Freenet Ag Unsp/Adr

Good morning, ladies and gentlemen, and welcome to the conference call Preliminary Results, Fiscal Year 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Villeneuve.

Hello, everybody. Good morning from Hamburg. We're here with Ingo, myself, and our investor relations team. to discuss preliminary full-year results 2023 with you. You have all seen the corporate news and all the data. So let me straight go into the presentation. What are the three highlights, as we called them, for the last year? First of all, I think we're all proud to hit the 500 million EBITDA line. Some people commented, where did you find the 200,000 euros? Well, we aimed for 500 plus and we ended up with 500 plus. That's the key message. We are really grateful for the full team. I think the company has shown more flexibility and more adoption to the individual needs of the market and we've speedy reacted on changes. I think that goes for For all units, I think it was a tough year in the sense of more changes than the past, but flexibility and courage to change things has proven to be extraordinary well in Freenet. Operationally, the growth of IPTV is certainly the name of the game. We are very proud to run the fastest growing linear IPTV platform of the German market and in the German market. We will show you and share with you a couple of more details in a second. And certainly ESG is, on the one hand, is, to be honest, sometimes a pain in terms of reporting and details. But at the same time, we feel that it finally ended up in the company, in the strategy, but much more in the culture. Without over-exaggerating it, all the individuals started to think in that category. We think this is a positive signal to our customers, to our partners, and hopefully also to the capital market. On the next page, a review based on the existing 2023 guidance. Subscriber number grew to 9.5 million, so plus 5%. On the detailed level, we're going to go through by sector in a second. Revenue 2.8%. Let me still say that you all know that revenue is for us not a key KPI. It's way more important to look at EBITDA and free cash flow, EBTA grew by 4.5%. That is perfectly in line with our 2025 ambition, where we said there's a CAGR of 4%, so we are a bit above that, and the 2025 ambition of EBTA bigger than 520, obviously, is still valid and is already within reach, already with the guidance on 2024 that ingo will introduce free cash flow ended up with past uh plus 5.3 percent 263 million on the post paid um i think we were a rather conservative uh stating that we see we foresee a slight growth similar to 2022 um if you look now at the numbers um with plus 153 000 subscribers It's a good number. We grew 50% more than we did in the past year. A key driver certainly is a bit more focus on online channels, a bit higher proportion of SIM only. Still, the demand for innovative products on the hardware side is not met by the launches of the hardware industry. I think what we have seen as 24 now starting pretty well. But as I said, the average usage time for smartphones globally, but especially in Germany, is growing according to our internal statistics up on 36 months. This is reflected in the share of SIM only. We foresee for the coming year a similar development also in terms of APU. We would call this still a stable APU with the typically small deviations that come more from tariff mix than from overall usage changes. Certainly, helping the company and the business is that we've pushed the Freenet As a brand, we have a new claim, which ran really well. We have changed from the testimonial campaigns with the famous Dieter Bohlen in summer and are now focusing on the pure statement of the brand. All the research says that this is perfectly well done. We have had a couple of brand awareness campaigns also doing sponsoring. in sports and we will continue to do so. The measurement and the KPIs state that brand awareness has gone up significantly and this is still done with a marketing budget which is far below any of our competitors. Coming back on the TV statement, I think that is really strong. We had 400,000 net ads in Waipu TV That's mainly organic. I think Deutsche Glasfaser has contributed a little bit, but a little bit is more like a thousand a month. So it's really showing that we have organic growth across all kind of channels. We have told you that as of October, we started to present the product also in Media Markt Saturn. This is also still on a low level, but we see weekly better numbers also in retail channels. I think that proves that the awareness of the so-called name cost and privilege drop in July is contributing to this development. And with the size of now 1.37 million subscribers, we are obviously more attractive for potential partners such as Paramount+. that have done two campaigns with us. WOW, which is the German entertainment arm of Sky. They are doing bundles with us. And we are having a great success with programmatic advertising. So for WIPO TV, I think for... We are not guiding a straight number, but I mean, my personal ambition, I think we're going to go beyond 1.9 million subscribers by the end of the year, the first quarter. 