Freenet Ag Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the Freenet AG Q1 2024 conference call. 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 Wielanek. Please go ahead.

Good morning, everybody. Thanks for joining today's update. This morning I read a comment which said, like, everything on plan and a bit boring. I think that's true, but I'm happy that it's true. If we look at this first quarter, as expected, we have invested into the growth of WipoTV and released a new record net ad quarter. As part of this, as a consequence, the EBITDA is a bit below the previous year, but that is, and Ingo will outline that in full detail in our plan and is not an indicator for a change for the full year. It's just a part of the seasonality that we were expecting given the circumstances. I'll talk quickly through the closing of the Gravis business and again Ingo will then lay out what this means in terms of revenue, guidance, etc. And as I already mentioned, no doubt about the guidance. We fully confirm everything that is guided. Revenue as such is not guided, but EBTA. If we look at page number five on mobile, I think what you easily detect is that similar to any other of our market participants, also our growth slows down. I think there is more and more stability in the market. The source of new post page, which over the past so and so many quarters was former prepaid customers, I think this is slowing down. And I think that is something which we have seen with any of the others that have already reported their numbers. We still see a small growth of 20, which is less than it was previous year. but it's still a small growth and we still expect for the full year to end up somewhere around plus 100,000. Up-use are according to our plan and fully stable again in Q1 and are expected to be stable for the full year. What we have recently launched, I think it's worth mentioning even though it won't be a big deal, There is only Magenta who today gives an outside EU tariff plan in the German market and we have now agreed with one global company located in Berlin to offer low price roaming. in non-EU countries, so customers can download the app and then collect an eSIM if they do travel. Again, I do not expect this to be a significant contributor to either revenues or bottom line, but it's a hygiene factor. And aside of Magenta, nobody has it for the time being. On page six, already in the release outlined and clear focus is WIPO TV. We have told you with the preliminary results early March that we expect a second or another record quarter this quarter. So we have a net add of close to 139,000, which is more than we had in Q4. It compares to plus 83 in Q1 2023. So we've again had a significant growth of almost 60%. We have, I'm sure you also looked at the numbers of Deutsche Telekom this morning. They report plus 7,000. So once again, we are in the area of a double-day growth, which is still our ambition. even though I expect with their investment 100 million a year in content of Bundesliga and 50 million on European Championship, that I guess in Q2 we will see them to become stronger. But still, given our level of investment and a very consistent management of acquisition cost, we expect the growth in Q2 to be at least at the level of Q1 again. So once more, we believe that if this continues, we can reach the line of around 2 million by the end of the year. I think we will have in the Q&A a couple of questions on the name cost privilege discussion. I'm happy to answer them. My basic statement today is that we still have not seen a straight impact or measurable impact because people are still in the period of reflecting on the change and legally they can only go away by 1st of July. On media broadcast, I think that is shrinking as planned and as expected, still with price increase, but also with B2B activities that the team is there acquiring. or winning in diverse industries, the EBITDA contribution remains to be stable at the order of magnitude of 100 million euros per year. If we then have a look on WIPO a bit more detailed, You can see that we have had very good success with the combined offer with WOW, which is the entertainment offering of Sky Germany. We have signed an agreement now with Disney+. There are rumours that in the US some of those companies, specifically Disney, Paramount, want to join their forces, obviously, and consumers are not likely to do three, four or five subscriptions. In Germany, we see that these companies do not run for single campaigns, but they like to cooperate and the biggest cooperations right now are with Sky, with Magenta TV and with Waipu. which I think also proves that we are doing a fine job and we are now well known to these partners also as acquisition machines, which is part of the Freenet DNA and is now repeated in the TV segment. The fact that we are still increasing number of channels and HD becomes kind of a hygiene factor. We constantly measure the usage and also eliminate some of the channels so that the customers are not overwhelmed and all the features to sort channels, to exclude channels from your own EPG are well established features that make the product totally convincing to the end consumers, NPS still on a super high level. And as already