Welcome to the freenet AG conference call on the Q3 2026 results. The conference is being recorded. Currently, all participants are in listen-only mode. After the presentation, there will be an opportunity for you to ask questions. I will now hand over to Robin Harries, the CEO of freenet AG.
Good morning, everyone, and thank you for joining us today. Let me start with the key message for these first nine months of 2026. freenet continues to execute well, and we are delivering against the priorities we set ourselves. We are growing our customer base in both mobile and IPTV, our cash generation remains strong, and we have made important strategic progress during the quarter. Importantly, our nine-month performance fully supports our guidance for the full year. Let me highlight five things from the first nine months. First, customer growth remains strong, both mobile and IPTV, with each over 100,000 net adds year-on-year. Second, waipu.tv continues to increase to the contribution with around 20% year-over-year. Third, our cash generation remains a key strength of freenet. Cash conversion is about 60%, translating our operating performance into attractive cash flow.
Fourth, we have taken two important strategic decisions. We acquired the remaining 25% of waipu.tv, and we have signed a term sheet with Telefónica on improved commercial terms. The key issues between us have been resolved, and we are now working on finalizing the contract. Fifth, our strong balance sheet and the proceeds from the Ceconomy stake allow us to combine strategic investment with shareholder returns, including the announced share buyback of up to EUR 75 million. Overall, I believe we are entering the final quarter of 2026 from a strong position. Let me turn to mobile. Value over volume strategy is working. Organic postpaid net adds increased 41,000 in Q3 2026. At the same time, postpaid service revenue increased 1.1% to EUR 480 million. What is encouraging is that ARPU was stable sequentially, and we could even see front book prices went up again.
This is, I think, a good sign and healthy for the market. When we look at our reselling business, this is also stable. Overall, our objective is not to maximize gross adds. Our objective is to maximize the long-term value of our customer base. I think we see here where we have the postpaid net adds growth, while postpaid service revenues grow as well. Overall, this looks very healthy. There are a few reasons why we are very confident about mobile. First, we have a very strong multi-brand mobile proposition. Recent tests have shown the strength of our mobile customer proposition and strong ratings across freenet Mobilfunk, klarmobil. Second, front book prices at freenet continue to improve. That is a good sign. This is our strategy. We see that value over volume works. Our customer base has potential.
We optimize our product offering, that includes better bundle. We have a more sophisticated churn management than one year before, and increasing the AI-driven upselling and customer interaction. The most important development since our last call is our agreement with Telefónica Deutschland. We have successfully agreed and signed a term sheet on a new long-term partnership on improved commercial terms. This was obviously important negotiation for us. The key commercial issues have now been resolved, and we believe the agreed framework creates long-term value for both Telefónica and freenet. We are now working together on the final contract. It is also worth remembering that freenet continues to have close relationship with all three German mobile network operators. That remains a unique strategic position in the German market. We are very happy about the position that we have.
Our ambition in mobile remains clear. We want to grow our customer base. We want to improve the quality of growth. We use our AI-first approach, and all of that goes into the right direction. Let me move to IPTV. With waipu.tv, we added another 39,000 net adds. This is also a very solid growth. We are number two in the German IPTV market. Our offer, Perfect Plus, was named best in test for the third time within just a few months, so very strong results. Our customers are happy. The ratings are great. We believe it's really a very, very strong product. This is also the result of independent tests. When we look at the advertising market, there we saw that it was a little bit softer.
Since the middle of the year, weaker macroeconomics have affected revenues, but ad impressions remained broadly stable year-over-year, and we continue to win new partners, new agencies. We still believe this is an opportunity, and we believe it will go up again. Overall, we're very happy about the business here and the developments. This brings me to another very important strategic decision. We acquired the remaining 25% in waipu.tv. The initial purchase price was EUR 76 million. It's fully funded from the sale of our CECONOMY stake. The implied company valuation is EUR 300 million, and we have a performance-based part, and a part of this deal with a maximum further EUR 50 million. I think it's for the shareholders of freenet, it's very good.
We will have full growth participation, simplified ownership, and it brings more flexibility to our view and makes things much easier. To sum up, our customer base is growing. Our core mobile business is resilient. waipu.tv continues to scale. We've achieved an important breakthrough in our long-term partnership with Telefónica, and our cash generation remains strong. Against this backdrop, we confirm our full year 2026 guidance and remain confident in the strategic and financial direction of freenet. With that, let me hand over to Ingo, who will take you through the financial performance in more detail.
