To our nine months 2026 results call. On behalf of the executive board of 1&1 AG, I would like to welcome you. During this conference call, our CFO, Sascha D'Avis, will present to you the results for the first nine months of this year, followed by the guidance and the status of our 1&1 mobile network. Before I hand over to Sascha, please pay attention to our usual disclaimer, which is part of our presentation. Thank you. Now it's my pleasure handing over to Sascha.
Thank you, Oliver. Good morning, ladies and gentlemen. My name is Sascha D'Avis, CFO of 1&1 AG. I would like to welcome you to our call today. As Oliver has already announced, I would now like to provide you with an overview of our business performance in the third quarter, as well as our financial figures at the end of the first nine months of 2026. I would like to start with our consumer and small business segment. In mobile communications, we have 12.24 million contracts and address the market very broadly through our different brands. The quality of our mobile offering was rated very good by connect. In fixed line, we serve 3.86 million broadband connections. At the same time, through our own network and our partnerships, we provide our customers with access to Germany's largest FTTH footprint, covering around 25 million households.
Let us now turn to our enterprise and network segment. We continue to make good progress with the rollout of our fully virtualized Open RAN mobile network. Household coverage has now reached more than 36%, up from 27% at the end of 2025, based exclusively on mid-band and high-band frequencies. In fixed line, we operate a fiber optic network of around 70,000 km, which is available in more than 350 cities. More than 30,000 business locations are already directly connected to our own network. The rollout of our 1&1 mobile network continues to progress steadily. Starting from 27% at the end of 2025, we increased household coverage to more than 29% in the first quarter and 34% in the second quarter, and have now reached 36% in the third quarter of 2026.
By the end of the year, we expect a further increase and cover around 40% of the German households. Moving on to the development of our customer contracts. At the end of the third quarter, we had a total of 16.1 million customer contracts. In mobile, the number of contracts decreased by 240,000 to 12.24 million, primarily because we adjusted our discount tariffs and discontinued some low-priced offers. In broadband, by contrast, we were able to slightly increase the number of connections by 20,000 to 3.86 million. Next, let us take a look at revenue. In the first nine months of 2026, total revenue increased by 1.2% to EUR 3.402 billion. While service revenue at EUR 2.712 billion was 1.2% below the prior year level, other revenue increased by 12.2% to around EUR 690 million, primarily due to higher smartphone revenues. Turning to earnings.
During third quarter, we decided on a non-recurring transformation and restructuring program at 1&1 Versatel. This resulted in the accounting for provision of EUR 60 million. The comparable operating EBITDA, which is adjusted for the effects of that provision, increased by 11.4% to EUR 593.3 million in the first nine months. In the consumer and small business segment, EBITDA of EUR 598.2 million was slightly below the prior year level, primarily due to higher roaming costs and a EUR 16.5 million impact from the change in roaming partner with no impact on EBIT. By contrast, enterprise and networks improved significantly. Operating EBITDA improved from EUR -78.2 million to EUR -4.9 million, primarily due to the elimination of network migration costs and a higher share of internally generated mobile network services. Moving on to CapEx.
CapEx amounted to EUR 359.3 million in the first nine months of 2026, compared with EUR 437.4 million in the prior year period. With EUR 341.6 million, the majority continued to relate to the enterprise and network segment, and in particular to our network infrastructure. A further EUR 17.7 million related to consumer and small business. I would now like to take you through the financial development in the first nine months of 2026, starting with the earnings situation. For the purpose of explaining the earnings situation and in deviation from our published IFRS financial statements, we have presented the income statement as if 1&1 Versatel had already been part of our Group for the entire prior year period. Revenue amounted to EUR 3.402 billion in the first nine months of 2026, compared with EUR 3.36 billion in the first nine months of 2025, an increase of 1.2%.
As mentioned before, service revenue is down by 1.2%, while other revenue grew by 12.2% in comparison in the first nine months in 2025. Gross profit in the consumer and small business segment amounted to EUR 1.03 billion in the first nine months of 2026, at the same level as the prior year figure. Gross profit in the enterprise network segment decreased from EUR -292.2 million in the first nine months of 2025 to EUR -310.3 million in the first nine months of 2026. The savings in external service costs resulting from the increasing share of internally generated mobile network services were offset, in particular, by higher depreciation in connection with the rollout of our mobile network. Cost of sales increased from EUR 2.622 billion in the first nine months of 2025 to EUR 2.682 billion in the first nine months of 2026, an increase of 2.3%.
