Freenet Ag Unsp/Adr

Thanks for the opening and a warm welcome to everybody on the phone on this rainy Hamburg morning. Thanks for joining our nine months report conference call here and let me get started immediately with the overview on the BOK APIs. We have been able to grow the subscriber base year over year by 4.8%, which is very much in line with our expectations and exceeds the expectation on the TV side, which I'm going to illustrate a little later in more detail. Same as in EBTA, we are ahead of our nine-month plan, and therefore we have slightly adjusted the guidance. We expect an EBTA outcome just above 500 million, and this is why we have changed the guidance or attempted the guidance to in a small range and revenue is also up you all are aware of the fact that revenue is not a core KPI in our day-to-day business due to its reflection of hardware sales which are typically not so valuable and even better performance on pre-cash flow plus 6.3 percent which also made INGO change the guidance for this point. If we go one step down further into the more operational KPIs, the core driver of value and future sustainability and resilience obviously is the total subscriber base. Year over year, as already mentioned, we've been able to grow it by 400,000, representing 4.8%. If we do a breakdown on the four different fields or the two segments and four different elements, you can see that on postpaid growth was 2.1%, on funk and flex, which are monthly tangible products, it's plus 13%, but certainly on a smaller scale. Y4TV with plus 40%. in a significant growth path and significantly overcompensating the downturn on 3.0 TV, which is both from our internal view very much in line with our planning and expectations. Big picture, mobile net ads plus 170,000 and TV ads plus 263,000. If we go into the post-paid, I think I've already mentioned a couple of things. I think we are on satisfactory level. If you remember at the first conference call this year, we have said that we expect a growth of around 100,000 to 130,000 for the full year. As you can see, we are on that level already by the end of September. October has been also within our expectations. Now it's the final season with Black Week offers and so on and so forth. We still see that the telco market seems to be in a better shape than pure hardware, entertainment and PC equipment. So we are expecting also a slightly positive development also for Q4. What are the things that we are working hard on? You all remember that we have changed about 18 months ago from the old brand Mobil.com DBTEL to the brand of Freenet. It took us six months to get into the same level of brand recognition, so actively prompted recognition, but we now focus heavily on brand awareness and brand awareness So that's the unprompted question on which telco operators or telco providers do you know. We are growing there. 50% sounds a lot. We are still on a comparably small level, but we are on a higher level than we have ever been on Mobil.com. We continue to send that simple, straightforward message pre-met, fertig, lost. to the audience and we have invested more into sponsorships on TV than we did in the past and there is more to come. There's also a couple of sports events specifically the Handball Championship which is taking place in Germany and will be one of the main sponsors and we expect brand awareness and brand recognition to grow even further which is a prerequisite of successful sales and distribution. More or less the same is on WIPO TV. We have also indicated that we will invest about 10 million in above the line activities due in the course of Q3 and Q4 of 2023. This is obviously already reflected in Q3 numbers and will also be reflected in Q4 numbers. You can see that during this last quarter Q3 we have gained about 80,000 net ads Overall, we think that is not only in line with our internal planning, but is also reflecting the strengths of the brand. Right now, we're doing a couple of tests specifically to address cable customers. We are all aware that the cable auxiliary cost privilege will go away in July next year. We are regularly reviewing the awareness of this in the public notion. It's growing and we are trying to push and learn more. Right now, two quarters in Munich are addressed with our out-of-home campaigns, leaflets and even direct mail, where we basically educate the consumers that they can go away from cable by mid-year 2024, and we're expecting a lot of qualitative results within the next few weeks, which will then be reflected in the types of campaigns that we will initiate from January onwards. We are continuing our TV campaigns with the Testimonial of Dieter Bohlen, which is one of the most famous individuals on German TV. So we're doing a really good job there and I'm very happy that we are finding a foundation within the cable audience day to day with a growing awareness. On the FreeNet TV side, you can see that the downturn or the loss of customers is still continuing. We do still interview customers on on the driving force for canceling the contract and it continues to be the reason that these people either move to another place where then they have another equipment or they don't want to continue to pay because their consumption of a private and premium TV is too low to justify the monthly expense according to what they tell us. We still believe that a couple of activities such as the coming hybrid stick and other stuff will help to slow that down. But we have to acknowledge that we are still losing. And I think that is a good point to turn over the page to page eight. We are not only trying to inform cable customers, but also to convert cable customers. There is a total audience of about 12 million households connected to cable. There is a mix of statements and research on how many of those will be ready to change their access technology within the 24 months. I've learned from Vodafone that they expect only 30% to move away There is surveys stating it's more going to be 50%. I think it's too early really to say this is why we do testing. This is why we do interviews and qualitative research. And this is why we expand our presence, not only with Waipu now in media markets, not only with integrating DAZN into our APG, also making sure that the Sky slash WOW app is now available on our TV stick, but we do a lot of press releases, a lot of advertising to really engage with this potential audience that is going to be available for us over the next two years. One addition, I think we have spoken before about a so-called hybrid stick, so a WIPO TV stick on Android platform, which will not only deliver IPTV via WIPO, but it will also deliver DVB-T2, so terrestrial. So it is our weapon to actively self-cannibalize and retain the Freenet customer base within the Freenet group. But it's also the toolbox to attack the cable market because this hybrid stick is also able to handle regular DVBC, so cable signals. So we can basically tell the customer, why don't you move on, get hold of our stick, get hold of our technology and device and install it and decide for yourself. at what stage or what time you want to move. And these people will then continue to have cable, but see on the EPG which additional channels and features that we are able to deliver via our IP. We think this is kind of a Trojan horse which we're trying to bring into private households big time next year. And we will certainly report on the effects and learnings from this. at a later stage. This brings me to the outlook for Q4. I think nothing really surprising. We continue to work in mobile on our marketing campaigns. We are in the last stage of implementing our new retail format RPS, which we also will then give way more detail early next year. We are planning to launch it in March and implement it over six months across all our own retail stores as well as our franchise partners and part of the free retail. We have just closed a session of interviewing with about 60 providers of glass fiber and we are preparing our strategic view and our strategic move into the marketing also of glass fiber internet connectivity, which we also want to start at a slow pace because I think it's early stage next year, but we are definitely ready to play a similar role in glass fiber that we do on mobile as a service provider. And on TV, I think I don't need to repeat that there are a couple of important steps, mainly on Waipu, which will enable us to further growth and accelerate growth. I expect for the end of the year more than 1.3 million subscribers, and our target for next year is to get close to the 2 million or beyond the 2 million subscribers. Having said that, let me hand over to Ingmar Arnold for the more financial focus of the presentation.

