Tele Columbus AG (TC1) Earnings Call Transcript & Summary

[Audio Gap] It is not only the growth on the net add side or on the gross add side we are looking for -- for that, I can also, later on, was a churn perspective. It is also the type of customers or the bandwidth, which we are gaining through our networks. And we -- really for us, it's really a benchmark, which we gained also in Q2, which is 30% of our customers are now more than -- the customers on the gross add side, for 100 megabits and more. And this is also based on our DOCSIS 3.1 rollout, of course, because we are able now to sell that. So also, yes, but I mentioned cable TV also really good to look at, what we -- was planned or a budget of how the industry churn because later on some questions related to that is that we churn between our books because it was sent to us last year or even the year before. But when we are comparing our cable TV subscribers on net adds, we are on a much better way of track than the comparable quarters before. Also on the [indiscernible] with the premium TV resilient, stable business, which we are seeing here. So also in line with our expectations. Revenue remained stable compared to last year. We will see later on also some comparison to that, adjusted normalized EBITDA, because we also explain that later. It's really a big topic for us because it is an increase by 4.9%, which is outstanding, or which is what we are looking for and now performing quarter-by-quarter. This is what we mean for. And CapEx in Q2 increases by 13%, which relates to our rollout strategy and also relates to our successful process strategy on IT. Unfortunately, there was a typo in the first part of the presentation, the cash position of EUR 34.3 million on the balance sheet as of June '23, in the financial. In our financials, it's a correct one, so it is also correct that here in that slide. And a shareholder loan of EUR 50 million or 13% interest rate loss given. So when we are now looking or coming to the operational performance, this is really what we want to see. The strong momentum in the IT segment in 2020, what we saw in the Q4 continues this year, the further development of our sales channel and the orientation towards a more end customer OEM organization. This forms our basis for those. Underlying by the strong DOCSIS rollout and the high perception of higher ventures customers. So a good growth rate, again, 12,000 delivered, which is compared to the quarter, a good increase, and compared to the half year comparison also a good increase. This came mainly driven by the consumer sales department here by new channel structures as MRR. So [ door-to-door ] and online was very strong, but we've also taken our care for selling new customer here, which is the change in the business. And the good thing is that gross adds, or when gross adds are okay and churn is okay or better than budget, then it is what you want to see, and this delivers growth for the company. Telephony in line with our assumptions and also in line with our performance. When we are coming to the next page, this is really also interesting. Here, we see our most important growth pillar. The German broadband market shows a strong dynamic development for Columbus track of potential to grow with this momentum. We use this opportunity, we actually show growth and capitalized on this momentum, and we really outperformed and want to do that for the future as well. In comparison to our competitors, it's always good. That's been in mind of what they are doing. So -- but right now, we are really putting the organization in shape to perform like in the past. Just some comparison. So here, you can see on the left-hand side, half year comparison, half year '21 to '22. That was really good. It was 1.5 acceleration. But then, we are now looking on half -- the first half year '22 to the first half year '23, we more than doubled our growth. And this also brings us to the growth on service revenue, which is delivered by BaFin. And this really is what I talked before and what we also see our business cases for the future is that IT is growing and growing and growing, and also the share of IT in our service revenue composition is getting bigger and will, over the future, overcompensate some losses on the TV side. Coming to the next page is what I addressed before. This is our benchmark number, which we're now looking at and bring it above more and more in Q2, more than 30%, which is [ Leipzig ] in the dark color and also, it's 92%, 500 and more. It's 2 per 20.9%, 400-megabit customers, and this, we want to grow on a stable basis. And this is also upside potential for ARPU growth because looking at our base, we have potential here also to uplift low-tier customers to the higher tiers. Also by our new product ideas that we had launched in the past, and we will launch in the future. Coming on to the TV business now on the next page. So we have a negative cable TV net adds. Two main reasons data-cleaning effect, which is a smaller one. The mentioned are housing churn, and when you subtract these 2 effects from the normal business, which is then the comparison to the churn