With EUR 29.1 million, the increase of cost of sales is related to the costs for the transformation and restructuring program at 1&1 Versatel. Next to that, the increase in cost of sales was attributable to higher costs of goods sold as a result of higher hardware revenue, higher depreciation in connection with the rollout of our own mobile network, as well as increased national roaming service costs. Due to slower network growth at Vodafone compared with our expectations, 1&1's share of usage and the associated costs were higher. We are now observing the convergence in the data growth rates of 1&1 and Vodafone. Compared with the previous year, cost of sales were positively impacted by higher volumes of self-generated data traffic, as well as the non-recurrence of migration costs that had been incurred in the prior year.
Accordingly, gross profit decreased from EUR 737.8 million in the first nine months of 2025 to EUR 719.4 million in the first nine months of 2026, a decline of 2.5%. Selling expenses decreased from EUR 443.6 million in the first nine months of 2025 to EUR 410.6 million in the first nine months of 2026, representing a decline of 7.4%. With EUR 22.9 million, the selling expenses in 2026 are related to the costs for the transformation and restructuring program at 1&1 Versatel. The overall decrease resulted from the expiry of amortization on the Drillisch customer base in August 2025. Administrative expenses decreased from EUR 136.1 million in the first nine months of 2025 to EUR 130.1 million in the first nine months of 2026, a decline of 4.4%.
With EUR 8 million, the increase of administration expenses are related to the costs for the transformation and restructuring program at 1&1 Versatel. The balance of other operating income and expenses amounted to EUR 35.2 million compared to EUR 36.5 million in the prior year. Impairment losses on receivables and contract assets increased from EUR 92 million in the first nine months of 2025 to EUR 94.6 million in the first nine months of 2026. The slight increase resulted from higher revenue. Operating profit, or EBIT, amounted to EUR 119.3 million in the first nine months of 2026 compared with EUR 102.6 million in the first nine months of 2025. This represents an increase of 16.3%. The increase resulted from the expiry of PPA amortization on the customer base recognized as part of the initial consolidation of Drillisch.
This was partly offset, in particular, by higher depreciation in connection with the rollout of the mobile network. The financial result amounted to EUR -102.4 million in the first nine months of 2026 compared with EUR -87.2 million in the first nine months of 2025. The increase in financial expenses was primarily attributable to higher interest expenses from finance leases, as well as interest paid for the loans received from United Internet. Profit before tax amounted to EUR 16.9 million in the first nine months of 2026 compared with EUR 15.4 million in the first nine months of 2025, an increase of 9.9%. Tax expenses amounted to EUR 5.2 million in the first nine months of 2026 compared with EUR 4.7 million in the first nine months of 2025.
As a result, we generated consolidated net income of EUR 11.7 million in the first nine months of 2026 compared with EUR 10.7 million in the first nine months of 2025, an increase of 9.4%. Next, let us take a look at the balance sheet. Total assets amounted to EUR 11.007 billion as of December 31, 2025, and decreased to EUR 10.697 billion as of September 30, 2026. The decrease of EUR 310.4 million was mainly attributable to the following effects: Current assets amounted to EUR 1.9 billion at the end of 2025 and decreased by EUR 419.9 million to EUR 1.48 billion in the first nine months of 2026. Receivables from affiliated companies decreased from EUR 377.1 million as of December 31, 2025, to EUR 4.3 million as of September 2026.
The decrease mainly related to receivable of EUR 372.5 million from United Internet outstanding at the end 2025, resulting from the final profit transfer by United Internet Management Holding, which was acquired in December 2025. This receivable was fully settled in the first quarter of 2026. Non-current assets increased by EUR 109.5 million from EUR 9.108 billion at year-end 2025 to EUR 9.217 billion by the end of September 2026. The increase was primarily attributable to property, plant, and equipment, and mainly comprised telecommunication equipment as well as rights of use for leased antenna sites in connection with our network rollout. Current liabilities decreased from EUR 1.207 billion as of December 2025 to EUR 1.015 billion as of September 2026. Trade payables decreased from EUR 543.9 million to EUR 423 million. This was primarily due to payments related to the procurement of services from suppliers.
