Earnings Call: Q1 2021

May 27, 2021

Dear, ladies and gentlemen, welcome to the conference call of Telekolumbos AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand over to Leonhard Baier, who will lead you through this conference. Please go ahead. Good morning, ladies and gentlemen. It's my pleasure to welcome you in the name of TELACOLUMBA's management team to our today's conference call following the release of our Q1 results for fiscal year 2021, which ended on March 31, 2021. This call is limited to 60 minutes. In case of any follow-up questions, Manuel and myself are available to discuss. I'm here today with Daniel Ritz, Chief Executive Officer and Eike Walthers, Chief Financial Officer. Now I would like to remind you that if any lenders or rating agencies are on the call right now, this is a public conference call in which only publicly available information will be discussed. I would therefore ask you to refrain from questions containing information not belonging to the public domain. This conference call is intended for capital market participants only and not for press representatives. If any journalists are on the line right now, we would highly press representatives are welcome to call my colleague, Sebastian or Tumiak, to discuss any outstanding questions. Please be aware that there might be a delay between the slides and the webcast and the voice transmission. Moreover, due to the current situation, we're partially in different locations therefore, need to coordinate ourselves in different manner when it comes to Q and A later on than normally. Having said that, it's now my pleasure to hand over to you, Daniel. The floor is yours. Thank you, Leo. Good morning, ladies and gentlemen. A warm welcome also from my side to our Q1 'twenty one call. As usual, I'll kick it off with key messages, followed by operational update and KPIs. I will then hand over to Eike for financial performance. I will be briefly back with outlook, and then we are ready for your questions. So the headline for Q1 'twenty one would be or is we had a solid sound start into the New Year. On the operational side of things, we have seen improving Internet and telephony net outperformance with 8,005,000 net outs, respectively, in the quarter, which is sequentially and also year over year better than 2020. However, on the CATV side of things, challenges clearly remain. We have seen 14,000 negative net adds in the quarter. This is better or actually less bad than Q1 2020, but still 14,000 net adds is not something to be proud of, of course. Premium TV net adds have continued to grow at a relatively low pace of 3,000 in the quarter. For customer satisfaction, Net Promoter Score, which we used to score our customer satisfaction, is now in the KPIs that we report firmly in positive territory. There are some further improvements, but obviously, it gets tougher as we get better, and we will work hard to further improve that KPI, of course, in the quarters to come. On B2B revenue, we have seen a tremendous year over year increase in revenues of 27 percent. However, I have to caution you that this is largely due to year end phasing effects both in Q1 2020 and in 'twenty one. We are comparing here a very full quarter in 'twenty one to a relatively light quarter in 2020 due to phasing effects in both years. Hence, the growth rate that we report here is definitely not sustainable going forward. As for financials, our Q1 core revenues excluding low margin construction revenues are up percent year over year. Again, mind you, this is obviously also helped by the 27% increase in B2B that I just explained. Q1 reported EBITDA is down 16% year over year. This is largely due to transaction related nonrecs that we booked in Q1. Normalized EBITDA is actually up year over year. Q1 CapEx is up 8% year over year. This is largely on the back of RGU growth, so customer related CapEx, which accounts for the lion's share of that increase of CapEx year over year. On the strategic front, as you're well aware, we have successfully closed the takeover by Cuplay in April. We have also executed successfully in May the £475,000,000 capital increase, and now Food Lion's shareholding cost capital raise stands at 94.4%. And tomorrow, we have the AGM for the year 20 20, which includes the appointment of the new Supervisory Board. I would also like to take this opportunity to sincerely thank our out outgoing Board of Director members who have been with the company during a very intense and important period of time, and we greatly appreciate the collaboration we have with them during their tenure. Thank you. Now on to operational updates and KPIs. As already mentioned, on the Internet, we have seen a good quarter with 8,000 net adds for the quarter, which is sequentially better and also better year over year. I would also like to ensure that they calibrate that. When you look at the competitors that have reported their net debt also for Q1, I'm not going to name them here, but you can do your own math. But when you adjust actually our performance of 8,000 for the marketable footprint, in our case, a bit less than 2,400,000 marketable homes, the number of net adds per 1,000,000 marketable home actually stands quite well against that of our peers. That's something we are happy about. In terms of telephony RGU, we have seen a net range of 5,000 in the quarter. This is largely on the back of positive development in IP net adds. As you're well aware, the telephony access comes with the IP access, and we only charge for outbound telephony usage. Here, we show then the tier split for gross adds. And as you can see, the demand for higher bandwidth remains resilient. We're particularly interested, of course, of the green portion of that stacked bar because this is about speed tiers of 120 megs and above. As you can see, the green bit, including light and dark green, is now stabilizing north of 70%, at least for the moment. However, what is very encouraging is that now the light green portion, which denominate speeds above 2.15 megabits per second, is starting to increase its share in the total stack bar, and that's obviously a very good development. And we continue to see also more than 80% of new customers opting for 24 months tariffs, which, though