United Internet

Hello and good morning everybody. I'd like to welcome you to our Q1 2024 analyst investor call. My name is Dominik Grossmann. I'm responsible for investor relations at United Internet and here with me today I have our thief or Ralph Hartings. Briefly about today's program. Ralph will first take you through our presentation with the business development in Q1 and will also give an outlook for the rest of the year. Afterwards, we will be happy to answer your questions. So far from my side, Ralf, please go ahead. The floor is yours.

Thank you, Dominik, and also a warm welcome to our webcast on our three-month figures 2024. Let's get into our numbers. On slide two, we have summarized our major KPIs for you. Our customer contracts increased by 200,000 to 28.65 million in the first three months of 2024. Our revenue increased by 2.2%, to 1.565 billion euros. EBITDA increased by 7.3% to 342 million. However, it is important to note here that we have already invested more than 42 million in our rollout of our 5G mobile network in the first quarter. Our EBIT declined by 0.8% to around 187 million. In addition to the explained negative effects on earnings, this was due to higher depreciation and amortization as a result of investments in the rollout of our fiber optic network at 1&1 Versatil and the rollout of the 1&1 mobile network. This increase in depreciation and amortization is to be offset by gradually increasing cost savings from this year onwards. EPS decreased from 0.43 euros to 0.35. This was due to a reduced EBIT and a lower equity result from our minorities, as well as the increase in interest rates in general. I will continue now on page three. Let's now turn to our segments, starting with consumer access. In this segment, we increased our contract portfolio by a total of 40,000 contracts to 16.3 million year-to-date. Mobile internet contacts increased by 40,000 to 12.29 million, while broadband lines remained stable at just over 4 million. Page 5, revenue in the consumer access segment increased by 0.3%. to 10.024 billion. This growth was attributable to the increase in service revenues, which rose by 4.2% to 821.9 million. Hardware sales were slightly weaker, which is due to a strong prior year quarter, where some spillover effects from Q4 2022 were a major factor. The access sub-segment increased its EBITDA by 11.6% to around 225 million, while costs for the rollout of the mobile network sub-segment rose by more than 23 million in absolute terms. On page 8, let's take a look at the business access segment. where we were able to increase sales by 4.1% to around 142 million. EBITDA in the segment increased by 1.4% to 35 million. The high-quality expansion of our own fiber optics had a positive effect on EBITDA development as expected, despite the startup losses from the new 5G business area at 1&1 Versatil. At a comparable EBITDA taking the startup losses like for like to EBITDA growth amounted to 5.7% despite higher investments in Q1 2024. Our EBITDA margin remains almost stable at 25%. Let us now turn to consumer applications. On page 11, accounts in the consumer applications segment decreased by 670,000 from December 31, 2023 to 42.06 million due to seasonal factors. The decline resulted from a 730,000 decrease in free accounts, while pay accounts, i.e. paid contracts, increased by 60,000 contracts to 2.86 million. On page 12, we are looking at revenues in this segment. We increased sales here by 13.4% to 71 million in the first three months, mainly driven by our paid users, as well as a positive development in the advertising market. These figures do not include energy and the email, which you will also find on this slide. Our EBITDA increased by 20.2% to 23.8 million, both the price increase in pay mail as well as the increased number of paid subscribers delivering a 20.2 year-over-year growth rate in Q1. For the full year, we expect to see good revenue growth, increasing profitability. However, we intend to invest into future growth of existing and new data-driven business models. On page 14, in the business application segment, we increased our contract portfolio by 100,000 contracts to 9.49 million. The increase came mainly from our operations abroad. Revenue in the segment increased by 5.4% to 373 million. The increase resulted from strong on web presence and productivity and cloud solutions. In Q1, CEDAW's low-margin aftermarket business seems a bit weak, but this is just a phasing effect due to an underlying product change. Excluding the aftermarket business, revenue growth is amounted to 12.8%. EBITDA and the business application segment on the other end increased by 24.3% compared to the previous year to 101 million. The operating EBITDA margin rose accordingly from 23 to 27.2%. Right, let's go to page 17. So much for the segments. Here we have summarized the most important KPIs for the group once again and added a few more. We've already covered revenue in EBITDA. Our capex amounted to 140 million after 145 million the previous year from the investments in our fiber optic network and one-on-one versatile and rollout of the one-on-one mobile network. As you can see, we have slight phasing in Q1 due to unpaid invoices, which totaled 60 million. We are therefore maintaining our capex forecast for the full year. Our free cash flow, more on this later, amounted to a negative 142.9 million, primarily driven by our investments. Previous year, 4.1 million, including a phasing effect from 2023 of 104.3 million. Our net liabilities to bank increased slightly by 7.3% to now 2.615 billion. Our equity ratio was broadly stable. Slide 18 shows you a bridge from our EBITDA to free cash flow. The largest item here is our capex of $140 million as a result of investments in the network rollout. Furthermore, we have a phasing effect from Q4 2023 and taxes of each roughly $100 million plus additional VAT payments of $53 million. including working capital of 46 million. This results in free cash flow of minus 102.9 million, respectively negative 143 million after leasing. Finally, a brief word on the outlook. We confirm our guidance for the fiscal year and continue to expect an increase in revenue to approximately six and a half billion. prior year, $6.213 billion. Operating EBITDA is expected to approximately $101.42 billion. CAPEX, excluding any M&A transactions, is expected to increase by 10% to 20% above the previous levels, in particular as a result of the network rollout and the extension of our fiber optic network and additional expansion areas and for connecting mobile antennas. Given that we have issued the guidance quite some time ago, I currently would expect our CAPEX guidance more at the lower end of the provided range. So much from our side and we are now available for any questions you may have.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. We will take our first question. Your first question comes from the line of Paulo Tang from UBS. Please go ahead. Your line is open.

