Sto SE & Co. KGaA

Dear ladies and gentlemen, thank you for joining our Q3 results call today. Together with my co-CEO Christian Schmalze and our CFO Christian Bayer, we will present the financials for the first nine months of 2020. Our Q developed in the last three months from a strategic point of view and our expectations for the fourth quarter and the remaining weeks of the year. At a very early stage, at the beginning of the pandemic, we had already described our estimates around the further economic development against the background of the pandemic and how we successfully prepared the company, our procedures, and our employees for this scenario. Our measures to make our cost structure more variable are taking effect and are reflected in a significantly improved margin profile in all segments in Q3. Up to the beginning of November, the course of development shows an almost textbook-like V-shaped recovery. The low point in the second quarter and from there on a hockey stick-like development, which also materialized in our figures for the third quarter. This development is at least slightly dampened by the so-called softer wave breaker lockdown in November here in Germany, which is appropriate and manageable by international standards. Therefore, our overall business stabilization goes on. Let me start with our results for the first nine months of 2020 and the reassurance around our long-term strategy. Then Christian Schmeister will give you insights on how we managed first third quarter during the crisis and what is now emerging for the fourth quarter, at least based on the current visibilities. And Christian Beyer will talk you through the details of our financial performance in Q3. The results of the first nine months of 2020 are a showcase of our AutoForm Plus strategy. Solid performance in rough conditions and strong development in normalizing times. In particular, due to our consistent market-oriented strategic positioning and our strict cost management. Content-based businesses like the online or global data as a service platform, Statista, as well as our direct business, Asam, Ranger, and our contact centers continue to perform strong against an easing market environment in Q3. Despite the lockdown weeks and the quasi-shutdown of public life, which took its share from our business performance, especially at out-of-home and public video in the second quarter, results for the first nine months also reflect a strong rebound in the third quarter as expected. The reported revenues in the first nine months of 2020 for the group stand at 987 million Euro, down by 12% compared to the prior year period. Organic revenue development was minus 11%. Please keep in mind that we have sold both Stroyer products and TubeOne networks earlier this year to sharpen our focus on our core competencies. This has an impact of around 25 million Euro on an annual basis. The adjusted EBITDA declined by 20% to €311 million, compared to €387 million in the first nine months 2019. Our adjusted EBIT was down disproportionately compared to EBITDA from €175 to €19 million, but mainly due to the basically unchanged IFRS 16 effect. When compared to the prior year period, adjusted net income favored 54% from 128 to 59 million euros. Operating cash flow in the first nine months was a remarkable 238 million euros. As discussed already in our half-year call, we continued and even accelerated to invest into our core strategic fees, especially digitalization of our out-of-form inventories, Accordingly, net investment increased by 19% to around 93 million euro compared to 79 million euro in the prior year period. There were also some phasing effects and we expect four-year capex in line with our original plan. Even if visibility was quite low, we have been providing a detailed outlook per segment and key business units in our H1 call. Looking at the results of Q3, we finished at a group level roughly 10 points better than we had expected mid-August as the market recovery was stronger than expected. The OOH media segment finished at around index 76 versus previous year, some 6% above what we had expected earlier. Germany showed slightly stronger development than compared with Poland and the non-German blow-up business. Local sales are back on pre-COVID level, and national as well as regional campaigns are constantly catching up. In total, we saw an ongoing month-over-month improvement with a continuing trend in October, which stands already at around index 95. We will talk about November and December later in the presentation. The digital auto-forming content segment showed, as expected, quite a mixed picture, but was overall eight points stronger than anticipated earlier. Public video with index 85 as of prior year improved significantly compared to the low in the second quarter. As public video showed a remarkable rebound. Programmatic public video with index 100 was already on prior year level. Our portals, like the online and our online ad sales business, continued to perform strong and showed a remarkable organic growth of 7% in the third quarter. Even more pleasing was the development of Statista, which with a growth rate of around 30% delivered slightly higher growth than pre-COVID. Against the backdrop of the corona crisis where customers have better accessibility, our contact center business was once again able to increase revenue by over 10% compared to the same quarter of the previous year. Unlike the lockdown in April and May, our door-to-door business was fully operational in the third quarter in addition to catch-up effects from the second quarter. Ranger showed a strong performance and sales increased by around 20%. ASAM continued to show sustainable above pre-COVID performance with growth of more than 25%. So overall, segment performance in Q3 was 15 points better than we had guided in August. Like for like, with plus 