Q2 the year before, you end up by a 50% lower churn than the year before, which when you also compare Q3, Q4, Q1, really a good development. In Q2, it's nearly without any migration impact of bulk to single contract, which is important to mention. Same side on the premium TV side, which is also on the Q-to-Q level, also 50% better than the previous year. This performance, this operational performance in all our business lines and business units then will lead to the financial performance, which I also now happy to show you. So on that slide, it is on a fairly stable development in revenues over the past quarters, and reflecting our focus on Internet customers and also the success of the expansion of our networks and DOCSIS 3.1. And here, what I explained before you really can see the shift in the revenue segment below, while revenue in the first half of the year '22 was composed by 46 TV and 35 Internet and phone, it is now 43 TV and 37 Internet and phone. And this is what we are saying that, yes, it is more than a managed shrinking of the TV business. And then we have to step in with our TV retail and TV wholesale strategy on ramping up on the IT side. When we are looking and comparing our revenue side on the half year '22 to the half year '23 results, we see a quite stable business here. And this is also what I mentioned several times before. And second, that TV products are going down and are nearly compensated by our B2B work, which is good, but also on the IT side, which we'll get in track for long. Phone sales has decreased by EUR 9 million. The corona effect from '22 to '20 (sic) [ '20 to '22 ] is flattening out, and we've seen lower call volumes. That is the main reason for the decline on the phone side. The wholesale business, which is steadily becoming stronger, restoring revenue increased in the half of the year -- in the first half year of '23 as well. What we did now on the next page, and this was also our discussion in the annual call for the results of '23. Where you see that this down by 13 to 36 EBITDA. That was the adjustment for mainly driven by the OpEx and CapEx shift, we normalize that one on the Q-to-Q -- Q-on-Q comparison. And by doing that and also putting a best investment of ANTEC part of the comparison, which then leads to an adjusted normalized EBITDA, we really can compare apples to apples. And here, we see the growth, which I mentioned before by 4.9%. When we look now in the -- on to Page 16, for a more detailed bridge here. On the Q2, over [indiscernible] sales decreased slightly. We have already explained the reasons for half year in detail other operating income. On the other hand, increased slightly by EUR 1.6 million. This effect results mainly to a depreciation interest or release of interest accruals and asset sales coming to the cable TV costs are slightly lower in Q2 '23 due to a new signal cost contracts in Vodafone, and due to a reduction in proven signal costs. This results from a shift to own signal, which we also try to do several times in the future. Other value costs have decreased by EUR 1.3 million, mainly due to higher contractual driven maintenance costs and increased energy costs. Personnel costs increased by EUR 1.2 million year-on-year due to a combination of increased number of full-time employees and rising wages. So this is also reflecting our investment in consumer sales to bring more people on the ground and also more external point of sale. Marketing costs decreased due to cost reduction measures and the postponement of projects. An increase of EUR 1.5 million and other operating expenses compared to the previous year, mainly due to regional leasing, IT, media and other comprehensive income. And as we did not have any adjustment from CapEx to operate shift in 23 days, a positive impact of EUR 2 million here. Okay. Coming now to the last page of the presentation, which is also completely in line with our business. So what we are seeing here on the CapEx side, that the network infrastructure is going up, impacted by our construction business. In the second half of the fiscal year, investments are rising steadily. The usage for this is accelerated, invoicing by subcontractors to the end of the year and catch-up provisioning by project managers in Q2. The CapEx to revenue ratio is 51%, was 7% higher than previous year. And to be honest, what we are seeing here now and customer-related CapEx is going up and this leads one and one to our -- first of all, our higher gross add performance and also due to higher ventures customers, which result in higher take rates of price here moving and higher commissions, which, to be honest, is exactly what I want to see for the future because this leads to higher ARPU and higher interest for us. Network infrastructure, the investments, which I saw in this side, before -- a major topic here also to mention on the to the few head up -- heads up is on IT and operation, we see a major effect in Q2 for this is due to a temporary out of transformation projects in order to realign our transformation strategy. And from this, on that side, the IT and operations costs are lower than compared quarters.