Hi. Thanks for taking the questions. First one is just really about spectrum and your mobile network build. So if you don't get access to any low band spectrum, would your mobile network build plans change in any way or would they continue as normal? I actually asked this question on the one-on-one call earlier, but it sounds as if nothing would change, even if one-on-one would not get any low band spectrum. So I just wanted to clarify this point. Second question is just given the recent outcome in Spain, what is your view on whether mobile consolidation is possible in the German market? And my third question is really about use of cash and the structure of the group. So if there is no spectrum auction in Germany, how do you think about use of cash and group structure? So would you consider a spin-off of IONOS? And does a minority buyout of one-on-one make sense? Thanks.

Hi, Paolo, and thanks a lot for your questions. So first of all on spectrum, I think Marcus also made it fairly clear, as well as Oliver, that our default expectation for spectrum is not to not get any access to spectrum in the foreseeable future. And I think you've asked the question whether if we would not get any, which is kind of the worst case scenario that could possibly be, think the team confirmed that, you know, we still have got our obligations, which we are, you know, in the need to fulfill as currently things stand. Now, I don't know. I'm not the Bundesnet's again tour so i don't know if you know they're willing to change things or not but as we stand here that's kind of our our current view um with regards to consolidation on the german market well i i we don't i don't think we plan on consolidating anyone personally um i don't know if any other people do but i guess you need to ask them then this question and look Never say never. I think it was a Bond movie once called. I don't know. Okay, in all honesty. But I don't see anything pressing happening or anything. So I mean, yeah, I can't tell you. And with regards to use of cash or so, I mean, look, we've got a lot of money to invest because we're building the most modern network in Europe. And I think that's a pretty good use of our money. And should we have more excess money, well, we'll then decide what's best for our shareholders at any given point in time. But so far, I'd say, you know, priority number one for the entire group is to deliver a successful, you know, mobile, most modern network for Europe. And that's it. Okay.

Thanks.

Thank you. We will take our next question. Your next question comes from the line of Titus Crane from Bank of America. Please go ahead. Your line is open.

