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Good morning, everybody, and welcome to our Q3 and 9 months results conference call. My name is Stephan Gramkow from Investor Relations and here with me today, I have our CFO, Frank Krause; and my colleague, Dominic Grossman from IR. Frank will first take you through the presentation, and we are happy to answer any questions afterwards. Frank, please go ahead.
Thank you, Stephan. I would also like to welcome you to our 9-month analyst and investor webcast. Before walking you through our segments, let's have a look at the company KPI figures. Revenues reached after 9 months EUR 3.9 billion, fully in line with consensus. If you exclude the volatile hardware business revenue, growth in 9 months is 3.2%, also in line with our guidance. EBITDA, it was EUR 945 million -- EUR 944 million in 9 months, also in line with consensus and impacted by EUR 59 million additional wholesale service costs from an expired discount mechanism at the end of 2018, as you all know. Contrary to our expectations, the expired agreement was not compensated as a result of the draft arbitrator's report. I will come back to this point in more detail when we will talk about Access in more detail.Earnings per share before depreciations from purchase price allocations and before impairment Tele Columbus are growing with 5.5% compared to 9 months last year. Now let's have a look at the Access segment, and we start with Consumer Access. After 9 months, we have now more than 14 million customer contracts, out of which 9.8 million are mobile Internet contracts and 4.3 million are broadband customers. Broadband is stable. And in mobile, we have seen again 200,000 net adds in Q3, which means now 580,000 mobile net adds for the first 9 months in 2019. Service revenues in 9 months are growing with 3.4%, similar to what we have seen after 6 months. Taking into account 7% lower hardware revenues, the total revenue has now reached EUR 2.735 billion. Similar to prior periods, the comparable service revenue, which means excluding temporary discounts for LTE tariffs, is growing with 4.7%. As I said before, reported figures are impacted by EUR 59 million additional costs from a time-limited adjustment mechanism which expired at the end of 2018 and what we expected to be compensated by a price reduction as a result of the arbitrator report. As you all know, that was not the case in the draft we received on the 24th of October.The 1&1 Drillisch team had now time to analyze the draft report. As a result, we think the methodology used in the report is structurally correct. However, we believe that certain assumptions and conclusions are incorrect and need to be corrected. We have submitted our reaction to the arbitrator on the 7th of November. If the expert does not adjust the final report accordingly, we reserve the right to take legal action. In Business Access, we have seen a similar picture after 9 months than what we have seen when we have talked about half year results. The core business areas, which are B2B and wholesale, are growing double digit. There are some remaining mass-market services, which are, as a result of an ongoing migration, are declining. After this migration, the underlying growth of B2B and wholesale will be clearly also seen in reported figures. EBITDA is now EUR 105 million after 9 months, reflecting an EBITDA margin of close to 30%. Even if you exclude the IFRS 16 effects, EBITDA is nicely growing with 38.5% compared to last year. Now let's move to Applications and start with Business Applications. After 20,000 net customer contracts in Q3 and 70,000 in 9 months, we have now a base of more than 8 million customer contracts, fairly divided in domestic and abroad contracts. As forecasted, we have seen in Q3 revenues a phasing effect which will be compensated in Q4 so that we expect the second half and full year on the same growth rate as what we have seen in the first 6 months, which was 5.6%, 5.7%. Due to seasonal reasons, we haven't spent much on marketing in Q3. As a result, EBITDA margin was in Q3 with close to 40%, very strong. In Q4, we expect again higher marketing spending, so that EBITDA margin will be again in the ballpark we have seen before. Now let's have a look at Consumer Applications. With 39.260 million active consumer accounts, we have seen again 840,000 more than compared to end of September last year, which means in the last 12 months. Even more important is that the accounts with mobile usage are growing disproportionate. As you all know, we are, in Consumer Applications, on a transformation journey to a more data-driven business model. In line with what we said last time, we have seen already a positive growth in Q3 in comparable revenues. This will continue in Q4 so that we will see growth in comparable revenues for the second half of 2019, as explained last time.The positive trend we have seen in revenues is also reflected in EBITDA. After a decline in the first half of minus 7.6%, it recovered already a lot and is still expected to turn positive in Q4.On Page 16, I have summarized a few more KPIs. It is worthwhile to mention that we could reduce further our net debt position and that we have seen a very strong free cash flow contribution in Q3, summarizing altogether now after 9 months in EUR 399 million. The outlook 2019 in revenue is a revenue in line with what we have seen in our 9 months figures, and EBITDA is reflecting what we announced when we received the draft arbitrator report on the 21st of October. Now I want to close, and now I'm happy to answer your questions.
