Freenet Ag Unsp/Adr

Good morning, everyone, and welcome to our earnings call. I'm Robert Harris, the CEO of Freenet. Overall, we are happy about the operational performance and the strong customer growth. We see many opportunities ahead of us. But we are not happy about agreement with the network, with the network provider that we have, which was closed in 24. This agreement might lead to a minus 30 million impact in 2025 and to up to 50 million negative EBITDA impact for the year 2026 to 2028. We are at the moment in discussions with the management of the network operator and are negotiating, trying to negotiate a better deal. This is already, so the risks that I mentioned are already reflected in our numbers. Yeah, so we are in ongoing discussions and we'll provide an update as soon as we have something. Freenet becomes more lean, focused, and effective. We did some nice strategic moves in the last year. One is that we streamlined the executive board. This made us faster, more efficient. We have a clear focus. We optimized a lot in terms of marketing and sales initiatives. We have a clear focus on KPIs and performance. I think we created a lot of transparency within the organization, streamlined the focus. Everybody is on board here and is delivering. This is, I think, quite good. Then we acquired the mobile zone last year. This was one of our competitors. And we are happy about that as well. And another strategic move was that we have started a customer value management project. This is a really high impact project. At the moment, our conversion rates are not great yet. But I think we have a lot of potential here. So when we compare our turn rates with competitors, we are at the moment behind. And this is potential because if you think about reasons why customers leave network operators, companies, the top two reasons are first, they find a better deal somewhere else. And the second one is that they are not happy about network performance. Both of these things, I think, doesn't make a lot of sense when you look at Freenet because we have really great deals and we are able to offer products in all networks. So our churn rate should be good. So that's why this project is really important. We made big progress. So we are working on over 50 initiatives. This quarter or this month, we will bring live our first AI voice bot in the customer service. And we have another AI tool for our call center agents, which will facilitate the selling process. And we are quite confident that we will have that we will see better outcomes here in the near future. We have some really great operational highlights. We achieved an all-time high in terms of postpaid net ads. We achieved over 300,000 organic postpaid net ads. And when it comes to YPTV, that's There we achieved around 36 million adjusted EBITDA. This is also a big step forward. In the past, we could prove that we can achieve strong customer growth there. Now we also proved that we can become profitable and show nice EBITDA. And then we have a record dividend proposal of 2.07 euros. now let's dive deeper into the mobile segment and we have um our strongest brand is freenet and the second one is clamobile and we put now a lot of focus on freenet this is our premium brand we changed a lot over the last month and for example we moved the the Freenet offerings from the domain Freenet-Bierfunk.de to Freenet.de in the end of January. So we prepared it over the course of last year. So this will be our premium brand. We will put our money on Freenet. So today start the new TV. and new TV campaign and we also invest into digital out of home. That's important. We also shifted our marketing budgets to performing channels. We stopped the stuff that doesn't really work and now invested where we have a direct sales impact and we will invest into our brand and that's a nice opportunity when you look at unaided brand awareness and brand awareness and native brand awareness, you can see that many people in Germany know the brand Freenet, but when it comes to unaided brand awareness, our numbers are still very low and far below the competition. And that's a huge opportunity. So by investing into brand marketing, so we will be able to increase this. And I think this is also a nice upside potential. Beside our premium brand Freenet, we also launched new branded shops, Unlimited Mobile and Mobilfunk.de. So we have a nice portfolio of brands that we position on various platforms and target specific user groups. I think this works quite well. We also relaunched our Freenetfunk app. And what's also very interesting and important is that we We started our partnership with 1&1. At the end of last year, we had the first test in selected shops where we started to sell also 1&1 mobile plans. And this test was very successful. We could achieve incremental sales. That's important for us, that we not just replace one partner with another. No, we were able to really generate incremental sales The partnership with 101, I think, is very good. We are in the process of scaling this partnership now and roll it out to more and more shops. We have a very good relationship to them, also to our partners, Vodafone and Telekom. So I think that we are very well positioned in the market. We showed that we can grow very, very strong. And now we are further optimizing it. and scaling the things that work. And the acquisition of mobile zone was also one important step. We could add even more brands and this will further strengthen our market position. We are very dominant now on certain channels and we could also add more marketing channels and we will grow together as one organization, this will lead to nice synergies. The mobile zone team, very smart, very dynamic, moving fast. So I think that's a very good cultural fit. So the teams already work together closely and we expect further potential there. On the next slide, this is a really important