Earnings Call: Q2 2020

Aug 12, 2020

Hello, everybody, on this Wednesday morning. I'm sure that aside of our second quarter results, you have all read the latest news on the LGI public offer for Sunrise. We have been deciding last night after the final offer was available that we would sign an irrevocable to tender our shares. Ingo Arnold will, at the end of his presentation or his part, explain the necessities around the proceeds, the obligations that we have from the past. And I'm sure that you have a couple of questions to the topic. In general, we're very happy about the outcome or the potential outcome of this entire story. You all know that last year, we have worked hard to stop all cash takeover of UPC by Sunrise. We have seen a significant risk on the value of our shares residing from the structure. Overall, we liked the philosophy and the strategy and the idea and the concept of a merger in Switzerland. And as a result, we very much appreciate the opportunity for us to sell down our shares at this significant premium, resulting in proceeds of more than €1,100,000,000 for Freenet. But now I'd like to come back to our day to day business and talk a little bit about the first half year and the second quarter. Let's start with the presentation. On Page four, you will see the overall KPIs. And I think the word resilience is a perfectly chosen term. We've been, throughout this first six months of the year, independent from the COVID crisis, independent from market pressure, we have been able to develop ourselves to the company and the operational business as expected and as planned. On the revenue side as well as on EBITDA side, we are very much in line with our projections and trajectory for the full year guidance. The most important element for day to day business is to develop the subscriber base, which was growing to almost 8,500,000 in the course of this first half year, which is the fundament for a sustainable business and the sustainable development of financial KPIs, cash flow and dividend for the upcoming period. When we look at the concrete numbers of the subscriber base, we've been starting at the beginning of the year with 8,367,000 subscribers growing in the first quarter somewhat and even more up until the June 30. And the growth is more or less like we saw it before. The postpaid is gaining plus 14,000 in the second quarter after a positive quarter in the first three months of the year. I think we have promised last year that we will return to growth, and we are delivering on that promise. We have separated here the free net FUNK growth. This product has been, I would say, refurbished and optimized in the course of the last few weeks with international roaming, which was one of the negative aspects expressed by our customers that they would demand international data roaming. This is now included, and we have restarted the promotion and the marketing for the product. So it's growing as well. Free net TV with a slight loss, I think that is in relation to what we have said before, and I'll go into some details in a second. And Raiputifao is plus 50,000 with a very strong second quarter, pushing hard for cord cutting and customer positive customer experience. Since we have spoken after Q1 in detail on the COVID-nineteen impact, I think it's worth having a look once again. I think the positive element is obvious. The business model as such, the subscriber base business is one which is solid and robust and does not react heavily on these kind of pandemics or other crises. Nevertheless, we have to admit that some of the changes that we all go through have an impact on the business, and we've listed a couple of those four here on the list. One is the digital lifestyle revenues and the intense sales process, which takes place in our shops is impacted. We have lower frequency, lower footfall. We need to follow the hygienic guidelines, which lead to the fact that the sales pitches and the sales conversations are not as intense and as long as they've been before. We hope we're going to recover, and we work hard on other channels to set digital lifestyle. But certainly, we see an impact. The growth has come down. Postpaid ARPU, I think that is very much in line with other reports from big operators. The roaming revenues significantly dropped, and that impacts the ARPU in the second quarter. In our B2B businesses, which is small scale compared to the entire business, but still relevant, we see some problems. This is in our public Wi Fi business, where the hospitality sector doesn't pay or some of them delay their payments, as well as the entire entertainment and event based business in media broadcast has dropped. And certainly, we see that everybody shifting towards online. That is leads to higher sex in online as well because SEA, SEO and all kinds of display advertising becomes more and more expensive since the market and the inventory is heavily crowded. But overall, I think we've gone properly through the entire period. There's about 80% of our staff is on board back again from early July. We're working in Shift. We are protecting and deploying the necessary rules. But we are in the lucky position that from architecture and from distribution across the country, we are less impacted than other companies. On the postpaid area on Page seven, we have shown you the we show you the development of FreeNet Funk, which is the app based unlimited or daily one gig kind of tariff. We have told you after the launch last year that we would take that platform and use it for other products as well. We have launched only last week our new product, which is same customer journey. The customer can download the app, register through his PayPal account. We, by doing so, avoid all the harmful and stressful processes of handing over ID cards, account numbers, etcetera, etcetera. We are the big difference on flex is Flex to Func is that this is a typically monthly product with three in three versions, five, ten and fifteen gigabyte. It's all on LTE. The small one is on 21.6 megabits, and the bigger one is on LTE 50. It's all on the Vodafone network. We've only started about thirty six hours ago. Within the thirty six hours, we see that the uptake is similar to FUNK. The respective promotions and advertising will only start from two weeks from now. But we're very positive with the first reactions of the market. Having a look at freenet TV, the big effort or the big change in the second quarter was that we have increased the prices from a gross price $5.75 to $6.99 on direct debit. That applies for approximately onethree of the customer base. The other twothree are using e vouchers or vouchers. And we have pretested the price increase with the direct debit. And we turned out that there is some churn related to the pricing, but it is it's much less than the positive impact of the price increase. So the additional churn on direct debit is lower than 3%. And with that increase of 20%, you will immediately realize that this has a positive impact on gross margin and EBITDA. The vouchers have also were planned to change their prices from €69 to €85 We had to replace all the physical vouchers in the physical distribution networks. Due to COVID, we could not do that on time on May 1, but still are struggling with the replacement. So there, we do not we are not in a good position to estimate the impact on churn or new uptake. But overall, we feel very comfortable. The number of subscribers has come down to one just beyond 1,000,000. As we told you before, there's another 14,000 to leave from the satellite