Kinnevik Investment ABB (OTCPK:KINNF)
Q2 2016 Earnings Conference Call
July 22, 2016, 04:00 ET
Lorenzo Grabau - CEO
Joakim Andersson - CFO
Torun Litzen - Director, Corporate Communication
Elias Porse - Nordea Markets
Magnus Raman - Handelsbanken
Viktor Lindeberg - Carnegie Investments
Welcome to the Interim Report 1st of January to 30th of June, 2016. [Operator Instructions]. Today I'm pleased to present Lorenzo Grabau, CEO. Please begin your meeting.
Good morning to you all and welcome to our second quarter report. You’ve as always Joakim Andersson, our Chief Financial Officer and Torun Litzen, our Director of Communication together with me to present our Q2 results. Q2 was a solid quarter of growth and investments, we were particularly pleased with the performance of Zalando which according to preliminary numbers delivered a 25% sales growth and an 8.5% margin. We're also pleased that we were able to complete the GFG investments which generated acquiring a 35% leadership stake in the company with a scale back a 161 million investment at a very attractive valuation and finally we return over SEK7 billion in dividend which is equal to 12% of yesterday's market capitalization. We begin the second half of 2016 well-positioned to deliver on our long term shareholder value creation promise, we have solid market position, our brand are performing well, we have well invested companies and highly motivated management teams.
With that let me turn over to page 2 to give you a bit of a highlight of the quarter just ended. As I’ve stated earlier, our operating companies performance was solid, in eCommerce we growth of our peers and significantly improved profitability. In communication we continue to execute our transition from voice to data with Millicom and Tele2 delivering good performance on that front.
On the entertainment side we’re capturing OTT growth through content and partnerships repositioning and finally in financial services we're off to a very good start with Betterment performing in an uncertain economic and capital market environment. On the investor management side, we invested over SEK500 million in the second quarter all into existing companies very consistent with our strategy to grow and support our presence in our existing businesses. We invested a €50 million in the second tranche of pre-funding for the entire 160 million into Global Fashion Group. And we continue to see strong interest from other shareholders in supporting this company to the future.
As previously announced we sold 3.8% stake in Lazada to Alibaba for $57 million and received the cash in April. And finally we're delighted to support Tele2's rights issue in conjunction with the acquisitions of TDC Sweden, their B2B business which is expected to close in the fourth quarter of this year and that shouldn't entail a $900 million investment [indiscernible].
So we end the quarter with about 65 billion in NAV which is down to 1.7% on the quarter against a market index in Sweden and Germany down 6%. If you looked at yesterday's share price our NAV was up to nearly 70 billion. The net cash position following the SEK7.1 billion dividends remain positive upto to 0.4 billion and we have just signed a new five year credit facility that gives us ample working capital facility in addition to our distant credit line and [indiscernible].
If we start with the operating company performance in a little bit more detail and turn to page 4, we have summarized here the momentum that we see in our six largest public companies.
As stated earlier we had excellent performance of Zalando which reiterated it's full year guidance of revenue growth at the upper end of the range so was close to 25%. And increases of full year adjusted EBITDA margin guidance 4 to 5.5 times. This is what I called delivering on expectation and actually delivering beyond expectations. Second as reported yesterday Millicom and Tele2 are both experiencing voice to data impact in their core operation yet are able by focusing on growth in data and cable in the case of Millicom and delivering excellent propositions to their capital in Sweden to continue growing their core service revenues. In the case of Millicom we were also pleased to see a healthy improvement in both the level profitability and cash flow generation. In the case of Tele2 the EBITDA declined as a result of the investments in Holland and Sweden we believe these are important steps in securing the long term strength of the business. Finally as previously stated we’re delighted to see that Tele2 is investing in it's core Swedish market and strengthening it's B2B presence through the acquisition of TDC Sweden.
If we now turn over to Rocket, as you know the company is very much is in it's investment phase but it's making solid progress in driving what they call the P2P, the path to profitability for everyone of their major investments and of course we see this within GFG which is the company we co-own but we see that also in a number of other businesses as announced in their Q1 results.
Finally we noted the great interest that their African internet group recently renamed [indiscernible] has received from a number of international investors including Orange, AXA, Goldman Sachs and CTC. If we turn over to and MTG we’re pleased with the solid performance of a company as they continue to develop new products and new distribution channels to strengthen their presence in the LTT [ph].
