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Good day, and thank you for standing by. Welcome to the United Internet Quarterly Statement Q1 2023. I would now like to hand the conference over to your speaker today, Dominic Grossman, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everybody, and welcome to our Q1 '23 analyst investor conference call. My name is Dominic Grossman from Investor Relations. And here with me today, I have our CFO, Ralf Hartings. [ Briefing ] to the procedure, Ralf will first take you through our presentation with the business development in Q1, and he'll give also the outlook for the rest of the year. Afterwards, we will be happy to answer your questions. Yes. So far from my side, please enjoy the presentation. Ralf, please go ahead.
Thank you, Dominic. First of all, I would like to welcome you all to our webcast on the 3 months figures of 2023. I would like to start with a brief introduction of myself. I have spent a significant part of my career in telecoms with Vodafone and Verizon. During that time, I have worked and lived for nearly 13 consecutive years abroad in countries like Japan, Turkey, U.S. and the U.K. Since autumn 2017, back in Germany, where I was firstly CFO for P&I Hg in Wiesbaden, which was successfully sold from Permira ownership to Hg in 2020. The last 2 years, I was CFO for Consumer Applications business. So let's get into our figures. On Slide 3, I've summarized our key KPIs for you. Our customer contracts increased by 240,000 to 27.7 million in Q1 2023. Our revenue increased by 6.6% to EUR 1.538 billion. EBITDA decreased by 3.4% to EUR 319 million. Okay. It is important to note here that we invested nearly EUR 11 million more in the rollout of our 5G network and had almost EUR 10 million higher brand marketing spend at IONOS as compared to Q1 2022. The overall IONOS brand campaign budget has just a different phasing compared to 2022, with peaks in Q1 and Q4. Adjusted for these effects on earnings, comparable EBITDA increased by 2.9%. Our EBIT declined by 10.2% to EUR 188.9 million. In addition to the explained negative effects on EBITDA, this was due to higher depreciation and amortization as a result of investments in the rollout of our fiber optic network at 1&1 Versatel and the rollout of the 1&1 mobile network. This increase in depreciation and amortization mainly due to the start of operations of the 1&1 mobile network at the end of 2022, which is going to generate cost savings as planned from Q4 2023 onwards. Earnings per share decreased from EUR 0.55 to EUR 0.43, largely through the higher depreciation from our investments into future growth, EPS effect of EUR 0.060 and mainly interest rates impacting the financial results, EPS of EUR 0.05. Right. Before we look at the segments on Page 4, I'd like to share that we are -- we have changed our reporting for the segments. As part of the interim financial statements for the period March 31, we have decided to change our segment reporting from previously controlling to accounting view and at the same time to align internal reporting and corporate management previously in controlling view with external reporting accounting view. This change has resulted in reconciliations effects in the sales and earnings figures between the segments. However, please note there is no impact on the consolidated group level. In the case of sales, for the segments, certain intercompany sales are no longer consolidated at segment level as previously in controlling view, but only at a group level accounting view. In the case of EBITDA and EBIT depreciation allocations of profit margins for intercompany services are no longer offset between the segments as previously in the case of internal activity allocating in controlling view, but are reported as posted at segment level accounting view. The change has no effect on the group sales and earnings figures as reported at group level, as it was, in any case, reported on accounting view. This change at segment level also reflects the increasing independence of the segments and aligns our segment reporting with that of the 2 listed entities, 1&1 Hg Consumer Access segment and IONOS Group SE Business Applications segment. A reconciliation for the previous quarter's Q1 2022 to Q4 2022 as well as for Q1 2023 and for the financial years 2019 to 2022 from controlling to accounting view for revenue as well as operating EBITDA and EBIT can also be found in the backup of this presentation. Now let's turn to our segments, starting with the Consumer Access. On Page 6, you can see that in this segment, we