2024 seems to be even stronger than Q4 2003. So we had 134,000 net ads in Q4. And I think before the end of March, we will have another plus 130 or 140,000. I'm expecting getting close to 1.5 in the first quarter. And my personal ambition would be to scratch the 2 million hurdle By the end of the year, I think 1.9 is realistic, but we need to push the team. And there's a good chance to go in the direction of 2 million subscribers. On the opposite side, Freenet TV is slowing down. This is all within our expectation. The good thing is we are now launching the hybrid stick. It's a combination of all the key access ways, so cable, terrestrial, and IP. This will not only support WIPO, but also FreeNet TV for the time being. And we have seen with the management changes in media broadcast, there was big changes, a transformation in the organization towards more customer need orientation than in the past. just running technology and trying to sell it. I think these changes show first successes. We won a couple of tenders. It's known to you that we are EG providing field services for the United Internet Network and for some others. And we expect EVTA contribution for media broadcast to remain beyond the 100 million euro in 2024. That is certainly the big success. What is, and this also leads me to the outlook of 2024, there are three key things that we work on. One is implementing ESG even further in the culture as a mindset. Installing assisted personalized shopping in our retail and scaling the IPTV business. On the ESG, I won't go into all the details. We have now implemented for 2024 customer satisfaction into our goal setting for the board members and the executives. And we are working hard on the free net zero by 2030. I think these are important things. Just one small remark here. We start with our first PV installation. That's not a big investment yet, but this will be the pilot project. There is a couple of bigger projects where we look for external partners to do the financing on some of our big field areas that we own as part of media broadcast. Second big topic, RPS, assisted personalized shopping. What is that? In the past, or up until now, the offers towards the end consumers, be it new customers, but also renewals differ by channel. There is a good reason in the past to do so, but we have decided to stop this. We want to strengthen our approach by offering one and the same terms and conditions and prices across all channels, be it the app, be it online, or be it the shops. This will enable, for example, a statement on the digital channels that any customer with open questions and so on and so forth can go to the shops because the price is absolutely the same, but you will have a personalized experience in the customer journey with individual help. Any user can be sent to the retail store. So that is one big thing in the retail stores. We will have the top models all to be seen there, to be displayed, all color versions. In the past, this was a very minor assortment in the shops because of working capital restrictions. And our sales reps basically sold what they had available and they were not selling what the customer wanted. So this is the big change. We have started this whole project a year ago. with early testing we did a lot of research and consumer feedback was great and our store managers loved the concept because administrative work is going down they spent more time with the end consumer and we will fully launch it across all 500 outlets in by 1st of August next page that is A deeper look on IPTV, what you can see here is eight quarters of WIPO net ads starting with 46,000 in Q1 2023. You see that almost doubling over 12 months. And you can also see that Q4 was a record again with plus 134,000 we expected. even higher for the first quarter and the remaining of the year. The Pier 1 is, and you can take it from the color, that's Magenta TV. That's what their official reporting says. So we're doing about double their size or their growth. Their overall size is still bigger because that's the OT Entertainment product behind Magenta TV. But you can easily understand that we're doing much better than they do. We have more focus. But we are very happy that Deutsche Telekom puts a lot of effort for the IPTV as a category. And we continue to take advantage from that. And the cable is the negative development published by Vodafone. There is a couple of other cable operators, smaller cable operators such as Telecolumbus and some locals in Germany. So if you add our growth and put against the losses there, you can see that the bigger proportion of our net comes from cable. We think that that development will dramatically accelerate through the legal changes that will happen in summer. This is why we have invested into the information of those people. We have, according to our research, about 50% of the customers think about changing or are willing to switch access technology over time. We are not expecting this all to happen in 2024, but I think all the numbers today give an indication that the number is growing already. and it will become even higher than in 2025. The second big work that the team has done, and this is still also with the testimonial of Mr Dieter Bohlen, is that we try to make the brand awareness big, especially in cable households. And on our survey, it says people that know about alternatives, two-thirds of those know about WIPO-TV and consider WIPO-TV as a positive alternative. So all the indicators show clear direction to growth in that field. So with having said that, I'm happy to hand over to Ingo to go into more details of the past number and also introduce the guidance for 2024.