Finally we are also pleased to [indiscernible] is beginning to deliver improved profitability in their core business as well and engaging in a refocusing of their business for the sale of [indiscernible]. Turning over to page 5, this chart illustrates the great progress made by Zalando's since the IPO, the numbers speak by themselves and we're very impressed with what the management team has delivered not just on this quarter but in every single quarter they've been executing on since the time of the IPO. On the right hand side you see four key initiatives of the companies delivering upon driving customer satisfaction, engaging more deeply with the brand, building up their logistics footprint and investing in scaling technology. This is at the heart of Zalando's strength and that supports their constant innovation and spirit of reinvention which is really the trademark of Zalando and has been since their inception.
But as you know growth and organic growth on a standalone basis is only part of the investment proposition that we believe in and there are two other very important leavers that our companies work on. The first one is building great partnerships and this is something that we at Kinnevik have been believing in for decades and believe that all our major investee companies need to develop, the power of partnerships and the power of consolidation.
Starting on page 6 with partnerships, during the quarter there were four promising partnerships announced. Zalando and Adidas [ph] to create a greater access for customers on the entire inventory base of a particular company. Millicom and Netflix, clear partnership delivering greater compo as an access to exciting entertainment for our customers and obviously for Netflix is going to get much larger and broad population for our digital platform. Tele2 and IoT with [indiscernible] and IBM to continue building this exciting future business and finally MTG securing access to distribution for the partnership with Tele2 [ph] and this is all about building businesses together.
But at the same time as we turn to page 7 we recognize that in certain cases consolidation is the answer to the value creation play. And in this case we see two very interesting transactions of the opposite extreme of the spectrum. In the case of TDC Sweden Tele2 is the cash buyer to develop their strategically important B2B business creating a stronger and deeper presence in the Swedish market, a relatively good valuation and a solid plan to extract value for synergies and integration. At the other end of the spectrum Qliro which is now engaged in six business it recognizes that it's probably better off focusing on five businesses and properly capitalizing their investments in your Qliro financial services and with a cleverly structure transaction, sale for cash of one of their smaller business and the establishment of a great partnership with [indiscernible] which allows to continue driving the QFS business across the entire portfolio [indiscernible] business.
Two good examples of what it means to take a business forward not just through organic growth but also to through cleverly structured M&A transaction. If we now turn over to private company on page 8 we are presenting here the key financial and the key performance indicators on of our most promising digital companies.
Starting with GFG, this is clearly a company moving in the right direction and we're particularly pleased to see that they are path to profitability, they are continuing to deliver healthy growth rate as well as improved performance. If we look at quicker Betterment, two of our more recent investment we’re very pleased with the outstanding capital attraction at each of the companies are delivering. Few of these are young companies and we’re little guarded in presenting their financials but as you can see on this page and on the following page the key performance indicators that we track and monitor on a monthly basis are all going on the right direction.
Turning to Westwing, [indiscernible] is a well-established company, are consolidating their position having built and outstanding presence across in the case of BIMA 15 counties and in the case of Westwing seven or eight core markets. The revenue growth is a little slower than the past quarters and this is part of the transition phase that many of our companies face after having expanded internationally and build a solid customer base, they go for a process of consolidation and margin improvement before we engage on a faster growth.
And finally [indiscernible] a very young company in which we invested just a few months ago which continues to be at the forefront of product innovation and digital health and we’re particularly excited about some of the developments that they are carrying out in the world of artificial intelligence to create clinical triage to really enhance their ability to deliver a very broad offering to consumer in both developed and developing markets.
If we turn to page 9, this slide summarizes the significant improvement that the Global Fashion Group has delivered in the first quarter. The customer statistics are very healthy, total customer growth of 77%, active customer growth of 51% as well as on the revenue side and as you can imagine these being emerging market companies some of the numbers are really impacted by the local currencies.
On the right hand side you see the significant improvement that has being made on the profitability part and we believe that this company will continue to be on this path for several quarters to come. Although as we know and as we stated before, emerging market businesses do take a couple of extra years to get to the right level of profitability versus developing market peers and as such it will take a few more years until the company becomes on par with the Zalando profitability.
Finally we’re continuing to drive a number of key initiatives with respect to each and every one of the GFG businesses and establishing stronger partnerships with brand owners, developing the marketplace as a way to derisk the inventory based company and continuing to invest in a very valuable logistics distribution infrastructure across many of these emerging markets.
