Sto SE & Co. KGaA

Dear analysts, thank you for participating in our early call on the publication of our Q3 and 9-month figures. As you know, we had planned a virtual CMD with focus on out-of-home and digital out-of-home for today. Immediately following this call, in the light of last week's announcement of the acquisition of RBL Media, we have decided to postpone this and do it in combination with our preliminary results or final results for 2024. We've been quite busy in finalizing the deal for our core business in the last six weeks and currently focus on a swift integration to optimize our plan for 2025. It simply makes more sense to make our projections going forward, including RBL Media and i.e. the digitization of the underlying contracts. We are ultimately a small team, so our resources are limited, so there is no other option. agenda or meaning behind the postponed CMD, just to be clear. However, I would like to take up topics in the following that are not directly affected by the acquisition, such as technical features, bookability and targeting, in order to provide a deeper understanding of our growth drivers at the moment. Henning will then comment on the developments and effects of our Q3 figures in more detail. This will be followed by remarks on what we expect for the fourth quarter and the full year. As always, we are looking forward to your questions after our presentation. With that, we start the call with a short overview of Q3 2024 and the nine months market dynamics. Let's put our performance into the context of direct and indirect peers in Germany. You're probably familiar with this chart. And as always, the numbers in the two middle columns are based on Nielsen, which reports gross revenue, which is inflated by roughly six to seven points versus net numbers, which you have on the right and left of the chart for us and global platforms. In line with the development in previous quarters and comparing like for like, The realistic net numbers, out-of-home is outperforming the overall ad market and STRÖR is outperforming the ad market as well as its out-of-home peers. The driver within out-of-home is consistently digital out-of-home and our public video business was again beyond the growth rates of the global ad platforms like Google, Alphabet or YouTube and far beyond any local German media owner. After the outstanding high driven in parts by the European Football Championship in the second quarter, The German advertising market grew in gross numbers by only 4% compared to 9% in Q2. As in the previous quarters, out-of-home was the decisive growth driver here, with an increase of around 10% outperforming TV and print, significantly by 4 and 9 percentage points, respectively. And this is particularly noteworthy, outgrew desktop mobile, which was down by 3%. Let's look at how these consistently strong developments are reflected in the figures for the first nine months that also level out the phasing effects between Q2 and Q3, given the impact of the sports event in the second quarter. In total, revenues were up by 8% reported or by 7.8% on an organic basis from 1.3 to 1.5 billion. These numbers reflect on the one hand continuous and strong business development, but on the other hand also the strong comms from the prior year quarter. Henning will talk about this in the development of Azam in China in more detail in the financial section, particularly on the developments in the third quarter. Most importantly, despite the softer ad market and negative phasing effects coming from Q2, our organic out-of-home growth was again double-digit. Looking at the other key figures on this page, they are developing exactly as we expected and explained in the last call. EBITDA adjusted is growing faster than revenue. EBITDA adjusted and net profit adjusted are growing almost twice as fast as EBITDA adjusted, reflecting easing cost pressure as well as declining inflation, and in particular, the sustained operational leverage of our core out-of-home segment. EBITDA growth of 12% compared to 8% revenue growth is a perfect proof point for this. In total, EBITDA was up from €375 million to €420 million. EBIT improved from €158 million to €192 million, also due to comparably stable IFRS effects, a development that we also see for the coming years as described in previous calls. Net income increased in line with EBIT from 79 million euro to 96 million euro or also 22%. Free cash flow is probably the strongest statement in the first nine months of 2024. It increased by almost 100 million euro from minus 19 million to plus 78 million euro. In addition to the positive business development, lower capital expenditure and tax expenses compared to the previous year as well as stable IFRS 16 repayments contributed to this encouraging development. At €62 million, CAPEX for the first nine months was 37% below the previous year's figure of around €98 million and reflects the continued back to normal and the objective to further optimize and improve the fill rate of our digital out-of-home portfolio. We develop our infrastructure more demand-oriented and focus on leveraging existing strong networks. you have seen this chart for the first time in the last call and we have added the q3 numbers to once again put the current momentum into a broader context especially the dynamics of digital out of home which is the key value driver for our group you see both quarterly digital out of home revenue as well as the last 12 months numbers for the last almost six years The pandemic with the various lockdowns pushed the last 12 months revenue of our sub-segment down by roughly 35%, although the digital out-of-home business had fully recovered with the end of the last lockdown in 2021. The following six quarters were strong but still impacted by the war in the Ukraine, massive cost inflation as well as the ad market crisis and the tobacco ad ban for out-of-home advertising. But since almost 18 months, we see an acceleration of digital out-of-home and the LTM for digital out-of-home revenue