Thank you, Christoph. Good morning, everybody from my side. I'm also proud of the figures we can present today. I start with the group figures where we do see the increase of revenues of 60 million in 2023. There's an increase from mobile of 30 million based on better service revenues and there's an increase of 30 million from TV based on the increase of customers at Waipu TV mainly. So I think on a revenue side, we are quite fine. On a gross profit side, we are even better. So it was possible for us to grow the gross profit by 65 million in 23, 25 million growth from TV, again, because of the service revenues from the increasing number of customers at Waipu TV. On the other side, there's an increase of the gross profit in mobile. Again, yes, there's an effect from service revenues, but I think there's also the target, the reach of some of the targets, especially in Q4, what we had with the network operators, and this helped here to increase the gross profit. On an EBITDA side, the growth is not as big. There's an increase of 20 million on one side. Yes, we invested into TV. I think this is what we commented during the whole year. On the other side, on mobile, There's an EBITDA increase of 15 million. And so we lose some of the increase from the gross profit here on the one side because we focused more on online channels. So there was a shift of SACs from the gross profits to the marketing cost. And on the other side, we had some increase in customer care costs. Again, I would also say here what Christoph already said, that we are totally fine with the ambition for 2025, and we are still on track to reach the 2025 EBTA of more than 520 million. Maybe one comment here, because later on we do not discuss the results which happen out of mobile and TV. There was again an effect what we already knew from last year for the long-term incentive program. Here, there were another provision which had to be built of something like 5 million in Q4. And this is mainly based on the good share price performance during the year. Moving to mobile. mobile, I think some of the effects are already commented. I think on a gross profit side, in Q4 there was an additional bonus effect. What we saw compared to last year, there were higher service revenues than last year and there was this effect of shifting from the gross profit to the marketing cost of something like 10 million. So this helped to increase the gross profit in Q4. Moving to the EBITDA, here we see something like a stable development compared to Q4 2022. This is based on the good gross profit, but on the other side, there were some, were the marketing costs which were increased and there were the customer care costs which were increased and then maybe you can remember in the fourth quarter 2022 there was a release of provisions and so we did not have it this year. So I think all in mobile business quite fine. Moving to the KPIs of the mobile business, digital lifestyle revenues again could be increased, RPU stable, slightly increased of subscribers. So it's the logic that therefore the service revenues had to be increased during the year. Moving to page 17, TV and media. Yeah, I think Christoph already commented that it is really impressive. What I find is even more impressive than The single mentioning of the growth is that even with the growth, it was possible to increase the EBITDA here. So I think on the gross profit side, you see that Freenet TV plus 1.9. on a EBTA side plus 1.5 from Freenet TV. So here we saw the price effect during the year because we increased prices at Freenet TV at the end of 2022. And therefore, even with the lower number of customers, it was possible to increase the EBTA at Freenet TV in the B2B business of media broadcast. and Christoph was already talking about some new tenders what we could win and that I think it's a stable business but with some small successes and therefore it was even possible to increase here the EBITDA of the B2B business in addition. IPTV I already commented a high increase of gross profit because of the additional customers and a slight increase in EBITDA. And yeah, it is obvious that we invested into the growth, but still a positive effect in the EBITDA compared to 2022. Moving to page 18, here we see the bridge for the free cash flow. Yeah, and I saw some comments. Yes, the working capital development in the fourth quarter. Yeah, I think it was slightly disappointing. What we saw here were some phasing effects from the business. So I would not, I think it is not a really, it's not a big miss of what some saw in the consensus. It's only a small miss of 5 million. And definitely as it is a phasing, these 5 million will help in the first quarter of 24. Or in all other dimensions, I think without any surprises, this bridge, and therefore we ended with the free cash flow of nearly 263 million. Dividend proposal, what we will give to the AGM in May is 177 per share. I think this is easy math. which could be calculated out of the free cash flow and out of our promise that we do pay out 80% of the free cash flow. Balance sheet on page 19, nothing new. I think we saw it during the whole year. We have a very high equity ratio, much higher than in our financial policy, where we defined a lower limit of 25%. And the leverage, including leasing, it's still 1.2, very low, only bank debt, it's 0.6. So all in, I think. I can only continue to say it's a very healthy balance sheet what we do see here. Moving to the guidance. Yeah, I think with the revenue and we see a stable development, it is not that relevant as Christoph already said for us. But yeah, we try to keep it stable. We focus much more on EBITDA and free cash flow. In EBITDA, we see this transitional year where we think 495 to 515 looks reasonable to us now. I think this guidance gives us the possibility to invest into Vipo wherever it is necessary. And I think what is important to know, we talk about something like 600,000 customers growth in VipoTV. And even with this growth, we promise a stable and maybe slightly increasing guidance for the EBITDA. And the same for the free cash flow, 260 to 280 million is the guidance here. On the subscriber side, It is something of a continuation of what we saw before, moderate growth in postpaid customers, significant growth in WIPO TV subscribers, and another year of a noticeable decrease of Freenet TV customers. So we still do not see the floor, but I think we are of good hope that we will see it during the year with the measures what we took and what Christoph already discussed coming to page 21. Yeah, 24 is definitely a transition year. Here all the investments what we plan are listed and all these investments will help us to have, in the mid-term, to have much higher results and to increase the EBITDA further in the following years. So what you do see here is the ambition for 2025, but what we also plan is to publish an ambition in the second half of the year for the following years, so something like a mid-term mid-term ambition, but I think it was too early to do it now because we do not know the effects from the change in the cable law. So I think we have to wait what happens during the year and then in the second half we will definitely give you more details on our thinking about the years beyond 2025. Last page from my side is the free cash flow bridge. for 2024. On the networking capital side, we see another dip of something like 40 million, 25 million is based on the liabilities which are on our balance sheet because of our partnership with Mediasaturn. Then in addition, what we see here is the inventories were very low during 23, so it's I think there is some buffer here, what we do have by 15 million. Let's wait and see if we really need it to increase the inventories, but we will see during the year. So we are very early now, and so I think 40 million looks reasonable to me. On the tax side, still some tax audits are open. You can see the provisions on the balance sheet, but still there were not It was not necessary for us to pay it. So maybe it happens during 24 also here. Let's wait and see. Weipu Investments. We were already talking about it and this is something what you see here on the capex figure. I think we have to invest money into the platform because we would like to deliver good service to the additional number of customers. And therefore, I think it is unavoidable to invest into the platform. On a lease side, no changes to 23. And also on an interest payment side, even with the increased interest rates based on the lower net debt, we expect a figure of something like 20 million. And therefore, we see in a result a free cash flow of 260 to 280 million. So these are the explanations from my side, from the financial side. I'm happy now or ask the operator now to start the Q&A.

Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad. If you wish to cancel or withdraw your question, please press 9 followed by the star key again. So please press 9 star now to state or ask a question. Alright, the first question is coming from Paulo Tang from UBS.

Hi, thanks very much for the presentation. I've got three quick questions. The first question is, you've previously indicated you're in talks with Telefonica Deutschland over a potential partnership. Can you give an update on both the scope and the progress of those talks? Second question is, can you comment on German mobile competitive dynamics? So have you seen any change in behavior from the likes of Telefonica Deutschland and Vodafone? Specifically, what do you think of Telefonica Deutschland's new family plans? And are you seeing any signs that Vodafone is using indirect channels more? My third question is on TV. So you mentioned that momentum in Waipu TV is very strong. and that Q1 net ads will be better than Q4. Are there any signs that you're gaining even more net ads from MDUs and housing associations specifically, just out of changes to the neighbors cost and privilege? Also, how should we think about the quarterly phasing of your Waipu TV net ads for this year? Because if you're doing 130 to 140,000 in Q1 and you're aiming for 600,000 for the full year, Does this not imply a relatively steady level of net ads per quarter? And would you not expect actually a step change post the regulatory changes in July? So any comment on that would be helpful. Thank you.

Yeah, Paul, thanks for the questions. First one, Telefonica, I think also Telefonica Deutschland commented they are in talks with a lot of people. We are obviously in talks with them. What is our scope? We need to find a solution on 5G. We haven't done SIM only with them as of today. We see for both if they would, if we find an agreement on those both dimensions, we see an upside in terms of volume on our side. The fact is that neither them nor us are under time pressure And this is why we're still discussing how we can approach this in the best way. Second one on competitive dynamics, you mentioned the family plans. What we have heard from Telefonica was that I think there is an Unproven rumor that the the dodge telecom family plans or the similar product that they offer is quite successful By the way, we have tested it on the on the DT network in our place as well And I hear from telephonic adoption that this is a three month test and then they're gonna verify Whether this is bringing additional Customers and revenues or whether it's just inflating and existing customer base. I think they have a very careful and deep measuring running on that campaign and the outcome is still open. I cannot confirm that Vodafone is changing any of their policies. I think Vodafone is for sure the one that has the biggest number of real challenges on mobile is that they need to increase volume or capacity very fast in order to fulfill the agreement with United. I think on their own channels, I see that Philippe Roque is changing a lot of stuff there, trying to fix unbalanced provisions, et cetera, et cetera. The good thing is that in that period, we remain the key and most important partner. We are kind of like a solid stone in his portfolio. And he is changing a lot of stuff in other channels, but it is not my duty to comment on the details but I can in summary I do not see an irrational fast reaction neither of Telefonica or Vodafone with the well-known change of United and also if I look at United offers it all looks that they are all acting rationally and nobody is trying to kind of like kick and rush on offers in order to win market share so I think that is how we see the current development. And the third question was on Waipu TV, two dimensions. One is, yes, we have talked to housing associations. We have a team working kind of B2B with those, but we have found a lot of civil servant kind of mentality there. It's very hard to work with these people. And what we then see that our new customer inflow is working without them in a good way. So we kind of like step back and said they are not yet ready and not yet in a position to really negotiate any kind of deals with us. We spoke to Bonovia, we spoke to TAG, TLG, all the big ones, but we also spoke to the smaller ones. I think they are in a big uncertainty, and they are not... It's tough to learn that they have no CRM at all. They are working still with the methodology of the late 80s, and when we ask them for addresses or campaigns that we can do with them, this always ends up with big question marks on their faces. The last question you asked was on the overall kind of like the sequence or the phasing. Well, if you look at Q1 at 23, you saw that we were coming from 80. We had a strong second quarter. Third quarter was the weakest. Basically, it's late summertime, no special events, and last quarter is always the best. So I think if you deploy the same algorithm here you would we would expect a strong q2 because of a couple of events in june also events that happen in germany football mainly and then we believe that the second half of the year you will need the first impact um of of the name cost privilege uh fall people will understand that they are now, they can now move more or less overnight. And we for sure think that the second half of the year will be stronger than the first half. So, and this would then add up to the number I've mentioned. Thank you.

And the next question is coming from Adam Fox from HSBC.

Thank you very much. I had a question and a clarification, please. I wondered if you could talk Potentially a little bit about the dividend looking forward. You've mentioned that 2024 is a transition year. You've also highlighted how strong your balance sheet is at the moment. So in light of modest free cash flow growth expected in 2024, is there any advantage or is there any view within the company that potentially you should use some of that balance sheet to effectively bridge to a greater level of profitability and free cash flow in outer years with the reflection on the dividend that that would have. And then the second question I had was on slide 21. I just wanted to clarify, are you saying that you're expecting single digit growth in EBITDA in 2025 or just saying you only need single digit growth in 25 to get to the 25 target? Thank you.

Yeah, thank you, Adam, for your questions. I think on a dividend side, I think we stick to what we promised during all these years, which means that we pay out 80% of our free cash flow and this is also what we promised today. And then I think we can check it during the year and definitely this is the floor. But I do not expect any changes from today's point of view in our financial policy here. On the single digit, yeah, it is an interpretation question at the end of the day. I think we will try to do a single digit growth. And if you take the mid of the guidance, then it would be 505 and then it would be a single digital growth. But I think from my point of view, it's too early to confirm anything here. I think the guidance is 495 to 515. And yes, definitely we try to have a single digit growth, but it's It's not a guidance now. The guidance is 495 to 515.

Thank you, Ingo. Maybe I could just follow up in a slightly different way. The impact of the cable regulation transition, Christoph just mentioned that he was expecting kind of more of a second-half impact than a first-half impact, but presumably that means that you would then be willing to continue this level of higher investment into 2025 while customers are still evaluating on that kind of timescale. Is that fair?

I think that's a very fair point. I mean, I think it's a luxury uncertainty that we're running with. If we are investing more because it's profitable and if we see that a bigger proportion of these 10 plus million cable households are ready to switch then I think we should take the opportunity because it is the fight about households for the next five to ten years. We know that people that have once gone to a certain excess methodology, there is no reason to switch because at the end of the day, they will never experience the other product. So if somebody goes from again to TV, we see it on the survey, the difference between Magenta and Waipu, if you compare objectively, you will find a good reason for choosing one or the other. But in fact, if the customers are bound in a contract, they will not move. So to me, it resonates that if there is a chance and if we see that the numbers are higher, then we will definitely spend more money. I think this is why we also set the guidance. Well, you can say either conservative or saving the potential of higher investment. It's already included. Ingo said, I mean, on 600,000 net ads, if you just deploy a ratio of 50% with hardware, we're talking about 100,000 sticks more, the sticks are $40. So suddenly five, four, five million, including shipment service are on top. This is what we already embedded. But if the ratio of own sticks is going even higher, then suddenly we're moving five to 10 million. I think this is the ultimate operational side, and Ingvar has then translated it into a guidance where we feel super comfortable. I think the problem is that if we see these things coming, we will inform the market, we inform all of you as early as possible and as transparent as possible what the opportunity is. So far, nobody has really done We would not even answer the question, what is the outcome of such a growth of 2 million to even further number of customers onto EBITDA in the following years? But if we do a higher investment, we will do so. We will make that more transparent and better for our modeling. Thank you very much indeed.

And the next question is coming from Joshua Mills from BNPPE.

Hi there. Yeah, I'm going to switch to two questions, please. The first one is on Waipu. And I think in the past you've given some indication about the longer-term profitability of the business in terms of EBITDA margin. Can you just give us a bit of an update on what you're expecting here? Because obviously when you have these very high kind of transition costs in the context of the overall EBITDA of the business, there are question marks about how profitable it will be longer term. And maybe in that context, if you could give us an absolute number for the EBITDA generation of waifu this year, that would be great. And then the second question is on the Deutsche Glasfas relationship. I believe beforehand you were expecting several hundred thousand net ads to transition over, and you realized some earlier in the year, but nothing in Q4, and I don't think there's anything in there for 2024. So what's happened to that relationship? And if you're not expecting to see any more TV customers migrate from Deutsche Glasfaser, why not?

