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Ladies and gentlemen, a very warm welcome from Montabaur. We are pleased that you were able to join our analyst, investor conference call regarding our Q1 figure for 2018. This is Dominic Grossmann speaking from Investor Relations of United Internet. I'm here with my colleagues, Frank Krause, our CFO; and Stephan Gramkow.We would like to start directly with the call. Therefore, we have prepared a short presentation, which hopefully you have in front of you by webcast or you can download on our website via Investor Relations section. After Frank's explanation, we will have the Q&A session as usual.So from my side, enjoy the call. Frank, please be so kind and walk us through the numbers.
Yes. Thank you very much, Dominic. And also a warm welcome from my side to today's analyst and investor call of United Internet. In today's call, we would like to talk about our overall results, Q1 2018 and confirm our guidance 2018.During our last roadshow, we had talked a lot about our smart initiative, and many of you told us, "Show me that it works." Furthermore, I'm happy to report today that the first steps of our smartphone initiative are well perceived, which is clearly seen in our net debt development in Q1. With 270,000 net additional customer contracts in Q1, we are in line with what we expected for Q1 as part of the 1.2 million net sub for 2018.Are there any problems, Dominic?
Yes. We are locked out. One second please.
Okay. So my last comment was on that I'd say it furthermore, I'm very happy to report today that the first steps of our smartphone initiative are well perceived, which is clearly seen in our net adds development in Q1. With 270,000 additional customer contracts for DSL and mobile in Q1, we are in line with what we expected for Q1 as part of our 1.2 million net subs for 2018, which is forecasted.Also our revenue and EBITDA figures for Q1 2018 are on track with guidance 2018, and from then goes for Q1.On Page 5, you can see the reported figure there and our customer base is now close to 23 million contracts, and we added in total 300,000 new contracts for the group in Q1. As stated in our guidance, the additional smartphone investment is offset by a positive IFRS effect in EBITDA, also seen in our numbers for Q1 2018.Let's now move to Page 6. As reported figures in 2017, do not include Strato and Drillisch for a full year. You remember, we started to consolidate Strato from the 1st of April and Drillisch from the 1st of September. You can see on this slide how the reported growth would look like on pro forma basis, which means taking into account Strato and Drillisch for 12 months in 2017.Let me briefly walk you through the slide and through the numbers. On the left chart, you'll see the revenue slide. That's where you can see that the reported figure for Q1 2017 was EUR 952.7 million revenue and the reported figure for revenue in Q1 2018 is EUR 1.27 billion in Q1, which means an increase of 33.4%. If you look at it on a pro forma basis, that means taking into account Drillisch and Strato on a full year basis for 2017, the pro forma growth would -- or our reported numbers would have been 11.6%. Same also seen on the right side. So the reported figure for Q1 2017 on EBITDA is EUR 230 million and reported figure on EBITDA for Q1 2018 is EUR 278.3 million, which means the growth rate of 30.7%. Again, taking into account Drillisch and Strato on a full year basis for 2017, the growth would be 8.7%. And for the benefit of all of you, we have already shown on the right side the IFRS impact on revenue, and on the right side also an EBITDA. As I have mentioned before, the smartphone invest in the first quarter is offset by positive IFRS impact, so there is no impact on EBITDA overall. And we also have already mentioned that we have talked about our guidance in March.So now let's take a look how the segments in Q1 2018 developed. In Consumer Access, let's start with the customer contract. In Consumer Access, you could add 270,000 additional contracts, 240,000 additional mobile contracts and 30,000 additional DSL contracts. Overall, we have now 12.91 million customer contracts in Consumer Access, which is splitted in 8.54 million mobile contracts and 4.37 million DSL complete packages.Slide 9, on Access sales follows the same logic as I described before for the group. Means, again, for Access, including Drillisch in pro forma for 12 months in 2017, so for -- if you also add it to the first quarter, that means for the reported revenue growth in sales it means instead of 36.3%, as you can see in our reported figure, the growth would be on pro forma 12.7% in sales. You can also see here, again, how big the IFRS impact on revenue was in Access, it was 79.8%.So let's also move then to EBITDA. Also here the same story and logic, also taking into account the EBITDA on a pro forma basis. Drillisch for 2017 for 12 months, the reported growth would be 5%. The reported growth on -- reported figure, so without pro forma it's 32.6%. As stated in our guidance, we