business. There's a couple of USB sticks subscribers also going down. So definitely, we will drop below the 1,000,000. And then we will have to look at the churn. But overall, you can easily do the math that this price increase will be able to compensate even a 6%, 7% additional churn. So we are focusing here on margin and absolute return more than sticking to the magic €1,000,000 On Waipu, you we have listed here the quarterly gains over the last two point five years. The second quarter once again showed a slight accelerated increase in the waipu subscriber development. We did a kind of like stay home campaign, told the customer that now it's time to switch, it's time to get access to additional channels, connected TV and things alike. We've been we have produced only in July, we've had more than 200,000,000 ad impressions on our Connected TV. And only yesterday, ExaRingVaipuTV has announced that we cut a deal with Netflix, and there is a combined offer now from Waipu with Netflix. This applies for any of the existing Waipu TV customers. They can switch to the combined tariff plan. It also goes we start in September to do this combined offer in our shops and in all our other channels. So we think that this is a great step forward. We can deliver to the end consumer everything they want, video on demand with best quality from Netflix, linear top channels, top 60s channels from Germany, plus 40 exclusive channels on connected TV. I think overall, this is an extremely strong proposition. And I think the fact that Netflix chose us to be a partner is a great signal of respect for the platform and for the technology as well as the distribution power of Freenet. Nevertheless, we are missing big events, big TV events such as Olympic games, football tournaments and things alike. And I think everybody is a little bit fed up of watching TV and looking into the PC screens. So we see that usage and also the switching ambition these days is lower than last year in Q3. And we are all facing also extremely good weather. So we are not foreseeing a strong growth in Q3, but the front load of Q1 and Q2 will deliver great results. I also would like to mention that Waipu, for the first two months now, has delivered a positive operational EBITDA. And we are not planning to return to losses anymore. This leads was already kind of introduction to the outlook for the third quarter. On the mobile, I think the we see that kind of everything goes a little bit step by step back to normal. This implies that churn numbers go up a little bit compared to May, June. But we also see more gross adds. We are the up and cross selling is more challenging, as I mentioned before, because we do because of the shift towards online and direct channels. But once again, we are adapting to that situation and learn how to handle it and learn how to teach the customers also to give us calls to get into virtual contact with our shop reps. We do a lot of testing there. And all the signals that and all the KPIs that I have seen over the last four weeks tells me that we overall see further growth in the mobile segment, in TV and media. I think that I won't repeat all the elements. The big change in the vouchers will be July and August. By yesterday, I saw a very positive development, but still, I'm prudent on the on a projection how much churn we will generate by the price increase. By Putteffau, I just said, I expect a flattish development in Q3 due to the mentioned reasons. And on DAB, we are planning to launch six the second multiplex by October 3 and preparing five channels with our partner, Absolute Radio. On the new second multinational multiplex, there is space for 16 programs, eight have been sold to third party, four are now planned for internal purposes, and there's another four where we have a list of interested companies and media players. We are positive by the end of the year to fill all the 16 programschannels of the second multiplex. Having said that, I'd like to hand over to Ingo Arnold for the numbers. Hello, everybody. Good morning. So I start on Page 11 with the group figures of the company. As Christoph already mentioned, the revenue was stable in the 2020. So it was not as good as in the first quarter, where we had an increase of the revenue because what we saw in the second quarter was some effects from roaming, which are not relevant for our profitability, but we do see it in our revenues. And if you look into the mobile revenues, also in the service revenue there. But good luck for us that our margin on roaming is very, very low. If you look into the gross profit, what we see here is that in the second quarter, it was relatively stable compared with last year's quarter and also relatively stable compared with the first quarter. So the decrease what we saw in the first quarter, which was based on a special effect from the first quarter twenty nineteen, is not renewed here. And so we are on the stable level what we promised. And on the EBITDA side, we even increased our figures because we were very successful in cost saving measures during the second quarter. And therefore, if you see the EBITDA without any special effects, then you see that we could increase the EBITDA from 109,500,000.0 to €114,700,000 So all in, very positive results here. If we move to the mobile segment, here we see the slightly negative effect on the revenue in the second quarter. This is based on the lower revenues from the digital lifestyle business. But all in, it is relatively stable, even if it is if we see the effects also from the roaming side. But Gravis, again, had very successful quarter. So we still see a lot of interest from the people to move back into the Gravis stores. But what we also see and what we learned during the crisis is that Gravis is very successful in online sales. On the gross profit side, we see something comparable here to what we saw on the group side as the media is relatively stable. So we see comparable effects here to the group side on the mobile business. We see a slight decrease in the gross profit, is based on the lower revenues in the Digital Lifestyle business. And but on the EBITDA side, we see the positive effects from the cost savings. So also on the mobile side, quarter by quarter, we see an increase compared to the 2019 by nearly EUR 4,000,000. Looking into the KPIs of the operational KPIs of the mobile business, we see the increase of the customers. And so after we had these decreases in the first two quarters twenty nineteen, we see a steady increase now again since the third quarter twenty nineteen. And with the positive outlook from Christophe, we it looks easy for us to confirm the guidance here for a moderate increase during the year in the postpaid customer base. On the ARPU side, yes, the decrease looks a little bit bigger than in the last quarter. But if you put into consideration the negative effect from the roaming, which is an effect of €0.30 so otherwise, it would be $0.01 $8.04 €0 without the effect. And if you compare Q1 to Q2 twenty twenty, you see that is a very stable development even compared with Q4 twenty nineteen. So for a longer period now, we are on a level of something like 18.5 In the Digital Lifestyle revenues, I already mentioned, a slow decline in Q2 compared with the last year's quarter by EUR 1,800,000.0. Switching to the TV and Media segment. I think we are very happy here because we know that there was a lot of skepticism in the last years. If we could manage to stabilize it and even grow it. But now we see, especially from the WIPO side, that it is possible