United Internet

Ladies and gentlemen, dear guests, welcome to the Analyst and Investor Conference of United Internet. It's my pleasure to welcome you here on site at the Sofitel in Frankfurt. And of course, I'd also like to extend a warm welcome to our guests in the webcast. I'd like to present today's agenda to you. First of all, Ralph Domamoud will present the company development of the first half year to you and give you an outlook on the second half of the year. Afterwards, Ralph Hartings will present the financial figures to you in detail. After our presentation, you will, as always, have the opportunity to raise questions during a Q&A session. That would be it for me. And now I'd like to hand over to Mr. Dammermuth. The floor is yours. Thank you, Mr. Grossman. Welcome, ladies and gentlemen. Hello. Welcome to our United Internet Analyst Conference on the first half of the year. I will present the company development to you and give you an outlook on the rest of the year. Afterwards, my colleague Mr. Hartings will present the financial results of the first half year to you. All right. Many of you know our company. We differentiate between internet access and applications. And we divide both into customer or consumer access and applications and business access and applications. Our assets are 11,000 employees, a network in Germany with a length of 64,500 kilometers of fiber network, a mobile network, and more than 100,000 servers in Europe and the U.S. We sell our products through a variety of different brands. Our main brand or primary brand is 1&1. We also have many discount brands coming from Drilly. In business access, so our B2B business, we have 1&1 Versatil. Applications, we sell them through gmxweb.de, mail.com, and In business, we have Janos, our primary brand, and a couple of sub-brands that we gain through purchases throughout years. We are also partnering and have some minority shareholdings. Let's start with our consumer and business access in the first half of the year. We have 3.99 million broadband customers, mainly VDSL and fiberglass complete packages, including voice and TV products. They are sold or produced via one-on-one Versatel using the transport network. The last mile usually comes through Deutsche Telekom or city carriers. In mobile networks, we have 12.36 million mobile customers. We have the first open route in Europe, and we're currently in the process of migrating existing customers that used to be in wholesale contracts. Overall, in the first half of the year, we were able to gain customers 90,000 new customers, 110,000 new mobile internet contracts, and we had a small decline of 20,000 customers in our broadband lines in the first half of the year. Revenue increased by 1.1%. What's specifically important is our service revenue growth of 3.8%. That's where we make our money because it's a strong margin here. Other revenues are declining. Those are revenues that we do, especially through smartphones, that we give out to customers, often for zero euros, and that are then being repaid through usage of our contracts. There was a regulatory effect through our mobile termination fees that reduced our revenue. If we deducted this, our service revenue would be at 4.4% growth. EBITDA in consumer access declined by 7.2% to €326.6 million. This includes the expenses for the expansion of the mobile network, which amounted to €111 million. And the margin is at 16.2%. Consumer network is N101, is an AG solicit company. that is divided into two sub-segments, operating business, so the Internet access. Here we had an increase of 11.4% EBITDA to 437.6 million euros, and we were able to increase our EBITDA margin to 21.7%. I think this is a strong figure that is way above the usual figures in the German telecommunications market. The second segment in 101 is the 101 mobile network. which is currently being constructed and expanded. Here, we invested a lot. We have a large team, but of course, in the beginning, we don't have a lot of usage. Therefore, we have a loss of 111 million startup costs. There are 14.3 million out-of-period expenses that have reached us from previous years. Business access, those are addressed by 101Versatil, also German authorities. Versatil operates a large fiber optic networks that reaches 350 German cities, including the 25 largest cities. We currently have 26,781 sites that are directly connected to this network. Revenue for business access has been increasing by 4.6% to 283.2 million euros. That's a nice growth. The EBITDA has increased by 1.9% to 78.7 million. This result includes startup costs for two new business areas at 1&1 Versatil. One is the expansion of 5G, the connection of the antennas for 1&1, where we connect via