you know if you follow Saudi and Middle Eastern-based companies. The team is working very hard to make sure the business is well-positioned and equipped to face the current challenges that they're experiencing in the marketplace. Turning over to ZALORA and THE ICONIC, big investments in brand acquisitions, move to marketplace, strong focus on strengthening the team, and completing the brand portfolio have allowed the companies to continue to deliver healthy NMV and revenue growth well into the 50s, and similarly, an improvement in profitability.
We're clearly not pleased with the minus 25% adjusted EBITDA margin. The team is working very hard to address that such that we can continue to make a progress similar to the one we have made in the three other regions, also within the Southeast Asia businesses. If you turn over to page 10, you can fully appreciate the strength of GFG from a balance sheet point of view. As you know, we completed a successful SEK 330 million investment by Kinnevik and a number of the other investors, creating a much stronger capital base for GFG to go forward. In addition, by exiting a number of peripheral businesses in Southeast Asia and exiting Jabong, we have put the company in a position to be fully capitalized to reach its ambitious growth and profitability plans over the next five years.
Before we turn over to a review of our investment management activities, I just wanted to mention a few words around a couple of our smaller private companies, BIMA and Westwing. BIMA is a company we are particularly proud of. It was a company created, as many of you know, through a successful partnership between Millicom and Kinnevik to address a fundamental emerging market need for a product that just didn't exist, life insurance, health insurance, and more recently, teledoctor consultation. BIMA is developing a successful business, which will, in time, deliver very attractive growth rates and profitability. It is also bringing a very exciting and transformational product offering to over 15 countries, which frankly never had access to this type of fundamental and basic financial product. We're very pleased, and we're very proud of what BIMA is doing.
We look forward to continuing to work with the management team in attracting a number of strategic partners, in addition to the ones we have today, to build a stronger and even broader access to markets around the world. Finally, before we close on the private companies, I want to mention the exceptional performance of the Westwing management team, who has been able to transform, in challenging market conditions that are cost-structured, to such an extent that the company is now fully capitalized to reach its targets of growth and profitability. Will continue to deliver a very exciting product offering in a sector which is less mature than fashion, but we believe will offer very exciting long-term opportunities, given that the home and living area is one which is showing quarter after quarter to be moving to digital, just like the other sectors of the e-commerce market.
If we now turn over to Section B in our investment management activities review. On Page 14, we have summarized the nearly SEK 750 million that we invested during the quarter. We've discussed the investments in GFG, Linio, home24, and of course, our participation in the Tele2 rights issue. As you can see, these are prudent and focused investments that we make to strengthen our companies and to make sure that we continue to execute on our open architecture investment model, where we attract a number of other players to build great businesses by retaining or building a leadership position and making sure that our companies are well-capitalized. As I mentioned earlier, we are also showing our readiness to move on when things don't work, because our strategy, as you know, is based on two pillars, driving organic growth and executing consolidation transactions.
We're quite pleased with the success that we've had with the exit of Jabong, which many of you had raised with us as being a real pain in our ability to deliver an exciting story for the GFG group of companies. With that, I'd like to turn it over to Joakim and to Page 16 for a more detailed review of the capital markets environment in which we've operated and the background to our financial results.
Thank you. As we've done the last quarters, we would like to highlight some of the key capital markets trend that on top of the operational performance that Lorenzo just talked about, are relevant for Kinnevik and the valuation of our companies. On Slide 16, starting on the left-hand side, we have included four key equity indexes that all indicate a very strong third quarter with a general value increase of 6%-10%. To the right, we find further support by means of a continued weakening of the Swedish krona against our key currencies, such as the euro, the dollar, and the Colombian peso.
We continue to next slide and turn back to the equity markets development, zoom in on our two main sectors, we firstly see that the e-commerce companies represented on the slide by our peer groups within fashion, home and living, marketplaces, general retail, and classifieds, have all had a very strong development over the quarter, with exceptional share price performance in combination with the revenue multiple expansion. Most notably is the performance of the fashion companies, where share prices, as highlighted by the green line in the graph to the left, were up by 42%, and the multiples shown by the bars on the top of the right-hand side of the slide, up by 20% to 2.4x revenues. On the next slide, Slide 18, we have included our communications companies and their peers.
As the graphs to the left show, Tele2 in green, traded slightly ahead of its peers, whilst Millicom, in blue, was behind with a 13% decline over the quarter, where we also saw somewhat contracting EBITDA multiples for all our relevant peer groups in the sector, as shown to the right. Moving on to the next section and Slide 20, we take a look at what these trends meant for Kinnevik. On this slide, we have included detailed information on the valuation of our largest unlisted companies. On a consolidated basis, we see on the bottom line that the fair value of these assets were up by SEK 2.3 billion in total during the third quarter, ending with a total value of SEK 12.3 billion. This change in value was driven both by the total investments of SEK 742 million and the value increase of almost SEK 1.6 billion.
