Good morning, ladies and gentlemen. It is our pleasure, on behalf of the Management Board of 1&1, I would like to welcome you to our conference call on the first quarter. During this call, our CFO, Sascha D'Avis, will present the results of the first quarter and how we will meet the guidance for the 2025 financial years. As always, we are happy taking your questions after the presentation. Thank you. I would now like to hand over to Sascha. Sascha, the floor is yours.
Thank you, Oliver. Good morning, everyone. This is Sascha D'Avis, CFO of 1&1 AG. It's a pleasure to welcome you to our call this morning. I would like to give you an update on our performance in the first quarter as well as on the financial results as end of March. Let's begin with customer contracts shown on slide number four. As end of March, we had 16.35 million contracts in our customer base, including 12.42 million mobile internet contracts and 3.93 million broadband lines in total. This represents a decrease of 40,000 contracts during the first three months in 2025. In the first quarter, we saw a slightly decline in our mobile business with 20,000 contracts. This development was in line with our expectations, driven by the ongoing migration process. As you know, we are migrating our mobile contracts to our own network.
This will temporarily result in slightly higher churn rates. Let me please explain that. At the moment, we are migrating 50,000 customers per day from the Telefónica network, which we previously used on a wholesale base. These customers are now being transferred to our own infrastructure. As part of the migration process, we are currently experiencing higher customer losses than usual. This is due to several factors. For example, some of our customers and contacts hold inactive contracts or had already been considering cancellation. We are now actually reminding them that they still have this contract and that we want to change it over, and they now take that as a trigger point to cancel their subscription with us. This all leads to temporarily higher churn rates. The migration efforts will be huge in the first, second, and third quarter, and in the fourth quarter, it will tail off.
Towards the end of the year, you should be able to see more marked and more healthy growth again. At least, that is the plan in our perspective. In the broadband business, we had also a slight decrease in our contract base with 20,000 contracts. This was fully in line with our expectations and is due, among other things, to a competitive environment in the fiber optic business. On the next slide, the revenue. Revenue in total was down by -0.6% to EUR 1.019 billion. The high margin service revenue is stable at EUR 822 million, fully in our expectations and budget. The low margin other revenue, which is mainly coming out of smartphones and routers, decreased by -2.9% because of lower demand out of our customer base. Let's move on to EBITDA by segments.
In the exit segment, we generated EUR 222.9 million in EBITDA during the first three months of 2025, which is a decrease of 0.8% compared with EUR 224.7 million in the first quarter of 2024. The EUR -67 million EBITDA in the segment 1&1 mobile network is reflecting our activities for the rollout and operation of the mobile network, compared with EUR -42.4 million in the first quarter of 2024. This is fully in line with our expectation and business plan and reflects the high number of mobile migrations in the first quarter of 2025. Let's now turn to CapEx in the first three months of 2025. We invested EUR 27.9 million for CapEx, with EUR 1.2 million allocated to the segment exits. The majority, EUR 26.7 million, was driven by the rollout of our mobile network.
This is also fully in line with our expectations and our business plan for the first quarter of 2025, especially regarding phasing of the CapEx, as in the years 2023 and 2024 is more backloaded. Now we come to the financials for the first three months. I would like to start with the P&L. The revenue is declining slightly by -0.6% to EUR 1.019 billion. As mentioned before, the high margin sales revenue is stable at EUR 822 million, and the low margin other revenue, which is mainly coming out of smartphones and routers, decreased by -2.9% because of lower demand out of our customer base. The cost of sales go up from EUR 725.2 million in Q1 2024 to EUR 757.5 million in Q1 2025.
The increase of cost of sales by EUR 32 million particularly relates to the 1&1 Mobile Network segment, resulting from increasing depreciation and additional costs for the rollout operation. Therefore, gross profit dropped from EUR 299 million in Q1 2024 to EUR 261 million in Q1 2025. Without the spending for the mobile network, gross profit would have been nearly stable by EUR 362 million. Cost of distribution increased from EUR 130 million in Q1 2024 to EUR 137 million in Q1 2025. Administration costs are broadly stable at EUR 29 million in Q1 2025, and other operating income is with EUR 11 million above the level in Q1 2024, which was EUR 8 million. The impairments of receivables and contract assets grew up from EUR 31 million to EUR 33 million.