Thanks. Yeah. Let me start on the Deutsche Glasfaser thing. Public numbers that are available, and I cannot disclose more details from Deutsche Glasfaser, is that they have about 100,000 TV customers. The idea was that we would kind of like hard switch them overnight into our technology. And then it turned out that for a number of reasons, Deutsche Glasfaser is not in a position to do so. And these reasons are, some of them are legal ones. They don't have this agreement on advertising them. Then they do contact them. They have very immature CRM systems. and so on and so forth. So we continue to work with these guys. Andreas Pistera, who is the CEO, is very engaged in the product. He personally likes Waipu TV, knows it quite well. His wife is working with Telefonica and they're also selling it. So in the whole family of his, they're super convinced. But he admitted that their internal support systems, billing systems, legal framework, et cetera, is not ready to do it in a volume and a size as we have expected. But still, there is an exclusive contract, and I mentioned this, it's still going on in a day-to-day work, but it's more difficult than we thought. And maybe I can give you a quick anecdote. we can see who we are peering with on any of our customers and we know what their access provider are. And for example, we also spoke to United Internet and on their customers and whether they would be interested maybe to work with us on WIPO. And then we looked at the numbers that they publish on their TV customers and we looked at the peering and figured out that as of today, we have a higher number of WIPO customers on the kind of network of United Internet that they have themselves on TV. So for us, it's always the question, how strong is a cooperation if through the market we can acquire these customers even cheaper? I think that is one of the findings that we had in 2023, which is very important for the team. So I hope I explained this understandably. On the long term profitability, I think we haven't published a relative number so far, and I think still it's difficult to say because the question is, when do you stop heavy duty customer acquisition? We have seen that advertising revenues are going up on individual customers, which is very helpful with a high contribution. But Ingo, you want to say something about this?

I think what we saw in 23 is that it was possible to finance the growth with the additional service revenues. So therefore, there was the slight increase in EBITDA. This is something what we do expect also for 24. Yeah, there have to be a higher invest into growth. But on the other side, we have more customers and therefore we will see an increase of the service revenues. So therefore, for 2024, we expect something like a stable development of the EBTA. And I think all what will happen during the following years, we will update, we will give an update after we have seen the development during the year. What I also already announced for the second half with the new ambition beyond 2025.

And maybe if I can give a bit of a flavor on the general dynamics of that business. We have about 70 people working there, full-time equivalents, and we haven't seen significant growth even though we had plus 400,000. So fixed cost is really stable. The second, the biggest spending in a running scenario is content cost. So it's our distribution fees that we have to pay to the private channels. I expect those still to stay on a high level because we're considered to be OTT. But we also see that it's in the best interest of ProSiebenSat 1 and RTL to get customers onto our platform. and to replace a satellite and cable because their earnings out of our customers are higher. But still mid-term with a growing size of customers, I expect them to get discounts on content cost. The third one is traffic. Some of you might know that there is the internet access point in Frankfurt. They are handling 10 terabits per second. These days we do on a weekend, we are already beyond three terabits per second. So you can see the sheer size of that volume. We are running data centers and cloud services by ourselves. We are not using Amazon or any third party. I've learned that this is about half of the price of AWS. So that is a big proportion. So handling content cost and handling data management cost will be a major driving force midterm. And it's hard to predict what economies of scale we have. But on a day-to-day cross-margin level, the customers are really valid. We have also seen that We have tested a couple of price increases on the individual offers and customer groups. No sensitivity. They just accept two euros more. They accept it. So I think there's so many levers in that business. I think it's going to be highly profitable, but I'm reluctant to give a ratio at this stage because it's too many uncertainties. But it's very attractive.

And so that's helpful. I mean, maybe it's a simple question. Can you give us an idea of what portion of the 110 million EBITDA in TV is attributable to Waipu?

Thanks. I think what you saw in the presentation is that we have something like 100 million or slightly above 100 million with media broadcast. And therefore, it is easy to calculate that XRing is something like slightly below 10 million, something around it. Great, thanks.

And the next question is coming from Sahir Ramsharan from Redburn.

Hi, everyone. Good morning. Thanks for taking the questions. Just two from me. Firstly, on the channel mix shift in mobile that you described, it is very helpful to know that the sort of sack was replaced by marketing costs. I was just wondering, was that a one-for-one swap? And is that something we should expect to continue? Or was it due to sort of a one-off campaign or something? And if you could quantify the sack saving or additional marketing and credits, that would also be very helpful. Secondly, on lifestyle revenues, they're going 30%. I think they're about 230 million for the year. That's great. Could you tell us at all what the sort of hardware and subscription split of those revenues is and sort of what contribution they're making to mobile gross profit at all? Thanks very much.

I'm starting with the first one. So maybe to explain it, according to IFRS, we can allocate provisions that we pay for a specific customer. We can distribute them over the length of the contract period. Whereas in mobile, whereas in online, we cannot allocate single expenses to a single customer. This is why we shifted from sex to marketing cost, so it's a matter of bookkeeping rules. We think the amount in Q4 was about 10 million euros. I expect this to remain on the same level in 2024, at least for Q4. which was a strong quarter, Ingo.