Yeah. Thank you, Robin. Good morning, everybody, from my side. Yeah, I think it definitely was a very good quarter for freenet. We solved a lot of, let me say, issues that we had to solve, and yeah, even more successful than expected at the beginning. We are very happy about it. Looking into the figures, also here, we still see the strong increase in revenues. We see a decrease compared to last year in gross profit and EBITDA, but this is more than explained from the negative effect from the Telefónica agreement, what we do have and what we discussed several times during the year, and which does have a negative effect of EUR 32 million up to now. Very positive, the development of the free cash flow. I will come to it back later on. Moving to the revenues.
Yeah, mobile, definitely, it is dominated by the mobilezone integration. It is not organical but unorganical. But if you look into the organical figures, it is also very positive. Robin already mentioned that the service revenue could be increased again in the third quarter. All in, we see it is a stable service revenue, but slightly increasing. As you know, this is one of the most important figures. The decrease in ARPU could be overcompensated by the growth of the customer base here. Moving to IPTV, also here, we separated some of the special effects what we had. If we just look into the normalized figures, again, we see an increase in the third quarter. All in, it's a development what we expected. Robin was already referring to the lower advertising revenues.
Yes, this was a disappointment, but it is not driven by the company or by the business model. Business model is working quite fine, but this is from the macroeconomic, what we could not change here. All in, very positive also in the IPTV segment, and this translates also in the revenues of the group. Maybe in other holding, normally we do not comment that much on this, but we had a special effect last year here in other holding in the revenues. There was an effect from the sale of IP addresses, you may remember on this, and therefore there is a decrease in the revenue. Without this special effect, it would be also stable here. Moving to the gross profit, very stable in mobile again. This is what we saw during the whole year, even an increase in the third quarter, so very positive.
I think there is the contribution from mobilezone, which is here for, I think, for the first time, overcompensating the effect from the MNO agreement and from the lose of the Wi-Fi business here. I think I'm fully happy with the development in mobile gross profit. IPTV, yeah, here again, we see a slight increase in the gross profit in the third quarter, which would be much higher if we would not have the negative effect from advertising. We normalized here the effect of this media barter. I think we have discussed in depth already in the second quarter. All in here, yeah, it's an increase in gross profit. For the whole group, as mentioned at the beginning, yes, for the nine months, there's a decrease, but this decrease in gross profit is driven only by the agreement with Telefónica, what we do have for here.
Moving to the adjusted EBITDA. I think, again, if you look into the figures for the quarter, it is again the same reason that we decrease the EBITDA here in the quarter. If we would not have shown the Telefónica effect, then it would be stable and the same on the nine-month period as we normalized it here in the boxes. If we review the special effects, then it is a totally stable gross profit EBITDA what we see during the year. IPTV still growing. If you see the normalized effects for the nine-month period, the EUR 30.9 million vs the EUR 24.5 million, then we still have an increase of 26%. So, it is growing. It is quite fine here. So, I think no surprises from our side. Slight disappointment about advertising, but all in, a very good quarter for freenet here.
Moving to the cash flow, which is even better than what we showed before. I think if we look all in, it is better than last year. It is even better than we expected before. Looking into the chapters, change in working capital, we EUR 3.3 million better than last year, but we are on a similar level. So, what I do expect for the full year, I think at the beginning, we guided something like EUR 40 million for the working capital. I would guide something like EUR 40 million-EUR 50 million now, because there are still some insecurity about how the sales work during the Christmas business and in the cyber weeks. So, there is slight insecurity in change in net working capital, but from today's point of view, from a conservative view, I would expect something between EUR 40 million and EUR 50 million.
In taxes, I think it is much stronger than we expected at the beginning of the year. We had not to pay that high taxes that we expected. It has to do with the tax authorities, so we are still waiting on some prepayments which were expected and which were not necessary during the year. So, definitely up to the end of the year, the tax figure will be below EUR 40 million from today's point of view. CapEx, more or less in line with what we expected from the beginning of the year. We invested slightly more than last year, but for the full year, I still do expect something like EUR 45 million. Lease payment without any surprises, EUR 44 million up to now. Up to the end of the year, it will be the announced EUR 60 million. Interest, definitely higher.