In total, a moderate cost increase driven by higher marketing expenses and, as I mentioned, slightly higher impairments on receivables and contract assets. The profit from operating activities in Q1 2025 was EUR +73 million. It's lower than the result in Q1 2024, with EUR 118 million, which is also driven by higher spendings for the mobile network. At EUR -5 million, the financial result is lower than the result for the first quarter of 2024, which was EUR +1 million. The decline in the financial result is primarily due to higher interest expenses related to finance leases stemming from the increased number of antenna sites, as well as interest payments on the loan received from United Internet.
On the other hand, financial income decreased as a result of the lower interest rate environment, while the average liquidity investment remained in line with last year's level. In summary, this brings us at the end of March to a profit before taxes of EUR 68 million compared with EUR 119 million in Q1 2024. The consolidated result after tax expense is EUR 47 million in Q1 2025 after EUR 83 million in Q1 2024. Let us come to the balance sheet on the next slide. On the second last row, you see the balance sheet in total, which increased from EUR 8.130 billion to EUR 8.44 billion, so in total an increase of EUR 313 million. We have listed the main topics that are responsible for the increase, and these positions are blue-colored on the side.
First of all, receivables from affiliate companies is the cash position that we have at United Internet. This position increased from EUR 327 million by the end of December 2024 to EUR 640 million by the end of March 2025. Current contract assets decreased by EUR 90 million to EUR 602 million, which is attributable to the decline in hardware sales. Long-term assets showed a slight decrease by EUR -21 million to EUR 6.265 billion. Property, plant, and equipment increased from EUR 963 million to EUR 909.1 million. This increase of EUR 28 million results from cash CapEx of around EUR 10 million, book value for lease agreements for the antenna sites of around EUR 40 million, while depreciation amounts to EUR 22 million. Intangible assets decreased by EUR -45 million to EUR 1.392 billion due to the amortization of the assets identified as part of 1&1 purchase price allocation.
Cash CapEx for the intangible assets totaled to EUR 18 million. Short-term liabilities decreased by EUR 51 million to EUR 618 million. Trade payables and current liabilities decreased from EUR 350 million to EUR 306 million. This was mainly due to payments in connection with advanced purchases from suppliers. Payable due to affiliate companies, which relate to companies in the United Internet Group, decreased by EUR 73 million to EUR 90 million compared to the previous year. Other non-financial liabilities increased from EUR 11.1 million to EUR 58.7 million. In the long-term liabilities, long-term payables due to affiliate companies increased by EUR 290 million. This relates to a long-term loan granted by United Internet in February. In December 2024, United Internet AG received a development loan of up to EUR 800 million from the Japanese development bank, JBIC. The purpose of the funding is to build the 1&1 mobile network.
According to the loan agreement, all funds are to be based directly on 1&1. This is based on a loan agreement between 1&1 and United Internet, which was concluded in January 2025. In February 2025, the first drawdown of EUR 290 million was made, which was passed on to 1&1 in accordance with the agreements. In addition, we have an increase of long-term and other financial liabilities that is coming out of the leasing liabilities, which increased by EUR 24 million to EUR 417 million at the end of March. Now, I would like to step up into the cash flow slide 11. The net inflow of funds from operating activities is EUR 44 million compared to EUR 89 million in Q1 2024. The cash flow from operating activities, which is defined as the period income adjusted by non-cash earnings and expenses, totals to EUR 133.9 million.
From there, the change in assets and liabilities is predominantly influenced by the change in trade receivables and other assets with EUR -30.6 million. The change in receivables and liabilities to related companies with EUR -61.8 million. The change in trade payables with EUR -48.3 million. The change in other liabilities with EUR 58.1 million and change in other working capital with EUR -7.5 million. The cash flow from investment activities includes investments in intangible assets, property, plant, and equipment amounting to EUR 28.0 million. The investments, which are predominantly made in the 1&1 mobile network, are expected to increase as planned over 2025 and amount to EUR 450 million for the year as a whole. EUR 4.2 million were invested for acquisition of A1 marketing communication and new media from United Internet. In addition, payments of EUR 290.5 million were made to short-term investments.