slide because you know that there's a lot of price competition in the market, a lot of pressure. And what you can see here is the Freenet and Frontbook pricing over the course of the last two years. And you could see that beginning of 24, it went down a lot, also beginning of 25. However, in the end of 25, we were able to increase it again. This actually is, I think, very important for us and for the market. And we could already see it during the cyber week. This is always a period where in the previous years it became even more aggressive. This was not the case this year. And we even increased our prices. So this is also what we are doing at the moment. So we keep increasing our prices. We see that this works. In the last six months, we tested a lot. We did a lot of elasticity tests on our marketing and sales channels. We showed our muscles. We could see that we can achieve very, very strong growth. in terms of customer growth and customer growth. But for us, it's more important to actually do this on a really healthy basis. That's why we started in Q4 last year, we started to increase prices and we keep doing this. So for us, quality is more important than quantity and we put a lot of focus on it. So yeah, and the guidance for M25, was moderate decrease, and this will be still the case for 26, because even though we increase front book pricing, we still have impacts from our customer base, and this will take some time. But I think it's very important that we see a shift here and that we will keep focusing on quality and try to further increase processing. On the next slide, you can see the momentum in the end of last year. We achieved an all-time high customer growth, 306,000 customers. This is really an outstanding result. And on top of that, we also could add 240,000 net ads from the acquisition of MobileZone. So this led to 546,000 postpaid net ads. So we outperformed our guidance here, which is great. And on top of that, there are also still 95,000 subs from app-based tariffs. So overall, I think in the mobile segment, strong growth, many opportunities through our customer value management and through AI, also the marketing channels, And we just started there. I mean, last year, the TV campaigns, we started with CloudMobile. Now, with the move to Freenet DE, we also switch our marketing campaigns to Freenet, to our core brand. And this is what we are, that we want to scale this year and also afterwards. Next slide. This is our TV and media business. Media broadcast shifted to segment orders in Q126 onwards. And here you can see the pre-net TV subscribers. The decline continues. However, we have some stabilization measures. So we increased prices. We introduced a hybrid TV stick. We prolonged a contract contract. So we are working on this side as well. Yeah, but the, yeah. This segment, we also have WIPO TV and the IPTV market. and grows continuously. It's a strong market. Also, the position of iBuTV is very strong in this market. It was 20% to 25%. And the market will continue to grow. And, yeah, I mean, we are very well positioned in the competition. The product is very strong when you look at ratings, when you look at reviews, an outstanding product. And we believe that we will further grow here and the market will further grow. So this is, I think, a very good market to be in. On the next slide, you can see our organic growth. We did some cleanups. During the last quarters, we always talked about the O2 impact. And so here in this view, you can see that now we deducted it. And so we cleaned it. And now we have with 1,755,000 customers, we have now a clean base. because we deducted the O2 TV customers. I think the migration will be finalized during this quarter, but we already deducted them in order to have a clean base. And we also deducted further unprofitable subs. So this brought us to a to the new and clean base. Overall, I think the growth with 152,000 is healthy. And beside this, we could show that we increased the profitability a lot and reached 36 million adjusted EBITDA, besides this nice growth. Excellent. On the next slide, you can see our priorities and the guidance for full year 26. Our focus areas are to strengthen the Freenet brand. We will keep investing into our brand, into performance-based brand marketing campaigns. We have experience with it. It's important to have a clear branding and messaging impact of our campaigns And then we will further develop our customer base value management and work on our initiatives. We will further optimize the conversion rates on our websites. At the moment, when you go to freenet.de, you can see that we moved the domain. But there's still also a lot of room for further improvements in terms of user experience and page speed conversion rates. So we are working on this. There will be further updates. in the next month, which will also lead to further safe potential. And we will keep integrating the mobile zone channels. We work closely together with the teams. We will also re-accelerate the Weibull TV growth and the customer base. So we see potential in the market. We see potential through the product. And our objective is to become the AI telco company in Germany. So we started our projects in the customer value management, but we will also roll out AI tools to all different areas. For us, it's really important. We see that this is a huge chance. Our guidance for 26 in terms of post-based hubs, moderate growth, I said that we have many opportunities here, but here for us it the RQ, the quality is more important. So I think we showed that we can grow, we can outgrow the market, but for us, quality is more important. And post-paid RQ, we expect still a moderate decline because of the impact of the customer base. However, we believe that the pricing for new customers, that we are quite confident. And by BOOTV, we expect noticeable growth. With that, I hand over to Mr. Arnold.

