Freenet Ag Unsp/Adr

The conference is now being recorded. Hello, ladies and gentlemen, and welcome to the Freenet conference call regarding the Q1 2023 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Let me now hand the floor over to Christoph Wilanek.

Hello, everybody. Good morning. Thanks for joining this session. Formatted and everything very very much the same very much as you all know it We're very happy to present first quarter results, which came in strong very happy about the the overall development of the company in financial as well as operational KPIs and I would like to start as always with the development of the customer base you can see that Year over year, we have a real nice development in mobile net ads of plus 166,000 and TV plus 182. I think it underlines our ambition to equalize these two businesses. There is still in absolute terms of subscribers a big gap to be closed, but you can see that on the net ad side. We're doing really well on both ends. I think it is a result of a strong quarter as such, a good ambition with the team, a couple of changes that we have done on the sales side, also in retail. There is not a single event that was changing the picture, but I think it's a lot of little improvements that pay back these days. If we take one step deeper into the mobile business, you can see that we have a total plus of 60,000 during the quarter and plus 51 with the pure post-paid. There is a strong development in unlimited, a strong demand on unlimited contracts and also fixed mobile substitution, internet access. They are incorporated here, and they are doing really well. I think they're going to be a little bit of a pushback in the second quarter because we need to limit the ultra-high usage. So we will clean out a little bit, but we're talking about 2,000, 3,000 customers. But that is the basic driver is Simulant Unlimited. The second topic, which is more on the qualitative side, you know that we are constantly trying to improve our customer service. There's three elements to it. One is to push more and more of these contacts away from manual to digital. The current ratio of digital contacts is 38%. And we're trying to improve on a constant basis. A second key topic is to make the people not even call. We have seen a reduction of contacts during the first quarter compared to previous year by about six, seven percent, which is a result of improvement on processes such as mobile number portability and the like. And overall, we were quite excited Connect has tested the hotline services and we've done pretty well there, which is also good in terms of communication to the outside world. On retail, the major changes during the first quarter was that by the 1st of January, we have limited the way of paying bills in in the stores we have excluded any cash payments um there from first of january and we have done the same first of february with the free net shops um to be honest this was um it was a big panic on the uh on the side of our sales reps and shop managers but it turned out that it did not hit the bottom line at all. People fully accept that we are asking for EuroCard, MasterCard or any non-cash payment method, which is pretty well and there is more to come. That's what we can say. We are working on a new concept to fully align on and offline to delete any differences between the existing channels. We want our shops to be very focused on real demand driven sales and going away from still supply driven sales that we are doing right now. I guess that in the next call in August, we will elaborate a bit more and we will also share with you what the impact will be on the business side. FreeNet Internet, we have kind of like added to the portfolio. As you know, by the end of January, we have then beta tested the sales and activation in February. Real sales only started now in April on some of the other pages. But we also mentioned that we will increase the price from 29 to 35%. This basically it's driven by the market over all the market conditions and the commission demand that third-party sales partners want from us, so we will increase prices to have more money to spend as commissions to third-party dealers, which we did not include in sales so far. Next page, page number six, is a bit closer look at On the TV side, I think the outstanding number is that WIPO TV has a net ad number of 83,000 during this first quarter. I expect a similar or even slightly better net ad number for Q2. What is the drivers? Well, I think it's a great product on the one hand side, but on the other hand side, it's the partnerships. In the Q1, we did not include any numbers from Deutsche Glasfaser so far, so this comes in right now. First analysis on the April looks at these people that adapt or change, migrate to Waipu, have super high engagement of over 90%. So we're doing really well there. These numbers really mainly come in in Q2 and Q3. So this is why we're expecting well, anywhere between 80 and 100,000 net ads for the second quarter. There's a continuous range of new partnerships, which I will not elaborate, but I think it's just showing that the product is also improving. We're currently holding 248 channels, 185 are HD. I think it's the widest and most attractive portfolio in the market. It's even bigger than the one from cable and Magenta TV. I think this is not really an attractor, but more a hygiene and communication factor that we have a super competitive product. On 3.95, vice versa, we still see a decline, which is expected. We keep the revenues on a stable level due to the price increases that we have Very silently implemented in end of next last year and this year Still we do a lot of interviews with people that are leaving and I even personally spoke to a couple of customers and they basically tell us that they switch technology typically to IP either when they are upgraded with a class fiber connectivity or an improved internet service and And this drives us to test now hybrid offers, meaning that Freenet TV customers will get a Vaipu either on top or in a hybrid stick version in order to make them kind of like seamlessly migrate to the new technology and not stepping away then from Freenet as a total company. On media broadcast, B2B is doing everything. is doing really well. We have also, I think we have mentioned last year that there is a couple of risks on carriage fees. We have signed extended long-term contracts with public television also in Q1, which will give us stability way beyond 2027. And radio is doing really well. So I think overall you can see that I'm I'm very positive. I'm happy that we've done. I think the financial is a bit better than we even thought. There are not one time effects, but a combination of positive effects that Ingo will give you more detail. So what is the outlook for the for the full year? We remain bullish and positive on the overall result. We will focus on implementation of AI and chat GPT functionalities. We have an internal group working on this. Specifically, we expect mid-term very positive impact on the customer service side. As I mentioned, assisted personalized shopping is a big project which we have kicked off these days within the company, and I will give more details in August when we talk about Q2. And free and internet is up and running and we will increase price to 35 euros on the TV side now fully integration and implementation on budget glass father side we have also seen demand from other p2b potential b2b partners to talk to us and None of those conversations at this stage are ready to be either disclosed or concrete enough to be mentioned, but we see that the IPTV market has really kicked off and anybody in Germany who is in the TV access business has a WIPO on the radar and gives us the strong impression that we will find more partners such as Deutsche Glasfaser still this year. And the hybrid stick I've mentioned as well, we will I have a meeting tomorrow where we will start talking about the implementation and the volume. And I'm very, very positive that in Q4 we will see first results, which we will again share with you at that stage. Having said that, I'd like to hand over to Ingo for the EVDA details.