have additional smartphone investments for more customers presented, which is offset by a positive IFRS effect which you can see on the right side. It is also worthwhile to mention that out of the EUR 20 million one-off cost for the Drillisch integration, we forecasted in our guidance for 2018 we have already seen EUR 5 million in Q1 in excess.Okay, then, let's move to Page 11. I do not want to spend too much time on the EBIT slide. The story is similar to EBITDA. Taking into account the amortization from purchase price allocation for Drillisch. But maybe one remark here. If we compare our Access business, mainly due to the infrastructure and CapEx part apart from EBITDA, we look more and more at EBIT and EBIT margin for balances, wholesale cost and CapEx in a much better way if you compare us to competitor.Okay, now let's move to Applications. And let's start, again, with customer contracts in Business Application. In Business Application, which is our hosting business, we could gain 30,000 new customer contracts in Q1 2018. Reaching now a customer base of more than 8 million contracts, fairly splitted between domestic and abroad.In Consumer Applications, paid accounts stayed stable in Q1 '18 and we have seen, again, a strong growth in 3 accounts in line with what we were focusing on in the past and also in Q1. Altogether now, we have reached 38 million active e-mail accounts under management.If you look now at Application sales, same explanation as before and same logic. So to understand the reported figures better, the reported revenue growth is 22%. And on a pro forma basis, which means, again, taking into account Strato on 2017 also for 12 months, which means here for the first quarter, the reported growth would be 6.7%. The IFRS effect is, again, shown on the right side, it's quite tiny in Applications, it is just EUR 5.9 million on sales.In EBITDA, our reported growth is 25.1% and, again, on a pro forma basis, so Strato also included in the third quarter in 2017, the growth would be 13.9%. It is worthwhile to mention that EBITDA in Consumer Applications is a little bit lower than in last year's quarter. It is just 1 -- a little bit more than EUR 1 million. And that it is mainly due to setup cost for Log-in-Allianz with RTL and [ colleague ]. So I think also that is -- we need to explain. EBITDA margin in Applications overall is growing, and it reached now overall 36.5%.Now EBIT, again. I think we can skip it, the EBIT slide. More or less, it's a story. As I said before, it's again similar as for EBITDA, taking into account the amortization for purchase price allocation for Strato, which is EUR 6.2 million in Q1 2018.My next slide is on cash flow. As we forecasted, Q1 is impacted by working capital impact as a result of the increased smartphone sales. And we have seen high inventories and the seasonal payment for Layer 2. Adjusting for these 2 topics, free cash flow would have been around EUR 80 million. As these effects will level out over the coming quarter, there is no change in our free cash flow projection as they have said before.And the final slide is a recap of our guidance 2018, which we fully confirm. So I do not want to reach -- to read again, but I think it's super important to have it in the pack and also to mention that it is fully confirmed.So I hope you find our explanations helpful. And now we are happy to take your questions. Thank you very much.
Frank, many thanks for the explanation. So let's start the Q&A session. The first question please.
[Operator Instructions] We've received the first question. It comes from Joshua Mills of Goldman Sachs.
It's Josh Mills from Goldman Sachs. It's a question I did ask earlier on the Drillisch call, I think it may be more relevant for United. Just interested in your thoughts on the Vodafone-Liberty Global merger just announced this morning. I think there's been some comments in the press from CEO Ralph Dommermuth about the deal and his thoughts on how it could lead to undue market concentration without remedies. So my question is, what kind of remedy do you think would be appropriate? What would you be pushing for? And how could that be relevant both for your Versatel business and also for Tele Columbus where you have a 29% stake in the company?
Okay. So as you said, we sent already out in a special -- an official press release on that. But maybe just to highlight. I think the deal would significantly limit competition in one of the most important infrastructure. And it will result in a duopoly, and Vodafone and Liberty will have more than 90% of households for voice, Internet and TV. So we think it is not approved. And at best, to be significant remedies. And to be honest, I can just guess about the remedies. I think the deal is in a very early stage. But I think what has been discussed before is selling either households or opening also cable for wholesale. So I think, we will look at it, and I think we -- then we need to discuss it a little bit later in more detail.
The next question is from Martin Jungfleisch of Kepler Cheuvreux.