20%, the strongest quarterly growth we ever had in this segment. Looking at, meanwhile, eight months' pandemic development and navigating our companies through all the challenges, we have learned six key lessons so far. First, our focus on one country enabled us to react extremely fast and to tightly manage and control operations and costs. Especially in a situation as the current crisis, the German market has proven to be very resilient compared to many other countries, because of a strong health system, reasonable politicians, low debt, and strong state aid. Secondly, our non-out-of-home business, the so-called plus businesses, generating over 100 million cash in a normal year, they're as robust as expected. When high-touch businesses got over-proportionately under pressure, our digital businesses and big parts of our direct marketing businesses held up well and were and are an important stabilizing factor for the total group and are already above pre-COVID level. Third, that out-of-home rebounds fast in V-shape when the audience is restored after the lockdown Because of its high flexibility, digital auto form recovers even faster despite its high exposure to public transport. The long-term growth profile of auto form is unchanged. Fourth, we see the advertising market in total to shift even faster towards digital, tech and programmatic as well as data-driven solutions. Fifth, that our leading market position helps us to gain additional market share in the rebound phase and accelerate further market consolidation. And last but not least, our diversified customer portfolio, from small, local to big national customers, as well as across all industries and branches, is a key success factor, both in the crisis and in the recovery phase. When we look back from today, eight months ago, we can say that COVID-19 is only a bump in our road to our long-term targets. When we analyze the key growth drivers and KPIs of our business, we are in a robust situation where the German advertising market is recovering and moving from red to yellow and October to mostly green traffic lights. Despite some economic deviations in Germany due to the current softer lockdown in November, advertising market is robust. We also don't expect any further shock reactions as of March or April. The auto phone market is highly consolidated with high barriers to entry and a huge market share puts us in a poor position in the recovery scenario. The scalable local sales force is fully up to speed and the robust long-term contract on SMEs has helped us to get through the challenges. For programmatic sales, tech and data, the crisis will be an accelerator, and we are well positioned through our online and digital business in combination with digital out-of-form. The plus businesses have helped to stay in positive touch with clients, and even an audience of out-of-form media was down, and we see that the structural challenges of TV and magazines have become less challenging in the crisis. Our proprietary portfolio is a foundation for further long-term digitalization, and we have been working on this even through the challenging last month. With that, let me hand over to Christian.

Thanks, Udo. An important driver of this development and crucial for our core out-of-home business is the fact that public life and mass mobility in Germany is recovering quite quickly already since May. The closing of schools and kindergartens mid of March, as well as the nationwide restrictions of public life, led to a sharp decline of outdoor traffic, looking at Apple's mobility report, or also comparable data from Telcos or Google. But with the reopening of shops and restaurants from May onwards, the mobility of people was increasing week over week, and public life came back again. So from the end of June, overall mobility got closely back to pre-COVID levels, public transport still a bit behind, but also with constantly positive trends. The overall recovery was supported by the beginning of the holiday season and most of the people rather spending their time at home or at domestic holiday locations. This overall mobility trend was quite stable and in line with normal seasonal variations until four weeks ago. Mid of October, the chancellor and the federal state prime ministers met and announced some smaller additional restrictions of public life with the beginning of the autumn holidays. Then October 28, this group met again and under the leadership of Angela Merkel and in the light of increasing infections, they announced a so-called wave breaker lockdown for the month of November. All schools, kindergartens and shops are still open, different to the first lockdown. but there are tougher rules where to wear masks. Restaurants, clubs, and most of the entertainment locations are shut for at least four weeks, and only two households can or should meet. What we see since this announcement is a slightly declining mobility. At the end of October and the beginning of November showed overall still the same mobility level as, for instance, in January and February before the crisis. So we clearly have some impact on the out-of-home audience, but it's far away from what we have seen in April as the Apple data show. How does this development over the last eight months compare to other countries? As the German government responded quickly and reasonably to the COVID-19 challenges, as our health system proved to be really robust in the peak weeks of the epidemic development, and as the government support for the economy, including the instrument of short-time work, was really strong and fast, the drop of mass mobility was less sharp than in other countries with a harder lockdown. Furthermore, the recovery started earlier and had overall more momentum in comparison to, for instance, the US or UK. The out-of-home product and the underlying audience coverage has mostly recovered by