Freenet Ag Unsp/Adr

Good morning to everyone joining us today and welcome to our analyst and investor conference call. It's great to have you with us. I'm Alexander, your moderator for today. Today we are joined by Freenet CEO Christoph Wielanek and CFO Ingo Arnold. Christoph will start with an overview of Freenet's accomplishments and highlights for both the nine months and Q3 of 2024. Following Christoph, Ingo will provide a deeper dive into the financials outlining Freenet's performance. After discussing the results, we will transition to a very exciting part, the presentation of Freenet's long-term ambition stretching up to the year 2028. Following the presentations that will last around 70 minutes, we will have a Q&A session. Please note that this call will be recorded. Without further delay, I'll hand it over to Christoph to start today's presentations. Thank you for joining us, and we look forward to an engaging and informative session.

Yeah, thanks for the warm welcome and thanks to all of you already at this stage for joining us today. As just outlined, we thought it would make more sense to go through the entire presentation and have then a combined Q&A session on 2024 as of September results and the mid-year outlook. So we get started with the key achievements or takeaways from the nine months results. I think just for hygiene factors, we repeat that the new M&O contracts are now in operation. They've been signed in Q2, but as of July 1st, we have implemented all the new tariff portfolio that mostly came from Telefonica, including all the SIM only tariffs and we are full fetched 5G now. And luckily enough, or like as a result, as we predicted and have expected Q3 with a growth of net ads in order of magnitude 4,000 is already a remarkable step into the right direction. We see the immediate impact and We do not disclose current trading, but the curve and the trajectory is exactly as we predicted. Month of October was also very strong and reflects the new setup with all the three operators. Same goes for the IPTV net ads. I'll go into more detail, but yesterday we have plus 48% on net ads of 460,000. And Ingo will give much more detail on this. But that was the reason also that we are obliged to change or to adjust the guidance from stable to moderate growth or revenues, narrowing down on the EBITDA and increase on free cash flow. Going into mobile, I think that is, I think in the headline, we are not really the posh guys typically, but we're really proud and happy that we are back on track with growth. I think growth is still a big word in these times of full saturation, but we're doing much better than we did before. We have plus 79,000 net ads by end of September. So, I mean, it's quite obvious that the 100,000 is taken for granted. We will be somewhat stronger without predicting a precise number. There is still black week in front of us and the entire industry is focusing on that. So we will see what kind of offers will hit the ground short-term promotions as always. It all resides one hand for sure from the long-term agreements. But we also are happy that we've started the new sports sponsorship, ICANN League, which is an indoor football league founded by Toni Kroos, the former, I think, best German football player for the last four or five years. We have started the sponsorship. That's quite interesting because it's young boys, age of 12 to 20, and we have done a lot of survey and... Those guys suddenly say never heard about Freenet, but now they're cool. So that sounds beautiful. And if it may add an anecdote, I was there one day at the tournament and I felt really old. We have launched a number of tariff plans. I think it's not worth going into detail. We are fully reflecting everything that Blaude and O2 did. is offering as well, and we have an agreement with Telefónica to add a number of additional tariff plans that we consider to be relevant for our customers. A quick take on this ARPU, it's stable as we have expected. Going on to the next page, Strongest Q3, tends to get a bit boring that we provide the strongest ever quarter in a row. But on the other hand side, it reflects not only the strengths, but also of the product, but also a trend in the market. I also would admit, and I think we have Ingo, myself and all the team have never communicated differently. We always said that the name cost and privilege drop will not create a kind of a tsunami wave. It is supporting our development and I think to have a strong Q3 is underlying trend supporting to this. But also when we do the midterm outlook, you will see that we are conservative, but still this creates a wonderful new segment and source of revenue and EBITDA in our business. um we have we expect uh to be uh plus minus two million ypv subscribers uh by the end of the year we have just signed a disney plus uh uh partnership we have prolonged peter bowen's testimonial contract because he's still all the tests and all the research shows that he is a the best promoter of the product we have will do new campaignings and new pictures and creative next week. Whereas at the same point, we are not shy to admit that as planned Freenet TV customer base goes down, it's expected to be around 500,000 by the end of the year. We always stress the point that for us, this is a portfolio management job and the fact that we are for the segment growing has anticipated that we are slowly going down on Freenet TV. That is a quick but I think concise and relevant update from the operations side and I hand over to Ingo to give the numbers.