to grow this business and stabilize it on the other side in the Media Broadcast. So what we see on the revenue side is revenue of €65,200,000 in the 2020, which is mainly driven by higher revenues from ExoRing or Waipu TV. And on the gross profit side, we see an increase to €44,600,000 in the 2020, which is 5% above the figure of the second quarter twenty nineteen. And we see comparable effects on the EBITDA side. So here also a very successful quarter. If we look into the details of the Media business on Page 15, what we see here, first of all, I would look into the B2C business of Media Broadcast, which is FreeNet TV. On the gross profit side, in the first quarter, we saw a decline by EUR 400,000.0. But in a very strong second quarter, we saw an increase of EUR 500,000.0 compared with last year. So all in, in the first half, it is a very stable gross profit picture in Media Broadcast pre net TV. And on the EBITDA side, it is even a slight increase by EUR 400,000.0 because we had some lower marketing spendings here. On the Media Broadcast B2B business, which is, for example, digital radio, but also some networks, What we do here, we see a slight decrease in the gross profit on half year period by EUR 1,000,000, but it was minus EUR 1,400,000.0 in the first quarter. And in the second quarter, it was compared with last year, an increase of EUR 400,000.0. So all in, a slight decrease by EUR 1,000,000, which is reduced on the EBITDA side by some cost measures to minus EUR0.9 million. So it looks very stable without any big differences. On the ExaRing side, this is different because here we see very positive signs already in the first quarter. We saw an increase in gross profit and EBITDA. And now on the EBITDA side, we have EUR 3,900,000.0 higher results than in the first half year twenty nineteen. And this is influenced by the two positive quarters, month, May and June, which Christophe already mentioned. So we are very happy here to have positive figures now. But to tell the full story here, if we would start big marketing campaigns, what we do not plan at the moment, and if this would make sense to increase the number of customers, it could be possible also in the future to have slightly negative figures here, at least on a monthly base. But basically, the business is EBITDA positive now. Moving to the cash flow. What we see here that we exaggerated and our plan here, and we guided EUR 75,000,000 to EUR 85,000,000 for the second quarter twenty twenty. What we reached was EUR 90,800,000.0. So I think it is I do fully confirm the guidance what we published at the end of Feb. But here are still some risks on the tax side and on the CapEx side because at the beginning of the year, we guided tax payments of EUR 50,000,000. Now half of the year, it is only EUR 13,700,000.0. And we guided a CapEx of EUR 40,000,000, which is at the moment only EUR 17,300,000.0. In both positions, it could be possible that the figures we published at the beginning of the year reached. But I think, yes, we work hard on all these things. And definitely, I do confirm the guidance. On Page 17, we show the net debt and equity ratio and the leverage. So the equity ratio increased to 28.6%, which is above our target of 25%. We have a net debt leverage now of 4.4. So the leverage is if we would have paid the dividend, it would be near 2.5, something like 4.9. So I think it was the correct decision to leave it out to pay the dividend to sustain it once. And if we put into consideration the Sunrise, which with a value here of CHF 85 and our participation in Seconomy, the leverage would only be 2.2. Then I would give you some insights on the promissory note, what we placed some weeks ago. So it was a very successful transaction. It's there were some risks because it was not clear how good the markets would work. But our books filled very, very fast, so there was a lot of interest. At the beginning, we targeted a volume of EUR 300,000,000. We could place a volume of EUR $345,000,000 with an interest rate of something like 1.6% in average. But there is a step down and the step down, which on a leverage level of EUR 3, which looks here very difficult to reach, but it is not that difficult to reach because the definition of the leverage in the promissory note is different to the market definition. So it's, for example, without IFRS 16. So on normal if our business works as it is planned for the next month, then it would be possible to reach the step down, and then we would only pay 1.3%. So the transaction eased our optimized our financial situation dramatically because there were some risks when we decided not to pay out the dividend. And so now, I think for the future, it's much easier to confirm our guidance, our dividend policy to pay out 80% of the free cash flow in the future. If we see the structure, the maturity structure now of our bank debt, what you can see is that we optimized it because it was not that good situation what we had starting into 2020 when we saw that in a period of twelve months, there was a maturity of all in EUR 700,000,000. And there were some risks. And these risks were even clearer when we had the COVID-nineteen phase now. So we changed it. And so now the structure brings up to 2025 only something like EUR 200,000,000 a year, which is due there. And this is easy to handle with our working capital line or with the cash flow what we earned during the year. So very good structure now. Moving to Page 20. I think Page twenty and twenty one. It's questionable if I should talk about it. But I think it is necessary to do so because there is an offer out now from Liberty. But at the end of the day, we have to wait if it's real because it's there are some conditions. It's based on some conditions, and we have to wait if it will really work or not. I think it's good for us that during 2020, we created a very comfortable situation for Freenet. So we are not obliged to the transaction, which was announced this morning because we optimized our financial architecture very much during these months because it was necessary to do the dividend suspensions. It was necessary to do the refinancing. And what we do have now or what we will have now at the end of the year is an expected leverage of 4.1 or when we put into consideration the investments what we have, then it would be 1.9. And this is much better than everything what we saw during the last quarter. Moving to Page 21, you see how comfortable our situation is. So at the end of Q2, we have liquid funds on our balance sheet of 200 and nearly EUR $220,000,000, then we expect some additional free cash flow during the year. We have still some promissory note repayments. So we will have some liquid funds at the end of the year, which will be above EUR 200,000,000. And then there in the 2021, there will be additional free cash flow. There will be another repayment of EUR 200,000,000, which I showed you on the maturity profile before. But even after all of this, at the end of the second quarter next year, when a dividend payment is dated, then we would have funds available funds of more than EUR 400,000,000 if all the business runs as it is planned. And so we would be in a good situation to pay out dividend, which is planned with 80% of the free cash flow. Without any charts, I give you some aspects on the Sunrise sale from my side. I think it's we declared it as a financial investment already during some quarters now. If I look into the investment from this financial investment point of view, then I have to say it was a very if it works and if the