the end of Q2, and we therefore don't see any bigger issues with the performance of out-of-home for advertisers long-term. second infection wave in Germany seems to be less dramatic than in other countries. The government reactions seem to be reasonable and still early enough, and therefore the lockdown as well as the mobility decline seems to be again softer than anywhere else around the globe. So the next key question around the Q3 development is how the advertising market and especially the bookings for out-of-home responded to the crisis in general, but especially to the loss of audience as well as the beginning recovery. On the slide you see the revenue development for Q2 and Q3 week over week for both our traditional out-of-home products in Germany and public video. The light blue line is 2019 and the dark blue line is the cumulative revenues coming in for 2020. The columns at the bottom show the deviation of the weekly order intakes 2020 versus 2019. Higher order entry than previous year in a week is green. Lower order entry than previous year is red. Let's look at Q2 again to better understand the changes and dynamics in Q3. Until week 10 or mid of March, we have been in line with Q1 nicely ahead of previous year in the order book for the second quarter and fully on track of a strong organic growth development. Then schools and daycare centers closed and the restrictions of public life started. At first, incremental revenues stopped before the existing order book even went backwards for about four to six weeks because we had almost no incremental bookings, but many cancellations or shifts of campaigns in the peak phase of the soft lockdown in Germany. With the reopening of shops in week 19 and 20, the inflow for Q2 went back closer to previous year's level. that there was no chance to catch up the losses of the previous weeks for that quarter. And that's an important point in our traditional business. As you see on the left diagram, both booking and cancellation times lead to a delay of at least four to six weeks in the response to the overall environment. And a strong share of long-term contracts with SMEs give us a robust starting point at the beginning of a quarter. Public video or digital out-of-home has shorter lead times. The product responds more directly to both lockdown and recovery, as you see on the right graphic. The negative deviations in the order book for Q2 were higher, and as one key backbone of the product of train stations, the low public transportation traffic in April and May made it difficult to start the recovery before June. But already from week 24 onwards, with more normalized public transport, order book was in some weeks already slightly stronger than in same weeks of the previous year. A different picture for the third quarter. On the one hand, you see that the weekly deviations versus previous year have never been as extreme as for the second quarter for both classic and digital out-of-home. The overall gap that we needed to fill once the quarter started was already by far smaller. On the other hand, there was lower revenue inflow than previous year until week 24 and 25. That was the time when traffic had overall normalized again, end of June. Since then and throughout the rest of the quarter, the weekly order book development for Q3 was on the level of last year's comparable period or in the case of public video, already ahead of last year's order intake. What are the current implications for Q4? This recovery trend also continued for Q4 so far. The initial gap in the order book at the beginning of the quarter is again smaller than for Q3, and the order intake was at or slightly above last year's level week over week. So October was again stronger than September and has already recovered to index 95 versus previous year for traditional out-of-home and public video combined. The second wave of infections and the second lockdown for November doesn't really give us more tailwind, but it also hasn't caused any cancellations or a massive stop in our order book. So it's also no massive headwind for the moment. It will be difficult to outperform October in November and December, but we also have no signs that, for instance, December will be substantially weaker than last year. That strong revenue recovery gave us confidence to continue and accelerate our digitization plans for out-of-home. And as you've seen on the slide before, although public video has a high share of transport media with still not fully recovered audiences, revenues came back faster than for traditional out-of-home in Q3. That's why we've used especially the last three months to work hard on further digital locations. Year-to-date, We've added 384 premium screens, indoor and outdoor. We have also added more than 100 roadside screens in Q3 and have overall 507 screens in that category versus 400 end of Q2. The constantly decreasing prices for digital out-of-home displays, good conditions in the crisis, and the increasing demand for digital media through COVID-19 justify the extra capex on top of our original plans. It's also interesting to see that the pandemic was a catalyst for the programmatic demand for digital out-of-home. In the first three quarters of this year, the programmatic revenue share for public video went up from 25% to 34%, and based on the current trends for Q4, we expect the full year to be even around 38%. As most of those budgets come from purely digital or online pots, it's really incremental money and not cannibalizing traditional out-of-home spending. We are now benefiting from all our initiatives and tech investments in the past years in that area. And since Q3, all major and top 12 DSPs are now fully connected. Only Google is still missing, but we also have a new situation. The programmatic demand has gone up so much that all clients find their way via the broad range of non-Google