Thank you. Good morning, everybody from my side. I started on page eight with a group. I think Christoph already summarized a little bit. I think it's very promising what we saw here or what we see. And I think it is, yeah, I think Christoph is right. In all dimensions, no extraordinary effect, but in all dimensions, slightly more positive than expected. So it's not the big effect, but a lot of very small effects And these positive effects lead to the EVTA growth of 8.5% here. What is also very positive, I think, is that the performance is not based on cost savings, but it is based on better quality of the business. And I think this is shown in the gross profit growth of 10 million and this is very equal to the 10 million of growth in the ebta what is also positive is that in both segments in the tv and media segment and in the mobile segment there is a strong development And so I think all in a very positive picture, also driven by an increased revenue, which is not so usual for us, but it was also in terms of revenue a very good first quarter here. Moving to page 9, to the mobile view here. yeah and here we speak of a steady growth of ebta which is totally correct if you compare it with the last quarter in in this quarter yeah it's it's even bigger the positive effect on the one hand and this is also very positive it is driven by the higher service revenues which is the most profitable part of our business and the share of the of the service revenue is again near to 75%. So the quality of the revenues is quite fine. We see the positive gross profit effect and on the EBITDA side the effect is relatively comparable to the gross profit because we have a strong cost control, which keeps the cost on the level where they were last year, even with all the inflationary effects and so on. Moving to some KPIs of the mobile business on page 10. Yeah, we are happy that DLS revenues are still on track. We saw some increase in the third and fourth quarter last year, and As usual, the first quarter of the year is slightly lower, but it's definitely much, much higher than the first quarter of 22. So I would say, yeah, we are back on track since Q3. And this is something which shows it here again. RQ stable and the subscriber base growing as Christoph already described. Moving to the TV and media business, I think a comparable picture to mobile, we see the increasing revenues based on the growing customer base at Waifu TV. And I would ask you not to forget that in Q4 22, where the revenue was even higher than in the first quarter now, we had some extraordinary revenues from barter deals and from some sticks, what we sold separately. So I think this was definitely extraordinary. The 80.8 million revenue in the first quarter are very strong. Moving to the gross profit, it is an increasing gross profit, mainly driven by WIPO TV. again because of the growing number of customers and the service revenues what we generate here. On the other hand, Freenet TV, it is stable and this is the target to keep it stable because we see the decreasing number of customers in Freenet TV. But on the other side, we increase prices during 2022 and this is what we promised that we try to keep it on a similar level And I think here we deliver what we promised. On the B2B side, media broadcast, maybe a little bit surprisingly strong, but this is driven especially by the digital radio business. I think we invested a lot in CapEx also last year into the infrastructure of digital radio. So therefore now we generate the gross profit out of the network, what we built there. And on EBITDA terms, what is obvious here, pre-net EV still on the same level as gross profit. On the B2B side, also a very good cost control. And in BIPO TV, I think this is not surprising that the EBITDA growth in WIPO TV is lower than the gross profit growth, because if you want to grow the business, then you have to invest into marketing. And this is what we did in the first quarter. And this leads to a low EBITDA effect on the shorter time. But on the long term, this will pay in also on an EBITDA level. Moving to the pre-cash flow. I think what is important to do, if you compare it with last year's free cash flow, last year we received this economy dividend. So if you normalize the free cash flow of last year, it was only 57.2 million. And if you compare the 64.6 million of the first quarter, 23, this is an increase of 13%. And therefore, the free cash flow even outperforms the EBITDA growth. If we look into the buckets here, a change in networking capital, this is influenced by a further decrease of factoring from something like 26 million at the end of the year to 13, 14 million, something around this at the end of the first quarter, 23. And therefore, this is This is something why the change in networking capital is bigger, the negative effect here than last year, because the factoring reduction last year was much lower. Tax payments, comparable level than last year. CapEx, higher than last year. Here again, some investments in digital radio. What we did in the first quarter, I think we could see from the media broadcast B2B figures that this makes a lot of sense because we get the money back afterwards. In the other, I think interest payments slightly lower, so nothing surprising in the other buckets here. Moving to KPIs on page 13. Yeah, I think here in the headline, I think the balance sheet is under control. It is still very healthy. I think we will have a usual effect because in May we will pay out the dividend. Afterwards, the leverage will be higher again, but definitely still on a very low level. And the balance sheet will stay on a very healthy level with an equity ratio above 40 percent. My last page, 14, is the guidance. We reiterate it. I read in some of your comments that maybe the guidance is too low and maybe it's too conservative. I think today, definitely, it is much too early to discuss the guidance here. I think we are early in the year. We have to see what happens. And therefore, we reiterate the guidance today. And then during the year, we have to see what happens and what will be possible. So therefore, I hand over to Christoph again.