transaction will work, it would be a very, very successful transaction because then our positive total shareholder return would be something like 70%, which including dividends and interest what we paid. So it would be a very good transaction. And in euros, there would be a shareholder return of more than EUR 500,000,000. So this would be perfect. The proceeds would be something like EUR 1,100,000,000.0. There will be the necessity for us to repay our bank loan of EUR $610,000,000, which is linked to the Sunrise investment. And we have to repay the last promissory note in March 2021. So €800,000,000 of the proceeds will have to be used for repayment and for reducing our net debt. And on the other side, there will be a remainder of something like €300,000,000 And I think there, we have to decide if there will be some possibilities to reinvest into the business. But we do also definitely think about shareholder participation here. And we also, in the past, sometimes we discussed if a share buyback would make sense. So these are discussions which we already started. And I think this is something which could happen in the future. Without using the remainder, only putting the proceeds into consideration, our leverage at the end of the year would be 1.6. And from the 1.6, you see that in comparison to the sector, it's really low. It is totally different to the 4x whatever leverage what we had before. And this would be, yes, in my eyes, a perfect balance sheet where we have all chances or we would have all chances to maneuver in the future. On the balance sheet there or in the income statement, what we would expect is a net income from the deal from the deconsolidation of more than EUR 300,000,000. So also the EPS would increase dramatically in 2020 if the deal will really happen. So this is all what I had to add. And now I would open the floor for Q and A. We've received the first question. It is from Joshua Mills of Exane. Two questions from my side. The first is on the use of proceeds that Ingo just mentioned. So EUR300 million, it sounds like some of that may be used for share buybacks or similar. What other M and A opportunities do you see? And how could you reinvest cash more quickly within your existing companies? I'd be interested to know whether you see mobile or TV as a priority with regards to the use of proceeds there. And then secondly, on the mobile trends for the second quarter, EBITDA was obviously up and outperforming expectations. Gross profit is still coming down, so it looks like a kind of fixed cost driven beat. How sustainable is that? And do you think that you can continue to grow EBITDA for your mobile business in the 2020? Yes. Thanks, Josh. Thanks also for your comment on the development with Liberty. Well, I think if we need if we want to invest into business, I think the TV business, specifically the IPTV, is the growth opportunity that we see. And this is why we would allocate funds there as a prime choice, I'd say. But as Ingo mentioned, and as it is our policy and has been our policy over the long period of time, we would not like to overinvest. We are measuring every single investment in subscriber acquisition, content, etcetera, etcetera, on its return. So we are not holding back investments right now. But certainly, with the indicated leverage, there is more freedom. And there is more of certainly, we look at things a bit different than up until yesterday where leverage was tight, and we've we've but but we want to continue to be to our business policy. And that also relates to your second question. Yes, you have, I think, rightly managed, and there's no reason to beat around the bushes here. The gross margin is under pressure. That's a result of many different aspects, channel mixes mix in tariff plans, channel distribution, etcetera, etcetera. And we have been able to compensate this with cost savings. I think the real challenge these days is to conserve these savings that we have occurred as a result of our approach, but also as a result of the crisis, how can we conserve this? How can we we don't realize in the business and in day to day that we have cut something out. We are not missing anything. So the question is why do we usually spend more? So what is it really? Is it luxury stuff? Or is it maybe project that have been conducted in the past, which did not lead to success? So I think cost discipline is definitely even more in our focus for the mobile business than it was in the past. And this is why we think the cost reductions are sustainable and will remain at this level for the second half of the year. Great. Maybe one more sorry, one more on the share buybacks. I mean, is obvious that as a result of the potential transaction, dividend payments from Sunrise would vanish. They were significant and contributed to our payout. So I think the share buyback is also a logic to protect not only the relative, but also the absolute level of the dividend. This is why I think this is certainly something which we will consider and syndicated the next days with all the major investors in order to understand their expectations. Thanks. And can I just ask one follow-up on the mobile point? So it looks from the outside, like the tariffs you sell on your online channel rather than your offline in store channels are slightly cheaper and I'd assume slightly lower gross margin than those you sell in store. Is that the case? Is that what's putting the pressure on the mobile gross margin? And if so, could you give us maybe just a kind of rough estimate of how different the profitability is from selling in store versus online? Well, no, thanks for the question. As always, a consultant as a former consultant, my answer is it depends. The Freenet Flex, the Freenet FUNK and the majority of the SIM only tariff plans are somewhat cheaper or they are perceived cheaper because we do not invest into a hardware subsidy. The life cycle the total life cycle of a freenet Flex and a freenet FUNK is equal or even better than the typically low end mobile tariff with a subsidy. So it is not so much a well, there is no straight rule to be deployed across the among the channels. It is very much on the individual combination. The yes, I think I would leave it there. It's not a black and white equation. Very clear. Thank you. Thank you. The next question is from Christian Fangmann of HSBC. Your line is now open. Please go ahead. Yes. Good morning, guys. It's Christian. I have a couple. One is on your free cash flow guidance. It seems like you're really ahead of the first half. But listening to Ingo's comments, there are some risks. Just making sure that I interpret that correctly, there are some upside risks, I guess, because of the cash tax payments in the second half and also CapEx was relatively low compared to the €40,000,000 guidance for the full year. And I think at Q1, you mentioned to be more towards the lower end of your free cash flow guidance, and it looks like you don't mention that again. So can you maybe clarify what we expect in terms of the free cash flow in the second half and the risk that you mentioned? And then a question on the deal and the proceeds. In RBC, we'll have some 45,000,050 million euros lower free cash flow because you don't get the Sunrise dividend in future, assuming the deal goes through. Will you take that into account already in your next 2020 dividend proposal? Or is that more, I think, for 2021? And I have a small follow-up thereafter. Thank you, Christian. To start with the last one, the payment of the dividend in 2021 will be based on the free cash