Liabilities of affiliate companies decreased significantly from EUR 204.4 million to EUR 88.5 million. The decrease mainly comprised the payment of a settlement obligation to United Internet in the amount of EUR 246.1 million, arising from the acquisition of 1&1 Versatel. This was partly offset by cash pool liabilities to United Internet of EUR 53 million as of September 30, 2026. Non-current liabilities decreased from EUR 3.805 billion at the year-end 2025 to EUR 3.681 billion as of end of September 2026. Liabilities to affiliate companies decreased from EUR 1.94 billion to EUR 1.815 billion. The decrease was primarily attributable to repayments of EUR 350 million on the loan granted by United Internet in connection with the acquisition of 1&1 Versatel. This was partly offset by additional funds of EUR 225 million drawn under the JBIC loan in the first quarter of 2026.
The JBIC loan is formally held by United Internet and passed to 1&1. As of September 30, 2026, the corresponding loan liability amounted to EUR 515 million. Equity increased from EUR 5.996 billion as of December 2025 to EUR 6.001 billion as of September 2026. The increase was attributable to earnings. The equity ratio improved from 54.5% to 56.1%. Moving on to cash flow. Net cash inflows from operating activities amounted to EUR 626.9 million in the first nine months of 2026, compared with EUR 432.7 million in the first nine months of 2025. This represents an increase of 44.9%. Operating cash flow in the first nine months of 2026 primarily comprised EUR +524.3 million cash flow from operating activities, EUR -41.7 million from change in contract assets due to higher hardware revenue, EUR +75.5 million from changes in prepaid expenses.
This reflects the positive cash effects from advance payments made in prior years under the capacity agreement with Deutsche Telekom. EUR +34.5 million from changes in income tax receivables. The tax savings for 2025 resulting from the acquisition of 1&1 Versatel were refunded by the tax authorities in the second quarter. EUR +126.6 million from changes in receivables from and liabilities to related companies in connection with the acquisition of 1&1 Versatel. EUR -114.4 million from changes in trade payables, mainly due to payments related to the procurement of services from suppliers. EUR +22.1 million from changes in other working capital. Cash flow from investing activities amounted to EUR -283 million in the first nine months of 2026, compared with EUR -673.8 million in the first nine months of 2025.
This primarily comprised EUR -359.3 million CapEx, primarily for the construction of our fiber optic and mobile networks. EUR +68.5 million from the repayment of excess liquidity by United Internet. EUR +7.8 million in interest received primarily from funds invested with United Internet. Cash flow from financing activities amounted to EUR -348 million in the first nine months of 2026, compared with EUR 240.2 million in the first nine months of 2025.
This comprised EUR -8.8 million dividend payments, EUR -102.6 million repayment of lease liabilities, EUR -67 million repayment of liabilities for 5G spectrum, EUR -125 million repayment of loans. This is the netted amount of the drawdown of EUR 225 million in the first quarter and the repayment of EUR 350 million in the third quarter. EUR +53 million in funds received from United Internet and EUR -97.6 million in interest payments.
As a result, we generated free cash flow of EUR 267.6 million in the first nine months of 2026, compared with EUR 204 million in the first nine months of 2025. This represents an improvement of EUR 63.6 million or 31.2%. Let us now turn to the bridge between EBITDA and free cash flow, which I would like to present to you. We start with an EBITDA of EUR 533.3 million in the first nine months of 2026. The increase in contract assets had an impact of EUR -41.7 million. The change in receivables from and liabilities to related companies contributed EUR +126.6 million to cash flow. The decrease in prepaid expenses amounted to EUR +75.5 million. The change in trade payables had an impact of EUR -114.4 million. Other working capital increased cash flow by EUR 33.2 million.
The balance of tax refunds from the tax authorities and our tax payments amounted to EUR +14.4 million. Investments or CapEx amounted to EUR -359.3 million. This results in total free cash flow of EUR 267.6 million in the first nine months of 2026. To conclude, let us take a look at the outlook for fiscal year 2026. For fiscal year 2026, we continue to expect service revenue approximately at the prior year level of around EUR 3.66 billion. Comparable operating EBITDA for 2026 is still expected to amount to around EUR 800 million. Due to EUR 60 million in the one-off expenses in connection with the transformation and restructuring program at 1&1 Versatel, we have adjusted our EBITDA guidance to around EUR 740 million earlier this year. For 2026, we continue to plan investments, cash CapEx, in a range of EUR 500 million-EUR 550 million.
