United Internet AG (OTCPK:UDIRF) Q2 2022 Earnings Conference Call August 4, 2022 8:30 AM ET

Dominic Grossman - Co-Head of Investor Relations

Ralph Dommermuth - Chief Executive Officer

Martin Mildner - Chief Financial Officer

Yemi Falana - Goldman Sachs

James Ratzer - New Street Research

Joshua Mills - BNP Paribas

Nizla Naizer - Deutsche Bank

Good afternoon, ladies and gentlemen, and welcome to today's Investors and Analysts Conference to the Six Month Results for 2022. Our Board members, Ralph Dommermuth and Martin Mildner will explain the developments of the first-half of the year-end figures and give you a forecast for the second half of the year. After this presentation, the Board will be available for your questions-and-answers.

I would like to give the floor to Mr. Dommermuth now.

Well, thank you very much, Mr. Grossman. Good afternoon, ladies and gentlemen. Welcome to our semiannual conference. Mr. Mildner and I have split this up for this afternoon that I will give you the company development for the first-half year with the forecast of the overall year, and Mr. Mildner will then give the results, the figures in detail for the first half of the year.

I'll start with business development. Many of you know this overview, it shows our business model. We distinguish between our Internet access business and the applications business, that's our applications area. And here, we address on the one hand, consumers and on the other hand, business customers.

In the center, you can see our assets. We have more than 10,000 employees, of which approximately 3,600 in product management development and data centers. We are strong in sales. We generate more than 5,000 contracts per year. And on a daily basis, 50,000 people register for our free services. We operate 67 million accounts in 17 countries. We have 19 larger data centers and 400 micro data centers running a total of 100,000 servers in the U.S. and Europe. We have a powerful network infrastructure in Europe. We have a fiber network of more than 53,000 kilometers length.

In our Group, there are different brands. In the access business, we address our consumers with our main brand 1&1. We have several discount brands such as simplytel, smartmobil or winSIM. Business customers, we address via 1&1 Versatel. For applications, GMX and WEB.DE are responsible for consumers. We address business customers via our main brand IONOS. We purchased a number of other companies over the years. Brands with largely national characters such as Arsys in Spain, home.pl in Poland, World4You in Austria or STRATO in Germany and Holland. Then there's United domains, Sedo, InterNetX and WE22. We have not only cooperations with various companies, but also have minority stakes usually between 20% to less than 50% of the various companies.

Now let's speak about the first year -- half of the year, starting with the access business. Here, we make a distinction between broadband business and mobile phone business. For broadband, we are the largest DSL provider in Germany with 4.17 million broadband connections. We market above all VDSL and FTTH complete packages, sold by 1&1 company. The preliminary services are provided by a sister company 1&1 Versatel. And the last mile is provided by Deutsche Telekom and city carriers. You can see the map of the various connectors, the FTTH and VDSL network that uses Telekom and city carriers for the last mile. We have very good rewards. We have been given various awards. Very good again this year connections, but it's been consistently good over the years.

Next to the broadband business. We have a mobile business, we are leading for MVNO with 11.38 million mobile contracts. We have a broad market coverage with different brands, and we have very high customer satisfaction. I have included a logo by a study performed by Focus Money together with a partner and 355 companies from 81 industries were analyzed in this study.

The industry winner for telecommunications is 1&1, but of the 1,355 companies analyzed came in second. The top rank among the 1,355 companies was snatched up by our company GMX, which is active in domain services and has the highest recommendation rates across industries. STRATO and -- got the second place and the first place again by 1&1 for our broadband business. So I think we can -- for our business, broadband. So we're very popular with our customers. As you know, we are building our own network and for our mobile access. And up until this becomes available, we use access points by Telefonica and Telekom.

Now the figures, for the first half of the year 15.55 million customer contracts, that doesn't seem to be much for us, because we won 190,000 contracts in mobile phones. You have to take into consideration that due to the change of the telco law, as per the beginning of the year, we have now a different situation where customers can give notice on contracts with a month's notice. That has a very noticeable impact in the first year -- half of the year. The effect was 110,000 contracts lost, so that we had a net surplus of 190,000 contracts, same -- or similar with broadband connections minus 60,000 telco effect, which led to a total loss of 70,000 contracts.