flow of 2020, where we received the dividend definitely. And for the free cash flow guidance, yes, we are above the upper end of the guidance for the first half of the year at the moment. But the risks, what I see is, for example, in CapEx, We had some postponements in the first half because of the crisis. So the multiplex, the second multiplex, what we were talking about earlier, is the investment period started a little bit later. So we see some postponements on the CapEx side. Therefore, I still believe that minus 40,000,000 minus 45,000,000 will be the CapEx at the end of the year. On the tax side, yes, it is something like a risk because it is based on the timing of the authorities here. And I think it maybe sounds a little bit boring to you because I tell you from call to call, But there are still some outstandings where the authorities have not informed us to pay or asked us to pay or requested us to pay. And we are still waiting on the authorities. But it is possible that these postponements even last over end of the year, but I do not exactly know today. So the EUR 50,000,000, what we guided there, minus EUR 50,000,000,000 in taxes, It looks a little bit far away to really have the minus EUR 50,000,000,000, but I think something like minus EUR 40,000,000,000 could be possible. And this is still a valid forecast what we have here. And therefore, it could be possible that in the second half, we are more on the lower end of the guidance for the second half. And then all in, therefore, I can only confirm the guidance range today. Okay. And then just following up on your comments during the call in terms of the Sunrise deal. It sounded to me you were a bit cautious on the outcome, on the positive outcome of the entire deal. Why is that you know, it sounded a bit like you may not believe it will really take place in the end. Okay. Then I I apologize. That was not my intention to have this, like, between the lines messaging or sounding. I mean, in fact, there is a regulatory approval necessary from the VECO and the CONCCO. But not even twelve months ago, these authorities have confirmed that a merger would be okay from their perspective. So I think there's no real reason that this would change just because of the direction of the deal. And other and any there is no any other obligation except for the fact that there is a minimum acceptance rate of twothree. Once again, the way I read also the press release from Sunrise, it was clear it was made clear that LGI is aiming for that twothree, then they would bring in their own business. And after that merger, basically, they would own 90 plus x for the company. So of the company, so there is no typical game for those guys that wait for squeeze outs because it's it's just not gonna happen also according to Swiss rules. So we are very positive and we are very we have but I still I think it is just fiduciary duty to say there is some two conditions, but I have no doubt with the support of the Sunrise Board that this deal was gone will not go through. So I'm I'm very positive. I'm sorry for the for the wrong wordings before. Okay. Very clear. Thank you. Thank you. The next question is from Stephane Beyazian of MainFirst. Your line is now open. Please go ahead. Thank you. Stephane here. Is there any feedback you could make on the discussion with the with the carrier partners as if, you know, the the crisis has changed in any way their approach to distribution or or your best guess about, you know, how this could change, you know, their plans going forward? And linked to that, you mentioned some increase in subscriber acquisition costs online. I was just wondering whether you could sort of quantify that a little bit. And my second question is on partnership with Netflix. Is it just possible to make some comments on, you know, what could be your expectations about this and where penetration of Netflix is currently in Germany? That could be helpful. Thank you. Okay. On the first one, I interpret your question on partners, network operators, distribution as well as hardware. I mean, have had with all the three network operators our annual agreements earlier than the previous years already. I think the first one was signed already in Q1, and the other two were signed in Q2. They are all in line with what we expected. I think the relationship is a very good one these days. With any of the three, there is a common sense how to face the market and how to face the challenges. I think the and if we look at the commission levels, premium levels and all the others, I think that is there is no change as a result from the crisis. I feel it's more maybe it's more likely a little positive sentiment towards us because those very big companies are more infected by all the limitations of people coming back, reopening the shops. I think we are as a midsized player in a better shape to mitigate the risks and to continue the business. So I would see it neutral. I think overall, nothing has significantly changed. On the hardware side, think the I mean, April is a stand alone special animal. We take benefit that their restrictions on the shops are even worse than for any others due to the fact that they are a U. S. Company. They are specifically worried. We took an advantage in Gravis. Gravis has delivered record revenues ever since March, I think, as a result of the shutdowns of the Apple stores as well as MediaMarktSaturn. We see now that they are coming back with still limited esteem. And the fact that Huawei is still in a, let's say, reduced power mode due to all the ban and the questions. Also, fact that consumer customer experience with these new apps is at least not as seamless as this with the typical Android. We see the old duopoly of Samsung and Apple ruling again, but that's very much the situation, which we are acquainted to over the past four or five years. So I would say it's the answer is there is no relevant changes that impact the business. On the Netflix, I mean, deal is that if we have a combined offer and we have kind of a wholesale agreement with Netflix, which allows us to moderate the margin across the two products. So it will be invisible for the consumer which of the two components has been discounted. So there is basically, the approach to Waipu existing customers is if you are a Waipu customer and also a Netflix customer, if you combine the two and run the billing through Waipu, you will have an advantage of around 10% on a monthly basis. If you are existing customer with Netflix, you might add Vipu, because you are used to IP as your prime access to motion pictures. You might now do the cord cutting or the dismantling of your satellite dish, once again with a little price discount. Furthermore, there's two other aspects, which are interesting for midterm development of IP in Germany, the privilege of putting the cable cost into the side cost of lease contracts has now been stopped. I'm sure it will take a little time till end consumers realize and take advantage, but that's one element. And also, we are very happy that Netflix today announced that the one month free of charge offering is stopped in Germany. So our offer is even more competitive because we can still discount waipu for one or two months and add Netflix. So I think overall, there is all aspects of promotion to the existing Netflix space as well as to the existing Waipu base. Once again, I mean, their start is now mid August with 36 degrees centigrade out there. I think the real impact will only be visible in from April. Very clear. Thank you. Thank you. The next question