Yeah, thank you, Ingo. Before we go into Q&A, I'd like to make a comment as well on the topic of guidance and target. I think there's a couple of things which I'd like to mention. We see that you have all read that Apple has problems with CPU revenues significantly. We also see that in April with Gravis. So please don't be surprised that revenues in Q2 might take a dip from Pure hardware sales. Actually, it's not non-profit revenues. But I think that is one thing I'd like to mention. And you should be aware of no damage, but we would like to avoid a negative surprise. The second thing is that we have decided to do increases in salaries. more significant that we've done in the past. The question was whether we will already implement it in Q1. It will come late Q2, early Q3. So that is part that will make the trajectory a bit flatter than one might expect now in the typical extension of Q1. And the third topic is that we have tested a lot of new advertising social media, et cetera, et cetera, with Waipu TV. And the team has told us that they feel more comfortable now to spend a bit more money than they did in the past. So I think there are three effects, and this is why I was intervening here. I think the three effects that we will see over the year, and they also cause the fact that we are not yet in a position to really extrapolate Q1 results and see whether this will have an impact or a need to increase the EBTA guidance. Having said that, I think that is setting the scene for a Q&A and happy to answer your questions.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to withdraw your question, please press 9 and star again. Please press 9 and star to register for a question. And first up is Polo Tang from UBS. Over to you.

Hi. Thanks for taking the questions. Congratulations on a strong set of results. I just have a few different questions. The first one is, can you talk through what you're seeing in terms of competitive dynamics in the German mobile market? Also, ARPUs have been broadly stable for you guys, but given price rises in the market, do you think that your mobile ARPU can grow going forward? Second question is really just about M&A and use of cash. So just looking at the annual report, it indicated that the board had considered M&A given the quantum of the one-off charges that you recognize for due diligence. It sounded like you were considering a large-scale acquisition. So can you talk about how you see your priorities for use of cash, and if you are considering M&A, what type of M&A are you thinking about? My final question is, what's your view on whether there will be a fourth mobile network build in Germany? Thank you.

Yeah, thanks, Polo. On the first one, I think no big changes in the picture on the market. I think Deutsche Telekom, we see that they are putting a lot of effort on cross-selling their, what they call, next tariff plans. So within families, they try to get whatever same only is from children, wives, husbands, neighbors, et cetera, et cetera, as long as they have a lead tariff plan with Magenta. Actually, we're doing the same on the Magenta tariff plans, but that's what we see as an activity. And the other one is that Deutsche Telekom thinks they do... Let me say, unfortunately, they do a great job in penetrating fiber, open access providers. I'm doing a great job there to do internet access and accompanied by Magenta TV. I think they... finally found the right approach and doing really well. Other than that, in the core business on mobile, they keep prices on their high premium level and it's appreciated by the end consumer. Waterphone, we still see them in, I guess, in less turbulences that we have seen in six months. It feels that... new management is getting grip on the company. Still a lot of open questions on what their investment in quality is, how they're going to treat. The topic of DOCSIS versus Fiverr overbuilt, I think there's still a lot of uncertainty. We have seen them taking out money from the commissions in the Q4 2022 and Q1. We see them now coming back to do it still with some caution, but in general return to what we would say we would call the normal status. We have also done a couple of commission versus revenue shares with quarter in accordance with their internal planning. But overall, I think they are for sure in the weakest position and the perception and consumer perception is rather weak. At least if we compare it to period three, four years ago. For us, they remain an important partner. But I think the difference is that for a long period, they were the strongest and most important partner right now. The other two are more important for us. But I expect them to have a comeback over the year. And Telefonica, I think Markus and his team did an excellent job in brand perception, in quality perception. They're doing really well. We are still struggling with them because they don't give us full access or access to their 5G network. We have escalated these discussions. There is a general will cooperate but there is still a couple of open questions which hopefully we can sort out um in the next couple of months um i don't see rpus going up um these famous price increases happened uh actually on prepaid and prepaid old prepaid tariffs with telefonica i think that the message was uh was um oversized it did not it did not really move the needle but so don't expect up is to go up I would say flat on that level and I think they're more impacted by the channel and acquisition and from any other let me also go to the situation with 1&1 But I'm not in a position to disclose more than what's publicly available anyway. We were told public knowledge is still below a two-digit number on active antennas. I think they have built anywhere between 10 and 15, but active on it, not even 10. I was surprised to read last week that he starts now to offer internet through 5G. I think that is a very brave statement if you run this with six active antennas. And we have also read the same quotes from Tim Hedges that he does not believe that 1&1 is honestly working on a on building a real network. So that's what I read. That's what you read. My interpretation is still that EE is struggling with that infrastructure. From what we know from other projects, even if you sign a deal to put an antenna on top of a building, it typically takes six to eight months. So I cannot see... a realistic chance that they will go anywhere near 1,000 antennas by the end of the year. This would then mean that from 1st January of 2024, 1&1 would not be in a position to seriously state that they have 5G access or 5G network for their consumers. And I personally think that Ralf Dommermuth will need to take his own decision on the future, whether he is trying to co-ally once again with either of the networks or find a different solution. A pure standalone solution for 2024 might be damaging for the reputation of his brand, and I think he will not let this happen. So you need to ask him what he thinks the way out of the trouble situation is. On the cost of M&A, yeah, you're right. We have spent money on a big project, which we finally turned down. By definition, we cannot disclose what actually was the project or the target. I think if we look at M&A, Let me exclude a couple of things. I mean, obviously, within the mobile service provider market, there is no option in Germany. There is also not really an optionality to acquire a big chain of shops or something because there is nothing available. I think a natural organic expansion is there, but not an inorganic move. And we have, over the years, every time when we looked into products, be it accessories, be it IoT, be it specific app services, we always, well, we've always looked at it, but at the end of the day, we always stepped back and said, we are not a product company, we are not good at that. We are a good company in packaging and selling. So, and That leads to the area of M&A where I'm busy with is to understand how could we accelerate the growth of IPTV. I mean, you know that we are working with Deutsche Glaser in a sales corporation. If there would be, and I'm trying to avoid any real name, If if there was if there was a local network a city network or somebody who says we would be Ready for an exclusive partnership. You are our provider for TV services I think then we could if this was an M&A. I don't know but that could be in Combined with an initial down payment exclusivity fee capex Subsidy for the network And you're all aware of those dimensions. So if I look at them Take the example DNS Network, Brandenburg Berlin, they have a couple of hundred thousand subscribers on IP and fiber They're doing their own TV services would it be would it be attractive for us to cooperate with them while first choice would be a cooperation with the revenue share, but they might say I hey guys, if you give us so and so much money, we will be ready to migrate our customers straight into Waipu TV and then extend it and maybe they have some cash need. That is the type of deal that I am constantly looking at. I think there is on an international platform, there's a good example that was the Oizcatel deal in Spain. where MassMoviles bought them and then they handed over the TV business to a third-party IPTV provider. I think that is a model which I like. That is the type of thing that we have had a couple of talks over the past 18 months. Every now and then there is options out there, but at this stage today, there is no concrete project, but that's the type of And other than that, cash deployment and capital deployment, I think, Ingo, you want to give a statement there?