has doubled over the last 12 quarters. In addition, and this is particularly evident in the LTM analysis, Digital out-of-home growth is stabilizing clearly above 20%, which makes clear that even our digital out-of-home product with its short-term bookability is not a business that necessarily responds to short-term shocks or market cycles, but on the contrary shows a comparatively robust development. And according to the available forecasts for our core business from industry bodies like IDOO or consultancies like PwC, the current trend is a recurring and sustainable one for the coming years in line with our expectations. More than 80% of the out of home segment growth is coming from digital out of home. And more than 60% of that digital out-of-home growth is fueled by programmatic demand, automated trading, and the seamless integration of digital out-of-home into the broader digital marketing ecosystem. It's worth mentioning that we still see low single-digit momentum for classic out-of-home going forward, based on our strong local and regional sales force and the opportunities of exactly those customer groups shifting budgets away from print media, i.e. newspapers and freebie weeklies. But the largest potential clearly lies in the linear TV market, still between 40 and 45% of the legacy media landscape today. Long-term TV audience development for the total population has only one direction and the loss of reach in younger target group segments has become massive since the end of the pandemic. At the same time, global platforms already have a high share and focus more on the lower advertising funnel, while advertisers predominantly need to find alternatives in the upper funnel to strengthen their brand presence. And that's where our investments in digitizing our infrastructure in the last years fully pays off. With in total over 46,000 screens across all touchpoints and in over 200 cities, our audience penetration on a weekly and monthly level can more than compete with television and is an inevitable and complementary medium to compensate the shortfall in audience of historic TV-heavy media plans. Similar to primetime and daytime in television, The variety of our formats and screen sizes give brands a broad range of choices from maximum reach at lowest possible costs to maximum brand visibility and cut through with spectacular solutions. And we are the only media category that is able to focus both on niche audiences, just as broadcasting brand messages to the whole country. Over the last years, we have been working closely with all relevant DSPs and trading desks from the digital programmatic world to connect our infrastructure to their systems. Google DB 360 was the last bigger one that opened up their internet-based logics to our alternate to digital out-of-home. But the pure connection doesn't immediately generate revenue. It takes a while until clients and agencies actively allocate budgets via that channel. And we see over time more and more momentum via demand sources like AdForm, The Trade Desk, or Xandr. Starting originally as a DMP, a data management platform, joint venture with the Otto Group. We have been working continuously over the last five years to build partnership models with various data providers like Deutsche Post or Payback and analytics companies like Axiom to maximize the available sources for audience profiles for all of our media, both online and digital out of home. Mass mobility data of telco companies like Deutsche Telekom or Telefonica enable us to better understand the geospatial structure of the various target group clusters. So how does audience targeting for digital out of home work? How do we know which screens we need to activate in what moment for which creative to reach the right audience to optimize advertiser ROI for brands? Basically, three steps ensure that we know exactly which locations have the right target group concentrations for campaigns. First of all, based on the data sources and their information described before, we know who has small kids, who is interested in cars, who is looking for the latest fashion trend, or is only a light viewer of television. That data is connected with a zip code of people's homes or their mobile ID. So we know their profiles and where they are generally. The second step is the projection of movement data. Data from apps give us the geolocation of target groups or, that's the second methodology, we use the radio cells of the telco providers. So, for example, for an average hour of an average day, you know the concentration of individual target group segments in front of our screens. The third and last stage, the audience segment projections are delivered to our play out systems to activate the right screen in the right moment for the right message to the right target group. And every day we are connecting more data, optimize the projection processes, get advertiser ROI feedback and improve our underlying model. We have developed the screen infrastructure to cover the country and reach the majority of the population. We have connected the inventory via our SSP to demand side and their automated trading systems. And we enrich our inventory with smart data to enable the trading desks to precisely get the eyeballs for the audiences they need to address. But ultimately, that's the technical process behind the delivery. The underlying propositions are concrete solutions for dedicated marketing tasks of advertisers. We have highlighted a couple of them here and will show exemplary three use cases. Video, audience and retail solutions. What's the advertiser challenge behind our video solution? We reach target groups that TV can't cover anymore. We close TV coverage gaps by leveraging TV viewer data and extending TV campaigns via digital out-of-home locations where TV reach falls below a specific threshold. A best-in-class case was developed for and together with Bayer for their product PRIORINE to demonstrate the improved effectiveness for the overall campaign. Measured results were