Sto SE & Co. KGaA

Dear ladies and gentlemen, thank you for joining our Q1 results call today. Together with our founder and co-CEO Udo Müller and our CFO Christian Beyer, we will present our Q1 figures and give you some additional insights where we stand, how we evaluate future developments, and how we respond to the challenges of the arising from corona. As usual, we will start our presentation with some comments on our main KPIs of the quarter. Christian Beyer will talk you then through the details of our financial performance in Q1. And afterwards, I will give you insights on how we managed to run this unique situation due to corona and give you some flavor on what we expect for Q2 2020. So looking into the results of Q1 2020, this quarter was again an excellent one for us. The figures of the first three months but also of the first weeks in Q2, prove that our out-of-home plus strategy performs both in normal times, but also in rough conditions. Overall, the performance of the quarter would have paid perfectly well into our original, but due to the uncertainties of corona-withdrawn guidance for the year 2020. Taking into account that after the first speech of Chancellor Merkel on March 18th on the upcoming lockdown measures, our programmatic public video business and our door-to-door ranger business came largely to full stop. Our performance in Q1 would have been roughly 10 million better in revenue and at the very top end of our guidance range of 3 to 7%. Nevertheless, in Q1 2020, our reported revenues grew strongly by 5% from 351 to 368 million euro. Organic growth was at remarkable 6%. The adjusted EBITDA increased by 6% from 117 to 124 million euro. Our adjusted EBIT developed basically in line and increased by 5% from 48 to 51 million euro. Adjusted net income was up by 9% from 35 to 38 million euro in absolute terms fully in line with adjusted EBIT development. Operating cash flow in Q1 performed with 76 million euro on a normal level compared to previous year's first quarters, but was down when compared with the exceptionally strong Q1 2019. The net investments of around 34 million euro are in line with what we have planned for Q1, but we will be reduced to the absolute minimum going forward until the economic environment shows first signs of improvement. With that, let me hand over to Christian Beyer.

Yes, thank you. As Christian just explained, revenues of the first quarter were up by 5% or in absolute terms from 351 to 368 million euros. When it comes to organic growth in the quarter with 6%, we again performed very strongly. Adjusted EBITDA developed basically in line with sales and increased slightly more with 6% from 117 to 124 million euros. Exceptional items are 1.7 million euro, significantly lower compared to Q1 2019 due to a positive disposal effect from the sale of Tube 1. With 85 million euro, depreciation and amortization are 3% higher as in Q1 2019 and well in line with business performance. The financial result of 6 million euro improved by a million euro when compared with the previous year's quarter. The tax result for the quarter increased by roughly 2. to 5 million euro in line with the increased operational performance and the expected minor increase of the tax rate as discussed in our prelims call. Adjusted net income was up by 3 million euro from 35 to 38 million euro. Our free cash flow adjusted for Q1 2020 is minus 4.4 million euro, a quite normal level compared to previous year's first quarters. However, below Q1 2019, which was an exceptionally strong quarter. Tax cash out was €7 million in Q1 2020 and on a normal level. In Q1 2019, we had to cover compensation payments for the previous year. Working capital in Q1 2020 was minus €30 million compared to minus €8 million in the previous year's quarter. The development is mainly due to phasing effects. However, it should be noted that working capital in the previous year's quarter was comparably strong and above the level normally to be expected. In line with our growth and digitization strategy, sustainable high investments in digital screens, software, and other intangibles were made as budgeted and were on pre-corona levels. Lease liability repayments were down slightly by $2 million from $48 to $46 million. As in previous years, Bank leverage ratio increased slightly in the first quarter compared to the year end and was slightly up from 1.44 to a still very solid 1.5 at the end of the reporting period. As mentioned before by Christian in his opening remarks, Q1 2020 was very solid, especially when taking into account the negative effects from corona on programmatic public video and Ranger in the last two weeks of March. All three segments, out-of-home media, digital out-of-home and content, as well as direct media, supported the positive development. Out-of-home media showed organic growth of 6%, digital out-of-home and content increased by 10%, and last but not least, direct media grew by 1% in the first quarter. In absolute terms, out-of-media revenue was up by 6% from 143 to 152 million euros. This strong development was driven by a consistently strong growth in all sales segments, such as national, regional, and local. Adjusted EBITDA of out-of-home media increased from 63 to 66 million euro in Q1 2020. With that, EBITDA margin stands at 43.6% pretty much on the level of the comparable period. Revenue growth of digital out-of-home and content was again mainly driven by a strong performance of our public video business as well as Statista. In total, reported revenue grew to €137 million compared to €125 million in the first quarter of the previous year. In Q1 2020, adjusted EBITDA of digital art of home and content was €49 million with a margin of 36%, or 80 basis points above previous year's Q1 margin of 35.2%. This was mainly driven by an overall positive business development and especially ongoing highly profitable public video business. Reported revenue of the direct media segment was slightly down by €2 million from €89 to €87 million. This relates to minor disposal effects of foodists and connections. Adjusted EBITDA for the quarter was €15 million, up by 7.6% versus prior year's quarter, and corresponded to an EBITDA margin of 17%. Let me now hand over to Christian Schmalzen who will give you an update on the current situation and our expectations going forward.