have increased our contract portfolio by a total of 90,000 contracts to 15.87 million in Q1 2023. Mobile Internet contracts increased by 120,000 to 11.8 million, while broadband connections declined by 30,000 to 4.07 million. Revenue in the Consumer Access segment increased by 4.6% to EUR 1.021 billion. This growth was attributable to the increase in hardware sales and other revenues, which rose by 24.3% to EUR 232.1 million. Service revenue, on the other hand, were on par with the previous year at EUR 788.9 million. This was primarily due to the effect of the number of contracts for comparatively higher priced broadband lines, i.e., fixed network business that has been declining for some time as well as a very strong Q1 in 2022. EBITDA in the Consumer Access segment decreased by 2.7% to EUR 182.1 million. An increase in EBITDA in the existing core business was offset by higher costs for the rollout of the 1&1 mobile network as the next slide also shows the Access subsegment increased its EBITDA by 3% to EUR 201.3 million, while costs for the rollout of the mobile network, 1&1 mobile network subsegment, rose from EUR 8.3 million in previous year to EUR 19.2 million in the first quarter of 2023. On Page 10, let's have a look at the Business Access segment. Here, we were able to increase sales by 5.8% to EUR 136.1 million. EBITDA in the segment decreased as planned by 3.9% to EUR 34.8 million. This was partly due to the start-up costs in and around the new 5G business unit, 1&1 Versatel. In this business unit, 1&1 Versatel is building data centers and fiber optic connections for antenna sites of the 1&1 mobile communications network under an intercompany agreement and leasing them to 1&1. In addition, 1&1 Versatel is increasingly using the fiber connected 1&1 antenna sites to develop nearby so called expansion clusters, i.e., public authority sites or business parks to the optical fiber network and, therefore, tapping into new customer potential. The start-up costs in total were EUR 7.2 million in the first quarter of 2023 compared with EUR 2.2 million in the previous year. Adjusted for the start-up costs, comparable EBITDA increased by 9.4%. Let us now turn to the Consumer Applications segment. Customer accounts in the Consumer Applications segment decreased by 530,000 from December 1, 2022, to 42.42 million, mostly due to seasonal factors. The decline resulted from 570,000 decrease in free accounts via pay accounts, i.e., pay contracts increased by 40,000 contracts to 2.64 million. Year-over-year, we had 220,000 less active accounts, which was driven by overall reduced e-commerce activity. Also due to seasonality, the number of mobile users declined slightly by 100,000 in Q1 2023, while accounts with cloud storage continued to grow by a strong 200,000. On Page 14, we are looking at revenues in the segment. Since the beginning of Q2 2022, the online advertising market has been under pressure with the war in Ukraine as well as high inflation. Therefore, revenues in the Consumer Applications segment declined by 2.2% from EUR 71.6 million to EUR 70 million compared to our extraordinary strong Q1 2022, which was only partly impacted by the 2 mentioned negative factors. Our EBITDA was equally impacted by these external negatively influencing factors and fell by EUR 2.1 million to EUR 20.1 million. In the Business Applications segment, we increased our contract portfolio by 110,000 contracts to 9.15 million. The increase came almost equally from our operations in Germany and abroad. Revenues in the segment increased by 13.6% to EUR 353.8 million. The increase resulted from strong customer growth, successful cross and upselling and strong growth in Sedos aftermarkets business. Adjusted for the aftermarket business, sales still increased by 4.6%. On Page 18. EBITDA in the Business Applications segment, on the other hand, was down 6.3% compared to the previous year of EUR 81.5 million -- at EUR 81.5 million. This was due to higher marketing expenses, EUR 9.9 million compared with the prior year period as a result of the different IONOS brand campaign phasing in 2023. Adjusted for these higher-margin expenses, comparable EBITDA increased by 5.1%. So much for the segments. Here, we have summarized the most important KPIs for the group once again and added a few more. We have already talked about revenue and EBITDA. Our CapEx increased from EUR 80 million to EUR 144.5 million due to investments in our fiber optic network and 1&1 Versatel and the rollout of the 1&1 mobile network. Free cash flow, more on this later, amounted to negative EUR 21.5 