Now how come we distinguish the notice being given and its effectiveness. In ‘22 and ‘21, there was no more notifications -- notices given, but the impact was much faster in ‘22 than in ‘21. Because under the old law, customers had to give notice of three months. Now they can give notice on a monthly basis, which means that notices become effective faster. This will have only a temporary effect and will peter out over the next few months and then we'll see our normal business again.

In terms of revenue, we increased by 1.3%. What's important is our service revenue, that's where we make our money, and that increased by 2.6%. Martin Mildner can see it, [indiscernible] can explain it to you. That in the first quarter, we had stronger growth than in the second quarter. This is due to the fact that in the second quarter, we had to process more notices being given by customers. This is why we had lower growth. But we had a growth for mobile business of 4.7% and then minus 0.9% in broadband due to these contract losses. Then other revenues decreased by 4.2%, that's not relevant for us, because it's among others, smartphones that are sold via our 24-months contracts. And it is compensated for -- by the contract. So we don't have a big margin here. And it really depends on the smartphones made available by the manufacturers in which promotions we can offer here.

EBITDA in Consumer Access has grown very nicely by 9.8% to EUR370.1 million. And as a marginal note, we had EUR400,000 extra phone costs compared -- sorry, electricity costs, compared to last year. We indicated this individually. Here for Consumer Access, it doesn't play a role, but this is just to make it uniform. With Consumer Access, we have two subsegments. One is the traditional business, i.e., with the broadband connections. And with the MVNO mobile phone model, we had a growth of 9.7% EBITDA to EUR360 -- EUR386.2 million. And the second segment is still running at a deficit is our mobile phone business. We had expenditures of EUR16.1 million for the rollout of the mobile network, which is a bit more than last year, minus EUR14.9 million.

With Business Access, our brand, 1&1 Versatel is active there. And as I said, they have a fiber optic network of more than 53,000 kilometers length, which connects companies, factories, but also authorities, because we connect them directly to our fiber optic network. And then there are the handover points to Telekom and the city carriers that connect private individuals. We are also serviced by this fiber optic network, but we only have direct connections to authorities and companies.

Revenue increased by 1.3% in the first half year. This included negative regulatory effects. For the whole year, we expect an overall growth of 3.5%. If we discount or ignore the regulatory effects, it will be 5%.

For the EBITDA, we'll see a decrease of 4.3% to EUR75.7 million, including, however start-up costs for the building of the infrastructure for the 1&1 mobile network. 1&1 Versatel makes the fiber optic network and the data centers available. Then Versatel had EUR900,000 million SDH migration cost, one-offs. However, that will be positive for us next year, because we'll use more modern technology that we can purchase more cheaply. And Versatel had EUR600,000 million higher electricity cost in the first half of the year. If we ignore these effects, we had an EBITDA of 2.9% above last year. The expectation for the year is that we will wind up at the EBITDA level of last year. And if we ignore these one-off costs, the high electricity cost, we will have a growth of 7% that is at least our plan for this year.

Let's move on to the Applications business. Let me start with the consumer business. Here, we are developing our e-mail services to command centers for communication, information and identity management. This has worked very well. We now have 34.8 million active accounts. We have more than 50% market share in Germany with private e-mails. Then we have accounts abroad so that we have a total of more than 42.3 million accounts. We have a good market position for e-mail, eIDAS/De-Mail, cloud storge, content and ID management. The accounts have increased to a total of 43.34 million, compared to last year's figure. That's a growth of 140,000, compared to the 31st of December. It's a decrease of 450,000, which is seasonally motivated. For the whole year, we expect growth again.

The free accounts are at 39.83 million, pay accounts at 2.5 million. And what's important to us is mobile use, i.e., that our users use. Our clients rather than the pre-installed clients in the smartphone has increased to 27.8 million and the utilization of cloud storage to 22.1 million.