What we could observe in the last days, the first thing people do after a couple of weeks in their homes after focusing on themselves and the family is going out and enjoying life in the first warm days in spring. Restaurants, beer gardens, hotels, as well as shops, smaller and larger than 800 square meters, are already open again in some regions or will reopen soon. As of today, we have already indications that especially large clients and advertisers will capture that opportunity to reposition and activate their brand USPs. With our strong market share, our broad marketing and advertising services, as well as the highly flexible digital out-of-home solutions, we are ready and best positioned for that phase of recovery. Nevertheless, our focus from mid of March until end of April was very clear. Firstly, tight cash and cost management for the total group and securing the very robust development of the non-out-of-home businesses during the peak weeks of the crisis. Secondly, optimizing our out-of-home cost phase for Q2 and the following recovery months as aggressive as possible and with all available extraordinary instruments. We see that almost 80% of our total out-of-home and public video cost structure is flexible in such an extraordinary situation, and we target a cost reduction in that segment, including public video, for Q2 of at least 40% to 45%. Thirdly, making sure that across all our sales teams, we stay in close touch with the market to anticipate all rebound scenarios in real time, optimize our product bundles accordingly, and focus on market share optimization. Despite still low visibility for revenue development, we perceive already first signs of market recovery, which will be slowly supported by the easing of the corona restrictions to bring public life closer to normal. However, we expect Q2 to be hit by the effects from the restrictions to public life to slow down the spread of the virus. On out-of-home, for example, the eight weeks of strong restrictions of public life with the request to leave home only for important reasons had massively negative impact on campaign revenues, both with large national but also with mid-sized regional customers. As explained before, we expect positive stimulus from the reinitiation of public life and see first signs of recovery for June. In contrast, revenues with small local clients, which stand for roughly 20% of our out-of-home client base, are quite robust and are expected to reach at least 70% to 80% versus prior year's quarter. Looking into Q2's out-of-home order book in Germany, we stand in total at around 50% versus prior year's quarter due to long-term contracts and long-term campaigns of SMEs. The next four weeks will show if there is smaller upside potential for Q2 and what the dynamics for Q3 might look like. At digital out-of-home and content, the corona crisis will take its share in particular from public video. Bookings, especially via programmatic, will slash down to approximately 20% for the time being. Against the backdrop of public lives coming back, customers will react immediately, revitalize their campaigns, which potentially results in a soft rebound for end of May and June. In times of crisis, it is typical behavior to keep up to date with the latest developments and to keep in touch with friends, family, and business partners. G-Online offers advertising-financed, well-researched information on the most important topics and is still the gateway to email accounts for many people. Our customers, such as telecommunications companies, supermarket chains like Rewe, Lidl, or Aldi, as well as large number of e-commerce businesses like Otto or Zalando, perceive G-Online and many of our other websites as powerful distribution channels. This is why G-Online, as well as our third-party websites and online marketing portfolio, deliver solid performance and stand at an index of around 100 versus prior years Q2 at the moment. Especially in times of crisis, reliable facts and statistics are a crucial success factor for companies. But also private persons inform themselves about facts and current developments. Against this backdrop, we expect Statista to remain at least stable in Q2 compared to the same quarter of the previous year, and for the year as a whole, we anticipate a growth rate of 15% to 20%. Q1 was slightly above 30%, and June will be already back on growth track. In total, we therefore expect a year-on-year development of index 70 for the digital out-of-home and content segment as a whole in Q2, with upside potential for public video as already described. Our direct media segment is proving to be very robust, especially in the current crisis scenario. Looking into the details, Azam Beauty, the main part of the sub-segment transactions, is expected to continue the positive business development of the past quarters almost seamlessly, and we await revenue growth of up to 10% versus the prior year quarter. There is currently also unchanged demand for our call centers, especially customers from the e-commerce sector have once again increased significantly their volumes. Service requests, returns, and other issues can be handled well via contact centers. On the other hand, consumers can be reached easily at home, which our customers take advantage of for their campaigns. We therefore expect sales and business development on index 105 versus previous year 4Q2. Nine weeks out of business will unfortunately leave significant marks in the development of our door-to-door business arranger. However, we've already sent the first smaller teams of our sales agents back out and hope to be at full pace in the first half of June. Nevertheless, we assume that the development here will only reach an index of approximately 25 compared to the same quarter of the previous year. The rest of the year, so from mid of June onwards, should be completely normalized again. Taking into account the described details, we expect total segment direct media to show a performance of around 75 when indexed against Q2 2019. As this crisis is already exceptional and as revenue visibility is still really low right at the moment, we think that quarterly outlooks with a level of detail as described above give the best perspective on the current business development. That said, the flexible cost structure of our out-of-home business, the quite resilient performance of the non-out-of-home or the plus businesses, as well as our strong balance sheet, cash position, and low debt and debt leverage ratio give us confidence to return relatively stronger as soon as the advertising market starts to normalize. With that, let me close our presentation with a reference to our Q2 and interim report on August 13, where we will give you also more insights on Q3 and what we expect for the second half of 2020. Thank you, everyone, and we are now happy to take your questions.

And we've received the first question. It is from Annick Maas of Exxon BNP Paribas. Your line is now open. Please go ahead. Hi, good morning. My first question is on delayed payments. I think last time we spoke, you suggested that you had a request for delayed payments of just over €200,000. So if you could just give us an update on that. Secondly, could you maybe tell us how much public video grew until March 18th, given it was up 32% over the quarter? I guess it was up quite a bit further at the start of the quarter. And then can you also suggest whether you have seen really a proper pickup in the public video since Germany has Luton restrictions? And then thirdly, on display advertising revenues in Q2, I think CPM had still held up quite well last time we talked. Could you just talk us through that as we go into Q2? Thank you.

Okay. Thanks for your questions, Annick. Late payment development, the volume has gone up to roughly one million. And actually, if you look into the details, there's like 300, 350,000 of a couple of really very small clients. So that's a little bit more than what we have seen last time, but it's still on an extremely low level if you look at the total amount of clients there. And there is one specific customer which amounts for roughly, I think, 700 or 800K, who is just opting for both data. So the volume has gone up from 250 to 1.1, maybe 1.2 million. But versus last time, the 250 has gone up to 350 plus one specific customer. So still compared to what we have anticipated ourselves, still looks quite robust at the moment. Obviously, especially for the SMEs, I think it was helpful that we put together a microsite, which helps SMEs where and how to get immediate and direct support from the government. So that was used heavily by our sales teams and by the customers just to maneuver them through the most challenging weeks in April and May. On public video, yes, you're right. I think the year-to-date growth rate until I think the Monday was March 16 or so was in the high 40s, 46, 47, 48%. And that's the reason why even if there were two weeks missing in March, we were still above 30. But, yeah, it's a bit of a shame because we've probably, as we said before with COVID, two and a half weeks more full public video plus two and a half weeks more range of business. That would have been at least 10 million revenues, maybe more. And then we would have been probably very close to 9 or 10% organic growth for the group. But that's all theory. And we have to focus on other things. And yes, what we see already now is that I think Traffic outside normalizes, and there's no doubt that in shopping malls or also public transportation, we are yet not back to full traffic as pre-crisis, but at least to 70%, 80%. And that already delivers quite good net reach. And I think almost more important for clients is that it's the medium outdoor where you can react extremely short-term. on any kind of changes out there. And you can also regionalize your campaigns because the crisis situation is very different if you look at different cities, regions in Germany. So what we see at the moment, on the one hand, yes, public video audience is maybe only back at 75%, 80% traffic-wise, but it's the most interesting media for customers to flexibilize their campaigns both timing-wise as well as regionally. That's why we think it's difficult to predict right now, but we think the recovery there can maybe happen even quicker than for traditional out-of-home portfolio just because of the timing. And display CPMs in Q2, I think what we've seen was from mid of March to mid of April, extremely high traffic, especially in the news portal area. And I think in that context, it was difficult to monetize that incremental, almost unnormal traffic on the same level as the normal amount of traffic. That's why short-term traffic was up in absolute terms. revenues were slightly up, and therefore the ultimate eCPM was slightly down. Since the second half of April, we see a slowly more normalizing traffic again, and therefore also the CPMs getting back to a higher pre-crisis level. But overall, what we see is that still a lot of our business is Private marketplace, it's direct deals with customers, or it's still campaigns that are specifically booked on specific websites. And that's where CPMs are quite robust. What we see the other way, open auction, and that's mainly the Google business. That's where CPMs have been more under pressure in the last couple of weeks.

Okay, thank you.

