United Internet

Good morning, ladies and gentlemen. Good afternoon. I would like to give you a warm welcome on behalf of 1&1, our CEO, Mr. Dammermuth, and our CFO, Mr. Hoon. The Board will continue to present the company development of 2023 to you within the scope of this investors' meeting. conference. They will tell you a bit more about the forecast for 2024 and some updates on the network expansion. Afterwards, as always, the board is available to answer your questions. Thank you. And now I'd like to hand over to Mr. Dommermuth. Thank you, Mr. Kyle. Hello, ladies and gentlemen. Welcome to today's conference. I'll begin with the company development and then I'd go into a little more details on our biggest and most important investment into the one and one network. Mr. Hoon will then follow with the financial key figures. You know our company. We are dealing with broadband connections and with mobile Internet connections. We currently have 4.01 million broadband connections based on VDSL and FTTH. We produce it mostly with our sister company, 101 Versatel, using city carriers or the Deutsche Telekom for the connection. Besides that, we have 12.25 million mobile contracts, so customers. We have launched the first open brand in Europe, which is fully virtualized. We have a broad market coverage with a number of different brands. We have our primary brand, 1&1, and then, of course, our co-brands, Gmx and Web.de with the co-brands, and then discount brands that we've taken over through acquisitions. Last year, customer contracts have increased by 3% to 16.26 million. This was mostly driven by the mobile internet growth with 570,000 new contracts for broadband lines. We've had decreases in our customer base in the first three quarters of 2023. It has stabilized in the last quarter of 2023. We have now 4.01 broadband lines, which is 90,000 less than in the previous year. Why has it stabilized? We have made progress in our migration from ADSL to VDSL contracts. ADSL is the old technology, has a higher termination pressure than VDSL and glass fiber connections. We have made good progress on this last year. The fourth quarter with 150,000 mobile contracts and the stable broadband ownership was a good finish to the year. The revenue has increased by 3.4% last year. Service revenue increased by 2.1% to 3 billion 243 million. The business with hardware, specifically with smartphones, has increased by 8.3%. But you all know that it's a quite low margin business. Good fourth quarter here as well, 4.5% service revenue increase. And this means we're on track for the new year and for the growth that we have set for ourselves for 2024. EBITDA in the access segment, so in our old business model, so to say, has increased by 5.4%, raised to 786 million. In the one-on-one mobile network segment, where we're operating our own network, we had startup costs of 132 million euros, 80 million more than in the previous year. We're billing it internally that services rendered in the 101 mobile network segment are billed to the access segment. And these are services that we usually would purchase in the access segment. This allows us to see when we cover our costs with our network connections and when it is more profitable than purchasing external services from external network providers. In sum, we're in line with our planning. For CapEx, we're looking at 295.6 million for last year. The major share was for the expansion of the network. And all of that is in line with our expectations. You can see the main KPIs here, 3% more customer contracts, 3.4% more revenue, of which 2.1% in the service revenue area. EBITDA decreased by 5.7%. On the one hand, we've seen growth in the access segment with 4.5%, and on the other hand, we've had higher expenses in the network segment. with 132.4 of course that has an impact on ebit as well we've had ebitda that was lower by 40 million and of course that will have an impact on ebit and ebit also includes depreciations that will be that will be um explained by mr hoon later on Dividend proposal to the Annual General Meeting has remained the same, €0.05 per voting share, which is the minimum dividend that we have to pay according to Section 254 Shareholder Act. Overview on our big investment, the Open RAN network on December 8th, 2023. We have given access to mobile services, so it's fully operational right now. Our network is fully operational. You know the architecture of our network. We're planning to operate four core data centers, 24 decentralized data centers that are positioned around the core data centers, and over 500 regional edge data centers. These regional data centers will be connected to antennas, and one antenna is never further away than 10 kilometers from a regional data center. We're planning more than 12,000 antennas in order to cover as many households as possible. That's our target to achieve by 2030. To give you an idea of where we're at right now, of the four core data centers we're currently operating to, the other two will be operational in a couple of days. The 24 decentralized data centers are all operational. If you look at the regional data centers, we are currently operating more than 100. I will get to the antenna locations in a minute. What does our network look like? What does the Open RAN technology look like? It's mainly three factors. First of all, it's an open system. We have roughly 80 partner companies that support us with or have supported us when it came to the expansion of the network. We have standardized interfaces that allows us to combine software and