These payments relate to the short-term investment of free cash at United Internet AG. Cash inflow from interest received from this investment amounted to EUR +3.1 million. The cash flow from financing activities includes the repayment of lease liabilities amounting to EUR 4.9 million, other payments with interest nature in the amount of EUR 3.5 million, plus EUR 219 million from borrowing and the interest payments from leases amounting to EUR 6.9 million. In total, the free cash flow amounting to EUR +15.8 million in Q1 2025 compared with EUR +78 million in Q1 2024. On the following slide, we see the bridge from EBITDA to free cash flow. On the left-hand side, you see the EBITDA as of end March with EUR 155.9 million, then the negative impact of EUR -30.6 million because of higher receivables and other assets.
The negative impact of receivables and liabilities due to related companies is of EUR -61.8 million. In addition, the repayment of trade receivables has a negative impact of EUR 48.3 million, then change of other liabilities with EUR +58.1 million. Change in other working capital impacts with EUR +7.7 million, EUR -37.3 million for taxes and already mentioned EUR -27.9 million for CapEx. In result, we are coming to EUR +15.8 million free cash flow at the end of March 2025. Now we come to the outlook for 2025. We confirm our guidance and expect a stable contract base and service revenues at the prior year level due to a slight increase in terminations in connection with the ongoing migration of all mobile customers to the new 1&1 network, which will continue until the end of the year.
EBITDA is expected to decrease by approximately 3.4% to approximately EUR 571 million. This decline is based on lower EBITDA in excess operating segment, which is expected to amount to approximately EUR 836 million compared to EUR 856.1 million in 2024. The decline in EBITDA results from the expiration of the national roaming agreement with Telefónica, which provides for one-time payments every five years that are capitalized and amortized. The national roaming agreement with Vodafone, which is commercially equivalent for 1&1, does not provide for such one-time payments. The use of the Vodafone network is recognized in the current service costs within the EBITDA. In this respect, the switch to Vodafone will not result in any change in EBIT. The negative impact on EBITDA is offset by a corresponding positive impact on depreciation.
We expect EBITDA in the 1&1 Mobile Network segment to remain unchanged year on year at around EUR -265 million. This includes approximately EUR -100 million in expenses for customer migration and for network service costs, which will no longer be required after the complete migration of all customers from 2026. The investment volume, cash CapEx, is expected to amount to approximately EUR 450 million compared to EUR 290.6 million in 2024. Thank you very much for your attention. I will now hand over to the operator for the Q&A session.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Once you have asked your question, please ensure you mute your line to prevent background noises. To withdraw your question, please press star one and one again. We will now take the first question.
The first question today comes from the line of Ganesha Nagesha from Barclays. Please go ahead.
Thank you for the presentation, and thank you for taking up my questions. A couple of questions from my side. The first one is on EBITDA. Could you please provide some color in terms of the cost phasing, specifically on the network segment? How should we think in terms of phasing of the network rollout and migration cost? My second question is on your discussion related to the low bandwidth access with the other operators. Is there any update on the discussions, please? Thank you.
Thank you for your questions. The first question is about EBITDA phasing. With increasing migration to Vodafone national roaming, EBITDA will decrease slightly over the year.
This is due to the fact that the national roaming costs and the Vodafone contract are expensed directly. The Telefónica contract, as mentioned before, there were one-off costs that we amortized over five years. No change at EBITDA level. EBITDA will deteriorate slightly, and depreciation and amortization will decrease. To the low band access question, we are sorry. There is no change to our comments in March. We are waiting for the offers, and then we will negotiate.
Thank you.
Thank you. We will now go to our next question. The next question comes from the line of Polo Tang from UBS. Please go ahead.
Good morning. Thanks for taking the questions. I have two different questions. The first one is, can you comment on the competitive dynamics in both the mobile and the broadband market? Have there been any notable changes in April and May?
Second question is, what does the Federal Cartel Office decision on Vantage Towers mean for the pace of your network rollout? Also, should we expect any one-off gains or settlements in terms of the financials? Also, in terms of your network build, I noticed that your CapEx in Q1 was relatively limited. Could you tell us how many sites you activated in Q1? Thanks.
As to the competition, we see strong competition through promotions, mainly driven by Telefónica. They're offering more and more across their O2 portfolio. Beside that, they provided, for example, Ibarra, with obviously good purchase conditions that help them to offer aggressive tariffs at the low end. We act rationally about this competition environment. We're able to offer attractive tariffs that are competitive, but also with reasonable prices for us.