Thank you, Christoph. Good morning, everybody. I start with the group view, and I think I can quote Christoph also here, because the figures are not really surprising. They have not surprised us, and from your consensus, we could also see that they also have not surprised you. So we are definitely in line with all expectations. On the revenue level, we see again a quarter with an increase. This increase is based both on mobile and on TV. And even with lower hardware revenues, this was possible. And as you know, lower hardware revenues are no problem in our eyes because the profitability is so low. EBITDA on a stable level but I think what is important is that on the other hand we see an increase in this quarter again on a gross profit level so the business is very healthy the business is very sustainable this is something what we saw during the whole year and the gross profit in the third quarter is a confirmation of what we saw in the other quarters. On an EBITDA level, it is only stable compared to Q3 2022. But I think we reported very often and all of us and also you expected a downgrade on TV in this quarter. reduction of EBITDA because we invested into WIPO. On the other hand, in mobile, there is still an increase. The outlook to the end of the year, definitely, and Christoph already mentioned it, we expect something like 500 million or slightly above 500 million. And I think we think this is totally feasible because we had some one-off headwinds in 2022 in the fourth quarter. And these headwinds, we do not expect this quarter, the following quarter. So, 500 million definitely is feasible for us. Next page about the mobile business. Again here, very resilient as during the whole year 2023. We see an increase in revenues mainly driven from higher service revenues and higher digital lifestyle revenues. We see again an increase in the gross profit and also here on the gross profit level a very sustainable level if you compare it with the last quarters. And here also on the EBITDA level we see an increase I think, yeah, definitely. In cost, on the other hand, we see an increase. This is also something what we forecasted and what was not surprising to us because, as everybody, we have inflationary points here, especially on the personal cost side, but I think all in a very, very good result, what we show here. Looking into the KPIs, of the mobile business. I think, do we have something new? No, not really. Digital lifestyle revenue increased, I already mentioned here, in high margin area. Therefore, also EBTA relevant. On an ARPU side, yeah, the ARPU is higher than in the last quarters, but this is mainly driven by roaming and traveling. So I would not see a change here on RPO levels. I would still state that the RPO is stable and this is also something what we saw during the year already. Moving to the TV business on page 13. And here we see the increase in revenues mainly driven by the strong development of subscribers at waipu.tv. I would say it is important to see it and it is also not surprising. On a gross profit level, we see a strong increase based on the revenue increase from waipu.tv We also see an increase here because of the growing number of customers. And if we look into the EBITDA, yeah, we definitely see on the media broadcast side, Freenet TV and media broadcast B2B, we see a stable development. This is also something what we all expected because with the price increase at Freenet TV last year, we have something like a compensation of the loss of customers, therefore still slightly positive. And in the B2B business, we have a very stable business, but with slight cost increases, therefore here a slight decrease. Moving to the free cash flow bridge. Change in net working capital is minus 55 million, so on a comparable level to what we saw last year. Factoring is now down to zero, so I think we expected it up to the end of the year, but we already finished here. Tax payments on a similar level than last year. CapEx slightly lower. we invested this year into digital radio and Baipu in the Baipu platform. On the other hand, last year we had to invest into the renovation of our headquarters in Wittelsdorf. Therefore here also a similar level, leases, no surprises. Interest payments slightly lower than last year because Yeah, we have higher interest rates, but on the other side, we have lower net debt. Therefore, a slight decrease here. So all in, we have a free cash flow of 199 million. And therefore, definitely, I would expect something like 265 up to the end of the year. So the new guidance what we published today. Moving to the financial KPIs on page 15. Yeah, I think from the maturity structure of our debt, we see that there will be some refinancing necessary in 2024. I think what we see is that it will be possible for us to refinance. It is only a question of what the conditions will be. But I do not see any big risks here from refinancing in 2024. On the balance sheet figures, yeah, very healthy, high equity ratio of 41.7% and a low leverage, which is only 0.8% if we only view into bank debt. On the next page, financial guidance, I think we already discussed it during the call. It is narrowed definitely in both financial KPIs here and slightly increased in the EBITDA. So it could be a question why the cash flow, the free cash flow forecast was not increased on the higher end. I think if you look into our balance sheets, you would see that the inventories are very low at the moment. So, definitely, we have to increase it for the Christmas business. So, therefore, we have not increased it here. But basically, it is in line with what we increased at NPT 50A. So, having said this, I would hand it over back to the operator to start the Q&A session.