The first question received is from Ulrich Rathe from Jefferies.
I have 2 questions, if I may. The first one regards the Business Applications margin versus growth balance. Frank, could you just sort of talk about how you see that balance unfolding into 2020, profitability versus growth, in Business Applications? Second question is on your comment that you reserve right for legal action, and that is quite interesting. I understand that the arbitration process presents a rather high hurdle for legal action. So are you saying that if the decision as drafted stands, that you do see grounds for legal appeal, i.e. that there's a very severe misjudgment happening in this arbitration ruling?
Yes, Ulrich. Thank you very much. First, I'll go first to your question on Business Applications. You know we were running at a margin of 35% over the last quarters. And Q3 was now, as I explained, a little bit higher. And you all know we would like to see revenue more in the higher single-digit growth area. And for that, we would be also willing to spend more on marketing but just if it makes sense and if we see really a return on. So -- and I'm not talking about 2 or 3 percentage points in EBITDA margin, but I think if we see room to invest and to boost more revenue, we will do that. Your second question regarding the price review, for the time being, I just want to say we need to wait for the final decision on the price review. And as I said, we think there certain assumptions are incorrect and need to be corrected, so let's wait how the final outcome will look like. And for the time being, I just can say that we reserve the right to take legal action. It depends on what the final outcome will be. But as I said, we think some of the assumptions are incorrect.
The next question received is from [ Josh Jammo ] from Exane.
Just coming back on the price review structure. So you said it's structurally correct. And I know you can't give too many details about where the errors or difference in terms of now. But if you could maybe give us a sense of whether this is strictly related to market pricing or if it's to do with margins as was referenced on the Drillisch call, that would be great. The second question, just on fixed line. We've seen Tele Columbus, obviously, do a wholesale deal with Telefónica Deutschland. I just wondered whether you would be looking to maybe increase your wholesale partnership with that business over time and can create some cost savings as well? And those are 2 questions from me.
Yes. First of all, and as you all know, the MBA MVNO contract has some margin protection clauses, and I think that is what I meant with saying that the methodology the arbitrator took is -- we think is right and is in line what we expected. And so that is the first comment. And the second comment is the arbitrator evaluates the overall competitiveness of 1&1 Drillisch at each point in time of the different price reviews. That means development of margins and the competitive environment that needs to be considered. And that is all I can say for the time being with that -- for that. And regarding your question with the deal between Tele Columbus and Telefónica, I would say in principle it is positive, that Tele Columbus seems to be now open for wholesale. So that is what we think is quite positive. And yes, let's see what it means for us. It is, priority-wise, I would say, for the time being, a little bit not on the top of our list. But I think it's quite positive that they are now talking about also.
Perhaps I could just ask one follow-up. I know that you're not giving any financial guidance on 5G rollouts at the moment. But clearly, you've had people looking at this strategy for a while internally now. Could you maybe give us a sense of where you feel more optimistic, be it on the financial or technology side? And also, if there's been any areas you've seen, as you've gone through the planning stage on 5G, which maybe look a bit more challenging than you thought.
Now as André said in the Drillisch call, I think we are currently talking to all our -- to all MNOs in regard of national roaming and also further working together. And I think we first have to wait what will be the outcome and what is the level of cooperation, and then I think we can answer that question.
The next question received is from Wolfgang Specht from Bankhaus Lampe.
Three questions from my side. The first one, also on the upcoming network. Can you give us an idea how far your negotiations with potential vendors are? Are there already some decisions taken? The second one is on Business Access. Versatel, we saw very strong EBITDA development here. Do you expect this to continue into 2020? Or was it rather an extraordinary result this year? Or probably even -- are you dressing up the bride for a spin-off? And the third question on your CEO not participating in the call. Is it just a single event? Or will it be the new normal for us to hear him only with the full year reporting?