hardware, and that makes us independent of the dominant manufacturers that usually provide complete networks or large parts of a network. The second factor is that we're ready for real time applications. The far edge data centers and the regional data centers, we cannot only control the antennas, we also have space for application computers. If we need to operate applications from these data centers we have a speed of three milliseconds and only 2.5 milliseconds are actually required for a glass fiber connection so we have a good speed to get the connection where it needs to be And the last aspect is the low electricity consumption. We save roughly 10 to 30% of our electricity. How do we know that? We've measured our electricity consumption in January and then we compared this to traditional networks. There was a study that was conducted on this and our result was confirmed by this study. Looking at antenna locations, we're making good progress. On the left-hand side, you can see the antenna locations that are available to us. By the end of 2023, it was 1,062. At the end of this quarter, it will be roughly 1,350. These locations are passive infrastructure. It's co-location on an existing location or a completely new location. and then we need to install antennas in these locations and we need to connect those to the fiber optic. 243 locations were equipped with base stations by the end of last year. By the end of this quarter we will have equipped 600 locations with antennas. Of these 600 locations, 200 locations will already have been connected to glass fiber. So you can see our funnel very well. First of all, we need the location. It can be a rooftop location or a mast location. That's the bottleneck, so to say. And once we have the location, we need to equip it with the right technology and then it needs to be connected to glass fiber. In terms of construction speed, that's a disadvantage of our architecture because we connect all locations to glass fiber. We would be a little bit faster if we did it a bit differently. We could run our location straight away, but now we are connecting it to glass fiber first. This requires some construction works to be done, some construction permits, and of course that extends the duration of the construction time. Also, it depends on a couple of factors on the complexity of the construction and also on how long it takes for us to gain the permit. But once we have taken over the location, so that's the graph on the left hand side again, once we've taken over the location, the implementation is up to us. We can ask subcontractors to install antennas, and we can use different subcontractors when it comes to connecting it to the glass fiber network. So we're quite optimistic. We want to have more than 3,000 locations by the end of the year, and we also want to fulfill the requirements of the Federal Network Agency. we were given some requirements to fulfill by the end of 2022 which we did not manage but we are optimistic to fulfill these requirements by the end of this year that would be it on the course of the business last year and on the status of the network expansion and now i will hand over to my colleague marcus hoon who will tell you more about the financial key figures Hello also from my side. I would now like to continue by presenting the financial key figures of last year to you. I would like to start with the earnings and profit and loss statement. Here you can see our revenue from last year with almost 4.1 billion. Mr. Dammermuth has already mentioned this figure. Cost of sales have increased in um 2023 to 2.937 billion that's a plus of seven four percent this includes the startup costs and depreciation for the one and one mobile network last year they were at 166.8 million after 40.9 million in 2022. gross profit is has therefore increased from 1.229 billion to 1.159 billion, mainly due to the additional costs of the network expansion. We have also included the gross profit without this um these costs where you can see that is increased from 1.7 billion which means a plus of 4.4 percent so if 1.27 billion to 1.3 point 1.3 to 5 million billion. We've had higher marketing expenses, among other things for online marketing. We have administration costs amounting to 115.6 million, which is also slightly increased. This is due to expenses for the one on one mobile network. which are built partially also under administration costs. Other operating income and expenses were at plus €31 million, slight decrease compared to 2022. The impairment losses on receivables and contract assets were at €105.4 million, also a slight decrease compared to 2022. This decrease is partially due to lower corrections to payables that amounting to 6 to 7 million euros. On the other hand, we have higher corrections on assets due to a higher contract volume because we are currently further building up billing according to IFRS. Profit was therefore at 455.8 million euros compared to 534.9 in 2022. Tax expense. financial result was also positive 9.1 million compared to minus 3.4 million. Profit before taxes was at 465.9 million euros. Previously it had been at 531.5 million euros. So here you can see the effects from the ramp up costs of the mobile network. tax expense follow the profit before taxes they have decreased from 164.2 to 149.9 million euros therefore this brings us to consolidated result of 315 million euros for the financial year 2023 I will continue with the balance sheet. Balance sheet has significantly increased from 7.257 billion to 7.740 billion. There are three different