Yeah, I think in Q1 definitely this is something what we do not see in Q1, but especially in the Christmas business this could happen again. But it was an amount of 10 million. Then your question about the hardware revenues in mobile. I think this is something what you can see on page 15, the split between hardware and service revenues. And so I think we mentioned sometimes in the past that the hardware business is very low profitable. So I think some of the deals especially if you think of the Black Week in November, some of these deals, they even do not have any margin. But all in, I would say, Christoph, it's below 5% the margin in the hardware business. So it's really low and we do not see changes here. And therefore, already in the past, we already focused on, we have no focus on the hardware revenues and we reduced it in earlier times already. So this is no focus because the margin is very low.

You're driving again maybe from the like operational side. With an increase in Apple and Apple giving you only a one digit percentage margin, you can easily understand that this is going down and that's also on accessories. I think I can remember maybe eight, ten years ago, accessories were gross margin 60%. Now we are on gross margin of 20%. It's because we're selling more and more original accessories and that limits the gross margin and the profit.

Okay, understood. Thanks very much. Just to clarify, so we're saying that the entire 160 million, well, sorry, let me just clarify my question. Is the entire hardware revenue that you report part of digital lifestyle revenues, or are they separate?

I mean, one thing on hardware, just to remind you, we run 40 Gravi stores, and I think around 60 or 80 million in Q4 were coming from those guys. So that is very separate. It's shown in mobile, but it's separate. It's a separate unit. And on digital lifestyle revenues, we do not include this kind of hardware, right?

Yeah. And part of digital lifestyle revenues is part of service revenues because it is part of the invoice what the customer gets. And therefore, there, definitely, the profitability is much higher.

Okay. Understood. Thanks.

Okay.

And the next question is coming from from . Thank you.

I've got three, please. One regarding the weaker momentum on FUNC and FLEX plans. Can you comment a little bit? Is that a sign that you're selling less on your own brands perhaps than selling partners' bundles? Another question on broadband, could you update us there? I mean, is it, again, the fact that you don't that is because you're really strategically focused on Waipu or is there also any delays, any issues with the first customers that are trialing the service? And the third one, regarding cable, can you give some color on the different distribution channels that are used to target these clients and is there any notable difference in each operator's tactic in order to take these customers away from Vodafone? Thank you.

Thank you for the questions. I think it was not a big focus and I would also say that it seems that these kind of contracts have a certain target group and this is a limited target group. So it feels a little bit like we have observed the ones that are really interested and that the group is smaller than we thought. We also are switching off part of those users if they have exceptional high traffic. So obvious misuse of the SIM cards. So I think we have switched off a couple of thousand. That is also an effect that we can see. This is why we did not grow in Q4. So shutdowns or termination of contract alongside the legal framework. That ended up with the numbers you saw, minus 5,000 in Q4. Broadband, kind of the same. We see that there is some adoption. We're still not too happy with the owned customer numbers. We see that still we're selling commission-based Vodafone and United Internet more than we do our own product. So it feels that their pre-branding is more important than we thought. So I would say it's an ongoing product, but it's definitely not the numbers that we have originally expected. And this is why we don't put so much effort. We're happy enough not to have any guarantees or something like that. ongoing business without special effort. On cable, overall, I have to say that Waifu TV is a product which is, as of today, the vast majority of new subscribers come through direct access internet and websites. Retail is gaining momentum, our own retail as well, as I mentioned, Mediasaturn. But if I look at monthly numbers on gross ad side, that's not even 25% yet. So it's still a difficult product to sell. People are in the shops because they are not going into a shop to find out about new TV access. with the hardware with the own remote control with the own dongle it becomes better and better but still this is the case and the second source or that i would say even the biggest single source is customers that that have hooked up onto the product free of charge they use just a couple of channels and then on certain occasions or incidents or special special events on TV, we try to convert them into paying customers. What is the best content to convert? Football. Football and sports. So what does the customer journey? You have once downloaded the app, you're watching every now and then, but you are on our CRM list. We sent you a push notification tonight. There is this and this sports event. On private channels, please press the button here and subscribe to the service. This is the biggest source and the fastest source. People that are acquainted with the product and then convert it into pay. This is very important. And what we see now is with the size and also brand awareness increasing on a daily basis, word of mouth, becomes very important. I think for mid-term, for the Nebenkostenprivilege, it's really that people start to talk about it. Have you, neighbor to neighbor, I was with cable, I switched it, why did you do it? Oh, it's so cheap. Oh, it was so easy. Very positive. And by the way, I can take it with me to my other house or to my, or I'm independent in my flat from access points, I have it on Wi-Fi. This is what is, I think, the major driver midterm.

Very good. Thank you. Thank you.

And the next question is coming from Ulrich Rathe from Societe Generale.

Yeah, thanks very much. I have a sort of more important question and then a couple of clarifications, if that's okay. So the bigger question is, is this story circulating in the market, which is sometimes attributed to statements you have made in road shows, that In 5G, you have a overall lower gross profit contribution per customer. In other words, that the mobile operator has managed to squeeze the margin a little bit in the transition to 5G. Could you comment on that? That would be helpful. And then in terms of clarifications, a couple if I may. The first one is, so there have been target bonus payments in mobile received in the fourth quarter. Could you just quantify how much was underlying business and much was this sort of bonus payments. Second question is, how many partner intake contributed to the wide pool net ads? I'm thinking about the O2D partnership. Obviously, you already commented on Dogeclass. I would be interested in the mix and what that mix could be in 2024. And the third one of the clarifications would be, You talked about the management incentives requiring a provision in the fourth quarter. It's, of course, aligned with the shareholder interest. I was just wondering what the structure of those incentives is. Is this linked to absolute share price or share price increase? So in other words, if the share price stays at these levels, would you see this kind of compensation again in next year, or would this require an appreciation of the share price? And then the last of clarification, please. You commented in the past, I think, about the refinancing terms that you're seeing in the market. There's obviously some maturities falling due in 2024. Could you comment on the current refi terms that you're seeing? Thank you.