The first question comes from Tang Polo from UBS.

Hi, it's Polo Tang at UBS. Just have three quick questions. The first one is, can you comment on competitive dynamics in the German mobile market? Specifically, are you seeing any change in behavior in terms of use of indirect channels by the likes of Vodafone or Telefonica Deutschland? Second question is, can you talk about how we should think about operational gearing in your mobile business? So just given the competitive tensions between the mobile network operators following the switch of one-on-one to Vodafone, do you think there's scope to improve your economics? Also, how easy is it to shift volumes from one MNO to another? And my final question is, you mentioned that you're in strategic talks with fibre infrastructure providers. but can I clarify if you're in discussions with them to offer mobile services, or is it about marketing their broadband services into your stores? Thanks.

For the questions on the first one, I would not recognize any change in the mix of direct, indirect, online, or any or alike right now. I think the announced shift from United Internet to Vodafone is something that the industry is talking about and analysts and bankers are talking about, but it has not yet any impact on day-to-day life out there in the channels. By all means, it's a matter of fact that United Internet is 100% direct marketing and meaning 90 plus X percent online company. And they will be able to shift at a certain stage quite silently. But there is in consumer perception, nothing has changed so far. On the second one, on channel shifts and economic effect, As I said, United Internet is focusing on two segments. The one is under the brand of 1&1. Their main pitch is low intro pricing and then step-ups after six or 12 months. That is their typical approach across the board, not only on mobile, but also on fixed line, DSL, internet access, and the like. whereas under the brands of the former Trillish company or corporation, such as Deutschland Simtisk Hotel, etc., they are doing online heavy duty. Discount offers, and they are still continuing to do so. So it's a very clear segment-driven approach. And why is this important? This is important because I think anybody could attack the lower end of Drillish, whereas the typical United Internet is not so much dependent on what network operator is. Let me also state that there is a lot of question marks on the ability or let's say the challenge for both companies, United Internet as well as Vodafone, On the transition phase, meaning huge numbers of number portability, quite a challenge of implementing national roaming across all base stations, antennas, equipment, etc. We have been told from all market participants that this is a challenge and Telecom has done that a long time ago with back then with FIAC Intercom or two had to do it when they started with United Internet slash Trillish six years ago. So I think that is ultimately what is the talk of town. We also see that United Internet is still showing strong ambitions to get further frequency, also on the longer bandwidth. So I think it's early to see an operational impact. And economically, well, I think it's quite obvious that Telefonica will need to try to compensate the impact that they will have from 2026. My understanding is the 2024 and 2025. Their business relationship to United Internet is more or less based on fixed agreed and contractual binding payments, which means that they have about 24 months to prepare. In the conversations that we have with Telefonica, they feel I wouldn't say relaxed, but under full control and awareness of the impact that is coming. We also hear that they have started a lot of initiatives on how they can save money on the gone customers, meaning they can slow down their internal expenses for network growth, etc. quite obviously have also reached out to us and we have reached out to them to discuss which of the two mentioned segments we could maybe address with their network. You all know that on the KlarMobil side we have never done Telefonica. We are there on Vodafone and Deutsche Telekom The SIM only segment on KlarMobil is the one that is certainly also the competitive edge towards the Drillish brands. So this is where we have fruitful and positive discussions, but we are not in a hurry. They are not in a hurry because they have basically, whatever, 12 to 24 months to move on and we will certainly not do any step without fully looking at all impacts also on our relationship to Vodafone, which we do not want to endanger at all. And same goes for Deutsche Telekom. So we see definitely opportunities. And there's an agreement, there is opportunities to attack parts of the market successfully together. Those ones that we haven't attacked, both of us together. But we are looking not to shift business, we are looking to opportunities to gain incremental business and this will take some time also in terms of planning and evaluating the size and option to do so. Your last question was on glass fiber. Let me rephrase it. I think I didn't say we look into strategic corporations. I said we have just finished a set of 60 interviews talking to all of them to understand what their needs and abilities are. The outcome basically is that there is almost all of the current glass fiber, physically glass fiber providers in Germany are envisioning open access as a secondary source of revenues and contribution to their investment. You are all very much aware that the dynamics, financial dynamics of their models have been heavily impacted by the level of interest rates. I think the awareness of open access and cooperation with other ISPs as Freenet has gained momentum big time over the last 12 months. We can foresee a couple of ways to cooperate. The most simplistic one is commission-based selling through our retail chains and into our customer base of existing products. That is a pure commission-based business, which we also enjoy, but we would certainly want to get into hold of customer relationships and ownerships. So the second option is to get into something which is called open access, where we would provide customer service, routers, billing, et cetera, et cetera, and handles over our servers and and machinery we are technically and competence wise able to do so very fast and we learn right now what let's say wholesale slash hold by conditions are and we are optimistic that this market is going to be attractive for providers such as ours There are two main elements to mention. One is there is a heavy overpromise of the households passed across the board, and we do not believe into the forecast that we have been presented by any of the providers, and nobody has ever met the target number so far. But I think it will be worth to start with one or two small players in 2024 and to test the market and to see how the secondary marketing of newly accessed areas will be possible and what role Freenet can be there. So very, very clear, I don't see this be a financially attractive or financially worth mentioning field in 2024 and 2025. But I see mid-term, 6 to 26 to 28, I see that Freenet can be an important partner for the industry. And Freenet has around 10 million subscribers, including to end consumers, we see ourselves as a source of subscription gaining as well in this field. Thank you.