I think it was really encouraging if you compare the local and the national business, and that, you might remember, it was a big discussion at the beginning of the crisis, what is more robust at the local or the national business? And there are some people also saying, oh, on the local level, too many companies are going to get bankrupt, and we're going to see a lot of money not coming in, et cetera. So I have to say we are quite satisfied here, because on one hand, it's totally minimal, what people are asking, even to postpone payments. On the other side, what is, I think, a very important number, decline in turnover compared to the previous year is one-third in local compared to national. So what we always said, national is much more volatile if it comes to a crisis like that. I mean, it's not volatile if you compare it to many other businesses on the long run, but in a crisis like that, Decline in local was one-third of the national business. So if you look at our strategy, then after eight weeks of crisis, we can say that local is stabilizing the numbers a lot in comparison to a normal auto strategy, which is more both national... And also ASAM and Statista is stabilizing the numbers a lot because Statista, what Christian already said, is going to grow 50 to 20 percent. I think this is a remarkable number, remarkable number, especially taking into consideration that the U.S. is Statista's biggest market and there's really, really trouble going on there. And ASAM is right now actually on the original level. growth projection. So that's the out-of-form plus strategy, including our local business, is really something which gives us a lot of support here. And this is, by the way, also one of the key reasons, because I saw in some comments in the morning that we draw down a lot of cash. That's absolutely correct, but up to now, We didn't touch anything from that. In reality, our cash position is better than ever before in the history of the company. It's a bit weird in the crisis, but I have to say, I think the team, especially with Christopher doing here, made a tremendous job, especially on the cost side. And we also didn't ask for any covenant holidays or adjustments. So from today's perspective, we are quite confident that we don't need any adjustment to our credit lines here. Now we are actually looking heavily how we can get rid of the cash again, because we have almost 580 million cash now in the company, and that's definitely much more than we ever need. So I think overall we are quite happy with the results. what we see up to now on the numbers and especially on the cash side. But in general, we have a very long-term view as a family business and we are focused really on watching through the crisis and everything what we see up to now here, we are absolutely convinced that we get out stronger of this crisis than before because we're going to have a lower cost base. And the structural change in the industry will be clearly accelerated. And that's the reason we are pretty much focused now already on 2021 and the year to follow.

Great. Thank you very much. Thank you. The next question is from Marco Stiebel of JP Morgan. Please go ahead. Your line is now open.

Hi, everyone. One question, really, just on public video as well. I didn't fully understand the numbers. You were saying the order book is down to 20% of previously in the quarter, and then you mentioned the 75% to 80%. Is that the comment referring to May, June? I didn't fully catch that. Also, in addition to that, could you tell us a little bit more how does it actually work? in terms of kind of like quick and fast booking and monetizing consumers going relatively quickly out once the lockdown measures are eased. I.e., what is the discussion with advertisers? Is it about expected audiences? How does it really work in practice? I just tried to understand how to model kind of like the revenue uplift when I see it in the newspapers that clearly more and more consumers are out there again. But how does it work in kind of a practical way in terms of getting to the revenue levels at the end of the day and what advertisers are paying?

Hi, Markus. Just to be clear, so the order book for Q2 at the moment is on index 20 versus previous year or minus 80%. That's the current status. And actually, that is massively hit by April and up to mid of May, because in that time, shopping centers have been completely closed. Public transportation and nation and regional wide train traffic was down by, in some weeks, 70%, 80%. That just means no client and that medium works more short term will actually book campaigns in such a period apart from a couple of exceptional customers who were just willing to keep their budgets there and asked, and that takes us to the second part of your question, and just ask for extra inventory similar to the online business where you actually pay more for the audience than just for the inventory. So what we've been currently doing is optimizing our portfolio and the public video network according to the current traffic numbers. So because we see bigger regional differences and we see differences also between train stations that focus on nationwide traffic versus public transportation in bigger cities so that we get on the basis of our portfolio through the activation of the right screens. the maximum audience for the customer. And at the moment, that is somewhere at an index 80 traffic-wise versus pre-crisis. So there's still 20% missing. But the other way around, as we said over the last couple of years, our current fill rate pre-crisis on public video inventory was index 32, 33, 34. So just giving a customer an extra 15, 20% inventory to reach on a net basis the same amount of people and just overcompensating the current traffic decline is at the moment the right model. So the customer gets exactly the same audience as before. Therefore, they get probably 20%, 25% more inventory than before, but pay the same as before. It means slightly higher fill rate for us. It's a temporary... tool to optimize and support clients coming back and that makes I think makes it quite reasonable for for both sides I think the nice aspect about that programmatic public video part is that different to the traditional out-of-home booking it automatically or programmatically means you can activate all screens in an even more individualized way and So if you look at specific regions where I think the restrictions are already softer than in others, you can face your campaigns precisely and more or less in real time, even adjusting sometimes creative communication on a daily basis or regional basis just to make sure that you treat also consumers and their perception of advertising as decent and reasonable as possible. So we feel that the still missing smaller part of the audience, especially around our public video screens, is less crucial than the positive aspects of having an extremely flexible dynamic medium and more than enough inventory to deliver audience for advertisers.

Okay, that's clear. Thank you.

Thank you. The next question is from President Tate of Goldman Sachs. Your line is now open.

Please go ahead. Morning, everyone. Thank you for taking my questions. First one for Udo. You sounded a lot more positive on the cash side and I suppose the recovery and the outlook for the business over the coming quarters. Can you give us perhaps a bit more color about how you're thinking about cash returns at this point in time? Then second question to Christian Beyer. You've obviously been spending a lot of time looking at the cost base. I'm just curious if there's anything coming from the sort of shift to work from home that I guess we've all experienced. But from a STURA perspective, is there anything that I think you think differently about what that sort of potential streamlining of the cost base could look like? Yeah, any color there would be very interesting. And then a final one, for anyone really interested in terms of the advertising revenue that's coming back, are you seeing that more in the sort of brand building space, or is it more direct response? How should we think about the type of advertising revenue that's coming back? Thank you.

Yeah, thank you for the question. So cash return, it's a good question. I mean, that's the reason why we didn't cancel the dividend up to now. We postponed the shareholder meeting to the second half of the year. Because it's always difficult at the beginning of the crisis to overlook what's really going to happen. And I think if you don't see a second wave, then we have also a clear upside that things are getting a bit better than we were expecting. And I already said that like two weeks ago, that the 50% minus is the minimum worst-case scenario what we see for second quarter. And if in... In case of easing the restrictions, there's also an upside, especially for June. And so last week, we were already on, let's say, 40% from previous year level on new orders, which was quite an encouraging sign. But it's too early to say if this is a trend now. By the way, this is no corona, normal flu. You can't believe that something like this is existing in corona times. But there's definitely a potential also for dividend. It depends how things are developing, but it's too early now to say that. Right now, cash looks really encouraging, and I think this was the most important measure for now, because obviously if you look to all these state rescue programs, et cetera, there are a lot of businesses running out of cash, and it looks like that the not even have to adjust our credit facilities. I think this is really, really good news for us. And in case that we're finishing the year a bit better than we originally expected, there's also headroom for a dividend. But it's too early to say that. It's not from the table.