Revenues increased by 4.4% in the first half of the year. We separated here the first and second half. In the first half, it was a growth of 7.5%. In the second quarter only 1.5%, we have many free accounts here that are monetized by advertising. And we can see that in the second quarter, we didn't have any growth in this area, because advertising expenditure in Germany or in the German, Austria and Switzerland, that area, which is our main area. Advertising revenues didn't increase there and that affected us as well. So only 1.5% growth, we believe that is due to the uncertainties of -- generated by the Ukrainian war, inflation and other external conditions.

The EBITDA increased by 2.2%, including EUR1.2 million higher electricity costs. If we'd have the same electricity cost as last year, then the EBITDA would have grown in line with sales by 4.3%.

Last but not least, our Business Applications centering on IONOS. We're developing from a web host, i.e., a provider of web hosting and storage to an e-business solution provider with different tools and applications that allow our customers to do business online. We have a good market position here. We're the leading European provider and we're active and the biggest or second largest provider in many countries, and we're also active in North America.

Customer contracts have increased by 130,000 half of them abroad, half of them at home to a total of 8.91 million contracts by now, and revenue has increased by 18.2% to EUR608 million. How -- what does the strong growth do? Well, more customers. I mentioned that, then increased up and cross-selling in the existing customers, but also strong growth in aftermarket business. At Sedo, where we have domain trading and parking platform, if you ignore this growth in this parking and domain trading and parking business, then we have a 7.9% revenue increase for our business.

With EBITDA, we can see a 0.7% increase to EUR164.5 million, including EUR13.2 million additional marketing activities. We had announced that this year, we would increase the marketing activities by about EUR30 million this year in order to drive market awareness. Also, higher electricity costs hit us at IONOS to the tune of EUR8.9 million that are also included in these figures. Like-for-like, it would mean a growth of 14.3% in EBITDA.

You can see our KPIs and an overview again here, 290,000 consumer contracts in the first half year, 4.5% more revenue, 3.5% more EBITDA, 3.3% more EBT and EPS suffer from financial results, due to the valuation of financial derivatives and equity results from the participation in Tele Columbus, which we hold together with Morgan Stanley Infrastructure in our investment vehicle Kublai, about 95% of the Tele Columbus shares. So much on the first year -- half of the year.

Now let me give you the outlook. We are confirming our forecast for the overall year. We would like to increase our revenue to EUR5.85 billion. EBITDA will be at prior year's level at EUR1.259 billion, including EUR70 million expenses for the setup of the mobile network at 1&1. It was EUR37.9 million last year, then EUR30 million for additional marketing activities at IONOS that I mentioned. And then an additional EUR20 million of higher electricity costs that hadn't been planned for, but that we'll find easy to digest.

CapEx, EUR800 million to EUR1 billion, particularly for the construction of the mobile network and the expansion of our fiber optic network. I think this slowed. The slide clearly shows how our business is going. We had a revenue growth that we're predicting for 7.5% in the first half of the year, we managed 4.5%. I think we will achieve this with the EBITDA we see an identical level. But if you see a look at the figures that we are integrating in the investment phase that we're in, they're actually 6.5%. So we're doing fairly well. Business is going as planned, and we are optimistically looking at the second half of the year.

So I would like to give the floor to my colleague, Mr. Mildner.

Yes. Thank you, ladies and gentlemen, analysts and investors. I'm happy to welcome you to this webcast as well. Mr. Dommermuth has already presented the major figures of our four segments here in detail. And I would like to present the development of the segments in the consolidated group level, especially with respect to our free cash flow and our key index figures.

I would like to start with Chart 31, summarizing of what Mr. Dommermuth has just presented. At group level, the number of customer contracts to the end of the first half ’22, compared to the H1 ’21 was increased by 800,000 to a total of 26.97 million contracts. Our advertising financed free accounts were increased at the end of the year, first half compared to the end of first half year by 140,000. That gives us a total as per 30th of July to 39.83 million.