showing 11 percentage points uplift for ad recall versus TV only, supported brand awareness going up 23 percentage points and 7 percentage points improvement within the relevant set of the core target group. The German TV market is roughly 16.5 billion Euro in gross revenue and all advertisers have the same challenge. shortfall in more and more audience classes and the decline of roughly 7% in only the last three years. Especially the top TV spenders like P&G or Ferrero have an historically low out-of-home share. On the back of references like Bayer, we are working on extending the video solution volume with clients like Vodafone, Racket or Henkel. One percentage point of the TV market is equivalent to plus 50% for our public video business. The addressable market as well as the client needs are huge over the coming years. What's the advertiser challenge behind our audience solution? The growth of online advertising in the last 20 years is driven apart from changing media consumption by its strength of precisely identifying and addressing specific target audiences. Legacy media, including traditional out-of-home, have limitations here. At the same time, online media often lack the broadcasting power of classic media channels. Our audience solution covers both, as reflected in a showcase for the Unilever brand Ben & Jerry's. Based on our DMP audience profiles, we have activated our public video network in areas with a particularly high concentration of the vegan and vegetarian audiences for a new flavor of the brand. And the outcome was as expected, an audience uplift of 2.7x versus linear television, which is simply too broad for an audience segment that only represents 13% of the population. Where's the future potential? The FMCG advertisers spend in total almost 7 billion Euro per year. Our market share with FMCG clients, including classic out of home, is 2.5% at the moment versus 9.5% across all advertisers. Using, for instance, our audience solutions for the very concrete challenges of the FMCG sector and just doubling our market share there to 5%, share would be worth 140 million euro. What's the advertiser challenge behind our retail solution? Given the growth of e-commerce and changing shopping behaviors of the broader population, it becomes key for classic retailers to guide customers to the point of sale and deliver targeted ads directly where you influence people's positions. The case for a food discounter we cannot name here was based on the football analysis over a couple of weeks followed by a one-month campaign on our digital roadside network optimized for the local customer potential of the stores and their commuting routines. Store visits showed a significant uplift in the defined regions and trackable incremental visits between 5,000 and 6,000 people per store based on the client's internal marketing attribution model. The retail sector in Germany is worth over 5 billion euro of ad spend and our overall market share, classic and digital out of home, is with 4.5% less than half of what we achieve across the total ad market according to Nielsen. Just one percentage point of their spend is worth 50 million euro or 15% of our total public video business. We already have strong growth in that sector with increasing budgets from Lidl, Aldi, Rewe, Edeka, but also Amazon on the digital retail front. But we are coming from such a low level and have such strong arguments that the addressable market also in that segment is still huge. The advertising fill rate for digital out of home is still low in the mid 30s. Tech and data enable us to deliver solutions from advertisers on a completely new level. We have a clear plan how we improve advertisers ROI and more and more use cases and proof of concepts. Not every quarter will be perfect and it won't be a linear process, but the mid-term potential for digital out of home is massive and we are still at a very early stage of that development. That's the key message here. Let me now make some comments on the newest addition to the STOER family, RBL Media, which we acquired end of last month, as you all know. This deal is a consequent and logical step in expanding our portfolio in total, but especially our high reach digital portfolio. With the acquisition, we can integrate attractive cities in which we were already active, but not yet to our full potential, but especially cities that complement our existing portfolios. Cities like Dortmund, Essen, Leipzig and Erfurt offer us high short-term digitization potential, since RBL Media not only has the relevant city contracts, but also the building permits. This means that RBL Media was small enough for us to buy from a regulatory point of view, but on the other hand, it has much potential that the business will make an earnings contribution of around 17 million euro in the mid-term by 2027, once we've built all potential inventory. Let's now take a look at the major cities in Germany with more than 300,000 inhabitants and which we already cover with our portfolio. Our out-of-home segment in total is based on roughly 20,000 individual advertising possessions, highly diversified and across private landlords, enterprises and municipalities. On a city level, we never depend on individual contracts, and our infrastructure is based on a combination of the various long-term contracts. Nevertheless, communal advertising rights, i.e. in the top cities, are an important backbone of our business. On this slide, you see the enormous stability over the last 10 years of our municipality contract portfolio in the largest cities, and we have highlighted where RBL will strengthen and extend our footprint, especially in street furniture. Based on a digitization level of only 4%, there is a substantial upside for the acquired portfolio. So while we are working on the fill rate of our portfolio, the underlying infrastructure and its concessions are extremely robust, thanks to a highly consolidated market with high market entry barriers. So far on my remarks and with that, over to Henning.