Thank you, Robin. So I start with the group financials. So to be honest, at the beginning, I am disappointed by the figures. especially because there's one effect. I think all the figures are quite fine. The performance was quite fine during the year. And a lot of initiatives, what Robin was talking about, they worked quite fine and quite well. And then there is one effect now, which is a little bit disturbing the picture here, but coming to the details further on. So if we look into the revenues, Yeah, I would say it's nearly stable what we see here. We sold this Wi-Fi business, which was called the cloud. We sold it mid of the year 25. This was an effect especially in the second half of the year. If we look into the Q4 revenues, we see the effect from the cloud, the missing revenues. On the other side, if you remember last year, we saw these IP addresses in Q4 last year, which was a positive effect in revenue of nearly 20 million last year. So, more or less, the miss in the revenues in Q4 is explained by these two reasons. I think what is important that revenues from high margin services continue to grow. Switching to the gross profit. Here, what we see, we see a miss in Q4. But we still see that the gross profit is stable even with the bad Q4. It is stable for the whole year. What are the effects in Q4? I already talked about the phasing of the sale of IP addresses, which took place in the third quarter in 2025 and took place in the fourth quarter in 2024. On the other hand, from the sole business, there was a gross profit contribution last year of something like 5 million. And then Robin was already talking about the effect out of one single M&O agreement where we choose to be very conservative in our accounting. Robin already mentioned that we are in discussions here, especially about a totally new agreement. These discussions are ongoing and as we are here, as you know us, we are conservative, we are cautious, therefore Here in the actuals, we chose to build up a worst case and this is what we all did in the figures starting with 26 into the future. Adjusted EBITDA, here again the reason is especially this M&O agreement. which is a negative effect of nearly 13 million in Q4. What we also saw as a negative effect was this sold business again. The cloud, they generated an EBITDA of 2.7 million in Q4. And so if you normalize by these two effects, it would be a very good quarter and it would be a very good full year deeply in the guided range. Moving to the next page, mobile business. We see on the one hand in the revenue in the quarter that we lost some revenues in the segment here hardware other. It is again this disposal of the Wi-Fi business, but on the other hand, And Robin explained it. We focused or we had to focus in marketing, in online business, we had to focus on our discount brand, Clamobile. And with the discount brand Clamobile, I think this is, as usual, you do not see a lot of bundles. You see a lot of simondes. So what I do expect for 26 ongoing is that with the new brand and we just started with the new website, freenet.de, where we can sell the more premium quality tariffs and where we can sell more bundles, I do expect these hardware other line to increase again. The service revenues here, here on this page not separated the postpaid service revenues which grew slightly during the year. The miss here in service revenues is based on a reduction in prepaid business. So I think there is still a number of something like 1.5 million prepaid customers what we do have. But it is reduced step by step and therefore we see a reduction of revenues here, but unprofitable revenues. Gross profit in the mobile business. Here you see it even clearer, the effect from the conservative accounting of the M&O agreement. Without it and without the effect from the sold Wi-Fi business, we would be in the quarter, but definitely on a yearly basis, we would see at least a stable gross profit. Adjusted EBITDA, again, the same reasons here. I think without the special effects, we would be near to the level much nearer to the level what we saw last year and we would be deeply in the in the guided range so moving to some kpis of the postpaid business robin already talked about the the growth in the postpaid business so i think it it was a proof of concept in the fourth quarter especially in the fourth quarter where we generated this high figure of new customers but i think also for the full year um so but just to make clear here and and i read it from also some of our competitors but for us definitely um this is uh this is a top priority here for for generate customers and to have the priority value over volume. So in the first quarter, I do not expect a comparable figure to what we saw last, the Q4. But I think this makes a lot of sense because in the middle of this chart, we see the ARPU and Robin already talked about the base effect. We are happy that the ARPU of the new customers could be stabilized and even increased in the last month and this is also what we focus on in the first quarter. We try to increase the prices. We would like