DSPs. Even 12 months ago, we were still convinced that Google DoubleClick Bit Manager could bring in some extra momentum. But COVID-19 has somehow done that job. And a connection into the Google world might bring a little bit of extra traction. But there are also benefits in educating the market towards non-Google access points. We will see what the further discussions with Google might bring. For programmatic public video, we have more than 130 booking customers and 6.3 billion impressions delivered in the first nine months of the year. And our combined setup with online media is clearly supporting this. Because also for online, programmatic is growing over proportionally. With over 4,500 individually negotiated active deals, we have meanwhile the largest private marketplace in Germany. And across public video and online, more than 50% of the combined audience price come via automated trading. Our content media, especially T-Online, have been performing really strong in the months of the pandemic. The traffic increase of T-Online is outstanding, but also our verticals and the platforms like Giga, Desired, or Familia.de have been growing far beyond 20% on average. We also use the growing demand for online media to introduce new targeting products and prepare us and our customers step-by-step for a digital marketing world without third party cookies. Two years ago, we already kicked off the data management platform with the Otto Group to ensure over 40 million first party logins from their 60 online shops for first party targeting products. The latest innovation from our joint venture is contextual targeting. We are crawling the content of over 2,000 assets in our portfolio and classify the content pieces via neuro-linguistic programming into 600 different standard content categories. This contextual lever places the ads according to the defined contextual focus areas of the advertisers instead of targeting the individual website users. New features like sentiment targeting or brand suitability are coming soon to make sure that we are prepared for further restrictions on cookie-based targeting. We already talked about the strong performance of dialogue marketing through all the months of COVID-19 so far. We've been extending our lead generation services for clients and used the over-proportional demand to switch the remuneration model more towards cost-per-acquisition models, a strong differentiator versus more traditional long-tail competitors. As a result, we broaden our customer base into, for instance, pharma, e-commerce, and automotive clients, We extend our customers with completely new and especially less price-sensitive accounts, and we focus even more on results-oriented commercial models instead of getting paid per minutes, hours, or days. The existing client relationships as well as the client insights from our group key account structure clearly help to take that business segment on a different level than where traditional contact centers operate. The original overlap between direct media and out-of-home and online media had a strong focus on telco and energy clients. Quarter by quarter, we extend the number of clients and industry which we service across our full range of products. Given the strong development of our dialogue marketing business, we decided to call the remaining shares of the minority shareholder beginning of Q4. Let me now hand over to Christian for his comments on the financials. As Udo explained briefly in his opening remarks, the figures of the third quarter reflect the expected rebound as infection rates were quite moderate from July to October and overall business sentiment eased in that timeframe. Overall group revenue declined in Q3 2020 by 6% from 380 to 355 million euros. As discussed in our previous call in August, we looked at all cost positions and derived stringent cost reduction measures But as explained, it takes some time to take full effect. Now we are three months ahead, and the effect is clearly visible in all three segments. As a result, adjusted EBITDA declined by only minus 5% from 131 to 125 million. Exceptional items are 5.2 million euro and contain 3 million euro from restructuring expenses. They are of 2 million euro. for reshaping sales structures in Regiohead and €1 million for our call centers. The remaining €2 million relate to diverse non-material topics. With €88 million, depreciation amortization is 3% lower than in Q3 2019 due to minor IFRS 16 shifts between quarters. The financial result of minus €7 million is €1 million lower compared to the previous year's quarter due to the change and the long-term yield curve applied on IFRS 16 financial liabilities. The tax result of the quarter was approximately minus €3 million, only slightly higher compared to the previous year's quarter due to a higher tax base in Q3 2020. Adjusted net income of the quarter was €37 million. Our free cash flow adjusted for Q3 2020 is €14 million, compared to €43 million in the same period of the prior year. The negative working capital effect, which we already anticipated in our half-year presentation, needs to be taken into account. Due to the increasing business volume in Q3, receivables increased accordingly, just the reversal of the positive working capital effect in Q2. Consequently, to have a fair picture, you must consider both quarters combined, resulting in a positive working capital contribution of €2 million. Tax cash-out was €4 million in Q3 2020 compared to €8 million in the previous year's quarter as there were no tax prepayments for the current year. However, due to the overall quite strong developments, we expect to have to pay taxes in 2020. Considering our solid liquidity position, we will anticipate this and consider making advance payments in Q4. Working capital in Q3 2020 was minus 29 million euro compared to minus 4 million euro in the previous