Good morning. This is Lorenzo Grabau, and I'm here with Joakim Andersson. Welcome to our Q4 2015 review of the full year and outlook for 2016. If you turn to slide number three of our presentation, I'd like to begin by giving you a perspective on our quarter and put it into the context of the full year. There are three important messages that you should take away from this fourth quarter. The first one, it was a very solid quarter, during which we grew NAV by 2% despite some of the challenges that we experienced in the emerging markets. We ended the quarter with SEK 7.6 billion of net cash, or nearly 9% of our net asset value. The second message is that we have progressed well in executing our strategy, which is, as you know, to create value, but even more importantly, to turn value into cash.
We're particularly pleased with the outcome of the Avito project, which was an eight-year project during which we turned SEK 50 million in SEK 850 million of cash, or 16 times our money. In addition, we continued on our journey of focusing our portfolio, such that we ended the year with about 34 companies and a set of divestitures of our peripheral assets with very attractive valuations. This is allowing us to offer an attractive shareholder remuneration, which includes a dividend up 7% to SEK 7.75, and more importantly, a buyback program which we are about to launch on Monday to repurchase up to SEK 500 million of our own stock at what we believe is an attractive valuation.
The underpinning of these three messages is described on page three, and it's coming from a solid operating performance in our various investee companies, all of which are thriving through this important transition that is taking place to a mobile world. A prudent set of investments that were made during the course of 2015 in our existing companies, and the resolution of a number of other important matters, such as the Mexcopac dispute, on which we further progressed during the year. As a result, we're ending the year in a very strong position and well-equipped for 2016. If you turn to page four, we have summarized here the reports from our five largest public companies, which many of you will be already familiar with, and so I'm not planning to go through that in detail. The summary of this page four is really around three key themes.
Each and every one of our companies is investing in driving the growth of their business and in driving innovation to capture the attention, interest of customers and increase monetization. Where it is Zalando re-accelerating growth, GFG building its business across 25 emerging markets, Tele2 launching its business, or MTG pushing a very thoughtful digital investment strategy. Each and every one of our companies is investing in building long-term franchises. The second important theme is one of transformation. The only constant in technology-led businesses is change, and every one of our companies is transforming itself and its business model to adapt to a very different market environment.
Where it is Millicom transforming itself from a mobile company into a data-driven broadband and cable distributor, whether it is Rocket, which started as a business builder and incubator, becoming a full integrated life cycle investment company, or one of our smaller companies like Qliro, building on top of its existing e-commerce business, a very successful financial services company. As I said, the third theme, which is very important to us, is turning value into cash for our shareholders. We've accomplished a number of very important transactions like Avito, outcome, and Rolynvik, which are allowing us to be incredibly well-positioned to start 2016.
If you look at page five, we summarize here the outcome of what has been a most exciting Swedish international project, which we have developed in partnership with two great Swedish entrepreneurs, Filip and Jonas, to build one of the greatest companies in the world of global marketplaces. It started eight years ago, and it went through a variety of key phases that included adding new investors, which is a theme that Kinnevik believes very much into, the one of open architecture and bringing great partners. Second, consolidation, which is another very important theme to improve economics and extend the franchise. Shifting in a very aggressive manner, the business from desktop to mobile to capture the interest of consumers.
When the bigger consolidation opportunity came, and Naspers was keen to acquire a controlling position in the company, we worked in a very constructive manner with the founders and the management team and the other shareholders to complete a very successful transaction. The numbers on the right-hand side show the returns that we achieved, but also remind you of the very conservative approach that we take to valuing our companies, our NAV. The business that was valued in our Q2 at SEK 2.9 billion was sold, as you can see, for SEK 7.2 billion a few months later. We are particularly pleased with the journey, but I would also like to highlight that this is the type of journey that Kinnevik embarks upon.
What we would like all of our shareholders and our investors and our research analysts is to understand that an eight-year journey is a typical journey of a Kinnevik project. As such, when you take a picture of our companies and you question some of the challenges that we experience and some of the investments that we're making, you have to always bear in mind that the average age of a project is eight years. Zalando is on a seven, eight-year journey. Avito was an eight-year journey. Many of our other companies are only three or four years old, and so they're just in the middle of this process of building a successful franchise. With that, I'll turn it over to Joakim to comment on our financial performance during the quarter.
Thank you, Lorenzo. On slide six, we have, as we used to, set out a couple of trends that have had an impact on the valuation of our private assets. Starting with the graph on the left, we can see that the last quarter of 2015 showed a general rebound in both multiples and share price from the substantial drop that we saw during the third quarter. As shown in the graph, the share prices of peer groups were up by 18% on average. As you all know, the high volatility has continued into this year, and we have experienced around 15% price drop in January. If we look at the currency trends on the right-hand side, we can see that the Swedish krona traded in line with most of our important currencies for the private assets, with the exception for the Russian ruble.
Once it continued its devaluation during the fourth quarter, our exposure to it has obviously decreased substantially with the sale of Avito. Moving on to slide seven and the overview of the valuation of our unlisted assets. Excluding our divested assets, Avito and Volevik, the portfolio value decreased by SEK 2 billion during the quarter. As you can see, the main driver was the SEK 1.2 billion devaluation of our shares in GFG, where the sales multiple applied in the valuation was taken down from 2.9x to 2.2x. That recognizing the public equity market increased focus on profitability at the expense of growth and the general discounting of emerging markets companies vis-a-vis developed market companies. Zooming out to our full NAV on page eight, there are a couple of points to make.