to have a turnaround here in the ARPU situation, but during 26 It will stay difficult because of the base effect, but I think we are so happy that on the new customer side it was possible to stabilize it now. Digital lifestyle revenues are stable compared to last year. TV and media. Yeah, definitely a success story with VipoTV. Here, this is a page which definitely makes the CFO happy. All figures could be increased, higher revenues, higher gross profit, higher EBITDA, everything inside the range, what we guided. even at the upper end of the range, the EBTA. So I think it's a very good picture. It was possible to prove that WIPO could not only grow, but could also generate relevant EBTAs. And so I think it's really a success story what we see. On the next page, financial structure, think it's no changes to what we had in the other quarters. Still a very low leverage, a very healthy balance sheet. If you see the debt maturities, it is obvious that we do have to do a refinancing in the first quarter. I think we postponed it to April. It's It's no reason by market or that it would be difficult. But we will place promissory notes. We just started the process with the banks. So refinancing will take place. And I'm optimistic that it will be possible with similar margins what we saw before. Free cash flow, I think we came in I think the EBITDA was lower than expected in our last call because of the now known effect. But all the other buckets are near to what I forecasted during our last call. Networking capital, I think I forecasted minus 45. We came in a little bit better. Texas, I forecasted 60, now we 4 million better, 56. On the capex side, we invested, especially on the AI side, we decided to invest some additional capex at the end of the year. Lease as forecasted and also interest nearly as forecasted. And then we have to deduct these 12 million here from the sale of this Wi-Fi business. As you know, we generated sales, we generated a price of 40 million. So this was the cash-in. We are not allowed to show the cash-in in our free cash flow based on our definition. Out of these 40 million, 12 million was relevant for the EBITDA, but we reduce it here again. But the cash is in the company, definitely the 40 million. What we also did, to be fair to our shareholders, and we know that a lot of shareholders are shareholders because of our high dividends. And there were some payouts in the second half of the year because we reduced the number of board members here. And then there were some compensation severance payments. which were necessary in the second half of the year. Yeah, it was linked to LTIP programs. This is correct on the chart, but it were compensation payments. And in a normal world, we would not have to pay them in the second half of the year. So therefore, we corrected this figure. And after correcting it, we are on a free cash flow level above 300 million and on this level the calculation of the dividend is based and we stick to our promise to pay 80% of our free cash flow as a dividend. This is a calculation now and this leads to 2.07 and the 2.07 euros will be also proposed to our AGM and I'm of good mood that they will support it there. Then on the next page, the guidance for 26, I already said that what we built up here in the guidance and also in the ambition for the years We built up a worst case from this agreement with the network operator where we do have a problem now, where we do have the discussions. And therefore, in the guidance 26 and also in the following years, there's a negative EBTA effect of 50 million, 5.0 million from this topic. And therefore, I think on the first view, the figures may look disappointing. But if you put this into consideration, I think it is clear that basically we believe in the business. We stick to what we promised. And we are, for the underlying business, we are still very optimistic. It is only this one problem what we do have at the moment. And so we showed in the actual EBITDA of 515 million. You have to add 25 million for mobile zone, then you would have 540. But on the other hand, you have to reduce the difference from this network operator agreement. So we already had 13 million in 25 in the figure of 515. And so in addition, there's something like 37 million. This is a negative impact. And so therefore, we see 500 to 530. on an EBITDA level and free cash flow is corresponding to this. As the free cash flow may be a little bit disappointing, we would like to give some certainty to our shareholders And to make very clear that we believe in the business and that we do not see any negative signs in the business and in the underlying business. And therefore, we decided to promise to pay at least two euro as something like a minimum dividend for the years. 26 to 28, payout 27 to 29. But definitely if the 80% of the free cash flow, what I believe today, if it would be higher than the 2 euros, definitely this rule is still valid. So maybe these explanations to the guidance here, hopefully helpful. Then I would hand over to Robin again to discuss the ambition, what we renewed.