Looking ahead to 2027 and 2028, we continue to expect annual operating EBITDA growth of around EUR 100 million. Cash CapEx is expected to remain at a similar level to that planned for 2026. Thank you very much for your attention. We will now move on to your questions. Thank you.
Thank you. To ask a question, you will need to press star, one, and one on your telephone. Or if you have joined via device audio, click the raise hand button on your screen and wait for your name to be announced. Once you have asked your question, please ensure you mute your line to prevent background noise. To withdraw your question, please press star, one, and one again, or click the lower hand button. We will now go to our first question. One moment, please. Our first question today comes from the line of Ganesha Nagesha from Barclays. Please go ahead.
Yeah. Hi. Thank you for taking my question. I have a couple of questions, please. My first question is on your mobile segment. When do you expect the mobile net adds to stabilize, and what level of customer growth is embedded in your 2027 plan? Also, could you provide some color on the competition situation in the German mobile market, specifically in light of new MVNOs entry? Are they impacting your churn or the customer acquisition? Any color on the competition would be helpful. My second question is on your EBITDA guidance for 2027 and 2028. The incremental EBITDA that you are guiding, how much of this is driven by network cost savings, and how much is from the consumer and small business performance? Any color on the key driver for this EBITDA expansion would be very helpful. Thank you.
Thank you for your questions. To your first question, the outlook of the net adds. They declined in the second and third quarters, but the trend in the mobile sector is expected to slowly stabilize again in the first quarter, but it depends on the competitive intensity. I would expect that we will see a loss of customers in the mobile segment in Q4 as well. It will be better than Q3, but there will be still a loss of customers. For the next year, at this point, we have no business plan that is approved, and the net adds depends on the competition in the mobile market. So, for the time being, I cannot give you an exactly number which net adds we will have in 2027. To the competition level in the mobile segment, I would say the German mobile market remains highly competitive.
We have seen some signs of stabilization, but we would not yet describe the market as fundamentally less competitive. What is more important for us is that we remain disciplined and rational, focusing on sustainable customer value rather than volume at any price. We continue to monitor the market closely, but our strategy does not depend on a significant reduction in competitive intensity. To your question, I think that's your questions, right?
Yeah, just on the EBITDA guidance. If you can help us on the key driver for the EBITDA expansion in 2027 and 2028.
What are the EBITDA drivers for 2027 and 2028? Contribution are expected from healthy growth in our operating activities, ongoing network rollout, and the resulting reduction in national roaming costs, therefore, and growth from 1&1 Versatel. We cannot give you an exactly number, which is a particular, the enterprise network segment and what is for the consumer and small business segment.
Okay. Thank you.
Thank you. Your next question today comes from the line of Polo Tang from UBS. Please go ahead.
Morning. Thanks for taking the questions. I have two. First one's on broadband. You raised broadband pricing in October. Can you remind us of the quantum of the increase and what proportion of your subscriber base is being impacted? Second question is really just about your network build. Can you comment on how many active cell sites you have and what proportion of your network traffic is being offloaded onto your own network? You also made a reference in terms of the CapEx guidance going forward. You said that 2027 and 2028 CapEx would be at similar levels to 2026, but can you maybe give a breakdown of some of the main CapEx components, and are there any shifts in some of those buckets over time?
If you cannot get access to low-band spectrum in the near term, does this change your thinking in terms of your CapEx profile? Thanks.
Thank you for your questions. To the CapEx questions, what's in this CapEx is the rollout of our own network, antennas, masts, and the connection with fiber via Versatel, the build-out of our fiber optic network to connect industrial parks, business, and government agencies. The second question is about the network build. We are satisfied with the speed at which we are expanding our antenna network. We are gaining more and more momentum. We have 200 to 300 antenna sites added each quarter. To your question about the price adjustments, the price adjustment applies to a significant proportion of our fixed-line customer base. We do not disclose the exact number of customers affected. What I can say is that the measure has been successfully implemented across a high proportion of the relevant customer base and is progressing in line with our expectations.
It's fully in our guidance for 2027.