Thank you very much. The next question comes from Ulrich Rathe from Societe Generale.

Thanks very much. I have two questions, please. The first one is, in the release, you say it is very realistic. that the 2025 EBITDA will reach at least 520 million euros. Now, compared to the 500 million or so in 2023, that doesn't look like a very ambitious hurdle, at least at the bottom end. On the other hand, you are quite convinced of the TV growth opportunity and you're ramping marketing investments already this year. So this leads to the question, what is the EBITDA trajectory for 2024? Is it possible that we could even see a dip in EBITDA, or is it possible that we could see a dip in the rate of EBITDA growth? That would be my first question. And the second has two parts, really. First, on the TV net hats, in the near term, so you're sort of saying it's accelerating, excluding the Deutsche Glastfaser contribution, which is inorganic, but that begs the question how the Deutsche Glastfaser contribution cooperation is unfolding. Could you comment a little bit on that? I think at the beginning of the year you were quite optimistic. But there seems to be no contribution in the third quarter, as far as I can tell. And the longer-term question on the TV net ads is, you mentioned the media and video trends publication yourself in the presentation, and that included some pretty concerning data for the TV opportunity. because they said only 7 million of the cable households still have nebenkostenabrechnung, not 12 million. And they also said there's only 11% of those 7 million who are willing to switch, and of those only 3% to OTT, which would be Waipu. So that sounded like their survey has an absolutely marginal opportunity for you. You said in your prepared remarks you think this is early days and presumably why you're marketing, but could you sort of put that into context a little bit because that survey I think is really quite credible and has a history as well. Thank you.

Yeah, thank you Ulrich. I think the statement always was that 2025 will be beyond 520. So, in a way, the trajectory is not incorporated in that statement. I think it's too early, obviously, to state something about 2024. We are currently in the budget phase. And without going into too much detail, there is a couple of things where we think we could invest into faster growth. And one is the topic that you have just mentioned. And I'm going to go back to your point about the cable. So my answer is I wouldn't expect a dip. But I would not see a straight trajectory or a straight line up As a comment, I would think it's a matter of identifying opportunities and then reviewing capital deployment. And I think later on, certainly Ingo will talk about that a little bit because typically it's one of the questions. Second one on Deutsche Glasfaser and the WIPO development. Well, I would say the good thing is that we have been able to accelerate without this Deutsche Glasfaser slash type of semi-unorganic development, which means that World of Mars own campaigning, et cetera, et cetera, is working pretty well, and I'm expecting an even stronger quota Q4, as I indicated already three months ago. I think the Deutsche Glasfaser is not delivering the numbers that we have thought at the beginning of the year. I think it's a bit reflecting the glass fiber market. Those companies had to struggle or are struggling with refinancing, with investment planning, with a lot of difficulties to meet their own targets in terms of penetration, homes past, fiber to the curb, and everything that you can think of. And that typically leads to refocus. And that is what we saw with Dolce & Gabbana. I spoke to Andreas Pistor a couple of times, and he says, Pistor, I like your product, and I know that we have committed or we have promised to work hard on it, but I need all my resources for other stuff. So I think it's just a delay, but it's a reflection. of what's going on in the German fiber market. You have also witnessed a couple of insolvencies yet. So these people are all busy with other stuff, and that's the reason why. On the last one, on the cable, let me state once again, the total number of cable households is plus minus 12 million. Five million of those are not in this Nebenkostenprivileg, so it's said, by the way, it's said, it's not, I have never seen proof, it's said that about a third, which would be the equivalent of the 5 million, have direct relationships to any of the cable operators, and that's mainly Vodafone and Telecolumbus. These people are paying today 23 to 25 euros a month typically plus five euros rental fee for a set of box. The good thing from a perspective of Vodafone and Telecolumbus is that these are known customers and they have kind of a billing relationship. Why do I say kind of? The difference to our mobile business is, and this is what we have learned, not only from our relationship to Deutsche Glaser on Fiverr, but also talking to Telecolumbus, that they have not taken care about cross-selling admissions and so on and so forth over the past 10 years. So yes, they could name customers, but they cannot address all of them, first of all. So I think the relationship of those customers is not at all comparable to one of a mobile operator to their customers.