reasons. If you look at short term assets. We have a decrease of roughly 70 million euros due to higher trade payables and higher inventories. Long-term assets have increased by roughly 420 million euros. Two reasons for that. On the one hand, our prepayments to Deutsche Telekom for the contingents from the VDSL contract last year this was billed at 210 million euros in this balance sheet and then also our investment in assets for the one and one mobile networks they are also included in the long-term assets and have increased by roughly 200 million euros short-term liabilities have also increased compared to the previous year roughly amounting to 60 million euros Long term liabilities are roughly at the same level as in the previous year, and due to the positive result, equity has increased by roughly 300 million euros. will continue with cash flow net inflow from operating activities were at 225.6 million euros so we were above the 182.9 million euros from 2022 they include 488.8 million cash flow from operating activities a negative effect from the change in trade receivables so increase in trade receivables amounting to 88.3 million euros What I would like to mention is roughly half of that are receivables that are no older than five days and that have simply been billed after the date this balance sheet was created. so by the end of December 2023 they have contributed to this increase in receivables then we have changes in inventories amounting to minus 57.6 million euros here by the end of last year Apple and Samsung we have purchased more from Apple and Samsung therefore and we have sold these assets by the end of by the beginning at the beginning of this year therefore this inventory has further decreased changes in receivables from and liabilities to related parties had an effect of 73.3 million negative effect of 400 249 million euros from change in accrued expenses these are the prepayments to deutsche telecom from the contingent contract that I already mentioned. Other items from working capital have an effect of plus 58.4 million euros. Cash flow from investment activities was at 125.2 million euros. compared to 95.1 million euros in 2022. It includes 295 million capex. This includes mostly the expansion of the mobile network. 155 million euros were Gained from the investment of free cash with United Internet were taken out from that investment and we had interest received amounting to 15.7 million euros specifically from the cash investment at United Internet. Then we get to cash flow from financing activities. That was at minus 101.8 million euros after minus 87.7 million euros in 2022. It includes 12.1 million euros payment in connection with leases, 8.8 million in dividend payments, 61.3 million repayment of liabilities from the 5G spectrum, 14.9 million other payments of an interest nature and 4.7 million interest payments from leases. This brings us to a free cash flow of minus 70.1 million euros by the end of the financial year. We're roughly at the same level as in 2022, where we were at minus 62.1 million euros. On this slide, you can see the bridge from the EBITDA to the free cash flow. We're starting at 653.8 million EBITDA. Then we have receivables and other assets amounting to minus 88.3 million euros. Furthermore, inventories amounting to minus 57.6, deferred expenses at 249, minus 249, receivables and repayables from related parties with 73.3, other working capital with 30 million euros, then tax payments at minus 136.7 million euros and capex amounting to minus 295.6 million euros this then brings us to the minus 70.1 million euros of free cash flow let's now continue with the outlook for the financial year of 2024. Service revenue, here we expect revenue growth of 4% to roughly €3.37 billion after €3.24 billion in 2023. EBITDA is expected to grow by 10% to roughly €720 million after €653.8 million in 2023. of these 10 percent we want to gain roughly 880 million euros from the access segment which would be a plus of 12 percent and we expect a minus of 160 million euro startup costs from the mobile network segment this would be an increase or let's say higher expenses or lower result of roughly 20 million euros compared to 2023. And then cash capex will be at roughly 380 million euros after 295.6 million euros in 2023. This is mainly driven also by the mobile network expansion. Maybe some remarks on the development of the contract customers or customer contracts. We expect a growth in customer contracts on the same level as last year. Due to the migration into our own network, we will, however, lose some customers that are hard to quantify. We're expecting something of 200 to 300,000 contracts. So our net growth minus this effect of the customer migration will roughly be at 200 to 300,000 contracts in 2024. Thank you for your attention. And this now brings me to answering your questions. Thank you very much. Let's start on the left hand side Bank of America Titus and then Societe Generale after that, please. Thank you, first of all, for the presentation, and thank you for the opportunity to ask questions. First question, in regard to the 200,000 to 300,000 additional losses in contracts, could you elaborate on that a little bit further maybe? Will these be high quality contracts and what effect will that have on the revenue and what will be the reason for those connections to be switched off for us to lose these or for you to lose these contracts? Second question on white spots. Last week, in the last two weeks, the German press has reported on this issue. Also, in regard