Kinnevik AB (KINVB) Earnings Call Transcript

Two questions, if I may. Perhaps I'll take both straight away. First off, on the split between listed and unlisted, Georgi. Are you sort of comfortable with how things are looking today? And perhaps, if you could shed some light as far as IPO timing of portfolio companies go. And then the second question relates to a potential or if you've considered do a listing of Zalando. I mean, I can see the constraints you're having, a bit less than 21% of the company. So I can almost imagine how our discussions have been, but have you even sort of dropped off the topic?

Thank you, Ramil, for your questions. Let me start by the portfolio, this kind of balance and what we see going forward. I think, first of all, we are very excited about this pivot that we will have, again, almost 70% skewed towards the early growth assets. And we think that's a fine balance. However, we also expect those assets to grow faster than Tele2 for obvious reasons. So over time, I think that will continue to increase. The split within the early growth portfolio when it comes to private and public assets, that's more difficult to kind of predict because it's really about what's the best way for these companies to raise capital. So there are, of course, a lot of private placements, private investments that we can be part of, but there are also IPO, stacks and other types of tools in the tool box. And for us, as we have the flexibility to own a company through different phases, we are quite different actually, if it's a public early growth company or private early growth company. What we have said, though, is that we focus our new investments into the private ones because that's where we think we can provide something more unique to our shareholders instead of buying kind of early, less mature public companies. And last but not least, I would like to say that looking today at the portfolio, we believe we have a unique composition of companies. So as far as we know, there are no other public investors in Europe that could offer this type of exposure to digital healthcare with companies like Babylon, Teladoc, VillageMD, Cityblock, Cedar and Alpha Joint Academy. We have a portfolio that probably is in the top range globally and definitely as a European investor. So already by looking at these assets, we can provide something that is very unique for the shareholder. We also have, as you know, a lot of capital now deployed into the food sector. And that's, again, that's a place where we think that we will see a lot of growth going forward and the excitement around -- under that area also is around what value we can bring to our shareholders. Going to your second question then regarding the potential to listing. Yes, obviously, that is something that we have considered. The thing with a do a listing is that it needs to be something that could provide enough value to shareholders -- to Zalando's shareholders long term. And as it looks today, we can see that there are enough reasons to list Zalando on the public stock exchange in Stockholm as it looks now. So it has less to do with us owning 21% or 31% or 40% of the company, I think we need to see that there are strong merits for such a listing. Today's along with shareholders, most of them can own shares on the Frankfurt Stock Exchange, and they have demonstrated that also more recently when they raised capital through that bond. So there is a strong underlying demand for the Zalando share, and we believe that those -- of our shareholders that cannot or would not like to own Frankfurt listed shares, they can actually use this period of time to actually sell the rights and reinvest that capital elsewhere.

Our next question comes from Ms. Naizer from Deutsche Bank.

Great. I have a couple of questions from my end. Firstly, Georgi, could you maybe give us an understanding as to what the overlap is in your shareholder base and Zalando's? We're trying to understand what's the possibility or the potential number of shareholders who could potentially want to sell Zalando's shares once the distribution has been made. So just to get an understanding there. And secondly, why did you decide to distribute the stake all at once and not potentially selling down in portions the way you've done in the past? And connected to that, was there ever an idea to monetize a part of that stake for your own sort of capital investment needs going forward instead of distributing it out right? And lastly, just to understand how it would work for your existing shareholders. If they do want to monetize the share that you are distributing to them, how would they do it? Would they receive the share, which is listed in Sweden, and then they sell it in that sort of Swedish marketplace? Or do they sell it to you and you monetize it on their behalf? Just to get an understanding as to how that works on back-end would be great.

Thank you, Nizla. So I can say directly that for the third question, I will refer that to Erika and Samuel. But the kind of the overall answer is that it will be traded in Swedish Stock Exchange, the rights, but they will go through how it will work technically. Then I think, I touched upon briefly on the first question, even though I would open up for comments from Torun there. But I think it's important to say that although there is an overlap between Kinnevik shareholders and shareholders owning Zalando directly, that cannot be seen as a reason for those shareholders to sell. Because the support that we have received for this distribution that amounts to 50% of the votes in Kinnevik and 30% of the capital, that support is not there because people wanted to receive Zalando shares and then immediately sell. It's because they see a strong value in Zalando going forward, and this is actually a good way for them to accrete ownership in Zalando. But I will let my teammates to elaborate on that answer if we should comment on the exact overlap. But I will now focus on the second question you had. And I think, for us -- sorry, what was the second question again? I didn't write that down. It was...