If we now turn to Quikr, we're particularly with the development of the company in it's focus on verticalizing and entering much deeper engagement with their customers across these five core sectors. Homes, jobs, services, cars and goods and as you can see in every one of these sectors we're continuing to develop a strong market position and driving customer engagement which allow us to build a very strong path to monetization and eventually to profitability.
Turning over to page 11, these are the key statistics that we’re currently focused on as it relates to Betterment, our most recent investment. As you can see both on the customer side, a 100% growth or in the assets under management, a 110% grow, the company continuing to deliver excellent growth. Once again this is a very long term investment in building a solid presence in the digital wealth management and eventually developing monetization and profitability, but we’re very excited both in the development of the direct business as well as the Betterment for business which is the 401(k) business line now serves the 175 plan sponsors as well as the registered investment advisor business which now serves over 250 RIAs in their firm.
Now let's turn over to our investment management activities. if you turn to page 13 you will see a summary of our transactions for the quarter. As you will have appreciated following the operating companies review we have a great portfolio of assets with great potential. As such during the quarter while we focused on Clause A, release in capital from Lazada to refocus our efforts on a fewer set of companies and dedicate our efforts to building what we owe. We made two meaningful investments in GFG as we previously discussed and in Westwing and we’re committing to fund and support Tele2 key strategic development in Sweden.
If we turn over to Page 14, we’re summarizing here in a little bit more detail the GFG investments because of course it has taken a period of time to execute this and we want to make sure you have full visibility on it. As previously stated we’re investing a total of 151 million of a 330 million rounds or nearly 50% to increase our stake to 35%. Following the underwriting that we announced in our prior quarter, great interest was stimulated in GFG which meant that we upsize the investment from 300 million to 330 million which was the cap we had agreed prior to launch and Kinnevik [ph] don’t scale that. And together with other investors we also decided to convert the shareholder loan and convertible investments we had made last year such that in total we are today investing a $161 million from the existing round and 59 million from the prior round as a very attractive €700 million [indiscernible] evaluation. Through this transaction GFG will be fully funded in each and every one of their existing businesses and can now be comfortable in delivering on it's future plan for growth and profitability. Completion of this transaction is expected to occur in the third quarter when all regulatory approvals have been received.
With that I turn it over to Joakim, our Chief Financial Officer who will give you some background to the environment in which we have operated in as well as the valuation of our private assets. Joakim, over to you.
Thank you, Lorenzo. So starting page 16, you can see on the left hand side developments of the larger equity indexes and it's of particularly interest as Lorenzo mentioned in the beginning both the Dutch and the Swedish index or Mexico go down by 6% after having recovered some of the sharp growth that we’re seeing in connection with the Brexit referendum. If we turn right and look at the current development we find that the Swedish Krone weakened across the currencies, we paid sudden attention given our companies geographical presence. On the next slide, we have included a couple of graphs showing the performance of the growth for the communication sector and while both Millicom in blue line and Tele2 in the greenline outperformed their respective market peer, it was a quarter with generally contracting valuation market both as shown by the columns with ED EBITDA sector multiples on the right hand side.
Moving on to slide 18, as the eCommerce companies we see a mixed picture with a 6% positive share price development for the marketplace here but the negative 10% for the peer group within fashion eCommerce that’s highlighted by the lines in dark blue and dark green respectively. As for the communication valuation multiples we saw general multiple contraction also for the eCommerce peer group's with the most significant development for the home and living category where we saw a drop from 1.4 times to 1.1 times in the easy [ph] sales multiple.
If we then move on and go to slide 20, we will look at what these trends have for Kinnevik during the second quarter. On this slide we will give the detailed information about valuation of our largest unlisted companies. On a consolidated basis we see on the bottom-line that the fair value of these assets were marginally down during the quarter by 253 million and ending with a total value of 10 billion.
On the top row, you can see our second quarter investments into Global Fashion Group which Lorenzo talked about earlier mainly the €15 million in loans [ph] as well as the small increase in value taking the total fair value of our 20% stake to 3.6 billion including share and loans. On the second row, we’re showing a fairly high write-down of our shares in Home24 which is driven by the continued multiple contraction for the home and living peer group mentioned earlier and an unproportionally high impact in our fair value due to the liquidity preference structured that’s in place and that fact that Kinnevik has lower ranked shares.