is from Ulrich Hathel of Jefferies. Please go ahead. Your line is now open. Yes. Thanks very much. I had three questions, please. The first one is, so you refinanced €345,000,000 I think you talked about €700,000,000 that was also on the slide now, but you're now saying there's €200,000,000 left. Could you just sort of clarify how this works? And then on the cost of the refinanced funds, could you tell us on a comparable basis how much more expensive at 1.6% would be before the step down than the old ones? A bit difficult to sort of figure out because the prior press releases were on a different basis, I think, on the cost. The second question is, in the second quarter specifically, did you have any one off ish type cost benefits? I understand the COVID impact and how you dealt with that. I'm not referring to that. I'm referring to sort of one off items like provision reversals or anything of that sort. Could you just clarify whether there was anything of that sort in the second quarter? And the third question would be, you had guided for freenet TV subs to be about stable in the full year in February. Is that still where you're aiming at? Or has that view changed based on the business development you're seeing at the moment? Thank you. Okay. Hi, Ulrich. Thanks for the questions. With the €345 your calculation is correct. But there's a repayment nearly of something like €140,000,000 in 2020. So we already repaid EUR 50,000,000 in the second quarter, and we will repay something like EUR 90,000,000 in the fourth quarter. So the difference to the EUR 700,000,000 is the repayment, what we do, which is not refinance, which we do from the money what we do have on the balance sheet. Because the question about the 1.6, yes, I would say without the crisis, maybe it would be possible to get a rate of something 1.4%. This is possible. But I think we do we all do not know. So the documentation and so on and also the interest rate is comparable to what we reached 2018. So therefore, I do say we are happy with what we reached here. And so I do not see that we overpaid anything here. On the cost benefit side, I think, yes, what we received in the first half or in the second quarter of the year already starting in March was for how you call it, Kurzarbeitergate, short term Short term payment. Short term payment. There's something we got something like EUR 3,000,000. This is the only money what we get from outside. But and therefore, most of the cost benefits what we generated were real cost savings, what we had here internally. And then with your questions to the free net TV guidance. I think you said he was asking on waipu guidance. We said flat on waipu? No, we said flat on free net TV. And now we what we see at the moment, but we do not have a clear picture at the end of the day. If it really moves down, yes, our expectation today is that at the end of the year, it will be below EUR 1,000,000. But at the moment, we still see that it could be stable, but there will be a range. And therefore, we have not changed this guidance at the moment. I think as Christoph described, from a profitability side anyway, it does make a lot of sense, even with the small churn, what we would see. But we do not see a reason to change the guidance now, even if we see signs that at the end of the year, it could be below €1,000,000 slightly below €1,000,000 Yes. And I understood your question on Raipu. So I just give a comment on Raipu, whatever the question was about. I mean, on WIPO, I think we said solid growth for the year. We started out at $4.00 8, we are now on five zero four. I think for me, the direction is more going to $5.40, five fifty by the end of the year, which is definitely a stronger growth that we have originally expected. But once again, I think in both cases, we've changed a little bit the direction going for profit more than for meeting a specific hurdle. If I look at it, then I think the price increase taking some churn into consideration would still lead to more than €5,000,000 anywhere between 5,000,000 and €10,000,000 more margin on free net TV and a positive a constant positive EBITDA, operational EBITDA of ExaRing would then change, give another 5,000,000 to €10,000,000 positive impact if we compare 2021 to 2020. I think that is the name of the game right now. Brilliant. Thanks for the bonus answer. Thank you. Thank you. The next question is from Osman Ghadi of Berenberg. Please go ahead. Your line is now open. Hi. Thank you for taking my question. I've just got a question on on the debt chart, please. You say that even before any Sunrise transaction, you expect net debt to EBITDA to be at 1.9 times in Q4. I mean, the EBITDA, let's say, if it's $4.30 this year, 1.9 times would be $817,000,000 and that's roughly $200,000,000 less in net debt versus where we are today. And certainly, you're not generating $200,000,000 in free cash flow in the H2. So I was just wondering could you run us through that calculation where you expect the net debt to EBITDA to be around 1.9x by Q4? And just related to that, I wanted to just confirm that you're saying that you expect post the Sunrise transaction, your net debt would then slip down to 1.6. So that was the first question. The next question was just on, again, on net debt. Your target currently is 2.8x. And certainly, market the way the debt market is willing to finance you, it would seem that that 2.8 is sustainable. But but but, again, you you when you're commenting about leverage, you've spoken about, you know, your desire to to deleverage as well. So should you know, will you will you look to revisit the 2.8 times net debt EBITDA target that you have as a company post the Sunrise transaction? Or do you still feel that, that is appropriate for your business model? Yes. I'll start with the last one. I think the leverage target was not linked to the Sunrise investment. It was linked to the business of our company. Therefore, we do not plan to change anything here. And yes, it is correct. Therefore, this leaves some room, and this is the room what we discussed earlier that we would have room now to invest into new business opportunities or to do a share buyback, for example. On the other question, I think what we do have today, if we put into consideration the Sunrise stake, which is on Page 17, you see a leverage of 2.2. What we do have at the moment and what we calculated here is that up to the end of the year, it is possible to reduce it by EUR 300,000,000.0 by the incoming cash. And I think this still does make a lot of sense from my side. And but here, the calculation of the 2.2 on Page 17 is based on Sunrise share price of EUR85. So with the pricing of the offer at 110, this will be even lower, and therefore, it comes down to 1.6. I see. But maybe we can do this offline. I'm just struggling to get a 0.3 turns of leverage reduction through h two to get to 1.9, but but but we can we can follow-up later. So just to just to follow-up on on on your question about your overall leverage target. So would would Freenet be willing to lever up the company? You know, if if the 2.8 is unchanged and there's obviously a big gap between one point six and two point eight, would you be willing to lever the company or to raise leverage to, you know, to do a buyback or reinvest, or Or would this just need to happen, I don't know, more naturally because of higher CapEx or something like that? Well, I think we we always said we want to be below three, and that is kind of our operational limit. And then we will review this under the specific prerequisites of a set