Freenet Ag Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the conference call Preliminary Results, Fiscal Year 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, Mr. Villeneuve.

Hello, everybody. Good morning from Hamburg. We're here with Ingo, myself, and our investor relations team. to discuss preliminary full-year results 2023 with you. You have all seen the corporate news and all the data. So let me straight go into the presentation. What are the three highlights, as we called them, for the last year? First of all, I think we're all proud to hit the 500 million EBITDA line. Some people commented, where did you find the 200,000 euros? Well, we aimed for 500 plus and we ended up with 500 plus. That's the key message. We are really grateful for the full team. I think the company has shown more flexibility and more adoption to the individual needs of the market and we've speedy reacted on changes. I think that goes for For all units, I think it was a tough year in the sense of more changes than the past, but flexibility and courage to change things has proven to be extraordinary well in Freenet. Operationally, the growth of IPTV is certainly the name of the game. We are very proud to run the fastest growing linear IPTV platform of the German market and in the German market. We will show you and share with you a couple of more details in a second. And certainly ESG is, on the one hand, is, to be honest, sometimes a pain in terms of reporting and details. But at the same time, we feel that it finally ended up in the company, in the strategy, but much more in the culture. Without over-exaggerating it, all the individuals started to think in that category. We think this is a positive signal to our customers, to our partners, and hopefully also to the capital market. On the next page, a review based on the existing 2023 guidance. Subscriber number grew to 9.5 million, so plus 5%. On the detailed level, we're going to go through by sector in a second. Revenue 2.8%. Let me still say that you all know that revenue is for us not a key KPI. It's way more important to look at EBITDA and free cash flow, EBTA grew by 4.5%. That is perfectly in line with our 2025 ambition, where we said there's a CAGR of 4%, so we are a bit above that, and the 2025 ambition of EBTA bigger than 520, obviously, is still valid and is already within reach, already with the guidance on 2024 that ingo will introduce free cash flow ended up with past uh plus 5.3 percent 263 million on the post paid um i think we were a rather conservative uh stating that we see we foresee a slight growth similar to 2022 um if you look now at the numbers um with plus 153 000 subscribers It's a good number. We grew 50% more than we did in the past year. A key driver certainly is a bit more focus on online channels, a bit higher proportion of SIM only. Still, the demand for innovative products on the hardware side is not met by the launches of the hardware industry. I think what we have seen as 24 now starting pretty well. But as I said, the average usage time for smartphones globally, but especially in Germany, is growing according to our internal statistics up on 36 months. This is reflected in the share of SIM only. We foresee for the coming year a similar development also in terms of APU. We would call this still a stable APU with the typically small deviations that come more from tariff mix than from overall usage changes. Certainly, helping the company and the business is that we've pushed the Freenet As a brand, we have a new claim, which ran really well. We have changed from the testimonial campaigns with the famous Dieter Bohlen in summer and are now focusing on the pure statement of the brand. All the research says that this is perfectly well done. We have had a couple of brand awareness campaigns also doing sponsoring. in sports and we will continue to do so. The measurement and the KPIs state that brand awareness has gone up significantly and this is still done with a marketing budget which is far below any of our competitors. Coming back on the TV statement, I think that is really strong. We had 400,000 net ads in Waipu TV That's mainly organic. I think Deutsche Glasfaser has contributed a little bit, but a little bit is more like a thousand a month. So it's really showing that we have organic growth across all kind of channels. We have told you that as of October, we started to present the product also in Media Markt Saturn. This is also still on a low level, but we see weekly better numbers also in retail channels. I think that proves that the awareness of the so-called name cost and privilege drop in July is contributing to this development. And with the size of now 1.37 million subscribers, we are obviously more attractive for potential partners such as Paramount+. that have done two campaigns with us. WOW, which is the German entertainment arm of Sky. They are doing bundles with us. And we are having a great success with programmatic advertising. So for WIPO TV, I think for... We are not guiding a straight number, but I mean, my personal ambition, I think we're going to go beyond 1.9 million subscribers by the end of the year, the first quarter. 2024 seems to be even stronger than Q4 2003. So we had 134,000 net ads in Q4. And I think before the end of March, we will have another plus 130 or 140,000. I'm expecting getting close to 1.5 in the first quarter. And my personal ambition would be to scratch the 2 million hurdle By the end of the year, I think 1.9 is realistic, but we need to push the team. And there's a good chance to go in the direction of 2 million subscribers. On the opposite side, Freenet TV is slowing down. This is all within our expectation. The good thing is we are now launching the hybrid stick. It's a combination of all the key access ways, so cable, terrestrial, and IP. This will not only support WIPO, but also FreeNet TV for the time being. And we have seen with the management changes in media broadcast, there was big changes, a transformation in the organization towards more customer need orientation than in the past. just running technology and trying to sell it. I think these changes show first successes. We won a couple of tenders. It's known to you that we are EG providing field services for the United Internet Network and for some others. And we expect EVTA contribution for media broadcast to remain beyond the 100 million euro in 2024. That is certainly the big success. What is, and this also leads me to the outlook of 2024, there are three key things that we work on. One