It's the quickest on those detail into a bar chart on page 21, it is even more visible to us that the change in fair value the second quarter was very small going from a total to total value of 10.2 billion at the beginning of the quarter to a value of 10.0 billion at the end including both the investment in GFG and partial divestment of the Lazada share shown in the graph to the right.
On the next slide, slide 22 which is a better slide with many numbers, we would like to highlight the overall NAV development of the quarter where the starting 72.7 billion or SEK262 per share ended at SEK235 per share which corresponds to decrease by 2% pro forma for their total capital distribution of SEK25.75 per share. This is mainly on the very strong performance by Zalando, this week the NAV has increased from the SEK235 per share by 80% in July to SEK252 as of yesterday.
The three most noteworthy contributors to the NAV development of the quarter was firstly the decline in eCommerce market and the negative development of Zalando which again has been more than recovered in July, secondly there is strong performance by Millicom with a 16% increase and the capital distribution to the shareholders by total amount of 7.1 billion. The final slide in this section slide 23, it's as usual the summary of the investment activities and overview of our financial position. During the quarter we made net investments of 79 million including second half of GFG and sale of Lazada. The accumulated net investments for the first half of the year amounted to 1.2 billion [ph].
We you turn right we started the quarter with a net cash of 5.8 billion and taking out the net investments, the OpEx and the net capital distribution we ended the quarter in net-cash position of 354 million. We have added a table showing the total committed that’s unpaid investments that totals 1.5 billion. All-in-all and based on the information on the slide Kinnevik would end the year in a net debt position but still well within the financial target of having low or no leverage. The investment guidance of the year is maintained as a range of 2 billion to 3 billion for the full year and we expect to be in the lower end of the range excluding our participation in the announced rights issue of Tele2.
With that I would like to hand it back to you Lorenzo for your concluding remarks.
Thanks, Joakim. Turning over to page 25, as we stated at the beginning of the year we’re highly focused on delivering on three priorities. Driving the growth, innovation, profitability and where appropriate partnerships and consolidation with our operating company and executing on our JRC and CR promises and we’re pleased with the progress we have made on those accounts. Second, we’re committed to investing into our priority companies and building a tighter portfolio of great companies and once again we feel this quarter is testament to the development that we have committed to executing during the course of the year. And lastly we’re pleased with the position of Kinnevik, we got a strong team, a strong balance sheet and for the capital distribution we have just executed, we’re continuing to deliver value to our shareholders and so if you turn to page 26 and our last page as you can see whether you look at it over the last 15 years, a period during which we delivered a 110% total shareholder return over two times the relative index performance or you just look at the last few months when we have delivered 7.1 billion in cash in the quarter to our shareholders, we’re highly committed to delivering our priorities and turning them into shareholder value.
With that I would like to open it up to questions from all of you. Thank you.
[Operator Instructions]. The first question is from [indiscernible].
Q – Unidentified Analyst
My first question is on the order path to 2 billion to 3 billion, regarding investments for the year. It's reached profits 3 billion or 2 billion by assuming the rights issue. Should we expect little or much activity for the remainder of the year to stay at profit the level you’re at?
A – Lorenzo Grabau
As I stated in my remarks we believe that we have a great set of private companies that we need to build over the coming years and as a result we’re continuously evaluating an opportunity to accelerate the growth of one or more than by injecting more capital into them and also whether some of the earlier investors are potentially interested in relinquishing their position as an attractive valuation and so I would say that 70% to 80% of our investment focus right now is determining whether we have opportunities to capital to build our position in our existing company. Of course at the same time the remaining 20% - 30% is spent in evaluating the market opportunities that exist in priority sectors. But by and large we expect to invest further capital in our existing business for the balance of the year or at least for the next quarter and that means that we’re confident that we will stay well within our guided net investment range.
Q – Unidentified Analyst
And then I also wonder on the Home24 downgrade, basically written-down the value to almost nothing compared to what it was before and I understand the liquidation preference but it's still pretty significant, 80% downgrade, so the other holdings in which we made risking this type of huge write-down due to liquidation preference.
A – Lorenzo Grabau
So in the case of Home24 as you probably know given your follow-ups for few years, we were an early investor in the company and the company has since attracted tremendous interest from other major investors that have contributed capital and obviously net process the company has grown to upset the valuation from the latest transaction value has reached very high level of around 900 million and so it's a combination of the additional capital that has gone in and the high valuation means that our earlier investment if calculated on a mark to market basis under IFRS results in relatively small fair value but we remain confident with the companies executing on it's plans and if and when the company becomes profitable and seeks a potential liquidity event that we will recoup and achieve a good return, but in the meantime our strict adherence to the IFRS standard mean we have to market taking full account of the liquidation preferences.