I have two on Consumer Access, if I may. I couldn't ask those in the Drillisch call. On the net additions, could you provide some detail how many net adds you've shifted or added to the MBA MVNO? And how may net adds there were on the E-Plus and Vodafone contracts? And also if you could comment on what percentage of your gross adds in this quarter have selected a smartphone? And how this compares maybe to your fourth quarter and first quarter last year?
So I think, how many customers we shifted to the MBA MVNO contract, we are not telling or talking about. And your question was also how many customers we still have on the E-Plus contract and how do we deal with that. Let me answer that question more in principle. As you know, we still have our Vodafone contract, they have our E-Plus contract. And we have now the MBA MVNO contract. And over time, I think, new customers we are bringing to the MBA MVNO contract. Here with customers, so -- and to see entities, up to the customer's decision. It depends on how we package and how we structure our tariff. But we use it in a very efficient way on all other contracts.
Okay. And on the smartphones, how many of your [indiscernible] have selected a handset?
Maybe it is still -- I also want to -- do not want to give you an exact figure, but what is clear is with the new smartphone initiative. They enter new segments, so we are also now selling the handsets in our discount rent, which we have not done before. And that is clearly increasing at all to 100 [indiscernible] in the Drillisch call mentioned. And also we see an uptick in retention. So as you can see, we also see in our number for handsets, costs in the first quarter, that's increasing. But yes, we have -- we do not want to give the next number on what's the -- have entered.
The next question is from Robin Brass of Hauck & Aufhäuser.
I have a question on the Applications segment. So here, if I look at the pro forma Strato growth which is 6.7%, but, of course, you still have the IFRS 15 effect. So am I right to assume that the organic growth here to take IFRS out at around 4%? And what would be your expectation for the next quarter? Do you see an increase in growth here given maybe some, let's say not restructuring but some improvements you do here in this business? Or what's the current situation here?
I think you're asking it optimally right. If you do the math and if you take out the IFRS impact in Q1 2018, the growth is 4.5%. And that is what we always said, that it is in the middle range of single-digit. And I think that it's also something that we do expect slightly increasing over the last -- next quarter. And of course, we still said 2018 is obviously an implication to more -- year of rebranding and the year of consolidating our platforms. So yes, I think that is what we expect for the next quarter.
Also means you're basically, also, on track and see, maybe, a possible IPO next year still on track?
We never said that it's possible IPO next year. And we said we are now working together with Warburg Pincus on an IPO story. And I do not want to say when it will happen because it depends very much on the overall situation, and how we can develop the company. But if you look at what Warburg Pincus said at the beginning of 2017, and then for that, we always said, the normal theory is the private equity companies stay in 3 to 5 years' time. So maybe you take that as an answer.
The next question is from Ulrich Rathe from Jefferies.
I was wondering about the Applications segment. There have been sort of various commentaries from industry on what service that the ad revenues in Germany could be on the 30% or more as a result of the data privacy regulations. I'm wondering what your initial experiences are with regards to how customers react to the GDPR, so the e-mails, and how this might affect your probably around EUR 200 million plus, minus revenues that you're deriving from this advertising business in Applications? And, if I may, a second question. Again, I asked that at the Drillisch call and wasn't entirely sure how to interpret the answer at the time. The -- I understand that the handset sales model, the increased bundling is really going to ramp throughout the year as a particular push in the second half of the year. And I'm wondering, to what extent -- the tariffs we have now seen announced by United, by Drillisch in the first quarter already reflect the sort of offer set that you really want to push and to -- or to what extent you are just sort of -- still sort of a lining, tariffs and offers, and the sort of stuff that's going to hit the market isn't quite what we've seen yet.
Okay. Your first question was on the news -- let's say in [Germany for] quarter 2, I think it's a little bit too early to comment on how that is perceived by our customers and what we expect. But maybe what I have seen from customer surveys is that these customers are looking for attractive partner. And it's also -- that is why we have set up this Log-in-Allianz with Pro7 and with RTL. They are what we're seeing with our brand here. We are really seen as a trusted partner in Germany, and that is also what I can feel now from the first comment I get back from customer. So we really expect that our Log-in-Allianz here can work and will give us a push also on revenue and -- over the next quarter, but even more in the next year. And your second question was on have you already seen all the new tariffs you want to implement in 2018 for the -- let’s say, more flex utilization of handsets sales? No. We just started at the beginning, and you will see more and more flex utilization over the top -- over the next quarter, and that is also why we expect that it will increase, that is also why we said that the first quarter development was absolutely in line with what we expected.