Yeah, I think nothing new on this side. I think it is the first idea to invest the free cash flow, which is not spent as a dividend, to invest it into the business. I think this is still our idea. And Christoph was already talking about IPTV earlier. And if there would be a chance to invest part of this free cash flow into the business to grow faster, especially in front of the end of the nebenkostenprivileg, for example, in 2024, yeah, we would be open to do so. But I think we would only invest it reasonably. And I think this is what we do all the time. And as you know us, But if there would be a chance to grow faster, yeah, definitely we would invest it. So I think it's still the same priority than in other calls here. What we told you, we want to invest it into the business. If there is a good chance to do it in a cooperation with a third party, as Christoph discussed earlier, yes, definitely yes. If it is called at the end of the day M&A, let's wait and see. Maybe it's something in between. But if nothing of this would be possible, then yeah, definitely earlier or later, and this is also something I read in all of your comments, then earlier or later we have to discuss if a share buyback would make sense. But I think already in March we told you that we do not expect it before the second half of the year to discuss it, and this is still the situation. So nothing new on this side, but we see opportunities, and hopefully we could realize some of them.

Next up is Jamie Falana from Goldman Sachs.

Morning, Christophe and Ingo. Congratulations on another strong quarter and thanks for taking my questions. Firstly, I'd start on just volumes across the core business. On the mobile side, your commercial traction remains strong. How are you thinking about the progression through the year? It feels ambitious at this stage to extrapolate such a strong quarter, but given your traction today, I would want... I'd be interested to know what your kind of expectations are as we go through the year. Secondly, I think you've touched on this on the course of this call on the TV side, partnerships will continue to be a tailwind, whether that's with Deutsche Glasfaser or elsewhere on the TV side. So do you think there's still scope for consensus to move upwards towards the kind of 1.4 to 1.5 million expectation that you have on the YPTV volume side for the full year. The second question is just on your new initiatives. Firstly, on Freenet Internet, could you comment on the pace of ramp up and the scale of opportunity there as you see it now, and are things progressing in line with your expectations when you initially set them out at launch? Secondly, your hybrid stick strategy on the TV side does look well reasoned, but there are clearly some risks and opportunities around that. Some of us were around in late 2018 when we saw large step downs in the TV base. So how are you thinking about managing that commercial deployment? And maybe I have one final question just on factoring. I guess X factoring, the free cash flow performance would have been even stronger. Do you plan to fully unwind this factoring in 2023? And if not, what timeline should we be thinking about? Thank you.