mentioned, now we have crossed the 1.5 million line and added almost 140,000 subscribers during the quarter. We have... Sorry, I have a problem here with my presentation. So let me then step to the Gravis topic. I think for the past years, we've always mentioned that Gravis is not contributing significantly to our EBITDA. It was and is an interesting distribution line for Apple devices. There are a number of changes to the Apple business. One is that what they call CPU, which is Macs and MacBooks, has come significantly down. This is not due to less demand, but to a longer lifetime of the devices. So we have seen in GAVI's CPU revenues coming down by 25% this year versus previous year. Last year we have had an almost break-even result, but January, February, March showed that we are going definitely negative this year. We have spoken to a couple of potential partners to merge their shops with ours to exploit synergies in headquarters and central functions. We had learned that all the others run into similar problems and if two companies that suffer from the same disease even bring them together. would not create enough synergies in order to make the company sustainably profitable. And this is why we have decided to end the Gravis business. It is important also for you to know that over the years, the value in terms of generating postpaid customers has come down significantly. The first two or three years, we were on like 30,000 to 50,000 customers annual subscribers once who grab is the last few years. We talked about like 1,000 or 2,000 a year. So this is not something that is really moving the needle in our mobile business. We have agreed with the Workers Council on the close down by the end of June. We have informed Apple about it. We are now in a position to sell all the products that have been on stock, which also reduces the damage on the free cash flow line. But once again, Ingo will give you more details. It's a sad thing, but I'm still happy that we have agreed with the workers' council in a smooth and fast process. Even people in the shops are relieved because it was not a fine thing to wait every day for customers that have not shown up. Having said that, I'm giving straight forward to Ingo for the financial details.

Good morning everybody from my side. I start on page 10 with the group results. I think what you can see on a revenue level is that revenues are stable despite the Gravis revenues are already decreasing in the first quarter. So we lost with Gravis, we lost something like 20 million of revenues in the first quarter. And this could be overcompensated by high margin service revenues which increased noticeably. So I think it's all in. It's also on a revenue level. It's a good picture. And yeah, with the effect on the gross profit, which could be increased by 3.4% year over year. And this reflects the strong development of the service revenues in both segments, in mobile and in TV. and therefore our gross margin could be increased to 37% by 1.2 percentage points. On an EBITDA level, maybe a little bit disappointing also compared to the consensus, but definitely compared to the gross profit, we see a slight decrease in EBITDA by 3%. This is based on the investments in Waipu TV. Here we invested into growth and therefore we have much higher marketing costs. On the one hand it is brand marketing, on the other hand it is, let me call it sales acquisition marketing costs, what we do have here. And what we also have is an increase in personal expenses, what we have discussed, I think, during the whole year 23. And all the time we told you, yes, there will be an effect. there will be an effect of something like four to five percent but during the year this should be partly mitigated because we the the increase of the minimum wage last year already happened mid of the year so i think there will be slightly higher effects in the first half of the year but the effect from higher personal expenses definitely will be lower during the second part of the year. Moving to the segments, starting with mobile, I think here you have the clear picture on the revenues, what I already explained. You see a growth of service revenues by 2%, from 416 to 424 million. And on the other hand, you see the decrease in hardware revenues by something like 22 million. And this is because of the announcement of the closure of Gravis. So we anyway saw decreasing revenues at the beginning of the year. But after we announced the closure, we even saw another dip. Here in mobile, there is an increase by 0.8%. And yes, this is based on the service revenues. But I think if you lose 20 million of revenue, even in a low margin business, yeah, then you have an effect in gross profit and even if you only have a gross margin of something like 5%, then you lose something like 4 million on it. So I think this is clear here. And if we look into the EBITDA, we see a decrease by 2.5%, which is also driven on the one hand by Gravis, where we lose something like 1.5 million of EBITDA. On the other hand, what we see here in mobile is that personal expenses are higher, which is based on an increase of wages by something like four to five percent, what we already announced, which is here in mobile an effect of something like 1.5 