Hello, everyone. Thank you for taking my questions and for the presentation. Just two topics to touch on maybe. First on the D-mail and energy, which you have now kind of consolidated or split out separately. Could you maybe talk a little bit about your change in strategy there and what are the medium-term plans for the business that would be very helpful? And then the second topic would be on Versatel, where you, as you mentioned, are investing as well alongside 1&1 in the mobile network build, and you spent already 9 million in Q1. First question would be, what should we pencil in maybe for the full year as investment as part of this mobile network build at Versatel? And secondly, there's the conflict between Versatel and 1&1, which I think initially envisaged about 170 million euros in revenues until the end of 2025 and 100 million per year thereafter. Could we know if you're already receiving those revenues and has this outlook been affected in any way by a delay in the network rollout? Thank you.

Hi, Titus. Thanks a lot for your questions. I'll answer number one and two, and then I think we probably, the line wasn't super at the time. Maybe if you can repeat the third time but let me answer firstly on the EN Energy so as you know we've got a new CEO in the business he's had a look at you know all different lines of business and we kind of jointly came up with the management team that it's probably good to focus on less things but do them really well and given that you know energy and the email have been you know energy I mean has been successful from every point of view but it's not high margin business And the email was, you know, the idea to really get email into a, well, I don't know, safe and legally binding medium, which hasn't quite picked up in Germany as much as it was hoped for. So therefore, we've kind of decided to really focus the team not anymore on these activities, but rather going into more future where we believe we can make, you know, higher returns for the company and us. and that clearly is the subscription business as well as the data-driven businesses. One is obviously get advertising yield up, and the other one is maybe enabling e-commerce and things. So that's one to focus on. So that's the first. On Versatile, I think it's $9 million. I think that's for the total year $20 million that we want to invest there. And maybe if you could be so kind and just repeat the last question because I didn't quite get it.

Definitely. Yes, and thanks already for these answers. But just on your contract between Versatil and 1&1, which I think initially was envisaged to provide 170 million in revenues until the end of 2025, and I think 100 million thereafter. Are you already receiving anything on this? And has this changed in any way, given that 1&1 is having a slower network rollout? Thank you.

Yeah, perfect. Yes, thank you. I got it now. So no, not much has changed. Yes, they're receiving already money. And no, the network, you know, slight delay because of the partners that let us down is not impacting that in a significant way. So I think that's what I'm happy to confirm here. Okay?

Okay, thank you.

Thank you. We will take our next question. Your next question comes from the line of Stefan Baezan from OdoBHF. Please go ahead, your line is open.

Yes, thank you. After the strength we've seen in the shares of INOs, are we now in, let's say, at a level where you believe that's a level where you can monetize this stake? Or actually, perhaps, you know, you could be thinking that the contract with the ITs at Bund perhaps might be changing your position on whether IONOS is a non-core asset for the future.

Thank you. yeah so thanks for the question look ionos we really like ionos ionos is really delivering exactly what they promised to deliver they are doing really a great job um so generally speaking for us it's a great asset to have in the group and uh and that's what we uh that's what our current position is on that um with regards to the contract with the government i mean yeah that's great we are pleased that the team was able to to close that. And, and yeah, I think that's just going to be another good one in the books for our, you know, cloud strategy. And, and I think that's the current view we have. Thank you.

And just to follow up, if I can, have you been approached by any possible buyer for a stake in a possible industrial partner?

Sorry, but any M&A kind of questions, I guess I'm just going to say the usual. I mean, no comment at this point in time. So, yeah, so that's it.

Fair enough. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Osman Ghazi from Berenberg. Please go ahead. Your line is open.

Hello, thank you very much for the opportunity. I just had a question on consumer applications. I know that on the last call you had mentioned that a new chief commercial officer has been appointed to run the business. Could you perhaps give an indication of any kind of changes that are happening or expected to happen for the rest of the year and the you know, financial congregation that you expect from this segment, uh, for the rest of this year.