glass fiber, and this is repaid through 1&1 leases. And secondly, the expansion of commercial areas. We're bringing glass fiber into commercial areas and then gain new customers in these commercial areas to amortize this expense. If we leave these two new business areas out of it, the growth would have been 6.9% EBITDA growth. I think that's a nice number in this business area. Let's continue with applications. consumer applications. We have gmxweb.de and mail.com. We're developing from an email provider to a complete provider for personal communication. In our first half of the year or in the first half of the year we had 41.66 million consumers. That's 1.07 million less than in the previous year. Here you can see a comparison not with the first half of the year, but at the end of 2023, 31st of December. We have seasonal fluctuations in our customer numbers. We always see them, but we also have higher security requirements, and therefore some accounts have been excluded that were used for spam, for example, that we didn't want to service. 38.75 million free accounts that we're servicing through advertisement. We also have 2.91 million pay accounts that pay for our services. That's 110,000 more than by the end of last year. In this segment, we were able to increase revenue by 13.6% to 144.4 million euros. EBITDA increased even further by 16.4% to 53.9 million euros. Those are numbers that we're very happy with. EBITDA margin is now at 37.3%. and we will not be able to increase this significantly. We said it at the beginning of the year and also within the scope of our last conference. We are seeing good growth this year, but we want to use this for staff ramp up and for new applications. This is due to happen in the second half of the year. So you will see revenue growth in the second half of the year, but we will practically have no EBITDA growth depending on the because we will invest this profitability into further growth. Finally, business applications. Janos is also a listed company, is a digitalization partner for freelancers and small and medium-sized enterprises and cloud enabler. It operates in 15 European countries as well as in the U.S., Canada and Mexico, so North America. We have a broad product portfolio. And we're servicing 9.52 million customer contracts, 4.91 million abroad, and 4.61 million in Germany. So we had a growth overall of 130,000 contracts. Revenue has increased by 6.1% due to customer growth, due to better up and cross-selling. But we also have a counter effect. Our aftermarket revenues have not increased in the first half of the year. They have decreased by 18.8 million euros. That's due to phasing effects connected to a new product launch. Aftermarket is not our core business. We're also doing it on the side because it's simply a result of having a lot of connections to domain owners, but it's a low margin business. If we deducted and if we only focus on our core business, so on our applications, we would have had a revenue growth of 11.2%. EBITDA increased by 7.9%. Could have been more, but we had some marketing expenses, 8.9 million more in the first half of the year than in the first half of the previous year. We have a lower EBITDA in our aftermarket business. Like I said, we have a decreasing revenue. If we deducted this, we would have had in our core business, so without our aftermarket business, we would have had an EBITDA growth of 12.1%. Maybe just one more thing on the aftermarket business. Management expects that in the second half of the year, we'll see growth in our aftermarket business. And we see already in July that this is starting. We surpassed the previous year. So I think this phasing is now taking effect. The new product is taking effect. So I think we will see a nice development in the second half of the year. Let's see an overview here on the overall company. 330,000 new customer contracts amounting to 28.78 million contracts. EBITDA 1% less. EBIT due to the depreciations and investments decreased by 14.7%, amounting to 347.4 million. EBITDA includes the startup costs for the mobile network that I mentioned earlier. They're 70 million higher than in the previous year. If you deducted this, you'd see that the EBITDA increased by 9%. So if you take this investment out of it, the EBITDA grew by 9% in the overall group. On top of that, included in the EBIT, so depreciations on investments, they increased due to the ramp up of mobile services in our mobile network because we're making more investments into our mobile network. And then in our EPS, we have a lower equity result due to TeleColumbus. And we have higher interest rates, and these higher interest rates have an impact on our financial results. What's next this year?