Thank you, Christian, and a very good morning to everybody from my side. Overall, we have seen a pretty strong quarter in particular fueled by a good underlying revenue and cashflow performance of our core advertising businesses. Against the high prior year base from last year's strong Q3 that turned in a growth of 11% at the time, sales now were up 3% for the quarter and organic growth came in at 3.3%. When adjusting for ASAM's strong growth last year and the decline this year, States were up 9% followed by now 5% for this year's Q3 to put things a little bit into perspective. With an increase of 6%, we were able to improve adjusted EBITDA for the past quarter from 147 million euro to 156 million euro. The exceptional items for the quarter were minus 3.6 million, somewhat higher than in the previous year's figure of 0.3 million plus. This was mainly due to some restructuring and reorganization expenses as Statista as well as costs from exiting some of our French door-to-door activities. Accordingly, reported EBITDA came in at €153 million, up 3% compared to the prior year quarter. Depreciation amortization for the quarter was only slightly up, following more or less the trend of the first six months. With that, the reported EBIT for the quarter improved by 4% to €72 million. The financial result came in around minus 18 million euro compared to minus 20 million euro in Q3 2023. The development reflects slightly lower interest rates as well as reduced net debt. The 54 million euro EBT for the quarter was some 9% higher compared to 49 million euro in the previous year's quarter. The tax rate for the quarter remained at around 30% and thus in line with the first two quarters. Including the developments described above, net income adjusted came in at around 41 million euro or 8% above the prior year levels. Let us now switch over to the cash flow. Altogether, the group continued to show improving cash flow dynamics for Q3, even ahead of our own expectations. Q3 cash flow improved basically across all line items, improving EBITDA, Lower cash out for interest and taxes, as well as working capital, led to an increase in the operating cash flow of 38 million euro. Lower investments and lower lease liability repayments contributed to an adjusted free cash flow of 57 million euro after minus 3 million euro last year. Taxes and lease liability repayments are characterized by phasing effects that will to some extent reverse in Q4. For the cumulative period, our adjusted free cash flow came in at 78 million euros, so almost on the level of our free cash flow for the entire year of 2023. For the fourth quarter, we are expecting strong free cash flow generation. However, please bear in mind that we had a substantial work in capital improvement in last year's Q4 that we do not forecast to reach the same level again. Also, we should see some reversal of the phasing effects that I mentioned earlier on taxes and lease liability repayment. Let me come to the net debt development. In the sequential view from the end of Q2 to the end of Q3, net debt was down by roughly €50 million, including the adjusted free cash flow for the third quarter of plus €57 million, plus €2.5 million cash in from exercise stock options, a change in liabilities from dividends of minority shareholders, here in particular at ASAM of minus €11 million, and some M&A expenses of €1 million. With that, our leverage ratio decreased further to now 2.1 times and thus providing sufficient headroom for the acquisition of RBL Media. Including the acquisition and based on our expectations for Q4, we anticipate a leverage ratio by the end of this year of well below our target level of 2.5 times. Let me now discuss the performance of the individual operating segments. Starting with our core segment, out-of-home media. Against quite tough comms, our core business, out-of-home media, continued to deliver a strong performance, and we increased Q3 revenues from 217 to 237 million euro. Organic growth for the quarter came in at 10%, just in line with our expectations for the quarter. From a nine-month perspective, organic growth was 16%. Our digital out-of-home business in particular contributed to this strong performance, growing by 24% to 93 million euro in Q3. In the period from January to September, growth was even stronger, also driven by the UEFA football tournament in the second quarter, and increased by 27%. Our classic out-of-home business shows a comparable development cycle. This