And our Group revenue was increased to EUR2.901 billion increase -- considering an increase to 4.5% compared to the year before. At the end of the first half 2021, the group EBITDA our results before taxes and so on in ‘22 was EUR655.1 million. Mr. Dommermuth has already mentioned that our EBITDA in 2022, as well as in the year before, was on one hand, affected by non-operative special effects and off-period accruals, which have been taken out of this figure for better comparison, as you'll see that in the footnotes. Taking out this figure, we could generate an EBITDA growth of 3.5%. The EBT adding up to EUR379 million, is affected by three things, which are here at the first bullet point below the table.

On the one hand, the financial result was affected by a reevaluation of financial derivatives with a minus of EUR7.3 million. And the share of negative talk of Columbus AG by Kublai at an amount of EUR13.6 million was added for over the full six months, while the negative result of Columbus AG in the first half of the year '21 was only added for two months, which was because of the participation in the first four months, were still as a sellable asset in our balance sheet. And only after the closing of the takeover bid, it was involved in our balance sheet. These EBT affects have an effect of EUR0.12 per share on the EPS and that means for -- that we add EUR1.3 or EUR1.23, if we look at the operative EPS prior to PPA.

On the next Chart, I will look at the free cash flow on the first half of the ’22. As you see on the overview page of the bridge, the free cash flow towards the end of the half of the H1 '22 is EUR 126.2 million prior to leasing or EUR62.3 million after the leasing payments considered. And in combination with upfront payment to Telekom, we have two shifts of phases in the first half ’22. As I said in the Q1 webcast, a cash effective figure of EUR79.2 million and the liability were already placed into the ‘22 in the accrued amount earned by that. It is adjusted to the phases in 2021.

The same applies for the upfront payment of EUR198.2 million, compared to Telekom -- for Telekom, which in the first half of the year ‘22 was put on the balance sheet, but which will only be taken effect or payable in the third quarter. If these two offshore phase payments would be adjusted in the free cash flow, the free cash flow in the first half would be at minus EUR29.7 million, which of course, is due to the high CapEx expenditures, which we guided.

Looking at Chart 33. With the major balance sheet figures of United Internet AG as per 30th of June ‘22, which as we have given in the end of the last financial year. And I'd like to start with the active assets outside of the balance sheet. And for better overview, we have taken out the short-term -- or summarized the short-term and long-term liabilities. The property and equipment, intangible assets, compared to end of December ‘21 have increased by EUR81 million to EUR3,520 million. And this is especially due to our investments made in equipment. The company values have not changed and are now at EUR3,625.4 million and are now at the level of the year before. The drop of our financial assets by EUR13 million results, as I said, from the share of the negative participation in Columbus AG.

The requirement from liabilities and performance of EUR33.5 million, compared to the end of ‘21 has increased by EUR25 million and reflects our growth. The contract assets amount to EUR828.1 million without major changes. The increase in inventories and deferred expenses from EUR589 million the year before to by EUR222 million to a total of EUR830 million to the end of June 2022 is especially due to the explained payments to the FTTH contingence to the Deutsche Telekom.

The assets held, cash and other equivalents have not changed very much. They are about [EUR214] (ph) and our cash developments towards the end of the first half is EUR54.3 million. And the decline towards the end of the year, especially is due to the dividend payment in May this year.

Let me move on to the next Chart to look at the liabilities and equity side of the balance sheet. Looking at the equity development, we can see that the equity has developed from EUR4,923.2 million by about EUR164.2 million to now EUR5,087.4 million as per end of June. At the same time, the equity ratio has improved by 0.2% percentages to a total of 51.1%.

Our bank liabilities have slightly changed to the end of the year from ‘22 to end of mid of June. Due to the lower payment and net liabilities have slightly increased from EUR1,759 million to EUR1,712 million as per end of this month, first half.

The other positions on the liability side, I don't want to detail on that. As the changes are mainly in harmony with the development of the operative business. If you would have questions to that, we are happy to answer these in the following Q&A session.

And I would further hand over back to the operator to open the Q&A session. Thank you very much.

Thank you very much Mr. Mildner. [Operator Instructions] It seems like we have no questions from the German conference. So I'll handover to English side. Thank you very much.