The second question was on why you decided to disposed the stake all at once? And whether you monetize...

Yes. Exactly. You combine that with the disposal at once and whether we should monetize it. I think when it comes to monetization, as we said earlier, we have monetized Zalando twice where we recruit the initial investment capital were -- actually, a little bit more. We did that during the period when Kinnevik was trading at a significant discounts. So of course, raising capital in the market would not have been, let's say, an attractive option. We didn't have a net cash position that was this strong. Today, we have a net cash position of more than SEK 4 billion. We have Tele2 that will provide us with a steady dividend stream going forward, and we are trading at a very narrow discount or a light premium. So I think, for us today, we see a lot of alternatives to secure our financial position that is already strong to start with, I have to repeat, then to monetize Zalando. And we know that selling down Zalando would have come with a discount. And since we see a lot of upside in Zalando going forward, and we have such a strong support for this proposal, we think this is the best way for us to hand over this fine company for our shareholders that would like to continue to own it directly and achieve ownership, if they're already owners or new shareholders that would like to buy Zalando. This could be a good opportunity because, of course, the liquidity will increase short term. And we know that there is a strong demand for international investors to have a higher exposure to Zalando. But of course, with a limited liquidity, it's difficult to accrete terms of ownerships, and that is something that this, of course, transaction and distribution will facilitate. Should we have done it in similar -- in several steps? Of course, that would have been an option, but I think, also when you disclose something like this, it's big news. And we think it's better to actually rip the bandage at once and basically tell the market, this is our intention, this is what will happen. And with -- again, support from our shareholders, there is no kind of speculation of what will happen. So even if we would see some turbulence short term, we actually think that long term, this will be something that's very accretive for both Kinnevik and Zalando, and it will be shown in both respective share prices. Torun, do you want to comment on the shareholder base? Or is that something we don't comment?

No. I mean, there is a certain overlap, of course, as you mentioned, Georgi, but like you said, we don't believe that's a necessity that they need to sell immediately. I don't know, Samuel, if you had some additional comments on that.

Sure. I'd say, we're pretty optimistic about our shareholders' ability and appetite to hold Zalando directly. I think there are 2 types of shareholders basically who you could argue could face potential issues. That's retail investors and Swedish or Nordic institutions. And if we start with retail, I think you've all seen the fairly strong trend of retail investors increasingly looking outside of Sweden when they build their portfolio, and that sort of tailwind of retail ridding their home buyers clearly supports this transaction. And I think you also all know that Zalando is one of the more popular foreign stocks on the Swedish online broker platforms, and through this transaction, it will clearly gain a number of new Swedish retail shareholders. And secondly, as it relates to the Swedish and Nordic institutions, firstly, you will note that this transaction has strong support from our shareholders and among them, several Swedish institutions. Some of them with a fair amount of flexibility as to where they allocate their capital, and some of them with fund mandates that may prohibit certain funds from owning German stock. However, despite that, we still remain optimistic about how this transaction will trade out for -- even for these shareholders, considering fund managers may be able to reallocate in between funds with different mandates. There may even be room for exceptions, even for Swedish-focused funds. And lastly, funds that cannot hold the stock typically have a fairly long and generous grace period, which decreases the risk of any sort of supply shock. And whatever shares that need to be sold, we find comfort in the strong demand for shares in what is Europe's #1 e-tailer. And when we spun off Millicom, Millicom's share price appreciated by a handful of percentages during the trading window in the rights to receive Millicom stock. So I'd say, we're optimistic about how our shareholders will act and how this transaction will play out.

And then -- Erika here. You had questions regarding the -- some more practicalities. And just basically, the timeline that we intend to propose for the AGM is laid out on Page 4 in the presentation material that was sent out, which gives you the overview. But just as a general, you -- our shareholders will receive redemption shares. These redemption shares will be traded in Stockholm -- on the NASDAQ Stockholm approximately mid-May to mid-June during a 3-week period. So during this period, you can decide if you want to sell your redemption shares or if you want to keep them. If you keep them, you will receive Swedish Zalando shares, which you then can reregister as sort of the underlying German Zalando share.

Thank you. And as there appear to be no further audio questions, I will turn the conference to speakers for any closing remarks.

Okay. Thank you very much. Thank you for the questions, and thank you for calling in. We're super excited about what this means for Kinnevik and Kinnevik's shareholders. And we welcome you to our Capital Markets Day, where we will discuss our early growth portfolio further. Thank you very much, and have a nice day. Bye.