Good day. Thank you for standing by. Welcome to the United Internet quarterly statement Q1 2023. I would now like to hand the conference over to your speaker today, Dominic Großmann, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, everybody, and welcome to our Q1 2023 analyst investor conference call. My name is Dominic Großmann from Investor Relations, and here with me today, I have our CFO, Ralf Hartings. Briefly to the procedure, Ralf will first take you through our presentation with the business development in Q1, and we'll give also an outlook for the rest of the year. Afterwards, we will be happy to answer your questions. Yeah. So far from my side, please enjoy the presentation. Ralf, please go ahead.
Thank you, Dominic. First of all, I would like to welcome you all to our webcast on the 3-month figures of 2023. I would like to start with a brief introduction of myself. I have spent a significant part of my career in telecoms with Vodafone and Verizon. During that time, I have worked and lived for nearly 13 consecutive years abroad in countries like Japan, Turkey, U.S. and the U.K.
Since autumn 2017, I'm back in Germany, where I was firstly CFO for P&I AG in Wiesbaden, which was successfully sold from Permira ownership to Hg in 2020. The last 2 years, I was CFO for Consumer Applications business. Let's get into our figures. On Slide 3, we have summarized our key KPIs for you.
Our customer contracts increased by 240,000 to 27.7 million in Q1 2023. Our revenue increased by 6.6% to EUR 1.538 billion. EBITDA decreased by 3.4% to EUR 319 million. It is important to note here that we invested nearly EUR 11 million more in the rollout of our 5G network and had almost EUR 10 million higher brand marketing spend at IONOS, both compared to Q1 2022.
The overall IONOS brand campaign budget has just a different phasing compared to 2022, with peaks in Q1 and Q4. Adjusted for these effects on earnings, comparable EBITDA increased by 2.9%. Our EBIT declined by 10.2% to EUR 188.9 million.
In addition to the explained negative effects on EBITDA, this was due to higher depreciation amortization as a result of investments in the rollout of our fiber optic network at 1&1 Versatel and the rollout of the 1&1 mobile network. This increase in depreciation amortization, mainly due to the start of operations of the 1&1 mobile network at the end of 2022, which is going to generate cost savings as planned from Q4 2023 onwards.
Earnings per share decreased from EUR 0.55 to EUR 0.43, largely through the higher depreciation from our investments into future growth, EPS effect of EUR 0.06, and mainly higher interest rates impacting the financial results, EPS of EUR 0.05. Right. Before we look at the segments on page 4, I'd like to share that we have changed our reporting for the segments.
As part of the interim financial statements for the period March 31st, we have decided to change our segment reporting from previous to controlling to accounting view, and at the same time to align internal reporting and corporate management, previously controlling view, with external reporting accounting view.
This change has resulted in reconciliations effects in the sales and earning figures between the segments. Please note there is no impact on the consolidated group level. In the case of sales for the segments, certain intercompany sales are no longer consolidated at segment level as previously in controlling view, but only at a group level accounting view.
In the case of EBITDA and EBIT, depreciation allocations of profit margins for intercompany services are no longer offset between the segments as previously in the case of internal activity allocating in controlling view, but are reported as posted at segment level accounting view.
The change has no effect on the group sales and earning figures as reported at group level as it was in any case reported on accounting view. This change at segment level also reflects the increasing independence of the segments and aligns our segment reporting with that of the two listed entities, 1&1 AG Consumer Access segment and IONOS Group SE Business Applications segment.
A reconciliation for the previous quarters Q1 2022 to Q4 2022, as well as for Q1 2023, and for the financial years 2019-2022 from controlling to accounting view for revenue as well as operating EBITDA and EBIT can also be found in the backup of this presentation. Let's turn to our segments, starting with the Consumer Access.
On page 6, you can see that in this segment we have increased our contract portfolio by a total of 90,000 contracts to 15.87 million in Q1 2023. Mobile internet contracts increased by 120,000 to 11.8 million, while broadband connections declined by 30,000 to 4.07 million. Revenue in the Consumer Access segment increased by 4.6% to EUR 1.021 billion.