is implementing ESG even further in the culture as a mindset. Installing assisted personalized shopping in our retail and scaling the IPTV business. On the ESG, I won't go into all the details. We have now implemented for 2024 customer satisfaction into our goal setting for the board members and the executives. And we are working hard on the free net zero by 2030. I think these are important things. Just one small remark here. We start with our first PV installation. That's not a big investment yet, but this will be the pilot project. There is a couple of bigger projects where we look for external partners to do the financing on some of our big field areas that we own as part of media broadcast. Second big topic, RPS, assisted personalized shopping. What is that? In the past, or up until now, the offers towards the end consumers, be it new customers, but also renewals differ by channel. There is a good reason in the past to do so, but we have decided to stop this. We want to strengthen our approach by offering one and the same terms and conditions and prices across all channels, be it the app, be it online, or be it the shops. This will enable, for example, a statement on the digital channels that any customer with open questions and so on and so forth can go to the shops because the price is absolutely the same, but you will have a personalized experience in the customer journey with individual help. Any user can be sent to the retail store. So that is one big thing in the retail stores. We will have the top models all to be seen there, to be displayed, all color versions. In the past, this was a very minor assortment in the shops because of working capital restrictions. And our sales reps basically sold what they had available and they were not selling what the customer wanted. So this is the big change. We have started this whole project a year ago. with early testing we did a lot of research and consumer feedback was great and our store managers loved the concept because administrative work is going down they spent more time with the end consumer and we will fully launch it across all 500 outlets in by 1st of August next page that is A deeper look on IPTV, what you can see here is eight quarters of WIPO net ads starting with 46,000 in Q1 2023. You see that almost doubling over 12 months. And you can also see that Q4 was a record again with plus 134,000 we expected. even higher for the first quarter and the remaining of the year. The Pier 1 is, and you can take it from the color, that's Magenta TV. That's what their official reporting says. So we're doing about double their size or their growth. Their overall size is still bigger because that's the OT Entertainment product behind Magenta TV. But you can easily understand that we're doing much better than they do. We have more focus. But we are very happy that Deutsche Telekom puts a lot of effort for the IPTV as a category. And we continue to take advantage from that. And the cable is the negative development published by Vodafone. There is a couple of other cable operators, smaller cable operators such as Telecolumbus and some locals in Germany. So if you add our growth and put against the losses there, you can see that the bigger proportion of our net comes from cable. We think that that development will dramatically accelerate through the legal changes that will happen in summer. This is why we have invested into the information of those people. We have, according to our research, about 50% of the customers think about changing or are willing to switch access technology over time. We are not expecting this all to happen in 2024, but I think all the numbers today give an indication that the number is growing already. and it will become even higher than in 2025. The second big work that the team has done, and this is still also with the testimonial of Mr Dieter Bohlen, is that we try to make the brand awareness big, especially in cable households. And on our survey, it says people that know about alternatives, two-thirds of those know about WIPO-TV and consider WIPO-TV as a positive alternative. So all the indicators show clear direction to growth in that field. So with having said that, I'm happy to hand over to Ingo to go into more details of the past number and also introduce the guidance for 2024.

Thank you, Christoph. Good morning, everybody from my side. I'm also proud of the figures we can present today. I start with the group figures where we do see the increase of revenues of 60 million in 2023. There's an increase from mobile of 30 million based on better service revenues and there's an increase of 30 million from TV based on the increase of customers at Waipu TV mainly. So I think on a revenue side, we are quite fine. On a gross profit side, we are even better. So it was possible for us to grow the gross profit by 65 million in 23, 25 million growth from TV, again, because of the service revenues from the increasing number of customers at Waipu TV. On the other side, there's an increase of the gross profit in mobile. Again, yes, there's an effect from service revenues, but I think there's also the target, the reach of some of the targets, especially in Q4, what we had with the network operators, and this helped here to increase the gross profit. On an EBITDA side, the growth is not as big. There's an increase of 20 million on one side. Yes, we invested into TV. I think this is what we commented during the whole year. On the other side, on mobile, There's an EBITDA increase of 15 million. And so we lose some of the increase from the gross profit here on the one side because we focused more on online channels. So there was a shift of SACs from the gross profits to the marketing cost. And on the other side, we had some increase in customer care costs. Again, I would also say here what Christoph already said, that we are totally fine with the ambition for 2025, and we are still on track to reach the 2025 EBTA of more than 520 million. Maybe one comment here, because later on we do not discuss the results which happen out of mobile and TV. There was again an effect what we already knew from last year for the long-term incentive program. Here, there were another provision which had to be built of something like 5 million in Q4. And this is mainly based on the good share price performance during the year. Moving to mobile. mobile, I think some of the effects are already commented. I think on a gross profit side, in Q4 there was an additional bonus effect. What we saw compared to last year, there were higher