freenet exceeds raised 2021 guidance - significant EBITDA and free cash flow growth forecast for 2022

- EBITDA grows by +5.0 % year-on-year to 447.3 million euros in 2021

- Free cash flow without sunrise contribution¹ in 2021 significantly exceeds previous year's figure, rising by +16.4 %

- Financial performance accompanied by increase in subscriber base, up by 175.4 thousand customers (+2.0 %)

- Dividend proposal² for 2021 offers prospect of +4.7 % increase to 1.57 euros

- 2022 guidance: further expansion of subscriber base, EBITDA growth of +4 % in line with medium-term target and steep rise in free cash flow

Büdelsdorf, 24 February 2022 - freenet AG [ISIN DE000A0Z2ZZ5] today announced its preliminary results for the 2021 financial year and the fourth quarter of 2021.

Group: EBITDA margin improves by one percentage point to 17.5 %

The Executive Board of freenet AG looks back on what it considers to have been a highly positive 2021 financial year. Having already demonstrated the viability, crisis resistance and predictability of its business model in 2020, the freenet Group did the same in 2021, even though many shops and stores remained closed due to coronavirus for large parts of the first half of the year under review. The fact that a majority of EBITDA is based on recurring revenue and margins, plus a sales structure that can be managed based on supply and demand, was crucial to this success.

This means the freenet AG was not only able to meet the forecasts for its performance indicators published at the start of the year, but also exceeded the raised guidance for EBITDA and free cash flow without Sunrise contribution published during the course of 2021. Revenue remained stable year-on-year at 2,556.3 million euros (-0.8 % compared to 2020). However, the quality of this revenue improved as the reduction of around 30.0 million euros in hardware revenue in the Mobile Communications business was offset by an increase in subscription-based revenue. The positive financial performance was primarily driven by the encouraging trend in customer numbers and a stable price structure. Compared to 2020 (8.610 million) the number of high-value subscribers rose by +2.0 % (+175.4 thousand) to around 8.785 million, repeating the previous year's relative growth (+2.9 %).

Both EBITDA at 447.3 million euros (+5.0 %) and free cash flow without Sunrise contribution at 234.4 million euros (+16.4 %) exceeded the upper end of the guidance raised in August 2021. freenet was able to preserve the lessons learned and cost effects of the coronavirus stress test in 2020 and convert them into efficiency gains in 2021. As a result, the EBITDA margin rose by a percentage point to 17.5 % (2020: 16.5 %), thus increasing for the second successive year.

This positive EBITDA development is also reflected in free cash flow, which once again slightly exceeded the quarterly guidance of 50 to 60 million euros by reaching 61.5 million euros in the fourth quarter of 2021 (Q4/20: 17.1 million euros). The consistent performance throughout the year, lower interest payments and a positive change in working capital almost entirely offset the free cash flow effect of around 46.0 million euros caused by the dividend discontinued from 2021 onwards due to the successful sale of freenet's stake in Sunrise. Free cash flow without Sunrise contribution amounted to 234.4 million euros in the past year, close to the previous year's level (237.3 million euros) and +16.4 % above the figure adjusted for the Sunrise contribution (201.3 million euros).

Overall, the year of crisis in 2021 showed that freenet AG's customer-focused business model, based on contractually secure revenue as well as flexible cost and sales structures, is exceptionally robust. freenet demonstrates the same consistency in enabling shareholders to participate in this success. The Executive Board and Supervisory Board are proposing a dividend of 1.57 euros per share for the approval of the Annual General Meeting. This corresponds to the announced payout ratio of 80 % of free cash flow and represents a +4.7 % increase in the dividend compared to 2020.

Mobile Communications segment: Q4/21 EBITDA significantly exceeds previous year by 15.0 million euros

Although sales of mobile communications products were almost exclusively processed via online channels for most of the year and consumer behaviour has not yet returned to normal after the reopening of bricks-and-mortar retail, the German mobile communications market remains rational. This is apparent from the stable-year-on-year trend for postpaid ARPU, which remained unchanged from the previous-year quarter at 18.0 euros in the fourth quarter of 2021 (Q4/20: 18.0 euros). Over the full year, the segment was able to offset the pandemic-related weakness at the start of the year (Q1/21 vs. Q1/20: -0.6 euros) to ensure the postpaid ARPU was only -0.8 % down on the previous year at 18.1 euros (12M/20: 18.2 euros). In addition to coronavirus opening effects, this stable trend is also due to the newly-established (data-based) smart pricing in some areas.

This overall price stability was accompanied by a further rise in the number of high-quality mobile communications customers. With customer growth of 43.0 thousand in the last quarter of the year, this was also the fastest-growing quarter of the year (Q3/21: +31.8 thousand; Q2/21: +23.6 thousand; Q1/21: +32.2 thousand). This means that this customer base grew by around +2.0 % (+130.6 thousand customers) to 7.266 million customers compared to 2020 (2020: 7.135 million). Almost 75 % of this growth was attributable to postpaid customers (+99.3 thousand), while the remainder came from purely app-based products freenet FUNK and freenet Flex (+31.3 thousand).