Second is that these people obviously pay

more than 25 euros a month for a product which is a legacy product with a very limited set of features. You all remember that Vodafone was proud to increase the prices there by 3 euros. I hope that they are increasing it again and again because then the price difference to our service becomes even more obvious. let them let them raise the prices and then let us tell them that for half of it meaning 13 euros they get a much better product for more devices which is available mobile and so on and so forth uh with catch up with recordings with 250 channels with 200 channels in hd and so on and so forth so i i would not if i was in any of their offices i would not be so that these 5 million are fully stable. Because those 5 million are also fixed network customers, those 5 million all have a SIM card, and statistically, 10% of those are with us, 10% are with United Internet, and 30% are with Telefonica, and 30% are with Deutsche Telekom. So we will massively address these customers, and make them aware that they're currently paying way too much for a mediocre product. And then we talk about the other 7 million, which are the ones that pay typically 8 euros, and those 8 euros are incorporated in their monthly lease. These are the ones where we currently test, as I said, in two quarters in Munich. where we really try to understand what moves the needle and what is the service all about. And so this is a description of, and I'm not contradicting the survey, I'm just doubting it because the surveys that do other statements and even Vodafone expect 30% to leave, which is strange if the kind of monopolist makes a different statement than some survey. which was paid by I don't know who. And then I would not underestimate a third element of it. The German private TV channels make a living from advertising, but they love Magenta, Weibo and Satu because the distribution income is indefinitely higher on IP than it is on cable or satellite. These guys want to get rid of enormous expenses on satellite dishes and satellite carriage fees, same as carriage fees on cable. So they are ready to support any move into IP. And the fact that they are doing advertising for RTL Plus, for Join, and so on and so forth, are all indicators. Magenta last week has launched a campaign where they said, if you move now to Magenta TV, you get it free of charge till end of June so that you can test it free of charge before you then decide whether you can go away from cable. So the only thing I can say, I do not believe that within the next 24 months there is like 60 or 70% of those But a survey that states 89% stay with a legacy technology, to me, is a paid survey from a certain group of lobbyists, and it's not reflecting reality.

That's very helpful. Thank you. Thank you for taking the time to discuss that in some detail. Thank you.

Thanks a lot. The next question comes from Stefan Biazian from ODDO BHF.

Yes, thank you. I've got three, if that's possible. The first one is, could you teach us a little bit on sort of your calculation or approach for the Waipu TV acquisition cost economics or, let's say, return on investment so that I can sort of better connect the impact on the ABDA with the growth of the number of customers. My second question is, do you have any visibility on who's already, you just mentioned Magenta, who's already quite active to target the cable clients and And don't you think that if you're not pushing a bundle with broadband, you actually might be missing an opportunity or perhaps leaving some room for Magenta that could be more bundling with broadband, which I think you're still not doing much. And finally, just a question on the outlook. I think you've been on, I would say you've been running on relatively a, quite optimized cash taxes and a little bit higher working capital. And I was just wondering whether from 2024, we might be expecting perhaps a little more cash taxes and a little less working capital. Thank you.

Okay, Stéphane, we have only heard half of your first question. Sorry, I don't know what actually happened. Will you please be the kind and repeat?

Absolutely. So, yeah, I had three. The first one is, so can you teach us a little bit on how you calculate the economic for the acquisition cost of YPOO TV clients? So to better connect the impact on ABDA versus the customer growth. The second one is, do you have any visibility on who's already very active to target the cable clients? And you mentioned Magenta. And don't you think that compared to them, which I think they are probably bundling a little more with their broadband product, you might be perhaps missing an opportunity by not trying to bundle the WIPO with the broadband. And finally, regarding the outlook, I was just wondering whether you can make any sort of medium-term comments on cash taxes and working capital, because I would tend to say that your cash tax is have been quite optimized and relatively low when working capital has been relatively higher. So I was wondering whether we could see any change in these two elements, medium-term. Thank you.

Yeah, Stefan, thanks for the question. I take the first two.