Last week, we adjusted our forecast revenues no longer at 6.5 billion, but 6.4, because in consumer access, we have lower revenues, and that is due to hardware. So it is a low-margin business, but revenues nevertheless. and also lower aftermarket revenues for business applications. Again, low margin business, but revenues nevertheless. And that leads to slightly lower EBITDA, 1.38 billion, or excluding the out-of-period expenses, it would be at 1.39 billion. We used to expect 1.42, which is still significantly above the previous year, where the figure was at 1.3 billion. EBITDA, slightly lower margin because of consumer access, hardware, and business applications with the aftermarket business, but also slightly lower EBITDA because of lower service revenues with one and one, which is the consequence of the mobile network failure and also the out-of-period expenses. Cash capex, 15% to 25% above the previous year's figure we used to assume 10% to 20%, and that is due to the higher inventory of network components that were previously stocked by expansion partners. So that's a phasing effect. We do need these components this year and next year, but we are taking them into our inventories this year. Okay, that's it from my side on the business development at the forecast. And with that, I would hand over to Mr. Hartings, who would give you the details on the first half of the year. Yes, thank you, Mr. Dommamuth, and a warm welcome also from me to the presentation of our figures for the first half of the year 2024. I'm going to present the most important KPIs on a group level. So the contract figures and the P&L figures, we can skip them. We have only listed them for you in order to be complete, but Mr. Dommamuth has already given you a very comprehensive overview. So let's move on to the cash flow. Despite the lower group EBITDA, cash flow from operating activities rose from 512.6 million in the previous year to 556.9 million in the first half of the year 2024. Net cash provided by operating activities was reduced from 237.2 million euros to 175.1 million. This was due to the reduction of trade liabilities. That's a phasing effect from the fourth quarter of 2023 amounting to 104.3 million euros. Cash flow from investing activities improved from 300.5 million euros to 280.9 million euros. And that is based on lower capex of 284.4 million in the previous year. It was 301.3 million. Cash flow from financing activities increased depending on higher borrowing from 74.8 million euros in 2023 to 115.4 million. Let's have a look at the next slide in order to dive into the cash flow in detail. So the free cash flow bridge, the basis for it is the EBITDA, €661.6 million. And then you can see the highest items when coming to the free cash flow. So first of all, CAPEX, €281 million. That is due to the investments in the expansion of the mobile and optic fiber networks. Contingent payment to Deutsche Telekom, €263 million. and taxes 156 million euros. Phasing effects amounted to 104.3 million from the fourth quarter of 2023 and working capital of 36.6 million. So overall, we arrive at a free cash flow of 105.8 million euros or rather minus 185.8 million after 80 million in leasing. Now let's look at the balance sheet. The balance sheet total increased from 11.246 million euros by 280 million to 11.5 to 7 billion euros. Main drivers on the asset side were the increase in property, plant and equipment and intangible assets, 250 million euros roughly. And that's a consequence of investments and also the increase in prices. inventories and deferred expenses as a consequence of increased leasings and also the services by other providers, telecom contingency contracts. We had lower financial investments and also the impairment of 170.5 million euros in this context and also the worst proportionate result of TeleColumbus. On the liability side, equity decreased by 102 million euros roughly. And we can see that from the group income of the first half year and dividend payments. And liabilities towards credit institutions increased by 370 million euros. Equity ratio 2.3 percentage points lower to 47.3%. Net liabilities amounted to 2.794 billion euros. Okay, and that brings me to the end of my part, and we're happy to receive your questions. Yeah, okay, let's come back to the presentation. We will start with the Q&A. And please wait for the microphone if you want to ask a question. Tell us your name and your company and then ask away. So feel free to go. Karsten Oblinger in the first row here. Yeah, Karsten Oblinger of DZ Bank. So one question on the topic that keeps popping up. The group structure going forward. Last year there were some speculations about Well, distributing the shares in IONOS or selling the consumer applications, are there any new ideas, new conclusions on this? That's my first question. And second one, looking at the share price and looking at value creation for shareholders, well, I think a share buyback program might be a good idea. What's your take on that? Okay. Okay. So you have mentioned there were rumors, some discussions with regards to the shares in Jonas. Well, it was discussed here