million, previous year of EUR 49.4 million negative, which included a phasing effect from 2021 of EUR 97.2 million. Our net liabilities to banks as well as our equity ratio were broadly unchanged. So Slide 20 shows you a bridge of our EBITDA to free cash flow. The largest items here are the sharp increase in CapEx to EUR 143.8 million net CapEx as a result of investments in the network rollout and taxes and interest of EUR 143.8 million. Interest and taxes include an annual advance payment on sales tax of around EUR 58 million, including working capital of negative EUR 28.8 million. This results in a free cash flow of positive EUR 11.3 million or negative EUR 21.5 million after leasing. Finally, a brief word on the outlook. Before going into Q&A, I would like to summarize my view on United Internet's performance on Page 22. We had a solid start into 2023. I feel comfortable with confirming our forecast for the full year and continue to expect an increase in net revenue to approximately EUR 6.2 billion versus EUR 5.915 billion last year. Operating EBITDA is expected to be at prior year's level, EUR 1.272 billion last year. This figure includes approximately EUR 70 million of higher investment for build-out of the 1&1 mobile network communications network. In other words, we reinvest roughly 6% of our EBITDA into future growth. CapEx, excluding any M&A transaction, is expected to increase to around EUR 800 million; prior year, EUR 681 million, in particular as a result of the 1&1 mobile network rollout and fiber optic network expansion to supply additional expansion areas to connect mobile communication antennas. So much for the presentation. And from our side, we are now available for any questions you may have. Thank you.
[Operator Instructions] And your first question comes from the line of Joshua Mills from BNP Paribas Exane.
I guess to start with a bigger picture one. As you come in into this role and you're managing all of these various different businesses, where about you're spending most of your time? And where about do you think the biggest uncertainties in the business plan are? I mean, I think from the investment community, there's still a lot of questions around the network build out at 1&1, but just kind of a sense of where else you think we can maybe improve communication or changing some better? And then the second question, more specifically on the 1&1 side, which -- so I think had a chance to ask earlier when we were comfortable for them is in practical terms, if there's no change in regulation? And if you're unsuccessful in winning 5G roaming approval, as you requested from Deutsche Tel testing and Vodafone, will all of your customers cease to have 5G on the [indiscernible] MVNO? Or does this only happen over time? It's just a bit of a technical question, but I want to understand whether there's actually a cutoff point at which the network quality for your mobile customers could deteriorate and whether 5G will be offered.
Joshua, so the first question, look, I mean, I'm good 6 weeks in now, I think I'm spending a lot of time on all parts of the business. But if you ask me really where I see the biggest opportunity in the business, I think that's clear in our mobile space where we, I think, have set out a clear plan to build the most latest technology network for Germany. And therefore, I'm convinced if we do this very successfully as we plan to, United Internet is going to have a very great future. So clearly, a focus area. And then obviously, I've got the entire corporate responsibility where I'm looking at everything else that comes with the job. Now to your second question, well, I mean, I think we probably need to ask the question, but yes, of course, we would like to have a fair position in terms of competition. Therefore, we've asked. Technically, yes, from a contract perspective, it would mean that we would only have the 4G access in the long run if nothing else is changing. So I think that's it. Okay?
Yes. And sorry, on that, do you have any plans to -- how you communicate that to customers whether additional marketing spending we needed in the third quarter to retain customers if that event does happen and how that might impact on your customer and churn estimate?
Yes. Joshua, look, I mean, I'm overseeing the entire group, right? That's a pretty specific 1&1 question. If it's okay, if I can please refer you to Oliver Klein maybe afterwards. I think he's better positioned to give you a good answer. Okay?
[Operator Instructions] And your next question comes from the line of Martin Hammerschmidt from Citi.