[Operator Instructions] We'll take our first question from Stephane Beyazian with ODDO.

Thank you very much. I've got two questions, if I can. Could we come back on the M&A? If you could update us on the plans regarding IONOS. And if I'm not mistaken, you might also consider perhaps the sale of the Consumer Applications. So I'm just wondering whether you could update us on that?

And my second question is at iron ore, especially regarding the energy cost. Whether you could give more color on the contracts and the hedging that you have there? I'm just trying to see whether we should prepare for much bigger jump in the energy cost at some point in time in the second half or in 2023. Thank you very much.

[Foreign Language] Well, let me start with the consumer situation. We have strategic discussions. What can we combine with what, what would match, what would not match, which cooperation options do we have. But right now, we're not considering any change in shareholdings.

And then I'll take the other two questions. First of all, the question, M&A IONOS. In the last calls, we already said that we will be the IPO for IONOS at the preferred variant. But due to market conditions, we cannot see the IPO coming in the next week or two to three months, but we're still targeting an IPO, and we are closely watching the market environment.

Concerning the other question concerning IONOS, with the energy costs. In principle, we hedge our energy costs very early on to a large extent. For instance, STRATO nearly hedges -- its energy cost nearly 100%, IONOS about to a level of 50%. So we're speaking about a peak that we spend now. We operate a lot of data centers. That, of course, consume a lot of energy. But we're also looking into the possibility of passing on these energy costs and are considering whether we will do that. But we are actually well hedged. And we are speaking of peaks only, and Mr. Dommermuth has mentioned it already in his outlook. All additional electricity costs can currently be covered by our profitability perfectly. So we have no serious impact on business development.

Thank you. We'll take our next question from Yemi Falana with Goldman Sachs.

Good afteroon, everyone. Thanks for taking my questions. Just as we touched on the prior call, I guess, there are considerations for your business as the macro environment begins to slow, particularly on the advertising and e-commerce side. Could you maybe to some of the effects that you're seeing in terms of consumer confidence or the trading environment into the third quarter so far? Where are you seeing pressure, where are you seeing more opportunity? Any color there would be really appreciated.

Well, we have the pleasant situation that our business is almost 100% subscription based. And in terms of the subscription growth, we are in the range of our expectations. So we can't see any impact by the macroeconomic environment yet. And that's our experience on prior crisis before companies shut down their websites. So before people will give notice on their mobile phone contracts or their DSL connection or their Internet access, a lot of things have to happen before people do that.

So we do believe that this will not affect us very seriously in our core business. Where we can see the impact is with advertising revenues on our portals, but we have to say that we are speaking of less than 2% of our overall revenue or turnover in our Group. And within this, less than 10% in the second quarter, we had no growth anymore. In the first quarter, we had nice growth.

Now how this will continue in the second and third -- in the third and fourth quarters, we'll have to see. Our experience from previous crisis, for instance, in the financial crisis, we're speaking of an order of magnitude of plus/minus 2%, compared to prior year. So sometimes, it's a bit poorer than the previous year than it's doing a bit better and that's what it feels like right now.

We'll take our next question from James Ratzer with New Street Research. Your line is open.

Hi, yes. Good afternoon. Thank you for taking the questions. So I had a slightly technical accounting question. I was wondering if you could help on, please. So if I look at the accounts from 1&1 published today, they are saying that their liability due to associated companies has risen from EUR85 million at the end of last year to EUR253 million as of today, and that mostly, I think, relates to the cross-trading with Versatel. So what was just interesting if you could explain to me how that's going to be accounted going forward through both P&Ls from either an EBITDA or CapEx perspective, in particular, when should we see the growth start to grow in Versatel as a result of this? And how will that cost be booked at 1&1? Is that going to be CapEx ultimately, will it be OpEx? Thank you.

Thank you very much for the question. December of last year or at the beginning of this year, I'm not quite sure anymore when the contract was signed. We made an intercompany agreement between 1&1 and 1&1 Versatel under, which 1&1 Versatel will be providing an important module of the extension of the 5G network of 1&1. And what we had announced is that with the extension of the mobile network we'll start now and that means that these business relations will then lead to orders placed by 1&1 to 1&1 Versatel.