Okay. So first of all, we are still talking to a few vendors, and so -- and no decision has been taken. And as you all know, the vendor market is quite narrow, so you have to talk to -- again to all of them, and that is what we are currently doing. So we are not preparing Versatel for a spin-off. And Versatel is a very important part of our overall strategy and, as you know, an important partner also for 1&1 Drillisch on the fixed line side, producing the Layer 2 product and also playing an important role for the upcoming 5G network. And your question about EBITDA development, we see also further progress in 2020. And regarding the participation here in our quarterly calls, I think Mr. Dommermuth never attended. He's doing the half year and the full year, and the quarterly ones are done by me and same for the Drillisch side. So that is nothing new. That is as we have done it also in the past.
And the next question is from Martin Jungfleisch of Kepler Cheuvreux.
I have 3, if I may. The first one is on Business Applications. And if you look at quarterly revenue, that hasn't really moved much since Q1 despite you adding some 70,000 customers, so I'm trying to understand, is this more a reduction in ARPU or higher promotions or some other effects driving this. And also, if you could comment on the performance of the business overall so far. And if you think -- what's the -- needs to be achieved towards a potential IPO of this unit? That's the first one. And the second one is on Business Access. I was trying to understand what is driving this growth in this business compared to last year. I think you also mentioned that there are some revenues in this segment fading out. So can you comment what the underlying growth of this business was? And then my third question is on the Tele Columbus stake. I think we have seen some shareholder changes there with Rocket Internet, for instance. I mean I was wondering if you could potentially provide an update on your plans with the 30% stake, if this is a -- still considered a strategic investment.
Okay. So your first question, regarding Business Applications, as I said, we have seen some phasing in Q3 revenues which I said will be offset by Q4. So Q4 is expected to be stronger so that overall, revenue growth in 2019 is expected to be between 5% and 6%. And I think that is already progress compared to last year. And yes, yes, it could be always faster, but also to be fair, rebranding from such a size, we have seen, takes some time, and -- as we are doing it in a lot of countries. So -- and that is -- it simply takes a little bit more time. But nothing unexpected. So revenue is growing as we expected. And also, margins are still on a very good level with 35% in the first 6 months and now -- and close to 40% in Q3, where I said we will spend a little bit more in Q4. So overall, it's more in the ballpark of -- for 2019, EBITDA margin will be more in the ballpark of 35%. And regarding readiness and what needs to be achieved, and I think we are doing all the right steps. There is now a management team in place which we think is the right one. And we did the rebranding also. That is progressing. So I think we are on the right track. Then on the Business Access and -- yes, the core business areas are B2B and wholesale, and that is also where the revenue growth is coming from. So our revenues from these areas are growing nicely, and that is what I meant by they are growing with single digit -- with double digits, sorry. And there are some remaining mass-market customer services where the customer is already on the 1&1 Drillisch side, but they are doing some billing services for them and that will be phased out over time. And then the underlying growth which we see today in B2B and wholesale will then also be seen in reported figures. And regarding your question and -- that Rocket took a stake in Tele Columbus, I cannot comment on that regarding the rationale. So you -- I think you need to ask Rocket why they are doing it. For us, it is now -- and there's now the new Supervisory Board in place, and I think that Supervisory Board is now evaluating the situation, and they will then guide and steer the Board to find the right strategy for the company.
And the next question is from Nizla Naizer from Deutsche Bank.
My first set of questions is on Business Applications. In terms of your customer additions and the overall performance on the ground, can you give us an understanding on how the geographies are doing? Which markets are maybe performing better than others and where you see a lot more scope for growth? And secondly, has the competitive environment changed in Germany, which I guess is one of your biggest markets, and any of the other major markets as well on the ground for Business Applications? And if you can give us some color on how you think of the timing of a potential spin-off, which you've mentioned before, that would be great. My second question is on Consumer Access. Do you think the net additions that you reported in Q3 would be equally strong in Q4? And could you give us some color as to the timing of the outcome of the second price review that, I guess, is now under way?