to the payments of the spectrum costs, could you please give a statement on that? What is your perspective on that? What should we think about this issue? Thank you. On your question on the contracts that will be lost within the context of the customer migration, it is difficult for us to estimate the size, the scope of this effect. But of course, we have contracts in our inventory that have a relatively low usage. where we will have the situation that the customer decides to no longer use this contract within the context of this migration, or we will no longer be able to reach the customer. This will mean there is a possibility of extraordinary contract terminations. We see a relatively low impact on our result and on our revenue because those are rather old and less valuable contracts. I've prepared something for you. I'm quite proud because I have a backup of this presentation. I said, well, if somebody asks, I have something to actually show them. Because we have, of course, read this article that you're referring to. And it makes sense to shed a bit of light on this. First of all, 1&1 was not a participant in the 2018 Mobile Summit. Nevertheless, we committed to contributing the expansion of the network in white spots. And in return, we promised to invest the interest advantage that we've gotten from the deferral. We were at the time back then where we had rather low interest, 0 point something percent interest rate. So you can see that this amount was not large, but it was a significant amount. This amount would have meant that we could have constructed roughly 410 allocations. but this 400 based on the assumption that we would have mainly rooftop locations. Rooftop locations only costs a small percentage of mast size. you have antenna heights of 10 meters, sometimes higher without needing a specific permit. A mass location is sometimes 40 meters, more than 40 meters high, consists of concrete and therefore needs more complex permits to build. Since we don't have any low band frequencies and because it is here about connecting white spots to the network, so about connecting rural areas to the network, it was said, well, you construct the location and then you provide it to Telecom, to Telefonica or to Vodafone. then they will use this location we simply construct the passive infrastructure therefore we're booking these costs as interests i think that's right right mr hoon is that correct yes the costs for these locations are part of our interest results because they are an equivalent to interests Why did it take longer than planned? Well, Telekom, Vodafone, Telefonica has almost exclusively chosen mass locations, only a handful of rooftop locations. Therefore, the price per location has become a lot more expensive and that has turned 400 locations into roughly 130 locations that you get at the same price. we have a fixed investment sum. We didn't look at locations. We looked at a set amount in euros. And if one location becomes more expensive, then we can construct fewer locations. It has taken us until Q1 2021 for us to be clear on where these locations are to be built. And now all of these locations have specific requirements. Because if they didn't, the others would have already constructed them a long time ago and wouldn't have to save them for us. But that was the deal that we struck. Therefore, we have struggled with delays, which are completely usual when you deal with these white spots. I have here copied a text from the Telecom because Telecom is usually trying to make it well known that we're lagging behind when it comes to these white spots. And it's a text from the end of 2023 that they've released within the scope of the Federal Network Agency consultation. You can read it on their website. And they wrote that in rural areas, the planning processes usually take at least four years already when under optimal conditions and of course we can make the impossible possible and we can do it in four months if telecom says they usually can only do it in four years. Therefore these mass locations are very difficult to build. Where are we at now? 130 locations will be able to be built with the investments that we have available. of these locations 48 have already been finished that's a dark blue column that you can see on the slide further 50 are currently under construction and will be finished in the next upcoming months For 32 locations, we're still waiting on the building permit. So we have already, the plot is already available. We have already leased the plot, but the permit processes are highly complex and these processes are still ongoing for 32 locations. Once this is complete, the location can be realized or the construction can be realized within roughly six months therefore we think that we're actually doing quite well when it comes to this expansion because 400 rooftop locations or almost 400 rooftop locations has turned into 130 mass locations and we need highly complex permits um procedures for that. There are also some environmental factors playing into that and all of these permits simply take a lot of time to be granted. Now you asked what does that mean for us? And I'd like to tell you it doesn't mean anything for us because all of this has already been put in contracts. In our contract back in the day, we made sure that delays that we don't have any control over don't mean that we cannot fulfill the planned timing. All of this is reported to the responsible ministry with an exact list of all locations with a status per location. There's complete transparency in this regard.