Firstly, Zalando continued to perform strongly over the quarter and contributed with SEK 4.2 billion to the increase in NAV. Secondly, we had an overall SEK 1.4 billion increase in value and ended the year with a net asset value of SEK 83.5 billion or SEK 301 per share. However, as of yesterday, again, based on a very volatile start of the year, this number has come down to SEK 248 per share. Thirdly, and perhaps most noteworthy, following the sale of Avito, we now have SEK 7.6 billion in net cash on our balance sheet, as mentioned by Lorenzo as well in the beginning. On the next slide nine, we have specified the investment activities on the left-hand side. During the fourth quarter, we executed substantially more divestments than investments with the sale of Avito and Volevik.
For the full year 2015, we made net investments of SEK 430 million, excluding Avito. Our financial position on the right-hand side shows the net cash position of SEK 7.6 billion as per end of year. As Lorenzo said in the beginning, based on the current pipeline of investment opportunities and the state of the capital markets, we expect to make net investments of SEK 2 billion-SEK 3 billion for 2016. If we turn to slide 10 and our dividend proposal. Based on our dividend policy and the current very well-capitalized balance sheet, the board is recommending a cash dividend of SEK 7.75 per share, which, if approved by the shareholders at the AGM in May, would correspond to a yield of 3%. Based on the share price as of year-end, and close to 4% based on the current share price.
Compared to last year, this recommendation would mean that we would increase our dividend by 7%. Finally, for this section on slide 11, we have announced this morning to launch a buyback program of SEK 500 million. The execution, which will be done in line with the EU safe harbor rules, will start on Monday and end before Easter. Based on the current valuations and fulfillment of our three criteria, as shown on the slide, we think a buyback program is a very attractive investment for Kinnevik and its shareholders. Back to you, Lorenzo, for further comments on last year's achievements and outlook for the year.
Thank you, Joakim. If you now turn to slide 13, you will see what Kinnevik had as its objectives for 2015. What I'd like to then do is to comment on how we have done on each and every one of these objectives. Kinnevik is executing a simple strategy, which I would describe in one sentence as a prudent strategy of driving growth, innovation, and where appropriate, consolidation. This is what Kinnevik is all about. This is what we did in 2015, and this is what we will continue doing in 2016. These 10 points were the ones presented to the board in late 2014 as our key objectives for 2015. We are pleased with the outcome of the year, because on every one of these metrics, we have made significant progress.
We have focused our portfolio on some of the best brands and businesses that we're building, and we've driven innovation, growth, and attracted talent to make the business stronger. We have consolidated a number of our businesses, and we have recalibrated our emerging market exposure to take into account of some of the changes that have taken place in the world around us. We have continued to invest in building governance, risk management, compliance, and corporate responsibility in every one of our businesses. We have substantially strengthened our balance sheet to position ourselves for the opportunities that we see. What we're doing today is we are announcing our delivery on the commitment that we have made to turn our results into cash, and to be very thoughtful about translating the growth and the value of our assets into attractive returns for our shareholders.
If you turn to slide 14, you will see our first and most important theme, driving growth. At the end of the day, Kinnevik is only as good as the value of the individual businesses and brands that it's building and the customers it is attracting. As you can see on the bottom hand side of the page, each and every one of our top companies grew customers into double digits, and in some cases, to some extraordinary levels like Lazada, which grew customers more than 210%. If we don't grow our businesses, we stop creating value. Our first and foremost objective is to building customer franchises by investing in our brands. Our second priority, and if you now turn to slide 15, is to translate that growth in customers into growth of revenue.
We're particularly pleased that our largest investment, Zalando, a company that was started only eight years ago, was able to significantly re-accelerate growth in a profitable manner by achieving, as you can see, a move from the 21% to the 30% quarter-on-quarter growth in 2018. In addition, they were able to deliver a full year solid profitability, which shows that this company is building a very valuable franchise of growth and profitability in a very large market, a SEK 400 million market of fashion and accessories in Europe. If you turn to slide 16, you see the second part and second theme of our strategy, which is to guide innovation. Tele2 and MTG, two champion of Swedish consumer value, have been able to reinvent themselves and build completely new franchises from within, which as you know, is a continuous and constant theme in Kinnevik-led businesses.
We're particularly excited about some of the initiatives that Tele2 is conducting within the IoT machine-to-machine business by essentially extending what is an exceptional franchise in the consumer world to next generation businesses that thrive on its excellent connectivity infrastructure. Similarly, MTG has been prudently evaluating for a number of years a number of exciting digital opportunities, has identified the world of e-sports and multi-channel networks as areas in which they could build interesting and sustainable franchises. We're very excited about the international potential that MTG is exploring and executing upon across many of these new, exciting businesses. As I said in the introduction, now turning to slide 17, we're also very excited about the Qliro team's ability to invent and create a completely new company within and leveraging the very good franchise that the five e-commerce businesses that Qliro owns in its Market of the Nordics.