in the room, right? Well, there was a question on it. And we clearly stated that we don't have any plans for this and it hasn't changed. Share buyback. Yes, I agree. So that's, of course, something that immediately comes to your mind when looking at the situation. But we have to be mindful. We have to keep the headroom and our credit lines in mind. And I think the headroom amounts to around 500 million, which we are keeping. So that's more than we need. But we do want to keep this headroom, really. So I'm not going to say we're never going to do it. It's always a question of weighing pros and cons. And also, the overall debt ratio plays a role. Today we're in a situation where we believe that next year we will not have to purchase frequencies, so there won't be any auction next year. But you can only be 100% certain once the federal network agency has published their conditions. So if we increased our debt ratio and then we would be informed about an auction, we would no longer have any firepower. So that is something we are trying to weigh against each other, maintaining headroom and maintaining debt low. So it's usually two and a half points EBDA. But once we realize that we do need funds for an auction, then actually it would be blocking us. But yes, you're of course right, stating that at this price, you would actually need to think about a share buyback. So once we know that there won't be an auction, then we will think about that. Thank you. Yes, in the first row. Volker Glaser of MPBM. A follow-up question on the share buyback. You have around 10% of your own shares So before you think about a share buyback program, what will happen to those shares actually? Nothing will happen. So our company has already bought back a lot of shares. 252 million shares is what we had circulating in the top situation. And now we are standing at 172.8 once we deduct our own shares. So 80 million have been bought back already. And we also keep a part of the shares we buy back as treasury shares. They are not entitled to dividends and don't come with votes. So it's as if they didn't exist, really. But they allow us to have programs for employees. We can pay them in cash or in shares. And we could implement a capital increase tomorrow if... without having new shares admitted if the situation demands for it. So it's not very likely for it to happen. But as it doesn't cost us any money to keep these shares and it doesn't cost shareholders any money, we keep those shares as treasury shares. I mean, we can, of course, remove them by a simple board decision. But if tomorrow we're in a situation where we need these shares, we would have to create them. So that's why we stick to them. They don't have any impact on the dividend, on voting rights, et cetera. So it doesn't have any impact on shareholders. Of course, all of that is true, but maybe that's also the reason why you don't set up a new share buyback program. Well, last year we had a share buyback program and we signed a paper in the boards to purchase those shares and then the notification was sent to the market, so there's nothing keeping us from it. Okay, next topic would be consumer applications. You mentioned that the overall expectation is more than 100 EBITDA. I think that's unchanged, but you also made some remarks on it, on investments to be made, and I would be interested in the medium-term outlook. So where do you see potential here? While I can't present you with a medium-term planning for the consumer applications business, But I can tell you that it's going really well. You can see that looking at the revenue figures. We still have a couple of ideas in order to make the product better and more modern. But first of all, we need a couple of millions for new employees, which we're spending now. And yes, EBITDA, I think it will be beyond 100 million this year. And something else that might be interesting is that In consumer applications, it's not only EBITDA, but also EBIT and EBT, which is more or less the same. So as we are leasing our service, we are not capital bound. So the service can be seen in the P&L. We are also renting the offices, the office space, and that's why it's really capitalized. So 100 million, that's the profit for this year. And hopefully it will be more going forward. But I can't really tell you what the plans are because, of course, if we don't manage to deliver on it, then it would really limit us. But there is potential. Okay, what about the eSIM usage? Any update on this? We want to introduce it in the fourth quarter. The portals for eSIMs are distribution channels. We do recognize that. And many customers use applications on the mobile phone. I think it's beyond 20 million, right? 