Thank you, Christoph. Good morning from my side to everybody. Starting with a group view on page 10 here. I think the first look shows that every green column is bigger than the blue column. So all figures for 24 are higher than the figures for 23. So I think this is therefore it is obvious that we have a very good year in terms of revenue. I think we only expected a stable revenue. What we see now is a slight growth in revenue. Therefore, it is something which is something like an obligation to change the guidance here because we see the reality. And therefore, we changed the guidance for the revenue from a stable outlook to a moderate growth for 2024. the growth is based on the television business, definitely. For the gross profit, very strong figures again here. We see that the gross margin could be improved further in Q3. So what we see in this gross profit development is a reflection of the of the new M&O contract, but on the other side, a reflection of the increasing numbers of customers at WIPO TV and the growing service revenues in this business. On an EBITDA side, we still see that the effects from the gross profit are not in the same size shown in the EBITDA. This is something which is not new. because we have the high acquisition cost in VipoTV and we have the high marketing cost here. This is something which was expected, which is expected, and this is why we said that 2024 is a transition year. On all what we know today, it was possible for us to narrow the range of the EBITDA guidance to 500 to 550 million euros. Moving to the mobile business, maybe on the revenue side, a little bit disappointing what we saw in the third quarter. because the service revenue is slightly lower in 2024 than in 2023. It is based on lower revenues from roaming business here, which is in terms of profitability, it does not make a big difference for us because the profitability for us in roaming revenues is relatively low. I think I'm also a little bit looking forward to the figures of Q4 and hopefully service revenues could be increased again as we have seen in the first two quarters of the year. But I would say it's a clear sign of these roaming revenues, so therefore I'm not nervous. But I think we are looking forward to the figures of Q4 now. In gross profit in mobile, we see a strong increase here. This is based on the higher numbers of customers, what we gained, what Christoph already mentioned, because with a growth, we do generate more payments from the MNOs, which I think is clear to everybody, and therefore we see the increasing gross profit here. It is more or less also translated into EBITDA on a percentage base. On an absolute figure base, the EBITDA increase for the first nine months is lower than on the gross profit side. Because on the one hand, we have higher personal costs because of, I think, also not surprising, but I think this is what we saw during the whole year, that we see an increase of personal costs by 4% to 5% because of the measures that we took in 2023. On the other hand, we see higher performance marketing costs which are not shown in the gross profit, but directly linked to the acquisition, what we do if we do online acquisition. So I think it's also on the EBITDA level, it's very strong figures, but we see slightly higher SG&A and marketing costs here. Moving to the KPIs of the mobile business, what we see is, if we compare here again the percentage figures, we see a slight increase in the postpaid ARPU, but on the other hand, a higher increase on mobile subs. So all in, this should help to increase the service revenues further on. I would confirm what Christoph said. For us, this is a stable RPO. Last year, it was 18. This year, it's 17.9. So I think it's a slight decrease, but in my eyes or in our eyes here, it still is stable. DLS, digital lifestyle revenues, also stable. It is a saturated market. So I think it was easy to increase the figures at the beginning. Now we are in an ongoing circle here. So I think this is what we forecasted and this is what we see at the moment here. Moving to the TV business. Yeah, very, very strong figures on the revenue side here in the TV business based on the additional customers at Waipu TV. What we also see is that the RQs in both Waipu TV and Freenet TV are stable and therefore with the increasing number of customers, we see the increasing number of revenues. On the gross profit side, we do also see a relevant increase here. The margin is slightly lower. because the WIPO-TV margin is slightly below media broadcast margin. So whenever the share of the WIPO-TV business is increasing here, then we see a slight leap in the growth margin. On an EBITDA side, also the same picture what we saw in the first two quarters, we are still convinced that the high customer intake what we see in waipu that this justifies the higher investments so therefore we see the dip here the slight dip in the ebta but i think we have the the confirmation of of the business and of of of the quality of the business from the gross profit. And whenever we will reduce marketing investments, then we will see the gross profit will be shown fully also in the EBITDA. For the fourth quarter, again, we will have high marketing investments. This is what we also said during the whole year. We will have the high marketing investments during the whole year. So therefore, I would expect again something like 25 million here for this segment for the fourth quarter. Moving to the cash view, I think no surprises here on this page. We see that change in net working capital is comparable to last year. We see higher tax payments this year, but 23 was influenced by a refund for what we received in 23. I think we already discussed after the second quarter. CapEx, we see a lot of phasing effects here. At the end of the day, it's the question if these phasing could be, if there could be a catch up during the rest of the year or not, but I think especially on the digital radio side, we have some postponements in investments. Lease payments without, I think without any surprise, interest payments slightly higher because of slightly higher interest rates, which leads me to the next page. where we give a forecast for the free cash flow up to the end of the year. I think what is relatively safe is taxes minus 40 million, lease minus 70 million and interest payments. It's good to forecast these figures, these three figures. What is a little bit open is CAPEX looks a little bit high here with the 55 million. So this is based on the idea that there will be a catch-up of investment. But as you may also get a feeling that if you postpone CAPEX during the year, it's even difficult to catch up because time is running and earlier or later than is the end of the December. So I think we have to wait and see what happens here. On the other hand, I think the 45 million from the change in networking capital, this looks ambitious on the other side because we already have minus 45 million at the end of September. Whenever we grow the mobile base faster, and this is what also Christoph already mentioned, that we see a relatively strong October already. So it is possible, I would say all in, the increased free cash flow guidance to 270 to 285 is safe. I think it's only a question at the end of the day how the working capital and how the capex really will come in. But I think in sum, the minus 100 million of both of them, I think this looks also safe to me. So I think we are happy here to increase the free cash flow guidance and we will show the whole guidance and the updated guidance on the last page, where we again see, in a summary, the moderate growth now in revenue, EBITDA guidance 500 to 515, pre-cash flow 270 to 285, and no changes in the non-financial KPIs. So therefore, I think this is all what we would like to say to the first month of 24, and now I would pass back to Christoph for the ambition, starting with the review about the Ambition 2025.