Catherine, on our cost management, I mean, obviously we started looking into the biggest cost positions we have. First and foremost, this is salary and wages. So we send quite a few people into short work. So Kurzarbeit in Germany, which is basically – the instrument of choice here. For that overall, for the entire quarter, we will be saving around 20 to 30 million euros just in terms of personnel expenses. This was the key measure. A second bigger cost bucket obviously is also the rent that we pay to the landlords where place our billboards and digital screens. So there we're also talking about reducing the guarantee payments and also finding deals of reducing also the revenue base right there. So these are ongoing negotiations with Deutsche Bahn and with our cities and communities, but also private landlords to just make that cost base a lot more flexible, which will help us, has helped us and will help us going forward. Another topic that we're also looking into is obviously the rents that we pay for our office buildings, where we started negotiations two weeks ago, also trying to secure discounts there because we are hardly using that office infrastructure at the moment. And then obviously relate to that is how do we see the way of working going forward. We have around 30 million euros for office rents on an annual basis. So there we believe we will see more flex work or home office than giving us a chance to then just reduce office space and according cost. But we also take a look at all other cost positions. I mean, obviously travel costs is the easiest, but we are quite restrictive in how we spend our money, even more so than in the past. So these are all the measures that we have undertaken to deliberately manage our cost base.

Thanks. And then just on the advertising direct response or brand building?

Brand building? How they use the advertising?

Well, I think it's always driven by the context, what we see when we look at the last two weeks. I mean, Udo said last week was the first week where we could see I mean, it was not a normal week, but given what we had in the weeks before, it felt more normal again with reasonable orders from national customers. And all of the campaigns had either strong brand connects or concrete product offering. So we had amongst booking customers, there was do-it-yourself markets like Bauhaus with store activation. brand advertising from the automotive sector, from Renault, for instance. We had FMCG companies like Ritter, Sport, Chocolate, or also Megle, a completely new customer with brand advertising. We see currently a lot of discussions also with the tobacco industry because, on the one hand, the question if there will be an advertising ban soon is, I mean, not off the table, but there is potential that advertising might be allowed longer than planned and more importantly for this year there are four key channels out of home cinema events and promotions at the moment the only channel they can activate is out of home and realistically events promotions will be very limited cinema as well and So we might benefit there as well, and all of that is also very much brand-driven. So what we see at the moment, that brand context is coming back. Difficult to say how quickly, but I think since the beginning of last week, we are more positive again.

Thank you very much.

Thank you. The next question is from Julien Roque of Barclays. Please go ahead. Your line is now open.

Yes, good morning, everybody. First question is you're guiding to Q2 outdoor down 50%, content down 30%, and direct media down 25%. You said also that those were worst case, and you had upside in outdoor and public video. Now, I know it's hard to say because things are moving very fast, but Could you try to quantify the upside so we kind of have a range for Q2 as opposed to only one number, so kind of a realistic best case, and you've already given us the central scenario. That's my first question. My second question is on cash flow, working capital. You said Q1 outflow was phasing and it would come back in Q2 if there was no COVID. But obviously we have COVID, so what do you expect working capital to do in Q2 and if possible for the full years? And then a strategy question, looking at outdoor in a couple of years, some people will work from home forever. So if you look at the number of surveys, most people say that they work from home about a third of the time. for people that can work from home, which, if you look at other surveys, is about a third of the workforce. And yourself, you said that, you know, you were spending $30 million in office rent, and you're looking for flex work to reduce costs. So you will have some of your people working from home. So, I mean, if you assess, you know, I don't know, what percentage of your revenue is linked to commuting or what will be the impact you think – uh, of, of having a portion of the German population working from home in a couple of years, because that, that would indicate that, you know, you're not going back 200% of revenue, but more something like, I don't know, 1995. So any kind of strategic vision of life after COVID and the impact on your, on your business, uh, would be great.

Thank you. Uh, maybe I do a number one and number three. Uh, So we know that all of you know maybe the numbers even better than we do, but if I pull together the kind of individual elements of the outlook for Q2, our base case is probably minus 40% revenue versus previous year, including very soft revenue inflows for the rest of the quarter. So it depends on, well, how quickly or strongly will the market come back again? And that's very difficult to predict. We also don't know what the bookings that come in, if they, in the next weeks, if they are fully active for Q2 or rather for Q3. So it's difficult to say how much better than minus 40 is possible. It's really, we try to break down the, what we know today as detailed as possible, and we know and manage our costs on the basis of what a worst case or defensive case is. I think anything beyond that is a little bit out of our control. So if you ask me personally, I think we will do better than that, but how much, it's really difficult to say. From a strategic point of view, I think that The importance of the touchpoint outdoor won't change. I think the structure and the value of our portfolio will be slightly different because what we see already now is that, especially in bigger cities, there is more traffic roadside than before because people switch, at least the ones that are able to, from public transportation to their own costs. So it's a shift of traffic. Yes, we see that home office leads to a little bit less traffic in commuting times in the morning and at the evening. At the same time, we see that people that work from home maybe use also the time throughout the day for commuting and doing at least for an hour or two something else than work. We also see that specific point of sale locations like supermarkets and so on gain new importance. And we see that something that was less of importance in the last five years but becomes more attractive again is all residential areas where we still have a lot of inventory. So we think we probably bundle our out-of-home inventory slightly different. But we see also that the digitization of out-of-home will have even more potential than before. And we don't think that the structural challenges of content broadcasting media will be less challenging so that we think that our relative competition will definitely have more challenges after the crisis than we have. So we think the touchpoint itself will be a structural winner as before, but I think how you use out of home and also the acceleration of the digitization, that will definitely change a little bit according to consumer behavior.

Julian, on the cash flow, I mean, as Udo pointed out, we've been quite stringent on managing our cash flow, our cash outflow. Since the beginning of the crisis, this resulted in a cash increase by 60 to 80 million euro. So just looking at working capital for Q2, I believe we will see a positive impact on But also, at the moment, we actually need to pay interest when putting that into our bank accounts. This obviously is not the dominant strategy for the entire year, so we will be more reactive there and try to manage cash as best as we can. We will also closely monitor what the cash-in is doing, if there's any postponements happening. of our customers. So we will monitor that and react. I think in the long run, it is fair to say that we're still shooting for a neutral working capital for the entire year.

Okay. Thank you very much. If I could come back on the answer from Christian on the structural question, which, you know, what you say makes sense. So let's less maybe rail, less commuting, more point of sales, more residential, and so outdoors still strong. But that means you need to rebalance your portfolio to a slightly different location. Will there be a cost associated to that?

No. I think we have the inventory everywhere, so we have like 230,000 locations in Germany, plus the total point of sale portfolio that we acquired through the United Ambient Media Group two and a half years ago. So we have access to all cinemas, to 70% of the supermarkets, takeaway restaurants, and so on. So I think we already have it. The question is, do we digitize the next potential 10 phases in the train station? Or do we digitize 10 faces in front of a supermarket. So I think the future decisions for the next three to five years might be slightly different. In general, the portfolio that we have is already there. I think customers look at the portfolio in a slightly different way. I think their biggest interest right now was high traffic areas. Maybe that changes slightly and they will re-look at our inventory and in residential areas, what we've already seen in the last four weeks, that people realize that fast-moving consumer brands should advertise where the families and the householders are, and they spend more time than ever in and around their homes. So the old-school columns just nearby a lot of private houses are suddenly quite attractive. So I think sometimes the challenge of our portfolio is that 60% market share in Germany means that we have more or less everything. And I think the attractiveness of different parts of our portfolio will change. And on the basis of what we see there, also how long-term and substantial changes in mass mobility might be, we will adjust to that. But I think the potential in general is the same as before.