Q – Unidentified Analyst
And my final question is on the GFG financing around, is this level of 161 million the one you were looking for to reach 35% or would you have prefer to take an even bigger stake if you would have been able to?
A – Lorenzo Grabau
I think we knew when we under-roped the 200 million out of the 300 million that it was quite likely that we will be scaled back. We were positively surprised by the fact that all or pretty much all of the shareholders that has an opportunity to invest in the company took their round and the ones that didn’t participate were people who because of the structure of their funds or their investment target were not in the business of participating in late stage investments such as this one. And as a result given that we started from a position of say 25% ownership in the company we never believe that we will be able to take 66% of the round, so we always knew we would end up in around 50% that we've ended up right where we thought we would.
I think from our point of view, as you recall, we did a similar exercise which Kinnevik took a leadership position in the land bill and we ended up at around 36%. So this is very much in line with what we were aiming for.
Thank you. The next question is from Elias Porse, Nordea.
Good morning, Elias Porse here. The GFG round was upsized by €30 million. Could you tell us something what this money will be used for? Thank you.
So the money will be used to create what we call technically a buffer which means that as opposed to be just fully funded we have an extra amount of capital which we can deploy tactically in one or more regions to drive the growth at an even higher rate. As you would have seen and you would have heard from the comments that have been made around GFG, right now we are highly focused on what we call the period of consolidation which people summarize sometimes as the P2P, the path to profitability which means reviewing every one on the operation and understanding how we're going to get to not just having attractive unit economics in the upper part of the balance sheet but delivering bottom-line. So that is the exercise that is going on today because when you have a great business that is delivering anywhere between 40% to 45% plus gross margin, you just need to have the right-sized cost structure below.
And in order to get there you can drive revenue but at some point you also have to re-engineer the whole infrastructure and SG&A and that's what we're doing right now. Once that is done and you have excellent unit economics as well as a lean cost structure then comes the time when you need to reinvest into the business. And so having that extra $30 million gives us the confidence to be able to do across many of the targeted regions.
Thank you. Coming back to the Global Fashion Group, there has been so many media reports about Jabong recently and that specifically about the potential exit but also about some potential mismanagement by the previous CEO. Could you comment anything on this?
Sure. So if you look at Slide 9 of our presentation and you think about what we have been discussing throughout our presentations over the last few years and obviously you think about the comments we made on Slide 6 and 7 around partnerships and consolidation. It is pretty clear that if the entire GFG has a negative EBITDA margin of 23% and Namshi was at minus 2% and Jabong was at minus 37%, there is clearly something to be done to improve the performance of Jabong and that is as you can imagine, something that we are highly focused on. And to that extent we have -- as you would expect and what we do for many businesses engaged with respect to driving organic growth and true profitability on a standalone basis as well as assessing the opportunities for partnerships and consolidation. And that's probably why in India, which is a market which loves gossip around technology companies there has been a lot of speculation. But as of today, nothing's been decided and we are just evaluating options as we do for all the businesses where we seek to improve.
The performance either organically standalone or in partnerships or through consolidations, so this should be no surprise to you, in fact I would say as I think we've discussed during our Q1 presentation, I think you'd be disappointed given the minus 37% if we were not highly focused on exploring all options to improve the performance, so that as it relates to the comment around speculation. As it relates to the rest of the other comments that have come out in the Indian cost market, it is a fact that allegations were made last year regarding what I would describe as improper business conduct by former employees of Jabong.
As you know, Kinnevik has a full commitment to our GRC and CR policies and as such we make sure that the board of GFG took immediate action to evaluate the situation and we commissioned as it happened in these situation, an independent investigation in the allegations that were made. And this is quite customary in most cases when something like this happens it just dies by a natural cause unless it is something material in which case it is disclosed. And in this particular case the investigation did not conclude that there were any damages that were caused to Jabong and as such the investigation was closed. Since then of course, we taken the allegations and the outcome of the investigation seriously, and we have since established a new management team in the company with the hiring of six new people. And of course, we have redoubled our control efforts as it relates to Jabong to ensure that situation, ambiguous such as this one never takes place again.
