Tele Columbus AG (TC1) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Tele Columbus AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand over to Leonhard Bayer, 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 Tele Columbus management team to our today's conference call following the release of our first quarter 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 Walters, Chief Financial Officer. Now I would like to remind you that if any lenders or rating agencies on the call right now that 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 appreciate if you were leaving the conference call now. Press representatives are welcome to call my colleague, Sebastian Artymiak, to discuss any outstanding questions. Please be aware that there might be a delay between the slides in the webcast and the voice transmission. Moreover, due to the current situation, we're partially in different locations, and therefore, need to coordinate ourselves in a different manner when it comes to Q&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 '21 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 headlines for Q1 '21 would be -- or is we had a solid and sound start into the new year. On the operational side of things, we have seen improving Internet & Telephony net add performance with 8,000 and 5,000 net adds, respectively, in the quarter, which is sequentially and also year-over-year better than 2020. However, on the CATV side of things, challenges clearly remained. We have seen 14,000 in 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 use to score our customer satisfaction is now in the KPIs that we here 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%. However, I have to caution you that this is largely due to year-end phasing effects, both in Q1 2020 and in '21, we are comparing here a very full quarter in '21 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 loan margin construction, revenues are up 3% year-over-year. Again, mind you, this is obviously also helped by the 27% increase in B2B that I've 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 Kublai in April. We have also executed successfully in May the EUR 475 million capital increase, and now Kublai shareholding post capital raise stands at 94.4%. And tomorrow, we have the AGM for the year 2020 (sic) [ 2021 ], which includes the appointment of the new Supervisory Board. I would also like to take this opportunity to sincerely thank our 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 update 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 calibrate that. When you look at the competitors that have reported their net adds 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 2.4 million marketable homes, the number of net adds per 1 million 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 change 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 again the tiered 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, now the light green portion, which with speeds above 250 megabits per second is starting to increase its share in the total of that bar, and that's obviously a very good development. And we continue to see also more than 80% of new customers opting for 24-month tariffs, which 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 speed here in the gross adds. On to TV, where we have a fairly mixed picture. So as we have told you, we have seen 14,000 negative net adds. In CATV for the quarter, this is less than the shrinkage in the first quarter 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 the first quarter, however, we have seen a bit of phasing here. So Q2, let's see what Q2 brings, but I would not read too much into 14,000 yet for the first quarter. We have to see what the second quarter brings. On Premium TV, the third consecutive quarter of positive net adds of 3,000. However, we all know that we will not see much better performance on TV until and unless we have fixed our TV value proposition, which I've explained on previous calls. On to ARPU. On the top of the chart, the blended Internet & Telephony ARPU per RGU, which is slightly down compared to the fourth quarter of 2020, and those are slightly down to the first -- compared to the first quarter 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 TV ARPU, which stands at EUR 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 PŸUR NPS. And for the 2 touchpoint 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 bit 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 is 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 messages, 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 cancellations but delays, but we've seen 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 first quarter of 2020, where we had a fairly low gross margin. So that's a positive development. And with that, I will hand over to Eike 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 described the reported numbers and the dark blue bars describe the development of our core revenues, which are the revenues, excluding the construction business. What you can see that on the reported numbers, the revenues are more or less stable and increased slightly from EUR 118.5 million to EUR 119 million. The core revenues increased by 3% or almost EUR 4 million. 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 1/3 of the decline is driven by contracts and 2/3 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 today 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 a remarkable Q1 in B2B, the -- 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 EUR 1.1 million. 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 one quarter from Q4 to Q1. So we have a steeper increase. But secondly, the comparable base of Q1 in 2020 is due to the year-end release rather low, so the 27%, as said by Daniel as well, are a result of 2 effects. Revenues are benefiting from excellent 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 COVID-related for B2B since some of our clients belong to the industries 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 trend is mixed, also said by Daniel in 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 service lead to stable Telephony revenues despite the increasing RGU base. The decline of the other revenues was driven by less construction revenues, which are about EUR 3.4 million, and these were also partly compensated by other revenues like feed-in fees from broadcasters and rental fees we're getting. 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 EUR 55.5 million to EUR 46.5 million. This decrease is only driven by the one-off cost for our strategic review. Without the cost of EUR 11.7 million, the EBITDA would have been grown by 5%. Despite the one-off, 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 the EBITDA bridge are the lower cost for construction business of EUR 3 million, which are part of the EUR 2.3 million cost saving, what we have shown here in other direct costs. The decrease of the signal delivery cost of EUR 1.4 million 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 OpEx-CapEx shift. And you might remember that we had this also in the last quarter, but not in Q1 2020. And lastly, the higher personnel expenses due to higher number of [indiscernible] roughly 5%, and drivers are the 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, another quarter of negative income, but what you can see is that the first quarter amounted to a negative of EUR 16.6 million. And compared to Q1 2020, this is again, yes, 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 EUR 2.5 million actually compared with, yes, [ apples and prices ], as you say so, since the capitalization according to IFRS 16 were corrected only in the second half of 2020. So as a result, operational decline or adjusted number would be even lower. The financial result decreased year-on-year due to the annualization effect of term loan interest. However, this will partially reverse per Q2 due to the repayment of both EUR 40 million and EUR 75 million facilities May 2021. On the next slide, we have the CapEx. No material changes or developments, which are really worth to elaborate extensively. EUR 32.5 million in total. So this is an 8% increase compared to Q1 2020. And maybe pick out to -- one is increase in customer-related CapEx from EUR 8.1 million to EUR 9.3 million 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 project and the high revenues aforementioned. For the full year, we are on track. We didn't pull 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 increase due to the capitalization of financial leases according to the IFRS 16 standard is 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 rights issue. What you can see is that by end of March, we had a cash position of EUR 74 million available, so EUR 64 million cash on hand and another EUR 10 million 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 will present at 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 forma debt structure. What you can see is that from the EUR 475 million proceeds of the rights issue, we used EUR 360 million to repay the 2 smaller term loans and 1/3 of the bigger term loan. So from mid of May onwards, we have a gross debt of EUR 1.1 billion with a long-term maturity, EUR 650 million of the bond running until May 2025 and the remaining EUR 462 million 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 in relation to EBITDA normalized. With that, I would like to hand over to Daniel again.

Thank you, Eike. So on Page 20, we have reprinted 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 midterm 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 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 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 raise has been executed, and we have already used EUR 360 million of that, as explained by Eike, to deleverage and we are now going to sit down, 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&A.

[Operator Instructions] We have no questions for the moment. So I hand back to Mr. Bayer.

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.