Thank you very much for that question again. The slides had been prepared for that. Thank you very much. Three short questions. On Rakuten there was press coverage. Rakuten is not in a general entrepreneur anymore and that was risk management issue. Could you elaborate on that? How did your relationship change in the meantime? Second question on the network structure. In the past you often mentioned that the structure you have allows you to differentiate yourself from other providers in the market through your product mainly. And I think that probably applies to the B2B segments. Within what time do you think you'll be able to convince first customers of this? There are two follow up questions, of course. because the other network providers will move into the same direction and one-on-one has been delayed in their network expansion. So then the question is when this will turn into a profit for your business. And then third question, you had higher startup costs compared to the guidance for 2023. And lower capex, on the other hand, could you explain why this differs from your original forecast? Okay, let's start with Rakuten and our business relationship. It hasn't changed at all. staff in our press, someone from our press office felt the need to edit a press release where it said that Rakuten is our general contractor and that something had changed. And then some media outlet decided to put that into an article saying that Rakuten is not our general contractor any longer. And that's not true. There are no differences or changes in our contracts at all. Rakuten remains to be in charge, is in charge of building the network for passive infrastructure. We are responsible for high mass, for connections, for the provision of data centers. We are in charge. But orchestrating our partners and their working together, that's up to Rakuten. The individual services are always part of our ownership that's why we have the capex and depreciations but until the location is built and the we are planning to put into operation data centers 3 and 4 and all that is up to Rakuten. They make sure that these data centers work and once they are in operation they are ours. So we benefit from Rakuten's experience of the past years in the open RAN area and only with that we were able to operate at such speed. Then you mentioned other mobile network providers who are moving in to the same direction. I have not actually seen that. I haven't seen other mobile network providers building data centers 10 kilometers away from their antennas. That's news to me. Yes, they are also doing Open RAN, and that's definitely a future technology, I agree. But differentiation in real-time applications is not something I have seen in Germany so far. So I think we are at the forefront here. which doesn't mean that you could also use applications at other data centers. I think Vodafone has four data centers in Germany currently. You probably know that better than I do. So where do we want to differentiate? That's definitely B2B, or you said that's definitely B2B, but I disagree. We will differentiate when it comes to consumers because we will have DNS servers in the regional data centers or also because we'll have regional servers data centers where we can cache content. Contents that are opened regularly at the same location. We can cache them there so they don't have to travel through the internet anymore. Then a video on demand. There are providers that have a huge library but The consumer will not open all of them at the same time. They will have some popular videos they use all the time. So we are thinking about opening these from the regional data centers. So these are just some of the ideas that we have. Then you asked about our timeline. And I don't want to upsell here. Our network does have the opportunities. But an old colleague of mine always said that it's about standing, walking and then running. So it's good that we're talking about these issues today because a few months ago we were discussing whether this could even work. with hundreds of thousands of millions of customers. How could that work? Now we have 500,000 additional customers. We have the first existing customers using the system and we're happy that it's working. So for now, I would make sure to put the data centers 3 and 4 into operation and then make sure the migration works. We want to increased to 50,000 customers per day. That's our maximum capacity. There is a company that will take care of the phone numbers, importing the phone numbers too, and the maximum capacity for that is 50,000 per day. But that's quite an enormous amount because that's a million a month. So these are our current challenges. So as I said, putting into operation the core data centers, making sure the migration processes work. And it's not that easy because some customers have an eSIM card, others have a normal SIM card, then they have different smartphones. Others may have smartphones that are lacking the newest software update. So there are many issues making this very difficult. So this is our focus for now. And then after that, we'll take the next step. Let's come back to the last question, the expenses for the mobile network that were higher than expected last year. It's mainly expenses within the tests that we had to do that were higher, device testing in particular. We may have underestimated that in the beginning, but we had a high approach to quality here. we wanted to identify all end devices in our customer base and test them and certify them. It's not possible for all legacy devices, of course, but that was six to seven thousand end devices that we tested over the past months with our network in order to be sure that they would all be working and also to know what legacy systems wouldn't be working so that the customer can be informed. That was the main driver of the higher expenses in the last financial year. Let me elaborate on that and give you a sales pitch. if you have an old phone it doesn't mean you can't use our new network we will give you a new configuration for your phone and then you can still use it and i think only four percent of the phones will not work we can we can update 96 of all phones online and for the last four percent that's long tail our core data center will need to help customers with manual configuration of the settings and if it doesn't work at all we'll provide a new phone to the customer. So we're doing everything we can. Rakuten, when it came to the launch of the network, they didn't have an Apple certification. It took a long time for Rakuten to be able to use Apple phones in their network. We had our Apple certification from the first day. We had six and a half thousand tests that are expected by Apple before you receive your certification. Or Dish in the USA, I don't want to give you any wrong numbers, but I think Dish started with four phones. And we are starting with our existing customer base, all older legacy phones that our customers have. And we are confident that we can completely migrate them to our new system without losing any essential data. And of course, that cost high expenses in the last year. Next question will go to Politan. But I had another question. We are asked whether for the fine by the federal network agency that we are expecting, we made any provisions, and if so, how high. Mr. Demmermuth said in the last quarter that we had provisions and that they will not impact our forecast. We didn't give any detailed number in the past. Yes, we do have a provision from 2023 and we think that it will be sufficient, but please understand that we will not give you the exact amount here today.

Yes, just have three questions. Can you give an update on the Vodafone national roaming agreement? So when can we expect a final agreement and are you on track to have it operational by October 2024? Second question is, what is your expectation for when the BNets will come to a decision on the allocation of the 800 MHz spectrum? And what happens if you do not get 800 MHz spectrum? Third question is on the recent appointment of Pascal Greider, the former CEO of SALT has joined one-on-one. Can you clarify what his role at the company will be? Thanks.