I have 2, please. And the first one is on the Versatel. I think previously, there's a contract that basically in which Versatel's cumulative revenues coming from 1&1 of roughly EUR 170 million between 2022 and 2025. Now with all the network delays that we've seen, is it still the range that we should sort of expect for Versatel or has that sort of shifted back a little bit given the network -- slower network rollout pace? And then the second question is on the Consumer Applications business. How should we think about sort of the revenue and EBITDA coming trajectory out of that business given sort of the advertising environment at the moment? Those are my two.
Martin, sorry. So yes, I don't think we have yet really disclosed anything on the breakdown of Versatel's revenue streams. And therefore, I'm not -- I guess not going to change that now. However, of course, if there is a bit of a delay in the network build-out, there could be a delay in terms of revenue trajectory from 1&1 to Versatel, naturally speaking. But I think -- I don't know, hopefully, you had a chance to listen to 1&1. We are very hopeful to catch up on the network build-out delays quickly. And therefore, I'm not foreseeing any major shifts to occur. With regards to the Consumer Applications business, look, I mean the -- I spent there quite some time. The advertising market is volatile. Sometimes everybody is hype and it's going super well and then it's going down a bit. I think this change is just natural occurrence. I think right now, we are at a very low point with regards to that, and I'm clearly hopeful we will start running against a very -- pretty weak last year. So therefore, I'm pretty confident that we will return to growth at some point in the future. And maybe important to understand as well, a very significant chunk of revenues is generated also by pay subscription business, which is going extremely well. So I'm very confident that the future of our Consumer Applications business is going to be a very growing and also generating more free cash going forward in the coming year and years. Okay?
Can I ask a follow-up question on the Consumer Applications business. I mean given that you said you spend most of your time now on the mobile side and that last year, there was apparently an offer to sell that business and you thought you could do more with that to develop that business. Now I'm just trying to understand if you spend most of your time sort of in the mobile business for the next probably foreseeable future, at what point do you think it is reasonable to sort of easy to make a decision on that front if you want to sell that business or if you actually want to sort of develop the business further?
Look, Martin, I think generally, we are open if somebody comes and knocks at our door and says, "Hey, look, I'm interested in this or that." We clearly entertain the idea. And should anything come out, we come to an agreement, that's great then. It's not that I spent my time more or less on it. That's something like this is going to happen, right? So if somebody knocks. And if somebody believes to do a significant better job or can do whatever magic to the business that we aren't able to do, great. On the other hand, we could also have access to a lot of our German consumers with the business, so we could also internally probably create more value. I think we like the optionality and will entertain different ideas whenever they come up. Okay?
[Operator Instructions] And your next question comes from the line of Usman M. Ghazi from Berenberg.
Just one quick one on Versatel, please. I guess we're hearing that the fiber companies in Germany are in a little bit of trouble with the state of the debt markets. And I am just wondering if M&A for Versatel is kind of a priority at the moment that all to take advantage of kind of consolidation opportunities or not.
Look, opportunistic M&A is always interesting. And I think the British Telecom acquisition that is yet to be closed. I know we have done. If there is other opportunities at a good price, super happy to look at. Is that the super priority of the company? It's one of the priorities as always, right? So we keep our eyes and ears open. And I think that's what I'd like to say really. Okay? Does that help?
Yes.
[Operator Instructions] And your next question comes from the line of Ben Rickett from New Street Research.
Apologies if this has been asked. But I was just wondering to know your latest thoughts on the Tele Columbus stake in terms of when you think a financing round would need to happen and whether you'd be interested in committing more capital to any future capital raise.
Ben, yes, look, 6 weeks in, right? So I'm clearly getting my head around of many, many things that are going on. Would I say that Tele Columbus is my highest priority as I sit here on this table, I'd probably be lying. Clearly, it is though an important subsidiary associate that we have, but honest to go -- at this point in time, I cannot give you a clear view, right? And that's pretty much it. But we're looking into it.
There are currently no further questions. I will hand the call back to you.
Great. Thank you, operator. Thank you, everyone, for attending our call today. Please do not hesitate to contact us for any follow-ups. We wish you a nice day. Stay safe, and goodbye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.