Yeah, thanks for the questions. First one, postpaid. Yeah, as you said, I think first quarter was stronger than one would expect. I would not take that times four for the year. I think anywhere between 100 and 130 net ads over the full year is a fair assumption. We see April was okay. But as I said, on the unlimited, we will have to take volume down a little bit because of the extra cost that they cost. So, yeah, I would say plus 100 to 130 would be my guesstimate for the full year. On Waipu TV, my personal guesstimate would be, well, anywhere between 1.4 and 1.5. We have had by yesterday... beyond 1.1 million, so already more than 55,000 net ads in the first five weeks of the second quarter. So I think second quarter, well, I guess my dream is a three-digit number, so plus 100 would be great. If this is doable, I'm not sure yet, but we will get close. then we will, and if I take that fact that fourth quarters typically is stronger, then I think an assumption beyond the 1.4 million is a fair one, and this is independent from new partnerships. So that is what I would call organic development under given circumstances as of today. On Freenet Internet, I said we did some beta testing. It turned out that still implementation service delivery remains a challenge. So this is why we were testing intensely. Then in April, we have really launched it in our own shops. We will, after the first five weeks, we have now said that we will take away the other commission-based DSL services, internet access services that we were still selling and replace them by our own one. So ramp up so far was reasonable within the plans with effect of two or three months delay. But in fact, real implementation is starting now. And then I think the volume that we will create It's maybe 2,000 to 3,000 a month. I think that is when we do now, I would say from June. That is the kind of volume. So we do not put money on marketing side. We just take cross-selling opportunities and migrate the volume that we have sold so far on commission-based. The TV stick, the hybrid version... Yes, I understand your question. Simply said, my current hypothesis is we send a hybrid stick to an existing Freenet TV customer and tell him to replace his existing set-top box or PC MCIA card, connect his private antenna to the stick, and then take the opportunity of experiencing the full HD with the channels that he has subscribed with Frenet TV and on top use the Wipo TV and then with CRM make these people aware that the technology they have in-house is already the latest, hottest stuff that is available in the market. So to make them, whenever they want to move away from their current antenna, to make them aware that there is no need to switch, but to stay with us. That would also mean that the subscriber would still be a DVB-T subscriber, but would have an additional IPTV service on top That would, by the way, then end to the fact that we would not see a net add on WIPO side. We would just see, hopefully, a more stable number on the Freenet TV side. So no additional revenues for them, but lucky enough, they were on the same pricing level anyway. So our investment would basically be the hardware and the shipment, and then to make the people understand that we do not cannibalize, self-cannibalize the product, but we deliver an add-on which saves them a later migration to anybody else. That is, let's call it the philosophical idea around it. We have shipped 150 sticks with that kind of ambition last week. And we start our questionnaires with these customers next week. So once again I guess till Q2 results in August I will be in a good position to explain how it should work and what the concrete impact was. We definitely saw high engagement and high response on the offer. I sent the people a personal letter saying I'm I'm the CEO of both these companies, and I'd like to invite them to experience both. And now we see what the outcome is going to be. And there's a question on factoring. I think, Ingo, how will we go on with factoring?

Yeah. I think we will reduce it further. I think at the moment, we do not add any receivables to the program. So if we would not do so during the year, then it will reduce further in the next month and the next four years. So I think it is a little bit a possibility to influence the level of free cash flow. But I think, yeah, basically the idea is to reduce it further to zero. But the program is still still there. It is available. So if you would need it, we could use it. But from today's forecast and based on the guidance what we give in Free Cash Flow, the idea was to reduce it to zero. At the moment, we are on this track.

Thanks, guys. Very clear and reassuring, definitely on the hybrid stick side of things. Thanks for taking my questions.

Thank you.

The next questioner is Martin Hammerschmidt from Citi.

Thank you for taking my questions. I have two. The first one is on the Viacom TV data and sort of the growth from 2023. I think this quarter you managed to do 0.6 million on that. If I think about throughout the year, you have customer growth coming from Deutsche Glastage and obviously your organic customer growth. But on the slides, you also highlighted higher investment in anticipation of the elimination of the median cost and privilege. So how should I think about that 0.6 going forward? Is that something that you think you can maintain, improve, or because of the investment coming in in the second half, that might actually turn negative. And then the second question is, I mean, your comments on the guidance at the end of your remarks were quite helpful. If I think about the mobile business, I think on the previous call, so the indication was that you can manage or you should be able to manage over 100 million of EBITDA per quarter. Now with the salary increase coming in, is that still the case that you see or has something changed? Thank you very much.

I think I start with the Baipu question. I think first of all, maybe to clarify here, The 0.6 million is the increase of EBTA compared to last year. So it is not the size of the EBTA in the quarter. So there was this increase of 0.6 million in the first quarter. But on an all-in EBTA level, I think what we promised in the last call was that It could be possible to have an EBTA of something between 10 and 15 million in 2023. So if we would invest additionally, I think it could be possible that we put the EBTA something like down to zero. This could be possible if there are growth opportunities. I think it is all based. If there is no chance to gain additional customers, there will be no cash out. there will be only a cash out if there is really the availability to grow the base. So, I think it is, I think we are talking about investments of 10 to 15 million. I would say something like this additionally. And I think we have to see if there is really a realization. But the EVTA in the first quarter was definitely higher than 0.6. because for the whole year, to repeat it, there was a guidance what we give that the EBITDA will be between 10 and more 15 million in 2023. Then your question about the guidance and about the mobile EBITDA. Yeah, I think we have to think about the sales increases and I think we do not exactly know the dimension, but I still would say that 100 million a quarter, 400 million a year in the mobile EBITDA would be possible. But here again, I think what I also said discussing the guidance, I think we are early in the year, but from today's point of view, yeah, this still looks possible.