25 million? Yeah, 24, 25 million customers use the app. And we want to integrate an eSIM function in the app. And you will be able to activate the eSIM in the app. by pushing a button. We do think there are business opportunities here because the app is already in place. So you don't have to download it from the app store. You will be able to do it just by pushing a button, select a fee, and then you will be able to activate it immediately. Now, on the technical aspects, of course, there are still some discussions to be had. But I think in the fourth quarter, we will have a well-working solution. Okay, next question, artificial intelligence. Based on your portfolio, where do you think there are opportunities that might have a financial impact? Or where do you see risks with regard to individual business areas? Well, as of today, we mainly see opportunities, and that really applies to all of our business. Let me try to give you some examples. On the one hand, saving costs or increasing productivity. If someone works as an editor in our online department, they can do five as many articles as they used to write in the past. So productivity increases enormously. Looking at chatbots, we do have chatbots which use artificial intelligence. At some point, they hand on the request to an agent. But first of all, customers talk to a chatbot, not to the agent, and that saves costs. And I think it's not a secret. We have thousands of call centers, external ones, internal ones, depending on the level of support. And first of all, AI will be able to answer emails fully. Nowadays, they're doing it partially. And at some point, they will be able to generate language as well. And that will reduce costs. So there are different areas where AI will really allow us to save money. These were only a couple of examples. And there are areas where we can increase our business using AI. Jonas, for example, if you want to build a website, the website builder is already AI enabled. You can just enter a couple of keywords and it will create your website, which is very comfortable for customers. Of course, they can then adjust the website, but they have something to start with, and that will be improved more and more over the next couple of years. Or again, Jonas, they have an AI model hub. Here you can book AI solutions in the cloud, and that is one of the main focus points we have in our cloud strategy. So, AI solutions, which are usually open source solutions with a guaranteed quality and with updates, will be made available as cloud applications. And this is additional potential for revenue, really. So on the one hand, we will become more efficient, just as other companies. And on the other hand, we also see additional business. So I don't really see a downside for us. Maybe I'm overseeing something, but I don't see it. You will probably have made the calculations already and savings you can make. Do you want to share it with us? No, I haven't made the calculations, really. No, no, I haven't done that. But, of course, it's clear it'll be in the three-digit millions, I believe, if you think it all through. So it'll be a considerable amount. And last question from my side. Cash flow, CapEx... On United Internet Group level, we already received the information on one and one level. So what's the update on versatile? Because I think that would be worth mentioning. And free cash flow development. Maybe, Mr. Hartings, you can say something about the full year expectations and CapEx free cash flow over the next two years. Thank you. So CapEx guidance for the group, we had mentioned that. 15 to 25% more. So that's what we're calculating with. Free cash. Yes. So the bullpark will be just as we did it this first half of the year. And for the next year, the CapEx profile based on one and one should go slightly down. That's our current expectation. By what amount? Well, we haven't published that yet, but we will definitely look at it. So one and one total 600, I think 60, 360 without passive infrastructure. So maybe I can. Yeah, I think I already mentioned that and versatile also on a similar level as this year. So, yeah. Those are the plans for it. Okay, so free cash flow next year will be positive then, or will it again be a year of transition? Yes, it is still a transition year because we need investments.

Thank you. Camillo Azuz on the phone from Amber Capital. My first question is for Mr. Dommermuth. So you acquired a lot of shares in 2021 at 35 euros per share. The current level is obviously very attractive versus these previous purchases. So on a personal capacity, is there anything that's preventing you from adding to your position as my first question? My second question is, obviously, you have a looming negotiation on the leasing for the low-band spectrum, which could allow you to save a number around €1 billion. Should you achieve to save such a number, what would be the use of proceeds you would think of at the level of United Internet and in terms of capital allocation? And then my last point, Apologies, it might be the translation, but it would be very helpful if Mr. Hartings can clarify exactly the one-on-one CapEx for next year. I'm not sure I got the exact number. Thank you.

If I understood you correctly, You said that for the low band spectrum, if we don't buy it, we have a capex saving. Is that, did I understand that correctly?

I believe the saving would be quite sizable on your budget if you don't have to go through auction. Yeah. And so what would be the use of proceeds if you get that massive balance sheet flexibility? I can't say that.