Okay. Again, if I may follow-up on that second answer. That's very helpful. I mean, over the market expectations that have -- are -- have to align to many moving parts in the United's financials at the moment. But it is true that there was a bit of a miss compared to market expectations in Access. Now at the same time the intake wasn't particularly strong and you're now saying we haven't quite seen the full impact of what you tried to do later in the year. So I'm just wondering, I understand it's sort of in line with your plans, but still, what drove those incremental costs? Is it sort of realigning the organization? Or is it already the market activity which was a bit more expensive? Or what is it that drove these costs and the EBITDA's slightly below expectation from your point of view?
Well, I don't think that it is below expectation. Maybe if you look at consensus, the overall consensus for the full year is absolutely in line. So as you said, maybe we have a little bit of topic regarding what the phasing of revenues and EBITDA. And I think you also need to take into account, and I don't know how that has been factored in, in your individual model, that we have talked about EUR 20 million, the one-off cost for Drillisch integration, and we also have talked about additional EUR 30 million on advertising spending in Consumer Access. And so that is -- also some of that happened already in Q1. I have talked about the one-off impact in Q1 in excess of EUR 5 million. So that is why I've been quite comfortable, and I can say that it is in line with what we forecasted. And that is at the end the forecast we bring up to the guidance. And that is why we feel okay with it.
The next question is from Nizla Naizer of Deutsche Bank.
I have a couple of questions on Consumer Access and then Business Applications. On Consumer Access, could you give us an idea of what your average data consumption is like after Q1 this year? And when you look at the MBA MVNO contract with the strong net adds that you've doing, are you still well within that 20% utilization? And how do you view the use of this contract going forward? Then on Business Applications, if I may, when I look at your net addition numbers, it seems that most of that 30,000, if not all, did come in the German market. So wanted to understand how the international businesses may be performing in Business Applications, and if you've got a plan to drive growth there, and what we could expect for the entire business over the next couple of quarters. And also an update perhaps on how the rebranding of the Business Application segment is going, that could be great.
Okay. So your third question was on data consumption. That is around 1.4 for 1&1. And, obviously, that is a little bit lower for the discount brand. So absolutely, nothing unexpected and in line with what we forecasted. So -- and then your second question was how much is your unutilized of the MBA MVNO contract. We are also not talking about that in detail, but it's also as Andre said in his call. We are optimizing and using it more and more. And as we stated in our guidance, we will deliver this year also the [ first EUR 50 million ] synergy. So that is on -- in fact, it's on what has been forecasted before. And then your last question was on Business Applications, and it was about the Internet utilization business. What was it about?
Development?
Development. Okay. So in Business Applications, as we said before, we have a huge opportunity in bringing apps and additional services to our small, medium-enterprise customers. And we have already rolled out, in the last quarter, this app for accounting software, HR software. And we will do that more and more over the next quarter because we think that is the biggest pie or piece of the cake which is out and where we can benefit from. But as I said on top of that and after the acquisition of Strato, then we have a lot of work to do in integrating the 2 companies and in consolidating all our platforms all over the world and also preparing for the rebranding initiative.
The next question is from Wolfgang Specht of Bankhaus Lampe.
Two follow-ups. One on churn. Can you give us an idea if you saw changes in churn regarding mobile and DSL? And how did subscriber acquisition cost aside of the hardware parts develop in the first quarter? And the second question goes towards Versatel. Can you give us some impression how customers sales and EBITDA developed here?
On churn, there's also nothing special to mention. So it is as expected. I would say, it's a little bit too early now with the new handset initiative already prepared to have positive impact. So for the time being, I think, it is -- as has been before which was already quite good. You know on 1&1 and our churn figures have been very positive. And in regard of Versatel, I -- maybe I explained that a little bit if I go back to the slide, give me just a second. So if you look at Versatel, we are doing in Versatel also important supplier for the Drillisch group regarding Layer 2. So that is also something -- what we are doing now in Drillisch. And you have seen that when we were talking about the road map. And I have to say, if you take out this -- let's say, if it's also revenue stream between Drillisch and Versatel, but if you take that out and you just look at business and wholesale for the first year or first quarter, then I would say the revenue growth is already back and it is in the higher single-digit area. And your last question was on how have the acquisition costs developed in the first quarter. That's important that we talk about it, we talk again about it because that was one of the misunderstandings at the -- when we were talking about the guidance. So there's no change in acquisition cost. If you look in customer segment and they clearly stated that the contained result in tariffs is even getting better now through the handset approach than it was before and that is already seen now in the first figure.