Presented on slide 17 are the key statistics of what is ultimately a relatively small team, 120 people, who have been able to build a half a billion loan book in one year by essentially creating an entirely new company focused on delivering an exciting and consumer-friendly service, which the Nordic consumers look for when they shop online. The last comment I'd like to make around innovation is what Quikr, one of our most recent investments, has been able to achieve in India, in what is clearly a highly competitive market, where literally billions of SEK of capital have flown in in the last couple of years to capitalize on what is now the second largest mobile internet install base there is in the world after China.
As you can see on this slide, in the space of 18 months, Quikr has been able not only to reconfirm its presence across horizontal classifieds, which is clearly the most important market in which it is executing, but also to build five deep verticals in homes, jobs, services, cars, and C2C goods in a way that allows them to project themselves deeper into the various verticals and deliver an enhanced experience to consumers who are increasingly becoming sophisticated in the services they search in general horizontal classifieds. The third theme, which is very important to our value creation strategy, is the one described on slide 19. We're particularly pleased to see that most, if not all of our companies have been focusing on growth, innovation, and consolidation in order to enhance their position.
In Kazakhstan, as you know, Tele2 and Kazakhtelecom have entered into a joint venture to create a much stronger number three player in the market. In Tanzania, Millicom took the opportunity to acquire Zantel, a company based in Zanzibar, which not only had a strong franchise in the island, but also on the continent, allowed it to build a much stronger digital presence. MTG chose to pursue a strategy of prudent retrenchment from Russia, has been able to finance its new digital investment through a prudent capital reallocation process. Finally, Rocket's extensive investments in the food delivery sector have been pruned in the last few weeks in order to realize capital to invest in its core business.
These four transactions and these four developments, in my opinion, highlight the single theme that comes through every one of our investee companies, which is one of pursuing growth, but also reallocating capital towards the segment of the business that offer the greatest opportunity. The outcome of this process is described on the following two pages, where, as you can see, we have increased the value of our assets invested in continental Europe and the Nordics, which allows us to have a very strong base given some of the uncertainties that we face in the emerging markets. To relocate our presence across the emerging markets with a growing presence in the Asian region, which, as you know, is offering very exciting long-term prospects both in India and in Southeast Asia.
If you look at slide 21, we have delivered on our strategy of reducing the number of companies to focus on the ones that have the greatest potential. We have increased our share, and we have concentrated capital, in fact, all our new capital in our existing companies because we felt the valuations throughout 2015 were running a little ahead of the performance of the businesses. That has put us in a very strong position to explore now new opportunities. If you turn to slide 22, one of the key initiatives that we carried out in 2015 was to build deep expertise, not only in our existing sectors, but in a number of new sectors within financial services, healthcare, and education.
More importantly, to build an exciting pipeline of opportunities from which we can then pick the most interesting companies with the best founders to build the next generation businesses that will continue to drive the long-term shareholder value of Kinnevik. We're pleased to note that we have already, in the first month of the year, announced a first investment in a next generation digital healthcare company called Babylon Health, which has developed a complete stack of solutions and services to provide patients in the U.K. and Rwanda, because this is a company that is operating both in developed and developing markets, an opportunity to engage and receive health services across the mobile phone and to manage digital medical records in a very efficient way.
We end the year having delivered on our promises and on our objectives and in a very strong position to capture the opportunities that we see in the years to come. Return to slide 24. This is a chart that I am sure many of you are familiar, that highlights some of the challenges that we have experienced through the volatility of 2015, and more deterioration in the equity market that we have witnessed in the first six weeks of 2016. These statistics are not giving full credit to the significant correction that has taken place in the digital internet companies, which have seen, in the case of Amazon and LinkedIn, drops in the share prices of between 30% and 50% in the last several months. We are clearly a company that is focused on building digital brands.
As a result, these trends that are affecting all the companies in the world, and in particular, the companies in the digital world, are clearly affecting the value of the Kinnevik companies. But that, to us, is not the key priority and the key area of focus. We are not managing our business on a quarterly basis. We are building long-term franchises. That is why we are reconfirming to you today, and obviously we will do so on a quarterly basis, our strategy for the coming years and our priorities for 2016 is really three key initiatives across our three areas of business. First, on our operating companies, we will continue to do what we have done this year and in the past year, drive innovation growth and where appropriate consolidation, and bring stronger, more experienced, more diverse talent and establish new partnerships to strengthen our businesses.
We will continue to execute on our promise, which is to build sustainable business with very good governance, risk management compliance, and companies that are good citizens in every country in which they operate. In our investing business, we will continue to contribute capital on a select basis to our priority companies to support their growth and increase our ownership. As you have seen from one of the statistics we presented earlier, we don't own enough of some of the businesses we're invested in, and we might want to increase our ownership during the course of the year. We will pursue new opportunities, but only in the sectors that we have told you we are focused on and in a very disciplined manner.
We are all about focusing on delivering on our promises, and we will focus on the sectors we have identified as an exciting opportunities to build new companies. On a probably more modest basis, given the fact that a more challenging equity market, both private and public, make it more difficult to sell assets at attractive valuation, we will continue our efforts to prune our portfolio, although I suspect we will not be able to reduce it as much as we did during the course of 2015. At Kinnevik, we will complete the buildup of our team. We will maintain a very strong balance sheet with a significant net cash position, which we believe is essential to capture the opportunities to come.