On the top row, you can see our third quarter investment in Global Fashion Group that Lorenzo talked about earlier, as well as the value increase of almost SEK 1.5 billion, driven primarily by the multiple expansion and the sales growth. We have, as for the last quarters, valued the businesses within GFG on a sum of the parts basis with an average discount to the peer group multiple of 38%, corresponding to 1.5x the last 12 months of revenues as per the 30th of June. We quickly turn those details into a bar chart on the next slide, it's even more visible to us that the change in fair value of our private assets this third quarter from SEK 10 billion to SEK 12.3 billion was driven by GFG and the combination of the value increase and the investment.
Adding on this private value to the value of our public companies on slide 22, we get to our total net asset value of SEK 74.5 billion at the end of the third quarter, which corresponds to a strong 15% uplift in value. Our NAV per share consequently increased from SEK 235 to SEK 271, again, driven by the very strong performance of our online fashion companies and Zalando in particular. As of yesterday, the NAV per share was SEK 282, or SEK 77.7 billion in total, another 4% up this month. The final slide in this section, slide 23, is, as usual, the summary of our investment activities and the overview of our financial position. During the third quarter, we made net investments of SEK 735 million, including the investment in GFG and the investment in Linio.
The accumulated net investment for the first nine months amounted to SEK 2 billion. We expect to remain within our net investment guidance of SEK 2 billion-SEK 3 billion for the full year. Including the investments during the quarter, we turned the net cash position of SEK 354 million into a net debt position of SEK 419 million during the quarter, including the unpaid investments of SEK 131 million, but excluding our commitment to participate in Tele2's rights issue with SEK 900 million. As you can see, we expect to end the year in a net debt position, but still clearly within our no to low leverage policy. With that, I would like to hand it back to you, Lorenzo, for our concluding remarks.
Thank you, Joakim. If we turn over to page 25, this is a snapshot of what Kinnevik is today. Over 90% of our NAV is invested in six great companies, Zalando and GFG, the Rocket-owned Delivery Hero, HelloFresh, Millicom, Tele2, MTG. Each and every one of these companies has exceptional customer reach, great international presence, and is delivering very attractive organic sales growth. Or in the case of Millicom, working very hard to transition its business to make it even stronger and more effective in the markets in which we operate. We also have, as we've shown before, a number of exciting opportunities in the rest of our private portfolio. Over the last several years, this is a snapshot over the last five years, we have delivered a very attractive return, both in terms of NAV growth as well as dividends.
We're particularly pleased with the execution of our capital return this year, which, as you know, included a share buyback, which was executed when the markets were particularly unfavorable earlier in the year. That was followed by our share redemption program and ordinary dividend payout. In summary, we feel that we enter the last quarter of the year with five very strong pillars. A solid asset base, a strategy of combining growth and consolidation, a business model which is built on a continuous long-term capital reallocation process, a prudent investment strategy and a very strict financial discipline, and a highly committed team that has the experience and capabilities to execute. This gives us the confidence to continue building great businesses that offer consumers around the world more and better choice in the digital consumer world. Thank you.
With that, we'd like to open it up for questions.
We can start by hearing if there are any questions from the telephone.
Thank you. We have one question which has come through so far. That's from Philip Middleton of Merrill Lynch. Please go ahead. Your line is open.
Thank you very much. That was very interesting. Could I just ask you two things? Firstly, the emerging market, the discount you applied on the GFG companies, obviously, that's changed from quarter to quarter. Is that simply because of disposals you've made, or have you changed the underlying discounts you apply to the individual companies? Secondly, when I look at your investment guidance, broadly, when you add in the Tele2 rights issue, you seem to be at your full year target. Is that the right way of thinking about it, or are you looking to do other investments on top of that? Thank you.
If I start at least, it's Joakim here. If I start with the discount applied to the GFG businesses, we have, as I mentioned, as for the previous quarters, applied different discounts on different businesses on a sum of the parts basis. We tend to try to not change them too much, but they are a bit different from business to business based on which geographies they operate in and, say, the state of the business. The change is mostly driven by the fact that we have sold Jabong
Moving on to the second part of the question. As you know, we had an investment guidance of SEK 2 billion-SEK 3 billion, which is the direction we laid out at the beginning of the year and then we confirmed, and so far we've invested about SEK 2 billion. The teams are continuing to evaluate additional investment opportunities in our existing companies as well as, of course, new opportunities. That is the business that the investing team is in, and we do that on a very regular basis. Recognizing that we only have five or six weeks of useful working time between now and the end of the year, the likelihood of us making a significant new investment is limited, but we are continuing to work on opportunities. I wouldn't rule it out completely.