We do not want to mix our customer base with lower and lower RPUs, so we stay rationally and balanced. To your questions about the Bundeskartellamt, the authority has requested Vantage and Vodafone to comment on the identified discrimination against 1&1 by summer. We have to wait until summer. For now, we have no comment on ongoing negotiation and discussions. About the CapEx, the CapEx is fully in line with our expectations and our business plan for the first quarter of 2025, especially regarding phasing of the CapEx as in the years 2023 and 2024. It is more backloaded, especially we will see that in the second half of the year. Why is it backloading?
Sometimes there are acceptances necessary before the final invoice can be issued, or suppliers' invoices are late, and so on and so on, though there is a backlog that will be dissolved in the next three quarters. Beside that, the investment for the capacity expansion of our core data centers will be more in the second half of the year, and a lot of projects will end in the second half. Therefore, the CapEx is more backloaded. To make it clear, there is no delay in the projects. We will see in the next quarter that the backlog will resolve. And then the number of sites that you activated in Q1? In Q1, we have in total 1,000 sites on air. Each quarter, we will add 200-300 sites. In the end of the year, I think we will see 2,000 sites activated.
Okay, thanks.
Thank you. Your next question comes from the line of Keval Khiroya from Deutsche Bank. Please go ahead.
Thank you. And I've got two questions, please. Firstly, going back to competitive environment, can you talk about how your growth stance development has been affected by the step-up in competition? Secondly, I appreciate you haven't given a concrete site target for this year, but when do you expect to meet the 25% coverage requirements? Thank you.
To your first question, Q1 was fully in line with our expectations regarding the net adds. At the end of Q1, we had just 6 million subscribers on our network, on our own network, and we are creating 50,000 contracts a day. This leads to slightly higher churn, as we mentioned before.
As I mentioned, it was fully in line with our expectations, and we are very happy at this point with the quality of the migrations and with the effects that we see. To your second question, we will see 25% coverage at the end of this year. It is a tough target, but we think that we can achieve that.
Okay, thank you.
Thank you. Your next question comes from the line of Mollie Witcombe from Goldman Sachs. Ple ase go ahead.
Hi, thank you for taking my questions. I would like to just dive a little bit more into the KPI trends. Previously, you have said that you were expecting a kind of huge negative impact in Q2, and now you are saying Q3 as well. Does that mean that the migration is causing more customer losses than you originally anticipated?
I was wondering if you could give us a little bit more color on how that's playing out. My second question is,
sorry, sorry, Mollie, that I'm stepping in. I cannot—maybe it's my ability to understand English, but it's pretty difficult to follow you. Can you restart?
No worries. I'll repeat. My first question is around KPIs and the trends in KPIs. Previously, you've said that you're expecting a kind of 10,000-20,000 mobile customer loss, and you were saying that the impact was going to be huge in Q1 and Q2, but now you're saying Q2 and Q3 as well. I was wondering if you could give us a little bit more color on how that's developing, if it's unexpected, or if you're seeing kind of some changes or difficulties and how that's playing out.
My next question was around the intercompany cash injection. Previously, you have said that you were kind of looking to pay that down, and now we have had this cash injection. I was wondering if you could give us a little bit more detail on how you are planning on using the proceeds and some more color around that. I hope that makes more sense.
Mollie, your second question relates to intercompany or do you?
Yes, in terms of intercompany. Previously, on the last results call, I think you said you were looking to pay that down, and then we have had a cash injection. I was wondering perhaps you could give us a little bit more color on why and how you are looking to use this cash.
Thank you. Mollie, the borrowings, we just called them in February.
Which line do you suggest that we have communicated to pay down, please?
I think you just made a general comment about potential deleveraging in Q4. I may be mistaken.
I'm not aware that we had discussed deleveraging because we merely have no leverage on our balance sheet.
Okay, I must have misunderstood. In terms of KPIs?
For your questions to the migrations, we will see a huge number of migrations in Q2 and Q3. In Q4, it will slow down. By the end of the year, we will have all our customers at the 1&1 network. Regarding that, we will see in Q2, I expect, in the mobile business, I think more or less the same level of net adds as in Q1, maybe a little bit better than in Q1. As I mentioned before, we are very happy with our migration process.