Okay. Very clear. Thank you very much.

Thank you. The next question is from Catherine O'Neill of Citi. Please go ahead. The line is now open. Hi, thank you. I just wanted to ask for a bit more detail on the cost side. I know you mentioned for outdoor, I think you could cut the cost by 40% in 2Q in the short term. Could you maybe talk about margin profile in 2Q for some of the other areas, so door-to-door, direct media, and what you can do on costs there? Also on CapEx, I know you said it rose in 1Q because that was sort of pre-COVID. How should we think about CapEx for the year? And then finally, you mentioned about tobacco companies having sort of four channels of distribution, and the only one that's really accessible right now is outdoor, as large-scale events aren't happening, the cinemas are closed. Could you see any sort of additional benefits from large-scale events not occurring in terms of budget being reallocated as we go through the course of 3Q from some of the other sectors?

Yeah, so maybe coming back to the cost question outside of out-of-home, I think as Udo also said before, the non-out-of-home businesses perform very well. So we manage costs as we did before, in line with revenue development. But we also want to make sure that we don't, I don't know, stop or reduce the dynamics of those businesses by just squeezing out every single euro. It just doesn't make sense to, I don't know, not looking at the midterm growth plans of Statista and Asam, because they are quite robust. So it just makes sense to invest. no matter if the growth is maybe five percentage points higher or lower, because we see the midterm strategy fully intact. It's the same with the online and digital businesses, that we rather see that there is an opportunity to win market share. They perform very well. So those businesses are managed similar as call centers as before. I think the only exception outside of out of home is the door-to-door business with Ranger, because when... you have that kind of soft lockdown and your sales or your main customers just don't feel comfortable with having an active sales force going from door to door in such times. The question is, how do you manage costs? So there's two important aspects to that. The first one is that the sales force, the key sales force for direct to consumer of Ranger, it's self-employed people. so that it's all commission-based. And first of all, the cost structure there, as far as the active sales force is concerned, is fully flexible. So no revenues, no costs attached. Secondly, we need to nevertheless bridge the costs for the overheads and maybe also helping some smaller sales partners to survive those weeks. And for that, we work with the instrument of short-time work in Germany, especially if the business goes down to zero. And secondly, what we've seen, I think also interesting and shows the importance of that outsourced sales force for many clients. We get bridging support from the three or four key customers in that segment. We have a vital interest in making sure that whenever that day comes that we can send people out again, and that was already since last week with the first smaller teams, that the sales infrastructure is fully intact as it's strategically quite important for our customers. So we got some financial support there so that even the eight, nine weeks without any sales activities, we have zero cash burn. Yeah, that's it. minor costs that we have to keep the structure up and alive is actually co-financed by our biggest customers. And on the last one before maybe Christian can say something about CapEx. Yes, it's still difficult to say, but you're absolutely right. When you look at marketing spend in total from a very general point of view, I think What you see is that no doubt digital media and very flexible media will probably win in relative terms. You see that probably declining media, structurally declining media that get an extra hit through the crisis might face even more challenges than in the recovery months. Things like... printed directories, freebie weeklies, those kind of things. I think once an advertiser stops advertising there, even if the crisis is over, they might even more rethink if it was ever the right thing to do to continue with that. And you're also right, everything around live events, event communication, that is also quite tricky. So we still feel that if clients cut back budgets. They will mainly do it in the areas where you just cannot operate as normal. And therefore, out of home is maybe also a medium that can benefit there, especially in the next three to six months when we talk about, well, another quite promising summer in Germany when people spend most of the time out. Even, you know, tourism, realistically, even in a good case, I think that half of the holiday plans will be canceled anyway. The rest of the remaining holiday plans will be probably relocated to German destinations. We already have the first campaign requests from regional and national tourist organizations like, for instance, last week Mecklenburg-Vorpommern would just prepare for more tourists from Germany and people that were maybe originally going to Mallorca. So there might be a couple of new chances as well. That's why we mentioned before we have all of our sales infrastructure out there in the market, just to understand every new opportunity and be as active as possible in the rebound. But still, you know, I think the lockdown was softened last week, Monday. So since in an hour, I think the first restaurants will reopen again. So we are really just in that intermediate phase where – We see life is coming back, but it's a bit to predict what it might bring mid-term. But no doubt, I think the market will reorganize, and the more active you approach it, the better. No doubt about that.

And then on your question regarding cupcakes, I think there are two aspects to consider. As we pointed out, we currently sit on roughly 570, 580 million cash. So we're not at all short of cash, so we do have the liquidity to actually to invest into CapEx. Second aspect is that, obviously, we are convinced as ever in our digitization strategy, so really, you know, public video, but then also putting additional roadside screens, digital ones on the street, and this investment program, we want to continue and try further. So that being said, obviously, to some extent, we also need to look at lost sales and top line that we're expecting for this year. Overall, I would believe that we always said, you know, 6% to 7% of top line, that's roughly the CapEx that we spend. So if you do the math, you know, then obviously it will be a little bit less than last year. I think that's in terms of how we want to proceed about CapEx.

Okay. Thank you. Thank you. The next question is from Patrick Schnitz of Warburg Research. The line is now open. Please go ahead.

Yes. Hi, gentlemen. There's just one last question for me left of all that has been answered. So I was wondering whether you would re-evaluate your M&A strategy maybe in the light that some of your international peers came under severe pressure and looking at that your public video network with your programmatic ability is working out quite nicely that you might start thinking about differently about potential scalability of acquired displays maybe outside of Germany. Thank you.

To be honest at the moment I think we are just happy that there are positive signs of recovery again in Germany and we are very happy that we operate in a country with probably one of the most robust health systems and quite, how should I call it, quite a reasonable political elite who manages the situation, I think, in a very reasonable way. So I think at the moment, it's not really in our mind, especially as I think if you're weaker positioned in different countries, I think it might be even more challenging to activate or reactivate those assets again. And the logics of there are only very, very limited synergies across countries, if at all, doesn't really change through the crisis. You're right that programmatic public video business is an extremely interesting one in a rebound. But for that, you also need a nationwide network. And unfortunately, that doesn't exist anywhere else. And you need nationwide contracts and touch points to build it. So I think short to mid-term, that general focus on the German market won't change. Rather, I think the situation now makes us even more confident that operating in that country is probably better risk diversification than operating in more markets.