million. On the other hand, there was a one-off in debt collection in the first quarter of 23, where it was possible to sell receivables, which were already classified as bad debt, but it was possible to sell them last year, which was a positive effect in the first quarter of 2023 by 1.5 million. So, this is definitely a one-off in comparison to last year. So, bad debt all-in in the first quarter in mobile, It was slightly higher, but it was not a relevant big effect what we saw here. So slightly increasing bad debt, but it was an effect of something like 0.7, 0.8 million only in the first quarter. Mobile EBITDA for the whole year, as it is a little bit disappointing in the first quarter here, I would still say that I think personally I do expect something like at least something like 417 million what we already had last year. So this is above 410, but in this presentation here we are a little bit more conservative in the figures. Moving to the KPIs. of the business. RPU and mobile were already discussed by Christoph. Digital lifestyle revenues, I think it is worth to say that we changed a little bit the reporting here because what was part of digital lifestyle in the past were already part of the mobile devices, what we saw was, but then we had to decide, was it in connection with a digital lifestyle sale or not? And so it was, I think it left some room for interpretation also internally. and therefore we decided to leave all mobile devices what we sell out of the digital lifestyle revenues. I think this is only consequent and gives you a better picture because the mobile revenues, the devices what we sell are only low margin and what we do say here about digital lifestyle is that it is high margin And so we have more options, we sold more options and so on. And we do have more subscriptions here in the 45 million what we report in the first quarter. On page 13, TV and media revenues definitely very strong based on higher subscriber numbers with WipoTV and higher marketing revenues, what we generated here. On a pre-net TV level, we saw the decreasing number of customers and we do still see it, but I think we still get some positive effects from the full year price increase from year end 2020 and so this definitely helps here to keep it slightly or nearly stable. Gross profit also here an increase by 8.2% which is in line with the increase of the revenues and in EBITDA here a decrease of 5%. I think we announced it with the full year figures at the end of Feb already, that here we plan to do additional marketing investments into brand and into sales at VipoTV, which is planned to be 20 million during the year and which is something like 5 million in the first quarter. So therefore, I think we are totally happy with the EBITDA here because this is definitely what we already planned when we started in the year and all what we see here is also part of the guidance what we gave already. Moving to the free cash flow, maybe a positive surprise. no big effect in the net working capital, but better than last year, 23 first quarter by something like 4 million. Yeah, but we discussed it during the end of last year. The free cash flow was a little bit low in the fourth quarter, so we had some positive effects from the end of 23. What we do see here in the first quarter, Texas, as it was before. CAPEX is lower. I think we have to wait and see here what happens during the year, because it's lower than we expected, definitely, and lower than we expected in our full-year figure, what we presented. I think it is too early to change here the full-year view, but from today's point of view, yeah, I would forecast a lower CAPEX figure than we originally thought. These payments in line with what we saw before, interest payments slightly lower than last year, but this is more or less a phasing effect. In May, we have some majorities where we have to pay interest on a P&L level. Interest is relatively stable. Moving to the balance sheet on page 15. Yeah, I think it's something what we repeat from quarter to quarter. It's a strong balance sheet. We have a high equity ratio. We have a very low leverage. But I think you have to put in mind that in May, just yesterday, we have walked So the leverage will increase slightly after the dividend payment and then I think it will be decreased during the year. On my last page here, we show the guidance which we call confirmed. I think what is important to know here on the revenue line, what we do guide is a stable revenue and we stick to it. But definitely after the classification of Gravis as discontinued 2023 has to be adjusted. So the adjusted revenue of 2023 after mid of the year will be something like 2.4 billion. This will be something like the revised revenue afterwards and we stay to a stable outlook and this is what we guide for 2024. All other parts. of the guidance. I think we saw not any big changes in the first quarter. I think we never said that often, expected, expected, expected, Christoph and myself, and so there was, I think, it was all what we planned before we gave the guidance. I think we are totally in line and therefore we are happy to confirm it today. So this is the presentation from my side and I hand over to the operator again to start the Q&A, please.