I can tell you that today. As I said, with a leverage of factor two, we feel quite comfortable. If we don't have any auction and there are any special opportunities, then it might make sense to increase our leverage. But if there are no special opportunities, I would start to deleverage. but we don't have any specific plan to say even if we don't have an auction next year, then we already know where we'll allocate the non-existing money, so to say, where we'll allocate this additional money. There's no plan for that. And then you said that, well, 2021, 2022, you bought stocks at €35. That's right. That was quite the good deal considering today. But you asked me if we would add further stocks to that. I would like to leave this unanswered because this is a private question that has nothing to do with United Internet. I don't want to limit myself. And on the other hand, I don't want to give rise to any rumors for things that I'm not going to do anyway. So that's why I'd like to leave it unanswered. Then the question for CapEx. at one and one because there maybe were some issues with the translation. I'll say it again. In 2024 CAPEX guidance of one and one is 460 million euros. In 2025 CAPEX will be 360 million euros without passive infrastructure. And if we weren't able to find a partner The range is 100 to 150 million for potential passive infrastructure on top. Are there any further questions? I do have another question. so the economy is quite challenging at the moment also if you follow the daily news what's your current perspective also looking at your business will you remain resilient or do you see any implications looming you're right it's um not looking very well our main market is With Giannis, we have a lot of business abroad, but still the core of the business is in Germany. What's negative about our business with our subscription model is that we cannot double it quickly. But it still remains stable because even if there is no economic growth, our customers will still need a smartphone, will still need an Internet connection, and will still need to communicate via e-mail. That's why we're optimistic that we won't be affected. If we look back, we've never struggled, even in years that were economically challenging. Yes, of course, we've had some issues in marketing our portals and platforms, but generally speaking, we may be talking about 5 million less. But I don't want to use that as an excuse if our business struggled. I'm not going to tell you it was because of the general economic situation if our business segment is struggling. That's why we're quite optimistic. Are there any further questions? Sir Carson Olinger again. I have a follow-up question in regard to one-on-one mainly. You're a pioneer with the network expansion. Some things didn't go according to plan, Well, okay, that's not up to you, but I'd like to look at other changes in the mobile network segment. What was most surprising to you? I don't really remember what surprised me three years ago, but I can tell you what surprises me now. That's the aggression in pricing that we've been seeing since last year, November, December, specifically in the discount segment. Maybe you saw the Telefonica numbers. You see that they have nice contract growth, but if you look at their service revenue, there hasn't been any major changes. And that means that the quality of customers in the mix have, the quality of the customers has decreased. So I have new customers, new contracts with a lower margin. I think there's a similar development at Vodafone. There's been a decline of customer contracts and a decline of service revenue. That did surprise me. When it started last year, I'd say towards the end of the year, we thought, well, there was this cyber week, for example. Everyone's providing great discounts during the cyber week. But we saw prices where we said, we're not going to go along with this anymore. And the same goes for this year. We're seeing prices that... Vodafone offers through sub-brands or Telefonica offers through sub-brands or that they give to Aldi or Freenet where I say from my perspective that's unwarranted aggression. In our margin development you can also see up to now that we have 3.8% more service revenue at 101 and 11% more EBITDA So our customers have become more valuable. Our development is going in the opposite direction. And we just have to see how long we can keep up this development. How long can we grow more in our margin than in our service revenue or our customer contract figures? Or do we at some point have to react to this general development on the market? Of course, we have some ideas. And of course, we always try to protect our existing customers. to not jeopardize our existing customers just to gain a couple of new customers. But we need to put a lot of thought into all of this. But it was surprising to me because I don't see any benefit. What does it benefit Telefonica to have a couple thousand more customers if I don't have a higher service revenue at the end of it? That would be the mystery, a recent mystery that I'm dealing with. but I don't remember what was surprising to me two, three years ago. For example, Telefonica is providing 100 Mbit of speed to Aldi. So far, they always limited to 50 Mbit. And the market said in the discount area, okay, then I only have 50 Mbit and a 300 or 500 Mbit speed. I limit it to the value or the premium customer, and now everyone is down to 300 MBIT at 5G. It's down to regulation. That's going to come soon. But why do I turn 50 MBIT into 100 MBIT? There's no benefit. Apart from that, everyone in the market will do 100 MBIT tomorrow, and that makes it even less attractive to buy a value or premium product. So I don't understand that. I simply don't get it, but that's what competition is like. If they are more aggressive, then, well, or if they offer better offers, then, of course, it's better for the consumers, even though they won't earn more in the end. Thank you. All right, I don't see any further questions at the moment. Then I'd like to thank you for your attention and your questions. Feel free to stay for a cup of coffee. I'd like to conclude the conference. Have a safe trip home. Stay safe. Thank you. Goodbye.