Okay. So your first question regarding the customer growth in Business Applications, that is more or less equally split all over with clearly some dominant pieces in Germany because we operate in Germany with IONOS and with Strato, And regarding the timing of the IPO, that is still not decided, but I think we also said on the half year press conference that it will be more '21 than before. So we will take the time needed to show that after the rebranding, it is -- that we have a track record on revenue growth and -- to underpin that the new brand is really working and running.In Consumer Access, your question was regarding what do we expect for Q4, and I need to refer to what my colleagues from 1&1 Drillisch said in the call before. So I think it is a little bit too early to see what will be the final outcome in Q4, and it depends also on how Christmas will work this year. But as André has shown, I think we have shown now for a long time, that whatever is possible we will do in that market.For the second price review, you also asked for the timing. And yes, it is early 2020, hopefully, in the first quarter or at the end or at the beginning of the second quarter. So a little bit -- and we are not fully in the driver seat to decide when it will happen, but that is the timing we expect.
And the last question we received is from Christian Fangmann from HSBC.
I have a question on Consumer Applications. So that is basically broadly a stable business. And -- but is there scope, you believe, in 2020 to make this a growing business again, even if it's slightly growing? And then lastly, I think on Rocket Internet. I mean they took a 5.5% stake in United. You own 9% of Rocket Internet, so it looks like a bit of a weird structure. Can you maybe explain what's happening there? Just any color would be helpful.
Okay. Thank you, Mr. Fangmann. And first of all, to Consumer Applications, as I said, we are here on a transformation journey. And deliberately, we have decided to take out some advertising revenues and also profit, and that needs to be offset over time with the new products, with the new initiatives. And that is where we already see that we are on the right track. As I said, in Q3, the comparable revenue was already slightly positive and that it is expected also to be positive in Q4. And that is the same then also for EBITDA. And yes, yes, taking out some revenues and profit pieces go sometimes a little bit faster, but it is the right way to transform the business in what we wanted to be transformed.Regarding Rocket Internet, same answer as before, I cannot comment on the rationale why Rocket bought a stake in United Internet. And -- but on the other side, maybe you have seen in our Q3 report now that we have no longer a stake of 9% in Rocket. It is now 7.44%. So we took a chance to get rid of some of it. And I think it is fair to say the strategic relevance of our Rocket stake is less than it was before. So our actual shareholding is 7.44%.
And we received a further question. It's from Stephen Malcolm from Redburn.
Couple of questions. One, just on other EBITDA. I think in the year-to-date, you booked about EUR 28 million on profit on disposal and other things. I just wanted to understand whether we should expect any more other contribution in the fourth quarter to get to your guidance.And then just another question on 5G network rollout. I mean you said previously that you really need low-band spectrum or a very good roaming agreement to pursue a sort of proper network build. Is that still the case? And should we assume that your discussions on national roaming are complete? Your -- any ambitions you have on 5G are contingent on securing a 5G roaming deal with other operators? Just good to hear your sort of thoughts on the low-band position.
Thank you very much. So absolutely right. As you said, in the first half, there was an extraordinary item, close to EUR 20 million, from one of our participants we have sold. It was virtual minds. And -- but I think that was also foreseen. So we have talked about that already in our full year report last year. And for the time being, I do not see something similar for the rest of the year.And your second question was regarding -- I need some help.
Just 5G. I just...
About 5G.
I just would like to -- you said before that you needed to get low-band spectrum to aggressively pursue or properly pursue a 5G network build. And I guess that goes hand-in-hand also with the roaming discussions you're having. I'm just trying to understand whether there are any red lines for you in terms of network access with other operators or low-band spectrum as we think about your options over the next 2 or 3 years.
You're absolutely right. I think it depends very much on how deep the national roaming or cooperation agreement will be. And whatever will be the outcome then also determines then what you have to build by yourself and what spectrum you need in addition. So I think we need to wait a little bit for that.
So if you don't get -- for instance, if you don't get 5G roaming, which I believe the MBA doesn't have any conditions around 5G roaming -- however, the MNO remedy does. But if you don't get 5G roaming with one of the other bigger operators with national coverage, is that -- would that be something that would persuade you not to build a network?
But that cannot be the case. So we are not starting from scratch. As you know, we can form our existing MBA MVNO contract into a national roaming contract under the same terms and conditions.
The MNO remedy is enough for you to pursue a 5G build is what you're saying?
I think so, yes.
As there are no further questions, I hand back to the speakers.
Thank you very much. Thank you, operator, and thank you, everyone, for attending our call today. Please do not hesitate to get in touch if you have any follow-up questions. So have a nice day. Take care, and goodbye.