Yeah, thanks, Ulrich. I'll start with the 5G margin. It's a rumor that's wrong. It's the same margin, full stop. No difference, except for the fact that we do not do 5G with Telefonica. But on Vodafone and on Telecom, there's no difference by technology. On the partnerships that we run on WIPO, yeah, Deutsche Glasfaser continues to be a partner. There is a lot of very small cable operators and also fiber operators. They are unified in Germany in an association called Breco. And we have a frame contract with Breco. So there is a couple of those. If I give a high level number with all uncertainties connected, I think these kind of straight partnerships with fiber and access providers, they will contribute anywhere between 30 and 50,000 gross ads this year. Please be aware of gross ads. I'm talking gross ads, not net ads. And on retail, I said it's our own retail. It's a couple of our third-party partners, and it's also Mediasatone. I think these months, I think in January, total retail and third-party retail was about 10,000 cross-ads. So if you add those two up, You would end up with anywhere between 150,000 and 200,000, which come from third party. And consequently, the rest on cross-ex leverage is 60%, 70% comes straight from straight activities that the marketing team does there in the organization of Exarim in Munich. I think on the LTIP, there's still an old LTIP. which goes for Stefan Esch and myself. Mine was running out by end of 2023 and Stefan's is running out by 2024. It is unified with the new system for the others. It's based on phantom stock and average price of phantom stock throughout a certain period. In the old scheme, it was a full year average. And in the new scheme, it's 60 days ending of the year. And this is driving the fact that in Q4, Ingo needed to do some provisions on this and some adjustments because share price. By the end of the year, it was known what the average share price was for 60 days and for 100 days. But we're talking about phantom shares. And I think goal setting, et cetera, is published in our Vergütungsbericht. So I would refer to that one.

Then there was the question about bonus. To clarify here, we have not received a bonus payment in Q4, because otherwise our working capital should have looked better. It was just that we earned the bonus, what will be paid out next in 2024. And yeah, I think we do not give any details on the size of bonus payments because this is from competition. It's a difficult information. Therefore, I cannot give you any advice here. I'm sorry about this, but yeah. I cannot give it to you because we have only two partners who pay these bonuses and therefore I cannot give any additional information about it. Great, thank you.

And the refi terms?

Refinancing.

Refinancing, I think we still have a margin of something like 125 basis points, so it is on the level, the margin is on the level to what we saw in earlier times, even if the market is higher, so therefore we did a private placement at the end of last year of 100 million and we are just working on another placement which should happen in the next weeks and then 2024 will be refinanced and again on the same margin. So I think the next maturity then will be at the end of 2025. So I think we do not have a need to refinance anything now in addition, but at the end of 2025 there will be maturities and then we, I think, but the balance sheet is so fine and the leverage is so low. I think we get very good conditions, but we could not work against market rates. But I think we are totally fine with refinancing what we already did and what we are just doing.

Very helpful. Thank you. Sorry for the many questions.

Thank you. And the next question is coming from Titus Khan from Bank of America.

Good morning, Al. Thank you very much for the presentation and for taking my questions. Just a couple on my side, some also a little bit more clarification. First one, just on the investments in VipoTV, you earmarked 10 million in H2 last year. And I just wanted to double check, did you kind of exceed those or did you manage to deploy all those earmarked for investments into VipoTV growth and how much marketing spending is actually budgeted within 2024. Second question would be just on the potential deal with Telefonica. You already talked about it, so it's a bit of a follow-up question, and I admit that it's something which is impacting you much more from 2025 onwards. But if you were to sign it now over the next couple of months, is there any impact on your 2024 deal? guidance, is there anything that could change potentially from implementation costs? And a third question just quickly on the, I think, application with a regulator for potential fail of Gravis at the end of last year. Could you just provide some thoughts on this, how core Gravis is to your business, how material you would think are any synergies? Thank you very much.

Okay. First one, yes, I think we've stick more or less perfectly to the 10 million extra invest into Waipu. The current marketing budget for 2024 is planned to be 20 million. That's already incorporated in the budget. On the Telefonica question, well, It's hard to say, because I don't know whether there is an outcome, what the outcome is. I think it's well known to you that, and we have had a couple of your questions before, some of your colleagues, the scheme with Vodafone and Deutsche Telekom is still a combination of revenue share and bonus payments, whereas the current setup with Telefonica is a rev share only. And if you would switch part of, uh, uh, your volume to this second one that would have an impact, uh, certainly on, uh, free cash flow mainly, I guess, but, uh, it's, it's, uh, well, it all depends if, if you agree, what is the exact transition period? Uh, what is the volume, um, that is going into the deal? So, um, if, if, if it would have, then I think we would be tried to be as transparent as possible, but today it will only be a speculation. Um, And third one on Gravis. Well, Gravis, as I said, it's about 250 million in hardware revenues. So that's the share. Q4 is the highest one with about 80, which we just had on the hardware revenue question. Net-net contribution is around zero with the current setup of Apple conditions. We are investigating on the partnership. with another company that is doing more or less exactly the same as Gravis and then try to find synergies in a 50-50 partnership in order to make the business more sustainable than it is today. But I think it's fair to say that the numbers look equally challenging for any retail partner of of Apple, be it in Switzerland, be it in Germany, be it in Austria and other countries. So still an open item. The fact that we went to Kartellamt to verify was that some of the lawyers of potential partners have asked us to do so at that stage. It was then rejected by the Kartellamt because with the statement that it is not necessary, they wouldn't see it as big enough of a deal. So this is why it then um vanished from the public notion and it looked like we have taken it back but that's a formal thing that they how they indicated but still an ongoing process okay thank you and the next question is coming from Ghazi Osman from Berenberg hello gentlemen thank you for the opportunity um