Well, on the economics, we have never disclosed, really, this acquisition cost. But maybe I give you a bit of a flavor. There are two elements in the acquisition cost for WIPO. One is the straightforward online or media cost. And the second one is always whether we do invest into a free of charge or discounted device, so to speak. Overall, it turned out that free of charge month is not the way to go. A discounted price is much better. We aim to have a full return of our acquisition costs within the period of 24 months, and it might vary from six to 24. But we are not giving more heat also for competitive I'm sorry, this is concise with our other statements on this, but if you want to go maybe a bit more in the mechanics, I think the team would help you outside these calls. Your second comment, I'm fully with you. In fact, Magenta has a relationship to almost any of the German households due to their old fixed line connectivity. They can bundle with broadband. They can bundle with any other services. But I look at facts and figures, and I can see that during the first two quarters, their total net ads were 80,000, and ours were way higher. So I think, yes, they are in a better starting position, but maybe their focus is not the one that we have. older statements that I made on long-term view. I always stated that I would expect Deutsche Telekom to own at least 30 to 40% of the IP market. And I always said that about another 30 will go with Vodafone as the output or as a legacy or heritage from their cable. So if we go for 20 to 25% market share, I think that is a very realistic and that would be big enough for us. So yes, you're right in a way, but we think there is still enough space for us to act. Also think about all the satellite dish customers from today that sooner or later will also learn that the other technology is better and any activity from Magenta, any activity from Satu, but also Netflix, JOIN, and RTL are supporting the notion of end consumers that cable or satellite or DDBT are not the only ones, but, in contrary, are weaker versions to consume moving pictures, linear or nonlinear. Yes, we are watching the others, but so far we see that with a better focus and a better product, we are more successful.

You want to talk about cash tech? Yeah. On the one hand, you asked about working capital. I think what we do see at the moment is that we used working capital of 55 million up to the end of September. I think mainly influence from the one side that we reduce factoring, on the other side that we reduce the inventories, so in different directions. So I would not expect big changes in the fourth quarter here. I think what I already mentioned earlier is that we have to increase the inventories for the Christmas business, but I think it could be possible that working capital would be something like stable during the rest of the year. And then you asked about tax payments. I think it's a normal development. What we see up to now, up to the end of the year, it will be something between 30 and 35 million what we will have to be paid as taxes. And I think this is something what I would also expect from today's point of view for next year. So I think this, I do not expect any surprise in Texas, which has to be paid.

Thanks, Ingo. Thank you very much.

Thank you very much. The next question comes from Khan Titus.

Good morning. Thanks very much. It's Titus Grant from Bank of America. Just a couple of questions from my side. First, a very quick follow-on on this Magenta offer to provide cable customers free access. I think it's now basically seven, eight months until the cable privilege ends. Would you think that's an opportunity for you as well? Would you kind of go into a similar path to improve marketing of YPOO TV as well? And then second question just on the FINA TV numbers. I think, and please correct me if my math is wrong, but the absolute EBITDA growth this quarter was negative for the first time in many, many quarters, I think, dating back to 2020. Is that kind of the right timing to revisit pricing again? Or would you rather kind of feel comfortable with a small decline in EBITDA? going forward and that to continue while you're shifting your subscribers to buy through and then maybe if i may just a very quick last third question a bit more open um i mean during the earning season we have heard at least anecdotal commentary about a bit more cautious german consumer at the moment um we do see lower handset sales for you as well this quarter but that's um lower margin, of course, but could you maybe comment about the demand situation elsewhere as well, particularly in the telco market, also DLS? To what extent do you see some downspinning and kind of what's the atmosphere in general? Thank you.

Yeah.

I think the first one, no doubt, we also are looking into this kind of of charge till the end of June and this is related to the fact that we have seen that if we give it if you give six months free of charge then people don't even really start to engage with the product so we are not convinced about that kind of offer but we also do now Black Week offers we will do spring introduction we also will do close the gap between now and the loss of the cable privilege. So we're doing all kinds of these offers as well, but maybe not as outspoken or loud as the Magenta. I continue with the consumer habits or, I don't know, feeling or environment. On mobile services and also in our core business, I would not see any impact, fatigue of consumption. Also not on DLS. The conversion rates are on the same level as they have been in the past. We do see slow consumer adoption on devices.

We have all seen iPhone 15. I think that was the first time where the shortage was closed after two weeks.

It was the first time that the demand went away after two weeks, so it was really only fast early adopters that were keen on having it. the perception of the great of innovation is low and I think people are right. And the same goes for any other devices on the mobile side. I think the even worse, we always were very clear that Gavis for us is more a, let's say a prestigious brand driven business which contributes a typically retail range of 1% to 3% depending on the year. But we see that by nine months, the revenues that we are generating in Gravis is about almost 15% below what we expected. So in that sense, the fact that we are still good on revenue shows that service revenues have come up and also advertising revenues have come up. So we were able to compensate that. So we see a difficult mood in all electronics. We see that people have, but this is our explanation, we see that people during the period of corona and shutdowns, they have re-equipped anything they had, renewed everything they had on what we call white goods, so kitchen stuff, washing machines, et cetera, dishwashers, the same as TV sets. I mean, TV sets is down 27%, I think, on GFK this year compared to the previous year. PCs, laptops, tablets are also significantly down at the same level. So it is tough times for people fully depending on that range. I think, by the way, Mediasaturn is doing a very nice job to compensate that through the other improvements they have. And they also take benefits from the balance they bring across their multi-country distribution. But I look at GFK numbers, which are certainly also bigger than two. And quite obviously, other industries are heavily suffering. I heard from Miele that they are going down. I heard from Samsung that on the white group side, it's drama. So far, we are not affected.