of potential investments. There is not a long list of unanswered M and A opportunities that are on my desk right now. I think the market is still exaggerating tech prices. And we will only consider things that are very close to our core business. I mean there are some plans and there are some opportunities which we discussed, but this is less an M and A, more of an operational investment opportunities. The next question is from Simon Wendlager of Haagen Alphazar. Your line is now open. Please go ahead. Yeah. Hi. Thanks for taking my questions. The first one would be on free cash flow. After the disposal of your Sunrise stake, maybe you can give us a view on on how that's going to change because, obviously, there's dividends, but then there should be some savings on the interest payments as well and potentially also on the tax side on the received dividends. So a bit more color on that would be appreciated. And then the second question would be on the profitability improvements that you expect in the TV business next year. So did I catch that correctly that you're expecting roughly €5,000,000 positive EBITDA effect from Waipu, and then there should be an additional EBITDA effect from the price increase of FreeNet TV? So maybe you can specify that a little more, that would be great. Zima, and thanks for your questions. First, coming to the free cash flow question. Yes, there will be missing something like a dividend of EUR 45,000,000 from Sunrise. But on the other side, there will be a reduction of the interest cost by something like EUR 50,000,000. So there will be a negative effect of EUR 30,000,000 in the free cash flow. And therefore, Christophe already put it in a context with a possible share buyback because even with the EPS on a stable level, with a lower number of pairs, it could be possible to compensate it here. The tax effects all in are very small, so no effects from this side. Your question based on the profitability on the TV business. Yes, I think there should be an increase in the profitability in pre net TV next year of something like EUR 5,000,000. I think for correct calculations, we have to wait on our best budget, and we have to wait on the real churn, what we will see and so on. But it will be I think it is the figure was quite good, which was EUR 5,000,000 to 10,000,000. But for now, I would use the lower end. And on the other side, yes, you are correct. XR Ring will be better with more customers and with the first month, which are positive at the moment. So this year, there will be a figure of something like minus €5,000,000 in the Exa ring business, and it should be definitely a zero next year. So in the XO ring business, I would also say there is room of EUR 5,000,000 for improvement, something like this. That's very helpful. Maybe one quick follow-up on the deal. So do you have a timing? Or when do you expect the closing of the deal and the cash proceeds then also? Well, I mean, there is an official time line. They will in Switzerland, they need to publish a prospectus. My understanding is that this is planned for the August. And then there is what they call a cool down period and then a twenty days offer first offer period. The regulatory approvals go in parallel. So I think in the best case scenario, the first offer period leads to the twothree, and then the closing would be October, early November. If there is some challenges or a Phase two on the regulatory, then the closing will be anywhere mid December. So I think it's in a period best case, early November, end case before the end of the year. Okay. That's helpful. Thank you. Thank you. The next question is from Jeremy Bloom of Warburg Research. Please go ahead. Your line is now open. Yeah. Good morning. Thanks for taking questions. I just got two left. And first one regarding your digitalized revenues, could you just give us some sort of indication what's going to happen in q three? Do you see them coming back? And, like, what's the current willingness of customers visiting near shops also opting for cross selling products? And secondly, I mean, regarding a recent news flow around media's returns economy, just wondering since there was some news about potential shop closures, how does this potentially impact your midterm outlook on your mobile business? And is there a chance for you to receive some compensation for potential impaired reach throughout this distribution channel? Yes. On the digital lifestyle, I mean, from today, I would project the third quarter to be at the same level as the second, which was close to €43,000,000 We won't see growth, but we will see that the stable level. And then I think in the fourth quarter, we should be up again. That's how I would project it. But obviously, we are off the 20% -plus that we have been seeing the last few years. But no reason to believe it's going down. It's going to stay on that level. On Cconomy, I mean, the shop closures, my understanding, and I say that with all respect to my duties not to disclose details that are not public, but I think I can comment that the closures are highly more likely to happen in other countries than Germany. In Germany, I don't foresee closures in the sense of lower number of shops, but I see a smaller well, a reshaping of some of the locations. They might reduce the square meters, and they might change some of the locations, so called B locations replaced by smaller A locations. Anyway, Service and Solutions part is core part of the core strategy And within the service and solution, mobile and telecommunication as such in Germany is a very, very significant contributor to the gross margin and the profits of the company. So even if the size of the shops might come down, the absolute size of mobile and fixed network offerings will remain the same. There is no agreement which would compensate for the closure of shops. But as I said, I am not expecting anything that really impacts our success within The thing that we have seen being accelerated through the crisis was the online traffic and the online business overall with the And specifically, we have also been watching a growth on the online contribution from our business in their in both their channels. So I think the economy is certainly struggling with the overall situation more in the Southern European countries than in Germany these days. I see a lot of operational progress. The comments about the missing strategy are not reflecting reality. There is a positive and a very constructive process to develop and review the strategy. There was a decision supported by myself as a member of the Board that we should postpone the publication of a strategy because it's not wise to do that in the middle of a crisis, which what, in worst case, might lead to a partial or full second lockdown. But as I said, on operations, they do really well. Also, we compare our Mobicom, Dibital and Clamobile numbers from this year and versus last year, we can see that after a short drop, they have very fast recovered their business in Germany, and they are in full up and running. So no real reason for us to worry. Very clear. Thanks. Thank you. The next question is from Martin Jungfleisch of Kepler Cheuvreux. Your line is now open. Please go ahead. Yes. Hi, good morning. Thanks for taking my questions. Have two, please. And the first one is again on your off line and online sales. Do you now see that due to COVID-nineteen, a more continued structural trend for customers to look for tariffs in smartphones online compared to off line? And would this also lead to rethink your store network? And