For the mobile business, it will be maybe a little bit better as in Q1. For the broadband business, I would expect slightly lower net growth as in Q1, but fully in our expectations.
Thank you.
Thank you. Your next question comes from the line of Ulrich Rathe from Bernstein. Please go ahead.
Yeah, thank you. I have three questions, please. The first one is on the migration of customers to the Vodafone national roaming deal. Could you give a bit more color on what is going on there? Are you touching particular customer groups at this point? How are you phasing this? Is there sort of a change in the quality of immigrations that is expected between Q1 and Q2 and Q3? Any more color on that process would be interesting. Thank you.
The second question would be, with the Q1 EBITDA, which you said is according to your own expectations, but it is quite a bit ahead of what analysts expected. Would you go as far as saying that the full-year EBITDA guidance of EUR 571 million is maybe a little bit conservative or not? The last question is, do you have any news on the negotiations with your equipment suppliers or with your suppliers about a potential compensation for the network outage in May 2024? Thank you.
Thank you. To your first question about the migrations to our own network, we see that we include in the migration batches all of our customers, not especially ones. What we could see in the next quarters is that there are more customers without network coverage.
We are not exactly knowing which customers have the problem with the coverage because of their movement profile. Basically, you have VLAN reception at home, and what we know is the residence and address of the customers. What we do not know is the movement profile, and this is more relevant in terms of network coverage. At this point, we are very happy with the results that we see, as I mentioned before. Yeah, the migration process is running up, and we migrate 50,000 contracts a day very well. To the EBITDA, the full-year EBITDA guidance is not conservative. We think that the guidance is probably. To the news about compensation, as you all know, we have not disclosed the status of confidentiality discussions with our partners.
However, we have not included any compensation payments in our guidance, but there are always mutual requirements in such complex and pioneering projects. Therefore, we do not have to include any potential compensation in our guidance. We are in discussions and negotiations, but there is nothing new to say at this mo ment.
Thank you very much.
Thank you. As a reminder, if you would like to ask a question, please press star one and one on your telephone keypad. We will now go to our next question. The question has just come back in. One moment. Your next question comes from the line of Ben Rickett from New Street Research. Please go ahead.
Hi, thank you. I just had two questions. Firstly, could you provide a bit more information on this EUR 800 million loan agreement? What is the term of this loan?
Do you expect to draw down the full amount of it to fund the network build? Second question, maybe on sort of KPIs again in Q1. Can you give a breakdown of the mobile net adds in Q1? What's the sort of underlying net adds growth, and what was the impact from the migration? That would be helpful. Maybe, sorry, a sort of third clarification. Can I just check? Did you say you think you'll get 25% coverage by the end of this year with 2,000 sites? Those are the three. Thank you.
Yeah, to your first question, in December 2024, United Internet received a development loan up to EUR 800 million from JBIC. The purpose of the funding is to build the 1&1 mobile network.
The first drawdown of the EUR 290 million was made, which was passed on to 1&1 in accordance with the agreement. At this moment, we do not know if it is necessary that we need the full EUR 800 million. We expect that we can finance our network construction from our cash generation. If there would be an auction in 2028, which we do not know, we have to be prepared. This long-term loan gives us more flexibility and room for possible preparation if it would be needed. To your second question, please have understanding that I will not give the details and provide grounds about migrations and the net adds. To your third question, our obligations are known: 25% coverage by the end of 2025. We think that we can achieve this goal, this ambitious goal. I have nothing more to say about that.
Okay, thank you. That's helpful. Can I just check? What is the duration of the new loan?
Ben, which situation, please?
Sorry, so it's the EUR 800 million loan. How long did that run for? You're saying it's beyond 2028, I think.
Ben, please beg for your understanding. It's a long-lasting loan, but any details about interest rates, which are on arm's length, and the duration is not public. You have to ask maybe United Internet in the upcoming call.
Okay, thank you.
Thank you. There are currently no further questions. I will hand the call back to Oliver.
Thank you very much, Sharon, for your guidance. Thank you for your attention. As usual, we'll be available for further discussions afterwards and in the upcoming conferences.
I will now hand back to the operator and hope you have an interesting conference call with our parent company, United Internet, after a short break. We wish you all the best. Stay healthy and see you soon. Thank you.