Can I clarify the first point on the Wi-Fi TV? So as things stand right now, would you sort of stick to that 10-15 million and say you don't necessarily see a big investment coming of this 10-15 million or would you sort of walk back on that and say 10-15 million might not necessarily be something that we can achieve?

I think the 10-15 is fine. I think the 10 to 15 is fine because it gives already a span of five. And we're talking about that kind of level of investment.

Thank you.

The next question comes from Ulrich from Societe Generale.

Thank you very much. I wanted to ask on the DLS revenues which you're highlighting. Could you give us a sense of what the contribution margin from this is? Ingo, you sort of said on the call that obviously the mobile service revenues have the highest contribution margin, but these sort of other revenues we all carry in our models are a bit difficult to model in terms of what they actually do to the EBITDA. And I think the DLS revenues are probably relatively high margin as well, if you could give us some help there. Second question is on TV. So if you are considering inorganic growth opportunities, whether it's M&A or these sort of partnerships that require capital contributions, could you talk a little bit about what the end game is? Because WIPO ultimately is sort of centered, as I understand it, around a linear TV service, which... may or may not have a long-term future. And I'm talking about the very long-term here, obviously. So how do you think about that? Do you want to essentially own the German market with this very strong starting point you have share-wise and then migrate that into a real sort of streaming world, sort of on-demand streaming world? Where are you actually aiming with these sorts of expansionary strategies in the endgame? The last question I had would be on the refinancing. Could you give us an indication at what terms you're currently refinancing? Thank you.

Okay, maybe I do the TV thing and then Ingo goes for the other two. So what is... I think we're talking about... Thanks for stating very long term. So what do I see? I see that fiber penetration over the next... It will take up to 10 years to have it on a reasonable level in Germany. When you see the announcements and reality, then, you know, it's going to take longer than expected, than it sounds. Let's put it that way. There will be a replacement or a strong decrease on cable for technology reason and for this famous . We do research on that, and people tell us that about a third of the population are currently aware. At the same time, we get the first mailings from Vodafone and the house landlords that people should be switching. So I think there's a lot of activity going on. And Satellite will remain an existing technology, very long-term contract with the program owners, public and private. The strategy on Waipu is to grow it as fast as possible beyond the 3 million subscriber line. Why do I believe 3 million? That is close to 10% of the households. It's 5% of all TV sets. If we had 3 million, then it would be approximately 10% of the TV sets as well. With that size, you're suddenly in a different game because rights owners are approaching you and offering their content versus now we're still knocking on their doors and asking them for content. So it's a different ballgame from a certain size. I think the opportunities out there, if I look at the market, there is a Vodafone, they need to switch into IPTV. Whatever the platform they're going to deploy, it's going to take them a long time and they will be, for them it's very difficult because they cannibalize their super high margin cable business. So they will be in a delay. Telefonica is doing... slowly but surely more than they did in the past. They are growing with ourselves at a similar level. 1&1, United Internet, as far as what we hear, they have also a couple of hundred thousand subscribers, which they currently run on a B2B service contract with Satu. Rumors say that they are also reflecting or reviewing their current partnerships. There is Telecolumbus, same position as Vodafone. What is the right timing to replace the existing TV business? So if I add all this together, then I think there is, within the next five years, there's a potential for us to grow into the three million range. And if we get any of the others that need to switch technology as well, it should be possible to. add another 30, 40, 50% to that volume. And then if we are in that range five years, let's say in three years I want to have 3 million, in five years I want to have 5 million. If we are in that range, then you currently talk to... Well, I have now first talks to National Football League. They say, well, what are you planning to do? What is your vision? Netflix was the first one to partner with us. We have been approached from Dazun, and we are now cooperating with Dazun. Sooner or later, I think Sky Germany will also open up for a third party and not on guarantees. And I think the dramatic change with IP is that the film industry will move away from set guarantees for rights to more license per subscriber. Business model. I think that is what we have seen in the US that what we see in couple of under other countries And this is this is how I see midterms development. We have tested a couple of real Pure video on demand on single series and single programs Still doesn't work in Germany big packages like 35 Turkish channel work, but but not single VOD and We've also tested a couple of things now with the zone on single games. So single ticketing doesn't work either. The CRM is still too expensive there and the attractiveness and the likelihood is still not there. And finally, I think there will be also a clean out of the services that We have seen Disney Plus not really approaching Germany with a single subscription, but also only with a deal with Deutsche Telekom. Paramount Plus more or less stopping their own start after a couple of weeks. And I could talk a long list of tries. Join is still struggling. So I think a big platform like Waiku and Vagenta, they are the survivors. It must be our ambition and goal to be number two after Magenta because they are just in a better position because of their 30 million six-plan households. Is that an answer which you can not live with but work with?