Having said that, overall, we are confident that we have delivered on our investment plan for the year, both in terms of existing and new businesses, and are building a strong pipeline of opportunities to be executed next year.
Okay, thank you.
As a reminder to participants on the telephones, please dial 01 on your telephone keypad now if you wish to ask a question.
Thank you. Elias Borchsen, Nordea. Given your net debt position of roughly SEK 400 million and the Tele2 commitment of SEK 900 million and your dividend shortfall of roughly SEK 400 million for next year, you would end up in a net debt position of roughly SEK 1.5 billion. Should we take this as an indication that you will have a lower investment guidance for next year? How do you think about this?
As you know, we are a very prudent company and a conservative company as it comes to our balance sheet. Having said that, we must recognize that today, 85% of our portfolio is invested in a great set of public companies, and as such a portfolio is highly liquid, and also that we are living in an exceptional period of quantitative easing and negative interest rates. In light of these two considerations, we will be financing our short-term capital needs by using the bank and credit and other capital markets facilities that we might have from time to time available to us. We do have a very clear policy that says no to low leverage, and so we will use that to bridge to our natural capital reallocation process during the course of next year.
No, we will continue to make investments, and we will continue to do so prudently, because ultimately we are in the long-term capital reallocation business. There will be periods of time when we will have some debt, and we will have periods of time when we will have some cash. We will continue to build the Kinnevik of tomorrow year after year.
Thank you. In that reallocation, Zalando is currently roughly 40% of your total assets. Do you see this as a problem that you are too exposed to one individual company, or can you elaborate on that? Thank you.
We think of our NAV breakdown by sector, by nature, private or public company, and stage of development as an output of our efforts as opposed to an input that we try to fit our companies in. We work on each and every one of our companies to make sure that they do the best they can. In some cases, if we believe that on their own they can't make it, then we support and engage in consolidation transactions. Our NAV as reported is an outcome of that process as opposed to something that we strive to deliver. Clearly, over the coming five years, if Zalando continues to perform with the growth rates and the profitability improvements that we're seeing, they are likely to grow faster than a number of other companies in the portfolio, and so they will take a bigger weight.
Having said that, we don't mind. Success comes from each and every one of the companies we are invested in, and if they take a larger proportion of our business, that's clearly not an issue for us.
Thank you.
Thank you for the presentation. Magnus Råman, Handelsbanken. Maybe I can start with a big overview question. We see now in the U.S. a proposed merger between AT&T and Time Warner, a merger in the telco and media spaces. What is your view on the dynamics in the Nordic telco and media markets in light of your investments in Tele2 and MTG?
Sure. Of course, consolidation in the TMT sector, in particular in the telecommunication on the one hand, on the media side, between telecommunication and media, is something that has been going on for a long time, it of course varies market by market and country by country. As it relates to the U.S., clearly that process of consolidation has been happening for a while, as far as we can tell, although we are not present in that market, it is likely to continue. Excuse me.
As it relates to Europe, the Nordics and Sweden, as you know, those are very, very different markets, we are very supportive of our companies exploring partnerships with other companies we are invested in with other companies we're not invested in, because each and every one of our companies has its own strategy should explore in the best interest of all of its shareholders what is best for it as opposed to one option versus another. MTG, as you know, has developed and executed a great strategy of being a partner to all distributors. That has been successful, it would appear they will continue to be successful. As a result, we very much support that. Tele2, on the other hand, has prided itself to develop its own mobile-based connectivity strategy, both for consumers and now for IoT.
We similarly are very supportive of that strategy. They have explored partnerships, they have executed partnerships, as far as we can tell, those are working well.
You wouldn't see an issue for any of these two companies to engage in partnerships with other companies, given the fact that you are the owner of one major telco and one major media company in the Nordics?
Yes, absolutely. We very much support, and already today see MTG being a great content partner to all distributors, including competitors of Tele2. Similarly, we see Tele2 pursuing initiatives of communication and entertainment with other partners, and we very much support that approach, which is at the heart of the Kinnevik way of doing business. Which is open architecture and exploring any and all opportunities, regardless of who owns a company.
Right. I have a second question on Zalando. You mentioned here their revenue growth in Q3, and we see that Zalando is expanding its marketplace business with its partner program. That would imply that volumes and gross merchandise volume growth is higher than revenue growth. What are your comments on that? Do you think that Zalando should change its communication in any way in relation to that?