This combination of price/volume effects caused postpaid service revenue (postpaid SR) to rise by 20.7 million euros (+1.4 %) to 1,542.3 million euros in 2021 (12M/20: 1,521.6 million euros). As a result, freenet AG is well positioned to use organic growth to offset the decline in service revenues in 2019 and 2020 caused by regulatory effects. Overall, Mobile Communications revenue remained stable year-on-year in the fourth quarter (-2.7 million euros) and were only slightly down on the previous year on a full-year basis due to the coronavirus-related decline in the hardware business in the first half of 2021 (-1.5 % compared to 12M/20).

On the back of profitability-focused customer growth combined with sustainable cost management, positive short-term and long-term personnel expenses effects as well as persistently positive customer payment behaviour, segment EBITDA rose by +4.3 % to 370.1 million euros due to the fourth quarter in particular (2020: 354.8 million euros).

TV and Media segment: waipu.tv grows by 8.2 million euros in 2021

Customer numbers in the TV and Media segment also developed in line with the Executive Board's expectations. As anticipated, the customer base for our antenna-based television product freenet TV declined by 105.3 thousand customers (2020: -119.2 thousand) to 796.6 thousand (31 December 2020: 901.9 thousand customers) in the 2021 full year. As this decline barely impacted profitability due to the 20 per cent price increase in May 2020 and the optimised cost structure, the Executive Board believes it can still be considered moderate in the context of the forecast.

By contrast, waipu.tv continued to follow its growth trajectory from previous years by adding around 150.1 thousand customers (2020: +164.2 thousand customers) and maintaining an almost 40 % share of the German OTT market. The subscriber base expanded by +26.2 % to 722.5 thousand customers compared to 31 December 2020 (12M/20: 572.5 thousand subscribers). As the company has now fully passed its break-even point, each new customer now contributes directly to EBITDA growth.

The customer trends in the TV and Media segment caused revenue to rise by +9.9 % (+25.6 million euros). Overall, revenue amounted to 284.5 million euros (12M/20: 259.0 million euros). Driven by higher revenue and a year-on-year rise in EBITDA margin to 32.3 %, segment EBITDA increased by +12.1 million euros to 91.8 million euros (12M/20: 79.7 million euros). waipu.tv remains the main growth driver and was responsible for 8.2 million euros of the increase in EBITDA, thus helping to reach the 2021 target of positive EBITDA in the low to medium single-digit millions.

2022 guidance reflects growth ambition of >= 4 % EBITDA CAGR until 2025 vs. 2020
Revenue is projected to remain stable overall in 2022. This expectation is based on moderate revenue growth in the TV & Media segment and stable performance in the Mobile Communications core business. Management assumes that revenue quality will improve further, which should cause EBITDA to increase to between 450 and 470 million euros. This forecast includes known effects from an expected increase in inflation and a rise in wage cost currently being observed. Starting from EBITDA in 2020 (425.9 million euros) and based on the midpoint of the EBITDA guidance for 2022, this would correspond to the target of average annual EBITDA growth of 4.0 % or more announced at the 2021 Capital Markets Day.

Free cash flow of 230 to 250 million euros is anticipated. Management is therefore raising its expectations slightly based on strong free cash flow in 2021 (compared to mid guidance), despite an one-time additional capex charge of around 10.0 million euros caused by the extensive energy efficiency improvements being carried out at freenet's Büdelsdorf office.

The postpaid customer base is expected to grow moderately with stable development of postpaid ARPU. Customer numbers in the TV & Media segment are generally expected to rise based on solid growth in waipu.tv subscribers and a marked decline in freenet TV subscribers (RGU).

The freenet Group expects to publish its final financial results for 2021 on 25 March 2022. The Annual Report for the year ended 31 December 2021 will then be available under Publications on the Investor Relations website.

Conference call webcast
freenet AG will host an analysts' conference call at 10:00 a.m. (CET) on 25 February 2022. All those interested in attending can follow the conference call via webcast at LINK.

A recording will be made available following the event.

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¹ Q1-Q4/2020 free cash flow adjusted for dividend from Sunrise (Q2/2020: 46.0 million euros) and corresponding interest payments on the syndicated bank loan (Q1-Q4/2020: approx. 10.0 million euros).
² Subject to approval by the Annual General Meeting and measured on the basis of the number of dividend-adjusted shares.
³ Sum total of postpaid customers, freenet FUNK customers, freenet Flex customers, freenet TV subscribers (RGU) and waipu.tv subscribers.
⁴ freenet FUNK/freenet Flex customers.

Note
In the interest of clear and transparent presentation, alternative performance measures (APMs) are used in the financial statements of freenet AG and in ad hoc disclosures pursuant to Art. 17 MAR, in addition to the disclosures defined by the International Financial Reporting Standards (IFRSs). Information on the use, definition and calculation of APMs can be found in the freenet AG 2020 Annual Report from page 46 onwards.

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Contact:
freenet AG
Investor Relations & ESG
Phone: +49 (0)40/ 513 06 778
Mail: [email protected]
https://www.freenet-group.de/en