Don't forget about the question of the infrastructure. In Germany, we have a unique railway system. Nowhere in the world do you have a similar railway system. This is also due to the size of the country and the federal structure of the country. Because if the countries are getting too small, like Austria, you can go with the car everywhere. You don't need to wait there, really. If the countries are getting too big, like the USA, it's useless to use the train. You take a plane. So if these mid-sized countries, like Germany, with a federal structure, because if you compare the UK and France, Similar size, similar population, but no federal structure, so everything is focused on Paris and London. So on the sales side, this gives us a lot of trouble, because we have to travel a lot to visit our customers, where in Paris and London you have 80, 90% of your customers. But here on public video, it gives us a tremendous advantage, because public video is obviously one of our key growth drivers, also for the future. It's a unique product. But you cannot scale it into other countries because the backbone of the public video network is clearly our railway station network. And if you look, for example, to Hamburg, which is not the capital, it's the most frequented place in Europe, the railway station, 450,000 people per day. But also in Cologne you have more than 300,000. In Frankfurt you have more than 300,000. In Berlin, you have more than 300,000. In Munich, you have more than 300,000. And this gives us on a national level an amazing reach. And this is the strength of the public video network. This is something which is unfortunately unique in Germany. You cannot repeat it one-to-one anywhere else.

Okay, thank you very much.

Thanks, Patrick.

Thank you. The next question is from Katrina Klaas of Hogan Althauser. The line is now open. Please go ahead. Yes, thank you. Hi, everyone. I was wondering whether you could – I know that you said that the decision for the dividends is postponed, but would you say anything to – if you would pay something, which extent that would be, and in the sense of would you return to payout ratios of pre-crisis, or would it be less? And then my second question would be on your sales force. Given that the unemployment rate is now increasing, it would be a good opportunity for you to increase sales force after the crisis, especially, I think, for direct media. Are you looking at that currently? And if so, which extent are you thinking about? Yeah, I think that's... This is another question as well. How are the pre-bookings for Q3 looking? Do you have any visibility on that already? Or can you give us any indication on that?

The dividend, I think I've already answered that. It's too early. It's too early. We had an amazing year last year. So that means we have also enough cash from today's perspective. But because we are still early in the crisis, that's why we postponed the shareholder meeting to the second half of the year, and that's also the reason why we didn't cancel the dividend up to now. If things are developing on the route which we see from last Monday onwards, there could be a potential for a dividend, but it's too early to say that. As we know that almost everybody cancelled a dividend up to now, I think this is generally a good news, but Anyway, it's too early. On the long run, actually, without the corona crisis, our original target was to increase the payout ratio because we obviously carried too much cash because the leverage would go down below one quite quickly without increasing the payout ratio. So that is something what our shareholders can definitely expect in the medium term because what I already said, we have no doubt that the business will be fully back on track and even stronger after the crisis because we expect that the cost base, that we are not going to see a full rebound there. A crisis has always also advantages on the cost side because you can actually take some measures. It would be more difficult to get acceptance for them in a normal market environment. So dividend for this year open. For sure, we're not going to pay out the same like last year. This is also clear. In case we pay a dividend, it would be a much smaller one. So this is also crystal clear. Midterm possibility to increase the payout ratio. So that's, anyway, what we can say about the dividend. On the Salesforce side, I think if you look at our other form, Salesforce, we have a clear growth plan. And we are unchanged on this plan. But we believe that on the range of the door-to-door business, there will be upside in enlarging the sales force, because this was quite tough before the crisis, because unemployment rate was so low to find people for the door-to-door business. There we definitely see upside to the crisis, that it will be easier for us to... to enlarge the sales force here on the Ranger side.

Yeah, for Q3, it's just too early. As I said before, at the moment, we look at rest of May, June, and July. That's where our current offers are out there. And just to give you a feeling for that period, we have currently 892 concrete offers out there on the basis of client briefs for Q3. national and larger regional customers. And on the base, so we see the interest, we also know that they have a clear plan what they do or what they would do or would want to do in out of home. The question is now what will the conversion rates look like over the next three, four, five weeks? Because how those months will perform will give us also an indicator for Q3 and the pre-bookings there. I think at the moment advertisers plan even more than before short-term when it comes to campaigns because no one really fully understands what consumer climate might look like. And I think that makes it also difficult for us the other way around. If you're on the front foot and have your people out there, then there's also a lot of money you can win short-term if you're more active than other competitors. But it's still at least for... four, five, six weeks too early to get a clear picture for Q3 potential pre-booking.

Okay. Has your question been answered? Yes, thank you very much. Okay, thank you. Then we go to the next question. It is from Patricia Paré of UBS. Your line is now open. Please go ahead.

Yes, hi. I don't know whether you can give us the rate of decline in April, May, and June that you're seeing now for public video and out-of-home media. So that's the first question. Then on costs, and more specifically on your rent expenses, what percentage of your contracts or the rent expenses have you targeted already or are in the process of negotiating? And I guess like during those negotiations, are you trying to adjust the rent in Q2 only or will some of those cost savings like potentially be sustained into H2 in 2021? And then my last question is on the local and regional customers. I understand there is some level of protection in the short term as those contracts are permanent. But looking into 2021, do you think there is a risk that some of those customers will cancel their contracts or reduce their budgets materially as those businesses come under increasing pressure? And I guess, what's your ability to offset those potential cancellations with new businesses?

Hi, Patricia. Well, actually, April and May look like the total quarter. probably April slightly stronger than May because I think our long cancellation periods actually influence especially the out-of-home business. For public video, slightly different. Probably April was weaker than May, and June will be the strongest month again. But in general, the variance between the three months won't be huge, and that doesn't really give an indicator, I think, It's rather the public video business that gives an indication, because there you can cancel short term. And the fact that April was a bit stronger than May in the traditional out of home is more driven by cancellation periods than by real demand. So within the quarter, at least on the basis of what we see now, no huge variance. The question is if June will get stronger again than what we see currently in the older book. On the contract negotiations, to be honest, we have more than 20,000 contracts, and we haven't negotiated all of them yet, but our plan is to negotiate every single contract because, I mean, it's a fundamental change of the market. But due to the fact that we are in the middle of negotiations and that we will respond quickly, to all our partners individually, we cannot disclose too much information on that, because the various models that you've described, all of them are reasonable, might be reasonable, but we want to find reasonable solutions also for our partners. So some maybe prefer a solution over more months, others want to look at immediate crisis periods, some are flexible anyway. Others are in even bigger problems than maybe me are. So we really negotiate every contract and we treat every contract individually. That means a lot of work for our teams, but we think that's short-term the best cost initiative and mid to long-term the best way in protecting our partnerships. And on the local business beyond 2020. I mean, realistically, there will be customers who won't sign a new contract in case it is biased. And there might be also a couple of customers who can no longer afford what they've already booked. And we need to find solutions for that. But as we said at the beginning, on the basis of what we see now in the two months It's really minor financial problems of SMEs, but probably over the next six to nine months, there will be more amongst our customer base of 52,000, 53,000. But we also think that given the fact that the unemployment rate will grow without a doubt in Germany, we have better potential to hire incremental salespeople. And that said, yes, we have 53,000 clients, but there's another 600,000 that have the money and we haven't them as clients yet. So there is still a lot of potential for new business where with an increased sales force, we should be able to overcompensate potential losses. So I think midterm at the moment, we don't see any risks. It would be different if we would already have 80 or 90% of all SMEs as our customers. then you could see it. But even if you lose maybe 10% or 15% of your customers, you can easily win two, three, four times that number as new customers when you rebound in a smart way.