Absolutely. It's a very interesting question. I think that the most important thing for a company as successful as Zalando is to communicate very openly with the markets on its performance. As a change in business model or an adjustment to revenue streams takes place, to make sure that it's fully transparent to the market. Right now the growth is coming across all business inventory-based marketplace partner programs, it hasn't been such an issue. Undoubtedly, if it became an important element of the appreciation of the performance of the company, I'm sure that Rubin and his team would consider options to provide even greater transparency.
Right. On Global Fashion Group, you mentioned here post the recent funding that the company has a five-year plan to implement on. If I would put the question in this way for you as an owner in relation to that plan, if we'd see no sort of further change in FX rates or the macro headwind that we currently witness, would you, as an owner, be happy with a break-even result for Global Fashion Group companies aggregated in 2017?
Our view is that every one of the companies that we are invested in, which include, as you know, five businesses at the five corners of the world, needs to develop a plan which is an appropriate mix of revenue growth, cost management, what we call path to profitability, as well as, of course, investment in infrastructure, warehousing, logistics, and so forth. Those plans have to be relevant to the region in which it operates and the constantly changing environment, in some cases, for the better, in some cases, for the worse, that they operate in. We are going right now. In fact, yesterday, we had a four-hour board session in Brazil, which the team was at, I attended by phone, to go through exactly that.
Which is what is happening in Brazil, what is happening in Argentina, what is happening in Chile, what is happening in Colombia, and how do we tailor our investment plan, our profitability plans, and our capital expenditure plan to create the optimal, if you wish, maximizing the opportunities at the right price. The output of that, which will be multiplied by five and then reviewed one more time, will give us the budget for GFG companies for next year. At this stage, I don't have the answers. We haven't fully completed the process. Excuse me. We are not still in the final stages of the approval processes.
As I've said many times, it took seven years for Zalando to get to be a fully profitable company and a cashflow-generating one, I've always said that it will probably take nine years for the companies that are emerging market base to get to the same level or similar levels, depending on, of course, the markets in which they operate. We are only, depending on when you start counting, five years into that journey. I think it is too early for us to aspire to have a break-even set of companies at GFG because that would mean sacrificing early on on the growth opportunity. Ultimately, we raised quite a significant amount of capital, and we diluted a number of investors for a purpose, which is to fully capitalize the company to capture the opportunity. Now we have to capture the opportunity.
If we focus too much on just profitability, we won't capture the opportunity. Right now, there are a number of other players who have woken up to the success of Zalando and the success of the GFG companies, we need to fight back. We need to invest in innovation, brand acquisition, customer service, warehousing, distribution, and that costs money. I think you should expect the GFG companies to continue investing for at least another couple of years to ensure that we maximize the opportunity similarly to the way we did with Zalando. I recognize that back in 2012, a number of investors and the research community and the media, in particular here in Sweden, but internationally, were deeply concerned about the level of investments that Zalando was making and the losses that it was accumulating, and the lack of visibility on the profitability.
We fully recognize that. That's what created a EUR 10 billion market cap company, which is what the Zalando is of today. I think my suggestion is please bear with us as we go through this process of building the business. Bear with us as we report to you quarter after quarter the improvements on the revenues and on the profitability, so that you can see that our companies are either five out of six delivering on that path, or in the case of Jabong, that we take radical action to get out and protect the capital of our shareholders.
That was a very good answer to the question. I have a final one on Quikr, and maybe this one is also for you, Joakim. On the valuation of Quikr, you are using a DCF valuation, and you are also basing your valuation, I believe, on the latest funding round, which is now over one year old. At the same time, in this presentation, you highlighted how peer multiples, for example, for the marketplace companies group, have expanded significantly. Why would it be best to use this now aging funding round as base valuation of Quikr?
Yeah, sure. Actually, we have changed method for the valuation of Quikr this quarter, and based it on the DCF. What you do and what we typically do for all our companies is that we take in all the information available. We do look at how the peers are trading. We compare with the peers, say, the quality of the peer group with our company. We look at the latest transactions, and we disregard transactions which have different features to the shares and the shares we own. In this particular case, the latest transaction value is more than 15 months old, as of July 2015. We have used it for the last quarters, the last year, basically. Since it's actually technically outdated and not relevant, can't use it as a reference or as a method this quarter. We still use that.
We look at also the more recent transactions that have been done, where Quikr has acquired a number of companies and paid with equity. We have used all of these inputs, but then used the DCF, and we found support, actually, for the SEK 900 million valuation this quarter with DCF as method.