Very clear, thank you. And a final question if I may, Betterment just appointed Chief Financial Officer, could this -- should we see this in a step towards an IPO, is that still very far off -- I saw we're the first company in this space to reach €5 billion in assets under management as well. So I mean, obviously growing very rapidly as you've shown on these slides. Thank you.
So Betterment is a very young company and it has a huge market opportunity. And so we are highly supportive of the management team delivering on it's plans under private ownership which is the one that we have. And as you know, we never put any type of pressure on companies to pursue IPOs because we are very content with companies remaining private, possibly forever. And so as far as I'm concerned, we're delighted with the current situation. And the appointment of the new Chief Financial Officer is nothing else than the strengthening of the management team which again we are very supportive of.
The next question is from Magnus Raman, SHB.
Thank you. Firstly, can you help us understand the new in general foreign direct investments into e-commerce and then how they affect Jabong and now you're planning to transform Jabong's business into a marketplace model. That's the first one.
So as you know, retailing in India is subject of extreme importance for the local economy and a market that has very strict regulations. And so when Jabong entered the market, it established a fully compliant approach whereby they operated as a B2B provider of services with the B2C activities being carried out by a fully independent third-party owned company. And that means, our modus operandi which as I said, fully compliant with FDI regulations which has been consistently executed. More recently the opportunity has come through changes in regulations and business models to adapt and adjust the operating structure such that we no longer operate in a pure B2B environment but we move to what is described as the modus operandi of a marketplace, and a marketplace as you know is a technology platform that allows merchants to sell their goods to third-parties. And so we have successfully migrated the business to another FDI fully compliant model which is the model of a marketplace where Jabong essentially enables third-party merchant, multiple, literally hundreds of them to sell on the platform, and as such that migration took place last week. And in other cities like everything there are little bit of teasing problems when you shift the fundamental business model but we are confident that those teasing problem will be fixed over the next few days and then the company will be fully effective under the new regime.
And is there a rule stating that no party in this marketplace can be larger than one-fourth of total volumes and how would you build that? And also, do you believe that a potential divestiture of the business will be hindered by the foreign direct investment rules?
So if as there are rules that ensure that the marketplace is a real marketplace and there isn't a single merchant that's possibly associated with the platform to be the lead or controlling the majority of the flow then we are fully compliant with those approaches and methodologies. So there is nothing unique or unusual about our structure and obviously there will be and there are multiple merchants that are controlling the appropriate amount of volume as any marketplace which is -- the merchant will control the amount that is relevant to him based on his performance or our performance. As it relates to the comments I made regarding exploring options; as I said, for all off our businesses, we have an organic growth path, we have a partnership model and we have consolidation model. And consolidation can mean that we buy another company, we double down or we merge or we exit, and so all these options are available to us for all of our businesses.
Okay. And then moving to Wimdu, the valuation of Wimdu have been shrouded in mystery in the past quarter since it's been removed or placed into others in the separation list in your quarterly reports. Can you update us on the progress of Wimdu and their current valuation?
Sure. So as you know, we are a SEK65 billion company with over 34 investments in our portfolio. And so what we try to do is to produce communication which is transparent but also relevant in terms of focusing on the companies that are actually making an impact on Kinnevik as opposed to drowning all of our shareholders and investors and research analysts with detailed information on all 35 companies because that would just be a little too much and in many cases irrelevant. In the case of Wimdu -- Wimdu as you know is a quite small operator in the travel accommodation booking sector, a sector which is increasingly dominated by Airbnb and a few other large players. Travel is not a core category for Kinnevik and as a result we have not focused on Wimdu Communication because of the small size of the company, the fact that it is a factor that we look at inevitably aggregate towards few large players and that we are not planning to make further investment into Wimdu. So there is nothing mysterious about it, just a desire to be focused on matters that are relevant to the future of Kinnevik as opposed to we covering all 34 companies in detail.
Right. And then maybe just a follow-up on that, what is the -- sort of the value threshold we're showing in listed assets in the list specifically or otherwise just placing them in others accountable. Would you have a different selection criteria than value?
Yes, I think what we're trying to do, first of all, is to be material, i.e. focusing on the companies that are actually of interest to the public, meaning the people would follow us and to provide greater debts on those companies. We don't follow them necessarily at particularly threshold. So for example, today on Page 8 we spent time talking about Babylon just because it is a young investment that is quite exciting in terms of what they are doing, but then on Page 20 we give you further color as you can see in terms of fair value, down to essentially 90% of the companies which are included in the Top 9 investments and that we bundle all the others which accounts for about SEK1.2 billion, would have €130 million and that's probably something like maybe 15 companies or so bundled together. But if there is an interest and you want to follow-up with me and Joakim later on to understand a little bit more of these details, we are happy to do that of course.