We'll continue on our path to deliver long-term shareholder value to the people who believe in our story and who are interested to be our partners for the long term. With that, I open it up for questions both here in the room and of course, over the telephone. Thank you.
We will start with any questions from the telephone, please.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. If you find your question has been answered before it's your turn to speak, please press zero two to cancel the question. Please hold until we have the first question. We have a question from Mia Chilaiva. Please go ahead, madam.
Good morning. Hi. Congratulations. Thank you very much for taking my question. I guess the only downbeat thing I could find in your morning press release was that 2016 could be challenging for the unquoted valuations. Lorenzo, could you just explain a bit more about what you mean by that? Thank you very much.
As you can imagine, our shareholders and our analysts are able to evaluate, on a daily basis, the value of our public companies because they are incredibly open and transparent. All you need to do is look at the ticker. The valuation of our private companies is a more challenging exercise because it requires taking all of the information that comes from the markets, the businesses, the competitive environment, look at the current performance, look at the historical and future outlook for the business, and determine what is the right approach to take on valuing these businesses. What is our responsibility as a management team is to try to present the best picture encapsulated in a single number for our private companies.
Clearly, the market environment that we're seeing, both in emerging markets as well as in the public equity market in technology stocks, will make the valuation of our private companies reflect what is the state of a deteriorated technology market valuation. That is why I think we want to be very clear with our investors up front to highlight that we do not have a valuation methodology which is fixed in time and disregards the state of the market. As a result I think what you will see is we will look to very much consistent with our existing valuation methodology, ensure that we give you on a quarterly basis a clear read across from how the public market and the private market, and the changes that are taking place in the private market are resulting in the valuations of our private portfolio.
Thank you very much.
I remind you that if you want to ask a question, you will have to press zero one on your telephone keypad.
Okay, Magnus, thank you. Maybe just start a question around the share buyback program that you announced today. It will be worth SEK 500 million, that will represent roughly 1% of your outstanding shares. However, the mandate that you have from the AGM say that you can buy back 10% of outstanding shares. The question is also in regards to the investment guidance that you provided for 2016, that shows that you will maintain a very big net cash position throughout this year. If the discount stays at what you perceive to be a significant level, could new buyback programs then be an option for you?
As you can imagine, our most important effort when we make investments is to pay as little as possible and to buy great businesses. The decision to execute a buyback begins with the fact that we think Kinnevik is a great company that is building great businesses, and that the value of the stock is very attractive to us. Our most important objective is to buy as much of Kinnevik at the lowest price possible. The more we try to buy, the more likely it is that the price will go up. We will defeat our objective, which is to buy shares at the lowest possible price. That's an important parameter. The second parameter to bear in mind is that we believe that the right strategy is to execute transactions when we are in an open window.
That's why we have selected the next six weeks as an attractive window for us to purchase shares. We have sized the size of the program in connection with and on the basis of the volume of activity that is available in the share price. The mandate that you see described here is for us an investment decision. Investment decisions, you can only make it on the basis of the information you have at the point in time. We have made this investment decision. In the future, we will always make investment decisions by taking into account all of the factors that we have.
I don't think you will be smart as an investor to tell the world what our investment strategy and execution will be over the next five years, because I think we need to be transparent, but we also need to protect our own shareholders and our own strategy in keeping that confidential.
Maybe just to follow up on investment activity, you mentioned here in the presentation that you want to support or build the strength you have in your current assets and holdings. Does that mainly relate to unlisted assets, or could you also see those opportunities in listed assets?
Sure. As you can imagine, we think a lot about that particular topic, because when you see the value of our assets have such a large drop which is mainly driven by equity market sentiment as opposed to the inherent performance of the businesses, you say to yourself, "Maybe this is a great buying opportunity." Having said all that, at heart, Kinnevik is an entrepreneur and business builder, our shareholders expect us to create and build great private companies, which we then eventually put on the stock market for value crystallization. While the temptation is always there to capture market dislocation, in particular as we are going through it now, we feel that as a matter of a priority, it is probably more important that we dedicate our efforts to building new exciting private companies as a first matter.
As a second matter, we take advantage of the opportunity of acquiring more of Kinnevik by acquiring our own shares, because we believe that most of our companies are deeply undervalued today, as opposed to cherry-picking whether on a relative value basis, company XYZ is more or less valued by the market, and leave our shareholders to make a decision if they want to double up on a particular company.
That's a good answer. Maybe just a final, more specific question, and maybe that goes to you, Joakim, around your valuation of Konga that you capped sharply in this quarter. Maybe you could comment on the reasons for that, and maybe if you see any need for providing new capital to Konga. Thank you.
On the valuation, you're right. I've cut it quite sharply. I think one of the explanations is that there is a liquidation preference structure, so it's actually kind of a double hit on our value on the shares. The write down on the equity value is not that material. That's the first thing. The reason for doing it, we have previously had a transaction value as the methodology, but we think that based on the market environment and Nigeria, we think that we did that 1.1 has been outdated, so we moved to a multiple-based evaluation. That's basically the background to it. On capital needs, I don't know, Lorenzo, if you want to.