It's very helpful. Thank you for taking the time to lay that out of our service.

Then, Ulrich, your question about digital lifestyle revenues, I think basically you are definitely correct. The margin of the digital lifestyle business is higher than the average margin of our business, definitely. If we look into the increase of 10 million revenues in the first quarter, I would split it a little bit because half of it really was an increase from businesses in this with with these high margins but we also have small parts in the digital lifestyle portfolio where we sell hardware where the margin is lower and especially in the first quarter the share of hardware sales in the increase Of 10 million was slightly higher than normal, because we had relatively high inventories, which we had to reduce during the first quarter. This is something what we did. So generally, you are totally correct. But for the increase in the first quarter, I would say 50-50, 50% high margin, 50% lower margin. Then your question about refinancing, I think What is important to know is that we still have an unused revolving line in the back of 300 million euros. So therefore, we are not in a hurry to do the refinancing. And we are not getting nervous with the margins which are out in the market at the moment. And to give you, I think, an important additional information In the revolver, we do only have a margin of 18 basis points. So a very, very low margin compared to all what we have in other instruments. So therefore, it could make sense to use the revolving line first. But definitely, it is not the idea to use the revolving line for longer terms. but in the short term makes a lot of sense. And therefore, we already announced that we will try to do another promissory note in autumn this year. And this is still the plan to do so. And what we do see at the moment is that the margins should be something like 170 basis points, something like this. And in the existing promissory note, we have margins of something like 130 basis points. So there is a difference of 30 to 40 basis points at the moment. But I think we will try, we will see how the market will look like in autumn. It's interest markets are moving, you know better than me. And if it would not, if the margins would be too bad in autumn, then we will try in winter. And if it is still the situation, we would also have the time to do it in the first month of 24. So we are not in the hurry. We will check the market. Basically, it is still the idea to do it in autumn, hopefully with lower margins than what we see today.

Thank you very much. Can I just... There was a... audio dropout, the revolver margin is what?

Only 80 basis points.

Fantastic. Thank you so much. I appreciate it.

Okay, perfect. And now we're coming to the next questioner. It is Usman Ghazi from Burenberg.

Hi, gentlemen. Thank you for the opportunity. I wanted to ask just on the wage increase that you've indicated at Q4. The headline was, I mean, you've indicated roughly $10 million from inflationary effects, $3 million was from energy, $7 million was from wages. And, I mean, are you saying that, you know, because of the strong performance that you had, uh, you're thinking of maybe, uh, putting wages up by more than what the plan for the wage headwind would be more than 7 million on an EBITDA basis. So just a clarification there, please. Um, second question was just on the, um, again, on, on, on your, um, uh, on these talks that you've been having with the city carriers, uh, and you mentioned that you were looking at this deal in Q4, but I believe that over the last two years, you have been considering this model where you subsidize the CapEx for the city carriers in return for exclusivity. But in all cases, I guess you have decided not to go ahead. Can I perhaps ask, what is the key stumbling block? Is it kind of, the quality of the end partner? Is it governance issues? Is it, I mean, it would be just helpful to see, you know, what is making you back off? Obviously, given your gearing, given the opportunity that exists for the city carriers, you know, it would appear that this is a no-brainer. But, yeah, just your experience there would be helpful. And my final question was just going back to factoring. Um, so, um, I mean, you know, I guess, I think the main purpose of the factoring, uh, you know, in any factoring is to neutralize the impact of cash flows from, you know, uh, from the hardware sales, right. Um, uh, you know, but in reducing the factoring facility, uh, are you, uh, as a company, uh, saying that, look, in order to improve the quality of the balance sheet, we are willing to take the negative hit from selling hardware or take the negative timing hit from selling hardware in our cash flow to improve the balance sheet, or is something else happening?

Thank you. Okay. Usman, thanks for the question. First one, I think the 7 to 10 million inflationary effects on wages are still valid. The fact is that we could not see any impact in the first quarter. Okay. So just making sure that nobody says, okay, it's so well, it's not going to drop again. The impact will only happen later. But thanks for, I think it's a good clarification for everybody. On these carrier things, I mean, To be honest, it's a strange experience. You're going to a city carrier, you talk to them and say, hey, guys, we'd love to do internet access through your network. We'd love to become your surf co on TV. Then they are really excited, really positive. Then you start to ask questions like, how many households are really active customers? How many do you really know? and how many are using your TV service. And then it turns out, for example, in Munich with MNET, that you start with a couple of hundred thousand. Then in the second meeting, you learn that the excess is only 200,000. And then you learn that not even 10% of their theoretically connected households are really customers and are really getting TVs. So you're starting super optimistic and with deep pockets, ready to spend money. And then you learn step by step that they are nowhere near a real customer relationship. So that is a matter of fact. The second thing is the same picture on cable. Local cable networks, Wilhelm Tell or Pure slash Telecolumbus, You talk to them and then you learn that 70 percent of their business currently is not a direct to consumer, but a direct to the landlord or the real estate commissioner. And then you ask them, like, how can we migrate the customers? And they say, well, well, you could send somebody there and knock the doors because we don't even know the names of the users. So I'm a bit disillusioned from – they're super happy to talk to us. They're always excited when you offer money. And then we start to tell them that we are happy to work with subscriptions with individuals that we at least know the name and their bank account. It turns out that they are – this is a level of detail which they have never heard of. I'm slightly exaggerating, but that is really what I'm experiencing now. I'll give you a different example. We have a channel on Waipu TV for the FC Nuremberg, which is the Nuremberg football club. A very, very traditional club. They are super happy. They said, we want to have our club TV on Waipu. And we said, okay, implementation, no issue. You have it. But guys, what you should do is tell all your members that they should now go to Waipu and have their football and your club TV on their big screen at home. But then it turns out that out of this famous club, they not even have 20,000 addresses, but they have only 5,000, and out of those 5,000, 3,000, they have no allowance to address them. The reality of CRM, direct marketing customer ownership, is very different the deeper you go. And that has been so far the disappointing experience and what you called it the stumbling factor of these non-M&A activities.