product, Agra, grew by around 3% to €131 million in the third quarter. For the six-month period, classic out-of-home also benefited from the European Championships and posted a double-digit increase. Among the top performers by industry, we had FMCG, retail, and telcos, all together growing by more than 35% in the quarter, while some of the lagging were clients from the consumer electronics, sports leisure, and automotive industries. The development in out-of-home services was still characterized by the disposal of a smaller, non-core activity. EBITDA adjusted for the quarter increased from 102 to 115 million euros. Alongside the strong revenue development, just described, the moderating cost inflation compared to the previous year's quarter led to an improvement of the EBITDA margin by 200 basis points year over year and 250 basis points in the first nine months. Excluding the effects from IFRS 16, accounting the margin improvement for the same period amounted to more than 400 basis points and thus underlines the strong operational leverage. In digital and dialogue, revenue in the third quarter increased by slightly more than 2%. Within digital, programmatic continued to be the growth driver, with total digital revenues up by 6% to 112 million euros. Our content publishing business, and here our flagship S&T Online, delivered broadly stable sales and earnings. In our dialogue business, increasing sales at our contact centers almost compensated for sales decline in our door-to-door business. Altogether, earnings here were stable. In total, the segment delivered in EBITDA adjusted of €37 million, up to €38 million in Q3 2023. Please bear in mind that earnings in digital are still affected by a technical effect from the loss of the Bauer contract that I mentioned in the previous calls. The effect on EBITDA adjusted from this for the quarter was around €2 million. There is and will be no effect on sales, EBIT and net cash flow due to the compensation of business volume through newly acquired business mandates at the beginning of the year. Last but not least, some comments on our data as a service and e-commerce segment with Statista and Azam. Revenue development showed a differentiated picture, both in the third quarter as well as from a nine-month perspective. Data as a service revenue development accelerated further and returned to double-digit growth as expected. Sales rose from 36 to 41 million euro or 13% respectively. On a nine-month basis, revenues came in at 121 million euro, While Statista delivered the expected acceleration in sales, Asam's business development was still impaired by reduced trading and wholesale distribution in China, which last year delivered very strong growth. In contrast, Asam's core online activities continued to deliver good growth. Reflecting the impaired performance at Asam regarding China and increased marketing intensity, EBITDA adjusted for the segment was down from 15 million euros to 11 million euros. With that, let me hand you over back to Christian for the outlook and some closing remarks.

Before ending the presentation, let me just have some comments on the outlook for Q4 and the full year as well as our financial calendar. For the fourth quarter 2024, we expect revenue for out-of-home up in a high single-digit percentage range driven by ongoing strong digital out-of-home momentum. Digital and dialogue should increase in a mid-single percentage range. DAS and e-commerce should accelerate, driven by Statista. Our full year guidance remains unchanged, and you've seen in our nine months numbers, EBIT grows three times faster than revenue, and EBITDA margin is substantially a prior year. We have a strong cash conversion, so we also feel comfortable with the current market consensus. Let me close the presentation with a short look into our financial calendar for 2024-25. Our next agenda topic will be the publication of our preliminary figures for the 2024 financial calendar on March 6, 2025. The annual report for 2024, including the mandatory publications on CSRD sustainability reporting for the first time, will be published later in March. I mentioned the CMD throughout Q1 early in the presentation. On May 8, our Q1 numbers will be released. The half-year figures will be presented on August 13, and Q3 figures will be published on November 11. As always, updates, reports, and roadshow presentations can be found on our investor relations website. Thank you, everyone, and we are now happy to take your questions.