So Ronan in his precall had already said that by the end of the year or in Q4, we will have a C&D where we will speak in more detail about what will be CapEx, what will be OpEx. But from a United Internet perspective, what happens is that both at the level of 1&1 AG and 1&1 Versatel, there will be massive expenditures that will have an impact on CapEx and OpEx and already have it today. As you can see, the split of what is OpEx, what's CapEx, that is something we would like to tell you in the Capital Markets Day in more detail. So actually, I would like to refer you to that conference.

Okay, thank you. Could I just then may ask you a follow-up rather than I hear you on the OpEx and CapEx point, and we can wait on that. But presumably then Versatel should also start seeing an acceleration in its revenue growth as a result of these contracts. I know it will net out as an intercompany transaction. But when will we start to see the revenue growth from this come through in Versatel? Does that come in the second half of this year?

You would only -- sorry, I'll do it in Germany. Well, of course, when such an intercompany agreement is made, you will see the revenue on the 1&1 Versatel side from the contract and the contract fulfillment, but as the contract is only starting up and because the deliveries obligations will only start now and will extend over a period, it will only build up over time. And in the second half of the year, you will certainly see a certain revenue share for this intercompany contract, but the bulk will only come in the future.

Thank you. We take our next question from Joshua Mills with BNP Paribas. Your line is open.

Hi, guys. Thanks for the questions. I've got two, please. The first is just whether you could comment or give an update on Kublai/Tele Columbus and their network upgrade plans. I think that they've signed a deal recently with Arsys. It would be easier to upgrade a couple of hundred thousand homes to fiber. Could you just remind us what the fiber strategy Tele Columbus sales and then [Technical Difficulty]

Unfortunately, Joshua, the answer is a bit difficult to give, because we are just a minority shareholder in Kublai GmbH and Kublai has about 95% of Tele Columbus AG so that formally, I'll probably have to refer you to Columbus AG, who is stock traded. And as far as there have been any statements that is a clear strategic alignment of Tele Columbus, the fiber strategy to be rolled out especially in the housing and housing corporations to provide FTTH connections there. But due to our shareholder situation, I would like to ask you to question Columbus directly.

We're moving forward to the next question, Nizla Naizer with Deutsche Bank. Your line is open. Please go ahead.

Thank you. I have two questions from my end. The first is related to IONOS. Just trying to understand what's driving the aftermarket business within IONOS? And would this also continue in Q3 and Q4? So I'm trying to understand, could the underlying growth, which was 8% in Q2, then accelerate in Q3 and Q4? What are your expectations there? Some color would be great.

And my second question is on the United Group leverage. Are you comfortable with where leverage is given the CapEx requirement for this year? In other words, would you see the need for more funding as CapEx accelerates? Just some color there would be great.

As far as IONOS aftermarket business is concerned, we do see strong growth in Q4 and Q3. The business is currently driven by the Domain Parking. Currently, on the domain trade platform, we don't have any specifically big trades so far. The main growth is generated by the parking.

Let me answer the CapEx question and the question on funding. I think what we did very well was to have a high credit note of around EUR 50 million last year at an average interest rate, which is fixed and not only concerns the margin budgets at 0.79%. So that is quite comfortable at the moment. That is why in the near future, we don't see any funding needs and in order to drive our investments forward. And of course, we again and again, see maturities of other credits in the future, which we would consider refunding possibly. But at the moment, we don't see any.

Thank you. We take our next question from Polo Tang with UBS. Your line is open.

Hi, thanks for taking the questions. I have a few different ones. So just coming back to the handles Black story, it suggested that you're looking at options to monetize consumer applications to help fund the investment in your mobile network build. So my question is really how strategic are other units in your portfolio, specifically Versatel? And if you're looking at selling assets to fund a mobile network build? Does this mean that the build-out costs are potentially a lot higher than what the market is currently expecting?