And your question about factoring, I think it is possible to give a clear answer. I would say no. I think I remember the situation two years ago when we already said, okay, after the sale of Sunrise Stake, we have a healthy balance sheet. And then we talked to some investors and they said, okay, yes, your balance sheet looks healthy, but you have a factoring volume of 120 million. and also rating agencies are doing it, they say, okay, this is part of your debt, and you have to add it. So you could say, okay, I do factoring, and then I do have a healthier balance sheet. I would say, and this is where we changed our position already some years ago, at the end of the day, the factoring is, even if it is off balance, For us, it is part of the balance sheet, how we interpret it. And therefore, we said we want to give a clear picture to everybody. And therefore, we reduce the factoring to zero. And we have the ability to finance the hardware business, what we do, with the strength of our balance sheet. And therefore, I would not say that we could change the position in the future, because there are still enough receivables to sell, and there are still enough programs where we could sell the receivables. But at the moment, it's not planned. And I think we want to give a transparent and clear picture with the balance sheet. And this was behind the decision to reduce the volume.

Right. And just, sorry, I mean, could you indicate what the interest cost savings are that you're making by reducing the factoring balance?

Yeah, I think you have a margin of something like 1.5% here, what you do have to pay. And this is, at the end of the day, something what you save.

Thank you very much.

And next up is Alan Fox-Romley from HSBC.

Thank you very much for all the answers you've given so far. We've spoken previously about the efficacy of advertising. So I was interested to hear your comments on the feedback from the Waipu team that it sounds like something has changed or a new approach has changed. So if there's anything that you can say a little bit more about the improvement you've seen that justifies a great privilege. That would be very interesting to hear. And then just on the second question around potential partnerships, I think we've probably mentioned this before, but I'd just like a reminder if there's any kind of meaningful work to be done on your side ahead of taking on another becoming a white label for someone or becoming a direct partner for someone? Or is that mostly all done and it's pretty plug and play from your side?

Thank you. Let me start with the later question. To connect any local fiber carrier or so, there is an API. It's done within four weeks. It is a different thing if we would do white label. But the answer is we have not done any white label yet and we are not planning to do white label. We are always talking about we call it a sales partnership and we are in a position to give the partner a couple of entrance screen and presentation in the app, on the website, et cetera, that is then branded for them. A typical white, a real white label would be something like they want a couple of features different. They want, I don't know, a vertical instead of a horizontal EPG and something. We are not ready to do that. And whenever we talk to third party, we always make a strict statement right at the beginning that we are not a P2P partner, but we are, um, finished product with slight adaptations. I think that should all be possible within anything, well, four to 12 weeks. Typically, we see, at least from Deutsche Glashaus, we have seen that their internal implementation was way more costly and time consuming than ours. So rather plug and play. On the first one, if I got that right, I think the question was on advertising or acquisition performance. The team there, they're super accurate, very technocratic when they do analysis. And I think over the past two or three years, they continuously tested many different versions of advertising, many different approaches, prices, offers, etc., etc. And they kept telling us that increasing the subscriber acquisition cost by 20% would destroy margin instead of driving volume at a similar level of profit per customer or lifestyle results. Well, now they tell us that obviously the awareness for IPTV, the awareness for the product, the awareness of the brand has increased good enough so that these marginal expenses immediately pay back. I think that is ultimately the message. Every time they have spent more, they said, well, we have spent more per customer, but we have not really added volume. And now they have found it tricky. I guess it's not the single, oh, now we have a new headline. It's, as I said, prompted awareness is now on 43%, which is way, way higher than it was 18 months ago, where we still were in the low 20s. I think awareness of IPTV as a category as such has grown significantly in awareness across the board. we have been able to present the product in the press, in the media, in the marketing way more. And I think it's just becoming easier and that enables us to do so.

Thanks very much.

Exactly. No further questions.

I was about to say the same thing. No further questions. Thanks for your patience. Thanks for your good questions. Thanks for the interesting discussion that we had. As always, Tim and his team are available for further questions next couple of days. We will have an Investors Roadshow tomorrow, and we're happy to talk to any of you in the near future. Goodbye.

The conference is no longer being recorded.