year's quarter. This is due to the before-mentioned receivables effect. Despite the challenges and rough conditions, we continue to invest into our growth and digitization strategy for instance in digital screens, software, and other intangibles in line with budget with a total of 30 million euro and basically on previous year's levels. lease liability repayments were up by approximately €10 million from €32 million to €41 million due to phasing effects. From a year-to-date perspective, lease liability repayments are almost on the same level as in the same period of the prior year. Our bank leverage ratio increased slightly from 1.71 to 1.85 in the third quarter 2020, caused by a lower corona-affected last 12-month EBITDA. All in all, our leverage ratio is still well below our covenant level. In absolute terms, financial net debt fell significantly by more than €85 million from €648 to €563 million, mainly because we hadn't paid the dividend by the end of Q3. As mentioned before, the financials of the third quarter must be seen in light of the corona pandemic. However, they recovered significantly from the weak development of the previous quarter, just as both friendly economic environment and the full impact of our cost management measures. Consequently, all three segments, out-of-home media, digital out-of-home and content, as well as direct media, performed well, better than initially anticipated. Out-of-home media shows organic growth of minus 24%, digital out-of-home and content of 3%, and direct media of 20%. In absolute terms, out-of-home media revenue fell from 171 to 131 million euros. This development can be explained mainly by weaker national advertising due to corona, whereas regional and local sales remained relatively robust. As discussed in our previous quarterly call in August, our measures to variabilize and reduce our costs, such as rental and leasing expenses, personnel and maintenance costs, require a certain amount of time to take full effect. How effective these measures are can now be seen in the margin development of Q3 2020. With 43%, we are only 1.7% below the pre-corona level of Q3 2019. Despite this pleasing development in margin, adjusted EBITDA decreased from 77 to 57 million euro in absolute terms in Q3 2020. As Udo explained earlier, we continue to invest into the build-up of our digital screens in order to be prepared for a quick reboot of the business in the upcoming months. Just like in the previous quarter, public video suffered from corona. However, to a much lesser extent, as in Q2 2020, as public transportation has not yet fully recovered. In contrast, the plus businesses of the segment IET Online and Statista continued to perform very well. Statista fully returned to the road to success. with a sales performance of approximately 30%. Consequently, revenue reported was on par with Q3 2019, with €133 million for the segment. In Q3 2020, adjusted EBITDA of digital out-of-form and content was €53 million, some €10 million higher as compared to Q3 2019. The margin for the quarter was a remarkable 39.5%. In addition to the developments described above, the decisive factor in the strong performance was the consistent implementation of our cost reduction efforts. With an organic revenue growth of almost 20%, revenues of €97 million compared to €84 million in the same quarter last year. This further proves the strength of our out-of-home plus strategy. In total, our call centers continue to show good performance, both to a higher accessibility of consumers as well as the tendency to use call center-based services. The same is true for Asam, where sales were up double-digit in Q3. Adjusted EBITDA for the quarter was €20 million, up by almost €5 million versus prior year's quarter and corresponding to an adjusted EBITDA margin of 21%. So what do we anticipate for Q4 2020 and the full year 2020? As some three months ago, at the moment, it's still not possible to oversee and predict all potential developments around COVID-19 for the remaining weeks of the year. But let me comment on what we see for the time being. Based on our order book visibility end of October, we anticipate further recovery of our business and revenues in the range of index 92 to 97 versus previous year for the fourth quarter 2020 for the group. And finally, The group adjusted EBITDA for the full year in the range of 440 to 455 million euros. Before closing our presentation, we want to share our ideas for a new segment structure with you. The new structure should reflect the dynamics and the development of our business in the past two years. This is what we currently have in mind. To bring traditional out-of-home and public video back into one segment, and give you transparency on the split between analog and digital formats. That makes it easier for all of you to compare our core business with other pure-play out-of-home companies. We furthermore think about merging the plus businesses with a focus on advertising, marketing, and sales services and give you transparency around online versus dialogue slash direct media. Finally, we think that the non-advertising businesses might form a third segment, looking at data as a service as well as commerce. We believe that the new segment structure creates more transparency and clarity for all of you. But we are still working on this, and we will come back to you early next year with the final outcome of this analysis. Let me now close our presentation with a reference to our next two release dates. First, the publication of our preliminary figures 2020 on March 3, including a guidance update. And second, The release of our annual report for 2020 on March 30th. Thank you, everyone. We are now happy to take your questions.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And the first question is from Anik Mas, exam BNP Paribas. Your line is now open. Please go ahead.