Can I just come back to the CapEx point? Because you broke out some buckets in terms of, clearly the network build is a big component in terms of the CapEx envelope. I am just trying to understand in a bit more detail some of the moving parts. So I seem to remember data centers used to be a very big component in terms of the CapEx cost. So I think at one point, at its peak, it was EUR 200 million in terms of annual costs. So can you maybe give us a sense in terms of data center CapEx? Like, where is that side of things? Separately, in terms of the Versatel fiber side and connecting some of these cell sites, can you maybe give some color in terms of that bucket and the quantum?
And does your rate of build in terms of cell sites change if you don't have access to the advanced spectrum? Thanks.
Mm-hmm. The CapEx that we spend is, I would say, EUR 220 million CapEx is related to 1&1 Versatel. Around EUR 250 million-EUR 300 million is for the mobile network rollout, especially antenna rollout, because our data centers are in place. And around EUR 30 million is the consumer and small business segment. If we don't get low-band access, we still will build out in this pace that we have now.
Okay, thanks.
Thank you. Your next question today comes from the line of Florian Treisch from Kepler Cheuvreux. Please go ahead.
Yes, good morning, gents, and thanks for taking my question. I have a couple too. The first is on, or coming back to the net adds number in mobile in Q3, or on your comment related to Q4. I think during the Q2 call, you were slightly more optimistic that you can return to positive numbers in Q4 already. What has changed in between? The second question is around the profitability in the consumer and small business segment, which I think was very strong in Q3. Can you add any details what has really driven that beat, and are there any one-offs in that number? Thank you.
Okay. To your question, to the net adds, the German mobile market is highly competitive, and we see some aggressiveness still in Q4. We continue to monitor the market closely, but our strategy does not depend on this significant reduction in competitive intensity. We're focusing on sustainable customer value, and therefore, we see losses in Q4. I think it will be better than Q3, but we see in Q4 losses, but that's full in our strategy, and the strategy is working out. We see that in our profitability, we see that in our service revenue. When we look back in the last quarters, we have seen rising service revenues each quarter since Q1 2026, despite losing mobile customers. In addition, rate adjustments have led to improved margins on our plans, so we can see our strategy is working.
The main drivers of the EBITDA in Q3 was the increased in-house production of our own network and the elimination of national roaming costs, sustainable growth in the broadband business that helps, efficiency measures, and value strategy in mobile business, I would say.
Great. Thank you very much.
Thank you. As a reminder, if you wish to ask a question, please press star one and one on your telephone, or if you have joined via device audio, click the raise hand button on your screen and wait for your name to be announced. That is star one one to ask a question. Thank you. We will now go to the next question. The next question comes from the line of Ben Rickett from New Street Research. Please go ahead.
Hi there. Thank you. I had two questions, please. Firstly, just on your service revenue trends, the guidance implies that there will be an improvement in service revenue in Q4. Can you just talk a bit about what drives that improvement, whether that's coming from the broadband price rise? My second question, you're doing this restructuring program for the Versatel business. I'm just wondering if there's also scope to do restructuring within the 1&1 business, and particularly whether there's scope to realize efficiencies through AI. Thank you.
Yeah, thank you for your question. To the service revenue guidance, I think we'll come close to our guidance. Our value strategy will help, also the price adjustments in the broadband business. As I have mentioned before, we saw rising service revenues each quarter since Q1 2026, despite losing mobile customers. So I think we will come close to our guidance to service revenue flat 2026 to 2025. To the Versatel restructuring, I would say we continuously review and optimize our processes and organizational structures across the Group. This includes making greater use of automation and AI, where these technologies can improve efficiency and productivity. At 1&1 Versatel, we have already taken concrete action and announced a comprehensive transformation program, including adjustments to the organizational and workforce structure. Beyond these measures, we have no specific announcement to make today.
Our focus is not on headcount reduction as an objective in themselves, but in continuously improving our efficiency, competitiveness, and operational performance. If and when we decide on further specific measures, we will communicate them accordingly. Thank you.
Thank you. As there are no further questions, I will now hand the call back to Oliver Keil for closing remarks.
Thank you very much, Sharon, and thank you very much for your attention. As usual, we will be available for further discussions in the aftermath. I might now return to the operator, and after a short break, we wish you interesting meetings and discussions with our parent company, United Internet. All the best to you. Stay healthy, and bye-bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.