the higher bandwidth overcompensates the discount. And we will do more marketing efforts in the months to come to increase the portion of the top C tier in the gross adds. On to TV, where we have a fairly mixed picture. So as I told you, we have seen 14,000 negative net adds in CATV for the quarter. This is less than the shrinkage in the Q1 of 2020. Mind you that typically the first quarter is the worst of the year because this is typically where we get hit by housing association contracts, which are discontinued typically in Q1. However, we have seen a bit of phasing here. So Q2, let's see what Q2 brings, but I would not read too much in the 14,000 yet for the Q1. We have to see what the second quarter brings. On premium TV, the 3rd consecutive quarter of positive net adds to 3,000. However, we all know that we will not see much better performance on TV unless we have fixed our TV value proposition, which I've explained on previous calls. On to ARPU. At the top of the chart, the blended Internet and telephony ARPU per RGU, which is slightly down compared to the Q4 of 2020 and also slightly down compared to the Q1 of 2020. This is predominantly driven by lower telephony revenues. So if we were to de average this, of course, the Internet ARPU is going in the right direction and the telephony ARPU, bit of the blended ARPU, is shrinking due to lower chargeable telephony outbound usage, but overall, still pretty much stable. The same applies to TBR and RQ, which stands at €8.7 for the quarter. On to Net Promoter Score. As you see, we are now either for 3 or 4 or 5 quarters now in positive territory for the overall pure NPS and for the 2 touch point NPS that we report here are in customer service and field service. And as you can see, it's a bit stubborn there. It takes a lot of effort to make the green base even bigger. We're working hard on that. I think the easy the low hanging fruits are already harvested, and now we have to work hard to further improve this. And it's obviously one of our top priorities because ultimately, we are firmly convinced that NPS drives customer satisfaction and therefore also more gross adds and less churn. Here, B2B, as already mentioned on the key message, 27% up year over year. I've explained to you that this is not a sustainable run rate going forward. In fact, we see some headwinds for the remaining 9 months of 2021 due to COVID related project delays. These are not project cancellation, but delays, but we're seeing clients of our B2B unit approaching them and saying, let's this is still good enough for some time to come. Let's postpone some of the projects until we have further visibility in terms of our own economics. So keep that in mind. What is, however, positive to report is that the gross margin in percent of revenues is materially up by about 10 points compared to the Q1 of 2020, where we had fairly low gross margin. So that's a positive development. And with that, I will hand over to Aike for financial performance. Thanks, Daniel, and hello and good morning also from my side. On the next page, we have the overview of the revenue development and the underlying trends per segment. As usual, the light blue bars describe the reported numbers and the dark blue bars describe the development of our core revenues, which are the revenues excluding the Construction business. And what you can see that on the reported numbers, the revenues are more or less stable and increased slightly from €118,500,000 to €119,000,000 The core revenues increased by 3% or almost €4,000,000 What you also can see is that the recent trend continues. We reduced the decline in TV, but the overall trend remains quite challenging. And beyond that, approximately onethree of the decline is driven by bike contracts and twothree by individual customers. And that indicates clearly the pressure by the new telecommunication law. When the legislation becomes effective in December 2024, roughly 50% of our to date revenue TV revenues are at risk and needs to be secured with strong B2C sales and a compelling TV offer and as well as IP services. So this is quite challenging for us. The losses in Q1 were almost compensated by Broadband. But first and foremost, as said by Daniel with the remarkable Q1 and B2B, usually the financial Q4 performance is very strong since the sales teams are in the year end mode and try to get in as much as they can revenues. But in the recently communicated Q4, it was a bit different and unusual since we had a decline in our B2B business by €1,100,000 In this case, projects were belated and a part of the revenues kicked in later than initially planned. What we have experienced now are 2 effects which drive the sharp increase. First one is the phasing of incoming revenues by 1 quarter from Q4 to Q1. So we have a steeper increase. But secondly, the comparable base of Q1 2020 is due to the year end release rather low. So the 27%, as said by Daniel as well, are result of 2 effects. Revenues are benefiting from excellence and projects of the previous quarter and the comparable low base. And as said by Daniel, looking further into 2021, we see less active project business for COVID related for B2B since some of our clients belong to the industry which were harmed by the pandemic, such as hotel chains or other with certain uncertainties left for the remaining 9 months. We're happy to see the ongoing positive momentum in the IP revenues. The increasing customer base is rising the revenues on a sustainable level, But the underlying trends is mixed also set by Dannon and the KPIs, while we drive Internet revenues through a favorable bandwidth mix, even though we operate with attractive promotions for our customers in the last month, we are dealing with lower ARPUs in the Telephony business. So our attractive bundled tariffs and customers who optimize the tariffs lead to stable Telephony revenues despite the increasing ARPU base. The decline of the other revenues is driven by less construction revenues, which are about €3,400,000 and these were also partly compensated by other revenues like feed in fees from broadcasters and rental fees we get in. On the next page, we have the EBITDA comparison with Q1 2020. And what you can see is that the reported EBITDA shrink by