Okay, thank you.

Thanks, Patricia.

Thank you. The next question is from Ms. Laleisa of Verge Bank. The line is now open. Please go ahead. Thank you. Two very brief questions, finally. The first is the magnitude of Range's revenue contribution to your top line. I think at the time of acquisition, it was around $60 million of annual revenue, if I remember correctly. Just wanted to understand what the component is now. Is it more closer to $100 million or more? Secondly, is there any update at all on the public radio and potential Google partnerships where you were trying to link Google's demand-side inventory platform to the public media network, or has that just gone to the back burner as the crisis unfolds? And lastly, the growth between local and regional sales and national sales in Q1 in out-of-home media would be highly appreciated as well, just to see if those trends were continuing in what was a normal quarter. Thank you.

Maybe just briefly to your first question, the magnitude of Ranger, looking at 2019 numbers, Ranger's top line was around 130 million euros.

It has doubled since we bought it. We had a minor vote on acquisition there, amounting probably to 7 million euros, something like that. But if you take the So the business plus the acquisition, the starting point was 67 or 68. We doubled it over the last two and a half, three years. That's why if we lose two weeks of revenues, it costs us between five or six million euro. And that's what we missed in the second half of March. And On the Google side, yes. I mean, we had a pre-crisis beta version working. And given the fact that our teams were extremely busy in the last couple of weeks, and Google probably also had a lot of topics to fix themselves with publishers, we haven't been working on extending that beta version setup. as soon as we see more revenues coming in, and especially the DSPs get more active in the last 10 days again on public video inventory, we will try to pick up the conversation and continue as planned before. So that hopefully it was just a 10 weeks pause, but nothing that would change the mid to long term model with them. And just your third question. Thanks.

It was the breakdown of growth between local and regional sales and national sales in Q1 in Outfall Media.

I think the local business was beyond 25%, close to 30%. The regional business was around 4.5%, and I think the national one was around 5.5% or so. just for the traditional out-of-home business, leading in total to roughly 6%.

And, Christian, on that note, Ranger, could you also tell us what the margins are like typically for that business? I'm assuming it's higher than the direct media segment margin, but just some color there would be great.

It's around or above 20% EBITDA margin.

Understood. Thank you.

slightly better than the call center business, maybe by five, six percentage points.

Thank you. Thank you. The next question is from Christoph Bass of Bankhaus Lampe. Your line is now open. Please go ahead.

Hi there, one final question on cost from my side, please. I think you gave a very good overview of current trading in Q2, but I mean, how should we think about your operating leverage? During the last call, you presented us the slide with your 85% potential cost reduction. I believe this was yet rather a theoretical exercise. So could you explain us if you lose 100 Euro in revenues, but how much is your EBITDA going to decline on average? I'm sure it's going to be higher than only 15 euro, and it's obvious that it heavily depends on the individual businesses, but nevertheless, any comment from your side here would be very helpful. Thank you.

I think it makes sense to differentiate out of home, including public video, versus the rest. non-out-of-home businesses, it's more OPEX-driven. And I think there, in general, we try to adjust our costs in line with potential revenue challenges so that the EBITDA margin remains more or less stable. And I think those businesses operate currently within a corridor that is very close to where we've been pre-crisis, with the exception of Ranger, where As I said before, if two weeks cost us five and a half or six million euros, you can imagine what nine or ten weeks mean. And you know you have no revenues in that time, but you also have zero costs. So the EBITDA in that pause is probably zero. That's the only special element within the non-out-of-home businesses. So the interesting and definitely crucial part for us is then out-of-home, including public video, because that's infrastructure business. And as you said before, what we've shown in the annual results call was theoretical exercise where we said what would happen if our revenues drop by 85% or so to 100 million euro. How much could we push down the costs? And we saw that, well, the minimum investment is probably around 100 million that we need just to keep the structure stable. and also our core team structures live in the worst, worst, worst case scenario. So for Q2, I mentioned on the slide when we talked about the various businesses and what we've been working on, that we target the cost reduction for out-of-home and public video of 40% to 45% versus previous years. And that includes all cost elements. So rent, leases, personnel costs, overhead marketing, all those kind of things. We are pushing it down by 40% to 45%. And at the same time, if you take the minimum 20% versus previous years for public video and the roughly 50% for traditional out-of-home, maybe the mixture means minus 55%. And I think if you take last year's numbers and take the revenues minus 50-55% and take the total costs minus 40-45%, my feeling is that you're closer to the numbers maybe that I am there schematically, but I think it takes you to an EBITDA margin of around 30%. above 30%. So you're absolutely right. You cannot protect a 40% plus EBITDA margin as in Q2 last year for all the out-of-home businesses. But you can still operate on a reasonable level given the fact that we have like one week to adjust. So no chance to influence the business like in a recession over a couple of weeks and months and adjust costs. I mean, you have one week and then the quarter starts and then you need to be on a new cost level. And I think it's a kind of revenue drop that was absolutely extraordinary. That's why I think are we able to flexibilize our costs given the infrastructure nature of our business? I think Q2 will be an interesting proof point for that because it's probably toughest setup that you could imagine. Does it make sense? Great.

Yeah. Christian, vielen Dank. Thank you.

Thank you. The next question is from Patrick Wellington of Morgan Stanley. Your line is open. Please go ahead.

Yeah. Morning, everybody. Two questions about advertising. Obviously, traffic is coming back in Germany, but I A lot of your big strategic sort of brand customers, automotive, airlines, things like that, will obviously have been doing very poorly in this background. So what strategy do you have towards pricing? Do you need to reduce pricing relative to pre-COVID levels to help out that sort of big brand, customer-based, that has been so badly affected. And then secondly, just on the traffic, if we look at the reproduction rate of the COVID-19 virus in Germany, I think it's back above one in the last couple of days. So do you think there's the potential for, and what's the impact of a potential second wave of lockdown, if you like, or failure to further raise the lockdown limits?