Great. I just have a final one on Home24. Can you confirm whether Home24 is sealed and make shiphold [ph] with the company, and if so when you expect the replacement field to be appointed? Thank you.
So a management transition has taken place at Home24. And new leadership has been established. We are also very pleased that Lothar Lanz, our new board member at Kinnevik is continuing as Chairman of the Company, and we are very focused right now on the integration of the recently acquired business, so the Home which will give us a stronger capabilities in the sourcing, and particular on the private label. So there is a lot going on within Home24, clearly this is a younger category than fashion about it has very attractive gross margin and also a very interesting working capital cycle because as you know, if you order a pair of Adidas shoes, you want them in four hours but if you're buying a new bed you're probably used to waiting a few weeks, and as such that makes the business model quite interesting.
The next question is Siva Middleton [ph], Merrill Lynch.
Good morning, thanks very much. Just a couple of follow-ups, one on GFG, Home24. On GFG, could you talk us through exactly who were the additional shareholders that came in? Were these investors who just react or have you any new investors come in for funding rounds? And on Home24, I understand the point about investor preferences but surely isn't another fact here just re-enterprise value was kind of material impact in liquidation preferences you haven't seen before. In other words, why are we seeing this fall this quarter when liquidation preferences have been in place for -- well, since they've been in place?
Sure. On the first question of GFG, this was a fully internal round where essentially there were such high demands by existing investors, even small individuals participated. And so there was no other new investor who came into the company. So that's the first point. And then the second is the people who did not participate or typically venture capital funds that were early investors and then as such didn't have the ability to continue investing over multiple rounds as the company became bigger or people who had historically a focus on making digital investment of this nature and have decided since to move on. And so while our internal prorate [ph] might have been around 25%, as you can see we ended up taking more like 50% of the round. That's on the GFG side.
On the Home24 side, I think what you need to look at is on Page -- if you look at Page 18, you see that the key home and living peer, just pick one way fare went from 1.3 to 1 times. And so if you apply a reduction of that nature to the historical sales of Home24, just straight lead across there is clearly an impact that is ascribed to the enterprise value of the business [ph], so that is the first element of the calculation. The second element of the calculation is looking at where is the amount of capital that has been raised and then consumed over the last few quarters that sits ahead of the capital that is invested by Kinnevik a few years ago. And as you know, as you probably know we have not participated in the last several rounds of Home24 so there is quite a lot of capital that sits ahead of us. And so if the value of the company is X and there is Y of capital sitting ahead of us, if you take X minus Y and the number is small, then by definition our theoretical IFRS equity accounts get into cost diminished to a very small number. But that's just a theoretical number because if you say give it to two or three years, the company performs and it goes public then our ownership interest is what becomes relevant and all of this is historical IFRS calculations of liquidation preferences gets crapped. But in the long time, because we have very conservative company and one that is highly focused on applying on a consistent basis the valuation methodology and the liquidation preference adjustments, we need to make sure that we report accordingly.
Okay. Thank you.
Thank you. The next question is from Viktor Lindeberg, Carnegie Investments.
Thank you, good morning. I'm looking at the net investment level that now will take you into our net debt position and assuming that close to 3 billion of net investments you will definitely be leveraged a couple of quarters from now. Can you just elaborate what leverage you feel comfortable with Kinnevik as a holding company given that you already have quite big net debt in some of your holdings today?
So first of all starting with the end of the question, we feel very comfortable with the level of leverage that each and every one of our companies have or on the flipside the cash position that many of our companies have which in the case of the land bills is like €1 billion. So I think the most important thing is to start with is to say that our companies are appropriately leveraged, not overly leverage and if an extraordinary transaction like Tele2's acquisition of TVC occurs, then the company immediately restores its position by raising equity. So I feel that if you look at the world that we live in, most mobile, fresh mobile cable companies are leveraged well beyond where Millicom [ph] and in fact, the Kinnevik's prudent approach to balance sheet management is something that we are continuously putting in place as who the Boards and the capital structure committees of our companies. And so that applies through the more established businesses like Millicom MCG [ph]. It applies to the younger company and therefore example, as you look at what we're doing with Qliro, where the divestiture of track is clearly strategic but financial as well because the release of capital allows us to fund the buildup of the loan book of Kinnevik. So most important point to make is Kinnevik is a conservative financial investor in terms of applying very disciplined and prudent balance sheet measures in the evaluation of their companies.