Yes, thanks Ingo. So we updated our ambition. We have our two pillars, the mobile business and the IPTV business. mobile. I think we have a healthy market share. We have over 8 million postpaid customers. The big advantage is that we offer all networks. So now we also offer one and one. I think that's a very good value proposition. We have a multi-brand strategy and we have strong sales channels. We have our own shops around 500. We have exclusive a partnership with MediaMarkt Saturn and we start brand marketing and TV. We do connected TV. We have many affiliates, online partners, offline partners. We acquired a mobile zone. So this really like gives us a very strong footprint in the market and I think it's a very strong position. So we will and I mentioned it before, it's not only the new customer growth or the new customer potential that we see through our strong offerings, it's also the improvements in our customer base, and we want to reduce churn, so all of that, and let us believe that we have a potential to grow here, stable business, it's healthy. And in our second pillar, the IPTV business, we have a a product that is really outperforming the market, very strong, very good reviews. So we have a nice market share there as well, highly recommended. And we believe that the market will further grow. And so the customer base will grow. On the next page. Yeah, so you can see our plans. to become leading AI telco in Germany. Our big advantage is that we are the smallest. So we are much smaller than our big partners and big competitors. And so I think that's an advantage. So we have a flat hierarchy. So we are very strong in decision-making. We can make decisions very fast and we are doing this. So we did this as a customer value management. So this was This was started last year. So this month we already bring the first AI tools and agents live. So we're very quick here. And we do this in all different areas in the company. So we have customer care, customer base management. Then we also bring our AI tools to our shops. So as I mentioned, we have around 500 shops in Germany and the tools that our people there use they will get new tools so that they will get information which are they will get AI information and this will make the user experience within the shops and the experience for our sales people much better and hopefully also increase conversions. We also keep investing into our staff so we have our people here they are they are able to adapt quickly. So they have, I think we have many, many growth mindsets here. They are able to, to, to, to change. And, um, yeah, so this is, I think whenever you do something like a transformational company, 70, 80% is, is, is people. And here we are, I think where we strong. So, and yeah, besides this, this big lighthouse projects, um, we apply AI wherever. And we can do this. So for example, when you look about or when you think about creatives, how to produce creatives for your advertising campaigns, we want to use AI. And when you look into mobile, so I mentioned it, we have a strong customer base. We have strong offerings. All networks makes a lot of sense to come to Freenet. and to buy products there, and we improve our customer value management. We use AI, and this will lead to a reduction in churn, and we will also increase our sales after service. So when people call our hotlines and they have a service request, we help them after that. We will also start to do more sales after service and sell family cards, for example, or Waipu TV. And customer acquisition. So it's a premium strategy that's important for us. We will focus on freelance on our premium brand. And when you look into unaided brand awareness, there we are around 10%, which is very low. We are our competitors like one and one. They are, I think, around 50 or even higher percent. So there we have a lot of room to grow. and we will close this gap by investing into smart performance-based marketing campaigns. We know how to do this. We already tested this with Clarmobile last year and those campaigns were very successful. We really saw a nice sales impact and also And then that's important. So whenever we do brand marketing, invest into TV, we do this with a clear sales approach. So we produce our creators always with a clear focus on a product, on a price, which drives sales. So this is a combination of performance and brand. And yeah, so also when you look at our websites, so they are getting better step by step, but there's also a lot of room for improvements. our conversion rates have become or we already have improved them a lot, but there's still a lot of room for further improvements. This will also help us to further increase performance here. Therefore, we see a potential to an uplift of 30 million by 28. Next slide, IPTV. Waipu TV is a success story, very strong customer base, strong offering. And besides this, also the advertising business within Waipu, it's growing very strong. We see further potentials. We have strong partners here and we believe that we will further grow our subscribers and we will further grow subscription revenues, advertising revenues. And all of that, I think, is really a huge opportunity. And we expect an uplift of 85 million by 28. As I said, here, the market is healthy, our customer base. And we expect that we will grow very nice until 28. This is reflected or this is due to our strong products, the outstanding product, but also through the market development. The market itself will grow. We will grow. Therefore, we are quite confident that we can see nice subscriber growth. And we have strong advertising partnerships with LTA Ecosim. And besides this, we will also grow in our advertising business.