Okay. That is the main topics of our storyline for Q2. Coming now to questions you sent to us. And very important for our statement on financing. But with regards to addressing the near-term maturities and other liquidity needs, we can confirm that we are working with our advisers on addressing business liquidity, debt maturities in our capital structure, and we are engaged with lenders, advisers and will update the market in due course. I also like to answer some of the specific financing questions. So one of the question was, could you please provide more color on the EUR 50 million shareholder loan that the company obtained? The EUR 50 million subordinated shareholder loan has been provided by one of our shareholders. Use of proceeds to be provided additional liquidity to the company, by with our -- is Tele Columbus AG. Next question was, could you please comment on how the company intends to advance the upcoming capital structure maturities between '24 and '25 loans and bonds, and its current liquidity position? We are working with our advisers on addressing businesses liquidity and maturities in our capital structure. In particular, the company is about to commence discussions with the advisers of our top group of lenders and bondholders, and will update the market in due course. Next question was, given the loan matures in October '24, I understand this must be refinanced before October '23 to avoid the potential insolvency event given the 12 months look forward period under German law? From a German insolvency law perspective, there is no requirement to refinance or extend the capital structure 12 months ahead for scheduled maturity. Next question, what provides the management board with sufficient confidence they can raise enough liquid funds to continue as a growing concern? What commitments has the shareholders provided in terms of equity could be -- to be provided? The company is in discussion with respect to a shareholder commitment to secure the funding necessarily to continue as a growing concern. And now to coming to a more specific questions, we refer to Goldman Sachs, who will follow-up, individual investor. So that's the part of the financing questions. Thank you for that. And now turning to the operational questions or operations questions. I already answered it, but maybe some were just later joined the call. So cash balance on the balance sheet is stated perhaps for EUR 34.3 million, whereas the lender presentation, Page 5, stated it's EUR 18 million, please confirm this discrepancy? And I said before that the figure of EUR 34.3 million was right. Unfortunately, there was a typo in the presentation, and we uploaded the new one the cash position of EUR 34.3 million on balance sheet as of June '23 in the financials is correct. We received quite a few questions regarding fiscal year '22 full year results. And please, on that point, this is a call for Q2 '23 financials. We will not comment on fiscal year '22 full year questions. Please address also here on that point, our Investor Relations team. Next question are you trying to sell any material asset. Oh, this is a good one. Without affecting the B2C cable operators to us or the B2B business? This is very important to mention because there was an article and also our employees are asking that the B2B business remain the cornerstone of our growth story. See does not plan to neither sell the B2B business nor any other assets. German media reported that 100,000 offshore lines were recently damaged in Berlin by a third-party during construction work. Are all of these lines now repaired? And how is expected -- and how it is expected to impact Tele Columbus financial? So completely repaired -- everything is repaired no compensation. Customers have to be hit due to force majeure, but we are still assessing any claims and damages toward the third party who caused that damage. I'm also looking at our churn customer inflow numbers by customer care calls and churn numbers. We don't see any impact on that damage in Berlin. I also comment this question, but I can do it again. What do you mean by housing industry plan churn? So normally in housing associations, because they also have to plan for the future. This churn comes in our company latest 6, 12, 18 months before, and this is what we planned offline or offset to that planned churn. So we are already have it considered and in our numbers, that's the explanation. If you seen any competition or threat from fixed wireless access technology is one question? What then provided the 5G DOCSIS? So to be honest, we are -- this is what we are constantly doing. We are closely monitoring our competitors offered in the market, and we do not see fixed wireless access technology affecting our business. Another question is, what is the market trend on ARPUs? And is there any scope for increase? So in general, Internet ARPUs, for example, trended the stable increased slightly due to price increases as well as product mix shift was higher speeds. This is what we are also looking for building up benchmark or just for asset class base management also in the company. Where we have found the user charges remain under pressure due to lower call volumes. This is known in the market in TV ARPUs tend to be [indiscernible]. Other question is, please provide an update on BT and Vodafone and what the competition situation in the housing association value trade is? The competition situation remains unchanged. Personal comment on that is that from industry association, the GdW, for example, the feedback comes -- a very positive feedback. The Tele Columbus shaped its business with senior management team because they said that third party or fourth