Yeah, I think that I'll just make a first observation around Nigeria. I think we all know the state of the Nigerian economy, its reliance on oil, clearly the outlook for the currency being what it is, we feel that it is important to be particularly prudent in evaluating Nigerian assets. As it relates to the capital needs, clearly building a general merchandise e-commerce company in a country the size of Nigeria will take quite a lot of capital. That's why we are quite pleased that the burden, if you want to use a bad word, or the opportunity, if you want to use a positive word, is shared between Naspers and ourselves, given the fact that to build a large company in a market the size of Nigeria will take quite a lot of capital.
As a result, we will be at least two, if not more people, sharing that burden.
Yes, Firstly, on the pruning of your number of companies, you're down to 34 now from roughly 50 or so a year or two back. How do you see this developing going forward? What do you think is a reasonable level of number of companies in your portfolio given your current organization?
I think if you think about our portfolio, yes, we do have 34 companies. As you probably know, six or seven of them account for 90%, 95% of our value. It is important to always differentiate the fact that there is an overarching theme of reducing the number of companies. In reality, the number of the companies that really are making a difference for Kinnevik in terms of a value point of view is a much smaller one. I think that, if you think about the fact that many of our projects are each 10-year projects, over a long period of time, we will probably end up having less than 20 companies in our portfolio.
It will take quite many years to get to that because at the same time as we are continuing to prune the portfolio, we are also going to start adding back to the portfolio starting this year. As you know, we have gone essentially 18 months without making any new investments, I would be surprised if by the end of the year, we had not made at least three or four new investments. You might see a period of time during which we actually have a marginal decline until the companies mature, and they become more ripe for consolidation.
Thank you. A follow-up to that, you made an investment in Babylon this year. It is quite a small investment. Can you tell us anything about the financials in terms of valuation and what stake you have, do you see this as a platform for your future growth in this sector, or do you expect to do other acquisitions with similar businesses?
Given our size, the scope of our business, and you look at some of the significant investments we have made in the last few years, there is clearly a need for us to make investments of a meaningful size in meaningful companies such that over the next five or six years, they make a meaningful impact on Kinnevik. All of this to say that Kinnevik is naturally gravitating towards partnering up with entrepreneurs and business builders in slightly more mature businesses, more growth-oriented businesses, as opposed to venture capital type projects. That is the overarching theme that we are interested in. Having said that, you also have to appreciate that when you are entering new sectors which are not very developed, there are not such companies in existence. You have a choice.
You can either not make the investment and just sit on the fence, not learn much about the opportunity, then catch up later on, or go slightly earlier than you would like then participate in the business building. In the case of Babylon, we evaluated the sector on a worldwide basis, looking at the U.S., the Americas in general, Europe, and Asia. We concluded that this was a very interesting sector. We wanted to make an investment really starting from Europe, because we felt that that would be a more natural opportunity for us, given that we understand the healthcare market better here than in other parts of the world. Babylon really was the only exciting opportunity that we found in terms of the way they were thinking about addressing the full market opportunity, as opposed to just a single sliver.
There are a number of companies that have emerged around the world that do doctor bookings, a little bit like you want to book a restaurant, you want to book a doctor. We were not interested in that. We were looking for much more of an end-to-end solution, a business that was able to take customers and have, if you wish, a health app that could resolve your basic needs in terms of having questions and queries around mild issues, all the way to having a doctor consultation or a specialist referral to managing your medical records or tracking your health through a wearable device. That's what we were looking for. Babylon was the only company that was actually building that type of fully integrated stack of services, and in addition, was ambitious enough to think about how artificial intelligence could be brought to bear.
That's what made it exciting. This is a very young company. This is a company that's been created in the last couple of years, so by definition, it is still in its infancy. You could say similar to what Avito was 10 years ago or nine years ago. This is going to be an eight to 10-year journey. The financials are really not meaningful. What I would say, which is more important than the financials, is that they've been able to win already some absolutely blue-chip customers, such as major financial institutions based in London, where they're essentially offering to all of their employees as a special healthcare service, the Babylon Health app.
Which essentially is a great tool to enhance productivity, because when people are feeling not so well, as opposed to having to take four hours off the office to travel to a doctor, they can have their own solution on their phone. Also, as a special benefit for the whole family of the employee, who all of a sudden gets a very digitally supported healthcare service. That is hopefully a reflection of our approach, which is this is a prudent entry into a very large sector, whereby we are looking to build a significant brand.
Thank you. Sounds like an interesting future.
Hi, Benjamin. Just a little bit more clarification around your geographic exposure and your new investment, as well as the sector of healthcare and education you are now looking at. New investment, will that be within those two sectors, and which geographies are you looking at? Is it India, as you said? Also a follow-up question or another question, regarding Global Fashion Group and their geographical exposure and the geographies there you might want to decrease or increase. Thank you.
We are very fortunate at Kinnevik that the history of the group, the presence of the group, the mindset of our owner, and of all of the Kinnevik people is absolutely internationally minded and globally aware. We believe that the best way that we have to serve our shareholder is not to narrow our focus on any particular geography and be unaware of or not engaged with opportunities that might come because the world that we live in is a connected world, where the digital platforms are global by design. Now, as you know, our strategy is to look to invest in companies that have moats or protectability built around them, and as such, require local execution.