The next question is really just about the trajectory of your Business Applications revenue growth because the bulk of the growth currently is coming from your Domain Parking business. So I'm just trying to understand how sustainable is this revenue stream from Domain Parking? If the revenue stream is temporary? Is there a risk that Business Applications revenue growth starts to decelerate or even turn negative in the coming quarters as you start to face more difficult comparables for the business?

And my third question is a quick clarification question. Can you clarify what your current stake is in 1&1? Thank you.

Let me start at the back. The stake at 1&1 is a bit above 78%. The Domain Parking business, that is a volatile business. It's no subscriber business as we have in IONOS in other places. And this is why, for many quarters, we have been setting out these values separately so that what comes from where.

And concerning the question, sales of shares of 1&1 Versatel, if I got you right, that was the question. That is not in question at the moment. Have a moderate liability to the half of the year. First half, we have the 1.4 times EBITDA. And Mr. Mildner has just explained that we have taken these credits quite cost effectively. Even if the interests have increased, we are still in a low interest phase historically. So we don't think of selling assets to fund our mobile network.

In 1&1 since 2019, we didn't pay any dividends. I'm going to use that money. We generate good cash flow. We're going to use that money and are also going to take some credit line at the peak, but that is going to be temporarily only at least as our plans. How is it going to work? Well, it's going to work because we have antenna sites that we do rent and do not build them ourselves. That takes strain of the financial needs. And as Telekom, Telefonica and others have a frequency cost from the auction 2019, and we got these postponed in payments for 12-years, that was over EUR1 billion.

And if we look at the glass fiber development and connecting our antennas, in the first level where we had 50% -- we're going to reach 50% of the households in 390 cities. And in these cities, there is the fiber optics from Versatel. So it's only short distances to connect to a new antenna or if 1&1 Versatel is not close enough, we will rent optic fiber networks from city carriers. So that makes sense not to build it if it's there and we can rent it and we don't have our infrastructure.

So in that respect, we do think that we'll manage to stem this financially the growth in 1&1, as well as the Versatel growth, as well as the IONOS or Mail & Media. What we also have to note, however, is that if we think about Versatel, then we do have inquiries, especially from the infrastructure investment area where phones are discussing with us whether we should go along. That sounds promising because that has high valuations. But as we said, we don't need the money at the moment. May change, but for the time being, we don't need it.

And if I would rather look out for a partner, who will bring something to the marriage, not just money, but maybe their own infrastructure that could be combined to make it bigger to great synergies, that would be, for me, at first sight, the more interesting approach than selling a part of Versatel against cash. At the moment, this is not planned, but that would be rather the way for us to think and just take a check and pay back credits that we may -- that we fund for 0.79%.

Thank you. We take our next question from Usman Ghazi with Berenberg. Your line is open.

Hello. Thank you for the opportunity. And I just wanted to come back on the IONOS business. You're saying that you're not currently seeing any macro-related impact. But I mean, the net additions run rate has slowed from the peak of 90,000 in Q4 of 2021, and it's lower in Q2 versus Q1 as well. So I just wanted to understand what was driving the slightly lower demand and whether you expect the net additions run rate to be stable at this 40,000 to 50,000 or whether you would expect it to slow down further? Thank you.

Thank you for that question. I think what we have to differentiate is the number of customers and the number of contracts. In our business, we report the number of contracts. And in IONOS, we have the situation that I think was Internet X or United Domains, where we have wholesale business and I think 60,000 domains were relocated by a single customer. And this is directly reflected in our contractual statistics.

In the customer statistics, that would not have made any difference. And profitability, such a wholesale customer does not have a big effect either. So in that sense, we have a normal business development here because back and forth and whatever in some of the brands. But altogether, we're doing well. We have to cover these peaks and calculate them why these are not visible here.

We take a follow-up question from Joshua Mills with BNP Paribas. Your line is open.

Hi, there. Apologies earlier. I think I might have had a technical issue. So if I'm repeating myself and you've already answered part of this, please ignore it. The two questions I had were on Tele Columbus. Could you just remind us of the fiber upgrade strategy? I believe that Arsys has started building homes or agreed to start building more fiber homes for them. And then any progress you're making on reaching a wholesale deal with the company because I believe you don't have more formally placed at the moment?