party in the German market for the housing association inside Vodafone and what Tele Columbus needed. And this is also -- that is the feedback they get from their -- of the association members, and this is also the feedback which we get from our customers and potential customers, we are addressing right now. When will the wholesale contract with Telefónica Deutschland start generating revenue? We already deliver wholesale service revenues. We are in line with our budget figures, that I can see. Do you expect further cost increases in '24, is another question, or will the cost build are we complete after '23? The transformation and implementation of the fiber strategy will go beyond fiscal year '23 definitely and in line with our customer base in the housing association side. So this is a hand-in-hand approach. And with the growing top line, we will also see growing costs, however, shifting towards a more profitable Internet business, we expect a continuous improvement of our EBITDA margin. Another question was in the actual tool kit revenue splits, please confirm what is in other revenue? In other revenue, we show wholesale, construction work, sales from program providers, [indiscernible] bandwidth, interconnection piece and tenant servicing. But also to that question on impact to the tool kit, please come to the Investor Relations colleagues and we can reach you through. August price increase, what are the expected sales EBITDA uplift has an impact on churn? So what we see here really is revenue increase and churn are completely in line with our expectations. Hoping that the churn pattern, which we see that first half year also leads to a better performance on that. But we'll see that right now completely in line, what we're expecting. Another question to premium TV. Any update on the new OTT platform? When it will be commercially launched? So our new hybrid IT platform or our OTT platform will be launched in autumn. We are currently conducting currently user test, and we see very positive feedback from these testers and excited to launch it in autumn. Where does the company stands in terms of migrating pipe contracts? What is the status on wholesale? So most of it, I think that is one. So what is the migration path. On the migration on the bulk contracts, we are completely in line on our expectations. We also match some of these ideas and that same information from ANGA, the industry association on the cable operator side. And also the plans for '24 are in good shape, and just in executing mode. Question to CapEx, how much is from muted CapEx until year-end? Also here, completely in line with our expectations and very important as well are -- I think in line, which are our liquidity estimates. Another question, please write out the adjustments to adjust the normalized EBITDA in terms of untaken negative cost effects from change in the provision of accounting guidance. What was the total EBITDA contribution of C2C from the ANTEC investment? So the impact from ANTEC in that slide on the adjusted normalized EBITDA in Q2 '22 was around EUR 200,000. So on the other side, it was EUR 2 million. And concerning -- the question for ANTEC, the parties have agreed not to disclose the selling price of ANTEC. So please understand that I can't answer that question. Question two in cable TV, please confirm how many customers have switched from bulk to individual contracts in half year '23, and how many have churn, concluded overall conversion rate? So we are -- like I said before, we are completely in line with our migration plan and also with our targeted and planned conversion rates, which I claimed last time also will be something between 50% to 60%, maybe it's more for the bigger number, which is good. And this is what we are aiming for and see in our cost migrations. Next question is, there was a signal cost reduction related to a lower cable TV signal fee as a result of a signal cost contract and reduction of cost for [ proven ] signal because of shift to own segment. That was my comment in the presentation. Please, can you explain this in more detail, and what the stated full year benefit will be? So we are -- we negotiated the signal in euro and contract with Vodafone, which was signed in Q1 '23, with the effects of the price reduction also for the previous year -- years. The parties had agreed not to disclose any further information numbers. And last question regarding CapEx. IT operation spend was clearly lower due to a temporary halt of transformation projects in order to realign transformation strategy. Question is, please, can you detail what exactly has been halted? What has been halted and what impact this will have on your go-forward CapEx? So current architecture investments are replacing a legacy system. So we have -- these have been temporarily stopped in order to reevaluate our strategy, and investments where we assume in the near future are also reflected in our business. So these are the questions we received, we answered. And if any other questions, on the one hand side, to our operational business realized after the call after my answers, please email them to our Investor Relations team, really the address again is [email protected]. And like mentioned before, other questions concerning the financing liquidity status and so on, please address the Goldman Sachs team. So thank you for your time. Thank you for attending our Q2 results presentation and answering your questions. Have a good day. Thank you and see you all. Maybe see you again in ramping of some of the presentations and hear you again for our Q3 results. Looking forward to that. Thank you very much, and bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.