Just like Facebook or Google are absolutely global, we need to think globally because our businesses eventually will exist everywhere around the world, just like there is a mobile company everywhere around the world. I think one of the most important features that Kinnevik brings to its investors is that global mindset and awareness. As such, when we look at any business model, like I talked about in healthcare or education or financial services, we don't just say, "Okay, let's look at what's available in Europe because it's a two-hour flight, and I don't want to be away from my kids." Our mindset is we got to look at every company around the world, the best-in-class U.S., Indian, Chinese. We look to figure out which one is the one that has the greatest opportunity.
The market dynamic, the business position, the founder, other potential shareholders, the momentum of the business. We look at risk-adjusted returns, or said differently, price to be paid for an opportunity. We distill the opportunity down to the ones that are most interesting, and we pursue many in parallel. Right now, obviously, without giving you too many details, we are pursuing two really exciting opportunities in the same sector at absolutely the same time. Why? Because that's the way we really understand the industry. Also, we figure out what's the best opportunity, and then we'll obviously not make both investments, we'll make only one. From our point of view, we believe that the best way for us to operate is to have a very global mindset, and we will continue to look opportunities.
As we speak, we have people today in India, we have people in Africa, we have people in Germany, and we have people in the U.S. All of them are working on projects and opportunities. All of this comes back to the investment committee and to the board, who then decide what is the best opportunity for us to pursue. I don't want to give you a natural geographic next step, because until we've made the investment, I do not know where it will come. As it relates to Global Fashion Group, Global Fashion Group, as you know, is building six businesses in six very different regions that are exposed to six very different dynamics. Some of them are extremely challenging, some are very benign.
Our job at the board of GFG, and at the shareholder level, is to figure out how we modulate capital allocation, how do we think about growth and the amount of risk we take in every one of these geographies, and work in partnership with Romain and Nils and each and every one of the founders and CEO of the various businesses to determine, in light of the level of competition we find in every market, the best way to get good returns for our money in terms of customers, revenues, path to profitability over the next 12-18 months. That is a continuously iterative process whereby there isn't from a top-down decision to put more money in the Philippines and less money in Brazil because Brazil is less exciting based on what we read in the newspaper. That's not how we think.
We think about it the other way around, which is we ask the founders and managers to say, "Tell us, what do you think is the opportunity that you see? How should we be in a world of scarce capital and more challenging market environment? What's the best way to create value for your business?" Because every one of our founders and managers are shareholders, and they also don't want to get diluted too much at the time when valuations might not be as exciting as they might be in two or three years. We are all partners together to create great companies. The decisions that you see are made about emphasizing or de-emphasizing certain businesses are made as a team that is seeking ultimately the same objective, which is to create a great company and a very valuable company.
What's your biggest concern in the portfolio, if I may ask?
In the Kinnevik private portfolio or?
Yeah, in the Kinnevik private portfolio.
I think the concerns that I have are around companies that are exposed to global business model. Companies that are facing competition from much larger players where we are unable to protect them. The good news is we have very few of those. There are less than a handful, and they are typically very small in our portfolio. Those are the ones that worry me the most because there, no matter how hard you work, you're up against giants that can plow literally hundreds of millions of SEK of capital. That we've been very disciplined to not invest in those types of businesses, but we have a couple that are globally exposed, and those I think are the ones I worry the most about.
Can we just go to the telephone and hear if we have any questions from the telephone, please?
We have a question from Anna Oldinger from Citibank. Please go ahead, madam.
Yeah. Hi, this is Anna from Citibank. I just wanted to ask about some of the board changes with Rocket and kind of your influence, or relationship with Rocket and their decisions around listing HelloFresh and the outcome of that and how you look at it going forward. Thanks.
As you know, Kinnevik and Rocket have had a very beneficial relationship now for six or seven years. We have been a significant enabler of Rocket, and Rocket has been a significant enabler for our e-commerce strategy. That has resulted in the sum of the parts delivering much greater results than we could have accomplished independently from each other. I believe that Rocket is grateful to Kinnevik, and Kinnevik is grateful to Rocket to that extent. The second thing I would say is that like all partnerships, they sometimes evolve into something better and stronger, and then sometimes they disappear because people take a different course. What I am very pleased with is the fact that we have been able to reinvent our partnership as we have both adapted our businesses.
Kinnevik, as you know, was five, seven, 10 years ago, very much of a mobile and media company, now we've become a major international force in e-commerce marketplaces and mobile. Rocket used to be an incubator and business developer and has now become a fully integrated business developer, incubator, and investor, most recently through the launch of their private equity co-investment fund. If you think about it, two companies that started eight years ago, nine years ago, working together in a very different shape, have been able to continue as partners across a fundamental change in their business model and with both of them being public.
I think this is, to me, a real sign of the open-minded approach, and very constructive approach that the leaders of the two companies and the owners of the two companies have had over this period, and a relationship that is continuing to deliver very good results for both partners. If you're referring to some of the changes, which is really only one major change as far as I'm concerned, in the supervisory board, that the supervisory board together with the management board made in December, and you look at it today, knowing, of course, what you know today, which is that Rocket has now become a fully integrated business builder, incubator, and investment company, you understand that Rocket and Kinnevik are pretty much in similar businesses today, which is something that wasn't the case a few years ago.