also, can you comment a bit what your flexibility here is in terms of lease contracts? And also, if you could provide some color on the performance of your partnership with the Expert Group that you have closed recently. And the other question is on your use of price comparison platforms. Could you provide some detail on what percentage of gross adds you've gained over these price comparison platforms such as Check24? And how important they have become for your customer acquisition over the couple over the last couple of months? And also, if you can share some detail if there's a difference in gross margins compared to other channels? Okay. Let me start with our own retail platform. I think we've described it a little bit in the last call. So what we I mean, first of all, there were about onethree of our shops were open even during the heavy lockdowns. We have been able to convince the local authorities that people need a place to bring their smartphones and tablets, etcetera, etcetera for repair. I think that was very much appreciated by our customer base, but also by other customers. And we measure the transaction volume in an internal currency called sales performance indicators of the retail chain. And I'm happy to share that this only went down to 80% during the shutdown. So which means that we have only lost about 20% of transactions, and the majority of those have then moved into other channels such as direct online or customer care. The second thing that we've immediately started to work on was to basically reshift the entire inbound and outbound volume, transaction oriented inbound and outbound volume, such as people calling in, I want to cancel my contract or I want to review my contract, I want to have a new tariff plan. We have shifted this call volume and contact volume into the shops. So our people were sitting in the shops, in the back office, on the phone, serving their own customers. As a result of this very positive initiative, we are now testing in some shops, we are testing new opening hours. So during the morning hours, we offer consumers to contact us via phone or videoconference and talk to our sales reps and then open the shop later on for physical contact only part of the day. This is one of the concepts that we are now testing. We have also started with the bigger uptake on online, we have started to, let's say, introduce our shop reps even to people that have ordered online stating, thanks for joining any of our brands. We appreciate that you do this online, and we appreciate you using modern ways of interaction. But by the way, there is a shop nearby, and this is the sales rep there, and they're happy to help. So I think we are trying to adapt to the changing environment and the changing lifestyle of individuals. And we also learn that after these four months of pure virtual contacts, our customers very much enjoy the fact that we are offering physically or at least oral contact instead of digital. So I think overall, I do not think that our shop network will be impacted on the lease contract. While typically German lease contract is five up to ten years. The distribution across the 600 shops is so that basically every other month, we have some of them that run out and some of them will be renewed. In the period, we have paid all the leases. We have not stopped paying, but we approached all the landlords to review the lease contracts as such. So we have preferred to cut new deals and to reduce lease costs with some of the landlords instead of not paying them. Because we think, obviously, it's more sustainable and it's kind of like preempting the overall real estate situation in German cities on commercial on commercial leases. With Expert, I mean, this relationship works pretty well, but they have bigger shops. I think it's too it's not the right time to assess it because they were more brutally impacted by the shutdowns. The last point on online, I think Check twenty four, the difference between Check24 has replaced a lot of the small online shops and online partners. They have absorbed the traffic. The profitability is about the same as if we had a third party online dealer. The difference is the Check24 is basically acting like an agent. So anything of fulfillment delivery, etcetera, is done by ourselves. So they have a smaller part of the value chain compared to a typically third party online dealer. And well, as a result, we pay less money to them, but we certainly need to do the all the service and subsidies by ourselves. If I look at the volume that they generate, then I think the I mean, the biggest third party channel is by far MediaMarktSaturn. The second biggest is what we would call our captive channels, the combination of our retail shops and online. And Check24 is the same size of our own online activities and is, by definition, so the second biggest single partner that we have on our platform. And we have only recently signed a multiyear agreement with them to be their preferred partnership. We cannot disclose all the details. It's not an exclusive partnership, but it is a strategic partnership with defined volume targets and designed quality targets where both parties are committed. Very helpful. Thank you. Thank you. The next question is from Wolfgang Spest of Bankhaus Lampe. Your line is now open. Please go ahead. One question on Media Broadcast. You mentioned some problems in the B2B business. Do you expect this to normalize in the quarters to come? Or do you fear that there's a need for a lot of restructuring now that a lot of the employees are already working with reduced weekly hours? Second question goes to the reinvestment of your funds. Could you exclude any co investment into mobile infrastructure in Germany to secure your position in mobile? Okay. The first one is I mean, the media broadcast, the B2B business that I mentioned is I think it was more focused on event based business. So what we do, for example, any Champions League game, football game and a lot of the Deutsche Bundesliga games, we are providing technical services within the stadium during the transmission. So we handle the transfer of the digital pictures from the camera through the stadium towards the individual stations such as RD, ZDF or Sky. It's not only this business, but this is one that is heavily impacted when there is no games or much less games. So well, if you tell me what the Bundesliga looks like from September, then I can tell you whether it's sustainable or not. I don't know. We just like to illustrate that there is a 25 to 30 people right now that have no job. They are still busy in refurbishing and servicing material, but this is obviously an element of our business, which is impacted. On the second question, we are not intending to co invest into any infrastructure on the mobile side. If this goes if this question directs towards United Internet, I'd like to repeat that we are in very good cooperation with them along fixed network broadband, etcetera, over all the years. And we are also in talks that whenever they start providing services on their own networks that we will we are happy to cooperate and happy to resell their products under the service provider agreements that Baynets R has given within the auction. But there is it's not reality yet. It's still in early stage planning. Thank you. There are no further questions at this time. Sir, I would like to hand back to you. Yes. Thanks, everybody, for spending ninety minutes with us. Thanks for your interest and in your questions. Live safe and stay healthy. See you next time. Bye bye.