This growth was attributable to the increase in hardware sales and other revenues, which rose by 24.3% to EUR 232.1 million. Service revenue, on the other hand, were on par with the previous year at EUR 788.9 million. This was primarily due to the effect of the number of contracts for comparatively higher priced broadband lines, i.e. fixed network business, that has been declining for some time, as well as a very strong Q1 in 2022.
EBITDA in the Consumer Access segment decreased by 2.7% to EUR 182.1 million. An increase in EBITDA in the existing core business was offset by higher costs for the rollout of the 1&1 mobile network, as the next slide also shows.
The access sub-segment increased its EBITDA by 3% to EUR 201.3 million, while costs for the rollout of the mobile network, 1&1 Mobile Network Sub-segment, rose from EUR 8.3 million in the previous year to EUR 19.2 million in the first quarter of 2023. On page 10, let's have a look at the Business Access segment. Here we were able to increase sales by 5.8% to EUR 136.1 million. EBITDA in the segment decreased as planned by 3.9% to EUR 34.8 million. This was partly due to the start-up costs in and around the new 5G business unit at 1&1 Versatel.
In this business unit, 1&1 Versatel is building data centers and fiber optic connections for antenna sites of the 1&1 Mobile Communications network under an intercompany agreement and leasing them to 1&1. In addition, 1&1 Versatel is increasingly using the fiber-connected 1&1 antenna sites to develop nearby so-called expansion clusters, i.e. public authority sites or business parks, to the optical fiber network and therefore tapping into new customer potential.
The start-up costs in total were EUR 7.2 million in Q1 2023, compared with EUR 2.2 million in the previous year. Adjusted for the start-up costs, comparable EBITDA increased by 9.4%. Let us now turn to the Consumer Applications segment.
Customer accounts in the Consumer Applications segment decreased by 530,000 from December 1, 2022 to 42.42 million, mostly due to seasonal factors. The decline resulted from a 570,000 decrease in free accounts, while pay accounts, i.e., paid contracts, increased by 40,000 contracts to 2.64 million.
Year-over-year, we had 220,000 less active accounts, which was driven by overall reduced e-commerce activity. Due to seasonality, the number of mobile users declined slightly by 100,000 in Q1 2023, while accounts with cloud storage continued to grow by a strong 200,000. On page 14, we are looking at revenues in the segments.
Since the beginning of Q2 2022, the online advertising market has been under pressure with the war in Ukraine as well as high inflation. Therefore, revenues in the Consumer Applications segment declined by 2.2% from EUR 71.6 million to EUR 70 million compared to our extraordinary strong Q1 2022, which was only partly impacted by the 2 mentioned negative factors.
Our EBITDA was equally impacted by these external negatively influencing factors and fell by EUR 2.3 million to EUR 20.1 million. In the Business Applications segment, we increased our contract portfolio by 110,000 contracts to 9.15 million. The increase came almost equally from our operations in Germany and abroad. Revenues in the segment increased by 13.6% to EUR 353.8 million.
The increase resulted from strong customer growth, successful cross and upselling, and strong growth in IONOS's aftermarkets business. Adjusted for the aftermarket business, sales still increased by 4.6%. On page 18, EBITDA in the Business Applications segment, on the other hand, was down 6.3% compared to the previous year of EUR 81.5 million, at EUR 81.5 million.
This was due to higher marketing expenses, EUR 9.9 million, compared with the prior year period as a result of the different IONOS brand campaign phasing in 2023. Adjusted for these higher marketing expenses, comparable EBITDA increased by 5.1%. So much for the segments. Here we have summarized the most important KPIs for the group once again and added a few more. We have already talked about revenue and EBITDA.
Our CapEx increased from EUR 80 million to EUR 144.5 million due to investments in our fiber optic network and 1&1 Versatel and the rollout of the 1&1 mobile network. Free cash flow, more on this later, amounted to negative EUR 21.5 million, previous year EUR 49.4 million negative, which included a phasing effect from 2021 of EUR 97.2 million.
Our net liabilities to banks, as well as our equity ratio, were broadly unchanged. Slide 20 shows you a bridge of our EBITDA to free cash flow. The largest items here are the sharp increase in CapEx to EUR 143.8 million net CapEx as a result of investments in the network rollout, and taxes and interest of a EUR 143.8 million.