Thank you. Sorry. I don't know what it is, but you probably have, you need to change your tech equipment. You are always pretty hard to understand and, uh, apology. I think you've asked about the new CEO in, in the mailing, the consumer applications business and whether strategy or something has changed. Um, is that correct? And I'm happy to answer. Okay. great yes look no no I don't think I would call it a change in strategy I think we call it refinement and it's always around focus right the day has got so many hours and therefore we here at United Internet we like to you know really get people's attention you know to lesser things but do those great and that's maybe a bit of a simplification you could say and I I mean I've been the CFO there I've worked there for two years I think it's a fantastic asset, which has got an incredible data treasure we are sitting on. I think I've spoke about this before. We've collected 20 million consents of people that we can utilize their data for commercial purposes. We need to harvest that better, and we will. And we've been saying this, I think, for many years now, and I'm now just a year here. at the helm of UI. Um, but it's clearly something we, we, I mean, yeah, I can see big value in. And, and the second one is where we've seen really good success and progress is in the subscription business where we increased prices because we hadn't for, I think, decades, to be honest. Uh, and still we were able to acquire a lot more customers and to attract them, to subscribe to the service, um, with, you know, a few simple tweaks. So I think more focused on that show them there's more value. people get a lot more used to having these little subscriptions every month. Um, that's another strategy we want to pursue. And, uh, we believe that with Michael, we've, uh, we really able, we were able to, um, hire somebody very, um, smart and good. So, um, we have lots of hopes. Okay.

Okay. A good ground to follow up perhaps just on the, uh, the Eastern strategy here where, you know, um, you had said that, uh, you would potentially look at, selling eSIMs on the new mobile network into this base of consumer applications. Is that started or not yet?

Yeah, I wish I could say this has started and is super successful. But look, we are still in the trial period and playing around a little bit. So I think that's going to take a bit more time to go primetime, unfortunately. But yeah, we'll see if there is a...

there is a market you know for us to capture but not not at this point unfortunately okay thank you all right thank you once again if you wish to ask a question please press star one and one on your telephone your next question comes from the line of adam fox from lee from hsbc please go ahead your line is open oh uh morning hi thanks i was just hoping to

follow-up on one of your final comments, Ralph, about CapEx. I think you mentioned right at the end of your prepared remarks that you think you'll now be in the lower end of the range. So I wondered if you could just give us a little bit more color on the moving parts that you're seeing there. And then secondly, I should just ask about Teddy Columbus. You've still got your catch-up right, if I'm not mistaken. I just wondered if any thoughts have changed there or your thinking is still ongoing. Thanks very much.

Yeah, hi, Adam. Okay, so on CapEx, look, I mean, as I've said in the presentation, it was quite some time ago when we've issued the guidance, and there was, you know, a bit of uncertainty. Is it going to be in the year then? Is it going to be in the year after? And as we go along, you know, we've just seen it probably more stabilizing, I guess. That's why, you know, in the first place, I put out this wider range. But in addition, what I think I've about before inversa tell we obviously connecting a lot of sites and then we are very opportunistically trying you know to connect business parks nearby and you know that I've always said it's very discretionary so you know and and again if you know we've already done a few of these business parks so we can maybe sell more to the ones that we've had or we can go to more That's a bit of a trade-off. And all these things put together, I currently think we're going to be in the lower end of the range that we've issued. And then on TeleColumbus, I think nothing has changed from the statement. I think it was Mr. Dommelmuth himself did the full year results. So, so far... our partner MSI has agreed to put more money into the company and we do still have catch up right as it's called to pull equal on our share again and and and that's that's you know some still some time to go and therefore we haven't really made up our minds fully on that and and we will and whenever we feel that we are at this point so at this point in time no no changes to what we said before okay thanks

There seems to be no further questions. I would like to hand back for closing remarks.

Thank you, operator, and thank you, everyone, for attending our call today. Please do hesitate to contact us for any follow-up questions. We wish you a nice day. Stay safe, and goodbye.