We invested into the mobilezone deal at the beginning of the year or at the end of last year, so therefore we have a higher leverage than we had last year, so the volume of our financing is higher, and on the other side, interest rates are higher. So therefore, there will be effects during the fourth quarter, but not unexpected. Moving to our guidance, I think Robin already mentioned that we confirm the guidance today. It is to make it clear here, and you also see it in the headline of this page, we have a term sheet with Telefónica now, and it is a very detailed term sheet what we do have, but this is not good enough to put it into consideration here on the guidance page. I think it is necessary to sign the contract.
We are very optimistic here, but it is not good enough to put it in the guidance. We expect positive, definitely a positive effect already in 2026, but it is not possible to incorporate here in the guidance. What can I say to the guidance? We confirm it, but I think to also quote the obvious things, in EBITDA, we will be at the lower end of the guidance, and in the free cash flow, we will see the upper end of the guidance. This is what I do expect from today's point of view, and it is obvious when you look through the figures. There are still uncertainties up to the end of the year, but this is our today's view. Therefore, I close with my comments to the charts. Therefore, I would ask the operator now to start the Q&A, please.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press the star key, nine, and the pound key on your telephone keypad. If you would like to cancel your question, press the star key, three, and the pound key. You can also use the dial-in function in the webcast to ask a question by raising your hand. The first question is by Dhruva Shah from UBS. Please go ahead. The floor is yours.
Yeah, hi. It is actually Polo Tang at UBS. Apologies if this has been addressed, but I missed the start of the call. I have two questions. The first one just on waipu.tv. Can you comment on the valuation implied by your minority buyout? The EV is EUR 300 million, so that actually implies less than 3x EBITDA for 2028 if you meet your midterm guidance. Was there a reason for the low price, or is there a risk to your midterm guidance? Second question is really, can you comment about competitive dynamics in the German mobile market and what is happening in terms of front book pricing? Thanks.
Thanks for your question. I will answer both of them. First, regarding the valuation of waipu.tv. I think one of our strengths here at freenet is that we are strong dealmakers. For us, obviously, it is a good deal. We were strong shareholders before that deal with 75%, so we had a quite good position. In the end, I think we were a very good option, alternative, and there is no risk related. If you look at the valuation, I think it is a good deal for all parties, but overall, I think we are very happy about the outcome and the price that we paid. To the second question regarding the competition in the market, yeah, I think it is still the same dynamics what we saw at the beginning of the year. Competition is disciplined. We see that front book prices go up slightly.
We experienced this last quarter again. If we look at the overall ARPU, it is also stable compared to the previous quarter. Competitors are disciplined, so overall, market, I would say, looks healthy, and things are moving into the right direction.
Thanks.
The next question is from Sofija Rakicevic from Goldman Sachs. The floor is yours.
Hi. Good morning, everyone. I have two questions. The first one is on agentic AI. What gives you confidence that freenet can defend its position if AI makes switching easier? What factors, from your point of view, inform the scale of this risk? If maybe you have assessed the potential impact in terms of revenues and free cash flow. The second question is on the MNO agreement. As we know, you have announced the term sheet agreement, but I am just wondering, what is the key remaining point in the negotiation? Is there something that you disagree with Telefónica, or everything is just going according to the plan? Thank you.
Hi. Thank you for your questions. I will start with the second one regarding our term sheet. No, I would say there are no open points. The term sheet is very detailed. We have been negotiating hard and for many months, as you know, almost one-year negotiations. I think it's in good shape. The next step is now that you put the details and the content of the term sheet into a final contract, which will then be signed. Therefore, I don't see open points yet in this stage. That's why we are very happy about the progress, and I think it's a strong step forward for freenet. Related to your first question regarding AI, I believe, or we believe, that freenet is in a very good position in the market because we offer all networks, and we offer all networks for very attractive prices.
And we make customers. So we are not a broker or intermediary. If you come to freenet, you can book the Deutsche Telekom network, Vodafone network, Telefónica network for very attractive prices and become our customer. I think every smart agent, every smart AI agent, will consider freenet and our brands. We not only have one brand, we have several brands. So, I think it's rather difficult to not consider one of freenet's brands if you want to find an attractive offer. Therefore, I think for us, it's rather a chance. We are working on this, and so I'm not concerned about that.
For the moment, there seem to be no further questions. So in this case, I would turn the floor back to the hosts.
Thanks for your time. Thanks for the questions. We want to thank our employees for those fantastic achievements in the last month. This brought freenet again forward, especially the strategic things that we did, the acquisition of waipu.tv and the term sheet with Telefónica. I think those are important milestones, and we're very proud of the company and looking forward for the future. Thanks for your time. Wish you a great day.