I have two questions, please. The first one was just on kind of this news flow that the Bundesliga was looking to potentially invest in a media platform to showcase some content. And I believe that you've been in discussions with them on facilitating this platform. Could you perhaps provide us an update on where those discussions are and what the likelihood of anything of this kind benefiting you? That would be helpful. The next question was just on this new retail concept that you're investing in, in the mobile business. Um, so I believe that your, your, um, share of customer interactions in your own channel is already quite high, right? It's 70%. Uh, but would you expect that this investment you're making would increase that even further? Uh, and is this shop concept being rolled out across the entire, uh, entire, uh, footprint or, or is it in select, uh, select stores or, um, yep. So that would. color on that would be helpful and just while i'm at it i mean one final question just on again on your uh leverage situation obviously the balance sheet is uh is very safe um but you know at some point it becomes sub-optimal um you know to have leverage at this level um when you can obviously borrow at uh you know the kind of low uh low rates that you are uh so um given your ceiling is at less than three times, when do you expect to revisit the balance sheet situation? Thank you.

Usman, thanks for the question. On Bundesliga, Well, yes, you're right. And I think I've mentioned that in an occasion. We have talked to the Bundesliga guys in order to understand what they are. They have announced that they want an own platform. There was also a number published that what the investment was. And I went there and said, like, if you want to have an own platform and fully managed national or international, I think the setup that we have done with Waipu could be leveraged and we could, within a rather short period of time, provide you with the service that you might need, including CRM, billing facilities, hosting, distribution, peering, et cetera, et cetera. And we can do this for much less than the 125 million that were there in the press. First information, they said the 125 were not for the platform only, but for many other things as well. Second is that we have had a couple of technical meetings for them to understand what our platform's ability is. And they were very positive about it. But there's two things which were pending at that stage. One is now off the table is an investment of a private equity into the DFL. So I think a big inflow of money is not expected to happen, which then might be an accelerator for them to find a partner, technically partner like us, but they are talking to others as well. And the other thing is that I think the biggest uncertainty for DFL is what is the auction bringing in April. So if I would I'll make an egoistic statement out of our perspective. I hope that the offers for the next five years is so low that they get a bit shocked. Then they need to change the policy and the idea. And then time will be so short that they need a partner who is ready to go and they know that we could help out within six months. So I think it will all depend on the outcome of the auction. And as far as we know, this is the second half of April. On the Freenet, on the RPS, RPS will be rolled out on any shops that are branded with Freenet. This is owned shops, this is franchise partners, and this is third-party dealers that are using our internal systems. A total of 540 something.

And the third one was on leverage situation. I think we feel some pressure because the situation is so good. But I think during the year we were talking about the investments, what we do at the moment. So I think the only thing what we can say now is we stick to the dividend policy. And even with higher spending, at least we will pay a stable dividend. But further on, I think we do not announce anything about share buyback or whatever, what you may expect. I think for now we have to wait and see what happens during the year, how many investments will be necessary. But I think what we promise and what from our point of view looks important is that the dividend is safe. And with the increasing cash flows, what we expect in the following years, it will be also an increasing dividend then.

Thank you.

At the moment, there seems to be no further questions. If you have any additional questions, please press 9 followed by the star key now. Okay, there's one next question, which is coming from Simon Sipic from Warburg Research.

Great. Good morning. Thank you for taking my question. Three quick ones from my side. In regard to the free cash flow guidance for this year, you have an increase in the capex and you explained that you will have to invest into the platform. Just here, my question would be that could you give a little bit more explanation on where? So that means where in the platform of WIPO you want to invest this additional 15 million and then the overall figure is that structural or would you say you would then in 2025 come back to the 50 or 53 million you had? And second question would be in a longer term guidance 2025. If I would assume the basis of yesterday's or today's figures of 2023 in regard to EBITDA and take the 2025 guidance of above 520 million, would that then almost become a double-digit figure? And the third question would be in regard to the sales channels. You mentioned that from Viper TV, there's some contribution from Mediasaturn. Could you also quantify how much that was since October?

Thank you.

Yeah, thanks. The free cash flow impact, or you asked, like, what is the WIPO investment? Basically, we are working on one is to take the tech stack for programmatic advertising. These need to be renewed. And there's an ongoing effort with the number of channels and the increasing video archives. We need to reassemble the entire back office technology there. So that is two big software development projects, and they will be activated because it's long-term used, and this is why we put them not in, how do you say that we put them in, not immediate expenses, but are activated, and this is the CapEx there, right? Software development CapEx. Hard to say what the upcoming years are, but I would assume today that this is a big effort in 2024 and that we will go down to the level that we had before. On the 2025, it's just too early to have a statement. We run away from disclosing any of our internal ideas at this moment. I think it's quite obvious that with the 2024 ambition that the 520 is definitely within reach. And then we will need to see once again if the momentum on WIPO continues, it might be 4% again. But if we see that we start to milk the customer base more than we did in the past, it might be a higher proportion. Please accept that we will not go deeper. On Mediasaturn, I'm not in a position to disclose what they have done in the fourth quarter. This was the starting point. But I said in one of my previous statements that I expect Mediasaturn on a growth at level definitely to be beyond 50,000 this year. This is at least what we see as the growth and the run rate after January and February. More detail, I would need to ask the economy whether they would be ready for us to disclose more detail, but that's order of magnitude what we are seeing right now. I know that they have an internal ambition which is higher, but since they haven't published it yet, I'm not in a position to give more details.

Great. Thank you very much.

Thank you all, guys. Thanks for the attention in the last 90 minutes. It was great to have your questions. Please continue to challenge anything we say. Our team is ready for you. Thanks for taking the time. Thanks for your support. And we wish you all the best. Thank you.

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