Titus, your question about FreeNetEB, you are totally correct that it was the first quarter this year that we saw a negative EBITDA from FreeNetEB. I think it's obvious that this is linked to the decreasing number of subscribers. On the other hand, the loss is relatively small and it is also could also be explained with some additional marketing expenses, especially in the third quarter, where we have a big number of vouchers, which is due typically. On the other hand, you asked about price increases. I think there's nothing planned now to increase prices further, but there is the inflationary background. So I think it could be possible to do so, but yeah, definitely we have not yet planned. I think we will put it on the agenda in 2024 and then we will decide what to do. On the other hand, we have some customers who are contractional subscribers. in in these cases we have up to now not increased the prices so there would be a chance to use this but also this is not decided so um yeah i think we we will try to keep the results from pre-net tb stable but yeah it will be difficult um with the decreasing number of customers but um I think, and this is the good news, the effects are very small, so for the EBTA all in for us here, it's no real risk.

Okay, thank you. Very helpful. Thank you very much.

Thanks a lot. The next question comes from Adam Fox-Rumley from HSBC.

Thank you very much. You mentioned refinancing in your prepared remarks. You've got a bit of cash on the balance sheet. And I just wondered if you could talk a little bit about what your thoughts are on the balance sheet at the minute, given the levels of leverage, the repayments due, and your optionality. I know that we often kind of come back to the prospect or otherwise of the share buyback at some stage. And then a more kind of detailed question on the mobile gross margin. It's been extremely consistent this year, or basically for the last four quarters. So you face a bit of a step up in the comp in Q4. Is there anything we need to think about for that quarter, for the upcoming quarter, and then rolling into next year on that trajectory? Thank you. Yeah.

Yeah, good morning, Adam. Thanks for your questions. So first question about capital allocation. Yes, definitely. Cash conversion is high. Balance sheet is very fine. I think we are just in the budgeting process for next year. So afterwards, I think we can find a decision what to do with the money or the cash what we have. I think basic statement is still the same. If we find good opportunities to invest the cash what we generate into the business, then we would use it to make the business even more sustainable for the future. If there would be no ideas, Still, we pay out 80% of the free cash flow as dividends. This is not new. And then I think during 2024 or early 2024, we have to decide about a share buyback. But I think we have to do it based on facts. And we will have these facts when we get the budgeting process. And therefore, no decision up to now. Then you asked if I got you correct about the margins what we generate and the stable margins what we generate. I think this is, yeah, I mentioned it already earlier in the call that we see these stable developments on the gross profit side. From today's point of view, I do not see reasons for any changes. So yeah, from today's point of view, I would forecast it also in the future. But again, here, we do our budgeting now. And afterwards, we will give you details, especially at the end of Feb, when we publish full year results, when we publish our guidance, et cetera. So I think I would ask you to wait up to that time.

I look forward to it. Thanks, Inge.

Hello?

The next question, thank you very much, comes from Usman Ghazi from Barenburg. Mr. Ghazi, you can speak now.

Hi, gentlemen. Thank you for the opportunity. I've just got two questions, please. One is on mobile, one is on waifu TV. So in mobile, we have seen the kind of position statement from the cartel office yesterday, where they're kind of asking for stricter enforcement of the service provider obligation if BNICSA was to extend the spectrum licenses. And I'm just wondering if, I mean, this is kind of unprecedented, it seems to me, you know, and I'm just wondering how you see that statement in light of, you know, obviously the negotiations you're having with Telefonica Deutschland and and any benefit this intervention could have for you. So that was the first question. The second question is on the brand awareness detail that you've given with results. It's very helpful. I guess you've said that you wanted to spend 10 million in marketing through the second half of 2023. I guess you've gone through half of that, but already one in two cable customers are aware of WIPO as an alternative. Just wondering what your, you know, what your ambition is in terms of, you know, where do you want to get brand awareness to ahead of July before you kind of, I guess, take your pedal off the marketing, so to speak?

Thank you. Okay.

Well, on the first one, I think the officiality of the statement was unprecedented. We had a similar statement with the last auction as well. But we very much appreciate the fact that it did so. It's hard to predict what the outcome is. I know that the United Internet is forcing them to also get them some part of the upcoming option of free transit. So I think it's a helpful statement and it's a result of, I think, our lobbying as well as many other people working hard on it. I stopped to predict any outcome because we have seen strange moves of the Binance R in very late stages, so bear with me and accept my statement here. On the second one, we did a survey most recently with us and consumers about the awareness of WIPO. The outcome was that from February 2023 to August 2023, the people that said they had never heard of it, they don't know it, this was 57% in February and it was 50% in August. So I think that is a good move. I think the target must be that by the turn By the change of the ruling in July, I would hope that at least 70% of the cable customers have heard of WIPO and understand what it is. That's kind of the internal target. As I said, right now we are on 50%, which is a good range. If we go to 70%, I think that would be a good target.