Second point is looking at it from machinery point of view, we have a clear policy which states that we have no or little leverage. So with 65 billion of net assets, or actually 70 billion, if you look at it yesterday; and 85% of those assets being liquid, meaning that we can make a phone call to a broker and immediately raise capital. We have an incredibly strong balance sheet, this is not a company that has liquid assets that are loss making, that who knows if and when they could sell them. We could literally create liquidity in our portfolio overnight. And so we are strong company and we have a very strong position ourselves. And lastly, we are in the business of capital reallocation and so even if we might end up having 2 billion, 3 billion or 4 billion of leverage at a certain point in time, we will be part of always executing a plan where we will look to take that leverage down back into a cash position over the following 6, 12, 18 months for disposal. And so I think you need to bear in mind that our investment management model is one of creating excellent return for capital reallocation. And as any point in time we will be either in a cash position or debt position but always within a very tight plans.
That's quite clear and the follow-up on that, actually looking at with big cash position now and evidently performing quite nicely as well, operationally and financially. What do you think about leveraging in the kind of company if you are there -- five years down the road. I mean what is -- do you hear growth of course is going to continue and evidently they can do that without taking too much of the net cash position. So would you say that dividends from Zalando is something we should expect going forward?
So the first thing to say is that we want Zalando to be fully capitalized to be a fast growling company that can capture all the opportunities and more. So the last thing we want is to Zalando start optimizing their balance sheet too early in their growth phase. Remember, this is a market that is €350 billion to €400 billion fashion and accessories market and Zalando this year will have less than €4 billion in sales. So we have 1% or not even 1% of the total addressable market. So if you think about it, the opportunity we have over the next 10-20 years for Zalando to conquer this market in enormous. And in order to do that you need capital and yes, of course, we're delighted with the profitability but conquering that market in a way that is making adjusted to such a large market might mean having a phase of investments in 1/3/5/10 years, who knows that could require access to substantial capital. And so given the five of the capitals the growth that is being experienced and the opportunity that we see, we want to make sure that Zalando has ample access through liquidity and as such we're happy to take some negative carry implicit with holding a cash position on the balance sheet. That's for the first part.
The second point is that in the technology space and as you know Zalando is a technology platform, the norm is not to pay dividend. This is consistent across most technology companies, particularly in the world that happened and as a result the business opportunity remained fully there in terms of delivering attractive returns to capital appreciation. There is when companies mature, the opportunity to buyback small amounts of stock in particular with higher stock option plans and I'm sure that over the next five years the management will look at it and if so, we will support that. But remember that the key for us is to have the right balance sheet to support the opportunity and the opportunity for Zalando is huge.
Yes, I agree with you on much of that. Just that I'm thinking here about the strategies because you have -- I mean a longer term strategy that is very similar for GFG I think but you are actually injecting equity as we -- as time goes by rather than just do a big capital raising now. And I mean in light of this Zalando is always also listed of course, so that makes things a bit more difficult. I'm just thinking about the cost of capital perhaps and you also mentioned that when you see opportunities you inject capital such as in Tele2 now for instance. But I do understand your reasoning. Thank you.
Thank you. We have a follow-up question from Magnus Raman, SHB.
Yes, I just had that question answered very, very nicely around Zalando in financial dividends. Thank you.
Thank you. Currently we have you have no further questions.
Well, thank you very much for your time. I recognize that many of you are hopefully looking forward for some time off, and so we very much appreciate you taking the time to go through our results. In closing, Kinnevik is well positioned to begin the second half of 2016 and deliver on our shareholder value creation promise. We do not control the markets, we do not control the valuation but we do have a strong influence on many elements that are driving our company. The investments they make in building their brand and attracting customers, the capital they have available, an open mind towards partnerships and consolidation, and ensuring that each and every one of our team is highly motivated. And on each and every one of these factors, we are highly focused on executing. As we speak we have members of the Kinnevik teams sitting in three or four continents, working very closely with the management team to deliver on the promise that we have for you. And we look forward to updating you again in three months with what we believe will be an additional set of positive progress across many of our KPIs.
So with that I wish you a good break and look forward to catching up soon. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.