Interest and taxes include an annual advanced payment on sales tax of around EUR 58 million, including working capital of -EUR 28.8 million. This results in a free cash flow of +EUR 11.3 million or -EUR 21.5 after leasing. Finally, a brief word on the outlook. Before going into Q&A, I would like to summarize my view on United Internet's performance on page 22.
We had a solid start into 2023. I feel comfortable with confirming our forecast for the full year and continue to expect an increase in net revenue to approximately EUR 6.2 billion versus EUR 5.915 billion last year. Operating EBITDA is expected to be at prior year's level, EUR 1.272 billion last year.
This figure includes approximately EUR 70 million of a higher investment for the build-out of the 1&1 mobile network communications network. We reinvest roughly 6% of our EBITDA into future growth. CapEx, excluding any M&A transaction, is expected to increase to around EUR 800 million, prior year EUR 681 million, in particular as a result of the 1&1 mobile network rollout and the fiber-optic network expansion to supply additional expansion areas to connect mobile communication antennas. So much for the presentation. From our side, we are now available for any questions you may have. Thank you.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. That is star one one if you would like to ask a question. We will now go to your first question. One moment, please. Your first question comes from the line of Joshua Mills from BNP Paribas Exane. Please go ahead.
Hi, guys. Thanks for taking the questions. I guess to start with a bigger picture one. As you come into this role and you're managing all of these various different businesses, whereabouts are you spending most of your time, and whereabouts do you think the biggest uncertainties in the business plan are?
I mean, I think from the investment community, there's still a lot of questions around the network build at 1&1, but just get a sense of where else you think you can maybe improve communication or change things for the better.
The second question, more specifically on the 1&1 side, which I'm sorry I didn't get the chance to ask earlier in the conference call for them, is in practical terms, if there's no change in regulation and if you're unsuccessful in winning 5G roaming approval, as you've requested from Deutsche Telekom, Telefónica, Vodafone, will all of your customers cease to have 5G on the Telefónica Deutschland MVNO, or does this only happen over time?
It's just a bit of a technical question, but I want to understand whether there's actually a cutoff point at which the network quality for your mobile customers could deteriorate and whether 5G will be offered. Thanks.
Hi, Joshua. First question. Look, I mean, I'm good six weeks in now, I think. I'm spending a lot of time on all parts of the business. If you ask me really where I see the biggest opportunity in the business, I think that's clear in our mobile space, where we, I think, have set out a clear plan to build the, you know, most latest technology network for Germany.
Therefore, I'm convinced, if we do this very successfully, as we plan to, United Internet is going to have a very great future. Clearly, a focus area. Then obviously I've got the entire corporate responsibility where I'm looking at, you know, everything else that comes with the job. To your second question.
Well, I think we probably need to ask the question, but yes, of course, we would like to have a fair position in terms of competition. Therefore, we've asked. Technically, yes, from a contract perspective, it would mean that we would only have the 4G access in the long run if nothing else is changing. I think that's it. Okay.
Yeah. Sorry on that, do you have any plans to, you know, how you'd communicate that to customers, whether additional marketing spend would be needed in the third quarter, to, you know, retain customers if that event does happen, and how that might impact on your customer and churn estimates?
Yeah. Joshua, look, I mean, I'm overseeing the entire group, right? That's a pretty specific 1&1 question. If, if it's okay, if I can please refer you to Oliver Keil, maybe afterwards, I think he's better positioned to give you a good answer. Okay?
Yep, I'll do that. Thanks.
All right. Thank you.
Thank you. Once again, if you'd like to ask a question, please press star one and one on your telephone keypad. We will now go to your next question. Your next question comes from the line of Martin Hammerschmidt from Citi. Please go ahead.
Thank you for taking my questions. I have two, please. The first one is on Versatel. I think previously is there's a contract that basically in which Versatel expects cumulative revenues coming from 1&1 of roughly EUR 170 million between 2022 and 2025. Now, with all the network delays that we've seen, is that still the range that we should sort of expect for Versatel, or has it sort of shifted back a little bit given sort of the network, slower network rollout pace?
The second question is on the Consumer Applications business. How should we think about sort of the revenue and EBITDA trajectory coming out of that business given sort of the tough advertising environment at the moment? Those are my two. Thank you.
Please unmute the main feed.
