Freenet Ag Unsp/Adr

The conference is now being recorded. Ladies and gentlemen, if you would like to ask... Oh, sorry. Hello, ladies and gentlemen. Welcome to the conference call First HY 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Christoph Wilenek.

Good morning, everybody. Thanks for joining today's call. Happy to talk about the first half here, answer your questions. I'm sure we're going to spend a little time on latest news on the move of United Internet. But let me first go through our numbers. We start on page four. As you can see, we are well on track, I would say even a bit beyond the original plan for the first six months. The subscriber base year on year has grown by 4.7%. Revenue is up as well, a little lower than we originally thought due to some hardware, lower hardware sales, specifically in Gravis. EBITDA up by the half of the year on almost 255 million euros. Obviously, this is beyond the half line of the year. We expect some more expenses in the second half, but I can already indicate we see the outcome for the year. at the very upper end of the range of the guidance. So I think the 500 million is more or less ticked off by now. And free cash flow is also growing by 5% equally to the EBDA. If we go on next page, page number five, you can see the breakdown of the customer base, the contract customer base. total base is 9.285 million subscribers. I think we're doing really well there. As you can see, and that was indicated in the last couple of months, the net ads on TV are higher than the one on mobile. That's actually what we have expected for the year. And on the TV side, as you can see on the at the lower end of the page, left-hand side, Freenet TV is still losing customers, but it's outperformed by the growth on IPTV, which is exactly according to the original strategy in the TV area that we have announced and are continuously explaining. If we go one step deeper to the mobile on the next page, You can see mobile growth on post-bates as well as on the app-based tariff plans. We show them here because they are equally treated in-house as the post-bates. Both are doing well. We have second quarter net ads were 37,000, you might remember. that for the full year we have said it's going to be anywhere between 100 and 150. We are now close to 100,000. We are still expecting positive net ads during the third and the fourth quarter, but a bit lower than with the headwind that we had in the first quarter. But we will definitely beat 100 to 150. We will be in that range by the end of the year. So we're doing really well. We're very happy about it. I think it resides from a couple of things. One is we're seeing an increasing share of SIM only also in retail. That is a phenomenon that we relate to the fact that there's no innovation on hardware, neither on Samsung nor on Apple's side. Also, the equipment is longer lasting than it was in the past. So more and more customers skip I would say skip around of hardware and might come back with the next renewal for another one, the smart pricing. So our pricing scheme specifically on renewal, which is on an individual base, is bringing a higher number of renewals. So if we compare internally across ads and renewal, renewal has been stronger than gross ads for the last couple of years already, but it's still stepwise increasing and our renewal rate is doing really well. Another qualitative statement here where our service hotline calls and service hotline context is going down as a result of significant measures in the area of standardization and optimization specifically in complicated procedures such as number portability or number porting. The new process that we have set up is self-administrative by the end consumer in a digital way. This is significantly reducing the number of contacts and specifically reducing number of contacts that are negative contacts because of a frustration on the side of the customers. This also saves a bit of money, but more important is that it generates better scores on net promoter score, service promoter score. And last but not least, we have initiated already in January an internal group on artificial intelligence applications. I personally lead that group. It's about 40 people across the entire company. We are searching and working on applications along the entire value chain, value creation. Right now, there are about 10 projects up and running. And they will even improve not only customer care, but many other procedures within the company. By the way, any employee in our company has access to JetGPT and some other applications. So we really enforce them to do trial and error within the necessary data protection limits. Next page, as already announced, a quick view on the TV side. You can see that Freenet TV, the turn is slowing down, which we consider a positive signal. We don't think yet that we have kind of like the long tail bottom, but we're doing better than we did in the past year. More importantly, Wipo TV has 100,000 new net ads in the second quarter. So strongest quarter so far in history of Wipo TV. We have had in the first quarter, we have 80,000. I think I just recently did a benchmark. I mean, Deutsche Telekom with Magenta did 50,000. We're doing 80,000. I'm curious what they do right now. But we're very happy and feel confirmed on our strategy and our strengths on sales with that performance. And for the rest of the year, I personally would assume that we will add another 200,000 net ads The third quarter will be a little lower, but the fourth quarter then will be super strong. I deduct that from the campaigns that we are preparing and planning. We will continue to work with the testimonial data here, and that really pays back. Grant recognition is doing well according to the measures that we have. So everything is really positive there. And we have a lot of talks with potential inorganic partners or partners that are doing fiber on the local level. So really, really strong reside on Waipu and very happy with the performance. On the next page, we have included a bit of a statement on the I think it's called in English ancillary cost privilege that is going away next year. There is about 12 million households. And there is on cable today, there is a big proportion that is yet convinced that they are planning to switch to IPTV. We cannot estimate how long it's going to take, but the likelihood of switching to IP is growing, so we are preparing for that phase. We will spend more money this year and next year on above-the-line brand marketing, etc. We are addressing our own customer base, making them aware of the potential switch from July next year. So we expect this to help Waipu grow even faster than this year. So I'm already at the end of my part with an outlook. I think the second half of the year we're working on all ends and I've mentioned it before with a lot of applications with the help of AI on improvement of service quality. I think we have never been weak, but we see an opportunity there to be even better. We are preparing a full alignment of our own channels, meaning online and retail, our own shops, as well as franchise, most likely from first January, all offers will be equal. No difference between on and offline. We think that is a good proposal and a good proposition towards the end consumer. We're preparing all details. Right now, we started training with our sales staff. So in an ideal world, from January, we have more assortment for the end consumer, more time for the end consumer, and more service and hopefully more satisfaction for the end consumer. FreeNet Internet, we will increase the prices right now. Our price tests show that it will not slow down take-up rates, which are right now around 2,000 a month, which we have already indicated, I think, in the last call. We are adopting the Magenta Next, which is the family plans. There is a FreeNet Next right now. in the staging phase. And we will do that with Deutsche Telekom, but also with Vodafone. And we are talking to a couple of fiber infrastructure suppliers. It is quite obvious that they don't have a mobile offer. And we are talking to them whether we do combined offers, not only with Vaipu, but also with mobile. I mean, the real big ones are, Deutsche Telekom, Vodafone, they do it themselves. Also ARC, which is the one of Telefonica, but there's a lot of others. And they have understood that to have a competitive offer, they need services such as mobile and TV, aside of their IP access. And on the WIPO side, already mentioned broader, campaign and we are starting by the end of the year with, I would call it self, or the preparation of self-cannibalization with our hybrid stick delivering IPTV as well as terrestrial signal. So this is the outlook. Let me sum up from my side. I think we're extremely happy about the first half year. We're very confident that we're going to continue like that. We're happy that we did not have any problems on either of the KPIs and operationally the company is running really perfectly well. Having said that, I'd like to hand over to Ingo for a deep dive into the numbers.