Because, as you know, Kinnevik is a champion of governance and the governance principles, we took a view, all of us together, that it would be beneficial to the company if the CEO of Kinnevik, which is a major international investment company focused on building digital consumer brands, was not the chairman of a company that is pursuing a similar strategy. Because it could create a perception of conflicts of interest, which You can excuse yourself if you're a supervisory board member, if there is a particular situation that you feel is in conflict, but it is more difficult to handle if you are the chairman, which really has to direct the work of the supervisory board.
It was a natural decision to make, and I am very much excited about our upcoming supervisory board meeting and strategy session, during which we can continue to contribute as a healthy and engaged shareholder.
Okay, great. Thank you.
From SEB.
There are no further questions at this time.
For SEB, one question regarding your guidance regarding the net investments this year, SEK 33 billion. Can you give any guidance regarding how you expect that to be split into existing and new ones?
Yes. I think we expect it to be between half and half. Could be 40, 60 one way or the other, between existing and new. I believe that a number of our existing companies will benefit and would benefit from greater commitment of capital. There might also be opportunities to acquire some small interests at attractive valuation, given mark to market and downturn in the valuation. We have a very healthy pipeline of opportunities, which we have built over the last 12 to 15 months. We are likely to be able to execute on two or three of them. We feel that is about the right investment strategy and amount in terms of capital allocation.
Thank you. Derek Laliberté , ABG. Alongside the healthcare, you've identified the education as an interesting area for further investments. Could you just like you did with healthcare, give some background to what kind of opportunities you're looking at within that sector? I know there are these companies like [Lesson AI] with language learning tools that are growing vastly in popularity, et cetera. Is that something like that you're looking for?
I guess the world of education is a very diverse and very fragmented one. I would broadly characterize three categories that exist in the world. The first one is what I would describe as the free education content that is available from, you could say Wikipedia all the way to Khan or Khan Academy and so forth, which are essentially providing content and tools to individuals and institutions in order to access knowledge and education on a very broad basis. Then you have a second group of companies which are much closer to being publishers. By publishers I mean people who are actually producing the content, uploading it, and obviously offering it either on a bite size on a subscription basis. Then you have businesses that are essentially connecting content or individuals with people who are looking to acquire that content or that education.
You could call the latter group marketplaces, for education. That is the sector we are most interested in because it's a sector we know well from Avito to Quikr to Saltside. It is a business model we understand, and that's where we're focusing our efforts.
Thank you. Could I also ask on your target or that you expect to achieve a 13% annual total shareholder return? Could you give some background on how you arrive at that target?
Sure.
Slightly lower than what you've achieved historically.
Sure. If you think about what Kinnevik is, it's a company that is creating great businesses and through the process of creating great businesses, delivering shareholder value. At any point in time, the assets it own can deliver and should deliver a certain return, which is ultimately a function of the type 2 business we're investing in, the stage 3 of maturity of the company, the level of competitiveness, the country in which the business operates, and so forth. If you take each and every one of our businesses and you do that work, really bottom up, key business unit by key business unit. Taking even the mobile companies and looking through where is the capital of them allocated. You think about how much the breakdown of the portfolio has changed over the last five years.
If you think about Tele2 Russia, you think about Avito, you think about the amount of cash that we currently own, and you think about the kind of reshaping and you could say reduced risk of the portfolio. You will see that, and you do the analysis, which is what we have done. You will see that 13% is the return that we should be achieving in order to deliver on our cost of equity. That's why we feel that is our target and we need to achieve it by using the three levers that we have. Innovation that needs to translate into growth, that it needs to deliver attractive profitability, which is one part. The other part is of course, if we are unable to do that on our own through consolidation.
We feel that it's important that our investors understand what it is that we're trying to achieve over the medium to long term, because of course, market sentiment will have the value of our assets swing, but it's important that people understand what it is that we are shooting for.
Thank you. Very clear. Just one final question on GFG. As you mentioned, you downgraded the value quite substantially here in the fourth quarter. Just excuse me if I've overlooked something.
Yeah
Also, is this just based on the valuations of peer groups, et cetera, year round? Because I think I find some inconsistency perhaps where Kinnevik valued after the 30th of September in the last report.
Sure
value. I'm just wondering, because I'm seeing that some of the peer companies stated in the report are down some 20%-30% additionally in this year.
Sure.
Just wondering.
Yeah
The methodology.
I think it's a very good question. The answer's going to be a little complicated because it's a very precise question that you're asking. The first important thing is to recognize is that what we are aiming to do is to have valuations that are always conservative, up to date, and as much as possible, reflect the value of the asset at the point in time. Here we're talking about not the valuation today, we're talking about the valuation on December 31st. The second thing is to say is that in the case of a company like a young e-commerce business, what you need to try to assess, apart from transaction, which we put aside, because once they become too old, they are no longer relevant, but you're looking at a standalone company.