approximately 16% from 55 point €5,000,000 to €46,500,000 This decrease is only driven by the one off cost for our strategic revenue without the cost of €11,700,000 the EBITDA would have been grown by 5%. Despite the one offs, it was a rather stable quarter, which was more or less in line with Q1 2020. Of course, we have to keep in mind the outstanding B2B result, but the key factor to explain the deviation in EBITDA average are the lower costs for construction business of SEK 3,000,000 which are part of the SEK 2,300,000 cost saving what we have shown here and other direct costs. The decrease of the signal delivery cost of SEK 1,400,000 is due to the capitalization effects with regard to fees for the use of foreign grids, so network lease in the context of new leasing contracts that were capitalized according to IFRS 16. This is an OpEx CapEx shift, and you might remember that we had this also in the last quarters, but not in Q1 2020. And lastly, the higher personnel expenses due to higher number of Odfs FCON boards, roughly 5%. And drivers are commercially beneficial in sourcing in departments of IT, finance and field services as well as necessary investments in the overhead to derisk the business. On the next slide, we have the negative the net income. And yes, as I said, it's another quarter of negative income. But what you can see is that the first quarter amounted to a negative of 16,600,000 dollars and compared to Q1 2020, this is again lower net income, and this was clearly driven by the nonrecurring items in Q1 related to the one offs. But after the onetime impairment of the goodwill in Q4 2020, this was even better result compared to last quarter. Depreciation and amortization are actually running against the lower comparable base. The decline of €2,500,000 actually compares with apples and pikes, let's say so, since the capitalization, according to IFRS 16, were corrected only in the second half of twenty twenty. So as a result, operational decline or adjusted number would be even lower. The financial result decreased year on year due to the amortization effects of term loan interest. However, this will partially reverse per Q2 due to the repayment of both EUR 40,000,000 and EUR 75,000,000 in May 2021. On the next slide, we have the CapEx. No material changes or developments, which are really worth to elaborate extensively, euros 32,500,000 in total. So this is an 8% increase compared to Q1 2020. And maybe to pick out to one is increase in customer related CapEx from 8.1% to 9.3 due to more B2C related CapEx because of the customer acquisition costs, which were capitalized for more customer wins and higher B2B CapEx in connection with the belated projects and the high revenues aforementioned. For the full year, we are on track. We didn't put forward any investment in expectation of a successful transaction or the rights issue and worked instead along the budget and the amount of other CapEx increased due to the capitalization of financial leases according to the IFRS 16 standard, and that's something we had now a couple of times already today. On the next slide, the leverage and liquidity table. The debt structure by end of Q1 and the comparison to Q4 2020, this is all before the partial repayment of debt after the right issue. What you can see is that by end of March, we had a cash position of €74,000,000 available, so €64,000,000 cash on hand and another €10,000,000 for the RCF. This is again a slight increase compared to the previous quarter. As Daniel said, the transaction and the capital increase were successful. As a result, the next leverage table we presented in Q2 numbers will significantly different to how it looks like today. And there's one last slide I would like to share with you. This is a pro form a debt structure. What you can see is that from the €475,000,000 proceeds of the right issue, we used €360,000,000 to repay the 2 smaller term loans and onethree of the bigger term loan. So from mid of May onwards, we have a gross debt of €1,100,000,000 with a long term maturity, €650,000,000 of the bond are running until May 2025 and the remaining €462,000,000 of the term loan B until October 2024, which is quite positive to the company. And this, indicatively brings us to a net debt below 4x compared in relation to EBITDA normalized. With that, I would like to hand over to Daniel again. Thank you, Althe. So on Page 20, we have presented the going concern full year 2021 guidance on revenue, reported EBITDA and CapEx. The important comment here is in the box at the bottom that this current guidance, both for the full year 2021 and mid term guidance is to be updated in the second half of the year. The trigger for that will be once we have had the opportunity with the now to be elected Supervisory Board to sit down and to agree what we're going to do for the remainder of 2021 and for the years to come. That will trigger then an update of the guidance, which will occur in the second half of this year. And the last slide of our presentation actually is all grayed out, and that means we're done with the transaction. These are the milestones, and we have completed, I think, 3 of them since we last spoke for full year 2020. So the transaction is closed. The equity rate has been executed, and we have already used €360,000,000 of that, as explained by AK, to deleverage. And we are now going to return, as I said, with the new incoming Supervisory Board to plan what we're now going to do with the proceeds other than what we have used for deleveraging. That concludes our presentation. Thank you, and I'll now hand back to the operator for Q and A. Thank you. We will now begin our question and answer We have no questions for the moment. So I hand back to Mr. Baier. Okay. Thank you very much, operator. Yes, if there are any follow-up questions arising throughout the day, don't hesitate. Please reach out to me directly and maybe for some closing remarks. Over to you, Daniel. Thank you, Leo. Yes, ladies and gentlemen, thank you very much for joining our call this morning. I hope it was useful and what you expected. Thank you very much, and we look forward to speaking again when we report Q2. Have a good day, and stay healthy. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.