The next question is from [ Josh Harris ].
I have a question on your payments to Telefónica Deutschland and in -- I mean, the MBA MVNO and the E-Plus contract. Should we expect that your wholesale payments to Telefónica Deutschland should basically increase quarter-on-quarter pretty much forever between now and 2030? And -- or is it the case that your wholesale payments could actually decline as you migrate customers from the E-Plus contract to the of MBA MVNO? And then my next question is on -- with this Vodafone Liberty deal going through, how do you feel about conversions? Do you think the German market is going to accelerate towards conversion? And on that note, I was wondering if you could explain to us why you've been so much more successful than Telefónica Deutschland has at selling broadband? And then final question was just on Versatel. Could you guide us at all on what sort of EBITDA we should expect for the full year 2018?
Okay. So let's start first with your first question. You said we should -- should we expect that the payment we're doing for the MBA MVNO contract will increase over time? But in light of the volume decrease, we do. So that there is an increase seen and there was a question also on Versatel EBITDA. So we have seen in the first quarter an EBITDA of EUR 12 million and just -- let me have a look, more in detail. So that's also -- that has slightly increased over time for the full year. So I think that if you can, you can easily forecast that a little bit with an increase over the quarter. And then your question on -- there was another question on the Vodafone-Liberty deal, and if we expect that we'll still have a positive impact on conversion in Germany. Let's see. At least, what I have seen after the Vodafone -- the Deutschland deal, that it's not so easy to sell converged product in Germany for sure. We will see, over time, an increase in the IR cost at the end of all the selling and to converge and we are prepared for that. But as we discussed many times -- and I think we need to have the right business model in place when it is needed, not when it is stocked up by the market. And for the time being, that is what we said, we are well positioned to selling it one by one. Because if you bundle something in Germany, everybody expects a discount, and why should we give a discount now if you look at our gross figures.
Okay. Just to follow up on the payments to Telefónica Deutschland. So I obviously -- and I agree that the MBA MVNO payments are going to increase over time. But could your total payment to TFD decline? Because maybe you were transferring customers off the E-Plus contract and on to the MBA MVNO, and therefore, that's cheaper. So with those MBA MVNO payments increasing the total amount you pay to TFD group, could that decline in the near future?
It could, but many -- it's all on this optimization deal. That was at the end -- the endgame, I think. We need to keep customers moving, let's say, from the E-Plus and Vodafone contract and customers moving a lot of data bringing to the MBA MVNO contract. So that is overall an optimization and an efficiency gain, so that is how we have to structure it and that might also have a positive impact overall on the cost.
The next question is from [ Ms. Messina of CET ].
So I have one question on spectrum. So we have read on the press that you show intensions of probably bidding for spectrum. So I was wondering if you could explain what is the rationale behind that, with the [indiscernible] because you're seeing again generic capacity and lower cost than sell at this point. Or I think you...
I think I did -- and what have been said before?
Regarding spectrum, so if you could explain the rationale behind your intentions to buy spectrum, to bid from spectrum. Whether it is because you can generate capacity at lower cost.
Yes. We never said that we want to buy spectrum. I think the only comment we made on that was for Mr. Dommermuth saying that the -- and the rules here for the auction are still not clear. I think what he said there they would be just an opportunity for any [ fast ] player to enter the market. If they would be national roaming or regional frequencies, that was the only comment. But he was not talking about us. We never said we will do that. In principle, you could say we are well positioned with our MBA MVNO contract because it is also including all future mobile technology.
As there are no further questions at the moment, I would hand back to you.
Yes, there are no more questions, so many thanks for your questions and your attention to our presentation. If there are any follow-up, please don't hesitate to connect to myself, we would be happy to help you. So thank you very much. Have a nice day. Bye-bye.