What you're trying to determine is a judgment on whether growth is more important or profitability is more important. As you know, because you are experts and professionals in the sector, investors' attitude favors growth sometimes and favors profitability other times. What we need to do is to have, as much as possible, a scientific approach to something which is qualitative, which is what is the weight you put on growth versus profitability. For a period of time, when the technology and internet and e-commerce sector was on a very strong rise, the focus was very much on the growth side. That is why we felt comfortable that given the exceptional growth rate that GFG was delivering, in not only local currency but also back into euros, we could feel comfortable to apply a multiple, which, as Joakim said, was, say, 2.9x.
What happened is in the last few weeks of the year past, the sentiment shifted from growth to profitability, and the emerging market currencies began to suffer in a more significant manner. At the time, when in a couple of the countries in which we operate, notably in India, competition continued to become stronger. Those three factors needed to be somehow reflected into a slight change of attitude. Despite GFG has continued to deliver an excellent local currency performance through the investment which we expected to be, sentiment shift, currency, and slightly stronger competition in a couple of countries have meant that we had to rebase the multiple we use to take it down, as Joakim has described, and it's in the report.
Someone else might have taken a different view, we are very conservative people, and our job is to always give you our best estimate by looking at the situation and trying to frame it in a conservative manner. That's why we made the decision to be thoughtful about it and do what we did.
Do we have any questions on the telephone, please?
There are no further questions at this time. Please go ahead, speakers.
Thank you.
Hello. Stefan Gauffin, Nordea. I have a question relating to Millicom. The share price of Millicom has come down significantly over the last year. A lot of this is FX related. I know management has been working hard on reducing corporate costs, and, most recently, they also divested non-performing asset in Africa in DRC. There has been still some concern relating to cash flow, probably at least yesterday. Do you see the need to speed up transformation of Millicom in the sense of continue to divest assets? For example, operations in Africa and the tower assets, online assets, et cetera, or also speed up cost reduction programs. Thank you.
My view is that Millicom is a company in transformation, and it's actually a company that is pursuing an exciting transformation. As you know, we have the chairman of the company in the room. We're very fortunate to have an exceptionally talented team that is highly focused on executing on the agreed transformation strategy. Mauricio, as you know, joined us in April. Tim joined us about a year and a half or two ago, and Cynthia joined us in September. The three of them are really 100% committed to making Millicom a very successful company. They have quite a lot of levers that they can pull to execute on that. The first and most important thing is they fully understand the strategy they need to execute to win in every single country in which they operate, which, as you can imagine, are incredibly different.
There is much difference between Colombia and Rwanda, as there is probably between Sweden and Italy. You really need to think about these countries in a completely different manner. We're very fortunate to have a very talented team that understands the industry, understands the difference and the opportunities between mobile and cable, between consumer businesses and B2B businesses, infrastructure businesses, and over-the-top businesses. We feel very comfortable that they have a real mastery of what needs to get done. The second thing which makes Millicom incredibly well-positioned is that by building very strong market share positions in a number of its core countries, it has been able to create a very attractive integrated offering for the consumer, which, because they were early, will be very difficult to replicate.
In fact, I don't think anybody would want to replicate to the same extent in terms of having a new entrant, which is not something you can say about many other countries, in particular in the more developed markets. The third thing is we have a team that is not only very strategic, but is also highly focused on capital allocation. The decision that the team made, and obviously the board supported, of releasing capital from a very vast country, which would offer huge opportunity if you have a 25-year investment horizon, and take that capital and put it into neighboring countries or other markets, is clearly a sign of foresight and, I would say, a very, very stringent model of saying, where am I going to get good return over the next three, five, 10 years?
Maybe something that pays off 15 or 20 years from now, maybe we can leave that to someone else, and we just focus on the things that are more on our line of sight. To come to your question around other assets, as you can imagine, all of our companies are constantly evaluating whether they're getting good return on assets. Just to pick an asset that you've talked about, as you might have seen, the largest French insurance company, AXA, just agreed to put literally tens of millions of capital into the Africa Internet Group. You could say, why does Millicom own that asset? Why didn't they sell it last year? You could ask a question like that. In reality, this asset now is worth a lot more than it was.
What Tim and Anya and her team, what they're doing is they're evaluating all of these situations one by one and figuring out how much is this asset worth today? Will it be worth more three years, five years from today? How much capital do I need? Look at the capital structure. All of my bonds are essentially very long-dated maturities. Even if I sell an asset, I'm going to sit on cash because I can't repay any bank debt. Am I better off keeping the asset invested and getting another 15% or 20% over the next 12 months or selling it out and doing some transactions with my banks, right?
Everything that I've just described, which is the tip of the iceberg, is a kind of highly sophisticated financial work that goes on in parallel to all of the brand building, exciting new products, OTT services that the GMs are building in the local country. We obviously, as board members, chairmen, and large shareholders, support that type of engagement because that's what creates a successful investment. Great performance in the market and very strong financial discipline. As you know, the world is not as simple as, say, just sell five assets and pay down debt.
If you've been shrewd, as Tim has been for the last 12, 24 months, to reconstruct the capital structure to prepare for a downturn in the emerging market debt, then you have a very well staggered set of maturities that when the company, which is now free cash flow positive, you can pay down and build up the cash. You don't want to also sitting on a big cash position and a big debt position and just not have any returns. Looks like there are no more questions. Thank you so much for joining us here today.