Hi, Martin. Sorry. I don't think, you know, we have yet really disclosed anything on the breakdown of Versatel's revenue streams and therefore I'm not, I guess, not going to change that now. However, of course, if there is a bit of a delay in the network build-out, there could be one, could be a delay in terms of revenue trajectory from 1&1 to Versatel, naturally speaking. I think.
I don't know. Hopefully, you had a chance to listen to 1&1. We are very hopeful to catch up on the network build-out delays quickly and therefore I'm not foreseeing any major, you know, shifts to occur. With regards to the Consumer Applications business.
Look, I mean, you know, I spent there quite some time. The advertising market is volatile. You know, sometimes everybody's hype and it's going, you know, super well, and then it's going down a bit. I think this change is just natural occurrence.
I think right now we are at a very low point with regards to that, and I'm clearly hopeful, and we are start running against a very, you know, pretty weak last year. Therefore I'm pretty confident that we will return to, you know, to growth in at some point in the future. Maybe important to understand as well, a very significant chunk of revenues is generated also by pay subscription business, which is going extremely well.
I'm very confident that the future of our Consumer Applications business is going to be a very, you know, growing and also generating more free cash going forward in the coming year and years. Okay.
Can I ask a follow-up question on the Consumer Applications business? I mean, given that you said you spend most of your time now on the mobile side, and that last year there was apparently an offer to sell that business and you thought you could do more with that, so to develop that business, I'm just trying to understand if you spend most of your time sort of in the mobile business for the next probably foreseeable future, at what point do you think it is reasonable to sort of make a decision on that front if you want to sell that business or if you actually want to sort of develop that business further? Thank you.
Look, Martin, I think generally, you know, we are open. You know, if somebody comes and knocks at our door and says, you know, "Hey, look, I'm interested in this or that," we clearly entertain the idea. Should anything, you know, come out, we come to an agreement, that's great then. It's not that I spent my time more or less on it, that something like this is going to happen, right?
If somebody knocks, somebody knocks. You know, we... If, if somebody believes to, you know, to do a significant better job or can do whatever magic to the business, that we aren't able to do, great.
On the other hand, you know, we could also have access to a lot of, you know, German consumers with the business, so we could also internally probably create more value. I think we like the optionality and we'll, you know, entertain different ideas whenever they come up. Okay.
Thank you. Thanks so much.
Sure.
Thank you. Once again, if you'd like to ask a question, please press star one and one. We will now go to your next question. Your next question comes from the line of Usman M. Ghazi from Berenberg. Please go ahead.
Hello. Thank you for the opportunity. Just one quick one, on Versatel, please. I guess we're hearing. You know, that the fiber companies in Germany are in a little bit of trouble with the, you know, with the state of the debt markets. I'm just wondering if M&A for Versatel is kind of a priority at the moment at all, to take advantage of, you know, kind of consolidation opportunities, or not. Thank you.
Hi. Look, you know, opportunistic M&A is always interesting. I think the British Telecom acquisition, you know, that is yet to be closed, I know we have done. If there is other opportunities, you know, at a good price, super happy to look at. Is that the super priority of the company? It's one of the priorities as always, right? We keep our eyes and ears open. I think that's what I'd like to say, really. Okay.
Thank you.
Does it help? Yep.
Yes. Thank you.
Thank you. We will now go to our next question. One moment please. Your next question comes from the line of Ben Rickett from New Street Research. Please go ahead.
Hi. Thank you for the question and apologies if this has been asked, but I was just wanting to know your latest thoughts on the Tele Columbus stake. In terms of when you think a financing round would need to happen and whether you would be interested in committing more capital to any future capital raise. Thank you.
Hi, Ben. Yeah, look, six weeks in, right? I, you know, I'm clearly getting my head around of many things that are going on. Would I say that Tele Columbus is my highest priority as I sit here on this table? I'd probably be lying. Clearly it is, though, an important associate that we have. Honest to God, at this point in time, I cannot give you a clear view, right? I, yeah. That's pretty much it. You know, we're looking into it and, yeah.
Understood.
All right.
Thank you.
Thank you. There are currently no further questions. I will hand the call back to you.
Great. Thank you, operator. Thank you everyone for attending our call today. Please do not hesitate to contact us for any follow-ups. Wish you a nice day. Stay safe and goodbye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.