service revenues than last year and there was this effect of shifting from the gross profit to the marketing cost of something like 10 million. So this helped to increase the gross profit in Q4. Moving to the EBITDA, here we see something like a stable development compared to Q4 2022. This is based on the good gross profit, but on the other side, there were some, were the marketing costs which were increased and there were the customer care costs which were increased and then maybe you can remember in the fourth quarter 2022 there was a release of provisions and so we did not have it this year. So I think all in mobile business quite fine. Moving to the KPIs of the mobile business, digital lifestyle revenues again could be increased, RPU stable, slightly increased of subscribers. So it's the logic that therefore the service revenues had to be increased during the year. Moving to page 17, TV and media. Yeah, I think Christoph already commented that it is really impressive. What I find is even more impressive than The single mentioning of the growth is that even with the growth, it was possible to increase the EBITDA here. So I think on the gross profit side, you see that Freenet TV plus 1.9. on a EBTA side plus 1.5 from Freenet TV. So here we saw the price effect during the year because we increased prices at Freenet TV at the end of 2022. And therefore, even with the lower number of customers, it was possible to increase the EBTA at Freenet TV in the B2B business of media broadcast. and Christoph was already talking about some new tenders what we could win and that I think it's a stable business but with some small successes and therefore it was even possible to increase here the EBITDA of the B2B business in addition. IPTV I already commented a high increase of gross profit because of the additional customers and a slight increase in EBITDA. And yeah, it is obvious that we invested into the growth, but still a positive effect in the EBITDA compared to 2022. Moving to page 18, here we see the bridge for the free cash flow. Yeah, and I saw some comments. Yes, the working capital development in the fourth quarter. Yeah, I think it was slightly disappointing. What we saw here were some phasing effects from the business. So I would not, I think it is not a really, it's not a big miss of what some saw in the consensus. It's only a small miss of 5 million. And definitely as it is a phasing, these 5 million will help in the first quarter of 24. Or in all other dimensions, I think without any surprises, this bridge, and therefore we ended with the free cash flow of nearly 263 million. Dividend proposal, what we will give to the AGM in May is 177 per share. I think this is easy math. which could be calculated out of the free cash flow and out of our promise that we do pay out 80% of the free cash flow. Balance sheet on page 19, nothing new. I think we saw it during the whole year. We have a very high equity ratio, much higher than in our financial policy, where we defined a lower limit of 25%. And the leverage, including leasing, it's still 1.2, very low, only bank debt, it's 0.6. So all in, I think. I can only continue to say it's a very healthy balance sheet what we do see here. Moving to the guidance. Yeah, I think with the revenue and we see a stable development, it is not that relevant as Christoph already said for us. But yeah, we try to keep it stable. We focus much more on EBITDA and free cash flow. In EBITDA, we see this transitional year where we think 495 to 515 looks reasonable to us now. I think this guidance gives us the possibility to invest into Vipo wherever it is necessary. And I think what is important to know, we talk about something like 600,000 customers growth in VipoTV. And even with this growth, we promise a stable and maybe slightly increasing guidance for the EBITDA. And the same for the free cash flow, 260 to 280 million is the guidance here. On the subscriber side, It is something of a continuation of what we saw before, moderate growth in postpaid customers, significant growth in WIPO TV subscribers, and another year of a noticeable decrease of Freenet TV customers. So we still do not see the floor, but I think we are of good hope that we will see it during the year with the measures what we took and what Christoph already discussed coming to page 21. Yeah, 24 is definitely a transition year. Here all the investments what we plan are listed and all these investments will help us to have, in the mid-term, to have much higher results and to increase the EBITDA further in the following years. So what you do see here is the ambition for 2025, but what we also plan is to publish an ambition in the second half of the year for the following years, so something like a mid-term mid-term ambition, but I think it was too early to do it now because we do not know the effects from the change in the cable law. So I think we have to wait what happens during the year and then in the second half we will definitely give you more details on our thinking about the years beyond 2025. Last page from my side is the free cash flow bridge. for 2024. On the networking capital side, we see another dip of something like 40 million, 25 million is based on the liabilities which are on our balance sheet because of our partnership with Mediasaturn. Then in addition, what we see here is the inventories were very low during 23, so it's I think there is some buffer here, what we do have by 15 million. Let's wait and see if we really need it to increase the inventories, but we will see during the year. So we are very early now, and so I think 40 million looks reasonable to me. On the tax side, still some tax audits are open. You can see the provisions on the balance sheet, but still there were not It was not necessary for us to pay it. So maybe it happens during 24 also here. Let's wait and see. Weipu Investments. We were already talking about it and this is something what you see here on the capex figure. I think we have to invest money into the platform because we would like to deliver good service to the additional number of customers. And therefore, I think it is unavoidable to invest into the platform. On a lease side, no changes to 23. And also on an interest payment side, even with the increased interest rates based on the lower net debt, we expect a figure of something like 20 million. And therefore, we see in a result a free cash flow of 260 to 280 million. So these are the explanations from my side, from the financial side. I'm happy now or ask the operator now to start the Q&A.