And then secondly, I'd be kind of big picture one, just on -- based on what you've said today and the quite high level of integration and cost work that we're seeing between underlines and the other parts of United Internet. What do you see as advance to keeping in line separately listed at the moment? If you could just remind us of that and how you view the minorities? Thanks very much.

Quite right. If we look at the stock exchange rate of 1&1, the advantage seems to be quite low. Of course, we do hope that the exchange rate is going to improve and that we'll have an option to raise capital that we won't have. But at the rate that we don't have -- we have at the moment, of course, transactions where the shares are not allowed.

Again, coming back to Tele Columbus. The question was -- again, I can just repeat my answer that I'd like to refer you to Tele Columbus, because as a shareholder, we don't -- we can't explain the strategy of Tele Columbus. But one of the questions, if I got that right, was if there's a wholesale contract between Tele Columbus and 1&1, if I caught you right, that is not quite yet the case, but Tele Columbus is in quite close negotiations contract-wise with Tele Columbus and 1&1. So I do expect to have a wholesale contract at some point in time.

Thank you. We take our next question from Adam Fox-Rumley with HSBC. Your line is open.

Thank you very much. I had two brief questions, please. Firstly, just on the CapEx guidance. We discussed this a moment ago on the tonight's call. But reiterating that amount -- that CapEx guidance, I suppose I'd be interested to know what triggers the upper or lower end of the CapEx guidance that's been reiterated also for United Internet at this stage?

And then secondly, we've often spoken about the additional marketing costs spend at IONOS. I know it's hard to talk about the return on that additional investment. But I guess in light of the growth rates ex-Sedo, are you happy with the returns on those high levels of spend at the moment? Thank you.

Well, thank you very much. That's a very good question that we always discuss passionately with our shareholder, our thinkers. I hope I'm not telling you any secrets here. If you invest into a brand, it takes a while for these investments to have an impact and that's what it's all about now. We are running campaigns with videos on TV and on the Internet in Germany and the U.K. than in Spain and Poland after that. And that doesn't immediately pay out in the form of additional contracts and a better brand will have a mid to long-term effect, because your brand will become more relevant, because your existing customers have a better image of the brand that they're patronizing or because you find it easier to recruit additional staff, but you can't really see any one-to-one relationship here.

And so getting back to our dialogue we had with Michael Kinkers, these are measures that have a mid- to long-term effect, but we are a company that has a mid- to long-term horizon with everything we do. And we have good growth with IONOS now, that is something that we want to underpin and ensure going forward, we want to increase it going forward, and that's why we invest into the future. It would be easy to not to invest into marketing, into the brand anymore. This EUR30 million that we saw is on top of the money that we spend already. But we don't see any reason for this. We prefer to stabilize the growth and making IONOS a brand that any small company, any freelancer thinks of when they think of hosting our cloud services. But before we get there, we still have some way to do it.

Well, then you had the other question concerning the CapEx guidance and where we will be at the end of the year. We'll be at the lower or upper range of it. And which are the triggering points that will have an influence here? If I repeated your question, well enough now, the CapEx guidance, I think, is somewhere between EUR 800 million and EUR 1 billion. 1&1 guided EUR400 million. And I think Ronan said that he feels confident that he will arrive there in the earlier call, 1&1. And then it depends on market developments that we can hardly influence right now, and that is why we confirm the guidance. We still believe that we will stay within this corridor. And if I -- I might say that it's actually pretty much in the middle of this corridor, a little bit on the one side or to the other side. But right now, we don't see any major issues that will prompt us to change these guidelines.

Thank you very much. I can confirm that seeing me [indiscernible] in the U.K.

Thank you. It appears there are no further questions at this time. I'd like to turn the call back to your host for any additional closing comments.

[Foreign Language] Well, if there are no further questions, I would like to thank the participants for your interest. We are available subsequently, should you have any further questions. I wish you all the best of luck, and [Technical Difficulty]