euro adhoc: freenet.de AG / quarterly or semiannual financial statement / Q1/2006: freenet continues on expansionist course (E)

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09.05.2006

Q1/2006: freenet continues on expansionist course
• Revenues up +37 percent to 200.1 million euros (vs. Q1/2005)
• Maintained market position with 75 thousand new DSL customers in first quarter
• EBITDA of 27.5 million euros despite massive investments in growth
• 20 million euros in earnings before taxes
freenet.de AG / Hamburg - The freenet.de AG, Hamburg, continues its expansionist
course in the present year, in a market environment that - while it is fraught
with increasingly tough competition in all lines of business - also holds great
opportunities for the company.
First-quarter revenues rose significantly year on year, by 37 percent to 200.1
million euros, which put them nearly on par with the excellent level of the
(usually most revenue-intensive) fourth quarter of 2005. All segments improved
their sales performance vs. Q1/2005 except Telephony (37.6 million euros), which
posted a slight decline in revenue due to difficult market conditions. Internet
access contributed 98.0 million euros, or nearly half of the group’s revenue (up
by +16 percent vs. Q1/2005). B2B Services followed at 36.4 million euros (+1620
percent vs. Q1/2005) and the portal business including Digital Services with
revenues 28.1 million euros (+40 percent vs. Q1/2005). The two latter segments
have lastingly established themselves as additional important revenue mainstays
for freenet, after last year’s acquisition and successful integration of Next-ID
and the Strato group.
To stand its ground in the DSL market against what freenet perceives as
distorting competitive advantages granted to other competitors by Deutsche
Telekom AG, and to safeguard future growth, freenet.de AG considerably stepped
up its marketing expenditure during the first quarter of the present year, to 13
million euros - up by 50 percent vs. Q1/2005. By the end of the first quarter,
the number of DSL customers recruited with this high marketing expenditure and
through acquisition costs rose by 75 thousand to 775 thousand (vs. 465 thousand
at the end of Q1/2005); the number of narrowband customers is at a solid 2.7
million.

Stronger customer growth in the DSL business was prevented by new offers which
hit the market in February and which freenet believes could only be based on
extremely discounted "Net Rental" wholesale conditions granted to very few
providers - conditions that would not have been available to freenet to the same
extent even had it signed the contract in question and which therefore impeded
freenet’s growth considerably. However, freenet trusts that the Federal Network
Agency will soon put an end to Deutsche Telekom’s special terms.
At the same time, freenet.de AG increased the number of its subscription
customers to 2.7 million and that of its active members to 7.7 million. In all,
freenet.de AG had 9.9 million customers at March 31, 2006, 520,000 customers
more than a year earlier.

Another factor that impacted results is the delay in the completion of the
merger between freenet and mobilcom already approved last summer by the Annual
General Meetings of both companies. Only a closer dovetailing of the two
companies’ resources and market positioning would allow us to better maximise
synergy potential and seize growth opportunities in the market.
In this tough competitive environment and despite artificially imposed
differences in the playing field, the management of freenet continues to rely on
growth, even though it may occur at the expense of the profits for fiscal year.
Accordingly, the results seen in Q1/2006 are down slightly: At 27.5 million
euros, EBITDA is roughly 4 percent below the previous quarter and 25 percent
below that of Q1/2005. Amortisation/depreciation was also down slightly year on
year and vs. the previous quarter, to currently 8.3 million euros. This resulted
in earnings before taxes of 20.0 million euros, after 20.3 million euros in
Q4/2005. Group result for the first quarter of 2006 amounted to 12.1 million
euros. This again reinforces freenet’s position as a rapidly growing and yet
profitable company in a very sophisticated, promising market.
The company’s liquidity improved again during the first quarter, rising by 29
million euros from 163.7 million to 192.7 million euros, enhancing freenet’s
financial scope for further investments and/or acquisitions.

Q1/2006 Q4/2005 Q1/2005 
Revenues                    200,068 204,894 146,256
Segment Internet Access     98,027  92,734  84,187
Segment Voice               37,584  39,254  39,914
Segment B2B Services        36,365  42,512  2,114
Segment Portal              28,092  30,394  20,041
Gross profit                74,065  74,154  73,842
EBITDA                      27,467  28,535  36,588
Earnings before taxes (EBT) 20,031  20,339  28,056
Group result                12,096  13,861  17,429
Capital and reserves        294,590 282,494 268,814
Balance sheet total         586,435 548,045 463,664
Cash and cash equivalents   192,672 163,673 90,925

Financial data per IFRS; in TEUR / Source: freenet.de AG

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