Thank you, Christoph. Good morning, everybody. I started on page 10 with the overview of the group financials. I think Christoph already mentioned, I think both of us, we are very happy with these figures. And if you look a little bit deeper inside the figures, you see that the good performance is driven by the operational performance in both segments and not by saving any costs, which I would say makes it even more clearer how sustainable these results are, what we do see. I move directly to the mobile segment. I think here we see a continuing of the trends, what we saw in the first quarter. Yeah, definitely the hardware sales in revenue terms are lower. I think we are not nervous about it because the Profitability in this part of the business is relatively low, so we do not lose any gross profit or EBITDA here. We only lose the revenue. On the other side, we are more than happy that the service revenue where we generate much higher gross profit is increasing even further compared to the second quarter 22. So I think also here from the revenue side positive signals which are also confirmed if you look into the gross profit. I think what you do see here is now that we have something like found something like a level here with 172 million of gross profit. It is confirmed again in this second quarter now. which is much, much higher than in the second quarter of 2022. And if you look into the EBITDA, you see that the advantage is slightly lower compared to the gross profit development. This is based especially on an inflation one-off compensation bonus, what we paid to our employees. It is with a group effect of 2 million euros. This is something of a negative effect, but I think this shows that we do really find it important not only to talk about ESG, but also to do things here in the social arena. Moving to some KPIs from the mobile segment. Very, very strong development in the digital lifestyle revenues. Yeah, definitely lower than in the fourth quarter 22 and in the first quarter 23. But this is a normal pattern because it is all around Christmas business where it is also much easier to sell digital lifestyle services. But the 53 million, what we generated in the second quarter, 23, is even an increase of 10% compared to the second quarter of 22. So also here, very, very strong signal what we send. Looking into the ARPU, yeah, there is a slow increase. If you compare it with the second quarter, 22, it is It is not a structural effect. It is more based on the situation that more people are traveling. All in, I would still say that the RPU is stable, and we are very happy about this. Moving to the TV and media segment, a strong development here. If we compare the first half Of this year, with the first half of last year, there is an increase of 12%, 17 million in revenues here. And this is mainly driven by the strong customer growth in the IPTV segment in VipoTV. And this translates into a very strong increase of gross profit in VipoTV by 9 million on the gross profit level. This is lower if we watch the EBITDA because here VipoTV was only increased by 3.2 million. This is based on additional marketing investments, what we did during the year to increase or to accelerate the customer growth here. In Freenet TV, slight increases, even with a decreasing base because we see the effects of the price increase, what we did at the end of last year. And in the B2B business of media broadcast, a stable development. Moving to the free cash flow, to the EBITDA to free cash flow conversion is still very high. We see a change in net working capital of 41.9 million. This is effected by a further reduction of factoring by 20 million in the first half of 2023. Then if you see the tax payments, it is slightly lower than last year, but this is more or less a phasing effect. At the end of the year, I still expect to see something like 30 million of tax payments. CapEx, 25 million in the first half of the year is what we spend. This is driven on the one hand by the digital radio business. on the other hand, by the WIPO-TB platform where we modernized some things and put the platform on the next level. In leases, a stable development in interest, also relatively stable. What we do see here is that As for everybody, interest rates are increasing, but on the other side, we decreased the volume of the outstanding debt and therefore a stable development in interest payments. And all in, we see a very strong free cash flow of 131.5 million compared to last year. It is an increase of 7 million, but I think you have to put into consideration that last year we received a dividend from the economy of 5.5 million. So if you put this into consideration, the pre-cash flow development is even stronger and is comparable to the development of the EBITDA. Moving to page 15, here you see on the one hand, you see the maturity structure of our debt. To pay the dividend in May, we used the revolver of 50 million of the 300 million outstanding revolver. It is already repaid in July. And this year, we do only have to repay another promissory note of 35 million. So there is the possibility that we do a refinancing in autumn, but there is no obligation because our cash situation is that good. I think we will follow the market and then we will decide what timing we will use to refinance because definitely up to the end of 24 and then with the maturities in 2025, we have to do some refinancing. Equity ratio, leverage, I think all not only under control, but very healthy. Moving to the guidance and here also from my side, I can only confirm what Christoph already said. From my point of view, I would say today that I do expect the full year results at the upper end of the guidance in both terms, free cash flow and EBITDA. And I do even expect it with the inflationary effects, what we see, and I do even confirm it if we do additional investments into the TV business, especially at IPTV. So I think a strong confirmation of also, and I think from my point of view, a good guidance for the second half and how we do see the business today. And having said this, I would like to finish and hand over to the operator again to start the Q&A.