Okay. I mean, the first question is easier because it's really our business. I think the answer to that, both how do we approach different industries and how do we approach pricing, we really work on the same basis pricing from June onwards because traffic is close to normal, but we individualize offers and packages on the basis of what parts of the inventory two clients use. And how does the industry perform? I think automotive is an interesting case because no doubt stopping factories and having no dealers open for eight weeks will have a massive impact. The other way around, we all know that there is no other industry in Germany that is supported more by the government. So there was back in 2008 and 2009, there was this Opfrag Premier that you could get special... financial support if you buy a new car and give back your old car. So we expect something similar kicking in for June. I think the government and the key automotive companies already work on it to give it also some kind of green touch so that it's not only about money but also about mid- to long-term investments in the right type of mobility. And that means immediate massive dealer activation. And one of the core media that are always benefiting from those sales activities is actually out of home because you can activate regionally on the basis of your dealer infrastructure. That's why, for instance, automotive is an example for, yes, over the next three years, the industry is really suffering. But over the next 12 months, they maybe have more advertising need than ever. to get the course out of the dealers and they need to support it through advertising. It's the same with all traditional retailers that on the one hand they are structurally under pressure, at the same time they need to advertise because they need to push people back into their stores and they need to give people reasons to come. So they will show offers and special products. So you're right, airlines and tourism If you look at the historic players, like TUI, it's probably bad. At the same time, the sum of regional tourism organizations in Germany might easily compensate or even overcompensate that because they suddenly also try to make sure that people in Bavaria do not only travel to Italy or fly to Spain, but also maybe go to the north of Germany because it's a nice region. And the nice thing in our case is that... We have no real exposure to a very specific industry. I think we have that local, regional, and national business. And within the national business, we have presence across all industries. I think the biggest category is media and telco. That is something where we see the infrastructure suppliers very well. And one learning of the crisis is definitely it's it makes sense to invest mid to long term in infrastructure, in digital infrastructure as well, and all around 5G, streaming services, and so on. I think they will be even more investing customers than in the past. So, yes, there are a couple of industries that will suffer. Some of them might still advertise more than before. Some new opportunities pop up, and I think it's our job to use the key benefit of our company that we have smallest client in Germany, just as the biggest, and all the clusters in between. And we need to actively work on that. But I think that's rather an opportunity at the moment than a real risk. And on that, I don't know what the English word is, that R factor, yes, it's above one. But at the same time, you need to see the total amount of infections. And I'm talking now about something that is not my profession, but just, I don't know, replicating the numbers. We have, meanwhile, less than 20,000 actively infected people in Germany, and that number goes back continuously, even in the last three, four, five days. I think in the last three days, when the R factor was above 100, we had 600, 300, and 900 newly infected people. And I think a third of that came from three hotspots in Germany, which is almost a proof point for a current strategy of the political system that if you look at the total country, 95% are already on an extremely low level, and the capacities of the health system is really strong, and the monitoring is really strong, the testing is strong. So you can easily handle it and find out immediately if there are potential new hotspots or super spreader events. And that's what our health system can then easily control. So my feeling is that a second lockdown or a second wave for the full country is probably not that realistic right at the moment. Because I think the structure of Germany is, as Udo said before, a federal one. And I think our political system is also a federal one, so they handle it state by state and region by region. And that's probably also the smarter model to protect the economy, because just pushing 100% of the people back to their homes when only 5% are... massively affected and those five percent sit maybe in two or three special regions i'd rather find a solution for those regions that's why i think over the next couple of weeks and months that's probably the lowest risk but no doubt there is always a potential risk especially in the autumn months when the flu comes back that there is a second wave but uh I mean, all we can say is we've been reacting within one week and adjust our Q2 to that. And if there is a second wave, different to the situation in March, everything is prepared. And we are, as a company, we have plans now for a second and a third wave. And I think what Udo said in the last call, we are prepared for everything and we will survive everything and we won't earn cash. And even if right at the moment we rather work on the rebound, but

the situation changes i think our company can get get into the into an extremely defensive mode from one day to the other again if required great thank you maybe you realize that the german federal government delegated actually the responsibility to uh let's say on a city level and so and that that's uh I think, exactly what Chris has said, what we're going to see in the future, the national lockdown is, I think, more than unlikely. Because also in the past, there was a quite diverse situation in the country, but nobody had experience of that. And now there's a lot more experience, and there's, I think, the federal structure also at an advantage. The responsibility for any kind of restriction lockdown is now purely on the local level, and this, I think, is going to help the economy in the country a lot in the future.

Great. Thanks very much.

Thank you. The next question is from Craig Abbott of Kepler-Chevreux. Your line is now open. Please go ahead.

Hello?

Hi, Craig.

Yeah, hi. Sorry. I was cut off a little while ago. That's why I was checking first. Yeah, sorry. Obviously, most of my questions have been answered, but I just want to come back one more time. As you talked to us through the measures you're doing, for instance, offering your out-of-home, particularly to public video network customers, up to 20%, 25% more inventory to achieve the same reach as traffic levels have only rebounded to around 75% or so. combined also with the changes you're seeing in the mix. You mentioned that there are also booking inventory in residential areas like the old school columns and so forth. I just wondered to what extent this is on average sort of impacting your gross take or gross margin, say, per customer?

Really not at all because the inventory there is available anyway. And if it wouldn't be used for advertising, we would use it for content, show news and so on. So there are no incremental costs because there are no opportunity costs to that. The only reason is that, I mean, what we did over the last five, six, seven years was constantly increasing public video prices by six, seven percent on average per year for two reasons. Demand was increasing massively. and mass mobility was increasing. So we just used the opportunity to constantly position it as an absolute premium product, where it's just normal to inflate prices two or three times the normal inflation rate. I think the next two, three, four months, they are probably exceptionally. So also in the sense of mid- to long-term partnerships and making sure that the clients – see the medium also mid to long term as an attractive one. We just need to make sure that we adjust the prices to the performance that we deliver without making too much compromises on the historic pricing. And I think that's where we just try to find the right balance. It's a little bit like with the cancellations that we got for Q2. On the one hand, you want to take benefit of 60 or 90 days cancellation periods for a quarter that is heavily affected. At the same time, you don't want to be seen from customers as completely unflexible, so you find solutions for them, work with them, move campaigns maybe even to the next quarter. So we use that crisis in many cases as also a good reason to talk even more than in the past. And yeah, try to stick to what we've been building long term, but showing enough flexibility and pragmatism, especially in those months where the crisis and the recovery months are really changing the framework in the market.

Okay, thank you. My final question is, and I apologize if this was raised while I was cut off, but And I know you talk about your customer segments are very fluid and where you lose on some segments, you may gain on others. But I just wonder how material at the local level the total events, cinema, and concerts customer segment is because just based on my own perceptions, it must be a pretty substantial customer group or have been a pretty substantial customer group, which obviously is going to be spending a lot less currently and probably for quite a few months to go.

Yeah, right. Well, but I would say everything around events is probably 6%, 7% of the local revenues. So we talk about 3%, 4% maybe worst case of the total business potential. So I would agree with you. We lose at least three quarters of revenues with those customers. At the same time, you know, when I just drive through Cologne, for instance, there are suddenly screens and inventories that show advertising of restaurants that used to be closed in the last two months, but they were advertising that you can also pick up food there now, just to remind people that they're still in place. I think that's not true for the event business, but we see that there are also a lot of other SMEs that need to advertise now if they want to revitalize their businesses. And I think that's – my feeling is we have enough opportunities, but there is no doubt that parts of the market will be quite challenging.

Yeah. Okay. That's very helpful. Thank you very much.

Thank you. If there are no further questions, I would like to hand back to you.

Okay. So many thanks for your questions and the interest. Sorry that we couldn't tell you exactly what Q3 and Q4 look like, but we try to be as open and honest around what we see at the moment. And hopefully you could see that we really have our business under control. But in the current times, there are some things that are really difficult to predict. And that's a little bit how advertisers will respond for the next couple of months. But as Will said, we see first signs of recovery and are more positive again. So hope to see and speak to you soon. Take care. Bye-bye.