Right. And perhaps if I could ask a follow-up. So what you've indicated that, you know, I guess instead of going to a magenta strategy, which is, you know, give kind of free service, you're exploring if you ship out these Waipu TV sticks to cable customers for them to try before they buy. So, I mean, do you have a... I mean, obviously, this would be 50 euros. I mean, do you intend this to be a trial? Or do you think that it would be better to just ship this out in mass to, you know?

I don't think it's a mass shipment. And I will also, if we would do it, we would not announce it so that the others can prepare. But part of the test is exactly that. I mean, any of our customers, we know the internet access and we know the location. So we will run a couple of tests early stage during the first quarter to invite customers to test the service, to change the device. So it's going to be multiple testing and then to see in which segments, which social demographics, which environment, these kind of things might be the most valuable and most efficient ways to market.

Thank you very much.

Thank you. The next question comes from Simon Stippig from Warburg Research.

Hi, good morning. My first question would be in regard to the Telefonica acquisition of the remaining free float by the majority shareholder. And in regard to that, does it make any difference for you in negotiation, potentially any delays? And secondly to that, Could you maybe tell us some insights into what the status quo is and how you actually could see the partnership intensifying? My second question would be in regard to financials. In personal costs, what trajectory do you see in the next year? Is it in line with inflation? would be great if you could provide any insight into it. And then, did you dissolve any provisions in Q3? Actually, one last one, if I may, in regard to CapEx. You mentioned that you spent some CapEx in regard to the WIPO platform. Could you explain a little bit where you spent the CapEx and then also quantify it? Thank you very much.

Yeah, thank you for the first one. I mean,

We have been informed as you were on the Telefonica public offer for the remaining stakes. I don't think it's going to be a big change. I think certainly the outcome will be that a couple of decisions that have been more difficult with broad shareholder and the risk of discriminating small shareholders when you do decisions on joint efforts, joint technology, et cetera, et cetera. I think that will go away and that should reside in a more flexible and faster organization. That's my outside view. I think for obvious reasons, it's too early to see whether it has an impact. I do not expect any impact on our talks. I mean, the challenge that Telefonica Deutschland has by losing the United Internet as their big partner remains the same, and they still are contributing an important part of free cash flow to the bottom-line result of Telefonica as a total corporation. I would not expect any changes.

And then your financial question, Simon. I start with the provisions. Yeah, I think we have so many provisions. Therefore, definitely some of them are released during the quarter. But I think you link your questions to any big provisions which could have a relevant influence on the results. And there I would say definitely no. So especially about the provisions, what we talked about when we build it, none of these have been released. So on the past personal cost development for next year, yeah, definitely we will see wage increases. On the other hand, and this is something which could be compared with this year, on the one hand, it's difficult to replace stuff that we lose. So on the one hand, I would expect a lower number of FTE. On the one hand, I would expect higher wages. And therefore, definitely, there will be an increase of personal cost next year. But will it be 5%? I do not exactly know. I think we are in these discussions at the moment, the budget discussions. But at the end of the day, I would expect something like this. On the CapEx side, yeah, we have to invest into the Viacom platform, especially if we grow the customer base that fast. and to be prepared for what we hopefully can expect next year, a strange increase of customers. Strong. Strong increase of customers, yeah. So, therefore, we invested something like 5 million during the year in the platform, and definitely there will be further investment next year, but... nothing untypical or untypical size.

Okay, all clear. Thank you.

Thank you very much. And the next question comes from Ulrich Krate, Societe Genera.

Thanks for letting me on. I just wanted to clarify one answer from Mr. Arnold. On the EBITDA contribution from Freenet, was this a comment that the actual EBITDA contribution of 319E was negative, or was it a comment on the year-on-year change was negative? Thank you for that clarification.

Yeah, definitely it was the year-on-year change. It is generating gross profit and EBITDA, but it is not generating that much gross profit and EBITDA in the last year. Thank you. Thanks so much.

Thanks for the clarified question.

I had to say no for that moment, no. I mean, media broadcast, I think the full year contribution would be even a bit higher than last year. Yeah. But we foresee that this is not going to continue because, I mean, you can easily do the math. If you lose 100,000 customers on 3Net TV with the monthly... net payment close to 7 euros I think it's really having an impact but I mean this is why we have we are lucky and we have strategically rightly invested into two different ends of the TV business and to give you just a flavor we have on Y2TV 16% of the usage is on what we call fast channels where we do replace or insert our own ads. And this was a small business 12 months ago. In October, it was the first time that we generated 2 million euros on advertising revenues. More than 50% go to the content deliverers. But still, I mean, close to 600,000, 700,000 net profit out of a business which is fully automated. and is growing once per month, these are the things that are there to compensate the other services and also the downturn of 3D TV as an individual part of media broadcast. So guys, on our list, I don't see any more questions and we want to close this session after 90 minutes. Thank you very much for your high engagement. Thank you very much for the patients that we dropped out. We are a mobile company on the fixed network, and any time we work with fixed network, we run into small problems. We're going to take care and move into glass fiber next year and hopefully repair and be prepared. So all the best. Thanks to all of you. I hope to see and speak to you soon.